Final Results

16 April 2012

Smart Metering Systems plc

("SMS" or the "Company")

Final results

Smart Metering Systems plc (AIM: SMS.L), the integrated metering services company that connects, owns, operates and maintains current generation and new advanced metering assets and databases is pleased to announce final results for the 12 months to 31 December 2011. 

Financial Highlights

·; Successful admission to trading on AiM and £10m of gross proceeds raised in July 2011

·; Revenues increase by 29% to £16.0m (2010: £12.4m)

·; Recurring revenues increased by 51% to £6.6m (2010: £4.4m)

·; Gross profit increased by 61% to £8.9m (2010: £5.5m) with gross margin increased to 55.5% (2010: 44.4%)

·; Adjusted EBITDA* increased by 96% to £5.7m (2010: £2.9m)

·; Increased lease finance facility made available by Clydesdale Bank plc in October 2011, extending the available facility from £12m to £19.5m

·; Available resources at year end £14.8m

·; EPS increased by 301% to 2.93p (2010:0.73p)

*excluding exceptional items

Operational Highlights

·; Gas connections

o 1,333 in 2011 (2010: 1,275)

·; Meter Asset Management

o Total meter portfolio increased by 19% to 254,000

o Increase of 77% in capital investment on meter assets to £9.2m as a result of increasing run rate in meter installations with existing gas supplier clients

o Increase in annualised recurring revenue of 29% to £7.6m

o Client base grew from 12 to 15 representing 80% of the industrial and commercial market

·; Data Management

o ADM device received zone zero accreditation and preliminary EU patent approval

o Successful ADM trials with three gas supplier clients

Alan Foy, Chief Executive Officer, commented:

"We had a very solid 2011 with strong results in all our business segments. The Company was delighted to welcome new gas supplier clients, increasing our base of major clients to 15 representing over 80% of the I&C meters market. In 2012 we will continue to focus on accumulation of meter assets organically and potentially through new contract wins. We are very pleased by successful trials of our ADM device which has an addressable market of an estimated 378,000 units. We will also seek out new domestic and international markets for our products and services to widen our footprint in the UK and establish an international presence. I look forward to 2012 with optimism."

Enquiries:

Notes to Editors

Established in 1995, Smart Metering Systems plc based in Glasgow, connects, owns, operates and maintains metering systems and databases on behalf of major energy companies. 

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

Longer term the Company has further applications for the water and LPG markets where it has started trialling its new advanced metering system, the ADM™, which will allow "smart" applications such as remote reading and half hourly consumption data to be offered.

The Company was admitted to the AiM market in July 2011, for more information on SMS please visit the Company's website: www.sms-plc.com

SMART METERING SYSTEMS PLC

CHAIRMAN'S STATEMENT

This is the first set of full year results since the Company's admission to trading on AIM on 8 July 2011 raising £10m of gross proceeds.

The proceeds of the float have strengthened our financial resources enabling the Company to accelerate the organic growth of the business mainly based on connecting, owning, operating and maintaining gas meters and their associated databases on behalf of gas suppliers.

I am pleased to report a solid set of results for the year ended 31 December 2011 and a positive outlook for 2012.

Financial highlights

The results for the year have been strong, with revenues increasing by 29% to £16m, profit from operations before exceptional items and finance costs increasing by 119% to £4.5m, and profit from operations after exceptional items and finance costs increasing from £0.9m to £3.3m.

In addition to the proceeds from the IPO and cash flow from operations of £4.9m (2010: £3.6m), the Company also secured additional bank borrowing to support further capital investment in meters which amounted to £9.2m in the year compared to £5.2m in 2010. At the year end our available resources including cash and borrowing facilities amounted to £14.8m.

I am also pleased to announce that all major KPIs across our three business divisions were met and are detailed in the Chief Executive's Review.

People

The move from a private to publicly listed company has involved a number of changes for SMS. I was delighted to accept the invitation to be Chairman in advance of the IPO. In addition, Nigel Christie has also joined the Board as a Non-executive Director, bringing with him a wealth of financial and senior management experience. We will keep the composition of the Board, including the possibility of appointing a further Non-executive Director, under review during the current financial year.

A critical part of our operations is our people. We have an exceptional team and I would like to take this opportunity to thank them all for their efforts during the year. In the year of IPO, I would also like to thank the advisors that worked hard alongside the Company's executive team to make it happen, in what can best be described as challenging markets.

