S
M
S
A
n
n
u
a
l
r
e
p
o
r
t
a
n
d
a
c
c
o
u
n
t
s
2
0
2
1
Delivering smart
energy solutions
SMS Annual report and accounts 2021
Delivering
smart energy
solutions
Through a range of innovative
solutions, SMS is leading the
smart energy revolution. We are
serving the industrial, commercial
and public sectors, as well as the
wider domestic market, to realise
the environmental and financial
benefits of smarter energy practice.
Contents
Strategic report
Governance
Financial statements
01 2021 performance highlights
77 Chairman’s introduction
120 Independent auditor’s report
02 Our purpose, strategy
and culture
06 At a glance
to governance
129 Consolidated income
78 Board of Directors
statement
80 Corporate governance report
08 Chairman’s statement
90 Audit Committee report
10 Chief Executive Officer’s
96 Nomination Committee report
statement
14 Our markets
22 Our strategy
98 Remuneration Committee
report
115 Directors’ report
26 Our business model
118 Statement of Directors’
responsibilities
28 Operational review
40 Sustainability
41 Stakeholder engagement
46 Environment
52 Our people
58 Health and safety
60 Ethical business practices
62 Risk report
70 Financial review
130 Consolidated statement
of comprehensive income
131 Consolidated statement
of financial position
132 Consolidated statement
of changes in equity
133 Consolidated statement
of cash flows
134 Accounting policies
147 Notes to the financial
statements
179 Parent company balance sheet
180 Parent company statement of
changes in equity
181 Notes to the parent company
financial statements
2021 performance highlights
Financial
Alternative performance measures1,2
Index-linked annualised recurring
revenue (ILARR)
Pre-exceptional EBITDA
£85.9m
(2020: £77.0m)2 | 12% increase
£52.8m
(2020: £49.9m) | 6% increase
Underlying profit before taxation
Underlying basic earnings per share
£18.3m
(2020: £15.2m) | 20% increase
9.60p
(2020: 9.56p) | Flat
Statutory performance measures1
Revenue
Statutory EBITDA
£108.5m
(2020: £103.0m) | 5% increase
£46.3m
(2020: £231.6m) | 80% decrease
Statutory profit before taxation
Statutory basic earnings per share
£8.3m
(2020: £195.0m) | 96% decrease
3.20p
(2020: 171.65p) | 98% decrease
Operational
Assets under management
Pipeline
Contracted smart meter order pipeline3
c.2.55 million
(2020: c.2.0million) | 28% increase
Grid-scale battery storage pipeline4
620MW
(2020: 470MW) | 32% increase
Smart meter assets
1,668,000 (2020: 1,347,000)
I&C meter assets
105,000 (2020: 87,000)
Traditional meter assets
277,000 (2020: 311,000)
Data assets
449,000 (2020: 481,000)
Third-party assets
1,746,000 (2020: 1,587,000)
+24%
+21%
-11%
-7%
+10%
1
2020 measures include the financial performance of the disposed Industrial & Commercial (I&C) portfolio up to the date of sale on 22 April 2020.
2
Refer to page 74 for definitions and details of the Group’s alternative performance measures, which include ILARR, pre-exceptional EBITDA,
underlying profit before taxation and underlying basic earnings per share.
3 At December 2021 and December 2020 respectively.
4
At March 2022 and March 2021 respectively.
SMS Annual report and accounts 2021 01
Strategic reportGovernanceFinancial statements
OUR PURPOSE, STRATEGY AND CULTURE
Delivering smart
energy solutions
Our vision is to be at the heart of the
low-carbon, smart energy revolution
that is pivotal to realising a greener,
more sustainable world.
With over 25 years of heritage and experience, we
have an exceptional understanding of the UK energy
market and how it is changing. As leaders in delivering
and funding smart energy infrastructure and the
technologies required to decarbonise, we are playing
a critical role in achieving our nation’s climate targets.
As an organisation, we are uniquely positioned to help
effect real and enduring transformation.
Our purpose
Serving our
customers, protecting
the environment.
This is the most concise expression of why we exist, and
what the purpose of our organisation is. It creates an
expectation for our customers and reflects a promise
from us. At our core we are an organisation that cares
about people – committed to our employees, our
customers and our communities.
Our immediate goal is carbon reduction, with the
ultimate target of net-zero carbon emissions.
We use our technology, data, finance and engineering
skills and knowledge to provide innovative energy
solutions for our customers. Through our services we
are changing how businesses and consumers access
and use energy. In doing so, we are delivering value to
them, generating long-term sustainable and recurring
revenue streams for the Company and, above all,
reducing carbon emissions.
02 SMS Annual report and accounts 2021
Our valuesOur five core values capture who we are, what we believe in, and what we stand for. Find out more on page 26 Our strategy
Our culture
Continuous delivery
of long-term value for
all stakeholders.
Putting our people
first.
Our strategic framework is structured into four key
priorities, underpinned by our focus on continuing to
deliver long-term value for our shareholders whilst also
serving our customers, protecting the environment and
looking after our people. This framework provides a
clear strategic vision, built on secure foundations.
Our culture is underpinned by our five core values:
safety, innovation, customer excellence, sustainability
and pride. These capture who we are, what we
believe in, and what we stand for. They drive the
behaviours we wish to see demonstrated throughout
our business practices.
Our values are not just slogans: we believe in them.
We stand by them.
We strive to provide an environment and experience
that embed these values on a consistent basis, building
an enjoyable and healthy workplace that is open and
positive towards change.
We ensure that all employees take responsibility
for their own behaviour at work. A shared
understanding of what is expected and what is
acceptable to others, and consistency of approach
from all employees, is essential.
1
2
3
4
Expanding long-term, resilient
and recurring cash flows from
carbon reduction assets
Customer excellence and
efficient delivery
Efficient capital allocation to
provide headroom for growth
Sustainable and socially
responsible business
Find out more on page 22
Safety
Innovation
Customer
excellence
Sustainability
Pride
SMS Annual report and accounts 2021 03
Strategic reportGovernanceFinancial statements
OUR PURPOSE IN ACTION
Sustainability
at our core
We place sustainability
at the core of our
business and have
committed to achieving
net-zero carbon
emissions by 2030, while
continuing to deliver on
our purpose: to serve
our customers and
protect the environment.
Our customer-centric
approach...
Our customers are at the heart of
everything we do. The enduring
relationships we enjoy with them are
testament to our extensive industry
knowledge and commitment to providing
successful and innovative energy solutions.
We provide customer excellence. Our
experience allows us to make smart
decisions about all aspects of our
customers’ projects. Being smart also
means making carbon reduction a priority,
so our customers know they are in safe
hands with us.
The white flow within our logo depicts
the customer journey through SMS.
It symbolises flexible but compliant
service delivery, founded on good
counsel, prudence and wisdom.
2021
2021
2025
Our net
zero
journey
All internal combustion engine
(ICE) company cars at the end
of their lifecycle replaced with
plug-in hybrid electric vehicles
(PHEV) or pure electric vehicles
(EV) where possible.
Commenced rollout
of renewable energy
installation and
efficiency upgrades
at key buildings.
All domestic fleet to have
transitioned to PHEV and EV
or adhere to maximum of
60g CO2/km per vehicle.
04 SMS Annual report and accounts 2021
…delivered by our
valued people…
Our staff are there to serve our customers.
This means that training and investing in our
people is critical to our success.
We have been transforming and decarbonising
the UK energy system for over 25 years. Over this
period, we have made significant investments in
our people, processes and platforms to develop
an unrivalled nationwide operation and become
a fully integrated energy infrastructure company.
Our nationwide electricity and gas engineering
workforce is hugely experienced and highly
trained at our in-house training academy, and
our team have a long pedigree in designing and
delivering some of the largest high-voltage
energy infrastructure projects in the country.
…enabling a net-zero future
We are dedicated to helping our customers
reduce their carbon emissions and are
committed to achieving net zero in our
own business by 2030.
Through our end-to-end platform –
originating, managing and optimising
carbon reduction assets, which harness
our leading-edge proprietary technology
platforms – we are playing a critical role in
accelerating the adoption of renewable
energy and decentralised generation assets,
whilst transforming UK energy infrastructure
to be both smart and resilient.
2030
2030
2030
All domestic and commercial
fleet to have transitioned to
EV and will emit 0g CO2/km.
All remaining core sites
to have renewable
generation, fabric, and
energy efficiency
upgrades completed.
SMS to focus on reducing
Scope 3 carbon emissions
across the value chain.
SMS Annual report and accounts 2021 05
Strategic reportGovernanceFinancial statements
AT A GLANCE
A fully integrated smart energy
infrastructure company
Grid-scale battery storage (GSBS)
Smart meters
Through our range of innovative
carbon reduction (‘CaRe’) solutions
we are delivering the future of
smart energy, working closely with
both the private and public sectors
to decarbonise the UK economy.
What we do
We are a fully integrated, end-to-end energy
infrastructure company which owns, installs and
manages CaRe assets. Our established CaRe
verticals include meter assets, energy data and
grid-scale battery storage. We are also developing
other CaRe solutions in the areas of behind-the-
meter smart solar and storage, electric vehicle (EV)
infrastructure and heat meters and networks.
Through our in-house technology and data analytics
platform, METIS, we intelligently optimise these
low-carbon assets – which together facilitate a
smarter, greener and more affordable energy
system – to create long-term sustainable value for
all our stakeholders, recurring revenue streams for
our business and, above all, positive environmental
and social impact.
Who we are
With over 25 years of heritage and experience, we
have an exceptional understanding of the UK energy
market and its ongoing transformation. As leaders
in delivering and funding the green technologies
required to decarbonise the country’s energy
infrastructure, we are playing a critical role in
achieving our nation’s climate targets.
Our strategic investment in emerging CaRe asset
classes also helps to carve out new market
segments which have tremendous growth potential.
06 SMS Annual report and accounts 2021
Data Platform
Solar, storage and heat
EV infrastructure
National energy networks
Metering
Grid-scale battery storage
We install smart and advanced meters on behalf of energy
suppliers, across the Industrial & Commercial and Domestic
markets, managing and operating these assets over their
life. With over four million assets nationwide connected to
our data platforms to date, our meter solutions are helping
establish a smarter, greener and more affordable energy grid
and acting as a key enabler for other CaRe technologies.
We build, own and operate battery sites that are able to
store utility-scale quantities of electricity from clean sources
such as wind and solar when demand is low, and release it to
national energy networks when demand is high. From these
sites, we deliver a range of balancing and ancillary services
essential for building the grid resilience that is required for
the UK’s transition to a low-carbon energy system.
c.2.55
million
net contracted
smart meter
order pipeline
620MW
pipeline under
exclusivity
Data Platform
Energy data
Our scalable, cloud-based data platform, METIS,
intelligently operates low-carbon assets distributed
across the energy system. As an accredited Meter
Operator and Data Collector/Aggregator we
exchange data flows with key industry participants
and, through our growing grid-scale battery business,
are now participating in the wholesale electricity
market alongside national energy networks.
EV infrastructure
Solar, storage and heat
Leveraging our engineering skills and electrical infrastructure
expertise, our strategy is to support the scale-up of EV
charging in both the Domestic and Destination charge point
marketplaces. Alongside the installation of EV chargers, we
are in the early stages of exploring solutions that could utilise
our existing cloud-based platforms to operate charging
assets and provide crucial flexibility services to the grid.
We are developing behind-the-meter solutions in the key
areas of solar, storage and low-carbon heat technology, all
intelligently operated by our FlexiGrid™ aggregation software
to create a Virtual Power Plant of distributed energy assets
across the grid. Our ability to smartly monitor and control
assets has the potential to maximise energy savings and
carbon reduction for landlords, homeowners and tenants alike.
18 million
electric vehicles
on UK roads
by 2030
£60m
UK Government
investment
in heat pump
innovation
Strategic report
Governance
Financial statements
Data Platform
EV infrastructure
Solar, storage and heat
National energy networks
SMS Annual report and accounts 2021 07
CHAIRMAN’S STATEMENT
Sustainable and
stable delivery
As we were emerging from the throes
of COVID-19, we were faced with a
new challenge as the UK’s energy
market was de-stabilised following
an unprecedented rise in gas prices.
Shifting focus from one crisis to
another, I recognise that this has
been another difficult year for
our stakeholders.
On behalf of the Board, I would once
again like to thank our employees
for their remarkable efforts in
successfully managing the challenges
to our business and for their
continued commitment.
08 SMS Annual report and accounts 2021
2021 was a year of substantial
progress for SMS and we ended
the year strongly, despite the
broader turbulence in the UK
energy market.”
Miriam Greenwood
Non-executive Chairman
Strategy and results
In difficult markets, we delivered a financial performance
marginally ahead of upgraded expectations and saw good
growth in our index-linked annualised recurring revenues,
demonstrating the resilience of our business model executed
with a clear strategic vision. We ended the year with a strong
cash position to finance future growth, reflecting internal
cash generation and the proceeds of our successful equity
placing in October 2021.
We set out our business model, strategy, and ambitions at
our inaugural Capital Markets Day in June and were excited
to share the long-term prospects for the Group. Through
our purpose-led approach, we have remained resolute in
our focus to deliver on our strategic objectives, and achieved
significant progress in the year, especially in our established
carbon reduction (‘CaRe’) verticals, smart meters and
grid-scale battery storage.
The Group's smart meter installation run rate has shown
an excellent recovery following the disruption caused
by COVID-19 and we expect continued progressive
improvement in FY 2022 and thereafter. Our contracted
smart meter order pipeline of c.2.55 million has proved
resilient despite the market turbulence.
We have also made encouraging progress in the
development of our grid-scale battery storage assets.
Our total pipeline now sits at 620MW (March 2021: 470MW)
of which 270MW has been fully secured. Of this, 50MW is
now operational.
These verticals provide significant additional addressable
market opportunities and, together with further potential
from our developing CaRe verticals, such as electric
vehicle charging, the scale of the opportunities ahead
of us is considerable.
Dividend
We are proposing a 27.5p per share dividend in respect
of FY 2021, a 10% increase on the prior year, in line with
our enhanced dividend policy. Two of four equal quarterly
instalments have already been paid, in October 2021 and
January 2022. Annual growth of 10% through to the end
of the UK smart meter rollout in 2025 is still the intention,
reflecting our confidence in the outlook for the Group.
Sustainability
At the heart of our purpose, ‘serving our customers,
protecting the environment,’ is a commitment to
sustainability and I am proud of what SMS achieved
during 2021. We maintained our focus on health and
safety amidst ever-changing regulatory guidance, with
zero injuries reported. The entire workforce, including
both front-line engineers and back-office staff, adhered
without exception to the stringent processes and guidelines
that were first introduced in early 2020, ensuring the safe
delivery of our services.
As a Board, we recognise our stakeholders’ growing
expectations around sustainability and our environmental,
social and governance credentials and these therefore
remain key areas of focus. Our Sustainability section on
pages 40 to 61 details the excellent work being done in this
area across the Group, including a progress update on our
‘net-zero by 2030’ roadmap published last year.
Stakeholder engagement
SMS’s approach to stakeholder engagement is set out in
more detail on pages 41 to 45 and our section 172 statement
is set out on page 41.
A key objective of the Annual report and accounts is to help
stakeholders assess how effectively the Board, supported
by the executive leadership team and other employees,
promoted the success of SMS during the year, specifically
with respect to our obligations pursuant to section 172 of
the Companies Act 2006. ’Decision-making in practice’
case studies dispersed throughout the Annual report and
accounts explain the principal decisions taken in the year
and how the interests of relevant stakeholder groups were
considered. A summary of these decisions is provided
on page 41.
On the pages listed in the table below we have provided
examples of how the Board duly considered the impact on
stakeholders when making principal decisions during 2021:
Key stakeholders
impacted
Principal decision
Acquisition of I&C large-power
metering and data portfolio
Continued investment in
grid-scale battery storage
Capital
fundraising
Page
30
37
73
delighted to achieve a 75% response rate in our second
annual employee engagement survey, a 25-percentage-
point increase on the prior year.
Governance and the Board
The Board remains committed to the highest standards
of corporate governance. All Board meetings continued to
be held remotely due to COVID-19, up until January 2022
when in-person Board meetings resumed. Despite this
challenge, the Board continued to perform effectively and
has been vital in supporting the executive leadership team
in taking decisive and appropriate action to manage our
business effectively.
At the end of March 2021, we said goodbye to David
Thompson. Over almost five years with SMS, the last three
of them as Chief Financial Officer, David saw the Company
through a period of remarkable change and development.
We welcomed his successor, Gavin Urwin, who joined the
Board as Chief Financial Officer on 31 March 2021. Previously
Chief Financial Officer of M&Co, Gavin brings to the Board
a wealth of strategic and financial experience.
Alan Foy, our Chief Executive Officer of 13 years, stepped
down on 1 March 2022. Over two decades of service, Alan
has driven SMS forward with vision, through a period which
has seen sustained growth as well as diversification into new
asset classes. On behalf of the Board, I thank him for his
tireless work and wish him well for the future. Tim Mortlock,
who has been with the Group for over 20 years and has held
the role of Chief Operating Officer since September 2019, has
been appointed Chief Executive Officer from 1 March 2022.
Tim has been an integral part of our senior management
team, working alongside Alan for several years, and the
Board is confident that he is the right individual to continue
to drive our business forward.
Looking to the future
The business is underpinned by strong growth drivers and is
well positioned, over and beyond the UK smart metering
rollout, to drive the net-zero agenda and UK energy transition.
Whilst economic uncertainty remains in the UK energy
market, as gas prices continue to prove volatile, the Group’s
robust business model, secure CaRe asset pipelines and
healthy balance sheet support the Board’s confidence in
the Group’s ability to deliver growth in FY 2022 and beyond.
Above all, we remain dedicated to delivering smarter energy
solutions for a better and more sustainable tomorrow.
Our people
A primary driver of the Group’s success is its highly skilled,
driven and loyal employees and we firmly believe in
continuously investing in our people for the benefit of our
customers and shareholders. We place great importance
on engaging with and developing our employees and were
Miriam Greenwood
Non-executive Chairman
15 March 2022
Key:
Shareholders
Customers
Employees
Suppliers
Lenders
Government
Regulatory bodies
SMS Annual report and accounts 2021 09
Strategic reportGovernanceFinancial statements
CHIEF EXECUTIVE OFFICER’S
STATEMENT
Delivering
smart energy
solutions
An introductory statement from
your new Chief Executive Officer
After nearly two decades of service, Alan Foy
stepped down as Chief Executive Officer on 1 March
2022. In that time Alan dedicated himself to building
the business from the ground up – from a start-up
gas connections provider to the full end-to-end
energy solutions business we are today. He leaves the
business positioned with an excellent platform for
continued growth in the coming years.
Having worked closely alongside Alan for many years
and been central to the development and delivery of
our strategy at the heart of the energy transition to
net zero, I was very proud to be asked by the Board to
take over the role of Chief Executive Officer. I
wholeheartedly share Alan’s enthusiasm for this
business, am excited by the future opportunities and
am committed to driving the Group forward. I would
like to personally thank Alan for the tremendous work
he has done to deliver sustained growth and success
to the business, and for the encouragement and
support he has provided to so many.
10 SMS Annual report and accounts 2021
Safe, solid, secure and
purpose-led growth enabling
the energy transition.”
Tim Mortlock
Chief Executive Officer
Our purpose, to serve our customers and protect the
environment, could not be more relevant considering
the climate and inflationary challenges facing the UK
energy market. Positioned at the heart of the smart
energy revolution, we have the right strategy to address
these challenges.
Our investment case is rooted in sustainability. SMS is
a business that originates, owns and operates carbon
reduction (‘CaRe’) assets, providing associated services
and generating long-term secure recurring revenues. We
are vertically integrated, bringing together engineering
infrastructure, technology platforms and financing to
deliver market-leading returns.
I am extremely proud of how the business has performed
over the last year. We continue to deliver on the mandated
UK smart meter rollout programme and have now launched
our first grid-scale battery storage project – the first of many.
Despite the continued impact of the COVID-19 pandemic,
and the current energy market crisis, the business has never
been in a stronger position.
More than a decade of strong growth
We have again demonstrated the resilience of our business
model, despite the challenges the UK energy market has
faced this year, by delivering financial results marginally
ahead of already upgraded consensus expectations. The
Group’s pre-exceptional EBITDA increased 6% to £52.8m
(2020: £49.9m) but, excluding the effect of the large-power
data and metering business acquired in the year and the
2020 Industrial & Commercial meter portfolio disposal,
like-for-like pre-exceptional EBITDA increased by an
even more significant c.17% on the prior year.
Since the business had its IPO in 2011 we have seen
consistent growth in our two key metrics. Our index-linked
annualised recurring revenue (ILARR) has seen 31%
compound growth over this period as we have successfully
built up our meter and data portfolios. These are cash-
generative as they flow straight to EBITDA, which on a
pre-exceptional basis has seen 30% compound growth
over the same period (see Illustration 1).
This outstanding financial performance continued in 2021,
as we exited the year with profitability marginally ahead of
expectations despite the market-wide turbulence, and with
ILARR at £85.9m, which has increased further to £86.8m at
February 2022.
The successful execution of our existing contracted pipelines
of smart meters and grid-scale battery storage detailed
below will, once delivered, more than double our existing
EBITDA and maintain this proven track record of financial
performance and growth.
Executing our strategic growth plan
The year also saw continued progress in the execution of
our strategic plan – most notably, the efficient deployment of
our growing pipeline of established CaRe products, including
smart meters, energy data and grid-scale battery storage.
Excellence and efficiency remain our guiding principles:
excellence in our unrelenting focus on serving our customers;
efficiency in the delivery of those services through our
turnkey integrated approach, and through maintenance
of efficient capital allocation and a prudent leverage.
We are currently installing 9.4% of all new smart meters in
the UK, having restored our average installation run rate to
c.30,000 per month during 2021, following the impacts of
COVID-19 in the prior year. We are investing in our installation
capacity to further increase this run rate as we work closely
with our energy supplier customers to deliver our remaining
c.2.55 million contracted smart meter order pipeline. During
2021, we added 900,000 meters from new contracts to this
pipeline and extended our exclusivity agreement with Shell
Energy Retail Limited until December 2025.
With energy prices at record highs, the UK energy market has
been experiencing considerable turbulence since the final
quarter of 2021. This has resulted in the failure of a number
of independent energy suppliers and the implementation of
both the UK’s Supplier of Last Resort (SoLR) mechanism and
Special Administration regime. While this has led to some
movement in our customers’ metering portfolios, the net
impact on the Group’s pipeline has been negligible. We have
also benefitted from a strengthening in our customer base
where through the SoLR process portfolios have
consolidated into larger SMS customers, all of whom have
mandated annual binding meter deployment obligations.
In addition, we successfully energised our first grid-scale
battery project at Burwell, Cambridgeshire in October 2021,
which commenced trading in January 2022 and is now
providing balancing services to the energy networks ahead
of schedule. See our key feature on pages 38 to 39 for more
details. Our total grid-scale battery storage pipeline now sits
at 620MW, of which 50MW is operational and 270MW is fully
secured and being constructed in line with our cost and
programme expectations, with one further site expected to
go live this year. As these assets become operational in 2022,
we expect to evidence the attractiveness of the underlying
revenue streams from this critical energy infrastructure.
90.1
0.0
58.9
0.0
Illustration 1 – Long-term index linked annualised recurring revenue (ILARR)
31% CAGR (net of asset disposal)
75.3
57.0
34.7
41.3
26.2
90.1
Asset
recycling1
77.0
85.9
4.4
6.6
9.3
15.5
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Illustration 1 – Pre-exceptional EBITDA
30% CAGR (net of asset disposal)
33.0
26.3
40.3
58.9
51.6
Asset
recycling1
49.9
52.8
2.9
5.7
9.0
11.8
19.3
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
1 £18.4m I&C ILARR sold in 2020 but £0.8m management fee retained, resulting in net ILARR and EBITDA of £17.6m
2
Pre-exceptional EBITDA up 6% to £52.8m (FY 2020: £49.9m), up 17% once adjusted for the 2020 I&C meter
portfolio disposal and 2021 large-power metering & data acquisition
Like-for-like EBITDA +17%2
SMS Annual report and accounts 2021 11
Strategic reportGovernanceFinancial statements
CHIEF EXECUTIVE OFFICER’S STATEMENT continued
Illustration 2: Existing pipeline to more than double EBITDA with additional opportunities in other CaRe assets
Existing pipeline
Incremental EBITDA
Additional CaRe products
c.2.55m
Smart
meters
620MW
Grid-scale
batteries
c.£77m
Significant
potential from
established and
developing CaRe
products
Funding secured to deliver growth
In September, we were pleased to complete a successful
capital raise and debt refinancing, which was well supported
by our investors and lenders. This funding, together with
internally generated cash, will enable us to invest in our
existing contracted pipelines, whilst also positioning the
business to progress wider identified growth opportunities
and drive long-term shareholder value.
Creating smarter solutions: our developing
CaRe products
The need for more national and distributed renewable
generation aligned to flexible smart energy networks is
becoming increasingly urgent in light of the environmental
and inflationary issues facing the UK energy market.
SMS is operating at the centre of this changing energy
system, creating smarter energy solutions and helping
to deliver on the net-zero agenda.
We have set out a clear long-term strategy for our
developing CaRe solutions, including:
• energy efficiency: delivering energy efficiency controls
and improvements to commercial and residential estates;
• behind-the-meter solar and storage: behind-the-meter
low-carbon solutions for commercial and domestic
properties;
• electric vehicle charging infrastructure: destination and
domestic charge points through a turnkey charge point
operator solution; and
• heat: low-carbon heat solutions, such as air-source
heat pumps.
The combination of our expert knowledge base, national
engineering infrastructure and scalable technology
platforms position us to address – in an integrated way –
the fundamental requirements of the energy transition. By
successfully delivering these emerging solutions, which are
closely aligned to our existing capabilities and customer
relationships, we can not only support the UK Government’s
net-zero strategy, but also significantly reduce energy costs
for end consumers.
More on this in our Operational review on page 28
Investment case
At the heart of enabling
the low-carbon revolution
Leaders in delivering and funding
smart energy infrastructure assets,
with over 25 years’ experience.
We have committed to our own
ambition of net zero by 2030.
See more on pages 46 to 51
12 SMS Annual report and accounts 2021
Strong growth platform
reinforced by accelerated
transition towards
decarbonisation
Continued momentum in securing meter,
grid-scale battery and other CaRe
assets pipeline, with substantial
additional opportunities underpinned by
the UK Government’s net-zero ambition.
See more on pages 28 to 39
Fully integrated, scalable
platform with well-established
industrial partnerships
An industry-leading central, cloud-
based IT and data platform – METIS –
backed by a nationwide engineering
workforce and decades of strong
industrial relationships.
See more on pages 28 to 39
Capital Markets Day
In 2021, we organised our first Capital Markets Day.
The event provided an opportunity to showcase the end-
to-end platform we have built over the past two decades,
to demonstrate the quality and commitment of our people,
and to highlight the significant growth opportunities ahead
of us. The number of attendees and the positive feedback
we received from our shareholders, customers and staff
reflect the success of the event.
Putting our people first
We saw the continued impact of the COVID-19 pandemic
on our business operations in 2021, notably with lockdowns
in Scotland restricting meter installation activity in Q1, the
retention of extended safe working practices for our
engineers, and the majority of our office-based staff
continuing to work from home. Despite these challenges, our
people ensured continuity of services to all our customers,
with an industry-leading focus on health and safety.
We are passionate about investing in and supporting our
staff and the communities in which we operate. We
endeavour to maintain an inclusive, welcoming environment
in which we treat all our people fairly and equally. This
commitment manifests itself in a variety of proactive
initiatives through which we engage with staff, listening and
responding to their feedback. For example, this feedback has
led to us establishing a new regular ‘Employee Voice’ forum.
At the Board and senior leadership level we have engaged
in a leading peer group learning programme to educate our
business on the impact of our behaviours with respect to
equality, diversity and inclusion. I believe this will positively
impact our culture as we continue to embed this within our
values in the years to come.
Responsible value generation
Environmental, social and governance (ESG) considerations
remain at the core of our culture and operations. Our ESG
responsibilities are an integral element of our business model
and critical to our commitment to managing risk in all areas
of the Company.
Our business is intrinsically linked with tackling one of the
greatest challenges of our time – carbon reduction – and we
are proud to be utilising our passion and innovation to work
with the global community as part of the solution. It remains
important to me that our purpose guides our strategic
approach to addressing these challenges, underpinned by
the values and principles by which we operate our business.
We believe we have a social obligation to accelerate the
transformation to a carbon-neutral world – a vision shared
by our staff and customers, and one we are implementing
internally through our own ‘net zero by 2030’ carbon
commitment. I am pleased with the strong progress we are
making against this net-zero plan, notably through energy
upgrades of our estate and fleet. I see strong leadership
and governance, led by our dedicated Health, Safety and
Sustainability Committee, as central to this.
Looking ahead
Delivering on our strategic plan will remain at the fore of our
priorities over the coming year:
• executing on the operational delivery of our smart meter
and grid-scale battery storage pipelines to build our
long-term recurring cashflows;
• developing smart energy solutions to address the net-zero
challenge, leveraging our existing technology platforms
and engineering infrastructure; and
• maximising the significant additional opportunities within
our established and developing CaRe assets.
I would like to thank all our staff, the management team,
the Board and our customers for their ongoing commitment
and support. I would also like to thank our long-standing
shareholders, and welcome our new investors, who have
supported us in our recent equity placing and shown strong
confidence in our strategy and future potential.
Our business, driven by our clear purpose, is accelerating
safe, solid and secure growth by delivering on the energy
transition to net zero. The challenge is great, the opportunity
greater still.
Tim Mortlock
Chief Executive Officer
15 March 2022
Strong liquidity position, with
a prudent target leverage
Net cash position, fully undrawn debt
facilities and internal cash generation
providing strong liquidity to fund
existing pipeline and secure additional
growth opportunities, with target
leverage of c.3x.
See more on pages 70 to 75
Robust, sustainable dividend
policy underpinned by
existing asset base
Existing long-term, index-linked cash
flows provide strong visibility to
support 10% dividend compound
annual growth rate (CAGR) until 2024.
See more on pages 70 to 75
Highly experienced
management team
committed to delivering
shareholder value
A balanced and effective Board and
senior management team provide the
capability to successfully navigate a
fast-changing energy landscape.
See more on pages 78 to 79
SMS Annual report and accounts 2021 13
Investment case
Strategic reportGovernanceFinancial statements
OUR MARKETS
Delivering the future
of smart energy
Guided by our mission to deliver the
future of smart energy, we have provided
cost-effective energy solutions to our
customers for over 25 years, in the
process building up sustainable and
asset-backed long-term recurring
revenues across our business. These
recurring revenues will more than double
once we deliver our existing contracted
pipelines in our established carbon
reduction (‘CaRe’) products alone, with
further substantial market opportunities
in each of our additional developing
CaRe products.
Today, the entire energy market in which we operate is
experiencing rapid change, driven by the urgent climate
agenda and the UK Government’s legal obligation to
achieve a net-zero-carbon economy by 2050. Rising
wholesale energy prices and inflation, which are currently
exacerbating the issue of fuel poverty nationally, also
provide further demand for solutions that can reduce the
cost of energy. We share this vision of a decarbonised
system, where we will no longer depend on fossil fuels
for our power, heat or transport, but will use cleaner,
greener and more affordable sources instead.
Our established technology and engineering platforms
and decades of experience in the utility sector position
us as a business of scale to take full advantage of this
green economy, in which we see an addressable market
of c.£1.2bn EBITDA for our established products and
services. In addition, we have other exciting solutions in
development – all enabled, controlled and monitored by
our METIS technology platform and origination team.
The drivers and revenue opportunities for these are
detailed on the following pages.
Our markets report this year is divided into key
subsections that align with the UK Government’s Net
Zero Strategy: the landmark climate manifesto that
sets the direction and policy drivers for our markets
until 2050, and whose core pillars are:
– Low-carbon energy
– Transport
– Industrial energy efficiency
– Heat, buildings and hydrogen
We share the UK Government's
vision of a decarbonised energy
system, where we will no longer
depend on fossil fuels."
14 SMS Annual report and accounts 2021
Our role in achieving net zero through
a decarbonised energy system
Through our range of innovative CaRe solutions, our mission is
to deliver the future of smart energy, working closely with both
the private and public sectors to decarbonise the UK economy.
Our strategic investment in established and emerging CaRe
asset classes also helps to carve out new market segments with
tremendous growth potential.
Low-carbon energy
Building on the smart energy
infrastructure that we
establish through our meter
and data assets nationwide,
during 2021 we launched our
first battery storage and
renewable energy
solutions that will support
a more flexible and
affordable system.
H
H
Heat, buildings
and hydrogen
We are developing our
behind-the-meter technology
solutions to meet the
challenge of decarbonising
heat, whilst also gearing up
to support the transition to
low-carbon hydrogen through
our decades of experience
in gas infrastructure.
Transport
Industrial energy efficiency
We are scaling up our engineering and delivery
capabilities to support both the Domestic and
Destination electric vehicle (EV) charge point
marketplaces, whilst using our cloud-based
platforms to monitor charging assets and
collect payments for their usage.
Energy efficiency continues to be a vital cog in the
net-zero dynamic. As an expert adviser and strategic
partner, we help our industrial customers
manage their building portfolios over the
long term with an approach to energy
efficiency which is data-rich.
SMS Annual report and accounts 2021 15
Strategic reportGovernanceFinancial statements
OUR MARKETS continued
Low-carbon energy
Key market drivers
• UK Government committed to a fully decarbonised
power system by 2035, led predominantly by
offshore wind (40GW commitment by 2030) and
supported by other renewable and low-carbon
sources, including solar.
• Integration of renewable energy generation –
requiring flexibility measures at both grid level
and locally across the network – through greater
investment in battery energy storage solutions.
• Smart meters – mandated for an 85% national
rollout target by 2025 – continue to be a key enabler
of low-carbon power, supported by critical data
services and technology platforms that facilitate
flexible energy use.
Capital requirement
It is estimated that investment of up to £200bn will
be required to bring online the wind, solar and battery
power needed for a renewable-energy-powered
economy. The Climate Change Committee (CCC),
meanwhile, says investment must reach £50bn
a year by 2030.
16 SMS Annual report and accounts 2021
The market opportunity
Smart meters and energy data
Smart meters are a critical enabler of energy
decarbonisation, which is why the UK Government has
mandated UK energy suppliers to ensure that traditional
meters are exchanged for smart ones by the end of 2025.
Under the UK Government’s new four-year regulatory
framework, which came into effect in January 2022, energy
suppliers will be mandated to meet annual binding
installation targets for the remainder of the UK smart
meter rollout. This framework adds legal impetus and
urgency, pushing energy suppliers to fulfil their obligations,
and includes an objective to reach a minimum smart
coverage of 85% by the programme deadline.
Renewable energy and energy storage
To meet the UK Government’s target of decarbonising the
electricity grid, a significant ramp-up of wind and solar is
needed. This will require offshore wind capacity to more than
quadruple from 10GW in 2021 to 44GW by 2035, whilst solar
will need to increase from 15GW to between 22GW and 30GW
over the same period.
Developing the UK’s energy storage capacity is key to
successfully integrating this largely intermittent renewable
supply to the power network and ensuring surplus green
energy can be used whenever it is needed. The CCC’s
recommended pathway to net zero envisages a wind- and
solar-dominated grid supported by 18GW of battery storage
capacity by 2035 (up from just 1.3GW in 2021), whilst the
National Grid forecasts a requirement for over 30GW of
energy storage by 20501, further underlining the scale of
the market opportunity. At SMS, we estimate the current
addressable market opportunity for grid-scale storage
alone would require c.£9.5bn of capital investment.
Grid flexibility management
The energy transition increases the requirement for
distributed energy assets to provide balancing services
that will address grid volatility and achieve stability, which
has historically been realised through fossil-fuel-based
generation and pumped hydro. As well as driving the
opportunity for behind-the-meter batteries, this requirement
also creates a need for flexible, scalable data technology
platforms that are essential to monitor, control and optimise
these assets.
1
Calculated as the average of National Grid’s four forecast scenarios in its
Future Energy Scenarios 2021 report.
The market opportunity
The SMS proposition
There are still c.28 million traditional meters to be exchanged
for smart ones in the UK. We have a 2.55 million contracted
smart meter order pipeline and we are currently installing
9.4% of all new smart meters in the market. The c.£470m of
capital expenditure required to deploy this pipeline will add
c.£51m to our index-linked annualised recurring revenue
(ILARR), which will flow straight to EBITDA since it leverages
our existing asset management platform.
c.28 million
to be converted to smart in the UK,
with SMS having a c.2.55 million
contracted smart meter order pipeline
In terms of energy data, last year the UK Government
confirmed its intention to mandate market-wide half-hourly
settlement from 2025, which will require the balancing of the
electricity industry on an actual half-hourly consumption
basis rather than an assumed energy usage profile. This is
a significant change that will grow the current market from
c.300,000 Industrial & Commercial (I&C) electricity metering
points (in which we have c.10% market share) to c.26 million
I&C and Domestic meters. It represents a market opportunity
for an additional c.£90m of EBITDA, with no significant
capital expenditure deployment as it leverages our in-house,
accredited and scalable technology platforms. This
development will also enable the optimal use of smart meter
data and facilitate new ‘energy-as-a-service’ solutions that
will help drive more efficient use of energy and save
customers money.
SMS is extremely well positioned to meet these opportunities,
having launched its first grid-scale and distributed
(behind-the-meter) battery energy storage and renewable
energy solutions in 2021.
Solopower: Behind-the-meter solar
and storage solution
Watch the product video at sms-plc.com/solopower
• Behind-the-meter solar + storage service for
Grid-scale battery storage (GSBS)
social housing
Read a full operational overview of GSBS on pages 35 to 39
• Launched to market in March 2021
• Turnkey finance, design, install and operation and
maintenance solution
• No upfront cost to landlord or tenant
• Batteries intelligently optimised by our FlexiGridTM platform
• Solopower decarbonises household electricity supply
by up to 90%, and reduces bills by c.25%
• SMS revenues are generated through grid balancing
services, giving unique pricing advantage over competitors
through vertical integration.
• Huge potential to scale solution beyond social housing
market to cover entire UK housing stock.
Our proprietary FlexiGridTM platform includes intelligent,
cloud-based software which is the brain behind the flexible
management of energy assets such as batteries and EV
chargers. It provides flexibility services by creating distributed
Virtual Power Plants (VPPs) across the grid. Innovative
software like FlexiGridTM is central to efforts to decarbonise
the UK’s energy system, which in coming years will become
increasingly characterised by these decentralised, local
energy networks – or VPPs.
Find out more about FlexiGridTM and the range of innovation projects
on which it is currently being utilised at www.sms-plc.com/flexigrid
Innovative software like
FlexiGrid™ is central to
efforts to decarbonise the
UK's energy system."
SMS Annual report and accounts 2021 17
Strategic reportGovernanceFinancial statements
OUR MARKETS continued
Transport
Key market drivers
• UK Government legislation to end the sale of new
petrol and diesel cars and vans from 2030; and from
2035 all new cars and vans must be zero-emission
at the tailpipe.
• A potential pledge to end the sale of all new, non-
zero-emission road vehicles (motorcycles, buses and
HGVs) by 2040 is currently subject to consultation.
• The UK Government has committed £1.9bn to support
the rollout of charging infrastructure to enable this
transition, with a particular focus on local on-street
residential charging.
• Legislation has been introduced to ensure all new
homes have EV charge points installed from 2022.
Capital requirement
The UK Government estimates a need for around
£220bn of additional public and private investment
to achieve the emissions reductions across the
transport sector set out in its net-zero emissions
delivery plan to 2037.
18 SMS Annual report and accounts 2021
The market opportunity
According to the CCC, there will be about 18 million battery
and plug-in hybrid electric vehicles on UK roads by 2030
when a ban on the sale of new internal combustion vehicles
is introduced. The take-up of electric vehicles will require a
transformation in EV charging infrastructure. Although the
UK currently has c.30,000 EV charge points – a number
increasing by up to 1,000 new charge points per month to
accommodate growing demand – the Competition and
Markets Authority estimates that the UK could require
ten times as many EV charge points before 2030,
or 300,000 in total.
The SMS proposition
To deliver this requirement, SMS is focused on
developing solutions in the Domestic and Destination
(both workplace and on-street) parts of the market.
We are lead co-ordinators on the Virgin Media Park
and Charge (VPACH) project – which has helped us
establish our on-street charging solutions and develop
our knowledge and capabilities accordingly. As part
of the project approximately 600 kerbside charge
points will be delivered for local authorities in England
in partnership with Liberty Charge. SMS has the
engineering skills and knowledge to establish and
originate destination charging infrastructure and
its electrical connection to the grid, utilising our
established and scalable field management platform.
We have also ensured our training academy in Bolton
is able to train engineers to install EV chargers at the
domestic level along with smart metering solutions.
See the Our Strategy in action section on pages 22 to 25
for more details
In addition to the scaling up of our engineering and
delivery capabilities, we are exploring how we can
utilise our cloud-based platforms to monitor the assets
and collect payments for their usage – known as
Charge Point Operator (CPO) services – and connect
these charge points to our FlexiGridTM platform to
provide flexibility services back to the grid. We are
currently developing destination-charging CPO
models, funded by the utilisation of those charge
points, with revenues collected through cloud-based
CPO software platforms.
Whilst this is a developing area, at SMS we have a
firm foundation – built on our nationwide installation
and maintenance capability – from which to take
advantage of the scale of this market opportunity
in the years to come.
Industrial energy efficiency
Key market drivers
• The installation of energy efficiency and on-site
decarbonisation measures across large UK
organisations is to be prioritised through the UK
Government’s £315m Industrial Energy
Transformation Fund.
• It is proposed that by 2023 large UK firms will be
obliged to show how they intend to hit climate change
targets, in addition to meeting existing energy
consumption and emissions compliance schemes.
• Market pressures for industry to improve
sustainability will see an increasing number of
organisations commit to net-zero targets over
the next decade.
Capital requirement
The CCC estimates a need to invest £12bn in energy
efficiency asset categories such as lighting, control
systems, and heating, ventilation & air conditioning
(HVAC) and refrigeration within non-domestic buildings
in order to meet the UK’s climate targets by 2033.
Whilst this doesn’t reflect the full size of the market for
industrial energy efficiency, it is representative of the
overall market that can be reasonably accessed
between now and then.
The market opportunity
UK industry plays an essential role in society. However, it is
also a major source of CO2 emissions, with the manufacturing
sector alone producing 15% of the UK’s current total. Industry
emissions have more than halved since 1990, due mainly to
the changing structure of the UK’s manufacturing sector,
improved energy efficiency, and a shift to low-carbon fuels
and technologies. Despite this progress, however, the overall
pace of reductions is slowing, and more action is needed to
achieve the UK’s net-zero commitments.
Focusing on the needs of non-domestic buildings, three asset
categories will continue to dominate the landscape: lighting,
control systems, and HVAC and refrigeration. Improvements
to these technologies now enable upgrade programmes
to provide large savings on energy expenditure and
maintenance costs. Due to the distributed nature of these
assets, setting up upgrade programmes requires strong
technical audit and engineering consulting capabilities,
but the rewards are substantial with each class of assets
providing reliable and measurable return on investment.
The SMS proposition
With over 25 years of experience delivering energy
efficiency strategies for large industrial and corporate
clients, we see significant opportunity to reduce total
consumption and to align demand-side control and
load shifting of these assets through our FlexiGridTM
platform. We have a strong, leverageable blue-chip
customer base across the telecoms, retail, hospitality
and enterprise sectors, who already benefit from our
existing metering, data and CaRe asset services. As
an expert adviser and service partner, we help our
customers manage their building portfolios over the
long term with an approach to energy efficiency which
is data-rich.
We have over 25 years of
experience delivering energy
efficiency strategies for large
industrial and corporate clients."
SMS Annual report and accounts 2021 19
Strategic reportGovernanceFinancial statements
OUR MARKETS continued
Heat, buildings and hydrogen
Key market drivers
• UK Government’s new Heat & Buildings Strategy
commits to phasing out the installation of new and
replacement natural gas boilers by 2035, starting with
growing the heat pump market to support 600,000
installations per year by 2028.
• A new £450m Boiler Upgrade Scheme providing
capital grants of £5,000 will support households in
making this transition, whilst the UK Government is
also investing £60m in heat pump innovation.
• Policy to upgrade fuel-poor homes to EPC Band C
by 2030, with the UK Government investing an extra
£1.75bn in additional funding to support key
innovation schemes such as the Social Housing
Decarbonisation Fund.
• Alongside electrification of heat, Government has
set out its ambition to establish 5GW of low-carbon
hydrogen production capacity in the UK by 2030
in order to phase out the use of natural gas as a
heat source.
Capital requirement
According to research for the UK Government's
infrastructure advisory body, the cost of decarbonising
the UK's heating system by 2050 could be between
£120bn and £300bn. In the developing field of hydrogen
fuel, the Industrial Decarbonisation and Hydrogen
Revenue Support (IDHRS) scheme will fund new
hydrogen and industrial carbon-capture business
models, with the UK Government providing £140m
to establish the scheme, including up to £100m to
award contracts of up to 250MW.
H
H
20 SMS Annual report and accounts 2021
The market opportunity
Electric heating
The decarbonisation of heat is one of the biggest challenges
facing the transition to a net-zero economy, and there are
many questions yet to be answered, not least the future role
of hydrogen. However, with the policies and commitments
released by the UK Government in 2021, some firm steps were
taken towards stimulating the necessary market development
and providing the certainty needed for the private sector to
drive innovation. For instance, the UK Government has already
legislated for all new and existing communal and district heat
networks to have heat meters installed.
The decarbonisation of heat is
one of the biggest challenges
facing the transition to a net-
zero economy."
Hydrogen
There is a need for widespread electrification across the
economy, but we cannot rely on electricity alone. Many end-use
sectors require low-carbon energy, including those where
electrification is not viable or cost-effective. This makes the
supply of cleaner fuels essential to achieving net zero, and there
is therefore a growing focus on the production and use of
hydrogen as a heat source. The UK Government has deferred
making major strategic decisions on the role of hydrogen for
heat until 2026. However, in the interim period there is a sizeable
market opportunity to develop business models that support
the forthcoming rollout of hydrogen infrastructure. There is
potential for hydrogen gas to utilise the existing natural gas
infrastructure that we use to heat our homes and businesses,
and SMS is strategically and advantageously placed to provide
solutions in the sphere of gas metering and connections.
The market opportunity
The SMS proposition
SMS is developing funded solutions for these heat networks,
with the future growth in this market likely to be
predominantly through new-build properties. There is a
substantial amount of latent flexible demand in the energy
networks through storage heating. This existing load has the
potential to be connected to our FlexiGridTM platform to
provide smart heating controls, but a significant part of the
future energy mix is also likely to come from the deployment
of heat pumps and other technologies like heat batteries.
SMS is positioned to address these requirements, by
integrating them with our behind-the-meter solutions.
We are working with local authorities and social landlords,
exploring how our solutions across metering, solar and
storage, heat and EV charging can be integrated and
connected to FlexiGridTM to ensure a smart energy system
and improve the economic model. One example of this is our
ongoing project in partnership with Aberdeen City Council.
Project DORIC
This project, which is backed by the UK Government’s
Social Housing Decarbonisation Fund Demonstrator
project, sees SMS partner with Aberdeen City Council to
roll out fabric retrofits and green energy technologies
across a group of trial homes.
pumps to remove the need for carbon-intensive fuels.
With no upfront cost to the landlord or tenants, the
intention is that SMS will intelligently operate the
battery systems through our cloud-based aggregation
software, FlexiGridTM.
Taking a whole-home energy efficiency approach, the
project aims to demonstrate a viable route to net-zero
carbon emissions for the UK social housing sector, whilst
also tackling fuel poverty among residents. The project is
bringing together a range of low-carbon generation and
energy efficiency innovations that aim to demonstrate
decarbonisation potential for the UK’s social housing
stock, while simultaneously improving comfort and
lowering energy costs for residents. Alongside our
Solopower smart solar generation and storage solution,
the technologies planned for deployment include heat
Our project looks to demonstrate how – when delivered
at scale – investment in green infrastructure can support
the UK Government’s agenda to level up regional
economic growth. It is about creating a more sustainable
future: one that ensures affordable comfort in our homes,
reduces fuel poverty, creates jobs, and ultimately protects
our environment from climate change.”
Sean Keating
Head of New Energy Systems at SMS plc
SMS’s decades of experience in gas infrastructure means
we are able to support the gas networks in testing whether
existing gas metering infrastructure will be able to
accommodate a blend of hydrogen into the existing network
– which we believe to be the likely first step towards reducing
the carbon intensity of gas usage.
We are also working in our Bolton test centre to demonstrate
the capability of meters to accommodate 100% hydrogen, as
the industry specifications for such metering are developed.
Our experience in designing and delivering gas infrastructure
also provides a solid foundation to support any future new
infrastructure deployment for hydrogen, which, although still
uncertain, we believe to be most likely in I&C high-usage sites
and local hydrogen zones.
SMS Annual report and accounts 2021 21
Strategic reportGovernanceFinancial statements
OUR STRATEGY IN ACTION
A clear strategy
for future growth
Our strategic framework is structured into four key priorities,
underpinned by our focus on continuing to deliver long-term
value for our shareholders whilst also serving our customers,
protecting the environment and looking after our people.
This framework provides a clear strategic vision, built on
secure foundations. The priorities, including progress made
against them in 2021, are summarised on the following pages.
1. Expanding long-term, resilient and recurring cash flows
from carbon reduction (‘CaRe’) assets
2021 priorities
• Convert the meter order pipeline to add to the existing
index-linked annualised recurring revenue (ILARR).
Future outlook
• Convert the meter order pipeline and add to the
existing ILARR.
• Target additional domestic smart meter opportunities
• Target additional domestic smart meter opportunities
with both existing and new customers.
with both existing and new customers.
• Grow our half-hourly data services to energy suppliers
• Further grow our HH data services to energy suppliers
and end consumers, addressing the proposed
mandated extension of HH settlement services to the
entire Domestic market from 2026.
• Develop and deliver our established portfolio of
grid-scale battery storage projects within cost and
construction programme.
• Establish revenue-generating services on operational
grid-scale battery sites.
• Progress exploration of electric vehicle (EV)
infrastructure solutions including delivery of charge
point installations as part of trial project.
• Additional pipeline of opportunities across several
CaRe asset verticals.
Contract wins in 2021
Throughout 2021, we maintained strong
momentum in further accelerating our smart
meter order pipeline.
We were awarded two new contracts in March, totalling
500,000 meters, to provide services as an integrated
domestic smart meter installer and Meter Asset
Provider. This was followed by another contract win in
August for a further 400,000 meters. In December, we
also extended our exclusivity agreement with Shell
Energy Retail Limited for the installation and funding
of smart meters until December 2025.
These contract successes will, on delivery, further
expand our long-term, recurring cash flows and are
a testament to the strength of our long-standing
relationships with energy suppliers, underpinned by
our well-established end-to-end integrated model.
and end consumers.
• Develop our established portfolio of grid-scale battery
storage projects.
• Deliver long-term management services on energised
grid-scale battery assets, using our technology platforms.
• Establish additional pipeline of opportunities across
several CaRe asset verticals, with focus on assets with
infrastructure characteristics and attractive economics.
2021 progress
Meter and data assets
• ILARR grew 11.6% to £85.9m at 31 December 2021.
• ILARR on our smart meter portfolio grew 17.6% to
c.£50.1m, with progressive improvement in meter
installation run rate.
• Net contracted smart meter order pipeline increased
to c.2.551 million units from c.2.0 million units at
31 December 2020, providing an incremental c.£52m
ILARR opportunity.
• Leveraging our existing platform, we acquired a portfolio
of large power Industrial & Commercial (I&C) meters and
data service contracts, adding c.£3.1m to ILARR. This
acquisition provides us with c.10% market share in the
‘large power’ market segment and positions us well for
the Domestic Half Hourly (HH) market.
Other CaRe assets
• 620MW pipeline established in grid-scale battery
storage assets at 31 March 2022, of which::
- the first 50MW site at Burwell, Cambridgeshire
is now operational (January 2022);
- 270MW is fully secured, including a 30MW site
acquired in February 2022;
- 300MW remains under exclusivity.
• We continue to make progress in developing pipeline
in other CaRe products.
1 Increase in meter order pipeline net of meters installed during 2021.
22 SMS Annual report and accounts 2021
We have a clear strategic vision,
built on secure foundations."
2. Customer excellence and efficient delivery
2021 priorities
• Ensure an injury-free organisation, protecting the safety
of every individual involved with our business, resulting
in zero harm realised across our business.
• Focus on digital conversion of customers to
smart meters.
• Support our customers by continuing to expand
installation services into adjacent non-metering and
energy services activities, such as electric vehicle
(EV) charging.
2021 progress
• Reported our best-ever health and safety (H&S)
performance, leading the industry on all key indicators.
• Continued adherence to COVID-19 protocols, protecting
our engineers and customers.
• Average meter installation run rate recovered to
c.30,000 per month in H2.
• First 50MW grid-scale battery storage project delivered
ahead of schedule.
• Efficient utilisation of our direct engineering workforce,
supplemented by our network of sub-contractors.
• Apprentice scheme for new entrants to meter market
expanded through our accredited training academy.
• Delivered our first upskill training to meter engineers
in the installation of domestic EV chargers.
Future outlook
• Year-on-year improvement in our core H&S key
performance indicators.
• Continued investment in our capacity, to progressively
increase our meter installation run rates.
• Efficient delivery of our pipeline of grid-scale battery
storage assets.
• Expand domestic installation capabilities further for
EV chargers and related home energy solutions.
Expansion of our training
academy into electric vehicle
charging
SMS has been playing a critical role in decarbonising
the UK energy system for over 25 years. To support,
train and retrain our new and existing employees
and business partners, a state-of-the-art technical
training academy and test laboratory has been
developed.
The facility provides health and safety, customer
service and technical training and assessments,
ranging all the way from Company inductions to
industry-certified and -accredited courses which
combine health and safety and technical training
with coaching on first-class customer service and
communication skills.
Trainee and experienced engineers have access to
accredited courses in smart metering, Domestic and
Industrial & Commercial gas and electrical engineering
and appliance maintenance, and smart control
systems. As we move into our new carbon reduction
products, future technology areas are being developed
to provide an end-to-end learning experience for
electric vehicle charging, battery storage and
renewable technology installations and maintenance.
We have created pathway learning programmes
and enrolled a number of our direct engineers onto
our courses covering large power metering and
EV charging.
Customers, industry experts and engineering
operatives have all been part of our training academy
journey and have provided excellent feedback as
we start expanding our testing facilities to look at
new products such as air-source heat pumps and
hydrogen pumps.
As one trainee commented:
It was a fantastic week learning and practising
various installation methods for differing products
that I hadn’t had the chance to work on before.
The instructors were great – top fellas!!”
SMS Annual report and accounts 2021 23
Strategic reportGovernanceFinancial statements
OUR STRATEGY IN ACTION continued
3. Efficient capital allocation to provide
headroom for growth
2021 priorities
• Maintain strong liquidity to provide adequate funding to
execute the Group’s pipeline of meters and CaRe assets.
• Maintain a prudent but efficient leverage position.
• Grow dividend by 10% annually, until 2024.
• Continue to evaluate an optimal mix of funding options
for future capital requirements.
2021 progress
• Financial liquidity was significantly enhanced with
c.£175m equity raise and successful refinancing of
Group’s revolving credit facility to £420m on attractive
terms.
• New funding enables delivery of CaRe asset pipeline and
positions the Group to take advantage of additional
growth opportunities.
• FY 2021 dividend proposed at 27.5p per share, a 10%
increase on FY 2020 in line with policy, underpinned by
existing long-term cash flows.
Future outlook
• Maintain strong liquidity to fund the Group’s pipeline
of meters and CaRe assets.
• Maintain efficient capital structure and prudent
leverage.
• Grow dividend by 10% annually, until 2024.
• Continue to evaluate an optimal mix of funding options
for future capital requirements.
A look back on the Group’s
capital allocation
Throughout SMS’s history, the Group has
maintained a disciplined net debt to EBITDA
ratio and has proactively addressed its
capital structure:
• Looking back, in 2011 our IPO proceeds allowed the
business to completely de-lever and the capital
raised was mostly utilised to fund our portfolio of
Industrial & Commercial meters. These investments
increased our leverage to c.3x by 2013.
• Then in 2017 a £150m equity raise allowed the
business to de-lever again. The capital raised
was utilised this time to primarily fund our
growing portfolio of domestic smart meters.
This investment increased our leverage back
to c.4x within just two years.
• In 2020, once the I&C portfolio matured, a portion
of that portfolio was sold to a third party at an
attractive multiple of more than 16x EBITDA and
the proceeds from the sale were used to settle the
Group’s outstanding debt obligations, de-levering
the business once again.
• Most recently, in 2021 we successfully raised £175m
of equity to fund our smart meter and grid-scale
battery storage pipelines. Once delivered, these
pipelines should more than double our EBITDA.
The funding also strongly positions the Group to
expand its pipeline in other CaRe products.
The Board continues to review, and seeks to keep
open, all potential funding routes with a focus on
maintaining an efficient capital allocation to provide
headroom for growth.
We ended the year with
a strong cash position to
finance future growth."
Miriam Greenwood
Non-executive Chairman
24 SMS Annual report and accounts 2021
4. Sustainable and socially responsible business
Sponsorship of Burwell
Swallows football team
A working group was established during the year
and met monthly to consider the social impact of
our grid-scale battery sites. The group has been
tasked with supporting initiatives that help the
local communities in which our sites operate,
and addressing any biodiversity concerns.
One such initiative has seen SMS sponsor a
grassroots football team – the Burwell Swallows
Under 14s– at our first grid-scale battery site,
located in Burwell, Cambridgeshire. Players are
drawn not just from Burwell but also from the
surrounding areas of Newmarket and Soham.
SMS provided funding for new club strips and
training tops as well as donating new footballs for
the team. We are following with interest the team’s
progress in its local league.
In addition to the sponsorship initiative, SMS
has been involved in several landscaping and
biodiversity activities in Burwell. We have engaged
a landscaping contractor to plant hedgerows and
trees at the site to provide vital habitat and
resources for mammals, birds and insects.
2021 priorities
• Publish inaugural Sustainability Report.
• Further improvement in environmental, social and
governance (ESG) credentials and ESG ratings.
• Continue to enhance disclosures and reporting of
SMS’s ESG credentials.
• Delivery of Safety, Health and Wellbeing action plan.
• Delivery of Energy Reduction and Environment
action plan.
• Commence rollout of renewable energy and efficiency
upgrades at SMS’s key office sites.
• Commence conversion of the Group’s fleet of vehicles
to EV or plug-in hybrid models.
• Progress focus areas identified from 2020 employee
engagement survey and reassess via 2021 employee
engagement survey.
• Rollout of new Groupwide pay and reward framework.
2021 progress
• Delivered progress in line with our 2030 net-zero
carbon roadmap (see page 49).
• Strengthened our ESG ratings and credentials
(see page 46).
• Enhanced our disclosures as a supporter of the
Task Force on Climate-Related Financial Disclosures.
• Commenced review of EU taxonomy alignment and
applicable technologies ahead of UK taxonomy
implementation.
• Climate exposure evaluation conducted on key
physical assets including offices and grid-scale battery
storage sites.
• Continued focus on employee wellbeing, supported
by the launch of several new benefits and initiatives
(see page 52).
• Successful rollout of new Groupwide pay and
reward framework.
Future outlook
• Continue progression against our ‘net zero by
2030’ roadmap.
• Further enhance disclosures and reporting of SMS's
ESG credentials.
• Drive energy-efficient processes across our operations.
• Participate in activities that make a difference to
local communities.
• Maintain zero cyber security breaches.
SMS Annual report and accounts 2021 25
Strategic reportGovernanceFinancial statements
OUR BUSINESS MODEL
Offering a unique proposition: an
end-to-end integrated service
What we have
Our strengths
A growing
smart meter
portfolio
Our meter assets generate highly
sustainable, annuity-style cash flows
and provide a secure foundation for
the future growth of the business.
c.50% of meters are yet to be
exchanged as part of the UK smart
meter rollout.
What we do
Our core businesses
Asset
Management
Engaged
people
We are focused on employee
retention, training and development,
productivity and, above all, an
unwavering commitment to health
and safety. We have a nationwide
in-house engineering and expert
consultancy workforce, with a strong
track record of service delivery.
Fostering innovation and creativity in
what we do is also critical to allow us
to deliver new and exciting solutions.
Asset
Installation
Robust
technology
platforms
We have significant IT software and
data security capabilities, and the
ability to develop new applications
and technologies to the ongoing
benefit of our customers. Delivery of
our integrated services is supported
by our own central cloud-based IT
and data platform.
Long-standing
relationships
with our
customers
We enjoy multi-level relationships
with energy suppliers, developers and
enterprises within the UK industrial
and commercial sectors. The
enduring partnerships we maintain
with our customers are testament
to the unrivalled support we provide
and our commitment to providing
successful and innovative energy
solutions.
Energy
Management
Effective
capital
management
We continually review our funding
position to ensure that we maintain
an efficient capital structure, with
sufficient capacity and flexibility
to maximise growth. We maintain
prudent but efficient leverage
using internal cash generation, our
available debt facility and other
additional mechanisms as relevant.
See the Operational
review on pages 28 to 39
Underpinned
by our values
Putting our
people first
26 SMS Annual report and accounts 2021
Safety
Innovation
Customer
excellence
Providing a fully managed,
end-to-end metering
and data service to the
Industrial & Commercial
and Domestic markets,
including ownership and
operation.
Providing direct field-
force management
and asset installation,
targeting the domestic
smart meter opportunity.
Design, installation and
management of utility
connections and energy
infrastructure.
Providing energy-efficient
strategies and specialist
energy management
solutions, including grid-
scale battery storage.
Investing in renewable
energy generation, we
continue to pursue several
developing opportunities
in the areas of electric
vehicle charging, heat and
behind-the-meter smart
solar and storage.
- What we do
Our core businesses
Asset
Management
Asset
Installation
Energy
Management
See the Operational
review on pages 28 to 39
Providing a fully managed,
end-to-end metering
and data service to the
Industrial & Commercial
and Domestic markets,
including ownership and
operation.
Providing direct field-
force management
and asset installation,
targeting the domestic
smart meter opportunity.
Design, installation and
management of utility
connections and energy
infrastructure.
Providing energy-efficient
strategies and specialist
energy management
solutions, including grid-
scale battery storage.
Investing in renewable
energy generation, we
continue to pursue several
developing opportunities
in the areas of electric
vehicle charging, heat and
behind-the-meter smart
solar and storage.
