Preliminary Results

Note: A briefing for analysts will be held this morning at Buchanan. For further details please contact Buchanan on 020 7466 5000.

For immediate release 10 June 2014

Energy Assets Group plc

("Energy Assets", the "Company" or the "Group")

Preliminary Results for the year ended 31 March 2014

Another year of strong growth

Energy Assets Group plc (LSE: EAS.L), the largest independent provider of industrial and commercial (I&C) gas metering services in the UK1, is pleased to announce its preliminary results for the year ended 31 March 2014. 

Financial highlights

· Total revenue increased by 34% to £24.2m (2013: £18.0m);

· Recurring revenue increased by 37% to £16.9m (2013: £12.3m) representing 70% of total revenue (2013: 68%);

· EBITDA increased by 39% to £15.0m from £10.8m;

· Operating profit before exceptional items increased by 38% to £9.8m from £7.1m;

· Profit before tax and exceptional items increased by 72% to £6.7m (2013: £3.9m). Profit before tax was £6.0m (2013: £2.9m) after incurring exceptional costs of £0.6m (2013: £1.0m);

· Cash generated from operations of £14.5m (2013: £9.2m), a growth of 58%;

· Adjusted EPS increased by 73% to 18.84p (2013: 10.90p);

· A new £35m facility announced in November 2013 with Bank of Scotland to refinance existing debt and facilitate further opportunities to grow the existing meter portfolio; 

· At 31 March 2014 the Group had available facilities with its funding partners totalling £39.0m and cash at bank of £7.9m. 

Operational highlights

· The metering portfolio owned and installed increased by 25% to circa 101,000 assets (2013: circa 81,000);

· Increased cumulative capital investment in meter assets of 34% to £78.0m which has produced long term recurring revenue in the current year of £10.6m (2013: £7.8m);

· Meter Asset Management (MAM) services now provided to 30 (2013: 27) gas suppliers within the UK I&C gas market;

· The number of meter points from which AMR data is collected on behalf of our customers has increased by 19% to circa 62,500 (2013: circa 52,500). This represents one of the largest portfolios within the UK I&C sector;

· Revenue from Siteworks activity increased by 28% to £7.3m (2013: £5.7m).

Outlook

· The acquisition of BGlobal Metering Limited (BGM) completed after the end of the financial year on 17 April 2014 for £2.3m;

· This provides the systems, accreditations and expertise to operate as a leading provider in the electricity sector and is in line with the Group's strategy to offer metering and associated energy services across a multi-utility platform;

· This acquisition has already increased the meters under management to circa 161,000 and Energy Assets now retrieve data from circa 152,500 meter points across the combined gas, water and electricity sectors;

· The new financial year has started strongly, all segments continue to grow and we are on track to deliver another year of strong operating and financial performance.

Chief Executive's comment

Commenting on today's announcement, Chief Executive Phil Bellamy-Lee said:

"I am delighted to report another year of strong operational and financial performance, with continued growth across our three business divisions. Energy Assets is a strong, growing company which has continued to make great progress and as an organisation we are committed to creating shareholder value. The Board is confident that Energy Assets will continue to deliver added value for all our stakeholders as we continue to broaden our offering.

The Group's primary objective is to further consolidate our position as the largest independent metering service provider to the UK I&C gas sector, to grow our position across the utility sector as a whole, and to grow our successful Siteworks business. The combination of our strong supply chain relationships, engineering competence, bespoke systems and focus on technology continue to differentiate us from our competitors.

The BGM acquisition enables Energy Assets to expand its presence into the electricity sector and is a significant step in the delivery of the Group's strategy to offer services across a multi-utility platform.

With the combination of opportunities arising from Government regulatory requirements and our relationships with energy suppliers and the wider market we are confident of delivering our long term growth strategy."

