Final Results

RNS Number : 9883G

Fulcrum Utility Services Ltd

30 July 2021

 

30 July 2021

MAR

The information contained within the announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ("MAR"). Upon the publication of this announcement via Regulatory Information Service ("RIS"), this inside information is now considered to be in the public domain.

FULCRUM UTILITY SERVICES LIMITED

("Fulcrum" or "the Group")

Final results for the year ended 31 March 2021 ("FY21")

"Emerging stronger to connect the UK's net-zero future"

Financial performance

· Revenue up 2.2% to £47.1 million (2020: £46.1 million)

· Adjusted EBITDA from continuing operations* of £0.1 million (2020: 4.5 million), in line with the expectations stated in our interim results

· Loss before tax of £11.5 million (2020: £1.3 million profit), impacted by exceptional items

· Cash outflow from operating activities of £2.4 million (2020: 2.1 million inflow)

· Adjusted earnings per share of (0.9)p (2020: 2.3p) and basic earnings per share of (4.6)p (2020: 0.7p)

· Net debt of £1.5 million as at 31 March 2021 (2020: £6.0 million net cash)

· Debt facility headroom (from facilities negotiated during the year) of £4.3 million as at 31 March 2021

· Net assets of £35.4 million (2020: £46.3 million)

· Net impairment to utility assets, intangible assets and deferred tax assets of £9.0 million** in the year (2020: £1.0 million net revaluation)

· The Board will not be recommending the payment of a dividend in respect of the financial year ended 31 March 2021, considering the loss for the year and continuing near-term economic uncertainty

Operational highlights

· Remained operational throughout Covid-19 with a safe, effective and rapid response

· Renewed focus on margin and cost discipline

· Made good progress in the execution of our strategy despite Covid-19, with selective investment to strengthen operational and business capabilities and secure new talent

· Balance sheet strength supported by the ongoing and successful execution of the sale of the Group's domestic asset portfolio

· Robust order book of £56.1 million and revised prudent approach to its valuation  

· Secured key contracts across all sectors, resulting in:

· Strengthened smart metering operations, with a 34% growth in the number of meters in the orderbook expected to be exchanged

· A £4.2 million contract to provide 13.5km of new of high voltage electrical infrastructure for a major redevelopment project

· Winning our first project with over 1,500 multi-utility connections

· Successfully tendered on larger contracts, resulting in significant contract awards post year end

· Named as one of the top 10 utility companies to work for in 2021, recognising the positive and supportive culture the Group has developed, particularly during the pandemic

*Adjusted EBITDA from continuing operations is operating loss excluding the impact of exceptional items, other gains, depreciation, amortisation and equity-settled share-based payment charges

**Net impairment of utility assets and utility assets under construction (£3.5 million), intangible assets (£4.9 million) and deferred tax assets (£0.6 million)

Commenting on the full year results, Terry Dugdale, Chief Executive Officer said:

"Just like many businesses, Fulcrum was affected by the considerable challenges presented by the Covid-19 pandemic in the year, and this is reflected in our financial performance.

However, we were agile, resilient and responded quickly and effectively to Covid-19, remaining operational and making progress in the execution of our strategy, with full year performance being in line with the expectations stated in our interim results. 

We still have much more to do, but we have emerged from FY21 stronger. Since taking over the role of CEO in January 2021, we have renewed our focus on margin and cost discipline and are better equipped to take advantage of the significant opportunities that are presented to us as we connect the UK on its journey to a net-zero future. I look to the future with increasing confidence."

Enquiries:

Fulcrum Utility Services Limited Terry Dugdale, Chief Executive Officer Cenkos Securities plc (Nominated adviser and broker) Camilla Hume / Callum Davidson (Nomad) / Michael Johnson (Sales)

[phone] [phone]

Notes to Editors:

Fulcrum is a multi-utility infrastructure and services provider. The Group operates nationally with its head office in Sheffield, UK. It designs, builds, owns and maintains utility infrastructure and offers smart meter exchange programmes. https://investors.fulcrum.co.uk/

Chair's statement

" Refocusing in a challenging year"

I joined the Board in May 2020 and was appointed Chair on 10 December 2020.

FY21 has been a hugely challenging year for Fulcrum in several respects and this is reflected in the Group's financial performance for the year. Nevertheless, I am proud of how we responded to the challenges presented to us. Against the backdrop of the Covid-19 pandemic, we invested significantly in stabilising the business and strengthening its foundations. We have made positive progress on all fronts, with the Group emerging stronger from FY21 with a clear strategy to focus on our core markets and on becoming the UK's net zero multi-utility connector of choice.

Changes to our Board

There were several changes to the Board during this year as we began to implement our Board transition plan following the proposed tender offer from Harwood Capital LLP. The Group invested significant time and resources in responding to the offer in the year and I am pleased with the positive outcomes of the Relationship Agreement, which have resulted in a refreshed and reenergised Board. 

Each of the new team bring with them important skills and experience as well as providing considerable shareholder representation, all which will support the successful execution of our strategy and growth. I was especially delighted that Terry Dugdale was appointed to lead the business as our new CEO in January 2021.

Results

The Group, like many businesses, faced significant challenges in FY21 and first, I would like to thank our amazing people. They demonstrated passion, tenacity and resilience, quickly delivering an effective and safe response to the operational challenges presented by Covid-19. Throughout the pandemic we played a vital part in connecting and maintaining essential utility infrastructure and provided enhanced services to projects, sites and customers that were critical in in supporting essential services, frontline workers and the NHS.

Covid-19 affected the Group's financial performance in the year and, despite an initial strong bounce back from the impact of the pandemic in the first half of the year, the second half was adversely affected, especially as the national lockdowns delayed the award, mobilisation and completion of some of our contracts.

Despite the heightened impact of Covid-19 in the second half of the year, the Group's performance for the full year was in line with the expectations stated in our interim results, with a positive adjusted EBITDA of £0.1 million.

Progress against our strategy 

The UK needs more utility infrastructure to connect its net zero infrastructure investments, such as the EV charging network, wind and solar parks, and the many new homes the country requires. This necessity has been expedited as the UK plans to build back better from the pandemic and this need will only grow as the UK transitions to a low carbon economy. The opportunity to become the net zero utility connector of choice, is hugely exciting for the Group and presents significant growth opportunities across all the markets we operate in, as our capabilities and experience are essential to enabling and supporting the net-zero revolution.

Our strategy to capitalise on these opportunities is clear. We refocused our efforts on growing in our core markets and made positive progress in executing this, despite the impact of Covid-19. We made essential investments in the business to strengthen its foundations, to deliver improvements and to support the Group's future growth. This was done selectively and balanced with maintaining financial prudence and flexibility.

Maintaining balance sheet strength, cash conservation and supporting the Group's liquidity throughout the pandemic was a priority. To support this, all planned tranches of the asset sale to ESP were successfully delivered, and an enhanced payment relating to the agreement with ESP was achieved. We also entered into a new two-year £10.0 million Revolving Credit Facility with Lloyds Banking Group.

ESG and sustainability

The Board and I are passionate about ensuring the Group has a strong commitment to ESG and the sustainable approach the Group is developing proved valuable to our effective response to the Covid-19 pandemic.

We are committed to use our capabilities to support the UK's net-zero revolution, and to also reduce the impact of the Group's operations on climate change and I am very pleased to confirm that Fulcrum is on a journey to be Carbon Neutral by 2030.

