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2019 Reportprimarily upon the current economic situation and financial outlook and in no way reflects adversely upon the performance of the team which remains one of total dedication and diligence. In conclusion I would like to express my gratitude for your continued encouragement and support during difficult economic times and offer my appreciation for the continuing efforts of the executive team on your behalf. Ken Ratcliff, Non-Executive Chairman Chairman’s statement As Chairman of InfraStrata I am acutely aware that the year to 31 July 2010 has brought its fair share of frustration and disappointment to our hopes and aspirations for the Group as reflected in a distressed share price performance. However, I am very pleased to report that progress is now being made to move the business forward. It has become a truism to say that the appetite for investment in gas storage within the short to medium term has deteriorated considerably in recent years and this has had a significantly adverse effect upon our ability to fund our portfolio of projects. In consequence, we have decided during the course of the last year, to expand our sphere of interest based upon our existing assets and areas of executive expertise where we have found there to be natural synergies. In this respect we have sought to lessen our total dependency upon developing gas storage projects across an international portfolio, to one of broadening our range of assets within two core areas in the UK, to include conventional and unconventional oil and gas exploration. In the year to 31 July 2010 our disappointment centred upon the ongoing difficulties within the capital and gas storage markets. As you will know, a Co-operation Group of potential investors had been formed in October 2009 following which an advisor was appointed to undertake a technical due-diligence exercise. This process continued in parallel with discussions on possible shareholder and capacity agreements co-ordinated by our legal advisors. Regrettably, whilst our view of the project in both technical and financial terms remains undiminished, the Co-operation Group, acting as a whole, were unable to offer commercial terms that were acceptable to us at this time. However, during this time we were able to make considerable progress through our discussions with eCORP International, LLC (“eCORP”) culminating in a partnership agreement that not only facilitates substantial progress in the project but also enables our potential participation in exploration activity in the area. We hope that the Portland Project will be brought back to the market in 2012 when we anticipate an improvement to the situation in the markets. In addition to our continuing efforts directed at bringing the Portland project to full developmental stage we have been pursuing our plan to secure planning permission for the project at Islandmagee in Northern Ireland. On 23 March 2010 Islandmageee Storage Limited, on behalf of the Group, submitted a planning application relating to the creation of a 500 million cubic metres natural gas storage facility – a capacity sufficient to store Northern Ireland’s peak demand for in excess of 60 days. We are continuing in our discussions with eCORP as potential partner in this enterprise but on a non exclusive basis as we seek interest from other parties in not only progressing the gas storage project but again broadening our strategy to include exploration. Slim differentials between summer and winter gas prices continue to affect sentiment for large gas storage developments but the requirement for such long-lead infrastructure remains strong. This position was echoed and reinforced through several of the presentations made during the highly successful independent seminar on gas storage hosted by InfraStrata in September. We therefore remain focused upon the development of the two gas storage projects within the UK that could between them provide over 10% of the total UK and Ireland peak daily demand once operational in the latter part of the decade. However, mindful of the difficulties in obtaining funding interest for the full development of such projects at this stage, we have sought, with some success, to expand our interest into more traditional oil and gas exploration which we hope will bring considerable benefit by enhancing shareholder value. Your Board has considered the matter of remuneration for the executive team and our decision has been to again freeze salaries for the coming year but consider a reward through the share incentive scheme for milestones achieved. This decision is based InfraStrata plc 3 Contents Chairman’s statement Chief Executive’s operating review - Corporate and social responsibility Directors, secretary, advisors and shareholder information Report of the Directors - Directors of the Company - Corporate Governance - Directors’ responsibilities Independent auditors’ report Financial statements and notes - Consolidated statement of comprehensive income - Consolidated statement of financial position - Company statement of financial position - Consolidated statement of changes in equity - Company statement of changes in equity - Consolidated statement of cash flows - Company statement of cash flows - Notes to the financial statements Letter from the Chairman Notice of Annual General Meeting Proxy form 3 4 6 7 8 10 12 13 14 15 16 17 18 18 19 19 20-36 37-38 39 41 Chief Executive’s operating review Portland Project, Dorset At a projected 1,000 million cubic metres (“mcm”) of working gas, the facility would be the largest of the publicly announced onshore gas storage facilities in the UK. The project is owned by Portland Gas Limited. Its two shareholders are a subsidiary of eCORP International, LLC, a developer, operator and owner of natural gas storage facilities, and a developer and explorer of conventional and unconventional natural gas prospects in the US and Internationally (50% interest), and a wholly owned subsidiary of InfraStrata plc (50% interest). The project has been granted planning permission by Dorset County Council and Pipeline Construction Authorisation by the Department of Energy and Climate Change. The gas storage facility is designed to inject or withdraw gas at 20mcm per day. The total construction cost for the project is approximately £450m. Further information is available on the website www.portland-gas.com. In October 2010 the Company announced that legal agreements had been completed with US independent energy company eCORP International, LLC (“eCORP”) relating to InfraStrata’s interests in the Portland gas storage project. Islandmagee Project, Northern Ireland A subsidiary of eCORP, eCORP Oil & Gas UK Limited, acquired rights to 50% of the share capital of the project company, Portland Gas Limited, in return for matching the project expenditure invested to date by InfraStrata (£22.9m). The Company, through its subsidiary InfraStrata UK Limited, will retain 50% of the share capital in Portland Gas Limited. These funds will be used to develop the Portland Project further before bringing it to market, hopefully during 2012. Under the terms of the agreement with eCORP, the drilling of the first cavern well during 2011 will be the initial activity. Data will be acquired to better define the pressure ranges over which the caverns can be operated to maximise the responsiveness of the caverns to short term gas demand requirements (the ‘extrinsic value’ of the project) and finalise elements of the cavern design. InfraStrata will also benefit from an income stream through a technical services agreement. The Company is pleased to be moving into a new phase in the development of the Company with the partnership. During 2011 we look forward to progressing plans with stakeholders to move the Portland Project forward and expect the major work on the ground to start with construction of the wellpad during Q2 2011. The proposed 500 million cubic metres (“mcm”) facility would be the largest on the island of Ireland and the first for Northern Ireland. It would make a significant contribution to the security of gas supplies. The facility is being designed to inject gas at 12 mcm and withdraw gas at 22 mcm per day. The cost of construction has been estimated at £250 million, including cushion gas. The project is owned by Islandmagee Storage Limited (“IMSL”), an independent Northern Ireland registered company. Its two shareholders are a subsidiary of Mutual Energy, an operator of existing key gas and electrical infrastructure in Northern Ireland (35% interest), and a subsidiary of InfraStrata plc (65% interest). A planning application for the Islandmagee Storage Project was submitted in March 2010. The submission of the planning application followed more than two years collating information and carrying out very thorough investigative studies into the development of a natural gas storage facility within a Permian salt sequence a mile beneath Larne Lough, including a 3D seismic survey carried out in 2007. Since then IMSL has been consulting extensively with stakeholders and local resident groups and held two well attended public exhibitions during 2009. Further information is available on the project website www.islandmageestorage.com. In June 2010 the Company announced that it had signed a Memorandum of Understanding (“MOU”) with eCORP relating to a proposed investment in the Islandmagee Project. eCORP, the Company and its partner Mutual Energy agreed in November 2010 to extend the terms of the MOU until 30 April 2011, but on a non-exclusive basis. Under the MOU and subject to agreement, eCORP retains an option to acquire an interest in the project company, Islandmagee Storage Limited on terms specified in the MOU. Should eCORP proceed with an investment in IMSL, eCORP would acquire 40% of the share capital of IMSL in return for funding the project through to the Financial Investment Decision point and paying InfraStrata and Mutual Energy a sum of up to £5m if the project proceeds to development. In addition, eCORP would refund all of the project development costs incurred by IMSL to the date of completion (these have been funded solely by InfraStrata). InfraStrata and Mutual Energy remain committed to introducing a further partner into the project and will be exploring the potential for joint development with eCORP and others over the coming months. The Islandmagee Storage Project is an important element of InfraStrata’s portfolio and the Company remains hopeful that this strategic asset for Northern Ireland will be granted planning permission in the first half of 2011 to enable drilling of the first cavern well to commence before the end of 2011. Front End Engineering Design will commence following acquisition of data from the well, leading to the point when the decision to proceed to full construction is expected to be taken during 2012. New projects During 2010, the Company took the decision to focus its resources on the UK gas market, and to enhance the existing gas storage business within its two core areas. This includes conventional and unconventional petroleum exploration, where the Company can use its existing geological and geophysical knowledge and databases to leverage initial funding for the projects. The Company sees an excellent strategic fit between gas pro- duction and storage in close proximity to each other. In November 2010 the Company was offered a petroleum exploration licence over the central part of the Larne-Lough Neagh Basin in Northern Ireland. The offer is in response to an application made to the Department of Enterprise, Trade and Investment (“DETI”) in Northern Ireland in August 2010. The Company expects that DETI should be in a posi- tion to issue the licence in Q1 2011 after it has completed the drafting of the terms and conditions of the licence, taking into account the outcome of its consulta- tion with other Departments and agen- cies. The initial licence term will be five years with a decision on drilling a well required within two years. InfraStrata will be the operator of the licence with a 50% interest. The licence covers an area of 663 square kilometres, and the existing Is- landmagee gas storage project is located within the boundary. Following a licence award, seismic data would be acquired during 2011 and it is hoped that interpretation of this data would lead to an exploration well being drilled within two years. Ideally such a well could form part of a programme to include drilling for the Islandmagee gas storage project, where the Com- pany holds a 65% interest, subject to the granting of planning permission for that project. In response to the decision to focus its resources on its UK projects, the Com- pany decided to seek a buyer for its entire interests in the gas storage projects in Spain and Germany, which are both at the exploration application stage. 4 InfraStrata plc InfraStrata plc 5 Corporate and social responsibility Directors, secretary, advisors and shareholder information Portland Gas Limited continues to and accessing grants. This led to grants support local communities in its area of being received by the Museum Trust for Islandmagee operation. repairs to the building and IT Islandmagee Storage Limited strongly technology for over £11,000. Other believes in supporting the local larger grant programmes are also community. Subject to obtaining Directors Kenneth Maurice Ratcliff (Non-executive Chairman) Andrew David Hindle (Chief Executive Officer) Craig Stuart Gouws (Chief Financial Officer) Walter Rookehurst Roberts (Legal and Commercial Director) Mark Anthony William Abbott (Non-executive Director) Maurice Edward Hazzard (Non-executive Director) The Portland Gas Trust being explored. The Portland Gas Trust is a registered charity that supports initiatives around education, geology and the environment. This year the Trust has continued to support local projects both financially, and in kind through the services of Community Liaison Officer, Rachel Barton. The Governor’s Garden The Trust has continued to work on the Old Engine Shed and the areas around the building. The Trust received a grant of £4,000 from the COMMA fund which enabled work to be done on site. This has included rebuilding the dry stone walls with volunteers from the planning permission and full project funding, the Company intends to set up a Trust with objectives around education, geology and the environment. An initial investment of £1 million over three years, with a further £50,000 per annum for a minimum of six years thereafter is planned. community and the YOI, clearing scrub Consultation with local residents and project received over £45,000 from the and the production of information interest groups indicated that there is a Big Lottery fund and the Trust remains a panels that have been set in large need to upgrade the community centre. partner in delivering the overall scheme pieces of Portland Roach stone. Local including a botanical garden, wildlife stone company, Albion Stone, donated garden and allotments. two pieces of stone which have been carved with poetry by the late Skylark The Trust has continued to support the Durston and placed within sections of Island Ranger post and is a key partner the walling. The Trust is committed to in the Wild about Weymouth and sustainable energies being used on the Portland project that received Access to Shed once the renovation works start Nature funding to deliver a range of and after receiving a grant of £4,125 environmental projects across the area from CSEP, commissioned a feasibility Islandmagee Storage Limited has agreed to assist with this as part of its primary investment phase which in turn will help with the development of the Gobbins tourism project sponsored by Larne Borough Council. The company is talking to local residents and community groups in the Larne Lough area with regard to ideas over the next few years. study of the types of energy saving and initiatives which could be funded ideas that could be used. Future plans through the proposed Trust. In June The Trust sponsored the Budmouth include having activities for the local 2010 local businesswoman Judith Tweed College Geology Award and the community at the Old Engine site in 2012 Portland MEMO project. The Board to celebrate the Queen’s Diamond agreed to support the Portland Museum Jubilee and the 2012 Olympic Games. Trust by offering staff time in advising was appointed as Community Liaison Consultant, in order to collate a wide range of ideas for potential funding. Company secretary Walter Rookehurst Roberts Registered office Principal office Auditors Tax advisors Registrars Nominated advisor and broker Solicitors Bankers Blackstable House Longridge Sheepscombe Stroud Gloucestershire, GL6 7QX 80 Hill Rise Richmond Surrey, TW10 6UB Nexia Smith & Williamson 1 Bishops Wharf, Walnut Tree Close Guildford Surrey, GU1 4RA Smith & Williamson Limited 1 Bishops Wharf, Walnut Tree Close Guildford Surrey, GU1 4RA Capita Registrars Limited The Registry 34 Beckenham Road Beckenham Kent, BR3 4TH Seymour Pierce Limited 20 Old Bailey London, EC4M 7EN Field Fisher Waterhouse LLP 35 Vine Street London, EC3N 2AA Bank of Scotland plc 155 Bishopsgate London, EC2M 3YB Investor and public relations Buchanan Communications Limited 45 Moorfields London, EC2Y 9AE Judith Tweed, Community Liaison Consultant for the proposed Islandmagee Trust meets with local primary school principals to explain the background to the Trust and discuss how local education initiatives could benefit from potential funding. 