Half Yearly Report

RNS Number : 3836X

Fulcrum Utility Services Ld

06 December 2010

 



FULCRUM UTILITY SERVICES LIMITED (the "Company")

Interim results for the period from 4 December 2009 to 30 September 2010

Fulcrum Utility Services Limited ("Fulcrum" or "the Company", previously Marwyn Capital I Limited) acquired Fulcrum Group Holdings Limited ("FGH", together "the Group"), the UK based energy solutions company, on 8 July 2010 ("Completion") from National Grid plc ("National Grid"). The Company today releases its interim results for the ten month period from incorporation on 4 December 2009 to 30 September 2010.

Financial Highlights

·      Acquisition of FGH from National Grid in July 2010 for nominal consideration

·      Reported revenue in the period of £9.8 million

·      Reported loss after tax in the period of £4.1 million

·      Reported loss per share in the period of 4.9p

·      Proforma FGH revenue of £18.4 million for the six months ended 30 September 2010.

Operational Highlights

·      Senior management team in place since September 2010 with experience to deliver turnaround strategy

·      Detailed review of business processes, systems and contract profitability underway

·      Significant development of key customer relationships

·      First phase of restructuring underway with proposed closure of the Edinburgh office planned to take place in December 2010

Management are encouraged by the underlying potential of the business, in particular by performance in the three months since Completion of the acquisition, and remain confident about meeting full year expectations.

Progress since Completion

On 8 July 2010, the Company acquired FGH from National Grid for nominal consideration, as set out in the Admission Document dated 17 June 2010. At the time, management set out their plans for delivering a turnaround strategy for returning the loss-making FGH business to profitability. This plan is based on growth in market share, improved operational efficiency and cost control.

Following Completion, management has launched a series of initiatives aimed at improving the operational efficiency of the business, including a comprehensive appraisal of business processes, systems and contract profitability. Management has also held a number of meetings with key suppliers and customers in order to reinforce existing relationships and develop new business opportunities.

As announced on 24 September 2010, a new senior management team has been appointed with the significant industry experience required to execute the turnaround strategy. Management remains confident of delivering the turnaround of the Group and is focussed on taking advantage of revenue growth opportunities and improving operational efficiency.

Following review of the FGH design capabilities, the proposed closure of the Edinburgh office was announced internally in November 2010. Under the proposed reorganisation, the FGH design function, previously split between Edinburgh and Rotherham, would be housed entirely in Rotherham, enhancing process coherence within the team and rationalising the overhead base. In addition, management have proposed measures to reorganise the Rotherham office into a new structure, further enabling process efficiencies.

John Spellman, CEO of Fulcrum, said:

"I am extremely encouraged by the performance of the Fulcrum business. Since Completion our new management team has been fully integrated into the business and we believe there are a large number of opportunities to improve process efficiency. We believe that there is considerable scope for developing revenues and have been positioning the business to capitalise on new business opportunities. I look forward to delivering the Fulcrum business back to profitability and further success."

Enquiries:

Cenkos Securities plc	(nominated adviser and broker)	[phone]
Beth McKiernan/Stephen Keys
Merlin PR	[phone]
Toby Bates / Del Jones

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. Connections range from the implementation or alteration of connections between single site properties and the gas mains to large complex multi-site new connections. Through its subsidiary, Fulcrum Pipelines, Fulcrum is also licensed as an Independent Gas Transporter, operating pipelines that connect over 16,000 properties to the gas mains. 

Interim Management Report

Overview

The Company and its subsidiaries (together, "the Group") provide unregulated gas connections and independent gas transportation services in the UK.

This Interim Management Report and Financial Statements for the Group are for the ten month period from incorporation on 4 December 2009 to 30 September 2010. They include the results of trading of Fulcrum Group Holdings Limited and its subsidiaries (together "FGH") from acquisition on 8 July 2010. The Company was incorporated in the Cayman Islands, under the name of Marwyn Capital I Limited, on 4 December 2009 and was admitted to AIM on 24 December 2009.

On 8 July 2010, the Company acquired FGH from National Grid for nominal consideration, as set out in the Admission Document dated 17 June 2010. At the time, management set out their plans for delivering a turnaround strategy for returning the loss-making FGH business to profitability. This plan is based on growth in market share, improved operational efficiency and cost control.

