Audited Preliminary Results

RNS Number : 8522F

Fulcrum Utility Services Ld

30 May 2013

 



FULCRUM UTILITY SERVICES LIMITED

Audited preliminary results for the year ended 31 March 2013

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 2013.

FINANCIAL SUMMARY

	Year ended	Year ended
	31 March 2013	31 March 2012
	£m	£m
Revenue	38.8	41.0
Underlying EBITDA (1)	1.3	(2.1)
Operating loss before exceptional items	(0.9)	(3.5)
Loss before tax	(1.0)	(5.6)
Net (debt) / funds	(0.1)	8.3
Earnings per share
Basic	(0.3)p	(3.7)p
Adjusted Basic (2)	(0.7)p	(2.2)p

Notes

(1)      Underlying EBITDA is defined as earnings before depreciation, amortisation, interest, share based payments, exceptional items and tax.

(2)      Adjusted basic earnings per share are earnings per share before exceptional items and deferred tax.

FINANCIAL HIGHLIGHTS

·      Improvement in gross margin from 34% to 39%

·      Administrative expenses reduced by 19% to £15.9m

·      Revenue down 5% on prior year and flat in the second half

·      £3.4m improvement in EBITDA performance from £2.1m loss to £1.3m profit

·      £4.0m asset backed financing facility agreed with Lloyds TSB

·      Cash balances reduced by £6.4m to £1.9m with an overall closing net debt position of £0.1m

OPERATIONAL HIGHLIGHTS

·      New Interim Chief Executive Officer, Martin Donnachie, joined the business in May 2013

·      Signed new framework contract with npower for the provision of commercial and industrial utility connections services

·      Secured £7.6m contract with Chivas Brothers Limited and Angus Dundee Distillers plc to provide gas infrastructure to four distilleries in the Highlands of Scotland with 10.2 km of pipe laid at 31 March 2013, representing 40% of the total distance

·      Constructed and managed infrastructure to deliver gas to the London 2012 Olympic flame, the Olympic Park, the Athletes' Village and nearby Westfield Shopping Centre

APPOINTMENT OF INTERIM CHIEF EXECUTIVE

Martin Donnachie joined Fulcrum as Interim Chief Executive on 7 May 2013, following the departure of former Chief Executive John Spellman. Martin will serve as Interim Chief Executive for a minimum of six months whilst Fulcrum seeks the appointment of a full time Chief Executive to lead the business in the long term. Martin will be supported by the existing established management team, ensuring a smooth transition for the business. Martin brings to the Company considerable experience gained from a range of interim leadership roles and, prior to that, 12 years of experience in the house building and construction services sectors, most recently with George Wimpey plc and Rok plc.

Martin Donnachie, Interim Chief Executive Officer said:

"I am delighted to have joined Fulcrum. In the short period since I arrived I have found a business with significant potential and some excellent people. It is clear that Fulcrum is a well-respected brand in the market and it is important that this is reinforced by building an efficient business capable of delivering first class customer service."

Phil Holder, Chairman of Fulcrum, said:

"The performance of Fulcrum over the past year has been slower than anticipated against a backdrop of a challenging construction sector and generally constrained demand for utility connections. This is reflected in a disappointing sales performance with the progress of the business having been considerably slower than the Board had hoped. However the Company has achieved significant progress in delivering a robust gross profit margin and further efficiencies in the operating cost base. Martin Donnachie joins the business at a time when the focus must now be on driving revenue growth and his track record of building successful teams and putting customer service at the heart of the business gives me confidence in the future."

Enquiries

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

College Hill                                            [phone]                          (PR)
Toby Bates / Chantal Hadley

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 that connects over 30,000 properties to the main UK gas network. 

BUSINESS AND OPERATING REVIEW

Performance for the year to 31 March 2013 has been impacted by the current market conditions for utilities connections characterised by a weak construction sector, delays in securing larger contracts, and reticence on the part of small and medium sized business to invest.

There are some signs emerging of improvements in the market. The housing development sector is opening up and there are some specific sectors of the market where Fulcrum is well placed to win more business. 