1
Expanding
long-term, resilient
and recurring cash
flows from carbon
reduction assets
2
Customer
excellence
and efficient
delivery
3
Efficient capital
allocation to
provide headroom
for growth
4
Sustainable and
socially responsible
business
Strategic report
Governance
Financial statements
Who we deliver for
Our strategic
priorities
Creating long-term value
for our stakeholders
27.5p
dividend for FY 2021,
with an intended 10%
annual increase until
FY 2024
£108m
turnover earned
in 2021
£50m
of staff costs
in 2021
£420m
revolving
credit facility
100%
renewable electricity
on owned sites
Our shareholders
We deliver attractive and
sustainable returns to our
shareholders through our growing,
sustainable dividend. The Group
intends to pay a 27.5p per share
dividend in respect of FY 2021 (+10%
on FY 2020), over four instalments,
with an intended 10% annual
increase through to FY 2024.
Our customers
Delivering customer excellence is a core
value underpinning our business. Our
breadth of service makes us unique in
our industry, and our expertise allows
our customers to have confidence that
we will deliver appropriate solutions.
Our employees
A motivated workforce encourages
creativity and productivity and is critical
to the execution of our strategy. We
place great importance on creating a
positive working environment for all our
people, and on providing challenging
career opportunities that offer staff the
chance to develop.
Our partners
We work with a wide range of partners
over the long term, including suppliers,
lenders, governments and regulatory
bodies. These relationships are critical
in delivering our strategic objectives
and business model. Maintaining
positive and open engagement is a
key priority.
The environment
As a major energy services and
smart metering company, we
place sustainability at the core of
our business. Through training and
development, the sustainability
culture of the business is instilled in
all staff from the moment they join
the Company.
SMS Annual report and accounts 2021 27
Underpinned
by our values
Sustainability
Pride
-
OPERATIONAL REVIEW
At the forefront
of change in the
energy industry
We added 900,000 meters to our contracted smart meter
order pipeline which, net of meters installed in 2021, increased
to c.2.55 million from c.2 million at the end of 2020. We exited
the year not only with this increased pipeline intact, but
also favourably weighted towards larger, well-financed
independent energy suppliers following the consolidation
of portfolios into our larger customers through the Supplier
of Last Resort process.
Our smart meter installation run rate increased to over
30,000 per month in the second half of the year, and we are
currently installing 9.4% of all smart meters across the UK.
With a well-balanced engineering workforce, comprising
both direct and sub-contract labour, we are well placed to
progressively improve our run rate through the remainder of
the UK smart meter rollout, now scheduled to complete by
the end of 2025.
Considerable progress was also made in further developing
our pipeline of grid-scale battery storage assets. At the date
of this report, the total pipeline sits at 620MW (March 2021:
470MW), of which our first 50MW site at Burwell,
Cambridgeshire is now operational, 270MW is fully secured
and the remaining 300MW is under exclusivity. Of the 270MW
secured pipeline, 140MW is currently under construction.
This strong operational performance
is a testament to the continued
dedication and commitment of our
people, who remain at the heart of
driving our mission to deliver carbon
reduction (‘CaRe’) energy solutions."
During 2021, without exception we
continued to deliver high-quality
customer service with due regard for
safety across all areas of our business.
This was against a backdrop of market
turbulence and supplier exits caused
by the increase in global wholesale
energy costs, together with ongoing
operational challenges presented by
the COVID-19 pandemic, and hence
demonstrates the resilience of our
people, processes and systems.
Over 25%
increase in our contracted
smart meter order pipeline
Over 30%
increase in our grid-scale
battery storage pipeline
28 SMS Annual report and accounts 2021
Asset Management
Summary
2021
20201
Growth
Index-linked annualised recurring revenue (ILARR)
Revenue
Depreciation-adjusted cost of sales2
Depreciation-adjusted gross profit
Depreciation-adjusted gross margin
Capex on meters3
£85.9m
£82.9m
£77.0m
£78.7m
(£6.8m)
(£5.2m)
£76.1m
£73.5m
92%
93%
£82.4m
£40.3m
12%
5%
31%
3%
(1%)
105%
1 2020 measures only include the financial performance of the disposed Industrial & Commercial (I&C) portfolio up to the date of sale on 22 April 2020.
2
Excludes depreciation on revenue-generating assets, recognised within cost of sales. Refer to the Financial review for definitions and details of the
Group’s alternative performance measures.
3 2021 measure excludes acquisition of I&C large-power metering and data portfolio.
Key focus areas
The asset management division is focused
on growing the long-term, index-linked,
recurring revenue streams from smart
meters and data assets.
Primary objectives
• Grow ILARR, driven by:
- recurring rentals from installed smart meter
assets; and
- data services provided to energy suppliers and I&C
businesses for industry data flows and half-hourly
energy consumption information.
• Ensure market-leading return on investment,
delivered through our vertically integrated model.
• Maintain a capital-efficient structure to support
ongoing investment in meter and data assets.
SMS Annual report and accounts 2021 29
Strategic reportGovernanceFinancial statements
OPERATIONAL REVIEW continued
ASSET MANAGEMENT continued
Mandatory obligation on energy suppliers (85% completion by 2025) (in millions)
55.6
56.1
27.8
28.3
5.1
5.1
5.1
5.1
7.9
Current market installations
run rate needs to increase
significantly to achieve 2025
target (SMS estimates)
0.0
UK
meter
points
Converted
to smart/
advanced
To be
converted
to smart
1 Of the domestic smart meters.
2022
2023
2024
2025
Remainder
(min 85%
completed)1
Source: Energy Suppliers reporting to BEIS September 2021, SMS internal estimates.
Our industry-accredited services, built on our in-house
technology platform METIS and national engineering
infrastructure, provide a strong basis from which to efficiently
deliver these asset and data solutions to our customers.
Through these assets and services, we continue to enable the
transition to a low-carbon energy system for a greener, more
sustainable future for all.
The UK smart meter rollout continues to present a significant
opportunity for us to grow our ILARR, with Ofgem now
placing annual binding installation targets on energy
suppliers to ensure at least 85% of all meters are changed
to smart by the end of 2025. The regulator is also seeking to
mandate the settlement of energy on a half-hourly basis,
which would signficantly increase the market size for these
services from c.300,000 electricity meters to over 26 million
meters by 2026.
2021 performance and developments
ILARR: During 2021 we increased our meter and data ILARR
from £77.0m to £85.9m due in part to the growth in our I&C
data services following the acquisition of a meter portfolio
in April 2021 and its associated data contracts. The ILARR
associated with the domestic smart meter portfolio
increased from £42.6m to £50.1m, offset by the anticipated
ongoing removal of traditional meters. Data services ILARR
increased from £11.7m to £13.9m.
Decision-making in practice:
Acquisition of I&C large-power metering and data portfolio
SMS has been accredited to provide half-
hourly (HH) services to the largest Industrial &
Commercial electricity metering points since
2012. This ‘large power’ market segment
currently comprises c.300,000 meters.
Provision of meter operator and data collection/
aggregation services to these suppliers comes with
significantly greater engineering and data services
responsibilities and complexity. This has historically led
to it being a very ‘sticky’ part of the market, with SMS’s
growth in this area led by the advanced metering rollout
and new connections activity.
During 2021 we worked with a large independent energy
supplier which had inherited a HH portfolio of c.20,000
meter points (including ownership of c.15,000 meters
as Meter Asset Provider). Delivery of the complex data
services this portfolio requires was not core business for
the energy supplier and therefore it wished to dispose of
the portfolio whilst ensuring continuity of high-quality
service to customers.
Our well-established end-to-end platform enabled us to
reach agreement with the energy supplier to acquire this
meter portfolio for cash consideration of £8.4m, including
taking over ownership of the associated data service
contracts. The acquisition added initially £3.1m to our
ILARR, resulting in SMS now having over 10% market share
in this market segment. This has also strengthened our
position and credibility ahead of the proposed mandated
extension of HH settlement services to the entire Domestic
market from 2026. A platform for growth, the Board
judged the acquisition to be in the long-term interest
of shareholders.
Before approving the transaction, the Board reviewed
papers and challenged management on the business
case, the risks and opportunities presented by the deal
and integration plan. Other key stakeholder groups
considered included:
Customers – the Board noted that the transaction
provided opportunities to deepen our relationship with
certain electricity suppliers and I&C customers whilst
expanding our customer base in both size and
composition, and providing opportunities to cross sell
other services. Leveraging our passion for customer
excellence, significant focus was placed on ensuring
there was no disruption to services provided.
Employees – a small workforce was transferred to SMS as
part of the transaction, including engineers and support
staff. The Board were presented with an integration plan
for these staff to ensure a seamless transition.
30 SMS Annual report and accounts 2021
Pipeline: At the start of 2021 we had a c.2.0 million contracted
smart meter order pipeline, which increased on a like-for-like
basis to c.2.9 million meters from new contract wins. We
exited the year with a net contracted smart meter order
pipeline of c.2.55 million meters, which is expected to add
c.£51m to our ILARR with continued additional opportunities
in the market to increase this pipeline further.
SMETS1 enrolment and adoption: We continue to support
the enrolment and adoption of first- generation (‘SMETS1’)
smart meters into the Data Communications Company (DCC)
platform, which is progressing at pace. At 28 February 2022,
c.8.0 million SMETS1 meters had been migrated as compared
with 3.5 million in February 2021. The migration of the
Group’s own SMETS1 portfolio specifically is well underway,
progressing broadly in line with the industry. This process
is now expected to continue through to the end of 2022
following an extension issued by the Department for
Business, Energy & Industrial Strategy (BEIS).
Delivery: Our integrated model continues to enable us to
originate smart meter assets with market-leading returns,
with the index-linked nature of our rentals providing strong
protection against an inflationary environment. We have
also taken measures to fix the purchase cost of meters for
a large proportion of our pipeline. The metering market is
not immune to global supply chain issues. This was evident
during the year with a combination of COVID-19 and Brexit
impacting the production and delivery of stock from our key
suppliers, and global chip shortages. However, we have taken
further steps to diversify our supply chain and have revised
our stock management policies to ensure we hold significant
buffer stock within our UK distribution warehouses, thereby
ensuring stock availability is not a constraint in delivering
our meter pipeline.
We are extremely pleased with the efficiency of our
operational delivery, and we continue to invest in our
engineering capacity to deliver our increased meter pipeline
over the course of the rollout.
Wholesale gas prices and
the impact on the independent
energy supplier market
During the second half of 2021, the global energy
market suffered unprecedented increases in
wholesale gas prices, with the UK particularly
susceptible due to its reliance on these global
markets, low gas storage capacity and use of gas
for a large proportion of electricity generation.
These price increases, combined with the effect of the
retail price cap on energy suppliers, which delays their
ability to pass cost increases on to consumers, led to
a spike in the number of independent energy suppliers
exiting the market.
When a supplier exits the market, our assets have a
significant degree of protection through the Supplier
of Last Resort (SoLR) process. Any newly appointed
energy supplier under the SoLR regime is obliged to
take on metering obligations with the Meter Asset
Provider and Meter Asset Manager/Meter Operator
from the date of exit and will fall under the prevailing
contractual arrangements we have with them. The
impact of such supplier exits on SMS can therefore
be two fold:
1. An increase in bad debt from unpaid charges incurred
prior to the supplier exiting the market. However,
SMS manages its debt collection efficiently and has
not suffered any adverse impact on our financial
expectations as a result. See the Financial review
on pages 70 to 75 for more details.
2. Movement in our contracted smart meter order
pipeline. We increased our pipeline during 2021
through contract wins and, although some of our
customers have entered administration, several of
our existing customers have also increased their
customer base through the SoLR process. We also
extended our exclusivity agreement with Shell Energy
to the end of 2025. The net effect has been a
strengthening of our order pipeline, with the vast
majority now contracted with larger, well-financed,
independent energy suppliers.
Our metering charges are index-linked and not related
to the amount of energy consumed; they therefore
provide strong protection against the current
inflationary environment. With strong counterparty
protection through the SoLR mechanism and limited
credit risk, we see the impact of increased wholesale
energy prices leading to a more stable energy supply
market in the longer term, underpinned by a stronger,
more robust group of energy suppliers, which is positive
for our asset base and services.
SMS Annual report and accounts 2021 31
Strategic reportGovernanceFinancial statements
OPERATIONAL REVIEW continued
Asset Installation
Summary
Revenue (external)
Pre-exceptional cost of sales
Pre-exceptional gross profit
Pre-exceptional gross margin
Net portfolio additions – smart and I&C meters1
Number of engineers inducted through training academy2
Technical performance3
2021
2020
Growth
£22.0m
£19.7m
(£14.1m)
(£16.6m)
£8.0m
36%
£3.1m
16%
325,000
139,000
524
28
94
101
12%
(15%)
154%
20%
134%
457%
(72%)
1
2021 net portfolio additions of 325,000 exclude the acquisition of c.15,000 I&C meters from a third party in April 2021. 2020 net portfolio additions of 139,000
exclude the disposal of c.187,000 I&C meters to a third party in April 2020.
2 Number of engineers inducted through the training academy in 2020 was low due to its closure for a large part of the year as a result of COVID-19.
3 Technical performance is measured as the annual average of the number of incidents per 100,000 installations.
Key focus areas
Primary objectives
The asset installation division is focused on
delivery of our CaRe asset pipeline, excellence
in health and safety, customer service and
operational efficiency.
• Deliver our ‘Vision Zero’ – our goal of zero accidents,
healthy work and employee wellbeing.
• Excellence in customer services.
• Install our contracted smart meter asset pipeline and
deliver transactional new connection and meter
maintenance services.
• Grow our engineering capacity and installation run rate
whilst maintaining operational efficiency and full
utilisation of the Group’s direct labour workforce.
• Develop our engineering capabilities beyond meter
installation, in support of new CaRe assets.
• Reduce the carbon footprint of our delivery, in particular
from our fleet, in line with our ‘net zero by 2030’ plan.
32 SMS Annual report and accounts 2021
Continued service delivery
through the pandemic
Our field engineers adapted their day-to-day routines
to accommodate the peaks and troughs of COVID-19
during the last year. They became accustomed to
working in this environment and, despite the challenges
presented, found ways to deliver on our values of:
• Safety: PPE is worn to keep all parties safe;
• Customer excellence: doorstep protocols ensure
we respect our customers’ wishes;
• Innovation: a collaborative approach was developed
between the safety, health, environment and quality
team and the operations team to adjust to changing
guidelines and apply new ways of working; and
• Sustainability: where legislation allowed, we were
able to relax some protocols around safe interaction
distances. This enabled us to brief more customers in
person with relevant energy advice, thus improving
customers’ experience at the point of installation and
better supporting their energy and cost-saving journey.
By having robust and agile protocols, fully supported
by readily available PPE, we have been able to continue
to deliver a safe and customer-centric service.
Our nationwide engineering services business, supported
by our in-house accredited training academy and our
technology platforms, provides the foundation for delivery
of our purpose: serving our customers, and originating CaRe
assets and services.
With over 25 years’ experience in delivery of utility infrastructure
and metering solutions, we are accredited to provide services
across all market segments and are positioned to partner with
energy suppliers, businesses and public sector organisations
to deliver the UK’s net-zero transition.
2021 performance and developments
Market conditions: The COVID-19 pandemic continued
to present a range of challenges throughout 2021. Our
installation activities remained restricted by national
lockdowns in the first quarter of the year, especially in
Scotland. Vigilant compliance with updated health and safety
working practices was enforced to protect both our teams
and customers. The majority of office-based staff continued
to work from home throughout the year; and – like other
industries – we felt the impact of the widespread Omicron
variant in the last months of the year, with self-isolation
requirements placing some pressure on service delivery both
within our back-office functions and in the field. The impact
of COVID-19 has led to the UK smart meter rollout being
extended to the end of 2025, with annual binding installation
targets on energy suppliers from the beginning of 2022.
Number of domestic smart meters installed by large energy suppliers, by fuel type and quarter
22.0
17.5
12.0
5.5
0.0
2012
Q3 2012 to Q4 2021
2013
2014
2015
2016
2017
2018
2019
2020
2021
All smart meters
Electricity
Gas
Source: Energy Suppliers reporting to BEIS
SMS Annual report and accounts 2021 33
Strategic reportGovernanceFinancial statements
OPERATIONAL REVIEW continued
ASSET INSTALLATION continued
In the final quarter of 2021, the exit of some energy suppliers
from the market, and subsequent implementation of the
SoLR process, led to some temporary delays in energy
suppliers engaging with end consumers to roll out smart
meters, with an increase in transactional meter call-out
requirements as a result.
Delivery exceeding expectations: Despite these challenges,
we increased our installation run rate to over 30,000 meters
per month and installed c.350,000 smart meters during the
year in line with expectations, demonstrating the robustness
of our operational model. Through careful management,
we have driven significant efficiencies within the installation
business in the year, with full utilisation of our direct labour
workforce, supplemented by our network of sub-contractors.
This flexible model has allowed us to navigate market
conditions effectively, delivering results marginally ahead
of expectations.
We continue to invest in our engineering capacity, as we
expect to drive progressive improvement in our installation
run rate during 2022. Maintaining an appropriate balance
between direct labour and sub-contractors will remain a key
focus, ensuring we sustain the efficiency and utilisation levels
we have achieved over the last 18 months.
A proud achievement has been surpassing our health
and safety targets, with zero injuries reported under the
Reporting of Injuries, Diseases and Dangerous Occurrences
Regulations 2013 (RIDDOR) and industry-leading
performance on our other key metrics, including technical
quality incidents. See our Health and safety report on pages
58 to 59 for more details.
Investing for the future: We have upgraded our apprentice
scheme to deliver and fully fund new entrants to the
installation business through our in-house training academy
in Bolton, alongside recruitment and retention of experienced
engineers. We seek to maintain a socially responsible
approach, recruiting from diverse backgrounds and actively
working to address the industry-wide gender imbalance in
engineering. We are committed to investing in both our
people and our systems, to deliver safely and efficiently
for our customers.
Through our training academy we are also now able to
deliver upskill training, for example for domestic electric
vehicle (EV) chargers, battery and air-source heat pump
installation – see the case study on page 23 for further
details. We see this capability as critical for our long-term
CaRe asset programme, and to enable the UK’s energy
transition to net zero.
Driving operational efficiency through warehouse consolidation
Historically, SMS warehouse operations have grown
organically, with separate warehouses being used for
forward and reverse logistics operations, and third-
party storage being used for bulk storage and assets
awaiting refurbishment. Over time this has led to the
double-handling of products, and the need to relocate
stock frequently between sites.
As part of the Group’s wider focus on maximising
operational efficiency, a review was carried out in 2021
and a consolidation plan put into action. Several sites
were exited, and in their place a larger warehouse was
sourced, suitable for the current and anticipated growth
of the business.
The new warehouse facilitates a ‘one touch’ system for
stock and combines forward and reverse logistics under
one roof. This allows for the sharing of resources and
should drive faster refurbishment of SMS-owned
assets for reutilisation in the field, and repatriation of
assets to owners.
The benefits of this are not just operational. From a
sustainability perspective, consolidation into one
warehouse will remove c.14,000 road miles from our
supply chain, which is the equivalent of over five tonnes
of carbon emissions.
In addition, the consolidation demonstrates our
commitment: to safety, by utilising modern methods
of storage and distribution; to customer excellence,
by improving our efficiency in handling assets; and to
pride, by providing opportunities for staff to develop
skills across all areas of stock, warehousing and logistics
in one location.
34 SMS Annual report and accounts 2021
Energy Management
Summary
Revenue
Cost of sales
Gross profit
Gross margin
Value of utilities under management1
Capex on grid-scale batteries2
1 Based on value of utility bills validated on behalf of customers.
2 Excludes acquisition-related balances.
Key focus areas
Primary objectives
2021
£3.6m
£4.6m
2020
Growth
(£2.8m)
(£3.6m)
£0.9m
24%
£333m
£24.5m
£1.0m
22%
£334m
£1.3m
(21%)
23%
(15%)
2%
Flat
>500%
The energy management division is
focused on the development of our new
CaRe products; these will reduce energy
consumption and costs for I&C customers
whilst enabling solutions which reduce
carbon emissions and enable a low-carbon,
more flexible energy system.
• Originate, build and operate our grid-scale energy
storage portfolio, enabling the energy networks to
transition to net zero through the integration of
intermittent renewable generation.
• Grow our energy management, energy efficiency
services and capital project delivery programme, such
as LED lighting and smart energy controls, on behalf
of I&C customers.
• Develop asset-backed commercial models in our
developing CaRe products:
- behind-the-meter: Solopower smart solar and
storage solutions
- EV charging infrastructure for Destination and
Domestic markets
- heat meters and networks.
SMS Annual report and accounts 2021 35
Strategic reportGovernanceFinancial statements
OPERATIONAL REVIEW continued
ENERGY MANAGEMENT continued
Installed electricity storage capacity (GW)
50
40
30
20
10
0
2020
Forecast
requirement
for over
30GW of
energy
storage by
20501
2025
2030
2035
2040
2045
2050
Source: National Grid Future Energy Scenarios 2021
Consumer Transformation
System Transformation
Leading the way
Steady Progression
1 Calculated as the average of National Grid’s four forecast scenarios in its Future Energy Scenarios 2021.
The energy transition is fundamentally driven by the need to
decarbonise the generation and use of energy. The National
Grid already requires the use of assets to provide balancing
services to address grid volatility and achieve stability, which
has historically been realised through pumped hydro and
fossil-fuel-based generation. We have, therefore,
deliberately focused on the development of our grid-scale
battery storage portfolio, as the growing volume of
intermittent renewable generation, and the increase in peak
demand on the networks, is materially impacting volatility
and the corresponding requirement for balancing services.
Our FlexiGridTM platform – connected to smart networks and
enabled by smart meters – provides the flexibility services
required to enable this energy transition.
National Grid forecasts a requirement of over 10GW of
energy storage on the grid by 2030 (and over 30GW by 2050).
This requirement is expected to continue to grow further with
the UK Government targets for 100% renewable generation
by 2035, and the impact of increased peak demand from
the electrification of heat and transport. This requirement
positions SMS perfectly for these additional market
opportunities, and we have trial projects and commercial
models in development, all integrated with our FlexiGridTM
and METIS asset management platforms.
2021 performance and developments
COVID-19: The pandemic continued to have an impact
on our traditional consultancy and energy management
services, with ongoing delays as a result of disruption to
site works. Service delivery was maintained but roll out of
site-based energy efficiency measures was impacted by
customers’ financial and operational constraints imposed
by COVID-19, impacting our ability to deploy these services.
Consequently, revenue in this division declined during
the year.
However, supported by the UK Government’s 'Net Zero' and
‘Heat and Buildings’ strategies, and with increasing energy
costs of significant concern to both I&C and domestic
customers, we remain positive regarding the substantial
market opportunities available to us and the potential for
deployment of our existing and developing CaRe products
and services.
36 SMS Annual report and accounts 2021
A transformative year for our ambitions in grid-scale
battery storage: Our first site in Burwell, Cambridgeshire
(50MW) is now fully operational following commissioning in
January 2022.
We have also increased our remaining pipeline of projects
over which we have exclusivity from 470MW at March 2021
to 570MW at March 2022, of which 270MW is fully secured,
including the acquisition of a 30MW site in February 2022.
We expect 40MW to be operational by mid-2022 and a
further 100MW to be operational during H1 2023.
We deliver these grid-scale projects from initial construction
through to ongoing operation, trading, maintenance and
asset management. The cash flows from grid-scale batteries,
once energised, are fundamentally driven by the daily
requirement for balancing services on the grid which, in
tandem with growth in intermittent renewable generation,
is substantially increasing the need for such services. The
counterparties to these services are the system operators –
National Grid and the distribution network operator (DNO) –
providing strong revenue protection, allied with strong
battery warranty protections.
The economics of this asset class are attractive with an initial
EBITDA yield of c.11-14% against a build cost of c.£380,000 per
MW, from an asset whose base electrical infrastructure has
an expected life in excess of 40 years (with battery cell
replacement around every ten years). These forecasts are
supported by independent industry modelling. The economic
profile of these assets thus provides long-term returns after a
relatively quick construction phase of typically one year or less.
In 2022 we will continue to construct and deliver our fully
secured 270MW pipeline, seek to convert the remaining
300MW in exclusivity, grow the pipeline further and, critically,
demonstrate the operational and financial capability of this
vital infrastructure asset class.
Developing CaRe products: The increase in wholesale
energy costs, which will inevitably flow through to both I&C
and domestic energy charges, drives greater urgency for
innovative solutions which address consumption, cost and
the net-zero challenge.
We continue to develop solutions, aligned to our established technology platforms and engineering capabilities,
to address these challenges:
EV infrastructure
Solopower (behind-the-meter smart solar and storage)
We are developing solutions in the domestic and destination
(both workplace and on-street) parts of the market and
remain lead co-ordinators on the Virgin Media Park and
Charge (VPACH) project, which is establishing on-street
charging solutions. Installations of EV chargers as part of
the VPACH project have commenced and it is expected that
approximately 600 charging sockets will have been installed
by the end of the project. We have the engineering skills and
knowledge to establish and originate destination charging
infrastructure and its electrical connection to the grid, utilising
our established and scalable field management platform.
Our training academy is also now able to train engineers to
install EV chargers at the domestic level.
Our Solopower solution, which aims to radically reduce carbon
emissions within the UK’s social housing stock, was launched
in 2021. To deliver this solution, we are partnering with local
councils and housing associations to upgrade the energy
performance of social housing accommodation significantly
through the use of solar generation and battery storage,
supported by our FlexiGridTM technology platform. Pilot
projects are being progressed in over 1,000 homes across the
UK, as well as early-stage projects in the Republic of Ireland.
Heat meters and networks
Energy efficiency
We have successfully delivered a pilot solution to a nationwide
hotel chain for smart heating controls, and we are working with
other existing and potential customers to explore alternative
heat solutions. In April 2021 we announced our partnership
with Aberdeen City Council to roll out fabric retrofits and
air-sourced heat pumps, alongside the Group’s Solopower
solution, to a group of homes, thereby trialling a ‘whole-house’
approach to the domestic decarbonisation challenge.
This project is expected to progress through 2022.
With more than 20 years of energy efficiency consulting
and project delivery experience, we are developing capital
projects which will deliver energy reduction for our I&C
customer base. These projects are often linked to, and
identified by, the data services we can provide from smart and
advanced meters – for example, using smart energy control
solutions for energy management and LED lighting projects.
By aligning capital with this expertise, we can deliver cost
savings and permanent carbon reduction for our customers
whilst generating long-term recurring revenues for the Group.
Whilst these verticals are at various stages of development,
we have established trials and pilots in all of them and are
developing the commercial models and pipelines accordingly.
All of these products are closely aligned to our existing
vertically-integrated technology and engineering platform,
and indeed are complementary to each other – we are
positioning our business in areas in which we already have
substantial experience and capability. These markets also all
share two key characteristics: they reduce carbon, and they
each provide a substantial growth market opportunity.
Decision-making in practice:
continued investment in grid-scale battery storage
Over 2021, the Board approved capital investment to
purchase and develop four further grid-scale battery
storage sites with a combined capacity of 200MW.
In making their decision, the Board discussed the future
expected returns from these investments. Detailed cash
flows were also reviewed so they could satisfy themselves
that there was sufficient funding available within the
business and that the construction of these additional
sites would not impact the Group’s wider UK smart meter
rollout commitments, dividend policy or compliance with
its revolving credit facility.
Over this process the Board gave consideration to our
key stakeholders, in particular:
Shareholders – our shareholders have an interest in the
long-term return on investment and in receiving a
predictable dividend. The Board has therefore focussed
on ensuring that the grid-scale battery programme can
be financed without compromising the existing business
or the long-term health of the Group, and that execution
is carefully managed.
Employees – growing the Group in a sustainable way
serves the interest of employees and generates new
opportunities for our people. The wider workforce has
been kept updated on developments in this area through
Company communications.
Lenders – the Chief Financial Officer led the negotiation
of a refinancing with the Group’s lenders in September
2021, detailed further on page 74, and the new facility now
permits the borrowing of funds for investment in grid-scale
battery storage.
SMS Annual report and accounts 2021 37
Strategic reportGovernanceFinancial statements
Homes and businesses
Demand does not align with
weather and there is limited
flexibility in homes and
businesses to adapt
OPERATIONAL REVIEW continued
Grid-scale
battery storage
The ability of grid-scale batteries to support the
electricity grid with the flexibility it needs means
that increased deployment of this technology
is fundamental for the UK’s transition to a
low-carbon energy system. SMS is a leading
contributor to meeting this need, with
a strong delivery pipeline.
Generation
Renewable energy is only
generated when wind and
sun are available, not in
line with demand
D e m and based supply
Grid-scale battery storage
Grid-scale batteries can
bridge the gap between
generation and demand when
it is out of alignment, allowing
more renewable power to be
released when it is needed
38 SMS Annual report and accounts 2021
Over 10GW
Energy storage required by 2030
to remain on track for the UK’s
net-zero target¹
620MW
pipeline including operational,
under construction, contracted
and exclusive projects
1 Calculated as the average of National Grid’s
four forecast scenarios in its Future Energy
Scenarios 2021
What is grid-scale battery storage?
Grid-scale battery storage comprises multi-megawatt
storage assets connected to either the distribution or
transmission networks of the UK’s electricity grid. These
assets differ from behind-the-meter storage in both
scale and connection point.
The growing proportion of renewable sources in our
energy supply, and the more distributed nature of energy
generation in general, creates two key issues. Firstly,
generation and demand are no longer straightforward
to align. Secondly, the loss of inertia from large thermal
plants, combined with the greater numbers of smaller
distributed renewable sources, increases the need for
frequency stabilisation.
Batteries are excellent at both these activities as they
are bi-directional and can activate at split-second
speeds: charging when wind and solar generation is high
and discharging when demand is greater. Storage assets
at this scale, interfaced with the grid, are an integral part
of the transitioning energy system in the UK.
How do we fit in?
SMS takes an end-to-end approach to any key sector and
grid-scale battery storage is no different. We are self-
developing new battery sites for the long term as well as
acquiring ‘shovel-ready’ sites to build out now, leveraging
our expertise and experience in connections design and
project management to identify suitable opportunities.
Once constructed, we will both own and operate the
energised storage assets, using the services available
to maximise returns and balance the health and longevity
of the battery cells.
Revenues will be generated from a combination of
wholesale trading and balancing, frequency and
constraint services and we will endeavour to engage
with any new services that may be proposed over time.
Our progress through 2021
We began construction on four projects during 2021,
with a total capacity of 190MW. Our current total pipeline,
which includes the above projects as well as various
other sites under exclusivity, is now 620MW, putting
us in a strong position to hold a 10% market share.
By the end of 2021, our first site – at Burwell in
Cambridgeshire – had been constructed and the assets
became fully operational in January 2022. The site was
delivered ahead of schedule and on budget and is now
under the expert control of the SMS trading team.
Start
In the corner of a field in rural Cambridgeshire
in late 2020, we began our Burwell grid-scale
battery construction. As a first step, an access
bridge capable of taking the delivery trucks
was constructed and the land cleared ready for
foundations.
Middle
During the first half of 2021 the focus was on
preparing the foundations for the batteries and
the infrastructure to connect them to the grid.
Here you can see the plinths upon which the cells
sit and the early stages of materials being craned
into place.
Completion
Following energisation to the grid, the
commissioning and testing of the system was
completed. Following a successful acceptance
test the site became operational in late
January 2022.
SMS Annual report and accounts 2021 39
Strategic reportGovernanceFinancial statements
SUSTAINABILITY
Creating a sustainable
and low-carbon
environment for all
Sustainability underpins our
commitment to create long-term
value for our stakeholders and
achieve our vision to be at the
heart of the low-carbon, smart
energy revolution that is pivotal
to realising a greener, more
sustainable world.
We have prioritised our
sustainability reporting in
the following main areas:
We aim to create a sustainable and safe
environment for all where customer
excellence is key, innovation is encouraged,
and employees are proud. In turn, this
nurtures a thriving workplace and a business
that supports wider society. We ensure
diverse and inclusive environments and
promote wellbeing, whilst empowering
communities to take control of their carbon
footprint and tackle local and global issues.
For more information on our sustainability
performance, see also the SMS Sustainability
Report 2021 at
www.sms-plc.com/corporate/sustainability
40 SMS Annual report and accounts 2021
1. Stakeholder engagement
See page 41
Building strong and trusting relationships with
all our stakeholders is critical in managing the
business successfully. If we are to achieve our
goals we must listen to, and collaborate with,
our stakeholders – at all levels, including the
Board and management.
2. The environment
See page 46
As a leading energy infrastructure company
in the UK, we are acutely sensitive to the
environmental climate in which we operate and
the impact we have. Each of our products and
services is aimed at reducing carbon and we
are actively working towards becoming a
net-zero Company by 2030.
3. Our people
See page 52
We care. We create a positive and inclusive
working environment, where each and every
employee shares our values. We are passionate
about using our capabilities and resources to
make a positive impact, and the continuous
development of our people is a critical
component of this.
4. Health and safety
See page 58
For us, being sustainable also means being
safe, secure and reliable. Our commitment to
health and safety underpins all our business
practices, ensuring that our employees and
customers are protected.
5. Ethical business practices
See page 60
We believe in behaving responsibly and
with integrity. This is underpinned by our
Code of Conduct and supporting policies
and procedures.
1. Stakeholder engagement
Engaging our stakeholders
Effective stakeholder engagement is critical to the long-term
success of our business. It is the process by which we develop
our knowledge and understanding of each stakeholder
group, and the key drivers for each of them in their interaction
with our business, so that we can make better decisions in
both our day-to-day operations and when setting strategy.
Our key stakeholder groups are set out on pages 42 to 45
along with how the business engages with them, and key
topics of discussion during 2021, together with any specific
outcomes. Further Board engagement is outlined on pages
86 to 88.
Section 172 statement
The Group has complied with the requirements of section
414CZA of the Companies Act 2006 by including certain
information within the Strategic and Governance reports
to inform members of the Company how the Directors have
considered the matters set out in section 172(1)(a) to (f) of
the Companies Act 2006 when performing their duty under
section 172 to promote the success of the Company. The
Directors consider, both individually and together, that they
have acted in the way that they consider, in good faith, would
be most likely to promote the success of the Company for the
benefit of its members as a whole.
Principal decisions
Principal decisions are those operational and strategic
decisions which are considered to be material to:
(a) The SMS corporate group
This process is streamlined by the fact that the Directors
of SMS and those of the subsidiary boards comprise the
same individuals; therefore, decision-making is relatively
straightforward in practice, albeit subsidiary directors still
pay due consideration to the perspective of each legal entity
over all decisions being made.
(b) Stakeholder groups
The table on pages 42 to 45 details how we established
and defined our stakeholder groups.
On the pages listed in the table below we have provided
examples of how the Board duly considered the impact on
stakeholders when making principal decisions during 2021:
Principal decision
Page Key stakeholders impacted
Acquisition of I&C large-
power metering and
data portfolio
Continued investment
in grid-scale
battery storage
Capital
fundraising
30
37
73
SMS Annual report and accounts 2021 41
Strategic reportGovernanceFinancial statements
SUSTAINABILITY continued
Shareholders
See the Corporate governance report
for further information
Why effective engagement is important
Our shareholders provide capital for our business,
which we utilise to originate sustainable products
and solutions.
The long-term strategic plans for the business
necessitate strong relations with, and support from,
shareholders.
We ultimately seek to promote an investor base that
is aligned with the long-term success of the Group.
We endeavour to foster an open and transparent
relationship with our shareholders, and potential
new investors, to enable them to make effective
investment decisions.
Form of engagement
• Discussions at the Annual General Meeting.
• Investor roadshows following results announcements.
• Continuous availability of the Chairman to discuss
matters of concern.
• Participation in investor conferences.
• Capital Markets Day.
• Ad-hoc meetings between institutional shareholders
and the executive leadership team.
Our programme for investor engagement is detailed in
the Corporate governance report on pages 80 to 89.
Key topics of engagement during 2021
• Development of various carbon reduction products,
particularly meters and grid-scale batteries.
• Deployment of funds raised through equity issuance
and refinanced loan facility, and corresponding
impact on the Group’s future growth.
• Impact on SMS’s meter order pipeline following
turbulence in the UK energy market and the failure
of several independent energy suppliers.
• Progress made in 2021 towards achieving our 2030
net-zero target.
• Capital Markets Day – see case study.
Capital Markets Day
We hosted our inaugural Capital Markets Day in
June 2021. Our primary objective was to provide our
stakeholders with the opportunity to meet the senior
management team. The agenda and presentation
materials were developed taking account of feedback
received from shareholders, analysts and advisers.
Given the virtual nature of the event, the presentation
included pre-recorded real-life videos showing the
Group’s infrastructure, offices, products, services,
technology and people.
Alan Foy, the Group’s Chief Executive Officer,
introduced the two-hour virtual presentation followed
by Tim Mortlock, Chief Operating Officer, giving an
overview of the scale of opportunities available to the
Group. A series of presentations were then made from
senior managers across the business who provided
more insight into each of our carbon reduction (‘CaRe’)
products and services and our competitive positioning
within each category. The Group Chief Financial Officer,
Gavin Urwin, then explained the Group’s financial
position, capital structure and dividend policy. The
event concluded with a presentation of the outlook for
the Group and the significant growth opportunities
ahead; and questions were accepted from participants.
The event was very well attended and received by
existing shareholders, potential investors and other
stakeholders. More than 100 investors attended the
presentation live on the day of the event and many
more have since viewed the recording on the
Company’s website.
"I listened in and thought your Capital Markets Day
was excellent. It covered a significant amount with
clarity and demonstrated your compelling and
evolving proposition. It was also a clear
demonstration of the strength and depth of your
management and the significant opportunity to
deliver beyond meters with your CaRe products, all
underpinned by a very credible IT and data platform.”
A shareholder
42 SMS Annual report and accounts 2021
Customers
Employees
See the Operational review for further information
See the Our people section
Why effective engagement is important
Serving our customers is a key component of our
purpose and we aim to provide an exceptional
customer experience. To deliver this, we listen and
engage, and strive to become a trusted partner.
Maintaining open and honest relationships with our
customers allows us to remain commercially
competitive and secure both new and recurring
long-term contracts.
As the energy and utilities industry continues to
navigate the UK smart meter rollout, it is important
that we work collaboratively with energy suppliers to
ensure we are meeting their service needs in an
efficient and effective way.
Form of engagement
• Listening and responding to customer feedback.
• Clear and structured lines of engagement for core
customer groups.
• All customers are assigned an account manager –
a single point of contact with whom items can
be discussed.
• For larger customers, dedicated contact centres
are used to co-ordinate with end consumers.
• Separate specialist teams are allocated for planning
and scheduling, commercial billing and general
account management, ensuring regular
communication is maintained.
Why effective engagement is important
Our employees are one of our main competitive
advantages. We understand the difference their positive
contribution can make and encourage this through
support, acting on feedback and new initiatives.
We believe that engaged, healthy and safe employees
encourage creativity and productivity, which is critical
in attracting and retaining valuable talent, fostering
customer loyalty and impacting positively on
organisational performance and stakeholder value.
This is paramount in enabling us to deliver our strategy
and achieve our mission.
It is therefore crucial that we build a positive corporate
culture, where employees feel able, and are inspired,
to perform their best work.
Form of engagement
• An open and collaborative management structure
with the tone set from the Executive.
• A designated Non-executive Director provides
independent oversight over employee engagement,
working in tandem with the Group HR Director.
• Establishment of an ‘Employee Voice’ forum (with
representation across the Group at all levels from
different departments and locations).
• Establishment of the LOV (Living Our Values) Awards.
• Employee Resource Groups (three initially).
• Use of a bespoke SMS intranet site (with a dedicated
• Regular service reviews to ensure we are addressing
Wellbeing page and resources).
feedback from customers in a timely manner.
Key topics of engagement during 2021
With wholesale energy prices contributing to
challenging market conditions for both our customers
and their consumers, during the year we continued
to develop our digital platforms to ensure that the
smart rollout programme progressed to plan, while
ensuring that our field workforce delivered key
messages around energy efficiency and savings
throughout these difficult times.
Over the year, we focused on making available a
variety of digital booking channels, while still offering
the more traditional option of voice. The introduction
of a new omni-channel solution in the first half of
2022 will see our digital engagement increase
further. These platforms will allow us to adapt our
communication styles, particularly in supporting
customers with vulnerabilities.
The wellbeing of our workforce and of the consumers
living in the homes we visit remains paramount.
With the UK still feeling the impact of COVID-19,
we worked closely with our customers to introduce
additional checks and measures, both before and
on the day of appointment, to ensure that each
installation took place in a safe manner.
• Issuance of quarterly employee newsletters.
• Ad-hoc Company presentations by the executive
leadership team together with regular videos and
email communications.
• Various wellbeing Group initiatives.
• Employee engagement surveys.
• ‘You Said. We Did’ infographics following our
engagement surveys to update employees on progress.
Key topics of engagement during 2021
Our employees were engaged on several significant
projects during the year. Through discussion forums,
their thoughts and feedback were collated and
evaluated, and they directly influenced the key
outputs. Projects in 2021 included:
• a focus on equality, diversity and inclusion (EDI) and
establishment of a new, voluntary monitoring form;
• an employee competition to gain ideas on how to
introduce EDI into our core values, resulting in a new
behaviour ‘Celebrate our differences’ within our
‘Pride’ value
• additional benefits including Medicash (health plan)
and enhanced fertility and miscarriage leave and
support; and
• enhanced wellbeing support.
SMS Annual report and accounts 2021 43
Strategic reportGovernanceFinancial statements
SUSTAINABILITY continued
Suppliers
Regulatory bodies
See the Operational review for further information
See the Operational review for further information
Why effective engagement is important
Our wide range of partners provides us with the goods
and services we rely on to deliver for our customers.
This includes physical plant and equipment (most
notably meter assets), engineering services, and legal
and professional consultancy, to name but a few.
Reliable supplier relationships are thus crucial in
delivering our business model and strategy. Maintaining
positive and open engagement is a key priority.
Health and safety is at the heart of everything we do
and this extends to services provided to us by our
third-party partners.
Form of engagement
• Comprehensive onboarding process by skilled
procurement and legal professionals, using
Groupwide procurement procedures and policies.
• Two-way communication process.
• Prompt payment practices.
• For larger suppliers, ongoing engagement through
regular meetings and feedback sessions.
Performance may also be measured against key
performance indicators.
• Where relevant, thorough tender and bid processes
are carried out.
Key topics of engagement during 2021
We have continued to work closely with our vendors to
keep our supply chain flowing, especially considering
the UK-wide shortage of HGV drivers which has caused
issues with waste carriers prioritising general waste
over recycling waste and SMS engineers having to seek
non-preferred branded fuel to ensure our operations
remained on track. Due to the global freight capacity
restrictions, we did experience some product
shortages, but we worked swiftly with our compliance
teams to ensure we had alternative product available
to allow our operations to continue. Despite these
challenges, our key vendor service levels remained
high throughout the year.
Policies and procedures around onboarding of vendors
and ensuring prompt payment have been adhered to.
We now have greater visibility of the vendor base as
we continue the development of our Electronic Quality
Management system.
Why effective engagement is important
The primary government regulator for the gas and
electricity market in the UK is the Office of Gas and
Electricity Markets (‘Ofgem’). Ofgem is the regulatory
body by which our key customers are governed.
In conjunction with other associations, groups and
alliances, Ofgem provides comprehensive industry
codes of practice that govern the operational, technical
and health and safety issues associated with the
installation and management of metering assets,
to which both SMS and its customers must adhere.
Maintaining regulatory compliance is crucial to
our business success amongst customers who
place substantial reliance on our reputation as a
full-service provider.
Form of engagement
• Attendance at regular meetings.
• Active participation in consultations and workshops.
• Representation on several boards and panels,
including: Metering Code of Practice (MCoP) and
Meter Operation Code of Practice (MOCOP) panels,
the Association of Meter Operators and the Smart
Metering Operations Group.
• Regular compliance reviews and audits, both
internally and externally, in respect of the
certifications and accreditations which we hold
under MCoP and MOCOP, amongst others.
Key topics of engagement during 2021
We participated in forums to establish the new Retail
Energy Code, which brings together several existing
codes of practice and updates the governance of
existing gas and electricity retail arrangements. As
part of this, we have supported our energy supplier
customers in understanding the new code and the
potential implications for their operations.
In December 2021, we joined a new implementation
working group set up by XoServe, which is focused on
developing the role of hydrogen across the UK gas
network. In time, SMS will be involved in developing
the technical standards for this.
We continue to sit on several panels of the Institute
of Gas Engineers and Managers, participating in the
review and enhancement of key technical standards.
Recurring annual audits were carried out with
successful outcomes and no identified material
non-compliance issues.
44 SMS Annual report and accounts 2021
Lenders/financiers
Government bodies
See the Financial review for further information
See Our markets for further information
Why effective engagement is important
Our lenders are providers of critical funding, supporting
the achievement of the Group’s operational and
strategic goals.
An open and transparent dialogue is key to allow
efficient responses to the business’s changing needs.
Form of engagement
• Provision of quarterly financial and management
reporting.
• Regular meetings.
• Ad-hoc phone calls and emails as needed, ensuring
proactive communication.
Key topics of engagement during 2021
Meetings were held with the Group’s syndicate of banks
to provide an update on the 2021 budget and
performance.
The Chief Financial Officer was ultimately responsible
for the management of the facility refinancing in
September 2021, as detailed on page 74.
Why effective engagement is important
We engage with several government bodies including
the Department for Business, Energy & Industrial
Strategy (BEIS) and the Data Communications
Company (DCC).
These government bodies use our expertise and
experience to assist in the formulation and delivery of
key energy policies, which have a direct impact upon
our customers and our own business.
We maintain an open and transparent dialogue and
develop an awareness of the key decisions being made
within the industry which are likely to impact our
business. This engagement allows us to forward-plan
and remain competitive.
Form of engagement
• A regular meeting programme with BEIS, including
attendance at round tables and working groups.
• Review and provision of formal responses
on consultations issued by BEIS and other
government bodies.
• Extensive engagement with the DCC.
• Representation on both the Smart Energy Code (SEC)
Operational Performance panel and Smart Meter
Device Assurance scheme to help govern the
activities of the DCC and hold programme suppliers
to account.
Key topics of engagement during 2021
We have responded to consultations to shape the
industry process for securely triaging smart meters,
which is not currently possible, working with meter
manufacturers to explore how second-generation
smart meters (‘SMETS2’) can be made reusable.
Following a Department of Transport consultation on
electric vehicle (EV) charging, we have a representative
in the Electric Vehicle Energy Taskforce and are working
with others across the energy and transport industry
to explore how smart metering can support in this area.
We have also proposed modifications to the SEC to
increase the scope of SMETS2 Twin Element meters.
This will allow energy suppliers and other parties to
enable smarter innovative tariffs, whilst creating an
opportunity for our FlexiGrid™ product.
We also helped BEIS and Public Health England in
their testing to demonstrate that the radio frequency
of dual-band equipment does not pose a health risk
to end consumers.
SMS Annual report and accounts 2021 45
Strategic reportGovernanceFinancial statements
SUSTAINABILITY continued
2. The environment
2021 was an exciting year for sustainability,
packed with UK Government activity including
major policy releases and the hosting of COP26.
Against this backdrop, SMS continued to evolve
in its role as a low-carbon energy solution
provider and these developments continue
to position us at the forefront of climate-
transitioning energy services.
• had our net-zero target recognised by The Climate Pledge
and the UN Race To Zero campaign, demonstrating our
ambition and achievements;
• submitted our UN Global Compact annual ‘communication
of progress’, demonstrating alignment with the
UN principles;
• maintained our Green Economy Mark; and
• commenced assessment of service and revenue alignment
with the EU taxonomy, detailed further on page 47.
Sustainability governance
Environmental, social and
governance (ESG) disclosures
We have continued to improve the communication and
disclosure of our established ESG working practices,
integrating ESG communications into our mainstream market
communications and stakeholder touch points, and ensuring
ESG commentary was firmly embedded in our inaugural 2021
Capital Markets Day.
In line with our strategic focus, in 2021 we:
• continued to improve supporting score, from 6.3 to 6.6
from MSCI, retaining an ‘A’ rating and improving our
Sustainalytics score from 27.8 to 26.6;
• maintained a ‘B’ rating from our Carbon Disclosure
Project (CDP) submission;
• continued to be a supporter of the Task Force on
Climate-Related Financial Disclosures (TCFD) – more
details on our TCFD journey can be found opposite;
We are dedicated to ensuring our disclosures remain in line
with best practice, providing an accurate representation of
our activities and achievements.
Assessing and addressing climate-related
risks and opportunities
As an organisation at the leading edge of the low-carbon
transition, and a TCFD supporter, we understand the
importance of climate considerations now and into the
future and are committed to sharing relevant information
with our stakeholders.
In 2020 we embarked on a journey to implement the
recommendations of the TCFD. These include disclosing
against all eleven detailed sub-disclosure sections, under
the four core elements of the TCFD: Governance, Strategy,
Risk Management, and Metrics and Targets. As part of this,
we also undertook climate-related scenario analysis.
The disclosures were summarised in our inaugural 2020
Sustainability Report and further details on our 2021
disclosures can be found in the 2021 Sustainability Report
at www.sms-plc.com/corporate/sustainability.
46 SMS Annual report and accounts 2021
The four core TCFD elements are summarised below:
TCFD disclosure aspect
SMS response
Governance: Governance
of climate-related risks
and opportunities
Our Health, Safety and Sustainability (HSS) Committee, formally ratified in 2020, was created by
the Board to ensure that the Company’s approach to health and sustainability are clearly set out,
consistently monitored, and adapted to suit the growing needs of the Group. See page 81 for more details.
Strategy: Actual and
potential impacts of
climate-related risks
and opportunities on
business strategy and
financial planning
Our services aim to mitigate climate change, with a range of opportunities embedded in our business
strategy for the short, medium and long term.
We have identified areas of potential climate-related risk, such as extreme weather events which
could affect our physical locations and road-based employees. Transitional impacts on our new and
developing services have also been considered and we highlight potential impacts around fuel taxation
linked to the cost of operating our fleet. However, whilst climate-related change will have a profound
effect on business in the broader sense, the risk is very low for SMS specifically.
Risk management: The
processes used to identify,
assess and manage
climate-related risks
We have carried out qualitative explorations of potential areas of concern utilising best practice
guides as a framework. We have since commenced a detailed climate exposure evaluation of our
physical assets including offices, warehouses and battery sites. Further information can be found
within the Sustainability Report.
Climate risk is integrated into our Group risk register and monitored by the Audit Committee; see
the Risk report on pages 62 to 69 for details on the Group’s risk management processes. Climate risk
is not considered a principal risk for risk reporting purposes due to its low rating.
Metrics and targets: The
metrics and targets used
to assess and manage
relevant climate-related
risks and opportunities
Consistent with the prior year, our Scope 1, 2 and 3 emissions are disclosed within our emissions reporting
table, including further descriptions of sources. See page 51.
Our ‘net zero by 2030’ target and roadmap demonstrate our commitment to reducing emissions.
Transition milestones are embedded into our financial and strategic business planning. See more
details on page 49.
Although our CDP disclosure includes full details of our
current aligned activities, our journey to best practice with
regard to TCFD reporting continues, as we fully embed the
principles into our strategic planning and everyday
processes. We intend to enhance our climate exposure
evaluations over the next year, and our ESG Working Group
and HSS Committee aim to regularly review, evaluate and
report on quantitative and financial climate-related risk.
UK/EU taxonomy
The EU taxonomy (‘the Taxonomy’) enables classification of
business activities as “environmentally sustainable”. The aim
of the Taxonomy is to provide transparency to both investors
and businesses and to prevent greenwashing. The Taxonomy
supports sustainable investors and investments, by providing
clear quantitative demonstrations of business activities and
revenues against specific criteria. It has gained momentum
over the past year and the proposed UK Taxonomy, which
is anticipated at the end of 2022, is expected to closely
align with it.
Under the Taxonomy, a business must pass three key tests
to be classed as environmentally sustainable. It must:
• make a substantial contribution to one or more of the
Taxonomy’s environmental objectives;
• provide taxonomy-applicable services classified under
specific ‘NACE codes’; and
• do no harm under all environmental objectives.
During 2021, we assessed the extent of our alignment with the
EU Taxonomy, in order to support our investors and prepare
for the UK Taxonomy, and our initial assessment shows
strong correlation between all our services and the
Taxonomy requirements. Full details of our contributing
services, applicable activities and strategies under the ‘do no
harm’ criterion can be found within the Sustainability Report.
We will continue to align with the requirements of the
Taxonomy as these become available, and disclose our
alignment; assessing the technical screening criteria and
revenue from applicable activities, with the objective of
demonstrating our aligned revenue to investors by the time
of the UK Taxonomy’s anticipated release at the end of 2022.
Health, Safety and Sustainability Committee
Our HSS Committee, including its role and responsibilities
and key activities in the year, is detailed on page 81. The
Committee is supported by our ESG Working Group, which
comprises members of senior management across key
supporting functions and ensures our objectives and
activities are relevant and achievable. It also facilitates
sharing of best practice across the Group and ensures we
have the capacity and capabilities to deliver on our goals.
SMS Annual report and accounts 2021 47
Strategic reportGovernanceFinancial statements
SUSTAINABILITY continued
Our contribution to the United Nations Sustainable Development Goals
SMS strategy
SDGs
UN Global Compact Principles
SMS objective
Putting people first:
Create a sustainable and safe
environment for all, nurturing
a thriving workplace and
business that supports wider
society. We ensure diverse,
inclusive environments and
promote wellbeing, whilst
empowering communities
to take control of their carbon
footprint and tackle local and
global issues.
Sustainable futures:
Inspired by our core value
of ‘sustainability’, we are
leading the UK’s transition to
a low-carbon future; and this
work is supported by our
commitment to ’net zero by
2030’ in our own business.
We assist our clients and
wider consumers with
their carbon reduction
journeys through funding
and delivery of sustainably-
focused services.
Operating responsibly
and ethically:
We will uphold our moral and
legal obligations through
responsible and ethical
practices, ensuring the
integrity and transparency
of all our activities: from our
supply chain to our people,
and from our operations to
our customers and wider
society.
Principle 1: Businesses should
support and respect the protection
of internationally proclaimed
human rights
Principle 3: Businesses should uphold
the freedom of association and the
effective recognition of the right to
collective bargaining
• Work with our employees to drive down
our injury rate.
• Reduce gender pay gap.
• Continually review and improve provision
of comprehensive, competitive and
equitable reward and benefits, and
ensure all employees are paid at least
the Real Living Wage.
Principle 6: The elimination of
discrimination in respect of
employment and occupation
Principle 7: Businesses should
support a precautionary approach
to environmental challenges
Principle 8: Undertake initiatives to
promote greater environmental
responsibility
Principle 9: Encourage the
development and diffusion of
environmentally friendly technologies
• Reduce environmental impacts across
our operations.
Principle 2: Make sure that they are
not complicit in human rights abuses
• Maintain our ISO certified
management systems.
Principle 4: The elimination of all
forms of forced and compulsory
labour
Principle 5: The effective abolition
of child labour
Principle 10: Businesses should work
against corruption in all its forms,
including extortion and bribery
• Engage Tier 1 vendors to identify their
ISO14001 status, and work with key
suppliers to obtain improvements within
their ISO14001 accreditation or their
environmental policy.
• Maintain zero cyber security breaches.
Further details under each of our targets can be found within the 2021 Sustainability Report.
Our 'net zero by 2030'
target will see us drastically
reduce our organisational
carbon emissions"
48 SMS Annual report and accounts 2021
Our net-zero ambition
A reminder: what does ‘net zero’ mean?
Our ‘net zero by 2030’ target will see us drastically reduce
our organisational carbon emissions, to a point where
we remove as much greenhouse gas from the atmosphere
as our operations create.
2022 outlook and priorities
2022 will see us enter our first cycle of fleet van
replacements and through 2022 to 2024 we will be
replacing a significant proportion of our vans with
hybrid and full-electric vehicles.
Whilst upgrades on our first office progress, we will
commence analysis of our second site for prioritised
sustainability upgrades. This activity will include detailed
3D modelling of the building using simulation software
to assess the current performance of the building as well
as to identify and evaluate potential improvements, such
as insulation or window replacement. This initial step
focuses on bringing down the energy demands of the
building, prior to the subsequent steps of evaluating
control systems and generating the building’s own
renewable energy.
Our carbon trajectory
We have quantified the steps we need to take within our
net-zero roadmap, showing the estimated carbon impact
of the transition of our fleet and buildings between now
and our target achievement date of 2030.
We have used the UK Department for Business, Energy
& Industrial Strategy’s (BEIS) carbon conversion factors,
alongside vehicle manufacturer data, to establish
immediate emissions, and have projected the long-term
energy intensity of grid electricity using BEIS’s updated
energy & emissions projections.
Our target encompasses Scope 1 and 2 emissions from
our tracked fleet (representing 90% of our target
emissions) and the operation of our buildings through
heating, cooling and electricity use (representing the
remaining 10% of our target emissions), but excludes
our grid-scale battery operations.
2021 progress
In 2020 we set an ambitious, change-based net-zero
target, focused on transitioning our fleet to hybrid and
electric vehicles (EVs), and implementing sustainability
upgrades at our core sites. See our roadmap below.
During 2021, we successfully achieved our target
milestones for the year. Eleven EV vans were received at
the end of the year as trial vehicles to test their viability,
distance capabilities and general suitability for our
business purposes.
We also commenced sustainability upgrades on our first
office, with extensive surveying activity across a range
of energy efficiency and renewable solutions, including
window replacement, an air- source heat pump, solar
Photo Voltaic (PV) and battery provision. Following
evaluation, we have decided to commit to the full package
of solutions to aggressively reduce emissions, which
should deliver a greater than 60% reduction in emissions,
transitioning us away from gas use. We expect site work
to commence in the first half of 2022.
Fleet and site emissions projection 2019-2030 (TCO2e)
Impact of COVID
operations
Phase 1 fleet
transition
Phase 2 fleet
transition
Site sustainability upgrades
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
SMS Annual report and accounts 2021 49
Strategic reportGovernanceFinancial statements
SUSTAINABILITY continued
Living our values and reducing our footprint
COVID-19 continued to impact the operation of our offices
and warehouses throughout 2021 and, as we endeavoured
to keep our employees safe, we continued a ‘work from home
where possible’ approach. This reduced our building-related
operating emissions, which continued to be lower than
those in 2019, but were higher than the significantly
reduced emissions we saw during 2020 as a result
of the nationwide lockdowns.
In 2021 we also saw a return to more conventional working
within our fleet activities, which currently represent the
majority of our emissions. Our fleet movements, mainly
attributed to the installation of smart meters, increased
significantly compared to 2020 as a result of an increase
in our smart meter installation run rate, and continue on
this trajectory.
As our business evolves and COVID-19 continues to impact
operational working, we will continue to progress our carbon
reduction ambitions in the form of our ‘net zero by 2030’
target, which supports the transition of emissions at source
for our organisation.
Our ‘handprint’
We take a holistic view of our Company sustainability, which
includes quantifying both the positive impacts from our
products and services, and the negative impacts from our
business estate and fleet (our footprint), to reach an
understanding of our total sustainability.
We use this ‘net positive’ perspective to align our strategy
for business growth, financial benefits and sustainability
gains: investing in the development of carbon reduction
(‘CaRe’) assets which deliver carbon reductions for our
customers and their end consumers.
Our ‘handprint’ is the carbon mitigation achieved by our
customers through the impact and delivery of our energy
services and solutions, including smart meters. We use
savings data from smart meter energy research and
from delivered energy efficiency projects to calculate
our total handprint.
Tonnes carbon mitigated – smart meters (TCO2e)1
Tonnes carbon mitigated – energy efficiency projects (TCO2e)2
Total business handprint (TCO2e)
2021
121,421
5,338
126,759
2020
restated3
102,699
5,291
107,990
2019
restated3
96,699
3,444
100,143
1
2
3
Derived from annual savings on domestic property consumption as a result of the installation of a smart meter, including the flow-through impact of prior
period installations. Figure is calculated based on the number of owned, domestic smart meters under management at 31 December 2021.
Derived from annual energy savings achieved by customers as a result of energy efficiency projects delivered by SMS, including the flow-through impact
of projects delivered in a previous period.
Prior year figures in relation to the tonnes of carbon mitigated from smart meters have been restated to align with a revised calculation methodology
implemented in the current year, which now uses the total number of owned, domestic smart meters under management at the end of the year as opposed
to the number of smart meters installed in the year. This captures the flow-through impact of prior period installations, consistent with the calculation
methodology for energy efficiency projects which includes the flow-through impact of projects delivered in a previous period. No change has been made
to the calculation methodology for energy efficiency projects.
100%
renewable electricity on owned
sites and 38% renewable electricity
on leased sites
29%
reduction in total direct business
emissions (Scopes 1 and 2)
compared to 2019
17%
increase in mitigated emissions
compared to 2020
50 SMS Annual report and accounts 2021
Our environmental performance
Emissions reporting
Our footprint is the carbon produced by our operational
activities, and we utilise the internationally recognised GHG
Protocol to ensure comprehensive and standardised data
calculations. Our reporting covers all emissions from our
business activities.
In 2021 we saw the first of our grid-scale battery storage
sites enter commissioning stage, which represents a critical
development in our journey to support the integration of
renewable sources of electricity into the grid. The long-term
outcome will be grid-scale batteries enabling a low-carbon
energy system; however, during the transition our grid-scale
battery sites utilise electricity to operate, and so we account
for this within our Scope 2 emissions reporting.
Our Scope 1 calculation looks at the energy consumed by
our fleet vehicles, gas and oil consumed across our offices,
warehouses and training centre, and fugitive emissions
from air conditioning. Our Scope 2 calculation looks at
our electricity consumption.
The table below incorporates our mandatory Streamlined
Energy and Carbon Reporting (SECR) reporting, together
with certain voluntary disclosures:
2021
2,082.7
1,988.0
37.1
2.2
55.4
2020
restated2
1,760.4
1,690.0
41.5
1.5
27.4
Total Scope 1 (TCO2e)
Company-owned vehicles (TCO2e)
Gas (TCO2e)
Burning oil (TCO2e)1
F-gas (TCO2e)1
Scope 2 (TCO2e)
Location-based (TCO2e)
189.5
152.4
Market-based (TCO2e)1
(including green energy contracts)
163.9
82.6
Total Scope 3 (TCO2e)
561.3
502.0
Diesel upstream supply1
500.8
421.9
28.2
16.8
4.1
1.2
6.4
0.5
49.4
13.1
6.5
3.1
5.4
0.3
3.3
2,833.5
2.3
2,414.8
Vehicle business travel
Transport and distribution’
electricity1
Petrol upstream supply
‘Well to tank’ water supply1
‘Well to tank’ gas1
‘Well to tank’ burning oil1
Waste1
Total Scope 1, 2 & 3 (TCO2e)
(Scope 2 Location-based)
Carbon intensity
Scope 1, 2 & 3 (TCO2e/£m)
Operational energy
consumption (MWh)
2019
restated2 Commentary
2,978.1 Scope 1 comprises the direct emissions
from our operations.