Dividend

Considering the loss for the year and the continuing near-term economic uncertainty, the Board will not be recommending the payment of a dividend in respect of the financial year ended 31 March 2021, but will continue to keep its dividend policy under review.

Outlook

Despite the considerable impact of the Covid-19 pandemic on the business in the year, the Group made progress against its strategic priorities whilst we supported and protected our stakeholders. We still have more to do, but we have grown stronger and began to lay the foundations that will support the Group's future success. 

The Board remains excited by the Group's potential and future. There are incredibly strong short, medium, and long-term market drivers that provide clear and significant growth opportunities for Fulcrum, and the Group is now much better equipped, and more strongly positioned, to capitalise on them.

Jennifer Babington

Non-executive Chair

30 July 2021

Chief Executive Officer's Statement

"Emerging stronger for our future success"

2021 review

Just like many businesses, Fulcrum was affected by the Covid-19 pandemic. FY21 was an extremely challenging year for the Group and this is reflected in its financial performance in the year.

However, we were agile and resilient and responded quickly and effectively to Covid-19, remaining operational and making progress in the execution of our strategy, whilst we supported our customers throughout.

I became CEO in the final quarter of the financial year and, along with maintaining our operations and protecting our stakeholders throughout the pandemic, my key focus has been to improve the efficiency of the business to drive its future profitability. This has presented considerable challenges, as significant work and effort from all our people has been required to stabilise the business and improve its foundations.

Delivering growth and profitability in our core markets is now our number one priority. We have refocused our efforts on strengthening the multi-utility capabilities of the business to achieve future growth in these core markets and I am pleased with the improvements made so far. Our efforts have been fruitful and have enabled the Group to secure several of its largest ever contract wins post year end. 

I would like to say a personal thank you to all our people for their resilience, their efforts, and the enthusiasm they have demonstrated in what has been a year filled with significant challenges. 

Keeping the nation connected

We continued to put protecting our stakeholders first and foremost and I'm proud that we kept everyone's safety as our main priority while we continued to provide essential utility infrastructure services to the nation. I'm also delighted that we were able to use our capabilities to provide additional support to projects and customers which were critical in helping the fight against Covid-19.

How we responded to Covid-19 and supported our customers through the pandemic helped us build even stronger relationships with them, and I'm pleased that we maintained exceptional levels of customer service throughout, achieving an "excellent" Net Promoter Score in the year, supported with some of the best customer sentiment, praise and feedback we've ever received.

The Covid-19 pandemic affected the Group's performance this year. However, full year performance was in line with the expectations stated in our interim results.

Despite our effective response and an initial strong turnaround, the national lockdowns delayed the planned delivery of larger scheduled projects and our smart metering exchange programmes. The lockdowns also affected customer decision making on the award of new contracts, with much of the significant investment and effort in tenders not being realised as sales until after the year end.

As well as focusing on remaining operational and delivering our essential services to keep the nation connected, we executed our strategy and invested in the business.  We still have more to do, but we are now stronger, with better foundations that will enable us to fully capitalise on the significant growth opportunities available to us both now and as the UK moves towards a net-zero future.

A clear strategy to grow

There are clear and exciting market drivers presented by both the UK's utility infrastructure needs today and as the UK transitions to a low carbon economy, and the Group's capabilities and expertise position it strongly to capitalise on this.

We have a clear strategy to ensure that we are best placed to maximise on these opportunities as we grow, and we made positive progress against each of our strategic priorities this year. Significantly, we focused our efforts on improving business capabilities to achieve future growth in our core markets.

We ensured that we maintained a healthy balance sheet, including successfully completing the planned tranche of the asset sale to ESP, achieving an enhanced payment milestone and negotiated more attractive timings on future asset transfers and associated payments.

We selectively invested in strengthening our operational capabilities by investing in our people with best-in-class multi-utility capabilities and we recruited top industry talent to join our existing business development and operational teams. This has been important in effectively executing our regional expansion and growth plans.

We improved our ability to win larger opportunities and won a variety of new and significant contracts in the year, including a £1.6 million new housing contract, our first project with over 1,500 connections, a £4.2 million contract to provide 13.5km of new high voltage electrical infrastructure for a major redevelopment project, a £1.5 million contract to install 3.8km of gas infrastructure for a large automotive manufacturing operation and contracts with a major Charge Point Operator to design and install electric vehicle charging infrastructure for two national UK retailers.

The efforts that went into securing new contracts in the year, many of which were previously unobtainable to the Group, not only contributed to a healthy order book but also laid the foundations for a succession of some of the Group's largest ever contract wins which were secured post year end.

In the second half of the year, we adopted a refreshed and more prudent approach to how we value our order book. This, combined with the unwinding of some key contracts in the period, resulted in a 15% reduction in the value of the Group's order book year on year. Positively, we now have a robust view of our Group order book, which has grown following the award of several significant new contracts post year end.

We also implemented our high-performance behaviour framework and strengthened our culture, balancing the desire to protect all of our people throughout the pandemic with keeping a focus on ongoing development and recruiting new talent. I'm pleased that our approach to how we developed and improved our culture in the year was recognised by Best Companies and resulted in us being named as one of the top 10 utility companies to work for in the UK.

Financial performance and results

Total revenue increased year on year by £1.0 million to 47.1 million (2020: £46.1 million) despite the impact of Covid-19. Infrastructure revenues were 3.8% higher than the previous year at £43.4 million (2020: 41.8 million). This, however, was offset by utility asset ownership revenues which at £3.7 million (2020: £4.3 million) were £0.6 million lower than the previous financial year, as expected, due to the impact of the sale of our domestic gas assets to ESP.

The Group incurred an operating loss of £11.2 million for the year (2020: £2.1 million). This loss includes exceptional costs of £8.5 million (2020: £2.6 million), depreciation and amortisation of £3.7 million (2020: £4.0 million), a share-based payment charge of £0.4 million (2020: £nil) offset by other gains of £1.4 million (2020: £nil). Exceptional costs include the income statement impact of the impairment of our utility asset portfolio of £1.9 million (2020: £1.8 million) as a result of an independent, external valuation of those assets at year end, a £4.9 million (2020: £nil) impairment of goodwill, brands and customer relationships, software and development costs and £1.5 million (2020: £0.9 million) of restructuring and one off legal and advisor costs which in the current year includes costs incurred in the Group`s response to the Proposed Tender Offer from Harwood Capital LLP. Other gains of £1.4 million (2020: £nil) relate to the profit on sale of utility assets to ESP and related enhanced payments from ESP as the Group met certain trigger points in respect of new domestic connection wins. 

Adjusted EBITDA from continuing operations for the year decreased to 0.1 million from £4.5 million in the prior year, in line with management expectations. The reduction from the prior year was due to a dilution of the gross margin, affected by the impact of Covid-19 on our core markets. Mobilisation on larger projects was delayed due to customer uncertainty, resulting in reduced gross profit being realised in the year, whilst fixed operational costs continued. This was combined with increased administrative expenses, as we invested in the Group's in-house capabilities, people and operations, to support its regional expansion and to lay the foundations needed to enable the Group to execute its strategy and emerge stronger.

Liquidity and net cash

The Group's trading performance for the year has resulted in a cash outflow from operating activities of £2.4 million (2020: £2.1 million inflow). The Group places a high priority on cash generation and the active management of working capital. As at 31 March 2021, the Group had net debt of 1.5 million (2020: £6.0 million net cash). Net cash outflow from investing activities was £3.8 million (2020: £4.8 million inflow), benefiting from £3.9 million of net receipts from the disposal of utility assets, offset by investment in utility and other assets of £7.7 million.

