Interim Results

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Energy Assets Group plc

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

Interim Results for the six months ended 30 September 2012

Strong growth and a transformational acquisition

Energy Assets Group plc (LSE: EAS.L), the largest independent provider of industrial and commercial ("I&C") gas metering services in the UK (by number of meters owned and managed), today announces its Interim Results for the six months ended 30 September 2012 (H1 2012/13). 

The first half of the year has delivered strong financial results which are in line with management expectations. The second half of the financial year has started well with the business continuing to perform strongly and, as recently announced, Energy Assets completed a transformational acquisition of Gazprom Global Energy Solutions Limited (GGES) immediately following the half year. This brings with it exclusive agreements with Gazprom for all three business streams including:

·; A doubling of the number of meter points from which data is collected on behalf of our customers;

·; The potential to double the size of the Group's I&C meter portfolio; and

·; A partnership with a growing gas supplier, offering the opportunity to increase our Automated Meter Reading ("AMR") portfolio and Siteworks activities. 

Integration of this business into the Group is progressing well.

Financial highlights

·; Revenue increased by 27% to £7.6m (H1 2011/12: £6.0m);

·; Recurring revenue increased by 32% to £5.0m from £3.8m and represents 66% of total revenue;

·; EBITDA increased by 30% to £4.8m (H1 2011/12: £3.7m);

·; Profit before tax and exceptional items increased by 38% to £1.8m (H1 2011/12: £1.3m). Profit before tax was £1.5m (H1 2011/12: £1.3m);

·; Cash generated from operations of £3.8m (H1 2011/2012: £3.3m), a growth of 15%;

·; Diluted EPS of 4.25p (H1 2011/12: adjusted EPS based on share capital at the date of listing being in issue for the full year 3.67p).

Operational highlights

·; The metering portfolio owned and installed has increased by 16% to circa 73,000 assets since the year end and by 30% since 30 September 2011;

·; Increased capital investment of 7% in meter assets which deliver our long term recurring revenue to £7.6m (H1 2011/12: £7.1m), bringing the total investment to £45.7m;

·; Energy Assets provides Meter Asset Management ("MAM") services to 24 gas suppliers within the I&C gas market;

·; The data logger portfolio has increased by 16% to circa 22,000 (H1 2011/12: circa 19,000) representing one of the largest independent portfolios within the I&C sector;

·; We continue to achieve a strong performance in AMR contract renewals with a 96% 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. 

Current trading and outlook

·; The outlook for the Group has been enhanced considerably by the acquisition of GGES, a subsidiary of Gazprom Marketing and Trading Limited, which has significantly added to the install and meter exchange growth prospects already in existence through our contracts with Corona Energy and British Gas; 

·; The Group continues its discussions with a number of other major gas suppliers requiring a fully integrated Metering, AMR, and Siteworks service provision and is confident that these will result in further expansion of all three business streams in the future;

·; The second half of the financial year has started well and the business continues to perform in line with expectations.

Acquisition of GGES

The acquisition of GGES brings a complementary business into the Group strengthening our ability to provide AMR and Siteworks services to gas suppliers and blue-chip clients across the I&C sector.

This is a transformational acquisition and brings the following benefits to the Group:

·; An exclusive agreement with Gazprom to deliver new and replacement meter installs, including the exchange of Gazprom's existing UK assets, bringing the potential to more than double the existing Energy Assets I&C metering portfolio, which is currently circa 58,000 meters. Each asset installed will have the long term security provisions of the Group's Meter Asset Management agreement;

·; An exclusivity period to provide all AMR and Siteworks services to Gazprom Energy across their growing customer portfolio. Energy Assets is now delivering AMR and Siteworks services to the fastest growing gas suppliers in the I&C sector with circa 25% of the market (by volume of gas supplied) now contracted1;

·; Access to a proven, significantly deployed, proprietary AMR technology for both gas and water applications including low power radio data collection technology and a range of other Intellectual Property, all of which will provide significant operational benefits; and

·; A substantially increased data logger portfolio through the acquired ownership of circa 27,000 data points across the gas, water and electricity sectors immediately increasing recurring revenue for Energy Assets. Consequently, Energy Assets has doubled the number of meter points from which data is collected on behalf of our customers to circa 49,000 units making it one of the largest AMR providers.