2,879.7 Our owned and tracked fleet vehicles.
50.5 Gas heating serves eight of our properties
across the UK.
- Oil heating is used in one office building.
47.9 F-gas is the refrigerant used in air
conditioning for cooling workspaces and
server rooms.
Scope 2 comprises the indirect emissions
associated with our operations.
205.6 Electricity lights, heats and powers our
operations across warehouses, offices and
training centres in the UK. Electricity used as
operational energy such as cooling and
communication systems at our grid battery site.
94.7 We source green contracts for our electricity
where possible. This calculation excludes
shared leased spaces, where contracts are
controlled by the landlord, and new sites.
1,164.3 Scope 3 comprises are emissions from up
and down our value chain, including those
of suppliers and service providers.
685.0 Upstream production of diesel to supply
employee-owned vehicles and company-
owned fleet.
444.5 Travel in employee-owned vehicles.
17.4 Upstream production of electricity for use
on our sites.
- Upstream production of petrol to supply
employee-owned vehicles.
7.9 The utilities which serve our warehouses,
offices and training centres with water emit
carbon through their supply and treatment
operations.
6.6 Upstream production processes of gas for
use on our sites.
- Upstream production processes of burning
oil for use on a site.
2.9 The processing of our waste from our sites.
4,348.0
26.1
23.4
38.0 Shows the amount of emissions produced
9,500.3
7,908.1
to achieve the revenue realised, per £m.
12,846.0 This is the total energy consumption of
our operations, spanning activities included
in Scope 1 and 2 (excluding F-gas).
1
Data is voluntary under SECR, but included for completeness of Scope reporting under GHG Protocol. As our business grows, we are developing our ability to decouple
operational growth and energy consumption. See our Sustainability Report at www.sms-plc.com/corporate/sustainability for a full breakdown of all metrics.
2 Prior year figures have been restated to reflect updated third party information and resources published after the original reporting date.
SMS Annual report and accounts 2021 51
Strategic reportGovernanceFinancial statements
SUSTAINABILITY continued
3. Our people
Health and wellbeing
Amidst the continued public health challenges posed by the
COVID-19 pandemic, the necessity to look after ourselves
both mentally and physically has become more important
than ever. As a business, we continued our commitment
to invest in employee welfare and promote good health,
safety and wellbeing during 2021, and this is reflected in
the continued improved performance we have seen across
the Group. Some of the key mental, physical and financial
initiatives included the sustained improvement of our
bespoke wellbeing intranet site, which holds resources
including signposting to specialist support, articles, new
accreditations and useful health tips for all employees.
Initiatives supported in 2021 included: Menopause at Work;
Men’s Health Week; Mental Health Awareness Week; World
Mental Health Day (supported by our accredited mental
health first aiders who are available to listen and signpost
employees to specialist support); National No Smoking Day;
and World Suicide Prevention Day.
Enhanced benefits package
Responding to employee feedback, during 2021 we also
enhanced our employee benefits package, including the
launch of Health Assured, a new employee assistance
programme which offers a 24/7 confidential counselling
service; and SmartHealth, a free support package for
employees giving access to expert health and wellbeing
advice, including free 24-hour online GP appointments.
We also introduced Medicash, which offers employees cover
on a range of healthcare options. We additionally made
improvements to our Group family-friendly policies to sit
alongside our recently enhanced pay for maternity/adoption
leave. This included the introduction of five days’ paid leave
for fertility treatment and for employees who have sadly
suffered a miscarriage. In addition to this commitment, we
were also proud to sign the Pregnancy Loss Pledge via the
Miscarriage Association.
Vaccination advice
Throughout 2021, as well as offering our employees free flu
jabs, we issued regular communication regarding updated
UK Government advice on COVID-19, and the benefits
of vaccination.
Employee engagement
At SMS, we are committed to putting our people first – a
philosophy embedded within our company culture and core
values. We can only do this by actively listening to our
employees and encouraging feedback and discussion
on the topics that matter most to them.
Following our first ever external Group employee
engagement survey in 2020, we undertook two further
engagement surveys during 2021 through the ‘Best
Companies’ platform, facilitating essential two-way
communication and guiding us towards actions based on
colleague feedback. We were delighted that Best Companies
subsequently awarded us ‘One to Watch’ status, following our
75% employee response rate (2020: 50%).
52 SMS Annual report and accounts 2021
Since this engagement process was launched, as a business
we have taken the time to listen, set clear actions, make
improvements, and clearly communicate these to our
employees. Actions to date have included additional
wellbeing support; the launch of a Groupwide pay, reward
and benefits structure; and improved internal communication.
But we will not stop there: our focus is firmly on sustained
improvements in all areas moving forward.
Recognition and reward
As well as general engagement, enhancing employee
recognition has also been a key focus with the launch of our
Living Our Values Awards – a quarterly scheme linked to our
five core values and behaviours. Employees are nominated
by their colleagues or managers for consistently displaying
one or more of the SMS core values, and winners receive
a prize and letter from the Chief Executive Officer.
As well as internal recognition, our business, teams and
employees were also honoured with external recognition
by several industry award bodies during 2021, reflecting
the quality of our work and the commitment to customer
excellence across the Group.
SMS was nominated for the coveted ‘Employer of the Year’
prize (for the second year in a row) in December 2021 at the
Utility Week Awards 2021, and the Group HR team was
short-listed for ‘Team of the Year’ by the same awards body.
Additionally, our Head of Sustainability (Charlotte Gregory)
was highly commended in the ‘Young Sustainability
Professional of the Year’ category at the Business Green
Awards, whilst three SMS employees also successfully
reached the finals of Logistics UK Van Driver of the Year 2021.
Internal communication and brand refresh
In December 2021 we launched an ‘Employee Voice’ forum
to give our people a structured channel through which views
and suggestions can be shared, with the aim of driving
ongoing workplace improvements. The forum is held monthly
and chaired by the Group HR Director, and all feedback is
shared with the executive leadership team for consideration
and, where possible, implementation.
Our quarterly employee newsletter continued throughout
2021, supplemented with the addition of special-interest
podcasts. In April, the first ever employee summary version
of our Annual report was circulated with the aim of improving
insight and understanding of the business strategy and
making our corporate communications more digestible.
All our communications in 2021 were against the backdrop
of a Group brand refresh. To encourage brand awareness
amongst employees, as well as instil a sense of community,
all employees were sent a giftbox with branded gifts using
recyclable packaging.
SMS Annual report and accounts 2021 53
YOU SAIDWE DIDFollowing your feedback, here’s an update on some of the positive actions we’ve taken since our last employee survey in February 2021Apprenticeships – currently 51 across GroupCommunication SMS Newsletter, Capital Markets Day, Annual Report, Energy Matters PodcastSupport wider awareness e.g. Pride,Mental Health Awareness Week, Black History Month, Menopause, Fertility NEW Quarterly Employee Voice ForumNEW SMS behaviour under core value Pride: 'Celebrating our differences'Equality, Diversity & Inclusion NEW Inclusion Works Program (HIVE) undertaken by Execs/DirectorsNEW Voluntary EDI Monitoring FormNEW HR bespoke Employee Lifecycle Training for ManagersNEW Living our Values (LOV) Awards Quarterly nominationsStrategic reportGovernanceFinancial statements
SUSTAINABILITY continued
Onboarding in action
After receiving the unfortunate news of Quinn’s liquidation –
Quinn had been a long-time engineering sub-contractor for SMS –
70 of my colleagues and I were onboarded as SMS employees
as part of a TUPE transfer.
I can’t praise enough how seamless this was. The level of care and
sensitivity from SMS’s management and HR teams was second to
none. The onboarding process was incredibly swift, efficient and
well organised, which was incredibly important for our sense of
morale and stability. In the space of a week, we were all officially
inducted without having to miss even one day of work.
Needless to say, we’ve all been made to feel very welcome since
we joined and throughout our integration into the Company.”
Louis Thomas
Performance Manager
eLearning modules
Our online learning and face-to-face training programmes
were supplemented with new eLearning modules including
Customer Excellence – one of our five core values – which
aims to reinforce the skills needed to positively influence our
customer interactions. We also launched updated Equality,
Diversity and Inclusion and Data Protection modules, as well
as a brand-new Anti-Bribery, Gifts, and Charitable Donations
eLearning course.
Succession planning
We feel it is important to have robust systems and
approaches to identify and develop talent. Proactively
managing talent can increase employee motivation and
retention, while healthy and actively managed succession
plans support business continuity and reduce the risks and
costs of sourcing new talent externally. A robust plan is key
to enabling us to attract, recruit and retain the most talented
people; and hence a refreshed talent management
and succession planning framework was created and
implemented in the year, initially focusing on the executive
leadership team and their direct reports. One of the key
responsibilities of leaders and managers within SMS is to
identify and develop their possible successors and ensure
the ongoing continuity of the organisation.
Talent management and development
As with all businesses, we will face many challenges over
the next few years as ways of working continue to change.
However, we are confident that through investment in our
employees, including via a dedicated training budget and
upskilling of our engineers through our training academy,
our business and employees will continue to go from strength
to strength. All our people play a crucial role in delivering
business success, and to facilitate this we encourage
ongoing professional learning and development.
Apprenticeships and programmes
During 2021 we enrolled a further 31 employees into
apprenticeships, taking our overall active apprenticeships
to 44. We have expanded our apprenticeship offering to
include coaching, IT and digital application support.
We also continued with enrolments onto our management
development programme, with 84 team leaders and
managers being part of the scheme by the end of the year.
Participants have gained stronger decision-making skills,
a more forward-thinking approach, and increased
accountability and confidence, with enhanced knowledge
and learning sharing between colleagues.
Engineer upskilling
We progressed our engineering upskilling programme last
year, with all our engineers invited to join open sessions to
discuss and enrol on the training courses available. These
included electric vehicle installation training, three-phase
metering training, and support with Institute of Gas Engineers
and Managers membership. See our Operational review
on page 34 for further details.
54 SMS Annual report and accounts 2021
Equality, diversity and inclusion
Equality, diversity and inclusion (EDI) is a strategic driver for
SMS, with increased support for EDI being led by our Board
and senior management team. As an organisation, we
understand the importance and value that a diverse and
inclusive workforce brings, and so we have taken many
positive steps towards becoming more EDI-focused.
Most notably, we launched our partnership with the Hive
‘Inclusion Works’ programme, which was delivered to our
Board, including Executive and Non-executive Directors,
and other members of the senior management team during
the year. This programme is designed to provide the tools
for our senior leaders to have honest conversations about
culture change, understand what equality and diversity mean
in practice, and ultimately drive inclusion within SMS. The
Hive learning platform played a core role in supporting a
programme of ‘inclusion works’ over a four-week period.
The programme offered a private space as a community
and peer cohort group could access the programme
resources in one place, as well as discuss, share, and reflect
with each other. Having senior leadership drive this
programme forward shows true culture change by SMS.
Updated core values
In 2021, we launched an employee-led initiative to better
reflect EDI within our core values and to highlight its
importance. Specifically, we asked our employees to suggest
a behaviour relating to EDI and which of our five core values
this behaviour should permanently sit under. The winning
suggestion was ‘Celebrate our Differences’, which has been
applied as a new behaviour within our ‘Pride’ value. The
phrase ‘Celebrate our Differences’ has now also become the
slogan of all our Group communications on matters of EDI.
Pay, reward and benefits framework
Our new pay, reward and benefits framework, which includes
career grading, job families and pay banding, ensures pay
equity, fairness and consistency of approach throughout
the employee journey.
EDI monitoring form
We launched a voluntary EDI monitoring form (to be
completed by existing employees and as part of our
recruitment and onboarding process) to capture the
demographics of our workforce and any new employees.
The information we gather helps us gain a better
understanding of who works with us, if any groups are
underrepresented, and whether everyone’s needs are
met. It also helps ensure the Equality Act 2010 is being
championed. We have used this data to organise specific
Company development and training programmes, update
our policies and procedures, and identify barriers and
challenges faced by our people. Ultimately our aim is that
our workforce will be truly representative of all sections
of society, to ensure there is no discrimination, and to
encourage diversity and inclusion within the SMS workforce.
Awards, accreditations,
awareness
• Achieved Disability Confident Leader status (Level 3),
helping us ensure that disabled people can fulfil their
potential and realise their aspirations at SMS.
• Became a Race at Work Charter signatory, helping
us take practical steps to ensure our workplace is
tackling the barriers ethnic minority people may face
in recruitment and progression.
• Were short-listed for ‘Best for Diversity & Inclusion’
at the WM People Top Employer Awards for –
an award recognising organisations which
“demonstrate actions taken to ensure equality
of opportunity for all”.
• Maintained Employers Network for Equality &
Inclusion accreditation, ensuring best practice EDI
through initiatives such as our bespoke EDI eLearning
module mandatory for all employees.
• Maintained Mindful Employer pledge.
• Maintained ‘Accredited Living Wage’ employer
status, ensuring entry-level salaries are at or above
the Living Wage, and rewarding all employees fairly
for their contributions, regardless of gender.
• Continued to be a member of the Tomorrow’s
Engineers Code, whose signatories' shared aim is to
increase the diversity and number of young people
entering engineering.
• Temporarily changed our logo to the colours of the
rainbow and supported Pride Month with an
awareness campaign, with input from employees.
• Supported Black History Month, and with feedback
from our employees recognised local black heroes
within communities close to our sites.
Celebrating Pride
SMS Annual report and accounts 2021 55
Strategic reportGovernanceFinancial statements
SUSTAINABILITY continued
A Director’s reflections on the Hive
‘Inclusion Works’ programme
I am a big believer that businesses make better
decisions when a diversity of views, life experiences,
and backgrounds are part of the debate. The rollout of
the Hive ‘Inclusion Works’ eLearning programme to the
Group’s senior leadership has therefore been a hugely
welcome addition to its management training.
On a personal note, as a passionate advocate of the
importance of equality, diversity and inclusion (EDI) in
the workplace – and indeed across our everyday
human interactions – I was an enthusiastic participant
in the course and was pleased to find the content and
learning experience both engaging and thought-
provoking. The modules did a great job of breaking
down EDI as a topic and the practicalities of applying
it, rather than just treating diversity as an awareness
exercise. What I found particularly useful was the
interactive element of the course, whereby
participants were able to share thoughts and stimulate
discussion around the course content. This made the
whole experience more impactful and memorable.
Overall, the introduction of the ‘Inclusion Works’
programme is a hugely positive step for SMS, and it
is notably symbolic that the executive leadership
was introduced to the course first, showing just how
seriously the Group is taking the issue of diversity and
inclusion. I look forward to seeing the programme
cascade through the organisation’s management
teams”
Ruth Leak
Non-executive Director
Giving something back
The most sustainable organisations are not only mindful of
their duty of responsibility to their employees, but also to the
communities within which they operate. With this in mind, in
2021 we enhanced our support for our local communities
through several initiatives:
• Donation of 143 unused tablet computers to charities
and schools throughout the UK (as nominated by our
employees) for whom access to, or purchase of, technology
would have otherwise been a challenge.
• Sponsorship of the shirts of a junior football team in Burwell,
Cambridgeshire, who play their home games less than
a mile from our 50MW grid-scale battery storage site.
• Matching of the charity fundraising efforts of several
employees through one-off corporate donations to their
chosen causes.
• Continuation of our mentoring programme with the Aleto
Foundation, with two members of our senior leadership
team becoming mentors in 2021. This programme is
focused on identifying and developing the next generation
of leaders from BAME communities, who may have
historically found it challenging to access promotional
opportunities due to their backgrounds.
• Continuation of our participation in the national
‘Career Ready’ mentoring programme for secondary-
school students.
• Support of initiatives aimed at finding solutions for social
housing and fuel poverty, including the Northern Housing
Consortium and National Energy Action’s Fuel Poverty
Awareness Day.
• Continuation of Group support for charities, with a donation
of £56,500 split between designated charities in each of
our core locations: Prostate Cancer UK, Beatson Cancer
and Velindre Cancer Centre.
Biodiversity
We also have a firm focus on improving environmental
sustainability, led by our organisational ‘net zero by 2030’
target, as well as supporting biodiversity in our communities
and local areas. In 2021, a working group was set up to ensure
environmental and biodiversity measures are embedded in
the planning and construction of our grid-scale battery
storage sites across the UK. These measures, such as the
planting of native trees and hedges on site, are currently
being rolled out as sites are completed. We have to date also
installed bird boxes at our new warehousing site in Hoyland,
Yorkshire and are due to install bird boxes, bat boxes and
insect houses at our other UK sites in 2022.
56 SMS Annual report and accounts 2021
Gender pay gap reporting
SMS supports and encourages gender diversity amongst
its workforce and welcomes the requirement for gender pay
gap reporting – introduced to increase pay transparency –
and is committed to equal opportunities and diversity and
inclusion throughout the business.
Taking action – our strategy
SMS supports and encourages gender diversity within
its workforce. It is the contributions of people from all
backgrounds that ensures our business is successful, as only
a diverse and engaged workforce will produce the solutions
we need to tackle the varying challenges that we face.
Gender within SMS1
Overall, the SMS Group workforce is 33% female and 67%
male. As we are part of the historically male-dominated
engineering industry, it is no surprise that our organisation
has such a wide gender split (weighted towards men) and
that a gender pay gap exists.
The mean gender pay gap in hourly pay for the SMS Group
is 23.6%, and the median gender pay gap is 33.8%.
Specifically within SMS:
• Most of our employees are engineers, and this is a
profession with more men than women.
• There are more men than women in senior roles.
• There are more women in part-time roles.
• There are more women in lower-paying roles.
• Engineers are eligible for a monthly health-and-safety-
related performance bonus.
It is worth noting that most of these issues are prevalent
throughout the UK and internationally, so are not unique
to SMS. EngineeringUK, the independent, not-for-profit
organisation which provides engineering workforce statistics,
has not yet officially published its latest workforce data,
but the organisation did recently submit new figures on
the percentage of women in the workforce within STEM
industries. These statistics have been made publicly available
on the EngineeringUK website, and the following are notable:
• As of June 2021, 14.5% of those working in engineering
occupations, across all industries, were women.
Encouragingly, this represented a 2.5 percentage-point
increase from the 12% reported in 2018; however, there
was no increase between 2020 and 2021.
• Women were underrepresented in senior positions (12.9%)
and skilled trades (2.6%).
The percentage of female employees at SMS in the lower
middle pay quartile decreased slightly in the past year,
by 4%; however, there continued to be significantly more
male employees (in senior roles) in the upper middle and top
quartiles, which exacerbates our gender pay gap. That said,
there was an increase of 3% in female employees in this top
quartile, compared to 2020, which is positive.
During 2021, we made nine new female appointments in
management-level roles, across several functions within
the business, and four females were internally promoted
to management and senior-level roles. In addition, four
females have joined the business in engineering roles.
We are prioritising the following areas for action:
• Utilising tools, including our new pay, reward and benefits
framework, our Disability Confident Leader status and
our EDI monitoring form to ensure there is no bias towards
either gender from the point of recruitment onwards,
including in salary conversations and progression
opportunities.
• Continuing to proactively explore how we can continue
to attract women into our organisation to create a better
gender balance, and specifically into our engineering
workforce.
Gender breakdown
Board of Directors
Male
71%
Female
29%
Senior Management
Male
68%
Female
32%
Other Employees
Male
64%
Female
36%
1
We collected our data on 5 April 2021, when the total workforce for the
consolidated Group consisted of 385 women and 717 men (including
Non-executive Directors).
SMS Annual report and accounts 2021 57
Strategic reportGovernanceFinancial statements
SUSTAINABILITY continued
4. Health and safety
Key highlights
• Business continued to operate safely during the
ongoing COVID-19 pandemic.
• No workplace transmissions of COVID-19 reported
under the Reporting of Injuries, Diseases and
Dangerous Occurrences Regulations 2013 (RIDDOR).
• Zero injury RIDDORs, including during the
construction of our grid-scale battery storage sites.
• Certification for ISO accreditations 9001, 14001, 45001
and 27001 maintained.
• Successful certification of ISO 9001, 45001 and
27001 for the Solo Energy business.
• Engineers’ technical forums established.
We remain committed to being
a safe, secure and reliable
organisation which protects the
safety and wellbeing of our
people and our customers."
58 SMS Annual report and accounts 2021
At SMS, our health and safety journey has continued
relentlessly despite the ongoing challenge of the COVID-19
pandemic. We have adapted our working practices to meet
evolving Government requirements around work safety and
our people have made changes in the workplace to keep it
as safe as practicable. This collective effort has resulted in
improved performance across the organisation, with almost
all our key performance indicators ahead of target.
Overall, 2021 was a positive year for safety, health,
environment and quality (SHEQ) performance across the
Group. We started the year with ambitious 25% reduction
targets across a wide range of SHEQ metrics. We developed
clear action plans targeting key areas and quickly started to
deliver improvements.
We met challenges along the way with seasonal trends
emerging in September that led to higher monthly technical
incident rates. However, decisive action, engagement,
collaboration and teamwork ensured that performance
bounced back quickly to exceed our reduction targets.
The business ended the year with industry-leading results
that earned high praise from one of our key clients. Our
contractors on our new grid-scale battery storage sites have
also performed admirably, with no significant incidents
reported during the construction and commissioning phases.
Accidents and incidents
Despite the backdrop of the COVID-19 pandemic,
we are delighted to report that our health and safety
performance has again improved with all but two of
our key targets achieved. Notably:
• No injury RIDDORs were reported, resulting in an
Accident Frequency Rate (AFR) of zero.
• Lost Time Incident Frequency Rate (LTIFR) has
decreased to 0.17 per 100,000 hours worked –
just short of target 0.15.
• Non-Lost Time Incident Frequency Rate (NLTIFR)
has decreased to 0.52 per 100,000 hours worked –
ahead of target 0.56.
• Total Recordable Incident Frequency Rate (TRIFR)
has decreased to 0.69 per 100,000 hours worked –
ahead of target 0.74.
• Group technical performance has improved
significantly over the year, finishing at 28 incidents
per 100,000 installs – ahead of a target of 39. This is
commendable given the increase in installations in
the year amidst the ongoing challenges of COVID-19.
Grid-scale battery storage
In 2021, we entered new territory as the ‘client’ under the
Construction, Design and Management Regulations on
our grid-scale battery storage construction sites. These
regulations impose specific health and safety duties to
ensure the safe operation of construction projects. This
was a new challenge for the business, but we are pleased to
report that our contractors made good progress on all sites
with no significant incidents. From the outset, our operations
and SHEQ teams worked closely with their counterparts at
each of our principal contractors. This has benefited all
parties and, with the experience gained over the past year,
we enter 2022 confident that we will manage any potential
risks through the ongoing construction phases and beyond.
Occupational health
Occupational health was again at the top of our agenda due
to the ongoing global pandemic. We continued to focus on
wellbeing, particularly for those who continued to work from
home, and enhanced our employee health offering with
products such as the Medicash health Plan, free flu jabs and
the SmartHealth app. Our regular communications on mental
health ensure everyone is aware of the support available as
we navigate our way through these challenging times.
Engineers’ technical forums
In 2021, we created technical forums for our engineers, giving
them the opportunity to discuss operational issues and areas
for improvement. These groups have helped make changes
to the way we work in the field: providing guidance for safer
driving, improving access to the technical helpdesk, and
highlighting good performance.
Industry campaigns and communications
We communicated with staff on a range of topics including
internal policy and systems, national awareness days and
campaigns, and risks associated with work activities
undertaken on behalf of SMS. We improved collaboration
with other departments, including marketing, HR and
operations, resulting in positive coverage for the Company
on external platforms including Gas Safety Week.
As part of Gas Safety Week 2021 we provided advice on how
to stay ‘Gas Safe’ and raised awareness of the need to use a
‘Gas-Safe-registered’ engineer to ensure consumers do not
suffer from the effects of illegal gas work.
Systems
Our Electronic Quality Management System (EQMS) has
undergone further development over the past year. Key
achievements have included the launch of our ‘Operative
Profiling’ dashboards, integration of our engineer and
supplier onboarding processes and the design of a ‘Training
Matrix Traffic Light’ system to alert key people when training
is required. These initiatives will improve visibility on
competence and provide greater assurance over the
onboarding processes.
ISO certifications
The business maintained all its ISO certifications in 2021
with no major non-conformances recorded during the
audit processes. Our Solo Energy business also achieved
certification to ISO 9001, 45001 and 27001. Our management
reviews, held in the first quarter every year, are the starting
point of our annual ISO journeys. These forums bring together
a cross-section of the workforce and are used to instil the
behaviours required to operate a modern, evolving
integrated management system.
Health and safety policy
Our health and safety policy and associated arrangements
are reviewed annually and published on the Company’s
intranet in June each year. Our ISO-45001-accredited
management system and risk management processes
ensure all key risks are identified and suitably controlled.
All employees undergo a corporate induction which
emphasises that safety is a core value, and this is
supplemented by ongoing refresher training.
The Company’s annual SHEQ targets and objectives
are endorsed by the Health, Safety and Sustainability
Committee, with performance updates published in a
monthly Board report. New and emerging risks are identified
through regional health and safety forums and addressed in
the business risk register. For example, in 2021 we established
cross-functional working groups to assess and improve
operational aspects around engineering, working at height
and where we discover uncharted asbestos.
2022 and beyond
Our priority for 2022 is to keep our people and those affected
by our undertakings safe and healthy. We will maintain a
focus on any emerging risks from COVID-19 while planning for
a return to normality. Our ambitious targets and action plans
will continue to drive improvements across the business.
We have successfully adapted to new work streams that
emerged in 2021, with our grid-scale battery storage sites
growing in number, and 2022 will see us embed their
management as a routine function. We remain committed
to being a safe, secure and reliable organisation and look
forward confidently to 2022.
SMS Annual report and accounts 2021 59
Strategic reportGovernanceFinancial statements
SUSTAINABILITY continued
5. Ethical business practices
Our five core values
Safety, Innovation, Customer Excellence, Sustainability
and Pride – underpin our commitment to ‘putting our
people first’ and drive the behaviours we wish to see
demonstrated throughout our business practices.
Innovation
Share and encourage
new ideas
Find solutions
Be creative
Think for the future
Customer
excellence
Listen and respect
Go the extra mile
Be polite
Show empathy
Safety
Take care of your
wellbeing and others
Take ownership
and responsibility
Be aware
Report and action
Putting our
people first
Pride
Celebrate our
differences
Be trustworthy
Give praise and
recognition
Work to the best
of your ability
Work as one team
Sustainability
Make greener
decisions
Build an enjoyable
and healthy working
environment
Positive towards
change
Encourage others
to act sustainably
Our core values and behaviours
60 SMS Annual report and accounts 2021
Our Code of Conduct provides the foundation on which our
standards are built and our approach to environmental,
social and governance issues, detailed further on our website
at www.sms-plc.com/corporate/sustainability, sets out clear
expectations of how to conduct business in an ethical way.
Ethical, fair and diligent governance underpins all our
business activities. This is supported by extensive
training and the continuous education of our people,
from a full corporate induction through to ongoing
learning and development.
Our key policies which recognise, support and protect
our employees’ human rights – and thus drive our ethical
business practices – cover the following areas:
• Anti-bribery and corruption
• Modern slavery
• Whistleblowing (detailed further on page 89)
• Data protection
• Equal opportunities, diversity and inclusion
(detailed further on page 55)
• Health and safety (detailed further on pages 58 to 59)
• Discipline
• Grievance
• Dignity at work.
Although not fully inclusive of everything we do, the following table demonstrates the key policies that we currently implement
and monitor in this area:
Related policies
Key themes
Implementation and review
Reporting
Human rights
Anti-bribery
and
corruption
SMS Code of
Conduct
Equal
opportunities,
diversity and
inclusion policy
Dignity at work
policy
Anti-bribery and
corruption policy
Modern
slavery and
human
trafficking
Modern slavery
policy
Modern Slavery
Statement
We respect the rights and
dignity of all people when
conducting our business.
Our focus is on ethical
business practices for our
people, customers and
wider communities.
Our policies and approach are
embedded into our culture.
They are communicated at
induction, through our
employee handbook and
via eLearning modules.
Employees are required to
immediately report any
instances of a breach in human
rights to our Group
HR Director.
During the year, there were
no reported breaches.
This policy includes guidance
to employees on the giving,
receiving and recording of
business gifts and hospitality,
together with other areas of
specific risk, and is reviewed
regularly to ensure it remains
fit for purpose.
We do not tolerate modern
slavery within our immediate
business or wider
supply chain.
Although the risk of modern
slavery and human trafficking
in relation to SMS is low, we do
monitor our supply chain to
ensure we fully understand
and mitigate the risk.
All employees are required to
accept and adhere to the
policy.
Any breaches of policy are
reported to our General Counsel
and investigated.
We do not deal with
prospective contractors or
suppliers known to pay, or
suspected of paying, bribes.
This helps prevent bribery
and other forms of corruption.
Contracts with new suppliers
require a warrant to us that
they are compliant with the
terms of the Modern Slavery
Act 2015.
Existing agreements in place
for our Tier 1 vendors already
cover modern slavery.
Key staff training is
regularly reviewed.
During the year, there were
no reported cases of bribery
or corruption.
Any breaches of this policy are
reported to our General Counsel
and, where required, to the
relevant authorities.
During the year, there were no
reported breaches.
The Company’s Modern Slavery
Statement can be found on our
website at www.sms-plc.com/
information-and-policies/
modern-slavery-act
Political
donations
Charitable
and political
donations policy
The Company prohibits
political donations other than
those approved by the Board.
Donations are monitored by
the General Counsel.
There were no political
donations made in the year.
SMS Annual report and accounts 2021 61
Strategic reportGovernanceFinancial statements
RISK REPORT
Risk governance
and management
and working capital management position which, coupled
with an established credit control facility and robust
commercial billing arrangements, helps to absorb market
shocks like this. The situation is being closely monitored by
the Board, which receives regular management information
in relation to the Group’s cash and debtor positions.
Group Internal Audit continued to work closely with the Audit
Committee, executive leadership team and departmental
teams throughout 2021 to support the continuous
improvement of risk management processes within
the Group. This work included facilitation of regular risk
workshops, which are used to:
• identify new risks and review and update existing
risk ratings;
• identify appropriate new mitigating actions; and
• assess progress towards completion of identified
mitigating actions.
The Board and Audit Committee receive regular reporting
on the outputs from risk management activities. During
2021, Group Internal Audit performed several internal audit
reviews of specific risk areas within the business, which have
assisted risk management in those areas. These included
reviews of cyber security, grid-scale batteries, operational
governance, financial controls, business continuity and
disaster recovery planning.
The Group’s Electronic Quality Management System (EQMS)
continues to be an effective tool in helping the business
to track internal audit, compliance and safety, health,
environment and quality (SHEQ) incidents and issues.
Considerable development was achieved in 2021 in the areas
of vendor onboarding and reporting. Continued development
of the EQMS tool is planned for 2022 to optimise its use
across the Group’s full range of activities. This supports
our longer-term goal of enhancing accountabilities for
risk management activities across our business.
Our robust risk management framework
continues to evolve in step with our
growing business and the developing
macroeconomic environment. The
Board has overall responsibility for risk
management. In support of this, we
operate robust risk management
processes, which are embedded within
everyday business activities throughout
the Group. The risk management
framework on page 63 highlights
the main responsibilities for the
management and oversight of
risk within the Group.
During the year COVID-19 continued to impact the risk
environment within which the Group operates, albeit to a
lesser extent than in 2020 due to the success of internal and
external controls and the broader recovery within the market
and economy. Our enhanced control framework continues
to operate well to minimise the impact of COVID-19 and we
are prepared for a return to office working via a trial hybrid
model, in line with UK Government advice.
Rising wholesale energy prices in the latter part of 2021 have
placed significant pressure on the energy supplier market,
and the subsequent risk of energy supplier insolvency
emerged as a key challenge during the year. This risk remains
prevalent in 2022 with the recent outbreak of conflict
between Russia and Ukraine, which is expected to place
additional pressure on global energy markets. Further rises
in energy prices within the UK are anticipated. Our exposure
is inherently mitigated due to the Supplier of Last Resort
(SoLR) process, whereby Ofgem directs a gas or electricity
licensee to take over responsibility for a failed energy
supplier’s customer portfolio. This protects future metering
charges, which are raised to the newly appointed energy
supplier regardless of whether they are an existing
contracted customer with the Group, thus capping our
financial exposure at amounts already accrued or billed,
but not yet settled. In addition, we have a strong funding
62 SMS Annual report and accounts 2021
Risk management framework
Board/Audit Committee
The Board is responsible for setting the tone at the top and monitoring business performance. This includes regularly
reviewing risks that could impact on achieving the Group’s strategic and organisational objectives.
The Board is supported by an effective corporate governance structure, including the Audit Committee, which has
specific delegated authority to review the effectiveness of the Group’s internal control mechanisms, financial
reporting, internal audit and risk management processes.
Executive leadership team
The executive leadership team is responsible for ongoing consideration and management of strategic risks within
the Group and for providing oversight on departmental operational risks. It provides leadership and direction to
employees on risk-taking activity.
The executive leadership team also has primary responsibility for driving the development and enhancement of
the risk management processes used within the Group.
Group Internal Audit
Group Internal Audit develops and delivers the annual risk-based Group Internal Audit Plan, aligned to the strategic
risks contained within the corporate risk register. This annual plan, which now includes a three-year outlook, is
approved by the Audit Committee.
Group Internal Audit provides oversight and advice on risks and controls to departmental teams as they manage
the risks in their areas.
Safety, health, environment and quality and compliance teams
The SHEQ and compliance teams are responsible for ensuring compliance with codes of practice, such as the Code
of Practice for Meter Asset Managers and Approved Meter Installers (‘MCoP’) and the Meter Operation Code of
Practice Agreement (MOCOPA).
The SHEQ team, in conjunction with the executive leadership team, is instrumental in setting the tone at the top in
relation to safety matters.
The SHEQ team is responsible for obtaining and maintaining the Group’s ISO certifications, which are supported
by business assurance reviews.
Departmental management
The management teams in each department within the Group are responsible for the day-to-day management
of risks within their area, ensuring that risks are appropriately identified, prioritised and mitigated.
Understanding our risks
The organisational risk management framework comprises
the recording and management of ‘top-down’ strategic risks,
which are discussed by the Board and executive leadership
team, as well as ‘bottom-up’ risks, which capture potential
operational issues at a departmental level. Our risk
assessment model considers:
• the probability of a risk crystallising; and
• the potential impact if the risk did crystallise.
These principal risks and uncertainties have been scored
and placed on the risk heat map on the next page, which
is a matrix of probability and impact. Our model considers
each risk from two different perspectives:
• the extent of inherent risk (before mitigating controls
have been implemented); and
• the extent of residual risk (after mitigating controls
have been applied).
The heat map provides a picture of residual (mitigated)
risk at the corporate level and allows us to assess the
effectiveness of our internal control environment and
take further action as appropriate. The matrix also enables
the Group to focus its internal audit activity.
We continually evaluate our principal risks in line with our
strategic priorities and the prevailing industry and market
conditions. Our risk management activities include:
• frequent risk workshops to update corporate and
departmental risk registers;
• detailed reporting of significant strategic risks to
the Board; and
• consideration of new and emerging significant
global and industry risks.
SMS Annual report and accounts 2021 63
Strategic reportGovernanceFinancial statements
RISK REPORT continued
RISK GOVERNANCE AND MANAGEMENT continued
Our principal risks
Our principal risks are assigned a red,
amber or green status depending on the
perceived overall severity after allowing for
effective mitigation. After categorisation,
risks are treated as follows:
Some action may be required, and risks
are routinely monitored by management.
Action is required to mitigate the risk
through improved control with oversight
from executive leadership.
Mitigating actions are required
immediately. Oversight is provided by
the Board, Audit Committee and executive
leadership directly.
h
g
H
i
t
c
a
p
m
I
w
o
L
2
3
10
1
4
5
8
7
9
6
11
Low
Likelihood
High
1 Potential breach of cyber security
2 Major health and safety incident
5 Metering and grid-scale
batteries supply chain
8 Potential breach of General Data
Protection Regulation (GDPR)
6 Funding and working capital
9 COVID-19
3 Speed of organisational change
management
(near term)
4 Business continuity and disaster
recovery
7 Loss of environmental, social and
governance (ESG)-related and
regulatory accreditations
10 Our people
11 Stability of energy suppliers
All risks are assigned mitigating actions with an appropriate business owner and are supported by an executive sponsor to ensure
accountability. There have been a few changes to the Group’s principal risks during the year as follows:
Risks added:
1. Stability of energy suppliers
added as a principal risk
considering recent market
challenges from rising energy
prices and the potential
implications of this, including
energy supplier insolvency.
Risks removed:
1. Brexit
which has been sufficiently
mitigated to support the
derecognition of this as
a principal risk, with any
remaining relevant aspects
falling under the metering
supply chain and grid-scale
batteries supply chain risks.
Risks replaced:
1. Metering supply chain and
grid-scale batteries supply chain
disclosed in the prior year as
‘critical supplier dependency’
but now presented
specifically for meters and
grid-scale batteries, to allow
risks to be clearly managed
and mitigated for these key
business areas.
64 SMS Annual report and accounts 2021
Our principal risks
and uncertainties
Set out below are the principal risks and uncertainties which
could have a material impact on the Group. The numbers
correspond to the net mitigated risk identified on the heat
map. These risks are continually monitored by the Board.
The degree to which the Board considers that the likelihood
or impact of the risks materialising is increasing, decreasing
or unchanged is shown and the table also sets out the
mitigating actions that have been taken by the Group.
Risk exposure key
Risk unchanged
Risk decreased
Risk increased
1. Potential breach of cyber security
Detailed risk
Potential impact
Existing mitigating controls
Critical information
technology systems could
be subject to a major
external or internal cyber
attack, causing a breach
of information security
regulations and/or
service disruption.
Risk level
Risk exposure trend
• Financial penalties under
• ISO 27001 accreditation
information security
regulations
• Financial loss
• Unauthorised access
to systems and data
• Service disruption
• Loss of customer and/or
supplier confidence
• Loss of accreditations
and certifications
• Formal cyber security policy, including phishing response
procedure, communicated to all SMS staff
• Mandatory security awareness training for all SMS staff
• Physical controls in place including firewalls and encryption
• A dedicated information security team
• An independent Board-level Information
Technology Committee
• Managed Security Service Provider arrangement provides
a dedicated Security Operation Centre (SOC)
2. Major health and safety incident
An incident could occur,
leading to significant injury,
illness or loss of life to an
employee or third party.
• Injury or loss of life
• Financial penalties
• Increased scrutiny
from regulatory and
oversight bodies
Risk level
Risk exposure trend
• ISO 45001 certification extended across the Group in 2021
• The Board has overall accountability for compliance with
health and safety standards and is provided with regular
management reporting
• Board and senior management health and safety training
• Maintenance of high-quality and mandatory training
standards, driven by job roles
• Rolling internal technical assurance audit programme
• Independent regulatory reviews
SMS Annual report and accounts 2021 65
Strategic reportGovernanceFinancial statements
RISK REPORT continued
OUR PRINCIPAL RISKS AND UNCERTAINTIES continued
3. Speed of organisational change (near term)
Detailed risk
Potential impact
Existing mitigating controls
Speed of organisational
growth in the short term
without sufficient and
appropriate growth in
infrastructure.
Risk level
Risk exposure trend
• Insufficient engineering
• Capacity planning system to support the Group’s
capacity/resource
available
engineering workforce
• Robust forecasting processes closely aligned to commercial
• Limitations on
and operational management teams
organisational back-office
and support functions
• Metering supply and
warehousing operations
cannot meet demand
• IT infrastructure does not
scale up quickly enough
to meet business needs
• Well-established supplier onboarding processes
• Strategic and targeted recruitment activity for engineers
• Subcontractor call-off arrangements in place across UK
• IT strategy closely aligned to organisational strategy
for growth and future business modelling and includes
regular needs assessment
• Dedicated senior roles in place to lead growth in carbon
reduction (‘CaRe’) verticals
4. Business continuity and disaster recovery – resilience of IT infrastructure and failure
of critical business systems and processes
Failure of core and/or
critical information
technology systems could
result in operational
interruption.
Risk level
Risk exposure trend
• Temporary loss of IT
infrastructure/critical
business systems
and processes
• Loss or corruption of data
• Detrimental impact on
customer service
• Potential loss of revenue
through inability to meet
customer orders or
issue invoices
• Business continuity plan in place across the Group
• Monitoring of industry data flows and escalation of issues
should they arise
• Disaster recovery plans in place for critical IT systems
• Failover facility available for immediate redeployment
of staff, enabling key operations to be maintained
• Alternative UK sites available to manage core
business operations
• Most of the workforce able to work from home to
support the Group’s customers
• N+1 (parallel redundancy) backup to ensure an
uninterruptible power supply and system availability
5. Metering and grid-scale batteries supply chain (formerly ‘critical supplier dependency’)
The Group relies on a
limited number of critical
suppliers for meters and
grid-scale batteries, and
failure of critical suppliers
could have significant
operational and financial
implications.
• Delays in importing meters
and grid-scale batteries
• Growth in the Group’s supplier base continues to mitigate
the risk of over-reliance on critical suppliers
• Stock shortages and
• Business continuity arrangements in place
inability to fulfil customer
orders or projects on time
• Business continuity issues
• Legal and financial
exposure
• Centralised in-house legal function protects commercial
interests through robust contracting process
• Enhanced stock control processes mitigate the risk of
being unable to fulfil customer orders in the event of failure
of a critical supplier
• Increased commodity
• Monitoring of stock levels in warehouses to ensure sufficient
prices
meter stock is held to meet customer obligations
• Dedicated senior roles with responsibility for stock and
logistics and delivery of grid-scale battery storage projects
• Enhanced due diligence on grid-scale battery suppliers
Risk level
Risk exposure trend
Risk exposure key
Risk unchanged
Risk decreased
Risk increased
66 SMS Annual report and accounts 2021
6. Funding and working capital management
Detailed Risk
Potential impact
Existing mitigating controls
• Default on debt obligations
• Credit control facility and robust commercial billing
• Credit or debt facilities
arrangements
are withdrawn
• Regular and formal review of key management information
• Inability to meet existing
in relation to cash and debt positions
• Debt refinancing completed in September 2021; new
revolving credit facility of £420m through to December 2025
• Proceeds from equity raise in October 2021 reset leverage
to zero, £420m facility remains undrawn and accessible
customer or trade
commitments
• Increased supply
chain costs
• Lack of funding to take
advantage of emerging
business opportunities
(including for CaRe assets)
Suitable funding
arrangements are critical
to enable the continued
growth of our asset
portfolio, particularly in
relation to ‘CaRe’ assets.
Poor management of
core elements of working
capital, particularly during
peak activity periods,
could lead to inability to
meet creditor requirements
and cause a negative
financial impact.
Risk level
Risk exposure trend
7. Loss of ESG-related and regulatory accreditations
Loss of accreditations or
failure to comply with key
regulatory requirements
could lead to an inability
to deliver our core
services, leading to a loss
of revenue or reduction
in banking facilities.
Risk level
Risk exposure trend
• Inability to conduct
• The Board has overall accountability for compliance with
business
• Financial penalties
• Reputational damage
• Loss of trained and
qualified engineers
• External investigation(s)
and/or audits
safety, health and environmental standards and is provided
with regular management reporting
• Board-approved sustainability strategy with a clear
roadmap to achieving ‘net zero’ status by 2030
• Dedicated Health, Safety and Sustainability Committee,
supported by ESG Working Group
• Regular sustainability reporting to relevant agencies and
other external stakeholders including release of annual
Sustainability Report
• Well-established Group technical assurance team in place,
including an experienced compliance function with deep
industry insight and expertise
• Dedicated training academy for field service engineers
• Rolling training plan in place for all engineering staff to
maintain and upgrade certifications
• Extensive assurance activity performed across the Group,
by specialist assurance teams
• Regular external independent and routine audits performed
by regulators
• Effective HR onboarding process for new staff, including
engineering team
SMS Annual report and accounts 2021 67
Strategic reportGovernanceFinancial statements
RISK REPORT continued
OUR PRINCIPAL RISKS AND UNCERTAINTIES continued
8. Potential breach of General Data Protection Regulation (GDPR)
Detailed risk
Potential impact
Existing mitigating controls
There could be a breach
of GDPR through an
internal failure to follow
protocol and policy or as
a result of data integrity
and retention issues.
Risk level
Risk exposure trend
9. COVID-19
The ongoing development
of COVID-19 globally
presents a risk to the
business, with the Group’s
primary concern being
the welfare of its people,
customers and the
end consumer.
Risk level
Risk exposure trend
• Financial penalties
• The General Counsel is an expert in data protection and
under GDPR
is the appointed Data Protection Officer
• External investigation(s)
by the Information
Commissioner’s Office
• Loss of customer and/or
• The DPO monitors internal GDPR compliance and, through
a series of internal and external communication platforms,
informs and advises staff and third parties of our obligations
and expectations under GDPR
supplier confidence
• Annual GDPR training for all SMS staff
• IT security monitoring controls, including a SOC and
Netskope monitoring of external communications
• Health and wellbeing
• Engineer pre-visit risk assessments carried out
of workforce, customers
and consumers
• Short-term financial
constraints
• Business continuity issues
• Cessation of non-essential
travel
• Potential detrimental
impact on the supply chain
• Delayed and/or slow
delivery of the Group’s
contracted pipelines in
smart meters and grid-
scale batteries
• Counterparties could
default on contractual
obligations
• Personal protection equipment (PPE), regular cleaning
and temperature control checks across sites
• Engineers encouraged to be fully vaccinated
• Regular communications with employees and customers
• Recurring revenue streams on the Group’s existing meter
and data asset base provide a resilient business operating
model able to withstand short-term economic shock
• Most of the workforce able to continue to work and support
the Group’s customers from home (including those in
shielding categories)
• Temporary closure of offices and warehouses, in periods
where this is necessary
• Maintenance of gas and electricity supply on an emergency
basis for customers
• Credit control function with regular counterparty monitoring
• Regular review of corporate forecasts and scenario
modelling
Risk exposure key
Risk unchanged
Risk decreased
Risk increased
68 SMS Annual report and accounts 2021
10. Our people
Detailed risk
Potential impact
Existing mitigating controls
An inability to attract,
retain and motivate the
right people could have a
material adverse effect on
the business and ultimately
lead to a failure to deliver
on its strategic objectives.
• High levels of employee
• Recruitment, due diligence and onboarding processes
turnover
(contracts include probationary periods)
• Loss of employees with
specialist skillsets to
competitors
• Low employee morale
• Succession planning for key leadership and business roles
• Talent and performance management frameworks linked
to our values and behaviours
• Benchmarking of roles with the external market in terms
• Failure to take advantage
of remuneration and reward
of emerging business
opportunities
• Lack of business continuity
Risk level
Risk exposure trend
11. Stability of energy suppliers
• Harmonised terms of employment, ensuring fairness and
consistency across the Group
• Competitive rewards and employee benefits package
aligned to pay and reward framework
• Regular, supportive one-to-one meetings between people
leaders and their direct reports
• Regular employee satisfaction surveys, review of
results by management and implementation of actions
to address themes
• Equal opportunities, diversity and inclusion policy
• Gender pay gap reporting
Rising wholesale energy
costs are resulting in
multiple energy suppliers
entering administration
or becoming insolvent,
leading to unpaid debts
and loss of pipeline
revenue.
• Customers (energy
suppliers) enter
administration or
become insolvent
• Unpaid debts not
transferred as part of
the SoLR process are
irrecoverable
• Loss of contracted smart
meter order pipeline and
future revenue potential
• Experienced credit control facility and robust commercial
billing arrangements
• Regular and formal Board review of key management
information in relation to the Group’s cash and debtor
positions
• Monitoring of market developments, through formal
and informal channels
• Contracts in place with larger energy suppliers, which
has already resulted in some positive results from the
SoLR process
Risk level
Risk exposure trend – n/a new risk
SMS Annual report and accounts 2021 69
Strategic reportGovernanceFinancial statements
FINANCIAL REVIEW
Another year
of strong
performance
We have delivered strong
financial results marginally ahead
of previously upgraded market
expectations, with the resilience
of our business model being
demonstrated again in 2021.
1 Refer to page 74 for definitions and details of the Group’s
alternative performance measures, which include ILARR,
pre-exceptional EBITDA, underlying profit before taxation
and underlying basic earnings per share.
2
2020 measures include the financial performance of the
disposed Industrial & Commercial (I&C) portfolio up to the
date of sale on 22 April 2020.
3 Like-for-like percentage is adjusted for the I&C meter
portfolio disposal in 2020 and acquisition of large-power
I&C metering and data portfolio in 2021.
70 SMS Annual report and accounts 2021
We are very pleased to report
financial results ahead of market
expectations once again."
Gavin Urwin
Chief Financial Officer
Financial highlights
Alternative performance measures1
Index-linked annualised recurring revenue (ILARR)2
£85.9m
(2020: £77.0m)
12%
increase
Pre-exceptional EBITDA2
£52.8m
(2020: £49.9m)
17% increase on a like-for-like basis3
Underlying profit before taxation2
£18.3m
(2020: £15.2m)
28% increase on a like-for-like basis3
Underlying basic earnings per share2
9.60p
(2020: 9.56p)
Statutory performance measures1
Revenue
£108.5m
(2020: £103.0m)
Statutory EBITDA
£46.3m
(2019: £231.6m)
Statutory profit before taxation
£8.3m
(2020: £195.0m)
Statutory basic earnings per share
3.20p
(2020: 171.65p)
6%
increase
20%
increase
Flat
5%
increase
80%
decrease
96%
decrease
98%
decrease
In 2021 we again faced a challenging macro environment
with COVID-19 impacting the early part of the year and
the UK energy market facing considerable turbulence in
the latter part of the year. With this in mind, we are very
pleased to report financial results ahead of market
expectations once again, underpinned by consistent
growth across our key metrics.
Gross margins
Overall, the depreciation-adjusted gross margin at the
Group level increased by 6% to 77% (2020: 71%). SMS includes
depreciation on revenue-generating assets within cost of
sales and removing this from the gross margin provides a
better comparison of the Group’s underlying trading
performance year on year.
2021 has seen us make significant investment in our
established CaRe verticals. Capital expenditure on metering,
data and grid-scale battery storage assets in the year
totalled c.£112m, over double our corresponding expenditure
in the prior year, and we invested c.£8m in the acquisition
of a large-power Industrial & Commercial (I&C) metering
and data portfolio detailed on page 30.
We had a net cash position at 31 December 2021 of £117.7m
(31 December 2020: £40.2m), supported by the c.£170m net
cash proceeds raised from our successful equity placing in
October and strong internal cash generation. Following the
refinancing of our debt in September, we finished the year
with access to our full £420m revolving credit facility and are
thus in a strong position to support the delivery of our existing
meter and battery pipelines.
Revenue
31 December
2021
£m
31 December
2020
£m
Percentage
change
Asset Management
Asset Installation
Energy Management
Group revenue
82.9
22.0
3.6
108.5
78.7
19.7
4.6
103.0
5%
12%
(22%)
5%
Asset management revenues, which include new revenues
from the acquisition of the large-power I&C metering and
data portfolio in April 2021, are up on the prior year despite
loss of revenue from the prior year I&C meter portfolio
disposal. Excluding both transactions, asset management
revenues have increased by c.8% on a like-for-like basis
on the prior year. This reflects the flow-through effect of
increased meter installations at the end of 2020 and into
2021 as COVID-19 restrictions eased and the run rate was
restored to a normalised rate.
Asset installation revenues increased 12% to £22.0m as
compared with the prior year, reflecting the recovery of
non-essential field work which was suspended for the
majority of 2020. Whilst our connections and infrastructure
services have taken longer to recover than anticipated,
we saw a higher-than-usual volume of transactional
meter works through the year as access to consumer
properties reopened.
As expected, energy management revenues experienced
a reduction of 22% to £3.6m. Despite the resumption of key
customer projects, we saw projects run at a lower capacity
due to the slow recovery of the broader hospitality industry
post COVID-19, with revised scope changes to align with
customer budget constraints.
Depreciation-adjusted gross profit, in absolute terms,
has increased by £11.3m driven in the first instance by the
favourable asset management and asset installation
revenue movements detailed above. The remaining increase
is attributable to our continued and dedicated focus on
operational efficiency and cost control within the asset
installation business, which has reported a positive gross
profit margin, excluding exceptional cost of sales arising as
a result of COVID-19, of 36% in 2021 (2020: 16%). Efforts to
control the Group’s operating cost base in order to increase
efficiency in the labour force, including an appropriate
balance between direct labour and sub-contractors, have
driven a reduction in cost of sales with minimal inefficiency
being reported in profit and loss in the year. This focus on
operational efficiency and cost control has allowed the
business to invest in and strengthen other areas which will
ensure we continue to drive efficiency in our operations,
and innovation in our services.
The energy management gross margin has increased to
24% (2020: 22%), with the 2020 margin impacted by a
non-recurring project delivered by Solo Energy in the year
at a slightly lower margin. With a predominantly variable
cost of sales base, reductions in revenue have been largely
offset by equivalent reductions in cost of sales.
EBITDA
Pre-exceptional EBITDA provides a more ready comparison
of trading, year on year, showing an increase of 6% to £52.8m
(2020: £49.9m). Similar to revenue, this includes the effect of
the large-power I&C metering and data portfolio acquired
in the year offset by lost revenue from the 2020 I&C meter
portfolio disposal. Excluding these transactions, like-for-like
pre-exceptional EBITDA increased by c.17% on the prior year.
The primary drivers for this growth are detailed above within
the Revenue and Gross margin sections.
Administrative costs, excluding depreciation and
amortisation, have increased by c.£4m year on year,
largely driven by the following:
• c.£1m of this increase relates to expenditure incurred to
restore our supporting functions to a normalised state
following COVID-19 lockdowns, in areas such as marketing,
training, recruitment and professional services.
• As noted above we have worked hard to drive operational
efficiency and cost control within our asset installation
business, and a key enabler of this has been continued
investment (c.£1m) in our IT and support systems with the
aim of unifying legacy platforms in areas such as field
service management, warehousing and logistics.
SMS Annual report and accounts 2021 71
Strategic reportGovernanceFinancial statements
FINANCIAL REVIEW continued
EBITDA continued
• The considerable turbulence in the UK energy market in the
second half of the year, as a result of increases in wholesale
gas prices, has placed significant pressure on energy
suppliers and caused a large number of companies to exit
the market. Whilst the Supplier of Last Resort (SoLR)
process provides us with a degree of protection over the
long term, we are exposed in the short term where there
are unpaid charges incurred prior to the supplier exiting
the market. During 2021 we saw an increase in bad debt
charges of c.£1m year on year.
Consistent with the prior year, costs directly attributable
to COVID-19, including staff costs that would ordinarily be
capitalised, have been recognised within exceptional costs
(detailed below).
Statutory EBITDA decreased to £46.3m (2020: £231.6m)
mainly as a result of the non-recurring gain of £194.7m arising
from the I&C meter portfolio disposal in the prior year.
Operational and pre-tax profits
Depreciation costs on general property, plant and
equipment, excluding meter assets, have decreased by
£0.3m to £4.1m (2020: £4.4m) due to the effect of disposals
and fully depreciated assets across the various asset classes.
Depreciation costs on meter assets are in line with the prior
year at £24.7m. The effects of the 2020 I&C meter portfolio
disposal, for which a c.£1.8m depreciation charge was
recognised in 2020, have been partially offset by additional
depreciation recognised as a result of the 2021 large-power
I&C metering and data portfolio acquisition together with
the net effect of additions and removals across the
various meter types.
As expected, amortisation costs on our intangible assets
increased by £1.1m to £4.1m in 2021 (2020: £3.0m) following
the implementation of our Groupwide Enterprise Resource
Planning system, which went fully live in April 2020.
Finance costs decreased to £3.5m excluding exceptional
costs (2020: £4.7m), reflecting the reduced debt position
on our revolving credit facility.
Overall, underlying profit before taxation increased by 20%
to £18.3m due to a flow-through of the above points.
Exceptional items
The operating charge to the income statement in respect of
exceptional items of £6.5m (2020: £13.1m excluding the gain
on the I&C meter portfolio disposal) is driven largely by £5.9m
of losses on the traditional and first-generation smart meter
(‘SMETS1’) portfolio (2020: £6.0m).
Consistent with the prior year, management has deemed it
appropriate to classify costs attributable to COVID-19 as
exceptional in line with the Group’s accounting policy. Net
costs of £0.3m (2020: £6.9m) have been treated as such,
broken down as follows:
72 SMS Annual report and accounts 2021
• £0.8m (2020: £6.4m) of costs that would have ordinarily
been capitalised as directly attributable to the installation
of meter assets – consisting primarily of staff costs – have
been recognised as exceptional in line with the same
principles as those applied in the prior year. This amount is
substantially reduced due to the lifting of restrictions in
2021, and largely represents costs related to the Scottish
workforce being unable to work in the early part of the year.
• In the prior year, management had recognised an
exceptional bad debt charge of £0.5m in relation to a
sub-portfolio of smaller, independent customers, who were
identified as having a potentially elevated credit risk as a
direct consequence of COVID-19 and were provided for on
a specific basis. As at 31 December 2021 this provision has
been reduced to £nil, reflecting positive recovery trends
over the past twelve months, and giving rise to a £0.4m
credit in the current year financial statements (net of write
offs). Whilst we will continue to monitor the situation, we are
of the view that there is no longer significant uncertainty
regarding the impact of COVID-19 on our customer
default risk. Consistent with the recognition of the original
impairment loss in the prior year, we have recognised this
write back as exceptional.
• A successful COVID-19 insurance claim against business
recovery costs of £0.1m was also received in the year,
recognised as an exceptional credit in line with the
recognition of the original costs in the prior year.
Other operating exceptional items total £0.3m (2020: £0.1m)
and comprise acquisition-related costs incurred as part of
the large-power I&C metering and data portfolio acquisition
in April 2021.
The finance charge to the income statement in respect of
exceptional items of £1.7m (2020: £0.1m) primarily comprises
accelerated amortisation of loan arrangement fees in
relation to the refinancing of the loan facility detailed on
page 74.
Effective tax rate
The effective tax rate on statutory profits was 54% (2020:
1%). The effective tax rate on pre-exceptional profits was
39% (2020: 31%). This remains high due to a change in the
deferred tax rate, following the UK Government’s enactment
of the Finance Bill 2021 in May, which confirmed an increase in
the rate of corporation tax from 19% to 25% from 1 April 2023.
This has been applied to the Group’s brought-forward
deferred tax liabilities on its portfolio of meter assets, giving
rise to an opening balance impact of c.£2.5m recognised as a
charge in the current period. Excluding the impact of this rate
change, the full-year effective tax rate on pre-exceptional
profits is 18.5% as expected and broadly in line with the
prior year.
The Group’s capital expenditure as it pertains to meter assets
qualifies for capital allowances, providing the Group with tax
relief on such expenditure. These allowances are claimed in
the tax year in which the asset is acquired and set against
taxable profit for that year, thus reducing the total tax
payable. As a result, the Group was not tax-paying in either
the current or prior year.
The Group’s deferred tax balance of £12.2m (2020: £8.5m)
is primarily made up of £11.0m (2020: £7.1m) in respect of
accelerated capital allowances.
Earnings per share
Underlying basic earnings per share (EPS), which excludes
exceptional costs, amortisation of certain intangibles and
their associated tax effect, was 9.60p (2020: 9.56p), reflecting
the underlying profitability of the Group. Statutory earnings
per share decreased to 3.20p (2020: 171.65p) as a result of
the exceptional gain on the I&C meter portfolio disposal
driving higher statutory profits in the prior year.
Diluted EPS does not vary significantly from basic EPS; a
small decrease arises as a result of the dilutive impact of
shares issuable in the future to settle the Group’s share
scheme obligations.
Dividend
A 25p per share dividend in respect of FY 2020 was approved
at the Group’s Annual General Meeting in May, and the fourth
and final instalment of this was paid in July 2021.
In line with the Group’s policy announced last year, a 27.5p
per share dividend is proposed in respect of FY 2021,
representing 10% growth on the FY 2020 dividend as
planned. Consistent with FY 2020, this is expected to be
settled in four equal quarterly instalments. Two instalments
have already been paid, in October 2021 and January
2022 respectively, with the following timetable for the
remaining instalments:
Instalment Ex-dividend date Record date
Payment date
3
4
31 March 2022
30 June 2022
1 April 2022
1 July 2022
28 April 2022
28 July 2022
The Board remains comfortable that future dividend
payment amounts are sufficiently secured by income from
our existing metering and data asset base and its long-term
index-linked cash flows.
Cash flow
Operating cash inflow generated in 2021 was strong at
£62.2m (2020: £43.9m), driven by growth in our underlying
cash earnings and an overall working capital inflow. This
operating cash flow is net of a restricted cash balance of
£1.3m that has been recognised in 2021 (2020: £1.6m) in
relation to amounts received from energy suppliers on the
I&C assets disposed of in the prior year, together with trading
collateral held as part of our grid-scale battery business.
Capital expenditure on property, plant and equipment
was £108.2m (2020: £41.8m), excluding right-of-use asset
additions of £5.3m primarily in relation to land leases secured
as part of our grid-scale acquisitions. Of this, £82.4m (2020:
£40.3m) was invested in revenue-generating metering and
data assets. This capital expenditure increased as the prior
year was significantly impacted by COVID-19.
Of the remaining capital expenditure in the year, £24.5m
relates to construction of grid-scale battery storage sites,
classified as assets under construction within the Property,
plant and equipment note to the financial statements.
The majority of this spend has arisen on our Burwell site,
which went live in January 2022. In addition to this
construction spend, there was a £4.7m cash outflow on
sites in development and under construction, detailed in
note 21 to the financial statements.
An £8.4m cash outflow funded the acquisition of the large-
power I&C metering and data portfolio. See note 20 to the
consolidated financial statements for further details.
A further £2.8m (2020: £4.1m) investment has been made
in intangible assets, primarily comprising development of
software to support the metering and installations business.
This has reduced on the prior year as a result of the
Groupwide Enterprise Resource Planning system that went
live across the Group in H1 2020, with a reduction in capital
investment post ‘go live’ as expected.
Decision-making in practice:
Capital fundraising
During the year, the Board reassessed the Group’s
capital structure and approved decisions to refinance
the Group’s revolving credit facility, and raise new
equity (together “the transactions”), to fund the
delivery of our smart meter and grid-scale battery
storage pipelines.
In reaching its decision, the Board considered the existing
funding structure of the Group and potential constraints,
together with the level of funding required to deliver the
Group’s pipelines. They reviewed financial projections,
assessed the alternative financing options available,
including capital recycling through the sale of assets, and
considered the impact of each option on the business.
Over this process the Board gave consideration to our key
stakeholders, in particular:
Shareholders – in determining their approach, the Board
received feedback from advisers on investor appetite for
a fund raising. During the fundraising process, the
Executive Directors hosted a presentation to investors,
setting out the investment case. Follow up calls were then
held as required. The funding will allow the Group to
continue to invest in revenue-generating assets, securing
long-term returns for shareholders while maintaining
leverage at a suitable level.