Net cash outflow from financing activities of 5.7 million (2020: £2.7 million inflow) was predominantly due to the repayment of the previous £10.0 million Revolving Credit Facility (RCF), a net £5.5 million draw down from the new RCF which was agreed on 1 December 2020 and £1.2 million in lease and interest payments. The cash proceeds from future asset sales, along with our prudent financial discipline, will enable Fulcrum to maintain a strong balance sheet and will support the generation of cash in the future.

To support the Group's liquidity and cash position, the Group successfully completed the planned tranche of the asset sale to ESP for £4.6 million (gross) and achieved an enhanced payment milestone, resulting in an additional £0.5 million in cash received.  We also negotiated more attractive timings on future asset transfers and associated payments.

Reserves and net assets

Net assets decreased by £10.9 million during the year to £35.4 million (2020: £46.3 million), primarily resulting from £9.0 million of net asset impairments in the year (2020: £1.0 million net revaluation).  Goodwill, brands and customer relationships, software and development costs were impaired by £4.9 million (2020: £nil), deferred tax assets of £0.6 million (2020: £0.1 million) were derecognised and the Group incurred a net revaluation loss on the utility asset portfolio of £3.5 million (2020: £1.1 million net revaluation). Net assets per share at 31 March 2021 were 15.9p per share (2020: 20.8p).

As at 31 March 2021, the issued share capital of the Company was 222,117,945 ordinary shares (2020: 222,117,945) with a nominal value of £221,118. At the end of the year, the Group operated a Growth Share Scheme (GSS) plan, a new Long-Term Incentive Plan (LTIP) and three Save As You Earn (SAYE) schemes.

Connecting the homes of the nation

The housing market continued to operate with Covid-19 safety restrictions in place during the pandemic and we were quick to respond to the needs of our homebuilder customers, making sure we could continue to support them safely and effectively on their sites. At the same time, we invested in our housing operations to expand and grow.

Enquiry levels in the period were strong, as homebuilders sought to meet demand stimulated by UK Government incentives, and market drivers continued to present exciting growth opportunities for the Group.

Homebuilders have the challenge of meeting the Future Homes Standard ahead of them and we invested in the year to position ourselves to best support them in their endeavours to do this. These factors, combined with our currently limited market share, mean we are perfectly positioned to capitalise on these growth opportunities.

To make sure we maximise our share in this strategically important market, we invested in our housing operations in the year by strengthening our business development and delivery teams, recruiting some of the best talent in the industry. This supported our further regional expansion into new geographies, as we began to win contracts in areas of the country where Fulcrum hadn't been competitive before.

The utility adoption model we have developed with ESP also boosted our competitiveness in this sector. The support from ESP assists the Group to compete on much larger housing developments and this helped us to win a strong succession of new housing projects and our first contract with over 1,500 multi-utility connections. This positive momentum continued post year end.

We have strong and longstanding relationships with homebuilders across the country and made good progress in achieving sector growth this year. However, there remains a significant opportunity to expand and grow and we are now better placed to do so.

Energising business, industry and the electric vehicle revolution

Our ability to design and build I&C multi-utility infrastructure of all sizes and complexities, including EV charging and specialist high voltage (132kV) electricity infrastructure, is an important differentiator for the Group.

We continued to operate effectively on our I&C projects in the year and enquiry levels in I&C remained strong. However, customer decision making on larger schemes was affected by the uncertainty created during the national lockdowns. This halted the commencement and award of some important contracts.

The I&C market also presents some hugely exciting opportunities for the Group. Electricity is a key enabler in decarbonising the economy cost effectively by 2050, and demand for electrical infrastructure to power renewable energy generating equipment, battery storage and the EV charging network is expected to grow rapidly.

We invested in strengthening our capabilities in I&C this year, as there remains a significant opportunity to grow our market share, especially in the multi-utility and EV charging infrastructure markets.  To support this, we established a major projects business development team to target and secure the most significant schemes, and we strengthened our EV business development team and operational delivery function.

These actions delivered improvements in our work-winning ability and we secured a variety of contracts.

Supporting the smart energy revolution

The pandemic presented considerable challenges for our smart metering operations, disrupting the rollout of our planned smart meter exchange programmes in the year.

In most instances, energy companies requested emergency only support during the initial lockdown, but we acted quickly and worked closely and collaboratively with our energy supplier customers and smart meter installation partners, to ensure we were able to remobilise speedily and safely, with new Covid-19 secure measures in place to restart the rollout in a way that ensured we protected people as we worked in consumers' homes.

Despite this, consumer concerns over Covid-19 continued to impact exchanges throughout the year, but I am confident that our proactive, safe and joined up approach maximised the exchanges available to us and helped to develop even stronger relationships with our customers.

We have quickly grown a reputation for service excellence in the sector and our flexible and responsive service approach has helped generate significant interest from gas and electricity suppliers looking to fulfil their regulatory obligations. At the same time, we bolstered our business development function, recruiting industry experts to support our growth ambitions.

I'm pleased to confirm that this assisted the Group in securing six new agreements with energy suppliers in the year and was crucial in laying foundations for our largest ever contract, a five year agreement worth an anticipated £20 million, with energy supplier E, post year end.

The growth opportunities and market drivers for our smart metering business are significant, with an estimated 29 million meters to exchange in the UK by mid-2025.

Maintaining and owning the nation's essential utility infrastructure

The Group's ability to own and maintain the UK's essential utility infrastructure supports our strategy and growth ambitions and I am very proud that we were able to use these strategically important capabilities to support the fight against Covid-19 and also strengthen the Group's foundations for future growth.

During the pandemic, we used our specialist electrical maintenance capabilities to provide enhanced, responsive services to support essential services and industries helping to combat Covid-19, including inspections to make sure vital infrastructure that supported the NHS, remained powered.

Our high voltage electrical maintenance capabilities will be essential to maintain the additional electrical and renewable energy generating infrastructure the UK needs to achieve net zero.

The utility assets we own continue to provide a healthy recurring income, and we continued to adopt I&C utility assets in the year, adding them to our income generating portfolio.

The current and future proceeds from the asset sale agreement with ESP provide the Group with additional financial strength that underpins our growth ambitions and the execution of our strategy across all sectors.

Emerging stronger from a challenging year, to capitalise on an exciting future

Despite an extremely challenging and Covid-19 affected year, the Group made progress, delivered improvements and laid foundations that will support our future success.

The progress we have made, and the incredible resilience, tenacity and effort demonstrated by everyone in the Group during the pandemic, makes me confident that the business is now better placed than ever to grow, be profitable and deliver returns to all our stakeholders in the future.

We still have more to do, but we have emerged from FY21, and entered FY22, stronger and better equipped to take advantage of the significant opportunities that the markets we operate in present to us as we connect the UK on its journey to a net-zero future.