1Source: Datamonitor, Macquarie Research, October 2012

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

"I am delighted to be able to report a strong operational and financial performance in the first half of the year, reflecting good organic growth across our three business divisions. 

Our primary strategy continues to be the expansion of our market share as a Meter Asset Manager ("MAM") and to remain the leading independent MAM, by volume of meters owned and managed, within the UK I&C gas sector. This position remains secure and has been further cemented through our growth in the year to date.

The recent acquisition of GGES is a transformational deal for the Group providing us with a significant opportunity to more than double our existing I&C metering portfolio during the term of the contract, in partnership with one of the world's largest energy companies.

Following the acquisition, we are now a leading provider and developer of AMR technology with a proven and significantly deployed technology platform and a range of products with the potential to serve the wider utilities markets.

We have considerably strengthened our market position and, coupled with Government regulatory requirements to ensure meters in the UK are advanced or smart, we remain confident of our continued growth prospects into the future.

We have added to our business development team through the appointment of individuals with strong industry expertise who will complement the expertise of the team at GGES. This strengthened resource will ensure that we can take advantage of the new opportunities available to us to grow our business. 

We have also strengthened our Siteworks design team, placed further emphasis on sales and marketing activities within AMR, and gained accreditation to enable direct metering installation works. 

All of these actions enable us to maximise the opportunity available to our integrated solution."

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.

Interim Management Report

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

The performance will be further strengthened by the successful acquisition of GGES in the second half of the financial year and beyond.

Key Performance Indicators

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

Results for the period

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

For the six months ended 30 September 2012, group revenue was £7.6m showing an increase of £1.6m (27%) compared with the same period in the last financial year. This increase is predominately due to the expanding meter and data logger portfolio owned and managed by the Group. At 30 September 2012 recurring revenue accounted for 66% of total revenue being £5.0m, compared to £3.8m in the corresponding period in the previous year, an increase of 32%. Additionally, the Group has increased its focus on the I&C market, which typically generates higher rental incomes per meter than the domestic market, further underpinning the revenue growth.

EBITDA increased by 30% from £3.7m to £4.8m and gross profit increased by 31% from £3.5m (H1 2011/12) to £4.6m (H1 2012/13). All segments contributed to the improvement as well as helping to improve overall gross profit margins from 58% in H1 2011/12 to 61% in this period.

On 22 March 2012 Energy Assets Group plc was admitted to trading on the Official List of the London Stock Exchange and, as a result, certain incremental costs of becoming a plc have been incurred in the period to 30 September 2012 which were not incurred in the period to 30 September 2011. Additionally, a share based payment expense of £0.2m has been incurred in the current period due to the implementation of the employee share schemes as part of the IPO.

Despite the impact of these costs, operating profit has still increased by 14% from H1 2011/12 demonstrating the underlying strength of the business. Operating profit before exceptional share based payment expense increased from £2.7m to £3.3m in H1 2012/13, a rise of 22%.

Finance costs increased from £1.3m to £1.5m due to increased borrowings supporting our growing investment in meter assets.

Profit before tax and exceptional items increased by 38% to £1.8m (H1 2011/12: £1.3m). Profit before tax was £1.5m (H1 2011/12: £1.3m) after incurring the exceptional share based payment expense.

The results can be further analysed into the business divisions as follows:

Meter Asset Management ("MAM")

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

This division has made significant progress during the period installing circa 10,000 meters since the end of the last financial year and circa 17,000 meters since September 2011, increasing its total portfolio to circa 73,000 meters (up 16% since the year end and 30% from September 2011).

