Assetco PLC
Annual Report 2010

Plain-text annual report

A s s e t C o p l c A n n u a l R e p o r t & A c c o u n t s s 2 0 1 0 Annual Report & Accounts 2010 AssetCo Fire and Rescue AssetCo is an International Fire and Rescue Services business. We provide fully outsourced Fire and Rescue Services, including the provision of personnel, training and equipment. AssetCo is the largest outsourcing partner to London Fire Brigade, the largest dedicated Fire and Rescue Service in the world, and we are the only UK Government approved private frontline firefighter service provider. We are the only company to have a fully outsourced Fire and Rescue Service in the Middle East. AssetCo plc Annual Report & Accounts 2010 Financial Highlights £10.8m Profit before tax £12.1m 20% Dividend 1.5p UAE Government contract won £40m for 3 years+ Emergency Fire Crew contract won £12m for 7 years Business Profile Who We Are What We Do What’s Been Happening Client Profiles Our Team Year in Review Chairman’s Statement Chief Executive’s Officer’s Report Chief Financial Officer’s Report Governance Board of Directors Report of The Directors Corporate Governance Report Consolidated Financial Statements Report of the Independent Auditor 03 05 06 08 16 18 21 24 28 30 39 42 Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Cash Flow Statement Notes to the Consolidated Financial Statements Company Financial Statements Report of the Independent Auditor Company Balance Sheet Notes to the Company Financial Statements Shareholder Information Notice of Annual General Meeting Financial Calendar Company Information 44 45 46 48 49 50 100 102 103 108 112 113 AssetCo plc Annual Report & Accounts 2010 1 E L I F O R P S S E N S U B I E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S N O I T A M R O F N I “To support our clients’ Fire and Rescue Services and to enable transformational change that delivers improved training, better equipped operations and a safer environment for all communities.” John Shannon, CEO 2 2 AssetCo plc Annual Report & Accounts 2010 AssetCo plc Annual Report & Accounts 2010 Who We Are AssetCo Fire and Rescue has evolved from the leasing and asset management subsidiary of British Gas into a high growth International Fire and Rescue Services business. resilience previously provided by the Ministry of Defence using military personnel and their Green Goddess fleet. The business is built around a cornerstone 20-year operational asset management contract with the London Fire and Emergency Planning Authority (LFEPA) for London Fire Brigade. With 113 fire stations across the capital, and accounting for 20% of the total UK Fire and Rescue spend, London Fire Brigade is the world’s largest dedicated Fire and Rescue Service. In July 2009 AssetCo secured a 7-year contract, the first of its nature in the UK, to provide a 700 strong firefighter reserve capability to LFEPA. This replaced the AssetCo is also rapidly emerging as the preferred partner of outsourced fire and rescue services within the UAE. In November 2009 AssetCo announced a 10-year joint venture agreement with the Abu Dhabi Government to develop and operate a 100-acre multi-agency training centre. In March 2010 AssetCo secured a 3-year £40m contract to provide a fully outsourced firefighting service in the UAE, resulting in AssetCo Fire and Rescue being the only UK Company providing frontline emergency services to another state. E L I F O R P S S E N S U B I E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S N O I T A M R O F N I AssetCo plc Annual Report & Accounts 2010 3 4 4 AssetCo plc Annual Report & Accounts 2010 AssetCo plc Annual Report & Accounts 2010 What We Do AssetCo is an International Fire and Rescue Services business. We provide fully outsourced fire and rescue services, including the provision of personnel, training and equipment. AssetCo pioneered the development of Fire and Rescue support services and have been the partner of choice of London Fire Brigade for long-term pathfinder contracts, awarded for the provision of emergency fire crews and operational management of assets and infrastructure. We are trusted by our clients to manage their risk in meeting government policy and industry standards for fire and rescue provision and are the only company to have secured fully outsourced fire and rescue services in the Middle East. We advise governments and industry in the management and provision of fire and rescue services. Our team includes senior personnel with direct operational experience. We operate in the civil defence, armed forces, aviation and oil and gas industries and have secured transformational contracts with Governments in the UK and the UAE. AssetCo has offices in the UK, Republic of Ireland and Abu Dhabi. E L I F O R P S S E N S U B I E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S N O I T A M R O F N I AssetCo plc Annual Report & Accounts 2010 5 What’s Been Happening July 2009 Nov 2009 Jan 2010 UVM into Administration AssetCo’s vehicle assembly business, UV Modular Limited (UVM), has been placed into administration. This action is in line with the statement made at the publication of the Groups’ interim results on 7th December 2009, that following a strategic review conducted earlier in the year it would seek to exit from its low margin businesses and focus on the further development of growth opportunities as an International Fire and Rescue Services business. The UK’s First Reserve Fire Crew Contract Following a competitive tendering process, AssetCo was awarded a 7-year contract by London Fire and Emergency Planning Authority (LFEPA) for the provision of an Emergency Fire Crew Capability Service to the London Fire Brigade (LFB) of up to 700 staff, trained to provide a contingency firefighting service. This contract will assist LFEPA in meeting its statutory duty to provide crew resilience should existing services require support with extreme situations such as a pandemic illness or flooding. This is the first major contract of its nature to be awarded by a UK Fire and Rescue Service, reflecting the increasing role Fire and Rescue Authorities have in securing their own business continuity arrangements without reliance upon the support of the Ministry of Defence. Multi-Agency Training Centre – Abu Dhabi Government Joint Venture In November 2009, AssetCo Fire and Rescue was awarded a 10-year joint venture contract with the Abu Dhabi Government for the design, build, development and operation of a new purpose built multi-agency training centre. This long-term Government partnership will establish a 10-year management contract of the 100-acre training centre. The project will cater for all aspects of national training requirements, combining the needs of all stakeholder government authorities and emergency services providers. The project also supports the aspirations of the UAE Government to enter into Public Private Partnerships that bring new skills transfer to the region for long term benefits to the citizens of UAE. 2009 6 AssetCo plc Annual Report & Accounts 2010 E L I F O R P S S E N S U B I E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S N O I T A M R O F N I 2010 Feb 2010 March 2010 April 2010 10th year of the PFI contract with London Fire Brigade (LFB) AssetCo owns, maintains and manages the operational availability and life cycle of all LFB frontline fire and rescue vehicles and equipment. Our 20-year PFI contract continues to deliver client value and realise efficiencies across operational assets at each of the 113 fire stations operating in and around London. 5th year of PPP contract with Lincolnshire Fire and Rescue Service (LFRS) AssetCo owns, maintains and manages the operational availability and life cycle of all LFRS frontline fire and rescue vehicles and equipment. Our 20-year PPP contract continues to deliver client value and has contributed to improved ratings against Government audit and performance assessment across the 38 fire stations operating in and around Lincolnshire. Outsourced Firefighting Services Contract with the UAE Government In March 2010, AssetCo was awarded a 3-year contract to recruit, train and provide firefighting services for the Abu Dhabi Government across 5 fire stations. This contract is the first of its kind in the region and includes the building of new fire stations and upgrading of existing facilities and equipment to meet the requirements of Government Policy on the provision of Fire and Rescue Services. The contract extends across the UAE and incorporates a wide range of services including airport, civil, industrial and oil and gas incident response, support and management. AssetCo plc Annual Report & Accounts 2010 7 ClientProfile London Fire Brigade The London Underground is the world’s largest underground network serving three million passengers each day. London is also the home to City and Heathrow Airports and the UK’s busiest rail terminals. In 2001, AssetCo was awarded a 20-year PFI contract by the London Fire and Emergency Planning Authority (LFEPA) to provide a range of outsourced support services, including the ownership and management of operational vehicles and equipment. Specifically, AssetCo procures and delivers the fleet and equipment to the London Fire Brigade (LFB), enabling efficiencies for over 500 appliances and support vehicles, two fire boats and 50,000 items of operational equipment. AssetCo manages the operational availability of all of the frontline Fire and Rescue vehicles and operational equipment used at the 113 London fire stations. The London Fire Brigade territory covers Britain’s major capital city - home to the British parliament, British and European financial centres and Royal Palaces. London’s World Heritage Sites include the Palace of Westminster, the Tower of London, Westminster Abbey and the Royal Botanic Gardens at Kew. Around 7.5 million people live in London. The population is expected to grow by nearly 10% by 2016, rising to 8.1 million. People moving into London are mostly young adults. Around 16% of the population are aged 60 years and over and around 25% are aged 19 years or younger. PeopleProfile: “Since the award of the 20-year PFI contract in 2001, AssetCo Fire and Rescue have continued to deliver operational improvements to the London Fire Brigade through their unrivalled understanding of the Fire and Rescue Service, and their ability to adapt and assist us in the challenges we have faced.” Ron Dobson – Commissioner, London Fire and Emergency Planning Authority 8 AssetCo plc Annual Report & Accounts 2010 ClientProfile London Fire Brigade The London Fire Brigade is the largest dedicated Fire and Rescue Service in the world with approximately 7,000 staff. LFB accounts for 20% of all UK fire spend. AssetCo’s operational support is delivered across all LFB fire stations 24 hours a day, every day of the year. Recruitment, Training and Provision of Firefighting Crews In 2009, AssetCo was awarded a 7-year contract to provide the London Fire Brigade with up to 700 staff, trained to provide a support firefighting service. This is the first major contract of its nature to be outsourced by a UK Fire and Rescue Service, and was awarded to AssetCo following a competitive tendering process. Our reserve firefighters were recruited and fully trained to provide contingency to London Fire Brigade in the event of extreme situations such as pandemic illness or flooding. Our crews are available for immediate deployment with crew competency maintained through continuous professional development. AssetCo plc Annual Report & Accounts 2010 9 E L I F O R P S S E N S U B I E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S N O I T A M R O F N I ClientProfile Lincolnshire Fire & Rescue PeopleProfile: “Our experience in working with AssetCo under our 20-year PPP contract, is that they continually innovate their support services. This assists us in meeting the changing demands placed upon us by central government. The benefits of this integrated relationship are that whilst we maximise the value of the current integrated support services, we are jointly developing new initiatives that can bring additional resilience and robustness to Lincolnshire Fire and Rescue Service.” Mike Thomas MBE – Chief Fire Officer, Lincolnshire Fire and Rescue Service 10 10 AssetCo plc Annual Report & Accounts 2010 AssetCo plc Annual Report & Accounts 2010 ClientProfile Lincolnshire Fire & Rescue Lincolnshire Fire and Rescue Service (Lincolnshire FRS) covers 2,237 square miles and is the fourth largest County Fire and Rescue Service in the UK. Lincolnshire has a widely dispersed population of 692,800. The rural nature of the area and the changing seasonal demands and coastal attractions require complex and considered support. In 2006 Lincolnshire Fire and Rescue Service signed a 20-year PPP support services contract with AssetCo for the supply, operational management, maintenance and replacement of their pumping appliances, response and support vehicles, and a full range of operational equipment. Soon after the award of the contract, Lincolnshire FRS has been “improving well” to cite the Audit Commission’s Comprehensive Performance Assessment 2008. Lincolnshire FRS has consistently maintained their progress over the years, paving the way for ever-improving performance standards for the Fire and Rescue Service in the UK, and living up to their mission statement of “making Lincolnshire a safer place to live, work and visit”. Specifically, AssetCo procures and delivers a fleet and equipment to Lincolnshire’s 900 firefighters and fire staff across the 38 fire stations located throughout Lincolnshire. AssetCo’s operational support is delivered across all Lincolnshire FRS’s fire stations 24 hours a day, every day of every year. AssetCo plc Annual Report & Accounts 2010 11 E L I F O R P S S E N S U B I E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S N O I T A M R O F N I ClientProfile UAE Government 12 12 AssetCo plc Annual Report & Accounts 2010 AssetCo plc Annual Report & Accounts 2010 ClientProfile UAE Government In 2010, AssetCo Fire and Rescue were awarded a 3-year contract to provide a fully outsourced firefighting service in the region. Our turnkey solution provides a unique firefighting service for the UAE Government and is the first of its kind in the region. AssetCo provides recruitment and training of all personnel, specialist training, operational equipment procurement, and control and facilities management. All aspects of the AssetCo UAE Fire and Rescue Service conforms to new International standards being implemented and increases the operating capability within the region. The contract spans across the UAE and incorporate services that include airport, civil, industrial and oil and gas incident response, support and management. AssetCo Fire and Rescue Service UAE will continue to expand their portfolio of services and have a long term commitment to advancing the skills and capability of the local Emirati workforce. AssetCo plc Annual Report & Accounts 2010 13 E L I F O R P S S E N S U B I E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S N O I T A M R O F N I ClientProfile Abu Dhabi Government 14 14 AssetCo plc Annual Report & Accounts 2010 AssetCo plc Annual Report & Accounts 2010 ClientProfile Abu Dhabi Government In 2009, AssetCo Fire and Rescue was awarded a 10-year joint venture contract with an Abu Dhabi Government for the design, build, development and operation of a new future class multi-agency training centre. This long-term Government partnership will establish a 10-year management contract of the 100-acre training centre which will conduct major scenario and exercise training courses for all military, civil defence and emergency services organisations in the region. The Emirate of Abu Dhabi, the capital of the UAE, is facing unprecedented growth in both infrastructure and population. With a diverse geographical location and over 200 islands, Abu Dhabi accounts for 87% of the UAE land mass. Many new aspects of health and safety provision will be catered for in the new training environment. The project will be a landmark scheme, hoping to cater for all aspects of national training requirements and combining the needs of all stakeholder government authorities and emergency services providers. The project also supports the aspirations of the UAE Government to enter into Public Private Partnerships that bring new skills transfer to the region for long term benefits to the citizens of UAE. E L I F O R P S S E N S U B I E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S N O I T A M R O F N I AssetCo plc Annual Report & Accounts 2010 15 Our Team Dr Jeff Ord CBE QFSM Head of Fire and Rescue Service, AssetCo Fire and Rescue UAE William Wilson MIFire Deputy Chief Fire Officer, AssetCo Fire and Rescue UAE Since 2007, Jeff has been a lead member of the team developing AssetCo’s Fire and Rescue capability and a key relationship builder in the UAE. Roy Bishop OBE QFSM FIFIRE Fire and Rescue Training Director, AssetCo Fire and Rescue UK Roy joined AssetCo in 2009 as a senior Fire and Rescue specialist, enhancing our expertise in our policy, operations and training. Brendan McCaffrey MA BSc (Hons) MIFire Chief Fire Officer, AssetCo Fire and Rescue UAE Brendan joined AssetCo in 2009 and has been a part of the AssetCo team with particular involvement in the development of our Fire and Rescue Service for the UAE Government. Lou Gill QFSM DMS GIFireE Service Delivery Director, AssetCo Fire and Rescue UK Since joining AssetCo Lou has led the successful bids for the Fully Managed Services contract for Lincolnshire Fire and Rescue Service in 2006 and the Emergency Fire Crew contract for London Fire Brigade in 2009. William joined the AssetCo UAE team in 2010 specialising in aviation Fire and Rescue Services. Previously, he was Station Manager at Glasgow Airport Fire Service and Watch Manager at Edinburgh Airport Fire Service. Saeed Almehrezi Assistant Chief Fire Officer (Operations), AssetCo Fire and Rescue UAE Saeed joined AssetCo UAE and is responsible for the operational management of fire stations for AssetCo UAE. He is experienced in the establishment of firefighting teams, equipping them with the skills to handle the latest vehicles and equipment to fight a variety of fires, including aviation incidents. Charles Barnard GIFireE Deputy Chief Fire Officer, AssetCo Fire and Rescue UAE Charles joined AssetCo UAE in 2010 to provide the overall day to day management of the fire service for AssetCo UAE, with specialist knowledge in aviation firefighting. Omer Kiyga Senior Liaison and Administrative Support Officer, AssetCo Fire and Rescue UAE Omer is the lead administrative support officer in our base in the UAE. His main duties include administration and liaison, translation and support to the senior operational team. He is fluent in both English and Arabic, with the ability to prepare and present in both languages. Tony Barnett International Business Development Director, AssetCo Fire and Rescue Tony has over 15 years of international and domestic business development, marketing and business restructuring experience, working in Europe, the Americas and Asia Pacific. He also has particular expertise working throughout the Middle East and Africa in both public and private organisations. 16 AssetCo plc Annual Report & Accounts 2010 Sean Duffy FCA Corporate Development Director, AssetCo Fire and Rescue Gareth White BA (Hons) Managing Director, AssetCo Fire and Rescue UAE Sean has a 15 year track record in mergers and acquisitions throughout Ireland and the UK and is a Fellow of the Institute of Chartered Accountants in Ireland. Prior to joining AssetCo in early 2010, he was Head of IBI Corporate Finance in Northern Ireland, the Investment Banking arm of Bank of Ireland plc. He has also held senior positions with NCB Corporate Finance and KPMG Corporate Finance in Dublin and Belfast. Mark Clissett Managing Director, AssetCo Fire and Rescue UK As a key member of the AssetCo team, Mark has added value to our Contract Implementation, Project Management and Operational Management capability. In addition he has responsibility for the London Fire Brigade and Lincolnshire Fire and Rescue Service contracts. He has been responsible for managing the implementation of new business and operational exit from legacy contracts. As a member of the AssetCo team since 2007, Gareth has managed international relations and new business development. Allan Richardson Group Projects and Engineering Director, AssetCo Fire and Rescue Since 2007, Allan has worked for AssetCo, applying his expertise to key account projects, operations and contract management. William Drysdale BA (Hons) Client Account Director, AssetCo Fire and Rescue UK Since Joining AssetCo in 2008, William has been managing our key contracts with London Fire Brigade and Lincolnshire Fire and Rescue Service. William Warke BA (Hons) MA Group Head of Human Resources, AssetCo Fire and Rescue Since 2007 William has played a key role in the AssetCo team as Head of Human Resources including the development of our HR Strategy and the recruitment of staff for our operations in the UK and the UAE. Matthew Boyle BSc (Hons) DipAcc ACA Group Financial Controller, AssetCo Fire and Rescue Matthew joined AssetCo as part of the Buy-out team in late 2005. He manages the Financial Accounting and Treasury Management functions for the Group and supports the business in Business Development, Corporate Governance, Public and Private Value for Money Studies, Cost Benefit Analysis, Financial Due Diligence and Acquisitions. Tom Joyce Head of Group Bid and Brand Management, AssetCo Fire and Rescue Tom joined AssetCo in 2005 and has been key in the transfor- mational change programme to develop the organisation’s capability as a support services provider. He has held a number of senior roles within the organisation, including Account Director and Head of Marketing. AssetCo plc Annual Report & Accounts 2010 17 E L I F O R P S S E N S U B I E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S N O I T A M R O F N I Chairman’s Statement Tim Wightman Chairman I am pleased to report that the Group made strong progress during the year in line with its strategy to reposition its activities as a streamlined support services business with an international presence. It has also begun to see the benefit of the investment made since 2008 in the United Arab Emirates. Despite the difficult overall economic environment the Group has shown a strong growth in the performance of its continuing activities. The Group continued to strengthen its relationships with the London Fire Brigade (LFB), built around its 20-year PFI contract, which is now in its 10th year, and with Lincolnshire Fire and Rescue Service, in the 5th year of a 20-year PPP contract. Our strategy is to prioritise our efforts on those essential support services accountable for the highest proportion of our clients’ cost base and which will make a significant addition to our support services revenue. In July, we secured a 7-year contract, the first in the UK, to provide a 700 strong firefighter reserve capability to the London Fire and Emergency Planning Authority. This replaced the resilience previously provided by the Ministry of Defence (using military personnel and the “Green Goddess” fleet). The UK is entering a period of unprecedented public sector fiscal pressure. The requirement for all UK Fire and Rescue Authorities to deliver efficiency savings from continued modernisation will now be much greater and more pressing. Our experience, track record and the increased breadth of our Fire and Rescue offering means that we are well positioned to deliver sustainable long-term growth in this environment. £10.8m 20% 7p 41% 47% 19% Profit before tax £12.1m (2009: £1.3m) Dividend increase 1.5p (2009: 1.25p) EPS from continuing operations £8.9p (2009: 1.9p) p EBITDA £24.9m (2009: £17.6m) Recourse debt £18.9m (2009: £35.7m) Cash conversion 139% (2009: 117%) 18 AssetCo plc Annual Report & Accounts 2010 E L I F O R P S S E N S U B I E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S N O I T A M R O F N I We have established an office in Abu Dhabi serving the Middle East and North Africa region, and in early 2009, raised investment specifically to support our business development in the region. Our partnership model with LFB, which is recognised inter- nationally as one of the world’s leading Fire and Rescue Services, provides an operating template against which we can measure other services and deliver change and improvement. In November last year, we announced a 10-year joint venture with the Abu Dhabi Government to develop and operate a 100-acre multi-agency, emergency services training centre. The establishment of this joint venture with the Abu Dhabi Government, positions us well to work with the various agencies that deliver a fire and rescue service to the UAE, to allow them to consider alternative delivery models for all their operational service requirements. In March, we secured a 3-year contract, the first in the UAE, to provide a fully outsourced firefighting service including the provision of personnel, training, asset and facilities management. This contract has provided us with the opportunity to open up a number of new markets in the provision of frontline firefighting. As announced previously, following completion of a strategic review, the board has decided to concentrate all the Group’s resources on support services and to withdraw from the Group’s other activities. Accordingly businesses within the Specialist Equipment division and the low margin Vehicle Assembly operations are being divested or have been exited. Results Profit before tax from continuing operations was £12.1m (2009: £1.3m). Basic earnings per share from continuing operations increased substantially to 8.9p (2009: 1.9p). Discontinued operations made a loss of £5.3m (2009: Profit £0.3m). Profit after tax and discontinued operations was £2.3m (2009: £1.7m). Cash conversion (as defined in the report by the Chief Financial Officer) was 139% (2009: 117%). Recourse debt at the year end stood at £18.9m, a reduction of £16.8m during the year. Dividend The directors are recommending an increased dividend of 1.5p per share (2009: 1.25p) and the board also intends to declare an interim dividend of not less than 1.0p following the disposal of “assets held for sale”. Board Andrew Freemantle CBE joined the board as a non-executive director on 1st January 2010. Andrew retired in 2009 from the position of Chief Executive of the Royal National Lifeboat Institution, a position he held for ten years. He has extensive leadership experience in complex, multi-site organisations providing indispensable services to the public and his experience will be of great benefit to AssetCo as we continue to develop the business in the UK and Internationally. Adrian Bradshaw will be standing down as a non-executive director at the Annual General Meeting in August. He has served on the board for over six years and made an important contribution for which we are very grateful. He leaves with our best wishes for the future. AssetCo plc Annual Report & Accounts 2010 19 Chairman’s Statement Staff It has been a year of considerable change set against a difficult economic background and the board is very aware of the essential contribution of all the staff for the progress the Company has made. Our employees are motivated and committed to deliver high quality products and services to our clients. On behalf of the board, I would like to thank them all for their hard work. Current trading Trading at the start of the new financial year is in line with the board’s expectations, and I am pleased to report that 100% of our forecast revenue for financial year 2011 is