Strategy

The business activities are focused on managing the installation and registration of new meter assets onto our systems each year. Full revenue from the installed meters is realised the following year, installation and registration of new meter installations from the same overhead annually leads to compounding of recurring rentals and increasing of revenues and profits, as demonstrated in our financial performance.

Annualised recurring rental is now £7.6M, group net debt is £3.4m and we have £16M current available facility including £5.2M cash from operations to invest in meter assets.

During 2012 the company expects to increase banking facilities for the purpose of continuing to accumulate meter assets in the domestic market and with the objective of establishing the ADM smart metering solution as the market standard in the I&C market leading to further accumulation of meters.

No major investment in operations infrastructure is currently foreseen with systems operating at 5% capacity. The Company own all Intellectual Property Rights to its developed and fully deployed IT systems and new ADM smart metering solution focused on the I&C metering market.

Dividend

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

Subject to the Company's continuing financial performance, the Directors intend to declare a maiden dividend as a public company as an interim dividend for the financial year ending 31 December 2012, which we anticipate will be paid in November 2012.

Outlook

SMS has a robust business model, a strong management team and leading smart meter technology which has been underlined by the strong set of results announced in this annual report.

2011 was an important year for SMS with its flotation on the London Stock Exchange. This milestone has allowed the Board to support an ambitious strategy for growth in our core areas, in developing new and exciting markets by product and geography and by providing the financial strength and flexibility to take advantage of new opportunities as they arise.

2012 has, to date, delivered on that strategy through the ongoing accumulation of meter assets installed on request of the Company's existing gas supply clients, and very positive conclusion on the trialling of the Company's smart meter technology. This has allowed the Company to further strengthen the quality of the management team in key areas. I look forward to a successful year ahead with a strong performance against challenging KPIs, a dedicated and motivated team and, most important, a satisfied, loyal and expanding client base.

Kevin Lyon

Chairman andNon-executive Director

SMART METERING SYSTEMS PLC

CHIEF EXECUTIVE'S REVIEW

I am pleased to report that SMS has made a strong start as a listed company. These results are testament to the quality of our clients, our people and our ability to deliver relevant and valuable solutions to support our clients' businesses.

Our business

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

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

·; be the market leader in the independent ownership of industrial and commercial meters

·; establish ADM as the industry standard smart metering solution for industrial and commercial (I&C) clients and

·; grow our domestic meters business organically and potentially through new contracts.

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

Business performance

Gas Connections

Our Gas Connections business is a transactional support services business which manages new gas connections and meter installations for our clients. The business acts both as a steady and consistent revenue stream in its own right and as an important feed into our meter asset management business.

In 2011, we continued to support both contracted and non-contracted energy clients by undertaking over 1,333 connections, a similar level to the year before.

Meter asset management

Our meter asset management business works across both the domestic and I&C gas markets working on perpetuity, index linked contracts. We own, operate and manage meter assets on behalf of our clients, securing revenue through a rental of the meter asset to gas suppliers.

In 2011, our total meter portfolio increased by 19% to 254,000.At 31 March 2012 the portfolio was 265,000. This was achieved by an increase in capital investment in meter assets of 77% to £9.2m, delivering a recurring rental income increase of 51% to £6.6m. At 31 December the annual equivalent recurring rental income was £7.6m.

Asset accumulation

In 2011 the Company was delighted to welcome new gas supplier clients, increasing our base of major clients to 15 representing over 80% of the I&C meters market.

In 2012 we will continue to focus on accumulation of meter assets organically and potentially through new contract wins.

The Company seen a significant increase thus far in 2012 in our domestic meter installation run rate secured from existing gas supplier clients.

The ADM smart metering solution has been designed to the exacting requirements as requested by the Company's existing client base for the I&C market and, following trials, is now an established proven solution.

The objective is to add a further recurring meter rental income to the Company from the provision of data services generated by the installation of the ADM device to I&C meters by gas supplier customers. Addionally however, a new meter is intended to be installed at the same time as an ADM device installation, thereby further increasing the Companies meter asset portfolio in this market segment.

Data management - ADM

SMS has developed a cost effective and reliable data collection solution incorporating a smart meter device called ADM, principally aimed at the I&C market. The device has been granted preliminary European patent approval and safety certification for operation in the most hazardous environments and has been trialled by three major energy suppliers in the UK during the course of 2011.

A key advantage of ADM is that it does not require pre-installation programming and is very much 'plug and play'. Supported by a comprehensive IT solution, the ADM device will provide an important source of new income and act as a feeder into the meter asset management business, in a similar way to our gas connections business.

