Fulcrum Group
Annual Report 2014

Plain-text annual report

ANNUAL REPORT AND ACCOUNTS 20 14 “Every single member of the Fulcrum team, from project managers to the installation team on the ground, showed real tenacity in not only getting the job done but getting the job done right.” Robert Fleming, Distilleries Director, Angus Dundee CONTENT 01 A Year of Happy Customers Business Areas Chairman’s Statement Speyside Case Study 02 Strategic Report Case Studies Financial Review Board of Directors Director’s Report for the year ended 31 March 2014 Remuneration Report for the year ended 31 March 2014 Corporate Governance Report Independent Auditor’s Report 03 Consolidated Statement of Comprehensive Income Consolidated Statement of Changes in Equity Consolidated Balance Sheet Consolidated Cashflow Statement Nantlle Case Study Financial Highlights 04 Notes to the Consolidated Financial Statements Advisers Group Trading Companies 4 6 7 8 10 14 16 20 22 24 26 28 29 30 31 32 34 37 38 63 63 4 5 A YEAR OF HAPPY CUSTOMERS 93.5% ‘Right First Time’ performance for British Gas *British Gas Performance Reporting (April 2013 - March 2014) over 5 years incident free * Over 5 ½ years without a Lost Time Injury for Fulcrum people 0.1 RIDDOR incident rate * Fulcrum KPI reporting, March 2014 2014 Utility Week Stars Awards Finalists * The Fulcrum project team who managed the installation of the £7.6 million, 16-mile Speyside gas pipeline announced as finalists for the first ever ‘Team of the Year – Operational’ award   “Fulcrum has proved an excellent service partner in assisting us with the development of our gas infrastructure - reducing dependence on heating oil and significantly reducing carbon emissions.” 11th consecutive * RoSPA Gold Award and 2nd consecutive President’s Award winners for safety * Royal Society for the Prevention of Accidents “Due to its increase in performance levels during 2014, Fulcrum remain a key provider of new connections to British Gas Business.” Mark Pomeroy, British Gas Business Fulcrum’s Paul Leighton - Engineer of the Year 2014 Ray Morrison, Facilities and Environment Manager, Chester Zoo 2014 Gas Industry Awards Winner 2013 Utility Week Award Winners *Capital Project Management Award for the gas utility works delivered at the London 2012 Olympic Games, including the gas connection to the iconic Olympic Cauldron 6 7 BUSINESS AREAS Fulcrum is committed to achieving its aim of being the UK’s most trusted utility provider and is determined to be recognised as the leading connections business in the UK. CHAIRMAN’S STATEMENT I am pleased to present the annual report and accounts for Fulcrum for the year ended 31 March 2014. We are the only independent utilities infrastructure provider covering the whole of Britain and deliver technical engineering, design, project management, consultancy and audit services across gas and multi-utility connections. We have a track record of excellence in customer service and a rich heritage that includes British Gas. This is coupled with sector leading credentials, including multiple awards for health and safety, delivery and a 2013 Utility Week Award for Capital Project Management for the critical part we played at the 2012 Olympic Games. Our people have the expertise, passion and commitment required to support our customers throughout their projects, enabling them to benefit from enhanced, sector leading levels of service whilst ensuring the very highest of engineering excellence and health and safety standards. Fulcrum’s core business areas include: Business progress Management and staff Business prospects Gas connections Fulcrum uniquely services a complete range of customers, including SMEs, small residential sites, large housing developments, commercial projects and complex industrial sites. Customers include gas suppliers, intermediaries, end users and developers. The business is able to deliver a holistic gas connections service to its customers by combining disconnection, metering and outlet pipework services. Multi-Utility connections Fulcrum provides multi-utility solutions across a broad range of developments - allowing a greater range of customers to benefit from the efficiencies of multi-utility delivery. Regulated pipeline operations Through its subsidiary Fulcrum Pipelines Limited, Fulcrum owns and operates networks of gas pipelines and their related infrastructure assets. These assets generate income from the transportation of gas between the main regional gas networks and individual properties. Fulcrum Pipelines Limited is regulated by Ofgem as an Independent Gas Transporter (“IGT”). The financial results for the year ended 31 March 2014 are in line with market expectations. Significant effort was focused on bringing down the high overhead level within the business. This was achieved as planned with overheads reducing from £13.2 million to £10.2 million. Underlying EBITDA profit of £0.6 million was delivered. The cash position of the business has been transformed. The pipeline asset sale that took place in October 2013 produced a net cash receipt of £5.9 million. In the months since this asset sale was undertaken, the business has experienced a net cash inflow before payment of restructuring costs. Martin Donnachie joined Fulcrum as Interim Chief Executive in May 2013, replacing the outgoing Chief Executive, John Spellman. Martin was appointed as permanent Chief Executive in October 2013. Marcus Green stepped down as Chief Financial Officer and Robert Douglas joined the business as Interim Chief Financial Officer on 9 January 2014. Robert will serve in this position for a minimum of six months whilst Fulcrum seeks the appointment of a permanent Chief Financial Officer. Mark Watts resigned from his position as Non-executive Director on 3 June 2014. The Board will continue to review its composition and structure as the business develops. I would like to thank John, Marcus and Mark for their work for the Company. As Fulcrum moves towards a more competitive delivery model, the pace of change continues to increase. Clearly there has been a significant reduction in headcount from 233 to 179 people. These changes can be unsettling for our people and I appreciate the way that they have continued to perform at a high level through the changes that have been made. I would like to thank them for their continued hard work and support. The turnaround process, that has been the main focus of the business over the last year, is now complete. The coming twelve months will involve a lot of change for Fulcrum as we move into a transition phase where the operating set up of the business will be transformed into a more efficient and customer responsive model. With the growth in the economy, Fulcrum is well placed to increase sales and this will be a major area of activity within the transition plan. I look forward to working with Martin and the senior management team to ensure that Fulcrum will achieve strong profit growth by being our customers’ most trusted utility services partner always delivering a safe, right first time service. Philip Holder Non-Executive Chairman We continue to build our business around our customers. We have listened to their needs to develop sector leading services which are centred on them and delivered in line with our values: • We put our customers first • We keep our promises • We have a can do attitude • We work as a team 8 9 DISTILLERS TOAST LANDMARK FULCRUM PIPELINE “With the new connection to the main gas network, we now have access to a far cleaner energy source and a much more reliable energy supply.” David MacInnes, Chivas Brothers Energy Manager Completed six months ahead of schedule 100% safety record throughout project delivery “Every single member of the Fulcrum team, from project managers to the installation team on the ground, showed real tenacity in not only getting the job done but getting the job done right,” said Mr Fleming.The achievement saw the Fulcrum team responsible for the pipeline installation announced as ‘Team of the Year – Operational’ finalists at the 2014 Utility Week Stars Awards.The 16-mile Speyside link to Scotland’s main gas network (Fulcrum’s largest project to date and one of the most ambitious recent gas infrastructure projects in the UK) was successfully completed six months ahead of schedule with a 100% safety record, despite remote terrain and winter temperatures of -12°C. Whisky companies Chivas Brothers, Diageo and Angus Dundee shared the cost of the £7.6 million pipeline which has dramatically improved energy efficiency at four famous distilleries - Cragganmore, The Glenlivet, Tormore and Tomintoul. “We are delighted to have collaborated with Fulcrum and our industry colleagues on this project.”“It has brought real benefits to our businesses and to the local community by allowing us to stop using heavy fuel oil in the distilleries on the pipeline. That is better for the environment because it means lower carbon emissions and it also means fewer heavy fuel tankers on the roads, which is great news for everyone who lives locally”, said Diageo Supplier Performance Manager, Chris Sharkey.Robert Fleming, Angus Dundee’s Distilleries Director, said all three distillers had been impressed by Fulcrum’s level of professionalism and commitment. 10 STRATEGIC REPORT FOR THE YEAR ENDED 31 MARCH 2014 standards. The improvements that have been made in delivery have contributed to the solid sales orders performance and have led to us retaining key customers such as British Gas as well as winning business with new customers. Substantial progress has been made in reducing the cost base of the business. The size of the senior management team has been scaled back, efficiencies have been made in the central support functions and non-people costs have been thoroughly reviewed to ensure that expenditure is in line with what is required for a company of Fulcrum’s size. Overall, overhead levels (excluding exceptional items) have reduced by £3.0 million during the course of the last twelve months. The pipeline asset sale in October 2013 and the subsequent improvements in cash management processes have transformed the cash position of the business. Fulcrum has now moved out of its turnaround phase and has entered a phase of transition. This transition phase will last for the remainder of 2014 and will encompass activities such as: improving sales performance and particularly driving high value opportunities; changing the operating model to remove duplication and obtain synergies with supply chain partners; streamlining processes such as design; and evolving to a culture where performance to end customers is at the heart of everything done within Fulcrum. The business should then be able to enter 2015 in a position to drive performance hard and focus on activities aimed at accelerating growth. Principal activities The Group’s principal activities are the provision of unregulated utility connections and independent gas transportation services in the UK. The Group designs and project manages connections to gas pipelines for customers seeking either a new connection or the alteration or refurbishment of an existing connection. These connections range from simple, single-site alterations, to large, complex multi-site new connections. In either case, the Group’s team of skilled design and engineering staff are required to design the connection to detailed specifications and to ensure the connection is appropriate and complies with extensive health and safety requirements. Fulcrum currently contracts with third party organisations to physically construct these new or refurbished connections. Fulcrum provides multi-utility solutions across a broad range of developments, allowing customers to benefit from the efficiencies of multi-utility delivery. The Group comprises two trading subsidiaries - Fulcrum Infrastructure Services Limited (providing utility infrastructure and connection services) and Fulcrum Pipelines Limited (the licenced asset owner for new gas connections and the gas transporter). Business review Turnaround activity dominated the year ended 31 March 2014 at Fulcrum. It was particularly pleasing to see the business being successful in increasing its sales orders run rate which led to the business replacing the turnover relating to the Speyside distilleries project as this came to an end. In addition, a great deal of effort was put into improving the consistency of delivery at Fulcrum during the year. Fulcrum has a heritage of reliability and it is important that we build on our reputation by delivering safely and on time to the highest 11 If the business can achieve sales growth beyond this level, extra gross margin will be produced with little need for increase in overheads. Principal risks and uncertainties The Board considers risk assessment, identification of mitigating actions and internal control to be fundamental to achieving the Group’s strategic objectives. The Corporate Governance report on pages 26 to 27 describes the systems and processes through which the Directors manage and mitigate risks. The principal risks to achieving the Group’s objectives are set out below. The Board recognises that the nature and scope of the risks can change and so regularly reviews the risks faced by the Group as well as the systems and processes in place to mitigate them. Growth and strategy execution It is possible that the growth of the business could take longer than expected, or that the anticipated improvements in financial performance may not be realised in full. To mitigate this risk, the Group operates comprehensive annual strategic planning and budgeting processes together with detailed monthly reporting and analysis of actual performance against the business plan so that corrective actions can be taken if necessary. Dependence on key executives and personnel In common with many smaller companies, the Group’s future success is substantially dependent upon recruiting, retaining and motivating key executives with relevant industry experience. The Group has put in place suitable executive incentive schemes for successful delivery of our strategy. In addition, appropriate staff development programmes are in place to assess, manage and develop the leadership skills of all staff throughout the organisation. Sales Operations Customers have welcomed the improvements in delivery that they are experiencing with Fulcrum. This has been a major factor in the increase in the underlying sales order level and we have successfully replaced the turnover associated with the Speyside distilleries contract. Significant contracts won during the year include the following: • The installation of a gas pipeline to a new £100 million power-from-waste plant facility. The £2.1 million gas infrastructure project, which involved over a kilometre of pipeline along with inlet and outlet works, meter installation and booster equipment, was won during the year and will be completed during the summer of 2014 • A 4.5km gas pipeline project to bring gas to Glenkinchie distillery, the home of ‘The Edinburgh