contractually committed. Outlook Although the continuing difficult economic situation and fiscal pressures present challenges for all businesses in the UK, our established track record allows us to provide alternative models to deliver significant savings to help Local Authorities meet the government’s budget targets. The board sees the Middle East in general, Abu Dhabi and the UAE in particular, as strong areas for growth where AssetCo can add value. The Group benefits from a highly experienced management team and I am confident that we will deliver a resilient performance in the coming year. Tim Wightman Chairman 12 July 2010 20 AssetCo plc Annual Report & Accounts 2010 Chief Executive Officer’s Report John Shannon Chief Executive Officer 100% of our Forecast Revenue for FY11 is contractually committed Our operating model has been reshaped as a fully streamlined support services business concentrating on Fire and Rescue domestically and Internationally Internationally, our focus is to develop relationships with Governments who look to UK Fire and Rescue, and London Fire Brigade in particular, as operating templates to deliver change and improvement “We are the only UK company providing a frontline emergency service to a foreign state.” The past financial year delivered a strong endorsement from our clients in the evolution of the business from its leasing and asset management origins into a high growth International Fire and Rescue Services business. Our operating model has been re-shaped as a fully streamlined support services business to deliver the maximum return to stakeholders. We have closed our Vehicle Assembly unit, and begun the disposal process for our Specialist Equipment unit. We delivered a £10.8m increase in profit before tax from continuing operations on the prior year, and in line with the long-term contractual nature of the business 100% of our forecast revenue for financial year 2011 is contractually committed. We have proactively reduced our recourse debt from £35.7m to £18.9m (which on a net debt basis less cash is £5.2m). Culturally and intellectually, the business has under-gone a significant improvement in the depth and breadth of our technical and operating managerial skills base. Our team now includes senior global fire and rescue specialists who have expertise in policy, regulation, operations and training. Strategy UK In the UK, we have prioritised our efforts on those essential support services accountable for high proportions of our client’s cost base. E L I F O R P S S E N S U B I E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S N O I T A M R O F N I AssetCo plc Annual Report & Accounts 2010 21 Chief Executive Officer’s Report In July 2009, AssetCo was awarded a 7 year contract by London Fire and Emergency Planning Authority (LFEPA) for provision of an Emergency Fire Crew Capability Service (EFCC) In November 2009, we announced a joint venture with the Abu Dhabi government for the development and operation of a new multi-agency training centre In March 2010, we were awarded a £40m contract again in the UAE, for an initial 3 years, to provide a fully outsourced firefighting service in Abu Dhabi and the wider UAE 22 AssetCo plc Annual Report & Accounts 2010 The UK is entering a period of unprecedented public sector fiscal pressure. The requirement for all UK Fire and Rescue Authorities to follow the lead of London and deliver efficiency savings from continued modernisation will now be much greater and more pressing. We continue to develop solutions that enable clients to have access to alternative delivery models for operational training and frontline operational services. In July 2009, we were awarded a 7–year contract by the London Fire and Emergency Planning Authority (LFEPA) for the provision of an Emergency Fire Crew Capability Service (EFCC) to the London Fire Brigade of up to 700 staff trained to provide a contingency firefighting service. The EFCC contract enables London to meet its statutory duty to provide crew resilience if existing services require support with extreme situations such as a pandemic illness or flooding. This was the first major contract of its nature to be awarded by a UK Fire and Rescue Service, reflecting the increasing role Fire and Rescue Authorities have in securing their own continuity arrangements without reliance upon the support of the MoD. The contract was won following a competitive tendering process and reflects our depth of understanding of the challenges facing the UK Fire and Rescue Service and our ability to compete successfully with the largest companies in the business outsourcing field. Internationally Internationally, our focus is to develop relationships with Governments who look to UK Fire and Rescue, and London Fire Brigade in particular, as operating templates to deliver change and improvement. In November 2009, we announced a 10-year joint venture with the Abu Dhabi Government to develop and operate a 100-acre multi-agency, emergency services training centre. The project is an integral part of a programme to establish accredited training and senior qualifications in the fields of safety, security, defence, emergency preparedness and crisis management for personnel from the Emirates, the Gulf Co-operation Council (GCC) and Internationally. In March 2010, we secured a 3-year contract, the first in the UAE, to provide a fully outsourced firefighting service including the provision of personnel, training, asset and facilities management. This contract has provided us with the opportunity to open up a number of new markets in the provision of frontline firefighting, including Aviation, Defence, and Oil and Gas markets. We are the only UK Company providing a frontline emergency service to a Foreign State. Outlook This is an exciting period in the Group’s development. The evolution of our business model into the provider of a UK Fire and Rescue based frontline operational service, has us well placed for growth as an International Fire and Rescue Services business. Whilst our established track record in the UK allows us to continue to offer alternative models to deliver significant efficiency savings to those Local Authorities tasked with meeting the Chancellor’s budget targets. John Shannon Chief Executive Officer 12 July 2010 E L I F O R P S S E N S U B I E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S N O I T A M R O F N I AssetCo plc Annual Report & Accounts 2010 23 Chief Financial Officer’s Report Frank Flynn Chief Financial Officer Business review As part of our ongoing strategy to streamline our business we have had a year of considerable change with a number of companies within the group being sold, closed or made available for sale. The intention is that by the 31st March 2011 we will have a UK and International business managing long term contracts. The results for the year ended 31st March 2010 show a profit before tax for continuing operations of £12.1m (2009: £1.3m) although part of this increase is derived from the change in accounting for the treatment of the hedges we have on our long term contract debt, which has been treated as a prior year adjustment. The backdrop to 2010 was the turmoil in the financial markets which has seen the fundamentals of the banking structure in the UK changed radically, creating challenges for all businesses in the UK. The knock on effect of the banking crisis and the subsequent bail out by the Government has created a huge fiscal deficit that can only be addressed by a wholesale reduction in Government public expenditure. This should create a positive environment for outsourcers who can assist government with its planned reduction in public expenditure. Prior year adjustment gains/(losses) in relation to interest rate hedging Following a review of the swaps we have in place to fix the interest rates on the debt associated with our long term contracts, this fixing of our interest rates is no longer deemed to be “effective” as defined by IAS 39. It should be noted this does not mean the swaps are commercially ineffective as the movements are non cash items. As the swaps are now deemed “ineffective” according to IAS 39 the non cash movements on these swaps are now accounted through the consolidated income statement and no longer accounted for through the consolidated statement of financial position. The former approach resulted in adjustments being made to reserves on an instrument where the end result will be zero and we paradoxically now have to account for this through the consolidated income statement. However, in order to comply with this standard our 2008 and 2009 financial statements have been restated with a net after tax charge of £3.3m in 2009. The net after tax effect in 2010 is a credit of £0.9m and as the hedge reduces each year in line with the original profile of our debt there will be further credits to the consolidated income statement for the duration of the hedge. Breakdown of total debt 2010 2009 Asset finance - emergency Asset finance - non emergency Acquisition and other medium term loans Short term loans and overdrafts £63.3m (77%) of our total debt is non-recourse Asset backed debt which relates to our long term Fire and Rescue contracts 24 AssetCo plc Annual Report & Accounts 2010 E L I F O R P S S E N S U B I E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S N O I T A M R O F N I Key Performance Indicators The Board monitors the Group’s Key Performance Indicators which are summarized below for FY09 and FY10: £ 2010 2009 Variance Variance % Profit before tax from continuing operations 12.1m 1.3m 10.8m 831% EBITDA 24.9m 17.6m 7.3m 41% Basic earnings per share from continuing operations Net debt Cash conversion Staff turnover 8.9p 68.5m 139% 5% 1.9p 76m 117% 5% 7.0p 368% (7.5)m 22 – 10% 19% 0% Profit before tax from continuing operations Profit before tax from continuing operations of £12.1m has increased from £1.3m. £5.9m of the increase is due to the change in accounting treatment for our fixed rate hedge and the balance is due to the continued growth of our long term contracts and securing the Emergency Fire Crew Capability Contract (EFCC) in July 2009 to provide over 700 reserve firefighters to London Fire Brigade. 2009 numbers have also been adjusted for UV Modular Limited – In Administration, which is now included in discontinued operations along with a number of other subsidiaries which were either sold or have been categorised as “assets held for sale”. EBITDA Earnings before interest, tax, depreciation and amortisation have increased by 41% to £24.9m due to the increased revenues for the year. Basic EPS Basic earnings per share from continuing operations have increased to 8.9p (2009: 1.9p). Net Debt The debt has fallen from £76m in 2009 to £68.5m in 2010 and this is analysed in the table below: £ Asset finance – emergency Asset finance – non emergency Acquisition and other medium term loans Short term loans and overdrafts Less cash Net debt 2010 62.7m 0.6m 17.7m 1.2m 2009 61.6m 1.2m 32.0m 3.7m (13.7)m (22.5)m 68.5m 76m £63.3m (92%) of our net debt is non-recourse asset backed debt which relates to our long term Fire and Rescue contracts. These contracts continue to grow and accordingly the levels of asset finance required reflect this growth. We are continually reviewing our debt structures to enable the business to meet the debt requirements of our core long term contracts. During the year we have proactively worked on our “cash optimisation plans” and towards the end of the year the funds generated have been utilised to reduce our recourse debt which has fallen by £16.8m to £18.9m. We have a medium term goal to reduce this to zero. Cash Conversion Cash conversion, the ratio of cash generated from operating activities to operating profit before exceptional items and discontinued operations, has increased significantly from 117% in 2009 to 139% in 2010. In absolute terms this equates to cash generated from operating activities of £24.3m (2009: £12.7m). This growth is reflective of the increased working capital management focus of the Group and also the disposal and closure of subsidiaries which tied up considerable working capital investment. Staff Turnover This is calculated excluding redundancy programmes and at 5% is consistent with the prior year. Historical performance for Continuing Operations £’m Revenue Gross profit Gross profit % Admin expenses Restructuring costs Operating profit Operating profit % Finance costs Profit before tax Taxation Profit after tax 2010 2009 2008 45.2 27.6 61.1 10.1 – 17.4 38.5 7.0 12.1 4.5 7.6 34.1 21.9 64.2 11.0 – 10.8 31.7 5.7 1.3 (0.1) 1.4 26.1 17.4 66.7 14.9 0.6 6.7 25.7 4.4 2.3 1.9 0.4 AssetCo plc Annual Report & Accounts 2010 25 Chief Financial Officer’s Report 26 26 AssetCo plc Annual Report & Accounts 2010 AssetCo plc Annual Report & Accounts 2010 E L I F O R P S S E N S U B I E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S N O I T A M R O F N I Discontinued operations Discontinued operations include activities relating to the UV Modular Ltd and Auto Electrical Services Ltd, (see below), and the Supply 999 and Treka businesses which are held for resale. The trading and investment losses in relation to these companies was £5.3m (2009: £0.3m). UV Modular Limited – In Administration UV Modular Limited, a loss making subsidiary, was placed in Administration on 15th January 2010 after a protracted process where we tried to find a buyer for the business. This process was unsuccessful and due to the ongoing drain on Group working capital resources and the losses being incurred the business was closed and has been accounted for in FY10. Auto Electrical Services (Manchester) Ltd Auto Electrical Services (Manchester) Ltd, a loss making subsidiary was acquired because of the potential of its “M~Flow” telemetry product which has been enthusiastically received by the Police and Fire authorities and is currently being rolled out across our London Fire fleet. There are great opportunities for this technology and during the year the technology was transferred to another AssetCo subsidiary and the AES business was sold back to management in October 2009. Placing In July, following the award of the London EFCC contract we raised £7.5m (after costs) to help with the upfront costs of training over 700 reserve fire fighters for the London Fire and Emergency Planning Authority. Frank Flynn Chief Financial Officer 12 July 2010 Revenue Group revenue increased by 33% to £45.2m (2009: £34.1m) due to the securing of the EFCC contract which commenced in August 2009 and also due to the IFRS treatment of new assets, which are separately identifiable from a vehicle, and are recognised in accordance with IAS 17 as a sale under a finance lease debtor arrangement. For these assets the IFRS accounting treatment is to take the future revenues from these assets, discount this revenue stream back to today’s value and recognise the revenues as a finance lease debtor. The accounting treatment for the costs associated with these assets are recognised in accordance with IAS 17 “Leases” and included in costs of sales. Gross profit Gross profit has increased by 26% to £27.6m (2009: £21.9m) due to the increased revenues during the year. The gross profit margin was 61.1% (2009: 64.2%) and the reduction in the gross profit % reflects the service rather than capital intensive nature of new revenue. Administration expenses Group administration expenses were £10.1m (2009: £11m), and this material reduction is the consequence of our continuous improvement projects and the synergies from our site rationalisation programme. Finance costs Finance costs were 23% higher than last year at £7m (2009: £5.7m), although included in finance costs is £1.1m (2009: £0.1m) of deemed preference share interest being the consequence of the full year effect of the IFRS deemed finance charge on the preference shares of which an element is classified as financial liabilities. This is a non cash adjustment and the real underlying interest charge is similar to last year. The reduction in debt occurred towards the end of the year and the benefit of lower finance costs will accrue in 2011. Taxation The total tax charge for the year was £4.5m, representing an effective tax rate of 37.2% (2009 zero tax). The higher tax rate this year reflects an adjustment to the tax treatment of the losses arising when TVAC - The Vehicles Application Centre Limited was placed into administration in December 2008. A similar tax treatment has been adopted in the current year for the losses arising on the placing into administration of UV Modular Limited in January 2010. We anticipate the effective tax rate will return to more normal levels in FY11. AssetCo plc Annual Report & Accounts 2010 27 The Board Tim Wightman Chairman Tim is currently Non-Executive Chairman of Petards Group plc, an AIM quoted company and was Non-Executive Chairman of Digica Group Holdings Limited, an IT outsourcing company backed by Bridgepoint Capital, until its sale to Computacentre plc in January 2007. Prior to this, Tim was Chief Executive Officer for businesses listed on the Munich Stock Exchange and the London Stock Exchange. John Shannon Chief Executive Officer John led the reverse takeover of AssetCo Group Limited by Asfare Group plc (now AssetCo plc) in March 2007, and has led the creation of AssetCo Fire and Rescue as an International Fire and Rescue Service business. Prior to this, he led the Buy-in/Management Buy-out of AssetCo Group Limited in October 2005. He has been a board director of AssetCo Group Limited from October 2003, following the acquisition of his asset management business by AssetCo. Prior to the establishment of his own business in 1997, John had worked with Bank of Ireland Corporate and International Banking, and with KPMG. John is a Fellow of the Institute of Chartered Accountants in Ireland, a Fellow of the Institute of Logistics and Transport, and a Member of the Institute of Bankers. John holds a BSc (Hons) in Marine Biology, and a Masters of Business Administration. Frank Flynn Chief Financial Officer Frank was part of the team that acquired AssetCo Group Limited (now AssetCo plc) in October 2005. In the four years leading up to the Buy-in/Management Buy-out, he was an associate partner at PricewaterhouseCoopers (PwC) with specific focus on realising shareholder value. He was responsible for activities in PwC’s Omagh and Derry offices and managed human resources for Northern Ireland Assurance, a division of PwC employing over 300 people. He also managed a portfolio of audit clients. Nominated Adviser Arden Partners Plc, 125 Old Broad Street London EC2N 1AR T: +44(0)20 7614 5932 Financial Adviser Arden Partners Plc, 125 Old Broad Street London EC2N 1AR T: +44(0)20 7614 5932 Corporate Broker Arden Partners Plc, 125 Old Broad Street London EC2N 1AR T: +44(0)20 7614 5932 Financial PR Pelham Public Relations Ltd, No.1 Cornhill, London EC3V 3ND T: +44(0)20 7743 6670 F: +44(0)20 7743 6671 E: pr@pelhampr.com Registrars Computershare Investor Services, P.O. Box 1075 The Pavilions, Bridgwater Road, Bristol BS99 3FA T: +44(0)87 0889 3198 28 AssetCo plc Annual Report & Accounts 2010 Adrian Bradshaw Non-Executive Director Adrian is currently and has been a Director of a number of public and private companies. He previously worked for Citicorp Scrimgeour Vickers, NatWest Markets and Guidehouse Limited and in 1989 he was appointed Head of Corporate Finance at Arbuthnot Latham Bank. Prior to this, Adrian was Chief Executive of Inception Group. Peter Manning Non-Executive Director Peter has extensive international experience in senior operating and customer focused roles in business process outsourcing and in service and technology industries. Between 2004-2007, he was Chief Executive of HBS Ltd, a business owned by Terra Firma Capital Partners providing business process outsourcing to the Local Government sector in the UK, which was subsequently sold to Mouchel Group plc. Andrew Freemantle CBE Non-Executive Director Andrew has extensive leadership experience in complex, multi-site organizations providing mission critical services to the public both in the UK and Internationally. Andrew has recently retired as Chief Executive of the Royal National Lifeboat Institution a position he held for ten years. The RNLI is the world’s largest lifeboat service with an annual budget of over £124 million, operating with 450 lifeboats from 235 lifeboat stations with 1,250 staff and 4,700 volunteer crew. Auditors Grant Thornton UK LLP Churchill House, Chalvey Road East, Slough, Berkshire SL1 2LS Legal Adviser Nabarro, Lacon House, Thoebald’s Road, London WC1X 8RW T: + 44(0) 20 7524 6000 Reporting Accountants Grant Thornton UK LLP 43 Queen Square, Bristol BS1 4QR Legal Adviser Mills Selig, 21 Arthur Street, Belfast BT1 4GA Northern Ireland T: +44(0)28 9024 3878 Investor Relations James Collins AssetCo Head Office, 800 Field End Road South Ruislip, Middlesex, HA4 0QH T: +44(0)208 515 3822 E:james.collins@assetco.com E L I F O R P S S E N S U B I E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S N O I T A M R O F N I AssetCo plc Annual Report & Accounts 2010 29 Report of the Directors Introduction The directors present their annual report and the audited financial statements of the Company, and its subsidiary undertakings included in the consolidation (together “the Group”), for the year ended 31st March 2010. Principal activities AssetCo is an International Fire and Rescue Services business. Our principle activities include the provision of fully outsourced fire and rescue services including personnel, training and equipment. The Group has been re-organised as a fully streamlined Integrated Support Services business concentrating on international Fire and Rescue. The subsidiaries, associated undertakings and joint ventures affecting the profits or net assets of the Group during the year are listed in notes 28 and 29 to the financial statements. Review of business and future developments Further information relating to the performance of the business, strategy and an indication of likely future developments, is given in the Chairman’s Statement and the reports of the Chief Executive Officer and Chief Financial Officer. The directors use various Key Performance Indicators (“KPIs”) to measure the performance of the business. The principle financial and non-financial indicators include EBITDA, earnings per share, net debt, conversion of profit before tax to cash and staff turnover. As outlined in the Report of the Chief Financial Officer, the directors are pleased with the Group’s performance against both the financial and non-financial KPIs. EBITDA £24.9m £24m £17.6m £17m Operating Profit add 2010 Actual 2010 Target 2009 Actual 2009 Target Calculation depreciation EPS from continuing operations 8.9p 7.5p 1.9p 6.0p Retained continuing profit Net debt Cash conversion £68.5m 139% £68m 125% £76m 117% divided by number of shares £76m Total debt minus cash at bank 100% Cash generated from operations divided by PBT Staff turnover 5% 5% 5% 5% Leavers less redundancy over staff numbers Results and dividend The results for the year are set out in the consolidated income statement. This shows a Group profit on continuing operations after taxation of £7.6m (2009:£1.4m). The company has paid dividends in the year of £1.14m (2009: £0.72m). The directors recommend a final dividend of 1.5 pence per share (2009: 1.25p) which, if approved, will be paid on 25 October 2010 to eligible shareholders on the register at 24 September 2010. The directors intend to recommend an interim dividend of not less than 1.0p following the disposal of “assets held for sale”. Capital structure Details of the authorised and issued share capital, together with details of the movements in the Company’s issued share capital during the year, are shown in note 23. The company has one class of ordinary share which carries no right to fixed income. Each share carries the right to one vote at general meeting of the company. 30 AssetCo plc Annual Report & Accounts 2010 Report of the Directors There are no specific restrictions on the size of holding nor the transfer of shares, which are both governed by the general provisions of the Articles of Association and prevailing legislation. The directors are not aware of any agreements between holders of the Company’s shares that may result in restrictions on the transfer of securities or voting rights. Details of the employee share scheme are set out in note 23. The directors are not aware of any agreements between the Company and its directors or employees that provide for compensation for loss of office or employment that occurs because of a takeover bid. Under its Articles of Association, the Company has the authority to issue 95,000,000 ordinary shares. Directors The directors who held office during the year were as follows: Tim Wightman (non-executive Chairman) Adrian Bradshaw (non-executive) Peter Manning (non-executive) Andrew Freemantle (non-executive – appointed 1 January 2010) John Shannon (Chief Executive Officer) Frank Flynn (Chief Financial Officer) Tim Wightman, Adrian Bradshaw, Andrew Freemantle and Peter Manning each serve on the Audit Committee, Remuneration Committee and Nominations Committee. The responsibilities of these committees are outlined in the “Corporate Governance” section of the annual report. In accordance with the Articles of Association,Andrew Freemantle was appointed a director during the year by the board, will retire and, being eligible, seek election by shareholders. Tim Wightman retires by rotation and being eligible, offers himself for re-election at the Annual General Meeting in accordance with the Articles of Association. Directors’ shareholdings The beneficial interests of the directors in the shares of the Company were as follows: Executive directors John Shannon Frank Flynn Non-executive directors Tim Wightman (1) Adrian Bradshaw (2) Peter Manning Andrew Freemantle At 31 March 2010 At 31 March 2009 26,963,327 26,963,327 7,447,222 7,175,000 532,083 267,917 28,846 8,480 532,083 267,917 28,846 n/a E L I F O R P S S E N I S U B E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S I N O T A M R O F N I (1) Tim Wightman is interested in 158,333 of the ordinary shares set out against his name by reason of his wife’s beneficial ownership of those shares. (2) Adrian Bradshaw is interested in 16,667 ordinary shares set out against his name, held in Bradmount SSAS pension scheme. AssetCo plc Annual Report & Accounts 2010 31 Report of the Directors There were no non-beneficial interests held by any of the directors. On 31 July 2009 John Shannon was allotted 777,777 ordinary shares, on 11 March 2010 John Shannon sold 777,777 ordinary shares. No changes took place in the interests of directors between 31 March 2010 and the approval of these accounts. The market price of the ordinary shares at 31 March 2010 was 58 pence (2009: 28.5 pence) and the range during the year was 24 pence to 87 pence. No director has or had a material interest in any contract or arrangement to which the Company, or any subsidiary, is or was a party except as set out in note 33. Changes to Concert Party Immediately following the re-admission of the Company’s ordinary Shares to trading on AIM in March 2007, a concert party led by John Shannon and Frank Flynn (the “Original Concert Party”) owned 42,427,589 ordinary shares in AssetCo, which at the time carried 63.2 per cent of the Company’s voting rights. Full details of the six members of the Original Concert Party and their respective shareholdings and percentage interests were set out in the Company’s Admission Document dated 6 March 2007. Since then certain members have left the Original Concert Party and its membership is now considered to comprise only John Shannon and Frank Flynn (the “Revised Concert Party”). The Revised Concert Party currently holds 34,410,549 (2009: 34,188,327) ordinary shares in AssetCo, which carry 37.93 per cent (2009: 49 per cent) of the Company’s voting rights. The current respective shareholdings and percentage interests of John Shannon and Frank Flynn are set out in the Directors’ Report. As a result of the fall in the Revised Concert Party’s shareholding to below 50% of voting rights in the Company, the Revised Concert Party is no longer generally able to increase its aggregate interests in AssetCo ordinary shares, nor may the remaining members increase their individual interests, without the Revised Concert party incurring an obligation under Rule 9 of the Takeover Code to make a general offer for the company. Directors’ indemnities There are no third party indemnity provisions in place during the year or at the date this report is approved. Service contracts The executive directors, John Shannon and Frank Flynn were awarded service contracts on 5 March 2007 of unlimited duration which are terminable, at any given time by either party, by giving written notice of six months. Two of the non-executive directors, Tim Wightman and Adrian Bradshaw, were awarded service contracts on 5 March 2007 for two years and thereafter terminable on written notice of three months by either party. On 19 August 2008 Peter Manning, a non-executive director, was awarded a service contract for three years and thereafter terminable on written notice of three months by either party. Andrew Freemantle joined the Group as a non-executive director on 1 January 2010 and likewise was awarded a service contract for three years and thereafter terminable on written notice of three months by either party. The terms and conditions of appointment of the non-executive directors are available from the Company Secretary. 