Unaudited Interim Results for 6m ended 30 Sep 2013

RNS Number : 1271U

Fulcrum Utility Services Ld

28 November 2013

 



FULCRUM UTILITY SERVICES LIMITED

Unaudited interim results for the six months ended 30 September 2013

Fulcrum Utility Services Limited ("Fulcrum", "the Company" or "the Group"), the UK based energy solutions company, today announces its interim results for the six months ended 30 September 2013.

Financial summary

	Unaudited 6 months ended	Unaudited 6 months ended
	30 September 2013	30 September 2012
	£m	£m
Revenue	19.5	19.4
Gross margin	32.5%	40.4%
Underlying EBITDA (1)	0.3	1.1
Operating loss before exceptional items	(0.7)	(0.1)
Loss before tax	(3.4)	(0.1)
Net funds	0.3	4.4
Earnings per share
Basic	(2.2)p	(0.1)p
Adjusted Basic (2)	(0.5)p	(0.1)p

Notes

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

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

Highlights

·      Appointment of Martin Donnachie as Chief Executive Officer

·      Refocused management team with clear operational plans in place

·      Restructuring activities completed which will yield annual cost savings of £1.7 million

·      Disposal of domestic pipeline assets on 9 October for net proceeds of £5.9 million

·      Order book progressing, increased to £15.9 million at 30 September from £12.9 million at 31 March 2013

Martin Donnachie, CEO of Fulcrum, said:

"The six months to 30 September 2013 was a period of major change for Fulcrum as significant steps were taken to improve the performance of the business.

Good progress has been made on improving the quality of delivery to customers and substantial reductions in operating costs have been achieved. The disposal of non-core assets in October was an important milestone realising significant value and securing the cash position of the Company.

The team has shown its commitment to delivering excellent customer service and sustained growth in sales orders through a review of the sales operation and related processes resulting in increased underlying sales. Further improvements to business systems and processes are expected to drive future growth and help Fulcrum retain its market leading position."

Enquiries

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

Stephen Keys

College Hill                           [phone]                                          (PR)

Toby Bates

Notes to Editor

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 also licensed as an Independent Gas Transporter, operating pipelines used to transport gas to homes and commercial properties from the main UK gas network. 

BUSINESS AND OPERATING REVIEW

The six months ended 30 September 2013 has been a period of transformation and consolidation for Fulcrum. The changes to the management team have provided an increased focus on driving improved performance across all areas of the business and, along with the restructuring of business operations, have led to a reduction in overheads that will support future improvements in profitability.

The re-energised management team now has clear business plans in place across all operational areas of the business with a focus on sales, improving operational delivery and operating cost reduction. This will support future success by ensuring Fulcrum is recognised by our customers as their most trusted utilities services partner, providing the basis for improved financial performance and a platform for revenue growth into 2013/14 and beyond.

On 10 October 2013 the Group announced the disposal of substantially all of its non-core domestic-customer gas connection assets, held by its subsidiary Fulcrum Pipelines Limited, to ES Pipelines Limited for net proceeds of approximately £5.9 million. The assets included in the disposal consisted of approximately 31,000 domestic and mixed-use customer gas connection pipelines and associated equipment, generating £1.0 million of revenue and £0.4 million of operating profit (before shared overheads and central costs) annually. The Group has retained a portfolio of approximately 2,000 industrial and commercial ("I&C") pipeline assets.

The Group also announced the appointment of Martin Donnachie as Chief Executive Officer. Martin had held the position on an interim basis since May 2013.

Sales

A restructured sales team is now established, with clear targets and performance-based incentive structures in place to support an improvement in sales order performance throughout the first half of the year. In addition two new business development managers have been recruited with a third scheduled to join the business in January 2014.

Sales order performance over the six months ended September 2013 was ahead of the second half of the previous financial year and the same period last year (excluding the impact of the Speyside distilleries contract secured in October 2012). In addition, a number of larger contracts have been secured during the first half of the year; in May, Fulcrum was appointed by Willmott Dixon Energy Services to design and install a 4.4 kilometre pipeline to supply natural gas to the village of Nantlle, Caernarfon and in early October the Group secured a contract with European Metal Recycling to provide a new gas pipeline to their new IES waste to energy plant in Oldbury.

