Informatica
Annual Report 2013

Plain-text annual report

INFRASTRATA plc Annual Report & Financial Statements 2013 TABLE OF CONTENTS CHAIRMAN’S STATEMENT CHIEF EXECUTIVE’S OPERATING REVIEW CORPORATE AND SOCIAL RESPONSIBILITY OPERATIONS OVERVIEW DIRECTORS, SECRETARY, ADVISORS AND SHAREHOLDER INFORMATION REPORT OF THE DIRECTORS - DIRECTORS OF THE COMPANY - CORPORATE GOVERNANCE - DIRECTORS RESPONSIBILITIES INDEPENDENT AUDITOR’S REPORT FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS LETTER FROM CHAIRMAN WITH NOTICE OF AGM NOTICE OF ANNUAL GENERAL MEETING PROXY FORM WITH NOTES 3 4-8 8 9-12 13 14-21 16-18 18-20 21 22 23-28 29-56 57-58 59-60 61-62 2 INFRASTRATA plc CHAIRMAN’S STATEMENT Last year I reported on your Company’s successful transition from a single project gas storage development business to one with an increasing focus on oil and gas exploration. In 2013 our small and dedicated management team has made considerable progress further mitigating delivery risk associated with each of our three major projects - the exploration licences located in Country Antrim, Northern Ireland (PL1/10) and Dorset (P1918) plus the Islandmagee natural gas storage project in Northern Ireland. This has been achieved against a background of increasing public scrutiny and legislative regulation on-shore in the UK, which has had the inevitable consequence of creating some delay in bringing projects to maturity. Although the availability of new funding for oil and gas exploration on this scale has also been disappointing across the entire sector during this period I am pleased to report that continued shareholder support has enabled the company to weather the delays and remain well placed to face the coming year. In Northern Ireland on licence PL1/10 we are at an advanced stage of securing the necessary consents and approvals to drill having earlier identified a suitable site for a first exploration well and engaged with the landowners. The prospectivity of this licence is very exciting indeed, offering the potential for very significant upside in shareholder value. We have made tremendous progress on the offshore Dorset licence P1918 where Dorset County Council resolved to grant planning permission for a first exploration well after year end. We plan to drill from an on-shore location at California Quarry to the offshore Purbeck Prospect. The licence is in an area where successful exploration has been carried out in the past and there is a proven petroleum source. On both our exploration projects we have now reached a stage where we can be confident that subject to successful completion of funding arrangements we can look forward to drilling the wells during 2014. This may be later than we had originally anticipated but the opportunity to unlock significant shareholder value on each remains undiluted. We have also progressed the Islandmagee natural gas storage project in Northern Ireland, funded by BP Gas Marketing since early 2012, with the intention of disposing of an interest in the project when a new developer to complete the construction has been identified. An issue that continues to hinder progress on this project is lack of confirmation of the cross-border regulatory regime within which the facility will operate. Once received this will trigger drilling of the first well and that in turn will move us towards the intended disposal of an interest in the project. In this context it was, however, extremely encouraging to see the project identified as being of significance in the broader European context when it was listed as a Project of Common Interest by the European Commission and was then prequalified for potential debt guarantee support under HM Treasury’s UK Guarantee Scheme. These are both very significant elements in enhancing the attractiveness of the project to potential investors. Your Company’s priorities remain focussed upon the delivery of value to shareholders on each of our three main projects in the short-term. Strategically, we are also turning our minds to the future and the longevity of our business. The abilities and experience of our management team are unique and we believe they offer a real advantage through the selection and assessment of exploration opportunities and the hands-on management of the pre-drilling project programme to bring a project to maturity far quicker than would otherwise be the case. New business would ultimately require a reinforced management team and reliable source of funding to pursue new opportunities. We will keep shareholders informed as our thoughts develop on this subject and in the meantime the Board is grateful for their forbearance and continued support. I would like to conclude by offering my thanks to Andrew Hindle and the rest of the executive team for their tremendous effort and achievements during the year. I would also like to record my thanks to Craig Gouws who was CFO of the Company from inception in 2007 until his departure in September 2013 to live overseas. Stewart McGarrity was appointed Finance Director in September 2013 and has been very quick to engage with Andrew Hindle and the team in driving our programme of work forward. Ken Ratcliff, Non-executive Chairman 2 December 2013 INFRASTRATA plc 3 CHIEF EXECUTIVE’S OPERATING REVIEW InfraStrata has continued to refocus its activities on oil and gas exploration in its two operated licences within the United Kingdom, County Antrim in Northern Ireland and Dorset in Southern England. The Group also has non-operated interests in exploration licenses in Hampshire, Dorset and East Midlands through associated companies Corfe Energy Limited (“Corfe”) and Brigantes Energy Limited (“Brigantes”). The Company has also been engaged in the development of a gas storage project in County Antrim in Northern Ireland with a view to realising fair value for our interest in the project as soon as practicable. InfraStrata works alongside strong and experienced partners in all projects and the Company’s small management team is supported by a highly effective network of service delivery specialists. During the past year significant progress has been made on all our projects and, having effectively managed a number of challenges to the programme on each of them, we now look forward to a busy 2014 during which we expect to see the drilling of two exploration wells and one gas storage well. A detailed review of the Group’s business is provided below. OIL AND GAS EXPLORATION County Antrim - PL1/10 Petroleum Licence PL1/10 (Central Larne - Lough Neagh Basin) was awarded in March 2011 by the Northern Ireland Department of Enterprise, Trade and Investment (“DETI”). The five year licence covers an area of 663 square kilometres over what the Company believes is a very prospective largely unexplored sedimentary basin. Following the sale of a further 5% interest in the licence to our associated company Brigantes (40% owned by InfraStrata) announced in March 2013, InfraStrata has a direct operated interest of 25% and is now carried in respect of all but 10% of the costs to drill the first exploration well and is seeking a further farmout to complete the funding of the well costs. Brigantes now holds a 45% interest in the license – resulting in an overall net licence interest for InfraStrata of 43%. The other partners in the licence are Cairn Energy (20%) and Terrain Energy (10%). The Larne-Lough Neagh Basin is a SW-NE trending Permo-Triassic Basin, overlying an older Carboniferous sequence. The basin has historically received little attention from explorers, primarily due to the thick development of Palaeocene Antrim Flood Basalts overlying the target horizons. This has been a barrier to effective seismic imaging but with the recent technological advances in data processing, exploration in the basin is now entering an exciting phase. Only one exploration well has historically been drilled in the centre of the basin covered by the PL1/10 licence, back in 1971, before any seismic data had been acquired. Drilling in the area over the past 40 years has largely been for coal exploration and geothermal feasibility. However this has confirmed the development of good sandstone reservoirs and seals within the thick Permo-Triassic sedimentary section. Oil-prone source rocks have been identified on the margins of the Basin within the Carboniferous section, and gas-prone coals have also been mined to the west in the Coalisland area, and along the North Antrim coast. The basin is also along trend from the Midland Valley of Scotland where oil and gas prone rocks of Carboniferous age are well known. It is anticipated that in the more deeply buried areas of the Larne-Lough Neagh Basin the Carboniferous will have been buried sufficiently to generate oil and possibly also gas. Substantial progress has been made in the de-risking of the Larne-Lough Neagh Basin play following two seismic surveys undertaken by InfraStrata in 2011 and 2012 acquiring over 400km of new 2D seismic data which revealed a basin very similar in structural style to the prolific East Irish Sea Basin with a large number of undrilled structures. In March 2013, the Company published a prospectivity review of the PL1/10 license prepared by project geoscience Merlin Energy Resources Limited (“Merlin”). Merlin has identified combined un-risked P50 prospective resources on the PL1/10 licence in the Triassic and Permian sandstone reservoir intervals of over 450 million barrels of oil (“mmbo”) (net InfraStrata over 194 mmbo at 43%). During the year a suitable site from which to drill the well was selected and substantial and satisfactory progress made in both negotiations with the landowner and the progression of the necessary consents. The un-risked P50 prospective resources targeted by the first exploration well have been estimated by the joint venture at 40 mmbo (net InfraStrata 17 mmbo at 43%), an increase on the previous estimate of 25 mmbo following further detailed mapping of the seismic data. Preparation for procurement of the drilling activities is progressing with the final programme dependant on completion of consents and farmout activities. 4 INFRASTRATA plc CHIEF EXECUTIVE’S OPERATING REVIEW The PL1/10 partners submitted an application for an adjacent prospective area in the 27th UK Offshore Round in 2012 and the licence was offered by the UK Department of Energy and Climate Change (“DECC”) on 29 November 2013. Un-risked P50 prospective resources of 150 mmbo have been identified within the application area. Dorset - P1918 Petroleum licence P1918 comprises Blocks 97/14, 97/15 and 98/11 and was awarded in February 2012 by the DECC. Following the farmout of a further 8% interest in the licence to our associated company Corfe (40% owned by InfraStrata) in August 2012, InfraStrata now has a direct operated 70% interest and Corfe holds a 20% interest in the licence – resulting in an overall net licence interest for InfraStrata of 78%. This is subject to a net profits interest equivalent to 3.75% on the whole licence in favour of eCORP Oil & Gas UK Limited (“eCORP”). The other partner in the licence is Cairn Energy with a 10% interest. The Company is seeking a further farmout to complete the funding of the costs of the first exploration well. Within and immediately adjacent to the licence area there are a number of active oil and gas seeps. A total of seven wells have previously been drilled within the licence area, including the first UK offshore well in 1963 on Lulworth Banks in Block 97/14. Six of these wells encountered oil or gas shows and three flowed oil or gas on test. The advances in technology and higher petroleum prices mean that we are hopeful of being able to develop one or more of the existing discoveries profitably as a base from which to appraise the full potential of the area. The prospective resources on the license have been estimated by the joint venture at 93 mmbo (net InfraStrata 73 mmbo at 78%). The focus for a first exploration well is the offshore extension of the Purbeck Prospect, an anticline in the east of the licence, up dip of the onshore well Southard Quarry-1, which encountered oil and gas shows within Jurassic and Triassic intervals. Only the Sherwood was tested but failed to flow. The Purbeck Prospect immediately overlies the kitchen area for the giant Wytch Farm oilfield. This large structure lies largely within Licence P1918. During the year we reprocessed 156km of onshore and offshore 2D data to further define the sub-surface target location. In June 2013, ocean divers collected gas samples from an active gas seep above the Purbeck Prospect. Isotopic analysis of the gas indicates that the gas was generated at the base of the oil window as expected. Following two public information events held in June 2013, a planning application for drilling and testing of the California Quarry-1 well was submitted to Dorset County Council (“DCC”) in July 2013 and DCC resolved to grant planning permission for the well on 29 November 2013, subject to conditions in the normal course of business. The well, to be drilled from onshore to offshore within licence P1918 will target prospective resources, within licence, estimated by the joint venture at 10 million barrels of oil equivalent “mmboe” (net InfraStrata 8 mmboe at 78%). The planning conditions preclude construction or drilling activities between March and September and consequently we currently anticipate the well will be drilled in late 2014. The P1918 partners submitted an application for adjacent prospective areas in the 27th UK Offshore Round in 2012 and the licence was offered by DECC on 29 November 2013. Non-operated exploration interests The Company has non-operator exploration interests via its shareholdings in associated companies Corfe and Brigantes as follows: • PEDL201 (Leicestershire) - Corfe 12.5% interest (net InfraStrata 5%) with planning permission for a first well (Burton on the Wolds-1) expected to be drilled during 2014 and targeting prospective resources estimated by the joint venture of 4 mmbo (net InfraStrata 0.2 mmbo) • PEDL237/PL090 (Dorset) – Corfe 12.5% interest (net InfraStrata 5%) expecting to complete interpretation of seismic surveys in 2014 • PEDL 070 (Hampshire) – Corfe and Brigantes combined 10% (net InfraStrata 4%). Avington field currently producing around 70 barrels of oil per day. INFRASTRATA plc 5 CHIEF EXECUTIVE’S OPERATING REVIEW GAS STORAGE Islandmagee project – County Antrim Islandmagee Storage Limited (“IMSL”) is an independent Northern Ireland registered company and is a joint venture between a wholly-owned subsidiary of InfraStrata plc (65% shareholder) and Moyle Energy Investments Limited, part of the Mutual Energy group of companies (35% shareholder). During 2012, IMSL was granted planning permission for a natural gas storage facility at Islandmagee, County Antrim and a Gas Storage Licence from the Utility Regulator. IMSL plans to create seven caverns, capable of storing up to a total of 500 million cubic metres of gas in Permian salt beds approximately 1,500 metres beneath Larne Lough. The project has unique advantages including being immediately adjacent to gas and electrical infrastructure, the salt being at an optimum depth for gas storage and close to a water source for solution mining of the salt