32 AssetCo plc Annual Report & Accounts 2010 Share options The company operates a share option scheme through which the directors are able to subscribe to ordinary shares. The directors who held office at 31 March 2010 had beneficial interests in options as set out below. Name Tim Wightman Adrian Bradshaw(1) Parties Exercise price No. of shares Date of grant Expiry date Director Director 100p 100p 105,000 105,000 5 December 2003 5 December 2003 4 December 2013 4 December 2013 (1) The options set out against Adrian Bradshaw were granted to Bradmount Investments Limited acting as nominee for Adrian Bradshaw and Peter Mountford in equal measure. Both Adrian Bradshaw and Peter Mountford are directors and shareholders of Bradmount Investments limited. During the year, no share options were issued. No share options were exercised during the year and a total of 140,000 share options were forfeited during the year. Substantial shareholdings At 25 June 2010 the Company Secretary has been notified, in accordance with Chapter 5 of the Disclosure and Transparency Rules (“DTR”) as issued by the Financial Services Authority, of the following interests of 3% or more in the issued ordinary share capital of the Company: Name Marcus John Shannon Raymond Francis Flynn Gartmore Investment Limited Schroder Investment Management Limited Standard Life Investments Limited Number of shares 26,963,327 7,447,222 5,179,166 4,607,753 2,809,444 Percentage of issued share capital 29.72% 8.21% 5.71% 4.89% 3.10% Charitable donations During the year, the Group made donations of £nil (2009: £nil) to local charities serving the communities in which the Group operates. Principal risks and uncertainties The directors continuously monitor the business and markets within which the Group operates in order to deal with any significant risks or uncertainties as they arise. Although it is not possible to mitigate all risks, all reasonable steps are taken in order to ensure that any adverse consequences associated with these risks are minimised. The directors are of the opinion that a thorough risk management process is adopted which involves a formal review of all the risks identified below. The board has developed internal processes for identifying, evaluating and managing significant risks faced by the Group. The board continues to develop a detailed risk register which identifies key strategic, financial and operating risks affecting, or potentially effecting, the Group. Each risk is assigned to a member of the board who is responsible for monitoring that risk. E L I F O R P S S E N I S U B E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S I N O T A M R O F N I AssetCo plc Annual Report & Accounts 2010 33 Report of the Directors The Group has recently won some significant overseas orders in the Middle East. The Group is actively considering ways in which its anticipated increased exposure to exchange rate fluctuations can be managed. In a similar vein, the Group has recently concluded negotiations with its providers of finance which now means that approximately 80% of its borrowings carry interest at a fixed rate. The Groups exposure to credit risk is insignificant due to the nature of its two Public Finance Initiatives and Public Partnership contracts. Both contracts are government backed and so the risk of default by customers is considered to be remote. Revenue is secured through long-term arrangements with government agencies. Cash flows in relation to these contracts can be forecast with a high degree of certainty. These contracts and other areas of the business continue to grow improving cash flows of the group and enhancing profitability. Expenditure in the emergency services market is expected to grow, and following the successful completion of a number of contract wins, we are well placed to capture revenues in all sectors of the market. The establishment of an Emergency Resource team, tasked with exploring the annual budget of a typical Fire and Rescue Authority is spent, demonstrates the Group’s commitment to the market. Management monitors rolling forecasts of the Group’s liquidity reserves and cash and cash equivalents on the basis of expected cash flow. This is generally carried out at a local level in the operating companies of the Group. Financial instruments Information about the use of financial instruments by the Group is given in note 22 to the financial statements. Financial risk management objectives and policies The Group and Company use various financial instruments including loans, cash, equity investments, preference shares and various items, such as trade receivables and trade payables that arise directly from their operations. The main purpose of these financial instruments is to raise finance for the Group’s and Company’s operations. The existence of these financial instruments exposes the group and company to a number of financial risks, which are described in more detail below. In order to manage the Group’s and Company’s exposure to those risks, in particular the Group’s and Company’s exposure to interest rate risk, the Group and Company enters into a number of derivative transactions including variable to fixed rate interest rate swaps. All transactions in derivatives are undertaken to manage the risks arising from underlying business activities and no transactions of a speculative nature are undertaken. The main risks arising from the Group’s and Company’s financial instruments are market risk, cash flow interest rate risk, credit risk and liquidity risk. The directors review and agree policies for managing each of these risks and they are summarised below. Liquidity risk The Group seeks to manage financial risk by ensuring sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. 34 AssetCo plc Annual Report & Accounts 2010 Report of the Directors The Group policy throughout the year has been to ensure continuity of funding so that at least 25% of its borrowings should mature in more than five years. At the year-end, 25% of the Group’s and Company’s borrowings were due to mature in more than five years. Short-term flexibility is achieved by overdraft facilities. The maturity of borrowings is set out in note 24 to the financial statements. In addition to these borrowings the company has access to undrawn committed borrowing facilities of an additional £3.7m. Access to these facilities is expected to expire within two years but negotiations are currently underway to extend access to this facility. Interest rate risk The Group finances its operations through a mixture of retained profits, bank borrowings and convertible preference shares. The Group exposure to interest rate fluctuations on its borrowings is managed by the use of both fixed and floating facilities. It is the Group’s policy to keep a significant amount of its borrowings at fixed rates of interest. Prior to year end the Group has concluded negotiations with its providers of finance which now means that approximately 80% of its borrowings carry interest at a fixed rate. The interest rate exposure of the financial assets and liabilities of the group as at 31 March 2010 is shown in the table below. The table includes trade receivables and payables as these do not attract interest and are therefore subject to fair value interest rate risk. Financial assets Cash Trade receivables Total Financial liabilities Overdrafts Bank loans Finance leases Preference shares Total Interest rate Floating £’000 Fixed £’000 – – – 13,697 – 13,697 Interest rate Floating £’000 1,210 17,719 – – 18,929 Fixed £’000 – – 63,250 8,200 71,450 Zero £’000 – 1,535 1,535 Zero £’000 – 1,535 1,535 Total £’000 13,697 1,535 15,232 Total £’000 1,210 17,719 63,250 8,200 90,379 Credit risk The Group’s principal financial assets are cash and trade receivables. The credit risk associated with the cash is limited as the counterparties have high credit ratings assigned by international credit-rating agencies. The principal credit risk arises therefore from the Group’s trade receivables. Going concern Management routinely plan future activities including forecasting future cash flows. Management have reviewed their plans with the directors and have collectively formed a judgement that the Group has adequate resources to continue as a going concern for twelve months from the date of signing the financial statements. E L I F O R P S S E N I S U B E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S I N O T A M R O F N I AssetCo plc Annual Report & Accounts 2010 35 Report of the Directors In arriving at this judgement the directors have reviewed the cash flow projections of the Group for the foreseeable future in light of the trading and financing uncertainties in the current economic climate and have considered existing commitments together with the financial resources available to the group. The Group also benefits from the surety of two major long term contracts with secure revenue streams. This, aligned with a significant public sector client base gives comfort over future revenue streams and thus the going concern status of the Group. The directors have also considered the current global economic downturn together with the unprecedented markets for debt and equity financing at this time. The directors have considered all significant trading exposures and do not consider the Group to be significantly exposed to its trading partners, either clients or suppliers at this time. The detailed profit and loss and cash flow budgets prepared by management for the period up to 31 July 2011 have been subjected to various sensitivity analyses and shown that the Group is forecast to have more than sufficient headroom during that period. Events after the balance sheet date Details of significant events since the balance sheet date can be found in Note 32 to the financial statements. Business combinations and disposals Details of the Group’s disposals can be found in Note 28 to these financial statements. Property, plant and equipment The directors are of the opinion that there is no material difference between the book value and the current open market value of the Group’s interests in land or buildings. Insurance Cover The Group maintains appropriate insurance cover in respect of legal actions against the directors as well as against material loss or claims against the Group. The adequacy of cover is reviewed on a regular basis. Creditor payment policy and practice It is the Group’s policy to settle the terms of payments with suppliers when agreeing the terms of the transactions, to ensure that suppliers are aware of these terms and to abide by them. Trade payables at the year end amount to 38 days (2009: 43 days) of average supplies for the year. Employment of disabled persons It is the policy of the Group to give full and fair consideration to the employment of disabled persons in jobs suited to their individual circumstances and, as appropriate, to consider them for recruitment opportunities, career development and training. Where possible, arrangements are made for the continuing employment of employees who have become disabled whilst in the Group’s employment. Employee involvement The Group has continued in its practice of keeping employees informed of the performance and objectives of the Group through personal briefings, regular meetings and e-mail. The financial and economic factors affecting the Group’s performance are also communicated by senior management through informal team briefings. 36 AssetCo plc Annual Report & Accounts 2010 Report of the Directors Directors and senior management regularly discuss with employees, matters of current interest and concern to the business. The Group has implemented a Save as You Earn (“SAYE”) schemes for its employees in an effort to further encourage share ownership and employee participation as widely as possible across the Group. Equal opportunities The Group is committed to equal opportunities from recruitment and selection through to training, development, performance monitoring and retirement. It is the policy of the Group to promote an environment free from discrimination, harassment and victimisation. All decisions relating to employment practises will be objective, free from bias and based solely upon work criteria and individual merit. Existence of branches outside the United Kingdom There were branches of the Group located outside the United Kingdom in Abu Dhabi during the year and at year end. Statement of directors’ responsibilities The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. The directors have elected to prepare the Group financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (“EU”). The directors have elected to prepare the parent company financial statements in accordance with United Kingdom Accounting Standards (“United Kingdom Generally Accepted Accounting Practice”). The financial statements are required by law to give a true and fair view of the state of affairs of the Group and Company at the end of the financial year and of the profit or loss of the Group for that year. In preparing these financial statements, the directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable and prudent; • • state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. The directors are responsible for keeping adequate accounting records that disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements comply with the Companies Acts 2006. They are also responsible for safeguarding the assets of the Company and Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. E L I F O R P S S E N I S U B E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S I N O T A M R O F N I AssetCo plc Annual Report & Accounts 2010 37 Report of the Directors Corporate Governance Report In so far as the directors are aware: • there is no relevant audit information of which the company auditor is unaware; and • the directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditor is aware of that information. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Annual General Meeting The annual general meeting will be held on 18 August 2010 at the offices of Arden Partners plc at 125 Old Broad Street, London, EC2N 1AR. The meeting will convene at 11:00 am. Auditor Grant Thornton UK LLP, have expressed their willingness to continue in office. In accordance with Section 489 (4) of the Companies Act 2006 a resolution to reappoint Grant Thornton UK LLP will be proposed at the Annual General Meeting. By order of the Board Michael Lavender Company Secretary 12 July 2010 Company Registration Number: 04966347 38 AssetCo plc Annual Report & Accounts 2010 Report of the Directors Corporate Governance Report Introduction The Company is committed to high standards of corporate governance and the board is aware that it is accountable to the Company’s shareholders on such matters. As an AIM listed company, AssetCo plc is not required to comply with all of the Combined Code. However, the Company has chosen to disclose the following information on corporate governance. The Board The Board consists of two executive and four non-executive directors. The executive directors provide a direct line of control between the Company and its operating businesses. The non-executive directors provide a balance to the Board and bring a wide breadth of experience. The Board meets on a monthly basis and has a formal schedule of matters reserved for its consideration. These matters include the approval of the financial and commercial strategy, dividend policy, annual and interim results, review of major investments, internal controls and performance as well as reporting to shareholders. The schedule is reviewed on an annual basis. All directors have access to the advice and services of the Company Secretary and may also seek independent professional advice and training, at the expense of the Company, if required to carry out their duties. The Board carries out rigorous reviews of its own performance and that of its committees. Formal individual performance reviews are also conducted. In addition, the close-working nature of the Board is such that an under-performance would be immediately apparent. The Chairman explicitly encourages any Board member with concerns over the performance of an individual director to identify those to himself at any time. Committees The Board has established an audit committee (Adrian Bradshaw, Chairman), remuneration committee (Peter Manning, Chairman) and nominations committee (Tim Wightman, Chairman). The terms of reference of each of the committees are available from the Company Secretary. Audit committee The audit committee, which convenes every six months, has primary responsibility for monitoring the quality of internal controls and for ensuring that the financial performance of the Group is properly measured and reported on, as well as reviewing reports from the Group’s auditors relating to the Group’s accounting and internal controls, in all cases having due regard to protecting the interests of the shareholders. The committee also reviews the independence and objectivity of non-audit services supplied by external auditors to the Group, seeking to balance objectivety and value for money taking into account relevant ethical guidance. Remuneration committee The remuneration committee will determine the terms and conditions of service of the executive directors, including their remuneration and grant of options. The policy of the committee is to implement packages that are closely aligned to market standards and best practice. Should an executive director wish to take up an external appointment, approval must be sought from the Chairman and Chief Executive Officer of the Group. E L I F O R P S S E N I S U B E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S I N O T A M R O F N I AssetCo plc Annual Report & Accounts 2010 39 Corporate Governance Report The non-executive directors are paid a fee for their services and do not qualify for performance bonuses. Remuneration of the directors The remuneration of the executive directors and fees paid to the non-executive directors during 2010 and 2009 are as follows: John Shannon Frank Flynn Total Non-executive directors’ remuneration Tim Wightman Adrian Bradshaw Peter Manning Andrew Freemantle Total Salary 2010 £'000 300 250 550 Benefits in kind 2010 £'000 Total emoluments 2010 £'000 – – – 300 250 550 Salary 2009 £'000 250 125 375 Benefits in kind 2009 £'000 Total emoluments 2009 £'000 – – – 2010 £'000 55 35 35 18 143 250 125 375 2009 £'000 55 35 18 - 108 Nominations committee The nominations committee makes recommendations to the board for the appointment or replacement of directors. It is also responsible for succession planning within the Group. The functions of the nomination committee were discharged by the main board throughout the year and it did not meet separately. Board Changes The Group was pleased to welcome Andrew Freemantle to the board of directors during the year and would like to thank Adrian Bradshaw for his service as a non-executive director. Adrian is standing down with effect of the date of the Annual General Meeting. Adrian has served on the board for over six years and made an important contribution for which we are very grateful. Internal control The Board is responsible for maintaining a sound system of internal controls to safeguard the investment of shareholders and the assets of the Group. The directors monitor the operations of the internal controls. The objective of the system is to safeguard the assets of the Group, to ensure adequate accounting records are maintained and to ensure that the financial information used with the business, and for publication, is reliable. Any such system of internal control can only provide reasonable, but not absolute assurance, against material misstatement of loss. Internal control procedures implemented by the Board include: • • • • A clearly defined organisation structure with formal lines of authority, accountability and responsibility; Review of monthly financial reports and monitoring of performance; Prior approval of all significant expenditure including all major investment decisions; and Regular assessment of major business, investment and financing risks. 40 AssetCo plc Annual Report & Accounts 2010 Corporate Governance Report The board has reviewed the operation and effectiveness of the Groups’ system of internal control for the financial year and the period up to the date of approval of the financial statements. During the course of its review of the system of internal control, the Board has not identified nor been advised of any failings or weaknesses which it has determined to be significant. Therefore, a confirmation in respect of necessary actions has not been considered appropriate. Internal audit function The audit committee remains of the view that given the size and the nature of the operations of the Group that the establishment of an internal audit function is not warranted. The audit committee continues to review this decision. Attendance at meetings The number of Board and Committee meetings attended by each of the directors during the year: Name Executive directors John Shannon Frank Flynn Non-executive directors Tim Wightman Adrian Bradshaw Peter Manning Andrew Freemantle Main Board Meetings Audit Committee Remuneration Committee 17 (18) 18 (18) 18 (18) 18 (18) 18 (18) 3 (3) – – 2 (2) 2 (2) 2 (2) – – – 2 (2) 2 (2) 2 (2) – The figures in parentheses indicate the number of meetings that each director was eligible to attend during the year. Relations with shareholders The Board has always sought to maintain good relations with the Company’s shareholders and believe that shareholders receive timely information on the performance of the Group. The directors acknowledge that it is important for both private and institutional shareholders to have the opportunity to raise concerns or discuss matters. All of the directors attend the Company’s Annual General Meeting and are available to answer questions at the meeting or privately. The directors are in regular contact with institutional shareholders and feedback is also received from the Company’s brokers and nominated advisor. Michael Lavender Company Secretary 12 July 2010 E L I F O R P S S E N I S U B E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S I N O T A M R O F N I AssetCo plc Annual Report & Accounts 2010 41 Report of the Independent Auditor to the Members of AssetCo plc We have audited the group financial statements of AssetCo plc for the year ended 31 March 2010 which comprise the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of financial position, the consolidated statement of changes in equity, the consolidated statement of cash flow and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRS) as adopted by the European Union. This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditor As explained more fully in the Directors’ Responsibilities Statement as set out on page 22 , the directors are responsible for the preparation of the Group financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the Group financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the APB’s website at www.frc.org.uk/apb/scope/UKNP. Opinion on financial statements In our opinion the group financial statements: • give a true and fair view of the state of the Group’s affairs as at 31 March 2010 and of its profit for the year then ended; • have been properly prepared in accordance with IFRS as adopted by the European Union; and • . have been prepared in accordance with the requirements of the Companies Act 2006 Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Report of the Directors for the financial year for which the group financial statements are prepared is consistent with the Group financial statements. 