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 11 June 2013

Energy Assets Group plc

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

Preliminary Results for the year ended 31 March 2013

A Year of Strong Growth and Strategic Acquisition

Profit before tax and exceptional items up 34% to £3.9m

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 2013. 

Financial highlights

·; Total revenue increased by 42% to £18.0m (2012: £12.7m);

·; Recurring revenue increased by 48% to £12.3m (2012: £8.3m) representing 68% of total revenue;

·; EBITDA increased by 37% to £10.8m from £7.9m;

·; Operating profit before exceptional items increased by 27% to £7.1m from £5.6m;

·; Profit before tax and exceptional items increased by 34% to £3.9m, in line with market expectations (2012: £2.9m). Profit before tax was £2.9m (2012: £0.2m) after incurring exceptional costs of £1.0m (2012: £2.6m);

·; Cash generated from operations of £9.2m (2012: £6.5m), a growth of 42%;

·; Adjusted EPS increased by 39% to 10.90p (2012: 7.85p);

·; Refinancing of £24m of existing debt held with Lombard resulting in substantial interest cost reductions from an average rate of 8.3% to a fixed rate of 5.27%, resulting in savings of in excess of £0.5m in the first full year;

·; A further £20m extension to the current Lombard facility on improved terms to facilitate further opportunities to grow the existing meter portfolio.

Operational highlights

·; The metering portfolio owned and installed increased by 28% to circa 81,000 assets (2012: circa 63,000);

·; Increased cumulative capital investment in meter assets of 36% to £58.3m which has produced long term recurring revenue in the current year of £7.8m (2012: £5.7m);

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

·; The number of meter points from which data is collected on behalf of our customers has increased by 150% to circa 52,500 (2012: circa 21,000). This represents one of the largest portfolios within the UK I&C sector;

·; Continued strong performance in AMR contract renewals with a 98% success rate based on the number of meter points as a percentage of AMR units, ensuring a continuation of the long term revenue attached to these contracts; 

·; Revenue from Siteworks activity increased by 30% to £5.7m (2012: £4.4m);

·; Transformational acquisition of EA Energy Solutions Limited (EAES), formerly Gazprom Global Energy Solutions Limited (GGES), on 11 October 2012 which brings exclusive agreements with Gazprom for all three of the Group's business streams (Metering, AMR and Siteworks); 

·; New agreement with DONG Energy Sales (formally Shell Gas Direct) for the provision of advanced metering technology and data services solutions to DONG's I&C customers;

·; During the year the Group successfully registered as an Ofgem Approved Meter Installer (OAMI) and has developed an internal resource team enabling further control over operational activities.

Current trading and outlook

·; The new financial year has started strongly with management's growth target across all divisions on track;

·; Contracts with Gazprom Energy, British Gas and Corona Energy continue to perform strongly;

·; The outlook remains positive and has been considerably enhanced by the acquisition of EAES which has significantly added to the Company's install and meter exchange growth prospects;

·; Additionally, new cutting edge technologies will enable Energy Assets to offer further cost effective solutions to our clients. These include:

o Multi utility GSM data loggers, with owned IP, that are capable of delivering next day data granularity of half hourly or less;

o Low powered radio technologyproviding delivery capability where normal GSM coverage is poor or unavailable and at a lower cost per unit on multi meter/multi site applications;

o Data delivery via Ethernet which provides the capability to address the increasing demand for real time/live data rather than next day as has been the industry norm; and

o Proven, efficient, and low cost demand side management of electrical equipment/circuits using the Z-LYNK system, a Power Line Communication technology that has been deployed widely for many years across a range of end user applications.

Commenting on the strategy and outlook, Chief Executive Phil Bellamy-Lee said:

"I am delighted to be able to report a strong operational and financial performance in the year to 31 March 2013, reflecting an excellent first full year as a listed company, with continued growth across our three business divisions.

Our primary strategy continues to be the expansion of our market share within the UK I&C sector and the consolidation of our position as the UK's leading independent MAM. This position remains secure and has been further enhanced through our performance in this financial year.

Our current contracts with Gazprom Energy, British Gas and Corona Energy continue to perform strongly and the transformational acquisition of EAES provides us with an opportunity to more than double the size of the I&C metering portfolio in place at the time of acquisition during the five year term of the metering contract with Gazprom.