Enquiries

For further information visit www.energyassets.co.uk or contact:

Notes to Editors:

About Energy Assets 

Energy Assets provides metering and related services in the I&C segment of the UK utility market and is the largest independent provider of I&C gas metering services in the UK1. The Group offers utility suppliers and end-user consumers of energy a broad spectrum of metering services from the provision and management of new and replacement meters through its MAM Services division to the procurement and project management of related infrastructure works and the collection and provision of consumption data through the Group's Siteworks and AMR divisions. 

Energy Assets is listed on the Main Market of the London Stock Exchange.

1 by number of meters owned and managed

Chairman's statement

Energy Assets Group plc continues to perform well and has delivered another strong performance during the financial year ended 31 March 2014. Profit before tax and exceptional items was ahead 72% on the previous year at £6.7m and recurring rental revenue has increased by 37% to £16.9m (2013: £12.3m) representing 70% (2013: 68%) of total revenue. 

During the year we have continued to make substantial progress in all three areas of our business. We have increased our meter portfolio by 25% to circa 101,000 meters, the meter points from which data is collected on behalf of our customers has increased by 19% to circa 62,500 units, and our Siteworks business has generated revenues of £7.3m, representing an increase of 28% on the previous financial year.

The strength of this performance is testament to the sound underlying operations of the Group and the continuing demand for our services.

Strategy

The Group's primary objective is to further consolidate our position as the largest independent metering service provider to the UK I&C gas sector, as measured by meters under ownership and management, to grow our position across the utility sector as a whole, and to grow revenue and profits within our successful Siteworks business.

This strategy focuses primarily on growing our business organically, however, it also includes making acquisitions which can add value. As a result, after the end of the financial year on 17 April 2014 we completed the acquisition of BGlobal Metering Limited (BGM), a provider of advanced metering technology to the UK I&C electricity sector including the supply and installation of electricity meters, meter operator services (MOP) and the ongoing collection and aggregation of energy data (DCDA). 

The BGM acquisition provides Energy Assets, which is currently predominately focussed in the gas sector, with the systems, accreditations and expertise to successfully operate as a leading service provider in the electricity sector and is in line with the Group's strategy to offer metering and associated energy services across a multi-utility platform. Completion of the acquisition reinforces Energy Assets as a leading metering services provider and creates cross-selling opportunities to the wider business. It will also provide an opportunity to extend the Group's successful Siteworks activities into the electricity market.

Over half of the revenues of BGM are recurring in nature and the Energy Assets Directors are confident that, following integration into the Group, the BGM business will be earnings enhancing within 12 months of the acquisition date.

Funding

In November 2013, the Company announced a new £35m facility and welcomed Bank of Scotland as one of the Group's main funding partners. The purpose of the facility was to refinance £10m of existing debt and provide additional finance to support the continued growth of the business. This new facility places the Group in an even stronger position to continue increasing its installed meter base through existing contracts and service new opportunities as they arise.

At 31 March 2014 the Group had facilities available from its funding partners totalling £39m and cash at bank of £7.9m. Net cash inflow from operations remains strong and during the year increased by 58% to £14.5m (2013: £9.2m).

Technology development activities

In July 2013, Energy Assets announced a joint commitment to work with Elster, a world leading producer of advanced metering products and intelligent metering solutions, in the development of absolute encoder technology for the UK I&C gas market.

In addition, the Energy Assets technical team has provided field and application support to the Elster Research and Development (R&D) team in their development of a new diaphragm meter technology with consumption data logging and communication capability. 

We are delighted that Elster has chosen Energy Assets as a strategic partner and we are confident that the partnership will continue to evolve as we both seek further innovation within our respective areas of expertise.

Dividend

At the time of listing it was stated that it was the Directors' intention to prioritise investment to grow the Company's installed asset base. This remains the case and in the financial year to 31 March 2014 a total of £21m was invested in assets that generate recurring revenue for the business. The Board is, therefore, not recommending a dividend for the financial year ended 31 March 2014. 

People

Energy Assets relies on the technical and engineering expertise of its people and therefore it is important that we recruit, manage, develop and retain our excellent team to continue to deliver our high quality service offering and sustain the Company's growth. We now have over 150 employees, following the acquisition of BGM, and each of these individuals are key to the operation of our business. In particular, we have a dedicated and talented management team who have steered the business through a period of significant growth with great success.