6 InfraStrata plc InfraStrata plc 7 Report of the Directors for the year ended 31 July 2010 The Directors have pleasure in presenting their report and audited financial statements for the year ended 31 July 2010. Principal activity and review of business The principal activity of the Group throughout the year was the development of sub-surface gas storage facilities. General InfraStrata plc is incorporated in and domiciled in England and Wales. The Company changed its name from Portland Gas plc to InfraStrata plc on the 15 December 2009. Share capital On the 15 September 2009 the Company issued 919,474 new ordinary shares of 10 pence each which were classified as shares to be issued at 31 July 2009. On the 5 November 2009 the Company placed 2,500,000 new ordinary shares of 10 pence each at 100 pence per share to raise £2,500,000 before expenses. Business review During the year the Group continued to develop its gas storage business. Portland Project At a projected 1,000 million cubic metres of working gas stored in 14 caverns at a depth of 2,400 meters within Triassic salt, the facility would be the largest of the publically announced onshore gas storage facilities in the UK. The project has been granted planning permission by Dorset County Council and Pipeline Construction Authorisation by the Department of Energy and Climate Change. The gas storage facility is designed to inject or withdraw gas at 20mcm per day. The current estimate of total construction cost for the project is approximately £450m. The project will use brine compensation technology and will not require cushion gas. Progress was made during the year completing land leases for the 37 kilometre gas pipeline connection to the National Transmission System. A Co-operation Group was established following a successful first phase of the funding process during the prior year. The Group consisted of five companies, each of which had expressed an interest in possibly acquiring a working interest in the Portland Project, together with InfraStrata UK Limited. The Group worked together to conduct a feasibility study in respect of the Project during the year. The Project’s finance advisor, BNP Paribas and the Company progressed discussions with the European Investment Bank on development of the financing structure and securing debt financing. The EIB technical advisors have completed the first phase of the project finance due diligence. The Co-Operation Group was terminated on 28 June 2010. On the same day a Memorandum of Understanding was signed with eCORP International LLC through which eCORP could acquire 50% of the Project by funding the next stage of investment. The related legal agreements were completed on 1 October 2010. The initial works on the wellpad area were undertaken during the year. Further works are expected to be undertaken in quarter 2 of the 2011 calendar year, in preparation for the drilling of the first cavern well later in 2011. These works will be funded by eCORP. The gas storage facilities will be constructed in a number of stages, starting initially with drilling and construction of the facilities required to create the caverns, followed by construction of the gas facilities and pipelines. The project will take approximately eight years to construct. Islandmagee Project The Planning Application for the Islandmagee Storage Project was submitted to the Strategic Projects Unit of the Northern Ireland Planning Service during March 2010. The proposed storage facility is designed to store 500 million cubic metres of natural gas in seven caverns to be created at a depth of 1,500 metres within a Permian salt sequence. The site is located close to existing gas infrastructure and in what the Company believe is the thickest development of salt in Northern Ireland at Ballylumford on Islandmagee, County Antrim. The project will take approximately seven years to construct. In January 2010 InfraStrata UK Limited, Moyle Energy Investments Limited (a wholly owned subsidiary of Mutual Energy) and Islandmagee Storage Limited entered into a preliminary shareholders agreement whereby Moyle Energy Investments Limited acquired a 35% interest in Islandmagee Storage Limited. InfraStrata UK Limited continues to assume one hundred percent of the risks of ownership and therefore InfraStrata plc includes the total assets and liabilities of Islandmagee Storage Limited in its consolidated results. On 28 June 2010 a Memorandum of Understanding was signed with eCORP International LLC through which eCORP could acquire 40% of the Project by funding the next stage of investment, refunding back-costs and paying a bonus at the Final Investment Decision point. Discussions are continuing on the Islandmagee Storage Project, and eCORP, the Company and its partner Mutual Energy have agreed to extend the terms of the MOU until 30 April 2011, but on a non-exclusive basis. Storage asset portfolio development The Group made progress with its plans for new gas storage projects in Germany and Spain. In Germany, a review of the geology and infrastructure has resulted in activity being focused on a salt dome in northern Germany. An application for an exploration licence over a salt dome was made in 2010 by the German subsidiary Sager Meer Energy Limited. In Spain, the Group awaited the results of an exploration application lodged by a local subsidiary Portland Gas ESP S.L. in 2008. Following a strategic review, the Company has decided to sell its entire interests in these gas storage projects, which are currently both at the exploration application stage, to focus on its core areas in the United Kingdom. Discussions are being held with eCORP and others with view to concluding a sale during 2011. REPORT OF THE DIRECTORS Charitable and political donations During the year the Group made various charitable contributions in the UK totalling £400 (2009: £1,050). No donations were made for political purposes (2009: £nil). Payment of creditors The Group’s policy for all suppliers is to fix terms of payment when entering into a business transaction, ensure that the supplier is aware of those terms and to abide by the agreed terms of payment. The number of days’ trade creditors was 20 (2009: 21) for the Group. Risk management The financial risk management objectives and policies of the Company in relation to the use of financial instruments, and the exposure of the Company and its subsidiary undertakings to its main risks, credit risk and liquidity risk, are set out in note 23 to the financial statements. Directors The Directors, who served during the year and subsequently, were as follows: Executive Directors A D Hindle C S Gouws W R Roberts Non-executive Directors K M Ratcliff M A Abbott J R Davie (Resigned 3 December 2010) M E Hazzard All Directors benefit from the provisions of individual Directors Personal Indemnity insurance policies. Premiums payable to third parties are as described in note 6. The Company operates a share option scheme, particulars of share options granted to Directors are detailed in note 6 to the financial statements. Health, safety and environment There were no reportable health, safety or environmental incidents during the period. Key performance indicators Key performance indicators are used by the Board to monitor progress against predetermined objectives. Key performance indicators include identification of new economic project opportunities, submission of project planning applications in accordance with project scheduling, project development in accordance with project development programme and Group working capital management. Submission of the Islandmagee project planning application during 2010, the further development of the Portland project and prudent application of available cash resources are in line with the Board’s expectation. Risk factors The Group has to manage several business risks. These risks include loss of key employees, delays on planning applications, funding, cost over runs and exploration failures. The Board conducts a review of the specific risks the Group faces and has appropriate systems in place in order to identify and manage in so far as possible the ongoing risks and uncertainties the Group faces. Outlook The 2010/11 financial year will again be an active time for the business. The Group looks forward to progressing the Portland Project with eCORP. The focus will be the drilling of the first cavern borehole. Islandmagee Storage Limited looks forward to the Planning Application determination which is anticipated during the financial year. In addition the Group will continue in its stated objective of developing the UK gas storage business by working in partnerships across all of our projects. The Group are also making applications for petroleum licences where they believe synergies exist between existing projects and the licence areas applied for. Results and dividends The Group made a loss after tax of £1,248,461 during the year (2009: loss after tax of £1,281,002). The loss for the year, together with the balance of £3,241,347 brought forward leaves a retained loss of £4,489,808 to be carried forward. The Directors do not recommend the payment of a dividend (2009: £nil). In accordance with international financial reporting standards, the project assets have been reclassified as assets held for sale and disclosed as such in the consolidated statement of financial position. As a corollary, the net loss attributable to the project companies has been classified as arising from discontinued operations in the statement of comprehensive income. Events since the balance sheet date On the 1 October 2010 eCORP Oil & Gas UK Limited undertook to fund the first cavern well and thereby acquired the right to match the project expenditure invested to date by InfraStrata (£22.9m) in return for 50% of the share capital of the project company, Portland Gas Limited. The Department of Enterprise Trade & Investment (“DETI”) has carried out its assessments of the financial and technical aspects of an application made for a petroleum licence in Northern Ireland and offered in November 2010 to grant InfraStrata a 50% licence interest over the area applied for which is known as Central Larne - Lough Neagh Basin. The licence covers an area of 663 square kilometres, and the existing Islandmagee gas storage project is located within the boundary. The Company expects that DETI should be in a position to issue the licence in Q1 2011 after it has completed the drafting of the terms and conditions of the licence, taking into account the outcome of its consultation with other Departments and agencies. 8 InfraStrata plc InfraStrata plc 9 REPORT OF THE DIRECTORS REPORT OF THE DIRECTORS Directors of the Company and their abridged CVs are as follows: Ken Ratcliff (Non-Executive Chairman) Maurice Hazzard (Non-Executive Director) Ken Ratcliff, JP, BSc., FCA, (Non-Executive Chairman) (60) is a Chartered Accountant with extensive finance and business experience. He is currently College Accountant at Epsom College and Accountant and co-founder of Geokinetics Processing UK Limited, an oil and gas industry seismic contractor. He was an audit manager with Touche Ross & Co in London before moving into accountancy and finance positions within the oil and gas industry in 1978. Ken has previously held senior management positions with Ensign Geophysics Limited, Seismic Geocode Limited, Tenneco Corporation and Merlin Geophysical Limited. He joined the Board in 2007 and became Chairman in October 2007. Ken has been a non-executive director of Egdon Resources Plc since 2001. Maurice Hazzard, (Non-Executive Director) (72) has extensive business experience in the oil and gas industry, particularly in large offshore projects. He has held senior positions with Phillips Petroleum, Hamilton Bros. Oil & Gas Limited and Halyard Offshore Limited. Between 1979 and 1989 Maurice was responsible for development of the Energy Division of the Tung Group of companies, based in Hong Kong, and during this period was Executive Chairman of Houlder Marine Drilling Limited. From 1989 to 1996 he was a consultant with Maritime Audit & Technical Services Limited, consulting to the international offshore oil and marine services industry. From 1996 to 1999 he was Chairman and CEO of PD Systems International Limited, a UK electronics manufacturer. He is also non-executive Chairman of Orbitron Technologies Limited, a software company. Andrew Hindle (Chief Executive Officer) Andrew Hindle, BSc., MSc., PhD, FGS, CGeol, (Chief Executive Officer) (48) is a highly experienced geologist with 25 years worldwide experience. He holds a degree in Geological Sciences gained in 1983 from Leeds University and, following a year with BP, gained a MSc. degree in Petroleum Geology in 1985 from Aberdeen University. In 1998 he completed a PhD (part-time) through the Open University. He received the J. C. “Cam” Sproule Memorial Award from the American Association of Petroleum Geologists in 1999. He worked for Texaco from 1985 until 1996 on UK and international exploration and development projects, working overseas from 1990 to 1994. Subsequently, he worked for Anadarko Algeria Corporation from 1996 to 1997. In 1997 he became a founding director of Egdon Resources Plc and, following the demerger of Egdon and InfraStrata, remains a non-executive director of Egdon. Andrew has been the Chief Executive of the Group since 2005. Andrew is also a director of Geofocus Limited and Toffee Limited. Craig Gouws (Chief Financial Officer) Craig Gouws, BSc., CA (SA) (Chief Financial Officer) (43) is a Chartered Accountant and holds an engineering degree. He worked within the forestry sector in South Africa before qualifying as a Chartered Accountant with Ernst & Young in 2001. His finance experience includes working for major auditing organisations in senior financial positions in South Africa, the Middle East and the United Kingdom. Craig joined the Group in an executive role during 2007. Walter Roberts (Legal and Commercial Director and Company Secretary) Walter Roberts, MA (Cantab.), (Legal and Commercial Director and Company Secretary) (59) is an oil and gas lawyer with a strong record in commercial and legal management. Walter qualified as a solicitor with Simmons & Simmons before joining Phillips Petroleum in 1980. He then worked for Lasmo in both the UK and in Australia where he set up its legal department. Walter was the principal negotiator for UK joint venture commercial negotiations and gas sales for Talisman Energy (UK) Limited (previously Bow Valley Petroleum (U.K.) Limited) until 1995. More recently he was the London partner of Cummings & Co. and he is currently an executive director of Pinnacle Energy Limited and a non-executive director of Egdon Resources Plc. Walter joined the Board of Egdon Resources Plc in 2001 as a non-executive director. He joined the Group in an executive role in 2007. Mark Abbott (Non-Executive Director) Mark Abbott, BSc., FGS, (Non-Executive Director) (49) is a geophysicist. He holds a degree in Exploration Sciences (Geology/ Geophysics/Mining Engineering) gained in 1985 from the University of Nottingham. He worked for the British Geological Survey from 1985 to 1992 in the UK and overseas, mainly involved in onshore basin analysis in the UK. Between 1992 and 1996 he worked in the International Division of British Gas Exploration and Production Limited evaluating exploration and appraisal projects. From 1996 to 1997 he was employed by Anadarko Algeria Corporation as a Staff Exploration Geophysicist. In 1997 he became a founding director of Egdon Resources Plc and, following the demerger, became the Managing Director of that company. Mark is also a director of MA Exploration Services Limited, an exploration consulting company and Bishopswood Pavilion Limited, an owner of sports grounds and a Trustee of the UK Onshore Geophysical