Terry Dugdale

Chief Executive Officer

30 July 2021

 

Consolidated statement of comprehensive income

for the year ended 31 March 2021

	Notes	Year ended 31 March 2021 £'000	Year ended 31 March 2020 £'000
Revenue	2	47,054	46,101
Cost of sales - underlying		(35,211)	(31,955)
Cost of sales - exceptional items	4	(2,050)	(1,766)
Total cost of sales		(37,261)	(33,721)
Gross profit		9,793	12,380
Administrative expenses - underlying		(15,912)	(13,611)
Administrative expenses - exceptional items	4	(6,400)	(870)
Total administrative expenses		(22,312)	(14,481)
Other gains	5	1,353	-
Operating loss	6	(11,166)	(2,101)
Profit on sale of subsidiary - exceptional items	4	-	3,886
Net finance expense		(293)	(472)
(Loss)/profit before taxation		(11,459)	1,313
Taxation	7	1,178	243
(Loss)/profit for the year attributable to equity holders of the parent		(10,281)	1,556
Other comprehensive income
Items that will never be reclassified to profit or loss:
Revaluation of utility assets		1,569	3,036
Surplus arising on utility assets internally adopted in the year	10	338	951
Impairment of previously revalued utility assets		(3,548)	(1,086)
Deferred tax on items that will never be reclassified to profit or loss	7	560	(321)
Total comprehensive (expense)/income for the year		(11,362)	4,136
(Loss)/profit per share attributable to the owners of the business
Basic	9	(4.6)p	0.7p
Diluted	9	(4.5)p	0.7p

Adjusted EBITDA from continuing operations is the basis that the Board uses to measure and monitor the Group's financial performance as it is a more accurate reflection of the commercial reality of the Group's business. Further details of Alternative Performance Measures are included in note 3.

Operating loss		(11,166)	(2,101)
Equity-settled share-based payment charge/(credit)		436	(6)
Other gains	5	(1,353)	-
Exceptional items within operating loss	4	8,450	2,636
Depreciation and amortisation	10,12,13	3,739	4,019
Adjusted EBITDA from continuing operations		106	4,548
Surplus arising on sale of domestic utility assets and enhanced payments	5	1,353	-
Surplus arising on sale of subsidiary	4	-	3,886
Adjusted EBITDA including sale of domestic utility assets		1,459	8,434

Consolidated statement of changes in equity

for the year ended 31 March 2021

	Notes	Share capital £'000	Share premium £'000	Revaluation reserve Restated¹ £'000	Merger reserve £'000	Retained earnings Restated¹ £'000	Total equity £'000
Balance at 31 March 2019		221	210	12,737	11,347	20,813	45,328
Total comprehensive income for the year
Profit for the year		-	-	-	-	1,556	1,556
Revaluation surplus on internal revaluation		-	-	3,036	-	-	3,036
Surplus arising on utility assets internally adopted in the year	10	-	-	951	-	-	951
Disposal of previously revalued assets¹	4	-	-	(3,461)	-	3,461	-
Depreciation on previously revalued assets		-	-	(307)	-	307	-
Exceptional items - fixed asset impairment		-	-	(1,086)	-	-	(1,086)
Deferred tax liability	7	-	-	(321)	-	-	(321)
Transactions with equity shareholders
Equity-settled share-based payment		-	-	-	-	(6)	(6)
Dividends	8	-	-	-	-	(3,331)	(3,331)
Issue of new shares	14	1	179	-	-	-	180
Balance at 31 March 2020¹		222	389	11,549	11,347	22,800	46,307
Total comprehensive income for the year
Loss for the year		-	-	-	-	(10,281)	(10,281)
Revaluation surplus on external valuation		-	-	1,569	-	-	1,569
Surplus arising on utility assets internally adopted in the year	10	-	-	338	-	-	338
Disposal of previously revalued assets	5	-	-	(574)	-	574	-
Depreciation on previously revalued assets		-	-	(342)	-	342	-
Exceptional items - fixed asset impairment		-	-	(3,548)	-	-	(3,548)
Deferred tax liability	7	-	-	560	-	-	560
Transactions with equity shareholders
Equity-settled share-based payment		-	-	-	-	436	436
Balance at 31 March 2021		222	389	9,552	11,347	13,871	35,381

¹The revaluation reserve and retained earnings have been restated to reallocate fair value gains and losses between these reserves in relation to Tranche 1 of the utility assets sale in the year ended 31 March 2020 as disclosed in note 4. As such the balance sheet as at 31 March 2020 has been restated. There is no impact on net assets.

Consolidated balance sheet

as at 31 March 2021

	Notes	31 March 2021 £'000	31 March 2020 Restated1 £'000
Non-current assets
Property, plant and equipment	10	37,314	38,820
Intangible assets	12	18,907	25,522
Right-of-use assets	13	3,081	2,720
Deferred tax assets	7	2,710	1,784
		62,012	68,846
Current assets
Contract assets		15,640	12,279
Inventories		438	446
Trade and other receivables		6,550	6,826
Cash and cash equivalents	16	3,934	15,973
		26,562	35,524
Total assets		88,574	104,370
Current liabilities
Trade and other payables		(12,669)	(11,909)
Contract liabilities		(27,098)	(27,905)
Borrowings	15	-	(10,000)
Current lease liability	13	(996)	(772)
Provisions		(54)	(58)
		(40,817)	(50,644)
Non-current liabilities
Non-current lease liability	13	(2,382)	(2,226)
Borrowings	15	(5,483)	-
Deferred tax liabilities	7	(4,511)	(5,193)
		(12,376)	(7,419)
Total liabilities		(53,193)	(58,063)
Net assets		35,381	46,307
Equity
Share capital	14	222	222
Share premium		389	389
Revaluation reserve		9,552	11,549
Merger reserve		11,347	11,347
Retained earnings		13,871	22,800
Total equity		35,381	46,307

¹The balance sheet has been restated to reflect a reallocation between the revaluation revenue and retained earnings. There is no impact on net assets.

The financial statements were approved by the Board of Directors on 30 July 2021 and were signed on its behalf by:

Terry Dugdale

Chief Executive Officer

Company number FC030006

 

Consolidated cash flow statement

for the year ended 31 March 2021

	Notes	Year ended 31 March 2021 £'000	Year ended 31 March 2020 £'000
Cash flows from operating activities
(Loss)/profit for the year after tax		(10,281)	1,556
Tax credit	7	(1,178)	(243)
(Loss)/profit for the year before tax		(11,459)	1,313
Adjustments for:
Depreciation	10,13	1,919	2,228
Amortisation of intangible assets	12	1,820	1,791
Exceptional items - fixed asset impairment	4	1,857	1,766
Exceptional items - intangible asset impairment	4	4,935	-
Net finance expense		293	472
Equity-settled share-based payment charge/(credit)		436	(6)
Profit on disposal of subsidiary	4	-	(3,886)
Profit on disposal of utility assets	5	(873)	-
Loss on disposal of assets - other		-	3
Increase in contract assets		(3,361)	(3,147)
(Increase)/decrease in trade and other receivables		(201)	916
Decrease in inventories		8	162
Increase/(decrease) in trade and other payables		2,995	(1,072)
(Decrease)/Increase in contract liabilities		(807)	1,562
Decrease in provisions		(4)	(38)
Cash (outflow)/inflow from operating activities		(2,442)	2,064
Tax paid		(108)	(410)
Net cash (outflow)/inflow from operating activities		(2,550)	1,654
Cash flows from investing activities
Acquisition of external utility assets		(3,958)	(5,030)
Utility assets internally adopted		(3,503)	(6,475)
Acquisition of plant and equipment	10	(87)	(98)
Acquisition of intangibles	12	(140)	(326)
Proceeds on disposal of subsidiary	4	-	16,756
Proceeds on disposal of utility assets	5	4,578	-
Receipt of deferred consideration on disposal of utility assets	4	670	-
Costs paid in relation to disposal of subsidiary	4	(1,245)	-
Costs paid in relation to disposal of utility assets	5	(102)	-
Proceeds on disposal of assets - other		9	5
Finance income received		-	3
Net cash (outflow)/inflow from investing activities		(3,778)	4,835
Cash flows from financing activities
Dividends paid	8	-	(3,331)
Borrowings received	15	5,700	7,000
Borrowings repaid	15	(10,000)	-
Prepaid arrangement fees		(247)	-
Interest paid and banking charges (non-IFRS 16)		(153)	(273)
IFRS 16 - principal payments	13	(861)	(797)
IFRS 16 - deposit payments		(11)	-
IFRS 16 - interest payments	13	(139)	(119)
Proceeds from issue of share capital	14	-	180
Net cash (outflow)/inflow from financing activities		(5,711)	2,660
(Decrease)/increase in net cash and cash equivalents		(12,039)	9,149
Cash and cash equivalents at the beginning of the year		15,973	6,824
Cash and cash equivalents at the end of the year	16	3,934	15,973

Notes to the consolidated financial statements

1.  Accounting policies

The principal accounting policies adopted in the preparation of these financial statements are set out below.

