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