Fulcrum has continued to support a number of customers with their conversion from fuel oil to gas and the opportunities in this area are evidenced by the Group's success in securing a contract with the world's leading premium drinks business Diageo to convert their Glenkinchie distillery to natural gas via the installation of a new 4.5 kilometre gas pipeline.

In November Fulcrum signed an extension to its framework contract with British Gas Business ("BGB") to continue to provide connections to British Gas customers across England, Scotland and Wales to September 2014. Fulcrum has committed to work with BGB ahead of the expiry of this contract extension to ensure continual improvements in service delivery to ensure Fulcrum is well placed to secure a longer term framework contract with BGB in September 2014.

As at 30 September 2013 the infrastructure order book, excluding the value of the distilleries contract and revenue already recognised on longer term contracts, totalled £15.9 million. This compares to the order book value of £12.9 million as at 31 March 2013 and £13.1 million as at 31 October 2012.

Operations

Fulcrum will achieve success by consistently delivering services safely and on time. To this end a series of operational metrics are being measured and reported on weekly, including a specific focus on the following disciplines:

·      Delivery of quotations in line with customer expectations;

·      Provision of plan dates within ten days of a customer placing their order; and

·      Provision of utility connections on time.

Throughout the past six months the performance of the business in each of these areas has been steadily improving and is expected to continue to improve over the coming months.

Fulcrum has now substantially completed the Speyside distilleries project with three of the four distilleries having been connected to gas as at 30 September 2013. Revenue for the first half includes £4.2 million of revenue from this contract and with the final distillery connected in early November this project has been delivered some six months ahead of programme.

During June 2013 restructuring activities were completed with 37 roles being made redundant. This process has yielded an annualised saving of £1.7 million and the last of these people left the business in September. Since June 2013 the Group has also continued to focus on reducing operating costs with a number of additional savings having been identified, which along with the non replacement of staff leaving the business, will realise further savings of £0.5 million per annum during the second half. These additional redundancies will give rise to further exceptional costs in the second half of approximately £0.3 million.

Outlook

During the first half of the year the order picture has improved with a robust pipeline of sales opportunities being generated, a number of which are expected to close in the second half. The order book remains strong with orders totalling £15.9 million yet to be delivered.

With the industry outlook becoming increasingly favourable, together with improving sales performance and continued cost reduction management, the Board remain confident of further progress in the second half.

FINANCIAL REVIEW

These interim results report the financial performance of the Group for the six months ended 30 September 2013 and for the comparative period to 30 September 2012.

Results and proforma comparison with previous periods

	Unaudited		Unaudited
	6 months ended		6 months ended
	30 September 2013	Year on year	30 September 2012
	£m	movement	£m
Revenue	19.5	0.5%	19.4
Gross profit	6.3	(19.3)%	7.8
Gross margin (%)	32.5%		40.4%
Underlying EBITDA (1)	0.3		1.1
Operating loss before exceptional items	(0.7)		(0.1)

Notes

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

Revenue

Overall reported revenue for the period was £19.5 million against £19.4 million in the same period of the prior year. Revenue from infrastructure services was £19.5 million (2012: £19.2 million), an increase of 1.6%, and included some £4.2 million of revenue from the Speyside distilleries contract, (with £3.0 million having been recognised in the second half of the last financial year).

Revenue from pipeline operations was £0.8 million for the six months ended 30 September 2013, in line with the same period in the prior year. This revenue included some £0.5 million of revenue from the domestic pipeline assets which were disposed of on 9 October 2013.

Gross margin

Reported gross profit for the period was £6.3 million, representing a decrease of 19.3% over the prior period gross profit of £7.8 million.

The gross margin of 32.5% in the period is lower than the prior year margin of 40.4% which included the one off benefit of £1 million from the release of provisions associated with the change in framework contractors and £0.6 million of other provisions released to cost of sales during the year. The underlying margin in the prior year, excluding these benefits, was 32.2%.

Administrative expenses

Excluding exceptional items, administrative expenses totalled £7.0 million (2012: £7.9 million), a reduction of 11.8%, which reflects the completion of restructuring activities and the associated reduction in overall operating costs undertaken in the period.