Basis of preparation

The financial information set out in this preliminary announcement has been derived from the Group's consolidated financial statements for the years ended 31 March 2021 and 31 March 2020. The audited financial information included in this preliminary results announcement for the year ended 31 March 2021 and audited information for the year ended 31 March 2020 does not comprise statutory accounts within the meaning of section 434 Companies Act 2006.  The information has been extracted from the audited non statutory financial statements for the year ended 31 March 2021 which will be delivered to the Registrar of Companies in due course.  Non statutory financial statements for the year ended 31 March 2020 were approved by the Board of directors and have been delivered to the Registrar of Companies.  The report of the independent auditors for the year ended 31 March 2021 and 2020 respectively on these financial statements were unqualified.

Whilst the financial information included in this preliminary announcement has been prepared on the basis of the requirements of IFRSs in issue, as adopted by the United Kingdom and effective at 31 March 2021, this announcement does not itself contain sufficient information to comply with IFRS.

The financial statements have been prepared on the historical cost basis except for the revaluation of certain non-current assets. Historical cost is generally based on the fair value of the consideration given in exchange for assets.

Going concern

At 31 March 2021 the Group had net assets of £35.4 million (2020: £46.3 million), net current liabilities of £14.3 million (2020: £15.1 million), cash of £3.9 million (2020: £16.0 million) and borrowings of £5.5 million (2020: £10.0 million) as set out in the consolidated balance sheet. In the year ended 31 March 2021, the Group generated a loss after tax of £10.3 million and had net cash outflows of £12.0 million after investing £7.5 million in utility assets and repaying a net £4.3 million of borrowings.

These financial statements are prepared on the basis that the Group is a going concern. In forming its opinion as to going concern, the Board have prepared a detailed budget for FY22, a forecast for the 6 months to 30 September 2022 and a detailed 13 week cash flow forecast based upon its assumptions with particular consideration to the key risks and uncertainties facing the business, as well as taking into account available borrowing facilities. The going concern period assessed is until September 2022 which has been selected as it can be projected with a good degree of expected accuracy.

The Group secured a new £10.0 million Revolving Credit Facility (RCF) on 1 December 2020 which it had drawn down £5.7 million against at year end (headroom of £4.3 million). This facility includes two financial covenants; ratio of total debt to EBITDA and ratio of the market value of pipeline assets to total debt. The forecasts, as approved by the Board, satisfy these financial covenants with reasonable levels of headroom.

The forecasts prepared reflect a cautious view on recovery from Covid-19 and include a range of sensitivities including a severe but plausible scenario together with mitigating actions. Changes to the principal assumptions included a reduction in EBITDA of approximately 37%. Even under the downside scenario, the Group continues to project sufficient cash reserves, continues to operate with headroom on borrowing facilities and associated covenants, after the consideration of mitigation measures that are within Management`s control, for example accelerating cash receipts and reducing operating costs, that could be deployed to create further cash and covenant headroom. Based on these considerations, the Directors have a reasonable expectation that the Group has adequate resources to meet its liabilities as they arise for at least 12 months from the approval of these financial statements and, consequently, the Directors have adopted the going concern basis of accounting in the preparation of these financial statements.

Adoption of new and revised International Financial Reporting Standards (IFRSs) and IFRIC interpretations

New amendments and interpretations that became mandatory for the first time during the year ended 31 March 2021 are listed below, none of which had a significant impact on the Group's results.

· Amendments to References to the Conceptual Framework in IFRS Standards 

· Definition of Material (Amendments to IAS 1 and IAS 8)

2. Operating segments

The Board has been identified as the chief operating decision-maker (CODM) as defined under IFRS 8 "Operating Segments". The Directors consider there to be two operating segments, Infrastructure: Design and Build and Utility assets: Own and Operate. Fulcrum's Infrastructure: Design and Build segment provides utility infrastructure and connections services. Utility assets: Own and Operate comprises both the ownership of gas, electrical and meter assets and the safe and efficient conveyance of gas and electricity through its transportation networks. Gas transportation services are provided under the iGT licence granted from Ofgem in June 2007 and electricity services are provided under the iDNO licence granted from Ofgem in November 2017.

The information provided to the Board includes management accounts comprising operating result before exceptional items for each segment and other financial and non-financial information used to manage the business on a consolidated basis.

	Year ended 31 March 2021				Year ended 31 March 2020
	Infrastructure: Design and Build £'000	Utility assets: Own and Operate £'000	Total Group £'000		Infrastructure: Design and Build £'000	Utility assets: Own and Operate £'000	Total Group £'000
Reportable segment revenue	43,400	3,654	47,054		41,848	4,253	46,101
Adjusted EBITDA from continuing operations*	(969)	1,075	106		2,341	2,207	4,548
Other gains	480	873	1,353		-	-	-
Share-based payment charge	(436)	-	(436)		6	-	6
Depreciation and amortisation	(2,979)	(760)	(3,739)		(2,887)	(1,132)	(4,019)
Reportable segment operating (loss)/profit before exceptional items	(3,904)	1,188	(2,716)		(540)	1,075	535
Cost of sales - exceptional items	-	(2,050)	(2,050)		-	(1,766)	(1,766)
Administrative expenses - exceptional items	(6,400)	-	(6,400)		(832)	(38)	(870)
Reporting segment operating loss	(10,304)	(862)	(11,166)		(1,372)	(729)	(2,101)
Profit on sale of subsidiary - exceptional items	-	-	-		-	3,886	3,886
Net finance expense	(171)	(122)	(293)		(219)	(253)	(472)
(Loss)/profit before tax	(10,475)	(984)	(11,459)		(1,591)	2,904	1,313

*Adjusted EBITDA from continuing operations is operating loss excluding the impact of exceptional items, other gains, depreciation, amortisation and equity-settled share-based payment charges. Full reconciliation of Alternative Performance Measures (APMs) is provided in note 3.

The Group derives all of its revenue from the UK and all of the Group's customers are based in the UK. The Group's revenue is derived from contracts with customers.

3. Alternative Performance Measures

The Group uses Alternative Performance Measures (APMs), as listed below, to present users of the accounts with a clear view of what the Group considers to be the results of its underlying, sustainable business operations, thereby enabling consistent year-on-year comparisons and making it easier for users of the accounts to identify trends.

Alternative Performance Measure	Definition
Adjusted EBITDA from continuing operations	Operating loss excluding exceptional items, other gains, amortisation and depreciation and equity-settled share-based payments.
Adjusted (loss)/profit before taxation	(Loss)/profit before taxation excluding amortisation of acquired intangibles and exceptional items included within cost of sales and administrative expenses.
Net assets per share	Net assets divided by the number of shares in issue at the financial reporting date.