Sales

Despite difficult market conditions, Fulcrum has continued to win significant new contracts. In the autumn of 2012 the business entered into a £7.6 million contract to provide gas infrastructure to four distilleries in the Highlands of Scotland in support of their conversion from heavy fuel oil to gas. In addition, in April 2013 Fulcrum signed a significant new framework contract with npower for the provision of commercial and industrial utility connections services. A number of smaller contracts have also been secured during the year including:

·      a contract with Schneider Electric on behalf of Highland Distillers for the installation of 535 metres of new gas infrastructure to Glenturret Distillery, producer of 'The Famous Grouse' whisky

·      a project for Willmott Dixon to deliver multi-utility infrastructure (gas, water and electricity connections and street lighting) as part of redevelopment works at Victoria Hospital, Blackpool

·      a gas infrastructure project at Birmingham's New Street development, including an installation to the new John Lewis Development, on behalf of Mace Group

·      gas infrastructure works to a new energy centre and new housing development as part of the Stoke Quay development on behalf of ISG Jackson

The business has continued to develop new sales channels for its services and has had particular success with winning referred business through energy shippers and energy brokers. Project revenues from the broker sales channel have increased from £0.3 million in 2011/12 to £2.1 million during the year, with revenues from the shipper channel increasing by over 40% to £1.0 million. The market for fuel oil conversion to gas represents a new market for Fulcrum and to date we have seen a number of contract successes, including the Speyside distilleries contract. The relative economics of gas prices against fuel oil prices for businesses operating oil fired infrastructure present Fulcrum with a significant market opportunity. Provision of gas ensures continuity of supply for these businesses, is less polluting than fuel oil, and for operators with fuel oil infrastructure nearing the end of its serviceable life the investment case for the conversion to gas is very attractive.

The Company maintains a robust pipeline of new orders with a forward order book at 31 March 2013 of £17.5 million compared to £15.3 million at 31 March 2012. This includes revenue from the Speyside distilleries contract of £4.6 million which will be delivered over the forthcoming financial year.

Gross margins have continued to strengthen over prior years reporting overall gross margins of 39% for the year against 34% in the prior year. However the gross margin in the second half of the year (37%) was lower than the first half (40%), reflecting the mix of smaller projects delivered in the second half and increased competition in certain market sectors.

Operations

November 2012 saw the anniversary of the Group's framework contracts with Carillion and McNicholas which provided an opportunity to review the operation of the contracts and to revisit rates and prices with each of the contractors. This process concluded in March 2013 with revised agreements which set the basis for more competitive pricing on higher value projects. The business is already seeing the benefit of these revised prices in the value and volume of contracts won in April 2013.

On 1 March 2013 Fulcrum terminated its Framework contract with Turriff (part of May Gurney) in Scotland. Project delivery in Scotland is now being undertaken by a number of smaller contractors.

The new IT system based on Microsoft Dynamics AX, was deployed across the business in April 2012. During the year the business has transitioned all of its IT applications onto the Microsoft Dynamics platform, decommissioning older infrastructure and applications in parallel. The system has continued to bed down throughout the year with associated improvements in business processes. The process of improving operational efficiency will continue, with the benefits being fully realised in future periods.

Improving customer service remains an on-going focus for Fulcrum. During the first half of the year the delivery functions of the business were aligned to customer channels from the point of enquiry through to fulfilment and completion. This alignment provides customers with a transparent end to end service to ensure efficient service delivery.

During January 2013 the company secured a £4.0m asset backed financing facility from Lloyds TSB Commercial Finance, providing the business with working capital flexibility to deliver larger and longer duration contracts on commercial credit terms.

In April 2013 Fulcrum launched an employee consultation process in respect of 35 proposed redundancies in order to further improve the operational efficiency of the business. This consultation was concluded on 22 May 2013 and the business expects to make these redundancies over the coming weeks.

Outlook

The order book remains robust and Fulcrum has a strong pipeline of sales opportunities. Performance of the market will continue to impact sales performance and timing of the market turnaround will impact revenue performance in the coming year. Gross margins remain robust, however these are expected to come under pressure in certain competitive markets. Operating costs reflect recent efficiencies and these will continue to reduce throughout the year as the impact of the announced redundancies takes effect.

FINANCIAL REVIEW

Reported results for the period

These preliminary results report the financial performance of the Group for the year ended 31 March 2013 and for the comparative period to 31 March 2012.