Additionally, over the last 12 months, we have assembled a team of business and technology experts to build on our range of technologies which are yet to be fully exploited and to add focus to the further development of current core and non core market sectors, building the Energy Assets offering for the future.

We are confident of gaining additional work with other major gas suppliers and, together with the opportunities arising from Government regulatory requirements and our range of technology and supply chain partners, we are in a strong position to deliver our long term growth strategy.

The Group remains well funded and we are confident that our attractive business model and systemised approach will secure continued growth into the future."

1 by number of meters owned and managed

Enquiries

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

Notes to Editors:

Energy Assets provides gas metering and related services in the I&C segment of the UK gas market and is the largest independent provider of I&C gas metering services in the UK (by number of meters under management). The Group offers gas suppliers and end-user consumers of gas 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 gas infrastructure works and the collection and provision of gas consumption data through the Group's Siteworks and AMR divisions.

Chairman's statement

I am delighted to report that, in our first full year as a publicly listed company, Energy Assets Group plc has delivered another strong performance with profit before tax and exceptional items ahead 34% on the previous year at £3.9m. Recurring rental revenue has increased by 48% to £12.3m (2012: £8.3m) representing 68% of total revenue. 

During the year we have made substantial progress in all three areas of our business. We have increased our meter portfolio by 28% to circa 81,000 meters, the meter points from which data is collected on behalf of our customers has more than doubled to circa 52,500 units, and our Siteworks business has generated revenues of £5.7m, representing an increase of 30% 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 and acquisition

The Group's objective is to further consolidate our position as the leading independent meter asset manager and service provider to the UK I&C sector as measured by meters under management.

We focus on growing our business organically to increase the size of the asset portfolio under the Group's management. However, our strategy also includes making acquisitions which can add value to our core business and, as a result, on 11th October 2012 we completed the acquisition of GGES. This business has now been fully integrated into the Group and has brought several key benefits:

·; The potential to more than double the size of the Group's I&C meter portfolio in place at the time of the acquisition, as the primary MAM for Gazprom Energy's UK portfolio;

·; The addition of a Siteworks and AMR business to complement our existing activities and increase our market share in these areas;

·; A partnership with the fastest growing gas supplier in the UK and the largest in the world, offering the opportunity to further increase our AMR portfolio and Siteworks activities through primary contracts with Gazprom. 

The acquisition has more than doubled the number of meter points from which data is collected on behalf of our customers to circa 52,500 units, further confirming Energy Assets as a leading AMR provider in the UK I&C market sector.

Funding

During the year we completed the refinancing of £24m of existing debt held with Lombard North Central plc (Lombard), the asset finance division of The Royal Bank of Scotland Group, and further extended the facility by £20m. 

The revised pricing structure on the existing debt will result in a substantial interest cost reduction going forward from an average rate of 8.3% to a fixed rate of 5.27% with new drawdowns on improved terms of 3.375% over LIBOR. These savings will amount to in excess of £0.5m in the first full year with further cash and income statement benefits to the Group over the remaining term of the facility. 

The Group maintains sufficient facilities to meet its normal funding requirements over the medium term and at 31 March 2013 had unused facilities totalling £22m and cash at bank of £9m.

Net cash inflow from operations remains strong and during the year increased by 42% to £9.2m (2012: £6.5m).

Net debt at 31 March 2013 of £40.1m was £21m higher than the previous year mainly as a result of the increase in capital expenditure to service the growing meter portfolio and the acquisition of EAES. Capital investment in meters amounted to £15.5m in the year compared to £13.2m in FY 2011/12. 

Dividend

At the time of listing it was stated that it was the Directors' intention to continue to prioritise investment in growing the Company's installed asset base in the short term. This remains the case and the Board is not recommending a dividend for the financial year ended 31 March 2013. 

People

We have an excellent management team who have steered the business through a period of significant growth with great success. The most important investment that a Company can make is in its people and there is no doubt in my mind that the outstanding success of Energy Assets is due to its dedicated and talented management team and to the quality and determination of all our people. I would like to thank them all for their contribution to the continuing success of the Group.