A reconciliation of these Alternative Performance Measures has been disclosed in the tables below:

(a) Reconciliation of operating loss to "adjusted EBITDA from continuing operations"

	31 March	31 March
	2021	2020
	£'000	£'000
Operating loss	(11,166)	(2,101)
Adjusted for:
Exceptional items within operating loss	8,450	2,636
Other gains	(1,353)	-
Amortisation and depreciation	3,739	4,019
Equity-settled share-based payments	436	(6)
Adjusted EBITDA from continuing operations	106	4,548

(b) Reconciliation of (loss)/profit before tax to "adjusted (loss)/profit before tax"

	31 March	31 March
	2021	2020
	£'000	£'000
(Loss)/profit before tax	(11,459)	1,313
Adjusted for:
Exceptional items included in cost of sales	2,050	1,766
Exceptional items included in administrative expenses	6,400	870
Amortisation of acquired intangibles	1,356	1,356
Adjusted (loss)/profit before tax	(1,653)	5,305

(c) Net assets per share

	31 March	31 March
	2021	2020
	£'000	£'000
Net assets at the end of the year	35,381	46,307
Issued shares at the end of the year	222,118	222,118
Net assets per share	15.9p	20.8p

4. Exceptional items

	Year ended 31 March 2021 £'000	Year ended 31 March 2020 £'000
Exceptional items included in cost of sales	2,050	1,766
Exceptional items included in administrative expenses	6,400	870
Profit on sale of subsidiary	-	(3,886)
	8,450	(1,250)

(a) Exceptional items included in cost of sales

	Year ended 31 March 2021 £'000	Year ended 31 March 2020 £'000
Fixed asset impairment	1,857	1,766
Remedial works to utility assets	193	-
	2,050	1,766

Fixed asset impairment relates to the impairment of utility assets not previously revalued upwards.

(b) Exceptional items included in administrative expenses

	Year ended 31 March 2021 £'000	Year ended 31 March 2020 £'000
Restructuring costs	569	641
One-off legal and adviser costs	896	229
Intangible asset impairment	4,935	-
	6,400	870

Restructuring costs relate to employee exit and severance costs. One-off legal and adviser costs include costs incurred in the Group's response to the Proposed Tender Offer from Harwood Capital LLP. Intangible asset impairment relates to the impairment of goodwill, brands and customer relationships and capitalised software and development costs.

(c) Profit on sale of subsidiary

	Year ended 31 March 2021 £'000	Year ended 31 March 2020 £'000
Profit on sale of subsidiary	-	3,886

On 27 January 2020, utility assets belonging to one of the Group's subsidiaries, Fulcrum Pipelines Limited, were transferred to a fellow Group subsidiary, Gas Newco 1 Limited. On 31 March 2020, the Group disposed of its 100% equity interest in Gas Newco 1 Limited. The transaction gave rise to the following profit on disposal:

	Year ended 31 March 2020 Restated £'000
Consideration - proceeds received	16,756
Consideration - retention (receivable in September 2021)	500
Consideration - deferred (received on 30 June 2020)	670
Total consideration	17,926
Net book value of assets acquired	(9,334)
Revaluation in prior periods	(3,461)
Legal costs relating to the transaction	(1,245)
	3,886

Some of the disposed utility assets had previously been revalued in accordance with the Group policy. Upon disposal, this gave rise to a transfer between the revaluation reserve and retained earnings of £3,461,000.

5. Other gains

Included within other gains are the following amounts:

	Year ended 31 March 2021 £'000
Profit on disposal of assets	873
Enhanced payments	480
	1,353

Enhanced payments are amounts receivable by the Group when the number of domestic connections introduced by the Group to a third-party reaches certain pre-agreed thresholds.

The profit on disposal of assets represents the gain arising on sale of certain of the Group's utility assets to a third-party. The Group has entered into an agreement with the third party to sell part of its utility assets portfolio in structured tranches. The profit outlined below is the result of assets transferred in the current financial year.

	Year ended 31 March 2021 £'000
Consideration - proceeds received	4,578
Consideration - retention (receivable on 31 May 2022)	142
Total consideration	4,720
Net book value of assets sold (including the effect of previous revaluations)	(3,712)
Legal costs relating to the transaction	(102)
Discounting of retention consideration due in more than one year	(33)
Profit on disposal of assets	873

Some of the disposed utility assets had previously been revalued in accordance with the Group policy. Upon disposal, this gave rise to a transfer between the revaluation reserve and retained earnings of £574,000.

 

6. Operating loss

Included in operating loss are the following charges:

	Year ended 31 March 2021 £'000	Year ended 31 March 2020 £'000
Amortisation of intangible assets	1,820	1,791
Depreciation of property, plant and equipment	1,027	1,419
Depreciation of right-of-use asset	892	809

7. Taxation

	Year ended 31 March 2021 £'000	Year ended 31 March 2020 £'000
Current tax	(130)	128
Deferred tax	(1,048)	(371)
Total tax credit	(1,178)	(243)

At Budget 2020, the Government announced that the Corporation Tax main rate (for all profits except ring fence profits) for the years starting 1 April 2021 and 2022 would be 19%. At Budget 2021, the Government announced that the Corporation Tax main rate would rise to 25% for the tax year starting 1 April 2023. However, the increase in the main rate to 25% had not been substantively enacted at the year end. The rate that had been substantively enacted at the year end was 19%, and accordingly the deferred tax balances have been calculated on the basis that they will unwind at that rate. If all of the deferred tax balances were to reverse at the amended 25% rate, the impact on the closing deferred tax position would be to increase the deferred tax assets by £0.9 million and increase the deferred tax liabilities by £1.4 million.

The Group has £12.1 million (2020: £9.3 million) of tax losses for which deferred tax assets of £2.7 million (2020: £1.8 million) have been recognised. The deferred tax asset is expected to be recovered over five years. The Group also has unrecognised tax losses of £3.0 million (2020: £1.8 million) for which no deferred tax asset has been recognised as there is insufficient certainty over whether those losses will reverse.

Reconciliation of effective tax rate

	Year ended 31 March 2021 £'000	Year ended 31 March 2020 £'000
(Loss)/profit before taxation	(11,459)	1,313
Tax using the UK corporation tax rate of 19.0% (2020: 19.0%)	2,177	(249)
Non-taxable items	(614)	535
Effect of change in rate of corporation tax	-	(62)
Tax deductions for share options exercised	(83)	16
Adjustment to tax charge in respect of previous year's corporation tax	130	(128)
Adjustment to tax charge in respect of previous year's deferred tax	148	219
Utilisation of previously unrecognised losses	345	-
Release of previously recognised losses	(579)	(88)
Chargeable gains arising	(346)	-
Total tax credit	1,178	243

Movement in deferred tax balances

	31 March 2021		31 March 2020
	Deferred tax assets £'000	Deferred tax liabilities £'000	Deferred tax assets £'000	Deferred tax liabilities £'000
At the beginning of the year	1,784	(5,193)	1,729	(5,186)
Recognised in profit or loss
Adjustment in respect of previous years	106	42	-	219
Tax losses recognised/(utilised)	1,055	-	(49)	-
Effect of change in rate of corporation tax	-	-	200	(263)
Origination/reversal of other timing differences	45	379	(8)	358
Reclassification between assets and liabilities	299	(299)	-	-
Release of previously recognised losses	(579)	-	(88)	-
Recognised in other comprehensive income
Revaluation of property, plant and equipment	-	560	-	(321)
At the end of the year	2,710	(4,511)	1,784	(5,193)

8. Dividends

No dividends were paid in the year ended 31 March 2021. Dividends of £3,331,000 were paid in the year ended 31 March 2020:

	Year ended 31 March 2020 £'000
Equity dividend
Paid during the year:
Final dividend in respect of 2019: 1.5p per share	3,331
Total dividends	3,331

No interim dividends were declared and no final dividends are proposed relating to the year ended 31 March 2021.