Lenders – the Board sought feedback from advisers on
lenders’ attitudes to leverage. Once the strategy was
determined, presentation and discussion sessions
were held with both existing and potentially new bank
syndicate members to provide an understanding of our
plans and financial position before negotiation of the
financing terms.
Employees – the transactions strengthen the Group’s
balance sheet. This in turn protects the interests of our
employees, and the future growth supported by the
funding will generate new opportunities for our people.
SMS Annual report and accounts 2021 73
Strategic reportGovernanceFinancial statements
FINANCIAL REVIEW continued
Financial resources
From a financing perspective, 2021 was a significant year. With
an increasing requirement for capital, driven by the growth in
our meter and grid-scale battery pipelines, the business made
the decision to raise additional funds via an equity placing.
Concurrently, we entered negotiations with our syndicate of
lenders to refinance our revolving credit facility to better suit
the developing needs of the business.
Our equity placing successfully completed on 4 October 2021
with the support of both existing shareholders and new
investors, raising gross proceeds of £175.1m in line with
management’s targets. After the deduction of £4.9m of issue
costs net proceeds were £170.2m, of which £53.3m was used
to settle all outstanding principal amounts under our existing
revolving credit facility. This has rebased our leverage at
31 December 2021 and will help the business maintain a
prudent leverage position over the medium term.
As part of the refinancing, all outstanding amounts under
the existing facility were settled. Concurrently, the Group
undertook a commercial negotiation, facilitated by debt
advisory specialists, to enter into a new facility on market
terms. The new facility has total available commitments of
£420m and matures in December 2025. The new facility is
provided by a syndicate of lenders, including the lenders
of the existing facility and new lenders. Unamortised
arrangement fees on the existing facility of £1.5m have been
accelerated and recognised as an exceptional finance cost
in the consolidated income statement together with £0.2m
of legal and professional fees arising on the refinancing.
Transaction costs of £2.4m directly attributable to the
establishment of the new facility will be amortised over the
remaining term to 2025. For the year ended 31 December
2021, £0.6m of amortisation of transaction costs has been
recognised within underlying profit in the consolidated
income statement (2020: £0.7m) of which £0.2m relates to
the new facility. Interest of £0.6m (2020: £2.3m) and £1.9m of
non-utilisation fees (2020: £1.6m) have also been recognised.
Drawdowns made following the refinancing were fully repaid
by 31 December 2021, leaving the Group with access to its full
£420m commitment at this date. We therefore remain in a net
cash position at 31 December 2021 of £117.7m (31 December
2020: net cash of £40.2m). This excludes restricted cash and
lease liabilities accounted for under IFRS 16. Our available
cash and unutilised element of the revolving credit facility
stood at £537.7m (31 December 2020: £340.2m) and we had
cash in bank of £117.7m at 31 December 2021 (31 December
2020: £40.2m), again excluding restricted cash.
The Group was fully compliant with all its bank covenants
through the year and at 31 December 2021. Our financial
resources continue to provide the financial flexibility required
to maximise pipeline growth in a capital-efficient way.
The Strategic report on pages 1 to 75 was approved by
the Board of Directors on 15 March 2022 and signed on its
behalf below.
On behalf of the Board
Gavin Urwin
Chief Financial Officer
15 March 2022
74 SMS Annual report and accounts 2021
Definitions of alternative
performance measures
Alternative performance
measure
Definition
Index-linked annualised
recurring revenue
Depreciation-adjusted
gross profit
Depreciation-adjusted
gross profit margin
The revenue being
generated from meter
rental and data
contracts at a point in
time. Includes revenue
from third-party
managed meters.
Statutory gross profit
less depreciation on
revenue-generating
assets, recognised within
cost of sales.
Depreciation-adjusted
gross profit divided by
statutory revenue.
Pre-exceptional EBITDA Statutory EBITDA
Underlying profit
before taxation
Underlying profit
after taxation
Underlying basic EPS
Underlying diluted EPS
Net cash/debt
excluding exceptional
items.
Profit before taxation
excluding exceptional
items and amortisation
of certain intangibles1.
Profit after taxation
excluding exceptional
items and amortisation
of certain intangibles1
and the tax effect of
these adjustments.
Underlying profit after
taxation divided by
the weighted average
number of ordinary
shares for the purposes
of basic EPS.
Underlying profit after
taxation divided by
the weighted average
number of ordinary
shares for the purposes
of diluted EPS.
Total bank loans less
cash and cash
equivalents, excluding
restricted cash. Excludes
lease liabilities
recognised under
IFRS 16.
1
Amortisation of the Group’s new Enterprise Resource Planning
system, which went live in full in 2020, remains within the underlying
cost base of the business and is therefore a part of the Group’s
underlying profit measures.
Reconciliation of statutory to underlying results
SMS uses alternative performance measures, defined on page 74, to present a clear view of what the Group considers
to be the results of its underlying, sustainable business operations. Excluding certain items enables consistent year-on-year
comparisons and aids a better understanding of business performance. A reconciliation of these performance measures
is disclosed below:
Index-linked annualised recurring revenue
Group revenue
Statutory profit from operations
Amortisation of intangibles
Depreciation
Statutory EBITDA
Exceptional items1 (EBITDA-related)
Pre-exceptional EBITDA
Net interest (excluding exceptional)
Depreciation
Amortisation of intangibles included in underlying profit before taxation2
Underlying profit before taxation
Exceptional items1 (EBITDA)
Exceptional items1 (interest)
Amortisation of intangibles excluded in underlying profit before taxation
Statutory profit before taxation
Taxation
Statutory profit after taxation
Amortisation of intangibles excluded in underlying profit after taxation
Exceptional items1 (EBITDA and interest)
Tax effect of adjustments
Underlying profit after taxation
Weighted average number of ordinary shares (basic)
Underlying basic EPS (pence)
Weighted average number of ordinary shares (diluted)
Underlying diluted EPS (pence)
Year ended
31 December
2021
£m
Year ended
31 December
2020
£m
85.9
108.5
13.5
4.1
28.7
46.3
6.5
52.8
(3.5)
(28.7)
(2.3)
18.3
(6.5)
(1.7)
(1.8)
8.3
(4.5)
3.8
1.8
8.2
(2.4)
11.4
77.0
103.0
199.6
3.0
29.1
231.6
(181.7)
49.9
(4.5)
(29.1)
(1.1)
15.2
181.7
(0.1)
(1.9)
195.0
(1.5)
193.5
1.9
(181.6)
(3.0)
10.8
118,330,817 112,715,328
9.56
118,972,527 113,637,882
9.49
9.60
9.55
Percentage
change
12%
5%
(80%)
6%
20%
(96%)
(98%)
6%
1 Exceptional items are those material items of income and expense which, because of the nature or expected infrequency of the events giving rise to them,
merit separate presentation on the consolidated income statement.
2 Amortisation of the Group’s new Enterprise Resource Planning system, which went live in full in 2020, remains within the underlying cost base of the business
and is therefore a part of the Group’s underlying profit measures.
SMS Annual report and accounts 2021 75
Strategic reportGovernanceFinancial statements
Governance
77 Chairman’s introduction to governance
78 Board of Directors
80 Corporate governance report
90 Audit Committee Report
96 Nomination Committee Report
98 Remuneration Committee report
115 Directors’ Report
118 Statement of Directors’ Responsibilities
76 SMS Annual report and accounts 2021
CHAIRMAN’S INTRODUCTION
TO GOVERNANCE
Ethical, fair and diligent
governance underpins all
our business activities, built
on the foundations of our
culture and values.”
Miriam Greenwood
Non-executive Chairman
Key governance activities in the year included:
• Ongoing monitoring of COVID-19 developments
and the Group’s response to these
• Approval to purchase a further 200MW of grid-
scale battery storage sites from the Group’s
established pipeline
• Approval to purchase an Industrial and
Commercial large-powered metering and
data portfolio
• Appointment of Gavin Urwin as Chief Financial
Officer and Executive Director
• Monitoring of the broader turbulence in the UK
energy market and assessment of potential
impacts on the business
• Review and approval of the decision to
increase the Group’s funding capacity through
an equity placing and a refinancing of the revolving
credit facility
• Participation in the Hive Inclusion Works
programme
• Review of progress against the Group’s ‘net-zero
by 2030’ roadmap
• Review of output from the Group’s annual
employee engagement survey, including progress
against the prior year action plan
Dear Shareholder
Every year brings different challenges and 2021 was no
different. Not only were we managing operations against the
ongoing backdrop of the COVID-19 pandemic, but we found
ourselves faced with significant turbulence in the UK energy
market. These events serve as a reminder of the importance
of ensuring that all our stakeholder interests remain at the
centre of the Board’s discussions and decisions.
It is my responsibility as Chairman to ensure that the Group
has sound corporate governance and that the Board
continues to be effective. This is managed by ensuring that
the Group and the Board are acting in the best interests of
shareholders and our various stakeholders and making sure
that the Board discharges its responsibilities appropriately.
This includes ensuring that all important matters, in particular
strategic decisions, receive adequate time and attention at
Board meetings.
Throughout the year, the Board continued to oversee the
implementation of the Group’s strategic framework,
monitoring progress against each of our four strategic
objectives and engaging with senior management to ensure
we remain agile in responding to our evolving environment.
In making decisions, the Board always endeavours to take
a purpose-led approach.
We continue to shape and develop our culture, with a
renewed focus on equality, diversity and inclusion (EDI) led
by the Board through the launch of our partnership with the
Hive Inclusion Works programme, detailed further on page
56. We remain driven by our core values and behaviours,
following their refresh in 2019, and were proud to see c.75% of
our employees respond to our Group employee engagement
survey this year (an increase of 25 percentage points on the
inaugural survey in the prior year).
On behalf of the Board, and in my role as Chairman, I am
pleased to introduce our Corporate governance report for
the year ended 31 December 2021. Consistent with prior
years, we adopt the Quoted Companies Alliance’s Corporate
Governance Code (the QCA Code), published in April 2018,
and I am delighted to confirm that the Board has applied the
principles and complied with all the provisions of the QCA
Code throughout FY 2021. Our Corporate governance report
on pages 80 to 89 sets this out. Whilst the Company does not
currently adopt the UK Corporate Governance Code (most
recently updated in 2018), it endeavours to stay up to date
with its requirements and continues to adopt elements of it,
where appropriate.
I would like to take this opportunity to thank all our
stakeholders for their support and pay a special thanks to
the executive leadership team, our employees and my Board
colleagues for their hard work, commitment, and dedication
to the Company.
Miriam Greenwood
Non-executive Chairman
15 March 2022
SMS Annual report and accounts 2021 77
Strategic reportGovernanceFinancial statements
BOARD OF DIRECTORS
Miriam Greenwood OBE DL
Non-executive Chairman
Alan Foy
Chief Executive Officer
Gavin Urwin
Chief Financial Officer
Tim Mortlock
Chief Operating Officer
A N R I H
N
Date of appointment
3 February 2014
Chairman 23 June 2020
Background and experience
With qualifications as a barrister
and in corporate finance, Miriam
has spent more than 30 years
working for a number of leading
investment banks and other
financial institutions and has
been a non-executive director
of several publicly listed and
private companies. Miriam has
extensive experience in the
energy and utilities industry.
She was, for nine years until
2013, a non-executive director
of the Gas and Electricity
Markets Authority (Ofgem) and,
for seven years until recently,
chair of the Expert Panel for
the Gas Network Innovation
Competition.
External appointments
During 2021, Miriam was
appointed as a non-executive
director of Aquila Energy
Efficiency Trust. In addition, she
holds non-executive director
positions at Gulf International
Bank (UK) Limited, the UK
subsidiary of Gulf International
Bank, at Eclipse Shipping
Limited and at River and
Mercantile Group plc, where she
also chairs the remuneration
committee. Beyond board roles,
Miriam is an adviser to Ofgem on
the current RIIO-2 price control
and to the Mayor of London’s
Energy Efficiency Fund. A
Deputy Lieutenant of the City
of Edinburgh, Miriam was
awarded an OBE for services
to corporate finance.
Date of appointment
24 December 2009
Date of appointment
31 March 2021
Date of appointment
17 September 2019
Background and experience
Gavin is a member of the
Institute of Chartered
Accountants of Scotland with
over 20 years’ experience of
working across multiple sectors
including professional services,
support services, FMCG and
retail. Gavin joined SMS having
previously been Chief Financial
Officer of M&Co, a UK and
international family-owned
retail and property business.
Prior to joining M&Co Gavin
held senior finance positions
at both William Grant & Sons
and Aggreko PLC. During his
ten years at Aggreko, Gavin
worked both at a corporate level
as Group Financial Controller &
Head of Financial Planning and
Analysis, and operationally as
Finance Director of both the
Northern European and then
Europe, Middle East & Africa
divisions.
External appointments
Gavin is a member of the
Audit & Risk Committee of
The Robertson Trust, a charity
based in Scotland.
Background and experience
A Chartered Director, Tim has
over 20 years’ experience in
the energy and utility industry
across utility connections, smart
metering, data and energy
services. Tim was previously
part of the UPL business
(acquired by SMS in 2014)
almost from its inception and,
prior to taking up his current
role as Chief Operating Officer,
he was Managing Director of
SMS’s asset management,
data and energy management
businesses.
Tim has expert knowledge
of electricity and gas smart
metering, having been
responsible for setting up UPL’s
electricity metering business
following deregulation in 2004.
External appointments
None.
Tim was appointed as
Chief Executive Officer
on 1 March 2022.
Background and experience
Alan has been Chief Executive
Officer of SMS since 2009. He
led the flotation of the Company
on the London Stock Exchange
AIM in July 2011, and since then
annual turnover and profits
have risen significantly through
a combination of strategic
acquisitions and organic growth.
Prior to joining SMS in 2004,
Alan worked for Scottish Power
and, in 1997, gained approval
to establish its regulated gas
transportation and metering
business, SP Gas Ltd, which
under his management grew to
become a major gas transporter
in the UK. He was previously
a director of an international
energy consultancy practice and
has considerable experience in
utility asset ownership, supply
and shipping activities.
A professionally qualified
engineer, Alan places strong
emphasis on team development,
safety, operational performance
and financial accountability
within an ethos of customer
satisfaction.
External appointments
None.
Alan stepped down as
Chief Executive Officer
and Executive Director
on 1 March 2022.
78 SMS Annual report and accounts 2021
Graeme Bissett
Senior Independent
Non-executive Director
Ruth Leak
Independent
Non-executive Director
Jamie Richards
Independent
Non-executive Director
A N R I H
A N R I H
A N R I H
Craig McGinn
Group Company Secretary
and General Counsel for
the Group
Date of appointment
1 June 2016
Date of appointment
29 May 2019
Date of appointment
23 April 2020
Background and experience
Graeme is an experienced
corporate financier and qualified
Chartered Accountant, having
previously been a partner with
Arthur Andersen LLP and
finance director of international
groups. He has formerly served
on the boards of a number of
other companies, including
Macfarlane Group plc, Interbulk
plc, Belhaven Group plc, Scottish
Futures Trust Limited and
Anderson Strathern LLP, and
was formerly a member of Court
at the University of Glasgow.
External appointments
Graeme is a non-executive
director of Cruden Group
Limited, Calnex Solutions plc,
and Aberforth Split Level
Income Trust plc and also
undertakes a number of pro
bono appointments, including
as trustee of Citizens Advice
Scotland and trustee of the
Entrepreneurial Scotland
Foundation.
Background and experience
Following a varied early career
in different sectors, Ruth
has specialised in business
transformation through the
use of technology.
Ruth most recently served as
chief information officer for the
Letters and Network division
of Royal Mail, an organisation
where she spent ten years.
Ruth also served as chair of
Royal Mail’s Disability Steering
Group, encouraging open
communication and respect
for diversity at all levels as well
as seeking technology-based
solutions for challenges in
the workplace. Prior to Royal
Mail, Ruth started her career in
operational roles with Procter
& Gamble, and then worked
in consultancy for Coopers &
Lybrand. Following a period at
Debenhams she was part of the
start-up team behind the British
online supermarket Ocado,
before honing her commercial
and delivery skills further with
consultancy Kurt Salmon
Associates.
External appointments
During 2021, Ruth was appointed
as a non-executive director and
chair of the Quality Committee
at the Financial Ombudsman
Service. Ruth is also an active
member of the ‘Women
in Technology’ mentoring
programme operated by Reed.
Background and experience
Jamie is a Chartered
Accountant and has 25 years’
experience in fund management,
banking and corporate recovery
with a focus on the infrastructure
and renewable energy sectors.
He was a partner, executive
committee member and head
of infrastructure at Foresight
Group for 18 years. Previously,
he worked at PwC, Citibank
and Macquarie, in both London
and Sydney.
External appointments
Jamie’s other current roles are
as a non-executive director and
audit committee chair for the
investment trust US Solar Fund
plc and as alternate chairman
of the investment committee of
Community Owned Renewable
Energy, an investment
programme targeting UK solar
farms for community ownership.
Background and experience
Craig is a qualified corporate
and banking lawyer with
over 20 years of experience
and has responsibility for
the management of all legal
matters affecting the Group,
for ethical risk matters and
for supporting the Board in
setting and maintaining the
highest standards of corporate
governance. He is a Qualified
Solicitor in Scotland, England
and Wales and a member of
the International Association
of Privacy Professionals (IAPP).
Craig joined SMS in October
2016 having previously been a
partner in the international legal
firm CMS Cameron McKenna,
and at Dundas & Wilson prior
to its merger with CMS.
Key to Committees
A
Audit
N
R
I
H
Nomination
Remuneration
Information Technology
Health, Safety and
Sustainability
Chair
SMS Annual report and accounts 2021 79
Strategic reportGovernanceFinancial statements
CORPORATE GOVERNANCE REPORT
Board structure
Overall framework
The Board has a clear corporate governance framework comprising Board-reserved matters, various Committees
with their Terms of Reference, and appropriate delegated authorities ensuring decision-making at appropriate levels
within the Group.
Board of Directors (the ‘Board’)
It is the Board’s role to ensure that the Group is managed
for the long-term benefit of all its stakeholders, by providing
effective leadership and direction to the business. It sets
the Group’s strategy and shapes its purpose. The Group’s
culture and values are cultivated from the top down, with
each Director leading by example. The Board is responsible
for balanced and efficient decision-making, and for
overseeing the overall financial performance of the Group.
Corporate governance is a critical component of the Group’s
strategy and the Board’s focus on continual improvement
of processes, controls and risk management, alongside
supporting the continued growth of the business, is vital in the
ever-evolving corporate governance regime adhered to.
The Company is led by a strong and experienced Board, which
brings a depth and diversity of expertise to the leadership
of the Company, essential to support delivery of the Group’s
strategy over the medium to long term. The Board has an
appropriate balance of skills, experience and knowledge
of the Group and its markets to enable it to discharge its
responsibilities effectively.
See page 97 for more details on the Board’s composition
Board Committees
The Board delegates certain matters to five Board
Committees, being the Audit, Nomination, Remuneration,
Information Technology and Health, Safety and
Sustainability Committees.
Each Committee has its own Terms of Reference, approved
by the Board, which are reviewed annually and are available
on the Company’s website at www.sms-plc.com/corporate/
investors/aim-rule-26. The Group Company Secretary acts
as Secretary to each of the Committees.
Audit Committee
Nomination Committee
Remuneration Committee
Has oversight of the Group’s system
of internal control and risk
management, and monitors and
reviews the integrity of the Group’s
financial reporting and the relationship
with the external auditor.
Comprises all Non-executive
Directors. The Chief Executive Officer,
Chief Operating Officer and Chief
Financial Officer attend by invitation.
Audit Committee report pages 90 to 95
Monitors and reviews the composition
and balance of the Board and
the Committees and makes
recommendations to ensure SMS
has the right structure, skills and
experience in place for the effective
management of the Group.
Comprises all Non-executive Directors
and the Chief Executive Officer.
Determines the remuneration
for Executive Directors and oversees
the Group’s overall remuneration
policy, strategy and implementation.
Comprises all Non-executive
Directors. The Chief Executive Officer,
Chief Operating Officer and Chief
Financial Officer attend by invitation.
Nomination Committee report
Remuneration Committee report
pages 96 to 97
pages 98 to 114
Information Technology Committee
Health, Safety and Sustainability Committee
Reviews and approves the information technology
strategy and monitors priorities and/or structures
implemented throughout the Group, including allocation
of resources and the impact of and opportunities arising
from emerging changes in technology.
Comprises all Non-executive Directors. The Chief Executive
Officer, Chief Operating Officer, Chief Financial Officer and
Chief Information Officer attend by invitation.
Provides oversight to ensure that the Group adopts a
consistent and comprehensive approach to health and
sustainability through the exhibition and promotion of
transparent and responsible behaviours and practices,
and through engagement with key stakeholders both
internally and externally.
Comprises all Non-executive Directors. The Chief Executive
Officer, Chief Operating Officer, Chief Financial Officer
and representatives from the Group’s sustainability
team attend by invitation.
80 SMS Annual report and accounts 2021
Our principal risks Board Committee updates
During 2021, the Terms of Reference for each of the Board
Committees were refreshed but there were no significant
amendments made as a result.
There were no changes to the Committees. Further details
of their activities in the year can be found below and in their
respective reports on pages 90 to 114.
Information Technology Committee
The Information Technology Committee is chaired by Ruth
Leak, an information technology specialist, and comprises all
of the Non-executive Directors. The Chief Executive Officer,
Chief Financial Officer and Chief Operating Officer attend
by invitation.
The Information Technology Committee is responsible for
the review and approval of the SMS information technology
strategy. It reviews and monitors the ongoing allocation of
resources and funding required to implement this strategy
and oversees the development and implementation of those
information technology projects deemed to be of significant
importance to the Group. It also acts as a forum for
consideration of which current developments in technology
have the potential to offer value to SMS. The Committee
ensures appropriate information technology standards and
procedures are in place, including those related to the Data
Protection Act 2018 and, in close liaison with the Audit
Committee, it ensures that information and technology
risks are identified, assessed and managed with actions
implemented as appropriate.
The Committee met twice in 2021. During the year, the
Committee undertook the following key activities:
• oversaw the refresh of the Group’s IT platform with the
migration of all production services to a dedicated data
centre to provide greater resilience to localised hardware
failures and any site availability issues as well as enhanced
recovery security. Application migration is ongoing and due
to be completed in 2022;
• reviewed advances in information security technology,
including the launch of a Security Operations Centre
managed service, providing enhanced monitoring of all
major infrastructure; and
• discussed management’s presentation on a proposal to
launch an in-depth review of both systems and data
architecture within the Group. This will assess current
systems capabilities regarding stability and resilience
and seek opportunities to realise efficiency improvements
and improve operational flexibility to more readily support
business change, including new business service lines.
A formal plan will be presented to the Committee in
2022 for approval.
Health, Safety and Sustainability Committee
The Health, Safety and Sustainability (HSS) Committee is
chaired by Miriam Greenwood and comprises all the Non-
executive Directors. Other individuals such as the Chief
Executive Officer, Chief Financial Officer, Chief Operating
Officer and external advisers may be invited by the Chair
to attend, as and when appropriate and necessary.
The HSS Committee is responsible for the review and
approval of the SMS health and sustainability strategy and
implementation of the Group’s approach to health and
sustainability throughout the business, including the creation
of policies and procedures. It reviews and monitors the
ongoing allocation of resources and funding required to
implement this strategy and oversees the development and
implementation of those projects deemed to be of significant
importance to the Group. The Committee reviews the health
and sustainability performance of the Group by monitoring
key performance indicators and monitoring the operational,
environmental and legal impact on health and sustainability
of decisions taken. The Committee will review and assess the
quality of any public reporting to external stakeholders on
health and sustainability matters, most notably reviewing
and if appropriate recommending to the Board for approval
the annual Sustainability Report. In close liaison with the
Audit Committee, it ensures that health and sustainability
risks are identified, assessed and managed with actions
implemented as appropriate.
The Committee met twice during 2021. During the year,
the Committee undertook the following key activities:
• the Committee reviewed the Group’s inaugural
Sustainability Report, together with enhancements to the
Company website including a dedicated Sustainability
landing page. These represent significant achievements,
demonstrating the commitment at both management
and Board level to improving the quality of our reporting
in this area;
• following the announcement of the Group’s ‘net-zero by
2030’ target in 2021, the Committee closely monitored
progress against the Group’s roadmap and associated
milestones. This included a detailed review of the Cardiff
office for fabric, efficiency and control improvements
alongside renewable generation opportunities, together
with commencement of the transition of the Group’s fleet
of vehicles to low and zero carbon alternatives; and
• the Committee continued to engage with several initiatives
to strengthen the Group’s environmental, social and
governance (ESG) profile, including ongoing work with ESG
rating agencies and assessment of feedback from the
agencies’ ratings to identify key opportunities for
improvement. The Committee also approved the
engagement of a new ESG rating agency, S&P Global.
SMS Annual report and accounts 2021 81
Strategic reportGovernanceFinancial statements
CORPORATE GOVERNANCE REPORT continued
Roles and responsibilities
The Board members have separate and clearly defined roles and responsibilities, as set out in the table below. Each member
of the Board has a range of skills and experience that is relevant to the successful operation of the Group.
Role
Chairman
Chief Executive Officer
Chief Financial Officer
Chief Operating Officer
Senior Independent Director
Independent
Non-executive Directors
Company Secretary
Responsibility
Responsible for leading the Board and its governance, ensuring the effective
engagement and contribution of all Non-executive and Executive Directors. Ensures
that Board meetings take place with a culture of openness and challenge, with
sufficient time made available to debate the matters tabled. Sets the agenda to take
full account of the issues and concerns of the Directors and ensures that the links
between shareholders, the Board and management are strong.
Responsible for the day-to-day leadership, management and control of the Group,
across all Group businesses; and for recommending the Group strategy to the Board
and ensuring that the strategy and decisions of the Board are implemented via
management. Acts in accordance with the authority delegated from the Board.
Responsible for the day-to-day financial management and sustainability of the Group
and for providing general support to the Chief Executive Officer, including in relation
to the financial and operational performance of the business.
Responsible for supporting the work of the Chief Executive Officer, providing oversight
and leadership to the business divisions of the Group, and taking responsibility for
IT and people management.
Provides a sounding board for the Chairman, acts as an intermediary for the other
Directors when necessary and is available to meet with shareholders.
Constructively challenge the Executive Directors and monitor the delivery of the Group
strategy within the risk and control environment set by the Board.
Supports the Chairman and Chief Executive Officer and is available to all Directors
for advice and support. Informs the Board and Committees on governance matters
and is responsible for development.
Independence of the Non-executive Directors
The Non-executive Directors fulfil a vital role in corporate
accountability and have a particular responsibility to ensure
that the strategies proposed by the Executive Directors
are fully discussed and critically examined, not only in the
best long-term interests of shareholders, but also in order
to take account of the interests of customers, employees
and other stakeholders.
Additional appointments
The Chairman, Non-executive Directors and Chief Financial
Officer have other third-party commitments including
directorships of other companies as set out in their
biographies. The Company is satisfied that these associated
commitments have no measurable impact on their ability
to discharge their responsibilities effectively. The other
Executive Directors have no third-party commitments.
The Board considers each of the Non-executive Directors,
being Miriam Greenwood (Chairman), Graeme Bissett,
Ruth Leak and Jamie Richards, to be independent.
The roles of Chairman and Chief Executive Officer are
separate and there is a clear division of responsibilities
between the two roles.
Graeme Bissett is the Senior Independent Non-executive
Director. He is available to shareholders if they have concerns
which have not been resolved via the normal channels of
Chairman, Chief Executive Officer or the other Executive
Directors, or where communication through such channels
would be inappropriate.
Election of Directors
All the Directors are subject to election by shareholders
at the first Annual General Meeting (AGM) after their
appointment to the Board and, in response to shareholder
feedback, were and shall continue to be subject to annual
re-election.
Independent advice
All Directors are able to take independent professional
advice in the furtherance of their duties, if necessary,
at the Company’s expense.
All Directors have access to the advice and services of
the Company Secretary, who is responsible to the Board
for ensuring that Board procedures are followed, and
that applicable rules and regulations are complied with.
The appointment and removal of the Company Secretary is
a matter for the Board as a whole. All Directors are supplied
with information in a timely manner in a form, and of a quality,
appropriate to enable them to discharge their duties.
In addition, the Company Secretary ensures that the
Directors receive appropriate training where necessary.
Regular training is provided on relevant topics such as health
and safety, AIM Rules and the Market Abuse Regulation,
and these programmes run continuously through the year.
All Directors are encouraged to keep themselves up to date
with regard to changes in industry, practice and regulations
and the Company continuously assesses its training
programmes to ensure they are relevant and up to date.
82 SMS Annual report and accounts 2021
How the Board operates
Meetings and attendance
Board meetings are scheduled to be held eight times
each year. Between these meetings, additional Board
meetings and Board Committee meetings may be held
as and when required.
Directors are provided with detailed and comprehensive
papers in advance of each Board or Committee meeting,
and meeting packs are accessed from a Board portal. For
each scheduled Board meeting, the papers include updates
on financial and operational performance together with
additional papers on specific topics as relevant.
In 2021, the Board held eight scheduled meetings. At each
meeting the Board received reports from:
• the Chief Executive Officer on health and safety,
strategic, operational and business developments,
and investor relations;
• the Chief Financial Officer on the financial performance
of the business: budget, funding and capital;
• each of the Board Committees on matters discussed
at their meetings; and
• management on specific topics as relevant.
A part of each Board meeting is dedicated to the discussion
of specific strategy matters. Any conflicts of interest are
declared at the start of each Board meeting and appropriate
action is taken where necessary to ensure independent
judgement is not overridden. Half of the Board, excluding
the Chairman, are considered independent, which helps to
address any conflicts of interest that may arise. There were
no registered potential conflicts during 2021.
The Chairman also holds meetings with the Non-executive
Directors during the year without the Executive Directors
being present. These meetings provide the Non-executive
Directors with a forum in which to share experiences and
discuss wider business topics.
The attendance of Directors at scheduled Board and Committee meetings in the year to 31 December 2021 is set out below.
All the Directors attended every Board and Committee meeting they were entitled to attend.
Board
Maximum 8
Audit
Committee
Maximum 3
Remuneration
Committee
Maximum 3
Nomination
Committee
Maximum 1
Information
Technology
Committee
Maximum 2
Health,
Safety and
Sustainability
Committee
Maximum 2
-
-
-
-
-
-
-
Executive Directors
Alan Foy1
David Thompson1,2
Gavin Urwin1,3
Tim Mortlock1
Non-executive Directors
Miriam Greenwood
Graeme Bissett
Ruth Leak
Jamie Richards
1
Alan Foy, David Thompson, Gavin Urwin and Tim Mortlock attended the Audit, Information Technology Committee and Health, Safety and Sustainability
Committee meetings by invitation. Alan Foy also attended the Remuneration Committee meetings by invitation.
2 David Thompson resigned as Chief Financial Officer on 31 March 2021. He attended all the Board and Board Committee meetings that took place up to this date.
3
Gavin Urwin was appointed as Chief Financial Officer on 31 March 2021 and attended all the Board and Board Committee meetings that took place from that
date. In addition, he attended one Board meeting and one Audit Committee meeting as an observer prior to his appointment.
SMS Annual report and accounts 2021 83
Strategic reportGovernanceFinancial statements
CORPORATE GOVERNANCE REPORT continued
Matters reserved for the Board
The Board is responsible to shareholders for the proper
management of the Group, and has identified key financial
and operational areas that require regular reporting, and
which enable the performance of senior management to be
reviewed and monitored.
These are set out in a formal schedule of matters reserved
for the Board, which is reviewed on a regular basis to ensure
it remains fit for purpose. The schedule outlines all matters
requiring specific consent of the Board, including approval of:
• the Group’s annual budget;
• the Group’s strategy;
• acquisitions, disposals and capital expenditure or
investment projects above certain thresholds;
• the Annual report and accounts and any reports or
information to be issued to shareholders of the Company;
• the Company’s share-dealing policy;
• the appointment of the Company’s independent auditor;
• the Company’s dividend policy and borrowing powers;
• any material changes to the Company’s accounting policies
or insurance policies;
• remuneration of Directors, executive officers and
senior employees;
• alterations to the constitutional documents of the
Company;
• the adoption of any new, or amendments to, major
employee benefit plans;
• legal actions brought by or against the Group above
certain thresholds;
• political and charitable donations; and
• the scope of delegations and appointments to Board
Committees and subsidiary boards.
Responsibility for the development of policy and strategy
and operational management is then delegated to the
Executive Directors and senior management team.
Board activities
Board activities are structured to develop the Group’s
strategy and to enable the Board to then support
management on the delivery of the strategy within
a transparent governance framework. The Board also
regularly discusses governance, risk and reputation
management, and financial performance.
The Company Secretary is responsible to the Board for
the timeliness and quality of information provided to it.
The information below is a non-exhaustive list of the key
areas of focus for the Board and topics discussed during
the year to 31 December 2021:
• Fit for growth – the Board oversaw the preparation and
approval of the 2022 budget and reviewed the Group’s
updated corporate forecast following the budget process.
Discussion of business development opportunities and
engagement in evaluating the ongoing strategic direction
for the business remained key focus areas, with ongoing
review of the Group’s investment in grid-scale battery
storage and exploration of developing carbon reduction
(CaRe) asset classes. The Board reviewed and approved
the decision to raise funds through an equity placing and
to refinance the revolving credit facility. Following
announcement of the Group’s ‘net-zero by 2030’ target in
2020, the Board has tracked progress against the planned
roadmap. In the latter part of the year, the Board’s
attention also turned to the monitoring of the independent
energy supplier crisis and assessment of potential impacts
on the business.
• Performance – at every meeting, the Board discussed
the Chief Executive Officer’s report on performance of
operations, the Chief Financial Officer’s report on financial
performance, and quarterly market metrics. Performance
was assessed against the approved budget and variances
understood in the context of market and industry
developments.
• Governance – the Board discussed the following:
appointment of Gavin Urwin as Chief Financial Officer,
full-year preliminary results, Annual report and accounts,
Notice of AGM and dividend recommendation, Capital
Markets event, half-yearly results, Modern Slavery Act
reporting, matters reserved for the Board, Committees’
terms of reference, Board effectiveness review and gender
pay gap reporting.
• Risk and regulatory – the Board received annual
compliance and risk reports and the year-end assessment
of internal control systems, and presentations on the
General Data Protection Regulation (GDPR), risk and
risk tolerance.
84 SMS Annual report and accounts 2021
FY 2021 Board evaluation
For 2021 an external review is being undertaken. The
review process involves one-to-one sessions between the
evaluation team and each Executive and Non-executive
Director, as well as observing at least one Board meeting.
This is designed to look at the effectiveness of the Board
and its Committees.
Once the 2021 evaluation process is complete, key actions
will be agreed, and these will form part of the Board’s agenda
for the coming year.
There were no significant additional focus areas arising
from the 2020 feedback process.
Internal control
The Board has overall responsibility for the Group’s system
of internal control and risk management and for reviewing
the effectiveness of this system. It is supported in this work
by the Audit Committee, which reviews the effectiveness
of the Group’s risk process and internal control systems.
Such systems can only be designed to manage, rather than
eliminate, the risk of failure to achieve business objectives
and can therefore only provide reasonable and not absolute
assurance against material misstatement or loss.
Business performance is regularly reviewed by the Board
through the monitoring of:
• progress towards strategic objectives;
• the Group’s financial performance, including budgeting
and forecasting, financial reporting, analysis of
variances against plan and the taking of appropriate
management action;
• capital investment; and
• principal risks and the process by which these are evaluated
and managed on a continuous basis.
The Board has reviewed the effectiveness of the Group’s
risk management and internal control systems, including
financial, operational and compliance controls. A robust
assessment of the principal risks faced by the Group has
also been undertaken.
Board review
Each year, the Company carries out a review of the Board’s
operations, its Committees and individual Directors. This
process gives the Directors the opportunity to identify
areas for improvement both jointly and individually.
As part of reviewing the Board, the Senior Independent
Director also leads an assessment of the Chairman’s
performance.
SMS Annual report and accounts 2021 85
Strategic reportGovernanceFinancial statements
CORPORATE GOVERNANCE REPORT continued
How the Board engages with stakeholders
Engaging with our stakeholders strengthens our relationships and helps the
business make better decisions, which enable it to deliver on its commitments.
Much of the day-to-day decision-making and stakeholder engagement is
carried out at a business level.
Further details are set out on pages 41 to 45. The Board is regularly updated on wider stakeholder engagement by
the Executive Directors and via the reports it receives from senior management in the Board and Committee papers,
allowing Board members to stay abreast of the topics that matter most to stakeholders and to the business, and to
enable the Board to understand and consider these issues in its decision-making. We explain here how, during the year,
the Board has engaged with our stakeholders.
Material matters requiring the Board’s consideration are outlined on page 9.
Suppliers
Lenders/financiers
Government and
regulatory bodies
During the year the HSS Committee
presented to the Board on progress
made against the Group’s roadmap
to ‘net-zero by 2030’, together with
updates on the Group’s ESG strategy
and ratings.
The Board receives information
about the Company’s regulatory
and technical compliance, including
progress on the UK smart meter
rollout and the first-generation smart
meter (‘SMETS1’) Enrolment and
Adoption programme, as part of its
regular operational reporting. The
Chief Operating Officer attends the
Department for Business, Energy &
Industrial Strategy metering working
groups on a regular basis.
Supplier information is typically
reported to the Board by exception,
upon the specific request of one or
more Board members or concurrent
with a significant event or change.
All material supply contracts also
require Board approval.
The Group’s principal risk around
its metering and grid-scale battery
supply chain, detailed further on
page 66, was carefully monitored by
the Board through 2021 in light of
the global supply chain issues that
emerged, underpinned by driver
shortages caused by COVID-19 and
Brexit restrictions. Working closely
with senior management, the Board
has helped drive several mitigating
actions to manage this risk and
secure sufficient stock of meters
and batteries to ensure the Group
can meet its installation obligations.
This has included approval of new
vendors to diversify the supply
chain and, in the case of meters,
approval to increase the Group’s
stock holding in its UK warehouses
to 26 weeks’ supply.
Through regular financial reporting,
the Board receives information
about the Group’s revolving credit
facility and our compliance with key
covenants. The Chief Financial Officer
reviews and approves quarterly
reports that are issued to the Group’s
lending agent in accordance with
the terms of the Group’s facility.
During the year, all three Executive
Directors participated in meetings
with the Group’s syndicate of banks
to provide an update on the 2021
budget and performance, and discuss
the Group’s growth strategy and,
specifically, its progress within the
grid-scale battery storage market.
This direct engagement promotes
an open and transparent relationship,
which is key in supporting the
continued growth of the business.
The Chief Financial Officer was
ultimately responsible for the
management of the facility
refinancing in September 2021.
As part of this process, he
participated in numerous meetings
with our syndicate of lenders and
reported back to the wider Board
on discussions and developments.
86 SMS Annual report and accounts 2021
Our principal risks How the Board engages with stakeholders
Shareholders
Customers
Employees
Most of the Company’s engagement
with customers is at the operational
level. The Chief Operating Officer
holds regular calls with senior
representatives of our largest
customer accounts, as part of overall
contract governance and monitoring.
The Board receives regular updates
from the Chief Operating Officer and
the senior management team on
sales and service delivery. The Board
also reviews material customer
contracts prior to finalisation.
A key focus area for the Board in the
latter part of the year was the impact
of unprecedented increases in
wholesale gas prices, most notably
leading to several energy suppliers
exiting the market. To facilitate the
Board’s oversight of this issue, regular
updates were provided by the Chief
Financial Officer on the status of the
Group’s customer debt at risk of
non-collection, and subsequent
impacts on net profit. Portfolio
analysis was also prepared and
presented by the Chief Operating
Officer to provide the wider Board
with assurance that the Group’s
contracted smart meter order
pipeline was not at risk. See page
31 for more details. As part of its
monitoring, the Board requested that
the business seek regular feedback
from customers on their financial
position and meter portfolios, and
focused on providing continuity of
service to end consumers during the
Supplier of Last Resort process.
The Board closely monitors and
reviews the results of the Group’s
employee engagement activity, as
well as any other feedback it receives,
to ensure alignment of interests.
During the year, the Remuneration
Committee received updates from
the Group HR Director on gender
pay reporting and the new pay and
reward framework. The wider Board
also received reports on equality,
diversity and inclusion activity and
a new talent management and
succession planning framework.
The results of the 2021 Best
Companies external employee
engagement survey were shared
and the proposed action plan,
together with progress made on
actions following the 2020 survey,
were discussed.
Non-executive Director Jamie
Richards is responsible from a Board
perspective for workforce
engagement. COVID-19 has
unfortunately continued to hinder
our original intentions for Jamie to
meet with employees and attend
certain events. A plan for 2022 is
under review.
The Board Committee meetings also
provide an opportunity for employee
engagement, with attendance by
senior employees to present updates,
host discussion and obtain feedback
to share with the business.
The Board receives updates from
the Head of Investor Relations where
relevant and appropriate, providing
an overview of market sentiment,
share price performance and key
meetings held with investors.
The Chief Executive Officer and the
Chairman hosted virtual meetings
with major shareholders in 2021 to
provide a general update on the
business. Such meetings provide
a more open line of engagement
between Board members and key
investors and it is intended that these
will take place on a regular basis.
On 23 June 2021, the Chief Executive
Officer hosted the Group’s inaugural
Capital Markets event, presented
virtually, with the support of the Chief
Operating Officer, Chief Financial
Officer and other representatives
from the senior management team.
The wider Board was extensively
involved in the preparation process
for this event, reviewing and advising
on the presentation and supporting
script. The event was very well
received, generating a further
channel of engagement between
the executive team and investors
and staff alike. See page 42 for
more details on the event.
The Board and management
regularly receive and respond to
queries from shareholders on a wide
range of ESG topics. During the year,
the views of investors helped inform
the Board’s decisions on certain
ESG developments, including the
incorporation of various best
practices in further defining the
Group’s ESG framework such as
commencing review of our EU
taxonomy alignment and enhancing
disclosure of our ESG credentials.
The AGM is also an important
opportunity for the Board to share
directly with shareholders the
performance and strategic direction
of the Company. See further details
in the section entitled The Board’s
relationship with shareholders on
page 88.
SMS Annual report and accounts 2021 87
Our principal risksStrategic reportGovernanceFinancial statements
CORPORATE GOVERNANCE REPORT continued
Shareholder activities in the year
March
2021
May
2021
Full-year 2020 results presentation
Full-year 2020 results virtual roadshow
Citi investor roadshow
AGM
June
2021
Peel Hunt Industrials & Support
Services conference
Capital Markets Day
H1 2021 trading update and calls
with investors
Non-deal roadshow with US and
ESG investors
H1 2021 results presentation
H1 2021 results virtual roadshow
Citi Small/Mid-Cap and
Growth conference
Investec Best Ideas conference
FY 2021 trading update and calls
with investors
July
2021
Aug
2021
Sept
2021
Nov
2021
Jan
2022
The Board’s relationship with shareholders
The Board recognises the importance of maintaining open,
transparent and two-way communication with shareholders.
This ensures a mutual understanding of objectives: for
shareholders to understand the Group’s strategy, and for
the Board to be aware of shareholders’ feedback and any
issues raised.
During 2021 the Executive Directors, assisted by the investor
relations team, attended several online meetings,
conferences and roadshows to maintain regular
communication with both institutional and private investors.
The feedback from such investor engagement was regularly
reported to the Board.
The Group’s Non-executive Directors have also been
available to meet shareholders should they wish to raise
issues. During the year, the Group Chairman and the Chief
Executive Officer met with major shareholders over video
conference. A variety of topics were discussed.
The Board receives regular updates from the investor
relations team, Chief Executive Officer and Chief Financial
Officer on shareholder engagement. These updates include
share price performance, composition of the shareholder
register, key topics of discussion with shareholders, peer
group comparison, and feedback from analyst reports and
from brokers and public relations partners.
On the day of interim and full-year results announcements,
equity research analysts are invited to attend management’s
presentation, which is followed by a question-and-answer
session addressed by the Chief Executive Officer, Chief
Financial Officer and Chief Operating Officer. One-to-one
and Group meetings are then held with existing institutional
shareholders and potential new investors.
Results and news releases on topics such as contract
wins, significant accreditations, acquisitions and new
strategic initiatives are published via the London Stock
Exchange Regulatory News Service and on the Company’s
investor website at www.sms-plc.com/corporate/investors.
The Group’s website also provides a full spectrum of history,
news, business developments and investor relations topics,
including a repository of past presentations and
announcements.
We will continue to disclose information appropriately to
satisfy the needs of shareholders and investors, thereby
enhancing understanding of our business.
88 SMS Annual report and accounts 2021
Annual General Meeting
The 2021 AGM will be held in May 2022 in Glasgow, COVID-19
restrictions permitting. Full information will be provided in
the Notice of AGM, to be posted separately to shareholders,
and will be available to download from the Company’s
website at www.sms-plc.com/corporate/investors/
shareholder-information.
The AGM is an important forum for shareholders, particularly
private shareholders, to hear more about the general
development of the business. The Chairman and the Chairs
of the Audit and Remuneration Committees will be present
at the AGM, giving shareholders an opportunity to ask
questions, engage with members of the Board and learn
more about the Company.
The Chairman is also available to answer questions
throughout the year, upon request by investors. If investors
have any matters that they wish to raise outside the forum
of the AGM these can be raised using the contact details
on the Group’s website.
Other matters
Promoting an ethical corporate culture
Various indicators are used to monitor and provide insight
into the Group’s culture, including employee engagement,
health, safety and wellbeing measures and diversity
indicators. See pages 52 to 57 for further details. The Group’s
culture is assessed through compliance reviews, internal
audits and the provision of formal and informal channels for
employees to speak up, including a whistleblowing hotline
that allows employees to make disclosures in confidence.
The Company ensures action is taken to address behaviour
that falls short of the Company’s expectations. The Board
believes that in a business like the Group, which is growing
rapidly both in employee numbers and size of operations,
a mix of informal and formal channels provides a faster
and more robust process to address matters raised by
the workforce.
If Directors have concerns about the operation of the
Board or the management of the Company that cannot be
resolved, their concerns are recorded in the minutes of the
Board meetings. On his or her resignation, a Non-executive
Director also has the opportunity to provide a written
statement to the Chairman, for circulation to the Board,
if he or she has any concerns about the operation of the
Board or the management.
Whistleblowing
The Group encourages staff to report any concerns which
they feel need to be brought to the attention of management
concerning any possible impropriety, financial or otherwise.
The Group has put in place a whistleblowing procedure where
employees can confidentially report any concerns
or wrongdoing. This procedure may be used to report
incidents of fraud, bribery and corruption, discrimination,
bullying or harassment, breaches of the Group’s health and
safety or quality compliance, or environmental concerns.
The Group provides the Audit Committee with information in
relation to matters reported, any subsequent investigation
and follow-up actions. All issues raised are fully investigated
and appropriate action taken.
There was one whistleblowing report raised in the year ended
31 December 2021, in the category of staff qualification.
Investigation concluded that the case was not upheld.
Going concern
The Group’s business activities, together with the factors
likely to affect its future development, performance and
position, are set out in the Strategic report on pages 1 to 75.
The financial position of the Group, its cash flows, liquidity
position and borrowing facilities are described in the Financial
review section on pages 70 to 75 together with the impact
of the debt refinancing and equity raise in September 2021
and October 2021 respectively.
The Directors confirm that, having considered various
scenarios of future performance and forecast capital
expenditure, they are satisfied that the Company and the
Group have adequate resources to continue in business for
the foreseeable future (for the period from the balance sheet
date to 31 December 2023). For this reason, they consider it
appropriate to adopt the going concern basis in preparing
the Financial statements.
On behalf of the Board
Miriam Greenwood
Non-executive Chairman
15 March 2022
SMS Annual report and accounts 2021 89
Strategic reportGovernanceFinancial statements
AUDIT COMMITTEE REPORT
Members and attendance
Meetings
Graeme Bissett (Chair)
Miriam Greenwood
Ruth Leak
Jamie Richards
Attending by invitation
Chief Executive Officer
Chief Financial Officer1
Chief Operating Officer
Head of Internal Audit
External auditor
1 Gavin Urwin was appointed on 31 March 2021 and attended all
Audit Committee meetings following his appointment. He also
attended all Audit Committee meetings from 8 February 2021,
the date he joined the Group as CFO-Designate.
Main activities in 2021
• Review and approval of interim and year-end financial
statements and supporting schedules, including
management papers on significant areas of judgement.
• Review of reports prepared by the external auditor,
including its annual audit plan and a report on the
year-end financial statements.
• Review and approval of the Group’s annual Internal
Audit Plan and oversight of the evolution of the
Group’s risk management and internal audit policies
and procedures.
• Review of the recognition and reporting of the Group’s
key transactions in the year, including a business
combination and several asset acquisitions.
• Monitoring the impact of energy price rises in the
market and the resulting collapse of several
independent UK energy suppliers on the Group,
including management’s reporting of this through
market communications and the Annual report
and accounts.
90 SMS Annual report and accounts 2021
Role of the Committee
• Monitoring the integrity of the financial statements,
including reviewing significant financial reporting issues and
judgements alongside the findings of the external auditor.
• Advising the Board on the appropriateness of the ‘fair,
balanced and understandable’ statement in relation to
the Annual report and accounts.
• Overseeing the relationship with the external auditor,
the external audit process and the nature and scope of
the external audit, including the auditor’s appointment,
effectiveness, independence and fees.
• Overseeing the nature and scope of internal audit and
co-ordination with the activities of the external auditor.
• Reviewing the effectiveness of the Group’s systems
for internal financial control, financial reporting and
risk management.
Audit Committee membership
The Committee comprises all the independent Non-
executive Directors. It was chaired during the year under
review by Graeme Bissett, who is a Chartered Accountant
with recent and relevant financial experience. Jamie Richards
is also a Chartered Accountant and has held senior executive
positions, which included financial responsibility. The other
independent Non-executive Directors who served during the
year are all deemed to have the necessary ability
and experience to understand financial statements.
The Committee meets at least three times a year, generally
just prior to Board meetings, to facilitate immediate and
efficient reporting to the Board, with additional meetings
where necessary. The external auditor, the Head of Internal
Audit, the Chief Executive Officer, the Chief Financial Officer
and the Chief Operating Officer attend Committee meetings
by invitation. The Committee also meets privately with the
external auditor without management being present. The
Chairman of the Committee maintains a regular dialogue
with the Chief Financial Officer and his team, and with the
Head of Internal Audit.
Objectives and responsibilities
The Committee’s key objectives are: to provide effective
governance over the Group’s financial reporting and the
performance of the external auditor; to provide oversight
of the Group’s systems of internal financial control; and
to report to the Board on these matters.
In fulfilment of these objectives the Committee:
• reviews the effectiveness of the Group’s internal financial,
operational and compliance controls and risk management
processes, including arrangements for employees to raise
concerns (in confidence);
• reviews the annual internal audit programme and
considers the findings of any internal investigations and
management’s response;
• reviews SMS’s financial statements and announcements
and considers whether these statements and
announcements provide a fair, balanced and
understandable view of the strategy, business model and
performance of the Group and of the associated risks;
• considers the appropriateness of accounting policies
and significant accounting judgements and the disclosure
of these in the financial statements; and
• recommends the appointment of the external auditor,
approves their remuneration and oversees their work
and overall effectiveness, including their relationship
with management.
Internal control and risk management
The Committee has primary responsibility for the oversight
of the Group’s internal control, including the risk management
framework and the work of the Group Internal Audit function.
The Group has in place an internal control environment to
protect the business from the material risks which have been
identified. Policies and procedures, including clearly defined
levels of delegated authority, are clearly communicated
across the Group. Management is responsible for
establishing and maintaining adequate internal controls
and the Committee has responsibility for monitoring the
effectiveness of these controls. It achieves this through
reports received from the Company and from both the
internal and external auditors.
Risk registers are maintained and regularly reviewed by
management. The Board, including the Audit Committee,
considers the principal risks, the nature and extent
of the Company’s risk management framework and the
risk profile that is acceptable in order to achieve the
Company’s strategic objectives.
The Group’s system of internal control is designed to
manage, rather than eliminate, the risk of failure to achieve
business objectives, and it must be recognised that it
can only provide reasonable and not absolute assurance
against material misstatement or loss.
During the year, the Committee has not identified, nor
been advised of, any failings or weaknesses in the internal
control systems or risk management processes that are
determined to be significant.
Whistleblowing
The Board has overall responsibility for monitoring the
Group’s whistleblowing arrangements. It has delegated this
to the Committee, which updates the Board on a regular
basis on all significant whistleblowing matters raised.
The Committee receives reporting by exception when there
has been a whistleblowing case raised to a line manager,
the Group General Counsel or Group HR Director, or through
the Group’s independent whistleblowing hotline.
There was one whistleblowing report raised in the year ended
31 December 2021, in the category of staff qualification.
Investigation concluded that there was no substance to
the report.
The Committee is satisfied that the Group’s whistleblowing
policies and procedures, detailed further on page 89,
are effective, facilitate the independent investigation of
reported matters and allow appropriate follow-up action
to be taken.
Internal audit
The Group Internal Audit function is independent and
objective and its role, as defined in the Internal Audit Charter,
is to add value and improve the organisation’s operations
and controls. The Head of Internal Audit reports functionally
to the Audit Committee and administratively to the executive
leadership team. The Chair of the Audit Committee meets
with the Head of Internal Audit periodically without executive
management present to set annual objectives and discuss
any significant or emerging issues. Group Internal Audit uses
a risk-based approach to conduct several strategic and
operational audits throughout the year and these are
reported and discussed at each Audit Committee meeting.
Monitoring the scope, extent and effectiveness of the Group’s
internal audit activities is an agenda item at each Committee
meeting. Group Internal Audit is also responsible for
confirming that management actions and improvement
points raised within each audit report have been
implemented effectively and in a timely manner.
Throughout 2021, Group Internal Audit has worked with the
Board, the executive leadership team and members of
management to support the continued development of a
robust risk management framework upon which it can place
reliance for identifying areas of risk to be considered for
inclusion in the annual Internal Audit Plan.
A full risk-based annual Internal Audit Plan for 2021 was
reviewed and approved by the Committee in December 2020.
The programme focused on addressing several key risk areas
including cyber security, grid-scale batteries, operational
governance, financial controls and business continuity and
disaster recovery planning. Reviews were carried out, findings
reported to the Committee, recommendations tracked and
their close-out monitored. No significant weaknesses were
identified from the reviews undertaken by Group Internal
Audit during the reporting period and throughout the
financial year.
The Audit Plan for 2022 was approved by the Committee
in November 2021.
The Committee has remained in active discussion with Group
Internal Audit about the existing risks the Group faces as it
continues to grow, including those in relation to carbon
reduction (‘CaRe’) verticals, the impact of industry and
regulatory changes, systems development and pervasive
external risks such as cyber and data security. See further
details in the Principal risks and uncertainties section on
pages 65 to 69.
Going concern
The Committee reviewed management’s paper on going
concern. The Committee assessed and challenged the Group’s
forecasts and cash flow projections, including consideration of
various possible outcomes of future performance and forecast
capital expenditure and the potential impact of uncertainties.
The Committee also considered the Group’s financing
facilities and future funding plans. Based on this, the
Committee is satisfied that the Financial statements
should be prepared on a going concern basis.
SMS Annual report and accounts 2021 91
Strategic reportGovernanceFinancial statements
AUDIT COMMITTEE REPORT continued
Financial reporting
The Committee has reviewed with both management and the
external auditor the annual Financial statements, focusing
on: the overall truth and fairness of the results and financial
position, including the clarity of disclosures shown in the
statements and their compliance with best-practice
requirements; the appropriateness of the accounting policies
and practices used in arriving at those results; the resolution
of significant accounting judgements or of matters raised by
the external auditor during the course of the annual statutory
audit; and the quality of the Annual report and accounts
taken as a whole, including disclosures on governance,
strategy, risks and remuneration, and whether it gives a fair,
balanced and understandable picture of the Group.
The Committee considered the continued impact of
COVID-19 on the Group and the reporting of these impacts
throughout the Annual report and accounts. To assist in this
process, the Committee reviewed comments arising from the
review of the Financial statements by the Executive Directors
and comments raised by the Group’s external auditor.
The Committee also considered the use of alternative
performance measures by the Group, including the
appropriateness of their current use and their disclosure
in the Financial statements and Strategic report.
Process
In reaching its conclusions the Audit Committee considered
the thorough process in place to create the Annual report
and accounts 2021, including:
• the involvement of the Committee in the preparation of
the Annual report and accounts 2021 which enabled it to
provide input into the overall messages and tone;
• the input provided by Group senior management and
the process of review, evaluation and verification to ensure
balance, accuracy and consistency;
• the review by the Committee of management’s papers on
critical accounting judgements and assumptions, including
key sources of estimation uncertainty, detailing the
approach taken and conclusions reached;
• the opportunity for the Non-executive Directors to meet
the external auditor without any executive of the Group
being present via the private sessions of the Committee;
• review of the external auditor’s report on the Annual report
and accounts 2021, presented to the Committee prior to
final sign-off;
• review and consideration of the draft Annual report and
accounts 2021 in advance of the final sign-off; and
• the final sign-off process by the Board.
Fair, balanced and understandable – what does this mean?
Below are the key considerations the Committee has in mind when assessing these three components:
Fair
Balanced
Understandable
• Is the whole story presented?
• Is the narrative reporting in the front
of the Annual report and accounts
2021 consistent with the reporting
in the Financial statements?
• Are the key messages in the
narrative reporting reflective
of the financial reporting?
• Is there sufficient information
included to understand the
underlying performance of the
Group and its divisions?
• Is there a good level of consistency
between the narrative reporting in
the front and the financial reporting
in the back and is the messaging in
each consistent when read
independently of each other?
• Does the narrative reporting reflect
both the positive and negative
aspects of performance?
• Are both the statutory and adjusted
financial measures explained clearly
with appropriate prominence?
• Is there a clear and understandable
structure to the report?
• Are the important messages
highlighted appropriately and
consistently throughout the
document?
• Is the narrative within the Annual
report and accounts 2021
straightforward and transparent?
• Is the layout clear with good
linkage throughout?
• Are the key judgements referred
to in the narrative reporting and
the significant issues reported in
the Audit Committee report
consistent with the disclosures of
key estimation uncertainties and
critical judgements set out in the
Financial statements?
• How do the significant issues
identified compare with the risks
that the external auditor plans
to include in its report?
92 SMS Annual report and accounts 2021
Significant matters considered in relation to the Annual report and accounts 2021
Significant areas considered by the Committee in relation to the 2021 Financial statements are set out in the below table:
Area of judgement Matter considered
Impact of
COVID-19
The presentation of costs
attributable to COVID-19
as exceptional. This includes
costs that would ordinarily
be capitalised as directly
attributable to the
installation of meters,
together with additional
reasonably expected credit
losses arising on trade
receivables as a result of
the pandemic.
Appropriateness
of capitalisation
of overheads
and other
expenses within
meter assets
SMS continues to carry out
a significant level of in-house
installation of meter
assets, certain costs of
which are capitalised and
depreciated as part of
fixed asset depreciation.
Action
During the year and throughout the Group’s year-end processes, the
Committee gave continued focus to the impact of COVID-19 on the
business, which was more prevalent at the beginning of the year as
a result of reduced engineering activity in periods of lockdown. This
is explained here and through the significant matters set out below.
Where relevant, the Committee received papers from management
setting out its approach and recommendations. The Committee
reviewed and challenged management’s approach, analysis and
recommendations, taking into account input from the external auditor
in order to conclude on the appropriateness of the treatment in the
Financial statements.
All matters reviewed were concluded to the satisfaction
of the Committee. The classification of certain costs as exceptional
was deemed to be consistent with the Group’s accounting policy as
material costs attributable to a rare macroeconomic event.
The Committee considered management’s capitalisation process
and the assumptions and judgements used when determining which
costs are directly attributable to bringing the meter assets into use
and therefore eligible for capitalisation.
The impact of COVID-19 on management’s capitalisation process
was also assessed, and the Committee reviewed management’s
analysis of costs that would ordinarily be capitalised as directly
attributable to the installation of meter assets, but have remained
in the consolidated income statement as a result of the lower
installation volumes caused by the pandemic in the earlier part
of the year.
The Committee was satisfied that the costs identified by
management for capitalisation were appropriate, being directly
attributable labour costs and an appropriate allocation of overheads.
In addition, the Committee was satisfied that the decision to classify
costs recorded in the consolidated income statement in the first
half of the year, that would ordinarily be capitalised, as exceptional,
was appropriate.
SMS Annual report and accounts 2021 93
Strategic reportGovernanceFinancial statements
AUDIT COMMITTEE REPORT continued
Significant matters considered in relation to the Annual report and accounts 2021 continued
Area of judgement Matter considered
Action
Identification
of indicators of
impairment of
the meter asset
portfolio in
accordance
with IAS 36 and
assumptions
applied in
determining the
carrying value
of the portfolio
of meter assets
Due to the uncertainties
associated with the timing
of the domestic smart meter
rollout, the expected useful
life and carrying value
of traditional meters requires
significant judgement,
as does the level
of recoverability of
termination income. These
assumptions are used in
deriving the depreciation
rates applied and the
impairment calculation
performed on carrying value.
Several factors are
considered in assessing
the expected pace of the
smart meter replacement
programme, including the
number of smart meters
still to be installed and the
churn of assets.
The Committee considered the judgements made by management,
including the quantum and disclosure of relevant amounts.
The Committee confirmed with management that there have
been no changes to accounting estimates with regard to meter
assets. The Committee considered market and UK Government
developments regarding the smart meter rollout and concluded
that this was reasonable.
The Committee considered the accounting estimates and judgements
used to arrive at the expected useful economic life of the traditional
meter assets and their carrying value at 31 December 2021.
Losses on disposal of de-appointed meters have been recognised
after allowance for termination income and, following management’s
impairment assessment of traditional meter assets, no impairment
charge was recorded at the end of the year. The financial statements
provide detailed commentary on the estimates and judgements
involved and on the financial effect. The Committee considers that
the position presented in the financial statements provides a
reasonable view of the carrying value of traditional meter assets.
The Committee is satisfied that charges for losses on disposal, net
of termination income, and for impairment of this asset class, should
be recorded as exceptional items, as this classification will assist
understanding of the performance of the continuing meter estate
comprising Industrial & Commercial (I&C) meters and domestic smart
meters (as distinct from the effect of discontinued traditional meter
assets). The Committee is also satisfied that amounts arising in
relation to the loss of first-generation smart meter assets (‘SMETS1’
meter assets) should be recorded as exceptional items, on the basis
that these disposals are attributable to the temporary industry
transition period.
Overall, the Committee is satisfied that the approach taken
by management to review the expected useful life and estimate the
carrying value of meter assets is appropriate and the assumptions
applied are sensible and supportable.
