TIDMCLSN
RNS Number : 7816Q
Calisen plc
02 March 2021
Calisen plc
Full year group results
for the year ended 31 December 2020
Calisen plc (the "Company" and together with its subsidiaries
the "Group") has today published the full year Group results for
the year ended 31 December 2020. A copy of the Annual Report and
Accounts will shortly be available from www.calisen.com .
Highlights
-- Growth of 0.8 million revenue generating smart meters in 2020;
-- Total of 9.1 million meters at the end of 2020 comprising 6.0
million smart meters and 3.1 million traditional meters;
-- Revenue increased 18.8% to GBP248.1 million;
-- Underlying EBITDA increased by 8.0% to GBP187.9 million;
-- Funds From Operations increased by 14.5% to GBP155.6 million;
-- Statutory loss before tax decreased by 79.1% to GBP17.2 million;
-- Pipeline of approximately 7.2 million smart meters yet to be
installed of which 5.9 million contracted and 1.3 million preferred
bidder; and
-- COVID-19 delayed smart meter installations in 2020 but has
not changed the expected total portfolio at the end of the smart
meter roll-out which amounts to 13.2 million meters.
Consolidated income statement and statement of comprehensive
income
(GBP in millions) Year ended Year ended
31 December 31 December Change
2020 2019
Revenue 248.1 208.8 18.8%
Cost of sales (113.6) (111.7) (1.7%)
Gross profit 134.5 97.1 38.5%
Administrative expenses (27.7) (16.8) (64.9%)
Other expenses (8.3) (11.3) 26.5%
Amortisation of intangible assets (44.5) (42.3) (5.2%)
Group operating profit 54.0 26.7 102.2%
Finance expense (105.0) (109.1) 3.8%
Finance income 33.8 0.2 16,800.0%
Loss before tax (17.2) (82.2) 79.1%
Taxation (expense)/credit (9.8) 2.1 NM
Loss for the year (27.0) (80.1) 66.3%
Loss and total comprehensive loss
attributable to equity holders
of the parent (27.0) (80.1) 66.3%
Earnings per share:
Basic (pence) (5.5) (364.2) 98.5%
Diluted (pence) (5.5) (364.2) 98.5%
============== ============= ==========
The 2019 results pre-date the formation of the Company and
reflect the performance of the predecessor Group holding company
Calisen Group Holdings Limited.
Summary consolidated balance sheet
At At
31 December 31 December
(GBP in millions) 2020 2019 Change (%)
Assets
Intangible assets 535.5 580.0 (7.7%)
Other non-current assets 902.6 822.1 9.8%
Current assets 190.4 107.7 76.8%
Total assets 1,628.5 1,509.8 7.9%
Liabilities and equity
Current liabilities 162.2 149.0 8.9%
Non-current liabilities 590.2 1,477.1 (60.0%)
Deferred tax liability 99.7 86.5 15.3%
Total liabilities 852.1 1,712.6 (50.2%)
Total equity 776.4 (202.8) NM
Total equity and liabilities 1,628.5 1,509.8 7.9%
Key metrics
(GBP in millions unless otherwise 2020 2019 Change (%)
specified)
Increase in revenue generating smart
meters at year end (m) 0.8 1.3 (38.5%)
----- ------- ----------
Revenue generating meters at year
end (m) 9.1 8.5 7.1%
----- ------- ----------
Smart 6.0 5.2 15.4%
----- ------- ----------
Traditional 3.1 3.4 (8.8%)
----- ------- ----------
Estimated smart meter pipeline at
year end (m) 7.2 6.5 10.8%
----- ------- ----------
of which contracted 5.9 5.5 7.3%
----- ------- ----------
of which preferred bidder 1.3 1.0 30.0%
----- ------- ----------
Expected smart meters total at end
of roll-out (m) 13.2 11.7 12.8%
----- ------- ----------
Average revenue per smart meter (GBP)** 25.2 26.3 (4.1%)
----- ------- ----------
Adjusted EBITDA (GBPm)** 201.3 189.3 6.3%
----- ------- ----------
Underlying EBITDA (GBPm)** 187.9 174.0 8.0%
----- ------- ----------
Funds From Operations (FFO) (GBPm)** 155.6 135.9 14.5%
----- ------- ----------
Cash conversion (FFO/Underlying EBITDA)
(%) 82.8% 78.1% 4.7pp
----- ------- ----------
Capital expenditure (GBPm) 171.8 274.1 (37.3%)
----- ------- ----------
Capex per meter (GBP) 191 165 15.8%
----- ------- ----------
Net debt (GBPm)** 602.6 1,387.6 (56.6%)
----- ------- ----------
Adjusted net debt** 602.6 804.4 (25.1%)
----- ------- ----------
Leverage** (Adjusted net debt / Adjusted
EBITDA) (x) 3.0x 4.3x (1.3x)
----- ------- ----------
Underlying EBITDA interest cover** 8.4x 6.7x 1.7x
----- ------- ----------
FTE (annual average) 1,448 575 151.9%
----- ------- ----------
FTE at year end 1,309 1,504 (13.0%)
----- ------- ----------
**Alternative Performance Measures ("APMs")
The Group uses a number of APMs including Average revenue per
meter, Adjusted EBITDA, Underlying EBITDA, Funds From Operations,
Net debt, Adjusted net debt, Leverage and Underlying EBITDA
interest cover in the discussion of its business performance and
financial position. Reconciliations of these measures to IFRS
measures are included within the relevant section of the Chief
Financial Officer's review of the Strategic Report which forms part
of the Annual Report and Accounts.
The APMs are used by the Board and management to analyse
business and financial performance, track the Group's progress and
help develop long-term strategic plans. The APMs provide additional
information to investors and other external stakeholders to enhance
their understanding of Calisen's results of operations as
supplemental measures of performance and liquidity.
The following sections titled CEO's Q&A: in conversation
with Bert Pijls, Chief Financial Officer's review and Statement of
Directors' Responsibilities have been extracted from our Annual
Report and Accounts. Terms used and not defined have the meaning
given to those terms in the Annual Report and Accounts.
CEO's Q&A: in conversation with Bert Pijls
I am pleased to report that our expected smart meter
installation pipeline increased by 1.5 million meters in 2020. This
brings our expected portfolio at the end of the roll-out to 13.2
million meters, compared to 11.7 million meters reported one year
ago. Securing extra meter volumes in this way is testament to the
great work of our team and our trusted collaboration with energy
retailers.
How would you summarise the past year?
2020 was undoubtedly challenging but I'm pleased to say that the
Group ended the year in a stronger position than it had been in at
its start. We succeeded in growing our smart meter pipeline by a
further 1.5 million meters, meaning that our expected 2025
portfolio grew by 12.8 per cent. We also increased the proportion
of our meters which benefit from early removal protection, we
refinanced approximately GBP1.1 billion of existing meter funding
facilities, achieving a lower cost of debt than the facilities they
replaced, and we took our first steps into the adjacent asset class
of EV charging points. In addition, in early December we announced
the Acquisition and, subject to completion, we look forward to
making further progress under new ownership. Finally, in late
December the UK and EU reached agreement on a zero tariff Trade and
Cooperation Agreement which means no change to the economics of
meter procurement from the Single Market of the EU.
How has COVID-19 impacted results?
We always believed we had a resilient business model. COVID-19
provided an unexpected test of that but one which the Group passed
well. With non-essential smart meter installations suspended
between March and June, capital expenditure during that period was
materially lower than expected with a corresponding impact on
growth in revenue and cash flow. However, as expected, this was
partially offset by a lower than expected number of traditional
meter removals which continued to produce revenue and cash
flow.
Can you explain the Group's performance?
The Group delivered a resilient performance in 2020. Our base of
revenue-generating smart meters increased by 15.4 per cent or
800,000 meters, despite the suspension of installations during the
first lockdown, to reach 6.0 million meters at year end. Revenue
increased by 18.8 per cent to GBP248.1 million with FFO, our
preferred measure of cash flow, increasing by 14.5 per cent to
GBP155.6 million.
How is the restructuring of Lowri Beck progressing?
The success of the turnaround of Lowri Beck has exceeded my
expectations. We set aside a restructuring reserve of GBP3.5
million but only incurred costs of GBP1.7 million as we were able
to retain a larger workforce than predicted at the time we made the
provision and the cost per role lost was lower than expected.
Having completed the restructuring - which sadly included the
redundancy of 224 of our workforce - in September, the focus was on
returning all remaining colleagues to work from furlough. This was
done gradually and safely, with all colleagues who were able to
return to work doing so by the end of October. Even with the
efficiencies targeted by the restructuring, we had expected Lowri
Beck to remain loss-making at the EBITDA level in 2020. In fact,
the impact of those efficiencies combined with a better than
expected trading performance in the second half resulted in full
year Underlying EBITDA of GBP0.8 million compared to an Underlying
EBITDA loss of GBP2.2 million between August 2019 (when we acquired
Lowri Beck) and December of the same year.
What does the Government response to the consultation on the
smart meter policy framework post-2020 mean for the Group?
I was pleased by the Government's response. Its aim of achieving
100 per cent smart meter coverage by 30 June 2025 is supportive of
our business as it represents a continued and consistent focus on
the roll-out of smart meters.
How is sustainability embedded in the business?
This starts with our purpose: to accelerate the development of a
cleaner, more efficient and sustainable energy segment. At IPO we
were pleased to be awarded the London Stock Exchange's Green
Economy Mark, which recognises companies that derive 50 per cent or
more of their total annual revenues from products and services that
contribute to the global green economy. I believe it has been clear
for some time that our main assets, smart meters, have an important
role to play as a foundational layer of infrastructure in
contributing to the decarbonisation of the energy segment. In 2020,
we focused on assessing risks and opportunities relating to the
sustainability of the Group and in 2021 we will set targets on a
pathway to net zero carbon which we will report against in future
(read more on page 44).
What feedback do you get from customers?
Our customers really appreciate the quality of service they
receive from the Group and the way in which we partner with them to
help them meet their obligations under the SMIP. While
installations were suspended in the first half of the year, Calvin
Capital offered to extend the grace period after which a new meter
ordered on behalf of a customer becomes revenue generating from 90
days to 180 days. The feedback on that was very positive with
customers really appreciating our proactively offering to share the
burden of unexpectedly tough times with them.
How have you supported colleagues and other stakeholders during
COVID-19?
Our priority was the safety of colleagues, customers and
consumers. For the engineers on the front line, our priority was
developing an appropriate health and safety protocol which meant it
was safe for all parties for them to be going into people's homes
when responding to emergency call-outs.
For colleagues with office-based roles, wherever possible we
offered them the IT equipment and support to enable them to work
from home. That wasn't possible for all roles and we did make use
of the Government's Coronavirus Job Retention Scheme to safeguard
roles.
One of the biggest practical challenges faced by our energy
retailer customers was logistics. They had ordered smart meters in
anticipation of normal installation rates but during the first
lockdown, all non-emergency installations stopped nationwide. So,
we worked with them and with the meter manufacturers to find extra
warehouse space and to delay or cancel orders. I must say that the
whole industry worked well together to help each other through this
period.
Personally, what was the highlight for you during the year?
The highlight of 2020 for me was the way in which the Group
dealt with the COVID-19 pandemic. As I said, we always thought we
had a resilient business and in 2020 we proved that both
operationally and in terms of financial performance. Those
colleagues who were able to work from home continued to work well
as a team in order to maintain the quality of service which our
customers expect. Not only that but we also made good progress in
securing increased protection for our meters following customer
switching and added more meters to the pipeline. My colleagues
across the Group demonstrated remarkable resilience through the
year and I would like to thank them for the dedication, hard work
and passion they display for their work, day in and day out.
What makes the business model strong?
The strength of the business model rests on a robust contractual
framework and best-in-class operations. The contractual framework
ensures that Calvin Capital only commits capital expenditure which
is revenue generating and that once a meter is installed, if it is
removed early, in the great majority of cases we are compensated.
Our operations deliver an ongoing focus on asset quality combined
with systems and processes which ensure we keep track of our assets
and can accurately bill for their use. Lastly, we can deliver an
end-to-end metering service if that is what customers want.
What is the outlook for the business?
We have substantial embedded growth in our meter pipeline which
has been contracted but not yet implemented and there are exciting
longer-term opportunities internationally and in adjacent asset
classes, most immediately in EV charging. In 2021, our focus for
metering will therefore be on getting as many meters as possible
installed as quickly as possible, while in adjacencies, we will
focus on pilot schemes in EV charging to learn as much as we can
about those assets and how they perform ahead of committing to any
larger-scale projects. Overall, we remain well placed to achieve
our purpose of accelerating the development of a cleaner, more
efficient and sustainable energy segment.
Bert Pijls
Chief Executive Officer
Chief Financial Officer's review
Summary
Group financial performance in 2020 reflected three significant
changes compared to prior periods:
-- The IPO of the Group in February raised GBP300 million of new
equity, before costs, and resulted in a significant reduction in
net debt and associated debt service costs as shareholder loans and
equity bridge loans ("EBLs") were capitalised and repaid,
respectively. While these changes are reflected in the 31 December
2020 balance sheet in full, interest expense for the year is a
combination of the costs of the previous capital structure until
IPO and the current capital structure since IPO, including the
refinancing of GBP1.1 billion of senior debt in July 2020;
-- The temporary suspension of installation activity between
March and July 2020 resulted in a pause in capital expenditure and
a correspondingly slower drawdown of senior debt facilities in the
first half of the year; and
-- The acquisition of Lowri Beck in August 2019 meant that while
the financial statements for 2020 include Lowri Beck for the whole
year, those for 2019 included Lowri Beck only for the period
between acquisition and year end.
Taking into account these three factors, the Group delivered 8.0
per cent growth in Underlying EBITDA in 2020. In the circumstances,
we believe this represents a good performance and one that
emphasises the robust downside protections embedded in our
business.
Non-trading items and underlying performance
There were a number of non-trading items recorded in the year:
the costs associated with the IPO; the remeasurement of
depreciation for traditional meters; the reduction in interest
expense following changes to the capital structure at IPO; the
restructuring of Lowri Beck; the costs associated with the
refinancing of approximately GBP1.1 billion of certain meter
financing facilities; and costs associated with the
Acquisition.
The table on the following page shows a reconciliation between
the statutory loss for the period and the trading profit for the
period adjusting for non-trading items to enable a better
year-on-year comparison.
Year ended December 2020 Year ended December 2019
(GBP in millions) Trading Non-trading Statutory Trading Non-trading Statutory
Revenue 246.1 2.0 248.1 204.1 4.7 208.8
Cost of sales (144.2) 30.6 (113.6) (127.0) 15.3 (111.7)
Gross profit 101.9 32.6 134.5 77.1 20.0 97.1
Administrative expenses (27.7) - (27.7) (16.8) - (16.8)
Other expenses - (8.3) (8.3) - (11.3) (11.3)
Amortisation of intangible
assets (1.7) (42.8) (44.5) (0.9) (41.4) (42.3)
Operating profit 72.5 18.5 54.0 59.4 (32.7) 26.7
Finance expense (81.9) (23.1) (105.0) (51.0) (58.1) (109.1)
Finance income 33.8 - 33.8 0.2 - 0.2
Profit/(loss) before tax 24.4 (41.6) (17.2) 8.6 (90.8) (82.2)
============================ ======== ============ ========== ======== ============ ==========
Where relevant, an explanation of non-trading items set out in
the table above is included in the commentary on each line item set
out below.
Revenue
(GBP in millions) Year ended Year ended Change
31 December 31 December %
2020 2019
Calvin Capital revenue 205.4 189.7 8.3%
Lowri Beck revenue 46.0 20.5 124.4%
Intercompany deduction (3.3) (1.4) (135.7%)
Total revenue 248.1 208.8 18.8%
Revenue-generating meters at period end
(m)
Smart 6.0 5.2 15.4%
Traditional 3.1 3.4 (8.8%)
Annualised average revenue per meter ("ARPM")
(GBP)
Smart 25.2 26.3 (4.1%)
Traditional 20.5 20.5 0.0%
=============================================== ============= ============= =========
Revenue grew strongly in 2020, increasing by 18.8 per cent from
GBP208.8 million in 2019 to GBP248.1 million in 2020, reflecting
both the first full year of the consolidation of Lowri Beck as well
as further growth in the Calvin Capital operating segment.
The key drivers of revenue from the smart meter portfolio were
the number of revenue-generating meters and ARPM. Calisen's
revenue-generating smart meter portfolio grew from 5.2 million
meters to 6.0 million meters, a net increase of 0.8 million meters
or 15.4 per cent which led to a corresponding increase in revenue.
The traditional meter portfolio reduced by 0.3 million meters to
3.1 million meters. Combined, this resulted in a total portfolio of
9.1 million meters at year end.
ARPM decreased from GBP23.8 per annum in 2019, to GBP23.5 in
2020 comprising:
-- a decrease in smart meter ARPM from GBP26.3 in 2019 to
GBP25.2 in 2020; and
-- stability in traditional meter ARPM at GBP20.5 which was
unchanged from 2019.
Within the smart ARPM, an uplift from contract renegotiations
completed in 2020 was partially offset by longer initial periods of
certain MAP contracts. This dynamic is expected to continue as the
blend of contract lengths changes over time.
Calvin Capital contributes the largest share of Calisen revenues
and within its operating segment, revenue increased 8.3 per cent to
GBP205.4 million, driven by the growth in its revenue-generating
smart meter portfolio more than offsetting the expected decrease in
its traditional meter portfolio as traditional meters were replaced
by smart meters. GBP2.0 million of non-recurring income relating to
contract modifications as a result of an increase in installation
costs has been treated as a non-trading item (2019: GBP4.7
million).
Lowri Beck's revenue was GBP46.0 million in 2020 reflecting
lower than expected revenue in the first half due to the
restrictions of the first lockdown followed by a strong trading
performance in the second half of the year. Its financial results
were consolidated from the date of acquisition on 16 August 2019,
hence the GBP20.5 million of revenue recorded in 2019 is not
directly comparable to 2020.
Cost of sales
(GBP in millions) Year ended Year ended Change
31 December 31 December %
2020 2019
Depreciation of property, plant and equipment
(meters) (77.5) (85.9) 9.8%
Loss on disposal of property, plant and
equipment (meters), net of compensation
income (2.1) (6.9) 69.6%
Employee benefits expense and other direct
costs (34.0) (18.9) (79.9%)
Cost of sales (113.6) (111.7) (1.7%)
=============================================== ============= ============= ========
Cost of sales across the Group increased by 1.7 per cent from
GBP111.7 million in 2019 to GBP113.6 million in 2020, mostly driven
by the consolidation of a full year of cost of sales at Lowri Beck.
This was partially offset by gross receipts from the Government's
Coronavirus Job Retention Scheme of GBP7.7 million, which were
recorded within trading items as a credit against wages and
salaries as well as from a reduction in the annual charge for the
depreciation of traditional meters.
The charge for the depreciation of meters decreased year on
year. This was largely because the Group had previously estimated
that the useful economic life of a traditional meter would end, at
the latest, one year after the regulatory deadline for the SMIP
with all net book values being depreciated on a straight-line basis
to nil by 31 December 2021, thus allowing for some time beyond the
regulatory deadline of 31 December 2020. However, on 18 June 2020,
BEIS published its response to a consultation on smart meter policy
framework post-2020 and this extended the existing regulatory
framework for the SMIP by six months to 30 June 2021 and
implemented a new four-year regulatory framework ending on 30 June
2025. The estimated date for the end of the useful economic life of
traditional meters was therefore extended to 30 June 2025. On 31
December 2019, the net book value of traditional meters amounted to
GBP65.5 million; this is now being depreciated over five and a half
years, starting from 1 January 2020, rather than over two years.
This had the effect of reducing the annual depreciation charge for
traditional meters in 2020 from GBP33.1 million to GBP15.9 million.
The movement of GBP17.2 million has been recorded as a non-trading
item in the calculation of APMs.
Compensation income relates to the effective sale of metering
equipment when removed which offsets the write-off of the
underlying asset. It is calculated to make up for the loss of MPC
revenue in net present value terms according to the relevant MAP
contract. Compensation income therefore results in a reduction in
cost of sales. It decreased by 12.4 per cent from GBP15.3 million
in 2019 to GBP13.4 million in 2020. This was driven by three
factors: reducing volumes of traditional meter removals and overall
ageing of the traditional meter fleet as well as the impact of the
suspension of smart meter installations (and a corresponding
reduction in the removals of traditional meters) from March 2020
until the end of the second quarter. The full GBP13.4 million was
recorded as a non-trading item in the calculation of APMs.
