Interim Results

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For immediate release 12 November 2013

Energy Assets Group plc

("Energy Assets", the "Company" or the "Group")

Interim Results for the six months ended 30 September 2013

Energy Assets Group plc (LSE: EAS.L), the largest independent provider of industrial and commercial (I&C) gas metering services in the UK1 is pleased to announce its Interim Results which show continuing growth for the sixmonths ended 30 September 2013 (H1 2013/14). 

Financial highlights

· Total revenue increased by 55% to £11.8m (H1 2012/13: £7.6m);

· Recurring revenue increased by 58% to £7.9m (H1 2012/13: £5.0m) representing 67% of total revenue;

· EBITDA increased by 46% to £7.0m from £4.8m;

· Operating profit before interest and exceptional items increased by 39% to £4.6m from £3.3m;

· Profit before tax and exceptional items increased by 67% to £3.0m (H1 2012/13: £1.8m). Profit before tax was £2.8m (H1 2012/13: £1.5m) after incurring exceptional costs of £0.2m (H1 2012/13: £0.3m);

· Cash generated from operations up 68% to £6.4m (H1 2012/2013: £3.8m);

· The Group maintains substantial headroom in its funding facilities and had cash resources of £8.7m at 30 September 2013;

· Adjusted EPS increased by 73% to 8.52p (H1 2012/13: 4.93p).

Operational highlights

· The metering portfolio owned and installed has increased by 14% to circa 92,500 assets since the year end (31 March 2013: circa 81,000 assets) and by 27% since 30 September 2012 when the portfolio was circa 73,000 assets;

· Cumulative capital investment in meter assets up 36% to £68.5m (H1 2012/13: £50.4m) which has produced long term recurring revenue in the current period of £4.9m (H1 2012/13: £3.6m);

· Meter Asset Management (MAM) services now provided to 28 gas suppliers within the UK I&C gas market;

· Agreement entered into with Elster for the long term supply of large capacity gas meters together with a joint commitment to work together in the development of absolute encoder technology for the UK I&C gas market; 

· The number of meter points from which data is collected on behalf of our customers has increased by 151% to circa 56,5002 (H1 2012/13: circa 22,500). This represents one of the largest independentportfolios within the UK I&C sector;

· Continued strong performance in AMR contract renewals with a 98% success rate based on the number of meter points as a percentage of AMR units, ensuring a continuation of the long term revenue attached to these contracts;

· Revenue from Siteworks activity increased by 50% to £3.9m (H1 2012/13: £2.6m).

Current trading and outlook

The second half of the financial year has started well and our major contracts continue to perform strongly. The Group's respected brand and reputation continues to put us in a good position to develop relationships with other major gas suppliers and to seek future opportunities within the UK I&C gas market.

Commenting on the half year results, Chief Executive Officer Phil Bellamy-Lee said:

"I am delighted to report another period of strong operational and financial performance by Energy Assets in the first half of the financial year. 

We have continued to increase our market share as the leading independent MAM within the UK I&C gas sector adding circa 11,500 assets to our portfolio in the period. We also remain focussed on our position as a leading provider and developer of AMR services.

The underlying business continues to perform well and we remain confident of gaining new work with other major gas suppliers. Our strong supply chain relationships, engineering competence and focus on technology continue to differentiate us from our competitors which, combined with the opportunities arising from Government regulatory requirements, put us in a strong position to deliver our long term growth strategy."

Enquiries

For further information visit www.energyassets.co.uk or contact:

Notes to Editors:

Energy Assets provides gas metering and related services in the I&C segment of the UK gas market and is the largest independent provider of I&C gas metering services in the UK (by number of meters under management). The Group offers gas suppliers and end-user consumers of gas a broad spectrum of metering services from the provision and management of new and replacement meters through its MAM Services division to the procurement and project management of related gas infrastructure works and the collection and provision of gas consumption data through the Group's Siteworks and AMR divisions.

Energy Assets is listed on the Main Market of the London Stock Exchange.

Interim Management Report

Throughout the period we have continued to grow our business, increasing our asset portfolio and strengthening our Siteworks division. This has been reflected in the strong financial performance detailed below. 

Key performance indicators

The Group monitors a number of key performance indicators as follows:

Results for the period

The Group has continued to grow revenue and profits through strong performances across each of its business segments.

For the six months ended 30 September 2013, Group revenue was £11.8m showing an increase of £4.2m (55%) compared with the same period in the last financial year. This increase is principally as a result of the Group's growing asset portfolio and the incorporation of the EA Energy Solutions Limited (EAES) business acquired in October 2012 which generated revenue of £2.3m during the period.

At 30 September 2013, recurring revenue of £7.9m accounted for 67% of total revenue, compared to £5.0m in the corresponding period in the previous year, an increase of 58%. These recurring revenues are as a result of the long term nature of the Group's metering and AMR contracts.