Given that the design life of gas meters in the UK is in excess of 20 years it is expected that these assets will provide a solid source of long term recurring revenue. Meter Asset Management represents the core of our business and we have continued to deliver on our strategy of developing an ever increasing base of long term recurring revenue which, for this division, is now at £3.6m for H1 2012/13 and represents 47% of total Group revenue (H1 2011/12: 43% and £2.6m). 

Gross profits for the Meter Asset Management division increased to £2.5m (H1 2011/12: £1.7m) with gross profit margin maintained at 68%.

Going forward we expect the I&C asset base within this division to more than double over the next few years, from circa 58,000 meters at 30 September 2012, as a result of the recently announced acquisition of the Gazprom subsidiary, GGES. This acquisition includes a MAM agreement that will see Energy Assets appointed as the primary Meter Asset Manager for Gazprom Energy's UK portfolio. This provides Energy Assets with an exclusivity period during which it will install new metering assets and undertake meter exchanges across Gazprom Energy's existing and new UK portfolio.

The growing asset portfolio continues to increase the recurring revenue of the business providing increasing profits and added opportunities going forward.

Siteworks

Through its Siteworks division the Group provides a comprehensive consultancy, system design and project management service for gas infrastructure works and meter point infrastructure.

In the 2012 financial year the Siteworks division achieved Gas Industry Registration Scheme ("GIRS") accreditation which has allowed it to bring more of the project management and design capability of its service offering in-house thus improving margins and extending the range and complexity of services we can provide.

The result has been successful, improving overall gross profit by 29% to £1.6m for the six months to September 2012 and provides us with a strong platform to increase our market share in this segment and to further enhance profitability in the future.

The acquisition of GGES brings with it an agreement with Gazprom Energy giving the Group exclusive access to Siteworks activity generated by their customers and thereby allowing us to deliver a Siteworks service to a growing gas supplier base, thus strengthening this part of our business even further.

Pulse 24 - Automated Meter Reading ("AMR")

The Group's AMR division (branded as Pulse 24) provides AMR Service Provider Code of Practice ("ASPCoP") approved AMR services, installing data loggers that collect and transmit consumption data from gas meters to a data centre for validation and formatting before provision to gas suppliers and end-user consumers.

Our Pulse 24 business has had a good six month trading period with a 13% increase in revenue to £1.4m (H1 2011/12: £1.2m). Our data logger portfolio increased by 16% to circa 22,000 assets (H1 2011/12: circa 19,000) representing one of the largest independent portfolios within the I&C sector. 

We continue to achieve a strong performance in AMR contract renewals with a 96% success rate based on the number of meter points as a percentage of AMR units. 

The recent GGES acquisition brings with it a further 27,000 data points, which will more than double the AMR portfolio, ensuring we continue to hold one of the largest data logger portfolios in the I&C sector.

Financial Position

As at 30 September 2012, the Group had £39.5m of debt outstanding against a meter portfolio of circa 73,000 meters with a net book value of £45.7m (H1 2011/12: £32.0m of debt against circa 56,000 meters with a net book value of £34.1m).

Dividend

Given the Company only listed at the end of the last financial year, and as we continue to see significant opportunities to invest in the profitable growth of the business, the Board is not recommending an interim dividend for the half year to 30 September 2012.

Principal Risks and Uncertainties

Details of the principal risks and uncertainties faced by the Group are included on page 16 of the published annual report and financial statements for the year ended 31 March 2012. No additional risks or uncertainties have been identified since the year end which will impact the business in the coming six months.

Strategy and outlook

Energy Assets is a well funded, publicly listed company with a track record of growth, a blue chip customer base, state of the art systems and a truly dedicated team committed to the growth of the Group. 

The main focus of the Group continues to be the expansion of our market share as a Meter Asset Manager within the UK I&C gas sector by further capitalising on identified market opportunities. Our successful positioning as the leading independent MAM (by volume of meters owned and managed), coupled with Government regulatory requirements to ensure meters in the UK are advanced or smart, puts us in a strong position. 