Following extensive trials we can now provide clients with a proven full service offering incorporating installation of gas meters through to advanced metering services providing many opportunities for the Company to build further value from its existing client base.

The market for I & C meters which represents an estimated 1.6m clients has two distinct options with respect to advanced or smart metering. Up to 2014 small I&C meter clients have the opportunity to opt for an advanced metering solution such as the ADM device or alternatively be included in the proposed domestic roll out of smart meters. The Company believes that this market segment is attractive for implementing the ADM solution and will increase marketing efforts in this area throughout 2012.

Gas suppliers have already got a licence condition to install advanced meters, such as the ADM device to large meters, combined with large consumer group portfolios the Company estimate these immediately addressable markets to be around 378,000 meters.

Further expansion to new areas

During 2011 we established that the ADM device was a suitable technology for other market sectors such as water meter data collection. We have had early success and are currently trialling the ADM device in the I&C sector. 

The addressable market is large and estimated at 1.6m units.

People

A significant part of our business proposition has always focused on how we interact with our clients through attention to detail and excellent customer service. These core values have underpinned our business since its inception in 1995.

Our team

It is the dedication and professional work ethic of our team that has provided the strongest of foundations for the successful growth of our business and I wish to thank all those individuals that have fostered our key relationships with clients over the years.

Several of our clients are now celebrating ten years working with SMS. The trust developed over such long periods has helped us accumulate our meter portfolio to date. This strong growth is anticipated to continue through 2012 and beyond. Throughout the course of this review, I have highlighted areas where we will focus our efforts and, as always, keeping true to our core values within a dedicated and professional team will be important in the delivery of targeted growth. We look forward to many more milestones achieved throughout 2012.

Alan Foy

Chief Executive Officer

SMART METERING SYSTEMS PLC

FINANCE DIRECTOR'S REPORT

Results for the year

In 2011, the Group generated £16m in revenue, an increase of 29% over 2010, as the Company continued its growth of owned meters and meters under management. Recurring revenue, in line with the Company's strategy, increased from 35% of the total in 2010 to 41% in 2011.

Administration expenses at £4.4m (excluding exceptional costs) were up 27% compared to 2010, substantially due to investment in staff numbers which have increased from 35 to 42 in line with the growth of the Company and its listed status, and increased depreciation due to the increased meter base held by the Company.

Finance costs increased from £250k to £535k, in line with the increased borrowings that have supported our investment in meter assets.

Profit before tax increased from £857k to £3.3m and profit after tax from £490k to £2.2m.

Cash and borrowings

As at 31 December 2011, the Company had cash balances of £7.3m and unused facilities of £7.5m. In October 2011, SMS was pleased to announce that Clydesdale Bank PLC had agreed to extend the master lease facility, originally made available to SMS on 24 September 2010, by increasing the lease facility from £12m to £19.5m. The increased amount of £7.5m will be available for drawdown until 12 October 2012 and will be used to continue to expand investment in meter assets.

Gearing was 32% compared to 493% in 2010.

Capital investment in meters was £9.2m compared to £5.2m in 2010.

Treasury policies

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

Interest rate swaps covered an amount of £5.5m as at 31 December 2011 (2010: £3.8m) and an interest rate cap over an amount of £5.5m as at 31 December 2011 (2010: £4m).

The interest rate swap results in a fixed interest rate of 2.99% and the interest rate cap applies a floating rate with a cap of 2.99%. The termination date for both derivatives is 15 September 2015.

The Company completed a transaction for a further interest rate cap in November 2011 with an effective date of January 2012 applying a floating rate with a cap of 2.25%. This will eventually apply to future drawdowns up to £5m.

Glen Murray

Finance Director

SMART METERING SYSTEMS PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2011

The profit from operations arises from the Group's continuing operations.

Earnings per share attributable to owners of the parent during the year:

SMART METERING SYSTEMS PLC

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2011

SMART METERING SYSTEMS PLC

STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2011

SMART METERING SYSTEMS PLC

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2011

SMART METERING SYSTEMS PLC

ACCOUNTING POLICIES

The Company is incorporated and domiciled in the UK. The Group's activities consist of the rental and management of gas meters and that of laying infrastructure pipes for industrial and commercial premises and the provision of specialist technical advice on the use and management of energy for industrial and commercial users.