On behalf of the Board, I would like to thank all of our people for their hard work during this financial year and for their continued commitment to Energy Assets.

Outlook

Energy Assets is a strong, growing company which has continued to make great progress year after year. As an organisation we are committed to creating shareholder value and the Board is confident that we will continue to deliver added value for all our stakeholders as we continue to broaden our offering.

The combination of our strong supply chain relationships, engineering competence, bespoke systems and focus on technology continue to differentiate us from our competitors which, when taken together with the opportunities arising from Government regulatory requirements and new opportunities with gas suppliers and the wider market, will enable us to deliver our long term growth strategy.

The new financial year has started strongly, all segments continue to grow and we are on track to deliver another year of strong operating and financial performance. We remain confident that our highly competitive business model will secure continued growth into the future.

Dr Christopher Masters

Chairman

10 June 2014

Business and financial review

Energy Assets is the largest independent provider of I&C gas metering services in the UK (by number of meters owned and managed) and throughout the year we have continued to build on the fundamentals within our business, increasing our asset portfolio and strengthening our growing Siteworks division. 

Our strategy

The Group's primary objective is to further consolidate our position as the largest independent metering service provider to the UK I&C gas sector, as measured by meters under ownership and management, to grow our position across the utility sector as a whole, and to grow revenue and profits within our successful Siteworks business.

This strategy focuses on growing our business organically, however, it also includes making acquisitions which can add value to our core business. In implementing this strategy we expect to:

· Continue to grow our asset base, focussing on the I&C segment of the metering market;

· Grow and diversify the primary energy supplier client base;

· Increase direct engagement with end-user consumers;

· Offer services across a multi-utility platform; and

· Increase operational flexibility.

These key strategic priorities can be linked to key performance indicators as follows:

Our progress in relation to our strategy can be further highlighted through the trends in our asset base and recurring revenue over the past few years as follows:

Business model

Energy Assets provides metering and related services in the I&C segment of the UK utility market and is the largest independent provider of I&C gas metering services in the UK (by number of meters owned and managed). The Group offers utility suppliers and end-user consumers of energy a broad spectrum of metering services from the provision and management of new and replacement meters through its MAM Services division to the procurement and project management of related infrastructure works and the collection and provision of consumption data through the Group's Siteworks and AMR divisions. 

Meter Asset Management (MAM)

The Group's current key area of recurring revenue activity is the provision, management and maintenance of I&C gas meters as an OFGEM-accredited MAM. 

The majority of gas suppliers in the UK outsource MAM activities to an independent third party and Energy Assets is the largest independent MAM in the UK I&C gas sector. Energy Assets is also registered as an Ofgem Approved Meter Installer (OAMI) and has developed an internal resource team for the installation of meters. The Group provides a range of metering services and has developed the industry's most advanced end-to-end digital solution for meter asset management which ensures that the entire process is managed in an open and inclusive manner with all parties having visibility of project status and activities in real time.

Revenue is generated through long-term rental payments from gas suppliers who supply gas through the Group's meters. 

The new BGM business, acquired on 17 April 2014, also provides advanced metering technology to the UK I&C electricity sector which includes the supply and installation of electricity meters and meter operator services (MOP). Revenue is generated through long-term meter management payments from electricity suppliers. We have the opportunity to deploy the Energy Assets controls and systems to the BGM business, providing a unique proposition across gas and power.

Automated Meter Reading (AMR)

Energy Assets engages in the collection and provision of gas and water consumption data through its AMR division (branded as Energydata 24) generating revenue through rental payments from suppliers and end-user consumers. 

The AMR division manages the installation of data loggers that collect consumption data from advanced meters and transmit the data at least daily to the Group's data management system using GSM technology. These data loggers enable the Group to produce accurate and up-to-date consumption reports for end-user consumers allowing them to closely monitor their consumption and effectively budget for energy expenses and identify areas where they can reduce costs. In addition, the Group provides month end billing reads to a number of gas suppliers enabling them to bill accurately and in a timely manner, improving cash flow, customer relationships and reducing their costs to serve their customers. 

