Final Results

RNS Number : 0183K

Fulcrum Utility Services Ld

08 July 2011

 



FOR RELEASE ON 8 JULY 2011

FULCRUM UTILITY SERVICES LIMITED

Preliminary results for the period from 4 December 2009 to 31 March 2011

Appointment to the Board of Directors

Fulcrum Utility Services Limited ("Fulcrum" or "the Company"), the UK based energy solutions company, today announces its preliminary results for the sixteen month period from incorporation on 4 December 2009 to 31 March 2011. The results include the contribution from Fulcrum Group Holdings ("FGH") for the period since its acquisition by Fulcrum on 8 July 2010.

The Company is also pleased to announce the appointment of Marcus Green as CFO of the group. Marcus will also join the board of the Company. Marcus joined the business in March 2011 as Finance Director of FGH and replaces the interim CFO, Paul Below, who will continue to work with the business until the end of July 2011.

FINANCIAL HIGHLIGHTS

Period from 4 December 2009 to 31 March 2011 for the Group (incorporating trading results of FGH from acquisition on 8 July 2010)	2011
	£m
Revenue	28.4
Underlying EBITDA1	(5.6)
Operating loss before exceptional items	(6.7)
Loss before tax	(11.8)
Cash position at 31 March 2011	16.5
Earnings per share
Adjusted Basic  - before exceptional items	(6.1p)
Basic	(10.7p)
Adjusted consolidated proforma financial performance of FGH for year ended 31 March 20112	2011	2010
	£m	£m
Revenue excluding regulated gas connections	36.1	33.7
Total revenue	37.0	37.6
Underlying EBITDA	(9.0)	(12.9)
Operating loss before exceptional items	(10.4)	(14.0)

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

² Adjusted proforma financial performance reflects the financial performance of FGH for the 12 months to 31 March 2011, adjusted for certain items relating to the period prior to acquisition, acquisition costs and adjustments to the opening balance sheet of FGH at 7 July 2010. This is unaudited.       
                                                                                                                            

OPERATING HIGHLIGHTS

·      Successful acquisition of FGH from National Grid for a nominal consideration and subsequent final settlement under which the Group received a final payment from National Grid totalling £8.2m

·      Appointment of a new senior management team with extensive industry and turnaround expertise

·      Significant restructuring completed, resulting in a total headcount reduction of more than 100, closure of the Edinburgh office and rationalisation of the head office in Rotherham

·      Processes, systems and contract profitability reviews have been undertaken and actions implemented to improve margins and operational performance, drive reduced costs, improve response times and customer service levels

·      Significant customer relationships have been developed to support ongoing sales efforts as the business moves forward

·      Launched contractor procurement process to introduce flexibility of supply and streamline project delivery, with completion anticipated during summer 2011

John Spellman, CEO of Fulcrum, said:

"The 2011 financial year has been one of huge transformation for the Fulcrum group. We acquired Fulcrum in July 2010 as a business with great potential but burdened by an inefficient cost base and operating model. Our plans for delivering a turnaround strategy centred on the appointment of a new senior management team, improved operational efficiency and growth in market share. Against this backdrop I am extremely encouraged by the performance of the business since acquisition. Our new management team has been fully integrated into the business and significant progress has already been made in reducing operating costs, growing revenues and improving customer service levels. I would like to thank all of our staff for their continued commitment in what has been a very challenging year and I look forward to delivering Fulcrum back to profitability and future success."

"I welcome Marcus to the board and I look forward to working with him in the future. I would also like to take this opportunity to thank our interim CFO Paul Below for his excellent work over the past 14 months"

New Director Appointment - Marcus Green

Information relating to the appointment of Marcus Conrad Green as required under schedule 2(g) of the AIM rules.

Marcus (aged 40) has more than 15 years' experience in finance roles, both within practice and industry. He has most recently been a partner and co-founder of MaxAim LLP, a professional services practice providing strategic and financial management services and corporate finance advice to SMEs. Prior to this Marcus was Group Finance Director at Masternaut UK Ltd and spent 8 years at KCOM plc where he held a succession of finance roles including Group Financial Controller and Finance Director of the Affiniti business unit.

Marcus currently holds no ordinary shares in the Company.