94 SMS Annual report and accounts 2021
The Committee also reviewed the proposed audit fee and
terms of engagement for FY 2021. Details of the fees paid to
the external auditor during the financial year can be found in
note 3 to the Financial statements.
The Committee recognises that the independence of the
external auditor is an essential part of the audit framework
and the assurance that it provides. The external auditor
confirms its independence at least annually. As a matter of
principle, the Group’s auditor is not engaged for non-audit
services, thus ensuring that its independence and objectivity
are not impaired.
Having completed this review, the Committee concluded that
the audit process, independence and quality of the external
auditor was satisfactory, and has recommended to the
Board that EY be reappointed as the Company’s auditor
for FY 2022. Accordingly, a resolution proposing EY’s
reappointment will be tabled at the forthcoming Annual
General Meeting.
Graeme Bissett
Chair of the Audit Committee
15 March 2022
Climate change
The Audit Committee discussed the impact of climate
change on the Group. These considerations did not have
a material impact on the financial reporting judgements
and estimates, consistent with the assessment that climate
change is not expected to have a significant impact on the
Group’s going concern assessment to 31 December 2023.
Qualitative exploration of potential areas of concern,
including an evaluation of climate exposure on our physical
assets such as offices, warehouses and vehicles, has been
carried out and we have identified areas of potential climate-
related risk, such as extreme weather events which could
affect our physical locations and road-based employees.
Overall, the risk of climate-related change on the Group is
considered low.
External auditor
Ernst & Young LLP (EY) has remained in place as auditor
since 2015, when the practice was appointed following
a formal tender process undertaken by the Group for
FY 2015. The external auditor is required to rotate the
audit engagement partner every five years. The current
engagement partner, Kevin Weston, began his appointment
from FY 2017 and therefore FY 2021 is his last year. A new
engagement partner, Paul Copland, has been appointed
with effect from FY 2022.
External auditor appointment, independence
and effectiveness
The Committee’s primary responsibility is to make a
recommendation on the appointment, reappointment and/or
removal of the external auditor. The Committee considers
a number of areas when reviewing the external auditor
appointment, namely the auditor’s performance in
discharging the audit, the scope of the audit and terms
of engagement, auditor independence and objectivity,
and auditor remuneration.
Every year, the Committee assesses the effectiveness of
the audit process and the external auditor. In carrying out
its assessment in 2021 it considered:
• feedback from the Chief Financial Officer and his team,
who monitor the external auditor’s performance, behaviour
and effectiveness during the exercise of its duties;
• all key external auditor plans and reports, which were
discussed and challenged;
• the regular engagement with the external auditor
during Committee meetings and ad-hoc meetings,
including meetings without any member of management
being present;
• how the auditors support the work of the Committee
and how the audit contributes insights and adds value;
• the Committee Chair’s discussions with the Senior Statutory
Auditor ahead of each Committee meeting; and
• the independence and objectivity of the external auditor.
SMS Annual report and accounts 2021 95
Strategic reportGovernanceFinancial statements
NOMINATION COMMITTEE REPORT
Members and attendance
Meetings
Miriam Greenwood (Chair)
Graeme Bissett
Ruth Leak
Jamie Richards
Alan Foy
Main activities in 2021
• The appointment of Gavin Urwin as Chief Financial
Officer to succeed David Thompson from
31 March 2021.
• Review of the succession plans for Executive and senior
management roles, including potential candidates
for such roles, their backgrounds and experience, and
how such candidates would contribute towards the
Company’s objectives
• Consideration of the independence and time
commitments of Non-Executive Directors
96 SMS Annual report and accounts 2021
Nomination Committee membership
The Nomination Committee is currently made up of one
Executive Director, namely the Chief Executive Officer, and all
the Non-executive Directors, each of whom is independent.
The Committee is chaired by the Chairman, unless the matter
under discussion is his or her own succession. Other Directors
are invited to attend as appropriate and only if they do not
have a conflict of interest. The Committee is also assisted by
executive search consultants as and when required.
During 2021, the Committee met on one occasion. However,
in addition, several informal meetings and discussions were
held with the Chief Executive Officer and others as part of
the process to appoint a new Chief Financial Officer.
Role of the Committee
The Committee regularly reviews the structure, size and
composition of the Board and its Committees to ensure
they continue to provide informed and constructive support
and challenge to the management team. The Committee is
responsible for identifying and reviewing suitable candidates
through a formal and transparent process, and for ensuring
that plans are in place for orderly succession to the Board.
It also oversees the development of a pipeline for succession
to senior management roles.
Succession planning
The Committee met with the Chief Executive Officer and
Group HR Director to review succession plans. The focus of
these discussions was to review our succession planning
strategy and ensure robust plans were in place for members
of the Executive Committee and their direct reports. The
Committee will keep succession planning under close review
in 2022 to implement the actions identified by the evaluation.
At the end of January 2022, Alan Foy tendered his
resignation as Chief Executive Officer. He subsequently left
the Group at the start of March 2022. We were fortunate that
Tim Mortlock, then Chief Operating Officer, was well placed to
assume the role to lead the executive management of the
Group ensuring continuity and minimising disruption to the
business. Tim Mortlock had already been identified in our
succession plan as the preferred successor for the Chief
Executive Officer role. The Committee unanimously agreed
that he should be appointed as Chief Executive Officer and
his appointment was confirmed on 1 March 2022.
Board inclusion and diversity
The Nomination Committee focuses on the leadership
required for SMS to fulfil its purpose, achieve its vision and
execute its strategy. This requires a clear focus on inclusion
and diversity to maximise the skills and capabilities from
which SMS can benefit. Our policy is to have a broad range
of skills, backgrounds and experience on the Board.
Alongside the Board, the Committee continues to champion
the benefits of diversity – be it religious, ethnic or gender
diversity, or diversity of social backgrounds or cognitive
and personal strengths at Board, Committee and senior
management level. Appointments are always based on merit
and we continue to challenge our external search consultants
where necessary, to ensure that diversity is always
considered when drawing up candidate shortlists
Appointment of new Chief
Financial Officer
Board composition in 2021
Gender
Tenure
5
Male
2
Female
4
1–3 years
1
3–6 years
2
>6 years
Board composition
3
Executive Directors
3
Independent
Non-executive Directors
1
Independent
Non-executive Chairman
Sector experience
Technology
Finance
Mergers and acquisitions
Marketing
Sales
4
3
4
2
3
We commenced the search for a new Chief Financial
Officer following David Thompson’s decision to leave the
Group to pursue another opportunity. After almost five
years with SMS, including three years as Chief Financial
Officer, David has seen the Company through a period
of remarkable change and development. I would like to
express the Board’s thanks to David for his highly valued
contribution and wish him well in his new role.
We engaged Odgers Berndtson to lead the search for
a new Chief Financial Officer. The Committee reviewed
the expertise and experience requirements for the Chief
Financial Officer role and developed a specification for
candidates. Reports on potential appointees were
provided and reviewed by the Committee, which then
selected a short-list, held interviews and, after careful
consideration, made a recommendation to the Board.
In determining its recommendation, the Committee
had regard to a broad range of factors, including: the
candidates’ backgrounds, skillsets and experience;
their ability to express independent judgement and
contribute across a broad range of topics; their ability
to devote sufficient time to the Company; and whether
their appointment would contribute to the Board’s
diversity objectives.
The selection process was rigorous and transparent
with Directors being given ample time to review and
interview candidates and hold detailed discussions
before making its recommendation. Odgers Berndtson
has no other connection with the Group or with
individual Directors except for the provision of other
senior executive search services.
As a result, Gavin Urwin joined the Group in February
2021 as CFO-Designate, and was appointed to the
Board as Chief Financial Officer with effect from
31 March 2021. Gavin’s biographical details are set
out on page 78.
The Nomination Committee recognise the importance of
having complementary and diverse skills and backgrounds
within the Board, enabling rich and effective discussions and
decision-making. The Committee continuously reviews the
Board composition against a skills matrix to ensure that
the Board and its Committees have and maintain the skills
needed to deliver the Group’s strategic priorities.
Miriam Greenwood
Chair of the Nomination Committee
15 March 2022
SMS Annual report and accounts 2021 97
Strategic reportGovernanceFinancial statements
Introduction by Jamie Richards,
Remuneration Committee Chair
On behalf of the Board and the Remuneration Committee,
I am pleased to present the Remuneration Committee
Report (the Report) for the financial year ended 31 December
2021. This report includes my annual statement, the directors’
remuneration policy (the Policy) and our annual report on
remuneration. Whilst not required as an AIM listed business,
but in line with corporate governance best practice, the
Company intends to put three resolutions to shareholders
at the AGM in May 2022; an advisory vote on the Report
(excluding the Policy section), a binding vote on the Policy
and a binding vote to approve the proposed new long-term
incentive plan (LTIP).
Role of the Committee
The primary role of the Remuneration Committee is
unchanged from previous years and is to determine and
recommend a fair and incentivising reward structure aligned
with Group strategy and performance.
Our reward package for Executive Directors is structured
such that:
• the fixed element of pay – salary, pension and benefits –
is set at an appropriate level by reference to the markets in
which we operate;
• Executives are entitled to both short-term and long-term
incentives, in the form of cash and share bonuses, options
and proposed LTIP; and
• the remuneration packages reward achievement of a
balanced portfolio of measures which are designed to
reflect our goal of delivering sustainable value for
shareholders over the long term.
The Committee continues to oversee the workforce
remuneration and the operation of related policies and
benefits and endeavours to ensure we have appropriate
incentive structures to attract and retain our valued
workforce. The Remuneration Committee is responsible for
ensuring the alignment of the remuneration structure of the
Executive Directors with the policies for the wider workforce,
in particular having regard to our workforce remuneration
and ensuring alignment with strategy and culture, so that we
are able to recruit, retain and motivate our executives and
our wider workforce.
REMUNERATION
COMMITTEE REPORT
Members and attendance
Meetings
Jamie Richards (Chair)
Miriam Greenwood
Graeme Bissett
Ruth Leak
Areas of activity in 2021
• Reviewed and approved the Directors’ Remuneration
Report in the FY 2020 Annual Report and Accounts.
• Reviewed the financial and strategic FY 2021 bonus
metrics and targets.
• Discussed and approved the FY 2020 Executive annual
bonus payments.
• Received an update on new Group reward framework
career levels and pay structure.
• Reviewed and approved option awards to Executives
and senior management.
• Reviewed and recommended the Gender Pay Gap
Report for 2021 to the Board for approval.
• Reviewed the Policy and considered the design of
a new long-term incentive plan.
Areas of focus in 2022
• Review and approve the Directors’ Remuneration
Report in the FY 2021 Annual Report and Accounts.
• Develop and seek approval for a revised Remuneration
Policy.
• Communicate with shareholders on the proposed new
LTIP and seek approval at the AGM.
• Set the financial and strategic bonus metrics and
targets for FY 2022.
• Discuss and approve the bonus payments for FY 2021.
• Review and approve vesting levels for existing long-
term incentive awards for FY 2021.
• If approved by shareholders, make awards under the
new LTIP.
• Determine the remuneration packages for the
Executive Directors.
• Review remuneration packages for senior
management below Board level and the wider
workforce.
98 SMS Annual report and accounts 2021
Summary of 2021 performance outcomes
Although we have continued to experience significant
external challenges throughout the year, overall performance
has been stronger than initially anticipated across the
business with full year pre-exceptional EBITDA at £52.8m
and underlying PBT at £18.3m being higher than expected at
the start of the year. For FY21, to ensure that management
focused on the key financial and strategic drivers that were
critical for the business during a period of growth coupled
with continued uncertainty from the ongoing pandemic and
its effect on our operations and market, the Executive
Directors’ annual bonus was based on underlying profit
before tax, ILARR, H&S and personal performance
objectives, which aligned with our strategic initiatives. Full
details are available on pages 112 to 113. As a result of the
strong performance in the year, the annual bonus paid out
at c.82% of maximum. The Committee supports shareholder
sentiment that outcomes should reflect the experience
of the company, stakeholders and colleagues. Therefore,
as is the case every year, the Committee also evaluated
Executive performance in the round against a range of
factors to assess whether the level of annual bonus pay
out was appropriate. Given the key role that the Chief
Executive Officer (CEO), Chief Operating Officer (COO)
and Chief Financial Officer (CFO) played in implementing
the strategy, and managing the operation of the business
amid challenging circumstances, to produce these
results the Committee felt that the pay out of incentives
was appropriate.
Implementation of the Policy for 2022
At the start of 2022 the Committee commenced its annual
review of the Executive remuneration package. As part of
this review, the Committee considered the current position of
pay relative to the external market, as well as the approach
to the annual pay review for the wider workforce and wider
societal and shareholder expectations. This review has
indicated that some changes are required to bring the
Executive remuneration packages into line with evolving
market benchmarks and practices. The proposed changes
to the Remuneration policy support our strategy to serve
our customers, protect the environment and look after our
people while continuing to deliver long-term sustainable
value for shareholders. Full details of the proposed changes
to the Remuneration policy are explained on page 107.
I hope that you find this report clear, transparent and
informative. The Committee has sought to promote a
remuneration environment that strongly aligns the
commercial direction of the Group with the interests of
shareholders, whilst reflecting best practice developments
and market trends.
I welcome any shareholder feedback and hope you
will continue to be supportive of the implementation of
our Policy.
ANNUAL STATEMENT FROM THE CHAIR OF
THE REMUNERATION COMMITTEE
Our Remuneration Committee
Determining the remuneration for the Executive Directors is a
key focus of the Committee. The Committee oversees SMS’s
overall remuneration policy, strategy and implementation to
ensure that the Policy is aligned with the key objectives.
The Committee has a formal and transparent procedure for
developing policy on remuneration, taking into account all
relevant factors such as individual and Group performance
and remuneration payable by companies of a comparable
size and complexity. The Committee reports to the Board on
its activities and makes recommendations, all of which have
been accepted under the period of review.
The Remuneration Committee is currently made up of four
Independent Non-executive Directors, including Jamie
Richards as Chair of the Committee. The Remuneration
Committee formally met three times during the year and
the attendance at those meetings is shown on page 98. In
addition, three informal meetings were held to further discuss
the annual review of the Executive remuneration package.
The Company Secretary attends all the Committee meetings
as Secretary to the Committee and, by invitation, they are
also attended by the Executive Directors, Group HR Director
and external professional advisers, for all or part of any
meeting as and when appropriate and necessary. No
Executive Director is involved in any decision relating to
their own remuneration.
The Remuneration Committee’s role is as follows:
• to determine and recommend to the Board for approval
the Policy on total remuneration of the Executive Directors,
and to monitor the effectiveness of the Policy;
• to agree the performance KPIs, and corresponding targets,
underpinning performance-related pay schemes for the
Executive Directors and senior management;
• to approve the total annual payments made under
such schemes;
• to review and approve the design of all share incentive
plans for approval by the Board and shareholders. For
any plan, to determine each year the overall number of
awards and the individual awards to Executive Directors
and senior management;
• to determine the level of any payment made to the
Executive Directors or members of senior management by
way of compensation for, or otherwise in connection with,
loss of office or employment;
• to review and approve Groupwide salary increases; and
• to review any major changes in employee benefit structures
throughout the Group.
The Committee operates according to its terms of reference
which have been prepared to comply with relevant statutory,
regulatory and corporate governance requirements and best
practice. During 2021 the terms of reference were reviewed
by the Committee and updated to reflect changes in
corporate governance requirements and best practice.
The revised terms of reference are available for review
on our website at www.sms-plc.com.
SMS Annual report and accounts 2021 99
Strategic reportGovernanceFinancial statements
REMUNERATION COMMITTEE REPORT continued
ANNUAL STATEMENT FROM THE CHAIR OF THE REMUNERATION COMMITTEE continued
Our remuneration at a glance
The Committee endeavours to ensure transparency in respect of the Company’s policies for Executive Directors and
senior management remuneration and aims to provide clear reporting on both past remuneration and future policy.
The following table summarises how the policy was applied in 2021 and how the proposed remuneration policy will be
implemented for FY22:
Elements
Base salary
Objective
To attract
and retain
management of
a high calibre.
Key features
Reviewed annually with
increases effective from
1 April. Maximum salary
increases generally in line
with those for wider
employees.
Implementation FY 2021
1.5% inflation
increase awarded
to CEO. Increase
of 11% awarded to
COO after 2020
benchmarking
exercise.
New CFO was
appointed on 31
March 2021 with an
annual salary of
£222,844
Benefits
Provide market
competitive
benefits
consistent
with the role.
Set at an appropriate
level taking into account
the individual’s
circumstances, market
practice and other
employees in the Group.
Executive Directors
received benefits
including a car
allowance and
private health
insurance.
Pension
To provide
individuals with
retirement
arrangements.
Annual bonus Incentivise the
achievement of
annual financial
targets and
key strategic
objectives.
Directors are eligible for
defined employer
contribution and
payments into a personal
fund. Contributions for
Executive Directors will be
aligned with the maximum
employer pension
contribution available
to the workforce.
Maximum opportunity
of 100% of salary with
one-year performance
period.
The pension
opportunity will be
in line with the policy
for the workforce.
Based on financial
measures and
delivery of strategic
and personal
measures (full
details on page
pages 112 to 113).
Both financial and
nonfinancial
performance was
strong in the year
and the bonus paid
out at c.82%
Implementation FY 2022
The Committee has carried out
a detailed review of all elements
of the Directors’ remuneration
package, including base salary,
pension, annual bonus and wider
benefits. As a result of this review
the CEO salary is to increase to
£435,000 as of 1 March 2022 (the
date of CEO appointment) and in
the case of the CFO and his strong
performance in the role following
his appointment last year, the
CFO’s salary is to increase to
£300,000 as of 1 April 2022.
2022 inflationary increases for the
wider workforce are currently
under review.
The Committee has carried out
a detailed review of all elements
of the Directors’ remuneration
package, no changes to benefits
are currently proposed. The
Committee will continue to keep
the benefits policy under review
based on developments in
market practice
The Committee has carried out
a detailed review of all elements
of the Directors’ remuneration
package, no changes to pension
arrangements are currently
proposed. Any future changes
will be as a result of changes to
the pension provision available
to the workforce
The Committee has carried out
a detailed review of all elements
of the Directors’ remuneration
package and proposes the
maximum opportunities increase
to 150% of salary for the CEO and
130% of salary for the CFO, with
the maximum of 100% being
delivered in cash and the balance
being deferred into shares subject
to a retention period. The same
award weighting will be applied
to both elements.
100 SMS Annual report and accounts 2021
Elements
Objective
Key features
Implementation FY 2021
Implementation FY 2022
300,000 share
options awarded to
CEO and 250,000
share options
awarded to COO
under the
Unapproved Share
Option plan (“the
Option Plan”), along
with awards to a
number of members
of senior
management.
N/A
No further share options
will be awarded, as result
of the Option Plan expiring
during 2021. The Option
Plan is being replaced with
the proposed new LTIP.
Subject to shareholder
approval on the Policy
and plan, awards will be
granted during the
remainder of FY 2022
Share options Align Executive
Directors’
interests with
those of our
shareholders by
incentivising
them to deliver
the Company
strategy and
long-term
sustainable
value for
shareholders.
Incentivises
and rewards
Executives for
the delivery of
longer-term
strategic
objectives and
to reward
substantial
relative and
absolute
increases in
shareholder
value.
LTIP (subject
to shareholder
approval at
the 2022 AGM)
Options vest in annual
tranches and cannot be
exercised for a period of five
years from the grant date.
The Committee will review to
ensure metrics are aligned
with the long-term strategic
goals and that formulaic
outcomes are carefully
evaluated.
Annual awards of nil cost
options with opportunity levels
aligned to the market, at a
maximum of 175% of base
salary for CEO and 150%
for CFO with deferred
components. Annual awards
are subject to performance
against stretching financial
and ESG targets measured
over a three year period.
Awards will fall within an
overall headroom cap of
10% of issued share capital
consistent with the previous
Option Plan. Further details
can be found on page 110.
SMS Annual report and accounts 2021 101
Strategic reportGovernanceFinancial statements
REMUNERATION COMMITTEE REPORT continued
ANNUAL STATEMENT FROM THE CHAIR OF THE REMUNERATION COMMITTEE continued
Remuneration for performance in 2021
During 2021 the committee has considered many areas
including how to compensate our employees who have
worked tirelessly to support our customers and communities
in the midst of the continuing pandemic.
The Committee assessed performance against the annual
vesting criteria for share options awarded to Executive
Directors and senior management, under the extant Option
Plan, noting that the plan has now expired for new awards
and reflecting the Committee’s responsibility under the plan
rules to exercise discretion to ensure a fair outcome for
all parties including the careful evaluation of formulaic
components. The Committee took into account a range of
critical factors including the industry-wide technical issues
which affected the smart meter regulated market and the
resulting delayed rollout period mandated by Ofgem to 2025;
the impact of the disposal of a majority of the Company’s
I&C meter portfolio and simultaneous announcement of an
enhanced dividend policy; the extent of successful strategic
investment in pre-revenue lines of business including grid-
scale batteries; and the effect of the £170m equity raise (net
of costs) which was announced in September 2021. Taking
all factors into account in the context of the plan rules, the
Committee concluded that for all option holders the first four
tranches of the 2018 awards and the first two tranches of the
2020 awards would vest at 95% of the maximum, with the
balance of 5% lapsing. The first tranche of the 2021 option
awards would vest in full at 100% in line with the annual
vesting criteria.
Looking back on the year, it is important to recognise our
employees for their energy and commitment in responding
to the ever-changing environment of the pandemic and the
energy market. Continuing to support our employees has
been a priority which has been enacted through a range of
health and wellbeing projects. From a financial perspective
the Company has provided full financial support to all staff
who were absent from work due to self-isolation. All
employees were awarded a 1% cost of living increase on
1 April 2021. In addition, in March 2021, after sufficient time
to allow the business to understand and determine the
impact of COVID-19, a one-off payment to represent the
six-month delay to the 2020 2.5% cost of living increase was
made to all staff.
When setting the Executive Directors’ remuneration policy,
the Committee takes into account the pay and conditions
of employees more generally and, at least once a year, is
given full details of the remuneration policy across the Group,
with any changes highlighted. So while the balance of the
elements of remuneration may differ, there is a consistent
overall principle that all colleagues should be paid
competitively against the relevant pay benchmark. As part
of the employee engagement survey colleagues across the
Group were asked how they feel about pay and benefits at
SMS. Our colleagues are the heart of our business and the
Committee remains committed to building an inclusive
workplace, developing employee skills and promoting
teamwork. Our ongoing initiatives include:
• supporting colleagues to be at their physical, mental and
nutritional best through our health and wellbeing
programme;
• creating a sense of belonging by treating everyone fairly
and with respect while valuing their individuality and
uniqueness; and
As set out in detail on pages 70 to 75, the Group achieved
a strong trading performance in 2021, good growth in our
index-linked annualised recurring revenue and ended the
year with a strong cash position, despite the effects of
the pandemic and unprecedented turbulence in the UK
energy market.
As at 31 December 2021, the Group had over 4.2 million
metering and data assets under management, of which
1.7 million are domestic smart meters. Most importantly,
there have been no significant health and safety incidents
in the year, reflecting the core priority of the Group to provide
a safe and secure operating environment for all our staff
(see pages 58 to 59 for details). In addition, the Company
completed a £175m equity raise and a refinancing of its
revolving credit facility (new facility of £420m through to
December 2025), allowing the Group to maintain leverage
at prudent levels and strengthen our financial position to
pursue further growth opportunities. The Group’s strategy
requires the deployment of significant capital in the short to
medium term to enable SMS to capitalise on our smart meter,
grid-scale battery and other CaRe asset opportunities and
to achieve the attractive, long-term returns available to
those market participants who are both strategically
positioned and well-capitalised.
Against the financial targets that were set for the annual
bonus, there was strong performance across all areas.
Looking at the wider context, good progress was also made
on many of our KPIs, including our strategic objectives and
the Executive Directors’ personal objectives. Reflecting this
strong performance during the year, the annual bonuses paid
to the CEO, COO and CFO were 82% (2020 75.0%), 82% (2020
80.5%) and 81% (pro-rated from date of appointment) of the
maximum respectively.
The Committee considered whether the formula-driven
pay-outs under the incentive plans and the resultant total
remuneration for Directors were appropriate, looking at the
broader context within which the performance was delivered.
The Committee determined that there had been a robust link
between remuneration and performance. In particular, the
Committee noted the following points:
• Underlying profit performance represents a strong
achievement, demonstrating the resilience of our business
model, despite the challenges the UK energy market faced
in 2021.
• A secure platform for growth has been established from our
contracted smart meter order book, restoring our average
installation run rate to c.30,000 per month, following the
impacts of COVID-19 and successfully energising our first
grid-scale battery project.
• Sound progress has been made across a number of key
strategic initiatives, most notably, the efficient deployment
of our growing pipeline of smart meters, energy data and
grid-scale battery storage.
102 SMS Annual report and accounts 2021
As announced on 28 January 2022, Alan Foy stepped down
from the Board as CEO on 1 March 2022. In line with the
current remuneration policy, Alan Foy will receive his current
salary and benefits to 1 March 2022. He will also receive his
2021 bonus award, payment in lieu of notice and any vested
options under the Group’s Unapproved 2018 and 2021 Share
Option awards.
Policy implementation for 2022
With the expiry of the Option Plan and recent changes to
our management team, the Committee has taken the
opportunity to conduct a thorough review of each element
of the Company’s remuneration arrangements to ensure
that they remain appropriate and aligned with SMS’s
business strategy and continue to incentivise the
management team to drive for sustainable long-term
value creation. The Committee is also mindful of evolving
best practice for executive remuneration. A detailed review
of all elements of the Executives’ remuneration package,
including base salary, pension, annual bonus and wider
benefits, was conducted. The review was fully informed
by independent advice. After careful consideration, the
Committee proposes for 2022 a revised policy in relation
to Executive remuneration to align with current market
practices and further proposes the introduction of a market-
standard LTIP for SMS Executive Directors and senior
management. The revised remuneration policy and
introduction of the LTIP scheme is intended to ensure our
remuneration policy continues to drive long-term success
and the implementation of our ambitious growth plans.
The aim of the revised policy is to achieve a relatively
simple, balanced incentive structure with measures and
targets that incentivise Executives to develop long-term
sustainable growth in shareholder value whilst taking full
account of vital ESG responsibilities. The new remuneration
policy and LTIP will be presented to Shareholders for
approval at our 2022 AGM.
• equipping our colleagues with the skills they need to
succeed now and in the future through various skills and
management training programmes and identifying and
developing the next generation of talent.
Executive Director salaries were subject to an annual review
process. Following this review at the start of 2021, the
Committee agreed to increase the salary of Tim Mortlock
by 11% to £245,000 effective 1 April 2021 to align with market
benchmarking. Gavin Urwin assumed the role of Chief
Financial Officer on 31 March 2021 and in line with the
remuneration policy at the time received a salary of
£222,844. Due to timing of Gavin Urwin’s appointment no
salary increase was awarded following the annual review.
Our remuneration policies and practices remained
unchanged during the year.
The Group HR Director supports the Committee by providing
oversight of workforce remuneration and related policies,
and the Committee members, as members of the Board,
have oversight of the employment surveys and are able to
engage with the workforce through the formalised employee
forums that were established during 2021. This enables the
Committee to advise the Board whether Company policies
and practices support culture and strategy. Last year the
Committee conducted a market benchmarking exercise
to assess our employment grading structure with the
recommendation of a single grading system with clear and
transparent remuneration structures. This major initiative
was launched to all employees in 2021 and has allowed us
to deliver a more consistent approach towards career
pathways and reward progression throughout the business.
The Group HR Director provided briefings to the Committee
on implementation across the Group. Where appropriate,
external consultants were used to ensure that remuneration
levels for all employees continue to be in line with market
expectations for their job role, level and experience and a
consistent approach is applied across the Group to our pay
and reward structure and related job families.
The Committee awarded share options to Executives and
senior management in February 2021 under the existing
Unapproved Share Option Plan falling within the overall
headroom cap of 10% of issued share capital. A large
proportion of our people are also eligible to participate in our
Sharesave plans which promote share ownership by giving
employees an opportunity to invest in SMS shares.
At the start of 2021 it was announced that David Thompson
would step down from the Board as CFO, and he ceased to
be a Director on 31 March 2021. It was agreed that he would
be entitled to his 2020 bonus of £176,490 based on his then
current salary and bonus arrangements. He was paid his
basic salary and benefits to 31 March 2021, together with
a settlement figure of £146,182.
SMS Annual report and accounts 2021 103
Strategic reportGovernanceFinancial statements
REMUNERATION COMMITTEE REPORT continued
ANNUAL STATEMENT FROM THE CHAIR OF THE REMUNERATION COMMITTEE continued
Long-term incentive plan (LTIP)
The LTIP is structured in the form of annual awards of nil
cost options to the Company’s senior employees. Maximum
opportunity levels will be aligned to the market, at 175% of
base salary for the CEO and 150% of base salary for the CFO.
All awards will be satisfied within a 10% dilution limit within
any rolling ten-year period. The awards will be subject to
stretching financial and non-financial performance targets,
measured over a three-year period, with phased vesting over
an overall five year term in line with market best practice and
to provide further alignment with shareholders. Performance
measures for the awards to be granted in 2022 will be
incremental EBITDA growth, delivery of absolute shareholder
return, and ESG measures which are core to SMS’s strategy,
including health and safety and progress against our net zero
targets. The Committee believes that the proposed LTIP will
encourage management to focus on executing the strategy
to position SMS at the forefront of delivering smart energy
solutions and provide the flexibility to make the right
investments at the right time and to discourage the use of
levers to increase revenue and profit in the short-term at the
expense of the long-term shareholder value. The new LTIP
will also incorporate the following best practice features:
• Malus and clawback provisions applying for two years post
vesting, including corporate failure and reputational
damage triggers
• Discretion for the Remuneration Committee to amend the
formulaic outcome of each award’s vesting (upwards or
downwards) to reflect an assessment of underlying
business performance
• Discretion for the Remuneration Committee to amend
the performance conditions in exceptional circumstances,
operating under the principle that the new performance
conditions are no easier or more difficult to achieve than
was originally intended.
Annual Bonus
Alongside the introduction of the long-term incentive plan,
the Committee is proposing changes to the annual bonus
to align the terms with appropriate market benchmarks.
Currently the annual bonus is set at a maximum of 100%
of base salary, paid in cash. Our intention is that maximum
bonus opportunity will move to 150% for CEO and 130% for
CFO with this being a maximum of 100% being delivered in
cash and the balance being deferred into shares for a period
of 2 years, and the same award weighting being applied to
both elements.
The Committee also reviewed the performance metrics and
for the 2022 financial year these will reflect the following
features, flexed to be appropriate to each individual:
• Core objectives – KPI’s of underlying PBT, ILARR and health
and safety
• Personal financial objectives – examples include growth of
sales pipeline and appropriate long-term capital strategy
• Personal non-financial objectives specific to individual
roles
Base Salary
Executive Directors, including the skills and experience of the
incumbent, the desired balance between fixed to variable
pay, short- and long-term remuneration, and the desired
market positioning. Based on the CFO, Gavin Urwin’s,
establishment and strong performance in the role following
his appointment to the Board in February 2021 together with
Tim Mortlock’s promotion to CEO in February 2022, salary
increases will be awarded to both of our Executive Directors
this year which are higher than the wider workforce average
in percentage terms. 2022 cost of living increases for the
wider workforce are currently under review and will be
implemented from 1 April 2022.
Other changes to policy
In light of evolving market practice and to reflect shareholder
expectations, the Committee is proposing to introduce
a shareholding guideline for Executives. The CEO will be
expected to maintain a shareholding of 2 times salary and
the CFO will be expected to maintain a shareholding of 1.5
times salary while they are a Director of the Company. Given
that both Executive Directors are relatively new in post, the
expectation is that this shareholding will be established over
five years and is expected to apply for a period of one year
following cessation of employment. The guidelines will apply
to shares from incentive awards vesting from the date of
adoption of the policy.
Advisers
FIT Remuneration Consultants LLP (FIT) and
PriceWaterhouseCoopers (PwC) provided advice to the
Committee on matters relating to Executive remuneration,
all-employee share awards and proposed Long-term
Incentive awards. Both PwC and FIT Remuneration
Consultants are considered to be independent of both the
Board and each of the Executive and Non-executive
Directors. Their advice is considered to be objective and
independent. Both FIT and PwC are members of the
Remuneration Consultants Group and the voluntary code
of conduct of that body is designed to ensure objective and
independent advice is given to remuneration committees.
The ongoing work of the Committee will reflect emerging
trends in corporate governance, best practice and investor
expectations and we monitor developments in these areas
on a continual basis. We remain committed to engagement
with our shareholders to ensure an open and transparent
dialogue on the issue of executive remuneration
arrangements at SMS. We trust that you find this report to
be informative, and we hope to receive your support for the
Annual report on remuneration, revised Policy and new LTIP
at our forthcoming AGM.
The report has been prepared by the Committee and
approved by the Board of Directors.
Jamie Richards
Chair of the Remuneration Committee
15 March 2022
104 SMS Annual report and accounts 2021
DIRECTORS’ REMUNERATION POLICY (THE POLICY)
The Company welcomes dialogue with its shareholders over
matters of remuneration. The Chairman of the Remuneration
Committee is available for contact with institutional investors
concerning the approach to remuneration.
The Policy will be displayed on the Group’s website
(www.sms-plc.com), in the Investor Relations section.
Policy principles
Principles
Clarity: remuneration arrangements should be transparent and
promote effective engagement with shareholders and the
workforce.
Simplicity: remuneration structures should avoid complexity and
their rationale and operation should be easy to understand.
Risk: remuneration arrangements should ensure reputational
and other risks from excessive rewards, and behavioural risks
that can arise from target-based incentive plans, are identified
and mitigated.
Predictability: the range of possible values of rewards to individual
directors and any other limits or discretions should be identified
and explained at the time of approving the policy.
Proportionality: the link between individual awards, the delivery of
strategy and the long-term performance of the Company should
be clear. Outcomes should not reward poor performance.
Alignment to culture: incentive schemes should drive behaviours
consistent with Company purpose, values and strategy.
Objectives of Remuneration Policy
The Company’s remuneration policy is designed to ensure
that the Executive Directors and senior management
are fairly and responsibly rewarded for their individual
contribution to the overall long-term performance of the
Company, in a manner that ensures that the Company
is able to attract, motivate and retain executives of the
quality necessary to ensure the success and sustainability
of the Company.
The remuneration of Executive Directors and senior
management is structured to ensure that:
• the fixed elements of pay, salary, pension and benefits are
benchmarked against comparable companies of similar
size and complexity;
• Executive Directors and senior management are entitled
to both short-term and long-term incentives, in the form
of cash bonuses and share interests. Both the short-term
and long-term incentives are underpinned by performance
criteria linked to the Group’s performance; and
Considerations within the Policy
We clearly communicate our approach to remuneration in this
report and in all communications with shareholders, providing
transparency over our rationale. This also allows straightforward
engagement with the wider workforce.
We have structured the Remuneration Policy to be as simple as
possible, within the confines of ensuring arrangements are in
line with the business strategy, have a robust link between pay
and performance and are designed after consideration of
investor expectations.
We mitigate against these risks through a carefully designed
policy which includes a balance between financial and
non-financial bonus metrics, incentives plans that are based
on long-term performance and the ability of the Committee to
exercise discretion if doing so achieves a fairer outcome taking
all stakeholders into account.
We carefully consider the range of likely performance outcomes
for incentive plans when setting performance target ranges and
at the time of assessment would use discretion where necessary
if the formulaic result were considered inappropriate.
The opportunity under incentive plans is based on a proportion
of salary with the quantum selected to ensure an appropriate link
between pay and performance.
The performance conditions applying to the incentives are aligned
with the Company’s strategy and are reviewed on an annual basis
to consider whether they are working effectively.
There are provisions to override the formula-driven outcome of
incentive plans if necessary to ensure that there is not reward for
poor performance and that fairness is achieved for all parties
The annual bonus and LTIP performance measures are based
on both financial and non-financial metrics aligned with all key
aspects of strategy including long-term sustainable shareholder
value growth, maintaining a focus on our customers and the
quality of our service and ensuring adherence to wider ESG
and H&S responsibilities.
• remuneration rewards the achievement of specific KPIs
which include, inter alia, the delivery of long-term value to
shareholders, at all times underpinned by a safe operating
environment, compliance with relevant health and safety
policies, and outstanding service to customers.
In determining the remuneration of Executive Directors, the
Remuneration Committee also ensures that remuneration
arrangements are:
• transparent and measurable;
• not excessive, thus mitigating the reputational and
behavioural risks that could arise from strictly target-based
incentive plans; and
• aligned to our culture, such that they drive behaviours
consistent with our core values.
SMS Annual report and accounts 2021 105
Strategic reportGovernanceFinancial statements
REMUNERATION COMMITTEE REPORT continued
DIRECTORS’ REMUNERATION POLICY (THE POLICY) continued
Service contracts and policy on payment
for loss of office
It is the Company’s policy to require six months’ notice for
termination of employment for Executive Directors, to be
given by either party. The Company’s policy is to limit
severance payments on termination to pre-established
contractual arrangements. If the Company believes it
appropriate to protect its interests, it may also make
additional payments in exchange for non-compete/non-
solicitation or other terms which extend beyond those in
the Director’s contract of employment. The Committee
has discretion to contribute towards outplacement services
and the legal fees for any departing Director to the extent
it considers appropriate. Under normal circumstances, the
Company may terminate the employment of an Executive
Director by making a payment in lieu of notice equivalent
to basic salary and benefits for the notice period at the
rate current at the date of termination. In case of gross
misconduct, a provision is included in the Executive’s contract
for immediate dismissal with no compensation payable.
The terms applied to the Executive Directors’ share options
are consistent with those applied to all option holders under
the rules of the Group’s Unapproved Share Option Plan (the
Plan). Options are subject to a five-year service condition,
which commences from the grant date of the first tranche.
The Plan rules contain provisions for good and bad leavers
and an Executive Director would only retain rights to exercise
share options, in respect of shares for which performance
conditions have been met at the leaving date, where they
are deemed a good leaver. There is no entitlement to
compensation or damages for any loss or potential loss
which may be suffered by reason of being or becoming
unable to exercise an option as a consequence of loss of
office or employment. In relation to the proposed LTIP if an
employee leaves employment, or is on notice to leave, on or
before the vesting date, the employee will forfeit their award.
Treatment of annual bonus on termination
of employment
The Committee has discretion to determine that in the event
an Executive Director leaves the Company, bonus payments
may be paid once performance has been measured and on
a pro-rated basis for the time spent in active employment
with the Company.
Consideration of employment conditions
elsewhere in the Group
The Committee actively considers pay structures across the
wider Group when setting policy for Executive Directors to
ensure that a consistent approach to reward is adopted
which is in line with our values. There is a particular focus in
relation to any base salary review. Overall, compared to most
employees, the remuneration policy for Executive Directors
is weighted more to long-term share-based incentives. This
is to ensure that the relatively higher pay levels are justifiable
internally and externally to shareholders by a clear link
between the long-term value created for shareholders
and the remuneration received by Executives.
Our reward framework across the Group is based on a
consistent set of principles for all – that overall remuneration
should be competitive when compared to similar roles in
other organisations. Colleague pay is therefore determined
using the same principles as the pay for our Executive
Directors. All employees of the Group are entitled to base
salary and benefits. The Group also operates a pension plan
for employees in line with local market practice. Annual salary
reviews for other employees across the Company are based
on broadly consistent principles, taking into account
Company performance, market conditions and salary levels
for similar roles in comparable companies. The Company
operates discretionary bonus schemes for eligible groups
of employees under which a bonus is payable subject to the
achievement of appropriate targets. All eligible employees
may participate in the Company’s Share Incentive Plan on
identical terms.
Decision-making process
The Committee is responsible for the determination of the
Directors’ remuneration policy and how it is implemented.
In addressing this responsibility the Committee works with
management and external advisers to develop proposals
and recommendations. The Committee considers the source
of information presented to it, analyses the detail, and
ensures that independent judgement is exercised when
making decisions. Information is independently verified
where there are conflicts of interest, and no individual is
present when their remuneration is being discussed.
Incentive plan discretions
The Committee will operate the annual bonus plan and LTIP
in accordance with their respective rules. As part of the rules
the Committee holds certain discretions which are required
for an efficient and fair operation and administration of these
plans and are consistent with standard market practice.
Any use of the discretions would, where relevant, be
explained in the Annual Report on Remuneration and may,
as appropriate, be the subject of consultation with the
Company’s major shareholders.
106 SMS Annual report and accounts 2021
LTIP
Following the lapse of the Company’s historic option scheme,
the Committee has designed a new long term incentive
plan which:
• Is fit for purpose to incentivise the delivery of the Board’s
ambitious growth plans following the 2021 equity raise;
• Enables the Company to attract and retain the key talent
required to achieve these targets in an increasingly buoyant
market; and
• Supports the new CEO and the relatively new CFO in
building up a meaningful shareholding in the Company.
Following this review, the Committee is proposing to
introduce a market-standard long-term incentive, structured
in the form of annual awards of nil cost options to the
Company’s senior employees. Opportunity levels will be
aligned to the market, at 175% of base salary for the CEO and
150% of base salary for the CFO. All awards will be satisfied
within a 10% dilution limit within any rolling ten year period.
As an AIM listed business, SMS is not required to comply with
the UK Corporate Governance Code, however we recognise
the importance of good governance and transparency
for shareholders. As such, in designing the new LTIP the
Remuneration Committee has aimed to apply the Code as
far as appropriate for a company of SMS’s size, for example
by ensuring a total vesting and holding period of five years,
allowing discretion to the Committee to override formulaic
outcomes, and best practice malus and clawback provisions.
The awards will be subject to stretching financial and
non-financial performance targets, measured over a three
year period, with phased vesting over an overall five year
term in line with market best practice and the requirements
of the UK Corporate Governance Code.
Bonus
The Committee proposes that the maximum bonus
opportunity will move to 150% for CEO and 130% for CFO,
with this being a maximum of 100% delivered in cash and
the balance being deferred into shares for a period of
2 years, and the same award weighting being applied
to both elements.
Shareholder views
The Committee welcomes the views of shareholders in
respect of pay policy as well as those views expressed on
behalf of shareholders by their respective proxy advisers.
The Committee documents all remuneration-related
comments made at the Company’s AGM and within
feedback received during consultation with shareholders
throughout the year. Any feedback received is fully
considered by the Committee and amendments may be
made to the remuneration policy where thought necessary.
The Committee seeks to build an active and productive
dialogue with investors on developments in the remuneration
aspects of corporate governance generally.
Period for policy
Subject to approval by shareholders at the AGM in May 2022,
the policy will come into effect from the date of the AGM
and is intended to apply for a period of three years. The
Committee is satisfied that the proposed remuneration
policy is in the best interests of shareholders and does not
promote excessive risk-taking. The Committee retains
discretion to make non-significant changes to the policy
without reverting to shareholders.
Proposed changes to Policy
Share ownership guidelines
The Committee have introduced a policy of encouraging
Executive Directors to acquire and retain shares in the
Company, with the objective of further aligning their long-
term interests with those of other shareholders. The CEO
will be expected to maintain a shareholding of 2 times salary
and the CFO will be expected to maintain a shareholding of
1.5 times salary while they are a Director of the Company.
Shares that count towards achieving these guidelines include
shares beneficially owned by an Executive Director or by a
connected person, as recognised by the Committee, deferred
bonus shares and Share Options / LTIP awards which have
vested and so are no longer subject to performance
conditions but are subject to post-vesting deferral provisions.
Executive Directors are expected to build their shareholding
over a 5-year period but are not required to make personal
share purchases if awards do not vest through failing to meet
performance conditions, and so a newly-appointed Director
may not reach the required level within the period, depending
on the Company’s performance against target over the
period. In this instance, the Committee will review the
circumstances and agree an appropriate forward plan.
The Committee retains the discretion to grant dispensation
from these requirements in exceptional circumstances.
After ceasing employment Executive Directors must retain
a level of shareholding for one year. There is no particular
requirement for Non-executive Directors to hold shares but
they are encouraged to acquire a holding over time.
SMS Annual report and accounts 2021 107
Strategic reportGovernanceFinancial statements
REMUNERATION COMMITTEE REPORT continued
DIRECTORS’ REMUNERATION POLICY (THE POLICY) continued
Executive Directors’ remuneration
The main components of the Policy for the year ended
31 December 2021, and how they link to and support the
Company’s business strategy, are summarised below. We
do not disclose full details of the operational and personal
strategic objectives for the Executive Directors, as we
consider them to be commercially sensitive.
1. Base salary
2. Benefits
3. Pension
Our remuneration structure can be summarised as follows:
Fixed
Variable 4. Annual bonus
5. Share options
6. Long-term incentive plan (from 2022 and subject
Fixed – 1. Base salary
Purpose and link to strategy
Base salaries are set to recognise
individual skill, experience and
performance, as well as the market value
of the role, so as to attract, retain and
motivate the most qualified staff to
deliver against our strategy and KPIs,
implement our business model, manage
our risks and exploit our opportunities,
while remaining disciplined about fixed
cost management.
to shareholder approval)
Operation
Link to performance
Base salary is not conditional on
performance. Any salary increases will
generally be in line with those awarded to
salaried employees.
Salaries are typically reviewed annually,
and take into account:
• Company performance;
• the scope of the role, and the
experience and performance of the
individual Director;
• average workforce salary adjustments
within the Company; and
• the size, complexity and growth rate
of the Company.
Limitation:
Maximum increases are no greater than
inflation unless: (a) there has been a
material increase in industry rates; (b)
changes in role have taken place with
enhanced responsibility; or (c) there has
been a reward for individual
development.
2022 application
Based on benchmarking of AIM50 companies Executive remuneration was reviewed in line with market trends and as a
result of Tim Mortlock’s recent promotion to CEO he has been awarded a salary of £435,000, effective from 1 March 2022
and due to Gavin Urwin’s establishment and strong performance in the role following his appointment to the Board in
February 2021 a salary of £300,000 has been awarded, effective from 1 April 2022.
Fixed – 2. Benefits
Purpose and link to strategy
Operation
Link to performance
To complement base salary by providing
market-competitive benefits to attract
and retain Executives.
Benefits are not conditional on
performance, but we believe they
enhance recruitment and retention of
talent and improve staff wellbeing.
Reviewed from time to time to ensure
that benefits, when taken together with
other elements of remuneration, remain
market-competitive. Benefits include
car allowance and private medical
healthcare. Other benefits may be
introduced to ensure benefits overall are
competitive and appropriate to the
circumstances.
Limitation:
Benefits are set by the Committee at
levels appropriate for our business
relative to the market.
The cost of providing these benefits
varies year on year depending on the
schemes’ premiums. The Remuneration
Committee monitors the overall cost of
the benefits package.
108 SMS Annual report and accounts 2021
Fixed – 3. Pension
Purpose and link to strategy
Operation
Link to performance
To provide retirement benefits which,
when taken together with other elements
of the remuneration package, will enable
the Company to attract and retain
Executives of a high calibre.
The Executive Directors (together with
all other eligible staff) are able to
participate in the Company’s defined
contribution (money purchase)
pension scheme.
Pension contributions are not conditional
on performance.
Variable – 4. Annual bonus
Purpose and link to strategy
To reward Executives for achieving key
financial, operational and strategic
annual goals, by selecting measures that
drive long-term shareholder value.
Limitation:
Company contributions are based on
percentage of salary, ranging from the
statutory minimum to a maximum of
5% of salary.
Operation
Link to performance
The Committee determines annual metrics
based on approved budgets and priorities
for the forthcoming year. The annual bonus
is based on three weighted areas: Core
objectives, personal financial objectives and
personal non-financial objectives.
Performance measures under each area are
determined annually and the Committee is
able to adjust the weighting of the areas
annually based on prevailing business needs.
Targets are considered to be commercially
sensitive and will be disclosed
retrospectively following completion
of the relevant financial year.
The Executive Directors (together
with the senior management team)
participate in a discretionary, annual,
performance-related bonus scheme.
Targets are set at the beginning of each
year based on the recommendations of
the Remuneration Committee.
For 2022 the proposed maximum
opportunity is equal to 150% of salary for
the CEO and 130% of salary for the CFO,
with this being a maximum of 100% being
delivered in cash and the balance being
deferred into shares for a period of 2
years, and the same award weighting
being applied to both elements.
The Committee applies discretion to the
final bonus payout, taking into account
performance against targets and
underlying performance of the Company.
Bonus may be subject to clawback or
malus being applied, if appropriate, in the
event of financial misstatement, error,
misconduct, reputational damage or
corporate failure, which has led to an
over-payment.
2022 application
Core performance measures are the same for both the CEO and CFO and are aligned to the Company’s KPIs of
underlying PBT, ILARR and Health and Safety. The financial element of the bonuses start to be earned for threshold
performance rising on a straight-line to the maximum for exceeding budget performance.
Personal Financial performance measure will vary each year depending on business context and strategy, for 2022 these
have been set for the CEO to further grow our sales / asset pipeline in particular the development of sales pipeline and
product in developing CaRe products and increase in our absolute share price performance. The CFO personal financial
objectives for 2022 are set to ensure the business has a clear long-term capital strategy for sound funding of business
growth and operations and efficient working capital management.
Personal Non-Financial performance measures focus on leadership, structure, team, culture and behaviour.
For 2022 the proposed maximum opportunity is equal to 150% of salary for the CEO and 130% of salary for the CFO, with
this being a maximum of 100% being delivered in cash and the balance being deferred into shares for a period of 2 years,
and the same award weighting being applied to both elements.
SMS Annual report and accounts 2021 109
Strategic reportGovernanceFinancial statements
REMUNERATION COMMITTEE REPORT continued
DIRECTORS’ REMUNERATION POLICY (THE POLICY) continued
Variable – 5. Share options
Purpose and link to strategy
To motivate Executive Directors and
incentivise the delivery of sustained
performance over the long term,
and to promote alignment with
shareholders’ interests.
Operation
Link to performance
Options vest in annual tranches. The
vesting of each annual tranche takes
place by reference to distinct annual
performance period.
The Committee will determine market
capitalisation targets, financial targets
and individual objectives to ensure they
are aligned with the corporate strategy.
The share options cannot be exercised
for a period of five years from the grant
date, other than in specific circumstances.
The Committee will review the metrics,
financial targets and where applicable
individual objectives prior to grant to
ensure they are aligned with the long-
term strategic goals and will apply
discretion as is appropriate to achieve
fairness to all parties and to consider
carefully the outcome of formulaic
components.
2022 application
No further awards to made under this plan as the plan has lapsed having reached the end of its 10-year award period.
Variable – 6. Long-term incentive plan (LTIP)
Purpose and link to strategy
Operation
Link to performance
Incentivises and rewards Executives
for the delivery of longer-term
strategic objectives and substantial
relative and absolute increases in
shareholder value.
LTIP awards may be granted each year in
the form of a conditional award of shares,
with vested awards released to
participants in tranches.
Annual awards of nil cost options over plc
shares will be granted to participants.
Targets are reviewed annually ahead of
each grant to ensure they are aligned to the
business strategy and performance outlook.
The majority of the awards will be
based on financial performance and
shareholder return.
Awards will be subject to a three year
performance period.
Subject to the achievement of
performance targets, the options will
then vest in tranches after three, four
and five years subject to continued
employment until the relevant vesting
date (75% on the third anniversary of
grant, 12.5% on the fourth anniversary,
and 12.5% on the fifth anniversary).
The maximum award is 175% of salary for
CEO and 150% of salary for CFO.
The Remuneration Committee will have
customary discretion rights and the
ability to override formulaic outcomes in
line with corporate governance principles
to achieve fairness to all parties.
The Remuneration Committee retains
discretion in exceptional circumstances
to change performance measures and
targets and the weightings attached to
performance measures part-way through
a performance period if there is a significant
and material event which causes the
Remuneration Committee to believe the
original measures, weightings and targets
are no longer appropriate.
Discretion may also be exercised in cases
where the Remuneration Committee believe
that the vesting outcome is not a fair and
accurate reflection of business performance
2022 application
The first award will be granted following the 2022 AGM if the LTIP is approved by shareholders, with the first performance
period measuring the three financial years from 1 January 2022.
Performance will be measured over three full financial years beginning 1 January 2022 against a scorecard including
the following financial and non-financial metrics:
• Pre-exceptional EBITDA
• Absolute Total Shareholder Return
• Health and safety
• ESG
Full details of the targets will be set out in an RNS announcement issued immediately after the LTIP award is granted
or subsequently if they are determined later.
110 SMS Annual report and accounts 2021
Non-executive Directors’ remuneration
The remuneration of the Non-executive Directors, including the Chairman, is determined by the Executive Directors after
external benchmarking. Non-executive Directors and the Chairman do not participate in incentive arrangements or receive
other remuneration in addition to their fees.
Each of the Non-executive Directors has a letter of appointment stating their annual fee and that their appointment is for
a term of three years. Their appointment may be terminated on three months’ written notice at any time.
Link to performance
None
Non-executive Directors fees
Purpose and link to strategy
Operation
To attract and retain Non-executive
Directors with appropriate skills,
experience, independence and
knowledge of the Company and
its business.
Fee levels for Non-executive Directors
are generally reviewed by the Board
annually. Remuneration comprises an
annual fee for acting as a Non-executive
Director and serving as a member of any
Committees. Additional fees are paid in
respect of service as Chairman of a
Committee or as Senior Independent
Director. When reviewing fees, reference
is made to fees for the same comparator
group as is used for Executive Directors,
as well as information gathered from a
number of remuneration surveys, and
assessment of the extent of the duties
performed and the size of the Company.
The Executive Director’s instructed a detailed benchmarking exercise to be performed by PwC in relation to the Non-
executive Director fees. As a result of this review the Executive Directors have considered a number of internal and external
factors which contribute to the time commitment a Non-executive Directors role is likely to require, these included the
business maturity, strategic challenges and leadership changes. In addition, the Non-executive base fees have been held
without inflationary increase since 2019. It has been proposed that an increase to the Non-executive Director fees is awarded
and as of the 1 April 2022 the base fee will increase to £47,500, a fee of £7,500 will be attached to being chair of a committee,
a fee of £7,000 will be awarded to the Senior Independent Director and the Chairman of the Company will receive an increased
fee of £110,000 inclusive of all committee chair positions held.
SMS Annual report and accounts 2021 111
Strategic reportGovernanceFinancial statements
REMUNERATION COMMITTEE REPORT continued
ANNUAL REPORT ON REMUNERATION
Directors’ remuneration emoluments for the financial year ended 31 December 2021
Executive
Alan Foy
Tim Mortlock
Gavin Urwin1
David Thompson2
Non-executive
Miriam Greenwood3
Graeme Bissett
Ruth Leak
Jamie Richards4
Willie MacDiarmid5
Total
Fees/
basic salary
£
Annual bonus
£
Pension
contribution
£
370,274
240,499
167,133
56,749
96,390
45,900
45,900
45,900
—
1,068,745
304,378
200,900
135,996
—
—
—
—
—
—
641,274
—
10,845
8,357
2,270
—
—
—
—
—
21,472
Benefits
in kind
£
19,490
8,026
5,909
836
—
—
—
—
—
34,261
2021
Total
£
2020
Total
£
694,142
460,270
317,395
59,855
795,805
508,316
-
486,308
96,390
45,900
45,900
45,900
—
1,765,752
69,968
45,900
45,900
31,836
44,252
2,028,285
1
Gavin Urwin’s remuneration for 2021 is from the date of appointment as a Director, which was on 31 March 2021. Gavin Urwin’s bonus has been pro rated
to reflect his date of appointment.
2
David Thompson resigned on 31 March 2021.
3
Miriam Greenwood’s remuneration for 2020 reflects the date of appointment to Chairman, which was on 23 June 2020.
4
Jamie Richards’ remuneration for 2020 is from the date of appointment as a Director, which was on 23 April 2020.
5 Willie MacDiarmid resigned as a Director on 23 June 2020.
With the exception of the bonus, which is discretionary as detailed in the remuneration policy on page 109, all other elements
of Directors’ remuneration are fixed.
On 31 March 2021 Gavin Urwin was appointed as a Director and Chief Financial Officer. David Thompson resigned as a
Director of the Company with effect from 31 March 2021. This report reflects their remuneration and rewards from the date of
their respective appointment/resignation.
The Committee has discretion to determine that in the event an Executive Director leaves the Company, bonus payments may
be paid once performance has been measured and on a pro-rated basis for the time spent in active employment with the
Company. David Thompson was awarded a settlement figure of £146,182 in addition to his 2020 bonus of £176,490.
Details of each of the elements included in the table above are as follows:
Base salary
Base salary increases across the Group are effective from 1 April each year. Inflation-linked pay rises of 1% were granted to
Executive Directors from 1 April 2021. Executive remuneration was reviewed in line with market trends and as a result, an
increase of 11% was awarded to the COO effective from 1 April 2021.
The base salary/fee numbers shown in the table therefore include twelve months’ pay based on the individual Director’s
salary/fee from 1 January 2021 – with the exception of Gavin Urwin and David Thompson, whose figures are disclosed from
the dates of their respective appointment/resignation as noted above.
Bonus
Details of the measures, to the extent they are not commercially sensitive, are shown below.
Financial performance
As a result of strong underlying financial performance, the Group exceeded the threshold of underlying profit before tax,
and ILARR for the purposes of awarding the 2021 annual bonuses allocated to the Executive Directors.
Underlying PBT
ILARR
Threshold
£m
16.6
83.6
Maximum
£m
19.25
86.0
Actual
£m Actual payout (Maximum payout)
18.3 CEO 17% (25%), COO 17% (25%), CFO 17% (25%)
85.8 CEO 20% (25%), COO 20% (25%), CFO 20% (25%)
112 SMS Annual report and accounts 2021
Operational performance
The operational performance targets for each Executive Director were set against a range of strategic targets at the start
of the year covering health and safety, sales development, leadership and delivery of major projects, and strategic planning.
Due to differing objectives between Executive Directors, total operational results are shown below for each Executive.
Operational objectives
CEO 35% (35%), COO 41% (45%), CFO 40% (45%)
Actual payout (Maximum payout)
Individual strategic performance
The personal element of the bonus is focused on the Executive Directors’ individual contributions in each of the following
categories: leadership, structure, team, culture and behaviour. The Committee assesses each element against targets set
at the start of the year.
Individual strategic objectives
CEO 10% (15%), COO 4% (5%), CFO 4% (5%)
Actual payout (Maximum payout)
The Committee may use discretion to adjust payments where necessary.
Pension contributions
The Chief Executive Officer does not participate in the Company pension scheme. An amount is paid to the Eco Retirement
Benefit Scheme, of which the Chief Executive Officer is a trustee. See note 23 to the Financial statements for further details.
A contribution of up to 5% per annum of base salary is paid into the Company pension scheme by the Company, on behalf of
the Chief Financial Officer and Chief Operating Officer.
Benefits in kind
The Company pays for private healthcare for each Executive Director and their immediate family. The Company provides a
Company car allowance for the Chief Executive Officer, Chief Operating Officer and Chief Financial Officer. The Executive
Directors also currently participate in the Company’s life assurance scheme.
Directors’ interests
The Directors who held office at 31 December 2021 had the following interests in the shares of the Company:
Executive
Alan Foy1
Tim Mortlock
Gavin Urwin
David Thompson
Non-executive
Miriam Greenwood
Graeme Bissett
Jamie Richards
Ordinary shares
2021
£0.01 each
2020
£0.01 each
5,953,201
7,485
2,222
-
25,461
18,093
3,909
6,010,371
5,953,201
5,263
-
3,000
23,350
15,316
3,909
6,004,039
1
Includes 900,000 ordinary shares held by The Metis Trust, of which Alan Foy is a trustee but not a beneficiary and 372,350 ordinary shares held by Metis
Investments Ltd, of which Alan Foy is a Director.
SMS Annual report and accounts 2021 113
Strategic reportGovernanceFinancial statements
REMUNERATION COMMITTEE REPORT continued
ANNUAL REPORT ON REMUNERATION continued
Directors’ share options
Aggregate emoluments disclosed on page 112 do not include any amounts for the value of options to acquire ordinary shares
in the Company granted to or held by the Directors. Details of options for Directors who served during the year are as follows:
Executive
Alan Foy
Tim Mortlock1
Number
of shares
under option
Type
Exercise
price
Date of
grant
Unapproved
Unapproved
Unapproved
Unapproved
Unapproved
500,000
300,000
133,250
333,333
250,000
700.0p
705.4p
350.0p
700.0p
705.4p
13/07/18
10/02/21
12/11/14
13/07/18
10/02/21
Earliest
date
exercisable
01/01/23
01/01/26
12/11/19
01/01/23
01/01/26
1 Tim Mortlock holds 133,250 shares as part of the 2014 Share Option Plan, these shares are fully vested and to date have not been exercised.
The share price at 31 December 2021 was £8.41. The weighted average share price at the date of exercise of options exercised
during the year ended 31 December 2021 was £8.36 (2020: £6.06).
The plan is structured with options vesting in annual tranches. The vesting of each annual tranche takes place by reference to
a distinct annual performance period and is subject to annual targets including a market capitalisation target, non-market
performance criteria based on financial targets and individual objectives, which are set at the beginning of the corresponding
performance period.
The share options cannot be exercised for a period of five years from the grant date, other than in specific circumstances.
Tranches which did not vest due to a missed market capitalisation target will subsequently automatically vest in future years
if the future year market capitalisation target is met or on the occurrence of certain events which would cause all tranches to
vest. The Remuneration Committee has discretion in relation to the vesting of awards where certain other criteria are not met.
The Remuneration Committee additionally has the power to make changes to existing granted share options (for example in
relation to the option price or number of options granted) where changes are made to the capital structure of the Company.
Share options were awarded to Alan Foy and Tim Mortlock in February 2021 under the existing Unapproved Share Option Plan.
The vesting outcome of the outstanding 2018 and 2021 options held by the Executive Directors was assessed by the
Committee during the year, as described on page 102. The Committee concluded that the first four tranches of the 2018
awards would vest at 95% of the maximum, (Alan Foy 380,000 share options and Tim Mortlock 253,333 share options), with
the balance of 5% lapsing. The first tranche of the 2021 option awards would vest in full at 100% in line with the annual vesting
criteria. (Alan Foy 60,000 share options and Tim Mortlock 50,000 share options). The earliest exercisable date is 1 January
2023 for the 2018 options and 1 January 2026 for the 2021 options.
Further details of share options granted by the Company at 31 December 2021 are given in note 25 to the Financial statements.
114 SMS Annual report and accounts 2021
DIRECTORS’ REPORT
The Directors submit their annual report
on the affairs of the Group together
with the financial statements and
independent auditor’s report for the
year ended 31 December 2021.
Principal activities
SMS plc is the ultimate parent company of the Group
and trades principally through its subsidiary undertakings.
Its principal activity is that of a holding company.
