Calisen plc

 

Full year group results

for the year ended 31 December 2020

 

Calisen plc (the "Company" and together with its subsidiaries the "Group") has today published the full year Group results for the year ended 31 December 2020.  A copy of the Annual Report and Accounts will shortly be available from www.calisen.com.

 

Highlights

 

·    Growth of 0.8 million revenue generating smart meters in 2020;

·    Total of 9.1 million meters at the end of 2020 comprising 6.0 million smart meters and 3.1 million traditional meters;

·    Revenue increased 18.8% to £248.1 million;

·    Underlying EBITDA increased by 8.0% to £187.9 million;

·    Funds From Operations increased by 14.5% to £155.6 million;

·    Statutory loss before tax decreased by 79.1% to £17.2 million;

·    Pipeline of approximately 7.2 million smart meters yet to be installed of which 5.9 million contracted and 1.3 million preferred bidder; and

·    COVID-19 delayed smart meter installations in 2020 but has not changed the expected total portfolio at the end of the smart meter roll-out which amounts to 13.2 million meters.

 

 

Consolidated income statement and statement of comprehensive income

(£ in millions)	Year ended 31 December 2020	Year ended 31 December 2019	Change
Revenue	248.1	208.8	18.8%
Cost of sales	(113.6)	(111.7)	(1.7%)
Gross profit	134.5	97.1	38.5%
Administrative expenses	(27.7)	(16.8)	(64.9%)
Other expenses	(8.3)	(11.3)	26.5%
Amortisation of intangible assets	(44.5)	(42.3)	(5.2%)
Group operating profit	54.0	26.7	102.2%
Finance expense	(105.0)	(109.1)	3.8%
Finance income	33.8	0.2	16,800.0%
Loss before tax	(17.2)	(82.2)	79.1%
Taxation (expense)/credit	(9.8)	2.1	NM
Loss for the year	(27.0)	(80.1)	66.3%
Loss and total comprehensive loss attributable to equity holders of the parent	(27.0)	(80.1)	66.3%
Earnings per share:
Basic (pence)	(5.5)	(364.2)	98.5%
Diluted (pence)	(5.5)	(364.2)	98.5%

 

The 2019 results pre-date the formation of the Company and reflect the performance of the predecessor Group holding company Calisen Group Holdings Limited.

 

 

 

Summary consolidated balance sheet

(£ in millions)	At 31 December 2020	At 31 December 2019	Change (%)
Assets
Intangible assets	535.5	580.0	(7.7%)
Other non-current assets	902.6	822.1	9.8%
Current assets	190.4	107.7	76.8%
Total assets	1,628.5	1,509.8	7.9%
Liabilities and equity
Current liabilities	162.2	149.0	8.9%
Non-current liabilities	590.2	1,477.1	(60.0%)
Deferred tax liability	99.7	86.5	15.3%
Total liabilities	852.1	1,712.6	(50.2%)
Total equity	776.4	(202.8)	NM
Total equity and liabilities	1,628.5	1,509.8	7.9%

 

Key metrics

(£ in millions unless otherwise specified)	2020	2019	Change (%)
Increase in revenue generating smart meters at year end (m)	0.8	1.3	(38.5%)
Revenue generating meters at year end (m)	9.1	8.5	7.1%
Smart	6.0	5.2	15.4%
Traditional	3.1	3.4	(8.8%)
Estimated smart meter pipeline at year end (m)	7.2	6.5	10.8%
of which contracted	5.9	5.5	7.3%
of which preferred bidder	1.3	1.0	30.0%
Expected smart meters total at end of roll-out (m)	13.2	11.7	12.8%
Average revenue per smart meter (£)**	25.2	26.3	(4.1%)
Adjusted EBITDA (£m)**	201.3	189.3	6.3%
Underlying EBITDA (£m)**	187.9	174.0	8.0%
Funds From Operations (FFO) (£m)**	155.6	135.9	14.5%
Cash conversion (FFO/Underlying EBITDA) (%)	82.8%	78.1%	4.7pp
Capital expenditure (£m)	171.8	274.1	(37.3%)
Capex per meter (£)	191	165	15.8%
Net debt  (£m)**	602.6	1,387.6	(56.6%)
Adjusted net debt**	602.6	804.4	(25.1%)
Leverage** (Adjusted net debt / Adjusted EBITDA) (x)	3.0x	4.3x	(1.3x)
Underlying EBITDA interest cover**	8.4x	6.7x	1.7x
FTE (annual average)	1,448	575	151.9%
FTE at year end	1,309	1,504	(13.0%)

 

 

**Alternative Performance Measures ("APMs")

The Group uses a number of APMs including Average revenue per meter, Adjusted EBITDA, Underlying EBITDA, Funds From Operations, Net debt, Adjusted net debt, Leverage and Underlying EBITDA interest cover in the discussion of its business performance and financial position. Reconciliations of these measures to IFRS measures are included within the relevant section of the Chief Financial Officer's review of the Strategic Report which forms part of the Annual Report and Accounts.

 

The APMs are used by the Board and management to analyse business and financial performance, track the Group's progress and help develop long-term strategic plans. The APMs provide additional information to investors and other external stakeholders to enhance their understanding of Calisen's results of operations as supplemental measures of performance and liquidity.

 

 

The following sections titled CEO's Q&A: in conversation with Bert Pijls, Chief Financial Officer's review and Statement of Directors' Responsibilities have been extracted from our Annual Report and Accounts. Terms used and not defined have the meaning given to those terms in the Annual Report and Accounts.

 

 

CEO's Q&A: in conversation with Bert Pijls

 

I am pleased to report that our expected smart meter installation pipeline increased by 1.5 million meters in 2020. This brings our expected portfolio at the end of the roll-out to 13.2 million meters, compared to 11.7 million meters reported one year ago. Securing extra meter volumes in this way is testament to the great work of our team and our trusted collaboration with energy retailers.

 

How would you summarise the past year?

2020 was undoubtedly challenging but I'm pleased to say that the Group ended the year in a stronger position than it had been in at its start. We succeeded in growing our smart meter pipeline by a further 1.5 million meters, meaning that our expected 2025 portfolio grew by 12.8 per cent. We also increased the proportion of our meters which benefit from early removal protection, we refinanced approximately £1.1 billion of existing meter funding facilities, achieving a lower cost of debt than the facilities they replaced, and we took our first steps into the adjacent asset class of EV charging points. In addition, in early December we announced the Acquisition and, subject to completion, we look forward to making further progress under new ownership. Finally, in late December the UK and EU reached agreement on a zero tariff Trade and Cooperation Agreement which means no change to the economics of meter procurement from the Single Market of the EU.

How has COVID-19 impacted results?

We always believed we had a resilient business model. COVID-19 provided an unexpected test of that but one which the Group passed well. With non-essential smart meter installations suspended between March and June, capital expenditure during that period was materially lower than expected with a corresponding impact on growth in revenue and cash flow. However, as expected, this was partially offset by a lower than expected number of traditional meter removals which continued to produce revenue and cash flow.

Can you explain the Group's performance?

The Group delivered a resilient performance in 2020. Our base of revenue-generating smart meters increased by 15.4 per cent or 800,000 meters, despite the suspension of installations during the first lockdown, to reach 6.0 million meters at year end. Revenue increased by 18.8 per cent to £248.1 million with FFO, our preferred measure of cash flow, increasing by 14.5 per cent to £155.6 million.

How is the restructuring of Lowri Beck progressing?

The success of the turnaround of Lowri Beck has exceeded my expectations. We set aside a restructuring reserve of £3.5 million but only incurred costs of £1.7 million as we were able to retain a larger workforce than predicted at the time we made the provision and the cost per role lost was lower than expected. Having completed the restructuring - which sadly included the redundancy of 224 of our workforce - in September, the focus was on returning all remaining colleagues to work from furlough. This was done gradually and safely, with all colleagues who were able to return to work doing so by the end of October. Even with the efficiencies targeted by the restructuring, we had expected Lowri Beck to remain loss-making at the EBITDA level in 2020. In fact, the impact of those efficiencies combined with a better than expected trading performance in the second half resulted in full year Underlying EBITDA of £0.8 million compared to an Underlying EBITDA loss of £2.2 million between August 2019 (when we acquired Lowri Beck) and December of the same year.

What does the Government response to the consultation on the smart meter policy framework post-2020 mean for the Group?

I was pleased by the Government's response. Its aim of achieving 100 per cent smart meter coverage by 30 June 2025 is supportive of our business as it represents a continued and consistent focus on the roll-out of smart meters.

How is sustainability embedded in the business?

This starts with our purpose: to accelerate the development of a cleaner, more efficient and sustainable energy segment. At IPO we were pleased to be awarded the London Stock Exchange's Green Economy Mark, which recognises companies that derive 50 per cent or more of their total annual revenues from products and services that contribute to the global green economy. I believe it has been clear for some time that our main assets, smart meters, have an important role to play as a foundational layer of infrastructure in contributing to the decarbonisation of the energy segment. In 2020, we focused on assessing risks and opportunities relating to the sustainability of the Group and in 2021 we will set targets on a pathway to net zero carbon which we will report against in future (read more on page 44).

What feedback do you get from customers?

Our customers really appreciate the quality of service they receive from the Group and the way in which we partner with them to help them meet their obligations under the SMIP. While installations were suspended in the first half of the year, Calvin Capital offered to extend the grace period after which a new meter ordered on behalf of a customer becomes revenue generating from 90 days to 180 days. The feedback on that was very positive with customers really appreciating our proactively offering to share the burden of unexpectedly tough times with them.

How have you supported colleagues and other stakeholders during COVID-19?

Our priority was the safety of colleagues, customers and consumers. For the engineers on the front line, our priority was developing an appropriate health and safety protocol which meant it was safe for all parties for them to be going into people's homes when responding to emergency call-outs.

For colleagues with office-based roles, wherever possible we offered them the IT equipment and support to enable them to work from home. That wasn't possible for all roles and we did make use of the Government's Coronavirus Job Retention Scheme to safeguard roles.

One of the biggest practical challenges faced by our energy retailer customers was logistics. They had ordered smart meters in anticipation of normal installation rates but during the first lockdown, all non-emergency installations stopped nationwide. So, we worked with them and with the meter manufacturers to find extra warehouse space and to delay or cancel orders. I must say that the whole industry worked well together to help each other through this period.

Personally, what was the highlight for you during the year?

The highlight of 2020 for me was the way in which the Group dealt with the COVID-19 pandemic. As I said, we always thought we had a resilient business and in 2020 we proved that both operationally and in terms of financial performance. Those colleagues who were able to work from home continued to work well as a team in order to maintain the quality of service which our customers expect. Not only that but we also made good progress in securing increased protection for our meters following customer switching and added more meters to the pipeline. My colleagues across the Group demonstrated remarkable resilience through the year and I would like to thank them for the dedication, hard work and passion they display for their work, day in and day out.

What makes the business model strong?

The strength of the business model rests on a robust contractual framework and best-in-class operations. The contractual framework ensures that Calvin Capital only commits capital expenditure which is revenue generating and that once a meter is installed, if it is removed early, in the great majority of cases we are compensated. Our operations deliver an ongoing focus on asset quality combined with systems and processes which ensure we keep track of our assets and can accurately bill for their use. Lastly, we can deliver an end-to-end metering service if that is what customers want.

What is the outlook for the business?

We have substantial embedded growth in our meter pipeline which has been contracted but not yet implemented and there are exciting longer-term opportunities internationally and in adjacent asset classes, most immediately in EV charging. In 2021, our focus for metering will therefore be on getting as many meters as possible installed as quickly as possible, while in adjacencies, we will focus on pilot schemes in EV charging to learn as much as we can about those assets and how they perform ahead of committing to any larger-scale projects. Overall, we remain well placed to achieve our purpose of accelerating the development of a cleaner, more efficient and sustainable energy segment.

Bert Pijls

Chief Executive Officer

 

 

Chief Financial Officer's review

 

Summary

Group financial performance in 2020 reflected three significant changes compared to prior periods:

·      The IPO of the Group in February raised £300 million of new equity, before costs, and resulted in a significant reduction in net debt and associated debt service costs as shareholder loans and equity bridge loans ("EBLs") were capitalised and repaid, respectively. While these changes are reflected in the 31 December 2020 balance sheet in full, interest expense for the year is a combination of the costs of the previous capital structure until IPO and the current capital structure since IPO, including the refinancing of £1.1 billion of senior debt in July 2020;

·      The temporary suspension of installation activity between March and July 2020 resulted in a pause in capital expenditure and a correspondingly slower drawdown of senior debt facilities in the first half of the year; and

·      The acquisition of Lowri Beck in August 2019 meant that while the financial statements for 2020 include Lowri Beck for the whole year, those for 2019 included Lowri Beck only for the period between acquisition and year end.

Taking into account these three factors, the Group delivered 8.0 per cent growth in Underlying EBITDA in 2020. In the circumstances, we believe this represents a good performance and one that emphasises the robust downside protections embedded in our business.

 

Non-trading items and underlying performance

There were a number of non-trading items recorded in the year: the costs associated with the IPO; the remeasurement of depreciation for traditional meters; the reduction in interest expense following changes to the capital structure at IPO; the restructuring of Lowri Beck; the costs associated with the refinancing of approximately £1.1 billion of certain meter financing facilities; and costs associated with the Acquisition.

The table on the following page shows a reconciliation between the statutory loss for the period and the trading profit for the period adjusting for non-trading items to enable a better year-on-year comparison.

 

	Year ended December 2020				Year ended December 2019
(£ in millions)	Trading	Non-trading	Statutory		Trading	Non-trading	Statutory
Revenue	246.1	2.0	248.1		204.1	4.7	208.8
Cost of sales	(144.2)	30.6	(113.6)		(127.0)	15.3	(111.7)
Gross profit	101.9	32.6	134.5		77.1	20.0	97.1
Administrative expenses	(27.7)	-	(27.7)		(16.8)	-	(16.8)
Other expenses	-	(8.3)	(8.3)		-	(11.3)	(11.3)
Amortisation of intangible assets	(1.7)	(42.8)	(44.5)		(0.9)	(41.4)	(42.3)
Operating profit	72.5	18.5	54.0		59.4	(32.7)	26.7
Finance expense	(81.9)	(23.1)	(105.0)		(51.0)	(58.1)	(109.1)
Finance income	33.8	-	33.8		0.2	-	0.2
Profit/(loss) before tax	24.4	(41.6)	(17.2)		8.6	(90.8)	(82.2)

 

Where relevant, an explanation of non-trading items set out in the table above is included in the commentary on each line item set out below.

 

 

Revenue

(£ in millions)	Year ended 31 December 2020	Year ended 31 December 2019	Change %
Calvin Capital revenue	205.4	189.7	8.3%
Lowri Beck revenue	46.0	20.5	124.4%
Intercompany deduction	(3.3)	(1.4)	(135.7%)
Total revenue	248.1	208.8	18.8%
Revenue-generating meters at period end (m)
Smart	6.0	5.2	15.4%
Traditional	3.1	3.4	(8.8%)
Annualised average revenue per meter ("ARPM") (£)
Smart	25.2	26.3	(4.1%)
Traditional	20.5	20.5	0.0%

 

Revenue grew strongly in 2020, increasing by 18.8 per cent from £208.8 million in 2019 to £248.1 million in 2020, reflecting both the first full year of the consolidation of Lowri Beck as well as further growth in the Calvin Capital operating segment.

The key drivers of revenue from the smart meter portfolio were the number of revenue-generating meters and ARPM. Calisen's revenue-generating smart meter portfolio grew from 5.2 million meters to 6.0 million meters, a net increase of 0.8 million meters or 15.4 per cent which led to a corresponding increase in revenue. The traditional meter portfolio reduced by 0.3 million meters to 3.1 million meters. Combined, this resulted in a total portfolio of 9.1 million meters at year end.

ARPM decreased from £23.8 per annum in 2019, to £23.5 in 2020 comprising:

·  a decrease in smart meter ARPM from £26.3 in 2019 to £25.2 in 2020; and

·  stability in traditional meter ARPM at £20.5 which was unchanged from 2019.

Within the smart ARPM, an uplift from contract renegotiations completed in 2020 was partially offset by longer initial periods of certain MAP contracts. This dynamic is expected to continue as the blend of contract lengths changes over time.

Calvin Capital contributes the largest share of Calisen revenues and within its operating segment, revenue increased 8.3 per cent to £205.4 million, driven by the growth in its revenue-generating smart meter portfolio more than offsetting the expected decrease in its traditional meter portfolio as traditional meters were replaced by smart meters. £2.0 million of non-recurring income relating to contract modifications as a result of an increase in installation costs has been treated as a non-trading item (2019: £4.7 million).

Lowri Beck's revenue was £46.0 million in 2020 reflecting lower than expected revenue in the first half due to the restrictions of the first lockdown followed by a strong trading performance in the second half of the year. Its financial results were consolidated from the date of acquisition on 16 August 2019, hence the £20.5 million of revenue recorded in 2019 is not directly comparable to 2020.

 

 

Cost of sales

(£ in millions)	Year ended 31 December 2020	Year ended 31 December 2019	Change %
Depreciation of property, plant and equipment (meters)	(77.5)	(85.9)	9.8%
Loss on disposal of property, plant and equipment (meters), net of compensation income	(2.1)	(6.9)	69.6%
Employee benefits expense and other direct costs	(34.0)	(18.9)	(79.9%)
Cost of sales	(113.6)	(111.7)	(1.7%)

 

Cost of sales across the Group increased by 1.7 per cent from £111.7 million in 2019 to £113.6 million in 2020, mostly driven by the consolidation of a full year of cost of sales at Lowri Beck. This was partially offset by gross receipts from the Government's Coronavirus Job Retention Scheme of £7.7 million, which were recorded within trading items as a credit against wages and salaries as well as from a reduction in the annual charge for the depreciation of traditional meters.

The charge for the depreciation of meters decreased year on year. This was largely because the Group had previously estimated that the useful economic life of a traditional meter would end, at the latest, one year after the regulatory deadline for the SMIP with all net book values being depreciated on a straight-line basis to nil by 31 December 2021, thus allowing for some time beyond the regulatory deadline of 31 December 2020. However, on 18 June 2020, BEIS published its response to a consultation on smart meter policy framework post-2020 and this extended the existing regulatory framework for the SMIP by six months to 30 June 2021 and implemented a new four-year regulatory framework ending on 30 June 2025. The estimated date for the end of the useful economic life of traditional meters was therefore extended to 30 June 2025. On 31 December 2019, the net book value of traditional meters amounted to £65.5 million; this is now being depreciated over five and a half years, starting from 1 January 2020, rather than over two years. This had the effect of reducing the annual depreciation charge for traditional meters in 2020 from £33.1 million to £15.9 million. The movement of £17.2 million has been recorded as a non-trading item in the calculation of APMs.