Exceptional items for the period were £2.7 million (2012: £nil) reflecting a charge of £1.2 million for costs associated with restructuring activities and redundancies and an impairment charge of £1.5 million on assets held for sale at 30 September 2013. The assets held for sale represented domestic pipeline assets and were disposed of on 9 October 2013.

Share based payments charges have reduced to £0.2 million from £0.5 million in the prior period.  The prior year charge included an amount of £0.2 million which was incurred to restructure the Management Participation Share incentive scheme. Charges in respect of this scheme ceased in July 2013.

Administrative expenses reported for the period were £9.6 million (2012: £7.9 million), including exceptional items of £2.7 million (2012: £nil).

EBITDA and operating loss

Underlying EBITDA, before exceptional items and share based payments was £0.3 million for the first half (2012: £1.1 million) and the operating loss for the period was £3.3 million (2012: loss of £0.1 million).

Excluding the one off benefits to gross margin reported in the prior year totalling £1.6million  EBITDA for the year ended 30 September 2012 would have been a loss of £0.5 million, compared to an EBITDA profit of £0.3 million in the first half of this year.

The loss per ordinary share for the period was 2.2 pence (2012: loss of 0.1 pence).  Adjusted earnings per share, before charging exceptional items, were a loss of 0.5 pence (2012: loss of 0.1 pence).

Financing income and expense

Net finance expense totalled £64,000 during the period (2012: £19,000).

Taxation

During the period the Group's losses for corporation tax were approximately £2 million compared to profits of approximately £1 million in the prior period. The total sum of accumulated losses carried forward from prior periods amounts to approximately £20 million as at 30 September 2013.

Deferred tax assets totalling £0.5 million have been recognised at 30 September 2013 (2012: £nil) in anticipation of improved business profitability in future periods. In respect of the revaluation of the industrial and commercial pipeline assets there is currently no intention to sell these assets and the company expects to recover their valuation through use.  Accordingly the deferred tax liability arising on the revaluation in the period of £0.6m will be substantially offset against currently unrecognised tax losses and therefore no deferred tax liability arising on the revaluation has been provided in these interim statements.

Asset disposal and asset revaluation

As at 30 September 2013 Fulcrum reclassified the portfolio of domestic pipeline assets held within the balance sheet of its subsidiary Fulcrum Pipelines Limited from fixed assets to assets held for sale. The carrying value of the assets held for sale was determined by reference to the expected proceeds from sale, less transaction costs. An impairment of £1.5 million relating to the assets held for sale has been charged to the income statement in the period to 30 September 2013, and has been classified as an exceptional item due to the size and nature of the charge.

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

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

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

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

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

Cash flow and financing

Operating cash flow

Operating activities in the period generated cash of £1.3 million (2012: absorbed £2.4 million), and comprised the following:

·      EBITDA for the period of £0.3 million (2011: £1.1 million);

·      exceptional cash costs totalling £1.0 million (2012: £0.1 million); and

·      working capital inflows of £2.1 million (2012: outflows of £3.4 million).

Investing activities

Capital expenditure for the period amounted to £0.9 million (2012: £1.5 million), all of which was investment in pipeline assets (2012: £0.6 million). Capital expenditure in the prior year included an investment in IT assets of £0.9 million.

Cash and borrowings

As at 30 September 2013 the Group had net funds of £0.3 million compared to net debt of £0.1 million as at 31 March 2013 and £4.4 million of cash at 30 September 2012.

Cash balances at 30 September 2013 were £1.9 million (2012: £5.2 million), less amounts drawn on financing facilities of £1.0 million (2012: £nil) and less amounts due in respect of finance leases of £0.6 million (2012: £0.8 million).

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

Principal risks and uncertainties

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

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.