Gross profit increased by 48% to £6.8m (H1 2012/13: £4.6m). All segments contributed to this improvement.

Administrative expenses incurred in the six months ended 30 September 2013 were £2.5m including exceptional share based payment expense relating to the implementation of employee share schemes as part of the IPO in March 2012 of £0.2m which shows an increase of £1m compared to H1 2012/13. This increase is mainly due to investment in staff numbers which have increased to an average of 91 employees following the integration of the acquired EAES business in October 2012 from an average of 67 in the corresponding period in the previous year. This facilitates the continuing and future growth of the Group. However, notwithstanding this increase in salary costs, EBITDA increased by 46% to £7.0m (H1 2012/13: £4.8m).

Finance costs have remained constant at £1.5m which reflects the impact of the refinancing of £24m of more costly debt in February 2013 resulting in a reduction in interest rates from 8.3% to a fixed rate of 5.27%. Consequently, even though the debt outstanding has increased to £54.8m at 30 September 2013 compared to £39.5m at 30 September 2012, interest costs have remained at similar levels.

Profit before tax and exceptional items increased by 67% to £3.0m (H1 2012/13: £1.8m). Profit before tax was £2.8m (H1 2012/13: £1.5m) after incurring the exceptional share based payment expense.

At a divisional level the results were as follows:

Meter Asset Management (MAM)

The Group's key area of activity is its OFGEM accredited MAM division which owns, provides, manages and maintains I&C gas meters. Revenue is generated through long term rental payments received from gas suppliers who supply gas through the Group's meters.

Since the end of the last financial year the Group has installed circa 11,500 meters, compared to circa 10,000 meters in the six month period to 30 September 2012, bringing the installed meter portfolio to circa 92,500 assets. 

As a fully accredited meter installer we have continued to make further improvements to our supply chain management during the period increasing the number of meter installs for which we have capacity through recruitment of internal resources whilst continuing to optimise the strong relationships we have with our supply chain partners. These improvements provide the Group with increased capacity to capitalise on future demand opportunities.

Going forward we expect the I&C asset base within this division to significantly increase as a result of our existing contracts and future demand opportunities for the installation of advanced and smart gas meters, which is currently being driven by Government policy and which requires every metering point in the UK to have smart-enabled energy meters by 2019. 

Given that the design life of gas meters in the UK is in excess of 20 years it is expected that our metering assets will continue to provide a solid source of long term recurring revenue which has increased to £4.9m for the period (H1 2012/13: £3.6m). 

Siteworks

The Group's Siteworks division provides a comprehensive consultancy, system design and project management service for gas infrastructure works and meter point infrastructure.

Energy Assets is able to procure and manage the engineering services required by a gas supplier or end-user consumer to install a new metering point including laying the connection from the gas network to the meter, moving an existing metering point or removing a metering point from a disused or demolished site and disconnecting it from the gas network. 

Revenue from Siteworks activity in the period has increased by 50% to £3.9m (H1 2012/13: £2.6m) demonstrating the Group's ability to continue to increase our market share in this segment.

Automated Meter Reading (AMR)

The Group's AMR division provides ASPCoP approved AMR services, installing data loggers that collect and transmit consumption data from advanced meters to a data centre for validation and formatting before provision to utility suppliers and end-user consumers.

These data loggers enable the Group to produce accurate and up-to-date consumption reports allowing our customers to closely monitor their energy consumption, effectively budget for energy expenses and identify areas where they can reduce costs.

Our AMR business has had an excellent six month trading period with a 114% increase in recurring revenue to £3.0m (H1 2012/13: £1.4m).

The number of meter points from which data is collected on behalf of our customers has increased by 8% to circa 56,500 since the year end (31 March 2013: circa 52,500). This represents one of the largest portfolios within the UK I&C sector.

We continue to achieve a strong performance in AMR contract renewals with a 98% success rate based on the number of meter points renewed as a percentage of AMR units requiring renewal, ensuring a continuation of the long term revenue attached to these contracts. 

During the period Energy Assets unveiled a multi-utility AMR service, Energydata 24, to help energy suppliers and I&C end-users optimise the value of the UK's investment in advanced metering technology. 

Energydata 24 provides end-to-end support across the I&C sector, from technology installation to data collection, analysis and reporting. This broadens Energy Assets offering to an energy sector which is increasingly focussed on providing innovative technologies that are cost effective, resource efficient and supportive of a wider sustainability agenda.

Financial position

As at 30 September 2013, the Group had £54.8m of debt outstanding against a meter portfolio of circa 92,500 meters with a net book value of £60.9m (H1 2012/13: £39.5m of debt against circa 73,000 meters with a net book value of £45.7m). These assets produced long term recurring revenue of £4.9m in the current period (H1 2012/13: £3.6m).