Malt’, for Diageo was won during the year and will be completed during the summer of 2014. This continues our valued relationship with Diageo following our successful work with them on the Speyside project • Renewal of the British Gas Business connections framework for a further twelve months to 30 September 2014. We have invested in bringing new people into the sales team to ensure that we have full coverage across mainland Britain. We have also continued to develop our web based sales channel and £3.6 million of business was won through this route in the year. Looking ahead, Fulcrum is well placed to grow in a number of markets, especially as the UK economy is expanding and construction activity is set to increase. Our trusted delivery capability puts us in a strong position to win more business through utility suppliers and brokers. The growth in the housing market presents an exciting opportunity and we have developed our offering to allow us to compete more aggressively in this area. Fulcrum’s ability to work on everything from straightforward single connections to complex infrastructure projects should produce a wealth of opportunities in the industrial and commercial markets. We are also seeing increasing interest in fuel conversion with many organisations seeking to move to gas and away from more costly and carbon-intensive alternatives. Delivery on time is now a key measure within Fulcrum and we have greatly improved our delivery on time performance. We will continue to have a relentless focus on service delivery, as this will be a key differentiating factor in the markets we serve. We strengthened our relationship with contractor partner McNicholas by selecting the company as our sole framework contractor for gas, electricity and multi-utility connection works at developments across England and Wales from 2 June 2014. This move to a single framework delivery partner enables us to increase our competitive position, simplify business processes and further improves the efficiency of back office functions including pricing, estimating and design services. Over the course of the year the number of people engaged by Fulcrum reduced from 233 to 179. In March 2014 Fulcrum launched an employee consultation process in respect of a proposed reduction of 32 people. This consultation ended in April and the redundancies will take place between May and July. Following these redundancies, 149 people will be engaged in the business. This compares with 344 people at the time the business was acquired from National Grid. The restructuring that has taken place over the last twelve months has been necessary to produce an efficient operating model that is fit to service customers to a high standard and enable profits to be generated in line with market expectations, allowing for a realistic expectation of the gross margins that can be achieved. In October 2013, Fulcrum entered into a transaction with ES Pipelines to sell the majority of Fulcrum’s residential pipeline assets. This sale realised net cash proceeds of £5.9 million and, since October, the cash position has remained robust. Outlook Fulcrum enters 2014/15 with a solid order book and the markets that the business operates in should present exciting opportunities. Turnaround activities of the last twelve months have been completed as planned. The Board believes that the transition work that the business is engaged in will produce a business model where Fulcrum can make a decent level of profit at its current level of turnover. 12 13 Diageo’s Supplier Performance Manager Chris Sharkey (2nd right) inspects newly installed gas equipment with Fulcrum’s Commercial Director Keith Stout, Operations Director Ian Foster and Operations Manager and project lead, John McLuskey Risks relating to operating in a competitive market The business strategy relies fundamentally on the ability to increase revenues and ensuring that the cost base is kept under control. However, the markets in which the Group operates are competitive. The Group faces significant competition, including from organisations that may be larger and/or have greater capital resources. The Group cannot predict the pricing or promotional activities of its competitors or their effect on its ability to market and sell its services. In order to ensure that its services remain competitive, the Group may be required to reduce its prices as a result of price reductions by its competitors. This could adversely affect the Group’s results. There are no assurances that the strength of the Group’s competitors will not improve or that the Group will win any additional market share from its competitors, or maintain its existing market share. Existing and/or increased competition could adversely affect the Group’s market share and materially affect its business, financial condition and operating results. These risks are managed through the corporate planning and review processes as outlined in the growth and strategy execution section above. Risks relating to the gas connections market Operating in the gas industry carries with it inherent risks, such as reliance on ageing infrastructure, potential injury to, or loss of, human life or equipment, as well as the risk of downtime or low productivity caused by weather interruptions or equipment failures. Losses could result from litigation or interruption of the Group’s business should these risks materialise. There are also associated regulatory risks relating to the Group’s reliance on a number of different licences which it requires in order to carry out the design and project management of connections to gas pipelines. In addition Fulcrum Pipelines Limited is specifically licensed by Ofgem as an Independent Gas Transporter (IGT). This brings with it the risk that the regulatory environment could change, which may have a direct and significant impact on the Group’s regulated activities. The Group seeks to reduce the risk of losses arising from these circumstances through careful planning, robust operational guidelines, the sharing of risk with client and supplier organisations and by putting in place suitable insurance arrangements. Reliance on key customers Change in balance of contract value A relatively small number of long term commercial contracts exist between the Group and its customers. The relationship between the Group and many of its customers is not regulated by a contract. Instead, the majority of the Group’s business with customers is based on purchase orders and an implied acceptance by customers of the Group’s standard terms and conditions. There can therefore be no certainty that business will continue to flow from the Group’s customers at historic levels. Reliance on significant suppliers The physical installation works required to install gas connections managed by the Group are carried out by sub-contractors on behalf of the Group. The Group has entered into a new framework contract with a single sub-contractor to undertake a large proportion of the physical installation works. The Group is exposed to the risk that the financial performance of this supplier may fluctuate or deteriorate in the future and that this could have an adverse impact on the operational or financial performance of the Group. In order to manage this risk, the Group continually reviews the performance of its framework sub-contractor against the requirements of the framework contract and a suite of defined Key Performance Indicators (KPI’s). Continuity of financing facilities During the prior year the business entered into an asset backed financing agreement with Lloyds Commercial Finance. At the year end, this facility was not utilised. Maintaining good working relationships with the Group’s bankers will remain important in the future. Changing mix of sales A changing mix of new contract sales, moving away from payments in advance toward credit terms, may place a strain on working capital as the volume of credit sales increases. In granting commercial credit terms careful attention is paid to the timing of cash receipts and payments over the period of contract delivery. Where necessary a deposit is requested from customers prior to commencing work and invoicing milestones with customers are matched where possible to the invoicing patterns with contractors. Matching of credit terms through the supply chain will be necessary to ensure the working capital impact of this change in sales mix can be managed effectively. As the sales mix of the business changes and the relative mix of large and small contracts changes over the period of delivery, it is possible that revenue may fluctuate materially from one period to another. As a result, future revenue performance may prove more volatile than the past revenue performance of the business would indicate. Management of financial resources including liquidity risk and capital risk management Disclosure of all the treasury risks can be found in note 26 to the financial statements. Going concern As highlighted in the financial review, the Group had net cash at 31 March 2014 of £4.9 million. The Group had not drawn on its available financing facilities. As a matter of course the Directors regularly prepare financial forecasts for the business and these are reviewed and adopted by the Board. These forecasts are subject to ‘stress testing’ with appropriate sensitivity analysis and scenario planning to ensure that any adverse impact can be managed and mitigated such that the business can continue to operate within its existing financing facilities. The Group’s forecasts and projections, after taking account of sensitivity analysis of changes in trading performance and corresponding mitigating actions, show that the Group has adequate cash resources for the foreseeable future. Therefore after making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly they continue to adopt the going concern basis in preparing the annual report and financial statements. Martin Donnachie Chief Executive Officer 3 June 2014 14 CASE STUDIES MALT DISTILLERY GETS CLEANER EDGE 15 Field Officer Mick Hill and Taylor Wimpey Site Manager Mick Wale with new home owner Nicky, on site at the former Peugeot development in Coventry ENERGY CONNECTIONS TURN HOUSES INTO HOMES Glenkinchie Distillery, the home of ‘The Edinburgh Malt’, is enjoying substantial reductions in carbon emissions after switching to cleaner natural gas thanks to Fulcrum’s installation of a new 4.5 kilometre pipeline.The gas pipeline, a six-figure investment by whisky giant Diageo, freed Glenkinchie from reliance on fuel oil as the primary energy source needed in the distillation process - and ended demand for frequent delivery trips by heavy tankers on the region’s narrow rural roads.The project serving the distillery, which was founded in 1837, saw Fulcrum overcome some unique engineering complexities, including an historic arch bridge crossing, before its completion one week ahead of schedule.The installation followed Fulcrum’s largest fuel oil conversion project to date, a 16-mile pipeline bringing a gas feed to four Speyside distilleries owned by Chivas Brothers, Diageo, and Angus Dundee. Taylor Wimpey, one of the UK’s largest residential developers, continues to work with Fulcrum to provide gas and electricity supplies to new homes on the site of the former Peugeot car factory in Coventry.The development of 1,150 new houses and apartments by three house builders, including lead developer Taylor Wimpey, has seen Fulcrum handle gas and electricity connections for 890 plots since starting on site in 2010 as well as street lighting installation for the entire site. Target completion for the development is 2018.A significant milestone of 50% of the 600 new Taylor Wimpey plots have now been connected, including installation of four electricity sub-stations and 5km of gas mains and services. Fulcrum has worked closely with Taylor Wimpey to ensure overall site construction plans are met and new homes are ready for customers in a housing market with high demand for quality new properties.  16 17 FINANCIAL REVIEW In conjunction with the Chairman’s Statement and the Strategic Review, this report provides further information on key aspects of the financial position of the Group. The Group’s annual consolidated financial statements have been prepared in accordance with International Financial Reporting Standards. There have been no significant changes to the accounting policies applied by the Group during the year ended 31 March 2014. In prior years the cost of certain site- based operations staff has been included in overheads. In the current year’s results these cost have been categorised as costs of sales, rather than overheads, as the directors are of the opinion that this is a more appropriate presentation. Accordingly, results for the prior year have been restated to re-allocate the cost of site based operations staff from overheads to cost of sales. The restatement has not affected the EBITDA. An operating loss before exceptional items of £0.7 million (2013: £0.9 million) was recorded for the year. The underlying financial performance, together with a comparison with the previous year is summarised in the table below. 