Consolidated Interim Statement of Comprehensive Income

		Unaudited	Unaudited	Audited
	Note	Six months ended 30 September 2013	Six months ended 30 September 2012	Year ended 31 March 2013
Continuing operations		£'000	£'000	£'000
Revenue		19,456	19,354	38,769
Cost of sales		(13,138)	(11,528)	(23,810)
Gross profit		6,318	7,826	14,959
Administrative expenses		(9,638)	(7,919)	(15,887)
Operating loss		(3,320)	(93)	(928)
Analysed as:
EBITDA before share based payments and exceptional items		263	1,062	1,279
Equity settled share based payment charges	11	(216)	(515)	(878)
Depreciation and amortisation		(717)	(640)	(1,329)
Operating loss before exceptional items		(670)	(93)	(928)
Exceptional items	7	(2,650)	-	-
Operating loss		(3,320)	(93)	(928)
Net finance expense		(64)	(19)	(75)
Loss before tax		(3,384)	(112)	(1,003)
Taxation		-	-	508
Loss for the period attributable to equity holders of the parent		(3,384)	(112)	(495)
Other comprehensive income: Items that will not be reclassified to profit or loss:
Revaluation of pipeline assets	8	3,075	-	-
Total comprehensive income for the period attributable to equity holders of the parent		(309)	(112)	(495)

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

Basic and diluted	6	(2.2)p	(0.1)p	(0.3)p

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

Consolidated Interim Statement of Changes in Equity

		Share capital	Share premium	Revaluation reserve	Retained earnings	Total equity
	Note	£'000	£'000	£'000	£'000	£'000
Balance at 31 March 2012		154	16,182	-	(16,458)	(122)
Loss for the period ended 30 September 2012		-	-	-	(112)	(112)
Transactions with equity shareholders:
Equity-settled share based payment transactions	11	-	-	-	364	364
Balance at 30 September 2012		154	16,182	-	(16,206)	130
Loss for the period ended 31 March 2013		-	-	-	(383)	(383)
Transactions with equity shareholders:
Equity-settled share based payment transactions		-	-	-	363	363
Balance at 31 March 2013		154	16,182	-	(16,226)	110
Loss for the period ended 30 September 2013		-	-	-	(3,384)	(3,384)
Other comprehensive income for the period		-	-	3,075	-	3,075
Transactions with equity shareholders:
Equity-settled share based payment transactions	11	-	-	-	216	216
Balance at 30 September 2013		154	16,182	3,075	(19,394)	17

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

Consolidated Interim Balance Sheet

		Unaudited	Unaudited	Audited
		30 September 2013	30 September 2012	31 March 2013
	Note	£'000	£'000	£'000
Non-current assets
Property, plant and equipment		5,892	9,202	9,821
Intangible assets		3,647	3,848	3,909
Deferred tax assets		508	-	508
		10,047	13,050	14,238
Current assets
Inventories		3,345	2,894	1,489
Trade and other receivables		5,801	6,297	7,692
Cash and cash equivalents		1,867	5,177	1,911
Assets held for sale	9	5,906	-	-
		16,919	14,368	11,092
Total assets		26,966	27,418	25,330
Current liabilities
Trade and other payables		(24,496)	(25,596)	(22,440)
Borrowings	10	(1,213)	(222)	(1,531)
Provisions		(925)	(892)	(798)
		(26,634)	(26,710)	(24,769)
Non-current liabilities
Borrowings	10	(315)	(578)	(451)
Total liabilities		(26,949)	(27,288)	(25,220)
Net assets/(liabilities)		17	130	110
Equity attributable to equity holders of the parent
Share capital		154	154	154
Share premium		16,182	16,182	16,182
Revaluation reserve		3,075	-	-
Retained earnings		(19,394)	(16,206)	(16,226)
Total equity		17	130	110

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

Consolidated Interim Cash flow Statement

		Unaudited	Unaudited	Audited
		Six months ended 30 September 2013	Six months ended 30 September 2012	Year ended 31 March 2013
	Note	£'000	£'000	£'000
Cash flows from operating activities
Loss before tax for the period		(3,384)	(112)	(1,003)
Adjustments for:
Depreciation		443	444	880
Amortisation of intangible assets		274	196	449
Loss/(profit) on sale of property, plant and equipment		17	(35)	(35)
Impairment of assets held for sale	9	1,493	-	-
Net finance expense		64	19	75
Equity settled share-based payment expenses	11	216	364	727
Decrease/(increase) in trade and other receivables		1,891	(331)	(1,725)
Increase in inventories		(1,856)	(1,435)	(30)
Increase/(decrease) in trade and other payables		2,056	(1,394)	(4,551)
Increase/(decrease) in provisions		127	(121)	(215)
Net cash from operations		1,341	(2,405)	(5,428)
Net interest (paid)/received		(64)	23	(31)
Net cash from operating activities		1,277	(2,382)	(5,459)
Cash flows from investing activities
Additions to property, plant and equipment		(854)	(1,075)	(1,942)
Additions to intangibles		(12)	(445)	(948)
Proceeds from sale of property, plant and equipment		-	863	863
Net cash used in investing activities		(866)	(657)	(2,027)
Cash flows from financing activities
Amounts (repaid)/drawn from financing facilities		(336)	-	1,293
Payment of finance lease liabilities		(119)	(53)	(165)
Net cash used in financing activities		(455)	(53)	1,128
Decrease in cash and cash equivalents		(44)	(3,092)	(6,358)
Cash and cash equivalents at 31 March 2013		1,911	8,269	8,269
Cash and cash equivalents at 30 September 2013		1,867	5,177	1,911