Results and comparison with previous periods

	Audited Year ended 31 March 2013		Year on year change	Audited Year ended 31 March 2012
	£m			£m
Revenue	38.8		(5.4)%	41.0
Gross profit	15.0		7.1%	14.0
Gross margin (%)	38.7%			34.1%
Underlying EBITDA (1)	1.3			(2.1)
Operating loss before exceptional items	(0.9)			(3.5)

Notes

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

Revenue

Overall reported revenue for the period was £38.8 million against £41.0 million in the prior year, a reduction of 5%. Revenues from infrastructure services were £39.0 million (2012: £41.1 million), a reduction of 5%. The Group's pipeline operations contributed revenue of £1.5 million, an increase of 13% over the prior year revenue of £1.4 million. Intercompany trading of £1.7 million (2012: £1.5 million) is eliminated on consolidation.

Infrastructure revenues are derived from projects across different value sectors. Revenue performance for the year reflects the following:

·      a reduction in revenues from smaller projects (with a sales value of less than £10,000) of 20% over the prior year;

·      revenues from medium sized projects (with a sales value of less than £50,000) down by 15% over the prior year and now represent around 60% of revenues, down from over 70% in 2011/12;

·      revenues from large projects (with a sales value greater than £50,000) have increased by 12% over the prior year, whilst volumes are down by 8%;

·      a significant increase in revenues from gas shipper and broker customers from £1.1 million in 2011/12 to £3.1 million in 2012/13; and

·      a reduction of 38% in revenues from property developer customers, reflecting in part depressed house building activities and increased competition seen in this sector.

Gross margin

Reported gross profit for the year was £15.0 million, representing an increase of more than 7% over the prior year gross profit of £14.0 million. Gross margins have continued to increase over the previous year from 34% to 39%.

Gross margins in the second half of the year were 37% against 40% in the first half. This reflects completion of a number of higher margin contracts in the first half of the year and a reduction in pricing in the more competitive medium sized project sector (£10,000 to £50,000) during the final quarter of the financial year.

Following the termination of previous sub contract arrangements with Enterprise plc in November 2011 the Group made provisions for certain liabilities associated with risks arising under the New Road and Street Works Act 1991. In the period since November 2011 no such liabilities have arisen and during the year an amount of £0.6 million has been credited to cost of sales in respect of these provisions. Excluding this amount, gross margins for the year would have been 37%.

Administrative expenses

Administrative expenses reported for the period totalled £15.9 million (2012: £19.7 million), an overall reduction of 19%. Administrative expenses in the prior year included exceptional items of £2.2 million associated with the restructuring exercise concluded in the summer of 2011. Excluding these exceptional items administration expenses have fallen by 9% to £15.9 million.

Included within administrative expenses are share based payment charges of £0.9 million (2012: £0.6 million) associated with the company's equity based option schemes. This year on year increase reflects in part the new EMI and unapproved option schemes which commenced on 28 March 2012.

In addition, during the 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 current year include costs of £151,000 associated with this restructuring.

EBITDA and operating loss

Underlying EBITDA, before exceptional items and share based payments was £1.3 million for the year (2012: EBITDA loss of £2.1 million), a £3.4 million improvement over the prior period.

The operating loss reported for the year was £0.9 million (2012: £5.7 million, including exceptional items of £2.2 million).

The loss per ordinary share for the period was 0.3 pence (2012: loss of 3.7 pence). The adjusted loss per share, before charging exceptional items and crediting deferred tax, was 0.7 pence (2012: loss of 2.2 pence).

Finance income and expense

Net finance expense for the year was £75,000 (2012: income of £82,000). This reflects the reduction in cash balances over the year and the inception of the IT lease financing arrangement and the Lloyds financing facility during the year.

Interest expense relating to finance leases totalled £71,000 during the year (2012: £nil).

Taxation

The Group has incurred no current tax charge during the year (2012: £nil) as a result of a loss before tax for the year and accumulated tax losses from prior years.

Deferred tax assets totalling £0.5 million have been recognised at 31 March 2013 (2012: £nil) in anticipation of improved business profitability in future periods.

During the period the Group incurred losses for corporation tax purposes of approximately £1.1 million (2012: £4.0 million) and the total sum of accumulated losses carried forward amounts to £20.6 million as at 31 March 2013 (2012: £19.5 million).

Dividends

No dividend has been proposed or paid (2012: £nil).