The new BGM business also provides services forthe ongoing collection and aggregation of energy data (DCDA) in the UK I&C electricity sector.

Siteworks

Through its Siteworks division the Group provides customers with an engineering, consultancy, system design and project management service of the highest standard for gas infrastructure works and meter point infrastructure. 

From conception to completion, we undertake on site engineering surveys and audits and develop the project model that best suits our customer's requirements. We then project manage the engineering service and interface with all third party organisations, ensuring our customer expectations and the industry standards and process requirements are met.

The acquisition of BGM post year end will also provide an opportunity to extend the Group's successful existing Siteworks activities into the electricity market.

Siteworks clients are typically large retail and supermarket chains, organisations in the food, drink and entertainment industries, universities, hospitals and local government and council organisations with significant property portfolios.

Financial Results and Key Performance Indicators

The Group monitors a number of financial and key performance indicators as follows:

The Group has continued to grow revenue and profits through strong performances across each of its business segments.

For the year ended 31 March 2014, revenue was £24.2m, showing an increase of £6.2m (34%) compared with the previous financial year. This increase is predominately due to the expanding meter and AMR portfolio owned and managed by the Group and the successful integration of the EAES business acquired during the previous financial year. The Group has continued to focus on the I&C market which typically generates higher rental incomes per meter than the domestic market further underpinning the profitable revenue growth.

At 31 March 2014 recurring revenue accounted for 70% of total revenue being £16.9m compared to £12.3m in the previous year, an increase of 37%.

Gross profit increased by 35% from £10.7m (2013) to £14.4m (2014) with all segments contributing to this improvement.

Exceptional costs have been incurred in both the current and prior year. In the prior year, non-recurring costs of £0.4m were incurred in relation to the acquisition of EAES. A share based payment expense of £0.6m was also incurred as a consequence of the employee share schemes implemented as part of the IPO. A similar share based payment expense has been incurred in the current year along with costs of £0.1m relating to the post year end acquisition of BGM.

Operating profit before exceptional costs increased from £7.1m to £9.8m, a rise of 38%.

Finance costs remained constant at £3.2m despite the increase in borrowings supporting our growing investment in meter assets. This is due to the refinancing exercises which took place in the current and prior years resulting in more competitive interest rates being secured on existing borrowings.

EBITDA increased by 39% from £10.8m to £15.0m and profit before tax and exceptional items increased by 72% to £6.7m (2013: £3.9m). Profit before tax was £6.0m (2013: £2.9m) after incurring exceptional share based payment and acquisition costs.

At a divisional level the results were as follows:

Meter Asset Management (MAM)

This division has made significant progress during the year installing circa 20,000 meters and increasing its total portfolio to circa 101,000 meters (up 25% from 2013). These meters now serve a total of 30 gas suppliers who are responsible for over 80% of the gas supply to the UK I&C market. 

Given that the design life of gas meters in the UK is in excess of 20 years it is expected that these assets will continue to provide a solid source of long term recurring revenue which is £10.6m for the current financial year (2013: £7.8m). 

Demand for the installation of advanced and smart gas meters is being driven by Government policy which currently requires every metering point in the UK to have advanced or smart-enabled energy meters by 2020.

Automated Meter Reading (AMR)

Our AMR business has also had a very strong trading year with a 40% increase in revenue to £6.3m (2013: £4.5m) and a 45% increase in gross profit to £2.9m (2013: £2.0m). 

The number of meter points from which data is collected has increased by 19% to circa 62,500 (2013: circa 52,500) and represents one of the largest portfolios within the UK I&C sector.

The new BGM business acquired in April 2014 also provides services forthe ongoing collection and aggregation of energy data (DCDA) in the UK I&C electricity sector and this brought with it in excess of 90,000 meter points for which management services are currently provided, together with the opportunity for further installations through relationships with existing customers and cross-selling opportunities to the wider business. 