42 AssetCo plc Annual Report & Accounts 2010 Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Other matter We have reported separately on the parent company financial statements of AssetCo plc for the year ended 31 March 2010. Robert Napper Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants Slough 12 July 2010 E L I F O R P S S E N I S U B E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S I N O T A M R O F N I AssetCo plc Annual Report & Accounts 2010 43 Consolidated Income Statement Continuing operations Revenue Cost of sales Gross profit Administrative expenses Operating profit Finance income Finance costs Gain/(loss) on fair value of financial instrument Profit before taxation Taxation Deferred tax movement on gain/(loss) of financial instrument Profit for the year from continuing operations Discontinued operations (Loss)/profit for the year from discontinued operations Profit for the year Earnings per share (pence) From continuing operations Basic Diluted From continuing and discontinued operations Basic Diluted Year ended Notes 31.03.2010 £’000 31.03.2009 £’000 6 12 12 7 9 9 10 10 28 11 11 11 11 45,231 (17,671) 27,560 (10,139) 17,421 416 (7,043) 1,304 12,098 (4,166) (365) 7,567 (5,296) 2,271 8.9p 8.9p 2.7p 2.7p 34,050 (12,175) 21,875 (11,036) 10,839 706 (5,739) (4,555) 1,251 (1,134) 1,275 1,392 283 1,675 1.9p 1.9p 2.3p 2.3p The accompanying notes form an integral part of these consolidated financial statements 44 AssetCo plc Annual Report & Accounts 2010 Consolidated Income Statement Consolidated Statement of Comprehensive Income Profit for the year Other comprehensive income Exchange differences on translating of foreign operations Income tax relating to components of other comprehensive income Total comprehensive income Notes 31.3.2010 £’000 2,271 246 (69) 177 2,448 31.3.2009 Restated £’000 1,675 (660) 185 (475) 1,200 E L I F O R P S S E N I S U B E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S I N O T A M R O F N I The accompanying notes form an integral part of these consolidated financial statements AssetCo plc Annual Report & Accounts 2010 45 Consolidated Statement of Financial Position ASSETS Non-current assets Property, plant and equipment Goodwill Other intangible assets Investment in associates Deferred tax asset Retirement benefit surplus Current assets Inventories Trade and other receivables Cash Assets held for sale Total assets EQUITY Issued share capital Equity component of compound financial instruments Share premium account Reverse acquisition reserve Translation reserve Other reserve Retained earnings Total equity Notes 31.3.2010 £’000 31.3.2009 Restated £’000 31.3.2008 Restated £’000 15 16 16 28 26 17 18 19 20 21 23 23 23 23 74,714 47,905 7,939 414 4,377 429 76,877 57,081 5,666 414 5,162 429 76,727 54,060 1,576 414 3,043 429 135,778 145,629 136,249 201 28,014 13,697 41,912 16,956 6,607 24,062 22,498 53,167 – 5,910 21,514 12,896 40,320 3,370 194,646 198,796 179,939 22,678 7,917 29,288 (11,701) (58) 680 12,014 60,818 18,345 7,917 26,115 (11,701) (304) 580 10,883 51,835 17,958 – 25,197 (11,701) 356 384 9,929 42,123 The accompanying notes form an integral part of these consolidated financial statements 46 AssetCo plc Annual Report & Accounts 2010 Consolidated Statement of Financial Position LIABILITIES Non-current liabilities Borrowings Liability component of compound financial instruments Deferred tax liabilities Current liabilities Trade and other payables Current income tax liabilities Borrowings Provisions Derivative financial instruments Liabilities associated with assets classified as held for sale Total liabilities Total equity and liabilities Notes 31.3.2010 £’000 31.3.2009 Restated £’000 01.4.2008 Restated £’000 24 23 26 27 24 22 21 67,267 8,200 9,959 85,426 20,118 858 14,912 – 5,821 41,709 6,693 133,828 194,646 81,676 7,045 7,391 96,112 26,881 – 16,843 – 7,125 50,849 – 146,961 198,796 69,970 – 5,961 75,931 27,872 330 26,825 1,549 2,190 58,766 3,119 137,816 179,939 Approval These financial statements were approved by the Board of directors and authorised for issue on 12 July 2010 and are signed on their behalf by: R.F.Flynn Director E L I F O R P S S E N I S U B E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S I N O T A M R O F N I The accompanying notes form an integral part of these consolidated financial statements AssetCo plc Annual Report & Accounts 2010 47 Consolidated Statement of Changes in Equity Consolidated Cash Flow Statement Ordinary and preference share capital £’000 Share premium account £’000 Reverse acquisition reserve £’000 Hedging reserve £’000 Translation reserve £’000 Other Reserve £’000 Retained earnings £’000 17,958 25,197 (11,701) 1,577 356 384 11,506 Total Equity £’000 45,277 – – – – – – (3,154) 1,577 – – – – 17,958 25,197 (11,701) At 1 April 2008 as previously stated Prior year adjustment in respect of derivative financial instruments Prior year adjustment in respect of derivative financial instruments At 1 April 2008 as restated Exchange differences on translation of overseas operations Profit for the year Total recognised income and expense for the period Dividends paid in the year Movement relating to share-based payments Net proceeds from issue of shares At 31 March 2009 Exchange differences on translation of overseas operations Profit for the year Total recognised income and expense for the period Dividends paid in the year Movement relating to share-based payments – – – – – 8,304 26,262 – – – – – – – – – – 918 – – – – – – 26,115 (11,701) – – – – – – – – – – – Net proceeds from issue of shares 4,333 3,173 At 31 March 2010 30,595 29,288 (11,701) – – – – – – – – – – – – – – – 356 384 (660) – (660) – – – (304) 246 – 246 – – – (58) – – – – 196 – 580 – – – – 100 – 680 – (3,154) (1,577) 9,929 – 42,123 – (660) 1,675 1,675 1,675 (721) – – 1,015 (721) 196 9,222 10,883 51,835 – 2,271 246 2,271 2,271 (1,140) 2,517 (1,140) – – 100 7,506 12,014 60,818 The accompanying notes form an integral part of these consolidated financial statements 48 AssetCo plc Annual Report & Accounts 2010 Consolidated Cash Flow Statement Cash flows from operating activities Cash generated from operations Taxation Contribution to defined benefit pension schemes Net cash flow from operating activities Cash flows from investing activities Finance income Acquisition of subsidiaries, net of cash acquired Purchase of intangible assets Cash element of deferred consideration settlement Purchases of property, plant and equipment Proceeds from sale of property, plant and equipment Cash flow from investing activities Cash flows from financing activities Issue of shares (net of costs) Dividends paid Finance costs Repayments of borrowings Increase in borrowings Finance lease additions Finance lease repayments Net cash from financing Net cash and cash equivalents from continuing operations Cashflow from discontinued operations Net change in cash and cash equivalents Cash, cash equivalents and bank overdrafts at beginning of period Cash, cash equivalents and bank overdrafts at end of period Year ended Notes 31.3.10 £’000 30 24,294 (320) (228) 23,746 416 (1) (2,713) – (8,073) 12 (10,359) 7,506 (1,140) (5,888) (11,063) – 11,807 (11,371) (10,149) 3,238 (9,556) (6,318) 18,805 12,487 31 16 15 9 20 31.3.09 Restated £’000 12,732 (44) (292) 12,396 717 (60) (3,563) (1,800) (10,906) 6,229 (9,383) 14,780 (721) (6,687) (5,100) 10,942 15,062 (13,453) 14,823 17,836 575 18,411 394 18,805 E L I F O R P S S E N I S U B E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S I N O T A M R O F N I The accompanying notes form an integral part of these consolidated financial statements AssetCo plc Annual Report & Accounts 2010 49 Notes to the Consolidated Financial Statements 1. Legal status and activities AssetCo plc and its subsidiaries (together “the Group”) are principally involved with the provision of management services to the emergency services market. Other Group companies are engaged in automotive engineering, the provision of asset management services and the supply of specialist equipment to the emergency services market. AssetCo plc is a public limited liability company incorporated and domiciled in England and Wales. The address of its registered office is 800 Field End Road, South Ruislip, Middlesex HA4 0QH. The Group operates from eight sites throughout the United Kingdom and one in the Republic of Ireland. AssetCo plc’ shares are listed on the Alternative Investment Market (“AIM”) of the London Stock Exchange. Due to the adoption of reverse acquisition accounting, references to “the Company” in the consolidated financial statements are to AssetCo Group Limited. Further information on reverse acquisition accounting is given in note 2.2. For greater clarity, the financial statements have been presented in Sterling to the nearest thousand pounds (£’000) except where otherwise indicated. 2. Summary of significant accounting policies The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. 2.1 Basis of preparation The consolidated financial statements comply with the AIM Rules and have been prepared in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the European Union and International Financial Reporting Interpretation Committee (IFRIC) interpretations as they apply to the financial statements of the Group for the year ended 31 March 2010 and applied in accordance with the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements are prepared using the historical cost convention as modified for the revaluation of certain derivative instruments. The accounting policies which follow set out the policies which apply in preparing the consolidated financial statements for the year ended 31 March 2010. The accounting policies applied are consistent with those followed in the preparation of the 31 March 2009 consolidated financial statements except where noted below. Going concern Management routinely plan future activities including forecasting future cash flows. Management have reviewed their plans with the directors and have collectively formed a judgement that the Group has adequate resources to continue as a going concern for at least twelve months from the date of signing of the consolidated financial statements. In arriving at this judgement the directors have reviewed the cash flow projections of the Group for the foreseeable future in light of the trading and financing uncertainties in the current economic climate and have considered existing commitments together with the financial resources available to the Group. The Group also benefits from the surety of two major long term contracts which guarantee revenue streams for the next 14 years. This, aligned with a significant public sector client base gives comfort over future income streams and thus the going concern status of the Group. The directors have also considered the current global economic downturn together with the unprecedented markets for debt and equity financing at this time. The directors have considered all significant trading exposures and do not consider the group to be significantly exposed to its trading partners, either clients or suppliers at this time. 50 AssetCo plc Annual Report & Accounts 2010 The detailed profit and loss and cash flow budgets prepared by management for the period up to 31 July 2011 have been subjected to various sensitivity analyses and show that the Group is forecast to have more than sufficient headroom in that period. Exemptions IFRS 3: “Business Combinations”, has not been applied to acquisitions of subsidiaries or interests in joint ventures that occurred before 1 April 2006 as these were business combinations effected before the date of transition to IFRSs. The Group has elected to recognise all cumulative actuarial gains and losses in relation to employee benefit schemes at the date of transition which fall outside of the 10% corridor approach. Critical accounting estimates and judgements The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported for assets and liabilities as at the balance sheet date and the amounts reported for revenue and expenses during the year. The nature of estimation means the actual outcomes may differ from the estimates. Further details on the critical accounting estimates used and judgements made in preparing these financial statements can be found in Note 4. Accounting standards and interpretations Standards New standards, interpretations and amendments having an impact on the Consolidated Financial Statements IFRS 8: “Operating segments” (effective from 1 January 2009) requires an entity to adopt a “management approach” to segment reporting such that segmental information is in the form which management uses internally for assessing segment performance and deciding how to allocate resources to operating segments. This information may be different from that used to prepare the income statement and statement of financial position. The adoption of this standard has not affected the identified operating segments for the Group. However the accounting policy for identifying segments is now based on internal management reporting information that is regularly reviewed by the chief operating decision maker. IAS 1: “Presentation of Financial Statements” (Revised 2007) is mandatory for accounting periods commencing on or after 1 January 2009. The Income Statement and Statement of Recognised Income and Expense have been replaced by a “Statement of Comprehensive Income”. IAS 1 permits the components of the income statement to continue to be presented in a separate income statement, and the Group has taken this option. Additionally, IAS 1 now requires the presentation of the statement of changes in equity within a separate primary statement. IAS 1 requires two comparative periods are presented for the statement of financial position when the Group: 1. 2. 3. applies an accounting policy retrospectively, makes a retrospective restatement of items in its financial statements, or reclassifies items in the financial statements. IFRS 7: “Financial instruments: disclosures” (Amendment), (effective from 1 January 2009) requires all financial instruments that are measured at fair value in the balance sheet to be classified into a three-level fair value hierarchy. The amendments are designed to assist understanding of the determination of fair value measurements and are provided in note 25. E L I F O R P S S E N I S U B E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S I N O T A M R O F N I AssetCo plc Annual Report & Accounts 2010 51 Notes to the Consolidated Financial Statements New standards, interpretations and amendments to published standards – effective after 31 March 2010 IFRS 3: “Business combinations” (revised 2008) (effective from 1 July 2009) requires that all payments to purchase a business are recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently re-measured through the Income Statement. There is a choice on an acquisition-by- acquisition basis to measure the non-controlling interest in the acquiree either at fair value or at the non- controlling interest’s proportionate share of the acquiree’s net assets. All acquisition-related costs should be expensed. The Group will apply this from 1 April 2010. IFRS 5: “Non-current assets held-for-sale and discontinued operations” (Amendment), and consequential amendment to IFRS 1, clarifies that all of a subsidiary’s assets and liabilities are classified as held for sale if a partial disposal sale plan results in loss of control. Relevant disclosure should be made for this subsidiary if the definition of a discontinued operation is met. The Group will apply this prospectively to all partial disposals of subsidiaries from 1 April 2010. IFRS 9: “Financial instruments” (effective 1 January 2013) introduces new requirements for the classification and measurement of financial assets, simplifying the mixed measurement model currently applied under IAS 39 by defining two primary measurement categories for financial assets; amortised cost and fair value. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset. The Group are reviewing the potential impact of this standard on future financial statements, but do not expect that it will have a significant impact on the current treatment of the Group’s financial assets. IFRIC 14 (Amendment), Prepayments of a minimum funding requirement (effective 1 January 2011) applies in the limited circumstances when an entity is subject to minimum funding requirements and makes an early payment of contributions to cover those requirements. The amendment permits such an entity to treat the benefit of such an early payment as an asset. This amendment is not expected to impact the amounts recognised under defined benefit schemes. IFRIC 19: “Extinguishing financial liabilities with equity instruments” (effective 1 July 2010) requires that where an entity renegotiates the terms of a financial liability and issues equity instruments to extinguish all or part of the financial liability, then the equity instruments issued are measured at their fair value. If their fair value cannot be reliably measured the equity instruments are measured to reflect the fair value of the financial liability extinguished. The difference between the financial liability extinguished and the initial measurement amount of the equity instrument issued is included in profit and loss. As the Group does not currently issue equity instruments to extinguish financial liabilities, this is not expected to have any material impact on the Group’s Consolidated Financial Statements. 2.2 Basis of consolidation The Group financial statements consolidate the financial statements of AssetCo plc and the entities it controls (its subsidiaries) drawn up to 31 March each year. a) Reverse acquisition accounting Under IFRS 3 “Business Combinations”, the acquisition of AssetCo Group Limited (the “legal subsidiary”) by the Company (the “legal parent”) has been accounted for as a reverse acquisition and the consolidated IFRS financial information of the Company is therefore a continuation of the financial information of AssetCo Group Limited. 52 AssetCo plc Annual Report & Accounts 2010 Notes to the Consolidated Financial Statements Under reverse acquisition accounting, the cost of a business combination is deemed to have been incurred by the legal subsidiary in the form of equity instruments issued to the owners of the legal parent. The assets and liabilities of the legal subsidiary (the “acquirer”) are recognised and measured in the consolidated financial statements at their pre-combination carrying amounts. The assets and liabilities of the legal parent (the “acquiree”) are fair valued at the acquisition date. The retained earnings and other reserves recognised in the consolidated financial statements should be those of the legal subsidiary immediately before the business combination. The equity structure shown in the consolidated financial statements should reflect the legal parent’s equity structure, including the equity instruments issued by the legal parent to effect the combination. Profit and loss and other comprehensive income of subsidiaries acquired or disposed of during the year are recognised from the effective date of acquisition, or up to the effective date of acquisition, as applicable. b) Subsidiaries Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. Subsidiaries are fully consolidated from the date on which control is transferred to the Group and continue to be consolidated until the date that control ceases. Control comprises the power to govern the financial and operating policies of the investment so as to obtain benefit from its activities and is achieved through direct or indirect ownership of voting rights or by way of contractual agreement. Minority interests represent the portion of profit or loss and net assets in subsidiaries that is not held by the Group and is presented separately from parent shareholders equity within equity in the consolidated balance sheet. Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated, unless there is evidence of impairment of the asset, but considered an impairment indicator of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. c) Business Combinations Business combinations are accounted for using the purchase method. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of identifiable net assets acquired is recorded as goodwill. If the cost of an acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is immediately recognised directly in the income statement. When settlement of all or any part of the cost of a business combination is deferred, the fair value of that deferred component shall be determined by discounting the amounts payable to their present value at the date of exchange, taking into account any premium or discount likely to be incurred in settlement. E L I F O R P S S E N I S U B E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S I N O T A M R O F N I AssetCo plc Annual Report & Accounts 2010 53 Notes to the Consolidated Financial Statements d) Associates Associates are entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. The Group’s investment in associates includes goodwill identified on acquisition, net of any accumulated impairment loss. The Group’s share of the post-acquisition profit or loss of its associates is recognised in the income statement, and its share of post-acquisition movement in reserves is recognised in reserves. The cumulative post- acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group. e) Joint ventures The Group combines its share of the joint ventures’ individual income and expenses, assets and liabilities and cash flows on a line-by-line basis with similar items in the Group’s financial statements. The Group recognises the portion of gains or losses on the sale of assets by the Group to the joint venture that is attributable to the other venturers. The Group does not recognise its share of profits or losses from the joint venture that result from the Group’s purchase of assets from the joint venture until it resells the assets to an independent party. However, a loss on the transaction is recognised immediately if the loss provides evidence of a reduction in the net realisable value of current assets, or an impairment loss. f) Recognition of assets and liabilities as part of a business combination In accordance with IFRS 3: “Business Combinations”, an intangible asset acquired in a business combination is deemed to have a cost to the Group of its fair value at the acquisition date. The fair value of the intangible asset reflects market expectations about the probability that the future economic benefits embodied in the asset will flow to the Group. Where an intangible asset might be separable, but only together with a related tangible or intangible asset, the group of assets is recognised as a single asset separately from goodwill where the individual fair values of the assets in the group are not reliably measurable. Where the individual fair value of the complimentary assets are reliably measurable, the Group recognises them as a single asset provided the individual assets have similar useful lives. g) Assets held for sale Non-current assets (and disposal groups) classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify for its recognition as a completed sale within one year from the date of classification. 54 AssetCo plc Annual Report & Accounts 2010 Notes to the Consolidated Financial Statements 2.3 Revenue recognition Revenue comprises the fair value of the consideration received or receivable from the provision of services in the ordinary course of the Group’s activities. Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminating sales within the Group. The Group recognises revenue when specific criteria have been met for each of the Group’s activities as described below. The amount of revenue is not considered to be reliably measurable until all contingencies relating to the sale have been resolved. The Group enters into sales involving a range of the Group’s products and services (multiple components) for example the provision of training, equipment and after sales maintenance. The Group applies the revenue recognition criteria set out below to each separately identifiable component of the sales transaction in order to reflect the substance of the transaction. The consideration received for these transactions is allocated to the separately identifiable component by taking into account the relative fair values of each component. Revenue is recognised when the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the entity, and costs incurred or to be incurred can be measured reliably, and when the criteria for each of the Group’s different activities has been met. The activity – specific recognition criteria are based on the goods or solutions provided to the customer and the contract conditions in each case and are described below. a) Rendering of services Revenue is only recognised in respect of service contracts when the stage of completion can be measured reliably, both costs incurred and cost to complete can be measured reliably and it is probable that economic benefits will flow to the Group. b) Sale of goods Revenue from the sale of goods to the emergency services market is recognised when all of the following conditions have been satisfied: • • the Group has transferred to the buyer the significant risks and rewards of ownership of the goods which is generally when the goods have been successfully delivered to the customer and accepted; the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold which is generally when the goods have been despatched; • the amount of revenue can be measured reliably; • it is probable that the economic benefits associated with the transaction will flow to the Group; and • the costs incurred or to be incurred in respect of the transaction can be measured reliably. c) Leasing and short-term hire Revenue from the leasing and short-term hire of assets is recognised in the income statement on a straight-line basis over the period of the hire. E L I F O R P S S E N I S U B E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S I N O T A M R O F N I AssetCo plc Annual Report & Accounts 2010 55 Notes to the Consolidated Financial Statements d) Interest income Interest is recognised using the effective interest method which calculates the amortised cost of a financial asset and allocates the interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. e) Construction contracts Revenue comprises the value of construction executed during the year and contracted development sales. The results for the year include adjustments for the outcome of contracts, including jointly controlled operations, executed in both the current and preceding years. (i) Fixed price contracts – Revenue is recognised based upon an internal assessment of the value of works carried out. This assessment is arrived at after due consideration of the performance against the programme of works, measurement of the works, detailed evaluation of the costs incurred and comparison to external certification of the work performed. The amount of profit to be recognised is calculated based on the proportion that costs to date bear to the total estimated costs to complete. Revenue and profit are not recognised in the income statement until the outcome of the contract is reasonably certain. Adjustments arise from claims by customers or third parties in respect of work carried out and claims and variations on customers or third parties for variations on the original contract. Provision for claims against the Group is made as soon as it is believed that a liability will arise, but claims and variations made by the Group are not recognised in the income statement until the outcome is virtually certain. Provision will be made against any potential loss as soon as it is identified. (ii) Cost plus contracts – Revenue is recognised based upon costs incurred to date plus any agreed fee. Where contracts include a target price consideration is given to the impact on revenue of the mechanism for distributing any savings or additional costs compared to the target price. Any revenue over and above the target price is recognised once the outcome is virtually certain. Profit is recognised on a constant margin throughout the life of the contract. Provision will be made against any potential loss as soon as it is identified. Amounts recoverable on contracts are stated at cost plus attributable profit less any foreseeable losses and payments on account and are included in receivables and payables respectively. 2.4 Foreign currency translation a) Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in sterling (£), which is the Company’s functional and presentation currency. There has been no change in the Company’s functional or presentation currency during the year under review. b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. 56 AssetCo plc Annual Report & Accounts 2010 Notes to the Consolidated Financial Statements Non monetary items measured at historical cost are translated using the exchange rate at the date of translation. c) Foreign operations translation The Group consolidation is prepared in sterling. Income statements of foreign operations are translated into sterling at the weighted average exchange rates for the period and balance sheets are translated into sterling at the exchange rate ruling on the balance sheet date. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as local currency assets and liabilities of the foreign entity and are translated at the closing rate. 2.5 Government grants Grants from the government are recognised at their fair value when there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government grants relating to costs are deferred and recognised in the income statement over the period necessary to match them with the costs that they are intended to compensate. Government grants relating to property, plant and equipment are included in non-current liabilities as deferred government grants and are credited to the income statement on a straight-line basis over the expected lives of the related assets. 