REG - Fulcrum Utility Srvc - Final results for the year ended 31 March 2020

Fulcrum Utility ServicesAnnouncement

06/08/2020 07:01

RNS Number : 2864V
  
Fulcrum Utility Services Ltd
  
06 August 2020
  
 

6 August 2020
 
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 2020
"Repositioning to capitalise on the UK's transition to a net-zero economy"
Financial performance
·      Revenue down 5.8% to £46.1 million (2019: £48.9 million)
·      Adjusted EBITDA from continuing operations* £4.5 million (2019: £10.9 million**)
·      Profit before tax of £1.3 million (2019: £6.0 million**)
·      Free cash flows*** of £6.5 million (2019: (£0.4) million)
·      Adjusted earnings per share of 2.3p (2019: 3.4p**) and basic earnings per share of 0.7p (2019: 2.3p**)
·      Net cash of £6.0 million as at 31 March 2020 (2019: £3.8 million)
·      Net assets per share up 1.5% to 20.8p
·      The Group will not pay a dividend in respect of the financial year ended 31 March 2020 in order to maintain a strong balance sheet and cash reserves given the ongoing unquantifiable impact of COVID-19
Operational highlights
·      Sustained growth in the Group order book, up 9% since March 2019 to £66.2 million (2019: £60.5 million)
·      Growth in the housing order book, up 24% to £25 million
·      Strengthened smart metering operations, with 22% growth in the order book 
·      Sustained improvement in H2 (despite the impact of COVID-19) with revenues up 36% (H2: £26.6 million vs. H1 £19.5 million) and Adjusted EBITDA from continuing operations* up 115% (H2: £3.1 million vs. H1 £1.4 million). 
·      Expanded the Group's direct delivery model into South East England and London
·      Executed the sale of its domestic asset portfolio and order book for a gross consideration of £48 million, supporting a strong balance sheet and the generation of surplus cash in the future.  The first tranche of assets was sold on 31 March 2020 for a gross consideration of £17.9 million, enabling the Group to become debt-free
·    Established a strategic relationship with E.S Pipelines Limited (ESP), opening the opportunity to compete on larger housing and I&C schemes, including Electric Vehicle (EV) charging infrastructure
·    Continued to manage the business through COVID-19 well, providing essential works whilst putting the safety and wellbeing of our people, our customers and the communities we work in first and foremost
Outlook 
·      Despite the impact of COVID-19, trading in the new financial year has seen continual improvement month on month and is expected to return to pre-COVID-19 levels in Q2 of FY21
·      Given the ongoing market uncertainties resulting from COVID-19, the Board will not be issuing guidance for the Group's 2021 financial year at this time
·      In the longer term, the Group is well placed to execute its strategy and capitalise on the UK's net-zero and smart energy revolution
*Adjusted EBITDA from continuing operations is operating profit excluding the impact of exceptional items, depreciation, amortisation and equity settled share-based payment charges.
**Restated for IFRS16
***Free cash flow is operating cash flow less net capital expenditure
 
Commenting on the full year results, Daren Harris, Chief Executive Officer said:
"2020 has been a year of repositioning to focus the business on its strategic aim of capitalising on the UK's transition to a net-zero economy. Fulcrum already has established market positions and a strong service reputation across strategically important markets and has the critical capabilities needed to execute its strategy. Although 2020 presented short term market challenges, there is a substantial long-term opportunity for the Group to significantly grow its revenues across markets that have attractive long-term drivers given the UK's net-zero and smart energy revolution."
Annual report and AGM notice
Copies of the annual report and accounts for the year ended 31 March 2020 will be posted to shareholders on 18 August 2020 and will be available at the registered office of the Company. An electronic copy of the annual report and accounts is available now from the Company's website: https://investors.fulcrum.co.uk/
Shareholders will also receive notice of the Annual General Meeting of the Company, which will be held at 12.00pm on Wednesday 23 September 2020  at the offices of the Company, 2 Europa View, Sheffield, S9 1XH.
 