The principal activities of the Group are: the installation,
operation and management of meter and energy
infrastructure assets and related data services; the design,
installation and management of utility connections and
energy infrastructure; and the delivery of energy
management and carbon reduction solutions, including
the operation of carbon reduction (‘CaRe’) assets.
Subsidiaries of the Company are listed on page 174 of the
Annual report and accounts 2021.
Statutory information
This Directors’ report sets out the information required to
be disclosed by the Company in compliance with the
Companies Act 2006.
The Strategic report (found on pages 1 to 75) and the
Corporate governance report (found on pages 76 to 118)
are incorporated by reference into this Directors’ report and
should be read as part of this Report. The Strategic report
contains details of the Group’s business model and strategic
priorities and enables shareholders to assess how the
Directors have discharged their duty under section 172
of the Companies Act 2006.
Articles of Association
The Company’s Articles of Association, which may only
be amended by a special resolution at a general meeting
of the shareholders, can be found on our website at
www.sms-plc.com/corporate/investors/aim-rule-26.
Branches outside the UK
Two subsidiaries of the Group operate in countries outside
the UK, one in each of the Republic of Ireland and Australia.
Directors and their interests
The Directors of the Company, including their biographies,
are shown within the Board of Directors section of the Annual
report and accounts 2021, with further details of Board
Committee membership being set out in the Corporate
governance report. All Directors served throughout the
financial year, except as disclosed.
Other than employment contracts and interests in shares
and options, none of the Directors had a material interest
in any contract with the Company or any of its subsidiary
undertakings. Key terms of the Directors’ service contracts
and their interests in shares and options are disclosed in the
Directors’ Remuneration report.
Any related-party interests applicable to the Directors are
shown in note 23 to the Financial statements.
The Company’s Articles of Association provide that all
Directors will stand for re-election every three years.
A Director may be appointed by an ordinary resolution of
shareholders in a general meeting, following recommendation
by the Nomination Committee in accordance with its Terms
of Reference, as approved by the Board or by a member (or
members) entitled to vote at such a meeting. Alternatively,
a Director may be appointed following retirement by rotation
if the Director chooses to seek re-election at a general
meeting. In addition, the Directors may appoint a Director to
fill a vacancy or act as an additional Director, provided that
the individual retires at the next Annual General Meeting
(AGM) and, if they wish to continue, that they offer
themselves for election.
The Company has voluntarily implemented a policy where
each Director stands for re-election at every AGM.
A Director may be removed by the Company in
circumstances set out in the Company’s Articles of
Association or by an ordinary resolution of the Company.
Directors’ qualifying indemnity provisions
As permitted by the Companies Act 2006, the Company
purchases and maintains Directors’ and officers’ insurance
cover against certain legal liabilities and costs which could
be incurred by the Directors and officers of the Group
companies in the performance of their duties. The Company
has also granted an indemnity to each of its Directors in
relation to the Directors’ exercise of their powers, duties and
responsibilities as Directors of the Company, the terms of
which are in accordance with the Companies Act 2006.
Dividends
In line with the Group’s enhanced dividend policy, SMS
currently intends to pay a 27.5p per share dividend in respect
of FY 2021 (a 10% increase on the 25p per share dividend
issued in respect of FY 2020), with the intention of continuing
to annually increase this by 10% for each of the financial
years FY 2022, FY 2023 and FY 2024. The FY 2021 dividend
is being paid in four instalments as summarised in the table
below. Two instalments have already been paid at the date
of this Report, with the third interim and final instalments due
to be paid in April 2022 and July 2022 respectively.
FY 2021 dividend timetable:
Instalment
Ex-dividend
date
Record date
Payment date
Dividend
per share
1
2
3
4
1 October
2021
7 January
2022
30 September
2021
6 January
2022
31 March 2022 1 April 2022
30 June 2022 1 July 2022
6.875p
28 October
2021
27 January
2022
6.875p
28 April 2022 6.875p
6.875p
28 July 2022
SMS Annual report and accounts 2021 115
Strategic reportGovernanceFinancial statements
DIRECTORS’ REPORT continued
The Board will review this regularly, with shareholder value
in mind, taking into account a range of factors. These will
include expected business performance, the Company’s
ability to continue as a going concern and meet its debt
obligations, the distributable reserves in the parent company,
the availability of cash resources, the dividend and
operational cash flow cover, future cash commitments and
investment plans in line with the Group’s overall strategy.
Further details are provided in note 9 to the Financial
statements regarding the level of distributable reserves
in the parent company at 31 December 2021.
Employees
Employee involvement and communication is paramount
to the Company’s success. The Group’s policy of operating
through subsidiaries helps ensure close communication and
sharing of information with employees on matters likely to
affect their interests. In addition, the workforce is kept up to
date on the various financial and economic factors affecting
the performance of the Group. Periodic updates on Group
performance are circulated, typically following the
announcement of both interim and annual financial results,
with a condensed employee version of the Annual report
and accounts made available to all staff.
The marketing team manages internal communications,
maintaining an informative network throughout our national
organisation which ensures our people remain up to date on
all aspects of the SMS journey. Communication tools include
quarterly newsletters, podcasts, employee resource groups,
videos, emails and various forms of social media, providing
employees with industry insights and key information on
Group activity, such as wellbeing initiatives, charitable
donations and progress towards our net-zero target. Regular
COVID-19 updates continued to form a crucial aspect of
our internal communications through 2021: from progress
updates on installations to enhanced safety protocols, and
from mental health support to information on our proposed
hybrid work approach once it is considered safe to resume
office working.
Business updates are currently delivered by video or email
by the executive leadership team.
The Group seeks to engage with employees on matters
affecting them, through channels including employee surveys
(internal and external), an employee forum, written feedback
and face-to-face sessions. The Stakeholder engagement
section on pages 41 to 45 provides examples of projects
delivered during the year, where an open dialogue was
facilitated with the workforce, and further details can also
be found in the Our people section on pages 52 to 57.
The involvement and support of employees in maximising
the Company’s performance is encouraged through its Share
Incentive Plan, which is open to all qualifying employees at all
levels. As an HMRC-approved, tax-efficient plan, the Share
Incentive Plan supports the engagement and retention of
our workforce by providing returns that are driven by the
performance of the Company. The terms of this arrangement
are detailed further on page 117. In addition, share options
may be granted at the discretion of the Board, typically to
senior management employees. Further details can be found
in note 25 to the Financial statements, which is incorporated
by reference into this Report.
116 SMS Annual report and accounts 2021
The Group operates an equal opportunity, diversity, and
inclusion policy, supported by face-to-face and eLearning,
detailed further on page 55.
It is the policy of the Group to support the employment of
people with protected characteristics and to ensure that
recruitment, training, career development and promotion
opportunities are available to all. As such, SMS is a
‘Disability-Confident’, ‘Mindful’ and ‘Accredited Living Wage’
employer and we are also proud signatories of the Race at
Work Charter as well as the Pregnancy Loss Pledge via the
Miscarriage Association.
External auditor
As detailed on page 95, the Audit Committee recommended,
and the Board approved, the proposal that the current
auditor, Ernst & Young LLP, be reappointed as auditor of the
Company at the AGM. Ernst & Young LLP has expressed its
willingness to continue in office as auditor and a resolution
to reappoint Ernst & Young LLP as the Company’s auditor
will therefore be proposed to shareholders at the AGM.
Directors’ statement as to disclosure of information
to auditor
Each of the Directors at the date of approval of the Annual
report and accounts 2021 confirms that:
• so far as the Director is aware, there is no relevant
audit information of which the Company’s auditor is
unaware; and
• he or she has taken all the steps that ought to be taken by
a Director in order to make himself or herself aware of any
relevant audit information and to establish that the
Company’s auditor is aware of that information.
This confirmation is given and should be interpreted
in accordance with the provisions of section 418 of the
Companies Act 2006.
Financial instruments
Details of the use of financial instruments and financial
risk management are included in not 19 to the Financial
statements contained in this Annual report and accounts
2021, which are incorporated by reference into this
Directors’ report.
Going concern
After making enquiries, we, the Directors, have a reasonable
expectation that the Group has adequate resources to
continue in operational existence for the foreseeable future
(for the period from the balance sheet date to 31 December
2023). We therefore continue to adopt the going concern
basis in preparing the Financial statements. The basis on
which this conclusion has been reached is set out on pages
134 to 135, which is incorporated by reference here.
Under the terms of this scheme, the Matching Shares will
be forfeited if the participant leaves the employment of the
Company within three years of the award (unless they are
classed as a ‘good leaver’).
During the year, the Company purchased 34,191 of its own
shares (2020: 28,354) from the market for the purpose of
satisfying its Matching Share obligations under the SIP.
The nominal value of the shares purchased was £342 (2020:
£284) and the aggregate amount of consideration paid was
£0.3m (2020: £0.2m).
Substantial shareholdings
On 1 February 2022, the Company had been notified, in
accordance with sections 791 to 828 of the Companies Act,
of the following interests in the ordinary share capital of
the Company:
Name of holder
Number
% held
Liontrust Asset Management
LLP
PrimeStone Capital LLP
Hargreave Hale Ltd
Fidelity Investments
Steve Timoney
Bank Julius Baer & Co1
Soros Fund Management LLC
Fidelity Investments
Canaccord Genuity Wealth
Management
Jupiter Asset Management
21,335,432
13,058,058
8,260,148
6,803,253
5,644,344
5,053,201
3,674,644
3,595,420
3,580,788
3,325,967
16.00%
9.79%
6.20%
5.10%
4.23%
3.79%
2.76%
2.70%
2.69%
2.49%
1
The shareholding in the name of Bank Julius Baer relates to shares
transferred to them by Alan Foy in security for a personal lending
transaction. The Metis Trust is closely associated to Alan Foy and holds
a further 900,000 shares. Alan Foy is a trustee of the Metis Trust but not
a beneficiary.
Approved by the Board of Directors on 15 March 2022 and
signed on its behalf below.
On behalf of the Board
Gavin Urwin
Chief Financial Officer
15 March 2022
Political contributions
No political contributions were made during the year
(2020: £Nil).
Post balance sheet events
Relevant post balance sheet events requiring disclosure are
included in note 31 to the Financial statements.
Research and development
The main research and development activities relate
to IT systems development to support the metering and
installations business. In addition, the Group continues
to invest in future technologies related to decarbonisation
and energy efficiency.
Share capital
The Company’s issued share capital comprises ordinary
shares of £0.01 each which are listed on AIM, a market
operated by the London Stock Exchange (AIM: SMS.L).
As at 31 December 2021, the issued share capital of the
Company was £1,333,216 comprising 133,321,555 ordinary
shares of £0.01 each.
Details of the issued share capital of the Company, together
with movements in the issued share capital during the year,
can be found in note 24 to the Financial statements. All the
information detailed in note 24 forms part of this Directors’
report and is incorporated into it by reference.
The Company was authorised at the 2020 AGM to allot
shares or grant rights to or subscribe for or convert
any security into shares in the Company up to a nominal
amount of £376,792. This aligns with the institutional investor
guideline recommended figure of an amount equal to
one-third of the total issued share capital. This authority
is valid for a period expiring five years from the date the
resolution was approved at the 2020 AGM; however, this
authority is revised on an annual basis at each AGM, at which
point the previous year’s resolution is generally superseded.
Share Incentive Plan
The Group’s Share Incentive Plan (SIP) is HMRC-approved
and is open to all qualifying employees, including
Executive Directors.
The Partnership Share element provides that for every
share a participant purchases in the Company, up to a
current maximum contribution of £1,800 per year, the
Company will purchase one Matching Share. The Matching
Shares purchased are held in trust in the name of the
individual. Dividends received on shares held in the SIP are
reinvested to acquire Matching Shares at their market value.
There are various rules as to the period of time that the
shares must be held in trust, but after five years the shares
can be released tax-free to the participant.
SMS Annual report and accounts 2021 117
Strategic reportGovernanceFinancial statements
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
IN THE PREPARATION OF FINANCIAL STATEMENTS
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and explain
the Group’s and the Company’s transactions and disclose
with reasonable accuracy at any time the financial position
of the Group and the Company. They are also responsible for
safeguarding the assets of the Group and the Company and
hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors are responsible for the maintenance and
integrity of the corporate and financial information included
on the Smart Metering Systems plc website. Legislation in the
UK governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
This responsibility statement was approved by the Board of
Directors on 15 March 2022 and signed on its behalf below.
By order of the Board
Craig McGinn
Company Secretary and General Counsel
15 March 2022
The Directors are responsible for
preparing the Directors’ report, the
Strategic report, the Directors’
remuneration report, the separate
Corporate governance statement and
the Financial statements in accordance
with applicable law and regulations.
Company law requires the Directors to prepare Group
and Company financial statements for each financial year.
The Directors are required by the AIM Rules of the London
Stock Exchange to prepare Group financial statements in
accordance with UK-adopted international accounting
standards (‘IFRSs’), and have elected under company
law to prepare the Company financial statements in
accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting
Standards and applicable law), including FRS 102
The Financial Reporting Standard Applicable in the
UK and Republic of Ireland.
The Group financial statements are required by law,
and by IFRSs, to present fairly the financial position and
performance of the Group; and the Companies Act 2006
provides in relation to such financial statements that
references in the relevant part of that Act to financial
statements giving a true and fair view are references to
their achieving a fair presentation.
Under company law the Directors must not approve the
financial statements unless they are satisfied that they
give a true and fair view of the state of affairs of the Group
and the Company and of the profit or loss of the Group
for that period.
In preparing each of the Group and Company financial
statements, the Directors are required to:
• select suitable accounting policies and then apply
them consistently;
• make judgements and accounting estimates that
are reasonable;
• present information, including accounting policies, in
a manner that provides relevant, reliable, comparable
and understandable information;
• for the Group financial statements, state whether they
have been prepared in accordance with UK-adopted
international accounting standards and, for the Company
financial statements, state whether applicable UK
accounting standards including FRS 102 have been
followed, subject to any material departures disclosed
and explained in the Company financial statements; and
• prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the Group
and the Company will continue in business.
118 SMS Annual report and accounts 2021
Financial
statements
120 Independent auditor’s report
129 Consolidated income statement
130 Consolidated statement of comprehensive income
131 Consolidated statement of financial position
132 Consolidated statement of changes in equity
133 Consolidated statement of cash flows
134 Accounting policies
147 Notes to the financial statements
179 Parent company balance sheet
180 Parent company statement of changes in equity
181 Notes to the parent company financial statements
SMS Annual report and accounts 2021 119
Strategic reportGovernanceFinancial statements
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF SMART METERING SYSTEMS PLC
Opinion
In our opinion:
• Smart Metering Systems plc’s Group financial statements
and parent company financial statements (the “financial
statements”) give a true and fair view of the state of the
Group’s and of the parent company’s affairs as at
31 December 2021 and of the Group’s profit for the
year then ended;
• the Group financial statements have been properly
prepared in accordance with UK adopted international
accounting standards;
• the parent company financial statements have been
properly prepared in accordance with United Kingdom
Generally Accepted Accounting Practice; and
• the financial statements have been prepared in
accordance with the requirements of the Companies
Act 2006.
We have audited the financial statements of Smart Metering
Systems plc (the ‘parent company’) and its subsidiaries
(the ‘Group’) for the year ended 31 December 2021
which comprise:
Group
Parent company
Consolidated balance sheet as at 31 December 2021
Consolidated income statement for the year then ended
Consolidated statement of comprehensive income for the
year then ended 31 December 2021
Consolidated statement of changes in equity for the year
then ended 31 December 2021
Consolidated statement of cash flows for the year then
ended 31 December 2021
Related notes 1 to 31 to the financial statements, including
a summary of significant accounting policies
The financial reporting framework that has been applied
in their preparation is applicable law and UK adopted
international accounting standards and, as regards to the
parent company financial statements, as applied in
accordance with section 408 of the Companies Act 2006.
The financial reporting framework that has been applied in
the preparation of the parent company financial statements
is applicable law and United Kingdom Accounting Standards,
FRS 102 “The Financial Reporting Standard applicable in the
UK and Republic of Ireland” (United Kingdom Generally
Accepted Accounting Practice).
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in
the Auditor’s responsibilities for the audit of the financial
statements section of our report. We are independent of the
Group and parent company in accordance with the ethical
requirements that are relevant to our audit of the financial
statements in the UK, including the FRC’s Ethical Standard as
applied to listed entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Balance sheet as at 31 December 2021
Statement of changes in equity for the year then ended
31 December 2021
Statement of cash flows for the year then ended 31
December 2021
Related notes 1 to 8 to the financial statements
including a summary of significant accounting policies
Conclusions relating to going concern
In auditing the financial statements, we have concluded that
the directors’ use of the going concern basis of accounting in
the preparation of the financial statements is appropriate.
Our evaluation of the directors’ assessment of the Group and
parent company’s ability to continue to adopt the going
concern basis of accounting included:
• In conjunction with our walkthrough of the Group’s financial
close process, we confirmed our understanding of
management’s going concern assessment process and
also engaged with management early to ensure all key
factors were considered in their assessment;
• We obtained management’s going concern assessment,
including the cash forecasts and covenant calculations
for the going concern period ending 31 December 2023.
The Group has modelled adverse scenarios in their cash
forecasts and covenant calculations in order to incorporate
severe but plausible changes in key assumptions to the
forecasted liquidity of the Group.
• We have tested the factors and assumptions included in
each modelled scenario for the cash forecast and covenant
calculation in each forecast scenario.
• We considered the appropriateness of the methods used
to calculate the cash forecasts and covenant calculations,
and determined through inspection and testing of the
methodology and calculations that the methods utilised
were appropriately sophisticated to be able to make an
assessment for the entity.
120 SMS Annual report and accounts 2021
Conclusions relating to going concern continued
• We considered the mitigating factors included in the cash
forecasts and covenant calculations that are within control
of the Group. This included assessing the Group’s non-
operating cash outflows and evaluating the Group’s ability
to control these outflows as mitigating actions if required.
• We also verified credit facilities available to the Group to
signed agreements with lenders.
• We have performed reverse stress testing in order to
identify what factors, either in isolation or in combination
with other factors, would lead to the Group utilising all its
liquidity or breaching financial covenants during the going
concern period.
• We read the Group’s going concern disclosures included
in the annual report in order to assess that the disclosures
were appropriate and in conformity with the reporting
standards.
• The majority of the Group’s revenue and profits during 2021
have not been significantly impacted by COVID-19, and
therefore the continuation of this global pandemic is not
expected to have a significant impact over the going
concern assessment period.
Overview of our audit approach
• Further, the Group has access to committed bank facilities
of £420m, which is undrawn as at 31 December 2021. The
full amount of these facilities matures in 2025. We have
obtained and reviewed the new facility documentation,
understood the key terms and associated covenants.
We have confirmed compliance with covenants at the
year end and throughout the going concern period.
Based on the work we have performed, we have not
identified any material uncertainties relating to events
or conditions that, individually or collectively, may cast
significant doubt on the Group and parent company’s ability
to continue as a going concern from when the financial
statements are authorised for issue until 31 December 2023.
Our responsibilities and the responsibilities of the directors
with respect to going concern are described in the relevant
sections of this report. However, because not all future
events or conditions can be predicted, this statement is
not a guarantee as to the Group’s ability to continue as a
going concern.
Audit scope
• We performed an audit of the complete financial information of four components and audit
procedures on specific balances for a further six components.
Key audit matters
• The components where we performed full or specific audit procedures accounted for 100% of
pre-tax profit before exceptional items (our audit testing covers 100% of exceptional items),
100% of revenue and 98% of total assets.
• Identification of indicators of impairment of the meter asset portfolio in accordance with IAS 36
and assumptions applied in determining the carrying value of the portfolio of meter assets if
indicators are present.
• Appropriateness of capitalisation of overheads and other expenses within the total of costs
capitalised within meter assets.
Materiality
• Overall Group materiality of £0.8m which represents 5% of the Group’s profit before tax (PBT)
before exceptional items.
SMS Annual report and accounts 2021 121
Strategic reportGovernanceFinancial statements
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF SMART METERING SYSTEMS PLC continued
An overview of the scope of the parent
company and Group audits
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality
and our allocation of performance materiality determine our
audit scope for each company within the Group. Taken
together, this enables us to form an opinion on the
consolidated financial statements. We take into account size,
risk profile, the organisation of the Group and effectiveness
of Group-wide controls, changes in the business environment
and other factors such as recent Internal audit results when
assessing the level of work to be performed at each company.
In assessing the risk of material misstatement to the Group
financial statements, and to ensure we had adequate
quantitative coverage of significant accounts in the financial
statements, of the 21 (2020:15) reporting components of the
Group, we selected 10 (2020: 11) components covering entities
within the UK and Ireland, which represent the principal
business units within the Group.
Of the 10 components selected, we performed an audit of
the complete financial information of 4 (2020:4) components
(“full scope components”) which were selected based on their
size or risk characteristics. For the remaining 6 (2020:7)
components (“specific scope components”), we performed
audit procedures on specific accounts within that component
that we considered had the potential for the greatest impact
on the significant accounts in the financial statements either
because of the size of these accounts or their risk profile.
The reporting components where we performed audit
procedures accounted for 100% (2020: 100%) of the Group’s
Profit before tax before exceptional items, the measure used
to calculate materiality, 100% (2020: 100%) of the Group’s
Revenue and 98% (2020: 100%) of the Group’s Total assets.
For the current year, the full scope components contributed
92% (2020: 87%) of the Group’s Profit before tax before
exceptional items measure used to calculate materiality,
94% (2020: 91%) of the Group’s Revenue and 94% (2020: 94%)
of the Group’s Total assets. The specific scope components
contributed 8% (2020: 13%) of the Group’s Profit before
tax before exceptional items measure used to calculate
materiality, 6% (2020: 9%) of the Group’s Revenue and 4%
(2020: 6%) of the Group’s Total assets. The audit scope
of these components may not have included testing of
all significant accounts of the component but will have
contributed to the coverage of significant accounts tested
for the Group.
The remaining 11 reporting components (2020:4) did not
contribute to the Group’s Profit before tax before exceptional
items. For these components, we performed other
procedures, including analytical review, testing of
consolidation journals and intercompany eliminations to
respond to any potential risks of material misstatement to
the Group financial statements.
The charts below illustrate the coverage obtained from the work performed by our audit teams.
Revenue
Profit before tax
(or adjusted PBT measure used)
Total assets
■ 94% Full scope
components
■ 6% Specific scope
components
■ 0% Other procedures
■ 92% Full scope
components
■ 8% Specific scope
components
■ 0% Other procedures
■ 94% Full scope
components
■ 4% Specific scope
components
■ 2% Other procedures
Involvement with component teams
All audit work performed for the purposes of the audit
was undertaken by the Group audit team.
Climate change
There has been increasing interest from stakeholders as to
how climate change will impact the Group. Given the nature
of the business management does not consider there to be
a material impact from climate change. These considerations
are explained on page 95 in the Audit Committee Report,
which forms part of the “Other information,” rather than the
audited financial statements. Our procedures on these
disclosures therefore consisted solely of considering whether
they are materially inconsistent with the financial statements
or our knowledge obtained in the course of the audit or
otherwise appear to be materially misstated.
122 SMS Annual report and accounts 2021
As explained in the Basis of Preparation note, climate change
risks are still developing, and are interdependent upon each
other, and consequently financial statements cannot capture
all possible future outcomes as these are not yet known. The
degree of certainty of these changes may also mean that
they cannot be taken into account when determining asset
and liability valuations and the timing of future cash flows
under the requirements of UK adopted international
accounting standards.
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the
financial statements of the current period and include the
most significant assessed risks of material misstatement
(whether or not due to fraud) that we identified. These
matters included those which had the greatest effect on:
the overall audit strategy; the allocation of resources in the
audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit
of the financial statements as a whole, and in our opinion
thereon, and we do not provide a separate opinion on
these matters.
Key observations communicated
to the Audit Committee
Based on the audit procedures
performed in relation to the
meter portfolio, we consider the
year-end carrying value to be
appropriate.
In relation to SMETS1 meters,
until the enrolment and
adoption programme is
completed, there may be
removal of further meters
which would represent a small
proportion of the total portfolio
of meters. We do not consider
this to represent an impairment
risk to the wider SMETS1
portfolio.
We consider the disclosures
made around the traditional
meter assets to be adequate.
Risk
Our response to the risk
Identification of indicators of
impairment of the meter asset
portfolio in accordance with IAS 36
and assumptions applied in
determining the carrying value
of the portfolio of meter assets
if impairment indicators are
present (£367m value of risk,
PY comparative £315m)
Refer to the Audit Committee
Report (page 94); Accounting
policies (page 137); and note 11
of the Consolidated Financial
Statements
i/ Traditional meters
Management prepared an
assessment of potential impairment
indicators in relation to the
traditional meter portfolio which
indicated that there remained
significant headroom in relation
to the traditional meter portfolio.
Management concluded that it
would not be appropriate to
recognise a reversal of the historical
impairment charge on consideration
of the declining nature of the
portfolio, with the smart meter roll
out still in place, albeit extended
to 31 December 2025, and the
uncertainty as to whether the rollout
period changing will have a major
impact on the behaviour of energy
suppliers and the knock-on impact
on installation run rates. Therefore,
management conclude that the
above noted components that
triggered the impairment, remain
prevalent in the current year.
i/ Traditional meters
We obtained management’s impairment
assessment which concluded that there
are impairment indicators present due to
the declining nature of the traditional
meter portfolio.
We identified controls designed by
management to determine the
appropriateness of the assumptions
included within the impairment model.
We conducted substantive audit procedures
and did not test controls.
We audited management’s impairment
calculation relating to traditional meters by;
• Challenging the assumptions forming the
basis of the cashflows being the profile of
removal of meters from the wall; the
recoverability of termination income for the
meters remaining on the wall; the expected
churn in customers between energy
suppliers; the recurring rental expected to
be earned on the existing portfolio and
termination income earned; and the
expected inflationary increase.
• We assessed the discount rate used in the
impairment model with the assistance of
EY’s valuation experts.
• We performed sensitivity testing of the
assumptions considered key to determine
if there remained headroom.
• We reconciled the carrying value of the
traditional meter portfolio to our fixed
asset testing.
• We tested the mathematical accuracy
of the calculation.
• We considered the appropriateness of
the related disclosures in the Group
Financial Statements. We assessed the
appropriateness of classifying the loss on
disposal of meters removed from the wall
as an exceptional item given the declining
nature of this traditional meter portfolio.
SMS Annual report and accounts 2021 123
Strategic reportGovernanceFinancial statements
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF SMART METERING SYSTEMS PLC continued
Risk
Our response to the risk
Key observations communicated
to the Audit Committee
ii/ Other meters – smart, industrial
and commercial (I&C)
Management prepared an
assessment of potential impairment
indicators in relation to the smart
and I&C meter portfolio. This
included consideration of the
temporary industry transitional
issues experienced with certain
SMETS1 meters.
ii/ Other meters – smart, industrial and
commercial
We obtained management’s assessment
of potential impairment indicators which
concluded there were no indicators of
impairment on other meters that would
eliminate the excess headroom and that,
in line with IAS 36, a full impairment review
was not required.
We evaluated the design effectiveness of
controls in relation to their impairment
assessment. We did not rely on controls in
our assessment.
We challenged management on the
potential impairment indicators identified.
Our procedures included verifying
assumptions to independent supporting
evidence.
Further, we performed procedures to
independently identify any contradictory
evidence of potential impairment indicators
which included research of publicly available
industry information and consideration of
our audit work in relation to fixed assets.
We challenged management over the losses
arising on the SMETS1 meters removed from
the wall during the year and whether this
indicated a potential impairment indicator
across the wider portfolio of SMETS1 meters.
The SMETS1 meters are being removed
from the wall because of the uncertainty
surrounding the transitional issues. We
confirmed that in the current year the Data
Communications Company has issued an
extended timeline through to the end of
2022, for completion of the Data
Communications Company (DCC) Enrolment
and Adoption programme. The completion
of this programme will mean that the meters
removed from the wall can be re-used.
The group team performed full scope audit
procedures over this risk area, which covered
100% of the risk amount.
124 SMS Annual report and accounts 2021
Key observations communicated
to the Audit Committee
Based on the results of our
audit procedures, we consider
the amounts capitalised for
meters installed by in-house
engineers to be appropriate.
Risk
Our response to the risk
Appropriateness of capitalisation
of overheads and other expenses
within the total of costs capitalised
within meter assets (£367m
value of total meter assets, PY
comparative £315m)
Refer to Audit Committee Report
(page 93); Accounting policies (page
136) and note 11 in the Consolidated
Financial Statements.
As at 31 December 2021, the
Group carried total meter assets
amounting to £367m (2020: £315m).
This includes internal operational
costs that have been capitalised in
the current year.
Covid-19 had a significant impact
on non-essential field work in the
prior year resulting in a significantly
reduced number of installations. In
the current year only £0.8m (2020:
£6.1m) of Covid-19 related
inefficiencies were recognised
through the income statement
and installations have therefore
increased.
A significant proportion of the
Group’s smart meters are fitted
by its in-house engineering team.
The costs directly attributable to
bringing the asset to the condition
and location necessary for it to be
capable of operating in the manner
intended by management are
capitalised in line with IAS 16.
The significant risk relates to the
judgements made by management
when assessing the appropriate
categories and proportion of direct
costs of installation, overheads and
other expenses directly attributable
to the installation of each meter.
We identified controls designed by
management to determine the categories
and proportion of direct costs of installation,
overheads and other expenses directly
attributable to bringing the meter assets
into use by the Group’s in-house engineering
teams and evaluated the design
effectiveness of these controls.
We evaluated the judgement applied by
management to assess the appropriate
categories and proportion of direct costs of
installation, overheads and other expenses
directly attributable to installation of meter
assets. This included:
• Assessment of the capitalisation
methodology applied and testing of the
mathematical integrity of the model;
• Assessment of the judgements made in
relation to the impact of Covid-19 on the
costs to be capitalised vs. expensed to
ensure that they had only capitalised
appropriate costs;
• Testing of the time recording data utilised
to determine the proportion of engineers’
time spent installing;
• Agreement of the costs to the audited trial
balance; and
• Testing of costs capitalised to ensure they
related to directly attributable costs of
fitting the meter. Costs that did not relate
to the meter fitting were excluded. The
excluded costs included inefficiencies in
meter fitting, time spent on training and
time spent on transactional work.
• Benchmarking the average installation cost
capitalised to contracted third party
installation costs to assess the
reasonableness of the amount capitalised.
• Assessment of the classification of costs
for capitalisation, costs to be included in
exceptional items as a direct consequence
of Covid-19 and costs charged to the
income statement.
• We performed full and specific scope audit
procedures over this risk area, which covered
100% of the risk amount.
SMS Annual report and accounts 2021 125
Strategic reportGovernanceFinancial statements
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF SMART METERING SYSTEMS PLC continued
Our application of materiality
We apply the concept of materiality in planning and
performing the audit, in evaluating the effect of identified
misstatements on the audit and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that,
individually or in the aggregate, could reasonably be
expected to influence the economic decisions of the users
of the financial statements. Materiality provides a basis for
determining the nature and extent of our audit procedures.
We determined materiality for the Group to be £0.8 million
(2020: £0.6 million), which is 5% (2020: 5%) of PBT before
exceptional items. We believe that pre-tax profits before
exceptional items provides us with an appropriate materiality
threshold for the users of the financial statements as the
exceptional costs are considered non-recurring costs in
the normal course of business. Covid-19 did not impact the
results such that no significant judgement was necessary
in determining materiality.
We determined materiality for the parent company to
be £9.3 million (2020: £3.7 million), which is 2% (2020: 2%)
of total equity.
Performance materiality
The application of materiality at the individual account
or balance level. It is set at an amount to reduce to an
appropriately low level the probability that the aggregate
of uncorrected and undetected misstatements
exceeds materiality.
On the basis of our risk assessments, together with our
assessment of the Group’s overall control environment,
our judgement was that performance materiality was 75%
(2020: 50%) of our planning materiality, namely £0.6 million
(2020: £0.3 million). We have set performance materiality
at this percentage due to our expectation and likelihood
of misstatements taking into account the internal control
environment, accounting systems and level of estimation
in the financial statements.
Audit work at component locations for the purpose of
obtaining audit coverage over significant financial statement
accounts is undertaken based on a percentage of total
performance materiality. The performance materiality set
for each component is based on the relative scale and risk of
the component to the Group as a whole and our assessment
of the risk of misstatement at that component. In the current
year, the range of performance materiality allocated to
components was £0.1 million to £0.4 million (2020: £0.1 million
to £0.3 million).
Reporting threshold
An amount below which identified misstatements are
considered as being clearly trivial.
We agreed with the Audit Committee that we would report
to them all uncorrected audit differences in excess of £0.04
million (2020: £0.03 million), which is set at 5% of planning
materiality, as well as differences below that threshold that,
in our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both
the quantitative measures of materiality discussed above
and in light of other relevant qualitative considerations in
forming our opinion.
Other information
The other information comprises the information included in
the annual report set out on pages 1 to 118, other than the
financial statements and our auditor’s report thereon. The
directors are responsible for the other information within the
annual report.
Our opinion on the financial statements does not cover
the other information and, except to the extent otherwise
explicitly stated in this report, we do not express any form of
assurance conclusion thereon. Our responsibility is to read
the other information and, in doing so, consider whether the
other information is materially inconsistent with the financial
statements or our knowledge obtained in the course of
the audit or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent
material misstatements, we are required to determine
whether this gives rise to a material misstatement in the
financial statements themselves. If, based on the work we
have performed, we conclude that there is a material
misstatement of the other information, we are required
to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed
by the Companies Act 2006
In our opinion, based on the work undertaken in the course
of the audit:
• the information given in the strategic report and the
directors’ report for the financial year for which the financial
statements are prepared is consistent with the financial
statements; and
• the strategic report and directors’ report have been
prepared in accordance with applicable legal requirements.
126 SMS Annual report and accounts 2021
Matters on which we are required
to report by exception
In the light of the knowledge and understanding of the Group
and the parent company and its environment obtained in
the course of the audit, we have not identified material
misstatements in the strategic report or the directors’ report.
We have nothing to report in respect of the following matters
in relation to which the Companies Act 2006 requires us to
report to you if, in our opinion:
• adequate accounting records have not been kept by the
parent company, or returns adequate for our audit have
not been received from branches not visited by us; or
• the parent company financial statements are not in
agreement with the accounting records and returns; or
• certain disclosures of directors’ remuneration specified
by law are not made; or
• we have not received all the information and explanations
we require for our audit
Responsibilities of directors
As explained more fully in the directors’ responsibilities
statement set out on page 118, the directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view, and for such
internal control as the directors determine is necessary to
enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the Group and parent company’s
ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using
the going concern basis of accounting unless the directors
either intend to liquidate the Group or the parent company
or to cease operations, or have no realistic alternative but
to do so.
Auditor’s responsibilities for the
audit of the financial statements
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and
to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is
not a guarantee that an audit conducted in accordance
with ISAs (UK) will always detect a material misstatement
when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these
financial statements.
Explanation as to what extent the audit
was considered capable of detecting
irregularities, including fraud
Irregularities, including fraud, are instances of non-
compliance with laws and regulations. We design procedures
in line with our responsibilities, outlined above, to detect
irregularities, including fraud. The risk of not detecting a
material misstatement due to fraud is higher than the risk
of not detecting one resulting from error, as fraud may
involve deliberate concealment by, for example, forgery
or intentional misrepresentations, or through collusion.
The extent to which our procedures are capable of
detecting irregularities, including fraud is detailed below.
However, the primary responsibility for the prevention and
detection of fraud rests with both those charged with
governance of the company and management.
• We obtained an understanding of the legal and regulatory
frameworks that are applicable to the Group and parent
company and determined that the most significant are
those that relate to the reporting framework (IFRS, FRS 102,
Companies Act 2006, AIM Rules for Company; QCA Code)
and the relevant tax compliance regulations in the UK and
Ireland. In addition, we concluded that there are certain
significant laws and regulations that may have an effect on
the determination of the amounts and disclosures in the
financial statements and those laws and regulations
relating to health and safety, employee matters,
environmental and bribery and corruption practices;
• We understood how SMS is complying with those
frameworks by making enquiries of directors, internal audit,
those responsible for legal and compliance procedures and
the Company Secretary. We corroborated our enquires
through our review of the board minutes and papers
provided to the Audit Committee, as well as consideration
of the results of our audit procedures across the Group
to either corroborate or provide contrary evidence which
was then followed up;
• We assessed the susceptibility of the Group’s financial
statements to material misstatement, including how fraud
might occur, by meeting with management within various
parts of the business to understand where they considered
there was susceptibility to fraud. We also considered
performance targets and their influence on efforts made
by management to manage earnings or influence the
perceptions of analysts. Where this risk was considered
higher, we performed audit procedures to address the
fraud risk. These procedures included testing manual
journals and were designed to provide reasonable
assurance that the financial statements were free from
fraud or error;
SMS Annual report and accounts 2021 127
Strategic reportGovernanceFinancial statements
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF SMART METERING SYSTEMS PLC continued
• Based on this understanding we designed our audit
procedures to identify non-compliance with such laws
and regulations. Our procedures involved: enquiries of
Group management and those charged with governance;
those responsible for legal and compliance procedures
and internal audit; journal entry testing with a focus on
manual consolidation journals and journals indicating
large or unusual transactions based on our
understanding of the business and; a review of Board
and Audit Committee minutes to identify any non-
compliance with laws and regulations.
A further description of our responsibilities for the audit
of the financial statements is located on the Financial
Reporting Council’s website at https://www.frc.org.uk/
auditorsresponsibilities. This description forms part of
our auditor’s report.
Use of our report
This report is made solely to the company’s members,
as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken
so that we might state to the company’s members those
matters we are required to state to them in an auditor’s
report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility
to anyone other than the company and the company’s
members as a body, for our audit work, for this report,
or for the opinions we have formed.
Kevin Weston (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
Glasgow
15 March 2022
128 SMS Annual report and accounts 2021
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2021
2021
Before
exceptional
items
£’000
108,480
(48,316)
60,164
(41,866)
1,696
–
19,994
(3,488)
7
16,513
(6,479)
2021
Exceptional
items1
£’000
–
(829)
(829)
(5,649)
–
–
(6,478)
(1,742)
–
(8,220)
1,978
2021
Total
£’000
108,480
(49,145)
59,335
(47,515)
1,696
–
13,516
(5,230)
7
8,293
(4,501)
2020
Before
exceptional
items
£’000
102,982
(49,980)
53,002
(36,845)
1,723
–
17,880
(4,705)
166
13,341
(4,103)
2020
Exceptional
items
£’000
–
(4,890)
(4,890)
(8,085)
–
194,713
181,738
(115)
–
181,623
2,618
Notes
2
3
3
3
4
3
6
6
7
2020
Total
£’000
102,982
(54,870)
48,112
(44,930)
1,723
194,713
199,618
(4,820)
166
194,964
(1,485)
10,034
(6,242)
3,792
9,238
184,241
193,479
Revenue
Cost of sales
Gross profit
Administrative expenses
Other operating income
Gain on disposal of
subsidiary
Profit from operations
Finance costs
Finance income
Profit before taxation
Taxation
Profit for the year
attributable to owners
of the parent
1 Refer to note 3 for details of exceptional items.
The profit from operations arises from the Group’s continuing operations.
Earnings per share attributable to owners of the parent during the year:
Basic earnings per share (pence)
Diluted earnings per share (pence)
Notes
8
8
2021
3.20
3.19
2020
171.65
170.26
SMS Annual report and accounts 2021 129
Strategic reportGovernanceFinancial statements
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2021
2021
Before
exceptional
items
£’000
2021
Exceptional
items
£’000
10,034
(6,242)
(46)
(46)
–
–
2021
Total
£’000
3,792
(46)
(46)
2020
Before
exceptional
items
£’000
2020
Exceptional
items
£’000
2020
Total
£’000
9,238
184,241
193,479
67
67
–
–
67
67
9,988
(6,242)
3,746
9,305
184,241
193,546
Profit for the year
Other comprehensive income1
Exchange differences on translation
of foreign operations
Other comprehensive income
for the year, net of tax
Total comprehensive income
for the year attributable to owners
of the parent
1 May be reclassified to profit or loss.
130 SMS Annual report and accounts 2021
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2021
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Investments
Other assets
Trade and other receivables
Total non-current assets
Current assets
Inventories
Other assets
Trade and other receivables
Income tax recoverable
Cash and cash equivalents
Restricted cash
Total current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Lease liabilities
Other liabilities
Bank loans and overdrafts
Total current liabilities
Non-current liabilities
Bank loans
Lease liabilities
Deferred tax liabilities
Provisions
Other long-term liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium
Other reserve
Own share reserve
Foreign currency translation reserve
Retained earnings
Total equity attributable to owners of the parent
Notes
2021
£’000
2020
£’000
10, 13
11
12
18
15
14
18
15
16
16
17
18
18
18
18
18
22
18
18
24
26
24
25,463
415,901
75
1,651
–
443,090
22,980
550
47,631
–
117,687
1,299
190,147
633,237
56,489
999
638
–
58,126
–
7,574
12,199
798
750
21,321
79,447
553,790
1,333
332,048
9,562
(825)
(45)
211,717
553,790
24,923
328,338
75
1,308
12
354,656
27,650
641
37,164
576
40,236
1,627
107,894
462,550
41,958
936
388
–
43,282
–
4,315
8,511
–
–
12,826
56,108
406,442
1,129
160,471
9,562
(749)
1
236,028
406,442
The financial statements on pages 129 to 178 were approved and authorised for issue by the Board of Directors and signed on
its behalf by:
Gavin Urwin
Director
15 March 2022
Company registration number
SC367563
SMS Annual report and accounts 2021 131
Strategic reportGovernanceFinancial statements
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2021
Attributable to the owners of the parent company:
As at 1 January 2020
Total profit for the year
Total other comprehensive
income for the year
Transactions with owners
in their capacity as owners
Dividends (note 9)
Shares issued (note 24)
Movement in own shares (note 24)
Share-based payments (note 25)
Income tax effect of share options
As at 31 December 2020
Total profit for the year
Total other comprehensive income
for the year
Transactions with owners
in their capacity as owners
Dividends (note 9)
Shares issued (note 24)
Movement in own shares (note 24)
Share-based payments (note 25)
Income tax effect of share options
As at 31 December 2021
Share
capital
£’000
1,128
–
Share
premium
£’000
160,106
–
Other
reserve
£’000
9,562
–
Own share
reserve
£’000
(768)
–
–
–
–
–
Foreign
currency
translation
reserve
£’000
(66)
–
67
Retained
earnings
£’000
53,615
193,479
Total
£’000
223,577
193,479
–
67
–
1
–
–
–
1,129
–
–
365
–
–
–
160,471
–
–
–
–
–
–
9,562
–
–
–
19
–
–
(749)
–
–
–
–
–
–
1
–
(12,226)
–
(180)
626
714
236,028
3,792
(12,226)
366
(161)
626
714
406,442
3,792
–
–
–
–
(46)
–
(46)
–
204
–
–
–
1,333
–
171,577
–
–
–
332,048
–
–
–
–
–
9,562
–
–
(76)
–
–
(825)
–
–
–
–
–
(45)
(29,060)
–
(203)
841
319
211,717
(29,060)
171,781
(279)
841
319
553,790
See notes 24 and 26 for details of the Own share reserve and Other reserve.
132 SMS Annual report and accounts 2021
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2021
Operating activities
Profit before taxation
Finance costs
Finance income
Foreign exchange loss
Exceptional items: gain on disposal of subsidiary (note 4)
Exceptional items: other1
Depreciation
Amortisation of intangibles
Share-based payment expense
RDEC income
Loss on disposal of property, plant and equipment
Loss on disposal of intangible assets
Movement in inventories
Movement in trade and other receivables2
Movement in restricted cash
Movement in trade and other payables2
Cash generated from operations
Income tax received
Net cash generated from operations
Investing activities
Proceeds on disposal of subsidiary, gross
Payments to dispose of subsidiary3
Proceeds on disposal of subsidiary, net of payments to dispose
Payments for acquisition of subsidiaries, net of cash acquired
Payment for acquisition of new business
Payments to acquire property, plant and equipment
Proceeds on disposal of property, plant and equipment
Payments to acquire intangible assets
Finance income received
Net cash (used in)/generated from investing activities
Financing activities
New borrowings
Borrowings repaid
Principal elements of lease payments
Finance costs paid
Net proceeds from share issue
Purchase of own shares
Dividends paid
Net cash generated from/(used in) financing activities
Net increase/(decrease) in cash and cash equivalents
Exchange (gain)/loss on cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Cash and cash equivalents at the end of the financial year (note 16)
2021
£’000
2020
£’000
8,293
3,488
(7)
29
–
7,288
28,712
4,060
841
(489)
2,457
–
3,359
(7,671)
328
11,078
61,766
403
62,169
–
–
–
(4,749)
(8,433)
(108,214)
2,508
(2,831)
7
(121,712)
53,250
(53,250)
(1,247)
(4,200)
171,781
(279)
(29,060)
136,995
77,452
(1)
40,236
117,687
194,964
4,705
(166)
4
(194,713)
6,148
29,057
2,957
626
(536)
1,028
12
(648)
6,461
(1,627)
(4,361)
43,911
–
43,911
290,615
(11,589)
279,026
(2,438)
–
(41,796)
4,779
(4,056)
166
235,681
15,000
(285,000)
(1,155)
(6,272)
362
(161)
(12,226)
(289,452)
(9,860)
4
50,092
40,236
1
2
Other exceptional items include £5,546,000 for losses on our meter portfolio and the £1,742,000 exceptional finance cost. In 2020, non-cash exceptional items
included £6,033,000 for losses on our meter portfolio and the £115,000 exceptional finance cost.
In 2020, the movement in trade and other receivables included an adjustment of £4,922,000 and the movement in trade and other payables included an
adjustment of £237,000 for working capital disposed of as part of the subsidiary sale.
3 In 2020, Payments to dispose of subsidiary of £11,589,000 included cash disposed of £4,681,000 and transaction costs paid in the year of £6,908,000.
SMS Annual report and accounts 2021 133
Strategic reportGovernanceFinancial statements
ACCOUNTING POLICIES
This note provides a list of the significant accounting policies adopted in the preparation of these consolidated financial
statements. These policies have been consistently applied to all the years presented, unless otherwise stated. The
consolidated financial statements of the Group for the year ended 31 December 2021 were approved and authorised for
issue in accordance with a resolution of the Directors on 15 March 2022. Smart Metering Systems plc (SMS) 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 UK-adopted international accounting standards.
The consolidated financial statements have been prepared on a historical cost basis, modified by the revaluation of certain
financial assets and financial liabilities that have been measured at fair value.
The consolidated financial statements are presented in British Pounds Sterling (£), which is Smart Metering System plc’s
functional and presentation currency, and all values are rounded to the nearest thousand (£’000) except where otherwise
indicated.
In preparing the consolidated financial statements management has considered the impact of climate change, particularly in
the context of the disclosures included in the Strategic report and the Group’s net-zero carbon target. These considerations
did not have a material impact on the financial reporting judgements and estimates, consistent with the assessment that
climate change is not expected to have a significant impact on the Group’s going concern assessment to December 2023.
Qualitative explorations of potential areas of concern, including an evaluation of climate exposure on our physical assets
such as offices, warehouses and vehicles, has been carried out and we have identified areas of potential climate-related risk,
such as extreme weather events which could affect our physical locations and road-based employees. Overall, the risk of
climate-related change on the Group is considered low.
Going concern
Management prepares budgets and forecasts on a five-year forward-looking basis. These forecasts cover operational cash
flows and investment capital expenditure and are prepared based on management’s estimation of installation run rates
through the UK smart meter rollout. The Directors have performed their assessment of the entity’s ability to continue as a
going concern, from the date of issue of these financial statements to 31 December 2023. Over the course of the COVID-19
pandemic, forecasts have continued to be reviewed in detail to ensure any estimated potential impact of COVID-19
restrictions and regulations has been appropriately incorporated, along with the Group’s proposed responses. Following the
lifting of restrictions and resumption of core services, no significant COVID-19 adjustments have been required in
management’s latest forecasts.
Non-essential field work, including planned installations of smart meters, was suspended from 24 March 2020. However,
this was a temporary response measure and, following the UK Government’s announcement detailing phased lifting of
restrictions, a progressive resumption of all non-essential field work commenced from 1 June 2020. Through the second half of
2020, the Group continued to see a recovery in installation run rates, despite continued local restrictions, and by Q4 2020 was
operating at c.80% of the pre-COVID-19 run rate. Where permitted under the UK Government’s guidelines, installation activity
continued in the early part of 2021 through the second national lockdown. Since April 2021, following the easing of restrictions,
the Group has operated above its pre-COVID-19 run rate. As anticipated, the main impact of COVID-19 has been one of
timing and management does not expect any significant longer-term effects on the business as a result of the pandemic.
Management has modelled several different meter installation and grid-scale battery storage scenarios, including a
downside scenario which assumed a slower rollout of new meter installations over the year and delayed the energisation of
grid-scale battery storage sites. The scenario proved that the business would still have sufficient cash flow to continue to
operate, banking covenants would remain satisfied with adequate headroom, and adequate cash would be available to cover
liabilities and operating costs. This modelling provides confidence to management that, even in adverse circumstances, the
business will still have sufficient resources to continue to operate.
In September 2021, the Group completed the refinancing of its revolving credit facility in order to support ongoing investment
in its established carbon reduction (‘CaRe’) assets. The total available funding under the new loan facility is £420m and the
maturity date is December 2025. In addition, in early October 2021, the Group completed a successful equity placing, raising
proceeds of c.£175m. These proceeds were used to make a voluntary prepayment under the Group’s refinanced loan facility
of the full outstanding principal of c.£53m. At the date of approving the financial statements, the Group had access to the full
£420m of its revolving credit facility with no amount drawn down. The Group has not required any new or extended facilities
as a result of COVID-19, nor has it needed to renegotiate or waive any of its bank covenants.
134 SMS Annual report and accounts 2021
The Group was compliant with all its debt covenants at 31 December 2021. The financial covenants attached to the refinanced
facility are that EBITDA should be no less than 4.00x interest and net debt should be no more than 4.75x EBITDA. At
31 December 2021 these stood at 16.11x and -2.07x respectively, on account of a net cash-positive position, demonstrating
significant headroom. The Group does not expect to breach these covenants in the period from the date of release of these
financial statements to 31 December 2023.
The Group was in a net cash position of £117.7m at 31 December 2021 following the equity placing and the subsequent
voluntary prepayment of its loan facility (31 December 2020: £40.2m net cash) and, at that date, undrawn facilities were
£420m (31 December 2020: £300m). The Group balance sheet shows consolidated net assets of £553.8m (31 December 2020:
£406.4m), of which £366.7m (31 December 2020: £315.5m) relates to revenue-generating meter and data assets. The liquidity
of the Group thus remains strong and continues to provide the financial flexibility required to support the Group’s long-term
growth prospects.
The Group has not had to rely on any government support schemes as a result of COVID-19. With significant coverage
provided by existing long-term, inflation-linked and recurring cash flows, the Group remains committed to its enhanced
dividend policy. It proposes a 27.5p per share annualised dividend in respect of FY 2021. The first of four cash instalments,
a total of £7.8m, was paid in October 2021.
Based on the current cash flow projections and facilities in place and having given consideration to various outcomes of future
performance and forecast capital expenditure, including extreme downside scenarios, the Directors consider it appropriate
to continue to prepare the financial statements on a going concern basis and are of the view that there are no material
uncertainties regarding the Group’s going concern status.
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 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.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from
the date that control ceases.
The acquisition method of accounting is used to account for business combinations by the Group (refer to policy on page 140).
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 intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of
the Group are eliminated in full on consolidation.
Foreign currency translation
Group companies
The results and financial position of foreign operations (none of which has the currency of a hyperinflationary economy) that
have a functional currency different from the presentation currency are translated into the presentation currency as follows:
• assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
• non-monetary assets at the date of acquisition are translated at the historical rate and are not subsequently revalued;
• income and expenses for each statement of profit or loss and statement of comprehensive income are translated at
average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on
the transaction dates, in which case income and expenses are translated at the dates of the transactions); and
• all resulting exchange differences are recognised in Other comprehensive income and accumulated in a separate reserve
within equity.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the
foreign operation and translated at the closing rate.
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the
transactions. Foreign exchange gains and losses resulting from the settlement of such transactions, and from the translation
of monetary assets and liabilities denominated in foreign currencies at year-end exchange rates, are generally recognised in
profit or loss. They are deferred in equity if they relate to qualifying cash flow hedges and qualifying net investment hedges or
are attributable to part of the net investment in a foreign operation.
SMS Annual report and accounts 2021 135
Strategic reportGovernanceFinancial statements
ACCOUNTING POLICIES continued
Foreign currency translation continued
Foreign exchange gains and losses that relate to borrowings are presented in the statement of profit or loss, within Finance
costs. All other foreign exchange gains and losses are presented in the statement of profit or loss on a net basis within
Administrative expenses.
Use of estimates and judgements
The Directors are required to make judgements, estimates and assumptions about the carrying amount of assets and
liabilities that are not readily apparent from other sources. These estimates and associated assumptions are based on
historical experience and other factors considered to be relevant. Actual results may differ from these estimates. The
estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future
periods if the revision affects both current and future periods.
Critical accounting judgements
The following are the critical judgements that the Directors have made in the process of applying the Group’s accounting
policies and that have the most significant effect on the amounts recognised in the financial statements:
• presentation of costs attributable to COVID-19 as exceptional:
- as a result of reduced engineering activity in periods of lockdown due to COVID-19, management has estimated that
£0.8m of costs that would ordinarily be capitalised as directly attributable to the installation of meter assets –
consisting primarily of staff costs – have remained in underlying profit. Consistent with the Group’s accounting policy on
exceptional items, these material costs are attributable to a rare macroeconomic event, being the COVID-19 pandemic,
and therefore management has taken the judgement to recognise these costs as exceptional; and
- as at 31 December 2021, management has assessed the expected credit losses for trade receivables. COVID-19 has
generated global financial uncertainty; however, the potential impact of this on the Group’s credit risk is mitigated by
the highly regulated nature of the utilities industry and the extensive support made available to energy – and other
infrastructure – suppliers by the UK Government. As a result, management has not increased the expected loss rates
for the trade receivables portfolio as a whole. Instead, a subset of trade receivables has been identified as having a
potentially elevated credit risk, due to a greater risk of administration as a direct consequence of COVID-19. This subset
of trade receivables has been provided for on a specific basis and in the prior year resulted in an additional £0.5m
impairment loss. This provision has been reduced to £nil as at 31 December 2021, reflecting positive recovery trends
over the past twelve months, giving rise to a £0.4m credit in the current year financial statements (net of write-offs).
Whilst management will continue to monitor the situation in case of any changed circumstances arising from the
pandemic, it is of the view that there is no longer significant uncertainty regarding the impact of COVID-19 on customer
default risk. Consistent with the recognition of the original impairment loss in the prior year, management has taken the
judgement to recognise this write-back as exceptional;
• capitalisation of internal installation costs:
- a significant level of in-house installation of customers’ meter assets is carried out by the Group, certain costs of which
are capitalised (2021: £38.2m, 2020: £19.8m) and depreciated as part of property, plant and equipment depreciation.
Judgement is required by management to ascertain the appropriate categories and proportion of overheads and
other expenses that are directly attributable to installation of meter assets. Typically, capitalised costs will include staff
costs, and a systematic allocation of any production overheads deemed to be directly attributable to the process of
installing a meter owned by the Group. Other general and administrative overheads, such as sales, marketing and
training costs, are expensed directly to profit and loss; and
• presentation of losses on disposal of certain meter assets as exceptional items:
- as a result of the inherent volatility associated with the UK smart meter rollout, and removal of traditional meter assets
as part of this, management has taken the decision to show losses arising on disposal of these meters – being the net
book value less the associated termination income received representing proceeds on disposal – as exceptional
administrative expenses. By disclosing these amounts separately, the traditional meter asset portfolio can be better
tracked to assist the users of the financial statements to better understand the premature retirement of these revenue-
generating assets that is outside the Group’s control. The residual value of the traditional meter asset portfolio of £nil
reflects the consumption of economic benefit from installed assets, being the income earned from the provision of the
meter. On disposal, the receipt of termination income, recognised as a component of the net gain or loss on the disposal
of these meter assets, will vary depending on the energy supplier and is therefore not within our control. As the receipt
of proceeds from disposal is inherently volatile, a loss on disposal can still arise in certain circumstances. A loss on
disposal of traditional meter assets was recognised as an exceptional cost in the year ended 31 December 2021; and
- technical communication issues for some first-generation smart meter assets (SMETS1 meters) on supplier churn have
continued through 2021, with the Data Communications Company (DCC) Enrolment and Adoption programme now due
to extend through to the end of 2022. As a result, the Group has continued to see a small proportion of SMETS1 meters
removed from the wall. As these removals are attributable to the temporary industry transition period, management
has made the judgement to recognise losses arising on the disposal of these meters as exceptional until resolution by
the Enrolment and Adoption programme is complete.
136 SMS Annual report and accounts 2021
• identification of indicators of impairment of the meter asset portfolio in accordance with IAS 36 and assumptions applied
in determining the carrying value of the portfolio of meter assets:
- due to the uncertainties associated with the timing of the UK domestic smart meter rollout, the expected useful life and
carrying value of traditional meters requires significant judgement, as does the level of recoverability of termination
income. These assumptions are used in deriving the depreciation rates applied and the impairment calculation performed
on carrying value. For the traditional meters, as the UK smart meter rollout progresses, our portfolio of traditional
meter assets is diminishing. It is therefore crucial that the recoverability of the carrying value of our meter assets,
recognised in Property, plant and equipment, be assessed. The two main drivers for assessing this recoverability are:
1)
the timing of the removals of these meters –this decision lies with the end consumer and removals are largely
undertaken by third parties, which means we have little control over the timing and quantity of these removals; and
2) the estimated future cash flows from termination income – these are derived using historical data and analysis
around the risk of churn between contracted and non-contracted customers. The assessment includes consideration
of the extent to which termination income and future rental income are received as traditional meters continue to be
removed from the wall.
In 2021, this assessment has identified that the carrying value of the traditional meter assets portfolio is recoverable and,
therefore, no impairment charge has been recognised (2020: £nil).
- potential indicators of impairment have also been assessed in relation to our smart and I&C meters, including
consideration of the temporary industry transitional issues experienced with some SMETS1 assets as detailed above.
Management has concluded that there is no significant risk of impairment with regards to the Group’s smart and I&C
meters at 31 December 2021, consistent with the prior year.
Key sources of estimation uncertainty
The Group has no key sources of estimation uncertainty at the reporting date that may have a significant risk of causing
material adjustment to the carrying amounts of assets and liabilities within the next financial year.
Revenue recognition
Refer to details in note 2.
Exceptional items and separately disclosed items
The Group presents as exceptional items on the face of the consolidated statement of comprehensive income those items
of income and expense which, because of the material nature or expected infrequency of the events giving rise to them,
merit separate presentation to allow shareholders to better understand the elements of financial performance in that year
facilitating comparison with prior periods and to better assess trends in financial performance.
Termination fee income is reported as part of Other operating income in the consolidated statement of comprehensive
income given its materiality and nature. Any termination fee income arising on the loss of meter assets is reported within
Administrative expenses as a component of net gain or loss on disposal. Termination fee income does not arise from the
principal activities of the Group. Any such gain or loss on disposal relating to traditional meter assets and SMETS1 meter
assets is disclosed as an exceptional item.
Government grants
Grants from governments are recognised at their fair value where there is reasonable assurance that the grant will be
received and the Group will comply with all attached conditions, usually on submission of a valid claim for payment.
Government grants relating to costs are deferred and recognised in profit or loss over the period necessary to match them
with the costs that they are intended to compensate. Government grants relating to capital expenditure are included in
liabilities as deferred income and they are credited to profit or loss on a straight-line basis over the expected lives of the
related assets. Amounts credited to profit or loss are recognised as part of Other operating income in the consolidated
statement of comprehensive income.
The R&D expenditure credit (RDEC) scheme is a UK Government tax incentive which allows qualifying companies to claim R&D
expenditure credits (RDECs) equal to 12% of their qualifying research and development expenditure. The credit is taxable at
the corporation tax rate and is included in the company’s taxable trading profits. RDECs are accounted for by the Group in
accordance with IAS 20 Government Grants and recognised within Other operating income in the consolidated statement
of comprehensive income. Outstanding amounts receivable are recognised in the consolidated balance sheet within Trade
and other receivables.
SMS Annual report and accounts 2021 137
Strategic reportGovernanceFinancial statements
ACCOUNTING POLICIES continued
Financial assets
The Group’s financial assets include cash and cash equivalents and trade and other receivables. Investments consist of an
immaterial debt investment held at amortised cost.
Classification
The Group classifies its financial assets in the following measurement categories:
• those to be measured subsequently at fair value, either through other comprehensive income (FVOCI) or through profit
or loss (FVPL); and
• those to be measured at amortised cost.
The classification depends on the Group’s business model for managing the financial assets and the contractual terms of
the cash flows.
For investments in equity instruments that are not held for trading, this will depend on whether the Group has made an
irrevocable election at the time of initial recognition to account for the equity investment at FVOCI. The Group reclassifies
debt investments when and only when its business model for managing those assets changes.
Recognition and derecognition
Financial assets are initially recognised on trade date. Financial assets are derecognised when the rights to receive cash flows
from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and
rewards of ownership.
Measurement
At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at FVPL,
transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets
carried at FVPL are expensed in profit or loss.
Trade and other receivables
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost. They are
generally due for settlement within 30 days and are therefore all classified as current. Due to their short-term nature, carrying
value is considered to approximate fair value.
Cash and cash equivalents
Refer to accounting policy on Cash and cash equivalents.
Impairment
The Group assesses, on a forward-looking basis, the expected credit losses associated with its debt instruments carried at
amortised cost and FVOCI. The impairment methodology applied depends on whether there has been a significant increase
in credit risk. For trade receivables and accrued income, which include contract assets and billed and unbilled receivables
arising from contracts with customers, the Group applies the simplified approach permitted by IFRS 9, which requires
expected lifetime losses to be recognised from initial recognition of the receivables.
Trade receivables and accrued income are written off, and derecognised, where there is no reasonable expectation of
recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the customer ceasing
trading and entering administration with no expected recovery from the Supplier of Last Resort process, or a failure by the
customer to make contractual payments for a period of greater than or equal to 365 days past due. Indicators are assessed
on an individual customer basis. Impairment losses, including the loss allowance, on trade receivables and accrued income are
presented within Administrative expenses. Subsequent recoveries of amounts previously written off are credited against the
same line item.
Further information about the impairment of trade receivables and accrued income, and the Group’s exposure to credit risks,
can be found in note 19.
Financial liabilities
The Group’s financial liabilities include trade and other payables, bank loans and overdrafts, and leases.