Compensation income relates to the effective sale of metering equipment when removed which offsets the write-off of the underlying asset. It is calculated to make up for the loss of MPC revenue in net present value terms according to the relevant MAP contract. Compensation income therefore results in a reduction in cost of sales. It decreased by 12.4 per cent from £15.3 million in 2019 to £13.4 million in 2020. This was driven by three factors: reducing volumes of traditional meter removals and overall ageing of the traditional meter fleet as well as the impact of the suspension of smart meter installations (and a corresponding reduction in the removals of traditional meters) from March 2020 until the end of the second quarter. The full £13.4 million was recorded as a non-trading item in the calculation of APMs.

 

 

Underlying EBITDA

(£ in millions)	Year ended 31 December 2020	Year ended 31 December 2019	Change %
Profit/(loss) for the period	(27.0)	(80.1)	66.3%
Add/(deduct):
Taxation	9.8	(2.1)	NM1
Finance expense	71.2	108.9	(34.6%)
Written-off net book value of disconnected meters	15.5	22.2	(30.2%)
Foreign exchange (gain)/loss	(0.4)	-	-
Amortisation of intangible assets	44.5	42.3	5.2%
Depreciation of property, plant and equipment	79.4	86.8	(8.5%)
Other expenses	8.3	11.3	(26.5%)
Adjusted EBITDA	201.3	189.3	6.3%
Deduct:
Compensation income	(13.4)	(15.3)	(12.4%)
Underlying EBITDA	187.9	174.0	8.0%
Underlying EBITDA margin (%)	75.7%	83.3%	(7.6pp)

1. Not meaningful.

 

Underlying EBITDA and Adjusted EBITDA are APMs which are used to provide proxies for the cash flow which would be available for investment, debt service or distribution to shareholders.

Underlying EBITDA is composed of Adjusted EBITDA less compensation income. Compensation income is received from relevant contractual arrangements where meters are prematurely removed, and, as a consequence, reflects income that would have otherwise been earned in future periods. This is particularly relevant during the SMIP while traditional meters are being replaced with smart meters. It is not expected to be a significant ongoing item. Given the limited timeframe of the SMIP as currently described in legislation, compensation income may not be significant in the future. We therefore deduct it when looking at Underlying EBITDA and are currently providing both metrics.

Adjusted EBITDA in turn is calculated by reference to the profit/(loss) for the period and adjusting this for taxation, finance income/(expenses), depreciation, amortisation, profit/(loss) on disposal of non-current assets, foreign exchange and significant costs that are non-trading or one-off in nature.

Underlying EBITDA increased by 8.0 per cent from £174.0 million to £187.9 million. The 18.8 per cent increase in Group revenue, driven by growth in the revenue-generating smart meter portfolio from 5.2 million to 6.0 million meters, was mostly offset by the increase in employee cost and other direct costs plus administrative expenses which resulted from increased headcount in Group functions plus the consolidation of a full year of expense from Lowri Beck. Improved performance at Lowri Beck nonetheless led to a positive EBITDA contribution to the Group for the full year.

Adjusted EBITDA increased by 6.3 per cent from £189.3 million to £201.3 million. Adjusted EBITDA increased by less than Underlying EBITDA due to the decrease in compensation income compared to the prior year.

Included within Underlying and Adjusted EBITDA in the year ended 31 December 2020 is £2.0 million of non-recurring income relating to contract modifications (2019: £4.7 million).

 

 

Administrative and other expenses

(£ in millions)	Year ended 31 December 2020	Year ended 31 December 2019	Change %
Administrative expenses	(27.7)	(16.8)	(64.9%)
Other expenses	(8.3)	(11.3)	26.5%

 

Administrative expenses consist of costs associated with corporate functions, such as wages and salaries, depreciation of non-metering assets, amortisation of development costs as well as legal and professional fees and costs associated with the testing of meters. Administrative expenses also include net foreign exchange loss/(gain) and auditor's remuneration.

Administrative expenses increased by 64.9 per cent from £16.8 million in 2019 to £27.7 million in 2020, predominantly reflecting the consolidation of Lowri Beck into the Group for the full financial year.

Calvin Capital's administrative expenses increased by 37.3 per cent from £14.2 million in 2019 to £19.5 million in 2020. This reflected increased Group expenses which are recorded in this segment, primarily the necessity to increase headcount at a Group level and associated costs required to service the enlarged and listed business.

Lowri Beck's administrative expenses in 2020 were £8.2 million (16 August 2019 to 31 December 2019: £2.6 million).

Other expenses decreased by 26.5 per cent to £8.3 million (2019: £11.3 million). These costs, which were recognised as non-trading items in the calculation of APMs, related to Calisen's listing on the London Stock Exchange; the restructuring of Lowri Beck; and £1.4 million of costs related to the Acquisition.

Group operating profit

(£ in millions)	Year ended 31 December 2020	Year ended 31 December 2019	Change %
Group operating profit	54.0	26.7	102.2%

 

Operating profit represents revenue, less cost of sales, administrative expenses, other expenses and amortisation of intangible assets. In 2020, it amounted to £54.0 million, an increase of 102.2 per cent compared to 2019 due to the increase in revenue exceeding the increase in the cost of sales plus administrative and other expenses.

 

 

Interest expense

(£ in millions)	Year ended 31 December 2020	Year ended 31 December 2019	Change %
Senior debt commitment fees	(4.4)	(3.7)	(18.9%)
Agency and technical adviser fees	(0.3)	(0.4)	25.0%
Fair value loss on derivative financial instruments	-	(14.7)	NM
Derivative breakage fees	(53.5)	(0.8)	NM
Amortisation of debt issue costs	(20.3)	(3.9)	(420.5%)
Letter of credit fees and other charges	(2.5)	(10.0)	75.0%
Interest payable on bank loans	(17.8)	(22.2)	19.8%
Interest payable on shareholder loans	(5.9)	(53.2)	88.9%
Unwinding of discount on lease liabilities	(0.3)	(0.2)	(50.0%)
Total finance expense	(105.0)	(109.1)	3.8%
Bank interest receivable	0.1	0.2	(50.0%)
Fair value gain on derivative financial instruments	33.7	-	NM
Total finance income	33.8	0.2	16,800.0%
Net finance expense	(71.2)	(108.9)	34.6%

 

The conversion of shareholder loans into equity, the repayment of the EBLs and cancellation of letters of credit at IPO contributed to a 34.6 per cent reduction in net finance expense from £108.9 million in 2019 to £71.2 million in 2020.

Total finance expense decreased by 3.8% from £109.1 million in 2019 to £105.0 million in 2020. The decrease of 88.9 per cent in interest payable on shareholder loans from £53.2 million in 2019 to £5.9 million in 2020 combined with the 75.0 per cent reduction letter of credit fees and other charges from £10.0 million in 2019 to £2.5 million in 2020 was almost entirely offset by the increase in derivative breakage fees to £53.5 million in 2020 (2019: £0.8 million) as a result of the £1.1 billion refinancing. The impact of this refinancing, undertaken in July 2020, contributed to interest payable on bank loans decreasing by 19.8 per cent from £22.2 million in 2019 to £17.8 million.

Total finance income in 2020 of £33.8 million was driven by a £33.7 million fair value gain on derivative financial instruments also due to the July 2020 refinancing (2019: £0.2 million).

The costs of EBLs and hedging of £0.7 million, shareholder loan interest charges of £5.9 million and debt issuance costs associated with the £1.1 billion refinancing of £16.5 million were recognised as non-trading items in the calculation of APMs.

Loss before tax

(£ in millions)	Year ended 31 December 2020	Year ended 31 December 2019	Change %
Loss before tax	(17.2)	(82.2)	79.1%

 

Loss before tax reduced by 79.1 per cent from £82.2 million in 2019 to £17.2 million in 2020 due to increased Group operating profit combined with reduced net finance expense.

Taxation

(£ in millions)	Year ended 31 December 2020	Year ended 31 December 2019	Change %
Taxation	(9.8)	2.1	NM

 

In 2020, the Group recognised a corporation tax charge of £9.8 million. In contrast, in 2019, the Group recognised a corporation tax credit of £2.1 million as a result of the unwinding of deferred tax liabilities on intangible assets being in excess of the corporation tax charge in the period.

Dividend

In accordance with the Scheme Document which was published on 18 January 2021, no dividend is proposed in respect of the year ended 31 December 2020.

 

Funds From Operations

(£ in millions)	Year ended 31 December 2020	Year ended 31 December 2019	Change %
Underlying EBITDA	187.9	174.0	8.0%
Change in adjusted working capital	(5.4)	(7.7)	(29.9%)
Interest/derivatives	(22.5)	(26.1)	(13.7%)
Taxation paid	(4.4)	(4.3)	(2.3%)
FFO	155.6	135.9	14.5%
FFO/Underlying EBITDA	82.8%	78.1%	4.7pp
Underlying EBITDA interest cover	8.4x	6.7x	1.7x

 

FFO is an APM which is used as a measure of cash flow generated by the business prior to debt service and reinvestment in growing the meter portfolio.

FFO is defined as Underlying EBITDA less relevant finance costs, taxation and adjusted net working capital items. Relevant finance costs exclude fair-value movement on derivatives (as this is a non-cash item), shareholder loan interest and charges relating to letter of credit facilities (on the basis that they no longer form part of Calisen's capital structure) and interest rate swap break costs. Adjusted net working capital items include change in trade and other receivables and contract assets, change in inventories and change in trade and other payables, but exclude any movements in payables where the creditor relates to capital expenditure, accrued other expenses and any items to the extent they relate to non-operating items such as compensation debtors or capital expenditure prepayments or creditors, including related VAT balances. FFO also does not include compensation income. Capital expenditure creditors are excluded to the extent that they represent new meter installation costs.

FFO increased by 14.5 per cent from £135.9 million in 2019 to £155.6 million in 2020, principally driven by increased Underlying EBTIDA combined with a reduction in the cost of interest and derivatives along with a reduced movement in working capital. The calculation of the change in adjusted working capital and interest/derivatives is set out below:

Change in net working capital (£ in millions)	Year ended 31 December 2020	Year ended 31 December 2019	Change %
Trade receivables	31.9	33.9	(5.9%)
Accrued income	10.0	-	NM
Prepayments	17.2	-	NM
Other receivables	1.2	1.6	(25.0%)
Inventory	0.9	1.3	(30.8%)
Contract assets	4.9	13.4	(63.4%)
VAT receivable/(payable)	(1.5)	1.8	NM
Trade creditors	(19.1)	(17.8)	(7.3%)
Other creditors	(24.0)	(31.3)	23.3%
Net working capital	21.5	2.9	641.4%
Adjustments for non-operating items:
VAT receivable/(payable)	1.5	(1.8)	NM
Compensation related receivables	(3.8)	(2.6)	46.2%
Capital expenditure prepayment	(10.0)	-	NM
Capital expenditure related creditors	31.2	30.2	3.2%
Exceptional items accrued	1.4	7.7	(81.8%)
Adjusted net working capital	41.8	36.4	14.8%
Changes in adjusted net working capital	(5.4)	(7.7)	(29.9%)

 

Interest/derivatives (£ in millions)	Year ended 31 December 2020	Year ended 31 December 2019	Change %
Interest payable on bank loans	(17.8)	(22.2)	19.8%
Lease interest	(0.3)	(0.2)	(50.0%)
Senior debt commitment and associated fees	(4.4)	(3.7)	(18.9%)
Total for FFO purposes	(22.5)	(26.1)	13.7%

 

Capital expenditure

Capital expenditure for the Group decreased by 37.3 per cent from £274.1 million in 2019 to £171.8 million in 2020, primarily due to the suspension of meter installations between March and July 2020 as a result of the COVID-19 pandemic. With installations curtailed during that period, Calisen's portfolio of revenue-generating smart meters grew by less than had been expected.

Calisen incurred average capital expenditure per smart meter in 2020 of £191 as a result of agreeing increased installation costs with a number of energy retailer customers. While those increases were agreed in the second half of the year, depending on the specific contract, some increases had an effective date in the first half of 2020 and in some limited cases in 2019.

Summary consolidated balance sheet

(£ in millions)	At 31 December 2020	At 31 December 2019	Change %
Assets
Intangible assets	535.5	580.0	(7.7%)
Other non-current assets	902.6	822.1	9.8%
Current assets	190.4	107.7	76.8%
Total assets	1,628.5	1,509.8	7.9%
Liabilities and equity
Current liabilities	162.2	149.0	8.9%
Non-current liabilities	590.2	1,477.1	(60.0%)
Deferred tax liability	99.7	86.5	15.3%
Total liabilities	852.1	1,712.6	(50.2%)
Total equity	776.4	(202.8)	NM
Total equity and liabilities	1,628.5	1,509.8	7.9%

 

The Group's balance sheet, notably the structure of its liabilities and equity, changed substantially in 2020 as a result of the IPO which saw all shareholder loans converted into equity as well as additional equity raised from the issuance of new shares and the repayment of EBLs.

The Group's total assets grew by 7.9 per cent from £1,509.8 million at 31 December 2019 to £1,628.5 million at 31 December 2020. The value of intangible assets was assessed for the risk of impairment and no change to the reported value was required. Within that total, the net book value of customer contracts decreased by 8.6 per cent from £480.8 million in 2019 to £439.6 million in 2020, as a result of continued amortisation which amounted to a charge of £41.2 million in 2020 (2019: £39.9 million). Other non-current assets increased by 9.8 per cent from £822.1 million at the end of 2019 to £902.6 million, although this was lower than expected as the smart meter roll-out was paused in March 2020 until the end of the second quarter. Current assets increased by 76.8 per cent from £107.7 million at 31 December 2019 to £190.4 million at 31 December 2020, largely due to increased cash balances following the IPO.

The net book value of "green" assets (i.e. smart metering equipment) amounted to £846.2 million or 94.2 per cent of the net book value of property, plant and equipment.

The IPO provided the Group with £300 million of new primary proceeds, before costs, which were used to reduce external debt and fully repay EBLs of £230.4 million. In addition, the Group's shareholder loans and accrued interest, which amounted to £705.5 million at 31 December 2019, were converted to equity on IPO. As a result, total liabilities decreased by 50.2 per cent from £1,712.6 million at 31 December 2019 to £852.1 million at 31 December 2020. Within that total, current liabilities increased by 8.9 per cent from £149.0 million at 31 December 2019 to £162.2 million at 31 December 2020 mostly due to an increase in the current portion of interest bearing loans and borrowings. Non-current liabilities reduced by 60.0 per cent from £1,477.1 million at 31 December 2019 to £590.2 million at 31 December 2020 due to the conversion of shareholder loans into equity and the repayment of EBLs at IPO.

Total equity benefited from the capitalisation of shareholder loans and the proceeds from the issue of new shares at IPO of £300 million, before costs, resulting in negative total equity of £202.8 million at 31 December 2019 increasing to positive total equity of £776.4 million at 31 December 2020.

Net debt

(£ in millions)	Year ended 31 December 2020	Year ended 31 December 2019	Change %
Shareholder loans	-	(583.2)	NM
Senior debt1	(717.2)	(622.9)	(15.1%)
Invoice discounting facility and hire purchase	-	(5.3)	NM
Equity bridge loans	-	(226.5)	NM
Total debt	(717.2)	(1,437.9)	50.1%
Cash	114.6	50.3	127.8%
Net debt	(602.6)	(1,387.6)	56.6%
Shareholder loans	-	583.2	NM
Adjusted net debt	(602.6)	(804.4)	25.1%

1  Senior debt excludes debt issue costs.

Net debt is an APM which is used to show the indebtedness of the Group net of cash balances. Adjusted net debt deducts shareholder loans from Net debt in order to show the level of debt incurred in growing the meter portfolio as distinct from Net debt which includes debt incurred as the Major Shareholder's preferred form of funding for the Group prior to IPO.

The structure of the Group's borrowings changed significantly during 2020. Total debt fell by 50.1 per cent from £1,437.9 million at 31 December 2019 to £717.2 million at 31 December 2020 largely as a result of the conversion of shareholder loans into equity and the repayment of EBLs at IPO.

Despite difficult financial markets, in July 2020 we were able to implement a refinancing of the majority of our funding facilities that support contracts still in the installation phase, totalling £1.1 billion. This diversified our financing sources and facilitates future access to debt capital markets to support continued growth. The flexible nature of the financing platform allows us periodically to refinance the revolving credit facility within the platform in future with longer dated debt, which should allow us to continue to extend debt tenors at competitive long-term rates as the smart meter roll-out progresses.

Net debt as at 31 December 2020 was £602.6 million, comprising £717.2 million of senior debt facilities (excluding debt issue costs) less £114.6 million of cash. This represented a Net debt to Adjusted EBITDA ratio at 31 December 2020 of 3.0x which was an increase of 0.2x from the pro forma ratio at 31 December 2019 of 2.8x (adjusted as if the IPO had occurred on that date). The Group is operating well within the principal financial covenant in its debt facilities at Group level, namely a Net debt to Adjusted EBITDA ratio of no more than 5.5 times. The Group is also operating well above the cover ratio covenants in its debt facilities, both at Group level and at subsidiary level.

Capital reduction

In June 2020, as the final part of the capital reorganisation begun at IPO, the Company undertook a reduction in its share capital, whereby the entire amount standing to the credit of the Company's share premium account was cancelled, in order to create distributable reserves which amounted to £1,082.6 million.

Credit risk

The Group's credit risk primarily arises from credit exposures to energy retailers in respect of outstanding trade receivables. The Group trades with a number of companies, which are generally Large Legacy Energy Retailers, Other Large and Medium Energy Retailers, or financial institutions. The Group has identified a concentration of risk in relation to revenue and trade receivables from Large Legacy and Other Large Energy Retailers as the majority of revenue (approximately 83%) is generated from this group and predominantly from two of the Large Legacy Energy Retailers. However, the Group assesses the associated credit risk as low despite its customers operating in one industry as these customers have historically recorded minimal failure rates meaning that the risks associated with trade receivables are relatively low.

 

Principal risks and uncertainties

The principal risks, the Board's appetite for risk in these areas in the context of executing our strategy and the focus of our risk mitigation actions are set out below. Assessment of risk is a constantly evolving process as risks change and the business develops. Therefore, the Board has put in place systems, that form an essential process in the Group's risk management framework, for the ongoing identification, evaluation and management of the principal risks faced by the Company. These systems have been in place for the year under review and up to the date of this Annual Report and Accounts, and are regularly reviewed by the Board. During the year the Board has carried out a robust assessment of principal and emerging risks.