Impact of implementation of IFRS 16 "Leases"
 
The Group adopted IFRS 16 "Leases" for the first time in FY2020 and applied it retrospectively, restating prior year comparatives. Under the previous accounting standard for leases, IAS 17, lease costs were recognised on a straight-line basis over the term of the lease. However, adoption of IFRS 16 has given rise to the recognition of right-of-use assets and lease liabilities, which represent the Group's contractual right to access identified assets under the terms of the lease and their contractual obligations to minimum lease payments respectively. Consequently, lease costs no longer go through the Statement of Comprehensive Income on a straight-line basis, but rather are replaced by depreciation and finance charges. 
The impact of IFRS 16 on the 2020 financial results is as shown in the table below - the pro-forma column shows the financial results on the previously adopted accounting basis.
 







Pro-forma
£m


Adjustments
£m


As reported
£m




Adjusted EBITDA from continuing operations


3.6


0.9


4.5




Depreciation


(1.4)


(0.8)


(2.2)




Finance expense


(0.4)


(0.1)


(0.5)



 
The 2019 financial results have been restated for the adoption of IFRS 16 as follows:
 







As previously reported
£m


IFRS 16 
adjustments
£m


As restated
£m




Adjusted EBITDA from continuing operations


10.0


0.9


10.9




Depreciation


(1.0)


(0.8)


(1.8)




Finance expense


(0.1)


(0.1)


(0.2)



 
Enquiries:



Fulcrum Utility Services Limited
Daren Harris, Chief Executive Officer
 
Cenkos Securities plc (Nominated adviser and broker)
Max Hartley (Nomad) / Michael Johnson (Sales)
 
N+1 Singer (Joint Corporate Broker)
Sandy Fraser / Rachel Hayes / Carlo Spingardi
 
Camarco (Financial PR advisers)
Ginny Pulbrook / Tom Huddart
 


+44 (0)114 280 4102
 
 
+44 (0)20 7397 8900
 
 
+44 (0)20 7496 3000
 
 
+44(0)203 757 4992
 



Notes to Editors:
Fulcrum is a multi-utility infrastructure and services provider based in Sheffield, UK. The Company's primary business is the provision of utility infrastructure services to the residential, commercial and industrial markets throughout the mainland UK. These range from the design, installation or alteration of utility services for single site properties to large complex multi-site projects. Through its subsidiaries, Fulcrum Pipelines Limited and Fulcrum Electricity Assets Limited, Fulcrum is also licensed as an Independent Gas Transporter and Independent Distribution Network Operator, owning and operating gas and electrical assets that connect properties to the main UK gas and electricity networks. Fulcrum is also a meter asset manager, owning and operating meter assets across mainland UK.
http://www.fulcrum.co.uk/




 
 
Chairman's statement 
"A year of strategic repositioning"
Results
The 2020 financial year was a period of refocusing and repositioning the business to create stronger foundations that will enable the Group to capitalise on the utility infrastructure needs of a net-zero future. Net zero means that the UK's total greenhouse gas emissions would be equal to or less than the emissions the UK has removed from the environment. Achieving this means a significant change for the country and presents several significant opportunities for the Group. 
This strategic repositioning was undertaken against a backdrop of uncertain and challenging market conditions which is reflected in a disappointing financial performance.
Reported revenue was £46.1 million, down 5.8% on FY19. Profit before tax was £1.3 million and adjusted EBITDA from continuing operations was £4.5 million. 
Business performance was impacted in the first half of the year due to uncertain market conditions, the ongoing Capacity Market suspension and certain inefficiencies within the business.
These inefficiencies and the action taken to improve productivity are explained later in the Operational Review. Despite a substantial improvement in the second half of the year in a more certain market, the impact of COVID-19 impeded business operations towards the end of the financial year. 
Although market conditions affected business performance, there is a substantial long-term opportunity for the Group to grow its revenues across markets that have attractive long-term drivers given the UK's net-zero and smart energy revolution. This significant opportunity is clear and recently reinforced by, for example, Ofgem's proposal for a five-year investment programme of £25 billion, with potential for an additional £10 billion or more, to transform Britain's energy networks to deliver emissions-free green energy.
The Group is well positioned to support the UK's infrastructure requirements in an evolving energy landscape, with strategically critical capabilities and the Group will continue to focus its capabilities on enabling the UK to transition to a net-zero economy. This includes delivering services and solutions that are contributing to a greener future, such as designing and building utility infrastructure solutions to power and maintain renewable energy generating infrastructure, including battery storage sites, wind farms, solar farms and Electric Vehicle (EV) charging infrastructure. 
The growth in electric vehicles in the UK is particularly exciting and I believe the Group has the specialist capabilities, skills and expertise needed to secure a significant share of this market as the country rapidly expands its EV charging network.
Delivering smart meter exchange programmes is another vital element of the net-zero and smart energy revolution and progress was made on developing our smart metering business in the year, positioning the Group well to take a share of the 30 million meters to exchange in the UK by mid-2025.
Equally, there is a highly attractive opportunity for growth in the UK housing market, as evidenced by the UK Government's commitment to build an average of 300,000 new homes each year by the mid-2020s. Although the Group delivered sustained growth in its housing order book, up 24% in the year to £25 million, we are a relatively small player and a substantial share of the market is still available to us.
Asset sale
The sale of the Group's existing and contracted domestic gas assets, announced in the year realises substantial value for the Company, with total gross consideration currently expected to be approximately £48 million in cash. The successful completion of the first tranche of the sale significantly strengthened our balance sheet and is now complete, with total proceeds of £17.9 million against an original cost to the Group of £10.7 million, which has subsequently been revalued at £12.8 million. This has resulted in a total gain, before expenses of disposal, of £5.1 million. The cash proceeds from the asset sale, coupled with robust financial discipline, will support a strong balance sheet and the generation of surplus cash in the future. 
The Group's core growth strategy is now focussed on our design and build activities in support of a net-zero revolution, as well as selectively adopting asset infrastructure where desirable. Our relationship with ESP also enhances the Company's capabilities and competitiveness in strategically important sectors.
Dividend