Basis of Preparation

The consolidated financial statements have been prepared on a historical cost basis, except for derivative financial instruments which are measured at fair value in line with applicable accounting standards. The consolidated financial statements are presented in British pounds sterling (£) and all values are rounded to the nearest thousand (£'000) except where otherwise indicated.

Going Concern

Based on the current projections and facilities in place the Directors consider it appropriate to continue to prepare the financial statements on a going concern basis.

Statement of Compliance

For all periods up to and including the year ended 31 December 2010, the Group prepared financial statements in accordance with generally accepted accounting practice in the United Kingdom ((UK GAAP). These financial statements for the year ended 31 December 2011 are the first the Group has prepared under International Financial Reporting Standards (IFRS) as adopted by the European Union. An explanation of the principal adjustments made by the Group in restating its UK GAAP statement of financial position as at 1 January 2010 and its previously published UK GAAP financial statements for the year ended 31 December 2010 is provided in note 28.

Basis of Consolidation

The consolidated financial statements incorporate the consolidated financial statements of the Company and all Group undertakings being UK Gas Connection Limited, UK Meter Assets Limited and UK Data Management Limited. These are adjusted, where appropriate, to conform to Group accounting policies and are prepared to the same accounting reference date. The Company was incorporated on 27 October 2009. The Group was formed on 24 December 2009 through the acquisition of the entire share capital of UK Gas Connection Limited and UK Meter Assets Limited (the only subsidiaries in existence at that time).

Whilst the Group was newly formed, the ultimate ownership of all companies remained unchanged and, as such, the financial statements have been prepared based on a reconstruction under common control, reflecting the Group results for the current and prior years as though the Group structure has always existed.

Use of Estimates

The preparation of the financial statements requires the use of estimates and assumptions. Although these estimates are based on management's best knowledge, actual results ultimately may differ from these estimates.

The key sources of estimation uncertainty that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year are the estimation of share based payment costs. The estimation of share based payment costs requires the selection of an appropriate valuation model, consideration as to the inputs necessary for the valuation model chosen and the estimation of the number of awards that will ultimately vest, inputs for which arise from judgements relating to the probability of meeting non-market performance conditions and the continuing participation of employees.

Revenue Recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received, excluding discounts and VAT.

Revenue is recognised when the significant rewards and risk of ownership have been passed to the buyer. The risk and rewards of ownership transfer when the Company fulfils its contractual obligations to customers by supplying goods and services, or when they have the right to receive the income. Where revenue is recognised due to the right to receive the income and the Company has not invoiced for the goods or service, an accrual is incorporated for the estimate of providing such.

Rental income is accounted for on a straight line basis over the term.

Segment Reporting

An operating segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. Operating segments are reported in a manner consistent with the reports made to the chief operating decision maker which are consistent with the reported results.

The Company considers that the role of chief operating decision maker is performed by the Board of Directors.

Financial Assets

Initial recognition and measurement

Financial assets within the scope of IAS 39 are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial assets at initial recognition.

Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognised on the trade date, i.e., the date that the Group commits to purchase or sell the asset.

The Group's financial assets include cash and short-term deposits, trade and other receivables, loans and other receivables, quoted and unquoted financial instruments, and derivative financial instruments.

Financial Liabilities

Initial recognition and measurement

Financial liabilities within the scope of IAS 39 are classified as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial liabilities at initial recognition. All financial liabilities are recognised initially at fair value and in the case of loans and borrowings, net of directly attributable transaction costs.

The Group's financial liabilities include trade and other payables, bank overdraft, loans and borrowings, financial guarantee contracts and derivative financial instruments.

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 a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the income statement.

Offsetting of financial instruments

Financial assets and financial liabilities are offset, and the net amount reported in the consolidated statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.

Initial recognition and subsequent measurement

The Group uses derivative financial instruments such as interest rate swaps to hedge its interest rate risk. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. The Group has not designated any derivatives for hedge accounting.

Current versus non-current classification

Derivative instruments that are not designated as effective hedging instruments are classified as current or non-current or separated into a current and non-current portion based on an assessment of the facts and circumstances (i.e., the underlying contracted cash flows).

- Where the Group will hold a derivative as an economic hedge (and does not apply hedge accounting) for a period beyond 12 months after the reporting date, the derivative is classified as non-current (or separated into current and non-current portions) consistent with the classification of the underlying item.

- Derivative instruments that are designated as, and are effective hedging instruments, are classified consistent with the classification of the underlying hedged item. The derivative instrument is separated into a current portion and non-current portion only if a reliable allocation can be made.