Library. Directors Emoluments The Directors’ emoluments are disclosed in note 6 to the Financial Statements. Directors and substantial shareholdings The Directors of the Company held the following beneficial shareholdings as at 13 December 2010 Ordinary shares of 10p each Number Ken Ratcliff Andrew Hindle Craig Gouws Walter Roberts Mark Abbott Maurice Hazzard 63,000 6,695,791 35,000 1,055,460 6,687,666 1,144 % 0.09 9.07 0.05 1.43 9.06 0.00 The Company has received notification of the following interests in 3% or more of the Company’s issued share capital at 13 December 2010. The percentages presented are at the date of notification. Ordinary shares of 10p each Bluehone Investors LLP Credit Suisse Securities (Europe) Limited Number 3,675,058 15,480,020 % 6.95 20.97 10 InfraStrata plc InfraStrata plc 11 REPORT OF THE DIRECTORS REPORT OF THE DIRECTORS Corporate Governance Directors’ responsibilities The Directors recognise the value of the UK Corporate Governance Code and whilst under the AIM rules compliance is not required the Directors believe that the Company applies the recommendations in so far as is appropriate for a public company of its size. The Company therefore does not fully comply with the Code. The Board The Board comprised of three Executive Directors and four Non-executive Directors whose background and experience are relevant to the Company’s activities. As such, the Directors are of the opinion that the Board comprises a suitable balance and that the recommendations of the Combined Code have been implemented to an appropriate level. The Board, through the Directors, maintain regular contact with its advisors and public relations consultants in order to ensure that the Board develops an understanding of the views of major shareholders about the Company. The Board held 8 full Board meetings during the financial year. All were attended by all Directors. In addition there were 4 meetings to approve administrative resolutions which were only partly attended although all Directors had approved the business. Audit Committee The Audit Committee met three times in the year to 31 July 2010. Its members were Jonathan Davie (Chairman), Ken Ratcliff and Mark Abbott. Members of the committee at the time of meetings attended all meetings either in person or by telephone. In addition, the Chairman met senior representatives of the external auditors during October 2009, April 2010 and July 2010. The external auditor has unrestricted access to the Chairman of the Committee. but considers that, given the size of the Group and the close involvement of senior management in day-to-day operations, there is currently no requirement for such a function. Notwithstanding the absence of an internal audit function, the Committee keeps under review the effectiveness of the Group’s internal controls and risk management systems. Going Concern As explained in note 2 to the financial statements, the Directors consider that there exists a material uncertainty which casts significant doubt upon the ability of the Group to continue as a going concern and therefore to realise its assets and discharge its liabilities in the normal course of business. There can be no certainty that the disposal of Remuneration Committee an interest in Islandmagee Storage Limited will proceed within the timeframe currently expected. Nevertheless after making inquiries and considering all the relevant factors in relation to the proposed disposals, the Directors are of the opinion that they will be able to complete any necessary funding and have therefore prepared cash flow forecasts for the Group on this basis. These projections indicate that the Group will have adequate cash resources to meet its obligations as they fall due for a period of not less than one year from the date of approval of these financial statements. For this reason, they continue to adopt the going concern basis of accounting in preparing the annual financial statements. The Remuneration Committee plans to meet at least twice in each year. The continued adverse economic climate meant that it only felt the need to meet once in the year to 31 July 2010. The members discussed at various times during the year whether to hold a formal meeting and decided that the circumstances did not warrant doing so. Its members are Maurice Hazzard (Chairman) and Mark Abbott and both members were in attendance at the meeting. The Group’s policy is to remunerate senior executives fairly in such a manner as to facilitate the recruitment, retention and motivation of staff. The Remuneration Committee agrees with the Board a framework for the remuneration of the Chairman, the Executive Directors and the senior management of the Group. The principal objective of the Committee is to ensure that members of the executive management of the Group are provided with appropriate incentives to encourage enhanced performance and are, in a fair and responsible manner, rewarded for their individual contributions to the success of the Group. The view of the Committee is that the salaries remain competitive, but are not over generous, and therefore did not recommend an adjustment during the current financial year. Non-executive fees are considered and agreed by the Board as a whole and there has been no specific review in this regard during the period. The Audit Committee reviews the scope and results of the external audit and monitors the integrity of the financial statements of the Group. The Committee keeps under review the necessity for establishing an internal audit function Nomination Committee The Company has not established a Nomination Committee as the Directors are of the opinion that such a committee is inappropriate given the current size of the Company. The Directors are responsible for that are sufficient to show and explain preparing the Report of the Directors’ the Company’s transactions and and the financial statements in disclose with reasonable accuracy at accordance with applicable law and any time the financial position of the regulations. UK Company law requires the directors to prepare Group and Company financial statements for each financial year. Under that law the Directors have elected (as required by the rules of the AIM market of the London Stock Exchange) to prepare Group financial statements in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”) and have elected to prepare the Company financial statements in accordance Company and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the InfraStrata plc website. with IFRS as adopted by the EU and as Legislation in the United Kingdom applied in accordance with the governing the preparation and provisions of the Companies Act 2006. dissemination of financial statements The Group financial statements are required by law and IFRS adopted by the EU to present fairly the financial position and performance of the Group; the Companies Act 2006 provides in relation to such financial statements that references in the relevant part of that Act to financial statements giving a true and fair view are references to their achieving a fair presentation. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the Group and of the profit or loss of the group for that period. In preparing each of the Group and Company financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable and prudent; • state whether they have been prepared in accordance with IFRSs as adopted by the EU; • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and the Company will continue in business. The Directors are responsible for keeping adequate accounting records may differ from legislation in other jurisdictions. Disclosure of information to the auditors In the case of each person who was a Director at the time this report was approved: - so far as the Director was aware there was no relevant available audit information of which the Company’s auditor was unaware; and that Director had taken all steps that the Director ought to have taken as a director to make himself aware of any relevant information and to establish that the Company’s auditor was aware of that information. This information is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006. Auditors A resolution to re-appoint the auditors, Nexia Smith & Williamson, will be proposed at the forthcoming Annual General Meeting. By order of the Board A Hindle Director 13 December 2010 12 InfraStrata plc InfraStrata plc 13 FINANCIAL STATEMENTS Consolidated statement of comprehensive income for the year ended 31 July 2010 Notes 9 10 11 Continuing operations Revenue Cost of sales Gross profit/(loss) Administrative expenses Operating loss Finance income Loss before taxation Taxation Loss for the year from continuing operations Loss for the year from discontinued operations Loss for the year attributable to the equity holders of the parent Other comprehensive income Total comprehensive loss for the year 2010 £ - - - (397,358) (397,358) 23,645 (373,713) - (373,713) (874,748) 2009 £ - - - (386,396) (386,396) 173,439 (212,957) - (212,957) (1,068,045) (1,248,461) (1,281,002) - - attributable to the equity holders of the parent (1,248,461) (1,281,002) Basic and diluted loss per share 12 Continuing operations Discontinued operations Continuing and discontinued operations 0.51p 1.20p 1.71p 0.30p 1.52p 1.82p Independent auditors’ report to the shareholders of InfraStrata plc We have audited the financial statements of InfraStrata plc for the year ended 31 July 2010 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated and Parent Company Statements of Financial Position, the Consolidated and Parent Company Statements of Cash Flow, the Consolidated and Parent Company Statements of Changes in Equity, and the related notes 1 to 33. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and as regards the parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of Directors and auditors As explained more fully in the Directors’ Responsibilities Statement on page 13, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the APB’s website at www.frc.org.uk/ apb/scope/UKNP. Opinion on financial statements In our opinion: • the financial statements give a true and fair view of the state of the Group’s and the parent Company’s affairs as at 31 July 2010 and of the Group’s loss for the year then ended; • the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; and • the parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Emphasis of matter – Going concern In forming our opinion on the financial statements, which is not qualified, we have considered the adequacy of the disclosure made in note 2 to the financial statements concerning the Group’s ability to continue as a going concern. The Group’s ability to continue as a going concern is dependent on gaining additional funding, which is expected to be derived from the part disposal of one of its subsidiaries. These conditions, along with the other matters explained in note 2 to the financial statements, indicate the existence of a material uncertainty which may cast significant doubt about the Group’s ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Report of the Directors’ for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent Company financial statements are not in agreement with the accounting records and returns; or • certain disclosures of Directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Andrew Bond Senior Statutory Auditor, for and on behalf of Nexia Smith & Williamson Statutory Auditor Chartered Accountants 1 Bishops Wharf Walnut Tree Close Guildford, GU1 4RA 13 December 2010 14 InfraStrata plc InfraStrata plc 15 FINANCIAL STATEMENTS FINANCIAL STATEMENTS Consolidated statement of financial position as at 31 July 2010 Company statement of financial position as at 31 July 2010 Non-current assets Investments Current assets Receivables Available for sale financial assets Cash and cash equivalents Total current assets Current liabilities Trade and other payables Net current assets Net assets Shareholders’ funds Share capital Share premium Merger reserve Shares to be issued Share based payment reserve Retained earnings Notes 16 17 18 19 2010 £ 2009 £ 15,257,966 15,249,111 10,873,566 12,500 1,072,060 11,958,126 9,413,119 - 94,418 9,507,537 21 (260,311) (107,860) 11,697,815 9,399,677 26,955,781 24,648,788 7,380,420 11,381,095 8,466,827 - 302,435 (574,996) 7,038,473 8,576,705 8,466,827 746,337 177,189 (356,743) 26,955,781 24,648,788 24 25 26 Company registration number: 06409712 Approved and authorised for issue by the Board on 13 December 2010. A Hindle, Director C Gouws, Director Non-current assets Plant and equipment Intangible assets Total non-current assets Current assets Receivables Available for sale financial assets Cash and cash equivalents Assets classified as held for sale Total current assets Current liabilities Trade and other payables Liabilities directly associated with assets classified as held for sale Total current liabilities Notes 14 15 17 18 19 20 21 20 2010 £ 7,280 - 2009 £ 20,346,503 1,821,551 7,280 22,168,054 110,732 12,500 1,260,982 1,384,214 26,511,034 27,895,248 149,356 12,500 3,066,502 3,228,358 - 3,228,358 (278,606) (925,202) (4,061,668) (4,340,274) - (925,202) Net current assets and net assets held for sale 23,554,974 2,303,156 Total assets less current liabilities 23,562,254 24,471,210 Non-current liabilities Obligations under contractual and operating lease agreements due after one year Net assets Shareholders’ funds Share capital Share premium Merger reserve Shares to be issued Share based payment reserve Retained earnings 22 24 25 26 - 23,562,254 (2,185,741) 22,285,469 7,380,420 11,381,095 8,988,112 - 302,435 (4,489,808) 23,562,254 7,038,473 8,576,705 8,988,112 746,337 177,189 (3,241,347) 22,285,469 Company registration number: 06409712 Approved and authorised for issue by the Board on 13 December 2010. A Hindle, Director C Gouws, Director 16 InfraStrata plc InfraStrata plc 17 FINANCIAL STATEMENTS FINANCIAL STATEMENTS Consolidated statement of changes in equity for the year ended 31 July 2010 Consolidated statement of cash flows for the year ended 31 July 2010 Share Share capital premium Merger Shares to reserve be issued Retained reserve earnings Total equity Share based payment Balance at 31 July 2008 7,038,473 8,576,705 8,988,112 £ £ £ Loss for the year Total comprehensive loss for the year Commitment to issue shares Share based payments - - - - - - - - - - - - £ - - - 746,337 £ £ £ 38,498 (1,960,345) 22,681,443 - (1,281,002) (1,281,002) - - (1,281,002) (1,281,002) - - 746,337 138,691 - 138,691 Balance at 31 July 2009 7,038,473 8,576,705 8,988,112 746,337 177,189 (3,241,347) 22,285,469 Loss for the year Total comprehensive loss for the year - - - - Shares issued 341,947 2,804,390 Share based payments - - - - - - Balance at 31 July 2010 7,380,420 11,381,095 8,988,112 - - (746,337) - - - (1,248,461) (1,248,461) - - 125,246 (1,248,461) (1,248,461) - - 2,400,000 125,246 302,435 (4,489,808) 23,562,254 Net cash (used in) operating activities 27 (1,409,715) (1,175,444) Notes 2010 £ 2009 £ Investing activities Interest received Purchases of intangible assets Purchase of plant and equipment Proceeds on disposal of plant and equipment 23,645 (569,274) (2,250,176) - 173,439 (530,729) (4,678,611) 883 Net cash (used in) investing activities (2,795,805) (5,035,018) Financing activities Proceeds on issue of ordinary shares Net cash generated from financing activities Net (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Cash and cash equivalents consist of: 2,400,000 2,400,000 - - (1,895,520) (6,210,462) 3,066,502 1,260,982 9,276,964 3,066,502 Cash at bank 19 £1,260,982 £3,066,502 Significant non-cash transaction The 2009 cash flow statement excludes the settlement of a liability of £746,337, where the supplier agreed to accept 919,474 new 10p ordinary shares in settlement; the 2010 cash flow statement excludes the subsequent issue of shares. Company statement of changes in equity for the year ended 31 July 2010 Cash flows arising from discontinued activities Cash flows arising from discontinued operations are analysed in note 27. Share Share capital premium Merger Shares to reserve be issued Retained reserve earnings Total equity Company statement of cash flows for the year ended 31 July 2010 Share based payment £ £ £ Balance at 31 July 2008 7,038,473 8,576,705 8,466,827 Loss for the year Total comprehensive loss for the year Commitment to issue shares Share based payments - - - - - - - - - £ - - £ £ £ 38,498 (167,706) 23,952,797 - (189,037) (189,037) (189,037) (189,037) 746,337 - - 138,691 - - 746,337 138,691 Balance at 31 July 2009 7,038,473 8,576,705 8,466,827 746,337 177,189 (356,743) 24,648,788 Notes £ 27 Net cash from operating activities Investing activities Interest received Subscription in share capital of subsidiary company Net cash inflow/ (used in) investing activities Loss for the year Total comprehensive loss for the year - - - - Shares issued 341,947 2,804,390 Share based payments - - - - - - Balance at 31 July 2010 7,380,420 11,381,095 8,466,827 - - (746,337) - - - (218,253) (218,253) Financing activities - - 125,246 (218,253) (218,253) - - 2,400,000 125,246 302,435 (574,996) 26,955,781 Proceeds on issue of ordinary shares Net cash generated from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Cash and cash equivalents consist of: 2010 £ (1,428,795) 15,292 (8,855) 6,437 2,400,000 2,400,000 977,642 94,418 1,072,060 2009 £ 15,376 490 (2,100) (1,610) - - 13,766 80,652 94,418 Cash at bank 19 £1,072,060 £94,418 Significant non-cash transactions The 2009 cash flow statement excludes an increase in the loan to a subsidiary company of £746,337 and the associated future issue of 919,474 new 10p ordinary shares; the 2010 cash flow statement excludes the subsequent issue of shares. 