Given the current economic uncertainty and the ongoing unquantifiable impact of COVID-19 on the short-to-medium-term trading environment, the Group is prioritising maintaining a strong balance sheet and cash reserves. As a result, the Group will not pay a dividend in respect of the financial year ended 31 March 2020. The Board will continue to keep its dividend policy under review. 
Board and corporate governance

In October 2019, we announced the departure of Chief Executive, Martin Harrison, who stepped down with immediate effect. 
Daren Harris joined the Company and its Board as Chief Financial Officer in June 2019 and was appointed as Chief Executive Officer in January 2020. Daren was joined on the Board in January 2020 by Terry Dugdale, Group Chief Operating Officer, who has been with the business since March 2019. The combined and complementary expertise that both Daren and Terry have across the independent multi-utility, contracting and energy services sectors is significant and will be invaluable in the delivery of the Group's refocused strategy and long-term growth.
Our Non-Executive Board was also enhanced after the year end, and now includes substantial shareholder representation. Wayne Hayes, Non-Executive Director, retired from the Board post year end and I would like to thank him for the contribution he made to the Group. Jennifer Babington was appointed as a Non-Executive Director in May 2020 and her specialist knowledge in green investments will assist the Group to capitalise on decarbonisation opportunities. Jonathan Turner and Jeremy Brade were appointed as Non-Executive Directors in June 2020 following the establishment of Relationship Agreements with Harwood Capital LLP and The Bayford Group. Jonathan and Jeremy are, or represent organisations which are, the two largest single investors in the business and the Group is delighted to have access to their insight, experience and skills on the Board. 
Fulcrum remains committed to the highest standards of corporate governance as it connects the UK on its journey to a net-zero future. The Board plays an active role in guiding the Group and leading its strategy and we are determined to ensure that we have a diverse mix of skills, capabilities and experience to steer the Group forward in an evolving energy landscape.
Current Trading and Outlook
Despite the impact of COVID-19, trading in the new financial year has seen a continual improvement month on month and is expected to return to pre-COVID-19 levels in Q2 of FY21. 
As at 31 March 2020, the Group recorded its highest ever order book, up 9% year-on-year to £66.2 million, and has seen continued growth, reaching £68 million at 30 June 2020. The Board believes that, despite the current economic conditions and uncertainty created by COVID-19, the political and legal commitment to decarbonise the UK to achieve a net-zero future, the substantial opportunity to design and build electrical networks to power the nation's electric vehicles,  the commitment to build an average of 300,000 new homes each year by the mid-2020s and the obligation to exchange 30 million domestic meters by mid-2025, present significant tailwinds and offer some very exciting growth opportunities for the Group. The Board is confident that the Group has a robust plan in place to capitalise on the UK's energy infrastructure revolution and is strongly positioned to grow as it executes its strategy to play an essential part in the UK's net-zero and smart energy revolution. However, given the ongoing market uncertainties resulting from COVID-19, the Board will not be issuing guidance for the Group's 2021 financial year at this time. 
Philip Holder