2.6 Segment reporting In accordance with IFRS 8: “Operating segments” (effective from 1 January 2009), the Group adopts a “management approach” to segment reporting such that segmental information is in the form which management uses internally for assessing segment performance and deciding internally how to allocate resources to operating segments. Consistent with presentation in the management accounts, the Group separately discloses the results of its Intergrated Support Services, Vehicle Assembly, Specialist Equipment and its non-core businesses. Each of these operating segments is managed separately as each one requires different resources, marketing approaches, working capital and expertise. All inter-segment transfers are carried out at arm’s length prices. The measurement policies the Group uses for segment reporting under IFRS 8 are the same as those used in its financial statements, except that expenses relating to share-based payments are not included in arriving at the operating profit of the operating segments. In addition, corporate assets which are not directly attributable to the business activities of any operating segment are not allocated to a segment. There have been no changes from prior periods in the measurement methods used to determine reported segment profit or loss. 2.7 Property, plant and equipment All property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. E L I F O R P S S E N I S U B E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S I N O T A M R O F N I AssetCo plc Annual Report & Accounts 2010 57 Notes to the Consolidated Financial Statements All other repairs and maintenance is charged to the income statement during the financial period in which they are incurred. Borrowing costs incurred specifically for the construction of an item of property, plant and equipment are capitalised over the period of completion of the relevant asset. Borrowing costs of £100,000 have been capitalised in the year. The capitalisation rate used in 5.795%. Depreciation on assets is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives as follows: Leasehold improvements Fixtures and fittings Equipment, plant and machinery Operational equipment and motor vehicles Over the term of the lease 3 – 5 years 2 – 5 years 2 – 25 years Land is not depreciated. Operational equipment and motor vehicles that have been provided to customers under long-term contracts are grouped as “assets under long-term arrangements” in note 15 to the financial statements. The residual values and useful lives of assets are reviewed, and adjusted if appropriate, at each balance sheet date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within “other gains” or “other losses” in the income statement. 2.8 Intangible assets a) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units (separately identifiable cash flows) for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. The Group allocates goodwill to each contract that it operates and the underlying business to which the goodwill relates. b) Computer software Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives of three to five years. 58 AssetCo plc Annual Report & Accounts 2010 Notes to the Consolidated Financial Statements c) Impairment testing of goodwill, other intangible assets and property, plant and equipment For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows. As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill, other individual assets or cash-generating units that include goodwill, other intangible assets with an indefinite useful life, and those intangible assets not yet available for use are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount exceeds the recoverable amount of the asset or cash-generating unit. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use based on an internal discounted cash flow evaluation. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. d) Bid costs for PFI/PPP contracts Bid costs relating to PFI/PPP projects are not carried in the balance sheet as recoverable until the Group has been appointed preferred bidder or has received an indemnity in respect of the investment or costs, and regards recoverability of the costs as virtually certain. Provided that these costs meet the definition of contract costs, then they can be deferred and recognised in later periods along with an appropriate proportion of revenue. Property plant and equipment Where the contracts give rise to the creation of an item of property, plant and equipment, which the Group leases out under operating lease arrangements pre-contract costs are capitalised as part of the initial cost of property plant and equipment. Finance lease arrangements Where pre-contract costs are incurred in the negotiation of a finance lease arrangement these initial costs are included in the recoverable amount of the finance lease debtor such that the interest rate implicit in the lease reflects the costs incurred up front. Long-term construction contracts Costs that relate directly to a contract and are incurred in securing the contract are included as part of the contract costs if they can be separately identified and measured reliably and it is probable that the contract will be obtained. 2.9 Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first-in first-out (“FIFO”) method. The cost of finished goods and work in progress comprises design costs, raw materials, direct labour, other direct costs and related production overheads based on normal operating capacity. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. E L I F O R P S S E N I S U B E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S I N O T A M R O F N I AssetCo plc Annual Report & Accounts 2010 59 Notes to the Consolidated Financial Statements 2.10 Financial instruments and hedge accounting a) Financial assets The Group classifies its financial assets in the following categories: at fair value through profit or loss or loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short-term. Derivatives are also categorised as held for trading unless they are designated as hedges. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are quoted in an active market. They are included in current assets, except for maturities greater than twelve months after the balance sheet. These are classified as non-current assets. The Group’s loans and receivables comprise “trade and other receivables” and “cash and cash equivalents”. Trade receivables Trade receivables are recognised initially at fair value plus directly attributable transaction costs and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the income statement within administrative expenses. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against administrative expenses in the income statement. Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call with banks and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet. b) Financial liabilities and equity instruments A financial liability is any liability that is a contractual obligation to deliver cash or another financial asset to another entity or to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the entity. An equity instrument is a contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. Where the contractual obligations of financial instruments, including share capital, are equivalent to a similar debt instrument, those financial instruments are classed as financial liabilities. Financial liabilities are classified as such in the balance sheet. 60 AssetCo plc Annual Report & Accounts 2010 Notes to the Consolidated Financial Statements Finance costs and gains or losses relating to financial liabilities are included in the income statement. Finance costs are calculated so as to produce a constant rate or return on the outstanding liability. Where the contractual terms of share capital do not have any terms meeting the definition of a financial liability then this is classed as an equity instrument. Dividends and distributions relating to equity instruments are debited direct to equity. Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least twelve months after the balance sheet date. Derivatives Any gains or losses arising from changes in the fair value of derivatives during the year that do not qualify for hedge accounting are taken directly to the income statement. The fair value of interest rate swap contracts is determined by reference to market values for similar instruments. Trade payables Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. 2.11 Equity Issued share capital Ordinary shares are classified as equity. Costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Share premium The share premium account represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share issue. Reverse acquisition reserve The reverse acquisition reserve arises on the acquisition of Asfare Group plc by AssetCo Group Limited and represents the extent to which the reserves of AssetCo Group Limited have been capitalised as a result of the business combination. Translation reserve The translation reserve represents the movement on the translation of the net investment in foreign operations recorded in foreign currencies at the balance sheet date. Exchange differences arising in the ordinary course of trading are included in the income statement. E L I F O R P S S E N I S U B E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S I N O T A M R O F N I AssetCo plc Annual Report & Accounts 2010 61 Notes to the Consolidated Financial Statements Other reserve The other reserve represents equity-settled share-based employee remuneration until such share options are exercised, forfeited, lapse or expire. 2.12 Leases Leases in which a significant proportion of the risk and rewards of ownership are retained by the lessor and classified as operating leases. Finance leases for which the group is a lessee Finance leases are capitalised at the commencement of the lease at the lower of the fair value of the leased asset and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in other short-term and other long-term payables. The interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The leased asset acquired under finance leases is depreciated over its useful economic life. Operating leases where the group is a lessee Lease payments for operating leases are charged to the income statement on a straight-line basis over the lease term. Lease incentives, if applicable, are spread over the term of the lease. Finance leases where the group is the lessor When assets are leased out under a finance lease, the present value of the lease payments is recognised as revenue and the receivable shown as a finance asset. The difference between the gross receivable and the present value of the receivable is recognised on a constant periodic rate as finance income. Operating leases where the group is the lessor When assets are leased out under an operating lease, the asset is included in the balance sheet based on the nature of the asset. Rental income is recognised on a straight line basis over the lease term. In applying this accounting policy during the year management considered the sale of Thermal Imaging Cameras and training equipment to be assets sold under a finance lease arrangement as the customer will retain these assets for substantially all of their useful economic lives. The impact that this judgement had on the financial statements was to increase revenues by £15.8m with a profit impact of £12.9m. 2.13 Income taxes Income tax payable is provided on taxable profits using tax rates enacted or substantially enacted at the balance sheet date. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of goodwill or of an asset or 62 AssetCo plc Annual Report & Accounts 2010 Notes to the Consolidated Financial Statements liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that is it probable that future taxable profit will be available against which the temporary differences can be utilised. 2.14 Employee benefits Pension obligations – defined benefit schemes Group companies operate two defined benefit pension schemes. Scheme assets are measured at fair values. Scheme liabilities are measured on an actuarial basis using the projected unit method and are discounted at appropriate high quality corporate bond rates that have terms to maturity approximating to the terms of the related liability. Appropriate adjustments are made for unrecognised actuarial gains or losses and past service costs. Past service cost is recognised as an expense on a straight-line basis over the average period until the benefits become vested. To the extent that benefits are already vested the Group recognises past service cost immediately. Actuarial gains and losses are recognised as an expense and charged or credited to the income statement over the employees’ expected average remaining working lives. The resulting surplus or deficit is presented with other net assets on the balance sheet. The related deferred tax is shown with other deferred tax balances. A surplus is recognised only to the extent that it is recoverable by the Group. The current service cost, past service cost and costs from settlements and curtailments are charged against administrative expenses. Interest on the scheme liabilities and the expected return on scheme assets are included in other finance costs. Pension contributions – defined contribution scheme For defined contribution schemes, the Group pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. Contributions to defined contribution schemes are recognised in the income statement during the period in which they become payable. Equity settled share-based payment All share-based payment arrangements are recognised in the financial statements. All goods and services received in exchange for the grant of any share-based payment are measured at their fair values using the Black-Scholes options pricing model. Where employees are rewarded using share-based payments, the fair values of employees’ services are determined indirectly by reference to the fair value of the instrument granted to the employee. This fair value is appraised at the grant date and excludes the impact of any non-market vesting conditions. All equity-settled share-based payments are ultimately recognised as an expense in the income statement with a corresponding credit to “other reserve”. E L I F O R P S S E N I S U B E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S I N O T A M R O F N I AssetCo plc Annual Report & Accounts 2010 63 Notes to the Consolidated Financial Statements If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made to any expense recognised in prior periods if share options ultimately exercised are different to that estimated on vesting. Upon exercise of share options the proceeds received net of attributable transaction costs are credited to share capital, and where appropriate share premium. Termination benefits Termination benefits are payable when an employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either: terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal; or providing termination benefits as a result of acceptance of an offer of voluntary redundancy. Benefits falling due more than 12 months after the balance sheet date are discounted to their present value. 2.16 Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and the amount has been reliably estimated. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as an interest expense. 3. Financial risk management The Group’s activities expose it to a variety of financial risks: credit risk, market risk (including currency risk, interest rate risk and price risk) and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. Risk management is carried out under policies approved by the Board of directors. The Board provides written principles for overall risk management. 64 AssetCo plc Annual Report & Accounts 2010 Notes to the Consolidated Financial Statements 3.1 Financial risk factors a) Credit risk The Group’s exposure to credit risk is detailed in Notes 19 and 20. The Group has a policy for dealing with customers only with an appropriate credit history. The Group has policies that limit the amount of credit exposure to any financial institution. The credit risk on liquid funds is limited because the counterparties are financial institutions with strong credit ratings assigned by international credit-rating agencies. The possibility of material loss is therefore considered to be unlikely. b) Market risk Currency risk The Group does not have any significant foreign currency exposure, as the majority of revenue, purchases and capital expenditure are denominated in sterling. Cash flow interest-rate risk The Group’s policy on managing interest rate risk is subject to regular monitoring of the effect of potential changes in interest rates on its interest cost with a view to taking suitable actions should exposure reach certain levels. The Group seeks to limit its exposure to fluctuating interest rates by keeping a significant proportion of the Group’s borrowings at fixed interest rates through the use of hedge instruments. Financial assets The Group holds its surplus funds in short-term bank deposits. Financial liabilities The Group’s cash flow interest rate risk arises from long-term borrowings issued at variable rates to finance its Private Finance Initiative and Public Private Partnership contracts. In order to reduce funding risk and maintain interest cover, the Group manages the risk by using floating-to-fixed interest rate swaps. Under the swaps, the Group agrees to exchange, at specific intervals, the difference between fixed contract rates and floating rate interest amounts, calculated by reference to the agreed notional principal amount. These interest rate swaps have the effect of converting borrowings from floating rates to fixed rates for a specified period of time. The Group’s obligations under finance leases carry interest at a fixed rate. Other price risk Other price risk, such as changes in the fair value of financial instruments being caused by movements in commodity or equity prices, is not applicable to the Group’s operations. The Group does not hold any investments in companies listed on recognised Stock Exchanges and the Group’s operations are not directly affected by changes in commodity prices. c) Liquidity risk Prudent liquidity management implies maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities. The Group maintains adequate bank balances to fund its operations. E L I F O R P S S E N I S U B E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S I N O T A M R O F N I AssetCo plc Annual Report & Accounts 2010 65 Notes to the Consolidated Financial Statements 3.2 Capital risk management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. Consistent with others in the industry, the Group monitors capital in relation to overall financing. Further information can be found in Note 36 to the financial statements. 4. Critical accounting estimates and judgements Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. a) Estimates The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are outlined below. Revenue Significant contracts entered into during the period contain separable identifiable revenue streams. Separation is considered appropriate when the Group could enter separate agreements with the customer and satisfy each of these contract requirements independently of one another or the customer could have engaged with a third party to provide an element of the contract and this would not impair the Group’s ability to satisfy the remaining elements of the contract. Whilst determining the separation of such contracts is area of management judgment attributing a fair value to each separable element of such contracts, where the contract does not explicitly separate sales price for each component, is a key accounting estimate when arriving at the result reported in the Group’s income statement. Construction contract revenue The stage of completion of any construction contract is assessed by management by taking into consideration all information available at the reporting date. In this process management carries out significant judgements about milestones, actual work performed and the estimated costs to complete the work. Further information on the Group’s accounting policy for construction contracts is provided in note 2.3. Fair value of financial instruments Management uses valuation techniques in measuring the fair value of financial instruments where active market quotes are not available. Details of the assumptions used are given in the notes regarding financial assets and liabilities. In applying the valuation techniques management makes maximum use of market inputs, and uses estimates and assumptions that are, as far as possible, consistent with observable data that market participants would use in pricing the instrument. Where applicable data is not observable, management uses its best estimate about the assumptions that market participants would make. These estimates may vary from the actual prices that would be achieved in an arm’s length transaction at the reporting date. 66 AssetCo plc Annual Report & Accounts 2010 Notes to the Consolidated Financial Statements Impairment of goodwill Determining whether goodwill is impaired requires an estimation of the value-in-use of the cash-generating units to which goodwill has been allocated. The value-in-use calculation requires the Group to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate the present value. Actual outcomes could vary significantly from these estimates. Value in use is determined through the analysis of discounted cash flow forecasts based on financial forecasts approved by management which takes account of both past performance and expected future market developments. Management has used a pre-tax discount rate of 14%, equivalent to the weighted average cost of capital of the Group. This has been determined as reflecting current market assessments of the time value of money and risks specific to the industry and Group. At the balance sheet date, the carrying value of goodwill was £47.9m. Property, plant and equipment Useful economic lives of property, plant and equipment have been established based on historical experience and an assessment of the nature of the assets involved. At the balance sheet date, the carrying value of property, plant and equipment was £74.7m. IAS 16: “Property, plant and equipment” requires internal costs that are directly attributable to brining an asset to the location and condition necessary for it to be capable of operating in the manner intended by management to be capitalised. The group applies standard costing to the property, plant and equipment capitalised and therefore the time spent by engineers and movements in commodity prices might result in immaterial variances in cost. Management consider the application of a standard cost by its nature to be an accounting estimate. Pensions The directors have employed the services of an actuary in assessing pension liabilities. However, the directors recognise that final liabilities and asset returns may differ from actuarial estimates. At the balance sheet date, the carrying value of the retirement benefit surplus was £429,000. b) Judgements The following critical judgements have been made in preparing the financial statements which have a significant risk of causing a material adjustment to be made to the carrying amounts of assets and liabilities within the next financial year. Recognition of a sale under lease arrangements Where management consider, in substance, the sale of assets has taken place under a leasing arrangement the application requires management to determine whether it is the lessor or the lessee who substantially enjoys the risks and rewards of ownership under the lease arrangement. In cases where management concludes that the risks and rewards of ownership have been substantially transferred to the lessee the asset is treated as if it were a finance lease. Where management concludes that the Group has substantially retained the risks and rewards of ownership the sale is treated as if it were an operating lease. Residual values Given the nature of the Group’s business, the main asset in the balance sheet is the vehicle fleet. The value at the end of the rental life will depend on the market for those vehicles at the time of disposal. Judgement is therefore required in the estimation of disposal value of certain fleet vehicles in the balance sheet. E L I F O R P S S E N I S U B E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S I N O T A M R O F N I AssetCo plc Annual Report & Accounts 2010 67 Notes to the Consolidated Financial Statements Post-employment benefits Application of IAS 19: "Employee Benefits", requires the exercise of judgement in relation to setting the assumptions used by the actuaries in assessing the financial position of each scheme. The Group determines the assumptions to be adopted in discussion with its actuaries, and believes these assumptions to be in line with UK generally accepted practice, but the application of different assumptions could have a significant effect on the amounts reflected in the Income Statement and Balance Sheet in respect of post-employment benefits. The sensitivity of principal scheme liabilities to changes in the assumptions used by actuaries is set out in Note 17. Taxation Significant judgment is required in determining the Group’s provision for tax. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. As a result, the exercising of judgment is required in order to assess the exposures in these areas and set the appropriate level of provision. Capitalised bid costs Directly attributable bid costs in relation to separately identifiable revenue generating projects are capitalised to the extent they can be reliably measured. The nature of the business’ long term contracts dictates one off revenue generating projects come to fruition on an annual basis which creates the opportunity for such costs to be capitalised. Significant judgement is required when classifying costs as bid costs and in determining how the costs are capitalised when applying the Group’s accounting policies. Deferred tax assets The assessment of the probability of future taxable income in which deferred tax assets can be utilised is based on the Group’s latest approved budget forecast, which is adjusted for significant non-taxable income and expenses and specific limits to the use of any unused tax loss or credit. The tax rules in the numerous jurisdictions in which the Group operates are also carefully taken into consideration. If a positive forecast of taxable income indicates the probable use of a deferred tax asset, especially when it can be utilised without a time limit, that deferred tax asset is usually recognised in full. The recognition of deferred tax assets that are subject to certain legal or economic limits or uncertainties is assessed individually by management based on the specific facts and circumstances. The carrying value of deferred the tax asset relating to losses carried forward is £3.9m. Provisions The Group is currently defending certain lawsuits where the actual outcome may vary from the amount recognised in the financial statements. None of the provisions will be discussed here in further detail so as not to seriously prejudice the Group’s position in the related disputes. The amount recognised for warranties for which customers are covered for the cost of repairs is estimated based on management’s past experience and the future expectations of deficits. 