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

NOTES TO THE INTERIM FINANCIAL INFORMATION

1.      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.

The condensed consolidated interim financial information, including the financial information for the period ended 31 March 2013 set out in this interim financial information, does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. The information for the period ended 31 March 2013 is derived from the non-statutory accounts for that financial period. The non-statutory accounts for the year ended 31 March 2013 were approved on 30 May 2013 and have been delivered to the Registrar of Companies. The Auditors' report on those accounts was unqualified and did not draw attention to any matters by way of emphasis of matter.

This condensed consolidated interim financial information is unaudited and was approved for issue on 28 November 2013. The condensed consolidated interim financial information has been reviewed by the Group's auditors and their Independent Review Report is set out in this document.

2.      Basis of preparation

The condensed consolidated interim financial information for the period ended 30 September 2013 has been prepared in accordance with IAS 34, 'Interim financial reporting' as adopted by the European Union.

The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the period ended 31 March 2013 which have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.

The accounting policies adopted in the condensed consolidated interim financial information are consistent with those set out in the financial statements for the period ended 31 March 2013, except as described in note 4 below.  The only significant change is that the Group has adopted a policy of revaluing its industrial and commercial pipeline assets.

3.      Going concern

As highlighted in the financial review the Group had net funds at 30 September 2013 of £0.3 million.  On 10 October 2013 the Group received £5.9 million in cash representing the net proceeds from the sale of the domestic pipeline assets detailed in note 8.

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 the current cash resources of the Group and its existing financing facilities.

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

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

4.      Accounting policies

The principal accounting policies of the Group are consistent with those set out in the Group's 2013 Annual Report and Accounts, except as described below.

Property, plant and equipment

Property, plant and equipment, excluding pipelines, is stated at cost less accumulated depreciation and accumulated impairment losses.  Cost includes the original purchase price of the asset and the costs attributable to bringing the asset into working condition for its intended use.

Industrial and commercial pipeline assets are shown at fair value, based on assumptions benchmarked by an external independent party, less subsequent depreciation.  Assumptions underlying the asset valuations are reviewed with sufficient regularity to ensure that the fair value of a revalued asset does not differ materially from its carrying amount.  Any accumulated depreciation at the date of revaluation is restated to the revalued amount of the asset.

Increases in the carrying amount arising on revaluation of industrial and commercial pipeline assets are credited to other comprehensive income and shown in the revaluation reserve in shareholders' equity.  Decreases that offset previous increases of the same asset are charged to the income statement.  The difference between depreciation based on the revalued carrying amount of the asset charged to the income statement, and depreciation based on the asset's original cost is transferred from the revaluation reserve to retained earnings.

The following new standards and amendments to standards are mandatory and have been adopted where applicable for the first time for the financial period beginning 1 April 2013:

·      Amendments to IAS 19 - "Employee Benefits (2011);"

·      Amendments to IAS 1 - "Presentation of Items of Other Comprehensive Income;"

·      Amendments to IFRS 13 - "Fair Value Measurement;"

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

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

·      Annual improvements to IFRSs - "2009-2011 Cycle."

The adoption of these standards and amendments has not had a material impact on the financial statements.

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

·      IFRS 9 Financial Instruments

·      IFRS 10 Consolidated Financial Statements

·      IFRS 11 Joint Arrangements

·      IFRS 12 Disclosures of Interests in Other Entities.

·      lAS 27 Separate Financial Statements.