Underlying EBITDA
(GBP in millions) Year ended Year ended Change
31 December 31 December %
2020 2019
Profit/(loss) for the period (27.0) (80.1) 66.3%
Add/(deduct):
Taxation 9.8 (2.1) NM(1)
Finance expense 71.2 108.9 (34.6%)
Written-off net book value of disconnected
meters 15.5 22.2 (30.2%)
Foreign exchange (gain)/loss (0.4) - -
Amortisation of intangible assets 44.5 42.3 5.2%
Depreciation of property, plant and equipment 79.4 86.8 (8.5%)
Other expenses 8.3 11.3 (26.5%)
Adjusted EBITDA 201.3 189.3 6.3%
Deduct:
Compensation income (13.4) (15.3) (12.4%)
Underlying EBITDA 187.9 174.0 8.0%
Underlying EBITDA margin (%) 75.7% 83.3% (7.6pp)
=============================================== ============= ============= ========
1. Not meaningful.
Underlying EBITDA and Adjusted EBITDA are APMs which are used to
provide proxies for the cash flow which would be available for
investment, debt service or distribution to shareholders.
Underlying EBITDA is composed of Adjusted EBITDA less
compensation income. Compensation income is received from relevant
contractual arrangements where meters are prematurely removed, and,
as a consequence, reflects income that would have otherwise been
earned in future periods. This is particularly relevant during the
SMIP while traditional meters are being replaced with smart meters.
It is not expected to be a significant ongoing item. Given the
limited timeframe of the SMIP as currently described in
legislation, compensation income may not be significant in the
future. We therefore deduct it when looking at Underlying EBITDA
and are currently providing both metrics.
Adjusted EBITDA in turn is calculated by reference to the
profit/(loss) for the period and adjusting this for taxation,
finance income/(expenses), depreciation, amortisation,
profit/(loss) on disposal of non-current assets, foreign exchange
and significant costs that are non-trading or one-off in
nature.
Underlying EBITDA increased by 8.0 per cent from GBP174.0
million to GBP187.9 million. The 18.8 per cent increase in Group
revenue, driven by growth in the revenue-generating smart meter
portfolio from 5.2 million to 6.0 million meters, was mostly offset
by the increase in employee cost and other direct costs plus
administrative expenses which resulted from increased headcount in
Group functions plus the consolidation of a full year of expense
from Lowri Beck. Improved performance at Lowri Beck nonetheless led
to a positive EBITDA contribution to the Group for the full
year.
Adjusted EBITDA increased by 6.3 per cent from GBP189.3 million
to GBP201.3 million. Adjusted EBITDA increased by less than
Underlying EBITDA due to the decrease in compensation income
compared to the prior year.
Included within Underlying and Adjusted EBITDA in the year ended
31 December 2020 is GBP2.0 million of non-recurring income relating
to contract modifications (2019: GBP4.7 million).
Administrative and other expenses
(GBP in millions) Year ended Year ended Change
31 December 31 December %
2020 2019
Administrative expenses (27.7) (16.8) (64.9%)
Other expenses (8.3) (11.3) 26.5%
========================= ============= ============= ========
Administrative expenses consist of costs associated with
corporate functions, such as wages and salaries, depreciation of
non-metering assets, amortisation of development costs as well as
legal and professional fees and costs associated with the testing
of meters. Administrative expenses also include net foreign
exchange loss/(gain) and auditor's remuneration.
Administrative expenses increased by 64.9 per cent from GBP16.8
million in 2019 to GBP27.7 million in 2020, predominantly
reflecting the consolidation of Lowri Beck into the Group for the
full financial year.
Calvin Capital's administrative expenses increased by 37.3 per
cent from GBP14.2 million in 2019 to GBP19.5 million in 2020. This
reflected increased Group expenses which are recorded in this
segment, primarily the necessity to increase headcount at a Group
level and associated costs required to service the enlarged and
listed business.
Lowri Beck's administrative expenses in 2020 were GBP8.2 million
(16 August 2019 to 31 December 2019: GBP2.6 million).
Other expenses decreased by 26.5 per cent to GBP8.3 million
(2019: GBP11.3 million). These costs, which were recognised as
non-trading items in the calculation of APMs, related to Calisen's
listing on the London Stock Exchange; the restructuring of Lowri
Beck; and GBP1.4 million of costs related to the Acquisition.
Group operating profit
(GBP in millions) Year ended Year ended Change
31 December 31 December %
2020 2019
Group operating profit 54.0 26.7 102.2%
======================== ============= ============= =======
Operating profit represents revenue, less cost of sales,
administrative expenses, other expenses and amortisation of
intangible assets. In 2020, it amounted to GBP54.0 million, an
increase of 102.2 per cent compared to 2019 due to the increase in
revenue exceeding the increase in the cost of sales plus
administrative and other expenses.
Interest expense
(GBP in millions) Year ended Year ended Change
31 December 31 December %
2020 2019
Senior debt commitment fees (4.4) (3.7) (18.9%)
Agency and technical adviser fees (0.3) (0.4) 25.0%
Fair value loss on derivative financial - (14.7) NM
instruments
Derivative breakage fees (53.5) (0.8) NM
Amortisation of debt issue costs (20.3) (3.9) (420.5%)
Letter of credit fees and other charges (2.5) (10.0) 75.0%
Interest payable on bank loans (17.8) (22.2) 19.8%
Interest payable on shareholder loans (5.9) (53.2) 88.9%
Unwinding of discount on lease liabilities (0.3) (0.2) (50.0%)
Total finance expense (105.0) (109.1) 3.8%
Bank interest receivable 0.1 0.2 (50.0%)
Fair value gain on derivative financial 33.7 - NM
instruments
Total finance income 33.8 0.2 16,800.0%
Net finance expense (71.2) (108.9) 34.6%
============================================ ============= ============= ==========
The conversion of shareholder loans into equity, the repayment
of the EBLs and cancellation of letters of credit at IPO
contributed to a 34.6 per cent reduction in net finance expense
from GBP108.9 million in 2019 to GBP71.2 million in 2020.
Total finance expense decreased by 3.8% from GBP109.1 million in
2019 to GBP105.0 million in 2020. The decrease of 88.9 per cent in
interest payable on shareholder loans from GBP53.2 million in 2019
to GBP5.9 million in 2020 combined with the 75.0 per cent reduction
letter of credit fees and other charges from GBP10.0 million in
2019 to GBP2.5 million in 2020 was almost entirely offset by the
increase in derivative breakage fees to GBP53.5 million in 2020
(2019: GBP0.8 million) as a result of the GBP1.1 billion
refinancing. The impact of this refinancing, undertaken in July
2020, contributed to interest payable on bank loans decreasing by
19.8 per cent from GBP22.2 million in 2019 to GBP17.8 million.
Total finance income in 2020 of GBP33.8 million was driven by a
GBP33.7 million fair value gain on derivative financial instruments
also due to the July 2020 refinancing (2019: GBP0.2 million).
The costs of EBLs and hedging of GBP0.7 million, shareholder
loan interest charges of GBP5.9 million and debt issuance costs
associated with the GBP1.1 billion refinancing of GBP16.5 million
were recognised as non-trading items in the calculation of
APMs.
Loss before tax
Year ended Year ended
31 December 31 December Change
(GBP in millions) 2020 2019 %
Loss before tax (17.2) (82.2) 79.1%
=================== ============= ============= =======
Loss before tax reduced by 79.1 per cent from GBP82.2 million in
2019 to GBP17.2 million in 2020 due to increased Group operating
profit combined with reduced net finance expense.
Taxation
Year ended Year ended
31 December 31 December Change
(GBP in millions) 2020 2019 %
Taxation (9.8) 2.1 NM
=================== ============= ============= =======
In 2020, the Group recognised a corporation tax charge of GBP9.8
million. In contrast, in 2019, the Group recognised a corporation
tax credit of GBP2.1 million as a result of the unwinding of
deferred tax liabilities on intangible assets being in excess of
the corporation tax charge in the period.
Dividend
In accordance with the Scheme Document which was published on 18
January 2021, no dividend is proposed in respect of the year ended
31 December 2020.
Funds From Operations
Year ended Year ended
31 December 31 December Change
(GBP in millions) 2020 2019 %
Underlying EBITDA 187.9 174.0 8.0%
Change in adjusted working capital (5.4) (7.7) (29.9%)
Interest/derivatives (22.5) (26.1) (13.7%)
Taxation paid (4.4) (4.3) (2.3%)
FFO 155.6 135.9 14.5%
FFO/Underlying EBITDA 82.8% 78.1% 4.7pp
Underlying EBITDA interest cover 8.4x 6.7x 1.7x
==================================== ============= ============= ========
FFO is an APM which is used as a measure of cash flow generated
by the business prior to debt service and reinvestment in growing
the meter portfolio.
FFO is defined as Underlying EBITDA less relevant finance costs,
taxation and adjusted net working capital items. Relevant finance
costs exclude fair-value movement on derivatives (as this is a
non-cash item), shareholder loan interest and charges relating to
letter of credit facilities (on the basis that they no longer form
part of Calisen's capital structure) and interest rate swap break
costs. Adjusted net working capital items include change in trade
and other receivables and contract assets, change in inventories
and change in trade and other payables, but exclude any movements
in payables where the creditor relates to capital expenditure,
accrued other expenses and any items to the extent they relate to
non-operating items such as compensation debtors or capital
expenditure prepayments or creditors, including related VAT
balances. FFO also does not include compensation income. Capital
expenditure creditors are excluded to the extent that they
represent new meter installation costs.
FFO increased by 14.5 per cent from GBP135.9 million in 2019 to
GBP155.6 million in 2020, principally driven by increased
Underlying EBTIDA combined with a reduction in the cost of interest
and derivatives along with a reduced movement in working capital.
The calculation of the change in adjusted working capital and
interest/derivatives is set out below:
Year ended Year ended
31 December 31 December Change
Change in net working capital (GBP in millions) 2020 2019 %
Trade receivables 31.9 33.9 (5.9%)
Accrued income 10.0 - NM
Prepayments 17.2 - NM
Other receivables 1.2 1.6 (25.0%)
Inventory 0.9 1.3 (30.8%)
Contract assets 4.9 13.4 (63.4%)
VAT receivable/(payable) (1.5) 1.8 NM
Trade creditors (19.1) (17.8) (7.3%)
Other creditors (24.0) (31.3) 23.3%
Net working capital 21.5 2.9 641.4%
Adjustments for non-operating items:
VAT receivable/(payable) 1.5 (1.8) NM
Compensation related receivables (3.8) (2.6) 46.2%
Capital expenditure prepayment (10.0) - NM
Capital expenditure related creditors 31.2 30.2 3.2%
Exceptional items accrued 1.4 7.7 (81.8%)
Adjusted net working capital 41.8 36.4 14.8%
Changes in adjusted net working capital (5.4) (7.7) (29.9%)
================================================= ============= ============= ========
Year ended Year ended
31 December 31 December Change
Interest/derivatives (GBP in millions) 2020 2019 %
Interest payable on bank loans (17.8) (22.2) 19.8%
------------ ------------ -------
Lease interest (0.3) (0.2) (50.0%)
------------ ------------ -------
Senior debt commitment and associated fees (4.4) (3.7) (18.9%)
------------ ------------ -------
Total for FFO purposes (22.5) (26.1) 13.7%
------------ ------------ -------
Capital expenditure
Capital expenditure for the Group decreased by 37.3 per cent
from GBP274.1 million in 2019 to GBP171.8 million in 2020,
primarily due to the suspension of meter installations between
March and July 2020 as a result of the COVID-19 pandemic. With
installations curtailed during that period, Calisen's portfolio of
revenue-generating smart meters grew by less than had been
expected.
Calisen incurred average capital expenditure per smart meter in
2020 of GBP191 as a result of agreeing increased installation costs
with a number of energy retailer customers. While those increases
were agreed in the second half of the year, depending on the
specific contract, some increases had an effective date in the
first half of 2020 and in some limited cases in 2019.
Summary consolidated balance sheet
At 31 December At 31 December Change
(GBP in millions) 2020 2019 %
Assets
Intangible assets 535.5 580.0 (7.7%)
Other non-current assets 902.6 822.1 9.8%
Current assets 190.4 107.7 76.8%
Total assets 1,628.5 1,509.8 7.9%
Liabilities and equity
Current liabilities 162.2 149.0 8.9%
Non-current liabilities 590.2 1,477.1 (60.0%)
Deferred tax liability 99.7 86.5 15.3%
Total liabilities 852.1 1,712.6 (50.2%)
Total equity 776.4 (202.8) NM
Total equity and liabilities 1,628.5 1,509.8 7.9%
============================== =============== =============== ========
The Group's balance sheet, notably the structure of its
liabilities and equity, changed substantially in 2020 as a result
of the IPO which saw all shareholder loans converted into equity as
well as additional equity raised from the issuance of new shares
and the repayment of EBLs.
The Group's total assets grew by 7.9 per cent from GBP1,509.8
million at 31 December 2019 to GBP1,628.5 million at 31 December
2020. The value of intangible assets was assessed for the risk of
impairment and no change to the reported value was required. Within
that total, the net book value of customer contracts decreased by
8.6 per cent from GBP480.8 million in 2019 to GBP439.6 million in
2020, as a result of continued amortisation which amounted to a
charge of GBP41.2 million in 2020 (2019: GBP39.9 million). Other
non-current assets increased by 9.8 per cent from GBP822.1 million
at the end of 2019 to GBP902.6 million, although this was lower
than expected as the smart meter roll-out was paused in March 2020
until the end of the second quarter. Current assets increased by
76.8 per cent from GBP107.7 million at 31 December 2019 to GBP190.4
million at 31 December 2020, largely due to increased cash balances
following the IPO.
The net book value of "green" assets (i.e. smart metering
equipment) amounted to GBP846.2 million or 94.2 per cent of the net
book value of property, plant and equipment.
The IPO provided the Group with GBP300 million of new primary
proceeds, before costs, which were used to reduce external debt and
fully repay EBLs of GBP230.4 million. In addition, the Group's
shareholder loans and accrued interest, which amounted to GBP705.5
million at 31 December 2019, were converted to equity on IPO. As a
result, total liabilities decreased by 50.2 per cent from
GBP1,712.6 million at 31 December 2019 to GBP852.1 million at 31
December 2020. Within that total, current liabilities increased by
8.9 per cent from GBP149.0 million at 31 December 2019 to GBP162.2
million at 31 December 2020 mostly due to an increase in the
current portion of interest bearing loans and borrowings.
Non-current liabilities reduced by 60.0 per cent from GBP1,477.1
million at 31 December 2019 to GBP590.2 million at 31 December 2020
due to the conversion of shareholder loans into equity and the
repayment of EBLs at IPO.
Total equity benefited from the capitalisation of shareholder
loans and the proceeds from the issue of new shares at IPO of
GBP300 million, before costs, resulting in negative total equity of
GBP202.8 million at 31 December 2019 increasing to positive total
equity of GBP776.4 million at 31 December 2020.
Net debt
Year ended Year ended
31 December 31 December Change
(GBP in millions) 2020 2019 %
Shareholder loans - (583.2) NM
Senior debt(1) (717.2) (622.9) (15.1%)
Invoice discounting facility and hire purchase - (5.3) NM
Equity bridge loans - (226.5) NM
Total debt (717.2) (1,437.9) 50.1%
Cash 114.6 50.3 127.8%
Net debt (602.6) (1,387.6) 56.6%
Shareholder loans - 583.2 NM
Adjusted net debt (602.6) (804.4) 25.1%
================================================ ============= ============= ========
1 Senior debt excludes debt issue costs.
Net debt is an APM which is used to show the indebtedness of the
Group net of cash balances. Adjusted net debt deducts shareholder
loans from Net debt in order to show the level of debt incurred in
growing the meter portfolio as distinct from Net debt which
includes debt incurred as the Major Shareholder's preferred form of
funding for the Group prior to IPO.
The structure of the Group's borrowings changed significantly
during 2020. Total debt fell by 50.1 per cent from GBP1,437.9
million at 31 December 2019 to GBP717.2 million at 31 December 2020
largely as a result of the conversion of shareholder loans into
equity and the repayment of EBLs at IPO.
Despite difficult financial markets, in July 2020 we were able
to implement a refinancing of the majority of our funding
facilities that support contracts still in the installation phase,
totalling GBP1.1 billion. This diversified our financing sources
and facilitates future access to debt capital markets to support
continued growth. The flexible nature of the financing platform
allows us periodically to refinance the revolving credit facility
within the platform in future with longer dated debt, which should
allow us to continue to extend debt tenors at competitive long-term
rates as the smart meter roll-out progresses.
Net debt as at 31 December 2020 was GBP602.6 million, comprising
GBP717.2 million of senior debt facilities (excluding debt issue
costs) less GBP114.6 million of cash. This represented a Net debt
to Adjusted EBITDA ratio at 31 December 2020 of 3.0x which was an
increase of 0.2x from the pro forma ratio at 31 December 2019 of
2.8x (adjusted as if the IPO had occurred on that date). The Group
is operating well within the principal financial covenant in its
debt facilities at Group level, namely a Net debt to Adjusted
EBITDA ratio of no more than 5.5 times. The Group is also operating
well above the cover ratio covenants in its debt facilities, both
at Group level and at subsidiary level.
Capital reduction
In June 2020, as the final part of the capital reorganisation
begun at IPO, the Company undertook a reduction in its share
capital, whereby the entire amount standing to the credit of the
Company's share premium account was cancelled, in order to create
distributable reserves which amounted to GBP1,082.6 million.
Credit risk
The Group's credit risk primarily arises from credit exposures
to energy retailers in respect of outstanding trade receivables.
The Group trades with a number of companies, which are generally
Large Legacy Energy Retailers, Other Large and Medium Energy
Retailers, or financial institutions. The Group has identified a
concentration of risk in relation to revenue and trade receivables
from Large Legacy and Other Large Energy Retailers as the majority
of revenue (approximately 83%) is generated from this group and
predominantly from two of the Large Legacy Energy Retailers.
However, the Group assesses the associated credit risk as low
despite its customers operating in one industry as these customers
have historically recorded minimal failure rates meaning that the
risks associated with trade receivables are relatively low.
Principal risks and uncertainties
The principal risks, the Board's appetite for risk in these
areas in the context of executing our strategy and the focus of our
risk mitigation actions are set out below. Assessment of risk is a
constantly evolving process as risks change and the business
develops. Therefore, the Board has put in place systems, that form
an essential process in the Group's risk management framework, for
the ongoing identification, evaluation and management of the
principal risks faced by the Company. These systems have been in
place for the year under review and up to the date of this Annual
Report and Accounts, and are regularly reviewed by the Board.
During the year the Board has carried out a robust assessment of
principal and emerging risks.
1. Health and safety
------------------------------------------------- ---------------- ---------------------------------------
Key risk description Risk movement Risk mitigation in action
------------------------------------------------- ---------------- ---------------------------------------
Calisen, and in particular Lowri Beck, No risk movement High standards of technical training
is required to manage a range of potential and audit.
health and safety hazards in the course Regular training of staff aimed
of its operations. While Lowri Beck at accident reduction.
strives to maintain a strong health Experienced and well qualified
and safety record and is committed to safety and technical personnel.
high standards there is always the potential Effective investigation of incidents
for safety related issues to arise in and implementation of learning
an operational business. Incidents that points.
result in death, significant injury Maintenance of the ISO 45001 Health
or property damage that are attributable and Safety Management Standard
to a failure to manage these hazards at Lowri Beck.
effectively may be subject to legal
action that could result in fines or
other penalties and resultant reputational
damage.
------------------------------------------------- ---------------- ---------------------------------------
2. Strategy execution and development
------------------------------------------------- ---------------- ---------------------------------------
Key risk description Risk movement Risk mitigation in action
------------------------------------------------- ---------------- ---------------------------------------
Calisen seeks to implement a three-fold Risk decreasing Calisen has an experienced Board
strategy: delivering contracted growth and Executive Committee that have
in the British MAP segment; continuing previously delivered successful
to build out its smart meter pipeline; strategies.
and expanding into adjacent areas and The Group has a history of delivering
internationally. While Calisen believes predictable growth and allocated
that it has developed its strategy based time is set out in the governance
on a careful analysis of its strengths, calendar in order to consider strategy
its competitors and the overall MAP for the Group.
segment, and that it is focused on executing The leadership team at Lowri Beck
its strategy, there is no guarantee has been strengthened with key
that Calisen will be able to do so successfully. additions including a new CEO with
The Lowri Beck acquisition was a strategic experience of growing a complex
decision for the Group, however, Lowri operational business.
Beck has historically been loss-making
and improving the profitability of the
Lowri Beck business unit may take longer
and be more difficult than anticipated.
------------------------------------------------- ---------------- ---------------------------------------
3. Government policy
------------------------------------------------- ---------------- ------------------------------------------
Key risk description Risk movement Risk mitigation in action
------------------------------------------------- ---------------- ------------------------------------------
The growth of Calisen's business, its Risk decreasing Calisen plays an active part in
financial condition, its results of industry events and closely monitors
operations and its prospects depend policy development.
on the regulatory and legal environment Calisen employs a Regulation Manager
in which Calisen operates. who reviews all relevant consultations
There is a risk that energy networks and provides a monthly report to
and related industries in Britain, including the business. The Regulation Manager
the MAP segment, may be more onerously also gathers feedback on consultations
regulated by a future government, and and Calisen responds to any consultations
MAPs may become directly regulated. that may have an impact on the
business.