Cash flow and financing

Operating cash flow

Operating activities in the period absorbed cash of £5.5 million (2012: £4.9 million), and comprised the following:

·      EBITDA for the period of £1.3 million (2012: loss of £2.1 million);

·      exceptional cash costs totalling £0.2 million (2012: £3.6 million);

·      working capital outflows in the year total £6.4 million (2012: £0.8 million inflow) and reflect:

o  a reduction in the balance of payments received in advance of £0.8 million since 31 March 2012 (2012: £3.6 million);

o  a reduction in accruals of £6.2 million, largely due to settlement of amounts due to contractors accrued at 31 March 2012 (2012: £4.1 million inflow re accruals); and

o  other working capital inflows of £0.6 million (2012: £0.3 million);

·      other cash outflows of £0.2 million associated with modification of the management participation scheme (2012: £ nil).

The working capital outflow associated with accruals reflects settlement during the period of amounts due to sub-contractors for work delivered in the prior year, the costs of which were accrued at 31 March 2012.

Investing activities

Capital expenditure for the period amounted to £2.9 million (2012: £3.3 million), including £1.7 million of investment in pipeline assets (2012: £1.5 million).

In September 2012 the Group entered into a lease arrangement to fund part of its recent investment in new IT infrastructure and software. IT related assets with a net book value of £0.9 million were sold and leased back to the Group over a period of 3 years. This transaction resulted in a cash inflow during the period of £0.9 million. Repayments of amounts due under this lease arrangement totalled £0.2 million during the year (2012: £nil).

In January 2013 the Group's subsidiaries Fulcrum Infrastructure Services Limited and Fulcrum Pipelines Limited, entered into a new £4.0 million asset backed financing facility with Lloyds TSB Commercial Finance Limited, a division of Lloyds Banking Group plc. The facility provides the Group with a flexible working capital facility to support the expansion of credit terms for new larger contracts.

Cash and borrowings

As at 31 March 2013 the Group held cash balances of £1.9 million (2012: £8.3 million), less amounts drawn on financing facilities of £1.3 million (2012: £nil). Amounts outstanding on finance leases at 31 March 2013 were £0.7 million (2012: £nil).

The overall net debt position of the Group at 31 March 2013 was £0.1 million (2012: net cash £8.3 million).

Principal Risks and Uncertainties

The risks and uncertainties faced by the Group as disclosed on pages 18 and 19 of the Annual Report and Accounts to 31 March 2012 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, management of financial resources including liquidity risk and capital risk management.

In addition to the risks and uncertainties previously disclosed the following represent risks and uncertainties not previously disclosed that are material and relevant to the activities of the Group:

·      Continuity of financing facilities. During the year the business has entered into a new asset backed financing agreement with Lloyds Commercial Finance. A continued focus on working capital efficiency and management of cash resources will be necessary to ensure the business operates within its financing facilities. Maintaining good working relationships with the Group's bankers will remain important in the future.

·      Changing mix of sales. The changing mix of new contract sales, from payment up front toward credit terms, may place a strain on working capital as the volume of credit sales increases. In granting commercial credit terms careful attention is paid to the timing of cash receipts and payments over the period of contract delivery. Where necessary a deposit is requested from customers prior to commencing work and invoicing milestones with customers are matched where possible to the invoicing patterns with contractors. Matching of credit terms through the supply chain will be necessary to ensure the working capital impact of this change in sales mix can be managed effectively.

·      Change in balance of contract value. As the sales mix of the business changes and the relative mix of large and small contracts changes over the period of delivery, it is possible that revenue may fluctuate materially from one period to another. As a result future revenue performance may prove more volatile than the past revenue performance of the business would indicate.

Consolidated Statement of Comprehensive Income

	Notes	Year ended 31 March 2013	Year ended 31 March 2012
		£'000	£'000
Revenue		38,769	40,993
Cost of sales		(23,810)	(27,011)
Gross profit		14,959	13,982
Administrative expenses		(15,887)	(19,707)
Operating loss		(928)	(5,725)
Analysed as:
EBITDA before share based payments and exceptional items		1,279	(2,096)
Equity-settled share based payment charges	8	(878)	(588)
Exceptional items		-	(2,237)
Depreciation and amortisation	5,6	(1,329)	(804)
		(928)	(5,725)
Finance (expense)/ income		(75)	82
Loss before tax		(1,003)	(5,643)
Taxation		508	-
Loss for the period attributable to equity holders of the parent		(495)	(5,643)

There is no other comprehensive income for the period. The loss for the period attributable to equity holders of the parent company is total comprehensive income.