Classification
Financial liabilities are classified as financial liabilities at fair value through profit or loss or loans and borrowings, as
appropriate. The Group determines the classification of its financial liabilities at initial recognition.
Recognition
All financial liabilities are recognised initially at fair value and, in the case of bank loans, net of directly attributable
transaction costs.
138 SMS Annual report and accounts 2021
Measurement
Trade and other payables and bank overdrafts
Trade and other payables, and overdrafts, are subsequently measured at amortised cost using the effective interest rate
method. Trade and other payables are presented as current liabilities unless payment is not due within twelve months after
the reporting period. Due to their short-term nature, carrying value is considered to approximate fair value.
Bank loans
Bank loans are subsequently measured at amortised cost. Interest expense on bank loans is recognised in the consolidated
income statement using the effective interest rate method.
Transaction costs on revolving credit facilities are recognised as transaction costs of the loan to the extent that it is probable
that some or all the facility will be drawn down. In this case, the fee is deferred within Other assets until the drawdown occurs.
Upon drawdown of the first loan, these costs are reclassified from Other assets to Bank loans and subsequently amortised
over the term of the facility.
Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged or cancelled or
has expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to
another party and the consideration paid, including any non-cash assets transferred, or liabilities assumed, is recognised in
profit or loss as Other income or Finance costs.
If a facility is modified, then it is assessed whether the modification is significant enough to constitute an extinguishment
either qualitatively or quantitatively (defined as a change in the present value of cash flows, including any transaction
costs paid, exceeding 10%). If a modification is considered an extinguishment of the initial loan, the new modified loan is
recorded at fair value and a gain/loss is recognised immediately in the consolidated income statement for the difference
between the carrying amount of the old loan and the new loan. Any costs incurred are recognised in profit or loss. Where
a modification is not significant enough to be an extinguishment, the cash flows under the modified loan are rediscounted
at the original effective interest rate and an immediate gain or loss is recognised accordingly in the consolidated income
statement on the date of modification. Any costs incurred are recognised over the remaining period of the modified debt,
within the effective interest rate.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability
for at least twelve months after the reporting period.
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.
Leases
Group as lessor
The arrangements the Group has in place to act as Meter Asset Provider do not constitute a lease of the meter asset to the
energy supplier. SMS controls the meter as the Group retains legal title and obtains substantially all the economic benefit.
The assets are recognised as property, plant and equipment when in use under contract with an energy supplier and related
income for the service of providing a fitted meter is recognised in accordance with IFRS 15. Further information about the
Group’s accounting policy for revenue recognition is given in note 2, and for property, plant and equipment in note 11.
Group as lessee
The Group leases various offices, warehouses and motor vehicles and, following the business combinations disclosed in note
20, land. For offices, warehouses and motor vehicles rental contracts are typically made for fixed periods of three to ten years.
For land, rental contracts are typically made for fixed periods of 20 to 40 years. Contracts may have extension or early
termination options. Lease terms are negotiated on an individual basis and contain a wide range of different terms and
conditions. The lease agreements do not impose any covenants, but leased assets may not be used as security for
borrowing purposes.
Leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available
for use by the Group.
In determining the lease term, management considers all facts and circumstances that create an economic incentive to
exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options)
are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). The lease term is
reassessed if an option is actually exercised (or not exercised) or the Group becomes obliged to exercise (or not exercise) it.
The assessment of reasonable certainty is only revised if a significant event or a significant change in circumstances occurs,
which affects this assessment, and that is within the control of the lessee.
SMS Annual report and accounts 2021 139
Strategic reportGovernanceFinancial statements
ACCOUNTING POLICIES continued
Leases continued
Group as a lessee continued
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net
present value of the following lease payments:
• fixed payments (including in-substance fixed payments), less any lease incentives receivable;
• variable lease payments that are based on an index or a rate, initially measured using the index or rate as at the
commencement date;
• amounts expected to be payable by the lessee under residual value guarantees;
• the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and
• payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.
Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the lessee’s
incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain
an asset of similar value in a similar economic environment with similar terms and conditions. The weighted average lessee’s
incremental borrowing rate applied to the lease liabilities at 31 December 2021 was 4.7% (31 December 2020: 4.8%).
The Group is exposed to potential future increases in variable lease payments based on an index or rate, which are not
included in the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect,
the lease liability is reassessed and adjusted against the right-of-use asset.
Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease
period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.
Right-of-use assets are measured at cost comprising the following:
• the amount of the initial measurement of lease liability;
• any lease payments made at or before the commencement date less any lease incentives received;
• any initial direct costs; and
• restoration costs.
The Group is required to restore the land leased as part of its grid-scale battery storage business, and certain leased
warehouses, to the condition required by the terms and conditions of the lease at the end of the respective lease terms. Under
IFRS 16, the estimated liability for such restoration costs is recognised as a provision under IAS 37 at initial recognition and is
not included as part of the lease liability. As right-of-use assets are measured subsequent to initial recognition using a cost
model, any change in the estimate of such costs after initial recognition is added to, or deducted from, the cost of the right-of-
use asset.
Right-of-use assets are generally depreciated over the shorter of the asset’s useful life and the lease term, on a straight-line
basis.
Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an
expense in profit or loss. Short-term leases are leases with a lease term of twelve months or less. Low-value assets comprise
IT equipment and small items of office furniture, where the value of the asset on inception is less than c.US$5,000.
Payments for services are separated from the lease components of a contract and accounted for as an administrative
expense.
Business combinations
The acquisition method of accounting is used to account for all business combinations, regardless of whether equity
instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the:
• fair values of the assets transferred;
• liabilities incurred to the former owners of the acquired business;
• equity interests issued by the Group;
• fair value of any asset or liability resulting from a contingent consideration arrangement; and
• fair value of any pre-existing equity interest in the subsidiary.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited
exceptions, measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in
the acquired entity on an acquisition-by-acquisition basis either at fair value or at the non-controlling interest’s proportionate
share of the acquired entity’s net identifiable assets.
Acquisition-related costs are expensed as incurred.
140 SMS Annual report and accounts 2021
The excess of the:
• consideration transferred;
• amount of any non-controlling interest in the acquired entity; and
• acquisition-date fair value of any previous equity interest in the acquired entity
over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value
of the net identifiable assets of the business acquired, the difference is recognised directly in profit or loss as a bargain
purchase. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted
to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the
rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions.
Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability
are subsequently remeasured to fair value, with changes in fair value recognised in profit or loss.
If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity
interest in the acquiree is remeasured to fair value at the acquisition date. Any gains or losses arising from such
remeasurement are recognised in profit or loss.
Asset acquisitions
Asset acquisitions include the acquisition of a group of assets that does not constitute a business.
The relevant IFRS is applied when accounting for the acquisition of an individual asset.
Where the acquisition involves a group of assets and liabilities, the individual assets and liabilities acquired are identified and
recognised. The cost of the transaction is allocated to the assets acquired, and liabilities assumed, based on their relative fair
values at the date of purchase. No goodwill arises on the transaction.
The cost of the transaction is measured at the fair value of the consideration transferred at the acquisition date. This can
include cash payments, financial liabilities incurred, equity interests issued by the Group and the fair value of any asset or
liability arising from a contingent or deferred consideration arrangement. Non-monetary assets might be exchanged as part
of the consideration for the transaction. The cost of an item acquired in exchange for a non-monetary asset or assets is
generally measured at fair value.
Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability
are subsequently remeasured to fair value, with changes in fair value recognised in profit or loss.
Transaction costs are capitalised as a component of the cost of the assets acquired.
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 and system 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 asset is available for use, so as to write off its cost, less its estimated residual value, over
the useful economic life of that asset as follows:
• Development of ADM™ units
• Development of internally generated information technology systems (‘IT development’)
10% on cost, straight line
20% and 50% on cost,
straight line
Capitalised development expenditure on ADM™ units is disclosed within Property, plant and equipment as part of Meter
assets and amortised over the same useful economic life as that applied to the tangible ADM™ unit.
Capitalised IT development expenditure is disclosed within Intangible assets as part of IT development and software. All costs
capitalised within this category relate to information technology and, with the exception of one system, are amortised over
the same useful economic life of five years. A new system was integrated and brought into use during 2020 and associated
development costs are amortised over the remaining contract term of two years.
SMS Annual report and accounts 2021 141
Strategic reportGovernanceFinancial statements
ACCOUNTING POLICIES continued
Intangible assets
Intangible assets acquired separately from third parties consist of software costs, including licence fees. These are recognised
as assets, measured at cost and classified as part of IT development and software.
Internally generated intangible assets relate to IT development and are recognised as part of IT development and software.
Refer to further details in the research and development accounting policy above.
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. They are recognised at their fair value at the date of acquisition and are
subsequently amortised on a straight line basis over their estimated useful lives.
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 Administrative expenses disclosed in the consolidated statement
of comprehensive income.
Intangible assets are amortised over their useful lives as follows:
• IT development and software
20% and 50% on cost, straight line
• Intangibles recognised upon acquisition:
- Customer contracts
- Trademarks
20% on cost, straight line
33% on cost, straight line
Useful lives are examined on an annual basis and adjustments, where applicable, are made on a prospective basis.
As part of a business acquisition in 2021 (see note 20 for details), the Group acquired a portfolio of customer contracts which
are amortised over the average remaining contract term of five years. All other customer contracts recognised upon
acquisition were fully amortised in the year.
In preparing the consolidated financial statements management considered the impact of the IFRS Interpretations Committee’s
March 2021 decision, that clarifies the treatment and recognition of cloud computing implementation costs. These
considerations did not have a material impact on the consolidated financial statements in the year ended 31 December 2021.
Goodwill
Goodwill represents the excess of the consideration transferred over 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, or if there is an indication of impairment, and is carried at cost less
accumulated impairment losses. See note 13 for detailed assumptions and methodology. Impairment losses are not
subsequently reversed.
Goodwill is allocated to cash-generating units (CGUs) for the purpose of impairment testing. The allocation is made to those
CGUs or groups of CGUs that are expected to benefit from the business combination in which the goodwill arose. The units or
groups of units are identified at the lowest level at which goodwill is monitored for internal management purposes. In the prior
year the CGUs were defined in line with the Group’s operating segments. However, given the ongoing business development
within the energy management segment and the diversification of energy assets as a result, management has deemed it
appropriate to separate out the Solo Energy business as a standalone CGU. See note 13 for further details.
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 used in the annual impairment test for goodwill, with regard to discount, growth and inflation rates, are
set out in note 13.
Contingent consideration is recorded initially at fair value and classified as equity or a financial liability. Contingent
consideration classified as equity is not remeasured, but contingent consideration classified as a financial liability is
subsequently remeasured at fair value through profit or loss.
Adjustments to provisional fair values of identifiable assets and liabilities (and to estimates of contingent consideration)
arising from additional information, obtained within the measurement period (no more than one year from the acquisition
date), about facts and circumstances existing at the acquisition date, are adjusted against goodwill. Other adjustments
to provisional fair values or changes in contingent consideration are recognised through profit or loss.
142 SMS Annual report and accounts 2021
Impairment of tangible and intangible assets other than goodwill
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
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 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.
Detailed assumptions used in the impairment test for meter assets are set out in note 11.
An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount.
Property, plant and equipment
Property, plant and equipment is stated at cost, net of accumulated depreciation and any accumulated impairment losses.
Such cost includes the cost of replacing part of the property, 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. Pursuant to the acquisition of the meter installation businesses on 18 March 2016 certain internal
costs to the Group are also capitalised where they are demonstrated as being directly attributable to bringing the meter
assets into their usable condition.
All other repair and maintenance costs are recognised in the consolidated statement of comprehensive income as incurred.
For each asset depreciation is calculated using the straight-line method to allocate its cost, net of its residual value
if applicable, over its estimated useful life as follows:
• Freehold property
2%
• Short-leasehold property
Shorter of the lease term or 15% and 20%
• Meter assets
Smart meters and Industrial & Commercial meters 5%
ADM™ units 10%
Traditional meters to 1 July 2025
• Plant and machinery
33%
• Fixtures, fittings and equipment 20% and 33%
• Motor vehicles
25%
• Right-of-use assets
Shorter of the asset’s useful life and the lease term
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 is initially recorded at cost.
The following changes in estimates with regard to property, plant and equipment were made with effect from 1 April 2021:
• Construction of grid-scale battery storage sites
At 31 December 2020, SMS had acquired two special purpose vehicles, enabling the Group to obtain control over the rights
required to develop and commission two grid-scale battery storage sites, totalling 90MW, as part of the Group’s investment
strategy in CaRe assets. At 31 December 2020, the Company accounted for work in progress acquired, together with the fair
value uplift applied to the acquisition balance sheets in relation to development and construction rights, and additional
costs of development incurred up to 31 December 2020, as part of Inventories on the consolidated balance sheet.
A change in management’s business intention regarding these grid-scale battery storage sites, implemented as part of
the Group’s wider strategy and effective from 1 April 2021, is accounted for on a prospective basis in the 2021 financial
statements and has resulted in a £4.1m reclassification of amounts previously recognised as Inventory to Assets under
construction within Property, plant and equipment (see note 11). There has been no material change in the amounts
capitalised as a result of this reclassification.
SMS Annual report and accounts 2021 143
Strategic reportGovernanceFinancial statements
ACCOUNTING POLICIES continued
Property, plant and equipment continued
With effect from 1 April 2021, acquired development and construction rights together with directly attributable costs
incurred in relation to the construction of the grid-scale battery storage sites are accounted for under IAS 16: Property, plant
and equipment. These are recorded at cost and classified as part of Assets under construction within Property, plant and
equipment. Whilst under construction no depreciation is recorded.
The following change in estimates with regard to property, plant and equipment was made with effect from 1 January 2020:
• With respect to the domestic traditional meter asset portfolio, the useful life of all opening assets was extended from
31 December 2022 to 1 July 2025 to reflect the UK Government’s confirmation on 18 June 2020 that it would introduce a new
regulatory framework, first proposed in September 2019, for the next phase of the UK smart meter rollout. The new four-year
framework was implemented from 1 July 2021, effectively extending the smart meter rollout to 1 July 2025. It is accepted
that the rate of meter exchange to smart meters will vary year by year as the rollout proceeds, but there is currently no
reliable basis on which to predict the annual profile. Accordingly, a straight-line approach to depreciation of these assets
continued to be adopted. As a result of this change in estimate, the consolidated income statement for the year ended
31 December 2020 reflected a reduced charge for depreciation of £4.8m, recognised within depreciation in Cost of sales.
It was not practicable to estimate the effect of this change on future periods because the future removal profile of the
domestic traditional meter asset portfolio is volatile and outside our control.
See the Leases accounting policy for further details on the recognition and measurement of right-of-use assets under IFRS 16.
Inventories
Finished goods and consumables
Finished goods and consumables are stated at the lower of cost and net realisable value. Cost comprises direct materials and
purchases of meter assets and ADM™ units at cost. Costs of purchased inventory are determined after deducting rebates
and discounts. Net realisable value represents the estimated selling price for inventories in the ordinary course of business less
the estimated costs necessary to make the sale.
At 31 December 2020: Work in progress - grid-scale batteries
Work in progress is stated at the lower of cost and net realisable value. Cost includes:
• work in progress recognised as a result of business combinations;
• direct materials, including the purchase of batteries at cost (after deducting rebates and discounts); and
• the cost of development, including direct labour and an appropriate proportion of overhead expenditure.
Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion
and the estimated costs necessary to make the sale.
With effect from 1 April 2021 work in progress in relation to grid-scale batteries is recognised as part of Property, plant and
equipment. See Accounting policies – property, plant and equipment for details.
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.
Restricted cash
Restricted cash in the consolidated statement of financial position comprises:
• amounts collected from customers on behalf of a third party, as part of a services arrangement, that have not yet been
allocated. These monies are held in a trust account whilst awaiting allocation and, per the terms of the account, cannot be
used by the Group to meet other short-term cash commitments. They have thus been disclosed separately from cash and
cash equivalents and;
• amounts held as collateral in order to trade electricity on the wholesale market as part of the Group’s grid-scale battery
storage business. Whilst no grid-scale battery storage sites were operational at 31 December 2021, collateral was in place
at this date in preparation for the commencement of wholesale trading services in early FY 2022. These monies are held in
designated trading accounts and cannot be used by the Group to meet other short-term cash commitments. They have
thus been disclosed separately from cash and cash equivalents.
Any movement in restricted cash is classified as an operating cash flow in the consolidated statement of cash flows, in line
with the operational nature of the services being delivered.
144 SMS Annual report and accounts 2021
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
IFRS 2 Share-based Payment has been applied to all grants of equity instruments. The Group issues equity-settled share-
based payments to certain employees under the terms of the Group’s various employee share and option schemes. Equity-
settled share-based payments are measured at fair value at the date of the grant. The fair value determined at the grant
date of equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on an
estimate of the shares that will ultimately vest.
Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares or options
are shown in equity as a deduction from the proceeds.
Own share reserve
The Group offers a Share Incentive Plan for all employees and has established a trust to facilitate the delivery of SMS shares
under this plan. The holdings of this trust include shares that have not vested unconditionally to employees of the Group.
These shares are recorded at cost and are classified as own shares. The cost to the Company of acquiring these own shares
held in trust is shown as a deduction from shareholders’ equity.
Dividends
Dividend distributions to the Company’s shareholders are recognised in the accounting period in which the dividends are paid.
Taxation
Tax currently payable is based on the taxable profit for the year and any adjustment to tax payable in respect of prior years.
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 temporary 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 is recognised in respect of all temporary
differences that have originated but not reversed at the balance sheet date, where transactions or events that result in
an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date.
Deferred tax is measured at the tax rates that are expected to apply in the periods in which the asset or liability is settled
based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. It is recognised
in the income statement except when it relates to items recognised in other comprehensive income or directly in equity,
such as share-based payments. In this case, the deferred tax is also recognised in other comprehensive income or directly
in equity, respectively.
Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which
the temporary difference can be utilised. Their carrying amount is reviewed at each balance sheet date on the same basis.
Deferred tax liabilities are recognised for all temporary differences, except in respect of:
• temporary differences arising from the initial recognition of goodwill or an asset or liability in a transaction that is not
a business combination and at the time of the transaction affects neither the accounting profit nor taxable profit or loss; and
• temporary differences associated with investments in subsidiaries where the timing of the reversal of the temporary
differences can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets and liabilities
and where the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset
where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset
and settle the liability simultaneously.
SMS Annual report and accounts 2021 145
Strategic reportGovernanceFinancial statements
ACCOUNTING POLICIES continued
Standards and interpretations
New and amended standards adopted by the Group
The Group has applied the following standards and amendments for the first time for its annual reporting period commencing
1 January 2021:
Standard or interpretation
IFRS 16 (amendment)
IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS
16 (amendment)
‘Leases’, COVID-19 - Related rent concessions
Interest rate benchmark reform – Phase 2
Effective date
1 June 2020
1 January 2021
The amendments listed above did not have any impact on the amounts recognised in prior periods or the current period and
are not expected to affect future periods significantly.
The Group’s revolving credit facility previously attracted interest at a fixed margin over the three-month London Inter-Bank
Offered Rate (LIBOR). Under the new facility established in September 2021, LIBOR was replaced by the Sterling Overnight
Index Average (SONIA) and the transition was managed carefully with the Group’s lending agent. There has not been any
material change in the overall cost of borrowing as a result of this. Overall, interest rate benchmark reform is not anticipated
to have a significant impact on the Group’s risk management strategy.
New standards and interpretations not yet adopted
Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2021
reporting periods and have not been early-adopted by the Group.
The amendments to IAS 12 Income Taxes, regarding deferred tax related to assets and liabilities arising from a single
transaction, will apply to the Group as a lessee under IFRS 16. Its potential effects are under consideration.
All other standards are not expected to have a material impact on the entity in the current or future reporting periods,
or on foreseeable future transactions.
146 SMS Annual report and accounts 2021
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2021
1 Segmental reporting
For management purposes, the Group is organised into three core divisions, as follows:
• Asset management, which comprises regulated management of gas and electric meters, ADM™ units and energy data
assets within the UK;
• Asset installation, which comprises installation of domestic and I&C gas meters and electricity meters throughout the UK; and
• Energy management, which comprises the provision of energy consultancy services and, following the acquisition of Solo
Energy Limited, the management of Distributed Energy Resources (DER).
For the purpose of making decisions about resource allocation and performance assessment, it is the operating results of the
three core divisions listed above that are monitored by management and the Group’s chief operating decision-maker, being
the SMS Board. It is these divisions, therefore, that are defined as the Group’s reportable operating segments.
Segment performance is mainly evaluated based on gross profit.
The following segment information is presented in respect of the Group’s reportable segments together with additional
balance sheet information:
31 December 2021
Segment revenue
Inter-segment revenue
Revenue from external customers
Cost of sales
Segment gross profit – pre-exceptional cost of
sales
Exceptional items (cost of sales)
Segment gross profit
Other operating costs/income
Depreciation
Amortisation of intangibles
Profit/(loss) from operations – pre-exceptional
operating items
Exceptional items (operating)
Profit/(loss) from operations
Net finance costs: other
Net finance costs: exceptional
Profit/(loss) before tax
Tax expense
Profit for year
Asset
management
£’000
Asset
installation
£’000
Energy
management
£’000
Unallocated
£’000
82,828
–
82,828
(31,479)
51,349
–
51,349
–
–
(1,725)
49,624
(6,213)
43,411
(3,132)
(1,742)
38,537
74,208
(52,176)
22,032
(14,081)
7,951
(829)
7,122
–
(196)
–
6,926
–
6,926
–
–
6,926
3,620
–
3,620
(2,756)
864
–
864
1,256
–
(31)
2,089
–
2,089
(161)
–
1,928
–
–
–
–
–
–
–
(33,373)
(3,797)
(2,304)
(39,474)
564
(38,910)
(188)
–
(39,098)
Total
operations
£’000
160,656
(52,176)
108,480
(48,316)
60,164
(829)
59,335
(32,117)
(3,993)
(4,060)
19,165
(5,649)
13,516
(3,481)
(1,742)
8,293
(4,501)
3,792
SMS Annual report and accounts 2021 147
Strategic reportGovernanceFinancial statements
1 Segmental reporting continued
31 December 2020
Segment revenue
Inter-segment revenue
Revenue from external customers
Cost of sales
Segment gross profit – pre-exceptional
cost of sales
Exceptional items (cost of sales)
Segment gross profit/(loss)
Other operating costs/income
Depreciation
Amortisation of intangibles – restated1
Profit/(loss) from operations – pre-exceptional
operating items – restated1
Exceptional items (operating)
Profit/(loss) from operations – restated1
Net finance costs: other
Net finance costs: exceptional
Profit/(loss) before tax – restated1
Tax expense
Profit for year
Asset
management
(restated)
£’000
Asset
installation
£’000
Energy
management
£’000
Unallocated
(restated)
£’000
78,675
–
78,675
(29,825)
48,850
–
48,850
–
(1,385)
(1,642)
45,823
188,612
234,435
(4,399)
(115)
229,921
49,011
(29,287)
19,724
(16,591)
3,133
(4,890)
(1,757)
–
–
–
(1,757)
(928)
(2,685)
–
–
(2,685)
4,583
–
4,583
(3,564)
1,019
–
1,019
–
(21)
(32)
966
–
966
(33)
–
933
–
–
–
–
–
–
–
(27,780)
(2,979)
(1,283)
(32,042)
(1,056)
(33,098)
(107)
–
(33,205)
Total
operations
£’000
132,269
(29,287)
102,982
(49,980)
53,002
(4,890)
48,112
(27,780)
(4,385)
(2,957)
12,990
186,628
199,618
(4,539)
(115)
194,964
(1,485)
193,479
1
Amortisation of the Group’s Enterprise Resourcing Planning system, which went live in full in 2020, has been reclassified from Asset management to
Unallocated to reflect its Groupwide use. This is in line with the current year disclosure.
Inter-segment revenue relates to installation services provided by the asset installation segment to the asset management
segment.
Depreciation of £24.7m (2020: £24.7m) associated with meter assets has been reported within Cost of sales, in the asset
management segment, as the meter assets directly drive revenue.
All material revenues and operations are based and generated in the UK. Following the acquisition of Solo Energy Limited in
2019, a small minority of operations are based in the Republic of Ireland.
The Group has two major customers that each generated 10% or more of total Group turnover, as listed below by segment:
Customer 1 – Asset Management
Customer 1 – Asset Installation
Customer 2 – Asset Management
Customer 2 – Asset Installation
2021
£’000
12,647
2,644
8,900
8,025
32,216
2020
£’000
12,876
359
7,816
6,251
27,302
148 SMS Annual report and accounts 2021
NOTES TO THE FINANCIAL STATEMENTS continuedFor the year ended 31 December 2021
Segment assets and liabilities
31 December 2021
Assets reported by segment
Intangible assets
Property, plant and equipment
Inventories
Contract assets
Other assets (bank loans)
Assets not by segment
Total assets
Liabilities by segment
Contract liabilities
Lease liabilities
Other liabilities
Other long-term liabilities
Bank loans
Liabilities not by segment
Total liabilities
31 December 2020
Assets reported by segment
Intangible assets – restated1
Property, plant and equipment
Inventories
Contract assets
Other assets (bank loans)
Assets not by segment
Total assets
Liabilities by segment
Contract liabilities
Lease liabilities
Bank loans
Liabilities not by segment
Total liabilities
Asset
management
£’000
Asset
installation
£’000
Energy
management
£’000
Unallocated
£’000
Total
operations
£’000
11,540
366,702
22,763
–
2,201
403,206
1,527
–
–
–
–
1,527
Asset
management
(restated)
£’000
9,072
318,979
22,676
–
1,949
352,676
1,254
727
–
1,981
3,497
128
215
46
–
3,886
2,084
–
–
–
–
2,084
2,497
38,868
2
–
–
41,367
121
4,060
638
1,473
–
6,292
7,929
10,203
–
–
–
18,132
–
4,513
–
75
–
4,588
25,463
415,901
22,980
46
2,201
466,591
166,646
633,237
3,732
8,573
638
1,548
–
14,491
64,956
79,447
Asset
installation
£’000
Energy
management
£’000
Unallocated
(restated)
£’000
Total
operations
£’000
3,497
235
273
–
–
4,005
2,216
–
–
2,216
2,118
2,222
4,701
47
–
9,088
219
2,276
–
2,495
10,236
6,902
–
–
–
17,138
–
2,248
–
2,248
24,923
328,338
27,650
47
1,949
382,907
79,643
462,550
3,689
5,251
–
8,940
47,168
56,108
1
Intangible assets recognised in relation to the Group’s Enterprise Resourcing Planning System, which went live in full in 2020, have been reclassified from
Asset Management to Unallocated to reflect its Groupwide use. This is in line with the current year disclosure.
Assets not by segment include cash and cash equivalents, trade and other receivables and investments.
Liabilities not by segment include trade and other payables and deferred tax liabilities.
Additions to non-current assets within each segment are listed below:
Additions to non-current assets
2021
2020 – restated1
Asset
management
(restated)
£’000
Asset
installation
£’000
Energy
management
£’000
Unallocated
(restated)
£’000
Total
operations
£’000
84,779
42,736
90
2
27,720
2,568
3,686
2,811
116,275
48,117
1
Intangible asset additions recognised in relation to the Group’s Enterprise Resourcing Planning System, which went live in full in 2020, have been reclassified
from Asset Management to Unallocated to reflect its Groupwide use. This is in line with the current year disclosure.
SMS Annual report and accounts 2021 149
Strategic reportGovernanceFinancial statements
2 Revenue from contracts with customers
(a) Disaggregation of revenue from contracts with customers
The Group reports the following segments: asset management, asset installation and energy management, in accordance
with IFRS 8 Operating Segments. We have determined that, to meet the objective of the disaggregation disclosure
requirement in paragraph 114 of IFRS 15, which is to disaggregate revenue from contracts with customers into categories that
depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors, further
disaggregation is required into the major types of services offered. The following table thus discloses segmental revenue by
type of service delivered and timing of revenue recognition, including a reconciliation of how this disaggregated revenue ties
in with the asset management, asset installation and energy management segments, in accordance with paragraph 115 of
IFRS 15.
Year ended 31 December 2021
Major service lines
Metering
Data management
Utility connections
Transactional meter works
Energy management
Timing of revenue recognition
Services transferred at a point in time
Services transferred over time
Year ended 31 December 2020
Major service lines
Metering
Data management
Utility connections
Transactional meter works
Energy management
Timing of revenue recognition
Services transferred at a point in time
Services transferred over time
Asset
management
£’000
Asset
installation
£’000
Energy
management
£’000
Total
operations
£’000
74,358
8,470
–
–
–
82,828
–
82,828
82,828
–
–
5,852
15,649
531
22,032
15,649
6,383
22,032
–
–
–
–
3,620
3,620
–
3,620
3,620
74,358
8,470
5,852
15,649
4,151
108,480
15,649
92,831
108,480
Asset
Management
£’000
Asset
Installation
£’000
Energy
Management
£’000
Total
operations
£’000
70,780
7,895
–
–
–
78,675
–
78,675
78,675
–
–
8,817
10,275
632
19,724
10,275
9,449
19,724
–
–
–
–
4,583
4,583
–
4,583
4,583
2021
£’000
46
46
3,732
3,732
70,780
7,895
8,817
10,275
5,215
102,982
10,275
92,707
102,982
2020
£’000
47
47
3,689
3,689
(b) Assets and liabilities related to contracts with customers
The Group has recognised the following assets and liabilities related to contracts with customers:
Current contract assets
Total contract assets
Current contract liabilities
Total contract liabilities
Trade receivables and unbilled receivables are disclosed in note 15.
Significant changes in contract assets and liabilities
Contract assets and contract liabilities have not changed significantly, and movements reflect the general timing of revenue
recognition and status of services in progress at the end of the year.
150 SMS Annual report and accounts 2021
NOTES TO THE FINANCIAL STATEMENTS continuedFor the year ended 31 December 2021
(b) Assets and liabilities related to contracts with customers continued
Revenue recognised in relation to contract liabilities
The following table shows how much of the revenue recognised in the current period relates to carried-forward contract liabilities:
Revenue recognised that was included in the contract liability balance
at the beginning of the period
2021
£’000
2020
£’000
2,636
2,991
No revenue was recognised in 2021 in relation to performance obligations satisfied in previous periods.
Transaction price for which performance obligations not satisfied
All our utilities connections and energy management contracts are either for periods of one year or less or are billed
periodically based on time and resources incurred, or other unit measures. As permitted under IFRS 15, the transaction price
allocated to these performance obligations unsatisfied at the end of the reporting period is not disclosed.
(c) Accounting policies and significant judgements
(i) Metering
Meter rental
The Group acts as a gas and electricity Meter Asset Provider (MAP), providing and installing meters to energy suppliers on
behalf of the end consumer.
As a result of the Group’s assessment of contracts on implementation of IFRS 16, and any potential interaction with IFRS 15,
it was determined that the arrangements the Group has in place to act as MAP do not constitute a lease of the meter asset
to the energy supplier. Therefore, the related income for the service of providing a fitted meter is recognised in accordance
with IFRS 15.
The provision of meter assets to energy suppliers (‘MAP services’), together with the initial installation, is considered a distinct
and single performance obligation on the basis that, as MAP, the Group has an obligation to its customers to provide a fitted
meter. This is a separately identifiable service to which a stand-alone selling price is typically allocated. Over the course of the
contract term, which runs in perpetuity, the Group delivers a series of monthly services for which benefits are simultaneously
received and consumed by the customer.
Charges for MAP services are calculated daily based on the number of installed meters and invoiced to customers monthly
once validation checks have been completed. As revenue from MAP charges is attributed to services provided daily, revenue
is always based on the actual level of service provided and, therefore, any uncertainty at the end of each reporting period is
limited to the extent that validation checks are still being completed. Revenue is thus recognised over time based on our right
to invoice and includes contract Retail Price Index (RPI) uplifts.
As a result of industry regulations, and subject to specific contract terms with a customer, the Group may be required to make
payments to customers for shortfalls in the level of service provided. These charges are directly related to the service being
provided to the customer and thus recognised as a reduction to revenue in the month in which the service failure occurred.
Where service levels are set based on annual targets, charges are estimated monthly and subsequently finalised at the
end of the year. Uncertainty, as it pertains to these payments to customers, is thus typically resolved by the end of the
reporting period.
If a MAP contract is cancelled, termination fees may be levied on the energy supplier. There has been no change in the
accounting for these termination fees and they continue to be classified within Other operating income unless they have
arisen on the loss of the meter assets, in which case they are reported within Administrative expenses as a component of net
gain or loss on disposal.
If the services rendered by the Group exceed the payment received, then accrued income is recognised. This is subsequently
reclassified to receivables at the point at which the Group has an unconditional right to payment.
Asset management services
The Group provides meter asset management and operations services to energy suppliers. These services are considered
a distinct performance obligation from the meter rental on the basis that these are separately identifiable services to which
a stand-alone selling price is allocated, and they are not necessary to bring the meter asset into use.
Over the course of the contract term, which can either be fixed or in perpetuity, the Group delivers a series of monthly services
for which the benefits are simultaneously received and consumed by a customer. Therefore, these are accounted for as a
single performance obligation.
SMS Annual report and accounts 2021 151
Strategic reportGovernanceFinancial statements
2 Revenue from contracts with customers continued
(c) Accounting policies and significant judgements continued
Service charges are calculated based on the number of meters appointed and are accrued monthly. As revenue from service
charges is attributed to services provided periodically, revenue is always based on the actual level of service provided and,
therefore, there is no uncertainty at the end of each reporting period. For charges invoiced to customers monthly revenue is
thus recognised over time based on our right to invoice and includes contract RPI uplifts. For charges invoiced to customers
annually in advance, including contract RPI uplifts, a contract liability is recognised and subsequently released to the income
statement over the year on a straight-line basis. The Group uses the practical expedient under IFRS 15 from adjusting revenue
for any significant financial components of one year or less.
The Group’s meter asset management contracts also include the provision of transactional meter works. These are
considered further in section (iv) below.
If the services rendered by the Group exceed the payment received, then a contract asset is recognised. This is subsequently
reclassified to receivables at the point at which the Group has an unconditional right to payment.
Third-party management services
The Group provides management services to a third party to whom it sold a minority of its meter asset portfolio in April 2020.
These services include accounting and treasury, portfolio asset management and other administrative tasks.
The various activities that make up these management services are provided to the third party on an integrated basis. Over
the course of the contract term, which runs for as long as there are meters within the scope of the services, the Group delivers
a series of monthly services for which the benefits are simultaneously received and consumed by the customer. Therefore,
these are accounted for as a single performance obligation.
Service charges are currently based on a fixed annual fee, subject to contract RPI uplifts, and are invoiced to the customer
monthly. Revenue is thus recognised over time based on our right to invoice.
If the services rendered by the Group exceed the payment received, then a contract asset is recognised. This is subsequently
reclassified to receivables at the point at which the Group has an unconditional right to payment.
(ii) Data services
The Group provides data collection and aggregation services to Industrial & Commercial (I&C) electricity customers and,
through use of the ADMTM unit, to I&C gas customers. Over the course of the contract term, which can either be fixed or in
perpetuity, the Group delivers a series of monthly services for which the benefits are simultaneously received and consumed
by a customer. Therefore, these are accounted for as a single performance obligation.
Service charges are calculated based on the number of meters/ADM™ units appointed and are accrued monthly. As revenue
from service charges is attributed to services provided periodically, revenue is always based on the actual level of service
provided and, therefore, there is no uncertainty at the end of each reporting period. Service charges, including contract RPI
uplifts, are billed to clients annually in advance and therefore a contract liability is recognised and subsequently released to
the income statement over the year on a straight-line basis. The Group uses the practical expedient under IFRS 15 from
adjusting revenue for any significant financial components of one year or less.
The ADM™ device is a proprietary product for the Group and there are no other market providers of this device. A customer
cannot therefore benefit from the data services without installation, and the installation is not separately identifiable as it is
integral to the subsequent data services. This is therefore accounted for along with the data services as a single performance
obligation and any corresponding charges are recognised over the term of the contract.
(iii) Utility connections services (gas and electricity)
Gas and electricity connections services are provided under fixed-price contracts with I&C customers and can be delivered to
a single site or multiple sites. Whilst each service consists of multiple activities, the Group’s promise in the contract is to deliver
an integrated end-to-end service to which the underlying activities are inputs. Where services are delivered to multiple sites,
and these are substantially the same, a series of services is being provided. In all cases, therefore, these contracts give rise to
a single performance obligation to which the fixed price is allocated. Subsequent variations to this price, due to changes in the
inputs required, are accounted for as contract modifications and recognised on a cumulative catch-up basis.
Services are transferred over time on the basis that these are customised services with no alternative use and the Group has
an enforceable right to payment for work completed to date.
Revenue is recognised on the stage of completion with reference to the actual services provided as a proportion of the total
service expected to be provided under the contract, as the services can enhance a work-in-progress asset for the customer
and have no alternative use. This is determined on a contract-by-contract basis using a milestone approach with reference
to the milestones set out in the contract or otherwise agreed. Where relevant, consideration is also given to material services
provided between milestones. Estimates of revenues, costs or extent of progress towards completion are revised if
circumstances change and any resulting increases or decreases in estimated revenues or costs are reflected in profit
or loss in the period in which the circumstances that give rise to the revision become known to management.
152 SMS Annual report and accounts 2021
NOTES TO THE FINANCIAL STATEMENTS continuedFor the year ended 31 December 2021 (c) Accounting policies and significant judgements continued
The customer pays the fixed amount based on a payment schedule. In certain circumstances the customer pays in advance
and therefore a contract liability is recognised and subsequently released to the income statement based on the measure
of progress detailed above. As the contract is cancellable at the customer’s discretion, subject to settlement for services
provided to the date of cancellation, a contract liability is not recognised until the cash has been received.
If the services rendered by the Group exceed the payment received, then a contract asset is recognised. This is subsequently
reclassified to receivables at the point at which the Group has an unconditional right to payment.
The Group utilises the practical expedient available under IFRS 15 for costs to obtain a contract. Commissions paid as part
of obtaining a contract are expensed as incurred on the basis that the contract term is typically less than twelve months.
(iv) Transactional meter works
Transactional works, which include emergency, adversarial and other maintenance services, and are typically short term in
nature, are accounted for as a separate performance obligation to asset management services (see section (i) above) on
the basis that these works are separately identifiable and can be performed by another party. A customer, being the energy
supplier, is legally obligated to appoint a meter asset manager and can therefore benefit from this service in isolation, without
the subsequent transactional works which are initiated on an ad-hoc basis upon demand by the customer.
In 2020, the Group also started to provide transactional meter works to the third party to whom the Group sold a minority
of its meter asset portfolio in April 2020.
The transaction price allocated to transactional works is based on stand-alone selling prices (per unit, where relevant)
and revenue is recognised at a point in time when the transaction has been completed and accepted by the customer.
This is the point at which the customer is charged for the service and a receivable is recognised by the Group as we have
an unconditional right to payment. The customer will settle the transaction price for these services as part of the regular
monthly billing cycle for metering and asset management services.
The customer pays the fixed amount based on the transactional services provided and this is charged once the service has
been completed and accepted by the customer.
For segmental purposes, this transactional, non-recurring revenue is recognised within asset installation.
(v) Energy management services
Energy management services provided mainly to I&C customers include utility bureau and bill validation services, risk
management and procurement services and energy reduction and environmental management services.
Certain services, such as utility bureau and bill validation, are delivered through a series of monthly services over the course
of the contract term, for which the benefits are simultaneously received and consumed by a customer. These are accounted
for as a single performance obligation. The transaction price allocated includes a fixed monthly service charge together with
a variable component for specific activities that may not be carried out every month. As revenue from charges is attributed
to services provided monthly, revenue is always based on the actual level of service provided and, therefore, there is no
uncertainty at the end of each reporting period. Revenue is thus recognised over time based on our right to invoice.
Contracts for specialist consultancy services may include multiple projects. Where these projects are separately identifiable
within the contract and are not interrelated, they are accounted for as separate performance obligations. The transaction
price is allocated based on the stand-alone charges for each project.
Other energy reduction and environmental management services are typically longer-term, multi-site contracts and, therefore,
the revenue recognition is consistent with that detailed above for utility connections – see details in section (iii) above.
(vi) Assets and liabilities arising from contracts with customers
Costs to fulfil a contract
In certain circumstances, the Group may incur costs to fulfil its obligations under a contract once it is obtained, but before
transferring goods or services to the customer. These costs are assessed on a contract-by-contract basis and, where they
are considered to meet the definition of fulfilment costs under IFRS 15, they are recognised as an asset and amortised on a
systematic basis consistent with the pattern of transfer of the services to which the asset relates.
SMS Annual report and accounts 2021 153
Strategic reportGovernanceFinancial statements
2 Revenue from contracts with customers continued
(c) Accounting policies and significant judgements continued
Contract assets and liabilities
We receive payments from customers based on a billing schedule, as established in our contracts.
The timing of revenue recognition, billing and cash collections results in:
• billed and unbilled accounts receivable, which are recognised when our right to consideration becomes unconditional, and
classified as trade receivables and accrued income respectively;
• unbilled amounts, where we have a conditional right to consideration based on future performance, recognised as contract
assets. These amounts will be billed in accordance with the agreed-upon contractual terms; and
• payments received in advance of performance under a contract, recognised as contract liabilities. Contract liabilities are
recognised as revenue as (or when) we perform under a contract.
For project-based services, work in progress is billed in accordance with the agreed-upon contractual terms with the
customer. We typically receive interim payments as work progresses, which can give rise to a billed or unbilled accounts
receivable, where our right to payment is unconditional, or a contract asset, where revenue has been recognised based
on progress completed but our right to payment is still conditional on future performance. For some contracts, we may
be entitled to receive advance payments. We recognise a contract liability for these advance payments in excess of revenue
recognised.
Cancellation terms can vary but typically include provisions that allow the customer to terminate the contract at their
discretion subject to a penalty or settlement of amounts for work completed prior to termination. Contracts allow both parties
to cancel without penalty in the case of a material breach of contract.
3 Profit from operations
The Group has identified a number of items which are material due to their nature and/or amount. These are listed separately
here to provide a better understanding of the financial performance of the Group.
Profit from operations is stated after (charging)/crediting:
Cost of sales:
Direct staff and subcontractor costs
Depreciation of meter assets
Inventory costs
Total cost of sales (before exceptional items)
Administrative expenses:
Staff costs
Depreciation:
– owned assets
– leased assets
Amortisation of intangibles
Auditor’s remuneration (note 3a)
Loss on disposal
Operating lease rentals1
Research and development costs
Other operating charges
Total administrative expenses (before exceptional items)
Exceptional items (note 3b)
Other operating income (note 3c)
Total operating costs
2021
£’000
2020
Restated2
£’000
(22,602)
(24,719)
(995)
(48,316)
(23,752)
(24,672)
(1,556)
(49,980)
(17,842)
(17,685)
(3,087)
(906)
(4,060)
(392)
(2,457)
(293)
(39)
(12,790)
(41,866)
(6,478)
1,696
(94,964)
(3,403)
(982)
(2,957)
(346)
(1,040)
(346)
(76)
(10,010)
(36,845)
181,738
1,723
96,636
1 2021 operating lease rentals include £264,000 on short-term leases (2020: £314,000) and £29,000 on leases of low-value assets (2020: £32,000).
2 2020 capitalised staff costs have been reclassified from Other operating charges to Staff costs to align with current year presentation.
154 SMS Annual report and accounts 2021
NOTES TO THE FINANCIAL STATEMENTS continuedFor the year ended 31 December 2021
(a) Auditor’s remuneration
Auditor’s remuneration can be analysed as:
Audit of the parent company and consolidated financial statements
Audit of the financial statements of the Company’s subsidiaries
Other services – audit-related assurance services
(b) Exceptional items
Exceptional operating items
Gain on disposal of subsidiary
Costs attributable to COVID-19
Losses on the traditional and SMETS1 meter portfolio
Acquisition-related costs
Other
Exceptional finance items
Facility fees
Total exceptional items
2021
£’000
133
229
30
392
2021
£’000
—
(265)
(5,906)
(307)
—
(6,478)
(1,742)
(1,742)
(8,220)
2020
£’000
144
172
30
346
2020
£’000
194,713
(6,857)
(6,033)
—
(85)
181,738
(115)
(115)
181,623
There are total exceptional items in the consolidated income statement of £8,220,000. Exceptional operating costs primarily
comprise £265,000 of costs directly attributable to COVID-19 (see Accounting policies – critical accounting judgements – for
further details), £5,906,000 of losses on our traditional and SMETS1 meter portfolio and £307,000 of acquisition-related costs
incurred on the large-power I&C meter and data acquisition detailed in note 20.
In 2020, an exceptional gain on the disposal of a subsidiary of £194,713,000 was recognised separately in the consolidated
income statement. See note 4 for details. There were total other exceptional items in the consolidated income statement of
£13,090,000. Exceptional operating costs comprised £6,857,000 of costs directly attributable to COVID-19, £6,033,000 of
losses on disposal of our traditional and SMETS1 meter portfolio (£9,521,000 net book value less £3,488,000 termination
income) and £85,000 of other miscellaneous costs.
Exceptional finance costs of £1,742,000 comprise the acceleration of unamortised arrangement fees relating to the existing
facility of £1,506,000 together with £236,000 of legal and professional fees attributable to the extinguishment. In 2020,
exceptional finance costs of £115,000 comprised break costs incurred on full voluntary prepayment of the Group’s loan facility
(see note 18 for details).
The tax effect of exceptional items charged in 2021 is a credit of £1,978,000 (2020: credit of £2,618,000).
(c) Other operating income
Termination fee income
Government grant income
Other income
2021
£’000
103
1,255
338
1,696
2020
£’000
985
738
—
1,723
Of the government grant income of £1,255,000 (2020: £738,000) recognised in the year ended 31 December 2021, £489,000
relates to RDECs (2020: £536,000) which are detailed in the Accounting policies. £766,000 relates to grant income received
on government-funded energy efficiency projects within the energy management business.
SMS Annual report and accounts 2021 155
Strategic reportGovernanceFinancial statements
4 Disposal of subsidiary
On 12 March 2020, the Group conditionally signed an agreement to dispose of a minority of the Group’s meter assets through
the sale of the entire share capital of Crail Meters Limited (Crail), a wholly owned subsidiary of the Group.
The meter asset provision (MAP) business carried on by two existing operating subsidiaries of the Group (the Meter Managers)
was transferred to Crail on 12 March 2020. The business transferred included c.187,000 Industrial & Commercial (I&C) meter
assets, amongst other working capital balances. Crail continued to trade from 12 March 2020 through to 22 April 2020.
On 22 April 2020 the entire share capital of Crail was sold to an unconnected third party. Total gross cash consideration of
£290.6m was received, comprising a payment for the sale of the shares in Crail and the repayment of an intercompany debt
owed by Crail to the Meter Managers. There was no contingent or non-cash consideration.
The total carrying amount of net assets disposed was £89.0m, including £86.1m of meter assets, a £9.1m net receivable of
working capital balances and £6.2m of deferred tax liabilities, giving rise to a gross gain of £201.6m. After the deduction of
£6.9m transaction costs, a net gain on disposal of £194.7m was recognised separately in the consolidated income statement.
Excluding deferred taxation and transaction costs, the gain was £195.4m.
Crail did not meet the definition of a discontinued operation under IFRS 5 on the basis that the minority portfolio of I&C assets
disposed did not represent the loss of a separate, major line of business and, although I&C activities were significantly
reduced, they were not entirely discontinued.
SMS manages the disposed I&C meter portfolio on behalf of the purchaser, for which it receives annual RPI-linked
management fees of £0.8m.
5 Particulars of employees
The average number of staff employed by the Group during the financial year, including Executive Directors, by activity was:
Administrative staff
Operational staff
Sales staff
IT staff
Directors (excluding 4 (2020: 4) Non-executive Directors)
The aggregate payroll costs of the employees, including Executive Directors, were:
Wages and salaries
Social security costs
Staff pension costs
Share-based payment (note 25)
Director pension costs
6 Finance costs and finance income
Finance costs
Bank loans and overdrafts
Lease liabilities
Foreign exchange loss/(gain) on intra-group borrowings
Total pre-exceptional finance costs
Exceptional finance costs
Total finance costs
Finance income
Bank interest receivable
Total finance income
156 SMS Annual report and accounts 2021
2021
Number
488
548
5
81
3
1,125
2021
£’000
42,973
4,694
1,365
841
21
49,894
2021
£’000
3,132
75
281
3,488
1,742
5,230
7
7
2020
Number
497
546
4
73
3
1,123
2020
£’000
39,880
4,103
1,229
626
18
45,856
2020
£’000
4,556
172
(23)
4,705
115
4,820
166
166
NOTES TO THE FINANCIAL STATEMENTS continuedFor the year ended 31 December 2021
7 Taxation
Analysis of charge in the year
Current tax:
Current income tax expense
Adjustment to tax charge in respect of previous periods
Total current income tax
Deferred tax:
Origination and reversal of temporary differences
Adjustment to tax charge in respect of prior periods
Adjustment attributable to change in tax rates
Tax on profit
2021
£’000
2020
£’000
93
—
93
2,087
(127)
2,448
4,501
331
92
423
(198)
(304)
1,564
1,485
The charge for the period can be reconciled to the profit per the consolidated statement of comprehensive income as follows:
Profit before tax
Tax at the UK corporation tax rate of 19.00% (2020: 19.00%)
Expenses not deductible for tax purposes
Income not taxable
Adjustments to tax charge in respect of previous periods
Impact of deferred tax not recognised
Impact of overseas tax rates
Change in tax rate1
Tax expense in the income statement
1 See note 22 for further details.
Current tax credit through equity in the year was £nil (2020: £nil).
8 Earnings per share
The calculation of earnings per share (EPS) is based on the following data and number of shares:
Profit for the year used for calculation of basic EPS
Number of shares
Weighted average number of ordinary shares for the purposes of basic EPS
Effect of potentially dilutive ordinary shares:
– share options
Weighted average number of ordinary shares for the purposes of diluted EPS
EPS:
– basic (pence)
– diluted (pence)
9 Dividends
2021
£’000
8,293
1,576
171
—
(127)
(99)
24
2,956
4,501
2020
£’000
194,964
37,043
1,565
(38,495)
(212)
–
20
1,564
1,485
2021
£’000
3,792
2020
£’000
193,479
2021
2020
118,330,817 112,715,328
641,710
922,554
118,972,527 113,637,882
3.20
3.19
171.65
170.26
Paid final dividend
Paid third interim dividend
Paid second interim dividend
Paid first interim dividend
Total dividends
Year
ended
31 December
2021
£’000
Year
ended
31 December
2021
Per share
(pence)
7,107
7,065
7,059
7,829
29,060
6.25
6.25
6.25
6.875
25.625
Year
ended
31 December
2020
£’000
–
–
5,168
7,058
12,226
Year
ended
31 December
2020
Per share
(pence)
–
–
4.58
6.25
10.83
SMS Annual report and accounts 2021 157
Strategic reportGovernanceFinancial statements
9 Dividends continued
In 2021, the paid second interim dividend, paid third interim dividend and paid final dividend are in respect of FY 2020 and the
paid first interim dividend is in respect of FY 2021. In 2020, the paid second interim dividend is in respect of FY 2019 and the
paid first interim dividend is in respect of FY 2020.
Per the Group’s revised dividend policy, a 27.5p per share dividend is proposed in respect of FY 2021. This will be paid to
shareholders in four cash instalments.
The first instalment of £7.8m was paid on 28 October 2021 to shareholders on the register at 1 October 2021, with an
ex-dividend date of 30 September 2021. The remaining instalments are intended to be paid as follows:
Instalment
Ex-dividend date
Record date
Payment date
2
3
4
06 January 2022
31 March 2022
30 June 2022
07 January 2022
01 April 2022
1 July 2022
27 January 2022
28 April 2022
28 July 2022
These remaining instalments will amount to c.£24m and will be accounted for in 2022.
Under the new dividend policy, the second interim dividend is paid out of profits recognised in the year prior to the year in
which the dividends are declared and reported. As at 31 December 2021, the distributable profits in the parent company were
adequate to cover the proposed second interim dividend of c.£8m.
10 Intangible assets
Cost
As at 1 January 2020
Additions
Exchange adjustments
Disposals
As at 31 December 2020
Additions
Acquisitions
Exchange adjustments
As at 31 December 2021
Amortisation
As at 1 January 2020
Charge for year
As at 31 December 2020
Charge for year
As at 31 December 2021
Net book value
As at 31 December 2021
As at 31 December 2020
As at 1 January 2020
Intangibles
recognised
upon acquisition
£’000
IT development
and software
£’000
Goodwill
£’000
8,547
–
–
60
8,607
–
859
(66)
9,400
–
–
–
–
–
9,400
8,607
8,547
2,257
–
–
4
2,261
–
1,010
(3)
3,268
2,171
32
2,203
179
2,382
886
58
86
24,445
4,056
(12)
29
28,518
2,831
–
(31)
31,318
9,335
2,925
12,260
3,881
16,141
15,177
16,258
15,110
Total
£’000
35,249
4,056
(12)
93
39,386
2,831
1,869
(100)
43,986
11,506
2,957
14,463
4,060
18,523
25,463
24,923
23,743
The acquisition of an Industrial & Commercial large-power Half Hourly electricity meter and data portfolio in April 2021 resulted
in the recognition of goodwill of £859,000, which has been assigned to the asset management operating segment. In addition,
the customer contracts acquired as part of this transaction were valued at £1,010,000 and have been recognised as additions
within the Intangibles recognised upon acquisition asset class. See note 20 for further details on this business acquisition.
No goodwill or intangible assets were recognised as a result of acquisitions in 2020.
158 SMS Annual report and accounts 2021
NOTES TO THE FINANCIAL STATEMENTS continuedFor the year ended 31 December 2021
11 Property, plant and equipment
Cost
As at 1 January 2020
Additions
Acquisitions
Impairment
Disposals
Exchange adjustments
As at 31 December 2020
Reclassification1
Additions
Acquisitions
Impairment
Disposals
Exchange adjustments
As at 31 December 2021
Depreciation
As at 1 January 2020
Charge for year
Impairment
Disposals
Exchange adjustments
As at 31 December 2020
Charge for year
Impairment
Disposals
Exchange adjustments
As at 31 December 2021
Net book value
As at 31 December 2021
As at 31 December 2020
As at 1 January 2020
Freehold/
leasehold
property
£’000
Meter
assets
£’000
Plant and
machinery
£’000
Fixtures,
fittings and
equipment
£’000
Motor
vehicles
£’000
Right-of-use
assets
£’000
Assets under
construction
£’000
Total
£’000
2,751
56
–
–
–
–
2,807
–
–
–
–
(2)
–
2,805
505
174
–
–
–
679
171
–
1
–
851
483,528
40,349
–
–
(131,731)
–
392,146
–
82,401
6,682
–
(19,889)
–
461,340
84,811
24,672
–
(32,800)
–
76,683
24,719
–
(6,767)
–
94,635
1,954
2,128
2,246
366,705
315,463
398,717
1,024
20
–
–
–
–
1,044
–
126
–
–
–
–
1,170
500
290
–
–
–
790
204
–
–
–
994
176
254
524
5,858
1,329
–
–
(43)
4
7,148
–
1,117
–
–
(52)
(6)
8,207
3,114
1,639
–
(37)
5
4,721
1,555
–
(43)
(1)
6,232
1,975
2,427
2,744
6,028
42
–
–
(765)
–
5,305
–
28
–
–
(202)
–
5,131
1,466
1,300
–
(379)
–
2,387
1,157
–
(134)
–
3,410
1,721
2,918
4,562
4,745
2,265
–
–
–
–
7,010
–
5,267
–
–
–
(4)
12,273
880
982
–
–
–
1,862
1,032
–
–
(1)
2,893
9,380
5,148
3,865
–
–
–
–
–
–
–
4,071
24,505
5,414
–
–
–
33,990
–
–
–
–
–
–
–
–
–
–
–
503,934
44,061
–
–
(132,539)
4
415,460
4,071
113,444
12,096
–
(20,145)
(10)
524,916
91,276
29,057
–
(33,216)
5
87,122
28,838
–
(6,943)
(2)
109,015
33,990
–
–
415,901
328,338
412,658
1
The reclassification of £4,071,000 within Assets under construction relates to costs previously recorded within Inventories at 31 December
2020. See Accounting policies – property, plant and equipment – for further details.
Meter assets
In 2020, meter asset disposals included c.187,000 assets disposed of as part of the sale of a subsidiary on 22 April 2020.
The assets disposed of had a net book value of £86,103,000.
In 2021, meter asset acquisitions include the c.15,000 assets acquired as part of the Industrial & Commercial large-power
Half Hourly electricity business acquisition. See note 20 for details.
Included within the closing Meter assets net book value of £366,705,000 (2020: £315,463,000) is £16,246,000 (2020: £22,627,000)
relating to the traditional meter portfolio. In accordance with our accounting policy these assets will be written down to zero
by 1 July 2025. In the 2021 consolidated financial statements the traditional meter portfolio generated £12,781,000 (2020:
£13,140,000) revenue with a corresponding £5,071,000 (2020: £5,668,000) depreciation charge. As at 31 December 2021,
£11,787,000 (2020: £13,333,000) of annualised recurring revenue arises from the owned traditional meter portfolio.
The assets are secured by a bond and floating charge (note 18).
SMS Annual report and accounts 2021 159
Strategic reportGovernanceFinancial statements
11 Property, plant and equipment continued
Meter assets continued
For the purpose of impairment testing the traditional meter asset portfolio recognised within “Meter assets” is assessed as a
stand-alone cash-generating unit (CGU) and its carrying amount is compared with the recoverable amount. See background
information provided in the “Key sources of estimation uncertainty” section in the accounting policies. The recoverable
amount is determined based on a value-in-use calculation, which uses the following key assumptions:
• estimated future cash flows from rental income, which are assumed to decline on a straight-line basis;
• estimated future cash flows from termination income, which are derived using historical data and analysis around the risk
of churn between contracted and non-contracted customers and the risk of recoverability once issued; and
• a pre-tax discount rate of 1.9%, which reflects the risk attached to the time value of these specific cash flows and is deemed
to be best represented by the Group’s incremental cost of borrowing on the basis that cash flows are secured by the
installed meter and the risk inherent in the decline of the cash flows is already accounted for through the assumptions
detailed above.
As a result of this impairment test, it was identified that the value in use of the traditional meter assets CGU exceeded its
carrying value and therefore no impairment has been recognised in the year to 31 December 2021.
Management has performed sensitivity analysis on the key assumptions both with other variables held constant and with other
variables simultaneously changed. Management has concluded that there are no reasonably possible changes in the key
assumptions that would cause the carrying amounts of the traditional meter portfolio to exceed the value in use for either CGU.
In line with IAS 36, no impairment review was considered necessary at 31 December 2020 as the previous impairment review
at 31 December 2019 showed a significant excess of recoverable amount over carrying amount and management concluded
that there were no reasonably possible changes in the key assumptions that would cause the carrying amounts of the
traditional meter portfolio to exceed the value in use. There had also been no events that would eliminate this excess or any
new material indicators of impairment. As a result of COVID-19, and the reduced smart meter installation activity, there was a
lower volume of traditional meter asset removals through 2020. Therefore, no impairment was recognised in the period ended
31 December 2020.
No impairment on other meter assets was recognised in 2021 or 2020.
Right-of-use assets
Additions to right-of-use assets during the 2021 financial year were £5,267,000 (2020: £2,265,000).
A breakdown of right-of-use assets is presented below:
Carrying value
Properties1
Motor vehicles
Land
1 Properties include office and warehouse space.
The statement of profit or loss shows the following amounts relating to leases:
Depreciation charge on right-of-use assets
Properties
Motor vehicles
Land
12 Financial asset investments
Cost
As at 1 January 2020 and 1 January 2021
Impairment
As at 31 December 2020 and 31 December 2021
160 SMS Annual report and accounts 2021
2021
£’000
4,502
–
4,878
9,380
2021
£’000
919
6
107
1,032
Unlisted
investments
£’000
75
–
75
2020
£’000
2,918
7
2,223
5,148
2020
£’000
948
13
21
982
Total
£’000
75
–
75
NOTES TO THE FINANCIAL STATEMENTS continuedFor the year ended 31 December 2021
13 Impairment of goodwill
The goodwill acquired in a business combination is allocated, at acquisition, to the CGUs that are expected to benefit from
that business combination. Goodwill is monitored by management at the level of the CGUs which, in the prior year, were
defined as the three operating segments identified in note 1. Given the ongoing business development within the energy
management segment and the diversification of energy assets as a result, management has deemed it appropriate to
separate out the Solo Energy business in the current year as a standalone CGU. All the goodwill previously allocated to the
energy management CGU relates to the acquisition of Solo Energy Limited and, therefore, as the Solo Energy business
develops it is at this level that goodwill will be monitored for internal management purposes. The corresponding goodwill
balance has thus been reclassified in the current year, as seen in the table below.
A segment-level summary of the goodwill allocation is presented below:
Cost
As at 1 January 2020
Reclassification
Acquisitions (note 20)
Exchange adjustments
As at 31 December 2021
Asset
management
£’000
Asset
installation
£’000
Energy
management
£’000
Solo Energy
£’000
Total
£’000
4,112
–
859
–
4,971
3,497
–
–
–
3,497
998
(998)
–
–
–
–
998
–
(66)
932
8,607
–
859
(66)
9,400
Additional goodwill of £859,000 has been recognised in the current year as a result of business combinations, arising on the
acquisition of an Industrial & Commercial large-power Half Hourly electricity business. See note 20 for further details. This
goodwill has been allocated entirely to asset management on the basis that this is the operating segment that will receive the
benefits from the acquisition.
The Group tests goodwill for impairment annually or more frequently if there are indications that goodwill might be impaired.
Goodwill is tested for impairment by comparing the carrying amount of each CGU, including goodwill, with the recoverable
amount. The recoverable amounts are determined based on value-in-use calculations which require assumptions. The
calculations use cash flow projections based on financial budgets approved by the Board covering a one-year period,
together with management forecasts for a further four-year period. These budgets and forecasts have regard to historical
performance and knowledge of the current market, together with the Group’s views on the future achievable growth and the
impact of committed cash flows. Specifically, budgets and forecasts used in the assessment of goodwill at 31 December 2021
incorporate the effects of the extended deadline for the UK smart meter rollout to 31 December 2025. Cash flows beyond this
are extrapolated using the estimated growth rates stated below.
The cash flows used in the value-in-use calculation for the asset management segment include all costs incurred in the
provision of meter assets to energy suppliers, together with the initial installation. The cash flows used in the value-in-use
calculation for the asset installation segment exclude installation costs incurred to fit an owned meter. For the purpose of the
value-in-use calculation, these are instead allocated to the asset management segment, being the segment to which the
corresponding revenues are allocated.
The annual impairment test was performed for the three CGUs identified above that have goodwill allocated to them.
No evidence of impairment was found at the balance sheet date.