18 InfraStrata plc InfraStrata plc 19 Notes to the financial statements for the year ended 31 July 2010 1. General information InfraStrata plc is a company incorporated in England & Wales under the Companies Acts 1985 – 2006 and is domiciled in the United Kingdom and is listed on the AIM market of the London Stock Exchange. 2. Accounting policies The financial statements are based on the following accounting policies which have been consistently applied, except that IFRS 8 Operating segments has been adopted in place of IAS 14 Segmental Reporting and the revisions to IAS 1 Presentation of Financial Statements have been adopted. The adoption of these standards has no impact on the reported result or reported net assets of the Group, the comparative disclosures relating to segmental information have been restated. Basis of preparation InfraStrata plc adopted International Financial Reporting Standards (IFRS) and IFRIC Interpretations, as adopted by the European Union and, except as noted below, effective in July 2010, as the basis for preparation of its financial statements. The financial information has been prepared under the historical cost convention as modified by the revaluation of certain financial assets. Going concern The Directors have prepared the financial statements on the going concern basis which assumes that the Group will continue in operational existence without significant curtailment in its activities for the foreseeable future. The Group requires additional funding in order to progress the development of the Islandmagee gas storage project in which it holds a 65% interest and to pay future general and administrative costs. The immediate future development costs of the Portland gas storage project will be funded by partners. The Directors believe that the disposal of an interest in Islandmagee Storage Limited is the best way of maximising shareholder value by allowing an entity other than InfraStrata plc to develop this project. It is expected that such a disposal will provide working capital for the Group and will transfer responsibility for funding the immediate future development of the Islandmagee gas storage project to the new partner. It is further proposed to sell the Group’s entire interests in Portland Gas ESP S.L. and Sager Meer Energy GmbH. The Directors consider that there exists a material uncertainty which casts significant doubt upon the ability of the Group to continue as a going concern and therefore to realise its assets and discharge its liabilities in the normal course of business. There can be no certainty that the disposal of an interest in Islandmagee Storage Limited will proceed within the timeframe currently expected. Nevertheless after making inquiries and considering all the relevant factors in relation to the proposed disposals, the Directors are of the opinion that they will be able to complete any necessary funding and have therefore prepared cash flow forecasts for the Group on this basis. These projections indicate that the Group will have adequate cash resources to meet its obligations as they fall due for a period of not less than one year from the date of approval of these financial statements. For this reason, they continue to adopt the going concern basis of accounting in preparing the annual financial statements. If for any reason the uncertainty described above cannot be successfully resolved, the going concern basis may no longer be appropriate. The financial statements do not include any adjustments that would result if the Group and Company were unable to continue as a going concern. Standards and interpretations in issue not yet adopted At the date of authorisation of these financial statements, the following Standards and Interpretations which have not yet been applied in these financial statements were in issue but not yet effective (and in some cases, had not yet been adopted by the EU) and that may have a material impact going forward: IFRS 9 Financial Instruments IAS 24 (revised 2009) Related Party Disclosures IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments The Directors anticipate that all of the above standards and interpretations will be adopted in the Group’s financial statements in future periods. Basis of consolidation The financial information incorporates the financial information of the Company and entities controlled by the Company. Control is achieved where the Company has power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. Business combinations and goodwill On acquisition, the assets and liabilities and contingent liabilities of subsidiaries are measured at their fair values at the date of acquisition. Any excess of cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. Any deficiency of the cost of acquisition below the fair values of the identifiable net assets acquired (i.e. discount on acquisition) is credited to the income statement in the period of acquisition. Goodwill arising on consolidation is recognised as an asset and reviewed for impairment at least annually. Any impairment is recognised immediately in the income statement and is not subsequently reversed. Disposal groups held-for-sale Disposal groups are classified as assets held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. They are stated at the lower of carrying amount and fair value less costs to sell if their carrying amount is to be recovered principally through a sale transaction rather than through continuing use. Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker as required by IFRS 8 “Operating Segments”. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors. The accounting policies of the reportable segments are consistent with the accounting policies of the Group as a whole. Segment profit represents the profit earned by each segment without allocation of gains or losses on the disposal of available-for-sale investments, investment income, interest payable and tax. This is the measure of profit that is reported to the Board of Directors for the purpose of resource allocation and the assessment of segment performance. When assessing segment performance and considering the allocation of resources, the Board of Directors review information about segment assets and liabilities. Plant and equipment Plant and equipment is stated at cost less accumulated depreciation and any recognised impairment loss. The initial cost of an asset comprises its purchase price or construction cost and any costs directly attributable to bringing the asset into operation. Depreciation is charged so as to write off the cost of assets, over their estimated useful lives, using the straight-line method, once the asset has been brought into use, on the following basis: Capitalised tangible gas storage inclusive of related and pipeline costs are not depreciated as the facility is under construction and not in use. The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. Gas storage research and development costs Research expenditure, incurred when undertaking exploration activities for gas storage opportunities, is written off in the year in which it is incurred. Capitalisation and impairment of intangible gas storage assets Costs of development of gas storage facilities are capitalised as intangible assets once it is probable that future economic benefits that are attributable to the assets will flow to the Group and until consent to construct has been awarded, at which time the capitalised costs are transferred to plant and equipment. The nature of these costs includes all direct costs incurred in project development. No amortisation or depreciation is provided until the storage facility is brought into commercial use. An impairment test is performed annually and whenever events or circumstances arising during the development phase indicate that the carrying value of a development asset may exceed its recoverable amount. The aggregate carrying value is compared against the expected recoverable amount of the cash generating unit, generally by reference to the present value of the future net cash flows expected to be derived from storage revenue. The present value of future cash flows is calculated on the basis of future storage prices and cost levels as forecast at the balance sheet date. The cash generating unit applied for impairment test purposes is generally an individual gas storage facility. Where the carrying value of the facility is greater than the present value of its future cash flows a provision is made. Any such provisions are charged to Office equipment 20 – 33% cost of sales. NOTES TO THE FINANCIAL STATEMENTS Intangible assets – oil & gas expenditure and evaluation expenditure The Group accounts for oil & gas expenditure under the full cost accounting method. Costs (other than payments to acquire rights to explore) incurred prior to acquiring the rights to explore are charged directly to the income statement. All costs incurred after the rights to explore an area have been obtained, such as geological, geophysical data costs and other direct costs of exploration and appraisal are accumulated and capitalised as intangible exploration and evaluation assets (“E&E”). E&E costs are not amortised prior to the conclusion of appraisal activities. If technical feasibility is demonstrated and commercial reserves are discovered, then following development sanction, the carrying value of the relevant E&E asset will be reclassified as a development and production asset, but only after the carrying value of the E&E asset has been assessed for impairment, and where appropriate, its carrying value adjusted. If after completion of appraisal activities in an area, it is not possible to determine technical feasibility or commercial viability, then the costs of such unsuccessful exploration and evaluation are written off to the income statement as a component of costs of sales in the period the relevant events occur. The costs associated with any wells which are abandoned are fully amortised when the abandonment decision is taken. When oil or gas is sold from E&E assets, the carrying value of the E&E asset is reduced by the gross profit generated from the sale. Borrowing costs Borrowing costs directly attributable to the construction of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. 20 InfraStrata plc InfraStrata plc 21 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS Investments Investments in subsidiaries are stated at cost less provision for impairments. Taxation Tax expense represents the sum of the tax currently payable and any deferred tax. The taxable result differs from the net result as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company’s liability for current tax is calculated using tax rates that have been enacted or substantially enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited to the income statement, except when it relates to items charged or credited directly to other comprehensive income, in which case the deferred tax is also dealt with in other comprehensive income. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current assets and liabilities on a net basis. Foreign currency Transactions in foreign currency are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date and gains or losses are taken to operating profit. Leases Leases are classified as finance leases or hire purchase lease contracts whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Rental costs under operating leases are charged on a straight-line basis over the lease term. Share based payment transactions Employees (including senior executives) of the Group receive remuneration in the form of share based payment transactions, whereby employees render services as consideration for equity instruments (equity settled transactions). The equity settled transactions are measured at the fair value of the equity instrument as at the grant date and the expense is recognised, together with a corresponding increase in equity, over the period in which the performance and or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (the vesting date). The cumulative expense recognised for equity settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The income statement charge or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied. Where the terms of an equity settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any modification, which increases the total fair value of the share based payment arrangement, or is otherwise beneficial to the employee as measured at the date of modification. Where equity settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancellation award, and designated as a replacement award on the date that is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph. Retirement benefit costs The Company has a defined contribution plan which requires contributions to be made into an independently administered fund. The amount charged to the income statement in respect of pension costs reflects the contributions payable in the year. Differences between contributions payable during the year and contributions actually paid are shown as either accrued liabilities or prepaid assets in the balance sheet. Financial instruments Financial assets and financial liabilities are recognised on the balance sheet when the Group becomes a party to the contractual provisions of the instrument. Trade and other receivables are measured at initial recognition at fair value and are subsequently measured at amortised cost using the effective interest method. A provision is established when there is objective evidence that the Group will not be able to collect all amounts due. The amount of any provision is recognised in the income statement. Cash and cash equivalents comprise cash held by the Group and short-term bank deposits with an original maturity of three months or less. Trade and other payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method. Financial liabilities and equity instruments issued by the Group are classified in accordance with the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the 3. Segment information proceeds received, net of direct issue costs. Equity issued for non monetary consideration is recorded at the fair value of the equity instruments issued, except when a parent reorganises the structure of its group by establishing a new entity and (a) the new parent obtains control of the original parent by issuing equity instruments in exchange for existing equity instruments of the original parent; (b) the assets and liabilities of the new group and the original group are the same immediately before and after the reorganisation; and (c) the owners of the original parent before the reorganisation have the same absolute and relative interests in the net assets of the original group and the new group immediately before and after the reorganisation. In this latter case equity instruments issued by the new parent are recognised at the carrying amount of its share of the equity items shown in the separate financial statements of the original parent at the date of the reorganisation. Interest bearing bank loans, overdrafts and other loans are recorded at the proceeds received, net of direct issue costs. Finance costs are accounted for on an accruals basis in the income statement using the effective interest method. Available for sale financial assets are those non-derivative financial assets that are designated as available for sale or are not classified as financial assets at fair value through profit and loss, held to maturity investments or loans and receivables. After initial recognition available for sale financial assets are measured at fair value with gains or losses being recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired at which time the cumulative gain or loss previously reported in equity is included in the income statement. The fair value of investments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business on the balance sheet date. For investments where there is no active market, fair value is determined using appropriate valuation techniques. Finance income Finance income is recognised on an accrual basis. The Directors have determined the Group’s operating segments by reference to the risk profile of the Group’s activities, which are affected predominately by location of the Group’s assets. The Group’s head office is located in the United Kingdom with operations located in Dorset, Northern Ireland and Europe. The business of each segment is the development and construction of gas storage and associated facilities. 