In addition, we expect to take full advantage of our newly strengthened relationship with Gazprom striving to ensure the acquisition of GGES significantly improves our revenue and profitability. 

The second half of the financial year has started well and the business continues to perform in line with expectations. The Group is continuing its dialogue with other major gas suppliers, seeking similar alliances to the strong relationships we have with Corona Energy and more recently with Gazprom, and thereby continuing to build and further broaden our market reach thus cementing Energy Assets' position as the MAM of choice within the gas industry. 

We look forward to the coming period with confidence that management expectations for the full financial year will be achieved.

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

20 November 2012

Consolidated Statement of Comprehensive Income

For six months ended 30 September 2012

Consolidated Balance Sheet

As at 30 September 2012

The notes on pages 14 to 25 are an integral part of this interim consolidated financial information.

Consolidated Statement of Changes in Equity

For six months ended 30 September 2012

Consolidated Statement of Changes in Equity

For six months ended 30 September 2012 (continued)

Consolidated Statement of Cash Flows

For six months ended 30 September 2012

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 not been audited.

This information has been approved for issue by the Board of Directors of Energy Assets Group plc, a company domiciled and incorporated in the United Kingdom. 

Statutory accounts for the year ended 31 March 2012 were approved by the Directors on 21 June 2012 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.

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 2012, which have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union.

The consolidated 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 5 to 8.

3) Initial public offering

On 22 March 2012 Energy Assets Group plc was admitted to trading on the Official List of the London Stock Exchange as a Premium Listed company.

During the prior year, in connection with the listing of the Company on the London Stock Exchange, the Company was incorporated and introduced as the new holding company of the Group on 21 February 2012 as follows:

·; On 21 February 34,999,998 million £1 shares were issued to the shareholders of Energy Assets Holdings Limited (the previous holding company of the Group) in connection with its acquisition by the Company;

·; On 22 February the sole shareholder resolved to consolidate the Company's capital to 20,000,000 shares of £1.75;

·; On 23 February the sole shareholder resolved to reduce the nominal value of each share from £1.75 to 1p;

·; On 22 March 2012 a further 7,142,857 new shares were issued in connection with the offering of 14,395,705 new and existing 1p shares at 210 pence per share bringing the total share capital to 27,142,857.

4) 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 5 to 8.

4) Going concern (continued)

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.

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.

5) Accounting policies

The accounting policies adopted are consistent with those of the financial year ended 31 March 2012. 

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.

6) 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 2012.

7) 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 only operates in the UK and for management purposes is organised into three core divisions:

·; Meter Asset Management

·; AMR data provision

·; 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.

Note 7 - Segment information (continued)

The measure of profit principally used to allocate resources is net contribution. However, as interest costs arise on borrowings which are wholly attributable to the Meter Asset Management segment, finance costs are also allocated to this segment. Allocated operating costs represent management charges including payroll and related overheads. 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.

Note 7 - Segment information (continued)

Note 7 - Segment information (continued)

During the year to 31 March 2012, sales to related parties amounted to £6.7m 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 2012 were £3.9m.

8) 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 22 March 2012 Energy Assets plc was admitted to trading on the Official List of the London Stock Exchange as a Premium Listed company. The IPO raised net proceeds of £11.7m through the issue of 14,395,705 new and existing ordinary shares. However, significant non-recurring costs were incurred in relation to the IPO and it is deemed necessary to separately identify these costs within the results for the year to 31 March 2012.

Additionally, exceptional IPO costs of £0.7m were offset against equity in the prior year amounting to total IPO costs of £3.3m.

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 amounts to £0.2m.

9) 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:

Energy Assets Group plc agreed with its significant shareholder, and 100% parent until the Listing, that the wider Macquarie Group would surrender tax losses under Part 5 of Corporation Tax Act 2010 to cover Energy Assets Group plc taxable profits in the years ended 31 March 2011 and 31 March 2012 for the period of ownership hence the tax credit for the year ended 31 March 2012.