The companies of which Marcus Green has been a director or partner in the past five years are as follows:  

Current	Previous
Fulcrum Group Holdings Limited	Kingston Communications (Data) Trustees Limited
Fulcrum Infrastructure Services Limited	MaxAim LLP
Fulcrum Pipelines Limited
Fulcrum Gas Services Limited
Fulcrum Connections Limited

Marcus Green was a director of Martin Kinderman Limited when it was placed into compulsory liquidation in 2000.

No other information is required to be disclosed pursuant to schedule 2(g) of the AIM rules.

Enquiries:

Cenkos Securities plc    (nominated adviser and broker)                [phone]

Beth McKiernan/Stephen Keys

Merlin PR                                                                                  [phone]

Toby Bates / Del Jones

Outlook

We continue to pursue a number of activities relating to the turnaround of the business. Results to date have been consistent with our strategy and our expectations for the progress of the business for the current financial year are in line with market expectations.

Notes to Editor

Company description

Fulcrum is an energy solutions company based in Rotherham, UK. The Company's primary business is the provision of unregulated gas 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 also licensed as an Independent Gas Transporter, operating pipelines that connect over 16,000 properties to the main UK gas network. 

Fulcrum Utility Services Limited ("Fulcrum" or "the Company"), previously Marwyn Capital I Limited, was incorporated on 4 December 2009. On 8 July 2010, the Company acquired Fulcrum Group Holdings Limited ("FGH"), the UK based energy solutions group, from National Grid plc. 

BUSINESS AREAS

Fulcrum is a leading independent UK energy solutions company providing technical engineering, design and project management services across its core gas connections business and increasingly as a provider of multi-utility connections. With a long heritage originating within National Grid and its predecessors, Fulcrum is unique in its market not only for its unrivalled experience but also for its national coverage and ability to deliver design and engineering excellence at a local level.

Fulcrum operates in the following principal areas:

Unregulated Gas Connections

Fulcrum's core business relates to the design, engineering and management of unregulated connections to the UK gas market. Fulcrum services a complete range of customers, including SMEs, small residential sites, large housing developments, commercial projects and complex industrial sites. Our customers incorporate gas suppliers, individual property owners and commercial developers. In addition to connections, Fulcrum provides a comprehensive service including disconnections, metering and outlet pipework.

Multi-Utility Connections

Fulcrum also provides multi-utility connections which include a combination of two or more utility supplies enabling greater efficiency to our customers across both design and project delivery.

Regulated Pipeline Operations

Through its subsidiary Fulcrum Pipelines Limited, Fulcrum owns and operates networks of gas pipelines and their related infrastructure assets. These assets generate income from the transportation of gas between the main regional gas networks and individual properties. Fulcrum Pipelines Limited is regulated by Ofgem as an Independent Gas Transporter ("IGT").

CHAIRMAN'S STATEMENT

Introduction

I am pleased to report on Fulcrum's first set of results. Despite the weak economic backdrop and the impact of severe weather in December 2010, we achieved performance broadly in line with our expectations at the time of the acquisition of FGH in July 2010.

Turnaround

Fulcrum is a unique asset in the gas services sector, however, the business we acquired was underperforming. Despite this, the underlying strength of FGH remained as a platform from which to build a group of long-term profitability and value founded on its core engineering and design expertise and a renewed focus on the quality of its delivery and customer service.

I am pleased to report that our new management team has tackled head-on a number of the challenges that were constraining the business. The team has made strides into establishing customer relationships across the industry whilst managing a range of organisational and commercial changes, the most significant of which are reported in the Chief Executive's business review.

Financial

The reported results include only FGH trading under our ownership from 8 July 2010. On a proforma basis, FGH revenue for the year to March 2011 excluding the impact of regulated gas connections, was £36.1 million, an increase of £2.4 million (or 7.1%) over the prior year total of £33.7 million. Importantly, weaker margins inherited within the order book on acquisition have been worked through and the order book at the end of the trading period was encouragingly higher in both sales value and in anticipated profitability.

Management and staff

I would like to thank John Spellman and all of the team for their hard work in achieving real progress in the period, which represents a very positive start to refreshing the business and securing a profitable future. Our staff have experienced a period of significant change since we acquired the business, with a number of employees leaving the group. Whilst unsettling, this has been a necessary part of the business' ultimate return to profitability. I am extremely encouraged by the way our employees have embraced this opportunity and I look forward to their continued support.

Summary

Our objective remains to re-establish Fulcrum as the leading provider of gas connections services in the unregulated market across the UK, with increased market share and long term, sustainable profitability. John and his team have made substantial inroads into changing both the culture and profitability of the business and have put into place the building blocks for future prosperity. 