2010 Discontinued (see note 11 and 20) Dorset Northern Ireland Continental Europe Continuing unallocated £ £ £ £ Total £ Loss on ordinary activities by segment Gas storage development 735,259 100,671 38,818 373,713 1,248,461 Assets by segments Gas storage development 24,066,195 2,419,261 25,578 1,391,494 27,902,528 Liabilities by segment Gas storage development 4,000,554 58,900 2,214 278,606 4,340,274 Net assets by segment Gas storage development 20,065,641 2,360,361 23,364 1,112,888 23,562,254 Capital expenditure on segmental assets Gas storage development 3,346,830 592,791 Depreciation - - - - - 3,939,621 21,070 21,070 22 InfraStrata plc InfraStrata plc 23 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 3. Segment information cont. 6. Directors’ and key management emoluments and compensation 2009 Discontinued (see note 11) Group and company 2010 Salary & fees Bonus Benefits Pension Dorset Northern Ireland Continental Europe Continuing unallocated £ £ £ £ Total £ Loss on ordinary activities by segment Gas storage development 850,607 113,943 103,495 212,957 1,281,002 Assets by segments Gas storage development 20,396,867 1,872,100 1,982 3,125,463 25,396,412 Liabilities by segment Gas storage development 2,871,101 129,654 3,718 106,470 3,110,943 Net assets by segment Gas storage development 17,525,766 1,742,446 (1,736) 3,018,993 22,285,469 Capital expenditure on segmental assets Gas storage development 5,171,931 557,892 Depreciation - - - - - 5,729,823 21,880 21,880 4. Other expenditure Fees payable to the Group’s auditor and its associates: - for the audit of the Company’s financial statements - for the audit of the Company’s subsidiaries - other services relating to taxation - all other services Depreciation Net foreign exchange loss Operating lease rentals – land and buildings Research costs 5. Employee information Executive Directors and staff Staff costs for the above persons were: Wages and salaries Social security costs Defined contribution pension plan expenditure Share based payments 2010 £ 12,750 17,750 12,450 3,556 21,070 5,278 1,521,146 103,716 2010 Number 7 £ 854,196 89,449 27,808 125,246 2009 £ 11,250 17,750 11,950 3,726 21,880 10,482 1,529,152 120,268 2009 Number 8 £ 895,766 102,163 29,950 138,691 1,096,699 1,166,570 Executive Directors Andrew Hindle Craig Gouws Walter Roberts Non-executive Directors Ken Ratcliff Mark Abbott Jonathan Davie Maurice Hazzard £ 250,000 122,219 120,000 37,500 15,000 15,000 15,000 574,719 £ - - - - - - - - Share based payment attributable to Directors Employers national insurance contributions Group and company 2009 Executive Directors Andrew Hindle Craig Gouws Walter Roberts Non-executive Directors Ken Ratcliff Mark Abbott Jonathan Davie Maurice Hazzard £ 250,000 122,048 120,000 37,500 15,000 8,750 15,000 568,298 £ - - - - - - - - Share based payment attributable to Directors Employers national insurance contributions Total 2010 £ 252,042 129,681 128,788 39,375 15,000 15,000 15,750 86,001 65,941 747,578 Total 2010 £ 251,757 129,308 128,392 39,375 15,000 8,750 15,750 £ 2,042 1,462 2,788 - - - - £ - 6,000 6,000 1,875 - - 750 6,292 14,625 595,636 £ 1,757 1,260 2,392 - - - - £ - 6,000 6,000 1,875 - - 750 5,409 14,625 588,332 107,085 65,106 760,523 Salary & fees Bonus Benefits Pension The total of short-term employee benefits for Directors was £646,952 (2009: £638,813). The Directors are considered to be the Group’s key management. Company Directors’ emoluments comprised £574,719 (2009: £568,298) in respect of salary and bonuses, £6,292 (2009: £5,409) in respect of benefits. In addition there was a Directors’ pension benefit expense of £14,625 (2009: £14,625) and employers’ national insurance contributions of £65,941 (2009: £65,106). The charge in respect of share based payments was £86,001 (2009: £107,085). Aggregate emoluments above include amounts for the value of options to acquire ordinary shares in the Company granted or held by Directors. Details of Enterprise Management Incentive and other options granted on the 25 January 2008 are as follows: 24 InfraStrata plc InfraStrata plc 25 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS Directors’ and key management emoluments and compensation cont. 8. Retirement benefits Number Exercise price Exercisable from Exercisable to Executive Directors Andrew Hindle Craig Gouws Walter Roberts Non-executive Directors Ken Ratcliff Mark Abbott Maurice Hazzard 43,859 43,859 43,859 21,929 21,929 21,929 £ 2.28 2.28 2.28 2.28 2.28 2.28 1 January 2011 31 December 2017 1 January 2011 31 December 2017 1 January 2011 31 December 2017 1 January 2011 31 December 2017 1 January 2011 31 December 2017 1 January 2011 31 December 2017 The Group operates a defined contribution retirement plan for all qualifying employees who wish to participate. The assets of the scheme are held separately from those of the Group in funds under the control of trustees. The total cost charged to expenses of £27,808 (2009: £29,950) represents contributions payable to the scheme by the Group at rates specified in the rules of the scheme for the year. As at 31 July 2010, employer and employee contributions of £4,557 (2009: £3,757) due in respect of the current period had not been paid over to the scheme, the payment was made on the 10 August 2010 (2009: 10 August 2009). 9. Finance income Interest on bank deposits 10. Income tax 2010 £ 23,645 2009 £ 173,439 No options were granted to Directors in 2010 or 2009. The major components of income tax expense for the years ended 31 July 2010 and 2009 are: Key man insurance premiums of £777 (2009: £777) were paid for Executive Directors and directors’ indemnity insurance premiums of £18,133 (2009: £18,786) were paid in respect of all Directors. Executive and Non-executive Directors participate in the Group Stakeholder Pension Plan under which Group Life Cover is offered. 7. Share based payment plans a) Consolidated income statement Current income tax charge Adjustments in respect of current income tax of previous years 2010 2009 £ - - £ - - A share based payment plan was created in the year ended 31 July 2008. All Directors and employees are entitled to a grant of options subject to the Board of Directors’ approval. The options do not have a cash settlement alternative. The options granted are Enterprise Management Incentive share options for qualifying employees. b) A reconciliation between tax expense and the product of accounting loss for the years ended 31 July 2010 and 2009 is as follows: Accounting loss before tax from continuing operations (373,713) (212,957) There were 45,200 options issued during 2010 (2009: nil). The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, share options during year. Outstanding at the beginning of the year Granted during the year Forfeited during the year Outstanding at the end of the year Exercisable at the end of the year 2010 Number 255,898 45,200 - 301,098 - 2010 WAEP £ 2.44 0.89 - 2.06 - 2009 Number 318,831 - 62,933 255,898 - 2009 WAEP £ 2.43 - 2.39 2.44 - Loss on continuing activities multiplied by the standard rate of tax (28%; 2009 – 28%) Expenses not permitted for tax purposes and pre-trading expenditure Other timing differences Group relief Tax losses carried forward (104,640) 13,843 5,900 13 (84,884) (59,628) (4,111) 6,023 152 (57,564) A discontinued operations reconciliation between tax expense and the product of accounting loss for the years ended 31 July 2010 and 2009 is as follows: Accounting loss before tax from discontinued operations (874,748) (1,068,045) 2010 £ 2009 £ The weighted average remaining vesting period for the share options outstanding at 31 July 2010 is 0.92 years (2009: 1.8 years). The range of exercise prices for options outstanding at the end of the year was £0.885 - £3.90. Loss on discontinued activities multiplied by the standard rate of tax (28%; 2009 – 28%) Expenses not permitted for tax purposes and pre-trading expenditure The fair value of equity settled options granted is estimated as at the date of the grant using a Black- Scholes model, taking into account the terms and conditions upon which the options were granted. The following table lists the inputs to the model used to value the options issued in 2010 and 2008: Group relief Income tax expense reported in note 11 (244,929) 244,942 13 - (299,053) 299,205 152 - Expected volatility (%) Risk free interest rate Weighted average contractual life of option (years) Expected dividend yield Weighted average share price (£) 2010 35% 0.5% 10 nil 0.885 2008 35% 5% 9.5 nil 2.43 The expected volatility reflects the assumption that the historical volatility of a sample of oil and gas companies is indicative of future trends for InfraStrata plc, which may not necessarily be the actual outcome. The expected life of the options is based on Directors best estimate and may not necessarily be indicative of the patterns that may occur. c) Factors that may affect the future tax charge The Group has trading losses of £588,568 (2009: £327,017) which may reduce future tax charges. Future tax charges may also be reduced by capital allowances on cumulative capital expenditure. d) Deferred taxation The Group has an unrecognised deferred taxation asset arising from trading losses carried forward of £158,914 (2009: £91,565) at year end. The deferred tax asset is not recognised due to the uncertainty over its future recovery. The deferred tax asset is calculated at a rate of 27%; however, the Government has announced that the rate of corporation tax will reduce by 1% per annum to 24% and this is the rate expected to be in force when the tax losses may be able to be utilised. The deferred tax asset calculated at this tax rate is £141,256. 26 InfraStrata plc InfraStrata plc 27 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS Plant and equipment 2009 Gas storage (under construction) Office equipment 11. Discontinued operations Revenue Net operating costs Loss from operations Loss before tax Tax charge (note 10) Loss after tax 2010 £ - 874,748 874,748 874,748 - 874,748 2009 £ - 1,068,045 1,068,045 1,068,045 - 1,068,045 Details of the discontinued operations are given in note 20. The results for the discontinued activities of the Group for the year ended 31 July 2009 have been re-presented, as required by IFRS 5, so that the disclosures relate to all operations that have been discontinued by 31 July 2010 for all periods presented. 12. Loss per share Loss The loss for the purposes of basic and diluted loss per share being the net loss attributable to equity shareholders: Continuing operations Discontinued operations Continuing and discontinued operations Number of shares Weighted average number of ordinary shares for the purposes of basic earnings per share Basic earnings per share Continuing operations Discontinued operations Continuing and discontinued operations 2010 £ 373,713 874,748 1,248,461 2009 £ 212,957 1,068,045 1,281,002 0.51p 1.20p 1.71p 0.30p 1.52p 1.82p In accordance with IAS 33, diluted earnings per share calculations are not presented as assumed conversion of outstanding share options (note 7) would be anti-dilutive; as such the diluted earnings per share is equal to the basic loss per share. 13. Losses attributable to InfraStrata plc Cost At 1 August 2008 Additions Disposals At 31 July 2009 Depreciation At 1 August 2008 Charge for the year Disposals At 31 July 2009 Net book value At 31 July 2009 15. Intangible assets 2010 Cost At 1 August 2009 Additions At 31 July 2010 Amortisation At 1 August 2009 Charge for the year At 31 July 2010 Net book value At 31 July 2010 The loss for the period dealt with in the financial statements of InfraStrata plc was £218,253 (2009: £189,037). As provided by s408 of the Companies Act 2006, no income statement is presented in respect of InfraStrata plc. Intangible assets 2009 14. Plant and equipment 2010 Gas storage (under construction) Office equipment Cost At 1 August 2009 Additions £ 20,318,153 3,346,830 Transfer to assets classified as held for sale (23,664,983) At 31 July 2010 Depreciation At 1 August 2009 Charge for the year At 31 July 2010 Net book value At 31 July 2010 - - - - - £ 69,648 - - 69,648 41,298 21,070 62,368 7,280 Total £ 20,387,801 3,346,830 (23,664,983) 69,648 41,298 21,070 62,368 7,280 Cost At 1 August 2008 Additions At 31 July 2009 Amortisation At 1 August 2008 Charge for the year At 31 July 2009 Net book value At 31 July 2009 73,023,939 70,384,727 Transfer to assets classified as held for sale £ 15,146,222 5,171,931 - 20,318,153 - - - - £ 68,730 1,801 (883) 69,648 19,785 21,880 (367) 41,298 Total £ 15,214,952 5,173,732 (883) 20,387,801 19,785 21,880 (367) 41,298 20,318,153 28,350 20,346,503 Development costs –Gas storage £ 1,821,551 592,791 (2,414,342) - - - - - 1,263,659 557,892 1,821,551 - - - 1,821,551 28 InfraStrata plc InfraStrata plc 29 NOTES TO THE FINANCIAL STATEMENTS 16. Investments Balance at the beginning of the year Additions Balance at the end of the year Subsidiaries Company 2010 Company 2009 £ 15,249,111 8,855 15,257,966 £ 15,247,011 2,100 15,249,111 The Company’s subsidiary undertakings at 31 July 2010, all of which are wholly owned unless indicated otherwise, are as follows: Principal undertaking Country of incorporation InfraStrata UK Limited Portland Gas ESP S.L. InfraStrata Trading Limited Holding and corporate Spanish sub surface gas storage developer Dormant Sager Meer Energy GmbH (80% owned) German sub surface gas storage developer InfraStrata UK Limited owns the following subsidiaries: England Spain England Germany Portland Gas Holdings Limited Holding England Islandmagee Storage Limited (65% owned) Sub surface gas storage developer Northern Ireland InfraStrata Limited Portland Gas Holdings Limited owns the following subsidiaries: Holding England Portland Gas Storage Limited Sub surface gas storage developer Portland Gas Transportation Limited Gas storage pipeline developer England England In January 2010 InfratStrata UK Limited, Moyle Energy Investments Limited and Islandmagee Storage Limited entered into a preliminary shareholders agreement whereby Moyle Energy Investments Limited acquired a 35% interest in Islandmagee Storage Limited. InfraStrata UK Limited continues to assume one hundred percent of the risks and rewards of ownership of Islandmagee Storage Limited (including voting rights) and therefore InfraStrata plc includes the total assets and liabilities in its consolidated results. 17. Receivables Amounts due from Group undertakings Other receivables Prepayments Group 2010 £ - 71,985 38,747 110,732 Group 2009 £ - 75,791 73,565 149,356 Company Company 2010 £ 2009 £ 10,809,819 9,352,960 25,000 38,747 34,118 26,041 10,873,566 9,413,119 An element of the Company and Group’s credit risk is attributable to its receivables. Based on prior experience and an assessment of the current economic environment, the Directors did not consider any provision for irrecoverable amounts was required and consider that the carrying amounts of these assets approximates to their fair value. There are no set terms for the repayment of the amounts due from Group undertakings and they are expected to be recovered following the development of the project and or following the part disposal of the project companies. 18. Available for sale financial assets At 1 August Transfer from subsidiary At 31 July Group 2010 £ 12,500 - Group 2009 £ 12,500 - 12,500 12,500 Company Company 2010 2009 £ - 12,500 12,500 £ - - - The investment in securities above represents an investment in Egdon Resources plc redeemable preference shares. The assets are held at cost as an approximation of fair value. These are the only financial assets which the Group and Company are required to carry at fair value. 