Non-Executive Chairman

6 August 2020
 
CEO Statement
"A year of refocus for a net-zero future"
2020 review

Since joining the business in the year, I have been impressed by its growth potential in an evolving and exciting market. The UK is now on a journey to net-zero by 2050 and the Group will play an important supporting role in the achievement of this.
FY20 was a year of strategic refocusing as we developed our in-house capabilities, including the expansion of the Group's direct delivery model into South East England and London and the strengthening of its smart metering, electrical and multi-utility operations. These have been delivered with a focus on operational excellence and improved efficiency to enhance our capacity and optimise future profitability. Additional focus on processes, systems and management information is still needed and this will be implemented in an effective and balanced way, whilst we expand and grow the business sustainably.
This strategic refocusing has been undertaken against the backdrop of difficult market conditions, a lower margin project mix and underperformance in the business. Performance in the first half of the year was impacted by a period of ongoing economic uncertainty, created by Brexit and the suspension of the UK Capacity Market. With better economic conditions, performance in the second half of the year improved, with a substantial increase in order inflow resulting in the Group's trading performance for the financial year being broadly in line with more recent expectations. However, the impact of COVID-19 hindered our ability to complete work due to site suspensions and to close out a number of potential contracts because of disagreement on who should bear the (at the time, emerging) COVID-19 risk. This is also reflected in the Group's results.
Positively, at the year end, the Group recorded its highest value order book, up 9% to £66.2 million, demonstrating the Group's work-winning ability in difficult market conditions. Significant orders in the year included a £3.2 million contract to install new high-voltage electrical infrastructure for two 50MW gas peaking plants in North East England; a £2.4 million contract to provide over 6km of new gas, water and electrical infrastructure to a new sustainable mixed-use residential, retail and commercial development in the East Midlands; and a £1.8 million contract to install new electrical infrastructure as part of a major regeneration scheme in South East London.
Strategy

The market for the design, installation and ownership of utility infrastructure has evolved significantly in the last few years and continues to develop.
Importantly, there are several crucial government obligations that will support our growth and we have developed a strategy to ensure we are well positioned to capitalise on these. A key driver of the Group's strategy is the UK government's target to achieve net-zero by 2050, and the associated need for increased electrification and renewable energy generation in a decarbonised energy system. Furthermore, the need for a significantly expanded EV charging network to power the UK's electric vehicles and the Government's commitment to build an average of 300,000 new homes each year by the mid-2020s  presents a significant growth opportunity and the Group is focusing its strategy on capturing further market share in these sectors. In addition, the Group seeks to expand its foothold within the smart metering market, capitalising on the obligations on energy suppliers to exchange approximately 30 million meters by mid-2025. The strategy for FY21 has been approved and supported by the renewed Board and we continue to monitor developments in a market evolving at pace to inform our strategic priorities.
We continue to be in regular engagement with industry bodies and are an active member of the Independent Networks Association (INA), to proactively lobby government and regulators and to identify changes in policy or legislation that may influence our future activity.
Financial performance and results

Total revenue decreased by £2.8 million to £46.1 million (2019: £48.9 million) predominantly due to the impact of COVID-19, as described above. Infrastructure revenues were particularly impacted falling £4.1 million to £41.8 million (2019: £45.9 million). This, however, was offset by utility asset ownership revenues which delivered a £1.2 million increase to £4.2 million (2019: £3.0 million).
Adjusted EBITDA from continuing operations* for the period decreased to £4.5 million, broadly in line with management expectations (2019: £10.9 million**).This reduction was due to a combination of lower revenues, a dilution of the gross margin as a result of the mix of work and investment in the overheads to deliver improvements and lay the foundations for future growth.
Basic earnings per share reduced to 0.7p compared to 2.3p** in 2019. Adjusted basic earnings per share, before charging exceptional items, have decreased to 2.3p from 3.4p** in 2019.
Sale of assets to ESP

The asset sale yields substantial value for our existing and contracted domestic gas assets and has significantly strengthened our balance sheet. The Group used the proceeds from the first tranche of the sale to repay its existing debt of £10 million in full, leaving the business debt free as at 1 April 2020, other than lease obligations, and with net cash balances of £6.0 million at close of business on 31 March 2020. 
Liquidity and net cash