93.5% ‘Right first time’ performance for British Gas * British Gas Performance Reporting (April 2013 - March 2014) Results and comparison with previous year Revenue Gross profit Gross margin (%) Administrative expenses before exceptional items Underlying EBITDA(1) Operating loss before exceptional items Net cash/(debt) Year ended 31 March 2014 Year on year change (1.2)% (22.5)% £m 38.3 9.5 24.8% 10.2 0.6 (0.7) 4.9 Restated Year ended 31 March 2013 £m 38.8 12.3 31.6% 13.2 1.3 (0.9) (0.1) (1) Earnings before interest, tax, depreciation, amortisation, share based payments and exceptional items. Revenue Overall reported revenue for the year was £38.3 million against £38.8 million in the prior year, a reduction of 1.2%. Revenues from infrastructure services were £38.3 million (2013: £39.0 million), a reduction of 2%. Revenue included some £5.2 million of revenue from the Speyside distilleries contract (with £3.1 million having been recognised in the second half of the last financial year). The rate of sales orders won decreased in the latter part of the prior year which resulted in a slight year on year decline in revenue. Revenue from the Group’s pipeline operations amounted to £1.1 million, a decrease of 31% compared with the previous year’s revenue of £1.5 million. Revenue for the six months ended 30 September 2013 was £0.8 million, in line with the same period in the prior year and included some £0.5 million of revenue from the domestic pipeline assets. These assets were disposed of on 9 October 2013, which largely accounted for the reduction year on year. Intercompany trading of £1.1 million (2013: £1.7 million) was eliminated on consolidation. Gross margin Reported gross profit for the year was £9.5 million, representing a decrease of 22.5% compared to the prior year gross profit of £12.3 million. The prior year was bolstered by the one-off release of £1.1 million of provisions associated with the change in framework contractors and £0.6 million of other provisions released to cost of sales during the year, which largely explained the year on year reduction. It also included a number of highly profitable contracts which were not repeated in the current year. The gross margin of 24.8% in the period was lower than the prior year margin of 31.6% and the reduction was explained by the factors mentioned above. The underlying margin in the prior year, excluding these benefits, was 27.3%. Administrative expenses Administrative expenses reported for the year totalled £13.9 million (2013: £13.2 million). Administrative expenses in the year included exceptional items of £3.7 million associated with the restructuring exercise concluded in early 2014 and are discussed in more detail below. Excluding these exceptional items administration expenses had fallen by 22.6% to £10.2 million. The reduction was principally due to savings realised from the cost saving and restructuring initiatives undertaken during the year. Included within administrative expenses are share based payment charges of £0.1 million (2013: £0.9 million) associated with the company’s equity based option schemes. The management participation shares and Marwyn participation option reached maturity during the year, with the result that no further charges were due under the scheme. This, combined with cancellation of the Fulcrum share option plan, which commenced on 28 March 2012, resulted in the year on year reduction in the charge. The charge for the first half year was £0.2 million, which was calculated prior to the decision to cancel the EMI scheme. In February 2014 a new scheme was introduced which incurred a charge of £10,000 in the second half year. In addition, during the prior year, the management participation share incentive scheme was restructured as a result of an administrative error made when the scheme was put in place in July 2010. Share based payment charges for the prior year included costs of £151,000 associated with this restructuring. EBITDA and operating loss Underlying EBITDA, before exceptional items and share based payments was £0.6 million for the year (2013: £1.3 million), a £0.7 million reduction against the prior period. The operating loss reported for the year was £4.4 million, including exceptional items of £3.7 million (2013: £0.9 million, including exceptional items of £nil). From left to right, Kevin Walpole (Key Account Manager, Fulcrum) with Dai Davies, Mark Pomeroy, James Hicks, Claire Gough, Maria Creffield (British Gas) and Jaime Hardy (Customer Services Manager, Fulcrum) 18 19 In addition, the useful economic life of these I&C pipeline assets has been revised to 40 years from 20 years as a result of benchmarking the useful economic life of the assets against comparable industry operators. This exercise was also carried out by Grant Thornton UK LLP on behalf of the Directors. - other working capital outflows of £0.9 million (2013: £0.6 million inflow); • other cash outflows of £nil (2013: £0.2 million) associated with modification of the management participation scheme. Balance sheet Total net liabilities at 31 March 2014 were £1.8 million (2013: net assets £0.1 million) and included intangible assets of £3.4 million (2013: £3.9 million). Investing activities Forward-looking statements Capital expenditure for the period amounted to £1.4 million (2013: £2.9 million), principally in respect of investment in pipeline assets (2013: £1.7 million). Cash and borrowings As at 31 March 2014 the Group held cash balances of £5.3 million (2013: £1.9 million). No amounts were outstanding on financing facilities at 31 March 2014 (2013: £1.3 million). Amounts outstanding on finance leases at 31 March 2014 were £0.4 million (2013: £0.7 million). The net proceeds of £5.9 million from the disposal of the domestic pipeline assets were received on 10 October 2013. The overall net cash position of the Group at 31 March 2014 was £4.9 million (2013: net debt of £0.1 million). Certain statements in this annual report are forward-looking. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to be correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward- looking statements. The Group undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise. Robert Douglas Interim Chief Financial Officer 3 June 2014 Dividends No dividend has been proposed or paid (2013: £nil). Cash flow and financing Operating cash flow Operating activities in the period generated cash of £0.6 million (2013: absorbed cash of £5.4 million), and comprised the following: • EBITDA for the period of £0.6 million (2013: £1.3 million); • exceptional cash costs totalling £1.7 million (2013 £0.2 million); • working capital inflows in the year total £1.7 million (2013: £6.3 million outflow) and reflect: - an increase in the balance of payments received in advance of £2.8 million since 31 March 2013 (2013: reduction of £0.7 million); - an outflow from a reduction in accruals of £0.2 million (2013: £6.2 million outflow, largely due to settlement of amounts due to contractors accrued at 31 March 2012); and Business Development Manager Tim Carroll with James Alan, Helena O’Toole and Stephen Walshaw from the new connections team at Npower FINANCIAL REVIEW CONTINUED The loss per ordinary share for the period was 2.9 pence (2013: loss of 0.3 pence). The adjusted loss per share, before charging exceptional items and crediting deferred tax, was 0.5 pence (2013: loss of 0.7 pence). An impairment of £1.4 million relating to the assets held for sale has been charged to the income statement, and has been classified as an exceptional item due to the size and nature of the charge. Exceptional Items Exceptional items for the year were £3.7 million (2013: £nil). The principal components of the charge were £2.2 million for costs associated with restructuring activities and redundancies and £1.4 million in respect of the impairment of the pipeline assets which were sold on 9 October 2013. Finance expense Net finance expense for the year was £105,000 (2013: £75,000). This reflects interest payable during the year on the IT lease financing arrangement and the Lloyds financing facility. Interest expense relating to finance leases totalled £82,000 during the year (2013: £71,000). Taxation During the year the Group incurred losses for corporation tax purposes of approximately £3.1 million (2013: £1.1 million) and the total sum of accumulated unrecognised losses carried forward amounts to £18.9 million as at 31 March 2014 (2013: £16.0 million). Deferred tax assets totalling £0.5 million have been recognised at 31 March 2014 (2013: £0.5 million) in anticipation of improved business profitability in future periods. Deferred tax liabilities totalling £0.6 million have been recognised at 31 March 2014 (2013: £nil) in respect of the revaluation of the industrial and commercial pipeline assets. There is currently no intention to sell these assets and the company expects to recover their valuation through use therefore no tax is currently expected to be payable in respect of the revaluation. Asset disposal and asset revaluation As at 30 September 2013 Fulcrum reclassified the portfolio of domestic pipeline assets held within the balance sheet of its subsidiary Fulcrum Pipelines Limited from fixed assets to assets held for sale. The carrying value of the assets held for sale was determined by reference to the expected proceeds from sale, less transaction costs. These domestic pipeline assets were subsequently disposed of on 9 October 2013 for a gross consideration of £6.3 million in cash, less a retention of £57,000 to cover transitional matters. The net proceeds of the disposal, after advisers’ fees and transaction costs was approximately £5.9 million. On 30 September 2013 Fulcrum Pipelines Limited also carried out a valuation of its remaining portfolio of industrial & commercial (“I&C”) pipeline assets and has revalued upwards the carrying value of these assets to £4.4 million. The increase in net book value as at 30 September 2013 of £3.1 million was credited to a revaluation reserve in the balance sheet of Fulcrum Pipelines Limited. The Group’s accounting policy for pipeline assets is to recognise these assets at the value of the future discounted cash flows expected to be generated from operation of the assets, less accumulated depreciation. The Directors have changed their accounting policy to one of revaluation, including a periodic review of the assumptions underlying future discounted cash flows generated. This change to a revaluation policy was prompted by the sale of the domestic pipeline asset portfolio in October 2013 which highlighted a disparity between the relative assumptions underlying future cash flows arising from valuation of domestic pipeline assets and those of I&C assets. In order to better represent the future value of these cash flows, and hence the carrying value of I&C pipeline assets, the Directors have sought to revise their underlying assumptions. To assist with the valuation of these assets the Directors appointed Grant Thornton UK LLP to carry out an independent review and benchmarking exercise of the assumptions used to calculate the future cash flows associated with I&C assets. These assumptions include, inter alia, estimates of future occupancy and gas consumption of the associated properties, which are used to derive the future cash flows at the point of acquisition by Fulcrum Pipelines Limited from its fellow subsidiary, Fulcrum Infrastructure Services Limited. These future cash flows are then discounted at a rate of 15% which reflects an estimate of the cost of capital and risk associated with the cash flows arising from these assets. 20 21 BOARD OF DIRECTORS Biographies Martin Donnachie (aged 44)  Chief Executive Officer Martin has experience gained from a range of interim leadership roles and, prior to that, 12 years of experience in the house building and construction services sectors. He was Divisional Managing Director of the successful affordable housing division of Rok plc from 2007 until 2010. Prior to that, he held Managing Director roles at George Wimpey plc, Morris Homes Limited and AEA Technology plc. Martin is a Fellow of the Institute of Chartered Accountants in England and Wales and in his early career he held a series of finance roles. Martin joined Fulcrum as Interim Chief Executive Officer in May 2013 and was appointed to the Board as permanent Chief Executive Officer in October 2013. Stephen Gutteridge (aged 59) Non-executive Director Stephen has over 30 years’ experience in the energy and utilities sectors initially with Shell and then Amerada Hess where he ran their UK gas business unit. From 1992 to 1997 he was Managing Director of Energy Supply at Seeboard plc. Since then, Stephen has held executive and non-executive board positions in a number of companies including Ferguson International, the International Petroleum Exchange and CORGI. He was Chairman of AIM-listed Star Energy, the gas storage and UK onshore oil producer, and Chairman of President Petroleum Company plc, also AIM-listed. He was a Non-executive Director and Chairman of TQ Group which was successfully sold to Pearson Group in 2011. He is currently Executive Chairman of AIM-listed Nighthawk Energy. Stephen has a degree in Economics and Business Studies and is a member of the Institute of Directors and the Energy Institute. Robert Douglas (aged 58) Interim Chief Financial Officer Robert was appointed Interim Chief Financial Officer on 9 January 2014. Robert brings with him considerable experience gained in senior finance roles in listed and private companies. He has held interim group finance director appointments in house building, construction, property development and residential property services. Prior to embarking upon an interim career Robert was Deputy Group Finance Director of Wilson Bowden plc, a FTSE 250 house builder and developer. Earlier in his career Robert held a number of Finance Director and senior finance appointments in businesses engaged in construction and engineering. Robert holds a joint honours degree in Economics and Business and is a Fellow of The Institute of Chartered Accountants in England and Wales. Philip Bernard Holder (aged 65) Chairman Philip has over 30 years experience in the utilities sector. From 1997 to March 2007, Philip was Managing Director of East Surrey Holdings, the mid-cap water and gas utilities business. Until March 2010, Philip was full time Operational Adviser to The Infrastructure Partnership. He is also an Operational Adviser for JO Hambro Capital Management Group which manages the Trident Private Equity funds. Philip is the Non-executive Chairman of the gas main laying contractor Forefront Group Limited and was a Non-executive Director of the CLH Group (Compania Logistica de Hidrocarburos) which owns and operates Spain’s refined fuel pipelines and the associated storage and distribution facilities. 22 DIRECTORS’ REPORT FOR THE YEAR ENDED 31 MARCH 2014 The Directors present their annual report and the audited consolidated financial statements of the Group for the year ended 31 March 2014. Registered office The registered office of Fulcrum Utility Services Limited is PO Box 309, Ugland House, Grand Cayman, KY1-1 104, Cayman Islands. Dividends No dividend has been proposed or paid (2013: £nil). Directors The Directors of the Group during the year and up to the date of signing the financial statements were: MT Donnachie PB Holder S Gutteridge MIJ Watts MC Green JA Spellman (appointed 8 October 2013) (resigned 3 June 2014) (resigned 28 January 2014) (resigned 21 May 2013) Directors’ interests The Directors and their connected parties held interests in the following number of ordinary shares at 1 April 2013, 31 March 2014 and 30 May 2014. Further information about the Directors’ interests is provided in the remuneration report. Number of ordinary shares Martin Donnachie Philip Holder Stephen Gutteridge Marcus Green (resigned) John Spellman (resigned) 30 May 2014 31 March 2014 1 April 2013 319,220 766,666 404,166 12,500 625,000 319,220 766,666 404,166 12,500 625,000 - 416,666 254,166 12,500 625,000 In addition Philip Holder owns 500,013 shares in Fulcrum Utility Investments Limited. 