Exceptional Items

The Group presents as exceptional items on the face of the income statement those material items of income and expense which, because of the nature or expected infrequency of the events giving rise to them, merit separate presentation to allow shareholders to understand better the elements of financial performance in that year, so as to facilitate comparison with prior periods and to assess better trends in financial performance.

Research and Development

Expenditure on pure and applied research activities is recognised in the income statement as an expense as incurred.

Expenditure on product development activities is capitalised if the product or process is technically and commercially feasible and the Group intends and has the technical ability and sufficient resources to complete development, future economic benefits are probable and if the Group can measure reliably the expenditure attributable to the intangible asset during its development. The expenditure capitalised includes the cost of materials, direct labour and an appropriate proportion of overheads.

Capitalised development expenditure is stated at cost less accumulated amortisation and accumulated impairment losses.

Amortisation is calculated so as to write off the cost of an asset, less its estimated residual value, over the useful economic life of that asset as follows:

Amortisation 13% on cost straight line

Intangible Assets

Intangible assets acquired separately from third parties are recognised as assets and measured at cost.

Following initial recognition, intangible assets are measured at cost at the date of acquisition less any amortisation and any impairment losses. Amortisation costs are included within the net operating expenses disclosed in the statement of comprehensive income.

Intangible assets are amortised over their useful lives as follows:

Software 8 years straight line

Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis. The Company does not have any intangible assets with indefinite lives.

Property, Plant and Equipment

Property plant and equipment is stated at cost, net of accumulated depreciation and/or accumulated impairment losses, if any. Such cost includes the cost of replacing part of the plant and equipment and borrowing costs for long term construction projects if the recognition criteria are met. When significant parts of property, plant and equipment are required to be replaced in intervals, the Group recognises such parts as individual assets with specific useful lives and depreciation, respectively.

All other repair and maintenance costs are recognised in the income statement as incurred.

Depreciation is calculated on a straight-line basis over the estimated useful life of the asset as follows:

- Short leasehold property 20% on cost

- Plant and machinery 5% on cost

- Fixtures and fittings 15% on cost

- Equipment 33% on cost

Land is not depreciated.

An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement when the asset is derecognised. The assets' residual values, useful lives and methods of depreciation are reviewed at each financial year end, and adjusted prospectively, if appropriate.

All fixed assets are initially recorded at cost.

Impairment of Assets

Property, plant and equipment and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For purposes of assessing impairment assets that do not individually generate cash flows are assessed as part of the cash generating unit

to which they belong. Cash generating units are the lowest levels for which there are cash flows that are largely independent of the cash flows from other assets or Groups of assets.

Inventories

Inventories are stated at the lower of cost and net realisable value. Costs comprise direct materials. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.

Cash and Cash Equivalents

Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less. For the purpose of the consolidated statement of cash flows, cash and cash equivalents consist of cash and short term deposits as defined above, net of outstanding bank overdrafts.

Hire Purchase Agreements

Assets held under hire purchase agreements are capitalised and disclosed under tangible fixed assets at their fair value. The capital element of the future payments is treated as a liability and the notional interest is charged to the statement of comprehensive income in proportion to the remaining balance outstanding.

Leased Assets and Obligations

Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the commencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in the income statement. Leased assets are depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term. Operating lease payments are recognised as an expense in the income statement on a straight line basis over the lease term.

All other leases are operating leases and the annual rentals are charged to the statement of comprehensive income on a straight line basis over the lease term.

Pension Costs

The Group operates a defined contribution pension scheme for employees. The assets of the scheme are held separately from those of the Group. The annual contributions payable are charged to the statement of comprehensive income.

Share-based payments

The costs of equity settled share based payments are charged to the income statement over the vesting period. The charge is based on the fair value of the equity instrument granted and the number of equity instruments that are expected to vest.

Taxation

Tax currently payable is based on the taxable profit for the year. Taxable profit differs from accounting profit as reported in the statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is measured using tax rates that have been enacted or substantively enacted by the reporting date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. The deferred tax balance is calculated based on tax rates that have been enacted or substantively enacted by the reporting date.