Loss per share attributable to the owners of the business

Basic and diluted	4	(0.3)p	(3.7)p

Consolidated Statement of Changes in Equity

	Notes	Share capital	Share Premium	Retained earnings	Total equity
		£'000	£'000	£'000	£'000
Balance at 1 April 2011		154	16,182	(11,403)	4,933
Loss and total comprehensive loss for the year ended 31 March 2012		-	-	(5,643)	(5,643)
Transactions with equity shareholders:
Equity-settled share based payment transactions	8	-	-	588	588
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	8	-	-	727	727
Balance at 31 March 2013		154	16,182	(16,226)	110

Consolidated Balance Sheet

	Notes	31 March 2013	31 March 2012
		£'000	£'000
Non-current assets
Property, plant and equipment	5	9,821	8,961
Intangible assets	6	3,909	3,548
Deferred tax assets	3	508	-
		14,238	12,509
Current assets
Inventories		1,489	1,459
Trade and other receivables		7,692	6,019
Cash and cash equivalents	9	1,911	8,269
		11,092	15,747
Total assets		25,330	28,256
Current liabilities
Trade and other payables		(22,440)	(27,365)
Borrowings	7,9	(1,531)	-
Provisions		(798)	(1,013)
		(24,769)	(28,378)
Non-current liabilities	7,9	(451)	-
Total liabilities		(25,220)	(28,378)
Net current liabilities		(13,677)	(12,631)
Net assets/(liabilities)		110	(122)
Equity attributable to equity holders of the parent
Share capital		154	154
Share premium		16,182	16,182
Retained earnings		(16,226)	(16,458)
Total surplus/(deficit) on equity		110	(122)

Consolidated Cash Flow Statement

	Notes	Year ended 31 March 2013	Year ended 31 March 2012
		£'000	£'000
Cash flows from operating activities
Loss before tax for the year		(1,003)	(5,643)
Adjustments for:
Depreciation	5	880	640
Amortisation of intangible assets	6	449	164
(Profit)/loss on disposal of property, plant and equipment		(35)	199
Finance expense/(income)		75	(82)
Equity settled share-based payment charges	8	727	588
Increase in trade and other receivables		(1,725)	(1,110)
(Increase)/decrease in inventories		(30)	1,253
(Decrease)/increase in trade and other payables		(4,551)	628
Decrease in provisions		(215)	(1,612)
Net cash used in operations		(5,428)	(4,975)
Interest received		52	30
Interest paid		(83)	-
Net cash used in operating activities		(5,459)	(4,945)
Cash flows from investing activities
Additions to property, plant and equipment		(1,942)	(2,218)
Additions to intangibles		(948)	(1,081)
Proceeds from sales of property, plant and equipment		863	-
Net cash used in investing activities		(2,027)	(3,299)
Cash flows from financing activities
Amounts drawn from financing facilities		1,293	-
Repayment of finance lease liabilities		(165)	-
Net cash generated from financing activities		1,128	-
Net decrease in cash and cash equivalents		(6,358)	(8,244)
Cash and cash equivalents at 1 April 2012		8,269	16,513
Cash and cash equivalents at 31 March 2013	9	1,911	8,269

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 2012 except as set out below. They will also be set out in full in the 2013 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 2013, 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 2013 and 31 March 2012, 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.

·      Disclosures - Transfers of financial assets (amendments to IFRS 7)

·      Severe hyperinflation and removal of fixed dates for first time adopters (amendments to IFRS 1)

·      Deferred tax: recovery of underlying assets (amendments to IAS 12).

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

·      IFRS 9 "Financial instruments", effective for periods beginning on or after 1 January 2015, includes changes to the recognition and measurement of the financial assets and liabilities, in order to align them with the business model adopted by the entity, as well as changes to impairment methodology and hedge accounting. Adoption of this standard is not expected to have a significant impact on the financial position or performance of the Group.