Calvin Capital is a member of the
Community of Meter Asset Providers
to help ensure that the voice and
concerns of MAPs are raised in
the industry, with regulators and
with the UK Government.
Lowri Beck is also a member of
the Association of Meter Operators
and the Smart Meter Operations
Group, which both provide an opportunity
to voice industry concerns from
a MOP/MAM perspective. Lowri Beck
also meets with BEIS directly on
an annual basis, again to discuss
issues and concerns relating to
the industry.
4. Market and counterparty risk
------------------------------------------------- ---------------- ------------------------------------------
Key risk description Risk movement Risk mitigation in action
------------------------------------------------- ---------------- ------------------------------------------
Calisen is exposed to market risks. No risk movement Due to the structure of its contracts
These include changes to the energy with energy retailers Calvin Capital
market and the challenges of the smart has revenue that is reasonably
meter roll-out. The UK energy market predictable. The contractual nature
is undergoing significant change as of Calvin Capital's business produces
evidenced by recent consolidation in high-quality, long-term cash flow
the industry and the introduction of and allows Calvin Capital to enjoy
an energy price cap. significant downside protection.
Calisen is exposed to counterparty default Calisen has no consumer credit
risks and has a concentration exposure exposure and its energy retailer
to certain energy retailers. In 2020 customers tend to have high credit
the industry had a number of failed quality.
energy retailers and Calisen's revenue Counterparty risk is further limited
in respect of MPCs prior to the "supplier as a result of regulation such
of last resort" ("SOLR") event is exposed as the SOLR regulatory framework
as an unsecured creditor in these circumstances. which can be invoked by Ofgem when
Consumers changing energy retailer ("switching") an energy retailer is in financial
is an everyday occurrence in the UK difficulty or goes out of business.
energy industry. Where a consumer changes Calisen has developed systems and
energy retailer and the new energy retailer processes in order to minimise
is not one with which Calisen has a revenue loss when a consumer changes
consumer switching contract for that energy retailer. These include
vintage of meter, Calisen faces the Calisen's accurate meter tracking
risk of loss of revenue. systems and processes, billing
Due to the nature of the smart meter relationships with nearly every
roll-out, it is difficult to predict energy retailer and an increasing
with precision how many revenue-generating number of contracts with energy
meters Calisen will have as a result retailers which provide for rental
of its MAP contracts or how much actual of meters following a consumer
revenue Calisen will recognise from switching energy retailer.
its contracted installation MAP pipeline.
5. Supply chain and counterparties
------------------------------------------------ ------------------ ---------------------------------------------
Key risk description Risk movement Risk mitigation in action
------------------------------------------------ ------------------ ---------------------------------------------
Calisen depends on a limited number No risk movement Calisen has developed strong long-term
of manufacturers and installers, and relationships with a number of
their failure to deliver their products manufacturers, and Calisen's position
and services on a timely basis or to as a major purchaser of meters
otherwise perform their contractual helps to ensure that manufacturers
obligations could increase its costs, generally make product deliveries
impact revenue and harm its reputation. and provide new supplies on time,
This risk can manifest itself in a number in necessary quantities and to
of ways, for example if metering equipment the right quality to satisfy the
installed, owned and managed by Calisen requirements of Calisen's energy
develops faults which may lead to Calisen retailer customers.
facing warranty or liability claims. Calisen conducts financial and
Calisen has the benefit of warranties other due diligence on meter manufacturers
from meter manufacturers for faulty and obtains parent company guarantees
products. However, the value of the where required.
warranty as a mitigant is dependent Calisen has a strong focus on detailed
on the counterparty which provides the manufacturer quality assurance
warranty and therefore Calisen has counterparty that helps inform its meter selection
default risk with its supply chain. decision making. Calvin Capital
conducts extensive testing of meters
with the support of its technical
due diligence providers, and as
a result Calisen's revenue-generating
smart meters have historically
suffered low fault rates.
During the year Calisen had regular
updates with manufacturers and
energy retailers to review supply
continuity plans to ensure that
meter supply chains were not disrupted
by Brexit.
6. Business interruption and IT
systems
---------------------------------------------------- ------------------ -----------------------------------------
Key risk description Risk movement Risk mitigation in action
------------------------------------------------ ------------------ ---------------------------------------------
Calisen's operations rely on IT systems No risk movement Calisen and its subsidiary companies
and networks, which may be affected have disaster recovery and business
by malfunctions, cyber attacks, interruptions continuity plans in place and these
or security breaches, and any failure are reviewed regularly and audited.
of the physical infrastructure or the Cyber security penetration testing
IT systems and networks could lead to is carried out by external advisers
significant costs and disruptions that in respect of certain systems on
could reduce revenue, harm the Group's an annual basis and regular employee
reputation and have a material adverse security awareness sessions are
effect on financial results. undertaken.
Lowri Beck and Calvin Capital also
have ISO 27001 certification with
security and data controls in place.
7. Financial and funding
------------------------------------- ---------------- -----------------------------------------
Key risk description Risk movement Risk mitigation in action
------------------------------------- ---------------- -----------------------------------------
Calisen faces credit and market Risk decreasing Calisen's contracts include maximum
risks arising from interest rates capital expenditure commitments
and from related hedging activities, which are regularly reviewed by
and its financial results may be the Executive Committee and the
affected by fluctuations in interest Board.
rates. Calisen has committed bank facilities
Calisen may need additional capital and a business with highly predictable
in the future which may not be cashflow.
available on terms favourable to The Group reviews the efficiency
it or at all. of its funding on a regular basis
and in July 2020 announced that
it had agreed a new financing platform
to provide greater flexibility
supported by an enlarged group
of banks and access to blue-chip
institutional investors.
No meter funding facility renewals
fall due before December 2023.
The Group enters into interest
rate swaps, whereby it agrees to
exchange, at specified intervals,
the difference between fixed and
variable rate interest amounts,
with the objective of fixing the
majority of its interest costs.
8. Attracting talent and retention of key staff with organisational knowledge
--------------------------------------------------------------------------------------------------
Key risk description Risk movement Risk mitigation in action
------------------------------------- ---------------- -----------------------------------------
Calisen may encounter difficulties Risk decreasing The business seeks to mitigate
in attracting or retaining key the risk of not retaining its talent
executives, officers, managers by deploying strong recruitment
and technical personnel. and retention processes supported
by effective HR procedures.
Recruitment of a senior CPO in
2020 and active workforce engagement
as set out in more detail on page
42.
Remuneration packages are benchmarked
against the industry to ensure
the business attracts the right
calibre of applicant.
Development of talent management
and succession plans.
9. Loss of accreditations
------------------------------------- ---------------- -----------------------------------------
Key risk description Risk movement Risk mitigation in action
------------------------------------- ---------------- -----------------------------------------
Loss of required registrations No risk movement Retention of required accreditations
and accreditations would mean that is one of the top priorities for
Lowri Beck would no longer be able the Lowri Beck leadership team.
to operate. Lowri Beck has an experienced team
that understands the accreditation
requirements and standards. Lowri
Beck ensures that there are sufficient
resources and time allocated to
ensure compliance with accreditations
and the renewal of accreditations.
Lowri Beck has a history of successfully
renewing the accreditations. Its
accreditations were renewed successfully
in 2020.
10 and 11. Emerging global and economic issues
------------------------------------------------------------------------------------------
Key risk description Risk movement Risk mitigation in action
---------------------------------- ------------- ---------------------------------------
The Group monitors the impact of New risk Emerging risks are assessed as
emerging risks including economic part of the risk management framework
and global issues. In 2020 this to categorise the risk and identify
has included the impact of Brexit any mitigants that can be put in
and the impact of COVID-19. place. In respect of high-impact
risks, forecasts and stress testing
are undertaken so that the Board
and the Executive Committee can
assess the impact.
In respect of the two notable emerging
economic and global issues considered
by the Group, being Brexit and
COVID-19, a large number of mitigants
had already been built into the
business model. The Group's risk
management of COVID-19 risks are
set out in detail on pages 10 to
11 of the Annual Report and Accounts.
The risk management framework ensures
that these risks are regularly
reviewed and assessed.
Statement of Directors' Responsibilities in respect of the
Annual Report and Financial Statements
The Directors are responsible for preparing the Annual Report
and the Group and parent company financial statements in accordance
with applicable law and regulations.
Company law requires the Directors to prepare Group and parent
company financial statements for each financial year. Under that
law they are required to prepare the Group financial statements in
accordance with International Financial Reporting Standards as
adopted by the European Union ("IFRSs as adopted by the EU") and
applicable law and have elected to prepare the parent company
financial statements on the same basis.
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 parent company and of
their profit or loss for that period. In preparing each of the
Group and parent company financial statements, the Directors are
required to:
-- Select suitable accounting policies and apply them
consistently.
-- Make judgements and estimates that are reasonable, relevant
and reliable.
-- State whether they have been prepared in accordance with
IFRSs as adopted by the EU.
-- Assess the Group and parent company's ability to continue as
a going concern, disclosing, as applicable, matters related to
going concern.
-- Use the going concern basis of accounting unless they either
intend to liquidate the Group or the parent company or to cease
operations, or have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the parent
company's transactions and disclose with reasonable accuracy at any
time the financial position of the parent company and enable them
to ensure that its financial statements comply with the Companies
Act 2006. They are responsible for such internal control as they
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error, and have general responsibility for taking such
steps as are reasonably open to them to safeguard the assets of the
Group and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors' Report,
Directors' Remuneration Report and Corporate Governance Statement
that comply with that law and those regulations.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the UK governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
Responsibility statement of the Directors in respect of the
Annual Report and Financial Statements
Each of the Directors in office as at the date of this report,
whose names and functions are listed on pages 60 and 61 of the
Annual Report and Accounts, confirm that to the best of his or her
knowledge:
-- The financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Company and the undertakings included in the consolidation
taken as a whole.
-- The Strategic Report includes a fair review of the
development and performance of the business and the position of the
issuer and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face.
We consider the Annual Report and Financial Statements, taken as
a whole, are fair, balanced and understandable and provide the
information necessary for shareholders to assess the Group's
position, performance, business model and strategy.
Approved by the Board of Calisen plc and signed on its
behalf.
Sarah Blackburn
Company Secretary
For and on behalf of the Company
5th Floor, 1 Marsden Street, Manchester,
England, M2 1HW
1 March 2021
Consolidated Income Statement and Statement of Comprehensive
Income
Year ended 31
December
Notes 2020 2019
GBPm GBPm
Revenue 5 248.1 208.8
Cost of sales 7 (113.6) (111.7)
Gross profit 134.5 97.1
Administrative expenses 8 (27.7) (16.8)
Other expenses 13 (8.3) (11.3)
Amortisation of intangible assets 18 (44.5) (42.3)
Group operating profit 54.0 26.7
Finance expense 12 (105.0) (109.1)
Finance income 12 33.8 0.2
Loss before tax (17.2) (82.2)
Taxation (expense)/credit 15 (9.8) 2.1
Loss for the year (27.0) (80.1)
Loss and total comprehensive loss attributable
to equity holders of the parent (27.0) (80.1)
Earnings per share:
Basic (pence) 14 (5.5) (364.2)
Diluted (pence) 14 (5.5) (364.2)
================================================ ====== ======== ========
All activities of the Group are from continuing operations.
Consolidated Statement of Financial Position
Notes As at 31 December
2020 2019
GBPm GBPm
Assets
Non-current assets
Intangible assets 18 535.5 580.0
Property, plant and equipment 19 897.9 821.0
Deferred tax asset 16 1.4 -
Derivative financial instruments 22 3.3 1.1
1,438.1 1,402.1
Current assets
Trade and other receivables 24 70.0 42.7
Contract assets 6 4.9 13.4
Inventory 25 0.9 1.3
Cash and cash equivalents 26 114.6 50.3
190.4 107.7
Total assets 1,628.5 1,509.8
Liabilities
Current liabilities
Trade creditors 27 19.1 17.8
Other creditors 27 26.4 31.3
Interest-bearing loans and borrowings 22 116.7 99.9
162.2 149.0
Non-current liabilities
Interest-bearing loans and borrowings 22 587.1 1,444.3
Provisions 28 1.5 0.4
Derivative financial instruments 22 1.6 32.4
Deferred tax liability 16 99.7 86.5
689.9 1,563.6
Total liabilities 852.1 1,712.6
Equity
Called up share capital 29 5.5 0.2
Share premium account - 82.1
Share-based payment reserve 30 0.4 -
Merger reserve (63.3) (63.3)
Retained earnings/(deficit) 833.8 (221.8)
Total equity 776.4 (202.8)
Total equity and liabilities 1,628.5 1,509.8
======================================= ====== ========= =========
The financial statements on pages 103 to 142 of the Annual
Report and Accounts were approved and authorised for issue by the
Board of Directors and signed on its behalf by:
Sean Latus
Chief Financial Officer
1 March 2021
Consolidated Statement of Changes in Equity
Called Share Share-based Retained Merger Total
up share premium payment earnings/ reserve equity
capital account reserve (deficit) GBPm GBPm
GBPm GBPm GBPm GBPm
Attributable to equity
holders of the parent:
At 1 January 2019 0.2 82.1 - (141.7) (63.3) (122.7)
Loss for the year and total
comprehensive loss - - - (80.1) - (80.1)
At 31 December 2019 0.2 82.1 - (221.8) (63.3) (202.8)
Loss for the year and total
comprehensive loss - - - (27.0) - (27.0)
Shares issued 1.3 293.2 - - - 294.5
Debt for equity swap (note
1) 4.0 707.3 - - - 711.3
Equity settled share awards - - 0.4 - - 0.4
Capital reduction (note
1) - (1,082.6) - 1,082.6 - -
At 31 December 2020 5.5 - 0.4 833.8 (63.3) 776.4
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Consolidated Statement of Cash Flows
Year ended 31
December
Notes 2020 2019
GBPm GBPm
Cash flows from operating activities
Loss before tax (17.2) (82.2)
Adjustments to reconcile loss before tax to net
cash flows:
Amortisation of intangible assets 18 44.5 42.3
Depreciation of property, plant and equipment 19 79.4 86.8
Finance income 12 (33.8) (0.2)
Finance expense 12 105.0 109.1
Share-based payment expense 30 0.4 -
Loss on disposal of property, plant and equipment 7 2.1 6.9
Interest received 12 0.1 0.2
Interest paid (91.8) (38.1)
Tax paid 15 (4.4) (4.3)
Payment to obtain a contract - (0.3)
Working capital adjustments:
Increase in trade and other receivables and contract
assets 6, 24 (12.9) (5.7)
Decrease in inventory 25 0.4 0.2
(Decrease)/increase in trade payables, other 27,
payables and provisions 28 (4.3) 15.3
Net cash flows from operating activities 67.5 130.0
Cash flows from/(used in) investing activities
Proceeds from sale of property, plant and equipment 13.4 16.8
Purchase of subsidiary undertaking (0.7) (6.2)*
Net cash acquired with subsidiary undertaking - 0.2
Purchase of property, plant and equipment 19 (171.8) (274.1)
Purchase of intangible assets - (0.2)
Net cash flows used in investing activities (159.1) (263.5)
Cash flows from/(used in) financing activities
Lease payments 20 (1.1) (0.4)
Proceeds from the issue of share capital 294.5 -
Proceeds from borrowings 668.7 210.9
Repayment of borrowings (806.2) (98.3)
Net cash flows from financing activities 155.9 112.2
Net movement in cash and cash equivalents 64.3 (21.3)
Cash at beginning of period 50.3 71.6
Cash at end of period 114.6 50.3
====================================================== ====== ======== ========
The accompanying notes form an integral part of the financial
statements. During the period, there was a non-cash transaction of
GBP711.3m in relation to a debt for equity swap. This was in
addition to proceeds from the issue of share capital of GBP294.5m.
See note 1 for further detail.
* Description updated from corresponding statement in 2019
Calisen Group Holdings Limited accounts to be more reflective of
the transaction.
Notes to the Consolidated Financial Statements
1. Basis of preparation
On 7 February 2020, as part of a Group reorganisation, all
shares held in Calisen Group Holdings Limited by Evergreen Energy
Limited and Evergreen Holdco S.a.r.l. were transferred to Calisen
plc, a newly incorporated intermediate parent entity. This was
achieved by Calisen plc issuing shares at fair-value and nil gain,
to the shareholders of Evergreen Energy Limited and Evergreen
Holdco S.a.r.l. in exchange for their investments and a receivable
amounting to GBP711.3m, with resulting entries recorded in ordinary
share capital and share premium.
Following this reorganisation, Calisen plc undertook an initial
public offering ("IPO") on the London Stock Exchange for a
proportion of its share capital. A number of other changes to the
financing structure of the Group occurred following the IPO,
further details can be found in note 29. During June 2020, the
Company, having by special resolution cancelled its share premium
account amounting to GBP1,082.6m, as confirmed by an order of the
High Court of Justice, Chancery Division.
The insertion of the Company on top of the existing Calisen
Group Holdings Limited Group did not constitute a business
combination under IFRS 3 Business Combinations and instead was
accounted for as a capital reorganisation. Merger accounting was
used to account for this transaction. As a result of this approach,
share capital and share premium were amended, effective from 1
January 2019, as if the current Group had been in existence since
that date. The comparative and current year consolidated reserves
of the Group were adjusted to reflect the statutory share capital,
share premium and merger reserve of Calisen plc as if they had
always existed. A negative merger reserve of GBP63.3m was
recognised as at 1 January 2019 to complete the equity position as
a result of the application of merger accounting.
Following the IPO, both Evergreen Holdco S.a.r.l. and Evergreen
Energy Limited were placed into liquidation, the latter of which
was dissolved on 7 May 2020 with the former being dissolved on 11
February 2021. As a result of the liquidations, the indirect
investment and receivable held by the Company, in Calisen Group
Holdings Limited were transferred as direct holdings. The trading
results and net asset positions for both companies are immaterial
to the Group. The Board has excluded these companies for each
stated accounting period following an assessment of the liquidation
status and immaterial impact on the consolidated results. The
approach to exclude these companies is consistent with that of the
prospectus filed at the time of the IPO and with the 30 June 2020
interim statements.
The above results and the accompanying notes do not constitute
statutory accounts within the meaning of Section 435 of the
Companies Act 2006.The Auditors have reported on the Group's
statutory accounts for the year ended 31 December 2020 under s495
of the Companies Act 2006, which do not contain a statement under
s498 (2) or s498 (3) of the Companies Act 2006 and are unqualified.
The statutory accounts for the year ended 31 December 2019 have
been delivered to the Registrar of Companies and the statutory
accounts for the year ended 31 December 2020 will be filed with the
Registrar in due course.
The audited consolidated financial statements from which these
results are extracted have been prepared under the historical cost
convention and in accordance with International Financial Reporting
Standards (IFRS) as adopted by the European Union, IFRIC
interpretations and those parts of the Companies Act 2006
applicable to companies reporting under IFRS.
The principal accounting policies have been applied consistently
in the periods other than for the effect of applying new
standards.
(a) Going concern
Notwithstanding the loss for the year ended 31 December 2020 of
GBP27.0m, the Directors consider the going concern basis of
preparation for the Group and the Company to be appropriate for the
following reasons. The Group generated net cash flows from
operating activities for the year ended 31 December 2020 of
GBP67.5m.
In February 2020, as detailed in the basis of preparation, the
Group undertook a reorganisation with a newly incorporated Company,
Calisen plc, becoming the ultimate parent undertaking. Following
the reorganisation, gross funds of GBP300m were raised before the
deduction of IPO costs. The funds were used to repay EBLs held in
subsidiary undertakings amounting to GBP230.4m at 6 February 2020.
Furthermore, the shareholder loan and accrued interest thereon of
GBP711.3m at 6 February 2020 was capitalised into share capital and
share premium thus reducing the overall net debt of the Group. In
addition, in February 2020, the Group agreed a new revolving credit
facility ("RCF") amounting to GBP240m.
In July 2020, the Group completed a refinancing, replacing bank
facilities of GBP1,130.0m with new facilities of GBP1,067.5m which
include structured institutional debt as set out in note 22. The
old facilities had maturity dates of 2022 and 2029 and in addition
to significantly extending the average life of the finance
facilities, some of which extend to 2034, the new financing
arrangement also reduces the Group's average cost of debt. The
Group's previous all-in cost of funding was approximately 3-4%
(including the cost of hedging floating rate debt to fixed rates)
and has now reduced to 2.5-3%.