Following Completion, management has launched a series of initiatives aimed at improving the operational efficiency of the business, including a comprehensive appraisal of business processes, systems and contract profitability. Management has also held a number of meetings with key suppliers and customers in order to reinforce existing relationships and develop new business opportunities.

As announced on 24 September 2010, a new senior management team has been appointed with the significant industry experience required to execute the turnaround strategy. Management remains confident of delivering the turnaround of the Group and is focussed on taking advantage of revenue growth opportunities and improving operational efficiency.

Following review of the FGH design capabilities, the proposed closure of the Edinburgh office was announced internally in November 2010. The FGH design function, previously split between Edinburgh and Rotherham, would be housed entirely in Rotherham, enhancing process coherence within the team and rationalising the overhead base. In addition, management have proposed measures to reorganise the Rotherham office into a new structure, further enabling process efficiencies.

This interim report is prepared in accordance with International Financial Reporting Standards and the provisions of IAS 34 "Interim Financial Reporting".

On 23 September 2010, FGH published its audited accounts for the year ended 31 March 2010. The Company's first audited accounts will be for the period 4 December 2009 to 31 March 2011.

Group Results

Reported revenue for the period from 4 December 2009 to 30 September 2010 was £9.8 million, representing revenue of the FGH business for the period from 8 July 2010 to 30 September 2010.

Reported loss before tax for the period was £4.1 million. This represents the loss before tax for the FGH business for the period since Completion and pre-Completion exceptional items incurred as part of the acquisition of FGH and the related fundraising.

Loss before interest, tax, depreciation, amortisation, share-based payments and exceptional items ("Adjusted EBITDA") for the period was £1.6 million.

Proforma FGH interim results

Proforma unaudited financial information has been presented below in order to provide a meaningful comparison for investors of the performance of the FGH business that the Company acquired on 8 July 2010.

		Proforma
£m	8 July 2010 to 30 September 2010	6 months to 30 September 2010	12 months to 31 March 2010
Revenue	9.8	18.4	37.6
Adjusted Gross Profit	2.5	4.3(2)	8.0
Margin	26%	24%	21%
Adjusted EBITDA(1)	(1.6)	(4.9)(3)	(12.6)
PBT	(4.1)	(7.9) (4)	(16.7)

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

(2) Excluding an additional £1.9 million of one-off operational costs

(3) Excluding an additional £2.3 million of one-off operational costs

(4) Excluding an exceptional credit of £15.0 million relating to the waiver of National Grid intercompany debt following Completion

FGH revenue for the six months to 30 September 2010 was £18.4 million. This revenue performance was ahead of management expectations, in part due to a focus on enhanced job delivery since Completion.

Outlook

Revenue and profitability have both been stronger in the period since Completion compared to the preceding three months. This reflects new management's focus on job execution and improved operational efficiency. Management are encouraged by this trend and anticipate full year results to be in line with expectations.

Earnings Per Share

The basic loss per share was 4.9 pence. Diluted loss per share is the same as the Group is loss-making for the period.

Cash Flow and Financing

The Group's cash balances have reduced by £2.2million since Completion of the acquisition of FGH. The Company had £13.0 million cash at 30 September 2010.

Net proceeds of share issues on 24 December 2009 and 8 July 2010 totalled £16.3million, following share issue costs of £0.3million and £0.6 million respectively. On acquisition of FGH, the Company provided a cash-backed letter of credit for £0.5 million in favour of OFGEM as security for the performance of the regulatory obligations of Fulcrum Pipelines Limited, a subsidiary.

The Company has no debt facilities.

Forward-looking Statements

Certain statements in this interim report are forward-looking. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements.