·      "Investment entities" (amendments to IFRS 10, IFRS 12 and IAS 27), effective for periods beginning on or after 1 January 2014, provides an exception to the consolidation requirements in IFRS 10, and requires investment entities to measure particular subsidiaries at fair value through profit or loss, rather than consolidate them. Adoption of this standard is not expected to have a significant impact on the financial position or performance of the Group.

Leases

Assets held by the Group under leases which transfer to the Group substantially all of the risks and rewards of ownership are classified as finance leases.  On initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments.  Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.

Assets held under other leases are classified as operating leases and are not recognised in the Group balance sheet.

Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease.  Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period so as to produce a constant periodic rate of interest on the remaining balance of the liability.

Taxation

Tax on the profit or loss for the period comprises current and deferred tax. Tax is recognised in the statement of comprehensive income except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable or receivable on the taxable income or loss for the period, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using future tax rates enacted or substantively enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. Forecasts are prepared for three years, with future profits being adjusted for the risk and probability of their realisation and discounted to their present value.

Going concern

As highlighted in the financial review the Group has net cash at 31 March 2013 of £1.9 million. In addition the Group had drawn £1.3 million from its current 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.

Whilst the current economic conditions and the on-going success of the turnaround strategy creates uncertainty over the demand for the Group's services, 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 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)

Year ended 31 March 2012

	Infrastructure Services	Pipelines	Unallocated	Total Group
	£'000	£'000	£'000	£'000
Reportable segment revenue	41,051	1,356	(1,414)	40,993
Underlying EBITDA	(1,567)	(352)	(177)	(2,096)
Share based payment charge	-	-	(588)	(588)
Depreciation and amortisation	-	(415)	(389)	(804)
Reportable segment operating loss before exceptional items	(1,567)	(767)	(1,154)	(3,488)
Exceptional items	(1,864)	-	(373)	(2,237)
Reportable segment operating loss	(3,431)	(767)	(1,527)	(5,725)
Finance income	-	-	82	82
Loss before tax	(3,431)	(767)	(1,445)	(5,643)

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 £1,760,000 (2012: £1,414,000)

·      Underlying EBITDA; the operating costs of group central services

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

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 £7,963,000 (2012: £9,474,000) of the Group's total revenues for the period.

3.      Taxation

	Year ended 31 March 2013	Year ended 31 March 2012
	£'000	£'000
Current tax	-	-
Deferred tax - origination and reversal of timing differences	508	-
Total tax credit	508	-

Deferred tax has been recognised in respect of tax losses carried forward that are expected to be utilised against future taxable profits. The rate of UK corporation tax changed from 24% to 23% on 1 April 2013. As deferred tax balances are measured at the rates that are expected to apply in the periods of the reversal, deferred tax assets at 31 March 2013 have been calculated using a rate of 23%.

In addition to the amount recognised above, the Group has a further £18.1 million (2012: £19.5 million) of tax losses on which no deferred tax has been recognised due to insufficient certainty surrounding the timing of their utilisation.

4.      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 2013	Year ended 31 March 2012
	'000	'000
Weighted average number of ordinary shares in issue	154,307	154,307

Loss for the period	Year ended 31 March 2013	Year ended 31 March 2012
	£'000	£'000
Loss for the period attributable to shareholders	(495)	(5,643)
Add exceptional items	-	2,237
Less deferred tax assets recognised	(508)	-
Adjusted loss for the period attributable to shareholders	(1,003)	(3,406)

Loss per share	Year ended 31 March 2013	Year ended 31 March 2012
Basic	(0.3)p	(3.7)p
Adjusted basic	(0.7)p	(2.2)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.

5.      Property, plant and equipment

	Pipelines	Leasehold  buildings	Fixtures and  fittings	Computer equipment	Total
	£'000	£'000	£'000	£'000	£'000
Cost
At 1 April 2011	7,006	336	117	604	8,063
Additions	1,489	-	150	825	2,464
Disposals	-	(336)	(35)	(209)	(580)
At 31 March 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
Accumulated depreciation
At 1 April 2011	(245)	(252)	(34)	(196)	(727)
Depreciation charge for the period	(415)	(3)	(48)	(174)	(640)
Disposals	-	255	4	122	381
At 31 March 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)
Net book value
At 31 March 2013	9,017	-	137	667	9,821
At 31 March 2012	7,835	-	154	972	8,961
At 1 April 2011	6,761	84	83	408	7,336

There were no commitments to purchase any property, plant and equipment at 31 March 2013 or 31 March 2012.