9) Taxation (continued)

As anticipated the Group has been subject to ordinary rates of corporation tax in the UK for the six months to 30 September 2012.

A number of further changes to the UK corporation tax system were announced in the March 2012 UK Budget Statement. A resolution passed by Parliament on 26 March 2012 reduced the main rate of corporation tax to 24% from 1 April 2012. Legislation to reduce the main rate of corporation tax from 24% to 23% from 1 April 2013 is expected to be included in Finance Act 2012. A further reduction to the main rate is also proposed to reduce the rate to 22% from 1 April 2014. None of these rate reductions had been substantively enacted at the balance sheet date and, therefore, are not included in these financial statements. Had these changes been substantively enacted at the balance sheet date there would have been no significant impact on the accounts. 

10) Earnings per share

Basic earnings per share is calculated by dividing the profit attributable to ordinary equity holders of the Company 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:

10) Earnings per share (continued)

Adjusted earnings per share

Given the large issue of shares as a result of the IPO on 22 March 2012 the Group had 27,142,857 shares in issue at 31 March 2012 compared to a weighted average of 3,462,433 in the year to 31 March 2012. Going forward EPS will be calculated using these shares as a basis and therefore it is useful to review what the EPS in the year to 31 March 2012 and for the six months to 30 September 2011 would have been if these shares had been in issue for the entire reporting period to give a meaningful comparison to the EPS for the current six month period. 

Additionally, there was a significant tax credit received in the year to 31 March 2012 due to group relief received from Macquarie, however, this will not be available going forward and therefore the profit figure has been adjusted to show profit after a notional tax charge at 26% in the prior year and before exceptional items.

The tax charge in the current period is the tax charge shown in the income statement minus the prior year adjustment which is non-recurring.  

11) Property, plant and equipment

Gas Meter additions in the period to 30 September 2012 include directly attributable costs of £1.2m (H1 2011/12: £1.1m).

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

12) Net debt/EBITDA

The Group monitors capital on the basis of net debt divided by EBITDA. 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) Leased assets

The Group, as part of its core business, is a lessor of metering assets. These are leased to customers under operating leases. The minimum lease rentals receivable at current prices assuming the lease remains in place for its expected term are as follows:

These lease payments are subject to annual reviews and are cancellable by the customer.

14) Post balance sheet events

On 11 October 2012, the Group acquired 100% of the share capital of Gazprom Global Energy Solutions Limited (GGES) for a total consideration of £9.0m which includes an initial cash consideration of £6.0m and a potential cash earn-out payment up to a maximum of £3.0m (payable dependent upon the level of data logger installations carried out over a 3 year period by the acquired company).

At the time of issuing this condensed consolidated interim financial information it is not possible to disclose the assets acquired and the liabilities assumed as the acquisition balance sheet is still to be finalised with the vendor, Gazprom Energy, and none of the assets or liabilities acquired are included within the Group's balance sheet as at 30 September 2012.

Subsequent to agreement of the acquisition balance sheet the Group will undertake a purchase price allocation exercise in accordance with IFRS 3(r) Business combinations, full disclosure of which will be included within the annual report for the year ending 31 March 2013.

In addition to the assets and liabilities currently recorded on the balance sheet of GGES at the date of acquisition it is anticipated that there will be further assets identifiable in relation to the various exclusivity agreements GGES has in place with Gazprom Energy and which were acquired by the Group as part of the transaction. The fair values of such assets will be determined when performing the purchase price allocation exercise and amounts will be allocated to these assets from the total consideration. Any remaining consideration paid over and above the net of recognised assets acquired and liabilities assumed will be allocated to goodwill. Any goodwill recognised is expected to be attributable to future customers and the assembled workforce. All acquisition costs that relate to the transaction will be expensed through the statement of comprehensive income and will be separately disclosed in the annual report for the year ending 31 March 2013. It is estimated that the costs of the acquisition will amount to circa £0.35m in total.

 Further details of the business combination and the benefits that this will bring to the Group are included on page 2.