The Group maintains substantial headroom in its funding facilities and had cash at bank of £8.7m at 30 September 2013.

Principal risks and uncertainties

Details of the principal risks and uncertainties faced by the Group are included on pages 16 and 17 of the published annual report and financial statements for the year ended 31 March 2013. No additional risks or uncertainties have been identified since the year end which will impact the business in the coming six months.

People

The Group welcomed David Goldie as a Non-executive Director of Energy Assets on 8 April 2013. David brings a wealth of valuable experience to the Group, particularly in the areas of data management and growing service revenues in business to business markets.

Current trading and outlook

The second half of the financial year has started well and our major contracts continue to perform strongly. The Group's respected brand and reputation continues to put us in a good position to develop relationships with other major gas suppliers and to seek future opportunities within the UK I&C gas market.

Responsibility statement

We confirm that to the best of our knowledge:

a) The condensed consolidated interim financial information contained in this document has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union;

b) The interim management report includes a fair review of the information required by the Financial Services Authority's Disclosure and Transparency Rules ("DTR") 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

c) This document includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).

By order of and on behalf of the Board

Philip Bellamy-Lee John McMorrow

Chief Executive Officer Chief Financial Officer

12 November 2013

Consolidated Statement of Comprehensive Income

For six months ended 30 September 2013

Consolidated Balance Sheet

As at 30 September 2013

The notes on pages 13 to 24 are an integral part of this interim consolidated financial information.

Consolidated Statement of Changes in Equity

For six months ended 30 September 2013

Consolidated Statement of Cash Flows

For six months ended 30 September 2013

Notes

1) Financial information

This announcement does not constitute full accounts within the meaning of the Companies Act 2006 and the condensed interim financial information included within has been reviewed but not audited. It does not therefore include all the information and disclosures required in the annual financial statements as at 31 March 2013 which were approved by the Directors on 11 June 2013 and delivered to the registrar of companies. The audit report received on those accounts was unqualified and did not contain any emphasis of matter paragraph nor any statement under section 498 of the Companies Act 2006.

This information has been approved for issue by the Board of Directors of Energy Assets Group plc, a public limited company domiciled and incorporated in the United Kingdom with shares listed on the London Stock Exchange. The registered office address is Ship Canal House, 98 King Street, Manchester, M2 4WU. 

2) Basis of preparation

The condensed consolidated interim financial information included within this announcement has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34 "Interim Financial Reporting" as adopted by the European Union (EU) and should be read in conjunction with the annual financial statements for the year ended 31 March 2013, which have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union.

The consolidated interim financial information has been prepared under the historical cost convention, as modified by financial assets and liabilities (including derivative instruments) at fair value through profit or loss.

A financial review of the business is outlined on pages 4 to 7.

3) Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the financial review on pages 4 to 7. 

The Directors have considered these factors, the likely performance of the business and possible alternative outcomes, the financing facilities available to the Group and the possible actions able to be taken should new facilities not be available in the future. They have also prepared cashflow forecasts which show the Group expects to meet its liabilities as they fall due for a period in excess of 12 months from the date of the half year report. 

The Group maintains substantial headroom in its funding facilities, had cash at bank of £8.7m at 30 September 2013 and continued to be cash generative through trading operations.

Having taken all of these factors into consideration, the Directors confirm that forecasts and projections indicate that the Group and its Parent Company have adequate resources for the foreseeable future and at least for the period of 12 months from the date of the half year report. Accordingly the financial information has been prepared on the going concern basis.

4) Accounting policies

The accounting policies adopted in the preparation of the financial information for the six months ended 30 September 2013 are in accordance with the recognition and measurement criteria of International Financial Reporting Standards ('IFRS') as adopted by the European Union and are consistent with those of the financial year ended 31 March 2013. 

Exceptional items are disclosed and described separately in the interim financial information where it is necessary to do so to provide further understanding of the financial performance of the Group.

Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total earnings.

5) Estimates

The preparation of interim financial information requires management to make certain judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual amounts may differ from these estimates.

In preparing this condensed consolidated interim financial information the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements for the year ended 31 March 2013.

6) Segment information

Operating segments are reported in a manner consistent with the reports made to the chief operating decision maker. It is considered that the role of chief operating decision maker is performed by the Board of Directors.

The Group currently only operates in the UK and for management purposes is organised into three core divisions, Meter asset management, AMR data provision and Siteworks. This forms the basis of the Group's reportable operating segments.

The meter asset management segment combines the results of both the installation and management of gas meters as both have similar long term economic characteristics and similar nature of their products and services due to the customer base and regulatory environment under which they operate.

The measure of profit principally used to allocate resources is gross profit. However, as interest costs arise on borrowings which are wholly attributable to the meter asset management and AMR data provision segments, finance costs are also allocated to these segments.

EBITDA is monitored on a group level but not at segment level and therefore this has not been presented within this note.