23 non-statutory audit of the Company’s consolidated financial statements in order to discharge their obligations under AIM rule 19. The audit report issued by KPMG has therefore been addressed to the Company and not the Members, as would be the case with a statutory audit. Statement of disclosure of information to auditors As at the date this report was signed, so far as each of the Directors is aware, there is no relevant information of which the auditors are unaware and each Director has taken all steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the auditors are aware of that information. On behalf of the Board Martin Donnachie Director 3 June 2014 Employees The Group’s executive management regularly delivers companywide briefings on the Group’s strategy and performance. These briefings contain details of the Group’s financial performance where appropriate. In addition, monthly “Reach” briefings contain detailed information on the Group’s operational performance for the previous month, as well as updates on customer activity. The Group remains committed to fair treatment of people with disabilities in relation to job applications, training, promotion and career development. Every effort is made to find alternative jobs for those who are unable to continue in their existing job due to disability. The Group takes a positive approach to equality and diversity. The Group promotes equality in the application of reward policies, employment and development opportunities, and aims to support employees in balancing work and personal lifestyles. Directors’ indemnities and insurance Fulcrum Utility Services Limited indemnifies its officers and officers of its subsidiary companies against liabilities arising from the conduct of the Group’s business, to the extent permitted by law, by the placing of directors’ and officers’ insurance. The insurance policy indemnifies individual directors’ and officers’ personal legal liability and cost for claims arising out of actions taken in connection with Group business. Annual General Meeting The Annual General Meeting of the Company is to be held on 24 September 2014. The notice of meeting appears in the document accompanying this report and financial statements. Statement of Directors’ responsibilities The Directors of Fulcrum Utility Services Limited (‘the Directors’) have accepted responsibility for the preparation of these non-statutory accounts for the year ended 31 March 2014 which are intended by them to give a true and fair view of the state of affairs of the Group and of the profit or loss for that period. They have prepared the non-statutory accounts in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU. In preparing these non-statutory accounts, the Directors have: • selected suitable accounting policies and applied them consistently; • made judgements and estimates that are reasonable and prudent; • stated whether they have been prepared in accordance with IFRSs as adopted by the EU; and • prepared the non-statutory accounts on the going concern basis as they believe that the Group will continue in business. The Directors have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the company and to prevent and detect fraud and other irregularities. The Company is incorporated in the Cayman Islands and registered in the Cayman Islands and in England and Wales. The Company is not required to prepare audited financial statements under Cayman Island company law, however the Company is required under AIM rule 19 to provide shareholders with annual audited consolidated financial statements for the year ended 31 March 2014. The Directors have requested KPMG LLP (KPMG) to undertake a 24 REMUNERATION REPORT FOR THE YEAR ENDED 31 MARCH 2014 Directors’ emoluments The remuneration of each of the Directors for the year ended 31 March 2014 is set out as follows: The main components of executive directors’ remuneration, which can be mirrored with senior executives, are basic salary, annual performance related bonus and share options. Basic annual salary Each executive director’s basic salary is reviewed regularly by the committee. In deciding upon an appropriate level of remuneration, the committee believes that the Company should offer levels of base pay that reflects individual responsibilities compared to similar jobs in comparable companies. Annual bonus payments The committee establishes the objectives which must be met for an annual cash bonus to be paid. Share option incentives The Company operates a management participation share scheme and a share option plan (see note 20). The committee has responsibility for supervising the schemes and the grant of share options under the schemes. Additional benefits Each executive director receives private medical insurance and life assurance cover, pension contributions and a company car or car allowance. Remuneration Committee The Remuneration Committee reviews the performance of each executive director and sets the scale and structure of their remuneration and the basis of their service agreement with due regard to the interests of shareholders. To ensure that the Company’s remuneration practices are market competitive, the committee takes advice from various independent sources. The Board determines the remuneration of each of the non-executive directors with the support of external professional advice if required. No director participates in any discussion regarding his or her own remuneration. Policy on executive directors’ remuneration The policy of the Board is to provide an executive remuneration package designed to attract, motivate, reward and retain the executive directors. The aim of the Group’s remuneration policy is to ensure that the key executives are appropriately rewarded for their individual contribution to the Group’s performance, commensurate with their duties and responsibilities. The Remuneration Committee believes that shareholders’ interests are best served by providing executives with remuneration packages which have a significant emphasis on performance related pay, through long- term incentive schemes. The Board considers that packages of this nature are consistent with prevailing practice and are necessary to retain and reward executives of the calibre the Group requires. Salary, fees and bonus Other benefits £000 £000 Pension £000 Loss of office £000 2014 Total £000 114 236 145 60 30 30 615 1 3 2 - - - 6 13 5 11 - - - 29 - 50 34 - - - 84 128 294 192 60 30 30 734 Executive Martin Donnachie John Spellman Marcus Green Non-executive Philip Holder Mark Watts Stephen Gutteridge Total Directors’ interests in share options Philip Holder owns 500,013 shares in Fulcrum Utility Investments Limited. Martin Donnachie owns 3,571,414 EMI options and 428,586 unapproved options in the EMI share option plan. Regional Operations Manager, Martin Peters and Field Officer, Mick Hill on site withTaylor Wimpey Site Manager Mick Wale 25 2013 Total £000 - 265 155 60 30 30 540 26 27 Martin Donnachie John Spellman Marcus Green Stephen Gutteridge Philip Holder Mark Watts Shareholder communication Full Board 6 of 6 1 of 1 9 of 9 12 of 12 12 of 12 11 of 12 Audit Committee Remuneration Committee - - - - 2 of 2 2 of 2 - - - 1 of 1 - 1 of 1 The Board is committed to maintaining good communication with shareholders. The executive directors maintain a regular dialogue with the analysts and institutional investors to discuss the Group’s performance and future prospects. The Group responds formally to all queries and requests for information from existing and prospective shareholders. In addition, the Group seeks to regularly update shareholders through stock exchange announcements and wider press releases on its activities. The Annual General Meeting will provide an opportunity for shareholders to address questions to the Chairman and the Board directly. Published information, including regulatory news, is available on the Group’s website, www.fulcrumutilityserviceslimited.co.uk. Risk management and internal controls The Directors are responsible for the Group’s system of internal control and for reviewing its effectiveness, whilst the role of management is to implement Board policies on risk management and control. It should be recognised that the Group’s system of internal control is designed to manage rather than eliminate, the risk of failure to achieve the Group’s business objectives and can only provide reasonable, and not absolute, assurance against material misstatement or loss. The Group operates a series of controls to meet its needs. These controls include, but are not limited to, a clearly defined organisational structure, written policies, a comprehensive annual strategic planning and budgeting process and detailed monthly reporting. The annual budget is approved by the Board as part of its normal responsibilities. In addition, the budget figures are regularly re- forecast to facilitate the Board’s understanding of the Group’s overall position throughout the year and this re-forecast is reported to the Board in addition to the reporting of actual results during the year. The Audit Committee receives reports from management and the external auditors, concerning the system of internal control and any material control weaknesses. Any significant risk issues are referred to the Board for consideration. The Board has considered the need for an internal audit function, but has concluded that at this stage in the Group’s development, the internal control systems in place are appropriate for the size and complexity of the Group. CORPORATE GOVERNANCE REPORT Statement by the Directors on compliance with the code of best practice As an AIM listed company, Fulcrum Utility Services Limited is not required to comply with the provisions of the Combined Code on Corporate Governance, (“the Combined Code”) that applies to companies with a premium London Stock Exchange listing. However, the Board recognises the importance and value of good corporate governance procedures and accordingly have selected those elements of the Combined Code that they consider relevant and appropriate to the Group, given its size and structure. An overview of the Group’s corporate governance procedures is given below. The Board The Group is controlled through a Board of Directors, which at 31 March 2014 comprised a non-executive chairman, an executive director and two other non-executive directors, for the proper management of the Company and the Group. The Chairman is Philip Holder and the Chief Executive Officer is Martin Donnachie. Of the non-executive board members, Philip Holder and Stephen Gutteridge are considered to be independent. Mark Watts was not considered to be independent, by virtue of his relationship with Marwyn Management Partners L.P. (“Marwyn”), a significant shareholder of the Company. The non-executive directors bring a wide range of experience to the Group’s activities and provide a strong balance to the executive directors. The Board operates both formally, through Board and committee meetings, and informally, through regular contact amongst directors and senior executives. There is a schedule of matters that are specifically referred to the Board for its decision, including approval of interim and annual financial results, setting and monitoring of strategy and examining acquisition possibilities. The Board is supplied with information in a timely manner, in a form and quality appropriate to enable it to discharge its duties. The Directors can obtain independent professional advice at the Company’s expense in the performance of their duties as directors. Board Committees The Board committees comprise the Audit Committee and the Remuneration Committee. Audit Committee The Chairman of the Audit Committee is Philip Holder, with Mark Watts as the other non-executive member until his resignation. Stephen Gutteridge replaces Mark Watts as the other non-executive member. No one other than the Audit Committee’s Chairman and member is entitled to be present at a meeting of the Audit Committee, but the Company’s external auditors together with the Chief Executive Officer and the Chief Financial Officer are also invited to attend the meetings. The Audit Committee operates under terms of reference agreed with the Board and meets at least twice a year. The Audit Committee considers the adequacy and effectiveness of the risk management and control systems of the Group. It reviews the scope and results of the external audit, its cost effectiveness and the objectivity of the auditors. It also reviews, prior to publication, the interim results, preliminary announcement and the annual report and financial statements. Remuneration Committee The Chairman of the Remuneration Committee is Stephen Gutteridge, with Mark Watts as the other non-executive member until his resignation. Philip Holder replaces Mark Watts as the other non-executive member. The committee meets periodically as required and is responsible for overseeing the policy regarding executive remuneration and for approving the remuneration packages for the Group’s executive directors and management including all personnel receiving remuneration exceeding £75,000 per annum. It is also responsible for reviewing incentive schemes for the Group as a whole. Nominations Committee As the Board is small, there is and will be no separate Nominations Committee and the appointment of new directors is considered by the Board as a whole. Board and committee meeting attendance The table below sets out the attendance at Board and committee meetings by presence or by telephone of individual directors. 28 29 INDEPENDENT AUDITOR’S REPORT TO FULCRUM UTILITY SERVICES LIMITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Scope of the audit of the non-statutory consolidated financial statements An audit involves obtaining evidence about the amounts and disclosures in the non-statutory consolidated financial statements sufficient to give reasonable assurance that the non- statutory consolidated financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s and Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the non-statutory accounts. In addition we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited non-statutory accounts. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on non-statutory accounts In our opinion the non-statutory accounts: • give a true and fair view of the state of the Group’s affairs as at 31 March 2014 and of its loss for the year then ended; and • have been properly prepared in accordance with IFRSs as adopted by the EU. David Morritt (Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants 1 The Embankment Neville Street Leeds LS1 4DW 3 June 2014 We have audited the non-statutory consolidated financial statements of Fulcrum Utility Services Limited for the year ended 31 March 2014 set out on pages 29 to 62. These non-statutory consolidated financial statements have been prepared for the reasons set out in note 1 to the non-statutory consolidated financial statements and on the basis of the financial reporting framework of International Financial Reporting Standards (IFRSs) as adopted by the EU. Our report has been prepared for the Company solely in connection with the preparation by the Directors of non-statutory consolidated financial statements prepared to support compliance with the AIM Rules for Companies (“AIM Rules”). It has been released to the Company on the basis that our report shall not be copied, referred to or disclosed, in whole (save for the Company’s own internal purposes) or in part, without our prior written consent. Our report was designed to meet the agreed requirements of the Company determined by the Company’s needs at the time. Our report should not therefore be regarded as suitable to be used or relied on by any party wishing to acquire rights against us other than the Company for any purpose or in any context. Any party other than the Company who obtains access to our report or a copy and chooses to rely on our report (or any part of it) will do so at its own risk. To the fullest extent permitted by law, KPMG LLP will accept no responsibility or liability in respect of our report to any other party. Respective responsibilities of directors and auditor As explained more fully in the Statement of Directors’ responsibilities set out on page 23, the Directors are responsible for the preparation of the non-statutory consolidated financial statements, which are intended by them to give a true and fair view. Our responsibility is to audit, and express an opinion on, the non-statutory accounts in accordance with the terms of our engagement letter dated 3 October 2013 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. Revenue Cost of sales Gross profit Administrative expenses Operating loss Analysed as: EBITDA before share based payments and exceptional items Equity-settled share based payment charges Exceptional items Depreciation and amortisation Finance expense Loss before tax Taxation Loss for the period attributable to equity holders of the parent Other comprehensive income: Items that will never be reclassified to profit or loss: Revaluation of property, plant and equipment Deferred tax arising on revaluation Total comprehensive loss Loss per share attributable to the owners of the business Basic and diluted Notes Year ended 31 March 2014 Restated* Year ended 31 March 2013 3 6 20 4 9, 11 8 £’000 38,285 (28,794) 9,491 (13,874) (4,383) 607 (115) (3,675) (1,200) (4,383) (105) (4,488) 30 (4,458) 3,061 (612) (2,009) £’000 38,769 (26,515) 12,254 (13,182) (928) 1,279 (878) - (1,329) (928) (75) (1,003) 508 (495) - - (495) 5 (2.9)p (0.3)p *In prior years the cost of certain site-based operations staff has been included in overheads. In the current year’s results these costs have been categorised as costs of sales, rather than overheads, as the directors are of the opinion that this is a more appropriate presentation. Accordingly, results for the prior year have been restated to re-allocate the cost of site based operations staff from overheads to cost of sales. The restatement has not affected the EBITDA. The notes on pages 38 to 62 are an integral part of these financial statements. 30 31 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONSOLIDATED BALANCE SHEET Balance at 1 April 2012 Loss and total comprehensive loss for the year ended 31 March 2013 Transactions with equity shareholders: Equity-settled share based payment transactions Balance at 1 April 2013 Loss for the year ended 31 March 2014 Other comprehensive income Recognition of deferred tax on revalued assets Transactions with equity shareholders: Equity-settled share based payment transactions Balance at 31 March 2014 Notes Share capital Share premium Revaluation reserve Retained earnings £’000 £’000 (16,458) (495) Total equity £’000 (122) (495) £’000 154 £’000 16,182 - - - - 154 16,182 - - - - - - - - 20 20 - - - - - 727 (16,226) 727 110 (4,458) (4,458) 3,061 (612) - - 3,061 (612) - 115 115 154 16,182 2,449 (20,569) (1,784) The notes on pages 38 to 62 are an integral part of these financial statements. Non-current assets Property, plant and equipment Intangible assets Deferred tax assets Current assets Inventories Trade and other receivables Cash and cash equivalents Total assets Current liabilities Trade and other payables Borrowings Provisions Non-current liabilities Borrowings Deferred tax liabilities Total liabilities Net current liabilities Net (liabilities)/assets Equity attributable to equity holders of the parent Share capital Share premium Revaluation reserve Retained earnings Total (deficit)/surplus on equity Notes 31 March 2014 31 March 2013 9 11 8 12 13 14,17 15 16,17 18 16,17 8 21 22 23 24 £’000 6,353 3,359 538 10,250 1,974 5,346 5,326 12,646 22,896 (22,245) (274) (1,378) (23,897) (171) (612) (783) (24,680) (11,251) (1,784) 154 16,182 2,449 (20,569) (1,784) £’000 9,821 3,909 508 14,238 1,489 7,692 1,911 11,092 25,330 (22,440) (1,531) (798) (24,769) (451) - (451) (25,220) (13,677) 110 154 16,182 - (16,226) 110 The notes on pages 38 to 62 are an integral part of these financial statements. The financial statements on pages 29 to 62 were authorised for issue by the Board of Directors on 3 June 2014 and were signed on its behalf by: Martin Donnachie Director 32 33 CONSOLIDATED CASH FLOW STATEMENT Cash flows from operating activities Loss before tax for the year Adjustments for: Depreciation Amortisation of intangible assets Loss/(profit) on disposal of property, plant and equipment Impairment of assets held for sale Finance expense Equity settled share-based payment charges Exceptionals Decrease/(increase) in trade and other receivables Increase in inventories Decrease in trade and other payables Decrease in provisions Net cash generated from/(used in) operations Interest received Interest paid Net cash generated from/(used in) operating activities Cash flows from investing activities Additions to property, plant and equipment Additions to intangibles Proceeds from sales of property, plant and equipment Net cash generated from/(used in) investing activities Cash flows from financing activities Amounts (repaid)/drawn from financing facilities Repayment of finance lease liabilities Net cash (used in)/generated from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at 1 April 2013 Cash and cash equivalents at 31 March 2014 14,17 The notes on pages 38 to 62 are an integral part of the financial statements. Notes Year ended 31 March 2014 Year ended 31 March 2013 £’000 £’000 (4,488) (1,003) 9 11 9 20 656 544 51 1,364 105 115 2,311 2,346 (485) (195) (1,731) 593 - (103) 490 (1,408) (12) 5,884 4,464 (1,293) (246) (1,539) 3,415 1,911 5,326 880 449 (35) - 75 727 - (1,725) (30) (4,551) (215) (5,428) 52 (83) (5,459) (1,942) (948) 863 (2,027) 1,293 (165) 1,128 (6,358) 8,269 1,911 34 35 VILLAGE ON THE GAS GRID AT LAST From left to right, Aled Roberts and Natasha Mullin from Willmott Dixon Energy Services with Robin Rees (Business Development Manager), Katie Docherty (Project Coordinator) and Alan Price (Field Officer) Residents of the Welsh village of Nantlle, a stone’s throw from Snowdon, gained access to a natural gas supply for the first time thanks to a 4.4 kilometre pipeline designed and installed by Fulcrum.Fulcrum were appointed by Willmott Dixon Energy Services to put the six-figure pipeline in place as part of a wider Welsh Government funded scheme aimed at improving energy efficiency in specific areas across Wales.The Fulcrum installation initially connected 70 residents to the national gas network, enabling families to switch from their existing fuel sources that include coal and oil, to more energy efficient and cost effective natural gas supplies.Project works, which entailed significant engineering challenges including three bridge crossings, were completed a month ahead of schedule thanks to effective planning and efficient delivery by Fulcrum’s onsite team.36 37 FINANCIAL HIGHLIGHTS Overheads (excluding exceptional items) £10.2m (down from £13.2m) Revenue £38.3m EBITDA* £0.6m (*before share based payments and exceptional items) Cash £5.3m (up from £1.9m) 38 39 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. Accounting policies Subsidiaries Leases Assets held by the Group under lease which transfer to the Group substantially all of the risks and rewards of ownership are classified as finance leases. On initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Assets held under other leases are classified as operating leases and are not recognised in the Group balance sheet. Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period so as to produce a constant periodic rate of interest on the remaining balance of the liability. The principal accounting policies adopted in the preparation of these financial statements are set out below. Basis of accounting Fulcrum Utility Services Limited (“the Company”) is incorporated in the Cayman Islands and registered in the Cayman Islands and in England and Wales. The Company is not required to prepare audited financial statements under Cayman Island company law, however the Company is required under AIM rule 19 to provide shareholders with audited consolidated financial statements for the year ended 31 March 2014. Parent company information is not required and has not been presented. These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU) and IFRIC Interpretations applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention. The preparation of consolidated financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are highlighted on page 42. Subsidiaries are entities controlled by the Company. Control exists when the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, the Company takes into consideration potential voting rights that are currently exercisable. The acquisition date is the date on which control is transferred to the acquirer. The financial information of subsidiaries is included in the consolidated financial statements from the date that control commences until the date that control ceases. Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated. Revenue Utility infrastructure and gas connection activities are recognised as “services revenue”. The majority of projects are completed in a short time frame, and as such revenue is recognised on project completion. For longer projects, the stage of completion of the works is assessed when considering recognition of revenue. Services revenue is recognised excluding VAT and other indirect taxes. An accrual is made for services revenue in respect of work completed where invoices are yet to be generated. When payment is received in advance of the provision of services, these receipts are recorded as deferred income. Conveyance of gas is recognised as “transportation revenue” from the date the meter is connected and made available for use and is based on gas volumes. Impairment Financial assets (including receivables) A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate and is taken through comprehensive income. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through comprehensive income as an exceptional item. Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Where options are no longer expected to vest because the option holder is no longer employed by the Group, these are treated as forfeitures and a true up of the charge is recognised. Cancellations or settlements of share- based payment transactions during the vesting period by the entity or by the counterparty are accounted for as accelerated vesting; therefore, the amount that otherwise would have been recognised for services received is recognised immediately. Employee benefits Provisions Pension plans The Group operates a defined contribution pension plan for the benefit of its employees. Substantially all of the Group’s employees are members of this scheme. The Group pays fixed contributions to a separate entity, and the Group has no further obligations once the contributions have been paid. The contributions are recognised as an employment expense when they are due. A provision is recognised in the balance sheet when a present legal or constructive obligation arises as a result of a past event, that can be reliably measured and it is probable that an outflow of economic benefits will be required to settle the obligation. Exceptional items Exceptional items are those that in management’s judgement need to be disclosed separately by virtue of their size or incidence in order to provide greater visibility of the underlying results of the business and which management believes provide additional meaningful information in relation to ongoing operational performance. Non-financial assets Short-term benefits For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit” or “CGU”). CGUs have been determined to correspond with operating segments. An impairment loss is recognised if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognised in comprehensive income. Impairment losses recognised in respect of CGUs are allocated to reduce the carrying amounts of the assets in the unit (or group of units) allocating firstly to goodwill and then to the remaining assets on a pro-rata basis. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit- sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. Share-based payment transactions Where the Company grants rights to acquire its equity instruments, these equity-settled share-based payments are measured at fair value at the date of grant using an appropriate valuation model. The fair value determined at the grant date of equity-settled share-based payments is expensed on a straight- line basis over the vesting period, based on an estimate of the number of shares that will eventually vest, with a corresponding entry to equity. At each balance sheet date the estimate of the number of options that are expected to vest is revised. The impact of the revision, if any, is recognised in the statement of comprehensive income with a corresponding entry to equity. 40 41 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Taxation Operating segments Property, plant and equipment In accordance with IFRS 8, the Group determines its operating segments in a manner consistent with the internal reporting provided to the “chief operating decision-maker”, who is responsible for allocating resources and assessing performance of the operating segments. The “chief operating decision-maker” has been identified as the Board of Directors. An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components and for which discrete financial information is available. An operating segment’s trading results are reviewed regularly by the Board of Directors to make decisions about resources to be allocated to the segment and assess its performance. The Group’s primary format for segment reporting is based on business segments. The business segments are determined based on the Group’s management and internal reporting structure and the aggregation criteria set out in IFRS 8. Segment results that are reported to the Board of Directors include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Tax on the profit or loss for the period comprises current and deferred tax. Tax is recognised in the statement of comprehensive income except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable or receivable on the taxable income or loss for the period, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination; and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using future tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. Forecasts are prepared for three years, with future profits being adjusted for the risk and probability of their realisation and discounted to their present value. Property, plant and equipment excluding pipelines are stated at cost less accumulated depreciation and accumulated impairment losses. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset into working condition for its intended use. Pipeline assets are initially recognised at the value of the future discounted cashflows expected to be generated from the operation of the pipelines. Domestic pipelines are recognised at this amount, less accumulated depreciation. Industrial and commercial pipelines are subsequently shown at fair value based on independent valuations by external independent valuers, less subsequent depreciation. Valuations are performed with sufficient regularity to ensure that the fair value of a revalued asset does not differ materially from its carrying amount. Any accumulated depreciation at the date of revaluation is restated to the revalued amount of the asset. Depreciation is charged to the statement of comprehensive income on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. The estimated useful lives are as follows: Pipelines 40 years Fixtures and fittings 5 years Computer equipment 3-5 years Depreciation methods, useful lives and residual values are reviewed at each balance sheet date. Gains and losses on disposal are determined by comparing the proceeds with the carrying amount of the asset and are recognised within the statement of comprehensive income. Business acquisitions and goodwill Inventories Classification of financial instruments The acquisition method of accounting is used to account for the acquisition of subsidiaries from unrelated parties. The cost of an acquisition is measured as the fair value of the consideration given, shares issued or liabilities undertaken at the date of acquisition. The excess of the cost of acquisition over the acquirer’s interest in the fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities is recognised as goodwill and carried at cost less accumulated impairment losses. All goodwill is considered to have an indefinite life and is tested for impairment annually with any resulting goodwill impairment charge recorded in the statement of comprehensive income. When evaluating goodwill for a potential impairment, the Group estimates the recoverable amount based on the “value in use” of the cash generating unit containing the goodwill. If the carrying amount exceeds the recoverable amount, an impairment loss for the difference is recognised. Intangible assets other than goodwill Intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and accumulated impairment losses. Amortisation is charged to the statement of comprehensive income on a straight-line basis over the estimated useful lives of intangible assets from the date they are available for use. The estimated useful lives are as follows: Software 3-5 years Work in progress balances reflect direct works costs including direct labour and other attributable variable costs relating to jobs classed as incomplete. Work in progress is valued at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business less applicable costs to complete and variable selling expenses. Non-derivative financial instruments Non-derivative financial instruments comprise trade and other receivables, cash and cash equivalents, trade and other payables, and loans and other borrowings. Trade and other receivables Trade and other receivables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method, less any impairment losses. Cash and cash equivalents Cash and cash equivalents comprise cash balances and short term deposits. Trade and other payables Trade and other payables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method. Loans and other borrowings Loans and other borrowings comprise finance lease liabilities and invoice discounting liabilities. Following the adoption of IAS 32, financial instruments issued by the Group are treated as equity only to the extent that they meet the following two conditions: • they include no contractual obligations upon the Group to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable to the Group; and • where the instrument will or may be settled in the Company’s own equity instruments, it is either a non- derivative that includes no obligation to deliver a variable number of the Company’s own equity instruments or is a derivative that will be settled by the Company exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments. To the extent that this definition is not met, the proceeds of issue are classified as a financial liability. Where the instrument so classified takes the legal form of the Company’s own shares, the amounts presented in the financial statements for called up share capital and share premium account exclude amounts in relation to those shares. 42 43 2. Operating segments The determination of the Group’s operating segments is based on the business units for which information is reported to the Board of Directors. The Group has two reportable segments, as described below. Fulcrum’s Infrastructure Services business provides utility infrastructure and connections services. This comprises the operating segments of “Unregulated gas connections” and “Multi-utility connections” which have been aggregated in accordance with the criteria of IFRS 8. Fulcrum’s Pipelines business comprises both the ownership of gas infrastructure assets and the safe and efficient conveyance of gas through its gas transportation networks. Gas transportation services are provided under the IGT licence granted from Ofgem during June 2007. Information regarding the operations of each reportable segment is included in the following tables. Performance is measured based on operating profit / (loss) before exceptional items. Segment operating profit / (loss) before exceptional items is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries. Inter- segment pricing is determined on an arm’s length basis. The information provided to the Board includes management accounts comprising profit or loss for each segment and other financial and non financial information used to manage the business on a consolidated basis. The “unallocated” segment comprises the elimination of inter-segmental transactions, the operating loss of the central service provider, and depreciation and amortisation on all centrally held assets. Year ended 31 March 2014 Reportable segment revenue Underlying EBITDA Share based payment charge Depreciation and amortisation Reportable segment operating profit/ (loss) before exceptional items Exceptional items Reporting segment operating loss Finance expense Loss before tax Infrastructure Services Pipelines Unallocated Total Group £’000 38,345 969 - - 969 (1,147) (178) - (178) £’000 1,056 468 - (347) 121 (1,371) (1,250) - (1,250) £’000 (1,116) (830) (115) (853) (1,798) (1,157) (2,955) (105) (3,060) £’000 38,285 607 (115) (1,200) (708) (3,675) (4,383) (105) (4,488) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Changes in accounting policy and disclosures (a) New and amended standards adopted by the Group The financial statements have been prepared using consistent accounting policies, except for the adoption of new accounting standards and interpretations noted below. Adoption of these standards and interpretations did not have a significant impact on the financial position or performance of the Group. • • • • Amendments to IAS 19: Employee Benefits Amendments to IAS 1: Presentation of Items of Other Comprehensive Income Amendments to IFRS 13: Fair Value Measurement Amendments to IFRS 7: Financial Instruments: Disclosures – Offsetting Financial Assets and Liabilities • Annual improvements to IFRSs 2009-2011 Cycle (b) New standards, amendments and interpretations that are in issue but not yet effective • • • • • • • • IFRS 10: Consolidated Financial Statements IFRS 11: Joint Arrangements IFRS 12: Disclosures of Interests in Other Entities IAS 27: Separate Financial Statements IAS 28: Investments in Associates and Joint Ventures Amendments to IAS 32: Financial Instruments: Disclosures – Offsetting Financial Assets and Liabilities Amendments to IAS 36: Recoverable Amount Disclosures for non-Financial Assets Amendments to IAS 39: Novation of Derivatives and Continuation of Hedge Accounting Adoption of these standards is not expected to have a significant impact on the financial position or performance of the Group. Accounting estimates and judgements The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. Information about such judgements and estimations is contained in the accounting policies or the notes to the financial statements, and the key areas are summarised below. Areas of judgement that have the most significant effect on the amounts recognised in the financial statements are as follows: - Recoverability of deferred tax assets – accounting policies and note 8. Key sources of estimation uncertainty that have significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial period are as follows: - Impairment reviews of tangible and intangible fixed assets The Group tests annually whether tangible and intangible fixed assets have suffered any impairment, based on discounted future cash flows of the assets and the total business of the Group. These calculations require the use of estimates, as detailed in note 10. - Revenue recognition For longer projects, the stage of completion of the works is assessed when considering recognition of revenue. Use of this percentage completion method requires the Group to estimate the services performed to date as a proportion of the total services to be performed. Were the proportion of services performed to differ by 10% from management’s estimates the amount of revenue recognised in the year would increase/decrease by £250,000 if the proportion performed were increased/decreased respectively. - Provision for restructuring The restructuring provision relates in part to the remaining committed costs of rent and maintenance of properties no longer utilised by the Group. These costs are expected to be incurred over the next year, and therefore require the use of estimates. Management have based their estimates on costs incurred to date, and advice taken from industry professionals. If the provision for restructuring were to differ by 10% from management’s estimate this would increase/decrease the exceptional costs incurred in the year, and therefore the loss before tax by £64,000 if the estimate were increased/ decreased respectively. Going concern As highlighted in the financial review, the Group had net funds at 31 March 2014 of £4.9 million. The Group had not drawn on its available financing facilities. As a matter of course the Directors regularly prepare financial forecasts for the business and these are reviewed and adopted by the Board. These forecasts are subject to ‘stress testing’ with appropriate sensitivity analysis and scenario planning to ensure that any adverse impact can be managed and mitigated such that the business can continue to operate within its existing financing facilities. The Group’s forecasts and projections, after taking account of sensitivity analysis of changes in trading performance and corresponding mitigating actions, show that the Group has adequate cash resources for the foreseeable future. Therefore, the Directors confirm that they have a reasonable expectation that the Group has adequate resources to enable it to continue in existence for the foreseeable future and, accordingly, the consolidated financial statements have been prepared on a going concern basis. 44 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. Exceptional items 45 Year ended 31 March 2013 £’000 - - - - Year ended 31 March 2014 £’000 124 1,364 2,187 3,675 Relocation and property costs Impairment of pipeline assets upon classification as held for sale Restructuring costs and provisions Relocation and property costs arose as a result of a reassessment of dilapidation costs associated with moving the Group’s head office from Rotherham to Sheffield in 2011. The impairment of pipeline assets upon classification as held for sale resulted from the sale of the portfolio of domestic pipeline assets as detailed in the Financial review. Restructuring costs relate to staff severance costs. These exceptional items are not expected to result in any tax impact. Year ended 31 March 2013 Infrastructure Services Pipelines Unallocated Total Group Reportable segment revenue Underlying EBITDA Share based payment charge Depreciation and amortisation Reportable segment operating profit/ (loss) before exceptional items Exceptional items Reporting segment operating loss Finance expense Profit/(loss) before tax £’000 38,995 1,529 - - 1,529 - 1,529 - 1,529 £’000 1,534 480 - (486) (6) - (6) - (6) £’000 £’000 (1,760) 38,769 (730) (878) (843) (2,451) - (2,451) (75) 1,279 (878) (1,329) (928) - (928) (75) Major items in the “unallocated” column comprise: • Reportable segment revenues; the elimination of inter-segmental revenues relating to pipeline assets of £1,116,000 (2013: £1,760,000) • Underlying EBITDA; the operating loss of the central service providers • Depreciation and amortisation; amounts charged on all centrally held assets • Exceptional items; amounts not directly related to the other operating segments Geographic segments The Group derives all of its revenue from the UK and all of the Group’s customers are based in the UK. Major customer (2,526) (1,003) 5. Earnings per share (EPS) Earnings per share have been calculated by dividing the loss attributable to shareholders by the weighted average number of ordinary shares in issue during the period. Earnings per share have been calculated as follows: Weighted average number of ordinary shares in issue Revenues from the largest customer of the Group’s Infrastructure Services segment represent £6,171,000 (2013: £5,911,000) of the Group’s total revenues for the period. Loss for the period 3. Revenue Services revenue Transportation revenue Total revenues Year ended 31 March 2014 Year ended 31 March 2013 £’000 37,229 1,056 38,285 £’000 37,235 1,534 38,769 Loss for the period attributable to shareholders Add exceptional items Less deferred tax asset recognised Adjusted loss for the period attributable to shareholders Year ended 31 March 2014 Year ended 31 March 2013 ‘000 154,307 ‘000 154,307 Year ended 31 March 2014 Year ended 31 March 2013 £’000 (4,458) 3,675 (30) (813) £’000 (495) - (508) (1,003) 46 47 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. Staff numbers and costs The average monthly number of persons employed by the Group (including directors) during the period, analysed by category, was as follows: Loss per share Basic Adjusted basic Year ended 31 March 2014 Year ended 31 March 2013 (2.9)p (0.5)p (0.3)p (0.7)p Administration In accordance with IAS 33 ‘Earnings per share’ diluted earnings per share is taken as being equal to basic earnings per share as, where the Group has recorded a loss the effect of including share options is anti-dilutive. The aggregate payroll costs of these persons were as follows: 6. Operating loss Included in operating loss are the following charges/(credits): Amortisation of intangible assets: owned Amortisation of intangible assets: leased Depreciation of property, plant and equipment: owned Depreciation of property, plant and equipment: leased Operating leases – plant and machinery Operating leases – land and buildings Loss/(profit) on disposal of property, plant and equipment Auditors’ remuneration: Audit of the group financial statements Amounts receivable by auditors and their associates in respect of: - Audit of financial statements of subsidiaries pursuant to legislation - Taxation services Other services pursuant to legislation Year ended 31 March 2014 Year ended 31 March 2013 £’000 £’000 Wages and salaries Social security costs Other pension costs Share based payments 468 76 439 217 324 222 51 20 35 12 13 383 66 772 108 435 346 (35) 20 35 12 16 Payroll costs set out above exclude staff severance costs resulting from the Group’s strategy to realign its cost base. These costs have been treated as exceptional and are disclosed in note 4. 