19. Cash and cash equivalents Group 2010 £ Group 2009 £ Cash at bank 1,260,982 3,066,502 1,072,060 NOTES TO THE FINANCIAL STATEMENTS Company Company 2010 £ 2009 £ 94,418 The Directors consider that the carrying amount of these assets approximates their fair value. The credit risk on liquid funds is limited because the counter-parties are banks with high credit ratings. 20. Assets held for sale and discontinued operations A Memorandum of Understanding (“MOU”) was signed with US independent energy company eCORP International, LLC (“eCORP”) relating to InfraStrata’s gas storage projects. The disposal group comprises the assets described in this note. In respect of the Portland Project eCORP Oil & Gas UK Limited undertook to fund the first cavern well and thereby acquired the right to match the project expenditure invested to date by InfraStrata (£22.9m) in return for 50% of the share capital of the project company, Portland Gas Ltd. The transaction was completed after year end. The Company will also dispose of its interest in the share capital of Sager Meer Energy GmbH and Portland Gas ESP S.L. its gas storage projects in Germany and Spain. Under the terms of the MOU the Company and Mutual Energy are continuing discussions with eCORP to acquire 40% of the share capital of Islandmagee Storage Limited. The terms of the MOU have been extended to 30 April 2011, but on a non-exclusive basis. Whilst the assets held for sale are classified as current assets, due to the nature of the transaction, the disposal of the Portland Project will not generate a cash inflow for the Group. Assets classified as held for sale Property, plant and equipment Intangible assets – gas storage development costs Trade and other receivables Cash and cash equivalents Liabilities classified as held for sale Current liabilities Trade creditors and accruals Other taxation and social security Accruals Other contractual agreements Non-current liabilities Obligations under lease agreements Other contractual agreements 21. Trade and other payables Trade creditors Other taxation and social security Accruals Other contractual agreements £ 23,664,983 2,414,342 334,553 97,156 26,511,034 73,400 4,182 114,857 700,000 892,439 2,168,286 1,000,943 4,061,668 Group 2010 £ Group 2009 £ Company 2010 £ Company 2009 £ 67,039 37,250 174,317 - 278,606 174,355 34,904 215,943 500,000 925,202 176,080 37,250 46,881 - 260,311 56,356 34,904 16,500 - 107,860 The Directors consider that the carrying amount of trade and other payables approximates to their fair value. Other contractual agreements relate to amounts due to the Portland Gas Trust under a Section 106 deed of undertaking which are not expected to be paid until the Portland project is fully funded; for 2010, these amounts are disclosed within liabilities classified as held for sale (note 20). 30 InfraStrata plc InfraStrata plc 31 NOTES TO THE FINANCIAL STATEMENTS 22. Non-current liabilities Group 2010 £ Group 2009 £ Company 2010 £ Company 2009 £ Obligations under lease agreements 2,168,286 990,741 Other contractual agreements 1,000,943 1,195,000 Transfer to liabilities directly associated with non-current assets classified as held for sale (3,169,229) - - 2,185,741 - - - - - - - - The obligation under a lease agreement is to be settled over a period of 13 years. Under the terms of a separate agreement with the lessor the Group will pay £120,000 per annum of the liability arising under the lease until the Portland project is fully funded. The balance will be settled by way of an interest bearing loan, which will be repaid when the project is fully funded. Other contractual agreements relate to payments to be made to the Portland Gas Trust under a Section 106 planning agreement and will be settled over a period of 20 years. 23. Financial assets and liabilities The Group and Company’s financial instruments comprise cash and cash equivalents and items such as trade payables and other receivables which arise directly from the Group’s operations. The Group’s operations expose it to a variety of financial risks including credit risk, liquidity risk, interest rate risk and foreign currency exchange risk. Given the size of the Group, the Directors have not delegated the responsibility of monitoring financial risk management to a subcommittee of the board. The objectives of the financial instrument policies are to reduce the Group and Company’s exposure to financial risk. The policies set by the board of Directors are implemented by the Company’s finance department. Credit risk The credit risk on liquid funds is limited because the Group and Company policy is to only deal with counter parties with high credit ratings and more than one institution is utilised to deposit cash holdings. The Group held funds in the Bank of Scotland, Northern Rock and Lloyds TSB bank accounts during the year, at year end all of the funds were held in Bank of Scotland and Northern Rock accounts. The risk of Bank of Scotland bank failure has decreased during the year while Northern Rock was supported by British Government Guarantee. The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was: NOTES TO THE FINANCIAL STATEMENTS Liquidity risk The Group and Company policy is to actively maintain a mixture of long- term and short-term deposits that are designed to ensure it has sufficient available funds for operations. The total carrying value of Group and Company financial liabilities is disclosed in notes 20, 21 and 22. Further information on contractual maturities of significant financial liabilities is disclosed in notes 22 and 28. The Company issues share capital when external funds are required. The reconciling items between the contractual maturities presented below and that presented in notes 20, 21 and 22 are taxes and the effect of discounting long term liabilities to present value. The following table shows the contractual maturities of the Group’s and Company’s financial liabilities, all of which are measured at amortised cost. Within one month 1,056,626 Within more than one month and less than one year 100,000 262,045 614,286 More than 1 year and less than five years 1,990,634 1,007,741 More than five years 1,966,973 1,983,000 87,403 58,989 - - - - - - Group 2010 £ Group 2009 £ Company 2010 £ Company 2009 £ Contractual liabilities of £616,622 and £100,000 shown as falling due within one month and within one year, respectively, are not expected to be paid until such time as the Portland project is fully funded. 24. Share capital and redeemable preference shares Authorised Number Allotted, called up, and fully paid £ Number £ Ordinary share capital At 31 July 2008 and 2009 - Ordinary shares of 10 pence each 100,000,000 10,000,000 70,384,727 Issue 10 pence ordinary shares - - 3,419,474 7,038,473 341,947 At 31 July 2010 - Ordinary shares of 10 pence each 100,000,000 10,000,000 73,804,201 7,380,420 Redeemable preference shares of £1 each (classified as liabilities) Group 2010 £ Group 2009 £ Company 2010 £ Company 2009 £ At 31 July 2008 - - - Available for sale financial assets Other receivables 12,500 71,985 12,500 29,324 12,500 57,364 Cash and cash equivalents 1,260,982 3,066,502 1,072,060 - 19,156 94,418 The reconciling item between the Other receivables presented above and that presented in note 17 and 20 is the VAT receivable. Interest rate risk The Company and Group is exposed to interest rate risk as a result of positive cash balances, denominated in sterling, which earn interest at a variable rate. These attract interest at rates that vary with bank interest rates. Cash at bank at floating rates consisted of money market deposits which earn interest at rates set in advance from periods of 1-3 months by reference to Sterling LIBOR. An effective interest rate increase or decrease by 1% on the cash and cash equivalents balance at year end would result in a before tax financial effect of an increase or decrease in investment revenues and equity for the Group of £13,581 (2009: £30,665) and for the Company of £10,721 (2009: £944). Foreign currency risk The Group is exposed to foreign to currency rate risk as a result of trade payables which are settled in Euros and United States Dollars (USD). During the year the Group and Company did not enter into any arrangements to hedge this risk, as the Directors did not consider the exposure to be significant given the short term nature of the balances. The Group and Company will review this policy as appropriate in the future. As at 31 July 2010, if the Euro had weakened or strengthened 10% against sterling with all other variables held constant, the Group’s net loss and equity would have decreased or increased by £1,791 (2009: £4,853). The currency risk disclosures at 31 July 2010 are as follows: The currency risk disclosures at 31 July 2010 are as follows: Accounts payable The currency risk disclosures at 31 July 2009 are as follows: Accounts payable Euro £15,009 £53,383 USD - - Total £15,009 £53,383 The book value of financial assets and liabilities disclosed is considered to be equal to fair value. Creation and issue of £1 redeemable preference shares At 31 July 2010 and 2009 On the 5 November 2009 the Company completed a placing of 2,500,000 new ordinary shares of 10p each at 100p per share to raise £2.5 million before expenses. On the 15 September 2009 the Company issued 919,474 new 10p ordinary shares in settlement of an existing liability of £746,337. These shares have been disclosed as shares to be issued at 31 July 2009. Objectives, policies and processes for managing capital The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to achieve its operational objectives. The Group defines capital as being share capital plus reserves. The Board of Directors monitors the level of capital as compared to the Group’s forecast cash flows and long term commitments and when necessary issues new shares. 50,000 50,000 50,000 50,000 50,000 50,000 - 12,500 12,500 Dilution of existing shareholder value is considered during all processes which may result in an alteration of share capital in issue. Ordinary share capital in issue is managed as capital and the redeemable preference shares in issue are managed as current liabilities. Group The merger reserve represents the difference between the nominal value of the shares issued on the demerger and the combined share capital and share premium of InfraStrata UK Limited at the date of the demerger. The reserve is not distributable. The Group is not subject to any externally imposed capital requirements. 25. Merger reserve Company The merger reserve arose on the demerger of the Portland Gas Group of companies from Egdon Resources Plc when the Company issued shares at a premium to their nominal value on acquisition of InfraStrata UK Limited. The reserve is not distributable. 26. Share based payment reserve The reserve for share based payments is used to record the value of equity settled share based payments awarded to employees and transfers out of this reserve are made upon the exercise or expiration of the share awards. The transfer in of £125,426 (2009: £138,691) relates to share options granted. For further information on the share based payment scheme see note 7. 32 InfraStrata plc InfraStrata plc 33 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 27. Cash (used in) operations 29. Tangible capital commitments Operating loss for the year from continuing operations Group Depreciation Profit on disposal of plant & equipment Decrease in trade and other receivables (Decrease) in trade and other payables Share option expense Cash (used in) discontinued operations Cash (used in) continuing and discontinued operations 2010 £ (397,358) 21,070 - 38,624 (83,280) 125,246 (1,114,017) (1,409,715) The statement of cash flows includes the following amounts which arise from discontinued activities: Group Cash (used in) discontinued operations Investing activities Financing activities Company Operating loss for the year (Increase)/Decrease in trade and other receivables Increase/(Decrease) in trade and other payables Share option expense Cash (used in)/from operations 28. Operating lease commitments Group (1,114,017) (2,819,450) - (233,545) (1,472,948) 152,452 125,246 (1,428,795) 2009 £ (386,396) 21,880 367 156,164 (38,105) 138,691 (1,068,045) (1,175,444) (1,068,045) (5,209,340) - (189,527) 172,557 (106,345) 138,691 15,376 Future minimum rentals payable under non-cancellable operating leases as at 31 July are as follows: Amounts due: Within one year Within 2 to 5 years After more than 5 years Land and buildings 2010 Land and buildings 2009 £ £ 1,223,600 6,493,505 10,585,000 18,302,105 1,056,933 6,023,505 12,278,600 19,359,038 Operating lease payments represent rentals payable by the Group for office premises and land which is for the purposes of gas storage facility development. The office premises lease rentals are fixed for 5 years and the escalation clause is linked to market rates agreed between the landlord and tenant. The lease provides for a break clause at the fifth anniversary of the lease, exercisable at the Company’s option. The rents due under the gas storage development land leases are fixed to the first review date on the 20 October 2011 and the escalation clause is linked to the Retail Price Index published by the Office for National Statistics. The lease provides for a break clause at the fifteenth anniversary of the lease, exercisable at the Company’s option. Until such time as the Group has secured funding for the Portland project only minimal cash payments will fall due, with the balance of the liability being settled by way of interest bearing loans, which are payable once the associated gas storage project is fully funded. Approved and contracted 2010 £ 1,795,000 2009 £ 2,038,764 The capital commitments largely relate to commitment a of Portland Gas Storage Limited in relation to a S106 deed of undertaking and, for 2009, capital works to be performed on the Upper Osprey site. 30. Related party transactions InfraStrata UK Limited leases the Group’s head office from Toffee Limited, a company of which Andrew Hindle is a director and shareholder. A fair market rent paid during the period was £45,000 (2009: £45,000). The balance outstanding at 31 July 2010 was £nil (2009: £nil). The Company has related party relationships with its subsidiaries in the course of normal operations. InfraStrata plc recovered overhead costs from InfraStrata UK Limited of £170,561 (2009: £179,328), Portland Gas Storage Limited of £473,358 (2009: £497,690), Islandmagee Storage Limited of £92,134 (2009: £96,870) and Portland Gas Transportation Limited of £230,457 (2009: £242,304). The balances outstanding at 31 July 2010, which are not secured, are provided in the following table. Related party The ultimate parent InfraStrata plc Subsidiaries InfraStrata UK Limited Portland Gas Storage Limited Islandmagee Storage Limited Portland Gas Transportation Limited Portland Gas Limited InfraStrata NV Limited InfraStrata Trading Limited Portland Gas ESP S.L. Amounts owed by related parties Amounts owed to related parties £ 10,777,456 21,744,838 4,835,464 - - - - 100 - £ 100 6,751,126 22,407,599 2,697,060 5,347,152 - - - 154,821 The balances outstanding at 31 July 2009, which are not secured, are provided in the following table. Related party The ultimate parent InfraStrata plc Subsidiaries InfraStrata UK Limited Portland Gas Storage Limited Islandmagee Storage Limited Portland Gas Transportation Limited Portland Gas Limited InfraStrata NV Limited InfraStrata Trading Limited Portland Gas ESP S.L. Amounts owed by related parties Amounts owed to related parties £ 9,352,960 19,486,563 4,397,874 - - - - 100 - £ 100 7,104,539 19,399,430 1,978,572 4,642,596 - 12,500 - 99,759 34 InfraStrata plc InfraStrata plc 35 NOTES TO THE FINANCIAL STATEMENTS 31. Judgements in applying accounting policies and key sources of estimation uncertainty Amounts included in the financial the date from which the facilities and/or project disposals. The statements involve the use of become operational. Management Directors have reviewed the budget, Directors: Kenneth Ratcliff (Non-executive Chairman) Andrew Hindle (Chief Executive Officer) Craig Gouws (Chief Financial Officer) judgement and/or estimation. These assigns values and dates to these projected cash flows, considered Walter Roberts (Legal and Commercial Director) Mark Abbott (Non-executive Director) Maurice Hazzard (Non-executive Director) estimates and judgements are based inputs after taking into account committed expenditure and based on management’s best knowledge of market information, engineering the relevant facts and circumstances, design costing and the project having regard to previous programme. A discount rate of 8% is experience, but actual results may applied in determining project net differ from the amounts included in present values. Salt