to create the caverns. The project is also designed to access the extrinsic value of the gas storage market in the UK and Ireland by being able to respond to short-term volatility. The proposed gas storage facility will make a significant contribution to the security of gas supplies for the whole island of Ireland. Ireland is dependent on gas for around 65% of its electricity generation with 90% of the island’s gas imported via a single pipeline from Scotland. The facility, when complete, will store enough gas to satisfy Northern Ireland’s demand for around 60 days. Northern Ireland has a target to generate 40% of electricity from renewables by 2020 – this will primarily be achieved through wind-powered generation. A shift to renewable energy sources is likely to result in an increasing reliance on gas-fired power stations to support the inherently intermittent supply from wind. Rapid cycle gas storage facilities, such as this planned project, will be important to respond to the increasingly fluctuating demands for gas to fuel this electricity generation requirement. The estimated timescale for the project is approximately seven years, with the first cavern becoming operational after five years. The drilling of a well is planned, subject to confirmation on the regulatory framework for the project, to collect samples of the Permian salt to provide the final design parameters for the caverns. In January 2012 IMSL entered into agreements with BP Gas Marketing Limited (“BPGM”) for the appraisal of the project and the option for BPGM to acquire a 50.495% equity interest in IMSL. Under the terms of a Joint Appraisal Agreement, BPGM is funding the activities necessary to develop the project up to the point where a decision can be made on whether to proceed with its detailed engineering design. During 2013, work was substantially completed on securing the land rights necessary for the construction and operation of the facility and applications were submitted for the necessary marine and associated environmental licences to the Department of Environment and Northern Ireland Environment Agency. The well site construction for the Islandmagee-1 gas storage well commenced in May 2013 and was completed shortly after the financial year end. IMSL had received £1,427,277 from BPGM at 31 July 2013 under the Joint Appraisal Agreement. The next step is to drill the well, which will be fully funded by BPGM and will provide the core samples of Permian salt to confirm the depth, thickness, rock mechanical properties and composition of the salt to finalise the design of the caverns and will complete the projects credentials and facilitate the realisation of InfraStrata’s interest in IMSL. Procurement of the well will commence once the delayed regulatory framework for the project has been confirmed. We now expect the well to be drilled in mid-2014. On 16 October 2013, we were delighted to announce that the importance of the project had been acknowledged by the European Commission which had given it Project of Common Interest (“PCI”) status requiring Member States to give priority and quick passage in the permitting process and cooperation in its development. It also means the project is eligible to apply for significant financial support from the European Union in the form of direct grant or other forms of financial backing from institutions such as the European Investment Bank. The project has also been ‘pre-qualified’ (deemed eligible for support) under the Treasury’s ‘UK Guarantee Scheme’ which is making cover of up to £40 billion available to ensure that key infrastructural projects across all sectors in the UK, those that really ought to go ahead, are not held back due to any difficulty in obtaining finance. Under the scheme the Government will guarantee a certain proportion of the capital required to fund projects, so that banks can lend more freely in today’s risk-averse lending environment. Both of these developments give us further confidence that the full development of the project can commence within reasonably short timescales. The assets and liabilities of IMSL have been classified as held for sale in the Group’s balance sheet since inception of the Joint Appraisal Agreement in January 2012, in firm expectation that BPGM will exercise the option to acquire a controlling interest in IMSL and at that point InfraStrata will seek the disposal of an interest in the project to a new partner who will take the full development of the project forward. 6 INFRASTRATA plc CHIEF EXECUTIVE’S OPERATING REVIEW Portland project - Dorset Last year we reported that the poor seasonal gas storage market, a different market to that being targeted by the Islandmagee project, meant that it is unlikely that the Portland gas storage project will be realised in the near term and we fully impaired our historical investment in the project, with the exception of data obtained from seismic surveys and drilling, which are key for the development of the petroleum exploration play. With the decision not to pursue the gas storage project, the Portland site leases were terminated at their break date on 1 June 2013. The Company, through its subsidiary, Portland Gas Transportation Limited, will continue to renew the gas pipeline construction authorisation with DECC as a potential means of exporting future gas production under the P1918 licence. The Company will continue to examine this and other opportunities which may arise to realise some value from our historic investment in the project. In June 2012 we restructured the funding obligations of eCORP, formerly joint venture partners in the Portland project, into an obligation to provide a further US$2.88 through monthly subscriptions of US$120,000 for preference shares in our subsidiary Portland Gas Limited. In return eCORP will earn a 7.5% share of the future profits from the Portland project. Amounts received from eCORP during the financial year totalled US$1,440,000 and the balance due of US$1,200,000 is included on the Group balance sheet at 31 July 2013. FUNDING InfraStrata continues to have no debt and to operate a funding model for our projects which manages risk for our shareholders by attracting investment by quality partners and thereby minimising our own commitments to pay the costs of exploration and other project development costs. The sale of a 5% interest in licence PL1/10 to Brigantes (40% owned by InfraStrata) announced in March 2013 raised £150,000, together with a commitment by Brigantes to carry 5% of InfraStrata’s share of the first exploration well. Gross aggregate expenditure during the year on the PL1/10 and P1918 licences was £392,195 of which InfraStrata’s share was £146,128. We are currently in the process of seeking further partners to fund the balance of InfraStrata’s share of the costs of drilling the first exploration well on each of these licences. The Group’s associated companies, Corfe and Brigantes are self-funded and therefore we have no commitments to fund exploration costs on our non-operated exploration interests. InfraStrata director William Colvin represents the Company’s interests on the Board of each of these associated companies. BPGM fully funded the expenditure on the Islandmagee gas storage project amounting to £951,588 during the financial year under the terms of the Joint Appraisal Agreement and are expected to continue funding the development of the project through the drilling of the well. The process of securing new partners for the Islandmagee gas storage project, including a lead developer for the main construction of the project, has been initiated with expressions of interest received from a number of potential investors. The next focused approach to potential new partners will be following the drilling of the first well in 2014. Securing a new partner should present the opportunity to realise cash for all or part of InfraStrata’s 65% shareholding in IMSL. Securing a new partner and commencement of construction would also trigger the payment to InfraStrata of approximately £1.3m in settlement of partner Mutual Energy’s share of the shareholder’s loan account to IMSL. As explained above, eCORP continues to subscribe for preference shares in our subsidiary Portland Gas Limited. Aggregate receipts during the financial year were £899,608 (US$1,440,000). This has offset the payments made in respect of the Portland site leases totalling £750,000 during the financial year. These leases were terminated at their break date on 1 June 2013. Post year end, on 23 September 2013, the Company completed the placing of 8,000,000 new ordinary shares at 10p per share and raised £800,000 before expenses. The proceeds of the Placing have improved the Company’s balance sheet and enable the Company to be flexible about the funding of exploration costs in advance of the completion of the farmout of exploration well costs. Any balance of the Placing proceeds will be used for contingency and general working capital purposes. INFRASTRATA plc 7 CHIEF EXECUTIVE’S OPERATING REVIEW OUTLOOK The Group’s activities during the year ended 31 July 2013 and since the year end have been focused on the activities which de-risk our three main projects including the delivery of the various agreements with third parties, obtaining consents and approvals and the continuing assessment and refinement of the prospectivity within our exploration licence areas. Management’s focus going into 2014 now switches to the completion of the farmout process on PL1/10 and P1918 and the procurement and drilling of exploration wells on each these two exploration licences as well as the well at the Islandmagee gas storage project. Each of our main projects has the potential to lead to a steep change in valuation and future opportunities. Andrew Hindle, Chief Executive Officer 2 December 2013 CORPORATE AND SOCIAL RESPONSIBILITY Through the work of the Portland Gas Trust, InfraStrata continues to support local communities in its area of operation. The Trust is a registered charity that supports initiatives around education, geology and the environment. Throughout the year the Trust has continued to support local projects both financially, and in kind, through Rachel Barton, Manager of the Trust. Subject to obtaining full project funding, Islandmagee Storage Limited 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. The company is continuing discussions with local residents and community groups in the Larne Lough area with regard to ideas and initiatives which could be funded through the proposed Trust. Local businesswoman, Judith Tweed, is the company Community Liaison Consultant; Judith is collating a wide range of ideas for potential funding. 8 INFRASTRATA plc PL 1/10 InfraStrata (Operator) - 43%*, Brigantes Energy Limited - 45%, Cairn Energy - 20%, Terrain Energy Limited - 10% * InfraStrata holding comprises 25% direct interest together with an additional net 18% interest via shareholding in Brigantes Energy Limited The licence covers 663 km2 in the Larne- Lough Neagh Basin which has been largely overlooked by the oil and gas industry, primarily due to the presence of extensive surface flood basalts at or near the surface. By applying newer techniques in seismic processing, InfraStrata has been able to image below the basalts and this has revealed a basin with a large number of prospective undrilled structures. Key Features • Over 20 high-grade prospects have been identified within the licence and 27th Round Application area with combined prospective resources over 600 mmbo • Primary targets are the Triassic Sherwood Sandstone and the Permian Collyhurst Sandstone, with potential deeper reservoir targets in the Carboniferous sandstones First prospect to drill has estimated P50 prospective resources of 40 mmbo Site identified for first exploration well • • Forward Plan • Drilling of first exploration well Project Overview During 2011 and 2012, InfraStrata acquired over 400km of new 2D seismic data which revealed a basin very similar in structural style to the prolific East Irish Sea Basin. Existing geothermal wells have confirmed the development of good sandstone reservoirs and seals within the thick Permo-Triassic sedimentary section. Oil-prone source rocks have been identified on the margins of the basin within the Carboniferous section, and gas-prone coals have also been mined to the west. As with any new exploration province anywhere, the presence of a working petroleum basin remains the highest risk of the play and can only be resolved by drilling. Success with the first well would open up a new play fairway within the licence with multiple reservoir targets in multiple prospects. INFRASTRATA plc 9 P1918 InfraStrata (Operator) - 78%*, Corfe Energy Limited - 20%, Cairn Energy - 10% * InfraStrata holding comprises 70% direct interest together with an additional net 8% interest via shareholding in Corfe Energy Limited The licence comprises three offshore Blocks 97/14, 97/15 and 98/11, covering an area of 584 km2 in the Wessex Basin adjacent to the giant Wytch Farm oilfield. There are existing undeveloped oil and gas discoveries and active oil and gas seeps within P1918 licence. Prospects have been identified with combined prospective resources over 90 mmboe. Key Features • Initial focus on the offshore extension of the Purbeck Anticline Project Overview A total of seven wells have previously been drilled within the licence area, six of these wells encountered oil or gas shows and three flowed oil or gas on test. The InfraStrata led joint venture purchased approximately 3,500 kilometres of existing 2D seismic data, and three existing 3D surveys, within or adjacent to the licence. A total of 156 km 2D seismic and 33.5 km2 3D seismic has been reprocessed and the interpretation of the data will be completed in 2014. The drilling of the exploration well in 2014 will target a prospect with gross 10 mmboe within the P1918 licence. Additional prospects with combined prospective resources over 70 mmboe will be further evaluated in 2014. • Planning permission approved in November 2013 for a wellsite to drill the Purbeck Prospect onshore to offshore InfraStrata owns rights to construct a gas pipeline connection from Portland to NTS • Forward Plan • Interpretation of reprocessed seismic data to further define the sub-surface target location • Drilling of the California Quarry-1 exploration well 10 INFRASTRATA plc NON-OPERATOR LICENCES InfraStrata interest via 40% shareholding in Corfe Energy Limited and Brigantes Energy Limited InfraStrata presently has an interest in three onshore licences covering a total of 513 km2: • PEDL 201 (Corfe Energy Limited -12.5%) located in the East Midlands Petroleum Province • PEDL 237/ PL090 (Corfe Energy Limited -12.5%) located in the Wessex Basin • PEDL 070 (Corfe Energy Limited - 5%, Brigantes Energy Limited – 5%) located in the Weald Basin Key Features • Planning permission granted in • July 2013 for drilling Burton on the Wolds well in PEDL 201 Successful acquisition of a 3D seismic survey covering an area of approximately 68.5 km2 in PEDL237/PL090 Forward Plan • Drilling of the Burton on the Wolds • exploration well in 2014 Interpretation of acquired 3D seismic data in PEDL237/PL090 Project Overview The Burton on the Wolds prospect has been mapped using both newly acquired and vintage 2D seismic data. The prospect covers an area of approximately 1.3 km2 with target prospective resources of 4 mmbo. A number of structural prospects and leads have been mapped using existing vintage 2D seismic data within PEDL237/PL090. Interpretation of the acquired 3D seismic survey will further define these prospects and identify locations for future exploration drilling. PEDL070 contains the Avington Field which currently produces c. 70 bopd (no decline). SOURCE: Egdon Resources plc INFRASTRATA plc 11 ISLANDMAGEE PROJECT InfraStrata - 65%, Moyle Energy Investments Limited - 35% The Islandmagee gas storage project has a number of advantages which enhance its commercial case, including: • • • being immediately adjacent to gas and electrical infrastructure, the salt being at an optimum depth for gas storage being close to a water source for solution mining of the salt to create the caverns The project is designed to access the extrinsic value of the gas storage market in the UK and Ireland by being able to respond to short-term volatility. Key Features • A 500mcm (18 bcf ) fast-acting salt gas storage facility • Project is strategically important for island of Ireland & GB • Granted Project of Common Interest status by EU in October 2013 • BP Gas Marketing have an option to acquire 50.495% following completion of an agreed work programme which includes the drilling of a well • Planning permission and a gas storage licence granted in October 2012 • HM Treasury stated in October 2013 that the project is eligible for the £40bn UK Guarantee Scheme Forward Plan • Clarification on the regulatory framework for the project • Drilling of the Islandmagee-1 appraisal well Project Overview The project plans to create seven caverns within a layer of Permian salt greater than 200 metres thick which is located approximately 1,500 metres beneath Larne Lough. Samples of the salt will be obtained from the drilling of the appraisal well which will provide final design parameters for the caverns. The estimated timescale for the project is approximately seven years, with the first cavern becoming operational after five years. The facility will make a significant contribution to the security of energy supplies as well as helping to meet the greater short-term demands placed on the gas network to support increased intermittent renewable generation. 12 INFRASTRATA plc DIRECTORS, SECRETARY, ADVISORS AND SHAREHOLDER INFORMATION Directors Kenneth Maurice Ratcliff (Non-executive Chairman) Andrew David Hindle (Chief Executive Officer) Stewart McGarrity (Finance Director) - Appointed 25 September 2013 Craig Gouws (Chief Financial Officer) - Resigned 25 September 2013) Walter Rookehurst Roberts (Legal and Commercial Director) Maurice Edward Hazzard (Non-executive Director) William Colvin (Non-executive Director) Company secretary Walter Rookehurst Roberts Registered Office Principal office Auditor Tax advisors Registrars Nominated advisor and broker Solicitors Bankers Investor and public relations 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 LLP 1 Bishops Wharf, Walnut Tree Close Guildford Surrey, GU1 4RA Capita Asset Services The Registry 34 Beckenham Road Beckenham Kent, BR3 4TH Arden Partners plc 125 Old Broad Street London, EC2N 1AR Field Fisher Waterhouse LLP 35 Vine Street London, EC3N 2AA Bank of Scotland plc 33 Old Broad Street London, EC2N 1HZ Buchanan Communications Limited 107 Cheapside London, EC2V 6DN INFRASTRATA plc 13 REPORT OF THE DIRECTORS FOR THE YEAR ENDED 31 JULY 2013 The directors have pleasure in presenting their report and audited financial statements for the year ended 31 July 2013. PRINCIPAL ACTIVITY AND REVIEW OF BUSINESS The principal activities of the Group throughout the year were petroleum exploration and the development of a sub-surface gas storage facility. General InfraStrata plc is incorporated and domiciled in England and Wales. Business review During the year the Group continued to develop its petroleum exploration and gas storage business. A review of the Group’s business and funding arrangements during the financial period and its outlook for the future is given in the Chairman’s statement and the Chief Executive’s operating review on pages 3 to 8. Health, safety and environment There were no reportable health, safety or environmental incidents during the financial year. Key performance indicators Key performance indicators, both financial and non-financial, are used by the Board to monitor progress against predetermined objectives: Objective Definition Strategy We endeavour to develop projects in accordance with project schedules Predetermined and agreed project development schedules adhered to including submission of planning applications Delivery of projects to sensible time schedules. Submit and achieve planning permission approvals in a cost effective and timely manner We seek to identify new project opportunities Identify new project opportunities which are expected to increase shareholder value once development commences Develop a balanced portfolio of projects We aim to control general and administrative costs keeping costs as low as possible Management and control of group general and administrative costs Maintain low cost of Group general and administration expenditure and conserve cash to the extent possible We aim to prudently manage Group working capital Management and control of working capital ensuring liquidity as is necessary Management of working capital to ensure liquidity to develop projects as planned in development schedules Our Group KPIs provide a measure of our progress and performance against our strategy. 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, management of general and administrative costs and Group working capital management. The KPIs are reported at Board meetings. Measurement entails analysing variance between expected and actual progress, financial position and financial performance. Relevant performance measures for 2013 include: • The prudent application of available cash resources. The cash balance at the financial year end was £774,745 (£948,037 including cash resources classified as held for sale). 14 INFRASTRATA plc REPORT OF THE DIRECTORS FOR THE YEAR ENDED 31 JULY 2013 • Net corporate and administration expenditure was once again very well controlled during the financial year - excluding gas storage lease costs and transaction legal fees these were £1,054,008 (2012: £1,068,547). • No new ordinary shares were issued for cash during the financial year. The proceeds of the Placing in September 2013 have improved the Company’s balance sheet and enable the Company to be flexible about the funding of exploration costs in advance of the completion of the farm-out of exploration well costs eCORP continued to subscribe for the agreed $2,880,000 preference shares in Portland Gas Limited during the year. • • The Islandmagee Storage Limited funding transaction with BPGM progressing. • PL1/10 well site negotiations progressed to expectation. • P1918 well site lease secured and planning application submitted since the year end. Principal risk factors The directors are responsible for the effectiveness of the Group’s risk management activities and internal control processes. As a participant in the gas storage development and upstream oil & gas industries, the Group is exposed to a wide range of business risks in the conduct of its operations. The Group is exposed to financial, operational, strategic and external risks which are further described below. These risks are not exhaustive and additional risks or uncertainties may arise or become material in the future. Any of these risks, as well as other risks and uncertainties in this document, could have a material effect on the Group’s business. Financial risks - failure to meet financial obligations • Cost inflation and over runs • Access to working capital Operational risks - damage to shareholder value, environment, personnel or communities caused by operational failures • Loss of key employees • Delays in planning application awards • • • Once hydrocarbon production projects become operational there will be an increased environmental risk (for example Sustained exploration failures Failure of third party services hydrocarbon spillage) Failure to be seen to be acting in a socially responsible manner and/or failure to maintain good local community relations. • Future deterioration of capital markets, reducing ability to raise new equity funding Strategic and external risks - failure to manage and grow the business while creating shareholder value • • Misalignment with partners • Shareholder sentiment • Mix of storage and upstream interests • Corporate governance failings There is no assurance that the Group’s exploration and development activities will be successful. The directors seek to manage and mitigate these risks by developing a balanced portfolio of projects, recruitment and retention of suitably skilled personnel, through compliance with applicable legislation and careful management of cash resources and requirements. The successful progression of the Group’s activities depends not only on technical success, but also on the ability of the Group to obtain appropriate financing through equity financing, farm downs, disposing of interest in projects or other means. If the Group is unable to obtain additional financing needed to fulfil its planned work programmes some interests may be relinquished and/or the scope of operations reduced. Share capital On 14 June 2013 the Company issued 500,000 new ordinary shares of 10 pence each at 10 pence per share to Andrew Hindle under a salary sacrifice agreement which conserved £50,000 of the Company’s cash resources. Following the financial year end on 23 September 2013 the Company issued 8,000,000 new ordinary shares of 10 pence each at 10 pence per share to raise £800,000, before expenses, to institutional and other shareholders. Following the Placing, the Company has 99,491,599 ordinary shares in issue. Outlook An outlook for the Group’s business and funding arrangements is given in the Chairman’s statement and the Chief Executive’s operating review on pages 3 to 8. INFRASTRATA plc 15 REPORT OF THE DIRECTORS FOR THE YEAR ENDED 31 JULY 2013 RESULTS AND DIVIDENDS The 2013 financial year was an active period for the Group during which cash investment in projects was largely funded by partners. BPGM funded Islandmagee Storage Limited to the extent of £951,588 during the financial year bringing their total investment to £1,427,277. The Group recognised cash revenue of £62,428 (2012: £253,932) which arose from activities including operatorship income, consulting and technical services. Revenues in 2012 included £150,000 received for services to a former joint venture which is now a subsidiary. These revenues offset corporate and administrative expenditure. Corporate and administrative expenditure, before gas storage lease costs and transaction legal fees of £750,774 (2012: £190,659), was £1,054,008 (2012: £1,068,547). The Group incurred a loss after tax of £1,642,760 (2012: £19,727,362). The loss in 2012 included net losses of £18,420,125 relating to the impairment and restructure of the Portland gas storage project as detailed in note 16 to the financial statements. The loss for the year, together with the balance of £19,865,967 loss brought forward leaves a retained loss of £21,508,727 to be carried forward. The directors do not recommend the payment of a dividend (2012: £nil). In accordance with international financial reporting standards, the Islandmagee Storage project assets and liabilities continue to be classified as a disposal group and they are shown as held for sale and in the consolidated statement of financial position - note 21. As a corollary, the net loss attributable to this project company, representing costs that could not be capitalized, has been classified as arising from discontinued operations in the statement of comprehensive income. CHARITABLE AND POLITICAL DONATIONS Portland Gas Trust is a charity which supports initiatives focusing on the environment, geology and education with its activities centered on Portland, Dorset. In prior years, the Group supported the Trust by incurring and paying costs on its behalf. In 2013, the Group waived the resultant loans to the Trust which amounted to £125,708. As these loans had previously been impaired, no expense was recognised in the year in respect of them. During 2012 charitable donations were £250. No donations were made for political purposes (2012: £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 13 (2012: 26) 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 24 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 (resigned 25 September 2013) S McGarrity (appointed 25 September 2013) W R Roberts Non-executive Directors K M Ratcliff M E Hazzard W Colvin 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 and the particulars of share options granted to directors are detailed in note 6 to the financial statements. 16 INFRASTRATA plc REPORT OF THE DIRECTORS FOR THE YEAR ENDED 31 JULY 2013 DIRECTORS OF THE COMPANY Directors of the Company at the date of this Annual Report and their abridged CVs are as follows: Ken Ratcliff (Non-Executive Chairman) Ken Ratcliff, JP, BSc., FCA, (63) is a Chartered Accountant with extensive finance and business experience. He is currently College Accountant at Epsom College 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. Andrew Hindle (Chief Executive Officer) Andrew Hindle, BSc., MSc., PhD, FGS, CGeol, (51) is a highly experienced geologist with over 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 petroleum 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, remained a non-executive director of Egdon until February 2011. Andrew has been the Chief Executive of the Group since 2005. Andrew is also a director of Geofocus Limited and Toffee Limited. Stewart McGarrity (Finance Director) Stewart McGarrity, BCom. CA, (52) has 27 years of UK and international experience in both senior finance and commercial roles. Following qualification as a Chartered Accountant, Stewart spent a number of years with Deloitte in Zimbabwe and Hong Kong in senior audit and technical roles. Stewart then held a senior financial position with the Airport Authority in Hong Kong during the construction and commercial development of Hong Kong International Airport. Since returning to the UK he has worked with property investor and developer MEPC plc, based in London as Group Financial Controller and with tie Limited, in Edinburgh, developing and maintaining the business case for Edinburgh Trams and other transport projects. Stewart joined InfraStrata in July 2013 as Financial Controller. Walter Roberts (Legal Director and Company Secretary) Walter Roberts, MA (Cantab.), (62) 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. Maurice Hazzard (Non-Executive Director) Maurice Hazzard, (75) 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. William Colvin (Non-Executive Director) William Colvin, BCom. CA, (55) is a Chartered Accountant and has wide experience in the oil and gas, and healthcare sectors in senior management and board positions of large corporations. He was Finance Director of British-Borneo Oil & Gas Plc from 1992 to 1999. From 1990 to 1992, William was Finance Manager/Director at Oryx UK Energy. From 1984 to 1989, he worked in a variety of financial roles for Atlantic Richfield (ARCO) Inc. He qualified as a Scottish Chartered Accountant in 1982 and holds a Bachelor of Commerce degree from the University of Edinburgh. William is currently a non-executive director of Energy XXI, the independent oil & natural gas exploration and production company. DIRECTORS EMOLUMENTS The directors’ emoluments are disclosed in note 6 to the Financial Statements. INFRASTRATA plc 17 Non-executive Directors K M Ratcliff M E Hazzard W Colvin DIRECTORS AND SUBSTANTIAL SHAREHOLDINGS The directors of the Company held the following beneficial shareholdings as at 30 November 2013. Ordinary shares of 10p each Ken Ratcliff Andrew Hindle Stewart McGarrity (appointed 25 September 2013) Craig Gouws (resigned 25 September 2013) Walter Roberts Maurice Hazzard William Colvin Number 104,000 7,422,625 - 277,226 1,132,378 19,326 272,727 % 0.10 7.46 - 0.28 1.14 0.02 0.27 The Company has received notification of the following interests in 3% or more of the Company’s issued share capital at 30 November 2013. The percentages presented are at the date of notification. Ordinary shares of 10p each JP Morgan Asset Management Holdings Inc. Mark Abbott Maven Income and Growth VCT 5 PLC Calculus Nominees Limited CORPORATE GOVERNANCE Number 15,516,600 6,294,806 2,974,013 1,858,950 % 18.26 6.92 3.80 3.60 The UK Corporate Governance Code The directors recognise the value of the UK Corporate Governance Code (“the 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 At the financial year end the Board was comprised of three Executive Directors and three 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 has a suitable balance and that the recommendations of the 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. All directors have access to the advice and services of the company secretary who is responsible to the Board for ensuring that the Board procedures are followed and that the applicable rules and regulations are complied with. In addition, the company secretary will ensure that the directors receive appropriate training as necessary. The appointment and removal of the company secretary is a matter for the Board as a whole. The table below contains details on the number of meetings held during the period and individual director attendance. Number of meetings held during the 2013 financial year Executive Directors Andrew Hindle Craig Gouws Walter Roberts Non-executive Directors Ken Ratcliff Maurice Hazzard William Colvin Board 9§ Audit Committee Renumeration Committee 4 2 Number of meetings attended Number of meetings attended Number of meetings attended 9 8 9 7 7 7 - - - 4 - 4 - - - 2 2 2 § Of which 2 were minimally attended as they were to finalise business already approved by all directors 18 INFRASTRATA plc REPORT OF THE DIRECTORS FOR THE YEAR ENDED 31 JULY 2013 CORPORATE GOVERNANCE Audit Committee The Audit Committee met four times in the year to 31 July 2013. Its members are William Colvin (Chairman) and Ken Ratcliff. Members of the committee attended all meetings either in person or by telephone. Senior representatives of the external auditors attend these meetings if considered appropriate. The external auditor has unrestricted access to the Chairman of the committee. The role of the Audit Committee includes: • Consideration of the appointment of the external auditor and the audit fee. • Reviewing the nature, scope and results of the external audit. • Monitoring the integrity of the financial statements and interim report. • Discussing with the Group’s auditors problems and reservations arising from the interim and final results. • Reviewing the external auditor’s management letter and management’s response. • Reviewing on behalf of the Board the Group’s system of internal control and making recommendations to the Board. The committee also keeps under review the necessity for establishing an internal audit function 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. Renumeration Committee The members of the Remuneration Committee are Maurice Hazzard (Chairman), Ken Ratcliff and William Colvin. The committee met twice during the year and the meeting was attended by all current members. 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 recommends to the Board a framework for the remuneration of the Chairman, the Executive Directors and the senior management of the Group. The principal objectives of the Committee include: • Determining and recommending to the Board the remuneration policy for the Chief Executive and Executive Directors; • Reviewing the design of share incentive plans for approval by the Board and determining the annual award policy to Executive Directors under existing plans; and During the year and the prior year, the Remuneration Committee discussed the continuing need to maintain motivation of the Executive during a period of intense activity and changing focus. Salaries for Executive Directors have not been increased and there have been no bonus payments for the past two years reflecting a commitment by the Executive Directors to continuing control over the Group’s administrative expenses and alignment of their remuneration and other incentives to the delivery of value to shareholders. 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 committee remains mindful of the continuing responsibility and reliance placed upon all of the Company’s employees and will endeavour to ensure that this is reflected in appropriate remuneration packages. 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. INFRASTRATA plc 19 REPORT OF THE DIRECTORS FOR THE YEAR ENDED 31 JULY 2013 CORPORATE GOVERNANCE Relations with Shareholders Communication with shareholders is given high priority and the Company therefore communicates regularly with shareholders including the release of announcements for the interim and annual results and after significant developments. The Annual General Meeting is normally attended by all directors. Shareholders, including private investors, are invited to ask questions on matters including the Group’s operations and performance and to meet with the directors after the formal proceedings have ended. Representatives of the Board, at least twice per year, together with the Company brokers go on road shows during which existing and new investors are updated on Company affairs. The Company maintains a website (www.infrastrata.co.uk) for the purpose of improving information flow to shareholders as well as potential investors. The website contains all press announcements and financial reports as well as extensive operational information about the Group’s activities and enquiries from individual shareholders on matters relating to their shareholdings and the business of the Group are welcomed. The Board encourages shareholders to attend the Annual General Meeting, at which members of the Board are available to answer questions. Arden Partners plc who were appointed as Nominated Advisor and broker to the Company during the prior financial year has actively been researching the Company and its business followed by research notes being issued. Internal controls The directors are responsible for the Group’s system of internal controls, the setting of appropriate policies on those controls, and regular assurance that the system is functioning effectively and that it is effective in managing business risk. Internal control systems are designed to meet the particular needs of the Group and to manage rather than eliminate the risk of failure to meet business objectives. The internal controls cover financial, operational and compliance matters and are reviewed on an on-going basis. The directors consider that the frequency of Board meetings and the information provided to the Board in relation to Group operations assists the identification, evaluation and management of significant risks relevant to its operations on a continuous basis. The Group’s internal controls can only provide reasonable and not absolute assurance against material misstatement or loss or the risk of failure to meet business objectives. Having thus monitored risk management and internal control processes in place, the Board considers that the Company’s internal control systems operated appropriately during the year and up to the date of signing of the Annual Report and Financial Statements. GOING CONCERN The directors have prepared the financial statements on the going concern basis which assumes that the Group will continue in operational existence for the foreseeable future. The basis of this assumption is detailed in the accounting policies in note 2 to the financial statements. After making inquiries and considering all the relevant factors in relation to the Group, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis of accounting in preparing the annual financial statements. 20 INFRASTRATA plc DIRECTORS’ RESPONSIBILITIES The directors are responsible for preparing the Report of the Directors and the financial statements in accordance with applicable law and 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 with IFRS as adopted by the EU and as applied in accordance with the provisions of the Companies Act 2006. 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 that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the 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. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. DISCLOSURE OF INFORMATION TO THE AUDITOR 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 audit information of which the Company’s auditor was unaware; and the 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. AUDITOR A resolution to re-appoint the auditor, Nexia Smith & Williamson, will be proposed at the forthcoming Annual General Meeting. By order of the Board A Hindle Director 2 December 2013 INFRASTRATA plc 21 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF INFRASTRATA PLC We have audited the financial statements of InfraStrata plc for the year ended 31 July 2013 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 37. 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 auditor As explained more fully in the Directors’ Responsibilities Statement on page 21, 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 Financial Reporting Council’s (FRC’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 FRC’s website at www.frc.org.uk/apb/scope/private. cfm. 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 2013 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. 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 2 December 2013 22 INFRASTRATA plc CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 JULY 2013 Continuing operations Revenue Cost of sales Gross profit Administrative expenses Operating loss Finance income Share of loss of Joint Venture Impairment of interest in Joint Venture Gain arising on assuming control of the former Joint Venture Share of loss of Associates 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 attributable to the equity holders of the parent Basic and diluted earnings per share Continuing operations Discontinued operations Continuing and discontinued operations Notes 4 9 16 16 16 16 10 11 12 2013 £ 62,428 - 62,428 2012 £ 253,932 - 253,932 (1,804,782) (1,259,206) (1,742,354) (1,005,274) 25,566 2,596 - - - (43,862) (10,306,395) (10,626,210) 2,512,480 (174,869) (1,760,650) (19,597,672) 315,188 - (1,445,462) (19,597,672) (197,298) (129,690) (1,642,760) (19,727,362) - - (1,642,760) (19,727,362) (1.59)p (0.22)p (1.81)p (23.30)p (0.15)p (23.45)p INFRASTRATA plc 23 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 JULY 2013 Notes 2013 £ 2012 £ Non-current assets Intangible fixed assets Property, plant and equipment Investments in associates Other receivables Total non-current assets Current assets Trade and other 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 Deferred income tax liabilities Liabilities directly associated with assets classified as held for sale Total current liabilities Net current assets Non-current liabilities Deferred income tax liabilities Net assets Shareholders’ funds Share capital Share premium Merger reserve Share based payment reserve Retained earnings Attributable to owners of the parent Non-controlling interests Total equity Company registration number: 06409712 Approved and authorised for issue by the Board on 2 December 2013 A Hindle Director 24 S McGarrity Director INFRASTRATA plc 14 15 16 17 18 19 20 21 22 23 21 23 25 26 27 28 3,478,843 3,399,473 1,974 2,627,973 - 6,108,790 893,563 12,500 774,745 1,680,808 4,190,267 5,871,075 (533,236) (179,478) (149,560) (862,274) 5,008,801 7,471 2,705,131 768,102 6,880,177 1,114,145 12,500 1,918,201 3,044,846 3,206,003 6,250,849 (905,750) - (73,032) (978,782) 5,272,067 (706,630) (1,201,296) 10,410,961 10,950,948 9,149,160 9,099,160 11,920,219 11,920,219 8,988,112 434,920 8,988,112 333,735 (21,508,727) (19,865,967) 8,983,684 1,427,277 10,475,259 475,689 10,410,961 10,950,948 COMPANY STATEMENT OF FINANCIAL POSITION AS AT 31 JULY 2013 Non-current assets Intangible exploration assets Property, plant and equipment Investments Total non-current assets Current assets Trade and other receivables Available for sale 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 Share based payment reserve Retained earnings Total equity Company registration number: 06409712 Approved and authorised for issue by the Board on 2 December 2013 A Hindle Director S McGarrity Director Notes 14 15 16 18 19 20 22 25 26 27 2013 £ 113,934 1,974 600 116,508 3,861,702 12,500 730,372 4,604,574 (503,826) 4,100,748 4,217,256 2012 £ 34,564 7,153 600 42,317 3,623,518 12,500 1,814,603 5,450,621 (858,636) 4,591,985 4,634,302 9,149,160 9,099,160 11,920,219 11,920,219 8,466,827 434,920 8,466,827 333,735 (25,753,870) (25,185,639) 4,217,256 4,634,302 INFRASTRATA plc 25 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 JULY 2013 Share capital £ Share premium £ Share based payment reserve £ Merger reserve £ Attributable to the owners of the parent £ Retained earnings £ Non- controlling interest £ Total equity £ Balance at 31 July 2011 7,826,433 11,848,946 8,988,112 322,431 (138,605) 28,847,317 - 28,847,317 Loss for the year Total comprehensive loss for the year - - - - Shares issued 1,272,727 71,273 Share based payments BP Gas Marketing Limited - Islandmagee Storage Limited option (note 28) - - - - - - - - - - (19,727,362) (19,727,362) - (19,727,362) - (19,727,362) (19,727,362) - (19,727,362) - 11,304 - - - - 1,344,000 11,304 - - 1,344,000 11,304 - 475,689 475,689 Balance at 31 July 2012 9,099,160 11,920,219 8,988,112 333,735 (19,865,967) 10,475,259 475,689 10,950,948 Loss for the year Total comprehensive loss for the year Shares issued Share based payments BP Gas Marketing Limited - Islandmagee Storage Limited option (note 28) - - 50,000 - - - - - - - - - - - - - - - 101,185 - (1,642,760) (1,642,760) (1,642,760) (1,642,760) 50,000 101,185 - - - - - - - (1,642,760) (1,642,760) 50,000 101,185 - 951,588 951,588 Balance at 31 July 2013 9,149,160 11,920,219 8,988,112 434,920 (21,508,727) 8,983,684 1,427,277 10,410,961 COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 JULY 2013 Balance at 31 July 2011 Loss for the year Total comprehensive loss for the year Shares issued Share based payments Balance at 31 July 2012 Loss for the year Total comprehensive loss for the year Shares issued Share based payments Balance at 31 July 2013 Share capital £ Share premium £ Share based payment reserve £ Merger reserve £ Retained earnings £ Total equity £ 7,826,433 11,848,946 8,466,827 322,431 (1,390,342) 27,074,295 - - - - 1,272,727 71,273 - - - - - - - (23,795,297) (23,795,297) - (23,795,297) (23,795,297) - 11,304 - - 1,344,000 11,304 9,099,160 11,920,219 8,466,827 333,735 (25,185,639) 4,634,302 - - 50,000 - - - - - - - - - - - - 101,185 (568,231) (568,231) (568,231) (568,231) - - 50,000 101,185 9,149,160 11,920,219 8,466,827 434,920 (25,753,870) 4,217,256 26 INFRASTRATA plc CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 JULY 2013 Net cash (used in) operating activities Investing activities Interest received Purchase of exploration intangible assets Purchase of gas storage intangible assets Purchase of equipment Proceeds from the disposal of exploration intangible assets PGL preference shares receipts Cash inflow on acquisition of subsidiary Notes 29 2013 £ 2012 £ (2,249,084) (423,415) 5,318 (146,128) (754,390) (368) 150,000 899,608 - 2,596 (34,564) (371,510) - - 156,862 53,574 Net cash generated from/(used in) investing activities 154,040 (193,042) Financing activities Proceeds on issue of ordinary shares Contribution from non-controlling interest Net cash generated from financing activities Net (decrease)/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: - 951,588 951,588 (1,143,456) 1,918,201 774,745 1,344,000 475,689 1,819,689 1,203,232 714,969 1,918,201 Cash at bank 20 £774,745 £1,918,201 Significant non-cash transactions There were no significant non-cash transactions in the year. The significant non-cash transaction for the year ended 31 July 2012 was the assumption of control over the previous joint venture. Cash flows arising from discontinued activities Cash flows arising from discontinued operations are analysed in note 29. INFRASTRATA plc 27 COMPANY STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 JULY 2013 Net cash (used in)/generated from operating activities Investing activities Interest received Purchases of exploration intangible assets Purchases of equipment Proceeds on the disposal of exploration intangible assets Net cash generated from/(used in) investing activities Financing activities Proceeds on issue of ordinary shares Net cash generated from financing activities Net (decrease)/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: Notes 29 2013 £ (1,092,979) 5,245 (146,129) (368) 150,000 8,748 - - (1,084,231) 1,814,603 730,372 2012 £ 385,086 1,633 (34,564) - - (32,931) 1,344,000 1,344,000 1,696,155 118,448 1,814,603 Cash at bank 20 £730,372 £1,814,603 Significant non-cash transactions There were no significant non-cash transactions in the year. The significant non-cash transaction for the year ended 31 July 2012 was the recognition of impairment losses in respect of the company’s investments in and balances with its subsidiaries. 28 INFRASTRATA plc NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 JULY 2013 1. GENERAL INFORMATION InfraStrata plc is a company incorporated in England & Wales under the Companies Acts 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 accounting policies set out below which have been consistently applied. The estimates and judgements used in applying these accounting policies are summarised in note 33. Basis of preparation InfraStrata plc adopted International Financial Reporting Standards (IFRS) as adopted by the European Union effective in July 2013, 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 for the foreseeable future. The Islandmagee gas storage project, in which InfraStrata plc currently holds a 65% interest, is funded by BPGM. Under the terms of a Joint Appraisal Agreement, BPGM agreed to fund the activities necessary to develop the project, including the drilling of the first well, up to the point where a decision can be made on whether to proceed with its detailed engineering design. Subsequent to this decision, it is expected that BPGM will exercise its option to acquire 50.495% of Islandmagee Storage Limited, leaving InfraStrata with a 32.18% holding. The directors believe that a further 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 future development of the Islandmagee gas storage project to the new shareholder. The Group generally seeks to farmout the costs of exploration on its directly operated licences to manage risk and minimise cash requirements. The Group is currently seeking to farmout its current paying interests on exploration licences PL1/10 and P1918 prior to commitment to drilling exploration wells. On 1 June 2012, eCORP agreed to subscribe for US$2.88 million of Portland Gas Limited preference shares over the following two years. The funds received to date have enabled the Company to settle existing commitments including lease payments in respect of land at Portland. On 23 September 2013 the Company issued 8,000,000 new ordinary shares of 10 pence each at 10 pence per share to institutional and other shareholders and raised £800,000 before costs. The proceeds of the Placing have improved the Company’s balance sheet and enable the Company to be flexible about the funding of exploration costs in advance of the completion of the farmout of exploration well costs. After making inquiries and considering all the relevant factors in relation to the Group, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis of accounting in preparing the annual financial statements. Adoption of new and revised standards At the date of approval 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 an impact going forward: IFRS 9 Financial Instruments: Recognition and measurement INFRASTRATA plc 29 NOTES TO THE FINANCIAL STATEMENTS IFRS 10 Consolidated Financial Statements IFRS 11 Joint Arrangements IFRS 12 Disclosure of Interests in Other Entities IFRS 13 Fair Value Measurement IAS 19 Employee benefits IAS 27 Separate Financial Statements IAS 28 Investments in Associates and Joint Ventures The directors anticipate that all of the above standards and interpretations will be adopted in the Group’s financial statements in future periods. Adoption of these standards is not expected to have a material impact on the Group. 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. When a business combination is achieved in stages, the Group’s previously held equity interest in the acquiree is re-measured to fair value at the acquisition date and the resulting gain or loss, if any, is recognised in profit or loss in the statement of comprehensive income. Non-controlling interests that are present ownership interests are recognised at the non-controlling interests’ proportionate share of the recognised net assets, except that negative non-controlling interests are not recognised where the Group is obliged to bear the non-controlling interest’s share of any net liabilities. Oil and gas exploration joint ventures The Group is engaged in oil and gas exploration and development which may lead to production through unincorporated joint ventures. The Group accounts for its share at cost of the results and net assets of these joint ventures as jointly controlled assets based on its percentage ownership of these joint ventures. In addition, where the Group acts as operator to the joint venture, the gross liabilities and receivables (including amounts due to and from non-operating partners) of the joint venture are included in the statement of financial position. Details of the Group’s oil & gas exploration joint ventures accounted for as jointly controlled assets are provided in note 35. Farmouts in the exploration and evaluation phase The Group does not record any expenditure made by the farminee on its account. It also does not recognise any gain or loss on its exploration and evaluation farmout arrangements but redesignates any costs previously capitalised in relation to the whole interest as relating to the partial interest retained. Any cash consideration received directly from the farminee is credited against costs previously capitalised in relation to the whole interest with any excess accounted for by the farminor as a gain on disposal. Interests in associates The Group has interests in associates, which are entities over which the Group has significant influence but not control and which are not joint ventures. The Group recognises its interest in associates using equity accounting. The financial statements of the associates are prepared for the same reporting year as the parent company, using consistent accounting policies. 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 30 INFRASTRATA plc NOTES TO THE FINANCIAL STATEMENTS 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. Property plant and equipment Property 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: Office equipment Freehold land 20-33% 0% There is no depreciation to charge in respect of capitalised tangible gas storage inclusive of related and pipeline costs as the assets are fully impaired. The carrying values of property 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 provided there being reasonable certainty of construction proceeding. 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. Capitalisation of project rental costs are reviewed on a regular basis and expensed when the physical progress on the project is in the directors opinion, significantly less than expected. 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 cost of sales. Oil & gas exploration and evaluation expenditure and assets The Group accounts for oil & gas expenditure under the full cost accounting method. INFRASTRATA plc 31 NOTES TO THE FINANCIAL STATEMENTS Pre-licence costs (other than payments to acquire rights to explore) are those costs incurred prior to acquiring the rights to explore and 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 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. Development assets will be depreciated on the unit production method. 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. 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 Group’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 equity, in which case the deferred tax is also dealt with in equity. 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. 32 INFRASTRATA plc NOTES TO THE FINANCIAL STATEMENTS 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 part of their remuneration in the form of share based payment transactions, whereby employees render services as consideration for equity instruments (equity settled transactions). The cost of equity settled transactions 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 an 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 cancelled 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. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. 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. INFRASTRATA plc 33 NOTES TO THE FINANCIAL STATEMENTS Revenue Revenue is recognised as the fair value of the consideration received or receivable and represents the amounts receivable for services delivered during the normal course of business. Revenue is recognised as the services are delivered. Operating activities The activities of investments controlled by InfraStrata plc are treated as operating activities in the Group financial statements. Finance income Finance income is recognised when it is probable that the economic benefits will flow to the group and the amount of income can be measured reliably. Income is accrued on a time basis, by reference to the principal outstanding and the effective interest rate applicable. 3. SEGMENT INFORMATION 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 and Northern Ireland. The segmental businesses activities are the development and construction of gas storage and associated facilities, and petroleum exploration. Dorset Northern Ireland Gas Storage Exploration Gas Storage Exploration Central income and overheads Total 2013 Continuing activities Revenue 49,311 Administrative expenses (868,440) 3,421 - Share of loss of associates - (24,134) Finance income Taxation Discontinued activities 20,248 247,890 (550,991) - 67,298 46,585 - - - - - - 4,327 - (19,728) - - 5,369 62,428 (936,342) (1,804,782) - 5,318 - (43,862) 25,566 315,188 (15,401) (925,655) (1,445,462) Administrative expenses - - *(197,298) - - (197,298) (550,991) 46,585 *(197,298) (15,401) (925,655) (1,642,760) Analysis of: Assets by segment 882,522 4,811,862 *4,190,267 1,301,803 Liabilities by segment (189,829) (715,212) *(149,560) (383,980) Net assets per segment 692,693 4,096,650 *4,040,707 917,823 Capital expenditure Depreciation - - 33,394 *724,373 112,735 - - - 793,412 (130,324) 663,088 368 5,865 11,979,866 (1,568,905) 10,410,961 870,870 5,865 * discontinued activities comprise the results, assets and liabilities of Islandmagee Storage Limited which is classified as held for sale as explained in note 21. 34 INFRASTRATA plc Dorset Northern Ireland Gas Storage Exploration Gas Storage Exploration Unallocated Total NOTES TO THE FINANCIAL STATEMENTS 2012 Continuing activities Revenue from services provided to joint venture and associates 150,000 Administrative expenses (183,559) Share of loss of joint venture (10,306,395) - - - Share of loss of associates Impairment of interest in joint venture Gain arising on assuming control of the former joint venture - (83,354) (10,626,210) - 1,218,334 1,294,146 Finance income - - (19,747,830) 1,210,792 Discontinued activities - - - - - - - - 97,142 6,790 253,932 - - (91,515) - - - (1,075,647) (1,259,206) - - - - 2,596 (10,306,395) (174,869) (10,626,210) 2,512,480 2,596 5,627 (1,066,261) (19,597,672) Administrative expenses - - *(129,690) (19,747,830) 1,210,792 *(129,690) - 5,627 - (129,690) (1,066,261) (19,727,362) Analysis of: Assets of segment 1,846,155 4,721,556 *3,206,003 1,383,048 Liabilities by segment (567,201) (773,930) *(73,032) - Net assets per segment 1,278,954 3,947,626 *3,132,971 1,383,048 Capital expenditure Depreciation - - - - *371,510 34,564 - - 1,974,265 (765,916) 1,208,349 - 7,690 13,131,027 (2,180,079) 10,950,948 406,074 7,690 * discontinued activities comprise the results, assets and liabilities of Islandmagee Storage Limited which is classified as held for sale as explained in note 21. INFRASTRATA plc 35 NOTES TO THE FINANCIAL STATEMENTS 4. PROFIT OR LOSS BEFORE TAXATION Fees payable to the Group’s auditor and its associates: - for the audit of the Company’s annual financial statements - for the audit of the Company’s subsidiaries - other services relating to taxation - all other services Depreciation Profit on the disposal of intangible assets Net foreign exchange loss/(gain) Operating lease rentals - land and buildings Research costs 2013 £ 18,400 20,300 23,000 3,750 5,865 (49,945) 46,373 780,000 10,376 2012 £ 16,000 21,650 9,150 6,550 7,690 - (961) 180,000 55,791 During the year the company sold a 5% interest in PL1/10 to Brigantes Energy Limited for cash consideration of £150,000 and a carry of 5% of the costs of the initial well. The transaction gave rise to a profit on disposal of £49,945 (Company: £83,242). 