8. Taxation Current tax Deferred tax – origination and reversal of timing differences Total tax credit Year ended 31 March 2014 Year ended 31 March 2013 £’000 - 30 30 £’000 - 508 508 Deferred tax has been recognised in respect of tax losses carried forward that are expected to be utilised against future taxable profits. The rate of UK corporation tax changed from 23% to 21% on 1 April 2014. As deferred tax balances are measured at the rates that are expected to apply in the periods of the reversal, deferred tax assets at 31 March 2014 have been calculated using a long term rate of 20%. In addition to the amount recognised above, the Group has a further £18.9 million (2013: £16.0 million) of tax losses on which no deferred tax has been recognised due to insufficient certainty surrounding the timing of their utilisation. Number of employees 2014 205 2013 215 Year ended 31 March 2014 Year ended 31 March 2013 £’000 6,680 721 531 41 7,973 £’000 7,184 814 750 433 9,181 48 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Reconciliation of effective tax rate Loss before taxation Tax using the UK corporation tax rate of 23% (2013: 24%) Non-deductible expenses Depreciation in excess of capital allowances Unrecognised tax losses Recognition of tax effect of previously unrecognised tax losses Total tax credit Year ended 31 March 2014 Year ended 31 March 2013 £’000 (4,488) 1,032 (368) 42 (706) 30 30 £’000 (1,003) 241 (178) 218 (281) 508 508 9. Property, plant and equipment Cost At 1 April 2012 Additions Disposals At 31 March 2013 Additions Revaluation Disposals At 31 March 2014 Accumulated depreciation At 1 April 2012 The Group incurred corporation tax losses in the period of approximately £3.1 million (2013: £1.1 million). Depreciation charge for the period Movement in deferred tax balances At 1 April 2013 Recognised in profit or loss: Tax losses carried forward Recognised in other comprehensive income: Revaluation of property, plant and equipment At 31 March 2014 31 March 2014 31 March 2013 Deferred tax assets Deferred tax liabilities Deferred tax assets Deferred tax liabilities £’000 508 30 - 538 £’000 - - (612) (612) £’000 - 508 - 508 £’000 - - - - Disposals At 31 March 2013 Depreciation charge for the period Impairment Disposals At 31 March 2014 Net book value At 31 March 2014 At 31 March 2013 At 1 April 2012 49 Total £’000 9,947 2,392 (785) 11,554 1,408 3,061 (8,872) 7,151 (986) (880) 133 (1,733) (656) (1,364) 2,955 (798) 6,353 9,821 8,961 Pipelines £’000 Fixtures and fittings Computer equipment £’000 £’000 8,495 1,668 - 10,163 1,408 3,061 (8,703) 5,929 (660) (486) - (1,146) (347) (1,364) 2,821 (36) 5,893 9,017 7,835 232 82 (79) 235 - - (42) 193 (78) (42) 22 (98) (51) - 25 (124) 69 137 154 1,220 642 (706) 1,156 - - (127) 1,029 (248) (352) 111 (489) (258) - 109 (638) 391 667 972 There were no commitments to purchase any property, plant and equipment at 31 March 2014 or 31 March 2013. At 31 March 2014 the net book value of leased plant and equipment was £367,000 (2013: £585,000). 50 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. Impairment testing Pipeline assets For the assets within the pipeline operating segment, the recoverable amount of these assets has been calculated with reference to their value in use. The key features of this calculation are shown below: Year ended 31 March 2014 Year ended 31 March 2013 Period on which management approved forecasts are based 20 years 20 years Discount rate Conversion of domestic customers for existing assets Conversion of non-domestic customers for existing assets 9.0% 99% 50% 9.0% 99% 50% The forecasts include assumptions about reductions in network income as imposed by Ofgem, and also assume that cash flows will stop after 20 years. A forecast period of 20 years has been used as the business expects to generate income from these assets for a minimum of 20 years, with the amount of income being prescribed by the Regulatory Price Control mechanism. Conversion percentage is an assumption on pipeline assets becoming cash generating on connection. The assumptions outlined above are consistent with management’s experience of these items over the period since the Group was formed. Total business of Group All of the goodwill held by the Group is considered to fall in the CGU of Infrastructure Services. Given the losses for the period, management has performed an impairment review for each CGU and for the business as a whole, which includes all assets of the business. The recoverable amount of these assets has been calculated with reference to their value in use. The key features of this calculation are shown below: Period on which management approved forecasts are based Growth rate applied beyond approved forecast period Discount rate Year ended 31 March 2014 Year ended 31 March 2013 3 years 1.5% 11.0% 3 years 1.5% 11.0% The value in use calculation is based on pre-tax cash flow projections based on financial budgets approved by management covering a three year period. Cash flows beyond the three year period are extrapolated using a conservative estimated growth rate of 1.5%. Management determined budgeted pre-tax cash flows based on past performance and the margins included in the framework contract in place with the Group’s contractor. Discount rates used The discount rates used for both impairment reviews are based upon the pre-tax weighted average cost of capital expected to be relevant for the profile of the assets involved. The lower discount rate used for the pipeline assets compared with that used for the business as a whole reflects the lower risk associated with the income from pipeline assets. Whilst it is conceivable that a key assumption in the calculations could change, no reasonably foreseeable change to key assumptions is considered to result in an impairment. 11. Intangible assets Cost At 1 April 2012 Additions Disposals At 31 March 2013 Additions Disposals At 31 March 2014 Accumulated amortisation and impairment At 1 April 2012 Amortisation for the period Disposals At 31 March 2013 Amortisation for the period Disposals At 31 March 2014 Net book value At 31 March 2014 At 31 March 2013 At 1 April 2012 51 Total £’000 3,879 986 (192) 4,673 12 (72) 4,613 (331) (449) 16 (764) (544) 54 Goodwill Software £’000 £’000 2,225 - - 2,225 - - 2,225 - - - - - - - 1,654 986 (192) 2,448 12 (72) 2,388 (331) (449) 16 (764) (544) 54 (1,254) (1,254) 2,225 2,225 2,225 1,134 1,684 1,323 3,359 3,909 3,548 The amortisation charge is recognised in administrative expenses in the Consolidated Statement of Comprehensive Income. At 31 March 2014 the net book value of leased software was £65,000 (2013: £103,000). 12. Inventories Work in progress 31 March 2014 31 March 2013 £’000 1,974 £’000 1,489 Inventories recognised as cost of sales in the period amounted to £26,271,000 (2013: £23,810,000). The write-down of inventories to net realisable value amounted to £nil (2013: £nil). Any write-down is included in cost of sales in the Consolidated Statement of Comprehensive Income. 52 53 The trade and other receivables not past due as at the reporting date are deemed to be collectible on the basis of established credit management processes such as regular analyses of the credit worthiness of existing customers and external credit checks where appropriate for new credit customers. Due to the activities and diversified customer structure of the Group, there is no significant concentration of credit risk other than with one customer which represents approximately 21% (2013: 38%) of trade receivables. The concentration of credit risk arises due to the number of commercial agreements that the Group has with that customer. The credit risk associated with these receivables is managed through the Group’s standard credit processes. 31 March 2014 31 March 2013 All financial assets are loans and receivables, none of which are denominated in foreign currency. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. Trade and other receivables Current Trade receivables Other receivables Prepayments and accrued income £’000 4,005 441 900 5,346 £’000 2,966 1,068 3,658 7,692 Credit quality of financial assets and impairment losses The ageing of trade receivables at the consolidated balance sheet date was: Trade receivables Not past due Past due less than 1 month Past due 1-2 months More than 2 months past due 31 March 2014 31 March 2013 Gross Impairment Gross Impairment £’000 2,484 370 654 505 4,013 £’000 - - - (8) (8) £’000 2,270 575 94 118 3,057 £’000 - - - (91) (91) All other receivables were not past due and not considered to be impaired at both 31 March 2014 and 31 March 2013. The movement in the allowance for impairment in respect of trade receivables during the period was as follows: At 1 April 2013 Impairment loss recognised Receivables written off during the year as uncollectible Amounts recovered that were previously provided At 31 March 2014 31 March 2014 31 March 2013 £’000 91 8 - (91) 8 £’000 43 85 (28) (9) 91 The allowance account for trade receivables is used to record impairment losses unless the Group is satisfied that no recovery of the amount owing is possible. At that point, the amounts considered irrecoverable are written off against the trade receivables directly. During the period the Group has not experienced a significant deterioration in the quality of receivable balances. There were no allowances made against other receivables during the periods ended 31 March 2014 or 31 March 2013. 14. Cash and cash equivalents Cash at bank and on hand 15. Trade and other payables Trade payables Other payables Accruals and deferred income 31 March 2014 31 March 2013 £’000 5,326 £’000 1,911 31 March 2014 31 March 2013 £’000 1,832 1,266 19,147 22,245 £’000 5,303 519 16,618 22,440 54 55 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 16. Borrowings Current Finance lease liabilities Invoice discounting liabilities Non-current Finance lease liabilities Finance lease liabilities are payable as follows: Less than one year Two to five years 17. Reconciliation to net debt Cash and cash equivalents Amounts outstanding on financing facilities Finance lease liabilities Net funds/(debt) 31 March 2014 31 March 2013 £’000 274 - 274 £’000 238 1,293 1,531 31 March 2014 31 March 2013 £’000 171 £’000 451 Future minimum lease payments 2014 £’000 325 177 502 2013 £’000 326 502 828 2014 £’000 51 6 57 Interest 2013 £’000 88 51 139 Present value of minimum lease payments 2014 £’000 274 171 445 2013 £’000 238 451 689 31 March 2014 31 March 2013 £’000 5,326 - (445) 4,881 £’000 1,911 (1,293) (689) (71) 18. Provisions Restructuring provisions At 1 April 2013 Utilised during the period Provisions created during the period At 31 March 2014 31 March 2014 31 March 2013 £’000 798 (284) 864 1,378 £’000 1,013 (215) - 798 The restructuring provision relates to the costs of unused Group properties and dilapidations, plus redundancy and other costs associated with the Group restructure conducted during the year. It is classified as current as it is expected to be fully utilised within 12 months of the balance sheet date. (See note 4). 19. Pension benefits The Group operates a defined contribution pension plan for the benefit of its employees. Substantially all of the Group’s employees are members of this scheme. A defined contribution plan is a pension arrangement under which both the Company and participating members pay fixed contributions to an independently administered fund. Pension benefits for members of the plan are linked to contributions paid, the performance of each individual’s chosen investments and the annuity rates at retirement. The income statement charge in respect of defined contribution plans represents the contribution payable by the Group based upon a fixed percentage of employees’ pay. The Company has no exposure to investment and other experience risks. Contributions payable to defined contribution plan Year ended 31 March 2014 Year ended 31 March 2013 £’000 531 £’000 750 Expected contributions to pension benefit plans for the year ending 31 March 2015 are £429,000. 56 57 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 20. Share based payments Management participation shares Marwyn participation option Fulcrum share option plan EMI option plan Total equity settled share based payments Costs of modification of Management participation scheme Total share based payments Four share based payment schemes were in operation during the year. Year ended 31 March 2014 Year ended 31 March 2013 £’000 £’000 73 74 (42) 10 115 - 115 294 294 139 - 727 151 878 EMI option plan Share options are granted to directors and selected employees. The exercise price of the granted options is equal to the closing mid-market price on the day before the grant date. The share options will vest in the event that the Fulcrum Utility Services Limited share price averages 12.0p over any period of 20 consecutive working days within a 24 month period beginning on 12 February 2014 and ending on 11 February 2016. Once vested, the share options can be exercised at any time up to and including 11 February 2017. If the Fulcrum Utility Services Limited share price does not average 12.0p over any period of 20 consecutive working days within a 24 month period beginning on 12 February 2014 and ending on 11 February 2016, the share options will lapse. The Group has no legal or constructive obligation to repurchase or settle options in cash. On 12 February 2014 11,550,000 share options were granted. At 31 March 2014, 8,700,000 were outstanding but not exercisable. The fair value of the options granted, determined using the Monte Carlo valuation model was 1.7p per option. The significant inputs into the model were: Share price at date of grant Exercise price Volatility Dividend yield Expected option life Annual risk free interest rate 7.0p 7.0p 30% nil 2 years 0.68%. Expected volatility was based on the actual volatility of Fulcrum shares in the period since the Group’s listing on the Alternative Investment Market in December 2009. Fulcrum share option plan On 28 March 2012 6,350,000 share options were granted with an exercise price of 20.75p. On 10 February 2014 the scheme was cancelled, with all outstanding options lapsing on that date. At the date of cancellation, those options that would not have vested due to the option holder no longer being employed by the Group were treated as a forfeiture and a true up of the charge was recognised. The cancellation of the remaining options was treated as accelerated vesting, with the amount that otherwise would have been recognised for services rendered being recognised immediately. Share options had been granted to directors and selected employees. The exercise price of the granted options was equal to the closing mid-market price on the day before the grant date. Options were conditional on employees completing three years’ service (the vesting period). The options were exercisable starting three years from the grant date or, if earlier, on the sale or change of control of the Company. The Group had no legal or constructive obligation to repurchase or settle options in cash. The fair value of the options granted, determined using the Binomial valuation model was 6.55p per option. The significant inputs into the model were: Share price at date of grant Exercise price Volatility Dividend yield Expected option life Annual risk free interest rate Expected volatility was based on the actual volatility of Fulcrum shares in the period since the Group’s listing on the Alternative Investment Market in December 2009. 