68 AssetCo plc Annual Report & Accounts 2010 Notes to the Consolidated Financial Statements 5. Segmental Reporting For management purposes, the Group is organised into one main business segment as follows: Fire and Rescue Services – provision of management services to the fire and rescue market: Year ended 31 March 2010 Segment revenue Segment operating profit/(loss) Net segment finance costs Segment profit/(loss) before tax Depreciation and amortisation Segment assets Cost of acquired property, plant and equipment Segment liabilities Fire and Rescue £’000 Held for sale £’000 Discontinued operations £’000 Consolidation adjustments £’000 45,231 17,521 6,627 10,894 6,743 176,219 8,073 120,535 16,165 892 489 403 245 18,427 – 14,597 12,166 (5,799) – (5,699) 53 – – – – (100) – (1,204) – – – (1,304) Total £’000 73,562 12,514 7,116 6,802 7,041 194,646 8,073 133,828 The consolidation adjustments affecting the segment profit before tax relate to the charge for share-based payments (£100,000). The depreciation and amortisation charges for each segment have been reported within the segment profit before tax. Year ended 31 March 2009 Segment revenue Segment operating profit/(loss) Net segment finance costs Segment profit/(loss) before tax Depreciation and amortisation Segment assets Cost of acquired property, plant and equipment Segment liabilities Fire and Rescue Restated £’000 34,050 10,982 5,036 5,946 3,784 153,259 10,462 111,401 Held for sale Restated £’000 18,330 4,941 1,116 3,825 245 30,654 444 19,324 Discontinued operations Restated £’000 Consolidation adjustments Restated £’000 31,393 (3,542) – (3,542) 53 14,883 – 11,681 – (140) – (4,695) – – – 4,555 Total Restated £’000 83,773 12,241 6,152 1,534 6,546 198,796 10,906 146,961 E L I F O R P S S E N I S U B E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S I N O T A M R O F N I AssetCo plc Annual Report & Accounts 2010 69 Notes to the Consolidated Financial Statements Geographical analysis The Group manages its business segments in the UK, which is the home country of the parent Company. The revenue analysis below is based on the location of the service provided or sale made. Revenue - continuing operations UK 2010 £’000 2009 Restated £’000 45,231 34,050 The major customers which make up the above revenue stream are London Fire and Emergency Planning Authority and Lincolnshire Fire and Rescue Service. The majority of current assets are located in the UK where most of the capital expenditure is also incurred. Non current assets UK Europe Capital expenditure UK Europe 6. Revenue An analysis of the Group’s revenue is as follows: Continuing operations Managed services Support services Leasing and contract hire Sale of goods Revenue Discontinued operations Leasing and contract hire Sale of goods 70 AssetCo plc Annual Report & Accounts 2010 2010 £’000 135,964 556 136,520 2010 £’000 8,073 – 8,073 2010 £’000 36,132 5,795 2,539 765 45,231 313 28,018 73,562 2009 Restated £’000 144,359 680 145,039 2009 Restated £’000 10,902 4 10,906 2009 Restated £’000 30,811 – 2,604 635 34,050 – 49,723 83,773 Notes to the Consolidated Financial Statements 7. Profit for the year The profit for the year has been arrived at after charging/(crediting): Net foreign exchange gains Research and developments costs Government grants towards employment costs Depreciation of property, plant and equipment Staff costs (Note 13) Impairment loss recognised on trade receivables 8. Auditor’s remuneration Other non audit fees Fees payable to the Company’s auditor for the audit of the Group’s financial statements Fees payable to the Company’s auditor and their associates for other services to the Group: Corporate finance services 9. Finance income and finance costs Finance income Interest income on short-term bank deposits Finance costs Interest on bank borrowings and finance leases Increase in valuation of shares classified as financial liabilities 2010 £’000 – – (6) 7,041 6,533 (2) 2010 £’000 73 127 200 2010 £’000 – 2010 £’000 2009 Restated £’000 (1) 1 (205) 6,546 8,205 11 2009 Restated £’000 73 147 220 2009 Restated £’000 80 2009 Restated £’000 416 706 5,888 1,155 7,043 5,547 192 5,739 Included within administrative expenses is a gain of £2,000 (2009: loss £11,000) in respect of the impairment of trade receivables. E L I F O R P S S E N I S U B E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S I N O T A M R O F N I AssetCo plc Annual Report & Accounts 2010 71 Notes to the Consolidated Financial Statements 10. Taxation Current tax Domestic tax Current tax on income for the period Foreign tax Current tax on income for the period Current tax charge/(credit) Deferred tax Deferred tax expense relating to the origination and reversal of temporary differences Deferred tax expense relating to financial instruments Deferred tax charge/(credit) Taxation 2010 £’000 838 20 858 3,308 365 3,673 4,531 Corporation tax is calculated at 28% (2009: 28%) of the estimated assessable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in those jurisdictions. Tax reconciliation The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated entities as follows: 2010 £’000 12,098 (5,296) 6,802 1,905 (163) 1,879 (85) (112) (71) (7) 36 1,149 4,531 Profit before tax (continuing operations) (Loss)/profit for the year from discontinued operations Profit for the year before taxation Tax calculated at domestic tax rates applicable to profits Effect of: Income not subject to tax Expenses not deductible for tax purposes Losses carried forwards Utilisation of previously unrecognised tax losses Amortisation of intangible assets Rate difference on tax charge Capital gain on disposal more than accounting profit Adjustment in respect of prior periods – deferred tax Total tax charge for the period 72 AssetCo plc Annual Report & Accounts 2010 2009 Restated £’000 – (65) (65) 1,199 (1,275) (76) (141) 2009 Restated £’000 1,251 283 1,534 430 (16) 547 – 83 149 69 – (1,403) (141) Notes to the Consolidated Financial Statements 11. Earnings per share a) Basic Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year. Profit attributable to equity holders of the Company Loss/(profit) from discontinued operations Profit from continuing operations used to determine basic earnings per share Weighted average number of ordinary shares Basic earnings per share (pence per share) From continuing and discontinued operations Profit attributable to equity holders of the Company Weighted average number of ordinary shares in issue Basic earnings per share (pence per share) 2010 £’000 2,271 5,296 7,567 2009 Restated £’000 1,675 (283) 1,392 84,992,740 72,528,482 8.9 1.9 2010 £’000 2,271 2009 Restated £’000 1,675 84,992,740 72,528,482 2.7 2.3 b) Diluted Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. Dilutive potential ordinary shares comprise share options and warrants. A calculation is made to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company’s shares) based on the monetary value of the subscription rights attached to outstanding share options and warrants. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options and warrants. From continuing operations Profit attributable to equity holders of the Company Loss/(profit) from discontinued operations Profit from continuing operations used to determine diluted earnings per share Weighted average number of ordinary shares Adjustments for: – share options and warrants deemed to be issued Weighted average number of ordinary shares used for diluted earnings per share Diluted earnings per share (pence per share) From continuing and discontinued operations Profit attributable to equity holders of the Company Weighted average number of ordinary shares Adjustments for: 2010 £’000 2,271 5,296 7,567 2009 Restated £’000 1,675 (283) 1,392 84,992,740 72,528,482 – 1,585,965 84,992,740 74,114,447 8.9 1.9 2010 £’000 2,271 2009 Restated £’000 1,675 84,992,740 72,528,482 E L I F O R P S S E N I S U B E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S I N O T A M R O F N I – share options and warrants deemed to be issued – 1,585,965 Weighted average number of ordinary shares used for diluted earnings per share 84,992,740 74,114,447 AssetCo plc Annual Report & Accounts 2010 73 Notes to the Consolidated Financial Statements Diluted earnings per share (pence per share) 2.7 2.3 12. Expenses by nature Other direct costs Employee benefit expense (Note 13) Depreciation (Note 15) Other indirect costs Changes in inventories of finished goods and work in progress Total cost of sales and administrative expenses 13. Employee benefit expense Wages and salaries Social security costs Pension costs – defined benefit plans (Note 17) Other pension contributions Share-based payments (Note 23) The average monthly number of employees (excluding non-executive directors) was: Directors Production and operations Sales, marketing and distribution Administration 2010 £’000 8,270 6,533 7,041 8,847 (13) 30,678 2010 £’000 5,659 546 228 – 100 2009 Restated £’000 6,844 8,205 6,546 1,685 (69) 23,211 2009 Restated £’000 7,027 741 292 5 140 6,533 8,205 2010 Number 2009 Number 2 110 1 28 141 4 132 1 62 199 The decrease in the average monthly number of employees during the year ended 31 March 2010 is due to the effect of the change in focus of the Group towards the Fire and Rescue sector. 14. Dividends A final dividend of 1.5p (2009: 1.25p per share) has been recommended. 74 AssetCo plc Annual Report & Accounts 2010 Notes to the Consolidated Financial Statements 15. Property, plant and equipment Group Cost At 1 April 2008 Additions Disposals On acquisition Transferred to Intangible Assets Exchange differences At 31 March 2009 Additions Disposals On acquisition Leasehold land and buildings £’000 Leasehold improvements £’000 Fixtures and fittings £’000 Equipment, plant and machinery £’000 Assets under long-term arrangements £’000 1,200 2,681 – – – – – 18 (23) - - 99 1,432 140 (28) – – 81 35,071 286 (11,655) 18 – 44 1,200 2,775 1,625 23,764 - - – Transfers to assets held for resale (1,200) At 31 March 2010 Depreciation At 1 April 2008 Disposals Charge for the year Exchange differences At 31 March 2009 Disposals Charge for the year Transfers to assets held for resale At 31 March 2010 Net book amount At 31 March 2010 At 31 March 2009 – 31 – 8 - 39 – – (39) – – 1,161 - - - (531) 2,244 595 (14) 192 13 786 – 156 (180) 762 1,482 1,989 – – – (1,053) 572 503 – 43 (16,726) 7,584 1,096 26,094 (25) 132 45 1,248 – 68 (861) 455 117 377 (7,712) 2,430 17 20,829 482 (15,646) 5,665 1,919 2,935 Total £’000 124,365 10,906 (12,965) 18 (1,810) 224 120,738 8,073 (3,052) 43 (19,510) 106,292 47,638 (10,398) 6,546 75 43,861 (2,598) 7,041 (16,726) 31,578 74,714 76,877 83,981 10,462 (1,259) – (1,810) – 91,374 7,570 (3,052) – – 95,892 19,822 (2,647) 3,784 – 20,959 (2,598) 6,335 – 24,696 71,196 70,415 The net book value of assets held under finance leases amounts to £70.7 m (2009: £70.4m). Assets held under long-term arrangements Assets held under long-term arrangements comprise principally of items of operational equipment and motor vehicles that have been provided to customers under the Group’s Private Finance Initiative and Public Private Partnership long-term contracts. Depreciation Depreciation expense of £6.382m (2009: £5.4m) has been charged in cost of sales and £0.7m (2009: £1.1m) in administrative expenses. In 2009, as a result of management review revisions were made to the residual values and useful economic lives of certain assets. These revisions resulted in residual values ranging from £10,000 to £25,000 and corresponding lives of 24 years. This had resulted in a £1.5m reduction in the equivalent depreciation charge for the year ended 31 March 2009. The impact on future profitability remains similar over the course of the life of the assets. AssetCo plc Annual Report & Accounts 2010 75 E L I F O R P S S E N I S U B E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S I N O T A M R O F N I Notes to the Consolidated Financial Statements Security Leasehold land and buildings with a carrying amount of £1.154m (2009: £1.161m) have been pledged to secure borrowings of the Group (see Note 24) under a mortgage. The Group is not permitted to pledge these assets as security for other borrowings or to sell them to another entity. In addition, the Group’s obligations under finance leases (see Note 24) are secured by the lessors’ title to the leased assets, which have a carrying amount of £ 2.047m (2009: £3.881m). Assets under long-term arrangements include £ 70.7m (2009: £70.4m) in respect of assets secured by the lessor. 16. Intangible assets Group Cost At 1 April 2008 Acquisitions Additions Reclassified from tangible fixed assets At 31 March 2009 Additions Reclassified to assets held for sale At 31 March 2010 Amortisation At 1 April 2008 Charge for the year At 31 March 2009 Charge for the year At 31 March 2010 Net book amount At 31 March 2010 At 31 March 2009 Goodwill £’000 Bid costs £’000 Software development costs £’000 54,060 80 2,941 – 57,081 956 (10,132) 47,905 – – – – – 1,089 – 1,801 1,810 4,700 2,687 – 7,387 – 171 171 331 502 515 – 702 - 1,217 26 – 1,243 28 52 80 109 189 Total £’000 55,664 80 5,444 1,810 62,998 3,669 (10,132) 56,535 28 223 251 440 691 47,905 57,081 6,885 4,529 1,054 1,137 55,844 62,747 Goodwill The main changes in the carrying amounts of goodwill result from the reclassification of goodwill associated with divisions previously known as Vehicle Assembly and Specialist Equipment to assets held for resale. 76 AssetCo plc Annual Report & Accounts 2010 Notes to the Consolidated Financial Statements For the purposes of annual impairment testing goodwill acquired in a business combination is allocated to the cash generating units (“CGUs”) the synergies of the are expected to benefit from the synergies of the business combination in which the goodwill arises. The carrying amount of goodwill has been allocated as follows: Fire and Rescue Services Specialist Equipment Vehicle Assembly 2010 £’000 47,905 – – 47,905 2009 Restated £’000 44,207 9,159 3,715 57,081 The Group tests goodwill for impairment annually or more frequently if there are indications that goodwill might be impaired. The recoverable amounts of the CGUs are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding discount rates, growth rates and expected changes to selling prices and direct costs during the period. Management estimates discount rates using post-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGUs. The discount rate used at 31 March 2010 was 13%. The growth rates are based on internal growth forecasts. Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market, however management expects constant margins which have been based on past experience. The Group prepares cash flow forecasts derived from the most recent financial budgets approved by management for the next ten years and extrapolates cash flows for the following ten years based on an estimated growth rate of 2.0%. This rate does not exceed the average long-term growth rate for the relevant markets based on Current Retail Price Index. Fire and Rescue Services No impairment of goodwill has been recognised in respect of Emergency Services as the two contracts to which the goodwill relates, those with the London Fire and Emergency Planning Authority and the Lincolnshire Fire and Rescue Service, continue to grow in terms of revenue and profitability through the provision of additional services and improved cost control. These two contracts have remaining lives of 11 years and 16 years respectively. The Fire and Rescue division is particularly sensitive to the discount rate and an increase to 14% would result in £4.7m impairment against goodwill. Similarly, a reduction of the forecast growth rate of 1% would result in £4.8m impairment against goodwill. Specialist equipment and vehicle assembly No impairment of goodwill has been recognised within the Vehicle and Emergency Equipment CGU. This goodwill has now been reclassified as an asset held for sale. The directors consider no impairment of assets exists due to the receipt of written outline purchase offers in excess of net assets. Computer software In accordance with IAS 38, “Intangible Assets” computer software has been classified as an intangible asset. Intangible assets recognised in respect of computer software costs are not internally generated and are considered to have finite lives of three years, the period over which the asset is amortised. The amortisation charge is included within administrative expenses in the income statement. E L I F O R P S S E N I S U B E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S I N O T A M R O F N I AssetCo plc Annual Report & Accounts 2010 77 Notes to the Consolidated Financial Statements Bid costs Bid costs are internally generated and are capitalised once preferred bidder status has been secured. They are considered to have finite lives which equate to the length of the contract they have secured. 17. Retirement benefit obligations The AssetCo Pension Scheme The AssetCo Pension Scheme (formerly The Brook Henderson Pension Scheme) commenced on 11 October 2003 as a defined benefit pension scheme based in the United Kingdom. The assets of the scheme are administered by trustees in a fund independent from those of the Group. The last full actuarial valuation was carried out as at 31 March 2010 and showed a surplus of £725,000 (2009: £749,000). Todd Research Limited Retirement Benefits Scheme The Todd Research Limited Retirement Benefits Scheme was originally established for the benefit of certain employees based in the United Kingdom. The defined benefit scheme is now closed to new members. The assets of the scheme are administered by trustees in a fund independent from those of the Group. The information set out overleaf is in respect of both The AssetCo Pension Scheme and the Todd Research Limited Retirement Benefit Scheme. Balance sheet surplus for: Retirement benefits – surplus Income statement credit for: Retirement benefits The amounts recognised in the balance sheet are determined as follows: Fair value of plan assets Present value of funded obligations Present value of over-funded obligations Unrecognised actuarial gains Asset in the balance sheet 78 AssetCo plc Annual Report & Accounts 2010 Group 2010 £’000 429 Group 2010 £’000 – Group 2010 £’000 7,111 (6,386) 725 (296) 429 Group Restated 2009 £’000 429 Group Restated 2009 £’000 Group Restated 2008 £’000 429 Group Restated 2008 £’000 – (100) Group Restated 2009 £’000 5,171 (4,422) 749 (320) 429 Group Restated 2008 £’000 6,424 (4,376) 2,048 (1,619) 429 Notes to the Consolidated Financial Statements The unrecognised actuarial gains are to be deferred over the estimated working lives of the members of The AssetCo Pension Scheme and the Todd Research Limited retirement benefit scheme. The movement in the fair value of scheme assets during the year is as follows: Beginning of year Expected return on plan assets Actuarial gains/(losses) Employer contributions Employee contributions Benefits paid End of year Group 2010 £’000 5,171 282 1,547 272 35 (196) 7,111 Group Restated 2009 £’000 Group Restated 2008 £’000 6,424 415 (1,586) 264 43 (389) 5,171 6,010 349 (464) 537 61 (69) 6,424 The movement in the fair value of the defined benefit obligation during the year is as follows: Beginning of year Current service cost Interest cost Contributions by members Actuarial gains/(losses) Benefits paid Additional contribution by employer Change of assumptions Curtailment End of year The amounts recognised in the income statement are as follows: Current service cost Interest cost Expected return on plan assets Net actuarial gains recognised during the year Curtailment Total Group 2010 £’000 (4,422) (212) (298) (25) 62 196 – (1,687) – (6,386) Group 2010 £’000 212 298 (282) – – 228 Group Restated 2009 £’000 Group Restated 2008 £’000 (4,376) (5,723) (284) (274) (43) (100) 389 – 454 (188) (598) (305) (61) (161) 69 42 2,361 – (4,422) (4,376) Group Restated 2009 £’000 Group Restated 2008 £’000 324 274 (415) (79) 188 292 598 305 (349) (100) – 454 Of the total, £228,000 (2009: £292,000) has been included in staff costs within administrative expenses. The actual return on plan assets was a gain of £1,829,000 (2009 loss: £1,171,000). E L I F O R P S S E N I S U B E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S I N O T A M R O F N I AssetCo plc Annual Report & Accounts 2010 79 Notes to the Consolidated Financial Statements The estimated contributions expected to be paid to the two schemes during the current financial year is approximately £500,000. The principal actuarial assumptions used were as follows: Discount rate Expected return on plan assets Future salary increases Future pension increases Inflation 2010 % 5.6 6.7 2.0 2009 % 6.7 6.5 2.25 2008 % 6.3 6.5 2.25 2.8 – 3.25 2.1 – 2.75 2.1 – 2.75 3.25 2.25 2.75 A range of assumptions is quoted for the year ended 31 March 2010 as the actuarial valuations for the two schemes were undertaken by two different actuaries. Mortality rate Assumptions regarding future mortality experience are set based on advice, published statistics and experience. The average life expectancy of a pensioner retiring at age 60 on the balance sheet date, is estimated using the following industry-standard mortality tables: Male Female 2010 PMA92 PFA92 2009 PMA92 PFA92 2008 PMA92 PFA92 The average life expectancy in years of a pensioner retiring at age 60 twenty years after the balance sheet date, is estimated using the following industry-standard mortality tables: Male Female 2010 PMA92 PFA92 2009 PMA92 PFA92 2008 PMA92 PFA92 The analysis of the assets of the two schemes and the expected rate of return at the balance sheet date was as follows: Equities Government bonds Corporate bonds Cash and cash equivalents Total Expected return Fair value of assets 2010 2009 2008 % 7.4 4.4 5.6 0.5 – 6.7 % 7.5 4.5 6.3 6.5 % 7.5 4.5 6.3 – 6.5 2010 £’000 4,615 14 2,440 42 7,111 2009 £’000 3,032 – 2,098 41 5,171 2008 £’000 3,318 1,584 1,522 – 6,424 The overall expected rate of return is determined based on past experience and expectations regarding future market conditions. 80 AssetCo plc Annual Report & Accounts 2010 Notes to the Consolidated Financial Statements Amounts in the current and previous years are as follows: Defined benefit obligation Plan assets Surplus/(liability) Experience adjustments 18. Inventories Raw materials and consumables Finished goods and goods for resale 2006 520 431 (62) (104) 2007 5,723 6,010 287 272 2008 4,376 6,424 429 (161) Group 2010 £’000 201 – 201 2009 4,422 5,171 429 (100) Group 2009 Restated £’000 2,138 4,469 6,607 2010 6,386 7,111 725 62 Group 2008 Restated £’000 1,941 3,969 5,910 The net movement in the inventory provision resulted in a £12,000 credit (2009: £60,000 credit) being recognised in cost of sales. Inventories with a carrying amount of £0.2m (2009: £6.607m) have been pledged as security for some of the Group’s bank loans. 19. Trade and other receivables Trade receivables Less: impairment of receivables Trade receivables – after impairment Other receivables Finance lease debtor (note 35) Prepayments and accrued income Corporation tax recoverable Group 2010 £’000 1,544 (9) 1,535 154 17,199 9,126 – Group 2009 Restated £’000 Group 2008 Restated £’000 8,588 (11) 8,577 1,669 4,991 8,825 – 14,664 (273) 14,391 970 – 6,013 140 21,514 28,014 24,062 The Group has impaired fully all receivables that are considered to be doubtful based on the difference between the carrying amount and the present value of estimated future cash flows determined by reference to past experience, the ageing of the debt and the financial standing of the customer. Prior to conducting business with a new customer, appropriate credit checks are undertaken with a reputable international credit reference agency. The movement in the provision for impairment of trade receivables is as follows: At the beginning of the year Impairment losses recognized Amounts written off as uncollectible Amounts recovered during the year At the end of the year Group 2010 £’000 11 9 (11) – 9 Group 2009 Restated £’000 Group 2008 Restated £’000 273 11 (265) (8) 11 477 51 (195) (60) 273 E L I F O R P S S E N I S U B E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S I N O T A M R O F N I AssetCo plc Annual Report & Accounts 2010 81 Notes to the Consolidated Financial Statements The ageing of overdue trade receivables is as follows: 60 – 90 days 90 – 120 days Total Group 2010 £’000 47 9 56 Group 2009 Restated £’000 173 273 446 Group 2008 Restated £’000 21 252 273 There is no impairment in respect of other receivables. The directors consider that the carrying amount of trade and other receivables approximates their fair value. 20. Cash and cash equivalents Cash and cash equivalents Short-term deposits Group 2010 £’000 13,697 – 13,697 Group 2009 Restated £’000 4,533 17,965 22,498 Group 2008 Restated £’000 4,219 8,677 12,896 Cash, cash equivalents and bank overdrafts include the following for the purposes of the cash flow statement: Cash and cash equivalents Bank overdrafts Group 2010 £’000 13,697 (1,210) 12,487 Group 2009 Restated £’000 22,498 (3,693) 18,805 Group 2008 Restated £’000 12,896 (12,502) 394 At 31 March 2010, the cash at bank and short-term deposits were held with five different international banks (2009: ten). Financial assets are placed with banks at floating rates over periods ranging from overnight to three months depending upon forecast cash flow movements and earn interest at prevailing rates in the money market. Included within the cash balance are sums amounting to £11.1m which were transmitted from clients prior to the year end. These amounts were received shortly after the year end. 82 AssetCo plc Annual Report & Accounts 2010 Notes to the Consolidated Financial Statements 21. Assets held for sale The major classes of assets and liabilities comprising the operations classified as held for sale are as follows: Goodwill Property, plant and equipment Trade and other receivables Inventories Total assets classified as held for sale Finance lease liabilities Borrowings Trade and other payables Total liabilities associated with assets classified as held for sale Net assets of disposal group Group 2010 £’000 9,196 2,784 2,916 2,060 16,956 75 3,950 2,668 6,693 10,263 The directors are satisfied the above net asset value will be realised upon sale. The net cash flows attributable to assets held for sale and discontinued operations are as follows: Net cash flow Earnings per share in relation to discontinued operations are as follows: Basic Diluted 2010 £’000 (9,556) 2009 Restated £’000 575 2010 (6.2)p (6.2)p 2009 Restated 0.4p 0.4p 22. Derivative financial instruments Interest rate swaps At 31 March 2010, three cash flow hedge arrangements were in place covering loans of £39.8m (2009: £44.5m) at a fixed rate of 5.795% payable monthly, £7.9m (2009: £7.9m) at a fixed rate of 4.63% monthly and £3.8m (2009: £3.7m) at a fixed rate of 3.43% monthly. The fair value of the hedge arrangements at 31 March 2010 represents a liability of £5.821m (2009: liability of £7.125m). E L I F O R P S S E N I S U B E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S I N O T A M R O F N I AssetCo plc Annual Report & Accounts 2010 83 Notes to the Consolidated Financial Statements These amounts are based on market values of equivalent instruments at the balance sheet date. An analysis of the financial instruments, their fair values at reporting date and the nature of risks being hedged is set out below. Title Description Nature of risk being hedged Period termination dates HBOS Swap Co-Op Swap Cash Flow Hedge Interest Rate Risk Cash Flow Hedge Interest Rate Risk 31 March 2021 9 April 2026 Barclays Swap Cash Flow Hedge Interest Rate Risk 14 October 2010 Total Swap fair value post settlement 31.03.09 £’000 (6,143) (775) (207) (7,125) Settlement paid £’000 Fair value movement in the year £’000 540 240 132 912 371 30 (9) 392 Swap fair value post settlement 31.03.10 £’000 (5,232) (505) (84) (5,821) Details of the prior year adjustment in respect of the Group’s hedge arrangements can be found in note 39 to the financial statements. Title Description Nature of risk being hedged Period termination dates HBOS Swap Co-Op Swap Cash Flow Hedge Interest Rate Risk Cash Flow Hedge Interest Rate Risk 31 March 2021 9 April 2026 Barclays Swap Cash Flow Hedge Interest Rate Risk 14 October 2010 Total 23. Share capital At 1 April 2008 Issue of ordinary shares At 1 April 2009 Issue of ordinary shares At 31 March 2010 Swap fair value post settlement 31.03.08 Restated £’000 (2,001) (189) – (2,190) Settlement paid £’000 2,083 318 24 2,425 Fair value movement in the year Restated £’000 (6,225) (904) (231) (7,360) Swap fair value post settlement 31.03.09 Restated £’000 (6,143) (775) (207) (7,125) Number of Shares 71,832,554 1,546,852 73,379,406 17,333,333 90,712,739 Share capital Restated £’000 17,958 387 18,345 4,333 22,678 Share premium Restated £’000 25,197 918 26,115 3,173 29,288 Total Restated £’000 43,155 1,305 44,460 7,506 51,966 The total authorised number of ordinary shares is 95,000,000 (2009: 95,000,000) with a nominal value of 25 pence per share (2009: 25 pence per share). All issued shares are fully paid. Equity component of compound financial instruments In January 2009, 15 million £1 preference shares were issued at nominal value. At inception £7,045,000 of these shares were classified as a financial liability with the remaining £7,917,000 being classified as equity. These preference shares are repayable at par value in five years from the date of issue although there are warrants associated with the shares which can be converted into AssetCo plc shares at 61.2p. AssetCo can repay the preference shares, under certain conditions on the second anniversary and two thirds of the warrants vest on this date. After this date 100% of the warrants are available to JO Hambro. 