 

1. Health and safety
Key risk description	Risk movement	Risk mitigation in action
Calisen, and in particular Lowri Beck, is required to manage a range of potential health and safety hazards in the course of its operations. While Lowri Beck strives to maintain a strong health and safety record and is committed to high standards there is always the potential for safety related issues to arise in an operational business. Incidents that result in death, significant injury or property damage that are attributable to a failure to manage these hazards effectively may be subject to legal action that could result in fines or other penalties and resultant reputational damage.	No risk movement	High standards of technical training and audit. Regular training of staff aimed at accident reduction. Experienced and well qualified safety and technical personnel. Effective investigation of incidents and implementation of learning points. Maintenance of the ISO 45001 Health and Safety Management Standard at Lowri Beck.
2. Strategy execution and development
Key risk description	Risk movement	Risk mitigation in action
Calisen seeks to implement a three-fold strategy: delivering contracted growth in the British MAP segment; continuing to build out its smart meter pipeline; and expanding into adjacent areas and internationally. While Calisen believes that it has developed its strategy based on a careful analysis of its strengths, its competitors and the overall MAP segment, and that it is focused on executing its strategy, there is no guarantee that Calisen will be able to do so successfully. The Lowri Beck acquisition was a strategic decision for the Group, however, Lowri Beck has historically been loss-making and improving the profitability of the Lowri Beck business unit may take longer and be more difficult than anticipated.	Risk decreasing	Calisen has an experienced Board and Executive Committee that have previously delivered successful strategies. The Group has a history of delivering predictable growth and allocated time is set out in the governance calendar in order to consider strategy for the Group. The leadership team at Lowri Beck has been strengthened with key additions including a new CEO with experience of growing a complex operational business.

 

 

 

3. Government policy
Key risk description	Risk movement	Risk mitigation in action
The growth of Calisen's business, its financial condition, its results of operations and its prospects depend on the regulatory and legal environment in which Calisen operates. There is a risk that energy networks and related industries in Britain, including the MAP segment, may be more onerously regulated by a future government, and MAPs may become directly regulated.	Risk decreasing	Calisen plays an active part in industry events and closely monitors policy development. Calisen employs a Regulation Manager who reviews all relevant consultations and provides a monthly report to the business.  The Regulation Manager also gathers feedback on consultations and Calisen responds to any consultations that may have an impact on the business. Calvin Capital is a member of the Community of Meter Asset Providers to help ensure that the voice and concerns of MAPs are raised in the industry, with regulators and with the UK Government. Lowri Beck is also a member of the Association of Meter Operators and the Smart Meter Operations Group, which both provide an opportunity to voice industry concerns from a MOP/MAM perspective. Lowri Beck also meets with BEIS directly on an annual basis, again to discuss issues and concerns relating to the industry.
4. Market and counterparty risk
Key risk description	Risk movement	Risk mitigation in action
Calisen is exposed to market risks. These include changes to the energy market and the challenges of the smart meter roll-out. The UK energy market is undergoing significant change as evidenced by recent consolidation in the industry and the introduction of an energy price cap. Calisen is exposed to counterparty default risks and has a concentration exposure to certain energy retailers.  In 2020 the industry had a number of failed energy retailers and Calisen's revenue in respect of MPCs prior to the "supplier of last resort" ("SOLR") event is exposed as an unsecured creditor in these circumstances. Consumers changing energy retailer ("switching") is an everyday occurrence in the UK energy industry. Where a consumer changes energy retailer and the new energy retailer is not one with which Calisen has a consumer switching contract for that vintage of meter, Calisen faces the risk of loss of revenue. Due to the nature of the smart meter roll-out, it is difficult to predict with precision how many revenue-generating meters Calisen will have as a result of its MAP contracts or how much actual revenue Calisen will recognise from its contracted installation MAP pipeline.	No risk movement	Due to the structure of its contracts with energy retailers Calvin Capital has revenue that is reasonably predictable. The contractual nature of Calvin Capital's business produces high-quality, long-term cash flow and allows Calvin Capital to enjoy significant downside protection. Calisen has no consumer credit exposure and its energy retailer customers tend to have high credit quality. Counterparty risk is further limited as a result of regulation such as the SOLR regulatory framework which can be invoked by Ofgem when an energy retailer is in financial difficulty or goes out of business. Calisen has developed systems and processes in order to minimise revenue loss when a consumer changes energy retailer. These include Calisen's accurate meter tracking systems and processes, billing relationships with nearly every energy retailer and an increasing number of contracts with energy retailers which provide for rental of meters following a consumer switching energy retailer.

 

 

 

5. Supply chain and counterparties
Key risk description	Risk movement		Risk mitigation in action
Calisen depends on a limited number of manufacturers and installers, and their failure to deliver their products and services on a timely basis or to otherwise perform their contractual obligations could increase its costs, impact revenue and harm its reputation. This risk can manifest itself in a number of ways, for example if metering equipment installed, owned and managed by Calisen develops faults which may lead to Calisen facing warranty or liability claims. Calisen has the benefit of warranties from meter manufacturers for faulty products. However, the value of the warranty as a mitigant is dependent on the counterparty which provides the warranty and therefore Calisen has counterparty default risk with its supply chain.	No risk movement		Calisen has developed strong long-term relationships with a number of manufacturers, and Calisen's position as a major purchaser of meters helps to ensure that manufacturers generally make product deliveries and provide new supplies on time, in necessary quantities and to the right quality to satisfy the requirements of Calisen's energy retailer customers. Calisen conducts financial and other due diligence on meter manufacturers and obtains parent company guarantees where required. Calisen has a strong focus on detailed manufacturer quality assurance that helps inform its meter selection decision making. Calvin Capital conducts extensive testing of meters with the support of its technical due diligence providers, and as a result Calisen's revenue-generating smart meters have historically suffered low fault rates. During the year Calisen had regular updates with manufacturers and energy retailers to review supply continuity plans to ensure that meter supply chains were not disrupted by Brexit.
6. Business interruption and IT systems
Key risk description	Risk movement		Risk mitigation in action
Calisen's operations rely on IT systems and networks, which may be affected by malfunctions, cyber attacks, interruptions or security breaches, and any failure of the physical infrastructure or the IT systems and networks could lead to significant costs and disruptions that could reduce revenue, harm the Group's reputation and have a material adverse effect on financial results.	No risk movement		Calisen and its subsidiary companies have disaster recovery and business continuity plans in place and these are reviewed regularly and audited. Cyber security penetration testing is carried out by external advisers in respect of certain systems on an annual basis and regular employee security awareness sessions are undertaken. Lowri Beck and Calvin Capital also have ISO 27001 certification with security and data controls in place.

 

 

 

7. Financial and funding
Key risk description	Risk movement	Risk mitigation in action
Calisen faces credit and market risks arising from interest rates and from related hedging activities, and its financial results may be affected by fluctuations in interest rates. Calisen may need additional capital in the future which may not be available on terms favourable to it or at all.	Risk decreasing	Calisen's contracts include maximum capital expenditure commitments which are regularly reviewed by the Executive Committee and the Board. Calisen has committed bank facilities and a business with highly predictable cashflow. The Group reviews the efficiency of its funding on a regular basis and in July 2020 announced that it had agreed a new financing platform to provide greater flexibility supported by an enlarged group of banks and access to blue-chip institutional investors. No meter funding facility renewals fall due before December 2023. The Group enters into interest rate swaps, whereby it agrees to exchange, at specified intervals, the difference between fixed and variable rate interest amounts, with the objective of fixing the majority of its interest costs.
8. Attracting talent and retention of key staff with organisational knowledge
Key risk description	Risk movement	Risk mitigation in action
Calisen may encounter difficulties in attracting or retaining key executives, officers, managers and technical personnel.	Risk decreasing	The business seeks to mitigate the risk of not retaining its talent by deploying strong recruitment and retention processes supported by effective HR procedures. Recruitment of a senior CPO in 2020 and active workforce engagement as set out in more detail on page 42. Remuneration packages are benchmarked against the industry to ensure the business attracts the right calibre of applicant. Development of talent management and succession plans.
9. Loss of accreditations
Key risk description	Risk movement	Risk mitigation in action
Loss of required registrations and accreditations would mean that Lowri Beck would no longer be able to operate.	No risk movement	Retention of required accreditations is one of the top priorities for the Lowri Beck leadership team. Lowri Beck has an experienced team that understands the accreditation requirements and standards. Lowri Beck ensures that there are sufficient resources and time allocated to ensure compliance with accreditations and the renewal of accreditations. Lowri Beck has a history of successfully renewing the accreditations. Its accreditations were renewed successfully in 2020.

 

 

 

10 and 11. Emerging global and economic issues
Key risk description	Risk movement	Risk mitigation in action
The Group monitors the impact of emerging risks including economic and global issues. In 2020 this has included the impact of Brexit and the impact of COVID-19.	New risk	Emerging risks are assessed as part of the risk management framework to categorise the risk and identify any mitigants that can be put in place. In respect of high-impact risks, forecasts and stress testing are undertaken so that the Board and the Executive Committee can assess the impact. In respect of the two notable emerging economic and global issues considered by the Group, being Brexit and COVID-19, a large number of mitigants had already been built into the business model. The Group's risk management of COVID-19 risks are set out in detail on pages 10 to 11 of the Annual Report and Accounts.  The risk management framework ensures that these risks are regularly reviewed and assessed.

 

 

 

 

 

 

Statement of Directors' Responsibilities in respect of the Annual Report and Financial Statements

The Directors are responsible for preparing the Annual Report and the Group and parent company financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Group and parent company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRSs as adopted by the EU") and applicable law and have elected to prepare the parent company financial statements on the same basis.

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent company and of their profit or loss for that period. In preparing each of the Group and parent company financial statements, the Directors are required to:

·  Select suitable accounting policies and apply them consistently.

·  Make judgements and estimates that are reasonable, relevant and reliable.

·  State whether they have been prepared in accordance with IFRSs as adopted by the EU.

·  Assess the Group and parent company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern.

·  Use the going concern basis of accounting unless they either intend to liquidate the Group or the parent company or to cease operations, or have no realistic alternative but to do so.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company's transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that comply with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Responsibility statement of the Directors in respect of the Annual Report and Financial Statements

Each of the Directors in office as at the date of this report, whose names and functions are listed on pages 60 and 61 of the Annual Report and Accounts, confirm that to the best of his or her knowledge:

·      The financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole.

·      The Strategic Report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

We consider the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group's position, performance, business model and strategy.

Approved by the Board of Calisen plc and signed on its behalf.

 

Sarah Blackburn

Company Secretary

For and on behalf of the Company

5th Floor, 1 Marsden Street, Manchester,

England, M2 1HW

1 March 2021

 

Consolidated Income Statement and Statement of Comprehensive Income

 

		Year ended 31 December
	Notes	2020 £m	2019 £m
Revenue	5	248.1	208.8
Cost of sales	7	(113.6)	(111.7)
Gross profit		134.5	97.1
Administrative expenses	8	(27.7)	(16.8)
Other expenses	13	(8.3)	(11.3)
Amortisation of intangible assets	18	(44.5)	(42.3)
Group operating profit		54.0	26.7
Finance expense	12	(105.0)	(109.1)
Finance income	12	33.8	0.2
Loss before tax		(17.2)	(82.2)
Taxation (expense)/credit	15	(9.8)	2.1
Loss for the year		(27.0)	(80.1)
Loss and total comprehensive loss attributable to equity holders of the parent		(27.0)	(80.1)
Earnings per share:
Basic (pence)	14	(5.5)	(364.2)
Diluted (pence)	14	(5.5)	(364.2)

 

All activities of the Group are from continuing operations.

 

 

Consolidated Statement of Financial Position

 

	Notes	As at 31 December
		2020 £m	2019 £m
Assets
Non-current assets
Intangible assets	18	535.5	580.0
Property, plant and equipment	19	897.9	821.0
Deferred tax asset	16	1.4	-
Derivative financial instruments	22	3.3	1.1
		1,438.1	1,402.1
Current assets
Trade and other receivables	24	70.0	42.7
Contract assets	6	4.9	13.4
Inventory	25	0.9	1.3
Cash and cash equivalents	26	114.6	50.3
		190.4	107.7
Total assets		1,628.5	1,509.8
Liabilities
Current liabilities
Trade creditors	27	19.1	17.8
Other creditors	27	26.4	31.3
Interest-bearing loans and borrowings	22	116.7	99.9
		162.2	149.0
Non-current liabilities
Interest-bearing loans and borrowings	22	587.1	1,444.3
Provisions	28	1.5	0.4
Derivative financial instruments	22	1.6	32.4
Deferred tax liability	16	99.7	86.5
		689.9	1,563.6
Total liabilities		852.1	1,712.6
Equity
Called up share capital	29	5.5	0.2
Share premium account		-	82.1
Share-based payment reserve	30	0.4	-
Merger reserve		(63.3)	(63.3)
Retained earnings/(deficit)		833.8	(221.8)
Total equity		776.4	(202.8)
Total equity and liabilities		1,628.5	1,509.8

 

The financial statements on pages 103 to 142 of the Annual Report and Accounts were approved and authorised for issue by the Board of Directors and signed on its behalf by:

 

 

Sean Latus

Chief Financial Officer

1 March 2021

 

 

 

Consolidated Statement of Changes in Equity

 

	Called up share capital £m	Share premium account £m	Share-based payment reserve £m	Retained earnings/ (deficit) £m	Merger reserve £m	Total equity £m
Attributable to equity holders of the parent:
At 1 January 2019	0.2	82.1	-	(141.7)	(63.3)	(122.7)
Loss for the year and total comprehensive loss	-	-	-	(80.1)	-	(80.1)
At 31 December 2019	0.2	82.1	-	(221.8)	(63.3)	(202.8)
Loss for the year and total comprehensive loss	-	-	-	(27.0)	-	(27.0)
Shares issued	1.3	293.2	-	-	-	294.5
Debt for equity swap (note 1)	4.0	707.3	-	-	-	711.3
Equity settled share awards	-	-	0.4	-	-	0.4
Capital reduction (note 1)	-	(1,082.6)	-	1,082.6	-	-
At 31 December 2020	5.5	-	0.4	833.8	(63.3)	776.4

 

 

 

Consolidated Statement of Cash Flows

 

		Year ended 31 December
	Notes	2020 £m	2019 £m
Cash flows from operating activities
Loss before tax		(17.2)	(82.2)
Adjustments to reconcile loss before tax to net cash flows:
Amortisation of intangible assets	18	44.5	42.3
Depreciation of property, plant and equipment	19	79.4	86.8
Finance income	12	(33.8)	(0.2)
Finance expense	12	105.0	109.1
Share-based payment expense	30	0.4	-
Loss on disposal of property, plant and equipment	7	2.1	6.9
Interest received	12	0.1	0.2
Interest paid		(91.8)	(38.1)
Tax paid	15	(4.4)	(4.3)
Payment to obtain a contract		-	(0.3)
Working capital adjustments:
Increase in trade and other receivables and contract assets	6, 24	(12.9)	(5.7)
Decrease in inventory	25	0.4	0.2
(Decrease)/increase in trade payables, other payables and provisions	27, 28	(4.3)	15.3
Net cash flows from operating activities		67.5	130.0
Cash flows from/(used in) investing activities
Proceeds from sale of property, plant and equipment		13.4	16.8
Purchase of subsidiary undertaking		(0.7)	(6.2)*
Net cash acquired with subsidiary undertaking		-	0.2
Purchase of property, plant and equipment	19	(171.8)	(274.1)
Purchase of intangible assets		-	(0.2)
Net cash flows used in investing activities		(159.1)	(263.5)
Cash flows from/(used in) financing activities
Lease payments	20	(1.1)	(0.4)
Proceeds from the issue of share capital		294.5	-
Proceeds from borrowings		668.7	210.9
Repayment of borrowings		(806.2)	(98.3)
Net cash flows from financing activities		155.9	112.2
Net movement in cash and cash equivalents		64.3	(21.3)
Cash at beginning of period		50.3	71.6
Cash at end of period		114.6	50.3

The accompanying notes form an integral part of the financial statements. During the period, there was a non-cash transaction of £711.3m in relation to a debt for equity swap. This was in addition to proceeds from the issue of share capital of £294.5m. See note 1 for further detail.

* Description updated from corresponding statement in 2019 Calisen Group Holdings Limited accounts to be more reflective of the transaction.

 

Notes to the Consolidated Financial Statements

1.         Basis of preparation

On 7 February 2020, as part of a Group reorganisation, all shares held in Calisen Group Holdings Limited by Evergreen Energy Limited and Evergreen Holdco S.a.r.l. were transferred to Calisen plc, a newly incorporated intermediate parent entity. This was achieved by Calisen plc issuing shares at fair-value and nil gain, to the shareholders of Evergreen Energy Limited and Evergreen Holdco S.a.r.l. in exchange for their investments and a receivable amounting to £711.3m, with resulting entries recorded in ordinary share capital and share premium.

Following this reorganisation, Calisen plc undertook an initial public offering ("IPO") on the London Stock Exchange for a proportion of its share capital. A number of other changes to the financing structure of the Group occurred following the IPO, further details can be found in note 29. During June 2020, the Company, having by special resolution cancelled its share premium account amounting to £1,082.6m, as confirmed by an order of the High Court of Justice, Chancery Division.

The insertion of the Company on top of the existing Calisen Group Holdings Limited Group did not constitute a business combination under IFRS 3 Business Combinations and instead was accounted for as a capital reorganisation. Merger accounting was used to account for this transaction. As a result of this approach, share capital and share premium were amended, effective from 1 January 2019, as if the current Group had been in existence since that date. The comparative and current year consolidated reserves of the Group were adjusted to reflect the statutory share capital, share premium and merger reserve of Calisen plc as if they had always existed. A negative merger reserve of £63.3m was recognised as at 1 January 2019 to complete the equity position as a result of the application of merger accounting.

Following the IPO, both Evergreen Holdco S.a.r.l. and Evergreen Energy Limited were placed into liquidation, the latter of which was dissolved on 7 May 2020 with the former being dissolved on 11 February 2021. As a result of the liquidations, the indirect investment and receivable held by the Company, in Calisen Group Holdings Limited were transferred as direct holdings. The trading results and net asset positions for both companies are immaterial to the Group. The Board has excluded these companies for each stated accounting period following an assessment of the liquidation status and immaterial impact on the consolidated results. The approach to exclude these companies is consistent with that of the prospectus filed at the time of the IPO and with the 30 June 2020 interim statements.

The above results and the accompanying notes do not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006.The Auditors have reported on the Group's statutory accounts for the year ended 31 December 2020 under s495 of the Companies Act 2006, which do not contain a statement under s498 (2) or s498 (3) of the Companies Act 2006 and are unqualified. The statutory accounts for the year ended 31 December 2019 have been delivered to the Registrar of Companies and the statutory accounts for the year ended 31 December 2020 will be filed with the Registrar in due course.