The Group has prepared cash flow forecasts to 31 December 2023
which include taking account of reasonably possible downsides in
addition to stress testing for the impact of COVID-19. These result
in reduced levels of revenues within both business units and lower
levels of meter installations. These forecasts show that the Group
will have sufficient funds, through access to cash derived from its
long-term contractual revenue streams and funding from its existing
facilities, liabilities as they fall due, through access to cash
derived from its long-term contractual revenue streams and funding
from its existing facilities. At 31 December 2020, this includes
cash of GBP114.6m and undrawn funds of GBP762.0m (of which
GBP240.0m is available for working capital funding, and the
remaining GBP522.0m primarily ring-fenced for contracted capital
expenditure commitments. Debt covenants in relation to the new RCF
entered into during 2020 are set at a ratio of 5.5x (consolidated
EBITDA/total net debt) and 1.05x (aggregate net present value of
distributable cash flows/total amount outstanding under the RCF
facility less any cash and cash equivalents held as investments).
There are no forecast breaches, under any scenario, of these
covenants at any point during the three year forecast period.
The proposed Acquisition of the Company, announced by the Board
on 11 December 2020, is expected to complete and the Company's
shares are expected to be delisted in March 2021. Accordingly, the
Group has assessed the impact of the Acquisition on its going
concern assessment. The only potential impact is that the Group's
GBP240m RCF, held by Calisen plc, may become unavailable because it
is subject to a change of control clause. The Group's other
facilities, totalling GBP1,239.4m, will not be affected by this
change of control. In addition, the Group's cash flow forecasts
indicate that, under all scenarios, the GBP240m RCF should remain
undrawn and therefore the going concern assessment would not be
affected by the loss of this facility. While the future funding
structure of the Company and its detailed business plan under its
new prospective owners are not yet formalised, the Directors have
not been made aware of any information that would change the
conclusion of the Group's going concern assessment.
Consequently, the Directors are confident that the Group
currently has in place sufficient funds to continue to meet its
liabilities as they fall due for at least 12 months from the date
of issue of the Consolidated Financial Statements and have
therefore prepared the Consolidated Financial Statements on a going
concern basis.
(b) Basis of measurement
The functional currency is pound sterling and the nancial
statements are presented in pound sterling.
Amounts are rounded to the nearest hundred thousand except where
otherwise indicated. The prior period financial statements have
accordingly also been restated to the nearest hundred thousand
unless otherwise stated.
The preparation of the Consolidated Financial Statements
requires the use of estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the
Consolidated Financial Statements and the reported amounts of
revenues and expenses during the reporting period. Although these
estimates are based on the Directors' best knowledge of the
amounts, events and actions, actual results ultimately may differ
from those estimates. The areas involving a higher degree of
judgement or complexity, or areas where assumptions and estimates
are signi cant to the Consolidated Financial Statements, are
disclosed in note 3 and 4 respectively.
The Consolidated Financial Statements have been prepared on the
historical and amortised cost bases, except for certain nancial
assets and financial liabilities, which are stated at their fair
value.
(c) Adoption of new standards
The following standards, interpretations and amendments, issued
by the International Accounting Standards Board ("IASB") effective
for the year ended 31 December 2020, are relevant to the Group but
have had no material impact on the Group's Financial
Statements:
IFRS 3 (amendment) Definition of a Business effective date of 1 January
2020
IAS 1 and IAS 8 (amendment) Definition of Material effective date of 1 January
2020
CF Conceptual Framework for effective date of 1 January
Financial Reporting 2020
============================ ========================= ============================
The following standards while not new or amended in the year
ended 31 December 2020 have been adopted in the year as they have
now become relevant to the Group and have a material impact to the
Group's Financial Statements:
IFRS 2 Share-based Payments
The Group adopted IFRS 2 on 25 June 2020 following the issue of
equity settled share award schemes to certain employees, details of
which are set out in note 30. The fair value of the equity settled
share awards is measured at the date of grant and expensed on a
straight-line basis over the vesting period based on how many
awards are expected to vest. The Group uses simulation models to
estimate the fair value of the schemes based on the various
measures of performance.
IAS 20 Accounting for Government Grants and Disclosure of
Government Assistance
During the period, certain employees at Lowri Beck were placed
on furlough under the Coronavirus Job Retention Scheme. Furlough
income of GBP7.7m in relation to a maximum of 1,420 employees has
been recognised in the year ended 31 December 2020 and as such the
Group has adopted IAS 20 in accounting for this Government
assistance. The grant has been recognised as income and matched
with associated payroll costs over the same period. An asset is
shown within trade and other receivables on the balance sheet, to
the extent that claimed amounts remained outstanding at 31 December
2020.
Underwriting commissions
In accordance with IFRS 9, underwriting costs relating directly
to the new issuance of shares as part of the Company's IPO were
deducted against share premium on the basis that they are directly
incremental costs that would not have been incurred had the Group
not raised equity during the period. During the year to 31 December
2020, GBP6m of underwriting costs were deducted from share
premium.
(d) Standard issued but not yet effective
IFRS 17 Insurance Contracts effective date of 1 January
2023
======== ==================== ============================
No material impact is expected on the adoption of this
standard.
There are no other relevant standards, which are expected to
have a material impact on the Group, that have been issued by the
IASB and endorsed by the EU but are not yet effective.
(e) Presentation of financial statements in accordance with IAS 1
The Consolidated Financial Statements are prepared in accordance
with IAS 1 Presentation of Financial Statements.
(f) Basis of consolidation
The Consolidated Financial Statements consolidate the Group and
all its subsidiary undertakings, other than those listed in note 1,
for the years ended 31 December 2020 and 2019.
The Consolidated Financial Statements are based on the
consolidated financial statements of subsidiaries whose year ends
are co-terminous with those of the Company and whose accounting
policies have been consistently applied throughout the Group.
Subsidiaries are investees controlled by the Group. The Group
controls an investee if it is exposed to, 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. The Group reassesses whether it has control if there are
changes to one or more of the elements of control. Subsidiaries are
fully consolidated from the date on which control commences until
the date when control ceases.
Intra-Group balances and transactions are eliminated in
preparing the Consolidated Financial Statements. Transactions
between the Company and its subsidiaries are disclosed in the
Company's separate financial statements.
Information on the Group's structure is provided in note 32.
Information on other related party relationships of the Group is
provided in note 31.
2. Significant accounting policies
The accounting policies set out below have been applied
consistently by the Group to all years presented.
2.1 Business combinations
Business combinations are accounted for using the acquisition
method. The cost of an acquisition is measured as the aggregate of
the consideration transferred, which is measured at acquisition
date fair value, together with the amount paid for any
non-controlling interests in the acquiree. For each business
combination, the Group elects whether to measure any
non-controlling interests in the acquiree at fair value or at the
proportionate share of the acquiree's identifiable net assets.
Customer contracts and brands are valued using the Excess Earnings
Approach and "Relief from Royalties" techniques respectively. Both
methodologies use a discounted cash flow basis to support the
valuation, taking into account relevant discount factors, other
relevant charges, rates and tax amortisation benefit to generate
the cash flows.
Acquisition-related costs, referred to as transaction costs, are
expensed as incurred.
Any contingent consideration included in the aggregate
consideration transferred is recognised at fair value at the
acquisition date. Contingent consideration classified as equity is
not remeasured and its subsequent settlement is accounted for
within equity.
Contingent consideration classified as a financial asset or
liability is subsequently measured at fair value with the changes
in fair value recognised in the Consolidated Income Statement.
2.2 Fair value measurement
The Group measures certain financial instruments at fair value
at each balance sheet date. The Group also uses fair values when
accounting for assets acquired and liabilities assumed in business
combinations and as a part of its impairment testing process for
non-current assets.
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The fair value
measurement is based on the presumption that the transaction to
sell the asset or transfer the liability takes place either:
-- in the principal market for the asset or liability; or
-- in the absence of a principal market, in the most
advantageous market for the asset or liability.
The fair value of an asset or a liability is measured using the
assumptions that market participants would use when pricing the
asset or liability, assuming that market participants act in their
economic best interest.
A fair value measurement of a non-financial asset takes into
account a market participant's ability to generate economic
benefits by using the asset in its highest and best use or by
selling it to another market participant that would use the asset
in its highest and best use.
The Group uses valuation techniques that are appropriate in the
circumstances and for which sufficient data are available to
measure fair value, maximising the use of relevant observable
inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or
disclosed in the Consolidated Financial Statements are categorised
within the fair value hierarchy, described as follows, based on the
lowest level input that is significant to the fair value
measurement as a whole:
-- Level 1 - Quoted (unadjusted) market prices in active markets
for identical assets or liabilities;
-- Level 2 - Valuation techniques for which the lowest level
input that is significant to the fair value measurement is directly
or indirectly observable; or
-- Level 3 - Valuation techniques for which the lowest level
input that is significant to the fair value measurement is
unobservable.
For assets and liabilities that are recognised in the
Consolidated Financial Statements at fair value on a recurring
basis, the Group determines whether transfers have occurred between
levels in the hierarchy by reassessing categorisation (based on the
lowest level input that is significant to the fair value
measurement as a whole) at the end of each reporting period.
The Group determines policies and procedures for both recurring
fair value measurement, such as the valuation of derivatives, and
for non--recurring measurement.
At each reporting date, the Group analyses the movements in the
values of assets and liabilities which are required to be
remeasured or reassessed as per the Group's accounting policies.
For this analysis, the Group verifies the major inputs applied in
the latest valuation by agreeing the information in the valuation
computation to contracts and other relevant documents.
The Group compares the change in the fair value of each asset
and liability with relevant external sources to determine whether
the change is reasonable.
For the purpose of fair value disclosures, the Group has
determined classes of assets and liabilities on the basis of the
nature, characteristics and risks of the asset or liability and the
level of the fair value hierarchy, as explained above.
2.3 Revenue from contracts with customers
All revenues are recognised exclusive of value added tax.
(i) MAP services
Revenue from MAP services represents the MPC which is the
payment the Group receives monthly from a customer, being the
energy retailer, for the procurement, arrangement of installation,
ownership and management of a portfolio of domestic electricity and
gas meters.
Provision of MAP services is considered a single performance
obligation as outlined in section (iv) below. Revenue is recognised
over time as the service is provided on the basis that the customer
simultaneously receives and consumes the benefits of accessing the
meters.
(ii) Technical services
Revenues from technical services represent fees earned from
energy retailers for installation of meters by the Lowri Beck
operating segment.
Provision of installation services is considered a separate
performance obligation. Revenue is recognised at a point in time on
completion of the services.
(iii) Non-technical services
Revenues from Non-technical services represent meter reading and
data management services provided to energy retailers by the Lowri
Beck operating segment. Revenue is recognised at a point in time on
completion of the services.
These services are considered a distinct performance obligation
from the MPC on the basis that they are separately identifiable
services which are not necessary to bring a meter asset into
use.
Other income
Other income relates to meter-related services, non MPC, that
are recharged to customers including meter management service fees
and meter procurement. Revenue is recognised over time as the
service is provided.
The Group monitors numbers of meters installed and MAP services
revenue per meter split between smart and traditional meters. The
transaction price is the contracted price with no other adjustment
or assumptions being required for the calculation.
Significant judgements
(iv) Classification of meter income
The Group has assessed that its arrangements with energy
retailers for MAP services (i.e. the procurement and management of
meters) do not contain a lease under IFRS 16 Leases for the meters
owned by the Group. This is due to management's assessment that
energy retailers do not obtain substantially all the economic
benefit from the meters and do not control the operation or
physical access to the meters.
As such income from meters is accounted for under IFRS 15
Revenue from Contracts with Customers.
(v) Contract with the customer and contract term
The Group's arrangements with energy retailers for MAP services
include general terms and conditions by which the arrangements are
governed. However, it is not until an order is placed by the energy
retailer and accepted that either party has an obligation to
perform under the agreement. As such individual orders are
considered to be the contract under IFRS 15. The energy retailer
can terminate the contract at any time subject to the payment of
appropriate consideration. As such contracts are treated as
month-to-month contracts for accounting purposes. When the
underlying consumer moves to a new energy retailer, the Group
continues to collect the MPC from the new retailer unless the meter
is removed. If the meter is removed, the Group receives
compensation income or the meter is returned.
(vi) Performance obligations
Over the course of a contract for MAP services, the Group
performs a series of activities that are substantially the same in
terms of the nature of the Group's undertaking to the customer i.e.
the procurement and management of a portfolio of meters. In
addition, the benefits are simultaneously received and consumed by
the customer. Therefore, the services are accounted for as a single
performance obligation.
(vii) Costs to obtain a contract
The Group pays sales commissions to employees that are
contingent on successfully securing MAP service arrangements (the
contract) with customers. As such these commissions are considered
incremental costs of obtaining the contract as, if the arrangement
is not won, these commissions are not paid. The commission relates
to services transferred under multiple contracts (i.e. multiple
orders) and covers the entire term of the customer relationship. As
such, capitalised contract costs are amortised over a period of 15
years, due to this being the average economic life of a customer
arrangement based on historical information.
2.4 Contract assets
Amounts are billed monthly in arrears based on services provided
resulting in unbilled receivables (contract assets) being
recognised in the Consolidated Statement of Financial Position.
2.5 Compensation income
In cases where it has been contractually agreed, the Group is
able to claim compensation income for the loss of the contracted
MPC revenue associated with meters that are removed.
Compensation income is recognised at fair value upon
notification of the removal of the meter. It is netted against the
loss on disposal of the meter asset in cost of sales.
2.6 Taxation
Current income tax
Current income tax assets and liabilities are measured at the
amount expected to be recovered from or paid to the taxation
authorities. The tax rates and tax laws used to compute the amount
are those that are enacted or substantively enacted at the
reporting date in the countries where the Group operates and
generates taxable income.
Current income tax relating to items recognised directly in
equity is recognised in equity and not in the income statement.
Management periodically evaluate positions taken in tax returns
with respect to situations in which applicable tax regulations are
subject to interpretation and establish provisions where
appropriate.
Deferred tax
Deferred tax is provided using the liability method on temporary
differences between the tax bases of assets and liabilities and
their carrying amounts for financial reporting purposes at the
reporting date.
Deferred tax liabilities are recognised for all taxable
temporary differences, except:
-- when the deferred tax liability arises 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; or
-- in respect of taxable temporary differences associated with
investments in subsidiaries, associates and interests in joint
arrangements, when the timing of the reversal of the temporary
differences can be controlled and it is probable that the temporary
differences will not reverse in the foreseeable future.
Deferred tax assets are recognised for all deductible temporary
differences, the carry-forward of unused tax credits and any unused
tax losses. Deferred tax assets are recognised to the extent that
it is probable that taxable profit will be available against which
the deductible temporary differences, the carry-forward of unused
tax credits and unused tax losses can be utilised, except:
-- when the deferred tax asset relating to the deductible
temporary difference arises from the initial recognition of 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; or
-- in respect of deductible temporary differences associated
with investments in subsidiaries, associates and interests in joint
arrangements, deferred tax assets are recognised only to the extent
that it is probable that the temporary differences will reverse in
the foreseeable future and taxable profit will be available against
which the temporary differences can be utilised.
The carrying amount of deferred tax assets is reviewed at each
reporting date and reduced to the extent that it is no longer
probable that sufficient taxable profit will be available to allow
all or part of the deferred tax asset to be utilised. Unrecognised
deferred tax assets are reassessed at each reporting date and are
recognised to the extent that it has become probable that future
taxable profits will allow the deferred tax asset to be
recovered.
Deferred tax assets and liabilities are measured at the tax
rates that are expected to apply in the year when the asset is
realised or the liability is settled, based on tax rates (and tax
laws) that have been enacted or substantively enacted at the
reporting date.
Deferred tax relating to items recognised outside profit or loss
is recognised outside profit or loss. Deferred tax items are
recognised in correlation with the underlying transaction either in
other comprehensive income ("OCI") or directly in equity.
Tax benefits acquired as part of a business combination, but not
satisfying the criteria for separate recognition at the date of the
combination, are recognised subsequently if new information or
facts arise or circumstances change. Any adjustment is either
treated as a reduction in goodwill (as long as it does not exceed
the existing goodwill balance) if it was incurred during the
measurement period or recognised in profit or loss.
The Group offsets deferred tax assets and deferred tax
liabilities if and only if it has a legally enforceable right to do
so, and the deferred tax assets and deferred tax liabilities relate
to income taxes levied by the same taxation authority on either the
same taxable entity or different taxable entities which intend
either to settle current tax liabilities and assets on a net basis,
or to realise the assets and settle the liabilities simultaneously,
in each future period in which significant amounts of deferred tax
liabilities or assets are expected to be settled or recovered.
2.7 Foreign currencies
Transactions in foreign currencies are translated to the Group
companies' functional currency at the foreign exchange rate ruling
as at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies as at the date of the
consolidated statement of financial position are retranslated to
the functional currency at the foreign exchange rate ruling at that
date. Non-monetary assets and liabilities that are measured in
terms of historical cost in a foreign currency are translated using
the exchange rate as at the date of the transaction. Non-monetary
assets and liabilities denominated in foreign currencies that are
stated at fair value are retranslated to the functional currency at
foreign exchange rates ruling as at the dates the fair value was
determined. Foreign exchange differences arising on translation are
recognised in the Consolidated Income Statement.
The assets and liabilities of foreign operations arising on
consolidation are translated to the Group's presentational
currency, pound sterling, at foreign exchange rates ruling as at
the date of the Consolidated Statement of Financial Position. The
revenue and expenses of foreign operations are translated at an
average rate for the year where this rate approximates to the
foreign exchange rates ruling as at the dates of the transactions.
Foreign exchange differences arising on retranslation are
recognised in other comprehensive income.
2.8 Dividends
Dividends payable by the Company are recognised when declared
and therefore final dividends proposed after the date of the
consolidated statement of financial position are not recognised as
a liability as at the date of the consolidated statement of
financial position. Dividends paid to shareholders are shown as a
movement in equity rather than in the Consolidated Income Statement
and Statement of Comprehensive Income.
2.9 Intangible assets
Goodwill
Goodwill is initially measured at cost (being the excess of the
aggregate of the consideration transferred over the net
identifiable assets acquired and liabilities assumed). If the fair
value of the net assets acquired is in excess of the aggregate
consideration transferred, the Group reassesses whether it has
correctly identified all of the assets acquired and all of the
liabilities assumed and reviews the procedures used to measure the
amounts to be recognised at the acquisition date. If the
reassessment still results in an excess of the fair value of net
assets acquired over the aggregate consideration transferred, then
the gain is recognised in profit or loss.
After initial recognition, goodwill is measured at cost less any
accumulated impairment losses. For the purpose of impairment
testing, goodwill acquired in a business combination is, from the
acquisition date, allocated to the Group's CGUs.
Brands and customer contracts
Customer contracts and brands are intangible assets measured at
fair value, at acquisition using a purchase price allocation.
Customer contracts and brands are valued using the "Excess Earnings
Approach" and "Relief from Royalties" techniques respectively. Both
methodologies use a discounted cash flow basis to support the
valuation, taking into account relevant discount factors, other
relevant charges, and tax amortisation benefit to generate the
customer contracts and brands valuations.
Other intangible assets
Other intangible assets acquired separately are measured on
initial recognition at cost. The cost of intangible assets acquired
in a business combination is their fair value as at the date of
acquisition. Following initial recognition, intangible assets are
carried at cost less accumulated amortisation and any accumulated
impairment losses. Amortisation is calculated using the
straight-line method over the estimated life of each intangible
asset. Other intangible assets comprise primarily customer
contracts, brand and software. All intangible assets, other than
goodwill, have a finite useful economic life.
Research and development costs
Research costs are expensed as incurred. Development expenditure
on an individual project is recognised as an intangible asset when
the Group can demonstrate:
-- The technical feasibility of completing the intangible asset
so that the asset will be available for use or sale;
-- Its intention to complete and its ability and intention to
use or sell the asset;
-- How the asset will generate future economic benefits;
-- The availability of resources to complete the asset; and
-- The ability to measure reliably expenditure during
development.
Following initial recognition of development expenditure as an
asset, the asset is carried at cost less accumulated amortisation
and any accumulated impairment losses. Amortisation of the asset
begins when development is complete and the asset is available for
use. It is amortised over the period of expected future benefit.
During the period of development, the asset is tested for
impairment annually.
Capitalised development expenditure relates to relevant costs
incurred in the development of software by the Lowri Beck
subsidiary.
Amortisation
Amortisation is charged to the Consolidated Income Statement on
a straight-line basis over the estimated useful lives of intangible
assets except for goodwill, which is not amortised. Intangible
assets are amortised from the date they are available for use.
The estimated useful lives of other intangible assets are as
follows:
Customer contracts 5-15 years
Brand 10 years
Software 3 years
Development costs 1-5 years
=================== ===========
The Group reviews the amortisation period and method when events
and circumstances indicate that the useful life may have changed
since the last reporting date.
Impairment
Goodwill is tested for impairment annually as at 31 December and
when circumstances indicate that its carrying value may be
impaired.