84 AssetCo plc Annual Report & Accounts 2010 Notes to the Consolidated Financial Statements Share-based payments The charge for the year in respect of share-based payments, comprising share options and warrants, is £100,000 (2009: £196,000). a) Share options Share options are granted to directors and to selected employees. The Group has no legal or constructive obligation to repurchase or settle the options in cash. Movements in the number of share options outstanding and their related weighted average exercise prices are as follows: 31 March 2010 31 March 2009 At 1 April Granted Exercised Forfeited Lapsed At 31 March Average exercise price £ per share Options 1.76 1,352,603 Average exercise price £ per share 1.77 – Options 1,819,327 – – – – – (140,000) 1.82 (466,724) – – – 1,212,603 1.76 1,352,603 – – 2.29 – 1.70 Out of the 1,212,603 outstanding options (2009: 1,352,603), none (2009: 290,000) were exercisable. Share options outstanding at the end of the year have the following expiry date and exercise prices: Expiry date 4 December 2013 29 March 2017 30 July 2017 30 July 2007 22 November 2017 22 November 2017 28 November 2017 Exercise price £ per share 1.00 1.45 2.30 3.00 2.30 3.00 2.04 Shares 31.3.10 210,000 663,103 105,000 140,000 50,000 20,000 24,500 Shares 31.3.09 210,000 698,103 120,000 160,000 100,000 40,000 24,500 1,212,603 1,352,603 The fair value of options at grant date were determined using the Black-Scholes method. E L I F O R P S S E N I S U B E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S I N O T A M R O F N I AssetCo plc Annual Report & Accounts 2010 85 Notes to the Consolidated Financial Statements 24. Borrowings Non-current Bank borrowings Finance lease liabilities Other loans Current Bank overdrafts Bank borrowings Finance lease liabilities Other loans Total borrowings Group 2010 £’000 12,578 54,689 – 67,267 Group 2010 £’000 1,210 5,141 8,561 – 14,912 82,179 Group 2009 Restated £’000 27,693 53,983 – 81,676 Group 2009 Restated £’000 3,693 4,319 8,831 – 16,843 98,519 Group 2008 Restated £’000 18,961 50,002 1,007 69,970 Group 2008 Restated £’000 12,502 5,989 8,084 250 26,825 96,795 Total borrowings include secured liabilities of £82,179m (2009: £98,519m). The Group’s bank loans and overdrafts are secured by a debenture over the assets of the Group. The decrease in total borrowings is due to the reduction in non recourse finance due to significant repayments made in the year. Finance lease liabilities principally relate to assets provided to customers under long-term arrangements. The repayment dates of the Group’s borrowings are as follows: Group 2010 £’000 14,912 13,782 32,645 20,840 82,179 Group 2009 Restated £’000 16,843 21,353 33,999 26,324 98,519 Group 2008 Restated £’000 26,825 9,169 32,944 27,857 97,795 Less than one year One to two years Two to five years After five years 86 AssetCo plc Annual Report & Accounts 2010 Notes to the Consolidated Financial Statements Bank borrowings Bank borrowings mature until November 2016. Details of the Group’s bank borrowings at 31 March 2010 are summarised as follows: Date November 2007 January 2008 July 2008 September 2008 September 2008 March 2009 Initial loan £16m £1.5m £4.5m £4.1m £0.96m £4m Term 9 years 5 years 20 months 5 years 7 years 4 years Rate 1.75% over 1 month Libor 1.6% over 3 month Libor 2.5% over 3 month Libor 2.75% over 1 month Libor 2.5% over 1 month Libor 2% over base At 31 March 2010, the Group had six principal loans with four different financial institutions. In May 2010, the loan obtained in July 2008 was repaid in full. The fair value of the non-current borrowings is as follows: Bank borrowings Finance lease liabilities Other loans Group 2010 £’000 12,578 54,689 – 67,267 Group 2009 Restated £’000 27,693 53,983 – 81,676 Group 2008 Restated £’000 18,961 50,002 1,007 69,970 The fair value of current borrowings does not materially differ from their carrying amount, as the impact of discounting is not significant. The fair values are based on cash flows discounted using a rate based on the borrowing rate of 6.5% (2009: 6.5%). The carrying amounts of short-term borrowings approximate their fair value. The facilities expiring within one year are annual facilities subject to review at various dates during 2010. The other facilities have been arranged to help finance the ongoing build programme for the London Fire and Emergency Planning Authority and the Lincolnshire Fire and Rescue Service. Finance lease liabilities Lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of default. E L I F O R P S S E N I S U B E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S I N O T A M R O F N I AssetCo plc Annual Report & Accounts 2010 87 Notes to the Consolidated Financial Statements Minimum lease payments under finance lease liabilities are as follows: No later than 1 year Later than 1 year and no later than 5 years Later than 5 years Future finance charges on finance leases Present value of minimum lease payments Group 2010 £’000 10,956 45,325 24,677 80,958 (17,708) 63,250 Group 2009 Restated £’000 12,182 42,149 26,056 80,387 (17,573) 62,814 Group 2008 Restated £’000 11,287 37,016 25,834 74,137 (16,051) 58,086 Finance lease liabilities are secured by a first and only debenture from the Company and a subsidiary undertaking and first and only chattel mortgage over the assets of one of the Group companies. The present value of finance lease liabilities is as follows: No later than 1 year Later than 1 year and no later than 5 years Later than 5 years Group 2010 £’000 8,561 35,410 19,279 63,250 Group 2009 Restated £’000 9,542 33,188 20,084 62,814 Group 2008 Restated £’000 8,084 28,344 21,658 58,086 The average lease term is 11 years. For the year ended 31 March 2010, the average effective borrowing rate on leases was 6.75% (2009: 6.75%). All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments. 25. Financial assets and liabilities The following tables illustrate the categorisation and carrying value of financial assets and liabilities as at 31 March 2010: Finance assets Investments in associates and joint ventures Trade and other receivables Cash and cash equivalents Loans and receivables £’000 – 1,689 13,697 15,386 Non financial assets £’000 – 9,126 – 9,126 Assets not within the scope of Total £’000 IAS 39 £’000 414 17,199 – 17,613 414 28,014 13,697 42,125 88 AssetCo plc Annual Report & Accounts 2010 Notes to the Consolidated Financial Statements Financial liabilities Trade and other payables Bank overdraft Borrowings – current portion Current tax payable Finance lease liability – current Borrowings – non current Finance lease liability – non current Liability component of compound financial instruments Derivatives – non current Fair value through profit or loss £’000 Other financial liabilities at amortised cost £’000 Liabilities not within the scope of IAS 39 £’000 – – – – – – – – 5,821 5,821 1,816 1,210 5,141 – – 12,578 – 8,200 – 28,945 18,302 – – 858 8,561 – 54,689 – – 82,410 Total £’000 20,118 1,210 5,141 858 8,561 12,578 54,689 8,200 5,821 117,176 Fair value hierarchy The financial liabilities measured at fair value in the Statement of Financial Position are grouped in the fair value hierarchy as follows: Derivatives Level 1 £’000 – Level 2 £’000 5,821 Level 3 £’000 – Total £’000 5,821 The derivatives entered into by the group are not traded in active markets. The fair value of these contracts is estimated using a valuation technique that maximises the use of observable market inputs (Level 2). Contractual discounted cash flows in respect of financial liabilities are as follows: 2010 Trade and other payables Borrowings and finance lease liabilities Current tax payable Equity component of compound financial instruments Derivatives 2009 Trade and other payables Borrowings and finance lease liabilities Equity component of compound financial instruments Derivatives Less than one year £’000 One to two years £’000 Two to five years £’000 More than five years £’000 20,118 14,912 858 – – – 13,782 – – 84 35,888 13,866 – 32,645 – 15,000 – 47,645 – 20,840 – – 5,737 26,577 Less than one year Restated £’000 One to two years Restated £’000 Two to five years Restated £’000 More than five years Restated £’000 26,881 18,344 – – 45,225 – 26,353 – 208 26,561 – 27,499 15,000 – 42,499 – 26,323 – 6,917 33,240 Total £’000 20,118 82,179 858 15,000 5,821 123,976 Total Restated £’000 26,881 98,519 15,000 7,125 147,525 E L I F O R P S S E N I S U B E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S I N O T A M R O F N I AssetCo plc Annual Report & Accounts 2010 89 Notes to the Consolidated Financial Statements 2008 Trade and other payables Borrowings and finance lease liabilities Derivatives Less than one year Restated £’000 One to two years Restated £’000 Two to five years Restated £’000 More than five years Restated £’000 27,872 26,825 – 54,697 – 9,169 – 9,169 – 32,944 – 32,944 – 27,857 2,190 30,047 Total Restated £’000 27,982 96,795 2,190 126,857 Derivatives outlined above relate to future interest rate swaps secured on asset finance and borrowings. 26. Deferred Tax Deferred tax liabilities Group At 1 April 2008 (restated) Charged/(credited) to the income statement Arising on acquisition At 31 March 2009 (restated) Charged/(credited) to the income statement Arising on acquisition Deferred tax liability at 31 March 2010 Deferred tax assets Group At 1 April 2008 (restated) Charged/(credited) to the income statement Arising on acquisition Arising on derivative financial instruments At 31 March 2009 (restated) Charged/(credited) to the income statement Arising on acquisition Arising on derivative financial instruments Deferred tax asset at 31 March 2010 27. Trade and other payables Trade payables Social security and other taxes Other creditors Accruals and deferred income Deferred consideration 90 AssetCo plc Annual Report & Accounts 2010 Accelerated tax depreciation £’000 5,475 2,084 – 7,559 1,735 – 9,294 Other £’000 613 (377) 569 805 9 129 943 Accelerated tax depreciation £’000 Other short–term timing differences £’000 (952) 558 1 – (393) (186) (3) – (582) (1,256) (270) (83) (1,275) (2,884) 9 (446) 365 (2,956) Group 2010 £’000 1,816 2,132 4 13,666 2,500 20,118 Tax losses £’000 (127) (846) – (973) 695 – (278) Tax losses £’000 (835) 50 (1,100) – (1,885) 1,046 – – (839) Total £’000 5,961 861 569 7,391 2,439 129 9,959 Total £’000 (3,043) 338 (1,182) (1,275) (5,162) 869 (449) 365 (4,377) Group 2009 Restated £’000 8,550 4,236 451 10,086 3,558 26,881 Group 2008 Restated £’000 12,792 2,892 2,508 4,507 5,173 27,872 Notes to the Consolidated Financial Statements 28. Investments Details of Group companies can be found in Note 29 to the financial statements. Discontinued operations Discontinued operations include activities relating to the UV Modular business which went into administration in January 2010, the Auto Electrical Services business which was sold in September 2009 and the Supply 999 and Treka businesses which are held for resale. Details of performance in the year are outlined below: Revenue Expenses Net (loss)/profit after tax 2010 £’000 28,331 (33,627) (5,296) 2009 Restated £’000 49,723 (49,440) 283 The effect of discontinued operations on segment results is disclosed in Note 5 to the financial statements. The taxation effect of discontinued operations has been a credit of £680,000 (2009: charge of £79,000). The carrying amount of the net assets of AES Limited on the date of disposal (30 September 2009) were as follows: Non current assets Cash and cash equivalents Trade and other receivables Inventories Total assets Trade and other payables Total liabilities Net assets £’000 46 27 875 279 1,227 1,095 1,095 132 The carrying amount of the net assets of UV Modular Limited (15 January 2010) on the date at which the Group lost control were as follows: Non current assets Cash and cash equivalents Trade and other receivables Inventories Total assets Trade and other payables Total liabilities Net liabilities £’000 131 135 2,494 4,305 7,065 9,580 9,580 (2,515) E L I F O R P S S E N I S U B E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S I N O T A M R O F N I AssetCo plc Annual Report & Accounts 2010 91 Notes to the Consolidated Financial Statements The net cash flows attributable to assets held for sale and discontinued operations are as follows: Net cash (outflow)/inflow Earnings per share in relation to discontinued operations are as follows: Basic Diluted 2010 £’000 (9,556) 2010 (6.2)p (6.2)p 2009 Restated £’000 575 2009 Restated 0.4p 0.4p Investment in associate On 26 November 2007, the Group acquired 25% of the issued share capital of Miquest Limited, a company which provides integrated solutions for asset management, for consideration of £414,000. Miquest Limited was incorporated in England and Wales. Group At 31 March 2008, 2009 and 2010 Investment in associates includes goodwill of £472,000. Investment in Associate £’000 414 The Group’s share of the results of its associate, which is unlisted, and its share of the assets, including goodwill, and liabilities, is as follows: Group Miquest Limited Assets £’000 89 Liabilities £’000 219 Revenue £’000 461 Loss £’000 (178) Interest % 25 No result has been recognised in the consolidated financial statements on the grounds of materiality. 92 AssetCo plc Annual Report & Accounts 2010 Notes to the Consolidated Financial Statements Interests in joint ventures The Group has a 50% interest a joint venture, ADATT Limited, which undertakes vehicle conversions. The following amounts represent the assets and liabilities, and sales and results of the joint venture. Due to their immateriality to the financial statements, no amounts are included in the balance sheet and income statement. Assets Current assets Liabilities Current liabilities Net assets Income Expenses Profit/(loss) before tax Group 2010 £’000 Group 2009 Restated £’000 830 830 (827) 3 1,300 (1,300) – (827) 3 2,634 (2,636) (2) There are no contingent liabilities relating to the Group’s interests in the joint ventures, and no contingent liabilities of the ventures themselves. E L I F O R P S S E N I S U B E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S I N O T A M R O F N I AssetCo plc Annual Report & Accounts 2010 93 Notes to the Consolidated Financial Statements 29. Group undertakings The accounting parent company, AssetCo Fire and Rescue Limited, has a controlling interest through shares, directly or indirectly, in the following group undertakings: Subsidiary Country of incorporation Group Company Shares held Nature of business Percentage of shares held Integrated Support Services AssetCo Emergency Limited AssetCo Engineering Limited AssetCo Lincoln Limited AssetCo London Limited England & Wales England & Wales N. Ireland England & Wales AssetCo Managed Services (ROI) Limited Republic of Ireland MFlow Limited England & Wales AssetCo Bermuda Limited Bermuda AssetCo Resource Limited RIG Systems Limited Nene Whitewater Centre Simentra Limited Specialist equipment England & Wales England & Wales England & Wales N. Ireland AS Fire and Rescue Equipment Limited England & Wales AS Security BV The Netherlands AssetCo Emergency Equipment Limited England & Wales Graphic Traffic Limited N. Ireland AssetCo Specialist Equipment Limited England & Wales Leftfield Group Limited Todd Research Limited Supply 999 Limited Vehicle assembly England & Wales England & Wales England & Wales 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 87% 100% 100% 100% 100% 100% 100% Ordinary Holding company – Ordinary Management of emergency equipment – Ordinary Emergency managed services – Ordinary Emergency managed services 100% Ordinary Business support services – Ordinary Electrical and communications systems 100% Ordinary Consultancy and business development 100% Ordinary Human resources consultancy – Ordinary Specialist training provider – Ordinary Specialist training provider 100% Ordinary Security consultancy – Ordinary Manufacture and distribution of safety equipment – Ordinary Sales 87% Ordinary Holding company – Ordinary Provider of livery – Ordinary Holding company – Ordinary Holding company – Ordinary Manufacture and distribution of security equipment 100% Ordinary Distribution of safety and cutting equipment Treka Bus Limited (formerly Blue Amber Red Limited) England & Wales 100% – Ordinary Manufacture of vehicles Papworth Specialist Vehicles Limited England & Wales AssetCo Specialist Vehicles Limited England & Wales 100% 100% – Ordinary Assembly of emergency vehicles – Ordinary Holding company Non emergency AssetCo Municipal Limited England & Wales 100% 100% Ordinary Fleet and management services Dormant companies Asfare No.1 Limited AssetCo Contracts Limited AssetCo Servicecare Limited AssetCo Solutions Limited Fire Guns Limited Sacol Group 1990 Limited AS America Inc AssetCo SVO Limited England & Wales N. Ireland N. Ireland N. Ireland England & Wales England & Wales USA England & Wales AssetCo Managed Services Limited England & Wales 100% 100% 100% 100% 100% 100% 100% 100% 100% – Ordinary Dormant – Ordinary Dormant – Ordinary Dormant – Ordinary Dormant – Ordinary Dormant – Ordinary Dormant – Common Dormant – Ordinary Dormant 100% Ordinary Dormant 94 AssetCo plc Annual Report & Accounts 2010 Notes to the Consolidated Financial Statements Details of the Group’s investments in associates and interests in joint ventures are given in note 28 to these financial statements. The percentage of shares held equates to voting rights for all of the subsidiaries listed above. 30. Reconciliation of profit before tax to net cash generated from operations Profit for the year before taxation Adjustments for: – Depreciation – Amortisation – Profit on disposal of property, plant and equipment – Share-based payments – Fair value gains on financial instruments recognized in profit and loss – Movement in restructuring provision – Finance income – Finance costs – Exchange differences Changes in working capital (excluding the effects of acquisitions) – Inventories – Trade and other receivables – Trade and other payables Cash generated from operations 2010 £’000 12,098 7,041 440 – 100 (1,304) – (416) 7,043 246 (224) (6,814) 6,084 24,294 2009 Restated £’000 1,251 6,546 223 (292) 140 4,555 (1,549) (717) 6,869 – (697) (2,625) (972) 12,732 31. Business combinations On 31 March 2010, the Group completed the acquisition of 100% of the share capital of Graphic Traffic Limited for consideration of £1,000 creating goodwill on acquisition of £956,000. This business has been purchased with a view to resale hence the goodwill is included within assets held for sale. Property, plant and equipment Inventories Trade and other receivables Trade and other payables Net liabilities Goodwill Total consideration Carrying amount before combination £’000 Fair value adjustments £’000 43 14 507 (1,519) (955) – – – – – Fair value £’000 43 14 507 (1,519) (955) 956 1 No profit or loss has been recognised in the Group income statement for the year in relation to Graphic Traffic. 32. Events after the balance sheet date On 9 June 2010, the Board recommended a final dividend for the year to 31 March 2010 of 1.5p per share (2009: 1.25p per share). This dividend has not been included as a liability at 31 March 2010. E L I F O R P S S E N I S U B E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S I N O T A M R O F N I AssetCo plc Annual Report & Accounts 2010 95 Notes to the Consolidated Financial Statements 33. Related party transactions Related parties comprise the Company’s shareholders, subsidiaries, associated companies, joint ventures, other entities over which the shareholders of the Group have the ability to control or exercise significant influence over their financial and operating decisions and key management personnel. Transactions between the Company and its subsidiaries have been eliminated on consolidation and are not disclosed in this note. During the year, the Group entered into the following significant transactions with related parties at prices and on terms agreed between the related parties: Salary 2010 £’000 300 250 550 Benefits in kind 2010 £’000 Total emoluments 2010 £’000 – – – 300 250 550 Salary 2009 £’000 250 125 375 Remuneration of the directors John Shannon Frank Flynn Total Non-executive directors’ remuneration Tim Wightman Adrian Bradshaw Peter Manning Andrew Freemantle Total Key management compensation (excluding non-executive directors) Group Salaries and other short-term employee benefits Benefits in kind 2009 £’000 Total emoluments 2009 £’000 – – – 2010 £’000 55 35 35 18 143 2010 £’000 550 250 125 375 2009 £’000 55 35 18 – 108 2009 Restated £’000 375 Directors’ share options Name Tim Wightman Adrian Bradshaw (1) Parties Director Director Exercise price 100p 100p No. of shares 105,000 105,000 Date of grant Expiry date 5 December 2003 5 December 2003 4 December 2013 4 December 2013 (1) The options set out against Adrian Bradshaw were granted to Bradmount Investments Limited acting as nominee for Adrian Bradshaw and Peter Mountford in equal measure. Both Adrian Bradshaw and Peter Mountford are directors and shareholders of Bradmount Investments limited. Amounts due to related parties Group Directors’ loan accounts 2010 £’000 150 2009 Restated £’000 130 96 AssetCo plc Annual Report & Accounts 2010 Notes to the Consolidated Financial Statements In May 2009, Jaras Property Developments Limited, a company from which the Group rents a property was purchased by John Shannon, the value of these rentals amounted to £166,666 in the year. At 31 March 2010, the Group had an asset balance with this company totalling £1.5m (2009: £nil). The vendor of Graphic Traffic Limited (see note 31) was John Shannon. Prior to acquisition, the Group made purchases of £235,013 (2009: £231,302) from this company. 34. Commitments Capital commitments There were no capital commitments at 31 March 2010 or 31 March 2009. Operating lease commitments The Group leases various assets under non-cancellable operating lease agreements. The leases have varying terms and renewal rights. The future aggregate minimum lease payments under non-cancellable operating leases are as follows: Within one year After five years 2010 £’000 – 746 746 2009 Restated £’000 141 1,457 1,598 35. Operating/finance lease receivables The Group’s future aggregate minimum lease receipts under non-cancellable operating leases are as follows: Within one year Within two to five years After five years 2010 £’000 24,400 97,600 158,000 280,000 2009 Restated £’000 24,400 97,600 182,400 304,400 E L I F O R P S S E N I S U B E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S I N O T A M R O F N I AssetCo plc Annual Report & Accounts 2010 97 Notes to the Consolidated Financial Statements The Group’s net investment in operating lease receivables is as follows: 2010 £’000 Gross investment in finance lease receivables 2010 £’000 Future Finance Income 2010 £’000 Present value of minimum lease payments receivable 2009 Restated £’000 Gross investment in finance lease receivables 2009 Restated £’000 Future Finance Income 2009 Restated £’000 Present value of minimum lease payments receivable 863 5,912 28,423 35,198 (394) (2,753) (14,852) (17,999) 469 3,159 13,571 17,199 163 2,491 7,327 9,981 (81) (858) (4,051) (4,990) 82 1,633 3,276 4,991 Less than one year Later than one year and not later than five years Later than five years 36. Capital management policies and procedures The Group’s capital management objectives are to ensure the Group’s ability to continue as a going concern and to provide an adequate return to shareholders. The Group monitors capital on the basis of the carrying amount of the equity less cash and cash equivalents as presented on the face of the balance sheet. The movement in the capital to overall financial ratio is shown below. The Group manages the capital structure and makes adjustments in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the level of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. Equity Less: cash and cash equivalents Capital Equity Borrowings Overall financing Capital to overall financing 2010 £’000 60,818 (13,697) 47,121 2010 £’000 60,818 82,179 142,997 33% 2009 Restated £’000 51,835 (22,498) 29,337 2009 Restated £’000 51,835 98,519 150,354 20% 2008 Restated £’000 42,123 (12,896) 29,227 2008 Restated £’000 42,123 96,795 138,918 21% 37. Parent company The financial statements of the legal parent company, AssetCo plc, can be found in a separate section of the Annual Report. The Company has taken advantage of Section 408 of the Companies Act 2006 and has not included its own profit and loss account in the parent company financial statements. The profit for the year of the Company for the year was £3.914m (2009: loss £0.084m). 98 AssetCo plc Annual Report & Accounts 2010 Notes to the Consolidated Financial Statements 38. Contingent Liabilities During the year the Group entered into a performance bond relating to a recent contractual win which dictates a potential liability of 5% of the contract value upon failure to fulfill the terms of the contract. This liability would equate to approximately £4m. The Group has provided an “Advanced Payment Guarantee” of approximately £4m in connection with one of the contracts that was awarded during the year. Certain contracts awarded during the year can be terminated with three months’ notice. 