The Group undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

Philip Holder, Chairman

John Spellman, Chief Executive

6 December 2010

 

Consolidated Balance Sheet

	Note	30 September 2010
		£000
Non-current assets
Property, plant and equipment	7	6,571
Intangible assets	6	1,516
		8,087
Current assets
Inventories		2,966
Trade and other receivables		15,148
Cash and cash equivalents		12,954
		31,068
Total assets		39,155
Current liabilities
Trade and other payables		(26,833)
Total liabilities		(26,833)
Net Assets		12,322
Equity attributable to equity holders of the parent
Share capital	12	154
Share premium		16,182
Retained earnings		(4,014)
Total equity		12,322

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

Consolidated Statement of Comprehensive Income

	Note	Period Ended 30 September 2010
Continuing operations		£000
Revenue		9,838
Cost of sales		(7,298)
Gross profit		2,540
Administrative expenses (excluding exceptional items)		(4,501)
Exceptional items	4	(2,137)
Administrative expenses		(6,638)
Operating loss (excluding exceptional items)		(1,961)
Operating loss before tax		(4,098)
Taxation	9	-
Loss for the period attributable to equity holders of the parent		(4,098)

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

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

		Pence Per Share
Basic and diluted	5	(4.9)

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 30 September 2010	-	-	(4,098)	(4,098)
Transactions with equity shareholders:
Issue of share capital net of expenses	154	16,182	-	16,336
Equity-settled share based payment transactions	-	-	84	84
Balance at 30 September 2010	154	16,182	(4,014)	12,322

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

 

Consolidated Cash flow Statement

	Note	Period Ended 30 September 2010
		£000
Cash flows from operating activities
Loss for the year		(4,098)
Adjustments for:
Depreciation	7	171
Amortisation of intangible assets	6	61
Loss on sale of property, plant and equipment		5
Equity settled share-based payment expenses		84
Decrease in trade and other receivables		905
Increase in inventories		(744)
Increase in trade and other payables		732
Cash from operating activities		(2,884)
Taxation received		-
Net cash from operating activities		(2,884)
Cash flows from investing activities
Acquisition of subsidiaries net of cash acquired	3	(173)
Additions to property, plant and equipment	7	(325)
Net cash used in investing activities		(498)
Cash flows from financing activities
Proceeds from issue of shares net of expenses	12	16,336
Net cash from financing activities		16,336
Net increase in cash and cash equivalents		12,954
Cash and cash equivalents at 4 December 2009		-
Cash and cash equivalents at 30 September 2010		12,954

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

NOTES TO THE INTERIM FINANCIAL STATEMENTS

1 INTERIM REPORT AND 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 Alternative Investment Market (AIM) on the London Stock Exchange.

This condensed consolidated interim financial information for the period 4 December 2009 to 30 September 2010 was approved for issue on 6 December 2010. The Group's first audited accounts will be for the period 4 December 2009 to 31 March 2011.

This condensed consolidated interim financial information does not comprise statutory accounts within the meaning of the section 434 of the Companies Act 2006.

This condensed consolidated interim financial information has been reviewed, not audited.

Basis of preparation

The condensed consolidated interim financial information for the period ended 30 September 2010 has been prepared in accordance with IAS 34, "Interim financial reporting" as adopted by the European Union.

Going concern

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 interim financial information has been prepared on a going concern basis.

Measurement convention

The consolidated financial statements are prepared on the historical cost basis.

Subsidiaries

Subsidiaries are entities controlled by the Company. Control exists when the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, the Company takes into consideration potential voting rights that are currently exercisable. The acquisition date is the date on which control is transferred to the acquirer. The financial information of subsidiaries is included in the consolidated financial statements from the date that control commences until the date that control ceases.

Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated.

Classification of financial instruments

Following the adoption of IAS 32, financial instruments issued by the Group are treated as equity only to the extent that they meet the following two conditions:

·      they include no contractual obligations upon the Company (or Group as the case may be) to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable to the Company (or Group); and

·      where the instrument will or may be settled in the Company's own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the Company's own equity instruments or is a derivative that will be settled by the Company exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments.

To the extent that this definition is not met, the proceeds of issue are classified as a financial liability.  Where the instrument so classified takes the legal form of the Company's own shares, the amounts presented in the financial statements for called up share capital and share premium account exclude amounts in relation to those shares. 

Business acquisitions and goodwill

The purchase method of accounting is used to account for the acquisition of subsidiaries from unrelated parties. The cost of an acquisition is measured as the fair value of the assets given up, shares issued or liabilities undertaken at the date of acquisition. The excess of the cost of acquisition over the acquirer's interest in the fair value of the acquiree's identifiable assets, liabilities and contingent liabilities is recognised as goodwill. All goodwill is considered to have an indefinite life and is tested for impairment at least annually with any resulting goodwill impairment charge recorded in the statement of comprehensive income.

When evaluating goodwill for a potential impairment, the Group estimates the recoverable amount based on the "value in use" of the cash-generating unit containing the goodwill. If the carrying amount exceeds the recoverable amount, an impairment loss for the difference is recognised.

Non-derivative financial instruments

Non-derivative financial instruments comprise trade and other receivables, cash and cash equivalents, bank overdraft, other loans and borrowings, and trade and other payables.

Trade and other receivables

Trade and other receivables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method, less any impairment losses.

Cash and cash equivalents / bank overdraft

Cash and cash equivalents comprise cash balances and call deposits.

Trade and other payables

Trade and other payables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.

Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Land is not depreciated. The estimated useful lives are as follows:

Pipelines	20 years
Buildings	up to 50 years
Office furniture and fittings	5 years
Computer equipment	3-5 years

Depreciation methods, useful lives and residual values are reviewed at each balance sheet date.

Intangible assets other than goodwill

Intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and accumulated impairment losses. 

Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of intangible assets from the date they are available for use. The estimated useful lives are as follows:

Software

3 years

Inventories

Work in progress balances reflect direct works costs including direct labour, materials and other attributable variable costs relating to jobs classed as incomplete.  Work in progress is valued at the lower of cost and net realisable value.

Net realisable value is the estimated selling price in the ordinary course of business less applicable costs to complete and variable selling expenses.

Impairment excluding inventories

Financial assets (including receivables)

A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset's original effective interest rate.  Interest on the impaired asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through comprehensive income.

Non-financial assets

The carrying amounts of the Group's non-financial assets, other than inventories, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the "cash-generating unit") or ("CGU"). CGU's have been determined to correspond with operating segments.

An impairment loss is recognised if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognised in comprehensive income. Impairment losses recognised in respect of CGUs are allocated to reduce the carrying amounts of the assets in the unit (group of units) on a pro-rata basis.

Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

Employee benefits

Pension plans

Substantially all the Group's employees continue to be members of the National Grid UK Pension Scheme.  The Group accounts for the scheme as if it were a defined contribution scheme, recognising a charge equivalent to cash paid or payable to the scheme and to the scheme's sponsoring company, Lattice Group plc, a subsidiary undertaking of National Grid plc. Under the terms of the acquisition of FGH, it was agreed that all employees of FGH would continue as current members of the National Grid pension schemes for a period of 18 months from the date of acquisition with National Grid retaining the full pension liability. During this period both the Group and the employees will make contributions as normal. Thereafter it is the intention of the Group to establish a suitable Fulcrum Group pension scheme.

Short-term benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.  A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

Share-based payment transactions

Where the Company grants rights to its equity instruments, which are accounted for as equity-settled in the consolidated accounts of the parent, the Company accounts for these share-based payments as equity-settled.

These equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date of equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on an estimate of the number of shares that will eventually vest, with a corresponding entry to equity. 

Provisions

A provision is recognised in the balance sheet when a present legal or constructive obligation arises as a result of a past event, that can be reliably measured and it is probable that an outflow of economic benefits will be required to settle the obligation.

Revenue

Utility infrastructure and gas connection activities are recognised as "services revenue". The majority of projects are completed in a short time frame, and as such revenue is recognised on completion. For longer projects, the stage of completion of the works is assessed when considering recognition of revenue. Services revenue is recognised excluding VAT and other indirect taxes. An accrual is made for services revenue in respect of work where invoices are yet to be generated. When payment is received in advance of the provision of services, these receipts are recorded as deferred income.

Meter sales are recognised as "sale of goods" at the fair value of the consideration received or receivable. Revenue is recognised when meters have been installed and recovery of the consideration is probable.

Conveyance of gas and meter rental revenue is recognised as "revenue from pipeline assets" from the date the meter is connected and made available for use and is based on gas volumes.

Expenses

Operating lease payments

Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives received are recognised in the income statement as an integral part of the total lease expense.