·      lAS 28 Investments in Associates and Joint Ventures

The Directors anticipate that the adoption of these standards and amendments in future periods will not have a material impact on the financial statements, but may give rise to additional disclosures.

In preparing these condensed consolidated interim financial statements the significant judgments made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the period ended 31 March 2013.

5.      Segmental analysis (unaudited)

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 two reportable segments, as described below.

Fulcrum's Infrastructure Services operating segment provides utility infrastructure and connections services.

Fulcrum's Pipelines 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 license 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 management recharges and exceptional items. Segment operating profit / (loss) before management recharges and 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.

Unallocated amounts in the following tables are comprised of the elimination of inter-segmental transactions, and costs that cannot be allocated to an operating segment.

 

Six months ended 30 September 2013

	Infrastructure Services	Pipelines	Unallocated	Total Group
	£'000	£'000	£'000	£'000
Reportable segment revenue	19,529	781	(854)	19,456
Underlying EBITDA	(231)	494	-	263
Share based payment charge	-	-	(216)	(216)
Depreciation and amortisation	-	(268)	(449)	(717)
Reportable segment operating profit/(loss) before exceptional items	(231)	226	(665)	(670)
Exceptional items	-	(1,493)	(1,157)	(2,650)
Reportable segment operating profit/(loss)	(231)	(1,267)	(1,822)	(3,320)
Net finance expense	-	-	(64)	(64)
Profit/(loss) before tax	(231)	(1,267)	(1,886)	(3,384)

5.      Segmental analysis (continued)

Six months ended 30 September 2012

	Infrastructure Services	Pipelines	Unallocated	Total Group
	£'000	£'000	£'000	£'000
Reportable segment revenue	19,222	798	(666)	19,354
Underlying EBITDA	780	281	1	1,062
Share based payment charge	-	-	(515)	(515)
Depreciation and amortisation	-	(230)	(410)	(640)
Reportable segment operating profit/(loss) before exceptional items	780	51	(924)	(93)
Exceptional items	-	-	-	-
Reportable segment operating profit/(loss)	780	51	(924)	(93)
Net finance expense	-	-	(19)	(19)
Profit/(loss) before tax	780	51	(943)	(112)

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)

Major items in the unallocated column comprise:

·      Reportable segment revenues: the elimination of inter-segmental revenues relating to pipeline assets;

·      Underlying EBITDA: the operating profit/loss of the central service providers;

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

5.      Segmental analysis (continued)

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 of the Group's major customers of the Infrastructure Services segment represent £3,376,000 (six months ended 30 September 2012: £3,302,000, year ended 31 March 2013 £5,911,000) of the Group's total revenues. Revenues from another major customer of the Infrastructure Services segment amounted to £3,086,000 (2012: £nil).

6.      Earnings per share (unaudited)

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:

	Six months ended 30 September 2013	Six months ended 30 September 2012	Year ended 31 March 2013
	Number '000	Number '000	Number '000
Weighted average number of ordinary shares in issue	154,307	154,307	154,307

Loss for the period	Six months ended 30 September 2013	Six months ended 30 September 2012	Year ended 31 March 2013
	£'000	£'000	£'000
Loss for the period attributable to shareholders	(3,384)	(112)	(495)
Add exceptional items	2,650	-	-
Less deferred tax asset recognised	-	-	(508)
Adjusted loss for the period attributable to shareholders	(734)	(112)	(1,003)

Loss per share	Six months ended 30 September 2013	Six months ended 30 September 2012	Year ended 31 March 2013
Basic	(2.2)p	(0.1)p	(0.3)p
Adjusted basic	(0.5)p	(0.1)p	(0.7)p

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

7.      Exceptional items (unaudited)

	Six months ended 30 September 2013	Six months ended 30 September 2012	Year ended 31 March 2013
	£'000	£'000	£'000
Restructuring costs and provisions	1,157	-	-
Impairment of assets held for sale	1,493	-	-
	2,650	-	-

Restructuring costs relate to staff severance costs.

The impairment of assets held for sale is in relation to the disposal of the majority of the domestic pipeline assets on 9 October 2013.

8.      Revaluation of pipeline assets (unaudited)

As at 30 September 2013 the Director's commissioned an independent review of the assumptions underlying the revaluation of the Group's industrial and commercial pipeline assets.