The key assumptions used in the value-in-use calculations for those CGUs that have goodwill allocated to them are as follows:
• Perpetual growth rate – the terminal cash flows are extrapolated in perpetuity using a growth rate of 2.25% for asset
management (2020: 2.0%) and 1.0% for asset installation and Solo Energy (2020: 1.5% for asset installation and energy
management). The rate of 2.25% applied to asset management is derived from historical Retail Price Index increases
applied to the segment’s index-linked meter rentals, with a small reduction in recognition of the impact of COVID-19 on
macroeconomic growth. This is not considered to be higher than the average long-term industry growth rate. The rate of
1.0% applied to asset installation and Solo Energy is aligned to the Group's corporate forecast model and is prudently lower
than the rate applied to asset management as revenues in these segments are not always index-linked.
• Discount rate – the discount rate is initially based on the weighted average cost of capital (WACC) which would be
anticipated for a market participant investing in the Group. A specific discount rate is then calculated for each operating
segment, taking into account the time value of money, the segment’s risk profile and the impact of the current economic
climate. The pre-tax discount rates applied are 6.8%, 8.6% and 18.2% for asset management, asset installation and Solo
Energy respectively (2020: 6.8% for asset management, 9.0% for asset installation and 11.7% for energy management) and
the post-tax discount rates applied are 5.5%, 7.00% and 15.0% for asset management, asset installation and Solo Energy
respectively (2020: 5.5% for asset management, 7.25% for asset installation and 8.9% for Solo Energy). The risk premium
assigned to the asset Installation CGU reflects the shorter-term nature of the underlying revenues within this segment, as
compared to the annually-recurring revenue generated by an installed asset. The risk premium assigned to the Solo Energy
CGU reflects the pre-revenue status of this part of the business, in which the underlying system is still undergoing development.
SMS Annual report and accounts 2021 161
Strategic reportGovernanceFinancial statements
13 Impairment of goodwill continued
Management has performed sensitivity analysis on the key assumptions both with other variables held constant and
with other variables simultaneously changed. Management has concluded that there are no reasonably possible changes
in the key assumptions that would cause the carrying amounts of goodwill to exceed the value in use for either CGU.
14 Inventories
Finished goods
Work in progress
Consumables
2021
£’000
22,476
–
504
22,980
2020
£’000
22,676
4,701
273
27,650
In the prior year, work in progress related to the construction of grid-scale battery storage sites. Of the total work-in-progress
balance of £4,701,000 at 31 December 2020, £3,438,000 related to the acquisition of companies and £1,262,000 related to the
subsequent capitalisation of directly attributable construction costs. This work in progress has been reclassified to Assets
under construction within Property, plant and equipment in the current year, in line with the Group’s change in accounting
policy. See Accounting policies – property, plant and equipment – for further details.
15 Trade and other receivables
Current
Trade receivables
Prepayments and deferred costs
Accrued income
Other receivables
VAT recoverable
1 £2,038,000 has been reclassified from Prepayments and deferred costs to Accrued income.
Amounts falling due after more than one year:
Accrued income
Accrued income is made up of the following balances:
Unbilled receivables
Contract assets
Other accrued income
2021
£’000
22,451
2,520
19,265
1,463
1,932
47,631
2021
£’000
–
2021
£’000
18,915
46
304
19,265
2020
£’000
restated1
20,272
2,225
12,442
1,245
980
37,164
2020
£’000
12
2020
£’000
12,395
47
–
12,442
1 £2,038,000 has been reclassified from Prepayments and deferred costs to Accrued income and recognised as part of Unbilled receivables.
The Directors consider that the carrying amount of trade and other receivables approximates to their fair value.
162 SMS Annual report and accounts 2021
NOTES TO THE FINANCIAL STATEMENTS continuedFor the year ended 31 December 2021
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 any loss allowance. The total loss allowance for trade receivables and
accrued income at 31 December 2021 was £4,370,000 (2020: £4,904,000). See note 19 for further details. The ageing profile of
trade receivables past due date is shown below:
Current
1-30 days
31-60 days
61-90 days
91-120 days
Over 120 days
Loss allowance
Amounts offset (see note 19)
2021
£’000
13,019
3,728
1,615
1,499
1,705
5,812
27,378
(3,969)
(958)
22,451
2020
£’000
13,608
3,208
1,914
1,090
328
4,868
25,016
(4,744)
–
20,272
Trade receivables are non-interest-bearing and are generally on 30-90-day terms. Trade receivables due from related
parties at 31 December 2021 amounted to £nil (2020: £nil).
All trade receivables are denominated in Sterling.
Accrued income, which is made up of unbilled receivables and contract assets, is presented net of any loss allowance and
impairment, with amounts being invoiced periodically and customers being the same as those within trade receivables.
16 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 2021, £50,000,000 of cash was placed on short-term deposit (2020: £nil).
For the purposes of the cash flow statement, cash and cash equivalents comprises:
Cash at bank
Short-term deposits
2021
£’000
67,687
50,000
117,687
2020
£’000
40,236
–
40,236
Restricted cash is excluded from cash and cash equivalents, in line with the Group’s accounting policy on page 144 and is
disclosed separately in the consolidated statement of financial position.
17 Trade and other payables
Current
Trade payables
Other payables
Other taxes
Deferred income
Advance payments
Accruals
Deferred income and advance payments are made up of the following balances:
Contract liabilities
Other deferred income
2021
£’000
2020
£’000
16,638
4,097
1,519
2,898
1,185
30,152
56,489
2021
£’000
3,732
351
4,083
10,215
3,815
3,894
2,498
1,422
20,114
41,958
2020
£’000
3,689
231
3,920
SMS Annual report and accounts 2021 163
Strategic reportGovernanceFinancial statements
17 Trade and other payables continued
The Directors consider that the carrying amount of trade and other payables approximates to their fair value.
Trade payables are classified at amortised cost, are non-interest-bearing and are normally settled on 30-45-day terms.
All trade liabilities are denominated in Sterling.
18 Financial liabilities and provisions
(a) Financial liabilities
Current
Lease liabilities
Other liabilities
Bank loans
Non-current
Lease liabilities
Other liabilities
Bank loans
2021
£’000
999
638
–
1,637
7,574
1,548
–
9,122
2020
£’000
936
388
–
1,324
4,315
–
–
4,315
At the start of 2020, the Group had a revolving credit facility of £420m, with a five-year term ending December 2023 (the
‘existing facility’). Following the Group’s sale of a wholly owned subsidiary on 22 April 2020, the gross proceeds received of
£290.6m were used to make a voluntary prepayment and the total outstanding principal value at 22 April 2020 of £270m,
together with outstanding interest and commitment fees of £0.6m, was settled. Concurrently, the total commitments available
under the existing facility were reduced from £420m to £300m. There were no other material changes to the terms and
conditions. This amendment did not substantially change the existing revolving credit facility, nor did it discharge any
obligations. As such, this was deemed to be a modification. There was no material impact to the consolidated income
statement in the year ended 31 December 2020 as a result of the modification; £0.1m of break costs incurred as a result of the
voluntary prepayment were recognised as an exceptional finance cost.
A drawdown of £15.0m was made in May 2020 but this was subsequently settled at the end of the three-month term. No
subsequent drawdowns were made by the Group in FY 2020 and, therefore, as at 31 December 2020 there was no outstanding
principal or interest. The amount recognised against Bank loans was thus £nil.
Unamortised transaction costs from the initial establishment of the revolving credit facility in December 2018 continued to be
amortised over the remaining duration of the facility to 2023, together with additional transaction costs of £0.1m directly
attributable to the modification of the loan on 22 April 2020. For the year ended 31 December 2020, £0.7m of transaction costs
were recognised within the consolidated income statement and the unamortised transaction costs of £1.9m that would
ordinarily be deducted from the carrying value of the bank loans were recorded as ‘Other assets’ at 31 December 2020.In line
with the Group’s accounting policy, these unamortised transaction costs were reclassified to Bank loans upon the first
drawdown in H1 2021.
On 13 September 2021, the Group successfully completed the refinancing of its existing facility to better support the ongoing
growth and development of the Group. As part of the refinancing, all outstanding amounts under the existing facility were
settled. Concurrently, the Group undertook a commercial negotiation, facilitated by debt advisory specialists, to enter into a
new facility on market terms. The new facility has total available commitments of £420m and matures in December 2025. The
new facility is provided by a syndicate of lenders, including the lenders of the existing facility and new lenders. Unamortised
arrangement fees on the existing facility of £1.5m have been accelerated and recognised as an exceptional finance cost in the
consolidated income statement together with £0.2m of legal and professional fees arising on the refinancing. No amount is
drawn down on the new facility at 31 December 2021 and transaction costs of £2.4m are amortised over the duration of the
new facility to 2025. For the year ended 31 December 2021, £2.1m of transaction costs have been recognised within the
consolidated income statement (2020: £0.7m) of which £0.2m relates to the new facility. £1.9m relates to the existing facility of
which £1.5m accelerated amortisation of transaction costs has been recognised within Exceptional costs. Interest of £0.6m
has been recognised (2020: £2.3m).
Whilst a drawdown of £53m was made under the new facility in H2, this was settled in full in November 2021. Therefore, as at
31 December 2021 there is no outstanding principal or interest. The amount recognised against Bank loans is thus £nil.
Unamortised transaction costs of £2.2m, that would ordinarily be deducted against the carrying value of the bank loans, have
therefore been reclassified to Other assets at 31 December 2021.
Up until 13 September 2021, the existing facility attracted interest at a rate of 1.85% over three-month LIBOR and 0.65% was
payable on undrawn funds. From 13 September 2021, the new facility attracted interest at a rate of 1.85% over three-month
SONIA and 0.65% was payable on undrawn funds. Interest continues to be settled quarterly.
164 SMS Annual report and accounts 2021
NOTES TO THE FINANCIAL STATEMENTS continuedFor the year ended 31 December 2021
The Group has complied with the financial covenants of its borrowing facility during the current and prior reporting periods.
(b) Changes in liabilities arising from financing activities
Financial liabilities
At 1 January 2020
Cash flows (i)
New leases
Other non-cash changes (i)
At 31 December 2020
Cash flows (i)
New leases
Other non-cash changes (i)
At 31 December 2021
Presentational reclassification to Other assets
At 31 December 2021
Lease liabilities
£’000
3,963
(1,155)
2,260
183
5,251
(1,247)
4,230
339
8,573
–
8,573
Bank loans
£’000
269,260
(274,143)
–
2,934
(1,949)
(2,631)
–
2,379
(2,201)
2,201
–
(i) Cash flows and other non-cash changes
Cash flows on lease liabilities include £1,247,000 of lease payments. Cash flows on bank loans include £53,250,000 of
new borrowings less £53,250,000 of borrowings repaid, interest payments of £554,000 and a payment of £2,077,000
for arrangement fees.
Other non-cash changes in lease liabilities include £281,000 of interest charges plus £58,000 arising from changes in lease
terms and foreign exchange impact in the year. Other non-cash changes in bank loans include £308,000 of arrangement fees
accrued but not yet paid offset with £554,000 of interest charges and £2,133,000 amortisation of arrangement fees (of which
£1,506,000 relates to the accelerated amortisation of arrangement fees as a result of the re-financing of the Group’s revolving
credit facility).
At 31 December 2021, there were no outstanding amounts under the Group’s revolving credit facility. Therefore, unamortised
arrangement fees of £2,201,000 have been classified separately as Other assets in the consolidated statement of financial
position in line with the Group’s accounting policy. Unamortised arrangement fees of £550,000 have been classified as current
Other assets, with the balance of £1,651,000 classified as non-current, in line with the remaining term of the facility.
In 2020, cash flows on lease liabilities included £1,155,000 of lease payments. Cash flows on bank loans included £15,000,000 of
new borrowings less £285,000,000 of borrowings repaid, interest payments of £4,000,000 and a payment of £143,000 for
arrangement fees.
Other non-cash changes in lease liabilities included £172,000 of interest charges plus £11,000 arising from changes in lease
terms and foreign exchange impact in the year. Other non-cash changes in bank loans included £2,276,000 of interest charges
and £658,000 amortisation of arrangement fees.
(c) Other liabilities
Other liabilities comprise:
Current
Deferred consideration on acquisitions
Non-current
Deferred consideration on acquisitions
Refer to note 21 for further details on the deferred consideration on acquisitions.
(d) Provisions
Provisions comprise:
Non-current
Provision for restoration costs recognised under IFRS 16
2021
£’000
638
638
750
750
2021
£’000
798
798
2020
£’000
388
388
–
–
2020
£’000
–
–
SMS Annual report and accounts 2021 165
Strategic reportGovernanceFinancial statements
18 Financial liabilities and provisions continued
The Group is required to restore the land leased as part of its grid-scale battery storage business, and certain leased
warehouses, to the condition required by the terms and conditions of the lease at the end of the respective lease terms (which
range between three to ten years for warehouses and 20 to 40 years for land). A provision has been recognised for the present
value of the estimated expenditure required to carry out this restoration. These costs have been capitalised as part of the
cost of right-of-use assets and are depreciated over the shorter of the term of the lease and the useful life of the assets.
19 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:
(a) Interest rate risk
The Group’s main interest rate risk arises from its floating rate bank loan, which was undrawn at 31 December 2021 (2020: £nil).
See note 18 for further details.
There were no overdrafts at 31 December 2021 (2020: none) and the interest charge arising on lease liabilities does not
represent a cash interest rate risk for the Group.
The Group’s financial assets at 31 December 2021 comprise cash and trade receivables. The cash balance of £117,687,000
(2020: £40,236,000) is a floating rate financial asset, but interest income is not typically material.
Interest rate sensitivity
The following table demonstrates the sensitivity to a change in interest rates on the Group’s floating rate bank loan.
The Group’s profit before tax is affected through the impact on floating rate borrowings as follows:
2021
2020
Increase/
(decrease)
in basis points
Effect on profit
before tax
£’000
+70bps
+70bps
–
–
Management believes that a movement in interest rates of 70 bps gives a reasonable measure of the Group’s sensitivity to
interest rate risk. The table above demonstrates the sensitivity to a possible change in interest rates, with all other variables
held constant, of the Group’s profit before tax.
(b) Fair values of financial liabilities and financial assets
The Group’s bank loan is measured at amortised cost. For fair value disclosure purposes, the bank loan is considered to be a
level 2 financial instrument on the basis that it is not traded in an active market. 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.
(c) Foreign currency risk
The Group’s exposure to the risk of changes in foreign exchange primarily arises from a single subsidiary, operating in Euros.
With the exception of this entity, all of the Group’s operating activities are denominated in Pounds Sterling and, therefore, the
Group’s overall exposure is not significant.
(d) 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 these criteria.
166 SMS Annual report and accounts 2021
NOTES TO THE FINANCIAL STATEMENTS continuedFor the year ended 31 December 2021 (d) Liquidity risk continued
The ageing and maturity profile of the Group’s material financial liabilities is disclosed in the table below. The amounts
disclosed are the contractual undiscounted cash flows.
31 December 2021
Contractual maturities of financial liabilities
Trade payables
Bank loan
Other liabilities
Other long-term liabilities
Lease liabilities
31 December 2020
Contractual maturities of financial liabilities
Trade payables
Bank loan
Other liabilities
Lease liabilities
Less than
one year
£’000
16,638
–
638
–
1,280
18,556
Less than
one year
£’000
10,215
–
388
1,172
11,775
Between
two and
five years
£’000
Over
five years
£’000
Total
contractual
cash flows
£’000
–
–
–
750
3,232
3,982
–
–
–
–
5,965
5,965
16,638
–
638
750
10,477
28,503
Between
two and
five years
£’000
Over
five years
£’000
Total
contractual
cash flows
£’000
–
–
–
2,657
2,657
–
–
–
4,222
4,222
10,215
–
388
8,051
18,654
The contractual undiscounted cash flows on the bank loan reflect the contractual arrangements in place at the year-end
date. As disclosed in note 18, the Group had no outstanding principal at 31 December 2021 or 31 December 2020 and therefore
the contractual undiscounted cash flows at 31 December 2021 and 31 December 2020 are £nil in the tables above.
(e) Credit risk
The Group’s credit risk primarily arises from credit exposures to energy suppliers (our customers), including outstanding
receivables, due to the Group trading with a limited number of companies, which are generally large utility companies
or financial institutions.
Credit risk is managed on a Group basis. For banks and financial institutions, only independently rated parties with a minimum
rating of AA– are accepted. With regard to customers, the Group assesses the credit quality of the customer, considering its
financial position, past experience and other factors. The Group does not expect, in the normal course of events, that debts
due from customers are at significant risk. The Group’s maximum exposure to credit risk equates to the carrying value of cash
and cash equivalents, trade and other receivables, contract assets and investments. The Group’s maximum exposure to credit
risk from its customers is £41,716,000 (2020 restated: £32,725,000), being the sum of the carrying value of trade receivables
and accrued income, including contract assets, as disclosed within Trade and other receivables in note 15. The Group regularly
monitors and updates its cash flow forecasts to ensure it has sufficient and appropriate funds to meet its ongoing operational
requirements.
Impairment of financial assets
The Group has two types of financial assets that are subject to IFRS 9’s expected credit loss model:
• trade receivables, which consist of billed receivables arising from contracts with customers, for the provision of meter asset
installation, management and energy services; and
• accrued income, which consists of contract assets and unbilled receivables arising from contracts with customers.
While cash and cash equivalents, and debt investments held at amortised cost, are also subject to the impairment
requirements of IFRS 9, the identified impairment loss was immaterial.
The Group applies the IFRS 9 simplified approach to measuring forward-looking expected credit losses, which uses a lifetime
expected loss allowance for all trade receivables and accrued income, including contract assets.
SMS Annual report and accounts 2021 167
Strategic reportGovernanceFinancial statements
19 Financial risk management continued
(e) Credit risk continued
To measure the ECL, trade receivables and accrued income have been grouped based on shared credit risk characteristics
and the days past due. Accrued income relates to rights to consideration for performance, and other operating charges,
before payment is due from customers, and consists of unbilled receivables and contract assets (see note 2 for details). These
have substantially the same risk characteristics as the trade receivables for the same types of contracts. The Group has
therefore concluded that the expected loss rates for trade receivables are a reasonable approximation of the loss rates for
accrued income.
The Group has established a provision matrix based on the payment profiles of sales, over the most recent twelve-month
period that is an appropriate representation of loss patterns, and the corresponding historical credit losses experienced within
this period. The historical loss rates are adjusted to reflect current and forward-looking information that might affect the
ability of customers to settle the receivables, including macroeconomic factors as relevant. In calculating the loss rates,
certain historical losses arising from specific circumstances with customers have been removed where these are not indicative
of future loss patterns.
COVID-19 has generated global financial uncertainty; however, the potential impact of this on the Group’s credit risk is
mitigated by the highly regulated nature of the utilities industry and the extensive support made available to energy – and
other infrastructure – suppliers by the UK Government. As a result, management has not increased the expected loss rates for
the trade receivables portfolio as a whole. Instead, a subset of trade receivables has been identified as having a potentially
elevated credit risk, due to a greater risk of administration as a direct consequence of COVID-19. This subset of trade
receivables has been provided for on a specific basis and in the prior year resulted in an additional £0.5m impairment loss.
This provision has been reduced to £nil at 31 December 2021, reflecting positive recovery trends over the past twelve months,
giving rise to a £0.4m credit in the current year financial statements (net of write-offs). Whilst management will continue to
monitor the situation in case of any changed circumstances arising from the pandemic, it is of the view that there is no longer
significant uncertainty regarding the impact of COVID-19 on customer default risk. Consistent with the recognition of the
original impairment loss in the prior year, management has taken the judgement to recognise this write back as exceptional.
During the second half of 2021, the global energy market has suffered from unprecedented increases in wholesale gas prices,
creating significant volatility within the UK energy market and leading to a number of independent energy suppliers entering
administration and exiting the market. This crisis has notably impacted the smaller independent energy suppliers and, as a
result, management has not increased the expected loss rates for the trade receivables portfolio as a whole. Instead, a subset
of trade receivables has been identified as having a potentially elevated credit risk, due to a greater risk of administration as a
direct consequence of the crisis. This subset of trade receivables has been provided for on a specific basis and has resulted in
an additional £0.4m impairment loss in the year. Given the continued and changing uncertainty regarding the impact of this
crisis on customer default risk, management will continue to monitor the situation and reassess its ECL at each reporting
period end accordingly.
On that basis, the loss allowance at 31 December 2021 was determined as £4,370,000 (2020: £4,904,000) for trade receivables
and accrued income. A reconciliation of these balances is provided as follows:
At 1 January 2021
Increase in loss allowance recognised in profit or loss
during the year – underlying
Decrease in loss allowance recognised in profit or loss
during the year - exceptional
Amounts reversed/written off during the year
At 31 December 2021
Accrued
income
£’000
160
241
-
-
401
Trade
receivables
£’000
4,744
Total
£’000
4,904
3,161
3,402
(438)
(3,498)
3,969
(438)
(3,498)
4,370
The overall loss allowance has decreased at 31 December 2021. Whilst the crisis in the energy market has given rise to an
additional impairment loss in the year, as detailed above, the impairment loss recognised in relation to COVID-19 in 2020 has
been reversed and several individual trade receivables, previously impaired as a result of specific circumstance with
customers, have been settled in the year.
Total net impairment losses on financial and contract assets were £2,964,000 in 2021 (2020: £3,229,000) including the
£438,000 exceptional credit. Of this amount, £2,964,000 (2020: £3,229,000) relates to amounts arising from trade receivables
and accrued income.
Fair value
There is no material difference between the book value and the fair value of any financial asset or liability.
168 SMS Annual report and accounts 2021
NOTES TO THE FINANCIAL STATEMENTS continuedFor the year ended 31 December 2021
(f) 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 pre-exceptional
EBITDA. Net debt is calculated as total borrowings less cash. Pre-exceptional EBITDA is calculated as operating profit before
any significant exceptional 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 financial position. Under the Group’s enhanced dividend policy, SMS declared a 25p per share
dividend in respect of FY 2020 and proposes a 27.5p per share dividend in respect of FY 2021. The first of three interim dividend
instalments was paid in October 2021. The Group’s long-term index-linked cash flows from its existing asset base are able to
support an intended annual increase of 10% in dividends for each of the financial years FY 2022, FY 2023 and FY 2024. This
results in a more predictable return to shareholders and reflects the forecast growth of the business over and above RPI in
that period. The Group’s strong liquidity position supports the funding of its contracted smart meter order pipeline, which will
further add to its long-term index-linked cash flows.
(g) Disclosure of offsetting arrangements
31 December 2021
Financial assets
Trade receivables
Accrued income
Financial liabilities
Trade payables
Accruals
Gross balances1
£’000
Amounts offset2
£’000
Balance sheet3
£’000
23,409
20,313
16,770
32,026
(958)
(1,048)
(132)
(1,874)
22,451
19,265
16,638
30,152
1 The gross amounts of the recognised financial assets and liabilities.
2 The amounts offset in accordance with the criteria in IAS 32.
3 The net amounts presented in the consolidated statement of financial position.
20 Business combinations
Year ended 31 December 2021
On 6 April 2021 the Group acquired a portfolio of c.15,000 Industrial & Commercial large-power Half Hourly electricity meters
from a third party. This acquisition will add c.£1.1m of annualised recurring meter revenue to the Group’s ILARR. The Group
also took ownership of the Meter Operator (MOP) and data service contracts associated with a portfolio of electricity meters,
which will initially generate a further net c.£2m of annualised recurring data revenue. This is reported through the Group’s
asset management segment.
As part of the transaction, a workforce was transferred with the skills, knowledge and experience to generate revenues from
the assets and contracts acquired, and potentially grow the acquired business for the Group. Such a workforce meets the
definition of a substantive process under IFRS 3. On the basis that the Group has obtained inputs, a substantive process and
outputs, management has concluded that the acquisition meets the definition of a business combination and should be
accounted as such under IFRS 3.
Purchase consideration consisted of cash only. Total cash paid was £8,433,000.
SMS Annual report and accounts 2021 169
Strategic reportGovernanceFinancial statements
20 Business combinations continued
Year ended 31 December 2021 continued
The assets and liabilities recognised as a result of the acquisition were as follows:
31 December 2021
Intangible assets: customer contracts
Property, plant and equipment: meter assets
Inventories
Trade and other receivables
Trade and other payables
Deferred tax liability
Net identifiable assets acquired
Add: goodwill
Net assets acquired
Fair value
£’000
1,010
6,682
700
1,778
(2,368)
(228)
7,574
859
8,433
No contingent assets or liabilities were acquired. The customer contracts acquired were valued using a multi-period excess
earnings method, which assesses the present value of the after-tax cash flows attributable only to these contracts.
The goodwill is attributable to the opportunity to grow this part of the business for the Group. Goodwill will not be deductible
for tax purposes.
For the year ended 31 December 2021, the acquired business contributed a net profit before taxation of £1.7m to the Group.
If the acquisition had occurred on 1 January 2021, consolidated pro-forma profit for the year ended 31 December 2021 would
have been approximately £2.2m.
Acquisition-related costs of £0.3m have been incurred to date, including transaction costs and mobilisation costs to integrate
the newly-acquired business into the Group, and have been included as part of exceptional Administrative costs in the
consolidated statement of comprehensive income.
Year ended 31 December 2020
During the year ended 31 December 2020, the Group acquired 100% of the issued share capital of the following companies:
Name of acquired company
Company number
11110483
East Anglia Grid
Storage One Limited
Burwell Power Limited 12028663
10042216
Add Renewables
No.3 Limited
Registered office prior
to acquisition
Salisbury House
Station Road
Cambridge CB1 2LA
16a Suite 18 Oakham
Enterprise Park
Ashwell Road Oakham,
Rutland LE15 7TU
Purchase
consideration
£
Acquisition date
£
Nature of the
company
1,575,882
16 October 2020 Special purpose
vehicle
Holding company1
1,344,000 30 September 2020 Special purpose
vehicle
1 Burwell Power Limited is the direct parent of East Anglia Grid Storage One Limited (the ’subsidiary’).
All three companies report in British Pounds Sterling. The acquisitions enable SMS to obtain control over the rights required to
develop and commission two grid-scale battery storage sites, totalling 90MW, as part of the Group’s strategy of investment in
CaRe assets. Grid-scale battery storage is a key asset class required by the UK energy system to provide flexibility services to
balance the grid and support the continued introduction of more intermittent renewable generation. The acquired sites will be
constructed over the next twelve months.
170 SMS Annual report and accounts 2021
NOTES TO THE FINANCIAL STATEMENTS continuedFor the year ended 31 December 2021 Year ended 31 December 2020 continued
Details of the purchase consideration are as follows:
Name of acquired company
Burwell Power Limited and its subsidiary East Anglia Grid Storage One Limited
(together, ‘Burwell’)
Add Renewables No.3 Limited (‘Barnsley’)
Total purchase consideration
Cash paid
£
Contingent
consideration
£
1,375,882
1,156,500
2,532,382
200,000
187,500
387,500
In the event that total connection costs per MW fall below various set thresholds, total additional consideration of up to
£387,500 may be payable in cash upon energisation (when the grid-scale battery storage asset is connected to the grid).
Target energisation was end of 2021. The fair value of the contingent consideration recognised of £387,500 was estimated by
calculating the present value of the future expected cash flows based on current budgets and forecasts. The estimate ignores
the impact of discounting on the basis that the anticipated payment date is within twelve months of the current reporting date.
The assets and liabilities recognised as a result of the acquisitions were as follows:
Cash and cash equivalents
Inventories: work in progress1
Trade and other receivables
Trade and other payables
Deferred tax liability
Net identifiable assets acquired
Add: goodwill
Net assets acquired
1 Total inventories of £3,438,000 include a fair value uplift of £2,683,000.
No contingent assets or liabilities were acquired.
Burwell
fair value
£’000
Barnsley
fair value
£’000
Total
fair value
£’000
94
1,757
39
–
(314)
1,576
–
1,576
–
1,681
–
(22)
(315)
1,344
–
1,344
94
3,438
39
(22)
(629)
2,920
–
2,920
A total fair value uplift of £2.7m (net of tax) was applied to the acquisition balance sheets in relation to development and
construction rights, which have been included within work in progress and recorded as part of Inventories in the consolidated
balance sheet. The acquisitions therefore resulted in goodwill of £nil.
The entities acquired contributed £nil turnover or profit to the Group’s results in the year ended 31 December 2020. If the
acquisitions had occurred on 1 January 2020, consolidated pro-forma revenue and profit for the year ended 31 December
2020 would also have been £nil. No further adjustments were required as there were no material differences in the accounting
policies between the Group and the entities acquired.
Acquisition-related costs of £0.1m were incurred and have been recorded as part of Administrative costs in the consolidated
statement of comprehensive income. These have not been classified as exceptional on the basis that, through these
acquisitions, the Group is establishing a trade of constructing and selling grid-scale batteries.
As part of the acquisition, lease liabilities of £2.2m were recognised relating to leases of land held by the acquired companies.
Associated right-of-use assets of the same amount were recognised on the Group’s consolidated balance sheet within
Property, plant and equipment.
SMS Annual report and accounts 2021 171
Strategic reportGovernanceFinancial statements
21 Asset acquisitions
During the year ended 31 December 2021, the Group acquired 100% of the issued share capital of the following companies:
Name of acquired company
Company number
Newtonwood Energy
Storage Limited
11257609
Brook Farm Energy
Storage Limited
10780034
Berkeley Battery
Storage 2 Limited
10942601
Brentwood Energy
Storage Limited
11516707
Registered office prior
to acquisition
Unit 9, the Green Easter
Park, Benyon Road,
Reading, Berkshire
RG7 2PQ
Unit 9, the Green Easter
Park, Benyon Road,
Reading, Berkshire
RG7 2PQ
Suite 4D Drake House,
Dursley, Gloucestershire
GL11 4HH
Unit 8-9 Benyon Road,
Silchester, Reading,
Berkshire RG7 2PQ
Purchase
consideration
£
Acquisition date
£
Nature of the
company
1,471
9 March 2021 Special purpose
vehicle
1,572
11 June 2021 Special purpose
vehicle
1,306
15 June 2021 Special purpose
vehicle
1,401
1 October 2021 Special purpose
vehicle
All four companies report in British Pounds Sterling. The acquisitions enable SMS to obtain control over the rights required to
develop and commission four grid-scale battery storage sites, totalling 200MW, as part of the Group’s strategy of investment
in CaRe assets. Grid-scale battery storage is reported through the Group’s energy management segment and is a key asset
class required by the UK energy system to provide flexibility services to balance the grid and support the continued
introduction of more intermittent renewable generation. The acquired sites will be constructed over the next 12 to 24 months.
Details of the purchase consideration are as follows:
Name of acquired company
Newtonwood Energy Storage Limited
Brook Farm Energy Storage Limited
Berkeley Battery Storage 2 Limited
Brentwood Energy Storage Limited
Total purchase consideration
Cash paid
£’000
Deferred
consideration
£’000
Total
consideration
£’000
1,221
1,572
1,056
901
4,750
250
—
250
500
1,000
1,471
1,572
1,306
1,401
5,750
In respect of three of the four companies, total additional consideration of £750,000 is payable in cash upon energisation
(when the grid-scale battery storage asset is connected to the grid). In addition, in respect of one of the four companies, total
additional consideration of £250,000 is payable in cash upon the full execution of an extension of the term of the land lease.
The payments have been measured at fair value at the acquisition date, ignoring the impact of discounting on the basis that
the anticipated payment date is within 24 months of the current reporting date and management consider the impact of
discounting over this period to be immaterial.
Management has concluded that these acquisitions do not meet the definition of a business combination under IFRS 3 on the
basis that no substantive processes have been transferred. Therefore, these transactions have been accounted for as
acquisitions of a group of assets. No goodwill thus arises on the transactions.
The individual assets and liabilities acquired have been identified and the cost of the transactions has been allocated to the
assets acquired, and liabilities assumed, based on their relative fair values at the date of purchase as follows:
Newtonwood
£’000
Brook Farm
£’000
Berkeley
£’000
Brentwood
£’000
1,272
199
—
1,471
1,596
76
(100)
1,572
1,290
16
—
1,306
1,256
145
—
1,401
Total
£’000
5,414
436
(100)
5,750
Assets under construction
Trade and other receivables
Trade and other payables
Total purchase consideration
No contingent assets or liabilities were acquired.
172 SMS Annual report and accounts 2021
NOTES TO THE FINANCIAL STATEMENTS continuedFor the year ended 31 December 2021 The majority of the value gained from acquiring the four sites is attributable to development and construction rights and
therefore a significant portion of the total cost of the transaction has been allocated to Assets under construction due to its
higher fair value relative to the other net assets acquired.
Transaction costs of £0.2m were incurred and have been capitalised as a component of the cost of the assets acquired,
classified as part of Assets under construction within Property, plant and equipment.
22 Deferred taxation
The movement in the deferred taxation liability during the year was:
Opening deferred tax liability
Increase in provision through consolidated statement of comprehensive income
Increase/(decrease) in provision through equity
Deferred tax in respect of acquisitions and disposals
Closing deferred tax liability
2021
£’000
8,511
4,408
(319)
(401)
12,199
The Group’s provision for deferred taxation consists of the tax effect of temporary differences in respect of:
Excess of taxation allowances over depreciation on property, plant and equipment
Tax losses available
Deferred tax asset on share options
Deferred tax on intangibles acquired
Other
The deferred tax included in the consolidated statement of comprehensive income is as follows:
Accelerated capital allowances
Tax losses
Deferred tax asset on share options
Movement in fair value of intangibles
Other
2021
£’000
11,036
(51)
(1,438)
1,168
1,484
12,199
2021
£’000
3,902
74
558
256
(382)
4,408
2020
£’000
13,779
1,061
(714)
(5,615)
8,511
2020
£’000
7,134
(125)
(1,676)
684
2,494
8,511
2020
£’000
1,688
(124)
29
626
(1,158)
1,061
At 31 December 2021, the main rate of corporate tax applying to the profits of the Group was 19%. In the Spring Budget 2020,
the UK Government announced that from 1 April 2020 the corporation tax rate would remain at 19% (rather than reducing to
17%, as previously enacted). The Government's budget announcements on 3 March 2021 included the confirmation that the
rate of corporation tax would increase to 25% from 1 April 2023. This new law was substantively enacted on 24 May 2021.
Deferred taxes at the balance sheet date have been re-measured using these enacted tax rates and reflected in these
financial statements. The impact of tax rate changes, on both the Group's opening deferred tax liability and current-year total
tax timing differences, amounts to £2,956,000.
The Group had unrecognised trading losses of £1,456,000 (2020: £954,000) in subsidiary undertakings at 31 December 2021.
The Group also had unrecognised capital losses of £729,000 (2020: £729,000) in subsidiary undertakings at 31 December 2021.
SMS Annual report and accounts 2021 173
Strategic reportGovernanceFinancial statements
23 Related party transactions
(a) Subsidiaries
The Group’s subsidiaries at 31 December 2021 are set out below. Unless otherwise stated, they have share capital consisting
solely of ordinary shares, and the proportion of ownership interests held equals the voting rights held by the Group. The
country of registration is also their principal place of business.
Proportion of
shares held
Nature of business
Registered
Office (see
key below
table)
SMS Connections Limited
SMS Meter Assets Limited
SMS MAPCO 1 Limited
SMS MAPCO 2 Limited
SMS Data Management Limited
Smart Metering Systems PTY Limited
(Australia)
UKMA (AF) Limited*
SMS Corporate Services Limited
SMS Asset Management Limited*
SMS Energy Services Limited
SMS Data Services Limited*
CH4 Gas Utility and Maintenance
Services Limited*
SMS Utilities Academy Limited*
Trojan Utilities Limited*
1
1
2
2
1
4
2
1
2
2
2
2
2
2
2
Qton Solutions Limited*
2
Smart Battery Systems Limited
1
Solo Energy Limited (UK)*
3
Solo Energy Limited (Ireland)*
2
Care Assets Limited
2
Add Renewables No.3 Limited*
Burwell Power Limited*
2
East Anglia Grid Storage One Limited* 2
Newtonwood Energy Storage Limited* 2
2
Brook Farm Energy Storage Limited*
2
Berkeley Battery Storage 2 Limited*
2
Brentwood Energy Storage Limited*
Holding
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
100%
100%
100%
100%
100%
100%
100%
100%
Ordinary shares
100%
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Gas utility connections
Gas and electric asset management
Gas and electric asset management
Gas and electric asset management
Data management
Data management
Funding
Administrative services
Gas and electric third-party asset
management
Electricity utility connections and
management
Electric asset and data management
Meter installation
Engineer training and development
Meter installation
Business and domestic software
development
Holding company
Renewable asset management
Renewable asset management
Holding company
Renewable asset management
Holding company
Renewable asset management
Renewable asset management
Renewable asset management
Renewable asset management
Renewable asset management
* 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: Prennau House, Copse Walk, Cardiff Gate Business Park, Cardiff CF23 8XH.
3 Registered office address: West Building, Carrigaline Industrial Estate, Carrigaline, Co. Cork, Republic of Ireland.
4 Registered office address: KPMG, ‘Tower 3’ Level 38, 300 Bangaroo Avenue, Sydney, NSW 2000, Australia.
(b) Key management personnel compensation
The Group has determined that its key management personnel comprise the Executive Directors, Non-executive Directors
and certain senior management personnel. The aggregate compensation paid or payable to key management is shown below:
Short-term employee benefits
Post-employment benefits
Termination benefits
Share-based payments
174 SMS Annual report and accounts 2021
2021
£’000
2,747
35
146
262
3,190
2020
£’000
3,024
28
–
219
3,271
NOTES TO THE FINANCIAL STATEMENTS continuedFor the year ended 31 December 2021
(c) Directors
Directors’ emoluments
Aggregate remuneration for both Executive and Non-executive Directors in respect of qualifying services was:
Aggregate emoluments
Company contributions to money purchase pension scheme
Company contributions to private pension plan
2021
£’000
1,744
21
–
1,765
2020
£’000
2,010
18
–
2,028
In 2021, £146,000 was payable to a Director as settlement following resignation (2020: no amount was payable to Directors).
Detailed remuneration disclosures are also provided in the in the Annual report on remuneration on pages 112 to 114.
Emoluments of highest paid Director
Emoluments
2021
£’000
694
2020
£’000
796
In addition, rent was paid into the highest paid Director’s personal pension scheme. See note 22 (d) for further details.
Number of Directors who accrued benefits under Company pension schemes
Money purchase schemes
(d) Other transactions with related parties
During the year, the Group entered into the following transactions with related parties:
2021
Number
3
2020
Number
2
• Rent amounting to £10,375 (2020: £41,500) was paid 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 £nil (2020: £nil) was
outstanding in this regard.
• The Group paid dividends to Alan Foy of £906,915 (2020: £441,930), The Metis Trust1 of £230,625 (2020: £97,470), Metis
Investments Limited2 of £387,968 (2020: £105,332), Tim Mortlock of £1,501 (2020: £570), Gavin Urwin of £153 (2020: £nil),
David Thompson (whilst a Director) of £188 (2020: £325), Miriam Greenwood of £6,129 (2020: £2,529), Willie MacDiarmid3
of £nil (2020: £271), Graeme Bissett of £4,116 (2020: £901) and Jamie Richards of £1,002 (2020: £244).
1 Alan Foy is a trustee but not a beneficiary.
2 Alan Foy is a Director and shareholder.
3 Paid to a connected person.
24 Share capital
Allotted and called up:
133,321,555 ordinary shares of £0.01 each (2020: 112,946,331 ordinary shares of £0.01 each)
2021
£’000
2020
£’000
1,333
1,129
On 4 October 2021, the Group successfully completed an equity raise for gross proceeds of c.£175m. The total number of
shares issued as a result of the raise was 19,453,777 with a nominal value of £195,000. Net proceeds of £170,154,000 were
received, after the deduction of £4,930,000 of directly attributable issue costs. The excess value of the shares over their
nominal value of £169,959,000 has been recognised within Share premium.
SMS Annual report and accounts 2021 175
Strategic reportGovernanceFinancial statements
24 Share capital continued
During the year 921,447 (2020: 134,793) ordinary share options were exercised in relation to the Group’s employee share plans
which are described in note 25. The ordinary shares issued have a nominal value of £9,000 (2020: £1,000) and aggregate
consideration of £1,627,000 (2020: £362,000) was received.
In addition, in 2020, a scrip dividend was offered to shareholders in respect of the first interim dividend, paid on 29 October
2020, which allowed shareholders to elect to receive ordinary shares of 1p each in the Company in lieu of a cash dividend.
Based on a scrip dividend reference price of 634.6p a total of 416 new ordinary shares were issued with a nominal value of £4.
The excess value of the shares over their nominal value of £3,000 was recognised within Share premium.
The Group’s Share Incentive Plan is administered by the Smart Metering Systems SIP Trust, which acquires shares in SMS (own
shares) to satisfy awards under this plan and facilitate the delivery of shares to participants. At 31 December 2021, 139,055
(2020: 140,695) own shares were held in trust with a carrying value of £825,000 (2020: £749,000) and a market value of
£1,169,000 (2020: £1,000,000). The Company purchased 34,191 shares (2020: 28,354) from the market during 2021 with
a weighted average fair value of £8.15 per share (2020: £5.68).
25 Share-based payments
(a) Employee option plans
On 20 June 2011 the Company adopted both the Approved Company Share Option Plan (CSOP) and the Unapproved Share
Option Plan (the ‘Unapproved Plan’).
The CSOP is open to any employee of any member of the Group up to a maximum value of £30,000 per employee. The
Unapproved Plan is open to any employee, including Executive Directors, of the Company or any other Group company
who is required to devote substantially the whole of their time to their duties under their contract of employment.
Under the plans, participants are granted options which, except in certain specified circumstances, only vest if certain
performance conditions are met and the employee is still in service within five years of the date of grant. The performance
conditions for awards are based on market capitalisation and individual performance targets. Once vested, the options
remain exercisable for a period of up to ten years from the date of grant. The exercise price of the options is determined by
the Directors but shall not be less than the closing price at which the Company’s shares are traded on the date of grant.
Summary of options
The table below summarises options granted under the CSOP and Unapproved Plan:
Plan
CSOP
Unapproved
Unapproved
Unapproved
Unapproved
Unapproved
Unapproved
Unapproved
Unapproved
Unapproved
Unapproved
Unapproved1
Unapproved2
Unapproved1
Unapproved2
Unapproved
Unapproved1
Unapproved2
Unapproved3
Unapproved1
Unapproved2
Unapproved3
Unapproved4
Total
At
1 January
2021
Granted
Exercised
Forfeited
Expired
At
31 December
2021
Exercise
price
(pence)
Date
exercisable
Expiry
date
Fair value
at grant
(pence)
25,853
321,666
325,000
40,000
578,085
26,066
38,586
58,520
100,000
50,000
–
469,001
12,000
469,000
12,000
370,000
469,000
12,000
76,000
(25,853)
–
– (321,666)
– (325,000)
–
–
– (175,498)
(26,066)
–
(38,586)
–
(8,778)
–
–
–
–
–
–
–
–
–
–
–
–
– 468,999
12,000
–
–
76,000
– 290,000
–
–
–
–
(4,755)
–
–
(5,852)
– (100,000)
–
–
–
–
(60,000)
–
–
–
(60,000)
–
–
–
–
–
(60,000)
–
–
–
–
–
(60,000)
–
–
–
–
–
–
–
3,452,777 846,999 (921,447) (350,607)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
40,000
397,832
–
–
43,890
–
50,000
–
409,001
12,000
409,000
12,000
370,000
409,000
12,000
76,000
408,999
12,000
76,000
290,000
3,027,722
4 Jul 2021
15 Jul 2014 15 Jul 2021
76.0
60.0 20 Jun 2016 20 Jun 2021
153.5 28 May 2017 28 May 2022
350.0 12 Nov 2019 12 Nov 2024
350.0 12 Nov 2019 12 Nov 2024
391.8 20 Mar 2021 19 Mar 2026
410.0
3 Jul 2026
470.0 18 Aug 2021 17 Aug 2026
529.0
1 Sep 2021 31 Aug 2026
529.0 26 Sep 2021 25 Sep 2026
550.0 28 Nov 2021 28 Nov 2026
1 Jan 2023 13 Jul 2028
700.0
602.8 13 Sep 2023 12 Sep 2028
700.0
1 Jan 2023 13 Jul 2028
602.8 13 Sep 2023 12 Sep 2028
4 Sep 2029
454.6
5 Sep 2024
700.0
1 Jan 2023 13 Jul 2028
602.8 13 Sep 2023 12 Sep 2028
577.4 26 Jun 2025 25 Jun 2030
700.0 01 Jan 2023 13 Jul 2028
602.8 13 Sep 2023 12 Sep 2028
577.4 26 Jun 2025 25 Jun 2030
705.4 10 Feb 2026 09 Feb 2031
17.1
13.0
40.0
84.8
84.8
61.5
114.3
87.2
141.5
142.4
141.0
125.2
154.3
34.6
98.0
111.5
37.2
105.6
59.3
134.3
266.1
191.4
210.8
1 These options relate to the first three, of five, tranches.
2 These options relate to the first three, of five, tranches.
3 Options of 76,000 relate to the first of five tranches.
4 These options relate to the first of five tranches.
176 SMS Annual report and accounts 2021
NOTES TO THE FINANCIAL STATEMENTS continuedFor the year ended 31 December 2021
(a) Employee option plans continued
The weighted average share price at the date of exercise of options exercised during the year ended 31 December 2020 was
£6.06 (2019: £5.39).
Fair value of options granted
The assessed fair value at the valuation date of options granted during the year ended 31 December 2021 ranged from 134.3p
to 266.1p, as disclosed in the table above (2020: 37.2p to 105.6p). The fair value of options granted is estimated using
appropriate option pricing models, taking into account the exercise price, the term of the option, the share price at grant date
and expected price volatility of the underlying share, the expected dividend yield, the risk-free interest rate for the term of the
option, and the market-based performance conditions. The expected price volatility is based on historical volatility, adjusted
for any expected changes to future volatility due to publicly available information.
The total fair value of these options is recognised over the period from their grant date until they become exercisable.
The following table lists the range of assumptions applied to options granted under the Unapproved Plan during the current
and prior years:
Dividend yield (%)
Expected volatility (%)
Risk-free interest rate (%)
Expected option life (years)
Exercise price (£)
Share price at grant date (£)
Fair value at grant date (£)
31 December 2021
3.3
35.96 to 41.33
0.09 to 0.39
2.28 to 4.87
5.77 to 7.05
8.30
1.34 to 2.66
31 December 2020
4.3
35.70 to 39.04
(0.05) to (0.06)
3.03 to 5.00
5.77 to 7.00
5.79 to 5.81
0.37 to 1.06
Where the options granted have a market performance condition attached, the Group has used a Monte-Carlo model in
order to allow for the impact of this condition. Where there is no market performance condition attached, the Group has used
the traditional Black-Scholes model. The dividend yield was determined using the published yield at the date of grant. The
expected volatility reflects the assumption that historical volatility, as measured over several different periods, is indicative of
future trends, which may not necessarily be the case. The risk-free interest rate is taken from a government bond yield rate
with a redemption period consistent with the corresponding vesting period of the options. The expected life of the options is
based on historical data and is not necessarily indicative of exercise patterns that may occur.
The expense recognised in 2021 for all options is £563,000 (2020: £357,000).
(b) Share Incentive Plan (SIP)
The Company introduced the 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 £1,800 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.
The table below shows the number of shares held in the SIP at the beginning and end of the year.
Type of award
Partnership
Matching
Dividend
Total
At 1 January
2021
222,119
219,888
14,407
456,414
Awarded
shares
52,824
52,824
13,771
119,419
Sold/
transferred
(44,628)
(25,799)
(2,974)
(73,401)
Forfeited
–
(17,970)
–
(17,970)
At 31 December
2021
Weighted
average
acquisition price
230,315
228,943
25,204
484,462
5.40
5.40
5.80
The SIP is administered by the Smart Metering Systems SIP Trust (the ‘Trust’). To the extent sufficient shares are not already
held by the Trust, Matching Shares awarded by the Trust to employees are acquired in the market prior to the award. Matching
Shares held by the Trust which have not yet vested unconditionally at the end of the reporting period are shown as own shares
in the financial statements.
The fair value of the Matching Shares at the award date is equal to the share price at the award date. The weighted average
fair value per share of the Matching Shares awarded during 2021 was approximately £8.18 per share (2020: £6.08). The total
fair value of Matching Shares awarded is recognised over the three-year period starting on the respective award dates.
The expense recognised in 2021 for all Matching Shares is £278,000 (2020: £269,000). No expense is recognised for the
Partnership Shares and Dividend Shares because the participants pay full market value for these shares.
SMS Annual report and accounts 2021 177
Strategic reportGovernanceFinancial statements
26 Other reserve
This is a non-distributable reserve that initially arose by applying merger relief under section 612 of the Companies Act 2006
to the shares issued in 2009 in connection with the Group restructuring. Additionally, the premium of £4,189,000 and £1,115,000
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.
27 Commitments under operating leases
The Group’s commercial leases for certain vehicles, offices, warehouses and land are accounted for under IFRS 16 and are
thus excluded from the below operating lease commitments disclosure.
Commitments under operating leases include the Group’s commercial leases for its fleet vans and items of office equipment.
These leases are either short-term (the contract term is less than twelve months) or low-value (underlying asset less than
$5,000) and, therefore, meet the exemption criteria under IFRS 16. They continue to be expensed through the consolidated
statement of comprehensive income. These leases have lives between one and three years and some have renewal options
included in the contracts. There are no restrictions placed upon the Group as a result of entering into these leases.
Future minimum rentals payable under non-cancellable operating leases as at each year end are as follows:
Future minimum commitments under operating lease agreements are as follows:
Payable within one year
Payable within two and five years
Payable after five years
2021
£’000
31
14
–
45
2020
£’000
59
41
–
100
28 Capital commitments
Significant capital expenditure contracted for at the end of the reporting period but not recognised as liabilities is as follows:
Property, plant and equipment
Intangible assets
Inventory – work in progress
2021
£’000
27,746
–
–
2020
£’000
–
160
9,370
In 2021, capital expenditure of £27,746,000 contracted for in relation to property, plant and equipment related to the Group’s
grid-scale battery storage projects under construction.
In 2020, capital expenditure of £9,370,000 contracted for in relation to inventory related to the Group’s grid-scale battery
storage projects under construction. These costs are now recognised within Property, plant and equipment. See Accounting
policies – property, plant and equipment – for further details.
29 Contingencies
The Group has a contingent success fee arrangement in place with a supplier totalling £0.75m that becomes payable should
certain contractual conditions be met. At the date of signing these financial statements, the conditions had not been met.
30 Ultimate controlling party
There is no ultimate controlling party by virtue of the structure of shareholdings in the Group.
31 Post balance sheet events
Acquisition of grid-scale battery storage project
On 14 February 2022 the Group acquired 100% of the issued share capital of Balance Energy 2 Limited for total purchase
consideration of c.£0.8m. The acquisition enables SMS to obtain control over the rights required to develop and commission
a 30MW grid-scale battery storage site as part of its ongoing investment strategy in carbon reduction assets.
178 SMS Annual report and accounts 2021
NOTES TO THE FINANCIAL STATEMENTS continuedFor the year ended 31 December 2021
PARENT COMPANY BALANCE SHEET
As at 31 December 2021
Fixed assets
Investments
Current assets
Debtors
Creditors
Amounts falling due within one year
Net current assets
Total assets less current liabilities
Capital and reserves
Called-up share capital
Share premium account
Other reserves
Own share reserve
Profit and loss account
Equity shareholders’ funds
Notes
2021
£’000
2020
£’000
2
3
4
6
7
21,694
20,853
444,828
301,957
(429)
444,399
466,093
1,333
332,048
15,435
(825)
118,102
466,093
–
301,957
322,810
1,129
160,471
14,594
(749)
147,365
322,810
No profit and loss account is presented by the Company, as permitted by section 408 of the Companies Act 2006. The profit
after taxation dealt with in the financial statements of the Company was £nil for the financial year ended 31 December 2021
(2020: £150,000,000).
The parent company financial statements on pages 179 to 183 were approved and authorised for issue by the Board of
Directors and signed on its behalf by:
Gavin Urwin
Director
15 March 2022
Company registration number
SC367563
SMS Annual report and accounts 2021 179
Strategic reportGovernanceFinancial statements
PARENT COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2021
Attributable to the owners
of the parent company
As at 1 January 2020
Total comprehensive income for
the year
Transactions with owners in their
capacity as owners
Dividends (note 8)
Share-based payments (note 7)
Movement in own shares
Shares issued
As at 31 December 2020
Total comprehensive income
for the year
Transactions with owners in their
capacity as owners
Dividends (note 8)
Share-based payments (note 7)
Movement in own shares
Shares issued
As at 31 December 2021
Share
capital
£’000
1,128
Share
premium
account
£’000
160,106
Other
reserves
£’000
13,968
Own share
reserve
£’000
Retained
earnings
£’000
Total
£’000
(768)
9,771
184,205
–
–
–
–
150,000
150,000
–
–
–
1
1,129
–
–
–
365
160,471
–
626
–
–
14,594
–
–
–
–
–
–
204
1,333
–
–
–
171,577
332,048
–
841
–
–
15,435
–
–
19
–
(749)
–
–
–
(76)
–
(825)
(12,226)
–
(180)
–
147,365
(12,226)
626
(161)
366
322,810
–
–
(29,060)
–
(203)
–
118,102
(29,060)
841
(279)
171,781
466,093
180 SMS Annual report and accounts 2021
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2021
The parent company financial statements of Smart Metering Systems plc (the ‘Company’) for the year ended 31 December
2021 were authorised for issue by the Board of Directors on 15 March 2022 and the balance sheet was signed on the Board’s
behalf by Gavin Urwin. Smart Metering Systems plc is a public limited company limited by shares and incorporated and
domiciled 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.
1 Parent company accounting policies
Basis of accounting
These financial statements were prepared in accordance with Financial Reporting Standard 102 (FRS 102). The financial
statements are prepared under the historical cost convention.
The accounting policies of the parent company financial statements follow those policies which apply in preparing
the consolidated financial statements for the year ended 31 December 2021. The financial statements are prepared in Sterling
and are rounded to the nearest thousand Pounds (£’000).
The Company has taken advantage of the following disclosure exemptions under FRS 102:
• section 7 Statement of Cash Flows;
• section 3 Financial Statement Presentation, paragraph 3.17(d);
• section 11 Basic Financial Instruments, paragraphs 11.42, 11.44, 11.45, 11.47, 11.48(a)(iii), 11.48(a)(iv), 11.48(b) and 11.48(c);
• section 26 Share-based Payments, paragraphs 26.18(b), 26.19 to 26.21 and 26.23; and
• section 33 Related Party Disclosures, paragraph 33.7.
Disclosure of auditor remuneration for non-audit fees is not given in the individual financial statements as the Group accounts
are required to comply with regulation 5(1)(b) of the Companies (Disclosure of Auditor Remuneration and Liability Limitation
Agreements) Regulations 2008 and present the information on a consolidated basis.
The Company is a guarantor in respect of the Group’s revolving credit facilities.
Going concern
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.
Investments
Investments in subsidiary undertakings are stated in the balance sheet of the Company at cost, or nominal value of the shares
issued as consideration where applicable, less provision for any impairment in value.
Share-based payments
The grant by the Company of options and share awards over its equity instruments to the employees of subsidiary
undertakings in the Group is treated as a capital contribution. The fair value of employee services rendered, measured
by reference to the grant date fair value, is recognised over the vesting period as an increase to the investments in subsidiary
undertakings, with a corresponding credit to equity in the Company financial statements. The credit to equity is recognised
within Other reserves, as these amounts are non-distributable at the Company level.
2 Investments
Carrying value
At 1 January
Share-based payments (note 7)
Impairment
At 31 December
2021
£’000
20,853
841
–
21,694
2020
£’000
20,227
626
–
20,853
During 2021 and 2020, a number of subsidiary companies granted options and share awards to their employees over the
shares of SMS. For accounting purposes, these grants are recorded as investments by the Company in its subsidiary
undertakings.
Investments in subsidiaries are assessed annually to determine if there is any indication that any of the investments might be
impaired. There were no material indicators of impairment at 31 December 2021 and therefore no impairment charge has
been recognised in the year ended 31 December 2021.
SMS Annual report and accounts 2021 181
Strategic reportGovernanceFinancial statements
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS continued
For the year ended 31 December 2021
2 Investments continued
Subsidiary undertakings
Registered
Office (see
key below
table)
SMS Connections Limited
SMS Meter Assets Limited
SMS MAPCO 1 Limited
SMS MAPCO 2 Limited
SMS Data Management Limited
Smart Metering Systems PTY
Limited (Australia)
2
UKMA (AF) Limited*
SMS Corporate Services Limited
1
SMS Asset Management Limited* 2
1
1
2
2
1
4
SMS Energy Services Limited
SMS Data Services Limited*
CH4 Gas Utility and Maintenance
Services Limited*
SMS Utilities Academy Limited*
Trojan Utilities Limited*
Qton Solutions Limited*
Smart Battery Systems Limited
Solo Energy Limited (UK)*
Solo Energy Limited (Ireland)*
Care Assets Limited
Add Renewables No.3 Limited*
Burwell Power Limited*
East Anglia Grid Storage One
Limited*
Newtonwood Energy Storage
Limited*
Brook Farm Energy Storage
Limited*
Berkeley Battery Storage 2
Limited*
Brentwood Energy Storage
Limited*
2
2
2
2
2
2
2
1
3
2
2
2
2
2
2
2
2
Proportion of
shares held
Nature of business
Holding
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
100%
100%
100%
100%
100%
100%
100%
100%
100%
Ordinary shares
100%
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Gas utility connections
Gas and electric asset management
Gas and electric asset management
Gas and electric asset management
Data management
Data management
Funding
Administrative services
Gas and electric third-party asset
management
Electricity utility connections and
management
Electric asset and data management
Meter installation
Engineer training and development
Meter installation
Business and domestic software
development
Holding company
Renewable asset management
Renewable asset management
Holding company
Renewable asset management
Holding company
Renewable asset management
Ordinary shares
100%
Renewable asset management
Ordinary shares
100%
Renewable asset management
Ordinary shares
100%
Renewable asset management
Ordinary shares
100%
Renewable asset management
* 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: Prennau House, Copse Walk, Cardiff Gate Business Park, Cardiff CF23 8XH.
3 Registered office address: West Building, Carrigaline Industrial Estate, Carrigaline, Co. Cork, Republic of Ireland.
4 Registered office address: KPMG, ‘Tower 3’ Level 38, 300 Bangaroo Avenue, Sydney, NSW 2000, Australia.
3 Debtors: amounts falling due within one year
Amounts owed by Group undertakings
Amounts owed by Group undertakings are payable on demand.
2021
£’000
2020
£’000
444,828
301,957
182 SMS Annual report and accounts 2021
4 Creditors: amounts falling due within one year
Amounts owed to Group undertakings
2021
£’000
429
2020
£’000
–
5 Related party transactions
The Group paid dividends to Alan Foy of £906,915 (2020: £441,930), The Metis Trust1 of £230,625 (2020: £97,470), Metis
Investments Limited2 of £387,968 (2020: £105,332), Tim Mortlock of £1,501 (2020: £570), Gavin Urwin of£153 (2020:£nil) David
Thompson (whilst a Director) of £188 (2020: £325), Miriam Greenwood of £6,129 (2020: £2,529), Willie MacDiarmid3 of £nil
(2020: £271), Graeme Bissett of £4,116 (2020: £901) and Jamie Richards of £1,002 (2020: £244).
1 Alan Foy is a trustee but not a beneficiary.
2 Alan Foy is a Director and shareholder.
3 Paid to a connected person.
6 Share capital
Allotted and called up:
133,321,555 ordinary shares of £0.01 each (2020: 112,946,331 ordinary shares of £0.01 each)
2021
£’000
2020
£’000
1,333
1,129
On 4 October 2021, the Group successfully completed an equity raise for gross proceeds of c.£175m. The total number of
shares issued as a result of the raise was 19,453,777 with a nominal value of £195,000. Net proceeds of £170,154,000 were
received, after the deduction of £4,930,000 of directly attributable issue costs. The excess value of the shares over their
nominal value of £169,959,000 has been recognised within Share premium.
During the year 921,447 (2020: 134,793) ordinary share options were exercised in relation to the Group’s employee share plans
which are described in note 25 to the consolidated financial statements. The ordinary shares issued have a nominal value of
£9,000 (2020: £1,000) and aggregate consideration of £1,627,000 (2020: £362,000) was received.
In addition, in 2020, a scrip dividend was offered to shareholders in respect of the first interim dividend, paid on 29 October
2020, which allowed shareholders to elect to receive ordinary shares of 1p each in the Company in lieu of a cash dividend.
Based on a scrip dividend reference price of 634.6p a total of 416 new ordinary shares were issued with a nominal value of £4.
The excess value of the shares over their nominal value of £3,000 was recognised within Share premium.
The Group’s Share Incentive Plan is administered by the Smart Metering Systems SIP Trust, which acquires shares in SMS (own
shares) to satisfy awards under this plan and facilitate the delivery of shares to participants. At 31 December 2021, 139,055
(2020: 140,695) own shares were held in trust with a carrying value of £825,000 (2020: £749,000) and a market value of
£1,169,000 (2020: £1,000,000). The Company purchased 34,191 shares (2020: 28,354) from the market during 2021 with
a weighted average fair value of £8.15 per share (2020: £5.68).
7 Other reserves
Other reserves are non-distributable and include the following items:
• a reserve that initially arose by applying merger relief under section 612 of the Companies Act 2006 to the shares issued in
2009 in connection with the Group restructuring. Additionally, the premium of £4,189,000 and £1,115,000 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; and
• a share-based payment reserve, arising as a result of the grant by the Company of options and share awards over its equity
instruments to the employees of subsidiary undertakings in the Group.
8 Dividends
Please refer to details in note 9 to the Group financial statements.
SMS Annual report and accounts 2021 183
Strategic reportGovernanceFinancial statements
Be smart and
stay connected
sms-plc
smart-metering-system
sms-plc
www.sms-plc.com
www.sms-plc.com/corporate
Design and produced by
www.creative.instinctif.com
If you have finished reading this report and no longer
wish to keep it, please pass it on to other interested
readers, return it to SMS or recycle it. Thank you.
This Report has been printed in the UK. Our printers
are a Carbon/Neutral® printing company. They are
FSC®-certified and ISO 14001-accredited and Forest
Stewardship Council® (FSC®) chain of custody-certified.
All inks used are vegetable-based. This paper is
recyclable and acid-free. The report’s cover is coated
using a biodegradable laminate.
S
M
S
A
n
n
u
a
l
r
e
p
o
r
t
a
n
d
a
c
c
o
u
n
t
s
2
0
2
1
Smart Metering Systems plc
2nd Floor
48 St. Vincent Street
Glasgow G2 5TS
www.sms-plc.com