39. Prior year adjustments There are two prior period adjustments. The first is in relation to an overstatement of a derivative financial instrument debit balance. This resulted in an over statement of net assets of £3.154m and a gain of £1.577m being recognised in the consolidated statement of income and expense. This has been restated as a loss and the restated amount reflects this movement. The second adjustment was to adjust the designation of the hedge arrangement as an ineffective hedge. This resulted in gains and losses on the movement in fair value of the financial instrument being transferred from the statement of changes in equity to the income statement. The related impact on the consolidated income statement is set out below: Finance income (Credit)/charge in relation to movement in derivative financial instrument (1,304) 4,555 2010 £’000 2009 £’000 The impact on retained earnings and the hedge reserve can be seen in the consolidated statement of changes in equity. In compliance with IAS 39 our 2009 and 2008 balance sheets have been restated for the movement on our derivative financial instruments which, whilst commercially effective, have been deemed ineffective from inception from a financial reporting perspective. The current year credit and prior year charge to the consolidated income statement are non cash items. 40. Ultimate controlling party The Company is listed on the Alternative Investment Market of the London Stock Exchange. The Company is not under the control of any one individual. Significant holdings in the shares of the Company are disclosed in the Report of the Directors. E L I F O R P S S E N I S U B E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S I N O T A M R O F N I AssetCo plc Annual Report & Accounts 2010 99 Report of the Independent Auditor on the Company Financial Statements Independent auditor's report to the members of AssetCo plc We have audited the parent company financial statements of AssetCo plc for the year ended 31 March 2010 which comprise the parent company balance sheet and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As explained more fully in the Directors’ Responsibilities Statement set out on page 22 , the directors are responsible for the preparation of the parent company financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the parent company financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the APB's website at www.frc.org.uk/apb/scope/UKNP. Opinion on financial statements In our opinion the parent company financial statements: ■ give a true and fair view of the state of the Company's affairs as at 31 March 2010; ■ have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and ■ have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Report of the Directors for the financial year for which the financial statements are prepared is consistent with the parent company financial statements. 100 AssetCo plc Annual Report & Accounts 2010 Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: ■ adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or ■ the parent company financial statements are not in agreement with the accounting records and returns; or ■ certain disclosures of directors’ remuneration specified by law are not made; or ■ we have not received all the information and explanations we require for our audit. Other matter We have reported separately on the parent company financial statements of AssetCo plc for the year ended 31 March 2010. Robert Napper Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants Slough 12 July 2010 E L I F O R P S S E N I S U B E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S I N O T A M R O F N I AssetCo plc Annual Report & Accounts 2010 101 Company Balance Sheet Fixed assets Investment in subsidiaries Current assets Debtors Cash at bank and in hand Creditors: amounts falling due within one year Net current assets Total assets less current liabilities Net assets Capital and reserves Called-up share capital Share premium account Merger reserve Share-based payment reserve Profit and loss account Shareholders’ funds Notes 31.3.10 £’000 31.3.09 £’000 5 6 7 8 8 9 10 11 13 98,720 98,720 27,795 21 27,816 (2,494) 25,322 124,042 124,042 22,678 29,288 68,293 680 3,103 8,920 7,500 16,420 (1,478) 14,942 113,662 113,662 18,345 26,115 68,293 580 329 124,042 113,662 These financial statements were approved by the Board of directors and authorised for issue on 12 July 2010 and are signed on their behalf by: R.F.Flynn Director Company Registration number: 04966347 102 AssetCo plc Annual Report & Accounts 2010 Notes to the Company Financial Statements 1. Legal status and activities AssetCo plc (“the Company”) is principally a holding company for other companies within the Group. The separate financial statements of the Company (“parent company financial statements”) are presented as required by the Companies Act 2006. For greater clarity, the parent company financial statements have been presented in round thousands (£’000). 2. Summary of significant accounting policies The principal accounting policies applied in the preparation of the parent company financial statements are set out below. 2.1 Basis of preparation The parent company financial statements have been prepared in accordance with United Kingdom accounting standards under the historical cost convention. As permitted by Section 408 of the Companies Act 2006, the Company has not presented its own profit and loss account. Under Financial Reporting Standard 1, the Company is exempt from the requirement to prepare a cash flow statement on the grounds that its consolidated financial statements, which include the Company, are publicly available. Note 23 (“Share capital”) of the consolidated financial statements of AssetCo plc forms part of these financial statements. 2.2 Investments Investments in subsidiary undertakings are included in the balance sheet at cost less any provision for permanent diminution in value. 2.3 Share-based payments The Company has applied the requirements of FRS 20, “Share-based Payments”. The Company issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value at the date of grant. The fair value is expensed on a straight-line basis over the vesting period, based on the estimate of shares that will eventually vest. 2.4 Financial liabilities and equity Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. A financial liability is a contractual obligation to deliver cash or another financial asset to another entity. An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. E L I F O R P S S E N I S U B E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S I N O T A M R O F N I AssetCo plc Annual Report & Accounts 2010 103 Notes to the Company Financial Statements 2.5 Bank borrowings Interest-bearing bank loans and overdrafts are recorded as the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis in profit or loss using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. 3. Auditor’s remuneration Fees payable to the Company’s auditor for the audit of the Company’s financial statements 4. Particulars of employees Number of directors 2010 £’000 73 2010 £’000 5 2009 £’000 73 2009 £’000 5 The executive directors received all of their remuneration, as disclosed in the Report of the Directors of the consolidated financial statements, from AssetCo Group Limited. However, it is not practicable to allocate such costs between their services as executives of AssetCo Group Limited and their services as directors of AssetCo plc and other Group companies. The remuneration of the non-executive directors, which is wholly attributable to the Company, is disclosed in the Report of the Directors of the consolidated financial statements. 5. Investments Cost At 1 April 2009 and 31 March 2010 Shares in group undertakings £’000 98,720 Disposal During the year, the Company disposed of its interest in Auto Electrical Services (Manchester) Limited. In the opinion of the directors, the value of this investment has been retained through the Group’s continuing ownership of M~Flow Limited. An adjustment to investments has therefore not been made. Impairment The carrying value of investments is reviewed annually by the directors for potential impairment. The carrying value of the investments is, in the opinion of the directors, fairly stated at 31 March 2010. Sensitivity analyses have been carried out in relation to future income streams and cash flows using a discount rate of 13% which have allowed the directors to conclude there is no potential impairment. 104 AssetCo plc Annual Report & Accounts 2010 Subsidiary undertakings The Company has a controlling interest directly through shares in the following undertakings: Subsidiary incorporation shares held Shares held Nature of business Country of Percentage of AS Fire and Rescue Equipment Limited England & Wales 100% AssetCo Fire and Rescue (formerly N. Ireland 100% Ordinary Ordinary Manufacture and distribution of safety equipment Holding company ÅssetCo Group Limited) Todd Research Limited England & Wales 100% Ordinary Manufacture and distribution of security M~Flow Limited England & Wales 100% Ordinary equipment Electrical and communication systems None of the above investments are listed on a recognised Stock Exchange. 6. Debtors Amounts owed by group undertakings Prepayments and accrued income 7. Creditors: amounts falling due within one year Other taxation and social security Accruals and deferred income Bank loans and overdrafts 8. Share capital At 1 April 2009 Proceeds from ordinary shares issued At 31 March 2010 Company 2010 £’000 27,795 – 27,795 Company 2010 £’000 1,538 160 796 2,494 Share Premium £’000 26,115 3,173 29,288 Company 2009 £’000 8,872 48 8,920 Company 2009 £’000 1,471 7 – 1,478 Total £’000 44,460 7,506 51,966 Number of Shares Share capital £’000 73,379,406 17,333,333 90,712,739 18,345 4,333 22,678 The total authorised number of ordinary shares is 95,000,000 (2009: 95,000,000) with a nominal value of 25 pence per share (2009: 25 pence per share). All issued shares are fully paid. E L I F O R P S S E N I S U B E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S I N O T A M R O F N I AssetCo plc Annual Report & Accounts 2010 105 Notes to the Company Financial statements 9. Merger reserve At 1 April 2009 and 31 March 2010 10. Share-based payment reserve At 1 April 2009 Share-based payments At 31 March 2010 11. Profit and loss account At 1 April 2009 Profit for the financial year Dividends paid in year At 31 March 2010 Total £’000 68,293 Total £’000 580 100 680 Total £’000 329 3,914 (1,140) 3,103 The Company has taken advantage of Section 230 of the Companies Act 1985 and has not included its own profit and loss account in the parent company financial statements. The profit for the year of the Company was £2.214m (2009: loss £0.084m). 12. Share-based payments Details of the share options granted over the Company’s shares by Group companies to employees, and that remain outstanding at the balance sheet date, are set out in Note 23 to the AssetCo plc consolidated financial statements. The amounts recognised as an expense in relation to equity-settled share-based payment transactions during the year was £100,000 (2009: £140,000). 13. Reconciliation of movement in shareholders’ funds At 1 April Profit/(loss) for the financial year New share capital subscribed Share-based payments Dividends paid At 31 March 2010 £’000 113,662 3,914 7,506 100 (1,140) 2009 £’000 113,023 (84) 1,303 140 (720) 124,042 113,662 106 AssetCo plc Annual Report & Accounts 2010 14. Related party transactions Related parties comprise the Company’s shareholders, subsidiaries and key management personnel. During the year, the Company entered into the following significant transactions with related parties at prices and on terms agreed between the related parties: Amounts due from related parties Company Group undertakings 2010 £’000 2009 £’000 27,795 8,872 15. Post-balance sheet events On 25 June 2010, the board recommended a final dividend for the year to 31 March 2010 of 1.5p per share (2009 1.25p per share). This dividend has not been included as a liability at 31 March 2010. E L I F O R P S S E N I S U B E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S I N O T A M R O F N I AssetCo plc Annual Report & Accounts 2010 107 Notice of Annual General Meeting This year’s Annual General Meeting will be held at the offices of Arden Partners plc at 125 Old Broad Street, London, EC2N 1AR at 11.00 a.m. on 18 August 2010. You will be asked to consider and pass the resolutions below. Resolutions 9, 10 and 11 will be proposed as special resolutions. All other resolutions will be proposed as ordinary resolutions. Ordinary Resolutions Resolution 1: THAT the report of the directors and the audited accounts for the year ended 31 March 2010 laid before the meeting, be received. Resolution 2: THAT the report on directors’ remuneration as set out in the annual report for the year ended 31 March 2010 laid before the meeting, be received. Resolution 3: THAT Timothy Redmayne Wightman, a director retiring by rotation pursuant to Article 66, be re-elected a director of the Company. Resolution 4: THAT Andrew Wayne Freemantle, who was appointed as a director of the Company by the board since the date of the last annual general meeting of the Company, be elected a director of the Company. Resolution 5: THAT Grant Thornton UK LLP be re-appointed auditors of the Company to hold office until the conclusion of the next general meeting at which the accounts are to be laid before the Company and their remuneration be determined by the directors. Resolution 6: THAT the directors be and they are hereby generally and unconditionally authorised in accordance with section 551 of the Companies Act 2006 (the “Act”) in substitution for all existing authorities: (i) to exercise all powers of the Company to allot shares and to make offers or agreements to allot shares in the Company or grant rights to subscribe for or to convert any security into shares in the Company (together the “Relevant Securities”) up to an aggregate nominal amount of £7,559,395; and (ii) to exercise all the powers of the Company to allot equity securities (within the meaning of section 560 of the Act) up to an additional aggregate nominal amount of £7,559,395 provided that this authority may only be used in connection with a rights issue in favour of holders of ordinary shares and other persons entitled to participate therein where the equity securities respectively attributable to the interests of all those persons at such record dates as the directors may determine are proportionate (as nearly as may be) to the respective numbers of equity securities held or deemed to be held by them or are otherwise allotted in accordance with the rights attaching to such equity securities subject to such exclusions or other arrangements as the directors may consider necessary or expedient to deal with fractional entitlements or legal difficulties under the laws of any territory or the requirements of a regulatory body or stock exchange or by virtue of shares being represented by depositary receipts or any other matter whatsoever; provided that the authorities in 6(i) and 6(ii) shall expire at the conclusion of the next annual general meeting of the Company after the passing of this resolution or if earlier on the date which is 15 months after the date of the annual general meeting, except that the Company may before such expiry make an offer or agreement which would or might require Relevant Securities or equity securities as the case may be to be allotted after such expiry and the directors may allot Relevant Securities or equity securities in pursuance of any such offer or agreement as if the authority in question had not expired. 108 AssetCo plc Annual Report & Accounts 2010 Resolution 7: THAT a final dividend for the year ended 31 March 2010 of 1.5 pence per share, on the ordinary shares of 25 pence each of the Company, be declared payable on 25 October 2010 to shareholders registered at the close of business on 24 September 2010. Resolution 8: THAT the rules of the AssetCo Performance Share Plan 2010 (the “Plan”), referred to in the Chairman of the Board’s letter to shareholders dated 19 July 2010 and produced in draft to this meeting and, for the purposes of identification, initialled by the Chairman, and a limit to share usage under the Plan of no more than 2.5m shares up to the 2011 AGM, be approved and the Directors be authorised to: (a) make such modifications to the Plan as they may consider appropriate to take account of the requirements of best practice and for the implementation of the Plan and to adopt the Plan as so modified and to do all such other acts and things as they may consider appropriate to implement the Plan; and (b) establish further plans based on the Plan but modified to take account of local tax, exchange control or securities laws in overseas territories, provided that any shares made available under such further plans are treated as counting against the limits on individual or overall participation in the Plan. Special Resolutions Resolution 9: THAT the directors be and are empowered, in accordance with section 570 of the Act, to allot equity securities (as defined in section 560(1) of the Act) for cash pursuant to the authority conferred by resolution 6 or by way of a sale of treasury shares as if section 561(1) of the Act did not apply to any such allotment, provided that this power shall be limited to: (i) the allotment of equity securities in connection with a rights issue or other pro rata offer in favour of holders of ordinary shares and other persons entitled to participate therein where the equity securities respectively attributable to the interests of all those persons at such record dates as the directors may determine are proportionate (as nearly as may be) to the respective numbers of equity securities held or deemed to be held by them or are otherwise allotted in accordance with the rights attaching to such equity securities subject in each case to such exclusions or other arrangements as the directors may consider necessary or expedient to deal with fractional entitlements or legal difficulties under the laws of any territory or the requirements of a regulatory body or stock exchange or by virtue of shares being represented by depositary receipts or any other matter whatsoever; and (ii) the allotment (otherwise than pursuant to paragraph 8(i) above) of equity securities up to an aggregate nominal amount of £2,267,818.50. and shall expire upon the expiry of the general authority conferred by resolution 6 above, except that the Company may make an offer or agreement before this power expires which would or might require equity securities to be allotted and/or shares held by the Company in treasury to be sold or transferred after such expiry and the directors may allot equity securities and/or sell or transfer shares held by the Company in treasury in pursuance of such offer or agreement as if the power conferred by this resolution had not expired. Resolution 10: THAT the Company be and is hereby generally and unconditionally authorised for the purposes of section 701 of the Act to make market purchases (within the meaning of section 693(4) of the Act) of ordinary shares in the capital of the Company, provided that: (i) the number of ordinary shares hereby authorised to be purchased shall not exceed 10% of the Company’s issued ordinary share capital at the date of this resolution; E L I F O R P S S E N I S U B E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S I N O T A M R O F N I AssetCo plc Annual Report & Accounts 2010 109 Notice of Annual General Meeting (ii) the minimum price, exclusive of any expenses, which may be paid for any ordinary share shall not be less than its nominal value; (iii) the maximum price, exclusive of any expenses, which may be paid for any such ordinary share is an amount equal to 105% of the average of the middle market quotations for an ordinary share taken from the London Stock Exchange Daily Official List for the 5 business days immediately preceding the date on which such share is contracted to be purchased; (iv) this authority shall expire at the end of the next annual general meeting of the Company; and (v) the Company may make a contract for the purchase of ordinary shares under this authority before the expiry of this authority which would or might be executed wholly or partly after the expiry of such authority, and may make purchases of ordinary shares in pursuance of such a contracts as if such authority had not expired. Resolution 11: THAT: (i) the existing articles of association of the Company are amended by deleting all of the provisions of the Company’s memorandum of association which by virtue of section 28 of the Act, are treated as provisions of the Company’s existing articles of association; and (ii) the new articles of association produced to the meeting and initialled by the Chairman of the meeting for identification purposes be adopted as the articles of association of the Company in substitution for, and to the exclusion of, the existing articles of association. 19 July 2010 By order of the Board Michael Lavender Company Secretary Registered Office: 800 Field End Road South Ruislip Middlesex HA4 0QH Registered in England and Wales No. 04966347 Notes 1. Members are entitled to appoint a proxy to exercise all or any of their rights to attend and to speak and vote on their behalf at the meeting. A shareholder may appoint more than one proxy in relation to the Annual General Meeting provided that each proxy is appointed to exercise the rights attached to a different share or shares held by that shareholder. A proxy need not be a shareholder of the Company. A proxy form which may be used to make such appointment and give proxy instructions accompanies this notice. Please do not appoint the Chairman as proxy if it is your intention that your proxy is to speak at the Annual General Meeting; the Chairman will not speak in his capacity as proxy at the Annual General Meeting. If you 110 AssetCo plc Annual Report & Accounts 2010 Notice of Annual General Meeting 2. 3. 4. 5. 6. 7. 8. 9. do not have a proxy form and believe that you should have one, or if you require additional forms, please contact Computershare Investor Services on 0870 889 3198. To be valid any proxy form or other instrument appointing a proxy must be received by post or (during normal business hours only) by hand at The Pavillions, Bridgewater Rd, Bristol BS99 6ZY and in any event no later than 11.00 a.m. on 16 August 2010. Proxy appointments may also be sent by fax to 0870 703 6116. The return of a completed proxy form will not prevent a shareholder attending the Annual General Meeting and voting in person if he/she wishes to do so. To change your proxy instructions, you may return a new proxy appointment using the methods set out above. Where two or more valid separate appointments of proxy are received in respect of the same meeting, the one which is last sent shall be treated as replacing and revoking the other or others. Any person to whom this notice is sent who is a person nominated under section 146 of the Companies Act 2006 to enjoy information rights (a “Nominated Person”) may, under an agreement between him/her and the shareholder by whom he/she was nominated, have a right to be appointed (or to have someone else appointed) as a proxy for the Annual General Meeting. If a Nominated Person has no such proxy appointment right or does not wish to exercise it, he/she may, under any such agreement, have a right to give instructions to the shareholder as to the exercise of voting rights. The statement of the rights of shareholders in relation to the appointment of proxies in paragraphs 1 to 3 above does not apply to Nominated Persons. The rights described in these paragraphs can only be exercised by shareholders of the Company. To be entitled to attend and vote at the Annual General Meeting (and for the purpose of the determination by the Company of the votes they may cast), shareholders must be registered in the register of members of the Company at 11.00 a.m. on 16 August 2010 (if the AGM is adjourned, 2 working days before the time fixed for the adjourned AGM) and shall be entitled to attend and vote at the AGM in respect of the number of shares registered in their name at that time. Changes to the register of members after the relevant deadline shall be disregarded in determining the rights of any person to attend and vote at the meeting. As at 16 July 2010 (being the last business day prior to the publication of this Notice) the Company’s issued share capital consists of 90,712,740 ordinary shares, carrying one vote each. Therefore, the total voting rights in the Company as at 16 July 2010 are 90,712,740. We apologise but the appointment of proxies or the giving of any instruction by the CREST system will not be accepted for the purposes of this Annual General Meeting. In order to facilitate voting by corporate representatives at the meeting, arrangements will be put in place at the meeting so that (i) if a corporate shareholder has appointed the Chairman of the meeting as its corporate representative to vote on a poll in accordance with the directions of all of the other corporate representatives for that shareholder at the meeting, then on a poll those corporate representatives will give voting directions to the Chairman and the Chairman will vote (or withhold a vote) as corporate representative in accordance with those directions; and (ii) if more than one corporate representative for the same corporate shareholder attends the meeting but the corporate shareholder has not appointed the Chairman of the meeting as its corporate representative, a designated corporate representative will be nominated, from those corporate representatives who attend, who will vote on a poll and the other corporate representatives will give voting directions to that designated corporate representative. Corporate shareholders are referred to the guidance issued by the Institute of Chartered Secretaries and Administrators on proxies and corporate representatives ( HYPERLINK “http://www.icsa.org.uk” www.icsa. org.uk) for further details of this procedure. The guidance includes a sample form of appointment letter if the Chairman is being appointed as described in (i) above. E L I F O R P S S E N I S U B E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S I N O T A M R O F N I AssetCo plc Annual Report & Accounts 2010 111 Financial Calendar AGM 18 August 2010 Dividend Record Date 24 September 2010 Dividend Payment Date 25 October 2010 FY 11 Interim Results December 2010 With thanks to the London Fire Brigade for use of the photographs. 112 AssetCo plc Annual Report & Accounts 2010 Company Information Company registration number 04966347 Registered office Directors Secretary Bankers Solicitors Auditor Nominated adviser, financial adviser and corporate Broker Financial public relations Registrar 800 Field End Road South Ruislip Middlesex HA4 0QH Tim Wightman (Chairman) John Shannon Frank Flynn Adrian Bradshaw Peter Manning Andrew Freemantle (appointed 1 January 2010) Michael Lavender Bank of Scotland (Ireland) Limited Donegall Square North Belfast BT1 5GB Nabarro LLP Lacon House 84 Theobald’s Road London WC1X 8RW Grant Thornton UK LLP Chartered Accountants Statutory Auditor Churchill House Chalvey Road East Slough Berkshire SL1 2LS 125 Old Broad Street Arden Parnters plc London EC2N 1AR EC2N 1AR Pelham Public Relations 5th Floor Holborn Gate London EC4R 9AB Computershare Investor Services PLC PO Box 1075 The Pavilions Bridgwater Road Bristol BS99 3FA E L I F O R P S S E N I S U B E L I F O R P T C E J O R P W E I V E R N I R A E Y E C N A N R E V O G I L A C N A N I F S T N E M E T A T S R E D L O H E R A H S I N O T A M R O F N I Website www.assetco.com AssetCo plc Annual Report & Accounts 2010 113 A s s e t C o p l c A n n u a l R e p o r t & A c c o u n t s s 2 0 1 0 AssetCo plc Registered office 800 Field End Road, South Ruislip, Middlesex HA4 0QH Tel: +44 (0)20 8515 3999 | www.assetco.com 

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