The audited consolidated financial statements from which these results are extracted have been prepared under the historical cost convention and in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union, IFRIC interpretations and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The principal accounting policies have been applied consistently in the periods other than for the effect of applying new standards.

(a)           Going concern

Notwithstanding the loss for the year ended 31 December 2020 of £27.0m, the Directors consider the going concern basis of preparation for the Group and the Company to be appropriate for the following reasons. The Group generated net cash flows from operating activities for the year ended 31 December 2020 of £67.5m.

In February 2020, as detailed in the basis of preparation, the Group undertook a reorganisation with a newly incorporated Company, Calisen plc, becoming the ultimate parent undertaking. Following the reorganisation, gross funds of £300m were raised before the deduction of IPO costs. The funds were used to repay EBLs held in subsidiary undertakings amounting to £230.4m at 6 February 2020. Furthermore, the shareholder loan and accrued interest thereon of £711.3m at 6 February 2020 was capitalised into share capital and share premium thus reducing the overall net debt of the Group. In addition, in February 2020, the Group agreed a new revolving credit facility ("RCF") amounting to £240m.

In July 2020, the Group completed a refinancing, replacing bank facilities of £1,130.0m with new facilities of £1,067.5m which include structured institutional debt as set out in note 22. The old facilities had maturity dates of 2022 and 2029 and in addition to significantly extending the average life of the finance facilities, some of which extend to 2034, the new financing arrangement also reduces the Group's average cost of debt. The Group's previous all-in cost of funding was approximately 3-4% (including the cost of hedging floating rate debt to fixed rates) and has now reduced to 2.5-3%.

The Group has prepared cash flow forecasts to 31 December 2023 which include taking account of reasonably possible downsides in addition to stress testing for the impact of COVID-19. These result in reduced levels of revenues within both business units and lower levels of meter installations. These forecasts show that the Group will have sufficient funds, through access to cash derived from its long-term contractual revenue streams and funding from its existing facilities, liabilities as they fall due, through access to cash derived from its long-term contractual revenue streams and funding from its existing facilities. At 31 December 2020, this includes cash of £114.6m and undrawn funds of £762.0m (of which £240.0m is available for working capital funding, and the remaining £522.0m primarily ring-fenced for contracted capital expenditure commitments. Debt covenants in relation to the new RCF entered into during 2020 are set at a ratio of 5.5x (consolidated EBITDA/total net debt) and 1.05x (aggregate net present value of distributable cash flows/total amount outstanding under the RCF facility less any cash and cash equivalents held as investments). There are no forecast breaches, under any scenario, of these covenants at any point during the three year forecast period.

The proposed Acquisition of the Company, announced by the Board on 11 December 2020, is expected to complete and the Company's shares are expected to be delisted in March 2021. Accordingly, the Group has assessed the impact of the Acquisition on its going concern assessment. The only potential impact is that the Group's £240m RCF, held by Calisen plc, may become unavailable because it is subject to a change of control clause. The Group's other facilities, totalling £1,239.4m, will not be affected by this change of control. In addition, the Group's cash flow forecasts indicate that, under all scenarios, the £240m RCF should remain undrawn and therefore the going concern assessment would not be affected by the loss of this facility. While the future funding structure of the Company and its detailed business plan under its new prospective owners are not yet formalised, the Directors have not been made aware of any information that would change the conclusion of the Group's going concern assessment.

Consequently, the Directors are confident that the Group currently has in place sufficient funds to continue to meet its liabilities as they fall due for at least 12 months from the date of issue of the Consolidated Financial Statements and have therefore prepared the Consolidated Financial Statements on a going concern basis.

(b)           Basis of measurement

The functional currency is pound sterling and the financial statements are presented in pound sterling.

Amounts are rounded to the nearest hundred thousand except where otherwise indicated. The prior period financial statements have accordingly also been restated to the nearest hundred thousand unless otherwise stated.

The preparation of the Consolidated Financial Statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on the Directors' best knowledge of the amounts, events and actions, actual results ultimately may differ from those estimates. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Consolidated Financial Statements, are disclosed in note 3 and 4 respectively.

The Consolidated Financial Statements have been prepared on the historical and amortised cost bases, except for certain financial assets and financial liabilities, which are stated at their fair value.

(c)           Adoption of new standards

The following standards, interpretations and amendments, issued by the International Accounting Standards Board ("IASB") effective for the year ended 31 December 2020, are relevant to the Group but have had no material impact on the Group's Financial Statements:

IFRS 3 (amendment)	Definition of a Business	effective date of 1 January 2020
IAS 1 and IAS 8 (amendment)	Definition of Material	effective date of 1 January 2020
CF	Conceptual Framework for Financial Reporting	effective date of 1 January 2020

 

The following standards while not new or amended in the year ended 31 December 2020 have been adopted in the year as they have now become relevant to the Group and have a material impact to the Group's Financial Statements:

IFRS 2 Share-based Payments

The Group adopted IFRS 2 on 25 June 2020 following the issue of equity settled share award schemes to certain employees, details of which are set out in note 30. The fair value of the equity settled share awards is measured at the date of grant and expensed on a straight-line basis over the vesting period based on how many awards are expected to vest. The Group uses simulation models to estimate the fair value of the schemes based on the various measures of performance.

IAS 20 Accounting for Government Grants and Disclosure of Government Assistance

During the period, certain employees at Lowri Beck were placed on furlough under the Coronavirus Job Retention Scheme. Furlough income of £7.7m in relation to a maximum of 1,420 employees has been recognised in the year ended 31 December 2020 and as such the Group has adopted IAS 20 in accounting for this Government assistance. The grant has been recognised as income and matched with associated payroll costs over the same period. An asset is shown within trade and other receivables on the balance sheet, to the extent that claimed amounts remained outstanding at 31 December 2020.

Underwriting commissions

In accordance with IFRS 9, underwriting costs relating directly to the new issuance of shares as part of the Company's IPO were deducted against share premium on the basis that they are directly incremental costs that would not have been incurred had the Group not raised equity during the period. During the year to 31 December 2020, £6m of underwriting costs were deducted from share premium.

(d)           Standard issued but not yet effective

IFRS 17

Insurance Contracts

effective date of 1 January 2023

 

No material impact is expected on the adoption of this standard.

There are no other relevant standards, which are expected to have a material impact on the Group, that have been issued by the IASB and endorsed by the EU but are not yet effective.

(e)           Presentation of financial statements in accordance with IAS 1

The Consolidated Financial Statements are prepared in accordance with IAS 1 Presentation of Financial Statements.

(f)            Basis of consolidation

The Consolidated Financial Statements consolidate the Group and all its subsidiary undertakings, other than those listed in note 1, for the years ended 31 December 2020 and 2019.

The Consolidated Financial Statements are based on the consolidated financial statements of subsidiaries whose year ends are co-terminous with those of the Company and whose accounting policies have been consistently applied throughout the Group.

Subsidiaries are investees controlled by the Group. The Group controls an investee if it is exposed to, or has rights to, variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The Group reassesses whether it has control if there are changes to one or more of the elements of control. Subsidiaries are fully consolidated from the date on which control commences until the date when control ceases.

Intra-Group balances and transactions are eliminated in preparing the Consolidated Financial Statements. Transactions between the Company and its subsidiaries are disclosed in the Company's separate financial statements.

Information on the Group's structure is provided in note 32. Information on other related party relationships of the Group is provided in note 31.

 

2.         Significant accounting policies

The accounting policies set out below have been applied consistently by the Group to all years presented.

2.1          Business combinations

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured at acquisition date fair value, together with the amount paid for any non-controlling interests in the acquiree. For each business combination, the Group elects whether to measure any non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree's identifiable net assets. Customer contracts and brands are valued using the Excess Earnings Approach and "Relief from Royalties" techniques respectively. Both methodologies use a discounted cash flow basis to support the valuation, taking into account relevant discount factors, other relevant charges, rates and tax amortisation benefit to generate the cash flows.

Acquisition-related costs, referred to as transaction costs, are expensed as incurred.

Any contingent consideration included in the aggregate consideration transferred is recognised at fair value at the acquisition date. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity.

Contingent consideration classified as a financial asset or liability is subsequently measured at fair value with the changes in fair value recognised in the Consolidated Income Statement.

2.2          Fair value measurement

The Group measures certain financial instruments at fair value at each balance sheet date. The Group also uses fair values when accounting for assets acquired and liabilities assumed in business combinations and as a part of its impairment testing process for non-current assets.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

·  in the principal market for the asset or liability; or

·  in the absence of a principal market, in the most advantageous market for the asset or liability.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the Consolidated Financial Statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

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

·  Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable; or

·  Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

For assets and liabilities that are recognised in the Consolidated Financial Statements at fair value on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

The Group determines policies and procedures for both recurring fair value measurement, such as the valuation of derivatives, and for non‑recurring measurement.

At each reporting date, the Group analyses the movements in the values of assets and liabilities which are required to be remeasured or reassessed as per the Group's accounting policies. For this analysis, the Group verifies the major inputs applied in the latest valuation by agreeing the information in the valuation computation to contracts and other relevant documents.

The Group compares the change in the fair value of each asset and liability with relevant external sources to determine whether the change is reasonable.

For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy, as explained above.

2.3       Revenue from contracts with customers

All revenues are recognised exclusive of value added tax.

(i)            MAP services

Revenue from MAP services represents the MPC which is the payment the Group receives monthly from a customer, being the energy retailer, for the procurement, arrangement of installation, ownership and management of a portfolio of domestic electricity and gas meters.

Provision of MAP services is considered a single performance obligation as outlined in section (iv) below. Revenue is recognised over time as the service is provided on the basis that the customer simultaneously receives and consumes the benefits of accessing the meters.

(ii)           Technical services

Revenues from technical services represent fees earned from energy retailers for installation of meters by the Lowri Beck operating segment.

Provision of installation services is considered a separate performance obligation. Revenue is recognised at a point in time on completion of the services.

(iii)          Non-technical services

Revenues from Non-technical services represent meter reading and data management services provided to energy retailers by the Lowri Beck operating segment. Revenue is recognised at a point in time on completion of the services.

These services are considered a distinct performance obligation from the MPC on the basis that they are separately identifiable services which are not necessary to bring a meter asset into use.

Other income

Other income relates to meter-related services, non MPC, that are recharged to customers including meter management service fees and meter procurement. Revenue is recognised over time as the service is provided.

The Group monitors numbers of meters installed and MAP services revenue per meter split between smart and traditional meters. The transaction price is the contracted price with no other adjustment or assumptions being required for the calculation.

Significant judgements

(iv)          Classification of meter income

The Group has assessed that its arrangements with energy retailers for MAP services (i.e. the procurement and management of meters) do not contain a lease under IFRS 16 Leases for the meters owned by the Group. This is due to management's assessment that energy retailers do not obtain substantially all the economic benefit from the meters and do not control the operation or physical access to the meters.

As such income from meters is accounted for under IFRS 15 Revenue from Contracts with Customers.

(v)           Contract with the customer and contract term

The Group's arrangements with energy retailers for MAP services include general terms and conditions by which the arrangements are governed. However, it is not until an order is placed by the energy retailer and accepted that either party has an obligation to perform under the agreement. As such individual orders are considered to be the contract under IFRS 15. The energy retailer can terminate the contract at any time subject to the payment of appropriate consideration. As such contracts are treated as month-to-month contracts for accounting purposes. When the underlying consumer moves to a new energy retailer, the Group continues to collect the MPC from the new retailer unless the meter is removed. If the meter is removed, the Group receives compensation income or the meter is returned.

 (vi)         Performance obligations

Over the course of a contract for MAP services, the Group performs a series of activities that are substantially the same in terms of the nature of the Group's undertaking to the customer i.e. the procurement and management of a portfolio of meters. In addition, the benefits are simultaneously received and consumed by the customer. Therefore, the services are accounted for as a single performance obligation.

(vii)         Costs to obtain a contract

The Group pays sales commissions to employees that are contingent on successfully securing MAP service arrangements (the contract) with customers. As such these commissions are considered incremental costs of obtaining the contract as, if the arrangement is not won, these commissions are not paid. The commission relates to services transferred under multiple contracts (i.e. multiple orders) and covers the entire term of the customer relationship. As such, capitalised contract costs are amortised over a period of 15 years, due to this being the average economic life of a customer arrangement based on historical information.

2.4       Contract assets

Amounts are billed monthly in arrears based on services provided resulting in unbilled receivables (contract assets) being recognised in the Consolidated Statement of Financial Position.

2.5       Compensation income

In cases where it has been contractually agreed, the Group is able to claim compensation income for the loss of the contracted MPC revenue associated with meters that are removed.

Compensation income is recognised at fair value upon notification of the removal of the meter. It is netted against the loss on disposal of the meter asset in cost of sales.

2.6       Taxation

Current income tax

Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date in the countries where the Group operates and generates taxable income.

Current income tax relating to items recognised directly in equity is recognised in equity and not in the income statement. Management periodically evaluate positions taken in tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establish provisions where appropriate.

Deferred tax

Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

·      when the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or

·      in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, the carry-forward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, the carry-forward of unused tax credits and unused tax losses can be utilised, except:

·      when the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or

·      in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation with the underlying transaction either in other comprehensive income ("OCI") or directly in equity.

Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at the date of the combination, are recognised subsequently if new information or facts arise or circumstances change. Any adjustment is either treated as a reduction in goodwill (as long as it does not exceed the existing goodwill balance) if it was incurred during the measurement period or recognised in profit or loss.

The Group offsets deferred tax assets and deferred tax liabilities if and only if it has a legally enforceable right to do so, and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.

2.7       Foreign currencies

Transactions in foreign currencies are translated to the Group companies' functional currency at the foreign exchange rate ruling as at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies as at the date of the consolidated statement of financial position are retranslated to the functional currency at the foreign exchange rate ruling at that date. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are retranslated to the functional currency at foreign exchange rates ruling as at the dates the fair value was determined. Foreign exchange differences arising on translation are recognised in the Consolidated Income Statement.

The assets and liabilities of foreign operations arising on consolidation are translated to the Group's presentational currency, pound sterling, at foreign exchange rates ruling as at the date of the Consolidated Statement of Financial Position. The revenue and expenses of foreign operations are translated at an average rate for the year where this rate approximates to the foreign exchange rates ruling as at the dates of the transactions. Foreign exchange differences arising on retranslation are recognised in other comprehensive income.

2.8       Dividends

Dividends payable by the Company are recognised when declared and therefore final dividends proposed after the date of the consolidated statement of financial position are not recognised as a liability as at the date of the consolidated statement of financial position. Dividends paid to shareholders are shown as a movement in equity rather than in the Consolidated Income Statement and Statement of Comprehensive Income.

 

2.9       Intangible assets

Goodwill

Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred over the net identifiable assets acquired and liabilities assumed). If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group reassesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to the Group's CGUs.

Brands and customer contracts

Customer contracts and brands are intangible assets measured at fair value, at acquisition using a purchase price allocation. Customer contracts and brands are valued using the "Excess Earnings Approach" and "Relief from Royalties" techniques respectively. Both methodologies use a discounted cash flow basis to support the valuation, taking into account relevant discount factors, other relevant charges, and tax amortisation benefit to generate the customer contracts and brands valuations.

Other intangible assets

Other intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less accumulated amortisation and any accumulated impairment losses. Amortisation is calculated using the straight-line method over the estimated life of each intangible asset. Other intangible assets comprise primarily customer contracts, brand and software. All intangible assets, other than goodwill, have a finite useful economic life.

Research and development costs

Research costs are expensed as incurred. Development expenditure on an individual project is recognised as an intangible asset when the Group can demonstrate:

·  The technical feasibility of completing the intangible asset so that the asset will be available for use or sale;

·  Its intention to complete and its ability and intention to use or sell the asset;

·  How the asset will generate future economic benefits;

·  The availability of resources to complete the asset; and

·  The ability to measure reliably expenditure during development.

Following initial recognition of development expenditure as an asset, the asset is carried at cost less accumulated amortisation and any accumulated impairment losses. Amortisation of the asset begins when development is complete and the asset is available for use. It is amortised over the period of expected future benefit. During the period of development, the asset is tested for impairment annually.

Capitalised development expenditure relates to relevant costs incurred in the development of software by the Lowri Beck subsidiary.

Amortisation

Amortisation is charged to the Consolidated Income Statement on a straight-line basis over the estimated useful lives of intangible assets except for goodwill, which is not amortised. Intangible assets are amortised from the date they are available for use.

The estimated useful lives of other intangible assets are as follows:

Customer contracts	5-15 years
Brand	10 years
Software	3 years
Development costs	1-5 years

 

The Group reviews the amortisation period and method when events and circumstances indicate that the useful life may have changed since the last reporting date.

Impairment

Goodwill is tested for impairment annually as at 31 December and when circumstances indicate that its carrying value may be impaired.

Impairment is determined for goodwill by assessing the recoverable amount of the CGU to which the goodwill relates. The recoverable amount is the higher of the CGU's fair value less costs of disposal and its value in use. When the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods.

At each balance sheet date, the Group tests whether there are any indications of other intangible assets, including development costs, being subject to impairment. If any such indications exist, the recoverable amount of the asset is determined.

2.10    Property, plant and equipment

Property, plant and equipment consisting of equipment and other fixed assets are stated at cost less accumulated depreciation. Cost includes expenditure that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.

Depreciation is based on the estimated useful life and calculated as a fixed percentage of cost, taking into account any residual value. Depreciation begins from the date an asset is ready for intended use. The cost of these items is depreciated using the straight-line method over the following remaining estimated useful lives:

Computer hardware	3 years
Credit meters	Shorter of asset life or 30 June 2025 (year ended 31 December 2019: Shorter of 10 years or straight line to 2021)
Prepayment meters	Shorter of asset life or 30 June 2025 (year ended 31 December 2019: Shorter of 10 years or straight line to 2021)
Smart meters	15 years
Fixtures and fittings	3 years
Office equipment	3 years
Motor vehicles	3-4 years
Leasehold improvements	8-10 years

 

Credit meters, prepayment meters and smart meters are disclosed within "Equipment" within note 19.

Computer hardware, fixtures and fittings, office equipment, motor vehicles and leasehold improvements are disclosed within "Other fixed assets" within note 19.

Depreciation and profits/(losses) on the disposal of equipment are disclosed within cost of sales in the Consolidated Income Statement.

Depreciation methods, useful lives and residual values are reviewed if there is an indication of a significant change since the last annual reporting date in the pattern according to which the Company expects to consume an asset's future economic benefits. A change in the useful expected life of traditional meters has been deemed necessary in the year ended 31 December 2020, see note 4 for further details.