The Group has always placed a high priority on cash generation and the active management of working capital, resulting in a positive operating cash flow from trading activities of £1.7 million. As at 31 March 2020, the Group had net cash of £6.0 million (2019: £3.8 million), a £2.2 million increase against the prior period. Net cash inflow from investing activities was £4.8 million, benefiting from the £16.8 million of receipts from the disposal of utility assets, offset by investment in utility assets of £11.5 million. 
Net cash inflow from financing activities of £2.7 million was predominantly due to increased borrowings of £7 million, offset by £3.3 million in dividend payments and £1 million in lease and interest payments relating to IFRS 16. The £10 million revolving credit facility with Lloyds Banking Group was fully paid off on 1 April 2020 from the proceeds of the asset sale. The cash proceeds from the asset sale, coupled with robust financial discipline, will enable Fulcrum to maintain a strong balance sheet and will support the generation of surplus cash in the future.
We are also in advanced discussions around a further facility that will improve the Group's liquidity position and a further announcement will be made in due course.
Reserves and net assets

Net assets increased by £0.9 million during the year, reflecting the utility asset net revaluation increase of £2.8 million and retained profit for the period of £1.5 million, offset by the final 2019 dividend totalling £3.3 million. Net assets per share at 31 March 2020 were 20.8p per share (2019: 20.5p).
As at 31 March 2020, the issued share capital of the Company was 221,117,945 ordinary shares (2019: 221,303,106) with a nominal value of £221,118. At the end of the year, the Group operated a Growth Share Scheme (GSS) plan and three SAYE schemes. The principal terms of the remaining share option scheme are summarised in note 19  on page 72 of the annual report and accounts.
Summary

Despite a challenging year, the Group continued to make progress in positioning itself for future growth and success and, whilst there is still more to do to develop and improve the business and its operations, I am confident that Fulcrum will benefit from the UK's net-zero and smart energy revolution. 
Despite the impact of COVID-19, trading in the new financial year has seen continual improvement month on month and is expected to return to pre-COVID-19 levels in Q2 of FY21 and, as at 31 March 2020, the Group recorded its highest ever order book, up 9% year-on-year to £66.2 million, and has seen continued growth, reaching £68 million at 30 June 2020.
The successful execution of our strategy is now supported with our strongest ever order book, greater balance sheet strength, new strategic relationships, improved capabilities and an enhanced management team. We are strongly positioned to grow and to provide long-term, sustainable value for shareholders. 
Daren Harris

Chief Executive Officer

6 August 2020
 
Operational review
"Building a stronger platform for future growth"
Operational performance

In the year, we placed significant emphasis on improving our operational capabilities, processes and management information to drive efficiencies and deliver better performance. This included the expansion of the Group's direct delivery model into South East England and London, bolstering our smart metering operations and increasing our in-house multi-utility capabilities. This was all done with a sustained focus on better operational productivity to improve our capacity and overall efficiency.
Despite the UK economic uncertainty in the period, the Group saw a substantial increase in order inflow in the second half of the year, securing a variety of large contracts and demonstrating the Group's competitiveness in difficult market conditions.
Delivering contracts safely, efficiently and profitably

Maintaining the highest standards of health and safety remains our highest priority. A safety-first strategy is in place to ensure zero harm and, although this is well embedded into our culture and operations, we are never complacent and are committed to continuous improvement in health and safety performance.
In the period, we received the Royal Society for the Prevention of Accidents (RoSPA) Order of Distinction, which recognises 17 years of health and safety excellence and demonstrates our commitment to the health and safety of our people, our customers and the communities we work in.
We also remain committed to using customer feedback to improve, innovate and differentiate the business as customer needs and expectations evolve, and we have seen sustained improvements in the percentage of customers who rated our service as "great" (9 or 10 out of 10), reaching 89% this year (2019: 80%). We continue to push for ever higher levels of customer satisfaction and we will be implementing new ways of measuring customer satisfaction during this year.
The Group continues to look for ways to improve operational capacity and drive efficiencies that will improve customer experience and support the optimisation of profits in the long term. This is underpinned by a culture of continuous improvement and our aim to simplify, standardise and ensure that we always deliver the best and most competitive service. During the year we improved resource management, scheduling efficiency and stock management, following investment in our planning and operational delivery functions. We also recruited some of the industry's best talent to lead our operational improvement initiatives and are already seeing the positive outcomes of their contribution.
Housing

Fulcrum both designs and builds the utility networks on new housing sites and connects them to the local distribution network, and these networks are now adopted by ESP as part of the adoption relationship we have with them. The size of our housing opportunities varies from 10 plots to over 1,000 plots and it is the higher end of this market that our relationship with ESP will help unlock for the Group.
Despite challenging economic conditions, our housing order book increased by 24%, to £25 million in the year and there is a clear and significant opportunity for further growth. In addition to the UK government's commitment to build an average of 300,000 new homes each year by the mid-2020s, we have a low market share, estimated at under 5%, with limited presence in some parts of the UK and therefore the opportunity to increase our presence in this market is clear. 
To ensure we maximise our share in this strategically important market, we have been bolstering our sales team and operations in support of our future expansion. This has included more multi-skilled direct delivery resources, and improved planning and delivery processes which are focused on building in efficiency whilst ensuring we deliver customer service excellence. There remains uncertainty for many homebuilders following the announcement that the Future Homes Standard is expected to mandate the end of fossil fuel heating systems in all new houses from 2025 and we continue to monitor developments closely. Using electricity to heat homes instead of gas has an economic impact on developers and homeowners, with the cost of energy from electricity being higher than the cost of energy from gas. Gas Goes Green is the UK network operators' new gas network plan to deliver net-zero and its aim is to ensure that homes and businesses across the UK are connected to the world's first net-zero gas network,  utilising hydrogen and biomethane instead of natural gas. We are working closely with various industry stakeholders to ensure we stay informed and involved in how this initiative develops. Using this insight, we are working collaboratively with developers to help them navigate the utility needs of their projects now, and in the future, by providing support and advice on their obligations and long-term heating options as we move towards net-zero.
Industrial and commercial

Fulcrum designs and builds a complete range of I&C gas and electricity networks from small commercial connections to EV charging infrastructure and highly specialist gas and high-voltage (132kV) electricity supplies through the Group's established Dunamis and CDS brands. In the year, the Group secured a variety of significant I&C contracts and we continued to invest in our in-house electrical capabilities and expertise to maximise cross-selling opportunities and enhance our competitiveness.
Fulcrum's I&C electrical capability includes design and build directly to and from the national transmission network. This includes sites that reinforce the network by generating electricity where needed such as solar farms and battery storage sites. We also provide gas infrastructure to sites that generate electricity. As the UK decarbonises its energy, there will be growth in renewable energy generation, a move to distributed generation and battery powered sites and growth in electric vehicle demand. Our diverse electrical capabilities and experience place us in a very strong position to grow our share in this sector. 
In terms of EV charging infrastructure, we have prioritised the targeting of specialist, high-powered and complex EV charging customers and have been selectively tendering on the most attractive opportunities in a rapidly developing market. The continued growth of EVs in the UK is exciting and the Group is well positioned to capitalise on this. Fulcrum has been building a strong presence in the EV charging infrastructure sector and I am confident that we have the specialist capabilities and expertise needed to secure a significant share in the substantial opportunities available to deliver the UK's future EV charging network.
Smart metering

Smart meters are an integral part of a decarbonised energy system and will play an important part in achieving net-zero in the UK by enabling demand-side energy management. The smart meter rollout deadline for the UK is expected to be 1 July 2025 and there are an estimated 30 million domestic meters that need to be exchanged by then. 
The Group's smart metering business made progress in the year, establishing several additional Meter Asset Manager (MAM) and Meter Operator (MOP) agreements with a variety of energy suppliers, and the business grew its order book of meters to be exchanged to 110,000. Fulcrum has quickly established a reputation in the market for responsiveness, flexibility and service excellence and this is supporting our ability to identify and successfully secure incremental supplier agreements.
Operationally, we focused on creating a strong platform for our smart metering growth by establishing a robust and scalable smart metering team and infrastructure, and by implementing industry leading smart metering IT systems to support this. Our focus for FY21 is to diversify the business and its

service offering, in particular exploring the opportunity to become a Meter Asset Provider (MAP) and to further execute our smart metering growth plans.



Maintenance and ownership

The expected growth in electrical infrastructure in a decarbonised energy system presents another attractive growth opportunity for the Group. The electrical systems and networks that will power the nation will require maintaining and, via our established Maintech Power brand, we have the specialist capabilities to do this.

Maintech has focused on delivering reliability and customer excellence and has supplied proactive maintenance and emergency response services to essential sites throughout COVID-19. Maintech has limited market share and currently operates in specific regional markets, presenting an opportunity for future geographic expansion.
Summary

Whilst many improvements have been implemented in the year, there remains more to do to ensure that the Group is well positioned to take full advantage of the future opportunities that are available to us. We will continue to focus on improving operational efficiency and expanding our sales and operational capabilities, systems, processes and capacity to support this. These improvements will be implemented sustainably and with strong governance to ensure that we maintain a culture of zero harm, deliver customer excellence and can guarantee we are able to offer the complete range of utility infrastructure solutions essential to achieving the UK's net-zero future.
Terry Dugdale

Group Chief Operating Officer

6 August 2020
 
Consolidated statement of comprehensive income
for the year ended 31 March 2020
 




 




Notes




Year ended
31 March
2020
£'000




Year ended
31 March
2019
Restated
£'000






Revenue




2




46,101




48,905





Cost of sales - underlying


 


(31,955)


(29,653)





Cost of sales - exceptional items




4




(1,766)




(883)






Total cost of sales




 




(33,721)




(30,536)





Gross profit


 


12,380


18,369




Administrative expenses - underlying


 


(13,611)


(11,831)





Administrative expenses - exceptional items




4




(870)




(411)






Total administrative expenses




 




(14,481)




(12,242)





Operating (loss)/profit


5


(2,101)


6,127




Profit on sale of subsidiary - exceptional items


4


3,886


-





Net finance (expense)/income




 




(472)




(173)





Profit before taxation


 


1,313


5,954





Taxation




6




243




(1,042)





Profit for the period attributable to equity holders of the parent


 


1,556


4,912




Other comprehensive income


 






 




Items that will never be reclassified to profit:


 






 




Revaluation of utility assets


9


3,036


11,380




Surplus arising on utility assets internally adopted in the year


9


951


1,100




Reversal of prior increase of utility assets


 


(1,086)


(2,544)





Deferred tax on items that will never be reclassified to profit or loss




6




(321)




(1,848)






Total comprehensive income for the year




 




4,136




13,000





Profit per share attributable to the owners of the business


 






 




Basic


8


0.7p


2.3p





Diluted




8




0.7p




2.2p




 
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)/profit


 


(2,101)


6,127




 


Equity-settled share based payment charges


 


(6)


115




 


Exceptional items within operating (loss)/profit


4


2,636


1,294





 




Depreciation and amortisation




9,11,12




4,019




3,388





 


Adjusted EBITDA from continuing operations


 


4,548


10,924





 




Surplus arising on sale of domestic utility assets




4




3,886




-






 




Adjusted EBITDA including sale of domestic utility assets




 




8,434




10,924




 
The consolidated statement of comprehensive income and profit per share for year ended 31 March 2019 have been restated to reflect the impact of IFRS 16 "Leases". Refer to notes 1 and 17.
 
Consolidated statement of changes in equity
for the year ended 31 March 2020
 




 




Notes




Share
capital
£'000




Share
premium
£'000




Revaluation
reserve
£'000




Merger
reserve
£'000




Retained
earnings
Restated
£'000




Total
equity
Restated
£'000





Balance at 31 March 2018


17


211


21,042


4,649


11,347


(819)


36,430




Total comprehensive income for the period


 


 


 


 


 


 


 




Profit for the year


 


-


-


-


-


4,912


4,912




Revaluation surplus on independent valuation


 


-


-


11,380


-


-


11,380




Surplus arising on utility assets internally adopted in the year


 


-


-


1,100


-


-


1,100




Exceptional items - fixed asset impairment


 


-


-


(2,544)


-


-


(2,544)




Deferred tax liability


6


-


-


(1,848)


-


-


(1,848)




Transactions with equity shareholders


 


 


 


 


 


 


 




Equity-settled share based payment


 


-


-


-


-


115


115




Dividends


7


-


(4,738)


-


-


-


(4,738)




Capital transfer


 