Demand for an AMR service provision is being driven by end users seeking to understand their energy consumption and government legislation which requires every metering point in the UK to have advanced or smart-enabled energy meters by 2020. 

Siteworks

The Gas Industry Registration Scheme (GIRS) accredited Siteworks division continues to develop with significant annual growth once again during the current financial year. Overall revenues and gross profit improved by 28% to £7.3m and £4.6m respectively in the year to 31 March 2014.

The acquisition of BGM brings with it an opportunity to extend the Group's Siteworks activities into the electricity market.

Acquisition of BGlobal Metering Limited

Shortly following the year end, Energy Assets was delighted to announce that it reached an agreement with Bglobal plc to acquire the entire issued ordinary share capital of BGlobal Metering Limited (BGM) for a cash consideration of £2.3m which included payment of £0.2m for the completion cash balance. The acquisition was made on a debt free basis with a working capital adjustment mechanism in place post completion.

Based in Blackburn, BGM provides advanced metering technology to the UK I&C electricity sector. This includes the supply and installation of smart electricity meters, meter operator services (MOP), and the ongoing collection and aggregation of energy data (DCDA). BGM is a fully accredited MOP and DCDA and provides MOP services to utility companies for circa 60,000 meter points and DCDA services for in excess of 90,000 meter points. Following completion of the transaction, Energy Assets now provides management services for circa 161,000 meters and will retrieve data from circa 152,500 meter points across the combined gas, water and electricity sectors (based on asset numbers at 31 March 2014).

The BGM acquisition provides Energy Assets with the systems, accreditations and expertise to successfully operate as a leading service provider in the electricity sector and is in line with the Group's strategy to offer metering and associated energy services across a multi-utility platform. The Energy Assets and BGM offerings are extremely complementary and both businesses deliver services to a number of energy providers, energy brokers and a significant number of end user clients. Completion of the acquisition will reinforce Energy Assets as a leading metering services provider and creates cross-selling opportunities to the wider business. It will also provide an opportunity to extend the Group's successful Siteworks activities into the electricity market.

The Energy Assets Directors are confident that, following integration into the Group, the BGM business will be earnings enhancing within 12 months of the acquisition date. BGM had gross assets of £4.0m at 31 March 2013. The business generated revenues of £7.4m, over half of which are recurring in nature, and incurred a loss before tax of £1.5m (after exceptional asset impairment and intra-group management charges of £0.7m) for the year ended 31 March 2013.

This transaction enables Energy Assets to expand its presence into the electricity sector and is a significant step in the delivery of the Group's strategy to offer services across a multi-utility platform. With continued focus on delivering value added services to the expanded utility and commercial client base, this acquisition also provides the Group with further opportunities for growth as well as enhancing our market position and increasing shareholder value in the near term.

Bank of Scotland Refinancing

In November 2013, Energy Assets announced a new £35m facility with Bank of Scotland to refinance £10m of existing debt with Macquarie Bank (Macquarie) and provide additional finance to support the continued growth of the business. 

The Group are delighted to welcome Bank of Scotland as one of their main funding partners and by securing this new facility is now in an even stronger position to continue increasing its installed meter base through existing contracts and service new opportunities as they arise. 

New £25m funding facility

The core element of the arrangement with Bank of Scotland was a new £25m funding facility which allows drawdowns over a two year period attracting an interest rate of 2.95% plus LIBOR with a ten year repayment profile. 

The Group have covered this facility with an interest rate swap.

Refinancing £10m of existing debt

Additionally, £10m of existing debt was refinanced with Bank of Scotland. The loan, which was historically priced at a margin of LIBOR plus 4%, is now priced at LIBOR plus 2.95%. The Company had previously fixed the rate on this loan by entering into an interest rate swap which has been novated to Bank of Scotland on standard market terms. The refinanced loan will be repaid over the remaining term of seven and a half years under a similar structure.