The Group assesses, at each reporting date, whether there is an indication that property, plant and equipment may be impaired. If any such indication exists, the Group estimates the asset's recoverable amount. An asset's recoverable amount is the higher of an asset's or the CGU's fair value less costs of disposal and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or the CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

 

2.11    Leases

Group as a lessee

IFRS 16 Leases has been applied by measuring lease liabilities at the date of transition to IFRS, discounted using the lessee's incremental borrowing rate at the transition date in line with the modified retrospective approach. The associated right-of-use asset has been measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the statement of financial position immediately before the IFRS transition date. The asset and liability have been recognised in 'Property, plant and equipment' and 'Other creditors', respectively. In addition, initial direct costs have been excluded from the measurement of the right-of-use asset at the transition date.

Leases where the Group is acting as lessee are accounted for based on a "right-of-use model", with certain limited exceptions (see discussion of exemptions provided below). The model reflects that, at the commencement date, a lessee has a financial obligation to make lease payments to the lessor for its right to use the underlying asset during the lease term.

Where the Group is acting as lessee, as at the date of commencement of the lease, the Group recognises a right-of-use asset and a lease liability.

The Group initially measures the right-of-use asset at cost. The cost of the right-of-use asset comprises:

·  the amount of the initial measurement of the lease liability;

·  any lease payments made at or before the commencement date, less any lease incentives received;

·  any initial direct costs incurred by the lessee; and

·  an estimate of costs to be incurred by the lessee in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease.

The right-of-use asset is subsequently measured using the cost model, i.e. at cost less any accumulated depreciation and any accumulated impairment losses and adjusted for any remeasurement of the lease liability.

At commencement, the lease liability is measured at the present value of the lease payments that are not paid at that date. The lease payments are discounted using the interest rate implicit in the lease, if that rate can be readily determined. If that rate cannot be readily determined, the incremental borrowing rate is used.

After commencement, the lease liability is measured by:

·  increasing the carrying amount to reflect interest on the lease liability;

·  reducing the carrying amount to reflect the lease payments made; and

·  remeasuring the carrying amount to reflect any reassessment or lease modifications.

Depreciation of the right of use asset and interest expense in respect of the lease liability are recognised in the Consolidated Income Statement in "Administrative expenses" and "Finance expenses" respectively.

The exceptions to the right-of-use model relate to accounting policy choices available under IFRS 16 Leases. The Group has chosen to take the recognition exemptions available in respect of short-term leases (being leases with a term of less than 12 months) and leases of low-value assets. Such leases are accounted for as an expense on a straight-line basis over the lease term, with no right-of-use asset or lease liability recognised on the statement of financial position.

2.12    Inventory

Inventories are stated at the lower of cost or net realisable value, after making due allowance for obsolete and slow-moving items. Cost comprises direct material stated at purchase cost. Net realisable value represents the estimated selling price for inventories less costs necessary to make the sale.

2.13    Financial instruments

A financial instrument is any contract that gives rise to a financial asset or equity instrument of one entity and a financial liability or equity instrument of another entity.

(i)            Financial assets

Initial recognition and measurement

Financial assets are classified at initial recognition and subsequently measured at amortised cost, fair value through OCI, and fair value through profit or loss.

The classification of financial assets at initial recognition depends on the financial asset's contractual cash flow characteristics and the Group's business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient, whereby the time value of money is not considered when the interval between the promise of goods and services is expected to be less than 12 months, the Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient are measured at the transaction price determined under IFRS 15.

In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are "solely payments of principal and interest" ("SPPI") on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level.

The Group's business model for managing financial assets is to manage its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both.

Subsequent measurement

For purposes of subsequent measurement, financial assets are classified as either:

·  financial assets at amortised cost (trade and other receivables); or

·  financial assets at fair value through profit or loss (derivatives).

Financial assets at amortised cost (trade and other receivables)

This category is the most relevant to the Group. The Group measures financial assets at amortised cost if both of the following conditions are met:

·  the financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows; and

·  the contractual terms of the financial asset give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Financial assets at amortised cost consist of trade receivables which are subsequently measured at amortised cost less impairment. They are generally due for settlement within 45 days and are therefore all classified as current.

Financial assets at fair value through profit or loss

Financial assets with cash flows that are not solely payments of principal and interest are classified and measured at fair value through profit or loss, irrespective of the business model. This category includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by IFRS 9. Derivative financial instruments classified as financial assets being utilised by the Group include interest rate caps and swaptions, all of which are measured at fair value through profit or loss.

Financial assets at fair value through profit or loss are carried in the consolidated statement of financial position at fair value with net changes in fair value recognised in the Consolidated Income Statement.

Derecognition

A financial asset (or, where applicable, part of a financial asset or part of a Group of similar financial assets) is primarily derecognised (i.e., removed from the Group's consolidated statement of financial position) when:

·  the rights to receive cash flows from the asset have expired; or

·  the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a "pass-through" arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Group continues to recognise the transferred asset to the extent of its continuing involvement. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

The Group's Lowri Beck subsidiary used an invoice discounting facility with a third party factoring company for its trade receivables. The Group has determined that it has retained substantially all the risks and rewards of the trade receivable asset. As such the trade receivables subject to the facility continue to be shown within trade and other receivables, measured at amortised cost, on the consolidated statement of financial position and the amount due to the factoring company is included in interest-bearing loans and liabilities.

Impairment of financial assets

The Group recognises an allowance for ECLs. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate.

For trade receivables, the Group applies a simplified approach to calculating ECLs. The Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix based on its historical credit loss experience, adjusted for forward-looking factors specific to the trade receivables and the economic environment.

(ii)           Financial liabilities

Initial recognition and measurement

Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.

All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.

The Group's financial liabilities include trade and other payables, loans and borrowings including bank overdrafts, and derivative financial instruments.

Subsequent measurement

The measurement of financial liabilities depends on their classification, as described below:

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.

Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by IFRS 9. Derivative financial instruments classified as financial liabilities being utilised by the Group include interest rate swaps, caps and swaptions, all of which are measured at fair value through profit or loss.

Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments. None are designated as effective hedging instruments for the years ended 31 December 2020 or 2019.

Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of recognition, and only if the criteria in IFRS 9 are satisfied. The Group has not designated any financial liability as fair value through profit or loss.

Loans and borrowings

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate ("EIR") method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process. Commitment fees in relation to undrawn facilities are incurred and settled quarterly in arrears and are therefore measured at amortised cost.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as interest payable and similar expenses in the statement of profit or loss.

This category generally applies to interest-bearing loans and borrowings.

Derecognition

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the Consolidated Income Statement.

(iii)          Offsetting of financial instruments

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

(iv)          Derivative financial instruments and hedging activities

Derivatives are initially recognised at fair value on the date the contract is entered into and are subsequently remeasured at fair value. Movements in fair value are recognised in the statement of comprehensive income. No derivatives are designated as hedging instruments for accounting purposes.

2.14    Share capital

Shares are classified as equity when there is no obligation to transfer cash or other financial assets, or to exchange financial assets or liabilities under potentially unfavourable conditions. Where such an obligation exists, the share capital is recognised as a liability notwithstanding the legal form. Incremental costs directly attributable to the issue of equity instruments are recognised as a deduction from share premium to the extent that there is sufficient share premium to do so, net of tax effects.

2.15    Cash and cash equivalents

Cash is represented by cash in hand and deposits with financial institutions repayable without penalty on notice of not more than 24 hours. Cash equivalents are highly liquid investments that mature in no more than three months from the date of acquisition and that are readily convertible to known amounts of cash with insignificant risk of change in value.

2.16    Pensions

The Group operates defined contribution pension plans for employees. A defined contribution plan is a post-employment benefit plan under which the Group pays fixed contributions into a separate entity and has no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an expense in the Consolidated Income Statement in the periods during which services are rendered by employees. The assets of the plan are held separately from the Group in independently administrated funds.

2.17    Provisions

Provisions are recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are discounted using the current pre-tax rate that reflects, where appropriate, the risks specific to the liability. The carrying amounts of provisions are regularly reviewed and adjusted for new facts or changes during the reporting period.

The Group occupies a number of properties under leases containing dilapidation obligations. Provisions arise principally in connection with estimated obligations under property leases to restore leased properties to the original pre-rental condition. Estimates are made of the costs anticipated to have accrued under those leases at the year end date.

2.18    Related parties

All Group companies and affiliates are considered to be related parties. In line with IAS 24 and Disclosure and Transparency Rules 7.3.2, the following are also related parties to the extent that they are able to exert significant influence or control: shareholders with significant control, subsidiaries of shareholders with significant control, directors and other key management of the Company and their close family members. Transactions between Group companies are eliminated in the consolidation. Related party transactions are disclosed in note 31.

2.19    Interest income and expense

Interest income and interest payable are recognised in the Consolidated Income Statement as they accrue, using the effective interest method. Senior debt commitment fees are expensed in the period incurred and paid.

3.         Significant accounting judgements

Critical accounting judgements in applying the Group accounting policies

Preparation of the Consolidated Financial Statements requires management to make significant judgements and estimates. Certain critical accounting judgements in applying the Group's accounting policies are described within the revenue recognition accounting policy note (note 2.3). The Group considered alternative approaches to the revenue recognition policy stated in note 2.3 however the Board considered that IFRS 15 provided clearer guidance and a more accurate reflection of the Group's arrangements with its customers.

4.         Significant accounting estimates

Estimation uncertainty in applying the Group accounting policies

Estimation uncertainty could have the risk of resulting in a material difference within the next financial year's result. The Directors are satisfied that appropriate procedures are in place to reduce the likelihood of this happening.

 

Financial instruments

All derivatives are measured at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Adjustments are also made when valuing financial liabilities measured at fair value to reflect the Company's own credit risk. Where the market for a financial instrument is not active, fair value is established using a valuation technique. These valuation techniques involve a degree of estimation, the extent of which depends on the instrument's complexity and the availability of market-based data. At 31 December 2020, the Group had derivative assets of £4.0m (31 December 2019: £1.1m) and derivative liabilities of £1.6m (31 December 2019: £32.4m).

Valuation of intangible assets arising as a result of a business combination

Following the acquisition of Lowri Beck in 2019, management undertook a purchase price allocation exercise to identify the separable identifiable intangible assets. Management made judgements relating to the fair value of the assets and liabilities acquired. At 31 December 2020, the Group had intangible assets of £449.6m (31 December 2019: £492.4m) made up of brands and customer contracts.

Goodwill impairment

Management reviews the valuation of goodwill for impairment annually or if events and changes in circumstances indicate that the carrying value may not be recoverable. The recoverable amount is determined based on value in use as fair value less costs to sell is not easily validated as there is no active market in these assets. See further details in note 21. At 31 December 2020, the Group had goodwill of £79.4m (31 December 2019: £79.4m).

Useful economic lives of tangible assets

The annual depreciation charge for tangible assets is sensitive to changes in the estimated UEL and residual values of the assets. UELs and residual values are reassessed annually and are amended when necessary to reflect current estimates, based on technological advancement, future investments, economic utilisation and the physical condition of the assets.

During the period, the Group performed a detailed review of the estimated UELs of its smart and traditional meter portfolio. The UEL of 15 years for a smart meter was deemed to still be a reliable estimate and no change was made to this estimate. Traditional meters had been depreciated over the shorter of 10 years or to the end of 2021. In June 2020, BEIS announced its intention to extend the smart meter implementation programme to the end of June 2025. The Group has installation contracts in place to support this timeline. Given these factors, the Group has determined that the UEL of the traditional meters should be extended to the shorter of their asset life or 30 June 2025. The net book value of traditional meters at 31 December 2019 was £65.5m; this is now being depreciated over five and half years, starting from 1 January 2020, rather than over 2 years, This change in policy had the effect of reducing the depreciation charge by £17.2m to £15.9m in the year ended 31 December 2020.

The Group had plant, property and equipment with a net book value of £897.9m at 31 December 2020 (31 December 2019: £821.0m). See note 19 for the carrying amount of plant, property and equipment, and note 2.10 for the accounting policy for fixed assets including the UELs for each class of assets.

 

 

5.         Segmental reporting

In line with IFRS 8 Operating Segments, the Directors consider there to be two operating and reportable segments, as follows:

·  Calvin Capital, which procures, owns and manages meter assets on behalf of its customers, who make MPC payments on a long-term contracted basis; and

·  Lowri Beck, which provides meter installation, reading and maintenance services. In addition, it owns and manages a small portfolio of traditional meters on behalf of its customers.

The segments are largely organised and managed separately according to the nature of the products and services provided.

The Board is the Chief Operating Decision Maker ("CODM") and receives monthly financial information at this level and uses this information to monitor the performance of the business, allocate resources and make operational decisions. Therefore, the two segments above are defined as the Group's operating segments and no operating segments have been aggregated to form the above reportable segments.

The performance of each operating segment is primarily assessed on operating profit and EBITDA. Other APMs are also utilised to assess the performance of each segment such as adjusted and underlying EBITDA and FFO. Further details of these APMs can be found in the Chief Financial Officer's Review in the Strategic Report.

The following segmental information is presented in respect of the Group's reportable segments together with other elements of revenue, income and expense:

	Calvin Capital £m	Lowri Beck £m	Consolidation £m	Total £m
Year ended 31 December 2020
Segment revenue
MAP services:
Traditional meter revenue	59.9	6.1	-	66.0
Smart meter revenue	141.8	-	-	141.8
Non-technical services	-	21.5	-	21.5
Technical services	-	18.1	(3.3)	14.8
Other income	3.7	0.3	-	4.0
Total revenue from external customers	205.4	46.0	(3.3)	248.1
Cost of sales:
Direct costs	-	(37.3)	3.3	(34.0)
Depreciation of metering equipment held within property, plant and equipment	(77.0)	(0.5)	-	(77.5)
(Loss)/gain on disposal of fixed assets	(2.2)	0.1	-	(2.1)
Segment gross profit	126.2	8.3	-	134.5
Admin expenses:
Depreciation of non-metering equipment held within property, plant and equipment	(0.3)	(0.3)	(1.3)	(1.9)
Net foreign exchange gain	0.4	-	-	0.4
Overheads	(19.9)	(7.9)	1.6	(26.2)
Other expenses	(6.6)	(1.7)	-	(8.3)
Amortisation of intangible assets	(43.1)	(1.4)	-	(44.5)
Segment operating profit/(loss)	56.7	(3.0)	0.3	54.0
Finance expense	(103.2)	(1.5)	(0.3)	(105.0)
Finance income	33.8	-	-	33.8
Loss before tax	(12.7)	(4.5)	-	(17.2)
Tax expense	(9.8)	-	-	(9.8)
Loss for the year	(22.5)	(4.5)	-	(27.0)
Capital expenditure	171.4	0.4	-	171.8

 

Consolidation adjustments relate to the elimination of revenue for installation services provided by Lowri Beck to Calvin Capital and IFRS conversion amounts.

Capital expenditure consists of additions of property, plant and equipment.

The comparative information for the year ended 31 December 2019 is presented below although this does not reflect a full year's trading for the Lowri Beck segment as the business was acquired in August 2019.

	Calvin Capital £m	Lowri Beck £m	Consolidation £m	Total £m
Year ended 31 December 2019
Segment revenue
MAP Services
Traditional meter revenue	65.5	2.7	-	68.2
Smart meter revenue	120.2	-	-	120.2
Non-technical services	-	9.6	-	9.6
Technical services	-	8.2	(1.4)	6.8
Other income	4.0	-	-	4.0
Total revenue from external customers	189.7	20.5	(1.4)	208.8
Cost of sales:
Direct costs		(20.3)	1.4	(18.9)
Depreciation of metering equipment held within property, plant and equipment	(85.4)	(0.5)	-	(85.9)
(Loss)/gain on disposal of fixed assets	(7.0)	0.1	-	(6.9)
Segment gross profit/(loss)	97.3	(0.2)	-	97.1
Admin expenses:
Depreciation of non-metering equipment held within property, plant and equipment	(0.2)	(0.1)	(0.6)	(0.9)
Other expenses	(11.3)	-	-	(11.3)
Overheads	(14.2)	(2.5)	0.8	(15.9)
Amortisation of intangible assets	(41.4)	(0.9)	-	(42.3)
Segment operating profit/(loss)	30.2	(3.7)	0.2	26.7
Finance expense	(108.3)	(0.6)	(0.2)	(109.1)
Finance income	0.2	-	-	0.2
Loss before tax	(77.9)	(4.3)	-	(82.2)
Tax credit	2.1	-	-	2.1
Loss for the period	(75.8)	(4.3)	-	(80.1)
Capital expenditure	275.6	0.2	-	275.8

 

Geographic information

Revenue from external customers by geographic market is disclosed in note 6. Set out below is the breakdown of non-current operating assets by geographic market.

	At 31 December
	2020 £m	2019 £m
Geographical markets
UK	1,438.1	1,402.1
Total	1,438.1	1,402.1

 

 

6.         Revenue from contracts with customers

Disaggregated revenue information

Set out below is the disaggregation of the Group's revenue from contracts with customers:

	Year ended 31 December
	2020 £m	2019 £m
Revenue from contracts with customers
MAP services	207.8	188.4
Non-technical services	21.5	9.6
Technical services	14.8	6.8
Other income	4.0	4.0
Total revenue	248.1	208.8
Geographical markets
UK	248.1	208.8
Total revenue	248.1	208.8
Timing of revenue recognition
Transferred over time	211.8	192.4
Transferred at a point in time	36.3	16.4
Total revenue	248.1	208.8
Green revenue
MAP services (smart meter)	141.8	120.2
Technical services	14.8	6.8
Total green revenue	156.6	127.0
Contract assets	4.9	13.4
Accrued income	17.2	-
Trade receivables (note 24)	31.9	33.9
Costs to obtain contracts with customers	2.0	2.2

 

During 2020, the Group entered into contract modifications with a number of customers. As a result of these contract modifications, additional income of £2.0m (2019: £3.6m) was calculated by reference to previous financial years.

The Group bills monthly in arrears based on the services provided. As such, for the year ended 31 December 2020, £4.9m (year ended 31 December 2019: £13.4m) of contract assets and £17.2m (year ended 31 December 2019: £Nil) of accrued income were recognised in the consolidated statement of financial position.

Costs incurred to obtain a contract represent sales commissions payable to employees. These costs are included within intangible assets and amortised over 15 years. During the year ended 31 December 2020, £0.2m of amortisation was recorded in administrative expenses (year ended 31 December 2019: £0.2m).