cavern gas the financial statements. Information storage projects are long term about such judgements and investments and cash flows are estimation is contained in the therefore projected over periods on this review are confident that the Group will have adequate financial resources to continue in existence for the foreseeable future. Consequently the Directors consider it appropriate to prepare the financial statements on the going concern basis subject to the going concern disclosure accounting policies and/or the notes greater than 5 years. Engineering made in note 2. to the financial statements, and the design provides for Project life of 40 key areas are summarised below. years. It is assumed that 100% of a Capitalisation of project costs The assessment of whether costs incurred on project exploration and evaluation should be capitalised or expensed involves judgement. Any project’s capacity will be sold from the date that the capacity becomes operational, therefore no cash flow growth is used when performing cash flow projections. Share based payments expenditure which is considered to The estimation of share based relate to gas storage exploration payment costs requires the selection research activities or where it is not of an appropriate valuation model probable that future economic and consideration as to the inputs benefits will flow to the Group are necessary for the valuation model expensed. Management considers chosen. The Group has made the nature of the costs incurred and estimates as to the volatility of its the stage of project development own shares, the probable life of and concludes whether it is options granted, and the time of appropriate to capitalise the costs. exercise of those options. The model The key assumptions depend on the used by the Group is the Black- rock mechanical properties of the Scholes model. The key assumptions halite, the availability of a suitable are detailed in note 7. site for construction of the required facilities and the likelihood of gaining the relevant permissions. Review of project asset carrying values Going concern The preparation of the financial statements requires an assessment on the validity of the going concern assumption. The validity of the going The assessment of capitalised project concern assumption is dependent on costs for any indications of the availability of adequate impairment involves judgement. financial resources to allow the When facts or circumstances suggest Group to continue in operational that impairment exists, a formal existence for the foreseeable future. estimate of recoverable amount is Should the going concern basis not performed and an impairment loss be appropriate, adjustments would recognised to the extent that the have to be made to the assets and carrying amount exceeds liabilities in the balance sheet of the recoverable amount. The carrying Group. As with other development amount of the intangible asset with companies which have no revenue an indefinite useful life is £2,414,342. streams, the Group will only be able Recoverable amount is determined to continue its development 32. Events after balance sheet date On the 1 October 2010 eCORP Oil & Gas UK Limited undertook to fund the first cavern well and thereby acquired the right to match the project expenditure invested to date by InfraStrata (£22.9m) in return for 50% of the share capital of the project company, Portland Gas Limited. The Department of Enterprise Trade & Investment (“DETI”) has carried out its assessments of the financial and technical aspects of an application made for a petroleum licence in Northern Ireland and offered in November 2010 to grant InfraStrata a 50% licence interest over the area applied for which is known as Central Larne - Lough Neagh Basin. The licence covers an area of 663 square kilometres, and the existing Islandmagee gas storage project is located within the boundary. The Company expects that DETI should be in a position to issue the licence in Q1 2011 after it has completed the drafting of the terms and conditions of the licence, taking into account the outcome of its consultation with other Departments and agencies. 33. Control of the Group The largest Group in which the results of the Company are consolidated is that headed by InfraStrata plc. It is the ultimate to be the higher of fair value less programme if it has sufficient holding company and is costs to sell and value in use. The financial resources to do so. In order incorporated in Great Britain and key assumptions are the net income to gain such resources, the Group registered in England. There is no expected to be generated from the will need to raise additional funds, ultimate controlling party of facilities, the cost of construction and either through the issue of shares InfraStrata plc. Registered Office: Blackstable House Longridge Sheepscombe Stroud GL6 7QX Letter from the Chairman with notice of Annual General Meeting InfraStrata plc (The “Company”) (Incorporated and registered in England and Wales with registered number 06409712) 13 December 2010 Dear Shareholder, the next annual general meeting of the In addition, in accordance with the 1. Introduction Notice of the Company’s forthcoming annual general meeting to be held on Monday 31 January 2011 (“AGM” or “Annual General Meeting”) appears on the following pages. As in previous years your Board is not recommending the payment of a dividend. 2. Resolutions to be proposed at the AGM Ordinary Business Annual Report and Accounts (Resolution 1) A copy of the annual report and accounts (together with the Directors’ and Auditors’ reports on the annual report and accounts) for the Company for the financial year ended 31 July 2010 (the “Accounts”) has been sent to you with this document. Shareholders will be asked to receive the Accounts at the Annual General Meeting. Re-appointment of Auditors (Resolution 2) The Company is required at each general meeting at which accounts are presented to appoint auditors to hold office until the next such meeting. Nexia Smith & Williamson Audit Limited have indicated their willingness to continue in office. Accordingly, Resolution 2 proposes their re-appointment as auditors of the Company to hold office from the conclusion of the Annual General Meeting until the conclusion of Company at which Accounts are laid, guidance from the Association of British and authorises the Directors to Insurers (“ABI”) on the expectations of determine their remuneration. institutional investors in relation to the Retirement by Directors (Resolutions 3 & 4) Andrew Hindle and Maurice Hazzard are the Directors retiring by rotation this year and each offers himself for re-election. All members of the Board are required to submit themselves for re-election at least once every three years. Brief biographical details of each of the Directors appear on pages 10 and 11 of the Accounts. Special Business Authority of Directors to Allot Shares (Resolution 5) The authority given to the Directors to allot further shares in the capital of the Company requires the prior authorisation of the shareholders in general meeting under section 551 Companies Act 2006. Upon the passing of Resolution 5, pursuant to paragraph (A) of the Resolution, the Directors will have authority to allot shares up to a maximum of £2,460,140 which is approximately one third of the current issued share capital as at 9th December 2010, being the latest authority of directors to allot shares, upon the passing of Resolution 5, the Directors will have authority (pursuant to paragraph (B) of the Resolution) to allot an additional number of ordinary shares up to a maximum of £2,460,140, which is approximately a further third of the current issued ordinary share capital as at 9th December 2010, being the latest practical date before the publication of this Letter. However, the Directors will only be able to allot those shares for the purposes of a rights issue in which the new shares are offered to existing shareholders in proportion to their existing shareholdings. This authority will also expire immediately following the next annual general meeting or, if earlier, six months following the date to which the Company’s next annual report and accounts are made up to. As a result, if Resolution 5 is passed, the Directors could allot shares representing up to two-thirds of the current issued share capital pursuant to a rights issue. Disapplication of Pre-emption Rights (Resolution 6) practicable date before the publication If the Directors wish to exercise the of this Letter. This authority will expire immediately following the next annual authority under Resolution 5 and offer unissued shares (or sell any shares general meeting or, if earlier, six months following the date to which the Company’s next annual report and accounts are made up. which the Company may purchase and elect to hold as treasury shares) for cash, the Companies Act 2006 requires that unless shareholders have given specific authority for the waiver of the 36 InfraStrata plc InfraStrata plc 37 CHAIRMAN’S LETTER statutory pre-emption rights, the new shares be offered first to existing shareholders in proportion to their existing shareholdings. In certain circumstances, it may be in the best interests of the Company to allot new shares (or to grant rights over shares) for cash without first offering them to existing shareholders in proportions to their holdings. Resolution 6 would authorise the Directors to do this by allowing the Directors to allot shares for cash (i) by way of a rights issue (subject to certain exclusions), (ii) by way of an open offer or other offer of securities (not being a rights issue) in favour of existing shareholders in proportions to their shareholdings (subject to certain exclusions) and (iii) to persons other than existing shareholders up to an aggregate nominal value of £738,042 which is equivalent to 10 per cent of the issued share capital of the Company on 9th December 2010, being the latest practicable date prior to the publication of this Letter. If given, the authority will expire on the conclusion of the following annual general meeting or, if earlier, six months following the date to which the Company’s next annual reports and accounts are made up. For this purpose the ABI recommendation for companies on the LSE main list is 5% although it is generally recognised that for smaller companies and those on AIM this may be too constrictive. The nature of our business means that projects in which we will have an interest will normally require up-front investment and can take a long time to fully develop. Consequently I would ask that you approve a 10% disapplication of pre-emption rights to provide your Board with the flexibility to pursue such opportunities without incurring the costs of a rights issue or the need to market part of the investment opportunity to third parties. 3. Recommendation Your Directors consider the Resolutions to be proposed at the AGM to be in the best interests of the Company and its shareholders as a whole. Consequently, the Directors recommend shareholders to vote in favour of the Resolutions as they intend to do in respect of their own beneficial holdings totalling 15,103,461 ordinary shares (representing 20.46 per cent of the Company’s issued share capital as at the date of this Letter). A form of proxy is included for use at the AGM. Forms of proxy should be completed, signed and returned as soon as possible and in any event so as to be received by Capita Registrars at The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU not less than 48 hours prior to the time appointed for the holding of the AGM on 31 January 2011. Completion of a proxy form will not prevent you from attending the AGM in person if you so wish. Yours sincerely, Ken Ratcliff Non-executive Chairman Notice of annual general meeting Notice is hereby given that the Annual General Meeting of InfraStrata plc (the “Company”) will be held at the offices of Buchanan Communications Limited, 45 Moorfields, London EC2Y 9AE, United Kingdom on Monday 31 January 2011 at 11.00 hours, for the purpose of passing the following Resolutions, of which Resolutions 1 to 5 will be proposed as Ordinary Resolutions and Resolution 6 will be proposed as a Special Resolution: Ordinary Resolutions: 1. To receive the report of the Directors and the audited accounts of the Company for the year ended 31 July 2010, together with the report of the Auditors on those audited accounts. 2. That Nexia Smith & Williamson Audit Limited be and are hereby reappointed as auditor of the Company to hold office from the conclusion of this meeting until the conclusion of the next meeting at which accounts are laid before the meeting, at a remuneration to be determined by the Directors. 3. To re-elect Andrew Hindle as Director who retires pursuant to article 92 of the Company’s articles of association and who, being eligible, offers himself for re-election. 4. To re-elect Maurice Hazzard as Director who retires pursuant to article 92 of the Company’s articles of association and who, being eligible, offers himself for re-election. 5. To consider and, if thought fit, to pass the following Resolution as an ordinary resolution: That the Directors be and they are hereby generally and unconditionally authorised in accordance with section 551 Companies Act 2006 (CA 2006) to exercise all the powers of the Company to allot shares in the Company and to grant rights to subscribe for, or to convert any security into, shares in the Company: (A) up to an aggregate nominal amount of £2,460,140; and (B) comprising equity securities (within the meaning of section 560 CA 2006) up to a further aggregate nominal amount of £2,460,140 in connection with an offer by way of a rights issue: (i) to ordinary shareholders in proportion (as nearly as may be practicable) to their existing holdings; and (ii) to holders of other equity securities as required by the rights of those securities or as the Directors otherwise consider necessary, and so that Directors may impose any limits or restrictions and make any arrangements which they consider necessary or appropriate to deal with treasury shares, fractional entitlements, record dates, legal, regulatory or practical problems in, or under the laws of, any territory or the requirements of any regulatory body or stock exchange or any other matter (including any such problems arising by virtue of equity securities conclusion of the next annual general meeting of the Company after the passing of this Resolution or 31 January 2012, whichever is the earlier save that the Company may before such expiry make an offer or agreement which would or might require shares to be allotted or rights to subscribe for, or to convert any security into, shares to be granted after such expiry and the Directors may allot shares or grant rights to subscribe for, or to convert any security into, shares (as the case may be) in pursuance of such an offer or agreement as if the authority conferred hereby had not expired. Special Resolutions: 6. To consider and, if thought fit, to pass the following Resolution as a special resolution: That, subject to the passing of Resolution 5 above the Directors be and they are hereby empowered pursuant to section 570 CA 2006 to allot equity securities (within the meaning of section 560 CA 2006) for cash pursuant to the authority conferred by Resolution 5, as if section 561 CA 2006 did not apply to any such allotment, provided that this power shall be limited: (A) to the allotment of equity securities in connection with an offer of equity securities (but in the case of the authority granted under paragraph (B) of Resolution 5, by way of a right issue only): being represented by depositary (i) to ordinary shareholders in receipts). The authorities conferred on the Directors under paragraphs (A) and proportion (as nearly as may be practicable) to their existing holdings; and (B) above shall expire at the (ii) to holders of other equity securities 38 InfraStrata plc InfraStrata plc 39 NOTICE OF ANNUAL GENERAL MEETING as required by the rights of those securities or as the Directors otherwise consider necessary, and so that the Directors may impose any limits or restrictions and make any arrangements which they consider necessary or appropriate to deal with any treasury shares, fractional entitlements, record dates, legal, regulatory or practical problems in, or under the laws of, any territory or the requirements of any regulatory body or stock exchange or any other matter (including any such problems arising by virtue of equity securities being represented by depositary receipts); and (B) to the allotment (otherwise than under paragraph (A) of this Resolution 6) of equity securities up to an aggregate nominal amount of £738,042., and shall expire at the conclusion of the next annual general meeting of the Company after the passing of this Resolution or 31 January 2012, whichever is the earlier, except that the Company may before such expiry make an offer or agreement which would or might require equity securities to be allotted after such expiry and the Directors may allot equity securities in pursuance of such offer or agreement as if the power conferred hereby had not expired. Dated 13 December 2010 By Order of the Board Walter Roberts Secretary Registered Office: Blackstable House Longridge Sheepscombe Stroud GL6 7QX Notes: 1 A member is entitled to appoint one or more proxies to exercise all or any of the member’s rights to attend, speak and vote on his/her behalf at the meeting. A proxy need not be a member of the Company. If a member appoints more than one proxy to attend the meeting, each proxy must be appointed to exercise the rights attached to a different share or shares held by the member. If a member wishes to appoint more than one proxy and so requires additional proxy forms, the member should contact Capital Registrars on 0871 664 0300 if calling within the United Kingdom or +44 20 8639 3399 if calling from outside the United Kingdom. Lines are open 8:30am – 5:30pm Mon–Fri. Calls to the helpline from within the United Kingdom cost 10 pence per minute (including VAT) from a BT landline. Other service providers’ costs may vary. Call to the helpline from outside the United Kingdom will be charged at applicable international rates. Calls may be recorded and monitored for security and training purposes. A form of proxy for use by members at the Annual General Meeting accompanies this notice. 