CHIEF EXECUTIVE'S BUSINESS REVIEW

Incorporation and acquisition

The Company was admitted to trading on AIM on 4 December 2009. On 8 July 2010, the Company successfully completed a placing of 91.7 million new ordinary shares raising net proceeds of £10.3 million and completed the acquisition of FGH from National Grid.

We acquired FGH with the strategy to turn around a decline that had seen it become loss-making.  A new senior management team has been put in place to deliver the turnaround strategy.  Organisational structures and processes have been changed to improve the operational performance and efficiency of the business (which will continue into the forthcoming financial year). We have worked hard to re-establish Fulcrum's relationships and reach across the industry to set the foundation for growth in the coming year and beyond.

Headcount

Since the acquisition we have reduced the headcount in the Group considerably to bring the resources of the business into line with current levels of sales and contract volumes. Staff levels have now been reduced by more than 100, (representing around 30% of the total workforce), incorporating the closure of the Edinburgh office in January 2011, and a rationalisation of our Rotherham head office that will culminate in our moving to smaller premises over the summer months. The new premises will provide our staff with a hugely improved working environment.

The majority of the 77 staff who have left the business from Rotherham did so after the end of the 2011 financial year and as far as possible these redundancies have been carried out on a voluntary basis.

Such a degree of change is never easy to work through and I would like to thank all of our staff for their positive attitude and hard work during this period. I also take the opportunity to thank Unison for their professional approach throughout the process.

We expect the total annualised savings from these changes to be approximately £2.5 million.

Operations

A detailed review of business processes, systems and contract profitability has been carried out. The Group now fully utilises its status as an IGT where possible to enable operations to be streamlined and to reduce the costs of street works. A new IT system will improve management information as well as customer management and service levels. Full implementation is expected to be complete during the 2012 financial year.

Historically, the business has come to rely heavily on a single out-sourcing contractor for its connections fulfilment. A competitive contractor procurement exercise has been launched to introduce flexibility of supply, to seek improved pricing, and to streamline operations through the better allocation of risk and responsibility according to area of expertise. We anticipate this process being completed during the summer.

Sales

We have reinforced significant customer relationships with key industry participants and continue to grow our sales teams. New channels to market include direct customer frameworks and preferred supplier arrangements.

A review of contract performance quickly indicated that pricing structures needed to be improved. A number of jobs had been entered into prior to our acquisition on bases which were loss-making or at unsustainably low margins. Procedures have been changed to address this and the inherited issues have now largely been worked through as the majority of the order book at acquisition has now been delivered.

Summary

The resulting improvements in contract profitability and operational efficiency have had limited impact on the financial performance to March 2011, because changes have come late in the financial period and because of the time needed to work through the order book. However they have and will continue to lay the foundation for further improvements in the performance of the business in the current financial year and beyond.

We have made significant progress during the 2011 financial period to put in place the cornerstones of our turnaround strategy. Fulcrum is now well positioned to reach a position of sustainable profitability in line with our original expectations and I look forward to a promising year ahead.

FINANCIAL REVIEW

Results and proforma comparison with previous periods

	Audited		Adjusted proforma results for FGH
	Period ended  31 March 2011		12 months to              31 March 2011 (1)		Audited (FGH) 12 months to            31 March 2010
	£m		£m	%	£m
Revenue excluding regulated gas connections	28.0		36.1	7.1%	33.7
Total revenue	28.4		37.0	(1.6%)	37.6
Gross profit	7.9		9.2	15.0%	8.0
Margin %	27.8%		24.9%		21.3%
Underlying EBITDA (2)	(5.6)		(9.0)	30.2%	(12.9)
Operating loss before exceptional items	(6.7)		(10.4)	25.7%	(14.0)

(1)  Adjusted proforma results reflect the financial performance for the year to 31 March 2011, adjusted for certain items relating to the period prior to acquisition, acquisition costs and adjustments to the opening balance sheet of FGH at 7 July 2010

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

Reported results for the period

The financial performance of the Group for the period from incorporation on 4 December 2009 to 31 March 2011 includes trading from the acquisition of FGH on 8 July 2010. Performance of the businesses acquired has been broadly in line with expectations.

Overall revenue for the period was £28.4 million, which represents the revenue of the acquired business for the period since acquisition. On the same basis operating losses for the period were £6.7 million before exceptional items. The underlying EBITDA loss for the period was £5.6 million.