Impairment is determined for goodwill by assessing the
recoverable amount of the CGU to which the goodwill relates. The
recoverable amount is the higher of the CGU's fair value less costs
of disposal and its value in use. When the recoverable amount of
the CGU is less than its carrying amount, an impairment loss is
recognised. Impairment losses relating to goodwill cannot be
reversed in future periods.
At each balance sheet date, the Group tests whether there are
any indications of other intangible assets, including development
costs, being subject to impairment. If any such indications exist,
the recoverable amount of the asset is determined.
2.10 Property, plant and equipment
Property, plant and equipment consisting of equipment and other
fixed assets are stated at cost less accumulated depreciation. Cost
includes expenditure that is directly attributable to bringing the
asset to the location and condition necessary for it to be capable
of operating in the manner intended by management.
Depreciation is based on the estimated useful life and
calculated as a fixed percentage of cost, taking into account any
residual value. Depreciation begins from the date an asset is ready
for intended use. The cost of these items is depreciated using the
straight-line method over the following remaining estimated useful
lives:
Computer hardware 3 years
Credit meters Shorter of asset life or 30 June 2025 (year ended 31
December 2019: Shorter of 10 years or straight line to
2021)
Prepayment meters Shorter of asset life or 30 June 2025 (year ended 31
December 2019: Shorter of 10 years or straight line to
2021)
Smart meters 15 years
Fixtures and 3 years
fittings
Office equipment 3 years
Motor vehicles 3-4 years
Leasehold improvements 8-10 years
======================= ========================================================
Credit meters, prepayment meters and smart meters are disclosed
within "Equipment" within note 19.
Computer hardware, fixtures and fittings, office equipment,
motor vehicles and leasehold improvements are disclosed within
"Other fixed assets" within note 19.
Depreciation and profits/(losses) on the disposal of equipment
are disclosed within cost of sales in the Consolidated Income
Statement.
Depreciation methods, useful lives and residual values are
reviewed if there is an indication of a significant change since
the last annual reporting date in the pattern according to which
the Company expects to consume an asset's future economic benefits.
A change in the useful expected life of traditional meters has been
deemed necessary in the year ended 31 December 2020, see note 4 for
further details.
The Group assesses, at each reporting date, whether there is an
indication that property, plant and equipment may be impaired. If
any such indication exists, the Group estimates the asset's
recoverable amount. An asset's recoverable amount is the higher of
an asset's or the CGU's fair value less costs of disposal and its
value in use. The recoverable amount is determined for an
individual asset, unless the asset does not generate cash inflows
that are largely independent of those from other assets or groups
of assets. When the carrying amount of an asset or the CGU exceeds
its recoverable amount, the asset is considered impaired and is
written down to its recoverable amount.
2.11 Leases
Group as a lessee
IFRS 16 Leases has been applied by measuring lease liabilities
at the date of transition to IFRS, discounted using the lessee's
incremental borrowing rate at the transition date in line with the
modified retrospective approach. The associated right-of-use asset
has been measured at an amount equal to the lease liability,
adjusted by the amount of any prepaid or accrued lease payments
relating to that lease recognised in the statement of financial
position immediately before the IFRS transition date. The asset and
liability have been recognised in 'Property, plant and equipment'
and 'Other creditors', respectively. In addition, initial direct
costs have been excluded from the measurement of the right-of-use
asset at the transition date.
Leases where the Group is acting as lessee are accounted for
based on a "right-of-use model", with certain limited exceptions
(see discussion of exemptions provided below). The model reflects
that, at the commencement date, a lessee has a financial obligation
to make lease payments to the lessor for its right to use the
underlying asset during the lease term.
Where the Group is acting as lessee, as at the date of
commencement of the lease, the Group recognises a right-of-use
asset and a lease liability.
The Group initially measures the right-of-use asset at cost. The
cost of the right-of-use asset comprises:
-- the amount of the initial measurement of the lease
liability;
-- any lease payments made at or before the commencement date,
less any lease incentives received;
-- any initial direct costs incurred by the lessee; and
-- an estimate of costs to be incurred by the lessee in
dismantling and removing the underlying asset, restoring the site
on which it is located or restoring the underlying asset to the
condition required by the terms and conditions of the lease.
The right-of-use asset is subsequently measured using the cost
model, i.e. at cost less any accumulated depreciation and any
accumulated impairment losses and adjusted for any remeasurement of
the lease liability.
At commencement, the lease liability is measured at the present
value of the lease payments that are not paid at that date. The
lease payments are discounted using the interest rate implicit in
the lease, if that rate can be readily determined. If that rate
cannot be readily determined, the incremental borrowing rate is
used.
After commencement, the lease liability is measured by:
-- increasing the carrying amount to reflect interest on the
lease liability;
-- reducing the carrying amount to reflect the lease payments
made; and
-- remeasuring the carrying amount to reflect any reassessment
or lease modifications.
Depreciation of the right of use asset and interest expense in
respect of the lease liability are recognised in the Consolidated
Income Statement in "Administrative expenses" and "Finance
expenses" respectively.
The exceptions to the right-of-use model relate to accounting
policy choices available under IFRS 16 Leases. The Group has chosen
to take the recognition exemptions available in respect of
short-term leases (being leases with a term of less than 12 months)
and leases of low-value assets. Such leases are accounted for as an
expense on a straight-line basis over the lease term, with no
right-of-use asset or lease liability recognised on the statement
of financial position.
2.12 Inventory
Inventories are stated at the lower of cost or net realisable
value, after making due allowance for obsolete and slow-moving
items. Cost comprises direct material stated at purchase cost. Net
realisable value represents the estimated selling price for
inventories less costs necessary to make the sale.
2.13 Financial instruments
A financial instrument is any contract that gives rise to a
financial asset or equity instrument of one entity and a financial
liability or equity instrument of another entity.
(i) Financial assets
Initial recognition and measurement
Financial assets are classified at initial recognition and
subsequently measured at amortised cost, fair value through OCI,
and fair value through profit or loss.
The classification of financial assets at initial recognition
depends on the financial asset's contractual cash flow
characteristics and the Group's business model for managing them.
With the exception of trade receivables that do not contain a
significant financing component or for which the Group has applied
the practical expedient, whereby the time value of money is not
considered when the interval between the promise of goods and
services is expected to be less than 12 months, the Group initially
measures a financial asset at its fair value plus, in the case of a
financial asset not at fair value through profit or loss,
transaction costs. Trade receivables that do not contain a
significant financing component or for which the Group has applied
the practical expedient are measured at the transaction price
determined under IFRS 15.
In order for a financial asset to be classified and measured at
amortised cost or fair value through OCI, it needs to give rise to
cash flows that are "solely payments of principal and interest"
("SPPI") on the principal amount outstanding. This assessment is
referred to as the SPPI test and is performed at an instrument
level.
The Group's business model for managing financial assets is to
manage its financial assets in order to generate cash flows. The
business model determines whether cash flows will result from
collecting contractual cash flows, selling the financial assets, or
both.
Subsequent measurement
For purposes of subsequent measurement, financial assets are
classified as either:
-- financial assets at amortised cost (trade and other
receivables); or
-- financial assets at fair value through profit or loss
(derivatives).
Financial assets at amortised cost (trade and other
receivables)
This category is the most relevant to the Group. The Group
measures financial assets at amortised cost if both of the
following conditions are met:
-- the financial asset is held within a business model with the
objective to hold financial assets in order to collect contractual
cash flows; and
-- the contractual terms of the financial asset give rise to
cash flows that are solely payments of principal and interest on
the principal amount outstanding.
Financial assets at amortised cost consist of trade receivables
which are subsequently measured at amortised cost less impairment.
They are generally due for settlement within 45 days and are
therefore all classified as current.
Financial assets at fair value through profit or loss
Financial assets with cash flows that are not solely payments of
principal and interest are classified and measured at fair value
through profit or loss, irrespective of the business model. This
category includes derivative financial instruments entered into by
the Group that are not designated as hedging instruments in hedge
relationships as defined by IFRS 9. Derivative financial
instruments classified as financial assets being utilised by the
Group include interest rate caps and swaptions, all of which are
measured at fair value through profit or loss.
Financial assets at fair value through profit or loss are
carried in the consolidated statement of financial position at fair
value with net changes in fair value recognised in the Consolidated
Income Statement.
Derecognition
A financial asset (or, where applicable, part of a financial
asset or part of a Group of similar financial assets) is primarily
derecognised (i.e., removed from the Group's consolidated statement
of financial position) when:
-- the rights to receive cash flows from the asset have expired;
or
-- the Group has transferred its rights to receive cash flows
from the asset or has assumed an obligation to pay the received
cash flows in full without material delay to a third party under a
"pass-through" arrangement; and either (a) the Group has
transferred substantially all the risks and rewards of the asset,
or (b) the Group has neither transferred nor retained substantially
all the risks and rewards of the asset, but has transferred control
of the asset.
When the Group has transferred its rights to receive cash flows
from an asset or has entered into a pass-through arrangement, it
evaluates if, and to what extent, it has retained the risks and
rewards of ownership. When it has neither transferred nor retained
substantially all of the risks and rewards of the asset, nor
transferred control of the asset, the Group continues to recognise
the transferred asset to the extent of its continuing involvement.
In that case, the Group also recognises an associated liability.
The transferred asset and the associated liability are measured on
a basis that reflects the rights and obligations that the Group has
retained. Continuing involvement that takes the form of a guarantee
over the transferred asset is measured at the lower of the original
carrying amount of the asset and the maximum amount of
consideration that the Group could be required to repay.
The Group's Lowri Beck subsidiary used an invoice discounting
facility with a third party factoring company for its trade
receivables. The Group has determined that it has retained
substantially all the risks and rewards of the trade receivable
asset. As such the trade receivables subject to the facility
continue to be shown within trade and other receivables, measured
at amortised cost, on the consolidated statement of financial
position and the amount due to the factoring company is included in
interest-bearing loans and liabilities.
Impairment of financial assets
The Group recognises an allowance for ECLs. ECLs are based on
the difference between the contractual cash flows due in accordance
with the contract and the cash flows that the Group expects to
receive, discounted at an approximation of the original effective
interest rate.
For trade receivables, the Group applies a simplified approach
to calculating ECLs. The Group does not track changes in credit
risk, but instead recognises a loss allowance based on lifetime
ECLs at each reporting date. The Group has established a provision
matrix based on its historical credit loss experience, adjusted for
forward-looking factors specific to the trade receivables and the
economic environment.
(ii) Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as
financial liabilities at fair value through profit or loss, loans
and borrowings, payables, or as derivatives designated as hedging
instruments in an effective hedge, as appropriate.
All financial liabilities are recognised initially at fair value
and, in the case of loans and borrowings and payables, net of
directly attributable transaction costs.
The Group's financial liabilities include trade and other
payables, loans and borrowings including bank overdrafts, and
derivative financial instruments.
Subsequent measurement
The measurement of financial liabilities depends on their
classification, as described below:
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss
include financial liabilities held for trading and financial
liabilities designated upon initial recognition as at fair value
through profit or loss.
Financial liabilities are classified as held for trading if they
are incurred for the purpose of repurchasing in the near term. This
category also includes derivative financial instruments entered
into by the Group that are not designated as hedging instruments in
hedge relationships as defined by IFRS 9. Derivative financial
instruments classified as financial liabilities being utilised by
the Group include interest rate swaps, caps and swaptions, all of
which are measured at fair value through profit or loss.
Separated embedded derivatives are also classified as held for
trading unless they are designated as effective hedging
instruments. None are designated as effective hedging instruments
for the years ended 31 December 2020 or 2019.
Financial liabilities designated upon initial recognition at
fair value through profit or loss are designated at the initial
date of recognition, and only if the criteria in IFRS 9 are
satisfied. The Group has not designated any financial liability as
fair value through profit or loss.
Loans and borrowings
After initial recognition, interest-bearing loans and borrowings
are subsequently measured at amortised cost using the effective
interest rate ("EIR") method. Gains and losses are recognised in
profit or loss when the liabilities are derecognised as well as
through the EIR amortisation process. Commitment fees in relation
to undrawn facilities are incurred and settled quarterly in arrears
and are therefore measured at amortised cost.
Amortised cost is calculated by taking into account any discount
or premium on acquisition and fees or costs that are an integral
part of the EIR. The EIR amortisation is included as interest
payable and similar expenses in the statement of profit or
loss.
This category generally applies to interest-bearing loans and
borrowings.
Derecognition
A financial liability is derecognised when the obligation under
the liability is discharged or cancelled or expires. When an
existing financial liability is replaced by another from the same
lender on substantially different terms, or the terms of an
existing liability are substantially modified, such an exchange or
modification is treated as the derecognition of the original
liability and the recognition of a new liability. The difference in
the respective carrying amounts is recognised in the Consolidated
Income Statement.
(iii) Offsetting of financial instruments
Financial assets and financial liabilities are offset and the
net amount is reported in the consolidated statement of financial
position if there is a currently enforceable legal right to offset
the recognised amounts and there is an intention to settle on a net
basis, to realise the assets and settle the liabilities
simultaneously.
(iv) Derivative financial instruments and hedging activities
Derivatives are initially recognised at fair value on the date
the contract is entered into and are subsequently remeasured at
fair value. Movements in fair value are recognised in the statement
of comprehensive income. No derivatives are designated as hedging
instruments for accounting purposes.
2.14 Share capital
Shares are classified as equity when there is no obligation to
transfer cash or other financial assets, or to exchange financial
assets or liabilities under potentially unfavourable conditions.
Where such an obligation exists, the share capital is recognised as
a liability notwithstanding the legal form. Incremental costs
directly attributable to the issue of equity instruments are
recognised as a deduction from share premium to the extent that
there is sufficient share premium to do so, net of tax effects.
2.15 Cash and cash equivalents
Cash is represented by cash in hand and deposits with financial
institutions repayable without penalty on notice of not more than
24 hours. Cash equivalents are highly liquid investments that
mature in no more than three months from the date of acquisition
and that are readily convertible to known amounts of cash with
insignificant risk of change in value.
2.16 Pensions
The Group operates defined contribution pension plans for
employees. A defined contribution plan is a post-employment benefit
plan under which the Group pays fixed contributions into a separate
entity and has no legal or constructive obligation to pay further
amounts. Obligations for contributions to defined contribution
pension plans are recognised as an expense in the Consolidated
Income Statement in the periods during which services are rendered
by employees. The assets of the plan are held separately from the
Group in independently administrated funds.
2.17 Provisions
Provisions are recognised in the balance sheet when the Group
has a present legal or constructive obligation as a result of a
past event, it is probable that an outflow of economic benefits
will be required to settle the obligation and a reliable estimate
can be made of the amount of the obligation. If the effect of the
time value of money is material, provisions are discounted using
the current pre-tax rate that reflects, where appropriate, the
risks specific to the liability. The carrying amounts of provisions
are regularly reviewed and adjusted for new facts or changes during
the reporting period.
The Group occupies a number of properties under leases
containing dilapidation obligations. Provisions arise principally
in connection with estimated obligations under property leases to
restore leased properties to the original pre-rental condition.
Estimates are made of the costs anticipated to have accrued under
those leases at the year end date.
2.18 Related parties
All Group companies and affiliates are considered to be related
parties. In line with IAS 24 and Disclosure and Transparency Rules
7.3.2, the following are also related parties to the extent that
they are able to exert significant influence or control:
shareholders with significant control, subsidiaries of shareholders
with significant control, directors and other key management of the
Company and their close family members. Transactions between Group
companies are eliminated in the consolidation. Related party
transactions are disclosed in note 31.
2.19 Interest income and expense
Interest income and interest payable are recognised in the
Consolidated Income Statement as they accrue, using the effective
interest method. Senior debt commitment fees are expensed in the
period incurred and paid.
3. Significant accounting judgements
Critical accounting judgements in applying the Group accounting
policies
Preparation of the Consolidated Financial Statements requires
management to make significant judgements and estimates. Certain
critical accounting judgements in applying the Group's accounting
policies are described within the revenue recognition accounting
policy note (note 2.3). The Group considered alternative approaches
to the revenue recognition policy stated in note 2.3 however the
Board considered that IFRS 15 provided clearer guidance and a more
accurate reflection of the Group's arrangements with its
customers.
4. Significant accounting estimates
Estimation uncertainty in applying the Group accounting
policies
Estimation uncertainty could have the risk of resulting in a
material difference within the next financial year's result. The
Directors are satisfied that appropriate procedures are in place to
reduce the likelihood of this happening.
Financial instruments
All derivatives are measured at fair value. Fair value is the
price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at
the measurement date. Adjustments are also made when valuing
financial liabilities measured at fair value to reflect the
Company's own credit risk. Where the market for a financial
instrument is not active, fair value is established using a
valuation technique. These valuation techniques involve a degree of
estimation, the extent of which depends on the instrument's
complexity and the availability of market-based data. At 31
December 2020, the Group had derivative assets of GBP4.0m (31
December 2019: GBP1.1m) and derivative liabilities of GBP1.6m (31
December 2019: GBP32.4m).
Valuation of intangible assets arising as a result of a business
combination
Following the acquisition of Lowri Beck in 2019, management
undertook a purchase price allocation exercise to identify the
separable identifiable intangible assets. Management made
judgements relating to the fair value of the assets and liabilities
acquired. At 31 December 2020, the Group had intangible assets of
GBP449.6m (31 December 2019: GBP492.4m) made up of brands and
customer contracts.
Goodwill impairment
Management reviews the valuation of goodwill for impairment
annually or if events and changes in circumstances indicate that
the carrying value may not be recoverable. The recoverable amount
is determined based on value in use as fair value less costs to
sell is not easily validated as there is no active market in these
assets. See further details in note 21. At 31 December 2020, the
Group had goodwill of GBP79.4m (31 December 2019: GBP79.4m).
Useful economic lives of tangible assets
The annual depreciation charge for tangible assets is sensitive
to changes in the estimated UEL and residual values of the assets.
UELs and residual values are reassessed annually and are amended
when necessary to reflect current estimates, based on technological
advancement, future investments, economic utilisation and the
physical condition of the assets.
During the period, the Group performed a detailed review of the
estimated UELs of its smart and traditional meter portfolio. The
UEL of 15 years for a smart meter was deemed to still be a reliable
estimate and no change was made to this estimate. Traditional
meters had been depreciated over the shorter of 10 years or to the
end of 2021. In June 2020, BEIS announced its intention to extend
the smart meter implementation programme to the end of June 2025.
The Group has installation contracts in place to support this
timeline. Given these factors, the Group has determined that the
UEL of the traditional meters should be extended to the shorter of
their asset life or 30 June 2025. The net book value of traditional
meters at 31 December 2019 was GBP65.5m; this is now being
depreciated over five and half years, starting from 1 January 2020,
rather than over 2 years, This change in policy had the effect of
reducing the depreciation charge by GBP17.2m to GBP15.9m in the
year ended 31 December 2020.
The Group had plant, property and equipment with a net book
value of GBP897.9m at 31 December 2020 (31 December 2019:
GBP821.0m). See note 19 for the carrying amount of plant, property
and equipment, and note 2.10 for the accounting policy for fixed
assets including the UELs for each class of assets.
5. Segmental reporting
In line with IFRS 8 Operating Segments, the Directors consider
there to be two operating and reportable segments, as follows:
-- Calvin Capital, which procures, owns and manages meter assets
on behalf of its customers, who make MPC payments on a long-term
contracted basis; and
-- Lowri Beck, which provides meter installation, reading and
maintenance services. In addition, it owns and manages a small
portfolio of traditional meters on behalf of its customers.
The segments are largely organised and managed separately
according to the nature of the products and services provided.
The Board is the Chief Operating Decision Maker ("CODM") and
receives monthly financial information at this level and uses this
information to monitor the performance of the business, allocate
resources and make operational decisions. Therefore, the two
segments above are defined as the Group's operating segments and no
operating segments have been aggregated to form the above
reportable segments.
The performance of each operating segment is primarily assessed
on operating profit and EBITDA. Other APMs are also utilised to
assess the performance of each segment such as adjusted and
underlying EBITDA and FFO. Further details of these APMs can be
found in the Chief Financial Officer's Review in the Strategic
Report.
The following segmental information is presented in respect of
the Group's reportable segments together with other elements of
revenue, income and expense:
Calvin Lowri Consolidation Total
Capital Beck GBPm GBPm
GBPm GBPm
Year ended 31 December 2020
Segment revenue
MAP services:
Traditional meter revenue 59.9 6.1 - 66.0
Smart meter revenue 141.8 - - 141.8
Non-technical services - 21.5 - 21.5
Technical services - 18.1 (3.3) 14.8
Other income 3.7 0.3 - 4.0
Total revenue from external customers 205.4 46.0 (3.3) 248.1
Cost of sales:
Direct costs - (37.3) 3.3 (34.0)
Depreciation of metering equipment held
within property, plant and equipment (77.0) (0.5) - (77.5)
(Loss)/gain on disposal of fixed assets (2.2) 0.1 - (2.1)
Segment gross profit 126.2 8.3 - 134.5
Admin expenses:
Depreciation of non-metering equipment
held within property, plant and equipment (0.3) (0.3) (1.3) (1.9)
Net foreign exchange gain 0.4 - - 0.4
Overheads (19.9) (7.9) 1.6 (26.2)
Other expenses (6.6) (1.7) - (8.3)
Amortisation of intangible assets (43.1) (1.4) - (44.5)
Segment operating profit/(loss) 56.7 (3.0) 0.3 54.0
Finance expense (103.2) (1.5) (0.3) (105.0)
Finance income 33.8 - - 33.8
Loss before tax (12.7) (4.5) - (17.2)
Tax expense (9.8) - - (9.8)
Loss for the year (22.5) (4.5) - (27.0)
Capital expenditure 171.4 0.4 - 171.8
============================================ ========= ======= ============== ========
Consolidation adjustments relate to the elimination of revenue
for installation services provided by Lowri Beck to Calvin Capital
and IFRS conversion amounts.