Trade receivables are non-interest-bearing and are generally on terms of 30 to 45 days. In the year ended 31 December 2020, £2.2m (year ended 31 December 2019: £1.3m) was recognised as a provision for ECLs on trade receivables. A provision against of £0.7m (2019: £nil) was recognised for ECLs on accrued income.

The Group applies the practical expedient in paragraph 121 of IFRS 15 and does not disclose information about remaining performance obligations that have original expected durations of one year or less.

 

7.         Cost of sales

	Year ended 31 December
	2020 £m	2019 £m
Depreciation of property, plant and equipment (meters)	(77.5)	(85.9)
Loss on disposal of property, plant and equipment (meters) net of compensation income	(2.1)	(6.9)
Employee benefits expense and other direct costs	(34.0)	(18.9)
Total cost of sales	(113.6)	(111.7)

 

8.         Administrative expenses

Included in administrative expenses are the following:

	Year ended 31 December
	2020 £m	2019 £m
Depreciation of property, plant and equipment	(1.9)	(0.9)
Net foreign exchange gain	0.4	-
Short-term lease expense	(0.1)	(0.1)
Auditor's remuneration (note 9)	(0.8)	(2.7)
Employee benefits expense (note 10)	(12.6)	(7.8)
Other administrative overheads	(12.7)	(5.3)
Total administrative expenses	(27.7)	(16.8)

 

Overheads are predominantly made up of legal and professional fees.

 

9.         Auditor's remuneration

	Year ended 31 December
	2020 £m	2019 £m
Audit and audit-related services
Audit of the Group and Company financial statements	(0.3)	(0.2)
Audit of the financial statements of subsidiaries of the Company	(0.1)	(0.1)
Audit-related assurance services (Interim Review)	(0.1)	-
	(0.5)	(0.3)
Amounts payable to the Group Auditor and its associates in respect of:
Other services relating to taxation	-	(0.3)
Services relating to the IPO	(0.3)	(2.1)
	(0.8)	(2.7)

 

Services relating to the IPO and other services relating to taxation are included within other operating expenses (note 13) in the Consolidated Income Statement. The IPO occurred in February 2020 and costs were therefore incurred in both 2019 and 2020. All non-audit services were incurred prior to or as part of the IPO.

 

10.       Employee benefits expense

Staff costs for the periods set out below, including Directors' remuneration, were as follows:

	Year ended 31 December
	2020 £m	2019 £m
Included in cost of sales
Wages and salaries	(33.4)	(15.1)
Social security costs	(2.9)	(1.3)
Defined contribution costs	(0.7)	(0.3)
Furlough income received under the Coronavirus Job Retention Scheme	7.7	-
Included in administrative expenses
Wages and salaries	(10.5)	(6.3)
Social security costs	(0.8)	(0.9)
Defined contribution costs	(0.9)	(0.6)
Share-based payment charge	(0.4)	-
Total employee benefits expense	(41.9)	(24.5)

 

Employee benefits expense for the year ended 31 December 2019 includes, within cost of sales, the expense for Lowri Beck from the date of acquisition.

The Group adopted IFRS 2 in the year ended 31 December 2020 and recognised a share-based payment charge of £0.4m in relation to a PSP, further details of which can be found in note 30.

The average monthly number of FTE and the number of FTE as at December during the years set out below were as follows:

	2020		2019
	Average	At 31 December	Average	At 31 December
Management and administration	516	419	238	619
Operational staff	932	890	337	885
	1,448	1,309	575	1,504

 

The period end figures are provided in addition to the time weighted average during the year due to the acquisition of Lowri Beck on 16 August 2019. The figures for 2019 have been restated to exclude agency staff and contractors thereby reducing the average employees by 67 and the employees at 31 December 2019 by 244.

 

11.       Compensation of key management personnel

The following amounts were recognised as an expense during the reporting period relating to compensation of key management personnel being the Executive Committee of the Group.

	Year ended 31 December
	2020 £m	2019 £m
Salaries and short-term benefits	(4.4)	(2.2)
Defined contribution costs	(0.2)	(0.1)
Share-based payment charge	(0.2)	-
	(4.8)	(2.3)

 

The highest paid Director received total compensation of £1.0m for the year ended 31 December 2020 (2019: £0.9m).

The Group adopted IFRS 2 in the year ended 31 December 2020 and recognised a share-based payment charge of £0.2m in relation to a PSP for key management personnel, further details of which can be found in the Directors' Remuneration Report and note 30.

Following the IPO in February 2020, the way the business is strategically managed developed to reflect the newly listed nature of the business. The ongoing strategy is now governed by the Executive Committee and the expense for the year ended 31 December 2020 reflects the fact that certain additional key management personnel only joined the business during the year ended 31 December 2020.

 

12.       Finance income/(expense)

	Year ended 31 December
	2020 £m	2019 £m
Senior debt commitment fees	(4.4)	(3.7)
Agency and technical adviser fees	(0.3)	(0.4)
Fair value loss on derivative financial instruments	-	(14.7)
Derivative breakage fees	(53.5)	(0.8)
Amortisation of debt issue costs	(20.3)	(3.9)
Letter of credit fees and other charges	(2.5)	(10.0)
Interest payable on bank loans	(17.8)	(22.2)
Interest payable on shareholder loans	(5.9)	(53.2)
Unwinding of discount on lease liabilities	(0.3)	(0.2)
Total finance expense	(105.0)	(109.1)
Bank interest receivable	0.1	0.2
Fair value gain on derivative financial instruments	33.7	-
Total finance income	33.8	0.2

 

Net finance expense

(71.2)

(108.9)

 

               

 

13.       Other operating expenses

	Year ended 31 December
	2020 £m	2019 £m
IPO-related costs	(5.2)	(10.8)
Lowri Beck acquisition	-	(0.5)
Acquisition-related expenses	(1.4)	-
Restructuring costs	(1.7)	-
Other operating expenses	(8.3)	(11.3)

 

IPO-related costs were incurred as part of the admission to the London Stock Exchange in February 2020. Lowri Beck was acquired in August 2019 incurring costs during the year ended 31 December 2019. The Acquisition-related expenses have been incurred in connection with the offer for the Group announced on 11 December 2020. The restructuring costs relate to the restructuring programme at Lowri Beck undertaken during 2020.

14.       Earnings per share

	Year ended 31 December
	2020	2019
Loss attributable to equity shareholders of the Company (£m)	(27.0)	(80.1)
Basic earnings per share (pence)	(5.5)	(364.2)
Diluted earnings per share (pence)	(5.5)	(364.2)

 

Basic earnings per share ("EPS") is calculated by dividing the profit attributable to shareholders for the period by the weighted average number of shares in issue for that period. As set out in note 1, the IPO of the Group in February 2020 resulted in a significant change in the capital structure of the Company. This is reflected in the weighted average numbers of shares used in the earnings per share calculation below.

During the year ended 31 December 2020, the Group awarded conditional share awards to directors and certain employees through a PSP, see note 30 for further details. The awards have not yet vested but as per IAS 33 these awards must be reflected through the diluted EPS.

	Year ended 31 December
	2020 m	2019 m
Weighted average number of shares (basic)	493.4	22.0
Weighted average number of shares (diluted)	494.8	22.0

 

 

15.       Taxation

	Year ended 31 December
	2020 £m	2019 £m
Current tax
Current tax on loss for the year	(1.6)	(2.0)
Adjustment in respect of prior periods	3.7	-
Total current tax credit/(charge)	2.1	(2.0)
Deferred tax
Origination and reversal of timing differences	1.4	7.5
Tax rate changes	(9.7)	-
Adjustment in respect of prior periods	(3.6)	(3.4)
Total deferred tax (charge)/credit	(11.9)	4.1
Tax (charge)/credit on loss on ordinary activities	(9.8)	2.1

 

There was an overall tax credit in the year ended 31 December 2019 as the timing differences relating to deferred taxation were in excess of the corporation tax charges on the taxable profits of a number of subsidiary undertakings. There was an overall tax charge in the year ended 31 December 2020 driven by the cancellation of the 17% tax rate from 1 April 2020 leading to a remeasurement of deferred tax balances at 19%.

The adjustments in respect of prior periods relate to refunds due from HMRC following resubmission of a number of subsidiaries' tax returns from earlier years. The refunds have been derived from the loss reliefs not previously utilised.

Reconciliation of tax charge for the year

A reconciliation between tax expense and the product of accounting profit multiplied by the standard rate of corporation tax in the UK of 19% as set out below:

	Year ended 31 December
	2020 £m	2019 £m
Accounting loss before tax	(17.2)	(82.2)
At the UK's standard rate of corporation tax of 19%	3.3	15.6
Effects of:
Adjustments in respect of prior periods	0.1	(3.4)
Non-deductible expenses	(3.7)	(10.2)
Income not subject to taxation	0.3	0.2
Other adjustments, reliefs and transfers	(3.1)	0.3
Current period losses for which no deferred tax asset was recognised	-	(0.6)
Change in tax rate on deferred tax balances	(9.4)	-
Recognition of previously unrecognised deferred tax assets	2.9	-
Other	(0.2)	0.2
Total tax (charge)/credit	(9.8)	2.1

 

Factors that may affect future tax charges

The standard rate of UK corporation tax on ordinary activities was 19% in the year ended 31 December 2020 (31 December 2019: 19%) and was expected to reduce to 17% for financial years beginning after 1 April 2020. On 11 March 2020, the UK Government announced its intention to cancel the reduction in the corporation tax rate to 17% effective from 1 April 2020 and therefore deferred taxation balances have been measured at 19%.

 

16.       Deferred tax

	At 31 December
	2020 £m	2019 £m
Opening deferred tax liability	(86.5)	(90.2)
Change in provision through Consolidated Income Statement resulting from an increase in tax losses available, change in tax rate and reduction in timing differences arising on intangible fixed assets	(11.9)	3.7
Change in provision through other comprehensive income in respect of IFRS 2 Share-based Payments	0.1	-
Closing deferred tax liability	(98.3)	(86.5)

 

The following table provides details of the temporary differences and unused tax losses for which deferred tax has not been recognised:

	At 31 December
	2020 £m	2019 £m
Unused tax losses - UK*	-	18.0
Interest restriction carried forward	22.2	47.9
Other temporary differences	-	-

*  The unused tax losses have no fixed expiry date.

 

The Group's liability for deferred taxation consists of the tax effect of temporary differences in respect of:

	At 31 December
	2020 £m	2019 £m
Excess of taxation allowances over depreciation on property, plant and equipment	(46.0)	(30.8)
Tax losses available	33.5	21.8
Short-term timing differences	(0.5)	5.4
Deferred tax arising on intangible fixed assets	(84.7)	(82.0)
Other taxable temporary differences	(0.7)	(0.9)
Deferred tax on IFRS 16 lease adjustments and IFRS 2 Share-based Payments	0.1	-
Deferred tax liability	(98.3)	(86.5)

 

The net deferred tax liability of £98.3m is recognised as a £1.4m deferred tax asset and a £99.7m deferred tax liability on the consolidated statement of financial position. The recognition of deferred tax assets arising on tax losses in entities which have suffered a loss in either the current or preceding year is supported by the existing taxable temporary differences which in turn support that sufficient future taxable profits will be available to utilise such assets.

The deferred tax included in the Consolidated Income Statement is as follows:

	Year ended 31 December
	2020 £m	2019 £m
Accelerated capital allowances	(15.2)	(8.3)
Tax losses	11.7	3.9
Short-term timing differences	(5.9)	2.5
Deferred tax arising on intangible fixed assets	(2.7)	6.5
Other taxable temporary differences	0.2	(0.4)
Deferred tax (charge)/credit	(11.9)	4.2

 

The standard rate of UK corporation tax on ordinary activities was 19% in the years ended 31 December 2020 and 2019.

17.       Fair value measurement

The Group measures its derivative financial instruments at fair value. Fair values are determined using observable inputs (Level 2, as defined by IFRS 13 Fair Value Measurement) as follows:

Interest rate swaps

The fair value of interest rate swaps is estimated by discounting estimated future cash flows related to swap agreements. Additional inputs to the present value calculation include the contract terms, as well as market parameters such as interest rates and volatility. As these inputs are based on observable data and standard valuation techniques, the interest rate swaps are categorised as Level 2 in the fair value hierarchy.

Interest rate caps

The fair value of interest rate caps is estimated by discounting estimated future cash flows based on the terms and maturity of each contract. Additional inputs to the present value calculation include the contract terms, as well as market parameters such as interest rates and volatility. As these inputs are based on observable data and standard valuation techniques, the interest rate caps are categorised as Level 2 in the fair value hierarchy.

All derivative fair values are verified by comparison to valuations provided by the derivative counterparty banks.

The Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) as at the end of each reporting period. During the year ended 31 December 2020 there were no transfers into or out of Level 2 fair value measurements (year ended 31 December 2019: none).

18.       Intangible assets

Cost or valuation	Goodwill £m	Brand £m	Customer contracts £m	Software £m	Costs to obtain contracts with customers £m	Development costs £m	Total £m
At 1 January 2019	78.2	14.6	586.0	0.2	2.4	-	681.4
Additions	-	-	-	0.1	0.4	-	0.5
Disposals	-	-	-	(0.1)	-	-	(0.1)
Acquisitions through business combinations	1.2	1.3	9.6	0.2	-	6.4	18.7
At 31 December 2019	79.4	15.9	595.6	0.4	2.8	6.4	700.5
Additions	-	-	-	-	-	-	-
Disposals	-	-	-	-	-	-	-
At 31 December 2020	79.4	15.9	595.6	0.4	2.8	6.4	700.5

 

Accumulated amortisation	Goodwill £m	Brand £m	Customer contracts £m	Software £m	Costs to obtain contracts with customers £m	Development costs £m	Total £m
At 1 January 2019	-	2.8	74.9	0.1	0.4	-	78.2
Amortisation	-	1.5	39.9	0.1	0.2	0.6	42.3
At 31 December 2019	-	4.3	114.8	0.2	0.6	0.6	120.5
Amortisation	-	1.6	41.2	0.1	0.2	1.4	44.5
At 31 December 2020	-	5.9	156.0	0.3	0.8	2.0	165.0
Net book value
At 31 December 2019	79.4	11.6	480.8	0.2	2.2	5.8	580.0
At 31 December 2020	79.4	10.0	439.6	0.1	2.0	4.4	535.5

 

19.       Property, plant and equipment

Cost or valuation	Equipment £m	Other fixed assets £m	Total £m
At 1 January 2019	718.9	1.5	720.4
Additions	273.4	2.4	275.8
Disposals	(55.7)	(0.2)	(55.9)
Acquisitions through business combinations	2.7	3.3	6.0
At 31 December 2019	939.3	7.0	946.3
Additions	170.7	1.1	171.8
Disposals	(41.4)	(0.1)	(41.5)
At 31 December 2020	1,068.6	8.0	1,076.6
Accumulated depreciation
At 1 January 2019	70.1	0.6	70.7
Depreciation	85.9	0.9	86.8
Disposals	(32.1)	(0.1)	(32.2)
At 31 December 2019	123.9	1.4	125.3
Depreciation	77.5	1.9	79.4
Disposals	(25.9)	(0.1)	(26.0)
At 31 December 2020	175.5	3.2	178.7
Net book value
At 31 December 2019	815.4	5.6	821.0
At 31 December 2020	893.1	4.8	897.9

 

Within other fixed assets are right-of-use assets with a carrying amount of £3.3m as at 31 December 2020 (2019: £4.6m). Details of the right-of-use assets are provided in note 20.

Gains and losses on disposal of equipment are included in cost of sales net of compensation income received.

 

20.       Leases

Right-of-use assets

Within property, plant and equipment, the Group has right-of-use assets held under lease agreements as follows:

Cost	Right-of-use asset buildings £m	Right-of-use asset vehicles £m	Total £m
At 1 January 2019	0.9	-	0.9
Additions	1.5	0.1	1.6
Disposals	-	-	-
Acquisitions through business combinations	1.8	1.1	2.9
At 31 December 2019	4.2	1.2	5.4
Additions	-	0.1	0.1
Disposals	(0.1)	-	(0.1)
At 31 December 2020	4.1	1.3	5.4
Accumulated depreciation
At 1 January 2019	0.2	-	0.2
Depreciation	0.3	0.3	0.6
At 31 December 2019	0.5	0.3	0.8
Depreciation	0.7	0.7	1.4
Disposals	(0.1)	-	(0.1)
At 31 December 2020	1.1	1.0	2.1
Net book value
At 31 December 2019	3.7	0.9	4.6
At 31 December 2020	3.0	0.3	3.3

 

Right-of-use assets relate to 10 leases for office and industrial space in addition to approximately 290 leases for vehicles. Two of the office leases, which have lease terms of ten years, contain a break clause after six and a half years. The Board does not currently anticipate exercising these break clauses.

Lease-related income and expenses

	Year ended 31 December
	2020 £m	2019 £m
Interest expense on lease liabilities	(0.3)	(0.1)
Expense relating to short-term leases	-	(0.1)

 

 

The total cash outflow for the Group's lease arrangements in the year ended 31 December 2020 was £1.2m (year ended 31 December 2019: £0.7m). Amounts relating to lease liabilities whereby the Group is a lessee are disclosed below:

	At 31 December
Maturity analysis - contractual undiscounted cash flows	2020 £m	2019 £m
Less than 1 year	1.1	1.6
Between 1 and 5 years	2.5	3.1
More than 5 years	1.2	1.7
Total undiscounted lease liabilities	4.8	6.4
Lease liabilities included in the statement of financial position	3.9	5.0

 

21.       Goodwill

The goodwill acquired in business combinations is allocated, at acquisition, to a CGU. Management consider the business to consist of two CGUs; Calvin Capital and Lowri Beck and goodwill is monitored at this level.

Carrying amount of goodwill allocated to each CGU:

	At 31 December
	2020 £m	2019 £m
Calvin Capital	78.2	78.2
Lowri Beck	1.2	1.2
Total goodwill	79.4	79.4

 

The recoverable amount of goodwill has been determined based on its value in use.

The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired. Goodwill is tested for impairment by comparing the carrying amount of the CGU, including goodwill, with the recoverable amount. The recoverable amount is determined based on value in use calculations which require assumptions. The calculations use cash flow projections based on financial projections covering a five-year period. These projections take into account historical performance and knowledge of the current market, together with the Group's views on future achievable growth and the impact of committed cash flows. We note that the future achievable growth will be primarily achieved through the existing contracted pipeline for future installations. Cash flows beyond this period are extrapolated using the estimated growth rates stated below.

The annual impairment test is performed at each 31 December. No evidence of impairment was found at either 31 December 2020 or 2019. In addition, the Acquisition price of 261 pence per share values the issued share capital of Calisen at approximately £1,434.0m providing the Group with additional comfort that no impairment is required. The key assumptions used in the value in use calculations were as follows:

·  Perpetual growth rate - Cash flows were extrapolated in perpetuity using a growth rate of 2% from 31 December 2020. This is not considered to be higher than the average long-term industry growth rate.