Personally, and on behalf of the Board, I am delighted to welcome David Goldie as a Non-executive Director of Energy Assets. David joined the Board on 8 April 2013 and brings a wealth of valuable experience to the Group, particularly in the areas of data management and growing service revenues in business to business markets. We all look forward to working together with him as we continue to grow and develop the Company.

Outlook

Energy Assets is a well funded, publicly listed company with a track record of growth, a blue chip customer base, state of the art systems, and a truly dedicated team committed to growing the business.

Through provision of meter asset management services to 27 gas suppliers the Group is well established within the industry as a trusted MAM and we are proud of this position. 

The outlook for the coming year is positive and has been enhanced considerably by the acquisition of EAES which has significantly added to the install and meter exchange growth prospects already in existence through our contracts with Corona Energy and British Gas. The new financial year has started strongly with management's target to grow the meter and AMR portfolio on track. 

The Group continues its discussions with a number of other major gas suppliers requiring a fully integrated Metering, AMR, and Siteworks service provision and is confident that the reputation and quality of the Energy Assets offering will ensure these discussions result in further expansion of all three business streams in the future. 

We look to the future with confidence in the knowledge that Energy Assets is ideally placed, with its in-house expertise, to help UK I&C customers respond to government legislation requiring the installation of advanced gas meters.

Dr Christopher Masters

Chairman

11 June 2013

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. This has been reflected in the strong financial performance detailed below. 

Key performance indicators

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

Results for the year

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

For the year ended 31 March 2013, revenue was £18.0m, showing an increase of £5.3m (42%) 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 incorporation of the acquired EAES business which generated revenue of £2.7m during the period since acquisition.

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 2013 recurring revenue accounted for 68% of total revenue being £12.3m compared to £8.3m in the previous year, an increase of 48%.

Gross profit increased by 41% from £7.6m (2012) to £10.7m (2013). All segments contributed to the improvement.

Exceptional costs have been incurred in both the current and prior year. On 22 March 2012 Energy Assets Group plc was admitted to trading on the Official List of the London Stock Exchange incurring significant non-recurring costs, of which £2.6m was charged to the income statement in the prior year. In the current year, non-recurring costs of £0.4m have been incurred in relation to the acquisition of EAES. A share based payment expense of £0.6m has also been incurred as a consequence of the employee share schemes implemented as part of the IPO.

Additionally, as a result of the listing, certain incremental operating costs of becoming a plc, such as listing costs, broker costs etc, have been incurred in the year to 31 March 2013 which were not incurred in the year to 31 March 2012. Despite the impact of these costs, operating profit before exceptional costs increased from £5.6m to £7.1m, a rise of 27%.

Finance costs increased from £2.8m to £3.2m due to increased borrowings supporting our growing investment in meter assets.

EBITDA increased by 37% from £7.9m to £10.8m and profit before tax and exceptional items increased by 34% to £3.9m (2012: £2.9m). Profit before tax was £2.9m (2012: £0.2m) after incurring exceptional share based payment and acquisition costs.

At a divisional level the results were as follows:

Meter Asset Management (MAM)

The Group's key area of activity is its meter asset management division which owns, provides, manages and maintains I&C gas meters as an OFGEM accredited MAM. Revenue is generated through long term rental payments from gas suppliers who supply gas through the Group's meters.

This division has made significant progress during the year installing circa 18,000 meters and increasing its total portfolio to circa 81,000 meters (up 28% from 2012). These meters now serve a total of 27 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 our metering assets will provide a solid source of long term recurring revenue which is currently £7.8m per annum (2012: £5.7m). 

Going forward we expect the I&C asset base within this division (currently circa 66,000 meters) to significantly increase as a result of our ongoing contracts and the acquisition of EAES which includes a MAM agreement appointing Energy Assets as the primary MAM for Gazprom Energy's UK portfolio. The agreement is for a five year exclusivity period during which we will install all new metering assets and undertake meter exchanges across Gazprom Energy's existing and new UK portfolio. This provides the opportunity for Energy Assets to more than double the I&C meter portfolio which existed at the time of acquisition.

In addition, demand for the installation of advanced and smart gas meters is currently being driven by Government policy for every metering point in the UK to have smart-enabled energy meters by 2019. Large I&C customers are currently required to move to advanced meters by April 2014, with all remaining UK customers to have adopted advanced meters by December 2019, however, this time frame may change as a result of the DECC delaying the domestic roll-out by one year.