Technology development activities

During the year, Energy Assets announced a joint commitment to work with Elster, a world leading producer of advanced metering products and intelligent metering solutions, in the development of absolute encoder technology for the UK I&C gas market.

Absolute encoder technology is widely used across the US and parts of mainland Europe but has not been widely introduced in the UK gas sector to date. The technology uses the transfer of light to determine the position of a meter index and to deliver an absolute read, providing the benefit of remote data collection which is equivalent in accuracy to an actual visual manual reading.

Elster currently plays a major role in the Energy Assets supply chain and has been a key business partner in the growth of the Group. The development activity to date has involved a joint project team working to develop a specific variant to Elster's standard absolute encoder technology that can interface with Energy Asset's own Safir data logger thus providing a unique solution to the Group. This development work is covered by a 12 month exclusivity agreement between Energy Assets and Elster on the interface method which will predominantly apply to the Elster rotary and turbine range but can also apply to lower capacity diaphragm meters. 

In addition, the Energy Assets technical team has provided field and application support to the Elster R&D team in their development of a new diaphragm meter technology with consumption data logging and communication capability. The meter has the flexibility of multiple transfer methods to suit customer specific applications and, as a product, is therefore aligned to Energy Assets own technology strategy. Energy Assets' technical competence and industry knowledge has proven to be a positive factor in the development program and the meter will be added to the extensive technology and metering range provided by the Group when it is launched.

Research and development expenditure was also incurred in the year on the continued development of our range of AMR and control products.

New premises - Sheffield

During the year Energy Assets took on a lease for a property in Sheffield to serve its rapidly growing customer base. This property, known as "The Hub", is strategically important in supporting the Group's metering, AMR and utility infrastructure design projects across the UK.

The Hub will support the day-to-day delivery of the Company's growing portfolio of innovative products and services to I&C customers covering gas, electricity and water and will also be home to design engineers, our expanding direct labour organisation and the research & development team. At the same time, the new resource will be the focal point for infrastructure projects across the UK. Sheffield will also act as a technology demonstration centre and central stock and material refurbishment location for the Company.

Going forward it is expected that the use of this facility and the internal resource that will be housed there will improve efficiencies for installations and mitigate the risk of reliance on subcontractors.

Financial Position

Net debt at 31 March 2014 of £51.1m was £11.0m higher than the previous year mainly as a result of the increase in capital expenditure to service the growing meter portfolio. Capital investment in meters amounted to £19.7m in the year compared to £15.5m in the previous financial year and at 31 March 2014, Energy Assets had a meter portfolio of circa 101,000 meters with a net book value of £68.5m (2013: circa 81,000 meters with a net book value of £52.2m). These assets produced long term recurring revenue of £10.6m in the current year (2013: £7.8m).

Unused facilities at the financial year end amounted to £39m (2013: £22m) and the cash at bank balance at 31 March 2014 was £7.9m (2013: £9.0m). 

Principal business risks and uncertainties

With 70% of our revenue being long term recurring revenue, over up to 20 years, much of our business is considered to be predictable and relatively low risk. 

Nonetheless, potential risks to the business are continuously reviewed as part of our Operational Risk Self Assessment process and actions to mitigate these risks are identified. The key risks identified and managed are set out below.

By order of the Board

Philip Bellamy-Lee John McMorrow

Chief Executive Officer Chief Financial Officer

10 June 2014 10 June 2014

Consolidated statement of comprehensive income

For year ended 31 March 2014

Consolidated Balance Sheet

As at 31 March 2014

Consolidated Statement of Changes in Equity

For year ended 31 March 2014

Consolidated Statement of Changes in Equity

For year ended 31 March 2014 (continued)

Consolidated statement of cash flows

For year ended 31 March 2014

Notes to the consolidated financial statements

For the year ended 31 March 2014

1) Financial information

This announcement does not constitute full accounts within the meaning of section 434 of the Companies Act 2006 but is derived from the audited accounts for the year ended 31 March 2014 for which an unqualified audit report has been received. The statutory accounts for the year ended 31 March 2014 will be delivered to the Registrar of Companies.