Certain central costs, assets and liabilities are not allocated to segments as they are managed on a Group basis. These comprise primarily central head office and management overhead costs, cash, accounts receivable and accounts payable.

7) Exceptional items

Items that are both material because of their size or nature, non-recurring and whose significance is sufficient to warrant separate disclosure and identification within the consolidated financial information are referred to as exceptional items. The separate reporting of exceptional items helps to provide an understanding of the Group's underlying performance.

On 11 October 2012 the Group purchased 100% of the share capital of Gazprom Global Energy Solutions Limited and incurred significant non-recurring transaction costs relating to this acquisition of £0.4m.

The Group also implemented a number of share based payment schemes as part of the IPO. The expense for the current period in relation to these schemes amounted to £0.2m (H1 2012/13: £0.2m).

8) Taxation

The tax on the Group's profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated entities as follows:

In the prior financial year, expenses not deductible for tax purposes primarily related to acquisition costs, all of which were non-recurring. 

The UK Corporation rate of 23% took effect from 1 April 2013.

Further changes to the UK Corporation tax rates were substantively enacted as part of the Finance Bill 2013 on 2 July 2013. These include changes to reduce the main rate to 21% from 1 April 2014 and to 20% from 1 April 2015. As these changes have been substantively enacted at the balance sheet date their effects have been included in these financial statements.

9) Earnings per share

Basic earnings per share is calculated by dividing the profit attributable to ordinary equity holders of the Group by the weighted average number of ordinary shares in issue during the year.

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. 

This is done by calculating the number of shares that could have been acquired at fair value (determined as the average market share price of the Company's shares since Listing) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated above is compared with the number of shares that would have been issued assuming the exercise of the share options.

Therefore, the Company will be required to adjust the earnings per share calculation in relation to the share options that are in issue under the LTIP and IPO Award Plan share based incentive schemes as follows:

Adjusted earnings per share

The tax charge in the current and prior periods is impacted in relation to prior period adjustments and the tax impacts of the acquisition of EAES. These profit figures have therefore been adjusted to show profit after a notional tax charge and before exceptional items.

10) Property, plant and equipment

Gas Meter additions in the period to 30 September 2013 include directly attributable costs of £1.3m (H1 2012/13: £1.2m).

Borrowings are secured by a cross company guarantee and fixed and floating charge over the Group's assets.

11) Financial risk management and financial instruments

The Board reviews and agrees policies for managing the risks associated with interest rate risk, foreign exchange risk, credit risk, liquidity risk and capital. The Group has in place a risk management policy that seeks to minimise any adverse effect on its financial performance by continually monitoring material financial risks.

These condensed interim financial statements do not include all financial risk management information and disclosures required in the annual financial statements and should therefore be read in conjunction with the Group's annual financial statements as at 31 March 2013. There have been no changes in the risk management department or in any risk management policies since the year end.

Fair value estimation

The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

· Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities;

· Level 2: other techniques for which all inputs that have a significant effect on the recorded fair value are observable, either directly or indirectly;

· Level 3: techniques that use inputs that have a significant effect on the recorded fair value that are not based on observable market data.

The Group held the following financial instruments carried at fair value:

The above outlined financial instruments are not traded in an active market and relate to over-the-counter derivatives. The fair value is determined using forward interest rates extracted from observable yield curves.

For all other financial assets and liabilities there is no material difference between the fair value and the carrying value included in the financial statements.

12) Net debt/EBITDA

The Group monitors capital on the basis of net debt divided by EBITDA before exceptional items. Net debt is calculated as total borrowings less cash and EBITDA is calculated as operating profit before any significant non-recurring items, interest, tax, depreciation and amortisation as follows:

13) Related party transactions

Energy Assets Group plc is a listed company with 39% of the ordinary share capital held by Macquarie Investments 2 Limited. The remaining 61% of the shares are widely held. 

During the year to 31 March 2013, sales to related parties amounted to £8.1m being sales made on an arm's length basis to Corona Energy Limited, a Macquarie Group company. Sales to Corona in the six months to 30 September 2013 were £4.4m (H1 2012/13: £3.9m). Corona sales accounted for 37% of revenue in the period to 30 September 2013 compared to 51% in the period to 30 September 2012 and 45% in the year ended 31 March 2013. No goods or services have been bought from related parties in the current or prior periods. 

At 30 September 2013, the Group owed £10.4m (31 March 2013: £10.9m) relating to loan financing received from Macquarie Bank Limited.

All transactions with related parties were made on an arm's length basis in line with terms that would be available to third parties.

14) Leased assets

The Group, as part of its core business, is a lessor of metering assets. These are leased to customers under operating leases which are subject to annual reviews and are cancellable by the customer. The minimum lease rentals receivable at current prices, assuming the lease remains in place for remaining useful life of the asset, are as follows: