Final Results

RNS Number : 6506I

Fulcrum Utility Services Ld

03 June 2014

 



FULCRUM UTILITY SERVICES LIMITED

Audited preliminary results for the year ended 31 March 2014

Fulcrum Utility Services Limited ("Fulcrum" or "the Group"), the UK based energy solutions company, today announces its preliminary results for the year ended 31 March 2014.

FINANCIAL SUMMARY

					Restated*
	Year ended		Year on		Year ended
	31 March 2014		year		31 March 2013
	£m		change		£m
Revenue	38.3		(1.2)%		38.8
Gross profit	9.5		(22.5)%		12.3
Gross margin (%)	24.8%				31.6%
Administrative expenses before exceptional items	10.2				13.2
Underlying EBITDA(1)	0.6				1.3
Operating loss before exceptional items	(0.7)				(0.9)
Net cash/(debt)	4.9				(0.1)

Notes

(1)   Earnings before interest, tax, depreciation, amortisation, share based payments and exceptional items.

*In prior years the cost of certain site-based operations staff has been included in overheads. In the current year's results these cost have been categorised as costs of sales, rather than overheads, as the directors are of the opinion that this is a more appropriate presentation. Accordingly, results for the prior year have been restated to re-allocate the cost of site based operations staff from overheads to cost of sales. The restatement has not affected the EBITDA.

FINANCIAL HIGHLIGHTS

·      Administrative expenses, excluding exceptional items, reduced by 22.6% to £10.2 million

·      Net cash balances increased by £5.0 million to £4.9 million

·      Sale of pipeline assets produced net cash inflow of £5.9 million

OPERATIONAL HIGHLIGHTS

·      The installation of a gas pipeline to a new £100 million power-from-waste plant facility. The £2.1 million gas infrastructure project, which involved over a kilometre of pipeline along with inlet and outlet works, meter installation and booster equipment, was won during the year and will be completed during the summer of 2014

·      A 4.5km gas pipeline project to bring gas to Glenkinchie distillery, the home of 'The Edinburgh Malt', for Diageo was won during the year and will be completed during the summer of 2014. This continues our valued relationship with Diageo following our successful work with them on the Speyside project

·      Renewal of the British Gas Business connections framework for a further twelve months to 30 September 2014

·      We strengthened our relationship with contractor partner McNicholas by selecting the company as our sole framework contractor for gas, electricity and multi-utility connection works at developments across England and Wales from 2 June 2014. This move to a single framework delivery partner enables us to increase our competitive position, simplify business processes and further improves the efficiency of back office functions including pricing, estimating and design services.

RESIGNATION OF NON-EXECUTIVE DIRECTOR

Mark Watts resigned from his position as Non-executive Director on 3 June 2014. The Board will continue to review its composition and structure as the business develops.

 Martin Donnachie, Chief Executive Officer said:

"Fulcrum is now in a much stronger financial position. Our cash position is robust and our cost base is under control. I firmly believe that Fulcrum is well-placed to increase its turnover and there are opportunities for substantial growth in several areas of the business. Delivering more major projects, taking advantage of the reinvigorated house building market, expanding our multi-utility offering and further developing our web-based sales channel will be Fulcrum's objectives in the coming year."

Phil Holder, Chairman of Fulcrum, said:

"Over the last year the turnaround process has been the main focus of the business and is now complete. The coming twelve months will involve a lot of change for Fulcrum as we move into a transition phase where the operating set up of the business will be transformed into a more efficient and customer responsive model. With the growth in the economy, Fulcrum is well placed to increase sales and this will be a major area of activity within the transition plan.  The Board thanks Mark Watts for his service to the company, which he leaves in a stable condition, well-positioned for growth. Marwyn remain as supportive shareholders."

Enquiries

Cenkos Securities plc                          [phone]                          (Nominated adviser and broker)
Stephen Keys

Instinctif Partners                                [phone]                          (Financial PR adviser)
Toby Bates

Notes to Editors

Fulcrum is an energy solutions company based in Sheffield, UK. The Company's primary business is the provision of unregulated utility connection services to the residential, commercial and industrial markets throughout the UK. These range from the design, installation or alteration of connections for single site properties to large complex multi-site projects. Through its subsidiary, Fulcrum Pipelines Limited, Fulcrum is licensed as an Independent Gas Transporter, and owns and operates gas infrastructure connecting properties to the main UK gas network. 

BUSINESS AND OPERATING REVIEW

Turnaround activity dominated the year ended 31 March 2014 at Fulcrum. It was particularly pleasing to see the business being successful in increasing its sales orders run rate which led to the business replacing the turnover relating to the Speyside Distilleries project as this came to an end.  In addition, a great deal of effort was put into improving the consistency of delivery at Fulcrum during the year. Fulcrum has a heritage of reliability and it is important that we build on our reputation by delivering safely and on time to the highest standards. The improvements that have been made in delivery have contributed to the solid sales orders performance and have led to us retaining key customers such as British Gas as well as winning business with new customers.

Substantial progress has been made in reducing the cost base of the business. The size of the senior management team has been scaled back, efficiencies have been made in the central support functions and non-people costs have been thoroughly reviewed to ensure that expenditure is in line with what is required for a company of Fulcrum's size. Overall, overhead levels (excluding exceptional items) have reduced by £3.0 million during the course of the last twelve months.

The pipeline asset sale in October 2013 and the subsequent improvements in cash management processes have transformed the cash position of the business.

Fulcrum has now moved out of its turnaround phase and has entered a phase of transition. This transition phase will last for the remainder of 2014 and will encompass activities such as: improving sales performance and particularly driving high value opportunities; changing the operating model to remove duplication and obtain synergies with supply chain partners; streamlining processes such as design; and evolving to a culture where performance to end customers is at the heart of everything done within Fulcrum. The business should then be able to enter 2015 in a position to drive performance hard and focus on activities aimed at accelerating growth.

Sales

Customers have welcomed the improvements in delivery that they are experiencing with Fulcrum. This has been a major factor in the increase in the underlying sales order level and we have successfully replaced the turnover associated with the Speyside distilleries contract. Significant contracts won during the year include the following:

·      The installation of a gas pipeline to a new £100 million power-from-waste plant facility. The £2.1 million gas infrastructure project, which involved over a kilometre of pipeline along with inlet and outlet works, meter installation and booster equipment, was won during the year and will be completed during the summer of 2014

·      A 4.5km gas pipeline project to bring gas to Glenkinchie distillery, the home of 'The Edinburgh Malt', for Diageo was won during the year and will be completed during the summer of 2014. This continues our valued relationship with Diageo following our successful work with them on the Speyside project

·      Renewal of the British Gas Business connections framework for a further twelve months to 30 September 2014

We have invested in bringing new people into the sales team to ensure that we have full coverage across mainland Britain. We have also continued to develop our web based sales channel and £3.6 million of business was won through this route in the year.

Looking ahead, Fulcrum is well placed to grow in a number of markets, especially as the UK economy is expanding and construction activity is set to increase. Our trusted delivery capability puts us in a strong position to win more business through utility suppliers and brokers. The growth in the housing market presents an exciting opportunity and we have developed our offering to allow us to compete more aggressively in this area. Fulcrum's ability to work on everything from straightforward single connections to complex infrastructure projects should produce a wealth of opportunities in the industrial and commercial markets. We are also seeing increasing interest in fuel conversion with many organisations seeking to move to gas and away from more costly and carbon-intensive alternatives.

Operations

Delivery on time is now a key measure within Fulcrum and we have greatly improved our delivery on time performance. We will continue to have a relentless focus on service delivery, as this will be a key differentiating factor in the markets we serve.

We strengthened our relationship with contractor partner McNicholas by selecting the company as our sole framework contractor for gas, electricity and multi-utility connection works at developments across England and Wales from 2 June 2014. This move to a single framework delivery partner enables us to increase our competitive position, simplify business processes and further improves the efficiency of back office functions including pricing, estimating and design services.

Over the course of the year the number of people engaged by Fulcrum reduced from 233 to 179. In March 2014 Fulcrum launched an employee consultation process in respect of a proposed reduction of 32 people. This consultation ended in April and the redundancies will take place between May and July. Following these redundancies, 149 people will be engaged in the business. This compares with 344 people at the time the business was acquired from National Grid. The restructuring that has taken place over the last twelve months has been necessary to produce an efficient operating model that is fit to service customers to a high standard and enable profits to be generated in line with market expectations, allowing for a realistic expectation of the gross margins that can be achieved. 

In October 2013, Fulcrum entered into a transaction with ES Pipelines to sell the majority of Fulcrum's residential pipeline assets. This sale realised net cash proceeds of £5.9 million and, since October, the cash position has remained robust.

Outlook

Fulcrum enters 2014/15 with a solid order book and the markets that the business operates in should present exciting opportunities. Turnaround activities of the last twelve months have been completed as planned. The Board believes that the transition work that the business is engaged in will produce a business model where Fulcrum can make a decent level of profit at its current level of turnover. If the business can achieve sales growth beyond this level, extra gross margin will be produced with little need for increase in overheads. 

 
FINANCIAL REVIEW

Reported results for the period

These preliminary results report the financial performance of the Group for the year ended 31 March 2014 and for the comparative period to 31 March 2013.

Results and comparison with previous year

					Restated*
	Year ended		Year on		Year ended
	31 March 2014		year		31 March 2013
	£m		change		£m
Revenue	38.3		(1.2)%		38.8
Gross profit	9.5		(22.5)%		12.3
Gross margin (%)	24.8%				31.6%
Administrative expenses before exceptional items	10.2				13.2
Underlying EBITDA(1)	0.6				1.3
Operating loss before exceptional items	(0.7)				(0.9)
Net cash/(debt)	4.9				(0.1)

Notes

(1)      Earnings before interest, tax, depreciation, amortisation, share based payments and exceptional items.

*In prior years the cost of certain site-based operations staff has been included in overheads. In the current year's results these cost have been categorised as costs of sales, rather than overheads, as the directors are of the opinion that this is a more appropriate presentation. Accordingly, results for the prior year have been restated to re-allocate the cost of site based operations staff from overheads to cost of sales. The restatement has not affected the EBITDA.

Revenue

Overall reported revenue for the year was £38.3 million against £38.8 million in the prior year, a reduction of 1.2%.

Revenues from infrastructure services were £38.3 million (2013: £39.0 million), a reduction of 2%. Revenue included some £5.2 million of revenue from the Speyside distilleries contract, (with £3.1 million having been recognised in the second half of the last financial year). The rate of sales orders won decreased in the latter part of the prior year which resulted in a slight year on year decline in revenue.

Revenue from the Group's pipeline operations amounted to £1.1 million, a decrease of 31% compared with the previous year's revenue of £1.5 million. Revenue for the six months ended 30 September 2013 was £0.8 million, in line with the same period in the prior year and included some £0.5 million of revenue from the domestic pipeline assets. These assets were disposed of on 9 October 2013, which largely accounted for the reduction year on year.  Intercompany trading of £1.1 million (2013: £1.7 million) was eliminated on consolidation.

Gross margin

Reported gross profit for the year was £9.5 million, representing a decrease of 22.5% compared to the prior year gross profit of £12.3 million. The prior year was bolstered by the one-off release of £1.1 million of provisions associated with the change in framework contractors and £0.6 million of other provisions released to cost of sales during the year, which largely explained the year on year reduction. It also included a number of highly profitable contracts which were not repeated in the current year.

The gross margin of 24.8% in the period was lower than the prior year margin of 31.6% and the reduction was explained by the factors mentioned above. The underlying margin in the prior year, excluding these benefits, was 27.3%.

Administrative expenses

Administrative expenses reported for the year totalled £13.9 million (2013: £13.2 million). Administrative expenses in the year included exceptional items of £3.7 million associated with the restructuring exercise concluded in early 2014 and are discussed in more detail below. Excluding these exceptional items administration expenses had fallen by 22.6% to £10.2 million. The reduction was principally due to savings realised from the cost saving and restructuring initiatives undertaken during the year.

Included within administrative expenses are share based payment charges of £0.1 million (2013: £0.9 million) associated with the company's equity based option schemes. The management participation shares and Marwyn participation option reached maturity during the year, with the result that no further charges were due under the scheme. This, combined with cancellation of the Fulcrum share option plan, which commenced on 28 March 2012, resulted in the year on year reduction in the charge. The charge for the first half year was £0.2 million, which was calculated prior to the decision to cancel the EMI scheme. In February 2014 a new scheme was introduced which incurred a charge of £10,000 in the second half year.

In addition, during the prior year, the management participation share incentive scheme was restructured as a result of an administrative error made when the scheme was put in place in July 2010. Share based payment charges for the prior year included costs of £151,000 associated with this restructuring.

EBITDA and operating loss

Underlying EBITDA, before exceptional items and share based payments was £0.6 million for the year (2013: £1.3 million), a £0.7 million reduction against the prior period.

The operating loss reported for the year was £4.4 million, including exceptional items of £3.7 million (2013: £0.9 million, including exceptional items of £nil).

The loss per ordinary share for the period was 2.9 pence (2013: loss of 0.3 pence). The adjusted loss per share, before charging exceptional items and crediting deferred tax, was 0.5 pence (2013: loss of 0.7 pence).

Exceptional Items

Exceptional items for the year were £3.7 million (2013: £nil). The principal components of the charge were £2.2 million for costs associated with restructuring activities and redundancies and £1.4 million in respect of the impairment of the pipeline assets which were sold on 9 October 2013.

Finance expense

Net finance expense for the year was £105,000 (2013: £75,000). This reflects interest payable during the year on the IT lease financing arrangement and the Lloyds financing facility.

Interest expense relating to finance leases totalled £82,000 during the year (2013: £71,000).

Taxation

During the year the Group incurred losses for corporation tax purposes of approximately £3.1 million (2013: £1.1 million) and the total sum of accumulated unrecognised losses carried forward amounts to £18.9 million as at 31 March 2014 (2013: £16.0 million).

Deferred tax assets totalling £0.5 million have been recognised at 31 March 2014 (2013: £0.5 million) in anticipation of improved business profitability in future periods.

Deferred tax liabilities totalling £0.6 million have been recognised at 31 March 2014 (2013: £nil) in respect of the revaluation of the industrial and commercial pipeline assets. There is currently no intention to sell these assets and the company expects to recover their valuation through use therefore no tax is currently expected to be payable in respect of the revaluation.

Asset disposal and asset revaluation

As at 30 September 2013 Fulcrum reclassified the portfolio of domestic pipeline assets held within the balance sheet of its subsidiary Fulcrum Pipelines Limited from fixed assets to assets held for sale. The carrying value of the assets held for sale was determined by reference to the expected proceeds from sale, less transaction costs. An impairment of £1.4 million relating to the assets held for sale has been charged to the income statement, and has been classified as an exceptional item due to the size and nature of the charge.

These domestic pipeline assets were subsequently disposed of on 9 October 2013 for a gross consideration of £6.3 million in cash, less a retention of £57,000 to cover transitional matters.  The net proceeds of the disposal, after advisers' fees and transaction costs was approximately £5.9 million.

On 30 September 2013 Fulcrum Pipelines Limited also carried out a valuation of its remaining portfolio of industrial & commercial ("I&C") pipeline assets and has revalued upwards the carrying value of these assets to £4.4 million. The increase in net book value as at 30 September 2013 of £3.1 million was credited to a revaluation reserve in the balance sheet of Fulcrum Pipelines Limited.

The Group's accounting policy for pipeline assets is to recognise these assets at the value of the future discounted cash flows expected to be generated from operation of the assets, less accumulated depreciation. The Directors have changed their accounting policy to one of revaluation, including a periodic review of the assumptions underlying future discounted cash flows generated. This change to a revaluation policy was prompted by the sale of the domestic pipeline asset portfolio in October 2013 which highlighted a disparity between the relative assumptions underlying future cash flows arising from valuation of domestic pipeline assets and those of I&C assets. In order to better represent the future value of these cash flows, and hence the carrying value of I&C pipeline assets, the Directors have sought to revise their underlying assumptions.

To assist with the valuation of these assets the Directors appointed Grant Thornton UK LLP to carry out an independent review and benchmarking exercise of the assumptions used to calculate the future cash flows associated with I&C assets. These assumptions include, inter alia, estimates of future occupancy and gas consumption of the associated properties, which are used to derive the future cash flows at the point of acquisition by Fulcrum Pipelines Limited from its fellow subsidiary, Fulcrum Infrastructure Services Limited. These future cash flows are then discounted at a rate of 15% which reflects an estimate of the cost of capital and risk associated with the cash flows arising from these assets.

In addition, the useful economic life of these I&C pipeline assets has been revised to 40 years from 20 years as a result of benchmarking the useful economic life of the assets against comparable industry operators. This exercise was also carried out by Grant Thornton UK LLP on behalf of the Directors.

Dividends

No dividend has been proposed or paid (2013: £nil).

Cash flow and financing

Operating cash flow

Operating activities in the period generated cash of £0.6 million (2013: absorbed cash of £5.4 million), and comprised the following:

·      EBITDA for the period of £0.6 million (2013: £1.3 million);

·      exceptional cash costs totalling £1.7 million (2013 £0.2 million);

·      working capital inflows in the year total £1.7 million (2013: £6.3 million outflow) and reflect:

o  an increase in the balance of payments received in advance of £2.8 million since 31 March 2013 (2013: reduction of £0.7 million);

o  an outflow from a reduction in accruals of £0.2 million, (2013: £6.2 million outflow, largely due to settlement of amounts due to contractors accrued at 31 March 2013); and

o  other working capital outflows of £0.9 million (2013: £0.6 million inflow);

·      other cash outflows of £nil (2013: £0.2 million) associated with modification of the management participation scheme.

Investing activities

Capital expenditure for the period amounted to £1.4 million (2013: £2.9 million), principally in respect of investment in pipeline assets (2013: £1.7 million).

Cash and borrowings

As at 31 March 2014 the Group held cash balances of £5.3 million (2013: £1.9 million). No amounts were outstanding on financing facilities (2013: £1.3 million). Amounts outstanding on finance leases at 31 March 2014 were £0.4 million (2013: £0.7 million).

The net proceeds of £5.9 million from the disposal of the domestic pipeline assets were received on 10 October 2013.

The overall net cash position of the Group at 31 March 2014 was £4.9 million (2013: net debt of £0.1 million).

Principal risks and uncertainties

The risks and uncertainties faced by the Group as disclosed on pages 20 and 21 of the Annual Report and Accounts to 31 March 2013 remain valid, being growth and strategy execution, dependence on key executives and personnel, risks relating to operating in a competitive market, risks relating to the gas connections market, reliance on key customers, reliance on key suppliers, continuity of financing facilities, changing mix of sales, change in balance of contract value and capital risk management.

Consolidated Statement of Comprehensive Income

	Notes	Year ended 31 March 2014	Restated* Year ended 31 March 2013
		£'000	£'000
Revenue		38,285	38,769
Cost of sales		(28,794)	(26,515)
Gross profit		9,491	12,254
Administrative expenses		(13,874)	(13,182)
Operating loss		(4,383)	(928)
Analysed as:
EBITDA before share based payments and exceptional items		607	1,279
Equity-settled share based payment charges	7	(115)	(878)
Exceptional items		(3,675)	-
Depreciation and amortisation	4, 5	(1,200)	(1,329)
		(4,383)	(928)
Finance expense		(105)	(75)
Loss before tax		(4,488)	(1,003)
Taxation		30	508
Loss for the period attributable to equity holders of the parent		(4,458)	(495)
Other comprehensive income: Items that will never be reclassified to profit or loss:
Revaluation of property, plant and equipment		3,061	-
Deferred tax arising on revaluation		(612)	-
Total comprehensive loss		(2,009)	(495)
Loss per share attributable to the owners of the business
Basic and diluted	3	(2.9)p	(0.3)p

*In prior years the cost of certain site-based operations staff has been included in overheads. In the current year's results these cost have been categorised as costs of sales, rather than overheads, as the directors are of the opinion that this is a more appropriate presentation. Accordingly, results for the prior year have been restated to re-allocate the cost of site based operations staff from overheads to cost of sales. The restatement has not affected the EBITDA.

Consolidated Statement of Changes in Equity

	Notes	Share capital	Share premium	Revaluation reserve	Retained earnings	Total equity
		£'000	£'000	£'000	£'000	£'000
Balance at 1 April 2012		154	16,182	-	(16,458)	(122)
Loss and total comprehensive loss for the year ended 31 March 2013		-	-	-	(495)	(495)
Transactions with equity shareholders:
Equity-settled share based payment transactions	7	-	-	-	727	727
Balance at 1 April 2013		154	16,182	-	(16,226)	110
Loss for the year ended 31 March 2014		-	-	-	(4,458)	(4,458)
Other comprehensive income		-	-	3,061	-	3,061
Recognition of deferred tax on revalued assets		-	-	(612)	-	(612)
Transactions with equity shareholders:
Equity-settled share based payment transactions	7	-	-	-	115	115
Balance at 31 March 2014		154	16,182	2,449	(20,569)	(1,784)

Consolidated Balance Sheet

	Notes	31 March 2014 £'000	31 March 2013 £'000
Non-current assets
Property, plant and equipment	4	6,353	9,821
Intangible assets	5	3,359	3,909
Deferred tax assets		538	508
		10,250	14,238
Current assets
Inventories		1,974	1,489
Trade and other receivables		5,346	7,692
Cash and cash equivalents	8	5,326	1,911
		12,646	11,092
Total assets		22,896	25,330
Current liabilities
Trade and other payables		(22,245)	(22,440)
Borrowings	6, 8	(274)	(1,531)
Provisions		(1,378)	(798)
		(23,897)	(24,769)
Non-current liabilities
Borrowings	6, 8	(171)	(451)
Deferred tax liabilities		(612)	-
		(783)	(451)
Total liabilities		(24,680)	(25,220)
Net current liabilities		(11,251)	(13,677)
Net (liabilities)/assets		(1,784)	110
Equity attributable to equity holders of the parent
Share capital		154	154
Share premium		16,182	16,182
Revaluation reserve		2,449	-
Retained earnings		(20,569)	(16,226)
Total (deficit)/surplus on equity		(1,784)	110

Consolidated Cash Flow Statement

	Notes	Year ended 31 March 2014	Year ended 31 March 2013
		£'000	£'000
Cash flows from operating activities
Loss before tax for the year		(4,488)	(1,003)
Adjustments for:
Depreciation	4	656	880
Amortisation of intangible assets	5	544	449
Loss/(profit) on disposal of property, plant and equipment		51	(35)
Impairment of assets held for sale	4	1,364	-
Finance expense		105	75
Equity settled share-based payment charges	7	115	727
Exceptionals		2,311	-
Decrease/(increase) in trade and other receivables		2,346	(1,725)
Increase in inventories		(485)	(30)
Decrease in trade and other payables		(195)	(4,551)
Decrease in provisions		(1,731)	(215)
Net cash generated from/(used in) operations		593	(5,428)
Interest received		-	52
Interest paid		(103)	(83)
Net cash generated from/(used in) operating activities		490	(5,459)
Cash flows from investing activities
Additions to property, plant and equipment		(1,408)	(1,942)
Additions to intangibles		(12)	(948)
Proceeds from sales of property, plant and equipment		5,884	863
Net cash generated from/(used in) investing activities		4,464	(2,027)
Cash flows from financing activities
Amounts (repaid)/drawn from financing facilities		(1,293)	1,293
Repayment of finance lease liabilities		(246)	(165)
Net cash (used in)/generated from financing activities		(1,539)	1,128
Net increase/(decrease) in cash and cash equivalents		3,415	(6,358)
Cash and cash equivalents at 1 April 2013		1,911	8,269
Cash and cash equivalents at 31 March 2014	8	5,326	1,911

 

Notes to the consolidated financial statements

1.     Accounting policies

General information

Fulcrum Utility Services Limited is a limited company incorporated in the Cayman Islands and domiciled in the UK. The address of its registered office is PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands.

The company has its primary listing on the AIM market of the London Stock Exchange.

The principal accounting policies adopted in the preparation of these consolidated financial statements are unchanged from those applied in the preparation of, and set out in, the financial statements for the year ended 31 March 2013 except as set out below. They will also be set out in full in the 2014 published financial statements.

Basis of preparation

This preliminary announcement does not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006.

The financial statements have not yet been delivered to the Registrar of Companies but will be in due course.

Whilst the financial information included in this preliminary announcement has been prepared on the basis of the requirements of IFRSs in issue, as adopted by the European Union and effective at 31 March 2014, this announcement does not itself contain sufficient information to comply with IFRS.

The preparation of financial statements in conformity with adopted IFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The financial information set out in this preliminary announcement does not constitute the Company's consolidated financial statements for the years ended 31 March 2014 and 31 March 2013, but is derived from those financial statements. The auditors have reported on those financial statements. Their reports were unqualified and did not draw attention to any matters by way of emphasis of matter without qualifying their report.

The financial statements have been prepared using consistent accounting policies, except for the adoption of new accounting standards and interpretations noted below. Adoption of these standards and interpretations did not have a significant impact on the financial position or performance of the Group.

·      Amendments to IAS 19: Employee Benefits

·      Amendments to IAS 1: Presentation of Items of Other Comprehensive Income

·      Amendments to IFRS 13: Fair Value Measurement

·      Amendments to IFRS 7: Financial Instruments: Disclosures - Offsetting Financial Assets and Liabilities

·      Annual improvements to IFRSs 2009-2011 Cycle

The following standards and amendments to standards are in issue but are not yet effective, and therefore have not yet been applied.

·      IFRS 10: Consolidated Financial Statements

·      IFRS 11: Joint Arrangements

·      IFRS 12: Disclosures of Interests in Other Entities

·      IAS 27: Separate Financial Statements

·      IAS 28: Investments in Associates and Joint Ventures

·      Amendments to IAS 32: Financial Instruments: Disclosures - Offsetting Financial Assets and Liabilities

·      Amendments to IAS 36: Recoverable Amount Disclosures for non-Financial Assets

·      Amendments to IAS 39: Novation of Derivatives and Continuation of Hedge Accounting

Adoption of these standards is not expected to have a significant impact on the financial position or performance of the Group.

Going concern

As highlighted in the financial review, the Group had net funds at 31 March 2014 of £4.9 million. The Group had not drawn on its available financing facilities.

As a matter of course the Directors regularly prepare financial forecasts for the business and these are reviewed and adopted by the Board. These forecasts are subject to 'stress testing' with appropriate sensitivity analysis and scenario planning to ensure that any adverse impact can be managed and mitigated such that the business can continue to operate within its existing financing facilities.

The Group's forecasts and projections, after taking account of sensitivity analysis of changes in trading performance and corresponding mitigating actions, show that the Group has adequate cash resources for the foreseeable future.

Therefore, the Directors confirm that they have a reasonable expectation that the Group has adequate resources to enable it to continue in existence for the foreseeable future and, accordingly, the consolidated financial statements have been prepared on a going concern basis.

2.     Operating segments

The determination of the Group's operating segments is based on the business units for which information is reported to the Board of Directors. The Group has two reportable segments, as described below.

Fulcrum's Infrastructure Services business provides utility infrastructure and connections services. This comprises the operating segments of "Unregulated gas connections" and "Multi-utility connections" which have been aggregated in accordance with the criteria of IFRS 8.

Fulcrum's Pipelines business comprises both the ownership of gas infrastructure assets and the safe and efficient conveyance of gas through its gas transportation networks. Gas transportation services are provided under the IGT licence granted from Ofgem during June 2007.

Information regarding the operations of each reportable segment is included in the following tables. Performance is measured based on operating profit / (loss) before exceptional items. Segment operating profit / (loss) before exceptional items is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries. Inter-segment pricing is determined on an arm's length basis. The information provided to the Board includes management accounts comprising profit or loss for each segment and other financial and non financial information used to manage the business on a consolidated basis.

The "unallocated" segment comprises the elimination of inter-segmental transactions, the operating loss of the central service provider, and depreciation and amortisation on all centrally held assets.

 

2.      Operating segments (continued)

Year ended 31 March 2014

	Infrastructure Services	Pipelines	Unallocated	Total Group
	£'000	£'000	£'000	£'000
Reportable segment revenue	38,345	1,056	(1,116)	38,285
Underlying EBITDA	969	468	(830)	607
Share based payment charge	-	-	(115)	(115)
Depreciation and amortisation	-	(347)	(853)	(1,200)
Reportable segment operating profit/(loss) before exceptional items	969	121	(1,798)	(708)
Exceptional items	(1,147)	(1,371)	(1,157)	(3,675)
Reporting segment operating loss	(178)	(1,250)	(2,955)	(4,383)
Finance expense	-	-	(105)	(105)
Loss before tax	(178)	(1,250)	(3,060)	(4,488)

Year ended 31 March 2013

	Infrastructure Services	Pipelines	Unallocated	Total Group
	£'000	£'000	£'000	£'000
Reportable segment revenue	38,995	1,534	(1,760)	38,769
Underlying EBITDA	1,529	480	(730)	1,279
Share based payment charge	-	-	(878)	(878)
Depreciation and amortisation	-	(486)	(843)	(1,329)
Reportable segment operating profit/(loss) before exceptional items	1,529	(6)	(2,451)	(928)
Exceptional items	-	-	-	-
Reportable segment operating profit/(loss)	1,529	(6)	(2,451)	(928)
Finance expense	-	-	(75)	(75)
Profit/(loss) before tax	1,529	(6)	(2,526)	(1,003)

 

2.      Operating segments (continued)

Major items in the "unallocated" column comprise:

·      Reportable segment revenues; the elimination of inter-segmental revenues relating to pipeline assets of £1,116,000 (2013: £1,760,000)

·      Underlying EBITDA; the operating costs of group central services

·      Depreciation and amortisation; amounts charged on all centrally held assets

·      Exceptional items; amounts not directly related to the other operating segments

Geographic segments

The Group derives all of its revenue from the UK and all of the Group's customers are based in the UK.

Major customer

Revenues from the largest customer of the Group's Infrastructure Services segment represent £6,171,000 (2013: £5,911,000) of the Group's total revenues for the period.

3.      Earnings per share (EPS)

Earnings per share have been calculated by dividing the loss attributable to shareholders by the weighted average number of ordinary shares in issue during the period.  Earnings per share have been calculated as follows:

	Year ended 31 March 2014	Year ended 31 March 2013
	'000	'000
Weighted average number of ordinary shares in issue	154,307	154,307

Loss for the period	Year ended 31 March 2014	Year ended 31 March 2013
	£'000	£'000
Loss for the period attributable to shareholders	(4,458)	(495)
Add exceptional items	3,675	-
Less deferred tax asset recognised	(30)	(508)
Adjusted loss for the period attributable to shareholders	(813)	(1,003)

Loss per share	Year ended 31 March 2014	Year ended 31 March 2013
Basic	(2.9)p	(0.3)p
Adjusted basic	(0.5)p	(0.7)p

In accordance with IAS 33 'Earnings per share' diluted earnings per share is taken as being equal to basic earnings per share as, where the Group has recorded a loss the effect of including share options is anti-dilutive.

4.      Property, plant and equipment

	Pipelines	Fixtures and  fittings	Computer equipment	Total
	£'000	£'000	£'000	£'000
Cost
At 1 April 2012	8,495	232	1,220	9,947
Additions	1,668	82	642	2,392
Disposals	-	(79)	(706)	(785)
At 31 March 2013	10,163	235	1,156	11,554
Additions	1,408	-	-	1,408
Revaluation	3,061	-	-	3,061
Disposals	(8,703)	(42)	(127)	(8,872)
At 31 March 2014	5,929	193	1,029	7,151
Accumulated depreciation
At 1 April 2012	(660)	(78)	(248)	(986)
Depreciation charge for the period	(486)	(42)	(352)	(880)
Disposals	-	22	111	133
At 31 March 2013	(1,146)	(98)	(489)	(1,733)
Depreciation charge for the period	(347)	(51)	(258)	(656)
Impairment	(1,364)	-	-	(1,364)
Disposals	2,821	25	109	2,955
At 31 March 2014	(36)	(124)	(638)	(798)
Net book value
At 31 March 2014	5,893	69	391	6,353
At 31 March 2013	9,017	137	667	9,821
At 1 April 2012	7,835	154	972	8,961

There were no commitments to purchase any property, plant and equipment at 31 March 2014 or 31 March 2013.

At 31 March 2014 the net book value of leased plant and equipment was £367,000 (2013: £585,000).

5.      Intangible assets

	Goodwill	Software	Total
	£'000	£'000	£'000
Cost
At 1 April 2012	2,225	1,654	3,879
Additions	-	986	986
Disposals	-	(192)	(192)
At 31 March 2013	2,225	2,448	4,673
Additions	-	12	12
Disposals	-	(72)	(72)
At 31 March 2014	2,225	2,388	4,613
Accumulated amortisation and impairment
At 1 April 2012	-	(331)	(331)
Amortisation for the period	-	(449)	(449)
Disposals		16	16
At 31 March 2013	-	(764)	(764)
Amortisation for the period	-	(544)	(544)
Disposals	-	54	54
At 31 March 2014	-	(1,254)	(1,254)
Net book value
At 31 March 2014	2,225	1,134	3,359
At 31 March 2013	2,225	1,684	3,909
At 1 April 2012	2,225	1,323	3,548

The amortisation charge is recognised in administrative expenses in the Consolidated Statement of Comprehensive Income.

At 31 March 2014 the net book value of leased software was £65,000 (2013: £103,000).

6.      Borrowings

		31 March 2014	31 March 2013
Current		£'000	£'000
Finance lease liabilities		274	238
Invoice discounting liabilities		-	1,293
		274	1,531

		31 March 2014	31 March 2013
Non-current		£'000	£'000
Finance lease liabilities		171	451

Finance lease liabilities are payable as follows:

	Future minimum lease payments			Interest			Present value of minimum lease payments
	2014	2013		2014	2013		2014	2013
	£'000	£'000		£'000	£'000		£'000	£'000
Less than one year	325	326		51	88		274	238
Two to five years	177	502		6	51		171	451
	502	828		57	139		445	689

7.      Share based payments

		Year ended 31 March 2014	Year ended 31 March 2013
		£'000	£'000
Management participation shares		73	294
Marwyn participation option		74	294
Fulcrum share option plan		(42)	139
EMI option scheme		10	-
Total equity settled share based payments		115	727
Costs of modification of Management participation scheme		-	151
Total share based payments		115	878

8.      Reconciliation to net debt

		31 March 2014	31 March 2013
		£'000	£'000
Cash and cash equivalents		5,326	1,911
Amounts outstanding on financing facilities		-	(1,293)
Finance lease liabilities		(445)	(689)
Net funds/(debt)		4,881	(71)

9.      Related parties

Key management compensation

The key management group is defined as the Board of Directors. Their compensation amounted to £775,000 (2013: £744,000) for the period as follows:

	Year ended 31 March 2014	Year ended 31 March 2013
	£'000	£'000
Short-term employee benefits	734	540
Share related awards	41	204
	775	744

Transactions with other related parties

Marwyn Capital LLP and Marwyn Management Partners LP are considered to be related parties as Mark Watts is a Managing Partner of both of these organisations, as well as being a non-executive director of the Group until his resignation on 3 June 2014.

The Company has paid Marwyn Capital LLP a fee of £135,000 (2013: £180,000) for the year pursuant with the corporate finance advisory agreement which was ended after the year end, and £nil (2013: £45,000) for office rental. An amount of £21,000 (2013: £55,000) was owed to Marwyn Capital LLP at 31 March 2014.

The Company entered into an agreement with Marwyn Management Partners LP under which Marwyn Management Partners LP was granted an option to subscribe for ordinary shares subject to growth and vesting conditions being met. Under this agreement, the value of this benefit has been recognised as £74,000 (2013: £294,000) in the period.

All of the transactions above have been entered into on arms-length commercial terms, are unsecured, are expected to be settled in cash and are not covered by any guarantee.

There were no amounts due from related parties on any trading accounts at 31 March 2014.

 

END

 

 

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