The Annual General Meeting (AGM) of Energy Assets Group plc is intended to take place in London on 2 September 2014. Notice of the AGM and related papers, including the statutory accounts, will be sent to shareholders at least 21 working days before the meeting.

While the information included within this announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS), as adopted by the European Union (EU), it does not in itself contain sufficient information to comply with IFRS.

This information has been approved for issue by the Board of Directors of Energy Assets Group plc on 10 June 2014. Energy Assets Group plc was incorporated in the United Kingdom on 1 February 2012 which is where it is domiciled. 

2) Basis of preparation

The consolidated financial statements of Energy Assets Group plc have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU), the Companies Act 2006 applicable to companies reporting under IFRS and the Listing Rules.

The consolidated financial statements have been prepared under the historical cost convention, as modified by financial assets and liabilities (including derivative instruments) at fair value through profit or loss.

3) Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position, are set out in the Strategic Report.

The Directors have considered these factors, the likely performance of the business and possible alternative outcomes, the financing facilities available to the Group and the possible actions able to be taken should new facilities not be available in the future.

Having taken all of these factors into consideration, the Directors confirm that forecasts and projections indicate that the Group and its Parent Company have adequate resources for the foreseeable future and at least for the period of 12 months from the date of this report. Accordingly the financial statements have been prepared on the going concern basis.

Notes to the consolidated financial statements

For the year ended 31 March 2014 (continued)

4) Segment information

Operating segments are reported in a manner consistent with the reports made to the chief operating decision maker. It is considered that the role of chief operating decision maker is performed by the Board of Directors.

The Group currently only operates in the UK and for management purposes is organised into three core divisions:

· Meter asset management

· AMR data provision

· Siteworks

This forms the basis of the Group's reportable operating segments.

The meter asset management segment combines the results of both the installation and management of gas meters as both have similar long term economic characteristics and a similar nature of products and services due to the customer base and regulatory environment under which they operate.

The measure of profit principally used to allocate resources is gross profit. However, as interest costs arise on borrowings which are wholly attributable to the meter asset management and AMR data provision segments, finance costs are also allocated to these segments.

EBITDA is monitored on a Group level but not at segment level and therefore this has not been presented within this note.

Certain central costs, assets and liabilities are not allocated to segments as they are managed on a Group basis. These comprise primarily central head office and management overhead costs, cash, accounts receivable and accounts payable.

Notes to the consolidated financial statements

For the year ended 31 March 2014 (continued)

Note 4 - Segment information (continued)

During the year, sales to related parties amounted to £8.7m (2013: £8.1m) being sales made on an arm's length basis to Corona Energy Limited, a Macquarie Group company. In addition, revenue of £3.9m was received from a single external customer in relation to AMR and metering services.

Notes to the consolidated financial statements

For the year ended 31 March 2014 (continued)

Note 4 - Segment information (continued)

Notes to the consolidated financial statements

For the year ended 31 March 2014 (continued)

5) Exceptional items

Items that are both material because of their size or nature, non-recurring and whose significance is sufficient to warrant separate disclosure and identification within the consolidated financial information are referred to as exceptional items. The separate reporting of exceptional items helps to provide an understanding of the Group's underlying performance.

The Group implemented a number of share based payment schemes as part of the IPO on 22 March 2012. The expense for the current year in relation to these schemes amounted to £0.6m (2013: £0.6m).

On 17 April 2014 the Group purchased 100% of the share capital of BGlobal Metering Limited (BGM) and incurred significant non-recurring transaction costs relating to this acquisition in the year ended 31 March 2014 of £0.1m (see note 11).

6) Taxation

The tax on the Group's profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated entities as follows:

Notes to the consolidated financial statements

For the year ended 31 March 2014 (continued)

Note 6 - Taxation (continued)

Expenses not deductible for tax purposes primarily related to non-recurring acquisition costs in the prior year. 