2 To be effective, the form of proxy and the power of attorney or other authority (if any) under which it is signed, or a notarially certified copy of such authority, must be received by post or (during normal business hours only) by hand at the office of the Company’s Registrars, being Capita Registrars at The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU, not less than 48 hours, excluding non-business days, before the time of the holding of the meeting or any adjournment thereof. 3 Completion and return of the proxy form does not preclude a member from attending and voting at the meeting in person. 4 In the case of joint shareholders, where more than one of the joint holders purports to appoint a proxy, only the appointment submitted by the most senior holder will be accepted. Seniority is determined by the order in which the names of the joint shareholders appear in the Company’s register of members in respect of the joint holding (the first-named being the most senior). 5 To change your proxy instructions simply submit a new proxy appointment using the methods set out above. Note that the cut-off time for receipt of proxy appointments (see above) also apply in relation to amended instructions; any amended proxy appointment received after the relevant cut-off time will be disregarded. If you submit more than one valid proxy appointment, the appointment received last before the latest time for the receipt of proxies will take precedence. 6 In order to revoke a proxy instruction you will need to inform the Company by sending notice in writing clearly stating your intention to revoke your proxy appointment to Company’s Registrars, being Capita Registrars at The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU. In the case of a member which is a company, the revocation notice must be executed under its common seal or signed on its behalf by an officer of the company or an attorney for the company. Any power of attorney or any other authority under which the revocation notice is signed (or a duly certified copy of such power or authority) must be included with the revocation notice. The revocation notice must be received by the Company no later than 48 hours, excluding non-business days, before the time of the holding of the meeting or any adjournment thereof. If you attempt to revoke your proxy appointment but the revocation is received after the time specified then your proxy appointment will remain valid. If you have appointed a proxy and attend the meeting in person, your proxy appointment will automatically be terminated. 7 In accordance with the permission in Regulation 41(1) of The Uncertificated Securities Regulations 2001 (SI 2001 No. 3755), only those holders of ordinary shares who are registered on the Company’s share register at 18.00 hours on 27 January 2011 shall be entitled to attend the above Annual General Meeting (or, in the case of an adjourned meeting, 18.00 hours on the day which is two days before the adjourned meeting) and to vote in respect of the number of shares registered in their names at that time. Changes to entries on the share register after 18.00 hours on 27 January 2011 shall be disregarded in determining the rights of any person to attend and/or vote at the Annual General Meeting. 8 If the Chairman, as a result of any proxy appointments, is given discretion as to how the votes the subject of those proxies are cast and the voting rights in respect of those discretionary proxies, when added to the interests in the Company’s securities already held by the Chairman, result in the Chairman holding such number of voting rights that he has a notifiable obligation under the Disclosure and Transparency Rules, the Chairman will make the necessary notifications to the Company and the Financial Services Authority. As a result, any member holding 3% or more of the voting rights in the Company who grants the Chairman a discretionary proxy in respect of some or all of those voting rights and so would otherwise have a notification obligation under the Disclosure and Transparency Rules, need not make a separate notification to the Company and the Financial Services Authority. 9 Copies of the service agreements and letters of appointment between the Company and its Directors will be available for inspection at the registered office of the Company during usual business hours on any weekday (Saturdays, Sundays and Bank Holidays excluded) until the date of the meeting and also on the date and at the place of the meeting from half an hour before the meeting until the conclusion of the meeting. 40 InfraStrata plc ! Proxy Form InfraStrata plc (The “Company”) (Incorporated and registered in England and Wales with registered number 06409712) Proxy Form for use by shareholders at the Annual General Meeting (“AGM”) of InfraStrata plc (the “Company”) to be held at the offices of Buchanan Communications Limited, 45 Moorfields, London EC2Y 9AE, United Kingdom on Monday 31 January 2011 at 1100 hours. Please read the Notice of the AGM and the accompanying notes carefully before completing this Proxy Form. As a shareholder of the Company you have the right to attend, speak at and vote at the AGM. If you cannot, or do not want to attend the AGM, but still want to vote, you can appoint someone to attend the AGM and vote on your behalf. That person is known as a “proxy”. You can use this Proxy Form to appoint the Chairman of the AGM, or someone else, as your proxy. Your proxy does not need to be a shareholder of the Company. I/We,.................................................................................................................................................................................................................................................... (in BLOCK CAPITALS please) being a Shareholder/Shareholders of InfraStrata plc, appoint the Chairman of the AGM or ........................................................................................................ ...................................................................................................................................................................................................................................................................................................................................... (see note 1) as my/our proxy to attend and, on a poll, to vote for me/us and on my/our behalf as indicated below at the AGM and at any adjournment thereof (see notes 2, 3, 4, 5 and 6 below). Please tick here if this proxy appointment is one of the multiple appointments being made. *For the appointment of more than one proxy, please see note 3. Please clearly mark the boxes below to instruct your proxy how to vote. ORDINARY RESOLUTIONS For Against Vote withheld Discretionary 1 To receive the Report and Accounts for the year ended 31 July 2010 2 To re-appoint Nexia Smith & Williamson Audit Limited as auditors at a remuneration to be determined by the Directors 3 To re-elect Andrew Hindle 4 To re-elect Maurice Hazzard 5 To grant the directors authority to allot shares on the basis set out in the Notice of AGM SPECIAL RESOLUTION For Against Vote withheld Discretionary 6 To disapply pre-emption rights on the basis set out in the notice of AGM Signature(s) ............................................................................................................................................................................................................................................................................... (see note 8) Date ............................................................................................................................................................................................................................................................................................................................... Notes: 1 A proxy need not be a member of the Company but must attend the meeting to represent you. If you wish to appoint as a proxy a person other than the Chairman of the AGM, please delete the words “the Chairman of the AGM” and insert the name of the other person. All alterations made to this Proxy Form must be initialled by the signatory. If you sign and return this Proxy Form with no name inserted in the box, the Chairman of the AGM will be deemed to be your proxy. If the proxy is being appointed in relation to less than your full voting entitlement, please enter the number of shares in relation to which they are authorised to act as your proxy. If left blank your proxy will be deemed to be authorised in respect of your full voting entitlement (or if this Proxy Form has been issued in respect of a designated account for a shareholder, the full voting entitlement for that designated account). 2 To be effective, this Proxy Form (together with any power of attorney or other authority (if any) under which it is signed, or a notarially certified copy of such authority) must be received by post or (during normal business hours only) by hand at the office of the Company’s Registrars, being Capita Registrars at The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU, by no later than 11.00 hours on Thursday 27 January 2011. 3 You are entitled to appoint more than one proxy provided that each proxy is appointed to exercise rights attached to a different share or shares held by you. You may not appoint more than one proxy to exercise rights attached to any one share. To appoint more than one proxy, (an) additional Proxy Form(s) may be obtained by contacting the Registrars helpline on 0871 664 0300 if calling within the United Kingdom or +44 20 8639 3399 if calling from outside the United Kingdom. Lines are open 8:30am – 5:30pm Mon–Fri. Calls to the helpline from within the United Kingdom cost 10 pence per minute (including VAT) from a BT landline. Other service providers’ costs may vary. Call to the helpline from outside the United Kingdom will be charged at applicable international rates. Calls may be recorded and monitored for security and training purposes. Or you may photocopy this form. Please indicate next to the proxy holder’s name the number of shares in relation to which they are authorised to act as your proxy. Please also indicate by ticking the box provided if the proxy instruction is one of multiple instructions being given. All forms must be signed and should be returned together in the same envelope. 4 Completion and return of this Proxy Form will not prevent you from attending in person and voting at the AGM should you subsequently decide to do so. 5 If you wish your proxy to cast all of your votes “For” or “Against” a resolution you should insert an “X” in the appropriate box. If you wish your proxy to cast only certain votes “For” and certain votes “Against”, insert the relevant number of shares in the appropriate box. In the absence of instructions, your proxy may vote or abstain from voting as he or she thinks fit on the specified resolution and, unless instructed otherwise, may also vote or abstain from voting as he or she things fit on any other business (including on a motion to amend a resolution to propose a new resolution or to adjourn the AGM) which may properly come before the AGM. 6 The “Vote Withheld” option is provided to enable you to instruct your proxy to abstain from voting on a particular resolution. A “Vote Withheld” is not a vote in law and will not be counted in the calculation of the proportion of the votes “For” or “Against” a resolution. The “Discretionary” option is provided to enable you to give discretion to your proxy to vote or abstain from voting on a particular resolution as he or she thinks fit. 7 In accordance with the permission in Regulation 41 of the Uncertificated Securities Regulations 1001 (SI 2001 No. 3755), only those holders of ordinary shares who are registered on the Company’s share register at 18.00 hours on 27 January 2011 shall be entitled to attend the above AGM (or 18.00 hours on the day which is two days before the day of any adjourned meeting) and to vote in respect of the number of shares registered in their names at that time. Changes to entries on the share register after 18.00 hours on 27 January 2011 shall be disregarded in determining the rights of any person to attend and/or vote at the AGM. 8 This Proxy Form must be signed by the shareholder or his/her attorney. Where the shareholder is a corporation, the signature must be under seal or signed by a duly authorised representative stating their capacity (e.g. Director, secretary). In the case of joint shareholders, any one shareholder may sign this Proxy Form or may vote in person at the Meeting. If more than one joint shareholder is present at the AGM either in person or by proxy, that one of them whose name stands first in the register of members in respect of the share shall alone be entitled to vote (whether in person or by proxy) in respect of it. 9 To change your proxy instructions simply submit a new proxy appointment using the methods set out above. Note that the cut-off time for receipt of proxy appointments (see above) also apply in relation to amended instructions; any amended proxy appointment received after the relevant cut-off time will be disregarded. 10 In order to revoke a proxy instruction you will need to inform the Company by sending notice in writing clearly stating your intention to revoke your proxy appointment to Company’s Registrars, being Capita Registrars at The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU. In the case of a member which is a company, the revocation notice must be executed under its common seal or signed on its behalf by an officer of the company or an attorney for the company. Any power of attorney or any other authority under which the revocation notice is signed (or a duly certified copy of such power or authority) must be included with the revocation notice. The revocation notice must be received by the Company no later than 48 hours, excluding non-business days, before the time of the holding of the meeting or any adjournment thereof. If you attempt to revoke your proxy appointment but the revocation is received after the time specified then your proxy appointment will remain valid. If you have appointed a proxy and attend the meeting in person, your proxy appointment will automatically be terminated. 11 If you submit more than one valid proxy appointment in respect of the same share or shares, the appointment received last before the latest time for the receipt of proxies will take precedence. If the Company is unable to determine which was received last, none of the proxy appointments in respect of that share or shares shall be valid. Business Reply Licence Number RSBH-UXKS-LRBC Fold 2 here PXS 34 Beckenham Road BECKENHAM BR3 4TU Fold 3 here and tuck in e r e h 1 l d o F InfraStrata plc 80 Hill Rise Richmond Surrey TW10 6UB www.infrastrata.co.uk
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