9. Earnings per share (EPS)

Basic earnings per share

The calculation of basic and diluted earnings per share has been based on the following result attributable to ordinary shareholders and weighted average number of ordinary shares outstanding:

	Year ended 31 March 2021 £'000	Year ended 31 March 2020 £'000
(Loss)/profit for the year used for calculation of basic EPS	(10,281)	1,556
Exceptional items included in cost of sales	2,050	1,766
Exceptional items included in administration expenses	6,400	870
Remove tax relief on exceptional items	(1,606)	(501)
Amortisation of intangibles	1,356	1,356
(Loss)/profit for the year used for calculation of adjusted EPS	(2,081)	5,047

Number of shares ('000):

	31 March 2021 Number of shares	31 March 2020 Number of shares
Weighted average number of ordinary shares for the purpose of basic EPS	222,118	221,907
Effect of potentially dilutive ordinary shares	7,434	4,901
Weighted average number of ordinary shares for the purpose of diluted EPS	229,552	226,808
EPS
Basic	(4.6)p	0.7p
Diluted basic	(4.5)p	0.7p
Adjusted basic	(0.9)p	2.3p
Adjusted diluted basic	(0.9)p	2.2p

10. Property, plant and equipment

(a) Reconciliation of carrying amount

	Utility assets £'000	Utility assets under construction £'000	Fixtures and fittings £'000	Computer equipment £'000	Total £'000
Cost
At 1 April 2019	59,910	3,918	1,055	1,219	66,102
Additions	6,019	6,475	10	88	12,592
Assets completed in year	6,589	(6,589)	-	-	-
Surplus arising on internally adopted assets	-	951	-	-	951
Revaluation	3,036	-	-	-	3,036
Disposals	(13,721)	-	-	(31)	(13,752)
At 31 March 2020	61,833	4,755	1,065	1,276	68,929
Additions	3,485	3,170	19	68	6,742
Assets completed in year	7,729	(7,729)	-	-	-
Surplus arising on internally adopted assets	-	338	-	-	338
Revaluation	1,659	-	-	-	1,659
Disposals	(3,860)	-	(15)	-	(3,875)
At 31 March 2021	70,846	534	1,069	1,344	73,793
Accumulated depreciation
At 1 April 2019	(25,234)	-	(591)	(963)	(26,788)
Depreciation charge for the year	(1,112)	-	(126)	(181)	(1,419)
Impairment from internal revaluation	(2,852)	-	-	-	(2,852)
Disposals	927	-	-	23	950
At 31 March 2020	(28,271)	-	(717)	(1,121)	(30,109)
Depreciation charge for the year	(735)	-	(143)	(149)	(1,027)
Impairment from external revaluation	(5,495)	-	-	-	(5,495)
Disposals	148	-	4	-	152
At 31 March 2021	(34,353)	-	(856)	(1,270)	(36,479)
Net book value
At 31 March 2021	36,493	534	213	74	37,314
At 31 March 2020	33,562	4,755	348	155	38,820
At 1 April 2019	34,676	3,918	464	256	39,314

Utility assets include £0.4 million (2020: £0.5 million) of meter assets valued at cost less depreciation to date.

Additions to utility assets and utility assets under construction are stated at the full cost of construction of £8.8 million (2020: £17.7 million) less the deficit arising on internally adopted assets of £5.6 million (2020: £11.2 million). The comparatives have been amended to reflect this presentation.

Disposals include utility assets with a net book value of £3,712,000 that were disposed of as part of Tranche 2 of the utility assets sale as disclosed in note 5.

(b) Measurement of fair values

The fair value of utility assets was determined by external, independent specialist valuers, having appropriate recognised professional qualifications and experience in the assets being valued. The valuation established the fair value of the assets at 31 March 2021. The key assumptions used in the valuation model include current market prices, useful economic lives of the assets and income generated by the assets discounted using a weighted average cost of capital. The valuation technique used is classified as a Level 3 fair value (based on unobservable inputs) under IFRS 13. The utility assets and utility assets under construction are the only financial assets that are held at fair value in the financial statements.

The value in use assessment is sensitive to changes in the key assumptions used. Sensitivity analysis has been performed, with a 1.0% increase in the discount rate leading; to a £1.0 million increase in the impairment charge and a 1.0% reduction in the discount rate leading to a £1.2 million decrease in the impairment charge.

 c) Impairment loss

Following the valuation of the utility asset estate a net impairment charge of £3.5 million (2020: £1.1 million net revaluation) was recorded. £1.6 million of the impairment (2020: £2.9 million of the revaluation) was offset against the revaluation reserve with the remaining £1.9 million charge (2020: £1.8 million) being included within exceptional items in cost of sales in the consolidated statement of comprehensive income.

11. Capital commitments

The Group has entered into contracts to purchase property, plant and equipment in the form of utility assets from external parties. At 31 March 2021 the balance was £9.6 million (2020: £14.0 million).

12. Intangible assets

Reconciliation of carrying amount	Goodwill £'000	Brand and  customer relationships £'000	Software and development costs £'000	Total £'000
Cost
At 31 March 2019	14,251	12,607	4,440	31,298
Additions	-	-	326	326
Disposals	-	-	(91)	(91)
At 31 March 2020	14,251	12,607	4,675	31,533
Additions	-	-	140	140
At 31 March 2021	14,251	12,607	4,815	31,673
Accumulated amortisation and impairment
At 31 March 2019	-	(1,562)	(2,667)	(4,229)
Amortisation for the year	-	(1,356)	(435)	(1,791)
Disposals	-	-	9	9
At 31 March 2020	-	(2,918)	(3,093)	(6,011)
Amortisation for the year	-	(1,356)	(464)	(1,820)
Impairment	(4,494)	(218)	(223)	(4,935)
At 31 March 2021	(4,494)	(4,492)	(3,780)	(12,766)
Net book value
At 31 March 2021	9,757	8,115	1,035	18,907
At 31 March 2020	14,251	9,689	1,582	25,522
At 31 March 2019	14,251	11,045	1,773	27,069

(a) Amortisation

The amortisation of brand, customer relationships and software (including development costs) is included in administrative expenses.

(b) Impairment testing

The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill may be impaired. The Group tests other intangible assets for impairment when there is an indication that the assets might be impaired.

Given a number of internal and external factors, management believes that indications for possible impairment exist for the brands and customer relationships. Accordingly, an impairment test has been carried out in relation to both goodwill and the brands and customer relationships. Where an impairment is indicated, goodwill would be impaired first, followed by the brands and customer relationships on a pro-rata basis.

Goodwill and the brands and customer relationships are tested for impairment by comparing the carrying amount of each CGU with the recoverable amount. The recoverable amount is the higher of fair value less costs to sell and the value in use.

Goodwill brought forward at the start of the year relates to the acquisition of Fulcrum Group Holdings Limited on 8 July 2010, the acquisition of The Dunamis Group Limited on 5 February 2018 and the acquisition of CDS PSL Holdings Limited on 27 March 2018. The carrying amount of the goodwill is allocated across cash-generating units (CGUs). The goodwill held by the Group relates to either the Fulcrum infrastructure services CGU; Dunamis, which has two CGUs; or the CDS CGU. The brands and customer relationships also relate to the same CGUs.