Capital expenditure consists of additions of property, plant and
equipment.
The comparative information for the year ended 31 December 2019
is presented below although this does not reflect a full year's
trading for the Lowri Beck segment as the business was acquired in
August 2019.
Calvin Lowri
Capital Beck Consolidation Total
GBPm GBPm GBPm GBPm
Year ended 31 December 2019
Segment revenue
MAP Services
Traditional meter revenue 65.5 2.7 - 68.2
Smart meter revenue 120.2 - - 120.2
Non-technical services - 9.6 - 9.6
Technical services - 8.2 (1.4) 6.8
Other income 4.0 - - 4.0
Total revenue from external customers 189.7 20.5 (1.4) 208.8
Cost of sales:
Direct costs (20.3) 1.4 (18.9)
Depreciation of metering equipment held
within property, plant and equipment (85.4) (0.5) - (85.9)
(Loss)/gain on disposal of fixed assets (7.0) 0.1 - (6.9)
Segment gross profit/(loss) 97.3 (0.2) - 97.1
Admin expenses:
Depreciation of non-metering equipment
held within property, plant and equipment (0.2) (0.1) (0.6) (0.9)
Other expenses (11.3) - - (11.3)
Overheads (14.2) (2.5) 0.8 (15.9)
Amortisation of intangible assets (41.4) (0.9) - (42.3)
Segment operating profit/(loss) 30.2 (3.7) 0.2 26.7
Finance expense (108.3) (0.6) (0.2) (109.1)
Finance income 0.2 - - 0.2
Loss before tax (77.9) (4.3) - (82.2)
Tax credit 2.1 - - 2.1
Loss for the period (75.8) (4.3) - (80.1)
Capital expenditure 275.6 0.2 - 275.8
============================================ ========= ======= ============== ========
Geographic information
Revenue from external customers by geographic market is
disclosed in note 6. Set out below is the breakdown of non-current
operating assets by geographic market.
At 31 December
2020 2019
GBPm GBPm
Geographical markets
UK 1,438.1 1,402.1
Total 1,438.1 1,402.1
====================== ======== ========
6. Revenue from contracts with customers
Disaggregated revenue information
Set out below is the disaggregation of the Group's revenue from
contracts with customers:
Year ended 31
December
2020 2019
GBPm GBPm
Revenue from contracts with customers
MAP services 207.8 188.4
Non-technical services 21.5 9.6
Technical services 14.8 6.8
Other income 4.0 4.0
Total revenue 248.1 208.8
Geographical markets
UK 248.1 208.8
Total revenue 248.1 208.8
Timing of revenue recognition
Transferred over time 211.8 192.4
Transferred at a point in time 36.3 16.4
Total revenue 248.1 208.8
Green revenue
MAP services (smart meter) 141.8 120.2
Technical services 14.8 6.8
Total green revenue 156.6 127.0
Contract assets 4.9 13.4
Accrued income 17.2 -
Trade receivables (note 24) 31.9 33.9
Costs to obtain contracts with customers 2.0 2.2
========================================== ======= =======
During 2020, the Group entered into contract modifications with
a number of customers. As a result of these contract modifications,
additional income of GBP2.0m (2019: GBP3.6m) was calculated by
reference to previous financial years.
The Group bills monthly in arrears based on the services
provided. As such, for the year ended 31 December 2020, GBP4.9m
(year ended 31 December 2019: GBP13.4m) of contract assets and
GBP17.2m (year ended 31 December 2019: GBPNil) of accrued income
were recognised in the consolidated statement of financial
position.
Costs incurred to obtain a contract represent sales commissions
payable to employees. These costs are included within intangible
assets and amortised over 15 years. During the year ended 31
December 2020, GBP0.2m of amortisation was recorded in
administrative expenses (year ended 31 December 2019: GBP0.2m).
Trade receivables are non-interest-bearing and are generally on
terms of 30 to 45 days. In the year ended 31 December 2020, GBP2.2m
(year ended 31 December 2019: GBP1.3m) was recognised as a
provision for ECLs on trade receivables. A provision against of
GBP0.7m (2019: GBPnil) was recognised for ECLs on accrued
income.
The Group applies the practical expedient in paragraph 121 of
IFRS 15 and does not disclose information about remaining
performance obligations that have original expected durations of
one year or less.
7. Cost of sales
Year ended 31
December
2020 2019
GBPm GBPm
Depreciation of property, plant and equipment (meters) (77.5) (85.9)
Loss on disposal of property, plant and equipment (meters)
net of compensation income (2.1) (6.9)
Employee benefits expense and other direct costs (34.0) (18.9)
Total cost of sales (113.6) (111.7)
============================================================ ======== ========
8. Administrative expenses
Included in administrative expenses are the following:
Year ended 31
December
2020 2019
GBPm GBPm
Depreciation of property, plant and equipment (1.9) (0.9)
Net foreign exchange gain 0.4 -
Short-term lease expense (0.1) (0.1)
Auditor's remuneration (note 9) (0.8) (2.7)
Employee benefits expense (note 10) (12.6) (7.8)
Other administrative overheads (12.7) (5.3)
Total administrative expenses (27.7) (16.8)
=============================================== ======= =======
Overheads are predominantly made up of legal and professional
fees.
9. Auditor's remuneration
Year ended 31
December
2020 2019
GBPm GBPm
Audit and audit-related services
Audit of the Group and Company financial statements (0.3) (0.2)
Audit of the financial statements of subsidiaries of
the Company (0.1) (0.1)
Audit-related assurance services (Interim Review) (0.1) -
(0.5) (0.3)
Amounts payable to the Group Auditor and its associates
in respect of:
Other services relating to taxation - (0.3)
Services relating to the IPO (0.3) (2.1)
(0.8) (2.7)
========================================================= ======= =======
Services relating to the IPO and other services relating to
taxation are included within other operating expenses (note 13) in
the Consolidated Income Statement. The IPO occurred in February
2020 and costs were therefore incurred in both 2019 and 2020. All
non-audit services were incurred prior to or as part of the
IPO.
10. Employee benefits expense
Staff costs for the periods set out below, including Directors'
remuneration, were as follows:
Year ended 31
December
2020 2019
GBPm GBPm
Included in cost of sales
Wages and salaries (33.4) (15.1)
Social security costs (2.9) (1.3)
Defined contribution costs (0.7) (0.3)
Furlough income received under the Coronavirus Job Retention 7.7 -
Scheme
Included in administrative expenses
Wages and salaries (10.5) (6.3)
Social security costs (0.8) (0.9)
Defined contribution costs (0.9) (0.6)
Share-based payment charge (0.4) -
Total employee benefits expense (41.9) (24.5)
============================================================== ======= =======
Employee benefits expense for the year ended 31 December 2019
includes, within cost of sales, the expense for Lowri Beck from the
date of acquisition.
The Group adopted IFRS 2 in the year ended 31 December 2020 and
recognised a share-based payment charge of GBP0.4m in relation to a
PSP, further details of which can be found in note 30.
The average monthly number of FTE and the number of FTE as at
December during the years set out below were as follows:
2020 2019
Average At 31 Average At 31
December December
Management and administration 516 419 238 619
Operational staff 932 890 337 885
1,448 1,309 575 1,504
=============================== ======== ========== ======== ==========
The period end figures are provided in addition to the time
weighted average during the year due to the acquisition of Lowri
Beck on 16 August 2019. The figures for 2019 have been restated to
exclude agency staff and contractors thereby reducing the average
employees by 67 and the employees at 31 December 2019 by 244.
11. Compensation of key management personnel
The following amounts were recognised as an expense during the
reporting period relating to compensation of key management
personnel being the Executive Committee of the Group.
Year ended 31
December
2020 2019
GBPm GBPm
Salaries and short-term benefits (4.4) (2.2)
Defined contribution costs (0.2) (0.1)
Share-based payment charge (0.2) -
(4.8) (2.3)
================================== ======= =======
The highest paid Director received total compensation of GBP1.0m
for the year ended 31 December 2020 (2019: GBP0.9m).
The Group adopted IFRS 2 in the year ended 31 December 2020 and
recognised a share-based payment charge of GBP0.2m in relation to a
PSP for key management personnel, further details of which can be
found in the Directors' Remuneration Report and note 30.
Following the IPO in February 2020, the way the business is
strategically managed developed to reflect the newly listed nature
of the business. The ongoing strategy is now governed by the
Executive Committee and the expense for the year ended 31 December
2020 reflects the fact that certain additional key management
personnel only joined the business during the year ended 31
December 2020.
12. Finance income/(expense)
Year ended 31
December
2020 2019
GBPm GBPm
Senior debt commitment fees (4.4) (3.7)
Agency and technical adviser fees (0.3) (0.4)
Fair value loss on derivative financial instruments - (14.7)
Derivative breakage fees (53.5) (0.8)
Amortisation of debt issue costs (20.3) (3.9)
Letter of credit fees and other charges (2.5) (10.0)
Interest payable on bank loans (17.8) (22.2)
Interest payable on shareholder loans (5.9) (53.2)
Unwinding of discount on lease liabilities (0.3) (0.2)
Total finance expense (105.0) (109.1)
Bank interest receivable 0.1 0.2
Fair value gain on derivative financial instruments 33.7 -
Total finance income 33.8 0.2
===================================================== ======== ========
Net finance expense (71.2) (108.9)
===================== ======= ========
13. Other operating expenses
Year ended 31
December
2020 2019
GBPm GBPm
IPO-related costs (5.2) (10.8)
Lowri Beck acquisition - (0.5)
Acquisition-related expenses (1.4) -
Restructuring costs (1.7) -
Other operating expenses (8.3) (11.3)
============================== ======= =======
IPO-related costs were incurred as part of the admission to the
London Stock Exchange in February 2020. Lowri Beck was acquired in
August 2019 incurring costs during the year ended 31 December 2019.
The Acquisition-related expenses have been incurred in connection
with the offer for the Group announced on 11 December 2020. The
restructuring costs relate to the restructuring programme at Lowri
Beck undertaken during 2020.
14. Earnings per share
Year ended 31
December
2020 2019
Loss attributable to equity shareholders of the Company
(GBPm) (27.0) (80.1)
Basic earnings per share (pence) (5.5) (364.2)
Diluted earnings per share (pence) (5.5) (364.2)
========================================================= ======= ========
Basic earnings per share ("EPS") is calculated by dividing the
profit attributable to shareholders for the period by the weighted
average number of shares in issue for that period. As set out in
note 1, the IPO of the Group in February 2020 resulted in a
significant change in the capital structure of the Company. This is
reflected in the weighted average numbers of shares used in the
earnings per share calculation below.
During the year ended 31 December 2020, the Group awarded
conditional share awards to directors and certain employees through
a PSP, see note 30 for further details. The awards have not yet
vested but as per IAS 33 these awards must be reflected through the
diluted EPS.
Year ended 31
December
2020 2019
m m
Weighted average number of shares (basic) 493.4 22.0
Weighted average number of shares (diluted) 494.8 22.0
============================================= ======== ======
15. Taxation
Year ended 31
December
2020 2019
GBPm GBPm
Current tax
Current tax on loss for the year (1.6) (2.0)
Adjustment in respect of prior periods 3.7 -
Total current tax credit/(charge) 2.1 (2.0)
Deferred tax
Origination and reversal of timing differences 1.4 7.5
Tax rate changes (9.7) -
Adjustment in respect of prior periods (3.6) (3.4)
Total deferred tax (charge)/credit (11.9) 4.1
Tax (charge)/credit on loss on ordinary activities (9.8) 2.1
==================================================== ======== ======
There was an overall tax credit in the year ended 31 December
2019 as the timing differences relating to deferred taxation were
in excess of the corporation tax charges on the taxable profits of
a number of subsidiary undertakings. There was an overall tax
charge in the year ended 31 December 2020 driven by the
cancellation of the 17% tax rate from 1 April 2020 leading to a
remeasurement of deferred tax balances at 19%.
The adjustments in respect of prior periods relate to refunds
due from HMRC following resubmission of a number of subsidiaries'
tax returns from earlier years. The refunds have been derived from
the loss reliefs not previously utilised.
Reconciliation of tax charge for the year
A reconciliation between tax expense and the product of
accounting profit multiplied by the standard rate of corporation
tax in the UK of 19% as set out below:
Year ended 31
December
2020 2019
GBPm GBPm
Accounting loss before tax (17.2) (82.2)
At the UK's standard rate of corporation tax of 19% 3.3 15.6
Effects of:
Adjustments in respect of prior periods 0.1 (3.4)
Non-deductible expenses (3.7) (10.2)
Income not subject to taxation 0.3 0.2
Other adjustments, reliefs and transfers (3.1) 0.3
Current period losses for which no deferred tax asset
was recognised - (0.6)
Change in tax rate on deferred tax balances (9.4) -
Recognition of previously unrecognised deferred tax assets 2.9 -
Other (0.2) 0.2
Total tax (charge)/credit (9.8) 2.1
============================================================ ======= =======
Factors that may affect future tax charges
The standard rate of UK corporation tax on ordinary activities
was 19% in the year ended 31 December 2020 (31 December 2019: 19%)
and was expected to reduce to 17% for financial years beginning
after 1 April 2020. On 11 March 2020, the UK Government announced
its intention to cancel the reduction in the corporation tax rate
to 17% effective from 1 April 2020 and therefore deferred taxation
balances have been measured at 19%.
16. Deferred tax
At 31 December
2020 2019
GBPm GBPm
Opening deferred tax liability (86.5) (90.2)
Change in provision through Consolidated Income Statement
resulting from an increase in tax losses available, change
in tax rate and reduction in timing differences arising
on intangible fixed assets (11.9) 3.7
Change in provision through other comprehensive income 0.1 -
in respect of IFRS 2 Share-based Payments
Closing deferred tax liability (98.3) (86.5)
============================================================= ======== =======
The following table provides details of the temporary
differences and unused tax losses for which deferred tax has not
been recognised:
At 31 December
2020 2019
GBPm GBPm
Unused tax losses - UK* - 18.0
Interest restriction carried forward 22.2 47.9
Other temporary differences - -
====================================== ======== =======
* The unused tax losses have no fixed expiry date.
The Group's liability for deferred taxation consists of the tax
effect of temporary differences in respect of:
At 31 December
2020 2019
GBPm GBPm
Excess of taxation allowances over depreciation on property,
plant and equipment (46.0) (30.8)
Tax losses available 33.5 21.8
Short-term timing differences (0.5) 5.4
Deferred tax arising on intangible fixed assets (84.7) (82.0)
Other taxable temporary differences (0.7) (0.9)
Deferred tax on IFRS 16 lease adjustments and IFRS 2 0.1 -
Share-based Payments
Deferred tax liability (98.3) (86.5)
============================================================== ======== =======
The net deferred tax liability of GBP98.3m is recognised as a
GBP1.4m deferred tax asset and a GBP99.7m deferred tax liability on
the consolidated statement of financial position. The recognition
of deferred tax assets arising on tax losses in entities which have
suffered a loss in either the current or preceding year is
supported by the existing taxable temporary differences which in
turn support that sufficient future taxable profits will be
available to utilise such assets.
The deferred tax included in the Consolidated Income Statement
is as follows:
Year ended 31
December
2020 2019
GBPm GBPm
Accelerated capital allowances (15.2) (8.3)
Tax losses 11.7 3.9
Short-term timing differences (5.9) 2.5
Deferred tax arising on intangible fixed assets (2.7) 6.5
Other taxable temporary differences 0.2 (0.4)
Deferred tax (charge)/credit (11.9) 4.2
================================================= ======== ======
The standard rate of UK corporation tax on ordinary activities
was 19% in the years ended 31 December 2020 and 2019.
17. Fair value measurement
The Group measures its derivative financial instruments at fair
value. Fair values are determined using observable inputs (Level 2,
as defined by IFRS 13 Fair Value Measurement) as follows:
Interest rate swaps
The fair value of interest rate swaps is estimated by
discounting estimated future cash flows related to swap agreements.
Additional inputs to the present value calculation include the
contract terms, as well as market parameters such as interest rates
and volatility. As these inputs are based on observable data and
standard valuation techniques, the interest rate swaps are
categorised as Level 2 in the fair value hierarchy.
Interest rate caps
The fair value of interest rate caps is estimated by discounting
estimated future cash flows based on the terms and maturity of each
contract. Additional inputs to the present value calculation
include the contract terms, as well as market parameters such as
interest rates and volatility. As these inputs are based on
observable data and standard valuation techniques, the interest
rate caps are categorised as Level 2 in the fair value
hierarchy.
All derivative fair values are verified by comparison to
valuations provided by the derivative counterparty banks.
The Group determines whether transfers have occurred between
levels in the hierarchy by reassessing categorisation (based on the
lowest level input that is significant to the fair value
measurement as a whole) as at the end of each reporting period.
During the year ended 31 December 2020 there were no transfers into
or out of Level 2 fair value measurements (year ended 31 December
2019: none).
18. Intangible assets
Costs
to obtain
Customer contracts Development
Goodwill Brand contracts Software with customers costs Total
Cost or valuation GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 January 2019 78.2 14.6 586.0 0.2 2.4 - 681.4
Additions - - - 0.1 0.4 - 0.5
Disposals - - - (0.1) - - (0.1)
Acquisitions through
business combinations 1.2 1.3 9.6 0.2 - 6.4 18.7
At 31 December
2019 79.4 15.9 595.6 0.4 2.8 6.4 700.5
Additions - - - - - - -
Disposals - - - - - - -
At 31 December
2020 79.4 15.9 595.6 0.4 2.8 6.4 700.5
======================== ========= ====== =========== ========= ================ ============ ======
Costs
to obtain
Customer contracts Development
Goodwill Brand contracts Software with customers costs Total
Accumulated amortisation GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 January 2019 - 2.8 74.9 0.1 0.4 - 78.2
Amortisation - 1.5 39.9 0.1 0.2 0.6 42.3
At 31 December
2019 - 4.3 114.8 0.2 0.6 0.6 120.5
Amortisation - 1.6 41.2 0.1 0.2 1.4 44.5
At 31 December
2020 - 5.9 156.0 0.3 0.8 2.0 165.0
Net book value
At 31 December
2019 79.4 11.6 480.8 0.2 2.2 5.8 580.0
At 31 December
2020 79.4 10.0 439.6 0.1 2.0 4.4 535.5
========================== ========= ====== =========== ========= ================ ============ ======
19. Property, plant and equipment
Cost or valuation Equipment Other Total
GBPm fixed GBPm
assets
GBPm
At 1 January 2019 718.9 1.5 720.4
Additions 273.4 2.4 275.8
Disposals (55.7) (0.2) (55.9)
Acquisitions through business combinations 2.7 3.3 6.0
At 31 December 2019 939.3 7.0 946.3
Additions 170.7 1.1 171.8
Disposals (41.4) (0.1) (41.5)
At 31 December 2020 1,068.6 8.0 1,076.6
Accumulated depreciation
At 1 January 2019 70.1 0.6 70.7
Depreciation 85.9 0.9 86.8
Disposals (32.1) (0.1) (32.2)
At 31 December 2019 123.9 1.4 125.3
Depreciation 77.5 1.9 79.4
Disposals (25.9) (0.1) (26.0)
At 31 December 2020 175.5 3.2 178.7
Net book value
At 31 December 2019 815.4 5.6 821.0
At 31 December 2020 893.1 4.8 897.9
============================================ ========== ======== ========
Within other fixed assets are right-of-use assets with a
carrying amount of GBP3.3m as at 31 December 2020 (2019: GBP4.6m).
Details of the right-of-use assets are provided in note 20.
Gains and losses on disposal of equipment are included in cost
of sales net of compensation income received.