Siteworks

The Group's Siteworks division provides a comprehensive consultancy, system design and project management service for gas infrastructure works and meter point infrastructure.

Energy Assets is able to procure and manage the engineering services required by a gas supplier or end-user consumer to install a new metering point including laying the connection from the gas network to the meter, moving an existing metering point or removing a metering point from a disused or demolished site and disconnecting it from the gas network. 

Last year the Siteworks division achieved Gas Industry Registration Scheme (GIRS) accreditation which has now allowed it to bring more of the project management and design capability of its service offering in-house thus improving margins and extending the range and complexity of the services we can provide aswell as improving the quality of the service offering. This has given us a strong platform to increase our market share in this segment and further enhance profitability in the future.

The result continues to be successful, improving overall gross profit by 32% to £3.6m in the year to 31 March 2013.

The acquisition of EAES brought with it a strong Siteworks business to complement our existing activities and increase our market share in this area. In addition, we have entered into an agreement with Gazprom Energy giving the Group access to Siteworks activity generated by their customers and thereby allowing us to deliver a Siteworks service to a growing gas supplier base, thus strengthening this part of our business even further.

Additionally, Energy Assets has recently entered into a partnership with Flexenergy, a leading provider of pre-insulated pipe solutions for a wide variety of energy technologies, including solar, biomass CHP, geothermal, district and community heating schemes and cooling and chilled water networks. This partnership strengthens our position in the multi-utility infrastructure market and enables Energy Assets to extend its existing GIRS-accredited Siteworks gas services to the wider utilities market.

Automated Meter Reading (AMR)

The Group's AMR division provides ASPCoP approved AMR services, installing data loggers that collect and transmit consumption data from gas meters to a data centre for validation and formatting before provision to gas suppliers and end-user consumers.

The AMR division manages the installation of data loggers that collect consumption data from advanced gas meters and transmit the data daily to the Group's data management system using SIM technology. These data loggers enable the Group to produce accurate and up-to-date gas consumption reports for end-user consumers and gas suppliers allowing them to closely monitor their gas consumption and effectively budget for energy expenses and identify areas where they can reduce costs.

Our AMR business has had a good trading year with a 73% increase in revenue to £4.5m (2012: £2.6m) and a 82% increase in gross profit to £2.0m (2012: £1.1m). 

The number of meter points from which data is collected on behalf of our customers has increased by 150% to circa 52,500 (2012: circa 21,000) as a result of acquired ownership through the acquisition of EAES, and through organic growth of circa 5,000 units, and represents one of the largest portfolios within the UK I&C sector.

We continue to achieve a strong performance in AMR contract renewals with a 98% success rate based on the number of meter points renewed as a percentage of AMR units requiring renewal, ensuring a continuation of the long term revenue attached to these contracts. Key customer renewals in the year include Marks and Spencers and John Lewis.

Going forward demand for an AMR service provision will be driven by government legislation which requires every metering point in the UK to have smart-enabled energy meters by December 2019, although this time frame may change as a result of the DECC delaying the domestic roll-out by one year, with large I&C customers required to adopt advanced meters by April 2014. The smaller I&C market has until 2014 to either opt for an advanced metering solution or alternatively be included in the government's proposed domestic roll out of smart meters.

To facilitate this demand, immediately after the year end, Energy Assets unveiled a new multi-utility AMR service to help energy suppliers and I&C end-users optimise the value of the UK's investment in advanced metering technology. This new Energydata 24 branded service brings together the best elements of both the Energy Assets Pulse 24 brand and the Gazprom Global Energy Solutions AMR platform that formed part of the acquisition of EAES.

The new AMR service provides end-to-end support across the I&C sector, from technology installation to data collection, analysis and reporting and extends the Company's reach for the first time into electricity, water and photovoltaic metering. This broadens Energy Assets offering to an energy sector increasingly focussed on innovative technologies that are cost effective, resource efficient and supportive of a wider sustainability agenda.

Acquisition of EAES

The acquisition of EAES has brought a complementary business into the Group and significantly strengthened our ability to provide AMR and Siteworks services to gas suppliers and blue-chip clients across the I&C sector.