Exceptional items

Exceptional items are those that in management's judgement need to be disclosed by virtue of their size or incidence in order to provide greater visibility of the underlying results of the business and which management believes provide additional meaningful information in relation to ongoing operational performance.

Taxation

Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement 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 following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination; and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. 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 substantially 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.

Operating segments

The Group determines its operating segments in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Executive Board.

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group's other components and for which discrete financial information is available. An operating segment's operating results are reviewed regularly by the Board of Directors to make decisions about resources to be allocated to the segment and assess its performance.

The Group's primary format for segment reporting is based on business segments. The business segments are determined based on the Group's management and internal reporting structure and the aggregation criteria set out in IFRS 8.

Segment results that are reported to the Board of Directors include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets and liabilities (primarily the Group's headquarters), and other assets and liabilities held centrally. Unallocated items include property, plant and equipment, intangible assets, amounts due from related parties, cash and cash equivalents, trade payables, amounts due to related parties, accruals and deferred income, and deferred tax assets.

Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment and intangible assets other than as acquired through business combinations.     

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 SEGMENTAL ANALYSIS

The determination of the Group's operating segments is based on the business units for which information is reported to the Group's Chief Operating Decision Maker, being the Executive Board. The Group has three reportable segments, as described below.

Fulcrum's infrastructure services operating segment provides utility infrastructure and connections services to external customers.

Fulcrum's pipeline business is involved in gas meter sales, meter rentals, and the safe and efficient conveyance of gas through its gas transportation networks.  Gas transportation services are provided under the independent gas transporter licence granted from Ofgem during June 2007.

Fulcrum's Gas Services business caries out work on behalf of National Grid Gas plc.  However as a consequence of National Grid's agreement with the regulator to develop competition in this area, National Grid Gas plc expects to progressively become the supplier of last resort.  As a result Fulcrum's workload volumes via this route continued to decline in the period and are not expected to recover.

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. This includes management accounts comprising 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.

Adjustments in the following tables comprise the corporate assets and liabilities and other assets and liabilities held centrally; and the elimination of inter-segmental transactions and balances.

 

Segmental Analysis

	Infra-structure services	Gas services	Pipeline	Total of reportable segments	Adjustments	Total Group
	£000	£000	£000	£000	£000	£000
Reportable segment revenue	9,541	278	391	10,210	(372)	9,838
Reportable segment operating loss before exceptional items	(2,322)	(99)	(373)	(2,794)	833	(1,961)
Exceptional items	-	-	-	-	(2,137)	(2,137)
Reporting segment operating loss before tax	(2,322)	(99)	(373)	(2,794)	(1,304)	(4,098)
Depreciation and amortisation	-	-	(80)	(80)	(152)	(232)
Reportable segment assets	6,354	662	5,980	12,996	26,159	39,155
Reportable segment liabilities	(27,876)	(9,250)	(11,681)	(48,807)	21,974	(26,833)

Major items in the adjustments column comprise:

·      Reportable segment revenues; the elimination of inter-segmental revenues of £372,000.

·      Reportable segment assets; largely comprise corporate assets and other assets held centrally, including Property, plant and equipment £951,000; Intangible assets £1,516,000; Provisional working capital adjustment expected (note 3) £8,900,000 and Cash and cash equivalents £12,954,000.

·      Reportable segment liabilities; largely comprise corporate liabilities and other liabilities held centrally, including Trade payables £4,035,000 and Accruals £9,448,000 offset by amounts due from other group companies of £36,403,000.

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 one customer of the Group's infrastructure services segment represent £1,834,000 of the Group's total revenues.

 

3 BUSINESS COMBINATIONS

On the 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 working capital adjustment expected to be in the favour of the company. Fulcrum Utility Services Ltd also raised approximately £11,000,000 (before expenses) by issuing 91,666,667 new shares to fund the costs associated with the acquisition, the ongoing working capital requirements of the enlarged group and to finance the proposed turnaround strategy of the Group.

The acquired business contributed revenues of £9,838,000 and an operating loss of £1,961,000 to the group for the period from acquisition to 30 September 2010. If the acquisition had occurred on 1 April 2010, consolidated revenue and consolidated operating loss for the six months ending 30 September 2010 would have been £18,372,000 and £7,884,000 respectively.