5. EMPLOYEE INFORMATION Executive Directors and staff Staff costs for the above persons and Non-executive Directors were: Wages and salaries Social security costs Defined contribution pension plan expenditure Share based payments 2013 Number 2012 Number 6 £ 651,065 75,178 35,753 101,185 863,181 5 £ 698,670 82,416 17,925 11,304 810,315 36 INFRASTRATA plc NOTES TO THE FINANCIAL STATEMENTS 6. DIRECTORS’ AND KEY MANAGEMENT EMOLUMENTS AND COMPENSATION Group and Company 2013 Salary & fees £ Bonus £ Benefits £ Pension £ Executive Directors Andrew Hindle Craig Gouws Walter Roberts Non-executive Directors Ken Ratcliff Maurice Hazzard William Colvin 250,000* 121,800 79,160 35,250 15,000 15,000 516,210 Share based payment attributable to directors Employers national insurance contributions - - - - - - - 2,610 1,815 4,110 - - - 8,535 - 11,280 11,280 4,395 125 - 27,080 Group and Company 2012 Salary & fees £ Bonus £ Benefits £ Pension £ Executive Directors Andrew Hindle Craig Gouws Walter Roberts Non-executive Directors Ken Ratcliff Maurice Hazzard William Colvin 279,167* 120,000 123,960 37,500 15,000 15,000 590,627 Share based payment attributable to directors Employers national insurance contributions - - - - - - - 2,358 1,674 3,363 - - - 7,395 - 6,000 6,000 1,875 750 - 14,625 Total 2013 £ 252,610 134,895 94,550 39,645 15,125 15,000 551,825 79,033 61,863 692,721 Total 2012 £ 281,525 127,674 133,323 39,375 15,750 15,000 612,647 - 72,000 684,647 *Andrew Hindle agreed during the financial year to reduce his cash remuneration for 12 months by the sum of £50,000 (2012: £50,000) and in return he was issued 500,000 (2012: 454,545) ordinary shares. The Company moved the company pension plan from Bank of Scotland/Halifax to Scottish Widows during the financial year and in so doing gave pension plan members an opportunity to enter into salary sacrifice in favour of pension contribution agreements. The total of short-term employee benefits for directors was £665,641 (2012: £670,022). The directors are considered to be the Group’s key management. INFRASTRATA plc 37 NOTES TO THE FINANCIAL STATEMENTS 6. DIRECTORS’ AND KEY MANAGEMENT EMOLUMENTS AND COMPENSATION (CONTINUED) 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 1 January 2013 and 25 January 2008 are as follows: 1 January 2013 Executive Directors Andrew Hindle Craig Gouws Walter Roberts Non-executive Directors Ken Ratcliff William Colvin Maurice Hazzard 25 January 2008 Executive Directors Andrew Hindle Craig Gouws Walter Roberts Non-executive Directors Ken Ratcliff Maurice Hazzard Number Exercise price £ Exercise from Exercisable to 956,022 458,891 458,891 143,403 57,361 57,361 43,859 43,859 43,859 21,929 21,929 0.1046 31 December 2013 31 December 2021 0.1046 31 December 2013 31 December 2021 0.1046 31 December 2013 31 December 2021 0.1046 31 December 2013 31 December 2021 0.1046 31 December 2013 31 December 2021 0.1046 31 December 2013 31 December 2021 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 No options were exercised by directors in 2013 or 2012. Key man insurance premiums of £1,940 (2012: £1,927) were paid for Executive Directors and directors’ indemnity insurance premiums of £19,425 (2012: £23,479) were paid in respect of all directors. Two Executive and one Non-executive Directors participate in the Group Stakeholder Pension Plan under which Group Life Cover is offered. 7. SHARE BASED PAYMENT PLANS 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. The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, share options during year. 38 INFRASTRATA plc NOTES TO THE FINANCIAL STATEMENTS 2013 WAEP £ 1.50 0.1046 - 0.2415 1.50 2012 Number 352,407 - - 352,407 352,407 2012 WAEP £ 1.50 - - 1.50 1.50 2013 Number 352,407 3,284,760 - 3,637,167 352,407 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 The weighted average remaining vesting period for the share options outstanding at 31 July 2013 is 0.47 years (2012: 0.06 years). The range of exercise prices for options outstanding at the end of the year was £0.10 - £2.28. The weighted average remaining option life for the share options outstanding at 31 July 2013 is 8 years (2012: 7 years). 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 2013. Expected volatility (%) Risk free interest rate Weighted average contractual life of option (years) Expected dividend yield Exercise price of options (£) Weighted average share price (£) 2013 35% 0.5% 10 Nil 0.10 - 0.14 0.1061 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. 8. RETIREMENT BENEFITS 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 independent trustees. The total cost charged to expenses of £35,753 (2012: £17,925) 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 2013, employer and employee contributions of £5,758 (2012: £3,295) due in respect of the current period had not been paid over to the scheme, the payment was made on the 30 August 2013 (2012: 10 August 2012). 9. FINANCE INCOME Interest on bank deposits Unwinding of discount on other financials assets 2013 £ 5,318 20,248 25,566 2012 £ 2,596 - 2,596 39 INFRASTRATA plc NOTES TO THE FINANCIAL STATEMENTS 10. INCOME TAX The major components of income tax expense for the years ended 31 July 2013 and 2012 are: a) Income tax recognised in profit or loss Current income tax charge / (credit) Adjustments in respect of current income tax of previous years Total current corporation tax Deferred tax charge / (credit) - origination and reversal of timing differences - change of rate of tax Total current deferred tax 2013 £ 2012 £ - - - (247,888) (67,300) (315,188) - - - - - - b) A reconciliation between tax expense and the product of accounting loss from continuing operations for the years ended 31 July 2013 and 2012 is as follows: Accounting loss before tax from continuing operations (1,760,650) (19,597,672) Loss on continuing activities multiplied by the standard rate of tax (23.67%; 2012: 25.33%) (416,687) (4,996,941) Expenses not permitted for tax purposes and pre-trading expenditure Other timing differences Tax losses carried forward Income tax expense reported in the profit or loss relating to continuing operations A reconciliation between tax expense and the product of accounting profit / (loss) for discontinued operations for the years ended 31 July 2013 and 2012 is as follows: 25,335 - 391,352 - 4,500,328 - 496,613 - Accounting (loss) / profit before tax from discontinued operations (197,298) (129,690) (Loss) / profit on discontinued activities multiplied by the standard rate of tax 23.67% (2012: 25.33%) Expenses not permitted for tax purposes and pre-trading expenditure Non-taxable income Income tax expense reported in the profit or loss relating to discontinued operations (46,694) 46,694 - - (32,850) 32,850 - - c) Factors that may affect the future tax charge The Group has trading losses of £4,003,757 (2012: £1,573,810) which may reduce future tax charges. Future tax charges may also be reduced by capital allowances on cumulative capital expenditure. The Government has announced a reduction in the corporation rate to 21% to be in force for 2013/14 which has been substantively enacted. The Group’s potential charge to tax arising from its investments in the associates is dependent on the source of future inflows to the Group. Inflows arising from the partial or complete disposal by way of sale are not expected to be subject to tax. The Group has no current expectation of receiving distributions of profits from these investments in the foreseeable future and therefore no deferred tax liability arises. 40 INFRASTRATA plc 11. DISCONTINUED OPERATIONS Revenue Net operating costs (Loss) before tax Tax charge (note 10) (Loss) after tax Details of the discontinued operations are given in note 21. 12. EARNINGS PER SHARE (Loss)/profit 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 NOTES TO THE FINANCIAL STATEMENTS 2013 £ - (197,298) (197,298) - 2012 £ - (129,690) (129,690) - (197,298) (129,690) 2013 £ 2012 £ (1,445,462) (19,597,672) (197,298) (129,690) (1,642,760) (19,727,362) Weighted average number of ordinary shares for the purposes of basic earnings per share 91,055,983 84,122,359 Basic and diluted earnings per share Continuing operations Discontinued operations Continuing and discontinued operations (1.59)p (0.22)p (1.81)p (23.30)p (0.15)p (23.45)p For 2013 and 2012, the share options were not dilutive as a loss was incurred. 13. LOSSES ATTRIBUTABLE TO INFRASTRATA PLC The loss for the period dealt with in the financial statements of InfraStrata plc was £568,231 (2012: £23,795,297). As provided by s408 of the Companies Act 2006, no income statement is presented in respect of InfraStrata plc. INFRASTRATA plc 41 NOTES TO THE FINANCIAL STATEMENTS 14. INTANGIBLE ASSETS - EXPLORATION & EVALUATION Group £ Company £ Cost At 1 August 2011 Additions Arising on acquisition At 1 August 2012 Additions Disposals At 31 July 2013 Net book value At 31 July 2013 15. PLANT AND EQUIPMENT - GROUP Office equipment Cost At 1 August Additions Disposals At 31 July Depreciation At 1 August Charge for the year Disposals At 31 July Net book value At 31 July - 34,564 3,364,909 3,399,473 146,128 (66,758) 3,478,843 - 34,564 - 34,564 146,128 (66,758) 113,934 3,478,843 113,934 2013 £ 87,028 368 (4,502) 82,894 79,557 5,865 (4,502) 80,920 2012 £ 87,028 - - 87,028 71,867 7,690 - 79,557 1,974 7,471 42 INFRASTRATA plc 15. PLANT AND EQUIPMENT - COMPANY Office equipment Cost At 1 August Additions At 31 July Depreciation At 1 August Charge for the year At 31 July Net book value At 31 July 16. INVESTMENTS Group Investment in associates At 1 August Elimination of inter-company profit Share of losses At 31 July Total investments at the end of the year NOTES TO THE FINANCIAL STATEMENTS 2013 £ 17,380 368 17,748 10,227 5,547 15,774 2012 £ 17,380 - 17,380 3,358 6,869 10,227 1,974 7,153 2013 £ 2012 £ 2,705,131 2,880,000 (33,296) (43,862) 2,627,973 2,627,973 - (174,869) 2,705,131 2,705,131 The Group has 40% interests (2012: 40%) in both of Corfe Energy Limited and Brigantes Energy Limited which are involved in hydrocarbon exploration. The associates are private companies, incorporated in England and Wales and are not listed on any public exchanges. INFRASTRATA plc 43 NOTES TO THE FINANCIAL STATEMENTS 16. INVESTMENTS (CONTINUED) The following table summarises the Group’s share of the assets and liabilities of each of these associates as recorded in each associates’ audited financial statements made up to 31 July 2013 and after making adjustments to align the accounting policies of the associates with those of the Group: Corfe Energy Limited Long-term asset Current assets Current liability Long-term liability Group’s share of net assets of associates Brigantes Energy Limited Long-term asset Current assets Current liability Long-term liability Group’s share of net assets of associates 2013 £ 613,276 215,101 (10,392) (1,210) 816,775 2013 £ 510,813 319,835 (7,411) (1,210) 822,027 2012 £ 32,320 781,356 (10,012) (1,210) 802,454 2012 £ 376,234 428,412 (7,335) (1,210) 796,101 The revenue and net loss of each of these associates as recorded in each associates’ audited financial statements made up to 31 July 2013 and after making adjustments to align the accounting policies of the associates with those of the Group: Corfe Energy Limited Revenue Total loss for the year Group’s share of losses Group’s share of other comprehensive income Brigantes Energy Limited Revenue Total loss for the year Group’s share of losses Group’s share of other comprehensive income 44 INFRASTRATA plc 2013 £ 96,052 70,073 24,134 - 2013 £ 96,296 55,006 19,728 - 2012 £ 69,491 63,864 83,354 - 2012 £ 69,491 60,653 91,515 - NOTES TO THE FINANCIAL STATEMENTS 16. INVESTMENTS (CONTINUED) Joint Venture - Portland Gas Limited In June 2012 the Group restructured its ownership of Portland Gas Limited by acquiring the 50% interest in Portland Gas Limited which had been held by eCORP. Portland Gas Limited fully impaired its investment in the Portland project prior to the restructuring and the Group’s share of the impairment charge and other losses was £10,306,395. The Group’s investment in the joint venture was then subject to an impairment review and as a result an impairment loss of £10,626,210 was recognised. A gain of £2,512,480 arose on assuming control of the former Joint Venture due to the net assets acquired having a higher fair value than the fair value of the Group’s 50% interest in the ordinary share capital of Portland Gas Limited immediately prior to the restructuring. Company Cost Balance at 1 August Additions Disposals Balance at 31 July Impairment Balance at 1 August Charge for the year Balance at 31 July Net book value Balance at 31 July 2013 £ 2012 £ 15,247,611 15,249,611 - - - (2,000) 15,247,611 15,247,611 (15,247,011) - - (15,247,011) (15,247,011) (15,247,011) 600 600 Subsidiaries The Company’s subsidiary undertakings at 31 July 2013, all of which are wholly owned unless indicated otherwise, are as follows: Principal undertaking Country of incorporation InfraStrata UK Limited Holding and corporate England InfraStrata UK Limited owns the following subsidiary undertakings: Islandmagee Storage Limited (65% owned) Sub surface gas storage developer Northern Ireland Portland Gas Limited Holding company Portland Gas Storage Limited Sub surface gas storage developer Portland Gas Transportation Limited Gas storage pipeline developer England England England Under the terms of a preliminary shareholder agreement entered into by InfraStrata UK Limited and Moyle in January 2010, Moyle acquired a 35% interest in Islandmagee Storage Limited but InfraStrata UK Limited continues to assume one hundred percent of the risks and rewards of ownership of Islandmagee Storage Limited (including voting rights) until such time as Moyle settles its share of the intercompany loan to Islandmagee Storage Limited. Therefore InfraStrata plc includes 100% of the results, assets and liabilities of Islandmagee Storage Limited in its financial statements and these are classified as held for sale as detailed in note 21. The Company impaired its investment in InfraStrata UK Limited investment and loan receivable from InfraStrata UK Limited by £nil (2012: £15,247,011) and £nil (2012: £7,894,673) respectively during the year. The impairments in 2012 followed the impairment of the Portland Gas Limited project . INFRASTRATA plc 45 NOTES TO THE FINANCIAL STATEMENTS 16. INVESTMENTS (CONTINUED) Investment in associates - Company Balance at beginning and end of the year 2013 £ 600 2012 £ 600 The company owns 40% (2012: 40%) of the issued share capital of the following companies, both of which are incorporated in England and are involved in oil and gas exploration: Corfe Energy Limited Brigantes Energy Limited 17. NON-CURRENT RECEIVABLES Other receivables Group 2013 £ - - Group 2012 £ 768,102 768,102 The non-current receivables were amounts due from eCORP. The receivable is denominated in United States dollars and is now entirely categorised as a current receivable. The fair value of the non-current receivable is £nil (2012: £768,102). 18. TRADE AND OTHER RECEIVABLES Amounts due from Group undertakings Trade receivables Other receivables Prepayments Group 2013 £ - 20,149 841,561 31,853 893,563 Group 2012 £ Company 2013 £ Company 2012 £ - 3,791,796 3,478,924 107,829 970,449 35,867 38,159 - 31,747 107,629 1,205 35,760 1,114,145 3,861,702 3,623,518 An element of the Company and Group’s credit risk is attributable to its trade and other 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. 19. AVAILABLE FOR SALE FINANCIAL ASSETS At 1 August At 31 July Group 2013 £ 12,500 12,500 Group 2012 £ 12,500 12,500 Company 2013 £ 12,500 12,500 Company 2012 £ 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. 46 INFRASTRATA plc NOTES TO THE FINANCIAL STATEMENTS 20. CASH AND CASH EQUIVALENTS Group 2013 £ Group 2012 £ Company 2013 £ Company 2012 £ Cash at bank 774,745 1,918,201 730,372 1,814,603 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. 21. ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS (DISPOSAL GROUP) In January 2012 the Company together with Moyle entered into an agreement with BPGM regarding the acquisition of an equity interest in Islandmagee Storage Limited owned by InfraStrata plc (65%) and Moyle (35%). Under the agreements, the equity interest will arise through the issue of shares by Islandmagee Storage Limited rather than the sale of equity by the Group and the majority of the proceeds from the issue of equity will be retained in Islandmagee Storage Limited to fund project development. Islandmagee Storage Limited continues to be classified as held for sale as, in the opinion of the directors, it is highly probable that BPGM will exercise its option and the delay in the disposal is due to events outside the control of the Company. BPGM’s option will be triggered following the drilling of a well which is to be funded by BPGM under a Joint Appraisal Agreement. The drilling of the well is subject to certain conditions precedent including confirmation of the gas infrastructure tariffing regime under which the project will operate. This confirmation is an inter-jurisdictional regulatory decision which has been delayed and is out with the Company’s control. Whilst there can be no guarantee that there will be no further delays, the directors currently expect that the well will be drilled in 2014, thereby triggering the vesting of the option and thereby leading to Islandmagee Storage Limited ceasing to be a subsidiary. Whilst the assets held for sale are classified as current assets, due to the nature of the arrangements described above, the Group does not expect to receive cash inflows equivalent to, or in excess of, the book value of the assets so classified. The measurement basis is the carrying amount. Assets classified as held for sale Freehold land Intangible assets - gas storage development costs Trade and other receivables Cash and cash equivalents Liabilities classified as held for sale Current liabilities Trade creditors Accruals 2013 £ 2012 £ 440,100 3,386,145 190,730 173,292 440,100 2,631,755 64,772 69,376 4,190,267 3,206,003 2013 £ 102,741 46,819 149,560 2012 £ 69,518 3,514 73,032 At 31 July 2013 BPGM has paid an amount of £1,427,277 to Islandmagee Storage Limited in relation to their option to acquire an interest in that Company and this amount is classified as a non-controlling interest in the Group’s balance sheet. INFRASTRATA plc 47 NOTES TO THE FINANCIAL STATEMENTS 22. TRADE AND OTHER PAYABLES Trade creditors Preference shares (note 25) Other taxation and social security Accruals Group 2013 £ 424,669 12,500 28,231 67,836 533,236 Group 2012 £ 818,782 12,500 18,137 56,331 905,750 Company 2013 £ 408,963 12,500 28,231 54,132 503,826 The directors consider that the carrying amount of trade and other payables approximates to their fair value. 23. DEFERRED TAX Deferred income tax liabilities in relation to: Intangible assets (recovered in more than 12 months) Financial assets (recovered within 12 months) The gross movement on the deferred tax account is as follows: At 1 August Acquisition of subsidiary (note 16) Credited to the statement of comprehensive income At 31 July Current element Non-current element Company 2012 £ 794,267 12,500 17,126 34,743 858,636 Group 2012 £ 773,929 427,367 1,201,296 Group 2012 £ Group 2013 £ 706,630 179,478 886,108 Group 2013 £ 1,201,296 - - 1,201,296 (315,188) 886,108 179,478 706,630 886,108 - 1,201,296 - 1,201,296 1,201,296 Deferred tax has been calculated at rates of 21% - 23%, which are the rates which have been substantively enacted and which are expected to be applicable when the underlying assets are forecast to be recovered. The Government has announced that the UK Corporate tax rates will be reduced to 20%, but this has yet to be enacted; had this rate been enacted then the liability would have been £852,460. 48 INFRASTRATA plc NOTES TO THE FINANCIAL STATEMENTS 24. FINANCIAL ASSETS AND LIABILITIES The Group and Company’s financial instruments comprise financial assets, 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. The Group is also indirectly exposed to risks arising from its interests in its associates. The Group is not required to give detailed information relating to these risks. 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, Investec, Northern Rock and Lloyds TSB bank accounts during the last two years; at year end all of the funds were held in Bank of Scotland and Investec accounts. In the directors’ view there is a low risk of one of the banks holding the Groups funds at year end failing in the foreseeable future. As at 31 July 2013, the Group is also exposed to the credit risk in relation to the eCORP receivable of £780,341 (2012: £1,706,592), which is payable over 10 months. The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was: Non-current receivables Trade and other receivables Cash and cash equivalents Group 2013 £ - 800,490 774,745 Group 2012 £ 784,314 1,101,820 1,918,201 Company 2013 £ - 38,159 730,372 Company 2012 £ - 107,629 1,814,603 The reconciling item between non-current receivables as shown above and as presented in note 17 is the discount to fair value. The reconciling items between the trade and other receivables presented above and that presented in note 18 and 21 are VAT receivable, prepayments and the discount to fair value. No receivables are past due but not impaired. 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 of £7,303 (2012: £18,146). Foreign currency risk The Group is exposed to foreign currency rate risk as a result of the eCORP receivable, which is denominated in United States dollars and, for 2012, certain trade payables, which are settled in Euros. During the year the Group and Company did not enter into any arrangements to hedge these risks, 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 2013, if the United States dollar 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 £71,038 (2012: £267,593). The currency risk disclosures at 31 July 2013 are as follows: Current accounts receivable USD £780,341 Euro - INFRASTRATA plc 49 NOTES TO THE FINANCIAL STATEMENTS 24. FINANCIAL ASSETS AND LIABILITIES (CONTINUED) The currency risk disclosures at 31 July 2012 are as follows: Accounts payable Non-current accounts receivable Current accounts receivable USD - £768,102 £938,491 Euro £6,145 - - The book value of financial assets and liabilities disclosed is considered to be equal to fair value. 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 21 (assets held for sale and discontinued operations) and 22 (trade and other payables). The Company issues share capital when external funds are required. The reconciling items between the contractual maturities presented below and that presented in notes 21 and 22 are taxes. 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 More than one month less than one year Group 2013 £ 275,309 366,755 Group 2012 £ 951,439 - 25. SHARE CAPITAL AND REDEEMABLE PREFERENCE SHARES Ordinary share capital At 31 July 2011 - Ordinary shares of 10 pence each Issue 10 pence ordinary shares At 31 July 2012 - Ordinary shares of 10 pence each Issue 10 pence ordinary shares At 31 July 2013 - Ordinary shares of 10 pence each Redeemable preference shares of £1 each (classified as liabilities) At 31 July 2013, 2012 and 2011 Company 2013 £ 96,341 366,755 Company 2012 £ 826,953 - Allotted, called up, and fully paid Number £ 78,264,326 12,727,273 90,991,599 500,000 7,826,433 1,272,727 9,099,160 50,000 91,491,599 9,149,160 Allotted and part called 50,000 12,500 On 14 June 2013 the Company issued 500,000 new ordinary shares of 10 pence each at 10 pence per share to Andrew Hindle in terms of a salary sacrifice agreement to conserve £50,000 of the Company cash resources. Following the Placing, the Company has 91,491,599 ordinary shares in issue. 50 INFRASTRATA plc NOTES TO THE FINANCIAL STATEMENTS Preference shares The preference shares carry the right to an annual dividend out of distributable profits of 0.00001% per annum on the amount for the time being paid up on each such share and do not carry any voting rights. The Company may redeem the shares at any time by giving preference shareholders one week’s notice. Preference shareholders may require the Company to redeem their shares at any time by giving six months’ notice. In each case, any redemption is at par and is subject to the provisions of the Companies Act. The preference shares are treated as short-term liabilities and included within trade payables. 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. 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. The Group is not subject to any externally imposed capital requirements. 26. 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. 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. 27. 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 £101,185 (2012: £11,304) relates to the share option expense for the year. There were no options forfeited or exercised during the year (2012: £nil). For further information on the share based payment scheme see note 7. 28. NON-CONTROLLING INTEREST BPGM has paid an amount of £1,427,277 to Islandmagee Storage Limited in relation to their option to acquire an interest in that company. Should BPGM exercise its option, this amount will form part of the consideration for the equity issued to BPGM. INFRASTRATA plc 51 NOTES TO THE FINANCIAL STATEMENTS 29. CASH (USED IN) OPERATIONS Group 2013 £ 2012 £ Operating loss for the year from continuing operations (1,742,354) (1,005,274) Depreciation Exchange differences on eCORP debtor Decrease/(increase) in trade and other receivables (Decrease)/increase in trade and other payables Share option expense Shares issued in lieu of salary or bonus Profit on sale of assets Cash (used in) discontinued operations Cash (used in) continuing and discontinued operations Cash flows arising from discontinued activities Group Cash (used in) discontinued operations Investing activities Financing activities Cash (used in)/from operations Company Operating loss for the year Depreciation (Increase)/decrease in trade and other receivables (Decrease)/increase in trade and other payables Share option expense Shares issued in lieu of salary or bonus Profit on sale of assets Impairment of investment in subsidiaries Cash (used in)/generated from operations 52 INFRASTRATA plc 5,865 46,890 62,432 (372,514) 101,185 50,000 (49,945) (350,643) (2,249,084) 2013 £ (350,643) (754,390) 951,588 7,690 - (191,990) 801,592 11,304 50,000 - (96,737) (423,415) 2012 £ (96,737) (371,510) 475,689 2013 £ 2012 £ (573,476) (23,793,664) 5,547 (238,183) (354,810) 101,185 50,000 (83,242) 6,869 8,142,456 721,110 11,304 50,000 - - 15,247,011 (1,092,979) 385,086 30. OPERATING LEASE COMMITMENTS Future minimum rentals payable under non-cancellable operating leases as at 31 July are as follows: NOTES TO THE FINANCIAL STATEMENTS Amounts due: Within one year Land and buildings 2013 £ Land and buildings 2012 £ 15,000 765,000 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 which was on 30 October 2012, exercisable at the Company’s option. The landlord and the Company agreed on 16 May 2012 that there will be no rent review and that either party may terminate the lease at any time on or after 30 October 2012 by serving six months written notice. During the year, the Portland Gas Storage leases were terminated. 31. OTHER COMMITMENTS Portland Gas Storage Limited entered into a Section 106 deed of agreement relating to the development of the gas storage facility on the Isle of Portland on 13 June 2012 which supersedes the original deed of agreement dated 17 June 2008. On first material operation of the development of the gas storage facility gas pipeline block value at Osmington, Dorset, Portland Gas Storage Limited covenants: • To work with the Portland Gas Trust to complete the Engine Shed refurbishment at a cost of approximately £2,000,000. • On completion of the Engine Shed to pay to the Portland Gas Trust a sum of £100,000 per annum for a period of not less than twenty years. • To pay to the Portland Gas Trust a sum of not less than £350,000 to fund projects on the gas storage pipeline route and Portland. 32. RELATED PARTY TRANSACTIONS InfraStrata plc 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 (2012: £45,000). The balance outstanding at 31 July 2013 was £nil (2012: £nil). The Group has related party relationships with its associates and joint ventures in the course of normal operations. The Group recovered overhead and technical support costs from its joint venture of £nil (2012: £161,856). Amounts owed by associates at 31 July 2013 were £nil (2012: £nil) and amounts owed to associates at 31 July 2013 were £600 (2012: £600). Company The Company has related party relationships with its subsidiaries, associates and joint ventures in the course of normal operations. InfraStrata plc recovered overhead and technical support costs from InfraStrata UK Limited of £184,560 (2012: £177,242), Portland Gas Storage Limited of £180,000 (2012: £35,746) and Islandmagee Storage Limited of £184,465 (2012: £123,282). The balances outstanding at 31 July 2013, which are not secured, are provided in the following table. INFRASTRATA plc 53 NOTES TO THE FINANCIAL STATEMENTS 32. RELATED PARTY TRANSACTIONS (CONTINUED) Related party Subsidiary InfraStrata UK Limited Portland Gas Storage Limited Islandmagee Storage Limited Associates Corfe Energy Limited Brigantes Energy Limited Amounts owed by related parties £ Amounts owed to related parties £ 10,878,289 72,289 735,901 - 3,122 - - - 300 300 The balances outstanding at 31 July 2012, which are not secured, are provided in the following table. Related party Subsidiary InfraStrata UK Limited Portland Gas Storage Limited Islandmagee Storage Limited Associates Corfe Energy Limited Brigantes Energy Limited Amounts owed by related parties £ Amounts owed to related parties £ 10,687,534 102,247 583,818 - - - - 300 300 The amounts due from Group undertakings in note 18 are stated net of an impairment provision of £8,248,775 (2012: £8,248,775) relating to Infrastrata UK Limited. 