This transformational acquisition has brought the following wide range of benefits:

·; An exclusive agreement with Gazprom to deliver new and replacement meter installs, including the exchange of Gazprom's existing UK assets. This has the potential to more than double the Energy Assets I&C metering portfolio which existed at the time of acquisition. Each asset installed will have the long term security provisions of the Group's Meter Asset Management agreement;

·; A three year exclusivity period to provide all AMR services to Gazprom Energy across their growing customer portfolio; 

·; An agreement with Gazprom Energy giving the Group access to Siteworks activity generated by their customers and thereby allowing us to deliver a Siteworks service to a growing gas supplier base, thus strengthening this part of our business even further;

·; Access to a proven, significantly deployed, proprietary AMR technology for both gas and water applications including low power radio data collection technology and a range of other Intellectual Property, all of which will provide significant operational benefits; and

·; A substantially increased AMR portfolio through the acquired ownership of circa 27,000 data points across the gas, water and electricity sectors immediately increasing recurring revenue. Consequently, Energy Assets has more than doubled the number of meter points from which data is collected on behalf of our customers making it one of the largest AMR providers.

New agreement with DONG

During the financial year, the Group signed a new non-exclusive agreement with DONG Energy Sales (formally Shell Gas Direct) for the provision of advanced metering technology and data services solutions to DONG's I&C customers.

This new agreement offers DONG a suite of innovative options and solutions to help customers manage their energy use and also meet the industry's obligations on carbon reduction. This extends the current range of services provided by Energy Assets under an original agreement between Shell Gas Direct and Gazprom Global Energy Solutions Limited (formally Truread) signed in 2008. 

The agreement provides Energy Assets with a further opportunity to continue its growth strategy and enhance its position as the leading independent provider of metering services to the UK I&C energy market and is a clear indicator that the proven deployed technology, which was part of the recent acquisition of EAES, will continue to deliver value and opportunity in the future.

Financial position and refinancing

At 31 March 2013 Energy Assets had £49.0m of debt outstanding with £45m of this against a meter portfolio of circa 81,000 meters with a net book value of £52.2m (2012: £35.5m of debt against circa 63,000 meters with a net book value of £39.3m). These assets produced long term recurring revenue of £7.8m in the current year (2012: £5.7m).

During the year we refinanced £24m of existing debt held with Lombard North Central plc (Lombard), the asset finance division of The Royal Bank of Scotland Group, and further extended the facility by £20m to £60m. This will enable the continued growth of the business putting the Group in a strong position to continue to increase its installed meter base and undertake potential new contract awards that are currently being pursued as well as bringing significant interest savings and immediate cash benefits.

Refinancing of £24m of existing debt

A revised pricing structure on this debt has resulted in a substantial interest cost reduction from an average rate of 8.3% to a fixed rate of 5.27% from 26 February 2013. These savings will amount to in excess of £0.5m in the first full year. 

The existing debt, which was originally drawn down between 2009 and 2011 with a ten year repayment term, has been refinanced into one loan repayable over the remaining term of eight years under a similar structure.

Expansion of funding facility

In conjunction with the refinancing exercise we also took the opportunity to further extend the relationship with Lombard, adding an additional £20m to the current facility on improved terms, increasing this to £60m. Future drawdowns will also attract a more favourable interest rate of 3.375% over LIBOR, with a ten year repayment profile.

Unused facilities at the year end amounted to £22m (2012: £21m) and the cash balance at 31 March 2013 was £9.0m (2012: £16.4m). The decrease in the year end cash balance is principally due to the growth of the business and the acquisition of EAES.

Financial risk management

The Group operates conservative treasury policies. No investments other than short term cash deposits are held and loans are drawn down reflecting the level of meter installations in the previous month.

The Group has limited exposure to cash flow or liquidity risk surrounding the repayment of debt since the loans drawn are repaid over a shorter period than the period over which the related meters are expected to generate revenue. Furthermore Siteworks contracts are typically paid for in advance or strictly on 30 day end of month terms.

In addition, the business model results in a cash generative operating business where cash outflows (predominantly the cash cost of investing in the installation of new meter and data logger assets) can be controlled or stopped at short notice if necessary. The Group's customers are either large retail groups, local authorities or, in the case of the meter asset management division, well capitalised gas suppliers all of whom have demonstrated an excellent track record of payments. The Group is therefore not significantly exposed to credit risk. 