During the period the business incurred exceptional charges of £5.1 million, principally relating to the costs of acquisition and costs associated with the ongoing restructuring activities.

Interest income in the period was insignificant and the Group incurred no tax charge due to the level of operating losses. The net loss for the period was £11.8 million.

The loss per ordinary share for the period to 31 March 2011 was 10.7 pence. Adjusted earnings per share, before charging exceptional items, were a loss of 6.1 pence.

On an adjusted proforma basis for the twelve months to 31 March 2011 (reflecting a full year trading of the businesses acquired) revenue was £37.0 million. Revenue excluding regulated gas connections was £36.1 million (an increase of 7.1% from the prior year), generating gross profit of £9.2 million (15.0% higher than prior year). Underlying EBITDA loss for the twelve months to 31 March 2011 was £9.0 million an improvement of 30.2% from the prior year).

Revenue

Reported revenue in the period of £28.4 million is derived substantially from gas connections and also includes £0.6 million of income from charges for transportation of gas through the Group's pipeline assets.

Revenue in the period from regulated gas connections was £0.4 million and represents contracts entered into prior to acquisition which were completed after the acquisition date of 8 July 2010.

Adjusted proforma revenues for the year to March 2011, including the period prior to acquisition, were £37.0 million (2010: £37.6 million), which included revenue from regulated gas connections of £0.9 million (2010: £3.9 million).

Excluding the impact of regulated gas connections adjusted proforma revenues over the year to March 2011 were £36.1 million, an increase of £2.4 million (or 7.1%) over the prior year total of £33.7 million.

Gross margin

Reported gross profit for the period was £7.9 million, representing a gross margin of 27.8%.

Adjusted proforma gross profit for the year to March 2011 was £9.2 million (2010: £8.0 million), representing a gross margin of 24.9% (2010: 21.3%).

At acquisition, the order book included a number of low margin and some loss-making contracts. Where possible, loss-making contracts have been cancelled or re-negotiated and steps were taken to revise the pricing strategy to increase margins to an appropriate and sustainable level.

Notwithstanding these changes, low margin jobs in the order book at acquisition have impacted performance post acquisition as revenue has been recognised on the inherited jobs as they have been completed.

Administrative expenses

Administrative expenses reported for the period totalled £19.7 million, including exceptional items of £5.1 million, depreciation and amortisation of £0.7 million and share-based payment charges of £0.4 million.

Adjusted proforma administration expenses (before exceptional items) for the year to March 2011 were £19.6 million (a 10.9% reduction from prior year costs of £22.0 million), including depreciation and amortisation of £1.0 million (2010: £1.1 million) and share-based payment charges of £0.4 million (2010: nil).

EBITDA and Operating loss

Reported underlying EBITDA was a loss £5.6 million for the period.

On an adjusted proforma basis, underlying EBITDA for the full year to March 2011 was a loss of £9.0 million, a significant improvement from FGH's prior year underlying EBITDA loss of £12.9 million.

The reported operating loss for the period before exceptional items was £6.7 million. Adjusted proforma operating loss before exceptional items for the year to March 2011 was £10.4 million, an improvement of 25.7% over FGH's prior year operating loss of £14.0 million.

Exceptional items

The Group incurred exceptional items of £5.1 million principally relating to the costs of the FGH acquisition and costs relating to the ongoing turnaround activities, including redundancy and related costs.

Interest

The Group's cash balances are placed on short term deposit. Interest received on these cash balances during the period was not significant.

The Group has no debt facilities and has incurred no financing costs during the period.

Taxation

During the period the Group incurred losses for corporation tax purposes of approximately £10.0 million. In addition the Group has the benefit of approximately £5.0 million of losses carried forward from the pre-acquisition period. No deferred tax has been recognised on these losses due to the current loss-making position of the Group.

Cash flow and financing

Operating

Operating cash flows for the period since acquisition absorbed cash of £6.1million.

This included an underlying EBITDA loss for the period of £5.6 million, exceptional cash costs totalling £3.0 million and working capital cash inflows of £2.5 million, including £2.0 million from a reduction in trade and other debtors.

Investing

Investing activities generated net cash inflows of £6.2 million during the period.