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

	£000
Initial consideration	-
Additional consideration for group relief payments from the vendor to the buyer	3,280
Provisional fair value of working capital adjustment	(8,900)
Total purchase consideration	(5,620)
Provisional fair value of net identifiable liabilities acquired	(6,909)
Provisional Goodwill	1,289

The additional consideration for group relief payments arises from the requirement that the buyer must make a payment to the vendor equal to any payments made after completion by the vendor's group to Fulcrum in respect of the surrender of tax losses by Fulcrum to the vendor's group.

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

		Provisional fair value
		£000
Property, plant and equipment		6,422
Intangible assets		288
Deferred tax assets		3,280
Inventories		2,222
Trade and other receivables		6,848
Cash and cash equivalents		(173)
Trade and other payables		(25,796)
Net identifiable liabilities acquired		(6,909)
Outflow of cash to acquire business; net of cash acquired		-
Cash Consideration		-
Cash & cash equivalents in subsidiary acquired		(173)
Cash outflow on acquisition		(173)

Direct costs relating to the acquisition amounted to £1,427,000 and have been charged to comprehensive income as an exceptional item (note 4).

Negotiations being conducted with the vendor, (National Grid) regarding the working capital adjustment have not yet been brought to a conclusion. As a result the amount included in these statements for both the fair value of the working capital adjustment and the fair value of the net liabilities acquired are provisional.

4 EXCEPTIONAL ITEMS

There were exceptional items in the period ending 30 September 2010 of £2,137,000. An analysis of these costs is as follows:

	£000
Cost of acquisition of Fulcrum Group Holdings Limited	1,427
Pre-acquisition expenses of the company	710
	2,137

5 EARNINGS PER SHARE

			2010
Weighted average number of shares in issue ('000)			84,203
		Earnings	EPS
		2010	2010
		£'000	p
Loss for the period		(4,098)	(4.9)
Exceptional item		2,137	2.6
Loss for the period before exceptional item		(1,961)	(2.3)

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

6 INTANGIBLE ASSETS

		Goodwill	Software  development
		£'000	£'000
Cost
At 4 December 2009		-	-
Acquisitions		1,289	288
At 30 September 2010		1,289	288

Amortisation
At 4 December 2009		-	-
Charge for the period			(61)
At 30 September 2010		-	(61)

Net book value
At 30 September 2010		1,289	227

7 PROPERTY, PLANT AND EQUIPMENT

	Pipelines	Land and  buildings	Fixtures and  fittings	Computer equipment	Total
	£000	£000	£000	£000	£000
Cost
At 4 December 2009	-	-	-	-	-
Acquisitions	5,390	336	81	615	6,422
Additions	325	-	-	-	325
Disposals	-	-	-	(14)	(14)
At 30 September 2010	5,715	336	81	601	6,733
Depreciation
At 4 December 2009	-	-	-	-	-
Depreciation charge for the year	(80)	(2)	(13)	(76)	(171)
Disposals	-	-	-	9	9
At 30 September 2010	(80)	(2)	(13)	(67)	(162)
Net book value
At 30 September 2010	5,635	334	68	534	6,571

At 30 September 2010 there are no commitments to purchase any property, plant and equipment.

8    IMPAIRMENT TESTING

Given the losses for the period, management has performed an impairment test of its property, plant and equipment and intangible assets.

For the assets within the pipeline operating segment, the recoverable amount of these assets has been calculated with reference to their value in use.  The key features of this calculation are shown below:

	2010
Period on which management approved forecasts are based	20 years
Discount rate	9%
Conversion of domestic customers for existing assets	99%
Conversion of non-domestic customers for existing assets	50%

The forecasts include assumptions about reductions in network income as imposed by Ofgem, and also assume that cash flows will stop after 20 years. A forecast period of 20 years has been used as the business has contracted cash flows for this period through the Regulatory Price Control mechanism.

Conversion percentage is an assumption on pipeline assets becoming cash generating on connection.