Energy Assets operates in a competitive industry and is, therefore, exposed to some price risk particularly in relation to future meter installations, however, pricing is kept under review. 

The Group hedges against interest rate risk on any variable rate loans by which it funds the business. The variable rate loans are provided by Macquarie and are long term, typically ten years in duration. These loans are priced at 4% over LIBOR but the Group has fixed this rate by entering into an interest rate swap which effectively sets LIBOR, for this purpose, at 3.055%. This swap is over a notional amount of up to £11.2m with capital outstanding at 31 March 2013 of £10.9m. The facility has now expired and no further drawdowns will be made. 

All other loans incur interest at a fixed rate.

During the year the Group purchased data loggers in US dollars and Euros. Where appropriate, and to avoid short term deteriorations in exchange rates, the Group purchases foreign currency up to three months in advance.

Consolidated Statement of Comprehensive Income

For year ended 31 March 2013

Consolidated Balance Sheet

As at 31 March 2013

Consolidated Statement of Changes in Equity

For year ended 31 March 2013

Consolidated Statement of Changes in Equity

For year ended 31 March 2013 (continued)

Consolidated Statement of Cash Flows

For year ended 31 March 2013

Notes to the consolidated financial statements

For the year ended 31 March 2013

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 2013 for which an unqualified audit report has been received. The statutory accounts for the year ended 31 March 2013 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 5 September 2013. 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 11 June 2013. 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) Initial public offering

On 22 March 2012 Energy Assets Group plc was admitted to trading on the Official List of the London Stock Exchange as a Premium Listed company.

During the prior year, in connection with listing on the London Stock Exchange, the Company was incorporated and was introduced as the new holding company of the Group as follows:

Notes to the consolidated financial statements

For the year ended 31 March 2013 (continued)

Note 3 - Initial public offering (continued)

4) 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 Business and Financial Review.

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 the financial statements. Accordingly the financial statements have been prepared on the going concern basis.

Notes to the consolidated financial statements

For the year ended 31 March 2013 (continued)

5) 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 and 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 similar nature of their 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 2013 (continued)

Note 5 - Segment information (continued)

During the year, sales to related parties amounted to £8.1m (2012: £6.7m) being sales made on an arm's length basis to Corona Energy Limited, a Macquarie Group company.

Notes to the consolidated financial statements

For the year ended 31 March 2013 (continued)

Note 5 - Segment information (continued)

6) 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.

On 22 March 2012 Energy Assets Group plc was admitted to trading on the Official List of the London Stock Exchange as a Premium Listed company. Significant non-recurring costs were incurred in relation to the IPO and it was deemed necessary to separately identify these costs in the prior year. Additionally, exceptional IPO costs of £0.7m were offset against equity amounting to total IPO costs of £3.3m.

The Group also implemented a number of share based payment schemes as part of the IPO. The expense for the current year in relation to these schemes amounted to £0.6m (2012: £0.02m).

On 11 October 2012 the Group purchased 100% of the share capital of Gazprom Global Energy Solutions Limited and incurred significant non-recurring transaction costs relating to this acquisition of £0.4m (see note 12).

Notes to the consolidated financial statements

For the year ended 31 March 2013 (continued)

7) 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:

In the current year, expenses not deductible for tax purposes primarily related to acquisition costs and in the prior year these related to IPO costs, all of which were non-recurring. 

Additionally, Energy Assets Group plc had agreed with its significant shareholder, and 100% parent until the Listing, that the wider Macquarie Group would surrender tax losses under Part 5 of Corporation Tax Act 2010 to cover Energy Assets Group plc taxable profits in the prior year for the period of ownership hence the tax credit for the year ended 31 March 2012.

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

A number of changes to the UK corporation tax system were announced in the March 2012 UK Budget Statement. Legislation to reduce the main rate of corporation from 24% to 23% from 1 April 2013 was included in the Finance Act 2012 and the relevant deferred tax balances have been re-measured accordingly. 