The acquisition of FGH on 8 July 2010 was made for nominal initial consideration and a further £8.2 million was received from the vendor for the surrender of tax losses relating to periods prior to completion. As at the date of acquisition FGH had an overdraft position of £0.2 million. The net cash inflow relating to acquisition of subsidiaries was therefore £8.0 million in the period. Cash costs relating to the acquisition and other pre-acquisition costs were £2.3 million and are included within cash exceptional items within operating cash flows above.

On acquisition, the Group provided a cash-backed bond for £0.5 million in favour of Ofgem as security for the financial performance of, and the regulatory obligations of, Fulcrum Pipelines Limited.

Capital expenditure for the period amounted to £1.8 million, including £1.6 million of investment in pipeline assets.

Financing

During the period the Company raised new equity totalling £16.3 million, comprising a share issue on 24 December 2009 which raised £6.3 million of new equity and a second share placing on 8 July 2010 which raised £11.0 million. The cash costs of raising new equity amounted to £0.9 million during the period.

Cash position

The Group's cash position at 31 March 2011 was £16.5 million.

The Group has no debt facilities.

 8 July 2011

 

Consolidated Statement of Comprehensive Income

	Notes	Period Ended 31 March 2011
		£'000
Revenue		28,431
Cost of sales		(20,574)
Gross profit		7,857
Administrative expenses		(19,701)
Operating loss and loss before tax		(11,844)
Analysed as:
EBITDA before share based payments and exceptional items		(5,616)
Equity-settled share based payment charges		(441)
Exceptional items	4	(5,139)
Depreciation and amortisation		(648)
		(11,844)
Taxation		-
Loss for the period attributable to equity holders of the parent		(11,844)

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

Earnings per share for loss attributable to the owners of the business

		Pence Per Share
Basic and diluted	5	(10.7)

The above consolidated income statement should be read in conjunction with the accompanying notes.

Consolidated Statement of Changes in Equity

	Share capital	Share premium	Retained earnings	Total equity
	£'000	£'000	£'000	£'000
Balance at 4 December 2009	-	-	-	-
Loss for the period ended 31 March 2011	-	-	(11,844)	(11,844)
Transactions with equity shareholders:
Issue of share capital net of expenses	154	16,182	-	16,336
Equity-settled share based payment charges	-	-	441	441
Balance at 31 March 2011	154	16,182	(11,403)	4,933

The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

                                                                   

Consolidated Balance Sheet

	Notes	As at 31 March 2011
		£'000
Non-current assets
Property, plant and equipment		7,336
Intangible assets		2,487
		9,823
Current assets
Inventories		2,712
Trade and other receivables		4,857
Cash and cash equivalents		16,513
		24,082
Total assets		33,905
Current liabilities
Trade and other payables		(26,347)
Provisions		(2,625)
Total liabilities		(28,972)
Net current liabilities		(4,890)
Net assets		4,933
Equity attributable to equity holders of the parent
Share capital	7	154
Share premium		16,182
Retained earnings		(11,403)
Total equity		4,933

The above consolidated balance sheet should be read in conjunction with the accompanying notes.

Consolidated Cash flow Statement

	Notes	Period ended 31 March 2011
		£'000
Cash flows from operating activities
Loss for the year		(11,844)
Adjustments for:
Depreciation		481
Exceptional accelerated depreciation		246
Amortisation of intangible assets		167
Loss on sale of property, plant and equipment		11
Equity settled share-based payment charges		441
Decrease in trade and other receivables		1,991
Increase in inventories		(655)
Increase in trade and other payables		1,180
Increase in provisions		1,925
Net cash from operating activities		(6,057)
Cash flows from investing activities
Acquisition of subsidiaries net of cash acquired	3	8,027
Additions to property, plant and equipment		(1,652)
Additions to intangibles		(141)
Net cash from investing activities		6,234
Cash flows from financing activities
Proceeds from issue of shares net of expenses	7	16,336
Net cash from financing activities		16,336
Net increase in cash and cash equivalents		16,513
Cash and cash equivalents at 4 December 2009		-
Cash and cash equivalents at 31 March 2011		16,513

Of the operating cash flows for the period of £6.1million, exceptional cash costs totalled £3.0 million.

The above consolidated cash flow statement should be read in conjunction with the accompanying notes.

NOTES TO THE 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 interim financial statements for the period ended 30 September 2010. They will also be set out in full in the 2011 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. It has been prepared pursuant to rule 19 of the AIM regulations.

The preliminary announcement is taken from the audited annual report and financial statements which will be filed with the Registrar of Companies in England and Wales following the Company's annual general meeting. The audited financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), under the historical cost convention, and the audit report is unqualified.

Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group

·      IFRS 9 "Financial Instruments" (effective for periods beginning on or after 1 January 2013; no effective date has yet been given by the EU).  IFRS 9 uses a single approach to determine whether a financial asset is measured at amortised cost or fair value, replacing the many different rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments (its business model) and the contractual cash flow characteristics of the financial assets. The new standard also requires a single impairment method to be used, replacing the many different impairment methods in IAS 39. Thus IFRS 9 improves comparability and makes financial information easier to understand for investors and other users. The Group is assessing the impact of this new standard.

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 three reportable segments, as described below.

Fulcrum's Infrastructure Services reportable segment provides utility infrastructure and connections services to external customers. This comprises the two operating segments of "Unregulated Gas connections" and "Multi-Utility connections" which have been aggregated in accordance with the criteria of IFRS 8.

Fulcrum's Gas Services business carries out regulated gas connections on behalf of National Grid. Fulcrum's workload volumes in this area have declined in the period compared with those carried out prior to the acquisition of FGH by the Group and it is not expected that this area will contribute material revenue going forward.

Fulcrum's Pipeline business is involved in the management of pipeline 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 in 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) 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 comprises profit or loss for each segment, and balance sheets and cash flows and other financial and non financial information used to manage the business on a consolidated basis.

The "other including eliminations" segment comprises the corporate assets and liabilities and other assets and liabilities held centrally; and the elimination of inter-segmental transactions and balances.

Operating segments

Period ended 31 March 2011

	Infra-structure services	Gas services	Pipelines	Total of reportable segments	Other including eliminations	Total Group
	£'000	£'000	£'000	£'000	£'000	£'000
Reportable segment revenue	28,869	394	600	29,863	(1,432)	28,431
Underlying EBITDA	(6,051)	162	(64)	(5,953)	337	(5,616)
Share based payment charge	-	-	-	-	(441)	(441)
Depreciation and amortisation	-	-	(245)	(245)	(403)	(648)
Reportable segment operating profit/(loss) before exceptional items	(6,051)	162	(309)	(6,198)	(507)	(6,705)
Exceptional items	(535)	-	-	(535)	(4,604)	(5,139)
Reporting segment operating profit/ (loss) before tax	(6,586)	162	(309)	(6,733)	(5,111)	(11,844)
Capital expenditure	-	-	1,616	1,616	177	1,793
Reportable segment assets	6,020	457	7,432	13,909	19,996	33,905
Reportable segment liabilities	(29,751)	(6,695)	(11,609)	(48,055)	19,083	(28,972)

Major items in the "other" column comprise:

·      Reportable segment revenues; the elimination of inter-segmental revenues relating to pipeline assets of £1,432,000 .

·      Underlying EBITDA; the operating profit of the central service providers

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

·      Exceptional items; all amounts charged as exceptional excluding the restructuring costs relating to staff working exclusively for the Infrastructure Services segment

·      Reportable segment assets; largely comprise corporate assets and other assets held centrally, including Property, plant and equipment £575,000; Intangible assets £2,487,000 and Cash and cash equivalents £16,513,000.

·      Reportable segment liabilities; largely comprise corporate liabilities and other liabilities held centrally, including Trade payables £3,070,000 and Accruals £8,737,000 and restructuring provisions of £2,625,000 offset by amounts due from other group companies of £33,831,000.

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 £4,843,000 of the Group's total revenues for the period.

 

3 BUSINESS COMBINATIONS

On 8 July 2010 the company acquired 100% of the issued share capital of Fulcrum Group Holdings Limited (a company that designs and project manages new gas connections and the refurbishment of existing connections to the domestic, industrial & commercial markets), for a nominal consideration and a post completion settlement in the favour of the Group now finalised at £8.2 million.

The acquired businesses contributed revenues of £28,431,000 and an operating loss (before exceptional items) of £6,705,000 to the Group for the period from acquisition to 31 March 2011. If the acquisition had occurred on 1 April 2010, for year ended 31 March 2011, the consolidated revenue would have been £36,965,000 and the consolidated operating loss (before exceptional items) would have been £12,845,000.  