At 31 March 2013 the net book value of leased plant and equipment was £585,000 (2012: £nil).

6.      Intangible assets

	Goodwill	Software	Total
	£'000	£'000	£'000
Cost
At 1 April 2011	2,225	429	2,654
Additions	-	1,225	1,225
At 31 March 2012	2,225	1,654	3,879
Additions	-	986	986
Disposals	-	(192)	(192)
At 31 March 2013	2,225	2,448	4,673
Accumulated amortisation and impairment
At 1 April 2011	-	(167)	(167)
Amortisation for the period	-	(164)	(164)
At 31 March 2012	-	(331)	(331)
Amortisation for the period	-	(449)	(449)
Disposals	-	16	16
At 31 March 2013	-	(764)	(764)
Net book value
At 31 March 2013	2,225	1,684	3,909
At 31 March 2012	2,225	1,323	3,548
At 1 April 2011	2,225	262	2,487

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

At 31 March 2013 the net book value of leased software was £103,000 (2012: £nil).

7.      Borrowings

		31 March 2013	31 March 2012
Current		£'000	£'000
Finance lease liabilities		238	-
Amounts due on financing facilities		1,293	-
		1,531	-

		31 March 2013	31 March 2012
Non-current		£'000	£'000
Finance lease liabilities		451	-

During the year the Group entered into a sale and leaseback arrangement for IT and software equipment. Lease liabilities are effectively secured as the rights to the leased assets revert to the lessor in the event of default.

The Group also entered into a £4.0 million asset backed financing facility with Lloyds Commercial Finance. This facility is secured over the assets of the Group, excepting regulated assets as defined by Special Licence Condition 29 of the Gas Transporters Licence: Standard Conditions, by way of a debenture and cross default guarantees between Group companies.

Finance lease liabilities are payable as follows:

	Future minimum lease payments			Interest			Present value of minimum lease payments
	2013	2012		2013	2012		2013	2012
	£'000	£'000		£'000	£'000		£'000	£'000
Less than one year	326	-		88	-		238	-
Two to five years	502	-		51	-		451	-
	828	-		139	-		689	-

8.      Share based payments

		Year ended 31 March 2013	Year ended 31 March 2012
		£'000	£'000
Management participation shares		294	294
Marwyn participation option		294	294
Fulcrum share option plan		139	-
Total equity settled share based payments		727	588
Costs of modification of management participation scheme		151	-
Total share based payments		878	588

Modification of the management participation scheme

During the year ended 31 March 2013 the management participation shares were cancelled pursuant to an order of the Grand Court of the Cayman Islands in which the issue of the shares was declared void.  This occurred due to an administrative technicality regarding their original issuance under Cayman Islands law.  Following the cancellation the Company issued new management participation shares to ensure that the holders of the original shares received the same potential benefit as under the original scheme.  As the new scheme was put in place to replace the original scheme it has been treated as a modification of the original scheme in accordance with IFRS 2.  Costs were incurred in voiding and re-issuing these shares and as these costs related exclusively to share based payments they have been included in the income statement charge as set out above, but are not credited to retained earnings in the Consolidated Statement of Changes in Equity.

9.      Reconciliation to net debt

		31 March 2013	31 March 2012
		£'000	£'000
Cash and cash equivalents		1,911	8,269
Amounts outstanding on financing facilities		(1,293)	-
Finance lease liabilities		(689)	-
Net (debt)/funds		(71)	8,269

10.    Related parties

Key management compensation

The key management group is defined as the Board of Directors. Their compensation amounted to £744,000 (2012: £702,000) for the period as follows:

	Year ended 31 March 2013	Year ended 31 March 2012
	£'000	£'000
Short-term employee benefits	540	555
Share related awards	204	147
	744	702

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.

The Company has paid Marwyn Capital LLP a fee of £180,000 (2012: £180,000) pursuant with the on-going corporate finance advisory agreement, and £45,000 (2012: £60,000) for an office rental agreement (now ceased). An amount of £55,000 (2012: £48,000) was owed to Marwyn Capital LLP at 31 March 2013.

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 £294,000 (2012: £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 2013.

 

END

 

 

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