·  Discount rate - The discount rate was based on the weighted average cost of capital ("WACC") which would be anticipated for a market participant investing in the Group. This rate reflected the time value of money, the Group's risk profile and the impact of the current economic climate. The pre-tax and post-tax discount rates used as at 31 December 2020 and 2019 were 7.21% and 7.24% respectively.

The Group concluded that there were no reasonably possible changes in any key assumptions that would cause the carrying amounts of goodwill to exceed the value in use for either CGU as at 31 December 2020.

Calvin Capital CGU

The headroom, based on the assumptions above, was £518.4m as at 31 December 2020 (31 December 2019: £872.7m). A sensitivity analysis was performed assuming a 0.5% reduction in the long-term growth rate and a 0.5% increase in the discount rate in order to assess the impact of reasonable possible changes to the assumptions used in the impairment review. The Group considers the 0.5% to be the maximum reasonable change in these rates. A 0.5% reduction in the long-term growth rate would result in headroom of £324.8m as at 31 December 2020 (31 December 2019: £672.0m) and a 0.5% increase in the discount rate would result in headroom of £300.2m as at 31 December 2020 (31 December 2019: £507.2m).

Lowri Beck CGU

The headroom, based on the assumptions above, was £18.6m as at 31 December 2020 (31 December 2019: £65.8m). A sensitivity analysis was performed assuming a 0.5% reduction in the long-term growth rate and a 0.5% increase in the discount rate in order to assess the impact of reasonable possible changes to the assumptions used in the impairment review. A 0.5% reduction in the long-term growth rate would result in headroom of £15.3m as at 31 December 2020 (31 December 2019: £61.2m) and a 0.5% increase in the discount rate would result in headroom of £15.1m as at 31 December 2020 (31 December 2019: £64.2m).

22.       Financial instruments

The Group's principal financial assets include trade receivables, and cash deposits that derive directly from its operations. The Group also enters into derivative transactions. The Group's principal financial liabilities, other than derivatives, comprise loans and borrowings, and trade and other payables. The main purpose of these financial liabilities is to finance the Group's operations.

22.1        Financial assets

	At 31 December
	2020 £m	2019 £m
Derivatives not designated as hedging instruments
Interest rate swap	3.3	1.0
Interest rate cap	-	0.1
Total financial assets at fair value through profit or loss	3.3	1.1
Financial assets at amortised cost
Trade receivables (note 24)	31.9	33.9
Total financial assets	35.2	35.0
Total current	31.9	33.9
Total non-current	3.3	1.1

 

Derivatives not designated as hedging instruments reflect the positive change in fair value of those interest rate swaps and caps that are not designated in hedge relationships, but are, nevertheless, intended to reduce interest rate risk on debt instruments. Movements in fair value are recorded in the Consolidated Income Statement.

22.2        Interest-bearing loans and borrowings

	At 31 December
Current interest-bearing loans and borrowings	2020 £m	2019 £m
Senior debt facilities	115.8	94.0
Liability to factoring company	-	5.2
Lease liabilities	0.9	1.3
Equity bridge loan	-	(0.6)
Total current interest-bearing loans and borrowings	116.7	99.9
Non-current interest-bearing loans and borrowings
Shareholder loan notes including accrued interest	-	705.5
Senior term loan	-	10.0
Lease liabilities	3.0	3.8
Senior debt facilities	584.1	501.3
Equity bridge loan	-	223.7
Total non-current interest-bearing loans and borrowings	587.1	1,444.3
Total interest-bearing loans and borrowings	703.8	1,544.2

Shareholder loan notes

At 31 December 2019, the unsecured shareholder loan notes were listed on the International Stock Exchange and bore a fixed rate of interest of 8.123%. The maturity date of the loan notes was 30 January 2027, therefore all due after five years. The balance of the loan notes and accrued interest at 31 December 2019 was £705.5m. In February 2020, following the Group reorganisation, these loan notes and the accrued interest thereon of £711.3m were capitalised resulting in no outstanding amounts at 31 December 2020.

Senior term loan

Lowri Beck entered into a term loan agreement in November 2019 with an amount outstanding of £10.0m as at 31 December 2019. The loan bore interest at LIBOR plus a margin of 3.25% which was payable monthly. The loan was repayable on 31 December 2022 but was settled in November 2020 resulting in no outstanding balance at 31 December 2020.

Equity bridge loan

The Group had equity bridge loans outstanding at 31 December 2019 of £223.1m inclusive of debt issue costs. Following the IPO in February 2020 and the receipt of the primary share issue proceeds, the equity bridge loan facilities were repaid in full.

Liability to factoring company

At 31 December 2019, an invoice discounting factoring arrangement was in place in respect of Lowri Beck's trade receivables resulting in a liability of £5.2m. Under the arrangement, Lowri Beck transferred the relevant receivables to the factoring provider but retained late payment and credit risk. During April 2020, the facility was settled in full and closed.

Senior debt facilities

In February 2020, the Group agreed a new RCF amounting to £240.0m. During the year ended 31 December 2020, the Group drew down funds of £48.0m and subsequently repaid this resulting in no outstanding balance at the year end. The facility matures in 28 February 2025.

On 22 July 2020, the Group completed a refinancing, replacing two senior debt facilities of £400.0m and £730.0m which were maturing in October 2022 and September 2029 respectively, with new facilities totalling £1,067.5m. The new financing arrangement is composed of the following facilities:

·  A fixed rate institutional loan of £290.0m which amortises from June 2025 and is to be repaid by December 2034. The fair value of this loan, which is subject to fixed interest, has been considered in note 22.4.

·  An amortising bank loan of £192.5m to be repaid by December 2023. Repayments have commenced resulting in current and non-current debt.

·  An amortising capital expenditure facility of £115.0m to be repaid by December 2027 of which £12.7m was drawn down as at 31 December 2020.

·  A revolving credit facility of £400.0m due June 2025 of which £68.0m was drawn down as at 31 December 2020.

·  A standby facility of £70.0m due June 2025 and not utilised.

Senior debt facilities totalling £699.8m were outstanding under the new and existing facilities as at 31 December 2020 (31 December 2019: £595.4m) and are repayable on an agreed or forecast repayment profile of quarterly instalments which commenced on 30 June 2017, with full repayment to be made by 30 September 2034 for all interest-bearing loans and borrowings. Issue costs totalling £17.4m at 31 December 2020 (2019: £17.6m) have been offset against amounts drawn down and amortised over the duration of the facilities.

Interest on fixed rate loans of £290.0m and £40.0m of the amount outstanding at 31 December 2020 (2019: £Nil and £40.0m) are charged at rates of 2.635% and 2.706% respectively per annum. Interest charges on the remaining amounts drawn are based on floating LIBOR rates. Group has entered into interest rate derivatives as set out in note 22.5.

 

22.3        Other financial liabilities

	At 31 December
Derivatives not designated as hedging instruments	2020 £m	2019 £m
Interest rate swaps	1.6	32.4
Total financial liabilities at fair value through profit and loss	1.6	32.4
Other financial liabilities at amortised cost, other than interest-bearing loans and borrowings
Trade payables	19.1	17.8
Deferred consideration	-	0.7
Total other financial liabilities	20.7	50.9
Total current	19.1	18.5
Total non-current	1.6	32.4

 

Derivatives not designated as hedging instruments reflect the negative change in fair value of those interest rate swaps and caps that are not designated in hedge relationships, but are, nevertheless, intended to reduce interest rate risk for debt instruments. Movements in the fair value are recorded in the Consolidated Income Statement.

22.4        Fair value of non-derivative financial assets and financial liabilities

The fair value of trade receivables, trade payables and cash at bank and in hand approximates to the carrying amount because of the short maturity in respect of these financial instruments.

The fair value of bank loans approximates to the carrying amount as interest rates are based on LIBOR and so are regularly reset to current market rates.

The fair value of the shareholder loan, which differs from the carrying amount, due to the instrument utilising a fixed interest rate, is disclosed below:

	At 31 December
	2020 £m	2019 £m
Fair value	-	1,119.5
Carrying amount	-	705.5

 

22.4        Fair value of non-derivative financial assets and financial liabilities continued

The fair value of the shareholder loan is based on the net present value of the anticipated future cash flows associated with these instruments using rates currently available for debts on similar terms, credit risk and equivalent maturity dates. This loan was recapitalised during February 2020 and no amounts remain outstanding at 31 December 2020.

The fair value of the senior debt facilities subject to fixed interest rate compared to their carrying amount is disclosed below:

	At 31 December
	2020		2019
	Fair value (£m)	Carrying value (£m)	Fair value (£m)	Carrying value (£m)
£40m loan	42.1	40.0	41.6	40.0
£290m fixed rate institutional loan	301.1	290.0	-	-

 

Repayments of principal amounts against the senior debt facility of £40m commence in December 2023 with the balance to be fully repaid by June 2024.

Repayments of principal amounts against the senior debt facility of £290m commence in June 2025 with the balance to be fully repaid by December 2034.

22.5        Financial instruments risk management objectives and policies

The Group is exposed to market risk, credit risk and liquidity risk. The Group's senior management oversees the management of these risks in line with the Group's policies. Senior management identify, evaluate and, where appropriate, hedge financial risk. All derivative activities for risk management purposes are carried out by specialist teams who have the appropriate skills, experience and supervision. It is the Group's policy that no trading in derivatives for speculative purposes may be undertaken. The Board reviews and agrees policies for managing each of these risks, which are summarised below.

Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, currency risk and other price risk, such as equity price risk and commodity risk. Financial instruments affected by market risk include loans and borrowings and derivative financial instruments. The sensitivity analyses in the following sections relate to the positions as at 31 December 2020 and 2019.

The sensitivity analyses have been prepared on the basis that the amount of net debt, the ratio of fixed to floating interest rates of the debt and levels of derivatives are all constant.

(a) Interest rate risk

The Group's exposure to the risk of changes in market interest rates relates primarily to the Group's long-term debt obligations with floating interest rates. The Group has bank loans (senior debt facilities and equity bridge loans) with floating interest rates linked to LIBOR, thereby exposing the Group to fluctuations in LIBOR and the consequential impact on interest cost.

As at 31 December 2020, interest on these loans was charged at LIBOR plus a margin in the range of 1.2% to 2.3% (31 December 2019: 0.9% to 1.55%).

To manage this risk, the Group enters into interest rate swaps under which it agrees to exchange, at specified intervals, the difference between fixed and variable rate interest amounts. At 31 December 2020, the derivative instruments in place were sufficient to fix the interest rate on 81% of the senior debt facilities (2019: 74%). As at 31 December 2020, the swap arrangements fixed interest rates in the range of 0.1% to 1.1% (31 December 2019: 1.0% to 2.1%).

In addition, the Group has entered into interest rate caps whereby floating rates are capped at a fixed percentage in the range of 0.9% to 2%. As at 31 December 2020, 83% (31 December 2019: 24%) of the Group's borrowings were subject to this cap.

(b) Interest rate sensitivity

The following table demonstrates the sensitivity to a change in interest rates on the Group's floating rate bank debt. The Group's profit/(loss) before tax is affected through the impact on floating rate borrowings as follows:

	Increase/ decrease in basis points	Effect on profit/(loss) before tax £m
Year ended 31 December 2020	100	3.9
Year ended 31 December 2019	100	2.2

 

Management believes that a movement in interest rates of 100bps gives a reasonable measure of the Group's sensitivity to interest rate risk. The table above demonstrates the sensitivity to a possible change in interest rates, with all other variables held constant, on the Group's profit/(loss) before tax.

(c) Price risk

The Group is not exposed to any significant price risk in relation to its financial instruments.

(d) Foreign currency risk

The Group's exposure to the risk of changes in foreign exchange is insignificant as primarily all of the Group's operating activities are denominated in pound sterling.

Credit risk

The Group's credit risk primarily arises from credit exposures to energy retailers (the Group's customers) in respect of outstanding trade receivables. The Group trades with a number of companies, which are generally large utility companies or financial institutions. The Group is also exposed to credit risk on cash deposits and derivative financial instruments held with financial institutions.

Credit risk is managed on a Group basis. For banks and financial institutions, the Group's policy is to deposit cash with investment grade financial institutions. With regard to customers, the Group assesses the credit quality of the customer, considering its financial position, past experience and other factors. The Group does not expect, in the normal course of events, that receivables due from customers are at significant risk. The Group's maximum exposure to credit risk equates to the carrying value of cash and cash equivalents, trade and other receivables and derivative financial assets. The Group's maximum exposure to credit risk from its customers is the carrying value of trade receivables as disclosed within trade and other receivables in note 24. The Group regularly monitors and updates its cash flow forecasts to ensure it has sufficient and appropriate funds to meet its ongoing operational requirements.

The Group has identified a concentration of risk in relation to revenue and trade receivables as the majority of revenue (approximately 83%) is generated from the legacy large and other large energy retailers. However, the Group assesses the associated credit risk as low despite its customers operating in one industry as these customers have historically minimal failure rates meaning that the risks associated with trade receivables are relatively low. The remaining balance has a more diversified customer base.

Impairment of trade receivables and contract assets

The Group applies the IFRS 9 simplified approach to measuring forward-looking ECLs which uses a lifetime expected loss provision for all trade receivables. To measure the ECL, trade receivables are grouped based on shared credit risk characteristics and the number of days past due.

The Group has established a provision matrix based on the payment profiles of sales over a period of 12 months before each balance sheet date and the corresponding historical credit losses experienced within these periods. Historical loss rates are adjusted to reflect current and forward-looking information that might affect the ability of customers to settle the receivables, including macroeconomic factors as relevant. In calculating the provision on trade receivables as at 31 December 2020, an adjustment was made to increase the historical loss rates on invoiced and accrued receivables not yet due in recognition of the volatility of the economic environment during the year ended 31 December 2020 caused by COVID-19.

On that basis, the provision as at 31 December 2020 was determined as £2.9m (31 December 2019: £1.3m) as follows:

	Loss provision - receivables £m
As at 1 January 2019	1.3
Acquired in business combination	1.0
Increase in loss provision recognised in profit or loss during the year	0.4
Receivables written off during the year as uncollectable	(1.4)
As at 31 December 2019	1.3
Increase in loss provision recognised in profit or loss during the year	1.9
Receivables written off during the year as uncollectable	(0.3)
As at 31 December 2020	2.9

 

The increase in the loss provision on trade receivables in 2019 arose due to the number of new, typically Small or Medium energy retailers that went into administration during the year ended 31 December 2019, for which amounts were considered unrecoverable. For detail as to the ageing profile of trade receivables, refer to note 24.

In assessing impairment of contract assets the Group also applies the IFRS 9 simplified approach to measuring forward-looking ECLs which uses a lifetime expected loss allowance. Due to the ongoing economic disruption and stress placed on businesses the Group included a loss provision against accrued income for the year ended 31 December 2020 of £0.7m; this is included within the £1.9m charge. The total provision of £2.9m therefore includes £2.2m in relation to trade receivables and £0.7m in relation to accrued income. The ECL for contract assets was not material at 31 December 2020 or 31 December 2019.

Liquidity risk

The Group's policy is to ensure the availability of an appropriate amount of funding to meet both current and future forecast requirements consistent with the Group's budget and strategic plans. The Group finances operations and growth from its existing cash resources and the £762.0.4m undrawn portion of the Group's committed banking facilities. As at 31 December 2020, 83% (31 December 2019: 93%) of the Group's principal borrowing facilities were due to mature in more than one year. Based on the Group's latest forecasts the Group has sufficient funding in place to meet its future obligations.

The table below analyses the Group's financial liabilities into relevant maturity groupings based on the remaining period from the consolidated statement of financial position date to the contractual maturity date (with the exception of lease liabilities, disclosure for which is included in note 20). The amounts disclosed in the table are the contractual undiscounted cash flows.

 

As at 31 December 2020	Less than 1 year £m	Between 1 and 2 years £m	Between 2 and 5 years £m	Over 5 years £m
Bank borrowings	115.8	155.7	181.7	246.6
Trade and other payables	19.1	-	-	-
Derivatives	(3.3)	-	1.6	-
As at 31 December 2019
Shareholder loan	-	-	-	705.5
Bank borrowings	93.4	91.2	493,5	150.4
Liability to factoring company	5.2	-	-	-
Trade and other payables	17.8	-	-	-
Derivatives	-	1.7	-	30.7

 

22.6        Changes in liabilities arising from financing activities

	At 1 January 2020 £m	Cash flows £m	Recapitalisation of shareholder loans £m	Changes in fair value £m	Other £m	At 31 December 2020 £m
Current interest-bearing loans and borrowings	99.9	(806.2)	(711.3)	-	1,533.4	115.8
Non-current interest-bearing loans and borrowings	1,444.3	668.7	-	-	(1,528.9)	584.1
Derivative financial instruments	31.3	(52.7)	-	19.7	-	(1.7)
Obligations under leases	5.0	(1.5)	-	-	0.4	3.9
Total	1,580.5	(191.7)	(711.3)	19.7	4.9	702.1

 

	At 1 January 2019 £m	Cash flows £m	Acquisition £m	New leases £m	Changes in fair value £m	Other £m	At 31 December 2019 £m
Current interest-bearing loans and borrowings	87.9	(98.3)	15.4	-	-	94.9	99.9
Non-current interest-bearing loans and borrowings	1,266.9	210.9	-	-	-	(33.5)	1,444.3
Derivative financial instruments	16.6	-	-	-	14.7	-	31.3
Obligations under leases	0.9	(0.7)	2.9	1.7	-	0.2	5.0
Total	1,372.3	111.9	18.3	1.7	14.7	61.6	1,580.5

 

The "Other" column includes the effect of reclassification of the non-current portion of interest-bearing loans and borrowings, the effect of accrued but not yet paid interest on interest-bearing loans and borrowings and accrued interest on lease liabilities. The Group classifies interest paid as cash flows from operating activities.

At 31 December 2019, the Group had £705.5m shareholder loans which were included in non-current interest-bearing loans and borrowings. In February 2020, the Group recapitalised shareholder loans of £711.3m, see note 22.2 for further detail. This was a non-cash transaction which has been captured in the "Other" column to reflect the transfer from non-current to current.

During the year ended 31 December 2020, the Group repaid borrowings of £806.2m; £664.9m of which related to the closure of facilities including the senior term loan, equity bridge loan, liability to factoring company and senior debt facilities as part of the refinancing set out in note 22.2. The Group received proceeds from borrowings of £668.7m of which £611.2m related to new facilities and £57.5m of which related to existing facilities.