33. JUDGEMENTS IN APPLYING ACCOUNTING POLICIES AND KEY SOURCES OF ESTIMATION UNCERTAINTY Amounts included in the financial statements involve the use of judgement and/or estimation. These estimates and judgements are based on management’s best knowledge of the relevant facts and circumstances, having regard to previous experience, but actual results may differ from the amounts included in the financial statements. Information about such judgements and estimation is contained in the accounting policies and/or the notes to the financial statements, and the key areas are summarised below. Capitalisation of project costs The assessment of whether costs incurred on project exploration and evaluation should be capitalised or expensed involves judgement. Any expenditure which is considered to relate to gas storage exploration research activities or where it is not probable that future economic benefits will flow to the Group are expensed. Management considers the nature of the costs incurred and the stage of project development and concludes whether it is appropriate to capitalise the costs. The key assumptions depend on whether rights to explore an area have been obtained, the rock mechanical properties of the halite, the availability of a suitable site for construction of the required facilities and the likelihood of gaining the relevant permissions. 54 INFRASTRATA plc NOTES TO THE FINANCIAL STATEMENTS Review of project asset carrying values The assessment of capitalised project costs for any indications of impairment involves judgement. When facts or circumstances suggest that impairment exists, a formal estimate of recoverable amount is performed and an impairment loss recognised to the extent that the carrying amount exceeds recoverable amount. Recoverable amount is determined to be the higher of fair value less costs to sell and value in use. The key assumptions are the net income expected to be generated from the facilities, the cost of construction and the date from which the facilities become operational. Management assigns values and dates to these inputs after taking into account market information, engineering design costing and the project programme. A discount rate of 8% is applied in determining gas storage project net present values. Salt cavern gas storage projects are long term investments and cash flows are therefore projected over periods greater than 5 years. Engineering design provides for Project life of 40 years. It is assumed that 100% of a 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. Impairments of exploration and evaluation assets IFRS 6 requires that exploration and evaluation assets be assessed for impairment when facts and circumstances suggest that the carrying amount of an exploration and evaluation asset may exceed its recoverable amount. Management therefore consider annually whether there are any such facts and circumstances and, if so, undertake an impairment review. In making the initial judgements, management consider the outcome of exploration and evaluation activities to date and, in particular, data from any seismic surveys and drilling activities. Management also consider the continuity of the license interests and market data, including oil and gas prices. Where an impairment test is required, a comparison is made between the carrying value of the assets at the reporting date with the expected discounted cash flow from the Group’s license interest. For the discounted cash flows to be calculated, management use production profiles based on its best estimate of reserves and a range of assumptions, including oil/gas prices and discount rates. Share based payments The estimation of share based payment costs requires the selection of an appropriate valuation model and consideration as to the inputs necessary for the valuation model chosen. The Group has made estimates as to the volatility of its own shares, the probable life of options granted, and the time of exercise of those options. The model used by the Group is the Black-Scholes model. The key assumptions are detailed in note 7. Investments in associates In order to establish whether an entity is a consolidated subsidiary, a joint venture or an associate, key areas of judgment include: • Quantitative analysis of an entity including review of, amongst other factors, its capital structure, contractual terms, which interests create or absorb variability, related party relationships and design of the entity. • Rights of partners reflecting significant business decisions, including dispositions and acquisitions of assets. • Board and management representation. • Ability to make financing decisions. • Operating and capital budget approvals and contractual rights of other parties. Identification of assets and liabilities arising on a business combination Management are required to identify the assets and liabilities arising on a business combination, having regard to contractual rights and obligations and whether cash flows are expected to arise from such rights and obligations. Fair values Management are required to assess the fair value of assets and liabilities acquired on business combinations. As part of this assessment management considers: - - - Third party disposals or acquisitions of the asset or liability (or part thereof ) In respect of assets, any costs avoided as a result of owning the asset Expected future discounted cash flows INFRASTRATA plc 55 NOTES TO THE FINANCIAL STATEMENTS 34. GUARANTEE The Company previously guaranteed the lease payments to be made by Portland Gas Storage Limited to Portland Port Limited. The leases were terminated during the year. The financial commitment under this guarantee at 31 July 2013 is £nil (2012: £750,000). 35. JOINTLY CONTROLLED OIL & GAS EXPLORATION ACTIVITIES Group and Company Country Licence Field name Operator Net interest Northern Ireland England PL1/10 P1918 Larne-Lough Neagh Basin InfraStrata English Channel InfraStrata 43% 78% The Company has entered into agreements with partners whereby the Company’s share of initial exploration costs on PL1/10 are largely covered by the partners, therefore the company has incurred net expenditure to the extent of £146,128 (2012: £34,564) in developing its share of the assets. 36. EVENTS AFTER THE REPORTING PERIOD On the 23 September 2013 the Company issued 8,000,000 new ordinary shares of 10 pence each at 10 pence per share to institutional and other shareholders and raised £800,000 before costs. Following the Placing, the Company has 99,491,599 ordinary shares in issue. 37. CONTROL OF THE GROUP There is no ultimate controlling party of InfraStrata plc. 56 INFRASTRATA plc LETTER FROM THE CHAIRMAN WITH NOTICE OF ANNUAL GENERAL MEETING Directors: Kenneth Ratcliff (Non-executive Chairman) Andrew Hindle (Chief Executive Officer) Stewart McGarrity (Finance Director) Walter Roberts (Legal and Commercial Director) William Colvin (Non-executive Director) Maurice Hazzard (Non-executive Director) Dear Shareholder, 1. Introduction Registered Office: Blackstable House Longridge Sheepscombe Stroud GL6 7QX 2 December 2013 Notice of the Company’s forthcoming annual general meeting to be held on Tuesday 21 January 2014 (“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 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 2013 (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 the next annual general meeting of the Company at which Accounts are laid, and authorises the Directors to determine their remuneration. Retirement by Directors (Resolutions 3 to 5) Stewart McGarrity who was appointed as Finance Director on 25 September 2013, retires as required and offers himself for re- election. Andrew Hindle and William Colvin 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 page 17 of the Accounts. Authority of Directors to Allot Shares (Resolution 6) 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 6, pursuant to paragraph (A) of the Resolution, the Directors will have authority to allot shares up to a maximum of £3,316,386 which is approximately one third of the current issued share capital as at 2 December 2013, being the latest practicable date before the publication of this Letter. This authority will 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. In addition, in accordance with the guidance from the Association of British Insurers (“ABI”) on the expectations of institutional investors in relation to the authority of directors to allot shares, upon the passing of Resolution 6, 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 £3,316,386, which is approximately a further third of the current issued ordinary share capital as at 2 December 2013, 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. INFRASTRATA plc 57 LETTER FROM THE CHAIRMAN WITH NOTICE OF ANNUAL GENERAL MEETING As a result, if Resolution 6 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 7) If the Directors wish to exercise the authority under Resolution 6 and offer unissued shares (or sell any shares 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 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 7 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 £1,989,832 which is equivalent to 20 per cent of the issued share capital of the Company on 2 December 2013, being the latest practicable date prior to the publication of this Letter. If given, the authority will expire on the conclusion of the next 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 and the critical phase of so many of the projects in which we are involved, which can both be expected to require up-front investment and can take a long time to fully develop means that your Board considers 5% to be insufficient. Consequently I would ask that you approve a 20% 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 8,951,055 ordinary shares (representing 8.99 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 Asset Services 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 21 January 2014. 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 58 INFRASTRATA plc 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, 107 Cheapside, London, EC2V 6DN, United Kingdom on Tuesday 21 January 2014 at 1100 hours, for the purpose of passing the following Resolutions, of which Resolutions 1 to 6 will be proposed as Ordinary Resolutions and Resolution 7 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 2013, 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 Stewart McGarrity as Director who retires pursuant to article 87 of the Company’s articles of association and who, being eligible, offers himself for re election. 4. 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. 5. To re-elect William Colvin as Director who retires pursuant to article 92 of the Company’s articles of association and who, being eligible, offers himself for re election. 6. 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 £3,316,386; and (B) comprising equity securities (within the meaning of section 560 CA 2006) up to a further aggregate nominal amount of £3,316,386 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 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 being represented by depositary receipts). The authorities conferred on the Directors under paragraphs (A) and (B) above shall expire at the conclusion of the next annual general meeting of the Company after the passing of this Resolution or 31 January 2015, 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. INFRASTRATA plc 59 NOTICE OF ANNUAL GENERAL MEETING Special Resolution: 7. To consider and, if thought fit, to pass the following Resolution as a special resolution: THAT, subject to the passing of Resolution 6 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 6, 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 6, by way of a rights issue only): (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 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) nominal amount of £1,989,831; to the allotment (otherwise than under paragraph (A) of this Resolution 7) of equity securities up to an aggregate and shall expire at the conclusion of the next annual general meeting of the Company after the passing of this Resolution or 31 January 2015, 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 2 December 2013 By Order of the Board Walter Roberts Secretary Registered Office: Blackstable House, Longridge, Sheepscombe, Stroud GL6 7QX 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 Capita Asset Services 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 Asset Services 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 6. 7. 8. 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. 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 the Company’s Registrars, being Capita Asset Services 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. 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 17 January 2014 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 17 January 2014 shall be disregarded in determining the rights of any person to attend and/or vote at the Annual General Meeting. If the Chairman, as a result of any proxy appointments, is given discretion as to how the votes the subject of those proxies are to be 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. 60 INFRASTRATA plc PROXY FORM INFRASTRATA PLC 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, 107 Cheapside, London, EC2V 6DN, United Kingdom on Tuesday 21 January 2014 at 11.00 a.m. 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 below). Please clearly mark the boxes below to instruct your proxy how to vote. ORDINARY RESOLUTIONS For Against Vote witheld Discretionary 1. To receive the Report and Accounts for the year ended 31 July 2013 2. To re-appoint Nexia Smith & Williamson Audit Limited as auditors at a remuneration to be determined by the Directors 3. To re-elect Stewart McGarrity 4. To re-elect Andrew Hindle 5. To re-elect William Colvin 6. To grant the directors authority to allot shares on the basis set out in the Notice of AGM SPECIAL RESOLUTIONS 7. To disapply pre-emption rights on the basis set out in the Notice of AGM Signature(s) ........................................................................................... (see note 8) Date ........................................ 20......... Please complete and send this proxy form to Capita Asset Services, PXS, The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU. INFRASTRATA plc 61 Notes to the Proxy Form 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 Asset Services at The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU, by no later than 11.00 a.m. on 17 January 2014. 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 +44 (0)871 664 0300 (calls cost 10 p per minute plus network extras) 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 5. subsequently decide to do so. 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. 7. 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. 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 1800 hours on 17 January 2014 shall be entitled to attend the above AGM (or 1800 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 1800 hours on 17 January 2014 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 Asset Services 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 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. 62 INFRASTRATA plc InfraStrata plc 80 Hill Rise Richmond Surrey TW10 6UB www.infrastrata.co.uk 

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