The revaluation was prepared by reference to the present value of the future cash flows arising from these assets and resulted in an increase in value of £3,075,000, which has been credited to other comprehensive income, and is shown as a revaluation reserve in shareholders' equity.

There is currently no intention to sell these industrial and commercial assets and the company expects to recover their valuation through use.  Accordingly the deferred tax liability arising on the revaluation in the period of £0.6m will be substantially offset against currently unrecognised tax losses and therefore no deferred tax liability arising on the revaluation has been provided in these interim statements.

9.      Assets held for sale (unaudited)

£5,906,000 of assets are presented as held for sale following commitment of the Group's management prior to 30 September 2013 to sell the majority of the domestic pipeline assets.  The sale of these assets completed on 9 October 2013.

An impairment loss of £1,493,000 was recognised on the remeasurement of the assets to the lower of their carrying amount and their fair value less costs to sell.  This impairment has been recorded as an exceptional item in the consolidated interim statement of comprehensive income.

The assets held for sale are further analysed below:

			Domestic pipelines
			£'000
Cost			8,582
Accumulated depreciation			(1,183)
Net book value			7,399
Impairment on remeasurement			(1,493)
Assets held for sale			5,906
Gross proceeds received			6,299
Transaction costs			(393)
Fair value less costs to sell			5,906

10.    Borrowings (unaudited)

	30 September 2013	30 September 2012	31 March 2013
Current	£'000	£'000	£'000
Finance lease liabilities	256	222	238
Amounts due on financing facilities	957	-	1,293
	1,213	222	1,531

	30 September 2013	30 September 2012	31 March 2013
Non-current	£'000	£'000	£'000
Finance lease liabilities	315	578	451

Lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of default.

Financing facilities are 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.

	30 September 2013	30 September 2012	31 March 2013
	£'000	£'000	£'000
Gross finance lease liabilities - minimum lease payments:
-       No later than one year	326	326	326
-       Later than one year and no later than five years	339	666	502
	665	992	828
Future finance charges on finance leases
-       No later than one year	(70)	(104)	(88)
-       Later than one year and no later than five years	(24)	(88)	(51)
	(94)	(192)	(139)
Present value of finance lease liabilities
-       No later than one year	256	222	238
-       Later than one year and no later than five years	315	578	451
	571	800	689

11.    Share based payments (unaudited)

	Six months ended 30 September 2013	Six months ended 30 September 2012	Year ended 31 March 2013
	£'000	£'000	£'000
Management participation shares	73	147	294
Marwyn participation option	74	147	294
Fulcrum share option plan	69	70	139
Total equity settled share based payments	216	364	727
Costs of modification of management participation scheme	-	151	151
Total share based payments	216	515	878

There are currently three share based payment schemes in operation, details of which are set out in the Group's 2013 Annual Report and Accounts.

12.    Related party transactions (unaudited)

The Company has paid Marwyn Capital LLP fees of £91,000 pursuant with the ongoing corporate finance advisory agreement.  An amount of £148,000 was owing to Marwyn Capital LLP at 30 September 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 £74,000 for the period ended 30 September 2013.

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

13.    Seasonality (unaudited)

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.

INDEPENDENT REVIEW REPORT TO FULCRUM UTILITY SERVICES LIMITED

Introduction

We have been engaged by the company to review the condensed set of financial statements in the interim report for the six months ended 30 September 2013 which comprises the Consolidated Interim Statement of Comprehensive Income, Consolidated Interim Statement of Changes in Equity, Consolidated Interim Balance Sheet, Consolidated Interim Cash Flow Statement and the related explanatory notes. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with the terms of our engagement. Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.

Directors' responsibilities

The interim report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim report in accordance with the AIM Rules.

As disclosed in note 2, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the EU. The condensed set of financial statements included in this interim report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the interim report based on our review.

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 UK. 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 financial statements in the interim report for the six months ended 30 September 2013 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the AIM Rules.

David Morritt (Senior Statutory Auditor) 

for and on behalf of KPMG LLP, Statutory Auditor 

Chartered Accountants 

1 The Embankment

Neville Street

Leeds

LS1 4DW

28 November 2013

 

END

 

 

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