 

 

23.       Capital management

For the purpose of the Group's capital management, capital includes issued capital, share premium and all other equity reserves attributable to the equity holders of the Group. The primary objective of the Group's capital management is to maximise shareholder value.

The Group manages its capital structure and makes adjustments in the light of changes in economic conditions. To maintain or adjust the capital structure, the Group may return capital to shareholders or issue new shares. The Group monitors capital using a gearing ratio. The gearing ratio is calculated as interest-bearing loans and borrowings and trade creditors less cash and cash equivalents divided by total capital plus net debt. Additionally, the Group utilises another gearing or leverage ratio (Adjusted net debt to Adjusted EBITDA) as an APM, further details of which can be found in the Chief Financial Officer's review.

	At 31 December
	2020 £m	2019 £m
Interest-bearing loans and borrowings	703.8	1,544.2
Trade creditors	19.1	17.8
Cash	(114.6)	(50.3)
	608.3	1,511.7
Share capital and share premium	5.5	82.3
Total capital plus net debt	613.8	1,594.0
Gearing ratio	99.1%	94.8%

 

In order to achieve the overall objective of maximising shareholder value, the Group's capital management, among other things, aims to ensure that the Group maintains a sufficient credit worthiness in order to support the business and to maximise value for stakeholders.

No changes were made in the objectives, policies or processes for managing capital during the years covered above.

24.       Trade and other receivables

	At 31 December
	2020 £m	2019 £m
Trade receivables	31.9	33.9
Other receivables	1.2	1.6
Accrued income	17.2	-
VAT recoverable	-	1.8
Prepayments	10.0	-
Finance receivables	-	2.2
Tax receivable	9.7	3.2
	70.0	42.7

 

The carrying value of the Group's trade and other receivables approximates to their fair value.

 

The Group's credit risk is primarily attributable to trade receivables. The amounts presented in the consolidated statement of financial position are net of any loss provision. The total loss provision for trade and other receivables as at 31 December 2020 was £2.9m of which £2.2m was recognised in relation to trade receivables and £0.7m in relation to accrued income. The total loss provision as at 31 December 2019 was £1.3m and this was recognised in full against trade receivables. See note 22 for further details. The ageing profile of trade receivables past their due date is shown below:

	31 December 2020 £m	Expected loss rate 2020 £m	31 December 2019 £m	Expected loss rate 2019 £m
Not yet due	29.4	2.61%	32.9	0.92%
0-30 days	2.6	17.38%	1.3	9.19%
31-60 days	0.6	8.23%	0.2	0.29%
61-90 days	0.4	95.62%	0.3	87.66%
Over 90 days	1.1	68.91%	0.5	91.31%
Gross carrying amount	34.1		35.2
Loss provision	(2.2)		(1.3)
Net carrying amount	31.9		33.9

 

Trade receivables are non-interest-bearing and are generally on 30-45 day payment terms. Trade receivables due from related parties as at 31 December 2020 amounted to £Nil (31 December 2019: £Nil). Receivables are all denominated in pound sterling.

25.       Inventories

	At 31 December
	2020 £m	2019 £m
Finished goods	0.9	1.3
	0.9	1.3

 

During the year ended 31 December 2020, £0.4m (31 December 2019: £0.3m) was recognised as an expense for inventories carried at net realisable value. This is recognised in cost of sales.

26.       Cash and cash equivalents

	At 31 December
	2020 £m	2019 £m
Cash at bank and in hand	114.6	50.3
	114.6	50.3

 

Cash at bank earns interest at floating rates based on daily bank deposit rates.

 

27.       Trade and other payables

	At 31 December
	2020 £m	2019 £m
Trade creditors	19.1	17.8
Other creditors	9.6	8.0
VAT payable	1.5	-
Other creditors relating to capital expenditure	13.0	17.0
Other creditors relating to other operating expenses	1.4	6.3
Finance creditors	0.9	-
	45.5	49.1

 

For the year ended 31 December 2020, other creditors relating to other operating expenses relate to the Acquisition announced in December 2020. For the year ended 31 December 2019, other creditors relating to other operating expenses related to the IPO.

28.       Provisions

	Dilapidations £m	Total £m
As at 1 January 2019	-	-
Acquired through business combination	0.4	0.4
Arising during the year	-	-
As at 31 December 2019	0.4	0.4
Arising during the year	1.1	1.1
As at 31 December 2020	1.5	1.5

 

29.       Issued capital and reserves

	At 31 December
Authorised shares	2020	2019
Ordinary shares	547,980,973	22,000,000
Nominal value of each share (pence)	1	1
Nominal value of shares (£m)	5.5	0.2
Ordinary shares issued and fully paid
At start of year	22,000,000	22,000,000
Shares issued	130,168,749	-
Debt for equity swap	395,812,224
At end of year	547,980,973	22,000,000

 

As detailed in note 1, the Group completed a capital reorganisation during February 2020. The issued share capital as at 31 December 2020 represents the authorised share capital of Calisen plc. The authorised share capital as at 31 December 2019 has been restated to reflect the reorganisation as a result of the application of merger accounting.

 

30.       Share-based payments

The Group adopted IFRS 2 in the year ended 31 December 2020 by granting conditional share awards through a PSP. The Calisen plc EBT, whose trustee is Ocorian Limited, has been established to satisfy awards made under the share plans.

The table below summarises the amounts recognised in the income statement during the year:

	At 31 December
	2020 £m	2019 £m
2020 Restricted share awards	0.1	-
2020 Performance share awards	0.3	-
	0.4	-

 

The details for each scheme are as follows:

2020 Restricted share awards

On 25 June 2020, the Group granted conditional awards over 113,417 shares, with 50% of shares due to vest on 25 June 2022 and 50% due to vest on 25 June 2023. Vesting of the awards is contingent on the continued employment of the individuals.

The fair value was determined to be the share price at grant date of £1.86. 5,833 shares have been forfeited in the year ended 31 December 2020 resulting in the outstanding balance of 107,584.

2020 Performance share awards

On 25 June 2020, the Group granted conditional awards over 1,290,011 shares due to vest on 25 June 2023. Half of the awards are subject to an FFO performance target and half of the awards are subject to a TSR performance target; the two tranches of shares have therefore been considered separately when calculating the fair value of the options.

Vesting of the awards is also contingent on the continued employment of the individuals to the vesting date with the exception of awards issued to the Executive Directors which have a two-year holding period and which, subject to meeting performance targets, will be issued in 2023 and must be retained until 2025.

TSR Measure

The percentage of the 645,006 awards that vest based on the TSR is as follows:

Relative TSR versus the FTSE 250 Index (excluding Investment Trusts)	Percentage of TSR tranche that vest
Below median	0%
Median	25%
Between median and upper quartile	Straight-line basis from 25% to 100%
Upper quartile and above	100%

 

The fair value of the share awards subject to TSR performance has been estimated at the grant date using a Monte Carlo simulation. The following table shows the assumptions used within the Monte Carlo simulation for the year ended 31 December 2020:

Risk-free rate	-0.1%
Expected volatility	41.2%
Expected dividend yield	0.0%
Expected life	3 years
Weighted average fair value	£1.13

 

As at 31 December 2020, no awards have been forfeited and there are still 645,006 awards outstanding.

 

FFO Measure

The percentage of 645,006 awards that vest based on the FFO is as follows:

Compound annual growth in FFO over the performance period	Percentage of FFO tranche that vest
Less than 5%	0%
5%	25%
Between 5% and 8.7%	Straight-line basis from 25% to 100%
8.7% and above	100%

 

The fair value of the awards at grant was £1.86 with a downward adjustment to reflect the post vesting holding period for the Executive Directors resulting in a weighted average fair value of £1.74.

As at 31 December 2020, no awards have been forfeited and there are still 645,006 awards outstanding.

31.       Related party disclosures

Group

Identity of related parties with which the Group has transacted:

Following its acquisition of the Calisen Group Holdings Limited Group on 31 January 2017, KKR became a related party as it was deemed to have control and significant influence over the Group. The transactions below have been transacted with both KKR Capital Markets Limited and Kohlberg Kravis Roberts & Co. L.P. collectively classed as "KKR".

Included within long-term interest-bearing loans and borrowings as at 31 December 2020 is an amount of £Nil (31 December 2019: £122.3m) in relation to loan note interest payable on the loan notes issued to Evergreen Holdco S.a.r.l., a group undertaking and part of the KKR Group. These loan notes carried a fixed rate of interest of 8.123%. The loan note value (principal and interest) as at 31 December 2020 of £Nil (31 December 2019: £705.5m) was included within interest-bearing loans and borrowings due in over one year within the statement of financial position. The loans were repayable on 30 January 2027; however, following the Group restructure at the time of the IPO, the loan note value (principal and interest) of £711.3m at 6 February 2020 was capitalised. Following the IPO, £6.0m of underwriting expenses were offset against share premium, of which £1.3m related to underwriting fees paid to KKR.

Included within administrative expenses for the year ended 31 December 2020 is £0.1m (year ended 31 December 2019: £0.6m) of shareholder advisory services and reimbursable expenses. Of this, as at 31 December 2020 £Nil (31 December 2019: £156,000) is included within other creditors due within one year as these amounts had not been paid at those dates.

Included within other expenses for the year ended 31 December 2020 is £2.7m for fees owed to KKR (31 December 2019: nil); this includes £0.6m in relation to services and reimbursable expenses incurred for the IPO and £2.1m for termination of the managed service agreement that occurred on the IPO.

Transactions with key management personnel

Key management personnel reflect the Executive Committee, whose remuneration during the normal course of business has been disclosed within note 11 to the Consolidated Financial Statements.

Key management personnel, defined as the statutory directors for the year ended 31 December 2019, held equity in Evergreen Energy Limited, the immediate parent undertaking of Calisen Group Holdings Limited as set out in note 1, amounting to £1.2m and loan notes in the Company for £0.8m at 31 December 2019. Following the liquidation of Evergreen Energy Limited, those key management personnel received shares in Calisen plc in replacement of the equity and loan notes previously held.

 

32.       Group information

The Consolidated Financial Statements incorporate the consolidation of the subsidiaries below:

The following entities incorporated in the UK have the same registered office address of 5th Floor, 1 Marsden Street, Manchester, UK, M2 1HW.

Company	Proportion of shares and voting rights	Country of incorporation	Principal activities
Calisen Group Limited	100%	UK	Holding Company
Calisen Group 2 Limited	100%	UK	Holding Company
Calisen Group Holdings Limited	100%	UK	Holding Company
Calisen Holdco Limited	100%	UK	Holding Company
Calisen Holdco 2 Limited	100%	UK	Holding Company
Calisen Holdco 3 Limited	100%	UK	Holding Company
Calvin Capital UK Limited	100%	UK	Holding Company
Calvin Capital Limited	100%	UK	Holding Company
Meter Serve (Holdco) Limited	100%	UK	Holding Company
Meter Serve (North West) Limited	100%	UK	Holding Company
Meter Fit (North West) Limited	100%	UK	Procurement of gas and electricity meters
Meter Serve (North East) Limited	100%	UK	Holding Company
Meter Fit (North East) Limited	100%	UK	Procurement of gas and electricity meters
Meter Serve 2 Limited	100%	UK	Holding Company
Meter Fit 2 Limited	100%	UK	Procurement of gas and electricity meters
Meter Serve 3 Limited	100%	UK	Holding Company
Meter Fit 3 Limited	100%	UK	Procurement of gas and electricity meters
Meter Serve 4 Limited	100%	UK	Holding Company
Meter Fit 4 Limited	100%	UK	Procurement of gas and electricity meters
Meter Serve (Holdco 2) Limited	100%	UK	Holding Company
Meter Serve 5 Limited	100%	UK	Holding Company
Meter Fit 5 Limited	100%	UK	Procurement of gas and electricity meters
Meter Serve 10 Limited	100%	UK	Holding Company
Meter Fit 10 Limited	100%	UK	Procurement of gas and electricity meters
Meter Serve 20 Limited	100%	UK	Holding Company
Meter Fit 20 Limited	100%	UK	Procurement of gas and electricity meters
Meter Fit Assets Limited	100%	UK	Procurement of gas and electricity meters
Calvin Metering Limited	100%	UK	Agent
Calvin Asset Management Limited	100%	UK	Group management Company
Calvin Capital Australia Holdings Limited	100%	UK	Holding Company
The following entities are registered in the UK and have the same registered office address of Building B, Swan Meadow Road, Wigan, WN3 5BB.
Lowri Beck Holdings Limited	100%	UK	Holding Company
Lowri Beck Meters Limited	100%	UK	Dormant
Lowri Beck Systems Limited	100%	UK	Computer systems development
Lowri Beck Solutions Limited	100%	UK	Dormant
Lowri Beck Services Limited	100%	UK	Nationwide metering and data collection services
Lowri Beck Software Limited	100%	UK	Dormant
Lowri Beck Direct Limited	100%	UK	Dormant
The following entities are registered in Australia. All Australian registered entities have the same registered office address of 181 William Street, Melbourne, VIC 3000.
Calvin Capital Australia Pty Limited	100%	Australia	Holding Company
Calvin MS Australia 1 Pty Limited	100%	Australia	Holding Company

 

33.       Ultimate controlling party

As at 31 December 2019, the immediate parent company of the Group was Evergreen Energy Limited, a company registered in Jersey. The ultimate controlling entity of Evergreen Energy Limited was KKR Infrastructure II Limited, which controls and manages, and is the General Partner of a Global Infrastructure Fund of the investment business of KKR & Co Inc., which is quoted on the New York Stock Exchange.

On 7 February 2020, as detailed in note 1, all shares held, directly or indirectly, in Calisen Group Holdings Limited by intermediary holding companies Evergreen Energy Limited and Evergreen Holdco S.a.r.l were transferred to the newly incorporated immediate parent entity Calisen plc. Calisen plc then undertook an IPO on the London Stock Exchange. Subsequent to the IPO both Evergreen Energy Limited and Evergreen Holdco S.a.r.l were placed into liquidation, the former of which was closed during May 2020. At 31 December 2020, the immediate parent company and ultimate controlling party of Calisen plc is therefore KKR Infrastructure II Limited. The registered office address of this company is PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands.

This set of financial statements is the largest and smallest Group for which consolidated accounts are drawn up.

 

 

 

Alternative performance measures

 

These full-year results include financial measures that are not defined or recognised under IFRS or UK GAAP, all of which Calisen considers to be alternative performance measures (APMs). These are reconciled to the statutory results in the Chief Financial Officer's review section.

The APMs are used by the Board and management to analyse business and financial performance, track the Group's progress and help develop long-term strategic plans. The APMs provide additional information to investors and other external stakeholders to enhance their understanding of Calisen's results of operations as supplemental measures of performance and liquidity.

Descriptions of APMs used in these accounts, including their basis of calculation, are set out below:

Adjusted EBITDA	Profit/(loss) for the period adjusted for taxation, finance income/(expenses), depreciation, amortisation, profit/(loss) on disposal of non-current assets and other expenses. See page 26 for reconciliation of Adjusted EBITDA to statutory loss for the period;
Adjusted net debt	Net debt less shareholder loans. See page 31 for calculation;
Cash conversion	FFO as a percentage of Underlying EBITDA. See page 29 for calculation;
Cost of debt	The average balance of Group debt outstanding (excluding shareholder loans and EBLs) divided by the corresponding total interest expense (including the cost of hedging) for a given period. Total interest expense includes senior debt commitment fees and interest payable on bank loans.
FFO	FFO is defined as Underlying EBITDA less relevant finance costs, taxation and adjusted net working capital items. Relevant finance costs exclude fair-value movement on derivatives (as this is a non-cash item), shareholder loan interest and charges relating to letter of credit facilities (on the basis that they no longer form part of Calisen's capital structure) and interest rate swap break costs. Adjusted net working capital items include change in trade and other receivables and contract assets, change in inventories and change in trade and other payables, but exclude any movements in payables where the creditor relates to capital expenditure, accrued other expenses and any items to the extent they relate to non-trading items such as compensation debtors or capital expenditure prepayments or creditors, including related VAT balances. FFO also does not include compensation income. Capital expenditure creditors are excluded to the extent that they represent new meter installation costs. See page 29 for calculation;
Net debt	The sum of senior debt and equity bridge loans, less cash. Therefore, Net Debt includes bank borrowings and equity bridge loans, net of cash and excludes trade payables and debt issue costs. See page 31 for calculation;
Underlying EBITDA	Adjusted EBITDA less compensation income. Compensation income is received from relevant contractual arrangements where meters are prematurely removed, and, as a consequence, reflects income that would have otherwise been earned in future periods. Given the limited timeframe of the SMIP as currently described in legislation, the Directors deem compensation income to be a line item that may not consistently be significant in the future. Because compensation income arises as a result of the removal of traditional meters in order to replace them with smart meters, it is expected that compensation income will decrease over time as the number of traditional meters decreases. See page 26 for reconciliation of Underlying EBITDA to statutory loss for the period;
Underlying EBITDA Interest Cover	Underlying EBITDA divided by net interest expense. See page 33 for calculation;
Underlying EBITDA Margin	Underlying EBITDA as a percentage of revenue. See page 26 for calculation;

 

 

 

 

 

Forward looking statements

 

This announcement includes forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties, many of which are beyond the Group's control and all of which are based on the Directors' current beliefs and expectations about future events. Forward-looking statements are sometimes identified by the use of forward-looking terminology such as "guidance", "believe", "expects", "may", "will", "could", "should", "shall", "risk", "intends", "estimates", "aims", "plans", "predicts", "continues", "assumes", "positioned", "targets" or "anticipates" or the negative thereof, other variations thereon or comparable terminology. These forward-looking statements include all matters that are not historical facts and include statements regarding the intentions, beliefs or current expectations of the Directors or the Group concerning, among other things, the results of operations, financial condition, prospects, growth, strategies, and dividend policy of the Group and the industry in which it operates. No assurance can be given that such future results will be achieved; actual events or results may differ materially as a result of risks and uncertainties facing the Group. Such risks and uncertainties could cause actual results to vary materially from the future results indicated, expressed, or implied in such forward-looking statements. Such forward-looking statements contained in this announcement speak only as of the date of this announcement.

 

 

 

Enquiries:

 

Analysts and investors

Calisen Investor Relations

Adam Key +44 (0)7572 231453

Investor Relations Director

adam.key@calisen.com 

 

Media

Finsbury (public relations adviser to Calisen)

Dorothy Burwell / Harry Worthington

+44 7733 294 930 / +44 7818 526 556

Calisen-LON@finsbury.com 

 

 

 

Issued by Calisen plc

Registered in England and Wales no. 12383518

Registered office: 5^th Floor, 1 Marsden Street, Manchester, M2 1HW