Adoption of the International Accounting Standards

Standards affecting presentation and disclosure

In the current year, the following new and revised Standards have been adopted but have not had any material impact on the amounts reported in these financial statements:

IFRS 1 (amended 2010) Additional exemptions for first time adopters

IFRS 3 (amended 2010) Business combinations

IFRS 7(amended 2010) Financial instruments: disclosures

IAS 1 (amended 2010) Presentation of financial statements

IAS 21 (amended 2010) The effects of foreign exchange rates

IAS 24 (revised 2009) Related party disclosures

IAS 27 Consolidated and separate financial statements

IAS 34 (amended 2010) Interim financial reporting

IFRIC 19 Extinguishing financial liabilities with equity instruments

At the date of authorisation of the financial statements, the following Standards and Interpretations which have not been applied in the financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU):

IFRS 1 (amended 2010) First time adoption of IFRS: Hyperinflation

IFRS 7 (amended 2010) Financial instruments disclosures: transfers of financial assets

IFRS 7 (amended 2011) Financial instruments disclosures: offsetting financial assets and financial liabilities

IFRS 9 Financial instruments

IFRS 10 Consolidated financial statements

IFRS 11 Joint arrangements

IFRS 12 Disclosure of interests in other entities

IFRS 13 Fair value measurement

IAS 1 (amended 2011) Presentation of other comprehensive income

IAS 12 (amended 2010) Income taxes: deferred tax

IAS 19 (amended 2011) Employee benefits

IAS 27 (amended 2011) Separate financial statements

IAS 28 (amended 2011) Investments in associates and joint ventures

IAS 32 (amended 2011) Financial instruments presentation: offsetting financial assets and financial liablilities

The Directors do not expect that the adoption of these Standards or Interpretations in future periods will have a material impact on the financial statements of the Group.

SMART METERING SYSTEMS PLC

NOTES TO THE FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2011

1 SEGMENTAL REPORTING

For management purposes, the Group is organised into two core divisions, management of assets and installation of meters, which form the basis of the Group's reportable operating segments. Operating segments within those divisions are combined on the basis of their similar long term economic characteristics and similar nature of their products and services, as follows;

The management of assets comprises regulated management of gas meters within the UK.

The installation of meters comprises installation of domestic and industrial and commercial gas meters throughout the UK.

Management monitors the operating results of its divisions separately for the purpose of making decisions about resource allocation and performance assessment. The operating segments disclosed in the financial statements are the same as reported to the Board. Segment performance is evaluated based on gross profit or loss excluding operating costs not reported by segment, depreciation, amortisation of intangible assets and exceptional items.

The following tables present information regarding the Group's reportable segments for the years ended 31 December 2011 and 31 December 2010.

SMART METERING SYSTEMS PLC

NOTES TO THE FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2011

1 SEGMENTAL REPORTING (continued)

All revenues and operations are based and generated in the UK.

The Group has one major customer that generated turnover within each segment as listed below:

The majority of assets and liabilities are managed at subsidiary and Group level and are not integral to the operations of any of the Group's segments.

No segmentation is presented for the majority of Group assets and liabilities as these are managed centrally, independently of operating segments.

Those assets and liabilities that are managed and reported on a segmental basis are detailed below.

SMART METERING SYSTEMS PLC

NOTES TO THE FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2011

1 SEGMENTAL REPORTING (continued)

Segment assets and liabilities

SMART METERING SYSTEMS PLC

NOTES TO THE FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2011

2 INCOME STATEMENT BY NATURE AND ITEMS OF EXPENDITURE INCLUDED IN THE CONSOLIDATED INCOME STATEMENT

Included in exceptional administrative expenses are: i) £329,000 (2010: £nil) that relates to costs incurred during the listing process, ii) £249,000 (2010: £71,000) relates to the interest rate hedge fair value adjustment, iii) £nil (2010: £527,000) of costs associated with new debt facilities, iv) £nil (2010: £337,000) of a write down on current asset investments, and v) £99,000 (2010: £nil) that relates to share based payments.

Auditor's remuneration amounts in total to £247,000 (2010: £47,000).

SMART METERING SYSTEMS PLC

NOTES TO THE FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2011

3 PARTICULARS OF EMPLOYEES

The average number of staff employed by the Group, including Executive Directors' during the financial year was:

The aggregate payroll costs, including Executive Directors, of the above were:

.

SMART METERING SYSTEMS PLC

NOTES TO THE FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2011

The number of Directors who accrued benefits under Company pension schemes was as follows:

SMART METERING SYSTEMS PLC

NOTES TO THE FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2011

The Directors consider that the adjusted earnings per share calculation gives a better understanding of the Group's earnings per share

SMART METERING SYSTEMS PLC

NOTES TO THE FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2011

SMART METERING SYSTEMS PLC

NOTES TO THE FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2011

10 PROPERTY PLANT & EQUIPMENT