To ensure that central assets (comprising predominantly of IT assets and other office equipment) are considered, an impairment review is undertaken for the business as a whole, which includes all assets of the business. The recoverable amount of these assets has been calculated with reference to their value in use.  The key features of this calculation are shown below:

	2010
Period on which management approved forecasts are based	3 years
Growth rate applied beyond approved forecast period	1.5%
Discount rate	11%

The forecasts include assumptions about reductions in network income as imposed by Ofgem.

The discount rate for both impairment reviews is based upon the pre-tax weighted average cost of capital of the Group as at each respective period end. A 2% increase in the discount rate does not have a significant impact on impairment.

Whilst it is conceivable that a key assumption in the calculations could change, no reasonably foreseeable change to key assumptions is considered to result in an impairment.

 

Following the acquisition of FGH by the Company a full review of operations and strategic plans has been undertaken and the intention is to return the group to profitability as this plan comes to fruition. This intention and improvements in trading performance is a key judgement underpinning the impairment review of the business.

Following the impairment reviews performed, no charge was considered to be required.

 

9    TAXATION

Income tax expense is recognised based on management's best estimate of the weighted average annual income tax rate expected for the full financial year. The group incurred corporation tax losses in the period of approximately £2m. No deferred tax has been recognised on these losses due to the current loss-making position of the Group.

10   RELATED PARTY TRANSACTIONS

Transactions with key management personnel

Key management compensation amounted to £578,000 for the period ending 30 September. See below:

	2010
	£000
Short-term employee benefits Post Acquisition	203
Short-term employee benefits Pre Acquisition	333
Share related awards	42
	578

The Directors believe that the success of the company will depend to a high degree on the future performance of the management team. The company has therefore established incentive arrangements which will only reward the participants if shareholder value is created. Under these arrangements £42,000 in share related rewards has been included in the financial statements for the period ended 30 September 2010.

Transactions with other related parties

The company has paid Marwyn Capital LLP a fee of £500,000 for corporate finance advisory services. A further fee of £155,000 has 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 £42,000 for the period ending 30 September 2010.

There are no amounts due from related parties on any trading accounts

11   SEASONALITY

Gas connections sales are subject to seasonal variations with peak demand in the third and fourth quarters of the calendar year. This is due to seasonal weather conditions and holiday periods.

12   SHARE CAPITAL AND RESERVES

Ordinary shares issued

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 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.

Dividends

No dividend has been proposed or paid during the period.

13 RISKS AND UNCERTAINTIES

The Board considers risk assessment, identification of mitigating actions and internal control to be fundamental to achieving the Group's strategic objectives. The Board considers that the principal risks to achieving its objectives are set out below. The Board recognises that the nature and scope of the risks can change and so reviews the risks faced by the Group as well as the systems and processes to mitigate them.

-     Turnaround and strategy execution

-     Risks relating to operating in a competitive market

-     Management of financial resources

-     Reliance on key customers

-     Reliance on a significant supplier

-     Attracting and retaining the best people

Further details of these risks are set out in the Admission Document dated 17 June 2010, a copy of which is available on the Company's website at www.fulcrumutilityserviceslimited.co.uk.  

14  INTERIM FINANCIAL INFORMATION

A copy of the interim report is available for inspection at the registered office of the company,

INDEPENDENT REVIEW REPORT TO FULCRUM UTILITY SERVICES LIMITED ("the Company)

Introduction

We have been engaged by the Company to review the condensed set of interim financial information for the period ended 30 September 2010, which comprises the consolidated balance sheet, consolidated statement of comprehensive income, consolidated statement of changes in equity, consolidated cash flow statement and related notes. We have read the other information contained in the interim financial information for the period and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of interim financial statements.

Directors' responsibilities

The interim financial information for the period is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim financial information for the period in accordance with the AIM Rules for Companies which require that the interim financial information must be presented and prepared in a form consistent with that which will be adopted in the company's annual financial statements.

As disclosed in note 1, the condensed set of interim financial statements included in this  interim financial information has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of interim financial statements in the interim financial information for the period based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of the AIM Rules for Companies and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of interim financial statements in the interim financial information for the period is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the AIM Rules for Companies.

PricewaterhouseCoopers LLP
Chartered Accountants
6 December 2010
Birmingham

The maintenance and integrity of the Fulcrum Utility Service Limited website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

END

 

 

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