Details of the net assets acquired and goodwill are as follows:

	£'000
Initial consideration	-
Payment from vendor's group	(8,200)
Provisional fair value of tax losses surrendered to vendor's group	2,395
Total purchase consideration	(5,805)
Provisional fair value of net identifiable liabilities acquired	(8,030)
Provisional Goodwill	2,225

The set-off of tax losses surrendered to the vendor's group arises from the requirement that the Group must make a payment to the vendor's group equal to any payments made after completion by the vendor's group to the Group in respect of the surrender of tax losses by the Group to the vendor's group. This settlement was concluded with the vendor on 16 February 2011.

The assets and liabilities arising from the acquisition of FGH are as follows:

	Acquiree's carrying amount	Fair value adjustments	Provisional fair value
	£'000	£'000	£'000
Property, plant and equipment	6,422	-	6,422
Intangible assets	288	-	288
Deferred tax assets	3,280	(885)	2,395
Inventories	2,222	(165)	2,057
Trade and other receivables	6,848	-	6,848
Cash and cash equivalents	(173)	-	(173)
Trade and other payables	(25,096)	(71)	(25,167)
Provisions	(700)	-	(700)
Net identifiable liabilities acquired	(6,909)	(1,121)	(8,030)
Cash payment from vendor's group			8,200
Cash and cash equivalents acquired			(173)
Cash inflow on acquisition of subsidiaries			8,027

Direct costs relating to the acquisition amounted to £1,529,000 and have been charged to comprehensive income as an exceptional item (note 4).

Fair value adjustments

The adjustment to deferred tax assets represents the adjustment required to reflect the final value of the corporation tax losses to be surrendered to the vendor's group.

The adjustment to inventories reflects additional amounts identified as chargeable to cost of sales.

The adjustment to trade and other payables reflects additional supplier liabilities identified.

Management have considered whether any other intangible assets were acquired and none of significant value have been identified in the provisional fair value exercise.

4 EXCEPTIONAL ITEMS

	Period ended 31 March 2011
	£'000
Cost of acquisition of Fulcrum Group Holdings Limited	1,529
Pre-acquisition expenses of the company	753
Accelerated depreciation	246
Restructuring costs and provisions	2,611
	5,139

Restructuring costs relate to the staff severance costs required to reduce headcount and the costs of unused group properties and dilapidations. This results from the group strategy to re-align its cost base as discussed in the Chief Executive's review.

5 EARNINGS PER SHARE (EPS)

			Period ended 31 March 2011
Weighted average number of shares in issue ('000)			110,819
		Earnings  2011	EPS 2011
		£'000	P
Loss for the period		(11,844)	(10.7)
Exceptional items		5,139	4.6
Loss for the period before exceptional items		(6,705)	(6.1)

Diluted loss per share is the same as basic loss per share as the Group is loss-making for the period.

6 RELATED PARTIES

Key management compensation

The key management group is defined as the Board of Directors. Their compensation amounted to £713,000 for the period as follows:

	Period ended 31 March 2011
	£'000
Short-term employee benefits Post Acquisition	312
Short-term employee benefits Pre Acquisition	291
Share related awards	110
	713

 

Transactions with other related parties

The company has paid Marwyn Capital LLP a fee of £500,000 for corporate finance advisory services. Further fees and charges of £280,000 have been paid to Marwyn Capital LLP pursuant with the ongoing corporate finance advisory agreement.

The company entered into an agreement with Marwyn Management Partners L.P under which Marwyn Management Partners L.P. 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 £220,000 in the period.

An amount of £24,000 is owed to Marwyn at 31 March 2011.

7 SHARE CAPITAL AND RESERVES

		As at 31 March 2011
		£'000
Allotted and fully paid
154,306,667 Ordinary shares of £0.001 each		154

Ordinary shares issued

During the period to 31 March 2011, the company issued:

·      62,640,000 new shares of 0.1p each on 24 December 2009 for 10p for an aggregate consideration before expenses of £6,264,000. This represents nominal value of £63,000 with the balance of £6,201,000 as share premium; and

·      91,666,667 new shares of 0.1p each on 8 July 2010 for 12p each for an aggregate consideration of £11,000,000. This represents nominal value of £92,000 with the balance of 10,908,000 as share premium;

Costs of issue were £928,000 and these have been charged to the share premium account.

Dividends

No dividend has been proposed or paid during the period.

8 PRELIMINARY ANNOUNCEMENT

A copy of the preliminary announcement is available for inspection at 14 Buckingham Street, London, WC2N 6DF and on the Company's website www.fulcrumutilityserviceslimited.co.uk.

 

END

 

 

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