Notes to the consolidated financial statements

For the year ended 31 March 2013 (continued)

Note 7 - Taxation (continued)

The March 2013 UK Budget Statement announced further changes with a reduction to the main rate to 21% from 1 April 2014 and 20% from 1 April 2015. These further changes had not been substantively enacted at the balance sheet date and are therefore not reflected in these financial statements. However, had these changes been substantively enacted at the balance sheet date there would have been no significant impact on the accounts. 

8) 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 would have been 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.

Adjusted earnings per share

Given the large issue of shares as a result of the IPO on 22 March 2012 the Group had 27,142,857 shares in issue at 31 March 2012 compared to a weighted average of 3,462,433 in the year to 31 March 2012. In the current year, EPS is calculated using these shares as a basis and therefore it is useful to review what the EPS in the year to 31 March 2012 would have been if these shares had been in issue for the entire reporting period to give a meaningful comparison to the EPS for the current year. 

Additionally, there was a significant tax credit received in the year to 31 March 2012 due to group relief received from Macquarie, which is no longer available, and therefore the profit figure has been adjusted to show profit after a notional tax charge at 26% in the prior year and before exceptional items. 

Notes to the consolidated financial statements

For the year ended 31 March 2013 (continued)

Note 8 - Earnings per share (continued)

The tax charge in the current year is also impacted in relation to prior year adjustments and the tax impacts of the acquisition of EAES. The current year profit figure has therefore also been adjusted to show profit after a notional tax charge at 24% and before exceptional items.

9) Property, plant and equipment

Notes to the consolidated financial statements

For the year ended 31 March 2013 (continued)

Note 9 - Property, plant and equipment (continued)

Gas Meter additions include directly attributable costs of £2.5m (2012: £2.2m).

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

10) Net debt/EBITDA

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

The increase in the net debt:EBITDA ratio can be attributed to increased funding balances as a result of the growing meter portfolio and a decreased cash balance following the acquisition of EAES.

Notes to the consolidated financial statements

For the year ended 31 March 2013 (continued)

11) 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.

12) Acquisition of EAES

On 11 October 2012, the Group acquired 100% of the share capital of Gazprom Global Energy Solutions Limited, now renamed EA Energy Solutions Limited (EAES), for a total consideration of £9.0m. This includes an initial cash consideration of £6.0m and a potential cash earn-out payment up to a maximum of £3.0m (payable dependent upon the level of data logger nominations received over a 3 year period by the acquired company). The Group also assumed existing EAES debt of £4.5m that was refinanced upon acquisition. 

EAES operates AMR and Siteworks businesses within the UK I&C sector and has an exclusive agreement in place with Gazprom to deliver new and replacement meter installs, including the exchange of Gazprom's existing UK assets.

The following table summarises the consideration paid for EAES and the fair value of the amounts recognised at the acquisition date for each major class of assets acquired and liabilities assumed, as provisionally determined:

Notes to the consolidated financial statements

For the year ended 31 March 2013 (continued)

Note 12 - Acquisition of EAES (continued)

The contingent consideration of £3m is payable over a maximum period of three years. The impact of discounting has been considered and it is deemed that this does not have a material impact on the accounts and has therefore not been applied. This has been further supported by the receipt of an invoice in relation to the first instalment immediately after the year end.

Intangible assets, customer relationships and goodwill have all been reflected within intangible assets on the group balance sheet.

Goodwill recognised is attributable to a variety of intangible benefits including future customers, economies of scale from bringing the EAES business in-house, access to new technology such as pending patents and internal research and development resource, access to new markets such as water, photo-voltaics (PV) and electricity and an expanded sales and direct labour team giving larger UK coverage for logger installation.

The fair value of trade and other receivables is £0.9m and includes trade receivables with a fair value of £0.5m. The gross contractual amount for trade receivables due is £0.6m of which £0.1m is expected to be uncollectible.

In the year to 31 March 2013, revenue of £2.7m and profit of £0.5m was included in the statement of comprehensive income relating to EAES for the period from the date of acquisition. If the acquisition had taken place at the start of the year revenue of £5.5m and a loss of £0.1m would have been included. Since acquisition, and under the Group's management, the subsidiary has become profitable.

Acquisition costs relating to the transaction amounted to £0.4m and have been charged to administrative expenses in the consolidated income statement in the year ended 31 March 2013.

Further details of the business combination and the benefits that this will bring to the Group are included within the Business and Financial Review.