20.75p 20.75p 30% nil 3 years 1.49%. Management participation shares Participation shares were issued, via the Company’s subsidiary Fulcrum Utility Investments Limited (formerly Marwyn Capital Investments 1 Limited) under share based payment arrangements established by the Group to incentivise directors and key employees. On being offered, the Company may purchase the participation shares either for cash or for the issue of new ordinary shares in the Company at its discretion. The details of and value of the participation shares are discussed below. The participation shares may only be sold on this basis, if both the growth and the vesting conditions have been satisfied. If these conditions have not been satisfied, the participation shares must be sold to the Company for a nominal amount. Growth condition The growth condition is that the compound annual growth of the Company’s equity value must be at least 12.5% per annum. The growth condition takes into account new shares issued, dividends and capital returned to shareholders. Vesting condition The vesting condition is that the participation shares may only be sold in the time period which begins on the third anniversary following admission to trading (i.e. 8 July 2013) and ends on the fifth anniversary following admission to trading, or on a sale, change of control or winding up of the Company. If the growth condition isn’t met by the fifth anniversary of admission to trading (i.e. 8 July 2015), then the participation shares shall be sold back to the Company for a nominal amount. 58 59 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Value Subject to the growth and vesting conditions detailed above, the Management participation shares can be sold for a value equal to 10% of the increase in “Shareholder value” in the Company. Shareholder value is broadly defined as the increase in market capitalisation of all ordinary shares of the Company issued up to the date of sale, allowing for any dividends and other capital movements. Modification of the scheme During the year ended 31 March 2013, the management participation shares were cancelled pursuant to an order of the Grand Court of the Cayman Islands in which the issue of the shares was declared void. This occurred due to an administrative technicality regarding their original issuance under Cayman Islands law. Following the cancellation the Company issued 5,000,132 new management participation shares to ensure that the holders of the original shares received the same potential benefit as under the original scheme. As the new scheme was put in place to replace the original scheme it was treated as a modification of the original scheme in accordance with IFRS 2. Costs were incurred in voiding and re-issuing these shares and as these costs related exclusively to share based payments they were included in the income statement charge as set out above, but were not credited to retained earnings in the Consolidated Statement of Changes in Equity. Marwyn participation option The Group entered into a performance participation agreement with Marwyn Management Partners LP (“Marwyn”) under which Marwyn has agreed to assist the Company in meeting its business strategy. In exchange, Marwyn was granted an option on 8 February 2010, to subscribe for ordinary shares subject to growth and vesting conditions being satisfied. The option was outstanding but not exercisable at 31 March 2014. The conditions of the option are identical to those detailed above in relation to the management participation shares. Value Subject to the growth and vesting conditions detailed above, the Marwyn participation option can be exercised for a value equal to 10% of the increase in “Shareholder value” in the Company. Shareholder value is broadly defined as the increase in market capitalisation of all ordinary shares of the Company issued up to the date of sale, allowing for any dividends and other capital movements. Valuation of participation shares and participation option When the participation shares and participation option were issued, the Company was a shell-company with share capital of £6.2 million from the initial AIM listing on 24 December 2009. Subsequently on acquisition of the Fulcrum Group from National Grid, a placing of shares for £11.0 million was carried out. The total amount paid for the management participation shares was £6,020. At the valuation date of 8 July 2010, the fair value of the participation shares and participation option were calculated using the binomial valuation model. The total estimated increase in the fair value of the Group using this model was calculated at £8,820,000. The participation of the two schemes in this increase is 20% representing an expected value of £1,764,000. This has been recognised over the 3 year period from 8 July 2010 to 7 July 2013. In the current period £147,000 (2013: £588,000) was recognised as an expense in the Consolidated Statement of Comprehensive Income. The binomial valuation model uses the following assumptions: Date of valuation Share price at issue date Exercise price Hurdle rate Expected volatility Annual risk free interest rate 8 July 2010 15.75p Nil 12.5% 30% 2%. 21. Share capital Authorised 500,000,000 ordinary shares of £0.001 each Allotted, issued and fully paid 154,306,667 ordinary shares of £0.001 each 22. Share premium At start and end of period 23. Revaluation reserve At 1 April 2013 Revaluation in the period Recognition of deferred tax liability At 31 March 2014 24. Retained earnings At 1 April 2013 Retained loss in the period Equity settled share based payment transactions At 31 March 2014 31 March 2014 31 March 2013 £’000 500 £’000 500 31 March 2014 31 March 2013 £’000 154 £’000 154 31 March 2014 31 March 2013 £’000 16,182 £’000 16,182 31 March 2014 31 March 2013 £’000 - 3,061 (612) 2,449 £’000 - - - - 31 March 2014 31 March 2013 £’000 (16,226) (4,458) 115 (20,569) £’000 (16,458) (495) 727 (16,226) 60 61 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 25. Financial instruments Fair values of financial instruments Fair value hierarchy The Group does not have any financial instruments that are measured at fair value on a recurring basis. Carrying values and fair values The fair values of all financial instruments are equal to their book values. The carrying value less impairment provision of trade receivables and other receivables, and the carrying value of trade payables, are assumed to approximate their fair values. Loans and receivables 31 March 2014 31 March 2013 Assets as per the balance sheet Trade receivables Other receivables Cash and cash equivalents £’000 4,005 441 5,326 9,772 £’000 2,966 1,068 1,911 5,945 Other financial liabilities 31 March 2014 31 March 2013 Liabilities as per the balance sheet Trade payables Other payables Loans and borrowings £’000 1,832 1,266 445 3,543 £’000 5,303 519 1,982 7,804 Trade, other receivables and accrued income The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the demographics of the Group’s customer base. Management considers that there is no geographical concentration of credit risk other than the UK where all customers are based. The Group has established a credit policy under which each new customer is analysed individually for creditworthiness before the Group’s standard payment and delivery terms and conditions are offered / terms are adjusted accordingly. Purchase limits are established for each customer, which represents the maximum open amount without requiring approval. In accordance with the Group’s revenue policy, an accrual is estimated for services revenue in respect of work where invoices are yet to be issued to customers. These arrangements are included within the Group’s credit policies. Exposure to credit risk The carrying amount of financial assets represents the maximum credit exposure. Therefore, the maximum exposure to credit risk at the balance sheet date was the carrying amount of financial assets. Liquidity risk management Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, without incurring unacceptable losses or risking damage to the Group. The Group forecasts on a regular basis the expected cash flows that will occur on a daily, weekly and monthly basis. This information is used in conjunction with the weekly reporting of actual cash balances at bank in order to calculate the level of funding that will be required in the short and medium term. The carrying amount of all non-derivative financial liabilities shown in the balance sheets at 31 March 2014 and 31 March 2013 is the same as the contractual cash flows. All contractual cash flows are due within one year. Cash flow risk management The Group does not have any cash flow hedges. Market risk management Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments. 26. Financial risk management Market risk - Foreign currency risk The Group’s overall risk management programme seeks to minimise potential adverse effects on its financial performance. The Group’s activities expose it to credit risk, liquidity risk and capital management risk. These risks are managed by the Chief Financial Officer under policies approved by the Board and the Audit Committee, which are summarised below. The Group has no exposure to foreign currency risk as all the Group’s trading transactions and its assets and liabilities are denominated in Sterling. Market risk – Interest rate risk Credit risk management Other than cash, the Group had no interest-bearing financial instruments. Cash is held in an interest bearing current account which has a floating rate, and is therefore exposed to changes in market interest rate. The Group monitors market interest rates to ensure that the return on the cash balance is maximised. Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers and deposits with financial institutions. Market risk – Equity price risk The Group’s treasury policy and objectives in relation to credit risk is to minimise the likelihood that the Group will experience financial loss due to counter party failure. It is considered that the failure of any single counter party would not materially impact the financial wellbeing of the Group, other than one customer, for which the risk of failure is considered to be minimal based on current market conditions and performance. The Group has no equity investments and therefore has no exposure to equity price risk. Capital risk management The Group defines capital as total equity. The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain a capital structure which optimises 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 or issue new shares. 62 63 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ADVISERS GROUP TRADING COMPANIES 27. Operating leases Non-cancellable operating lease rentals are payable as follows: Less than one year Between one and five years Land and buildings Other operating leases 2014 £’000 173 216 389 2013 £’000 236 389 625 2014 £’000 80 129 209 2013 £’000 389 174 563 Operating lease rentals relate to property rents and short term plant hire. 28. Related parties Key management compensation The key management group is defined as the Board of Directors. Their compensation amounted to £775,000 (2013: £744,000) for the period as follows: Short-term employee benefits Share related awards Year ended 31 March 2014 Year ended 31 March 2013 £’000 734 41 775 £’000 540 204 744 Financial Adviser Marwyn Capital LLP Utility Infrastructure Provider (“UIP”) Nominated Adviser and Broker 11 Buckingham Street London WC2N 2DF Cenkos Securities PLC 6-8 Tokenhouse Yard London EC2R 7AS Fulcrum Infrastructure Services Limited Independent Gas Transporter (“IGT”) Fulcrum Pipelines Limted Group Shared Service Provider Auditor KPMG LLP Fulcrum Group Holdings Limited Solicitors to the Company as to English law 1 The Embankment Neville Street Leeds LS1 4DW Weightmans LLP 100 Old Hall Street Liverpool L3 9QJ Solicitors to the Company as to Cayman Islands law Maples and Calder Transactions with other related parties Marwyn Capital LLP and Marwyn Management Partners LP are considered to be related parties as Mark Watts is a Managing Partner of both of these organisations, as well as being a non-executive director of the Group until his resignation on 3 June 2014. The Company paid Marwyn Capital LLP a fee of £135,000 (2013: £180,000) for the year pursuant with the corporate finance advisory agreement which was ended after the year end, and £nil (2013: £45,000) for office rental. An amount of £21,000 (2013: £55,000) was owed to Marwyn Capital LLP at 31 March 2014. The Company entered into an agreement with Marwyn Management Partners LP under which Marwyn Management Partners LP was granted an option to subscribe for ordinary shares subject to growth and vesting conditions being met. Under this agreement, the value of this benefit has been recognised as £74,000 (2013: £294,000) in the period. All of the transactions above have been entered into on arms-length commercial terms, are unsecured, are expected to be settled in cash and are not covered by any guarantee. There were no amounts due from related parties on any trading accounts at 31 March 2014. Registrars Bankers Level 11 200 Aldersgate Street London EC1A 4HD Capita Registrars (Guernsey) Limited Lonque Hougue House St. Sampson Guernsey GY2 4JN Channel Islands Lloyds Banking Group 1st Floor 14 Church Street Sheffield S1 1HP TELEPHONE 0845 641 3010 MINICOM (for customers who have hearing or speech difficulties) 0845 641 3061 EMAIL enquiries@fulcrum.co.uk WEBSITES www.fulcrum.co.uk www.fulcrumutilityserviceslimited.co.uk POST Fulcrum 2 Europa View Sheffield Business Park Sheffield South Yorkshire S9 1XH FAX 0845 641 1808 

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