In the impairment tests, the recoverable amounts are determined based on value in use calculations which require assumptions. The fair value measurement was categorised as a Level 3 fair value based on the inputs in the valuation technique used.

The recoverable amounts of the CGUs have been determined from value in use calculations which have been predicated on discounted cash flow projections from financial budgets approved by the Board covering a one year period, together with management forecasts for a further four year period. The values assigned to the key assumptions represent management's assessment of future trends in the relevant industries and have been based on historical data from both external and internal sources, together with the Group's views on the future achievable growth and the impact of committed cash flows. Cash flows beyond this are extrapolated using the estimated long-term growth rates as summarised in the following paragraph.

The pre-tax cash flows that these projections produced were discounted at pre-tax discount rates based on the Group's beta adjusted cost of capital reflecting management's assessment of specific risks related to each cash-generating unit. Pre-tax discount rates of between 7.6% and 9.4% (2020: between 7.2% and 9.0%) have been used in the impairment calculations which the Directors believe fairly reflect the risks inherent in each of the CGUs. The terminal cash flows are extrapolated in perpetuity using a growth rate of 2.0% (2020: 2.0%). This is prudently aligned with the inflation rate and is not considered to be higher than the long-term industry growth rate.

Following the review, the carrying value of the intangible assets exceeded the associated value in use for the Dunamis and CDS CGUs. Consequently, a total impairment of £4.7 million was made to the carrying value of goodwill and brands and customer relationships. £3.8 million of this was in relation to the Dunamis CGU, with £0.9 million relating to the CDS CGU. No impairment was recognised for the Fulcrum infrastructure services CGU.

Impairment charges were made to the carrying value of goodwill (£4.5 million), brands and customer relationships (£0.2 million) and software and development costs (£0.2 million). 

After the above impairments, a segment-level summary of the acquired intangible assets allocation is presented below:

	Fulcrum £'000	Dunamis £'000	CDS £'000	Total £'000
Goodwill	2,225	7,532	-	9,757
Brands and customer relationships	-	8,115	-	8,115

The value in use assessment is sensitive to changes in the key assumptions used. Sensitivity analysis has been performed on the individual CGUs with a 1.0% increase in the discount rate and a 1.0% reduction in the long-term growth rate.

Based on this analysis, the reasonably possible downside scenario to the discount rate would increase the impairment by £2.4 million, and the change to the long-term growth rate would increase the impairment by £1.9 million.

13. Leases

The Group has leases for land and buildings and plant and machinery. Leases for land and buildings relate mainly to office properties and depots, whilst the plant and machinery leases are predominantly motor vehicles. With the exception of short-term leases and leases of low-value underlying assets, each lease is reflected on the balance sheet as a right-of-use asset and a lease liability.

Leases of property range from a period of three to ten years, and leases of motor vehicles are for three or four years. Lease payments are generally fixed. The use of extension and termination options within leases gives the Group flexibility and such options are exercised when they align with the Group's strategy and where economic benefits of exercising such options exceed the expected overall costs.

Right-of-use assets	31 March 2021 £'000	31 March 2020 £'000
Land and buildings	1,500	1,234
Plant and machinery	1,581	1,486
Total	3,081	2,720

	31 March 2021 £'000	31 March 2020 £'000
Additions to right-of-use assets	1,252	938

Additions to right-of-use assets include new leases and extensions to existing lease agreements.

Depreciation on right-of-use assets	31 March 2021 £'000	31 March 2020 £'000
Land and buildings	247	247
Plant and machinery	645	562
Total	892	809

	Land and buildings			Plant and machinery
Maturity of lease liabilities	31 March 2021 £'000	31 March 2020 £'000		31 March 2021 £'000	31 March 2020 £'000
Less than one year	310	212		686	560
Between one and five years	1,191	943		946	971
In more than five years	245	312		-	-
Total	1,746	1,467		1,632	1,531

Other impact on profit and loss	31 March 2021 £'000	31 March 2020 £'000
Finance costs on leases	139	119
Expense on short-term and low value leases	637	97
Total	776	216

Cash flows in respect of leases	31 March 2021 £'000	31 March 2020 £'000
IFRS 16 - principal payments	861	797
IFRS 16 - interest payments	139	119
Cash outflows relating to short-term and low value leases	637	97
Total	1,637	1,013

14. Share capital

	31 March 2021 £'000	31 March 2020 £'000
Authorised
500,000,000 ordinary shares of £0.001 each	500	500
Allotted, issued and fully paid
222,117,945 (2020: 222,117,945) ordinary shares of £0.001 each	222	222

Ordinary shareholders are entitled to dividends as declared. During the year ended 31 March 2021, no new ordinary shares were issued. During the year ended 31 March 2020, 814,839 ordinary shares with a nominal value of £815 were issued to employees exercising vested share options. The shares issued in the year ended 31 March 2020 had a nominal value of £0.001 each and were issued at £0.221 each.

15. Interest-bearing loans and borrowings

On 4 June 2018, the Group entered into a three year revolving credit facility agreement with Lloyds Banking Group for up to £20 million. The facility supported the forecast growth in utility asset ownership of gas and electricity assets by the Group, with drawdowns secured against the acquired utility assets. The facility was structured as an "accordion" facility, with £10.0 million committed at 31 March 2020. The facility was settled in full on 1 April 2020.

On 1 December 2020, the Group entered into a new two year revolving credit facility agreement with Lloyds Banking Group for £10 million. This facility supports the financing, construction and acquisition of pipeline assets. On 4 December 2020, £5.7 million was drawn down from this facility. At 31 March 2021, £4.3 million of this facility remained available for future drawdowns.

(a) Changes in liabilities arising from financing activities

	31 March 2021 £'000	31 March 2020 £'000
At the beginning of the year	10,000	3,000
Repaid in year	(10,000)	-
New borrowings	5,700	7,000
Capitalised borrowing fees	(260)	-
Amortisation of capitalised borrowing fees	43	-
At the end of the year	5,483	10,000

(b) Terms and repayment schedule

	Currency	Nominal interest rate	Year of maturity	31 March 2021 £'000	31 March 2020 £'000
Three year revolving credit facility agreement	GBP	LIBOR + 2.0%	2021	-	10,000
Two year revolving credit facility agreement	GBP	Bank of England Base Rate + 3.5%	2022	5,700	-

The Group has complied with the financial covenants (asset cover, leverage and EBITDA covenants) relating to the above facilities.

16. Reconciliation to net (debt)/funds

	31 March 2021 £'000	31 March 2020 £'000
Cash and cash equivalents	3,934	15,973
Borrowings	(5,483)	(10,000)
Net (debt)/funds	(1,549)	5,973

17. Related parties

The Group has related party relationships with its subsidiaries, Directors and key management personnel. Details of the remuneration, share options and pension entitlement of the Directors will be included in the Remuneration Report of the Annual Report and Accounts.

In the year, sales totalling £23,790 (2020: £nil) were made by the Group to companies in which key management personnel held significant interests. These sales were settled in full by the year end.

In the year, purchases totalling £347,110 (2020: £60,817) were made by the Group from companies in which key management personnel held significant interests, of which £7,954 (2020: £nil) was still outstanding at the year end. The purchases were for equipment hire, fuel cards and sub-contracting services used in the ordinary course of business.

 

END

 

 

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