20. Leases
Right-of-use assets
Within property, plant and equipment, the Group has right-of-use
assets held under lease agreements as follows:
Right-of-use Right-of-use
asset asset
buildings vehicles Total
Cost GBPm GBPm GBPm
At 1 January 2019 0.9 - 0.9
Additions 1.5 0.1 1.6
Disposals - - -
Acquisitions through business combinations 1.8 1.1 2.9
At 31 December 2019 4.2 1.2 5.4
Additions - 0.1 0.1
Disposals (0.1) - (0.1)
At 31 December 2020 4.1 1.3 5.4
Accumulated depreciation
At 1 January 2019 0.2 - 0.2
Depreciation 0.3 0.3 0.6
At 31 December 2019 0.5 0.3 0.8
Depreciation 0.7 0.7 1.4
Disposals (0.1) - (0.1)
At 31 December 2020 1.1 1.0 2.1
Net book value
At 31 December 2019 3.7 0.9 4.6
At 31 December 2020 3.0 0.3 3.3
============================================ ============= ============= ======
Right-of-use assets relate to 10 leases for office and
industrial space in addition to approximately 290 leases for
vehicles. Two of the office leases, which have lease terms of ten
years, contain a break clause after six and a half years. The Board
does not currently anticipate exercising these break clauses.
Lease-related income and expenses
Year ended 31
December
2020 2019
GBPm GBPm
Interest expense on lease liabilities (0.3) (0.1)
Expense relating to short-term leases - (0.1)
======================================= ======= =======
The total cash outflow for the Group's lease arrangements in the
year ended 31 December 2020 was GBP1.2m (year ended 31 December
2019: GBP0.7m). Amounts relating to lease liabilities whereby the
Group is a lessee are disclosed below:
At 31 December
Maturity analysis - contractual undiscounted cash flows 2020 2019
GBPm GBPm
Less than 1 year 1.1 1.6
Between 1 and 5 years 2.5 3.1
More than 5 years 1.2 1.7
Total undiscounted lease liabilities 4.8 6.4
Lease liabilities included in the statement of financial
position 3.9 5.0
========================================================== ======== =======
21. Goodwill
The goodwill acquired in business combinations is allocated, at
acquisition, to a CGU. Management consider the business to consist
of two CGUs; Calvin Capital and Lowri Beck and goodwill is
monitored at this level.
Carrying amount of goodwill allocated to each CGU:
At 31 December
2020 2019
GBPm GBPm
Calvin Capital 78.2 78.2
Lowri Beck 1.2 1.2
Total goodwill 79.4 79.4
================ ======== =======
The recoverable amount of goodwill has been determined based on
its value in use.
The Group tests goodwill annually for impairment or more
frequently if there are indications that goodwill might be
impaired. Goodwill is tested for impairment by comparing the
carrying amount of the CGU, including goodwill, with the
recoverable amount. The recoverable amount is determined based on
value in use calculations which require assumptions. The
calculations use cash flow projections based on financial
projections covering a five-year period. These projections take
into account historical performance and knowledge of the current
market, together with the Group's views on future achievable growth
and the impact of committed cash flows. We note that the future
achievable growth will be primarily achieved through the existing
contracted pipeline for future installations. Cash flows beyond
this period are extrapolated using the estimated growth rates
stated below.
The annual impairment test is performed at each 31 December. No
evidence of impairment was found at either 31 December 2020 or
2019. In addition, the Acquisition price of 261 pence per share
values the issued share capital of Calisen at approximately
GBP1,434.0m providing the Group with additional comfort that no
impairment is required. The key assumptions used in the value in
use calculations were as follows:
-- Perpetual growth rate - Cash flows were extrapolated in
perpetuity using a growth rate of 2% from 31 December 2020. This is
not considered to be higher than the average long-term industry
growth rate.
-- Discount rate - The discount rate was based on the weighted
average cost of capital ("WACC") which would be anticipated for a
market participant investing in the Group. This rate reflected the
time value of money, the Group's risk profile and the impact of the
current economic climate. The pre-tax and post-tax discount rates
used as at 31 December 2020 and 2019 were 7.21% and 7.24%
respectively.
The Group concluded that there were no reasonably possible
changes in any key assumptions that would cause the carrying
amounts of goodwill to exceed the value in use for either CGU as at
31 December 2020.
Calvin Capital CGU
The headroom, based on the assumptions above, was GBP518.4m as
at 31 December 2020 (31 December 2019: GBP872.7m). A sensitivity
analysis was performed assuming a 0.5% reduction in the long-term
growth rate and a 0.5% increase in the discount rate in order to
assess the impact of reasonable possible changes to the assumptions
used in the impairment review. The Group considers the 0.5% to be
the maximum reasonable change in these rates. A 0.5% reduction in
the long-term growth rate would result in headroom of GBP324.8m as
at 31 December 2020 (31 December 2019: GBP672.0m) and a 0.5%
increase in the discount rate would result in headroom of GBP300.2m
as at 31 December 2020 (31 December 2019: GBP507.2m).
Lowri Beck CGU
The headroom, based on the assumptions above, was GBP18.6m as at
31 December 2020 (31 December 2019: GBP65.8m). A sensitivity
analysis was performed assuming a 0.5% reduction in the long-term
growth rate and a 0.5% increase in the discount rate in order to
assess the impact of reasonable possible changes to the assumptions
used in the impairment review. A 0.5% reduction in the long-term
growth rate would result in headroom of GBP15.3m as at 31 December
2020 (31 December 2019: GBP61.2m) and a 0.5% increase in the
discount rate would result in headroom of GBP15.1m as at 31
December 2020 (31 December 2019: GBP64.2m).
22. Financial instruments
The Group's principal financial assets include trade
receivables, and cash deposits that derive directly from its
operations. The Group also enters into derivative transactions. The
Group's principal financial liabilities, other than derivatives,
comprise loans and borrowings, and trade and other payables. The
main purpose of these financial liabilities is to finance the
Group's operations.
22.1 Financial assets
At 31 December
2020 2019
GBPm GBPm
Derivatives not designated as hedging instruments
Interest rate swap 3.3 1.0
Interest rate cap - 0.1
Total financial assets at fair value through profit or
loss 3.3 1.1
Financial assets at amortised cost
Trade receivables (note 24) 31.9 33.9
Total financial assets 35.2 35.0
Total current 31.9 33.9
Total non-current 3.3 1.1
======================================================== ======== =======
Derivatives not designated as hedging instruments reflect the
positive change in fair value of those interest rate swaps and caps
that are not designated in hedge relationships, but are,
nevertheless, intended to reduce interest rate risk on debt
instruments. Movements in fair value are recorded in the
Consolidated Income Statement.
22.2 Interest-bearing loans and borrowings
At 31 December
Current interest-bearing loans and borrowings 2020 2019
GBPm GBPm
Senior debt facilities 115.8 94.0
Liability to factoring company - 5.2
Lease liabilities 0.9 1.3
Equity bridge loan - (0.6)
Total current interest-bearing loans and borrowings 116.7 99.9
Non-current interest-bearing loans and borrowings
Shareholder loan notes including accrued interest - 705.5
Senior term loan - 10.0
Lease liabilities 3.0 3.8
Senior debt facilities 584.1 501.3
Equity bridge loan - 223.7
Total non-current interest-bearing loans and borrowings 587.1 1,444.3
Total interest-bearing loans and borrowings 703.8 1,544.2
========================================================= ======= ========
Shareholder loan notes
At 31 December 2019, the unsecured shareholder loan notes were
listed on the International Stock Exchange and bore a fixed rate of
interest of 8.123%. The maturity date of the loan notes was 30
January 2027, therefore all due after five years. The balance of
the loan notes and accrued interest at 31 December 2019 was
GBP705.5m. In February 2020, following the Group reorganisation,
these loan notes and the accrued interest thereon of GBP711.3m were
capitalised resulting in no outstanding amounts at 31 December
2020.
Senior term loan
Lowri Beck entered into a term loan agreement in November 2019
with an amount outstanding of GBP10.0m as at 31 December 2019. The
loan bore interest at LIBOR plus a margin of 3.25% which was
payable monthly. The loan was repayable on 31 December 2022 but was
settled in November 2020 resulting in no outstanding balance at 31
December 2020.
Equity bridge loan
The Group had equity bridge loans outstanding at 31 December
2019 of GBP223.1m inclusive of debt issue costs. Following the IPO
in February 2020 and the receipt of the primary share issue
proceeds, the equity bridge loan facilities were repaid in
full.
Liability to factoring company
At 31 December 2019, an invoice discounting factoring
arrangement was in place in respect of Lowri Beck's trade
receivables resulting in a liability of GBP5.2m. Under the
arrangement, Lowri Beck transferred the relevant receivables to the
factoring provider but retained late payment and credit risk.
During April 2020, the facility was settled in full and closed.
Senior debt facilities
In February 2020, the Group agreed a new RCF amounting to
GBP240.0m. During the year ended 31 December 2020, the Group drew
down funds of GBP48.0m and subsequently repaid this resulting in no
outstanding balance at the year end. The facility matures in 28
February 2025.
On 22 July 2020, the Group completed a refinancing, replacing
two senior debt facilities of GBP400.0m and GBP730.0m which were
maturing in October 2022 and September 2029 respectively, with new
facilities totalling GBP1,067.5m. The new financing arrangement is
composed of the following facilities:
-- A fixed rate institutional loan of GBP290.0m which amortises
from June 2025 and is to be repaid by December 2034. The fair value
of this loan, which is subject to fixed interest, has been
considered in note 22.4.
-- An amortising bank loan of GBP192.5m to be repaid by December
2023. Repayments have commenced resulting in current and
non-current debt.
-- An amortising capital expenditure facility of GBP115.0m to be
repaid by December 2027 of which GBP12.7m was drawn down as at 31
December 2020.
-- A revolving credit facility of GBP400.0m due June 2025 of
which GBP68.0m was drawn down as at 31 December 2020.
-- A standby facility of GBP70.0m due June 2025 and not
utilised.
Senior debt facilities totalling GBP699.8m were outstanding
under the new and existing facilities as at 31 December 2020 (31
December 2019: GBP595.4m) and are repayable on an agreed or
forecast repayment profile of quarterly instalments which commenced
on 30 June 2017, with full repayment to be made by 30 September
2034 for all interest-bearing loans and borrowings. Issue costs
totalling GBP17.4m at 31 December 2020 (2019: GBP17.6m) have been
offset against amounts drawn down and amortised over the duration
of the facilities.
Interest on fixed rate loans of GBP290.0m and GBP40.0m of the
amount outstanding at 31 December 2020 (2019: GBPNil and GBP40.0m)
are charged at rates of 2.635% and 2.706% respectively per annum.
Interest charges on the remaining amounts drawn are based on
floating LIBOR rates. Group has entered into interest rate
derivatives as set out in note 22.5.
22.3 Other financial liabilities
At 31 December
Derivatives not designated as hedging instruments 2020 2019
GBPm GBPm
Interest rate swaps 1.6 32.4
Total financial liabilities at fair value through profit
and loss 1.6 32.4
Other financial liabilities at amortised cost, other
than interest-bearing loans and borrowings
Trade payables 19.1 17.8
Deferred consideration - 0.7
Total other financial liabilities 20.7 50.9
Total current 19.1 18.5
Total non-current 1.6 32.4
========================================================== ======== =======
Derivatives not designated as hedging instruments reflect the
negative change in fair value of those interest rate swaps and caps
that are not designated in hedge relationships, but are,
nevertheless, intended to reduce interest rate risk for debt
instruments. Movements in the fair value are recorded in the
Consolidated Income Statement.
22.4 Fair value of non-derivative financial assets and financial liabilities
The fair value of trade receivables, trade payables and cash at
bank and in hand approximates to the carrying amount because of the
short maturity in respect of these financial instruments.
The fair value of bank loans approximates to the carrying amount
as interest rates are based on LIBOR and so are regularly reset to
current market rates.
The fair value of the shareholder loan, which differs from the
carrying amount, due to the instrument utilising a fixed interest
rate, is disclosed below:
At 31 December
2020 2019
GBPm GBPm
Fair value - 1,119.5
Carrying amount - 705.5
================= ======== ========
22.4 Fair value of non-derivative financial assets and financial liabilities continued
The fair value of the shareholder loan is based on the net
present value of the anticipated future cash flows associated with
these instruments using rates currently available for debts on
similar terms, credit risk and equivalent maturity dates. This loan
was recapitalised during February 2020 and no amounts remain
outstanding at 31 December 2020.
The fair value of the senior debt facilities subject to fixed
interest rate compared to their carrying amount is disclosed
below:
At 31 December
2020 2019
Fair value Carrying Fair value Carrying
(GBPm) value (GBPm) value
(GBPm) (GBPm)
GBP40m loan 42.1 40.0 41.6 40.0
GBP290m fixed rate institutional loan 301.1 290.0 - -
======================================= =========== ========= =========== =========
Repayments of principal amounts against the senior debt facility
of GBP40m commence in December 2023 with the balance to be fully
repaid by June 2024.
Repayments of principal amounts against the senior debt facility
of GBP290m commence in June 2025 with the balance to be fully
repaid by December 2034.
22.5 Financial instruments risk management objectives and policies
The Group is exposed to market risk, credit risk and liquidity
risk. The Group's senior management oversees the management of
these risks in line with the Group's policies. Senior management
identify, evaluate and, where appropriate, hedge financial risk.
All derivative activities for risk management purposes are carried
out by specialist teams who have the appropriate skills, experience
and supervision. It is the Group's policy that no trading in
derivatives for speculative purposes may be undertaken. The Board
reviews and agrees policies for managing each of these risks, which
are summarised below.
Market risk
Market risk is the risk that the fair value or future cash flows
of a financial instrument will fluctuate because of changes in
market prices. Market risk comprises three types of risk: interest
rate risk, currency risk and other price risk, such as equity price
risk and commodity risk. Financial instruments affected by market
risk include loans and borrowings and derivative financial
instruments. The sensitivity analyses in the following sections
relate to the positions as at 31 December 2020 and 2019.
The sensitivity analyses have been prepared on the basis that
the amount of net debt, the ratio of fixed to floating interest
rates of the debt and levels of derivatives are all constant.
(a) Interest rate risk
The Group's exposure to the risk of changes in market interest
rates relates primarily to the Group's long-term debt obligations
with floating interest rates. The Group has bank loans (senior debt
facilities and equity bridge loans) with floating interest rates
linked to LIBOR, thereby exposing the Group to fluctuations in
LIBOR and the consequential impact on interest cost.
As at 31 December 2020, interest on these loans was charged at
LIBOR plus a margin in the range of 1.2% to 2.3% (31 December 2019:
0.9% to 1.55%).
To manage this risk, the Group enters into interest rate swaps
under which it agrees to exchange, at specified intervals, the
difference between fixed and variable rate interest amounts. At 31
December 2020, the derivative instruments in place were sufficient
to fix the interest rate on 81% of the senior debt facilities
(2019: 74%). As at 31 December 2020, the swap arrangements fixed
interest rates in the range of 0.1% to 1.1% (31 December 2019: 1.0%
to 2.1%).
In addition, the Group has entered into interest rate caps
whereby floating rates are capped at a fixed percentage in the
range of 0.9% to 2%. As at 31 December 2020, 83% (31 December 2019:
24%) of the Group's borrowings were subject to this cap.
(b) Interest rate sensitivity
The following table demonstrates the sensitivity to a change in
interest rates on the Group's floating rate bank debt. The Group's
profit/(loss) before tax is affected through the impact on floating
rate borrowings as follows:
Increase/ Effect
decrease on profit/(loss)
in basis before
points tax
GBPm
Year ended 31 December 2020 100 3.9
Year ended 31 December 2019 100 2.2
============================= ========== ==================
Management believes that a movement in interest rates of 100bps
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, on the Group's profit/(loss) before tax.
(c) Price risk
The Group is not exposed to any significant price risk in
relation to its financial instruments.
(d) Foreign currency risk
The Group's exposure to the risk of changes in foreign exchange
is insignificant as primarily all of the Group's operating
activities are denominated in pound sterling.
Credit risk
The Group's credit risk primarily arises from credit exposures
to energy retailers (the Group's customers) in respect of
outstanding trade receivables. The Group trades with a number of
companies, which are generally large utility companies or financial
institutions. The Group is also exposed to credit risk on cash
deposits and derivative financial instruments held with financial
institutions.
Credit risk is managed on a Group basis. For banks and financial
institutions, the Group's policy is to deposit cash with investment
grade financial institutions. 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 receivables
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 and derivative
financial assets. The Group's maximum exposure to credit risk from
its customers is the carrying value of trade receivables as
disclosed within trade and other receivables in note 24. The Group
regularly monitors and updates its cash flow forecasts to ensure it
has sufficient and appropriate funds to meet its ongoing
operational requirements.
The Group has identified a concentration of risk in relation to
revenue and trade receivables as the majority of revenue
(approximately 83%) is generated from the legacy large and other
large energy retailers. However, the Group assesses the associated
credit risk as low despite its customers operating in one industry
as these customers have historically minimal failure rates meaning
that the risks associated with trade receivables are relatively
low. The remaining balance has a more diversified customer
base.
Impairment of trade receivables and contract assets
The Group applies the IFRS 9 simplified approach to measuring
forward-looking ECLs which uses a lifetime expected loss provision
for all trade receivables. To measure the ECL, trade receivables
are grouped based on shared credit risk characteristics and the
number of days past due.
The Group has established a provision matrix based on the
payment profiles of sales over a period of 12 months before each
balance sheet date and the corresponding historical credit losses
experienced within these periods. 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
provision on trade receivables as at 31 December 2020, an
adjustment was made to increase the historical loss rates on
invoiced and accrued receivables not yet due in recognition of the
volatility of the economic environment during the year ended 31
December 2020 caused by COVID-19.
On that basis, the provision as at 31 December 2020 was
determined as GBP2.9m (31 December 2019: GBP1.3m) as follows:
Loss provision
- receivables
GBPm
As at 1 January 2019 1.3
Acquired in business combination 1.0
Increase in loss provision recognised in profit or loss during
the year 0.4
Receivables written off during the year as uncollectable (1.4)
As at 31 December 2019 1.3
Increase in loss provision recognised in profit or loss during
the year 1.9
Receivables written off during the year as uncollectable (0.3)
As at 31 December 2020 2.9
================================================================ ===============
The increase in the loss provision on trade receivables in 2019
arose due to the number of new, typically Small or Medium energy
retailers that went into administration during the year ended 31
December 2019, for which amounts were considered unrecoverable. For
detail as to the ageing profile of trade receivables, refer to note
24.
In assessing impairment of contract assets the Group also
applies the IFRS 9 simplified approach to measuring forward-looking
ECLs which uses a lifetime expected loss allowance. Due to the
ongoing economic disruption and stress placed on businesses the
Group included a loss provision against accrued income for the year
ended 31 December 2020 of GBP0.7m; this is included within the
GBP1.9m charge. The total provision of GBP2.9m therefore includes
GBP2.2m in relation to trade receivables and GBP0.7m in relation to
accrued income. The ECL for contract assets was not material at 31
December 2020 or 31 December 2019.
Liquidity risk
The Group's policy is to ensure the availability of an
appropriate amount of funding to meet both current and future
forecast requirements consistent with the Group's budget and
strategic plans. The Group finances operations and growth from its
existing cash resources and the GBP762.0.4m undrawn portion of the
Group's committed banking facilities. As at 31 December 2020, 83%
(31 December 2019: 93%) of the Group's principal borrowing
facilities were due to mature in more than one year. Based on the
Group's latest forecasts the Group has sufficient funding in place
to meet its future obligations.
The table below analyses the Group's financial liabilities into
relevant maturity groupings based on the remaining period from the
consolidated statement of financial position date to the
contractual maturity date (with the exception of lease liabilities,
disclosure for which is included in note 20). The amounts disclosed
in the table are the contractual undiscounted cash flows.
Less than Between Between Over
1 year 1 and 2 and 5 years
GBPm 2 years 5 years GBPm
As at 31 December 2020 GBPm GBPm
Bank borrowings 115.8 155.7 181.7 246.6
Trade and other payables 19.1 - - -
Derivatives (3.3) - 1.6 -
As at 31 December 2019
Shareholder loan - - - 705.5
Bank borrowings 93.4 91.2 493,5 150.4
Liability to factoring company 5.2 - - -
Trade and other payables 17.8 - - -
Derivatives - 1.7 - 30.7
================================ ========== ========= ========= =========
22.6 Changes in liabilities arising from financing activities
At 1 Cash Recapitalisation Changes Other At 31
January flows of shareholder in fair GBPm December
2020 GBPm loans value 2020
GBPm GBPm GBPm GBPm
Current interest-bearing loans
and borrowings 99.9 (806.2) (711.3) - 1,533.4 115.8
Non-current interest-bearing
loans and borrowings 1,444.3 668.7 - - (1,528.9) 584.1
Derivative financial instruments 31.3 (52.7) - 19.7 - (1.7)
Obligations under leases 5.0 (1.5) - - 0.4 3.9
Total 1,580.5 (191.7) (711.3) 19.7 4.9 702.1
================================== ========= ======== ================= ========= ========== ==========
At 1 Cash Acquisition New Changes Other At 31
January flows GBPm leases in fair GBPm December
2019 GBPm GBPm value 2019
GBPm GBPm GBPm
Current interest-bearing loans
and borrowings 87.9 (98.3) 15.4 - - 94.9 99.9
Non-current interest-bearing
loans and borrowings 1,266.9 210.9 - - - (33.5) 1,444.3
Derivative financial instruments 16.6 - - - 14.7 - 31.3
Obligations under leases 0.9 (0.7) 2.9 1.7 - 0.2 5.0
Total 1,372.3 111.9 18.3 1.7 14.7 61.6 1,580.5
================================== ========= ======= ============ ======== ========= ======= ==========
The "Other" column includes the effect of reclassification of
the non-current portion of interest-bearing loans and borrowings,
the effect of accrued but not yet paid interest on interest-bearing
loans and borrowings and accrued interest on lease liabilities. The
Group classifies interest paid as cash flows from operating
activities.