As anticipated the Group has been subject to ordinary rates of corporation tax in the UK for the years ended 31 March 2014 and 31 March 2013.

The UK Corporation rate of 23% took effect from 1 April 2013. Further changes to the UK Corporation tax rates were substantively enacted as part of the Finance Bill 2013 on 2 July 2013. These include changes to reduce the main rate to 21% from 1 April 2014 and to 20% from 1 April 2015. As these changes have been substantively enacted at the balance sheet date their effects have been included in these financial statements.

7) Earnings per share

Basic earnings per share is calculated by dividing the profit attributable to ordinary equity holders of the Group by the weighted average number of ordinary shares in issue during the year.

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. 

This is done by calculating the number of shares that could have been acquired at fair value (determined as the average market share price of the Company's shares in the year) based on the monetary value of the exercise price attached to outstanding share options. The number of shares calculated above is compared with the number of shares that will be issued assuming the exercise of the share options.

Therefore, the earnings per share calculation is required to be adjusted in relation to the share options that are in issue under the LTIP and the IPO Award Plan as follows. None of the shares under the Employee Retention Award Plan are potentially dilutive as these are to be settled with shares purchased on the open market.

Notes to the consolidated financial statements

For the year ended 31 March 2014 (continued)

Note 7 - Earnings per share (continued)

Adjusted earnings per share

The tax charge in the current year and prior year is impacted in relation to prior year adjustments and the tax impacts of the acquisitions of EAES and BGM. The profit figures have therefore been adjusted to show profit after a notional tax charge at 23% (2013: 24%) and before exceptional items.

8) Property, plant and equipment

Notes to the consolidated financial statements

For the year ended 31 March 2014 (continued)

Note 8 - Property, plant and equipment (continued)

Gas Meter additions include directly attributable costs of £2.9m (2013: £2.5m).

Borrowings are secured by a fixed and floating charge over the metering assets to which they relate.

9) Net debt/EBITDA

The Group monitors capital on the basis of net debt divided by EBITDA. Net debt is calculated as total borrowings less cash and EBITDA is calculated as operating profit before any exceptional items, interest, tax, depreciation and amortisation as follows:

Notes to the consolidated financial statements

For the year ended 31 March 2014 (continued)

10) Leased assets

The Group, as part of its core business, is a lessor of metering assets. These are leased to customers under operating leases. The minimum lease rentals receivable at current prices assuming the lease remains in place for its expected term are as follows:

These lease payments are subject to annual reviews and are cancellable by the customer.

11) Acquisition of BGM

On 17 April 2014, the Group acquired 100% of the share capital of BGlobal Metering Limited (BGM) for a cash consideration of £2.3m which includes payment of £0.2m for the completion cash balance. The acquisition was made on a debt free basis with a working capital adjustment mechanism in place post completion. BGM operates metering and AMR businesses within the UK I&C electricity sector.

Acquisition costs relating to the transaction amounted to £0.1m in the period to 31 March 2014 and have been charged to administrative expenses in the consolidated income statement.

Further details of the business combination and the benefits that this will bring to the Group are included within the Strategic Report.

In accordance with IFRS 3 paragraph B66, as the initial accounting for the business combination is incomplete at the date of signing of the financial statements, the full disclosure requirements of IFRS 3 paragraph B64 cannot be made. However, the following additional disclosures will be made in the interim report for the 6 months ended 30 September 2014:

· Fair value of the amounts recognised at the acquisition date for each major class of assets acquired and liabilities assumed;

· Goodwill arising from acquisition and a qualitative description of the factors that this goodwill is attributable to or, in the case of a bargain purchase, the amount of the gain recognised in the statement of comprehensive income and where this is recognised and a description of the reasons why the transaction resulted in a gain;

· The fair value and gross contractual amount due of receivables and the amount which is expected to be uncollectible; and

· The amount of revenue and profit or loss included in the statement of comprehensive income for the acquiree in the period since acquisition and details of what the revenue and profit or loss would have been if the acquisition had taken place at the beginning of the reporting period.