At 31 December 2019, the Group had GBP705.5m shareholder loans
which were included in non-current interest-bearing loans and
borrowings. In February 2020, the Group recapitalised shareholder
loans of GBP711.3m, see note 22.2 for further detail. This was a
non-cash transaction which has been captured in the "Other" column
to reflect the transfer from non-current to current.
During the year ended 31 December 2020, the Group repaid
borrowings of GBP806.2m; GBP664.9m of which related to the closure
of facilities including the senior term loan, equity bridge loan,
liability to factoring company and senior debt facilities as part
of the refinancing set out in note 22.2. The Group received
proceeds from borrowings of GBP668.7m of which GBP611.2m related to
new facilities and GBP57.5m of which related to existing
facilities.
23. Capital management
For the purpose of the Group's capital management, capital
includes issued capital, share premium and all other equity
reserves attributable to the equity holders of the Group. The
primary objective of the Group's capital management is to maximise
shareholder value.
The Group manages its capital structure and makes adjustments in
the light of changes in economic conditions. To maintain or adjust
the capital structure, the Group may return capital to shareholders
or issue new shares. The Group monitors capital using a gearing
ratio. The gearing ratio is calculated as interest-bearing loans
and borrowings and trade creditors less cash and cash equivalents
divided by total capital plus net debt. Additionally, the Group
utilises another gearing or leverage ratio (Adjusted net debt to
Adjusted EBITDA) as an APM, further details of which can be found
in the Chief Financial Officer's review.
At 31 December
2020 2019
GBPm GBPm
Interest-bearing loans and borrowings 703.8 1,544.2
Trade creditors 19.1 17.8
Cash (114.6) (50.3)
608.3 1,511.7
Share capital and share premium 5.5 82.3
Total capital plus net debt 613.8 1,594.0
Gearing ratio 99.1% 94.8%
======================================= ======== ========
In order to achieve the overall objective of maximising
shareholder value, the Group's capital management, among other
things, aims to ensure that the Group maintains a sufficient credit
worthiness in order to support the business and to maximise value
for stakeholders.
No changes were made in the objectives, policies or processes
for managing capital during the years covered above.
24. Trade and other receivables
At 31 December
2020 2019
GBPm GBPm
Trade receivables 31.9 33.9
Other receivables 1.2 1.6
Accrued income 17.2 -
VAT recoverable - 1.8
Prepayments 10.0 -
Finance receivables - 2.2
Tax receivable 9.7 3.2
70.0 42.7
===================== ======== =======
The carrying value of the Group's trade and other receivables
approximates to their fair value.
The Group's credit risk is primarily attributable to trade
receivables. The amounts presented in the consolidated statement of
financial position are net of any loss provision. The total loss
provision for trade and other receivables as at 31 December 2020
was GBP2.9m of which GBP2.2m was recognised in relation to trade
receivables and GBP0.7m in relation to accrued income. The total
loss provision as at 31 December 2019 was GBP1.3m and this was
recognised in full against trade receivables. See note 22 for
further details. The ageing profile of trade receivables past their
due date is shown below:
31 December Expected 31 December Expected
2020 loss rate 2019 loss rate
GBPm 2020 GBPm 2019
GBPm GBPm
Not yet due 29.4 2.61% 32.9 0.92%
0-30 days 2.6 17.38% 1.3 9.19%
31-60 days 0.6 8.23% 0.2 0.29%
61-90 days 0.4 95.62% 0.3 87.66%
Over 90 days 1.1 68.91% 0.5 91.31%
Gross carrying amount 34.1 35.2
Loss provision (2.2) (1.3)
Net carrying amount 31.9 33.9
======================= ============ =========== ============ ===========
Trade receivables are non-interest-bearing and are generally on
30-45 day payment terms. Trade receivables due from related parties
as at 31 December 2020 amounted to GBPNil (31 December 2019:
GBPNil). Receivables are all denominated in pound sterling.
25. Inventories
At 31 December
2020 2019
GBPm GBPm
Finished goods 0.9 1.3
0.9 1.3
================ ======== =======
During the year ended 31 December 2020, GBP0.4m (31 December
2019: GBP0.3m) was recognised as an expense for inventories carried
at net realisable value. This is recognised in cost of sales.
26. Cash and cash equivalents
At 31 December
2020 2019
GBPm GBPm
Cash at bank and in hand 114.6 50.3
114.6 50.3
========================== ======== =======
Cash at bank earns interest at floating rates based on daily
bank deposit rates.
27. Trade and other payables
At 31 December
2020 2019
GBPm GBPm
Trade creditors 19.1 17.8
Other creditors 9.6 8.0
VAT payable 1.5 -
Other creditors relating to capital expenditure 13.0 17.0
Other creditors relating to other operating expenses 1.4 6.3
Finance creditors 0.9 -
45.5 49.1
====================================================== ======== =======
For the year ended 31 December 2020, other creditors relating to
other operating expenses relate to the Acquisition announced in
December 2020. For the year ended 31 December 2019, other creditors
relating to other operating expenses related to the IPO.
28. Provisions
Dilapidations Total
GBPm GBPm
As at 1 January 2019 - -
Acquired through business combination 0.4 0.4
Arising during the year - -
As at 31 December 2019 0.4 0.4
Arising during the year 1.1 1.1
As at 31 December 2020 1.5 1.5
======================================= ============== ======
29. Issued capital and reserves
At 31 December
Authorised shares 2020 2019
Ordinary shares 547,980,973 22,000,000
Nominal value of each share (pence) 1 1
Nominal value of shares (GBPm) 5.5 0.2
Ordinary shares issued and fully paid
At start of year 22,000,000 22,000,000
Shares issued 130,168,749 -
Debt for equity swap 395,812,224
At end of year 547,980,973 22,000,000
======================================= ============ ===========
As detailed in note 1, the Group completed a capital
reorganisation during February 2020. The issued share capital as at
31 December 2020 represents the authorised share capital of Calisen
plc. The authorised share capital as at 31 December 2019 has been
restated to reflect the reorganisation as a result of the
application of merger accounting.
30. Share-based payments
The Group adopted IFRS 2 in the year ended 31 December 2020 by
granting conditional share awards through a PSP. The Calisen plc
EBT, whose trustee is Ocorian Limited, has been established to
satisfy awards made under the share plans.
The table below summarises the amounts recognised in the income
statement during the year:
At 31 December
2020 2019
GBPm GBPm
2020 Restricted share awards 0.1 -
2020 Performance share awards 0.3 -
0.4 -
============================== ======== =======
The details for each scheme are as follows:
2020 Restricted share awards
On 25 June 2020, the Group granted conditional awards over
113,417 shares, with 50% of shares due to vest on 25 June 2022 and
50% due to vest on 25 June 2023. Vesting of the awards is
contingent on the continued employment of the individuals.
The fair value was determined to be the share price at grant
date of GBP1.86. 5,833 shares have been forfeited in the year ended
31 December 2020 resulting in the outstanding balance of
107,584.
2020 Performance share awards
On 25 June 2020, the Group granted conditional awards over
1,290,011 shares due to vest on 25 June 2023. Half of the awards
are subject to an FFO performance target and half of the awards are
subject to a TSR performance target; the two tranches of shares
have therefore been considered separately when calculating the fair
value of the options.
Vesting of the awards is also contingent on the continued
employment of the individuals to the vesting date with the
exception of awards issued to the Executive Directors which have a
two-year holding period and which, subject to meeting performance
targets, will be issued in 2023 and must be retained until
2025.
TSR Measure
The percentage of the 645,006 awards that vest based on the TSR
is as follows:
Relative TSR versus the FTSE 250 Index (excluding Percentage of TSR tranche
Investment Trusts) that vest
Below median 0%
Median 25%
Between median and upper quartile Straight-line basis from
25% to 100%
Upper quartile and above 100%
=================================================== ==========================
The fair value of the share awards subject to TSR performance
has been estimated at the grant date using a Monte Carlo
simulation. The following table shows the assumptions used within
the Monte Carlo simulation for the year ended 31 December 2020:
Risk-free rate -0.1%
Expected volatility 41.2%
Expected dividend yield 0.0%
Expected life 3 years
Weighted average fair value GBP1.13
============================= ========
As at 31 December 2020, no awards have been forfeited and there
are still 645,006 awards outstanding.
FFO Measure
The percentage of 645,006 awards that vest based on the FFO is
as follows:
Compound annual growth in FFO over the performance Percentage of FFO tranche
period that vest
Less than 5% 0%
5% 25%
Between 5% and 8.7% Straight-line basis from
25% to 100%
8.7% and above 100%
=================================================== ==========================
The fair value of the awards at grant was GBP1.86 with a
downward adjustment to reflect the post vesting holding period for
the Executive Directors resulting in a weighted average fair value
of GBP1.74.
As at 31 December 2020, no awards have been forfeited and there
are still 645,006 awards outstanding.
31. Related party disclosures
Group
Identity of related parties with which the Group has
transacted:
Following its acquisition of the Calisen Group Holdings Limited
Group on 31 January 2017, KKR became a related party as it was
deemed to have control and significant influence over the Group.
The transactions below have been transacted with both KKR Capital
Markets Limited and Kohlberg Kravis Roberts & Co. L.P.
collectively classed as "KKR".
Included within long-term interest-bearing loans and borrowings
as at 31 December 2020 is an amount of GBPNil (31 December 2019:
GBP122.3m) in relation to loan note interest payable on the loan
notes issued to Evergreen Holdco S.a.r.l., a group undertaking and
part of the KKR Group. These loan notes carried a fixed rate of
interest of 8.123%. The loan note value (principal and interest) as
at 31 December 2020 of GBPNil (31 December 2019: GBP705.5m) was
included within interest-bearing loans and borrowings due in over
one year within the statement of financial position. The loans were
repayable on 30 January 2027; however, following the Group
restructure at the time of the IPO, the loan note value (principal
and interest) of GBP711.3m at 6 February 2020 was capitalised.
Following the IPO, GBP6.0m of underwriting expenses were offset
against share premium, of which GBP1.3m related to underwriting
fees paid to KKR.
Included within administrative expenses for the year ended 31
December 2020 is GBP0.1m (year ended 31 December 2019: GBP0.6m) of
shareholder advisory services and reimbursable expenses. Of this,
as at 31 December 2020 GBPNil (31 December 2019: GBP156,000) is
included within other creditors due within one year as these
amounts had not been paid at those dates.
Included within other expenses for the year ended 31 December
2020 is GBP2.7m for fees owed to KKR (31 December 2019: nil); this
includes GBP0.6m in relation to services and reimbursable expenses
incurred for the IPO and GBP2.1m for termination of the managed
service agreement that occurred on the IPO.
Transactions with key management personnel
Key management personnel reflect the Executive Committee, whose
remuneration during the normal course of business has been
disclosed within note 11 to the Consolidated Financial
Statements.
Key management personnel, defined as the statutory directors for
the year ended 31 December 2019, held equity in Evergreen Energy
Limited, the immediate parent undertaking of Calisen Group Holdings
Limited as set out in note 1, amounting to GBP1.2m and loan notes
in the Company for GBP0.8m at 31 December 2019. Following the
liquidation of Evergreen Energy Limited, those key management
personnel received shares in Calisen plc in replacement of the
equity and loan notes previously held.
32. Group information
The Consolidated Financial Statements incorporate the
consolidation of the subsidiaries below:
The following entities incorporated in the UK have the same
registered office address of 5th Floor, 1 Marsden Street,
Manchester, UK, M2 1HW.
Company Proportion Country of Principal
of shares incorporation activities
and voting
rights
Calisen Group Limited 100% UK Holding Company
Calisen Group 2 Limited 100% UK Holding Company
Calisen Group Holdings 100% UK Holding Company
Limited
Calisen Holdco Limited 100% UK Holding Company
Calisen Holdco 2 Limited 100% UK Holding Company
Calisen Holdco 3 Limited 100% UK Holding Company
Calvin Capital UK Limited 100% UK Holding Company
Calvin Capital Limited 100% UK Holding Company
Meter Serve (Holdco) 100% UK Holding Company
Limited
Meter Serve (North West) 100% UK Holding Company
Limited
Meter Fit (North West) 100% UK Procurement of gas and
Limited electricity meters
Meter Serve (North East) 100% UK Holding Company
Limited
Meter Fit (North East) 100% UK Procurement of gas and
Limited electricity meters
Meter Serve 2 Limited 100% UK Holding Company
Meter Fit 2 Limited 100% UK Procurement of gas and
electricity meters
Meter Serve 3 Limited 100% UK Holding Company
Meter Fit 3 Limited 100% UK Procurement of gas and
electricity meters
Meter Serve 4 Limited 100% UK Holding Company
Meter Fit 4 Limited 100% UK Procurement of gas and
electricity meters
Meter Serve (Holdco 2) 100% UK Holding Company
Limited
Meter Serve 5 Limited 100% UK Holding Company
Meter Fit 5 Limited 100% UK Procurement of gas and
electricity meters
Meter Serve 10 Limited 100% UK Holding Company
Meter Fit 10 Limited 100% UK Procurement of gas and
electricity meters
Meter Serve 20 Limited 100% UK Holding Company
Meter Fit 20 Limited 100% UK Procurement of gas and
electricity meters
Meter Fit Assets Limited 100% UK Procurement of gas and
electricity meters
Calvin Metering Limited 100% UK Agent
Calvin Asset Management 100% UK Group management Company
Limited
Calvin Capital Australia 100% UK Holding Company
Holdings Limited
The following entities are registered in the UK and have the same registered
office address of Building B, Swan Meadow Road, Wigan, WN3 5BB.
Lowri Beck Holdings Limited 100% UK Holding Company
Lowri Beck Meters Limited 100% UK Dormant
Lowri Beck Systems Limited 100% UK Computer systems development
Lowri Beck Solutions 100% UK Dormant
Limited
Lowri Beck Services Limited 100% UK Nationwide metering and
data collection services
Lowri Beck Software Limited 100% UK Dormant
Lowri Beck Direct Limited 100% UK Dormant
The following entities are registered in Australia. All Australian registered
entities have the same registered office address of 181 William Street,
Melbourne, VIC 3000.
Calvin Capital Australia 100% Australia Holding Company
Pty Limited
Calvin MS Australia 1 100% Australia Holding Company
Pty Limited
============================ ============ =============== =============================
33. Ultimate controlling party
As at 31 December 2019, the immediate parent company of the
Group was Evergreen Energy Limited, a company registered in Jersey.
The ultimate controlling entity of Evergreen Energy Limited was KKR
Infrastructure II Limited, which controls and manages, and is the
General Partner of a Global Infrastructure Fund of the investment
business of KKR & Co Inc., which is quoted on the New York
Stock Exchange.
On 7 February 2020, as detailed in note 1, all shares held,
directly or indirectly, in Calisen Group Holdings Limited by
intermediary holding companies Evergreen Energy Limited and
Evergreen Holdco S.a.r.l were transferred to the newly incorporated
immediate parent entity Calisen plc. Calisen plc then undertook an
IPO on the London Stock Exchange. Subsequent to the IPO both
Evergreen Energy Limited and Evergreen Holdco S.a.r.l were placed
into liquidation, the former of which was closed during May 2020.
At 31 December 2020, the immediate parent company and ultimate
controlling party of Calisen plc is therefore KKR Infrastructure II
Limited. The registered office address of this company is PO Box
309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands.
This set of financial statements is the largest and smallest
Group for which consolidated accounts are drawn up.
Alternative performance measures
These full-year results include financial measures that are not
defined or recognised under IFRS or UK GAAP, all of which Calisen
considers to be alternative performance measures (APMs). These are
reconciled to the statutory results in the Chief Financial
Officer's review section.
The APMs are used by the Board and management to analyse
business and financial performance, track the Group's progress and
help develop long-term strategic plans. The APMs provide additional
information to investors and other external stakeholders to enhance
their understanding of Calisen's results of operations as
supplemental measures of performance and liquidity.
Descriptions of APMs used in these accounts, including their
basis of calculation, are set out below:
Adjusted EBITDA Profit/(loss) for the period adjusted for taxation, finance
income/(expenses), depreciation, amortisation, profit/(loss)
on disposal of non-current assets and other expenses. See
page 26 for reconciliation of Adjusted EBITDA to statutory
loss for the period;
Adjusted net Net debt less shareholder loans. See page 31 for calculation;
debt
Cash conversion FFO as a percentage of Underlying EBITDA. See page 29 for
calculation;
Cost of debt The average balance of Group debt outstanding (excluding
shareholder loans and EBLs) divided by the corresponding
total interest expense (including the cost of hedging) for
a given period. Total interest expense includes senior debt
commitment fees and interest payable on bank loans.
FFO FFO is defined as Underlying EBITDA less relevant finance
costs, taxation and adjusted net working capital items.
Relevant finance costs exclude fair-value movement on derivatives
(as this is a non-cash item), shareholder loan interest
and charges relating to letter of credit facilities (on
the basis that they no longer form part of Calisen's capital
structure) and interest rate swap break costs. Adjusted
net working capital items include change in trade and other
receivables and contract assets, change in inventories and
change in trade and other payables, but exclude any movements
in payables where the creditor relates to capital expenditure,
accrued other expenses and any items to the extent they
relate to non-trading items such as compensation debtors
or capital expenditure prepayments or creditors, including
related VAT balances. FFO also does not include compensation
income. Capital expenditure creditors are excluded to the
extent that they represent new meter installation costs.
See page 29 for calculation;
Net debt The sum of senior debt and equity bridge loans, less cash.
Therefore, Net Debt includes bank borrowings and equity
bridge loans, net of cash and excludes trade payables and
debt issue costs. See page 31 for calculation;
Underlying Adjusted EBITDA less compensation income. Compensation income
EBITDA is received from relevant contractual arrangements where
meters are prematurely removed, and, as a consequence, reflects
income that would have otherwise been earned in future periods.
Given the limited timeframe of the SMIP as currently described
in legislation, the Directors deem compensation income to
be a line item that may not consistently be significant
in the future. Because compensation income arises as a result
of the removal of traditional meters in order to replace
them with smart meters, it is expected that compensation
income will decrease over time as the number of traditional
meters decreases. See page 26 for reconciliation of Underlying
EBITDA to statutory loss for the period;
Underlying Underlying EBITDA divided by net interest expense. See page
EBITDA Interest 33 for calculation;
Cover
Underlying Underlying EBITDA as a percentage of revenue. See page 26
EBITDA Margin for calculation;
================= ===================================================================
Forward looking statements
This announcement includes forward-looking statements. These
forward-looking statements involve known and unknown risks and
uncertainties, many of which are beyond the Group's control and all
of which are based on the Directors' current beliefs and
expectations about future events. Forward-looking statements are
sometimes identified by the use of forward-looking terminology such
as "guidance", "believe", "expects", "may", "will", "could",
"should", "shall", "risk", "intends", "estimates", "aims", "plans",
"predicts", "continues", "assumes", "positioned", "targets" or
"anticipates" or the negative thereof, other variations thereon or
comparable terminology. These forward-looking statements include
all matters that are not historical facts and include statements
regarding the intentions, beliefs or current expectations of the
Directors or the Group concerning, among other things, the results
of operations, financial condition, prospects, growth, strategies,
and dividend policy of the Group and the industry in which it
operates. No assurance can be given that such future results will
be achieved; actual events or results may differ materially as a
result of risks and uncertainties facing the Group. Such risks and
uncertainties could cause actual results to vary materially from
the future results indicated, expressed, or implied in such
forward-looking statements. Such forward-looking statements
contained in this announcement speak only as of the date of this
announcement.
Enquiries:
Analysts and investors
Calisen Investor Relations
Adam Key +44 (0)7572 231453
Investor Relations Director
adam.key@calisen.com
Media
Finsbury (public relations adviser to Calisen)
Dorothy Burwell / Harry Worthington
+44 7733 294 930 / +44 7818 526 556
Calisen-LON@finsbury.com
Issued by Calisen plc
Registered in England and Wales no. 12383518
Registered office: 5(th) Floor, 1 Marsden Street, Manchester, M2
1HW
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END
FR FFFELVSILIIL
(END) Dow Jones Newswires
March 02, 2021 02:00 ET (07:00 GMT)
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