-


(16,605)


-


-


16,605


-





Issue of new shares




13




10




511




-




-




-




521





Balance at 31 March 2019


17


221


210


12,737


11,347


20,813


45,328




Total comprehensive income for the period


 




























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


 


-


-


951


-


-


951




Disposal of previously revalued assets


4


-


-


(3,071)


-


3,071


-




Depreciation on previously revalued assets


 


-


-


(307)


-


307


-




Exceptional items - fixed asset impairment


 


-


-


(1,086)


-


-


(1,086)




Deferred tax liability


6


-


-


(321)


-


-


(321)




Transactions with equity shareholders


 




























Equity-settled share based payment


 


-


-


-


-


(6)


(6)




Dividends


7


-


-


-


-


(3,331)


(3,331)




Capital transfer


 


-


-


-


-


-


-





Issue of new shares




13




1




179




-




-




-




180






Balance at 31 March 2020




 




222




389




11,939




11,347




22,410




46,307




 
Consolidated balance sheet
as at 31 March 2020
 




 




Notes




31 March
2020
£'000




31 March
2019
Restated
£'000





Non-current assets


 






 




Property, plant and equipment


9


38,820


39,314




Intangible assets


11


25,522


27,069




Right-of-use asset


12


2,720


2,591





Deferred tax assets




6




1,784




1,729






 




 




68,846




70,703





Current assets


 






 




Contract assets


 


12,279


9,132




Inventories


 


446


607




Trade and other receivables


 


6,826


6,392





Cash and cash equivalents




15




15,973




6,824






 




 




35,524




22,955






Total assets




 




104,370




93,658





Current liabilities


 






 




Trade and other payables


 


(11,909)


(10,848)




Contract liabilities


 


(27,905)


(26,343)




Borrowings


14


(10,000)


(3,000)




Current lease liability


12


(772)


(754)





Provisions




 




(58)




(96)






 




 




(50,644)




(41,042)





Non-current liabilities


 






 




Non-current lease liability


12


(2,226)


(2,102)





Deferred tax liabilities




6




(5,193)




(5,186)






 




 




(7,419)




(7,288)






Total liabilities




 




(58,063)




(48,330)






Net assets




 




46,307




45,328





Equity


 






 




Share capital


13


222


221




Share premium


 


389


210




Revaluation reserve


 


11,939


12,737




Merger reserve


 


11,347


11,347





Retained earnings




 




22,410




20,813






Total equity




 




46,307




45,328




 
The financial statements were approved by the Board of Directors on 6 August 2020 and were signed on its behalf by:
Daren Harris
Chief Executive Officer
Company number FC030006
Consolidated cash flow statement
for the year ended 31 March 2020
 




 




Notes




Year ended
31 March
2020
£'000




Year ended
31 March
2019
Restated
£'000





Cash flows from operating activities


 






 




Profit for the period after tax


 


1,556


4,912





Tax (credit)/charge




 




(243)




1,042





Profit for the period before tax


 


1,313


5,954




Adjustments for:


 






 




Depreciation


9,12


2,228


1,776




Amortisation of intangible assets


11


1,791


1,612




Exceptional items - fixed asset impairment


4


1,766


883




Net finance expense


 


472


173




Equity-settled share based payment charges


 


(6)


115




Profit on disposal of utility assets


 


(3,886)


-




Loss on disposal of assets - other


 


3


-




(Increase)/decrease in contract assets


 


(3,147)


1,245




Decrease in trade and other receivables


 


916


385




Decrease/(increase) in inventories


 


162


(399)




Decrease in trade and other payables


 


(1,072)


(376)




Increase in contract liabilities


 


1,562


443





Decrease in provisions




 




(38)




(2)





Cash inflow from operating activities


 


2,064


11,809





Tax paid




 




(410)




(42)






Net cash inflow from operating activities




 




1,654




11,767





Cash flows from investing activities


 






 




Acquisition of external utility assets


 


(5,030)


(3,566)




Utility assets internally adopted (gross construction cost less impairment)


 


(6,475)


(7,374)




Acquisition of plant and equipment


9


(98)


(376)




Acquisition of intangibles


11


(326)


(884)




Proceeds on disposal of utility assets


4


16,756


-




Proceeds on disposal of assets - other


 


5


-





Finance income received




 




3




13






Net cash inflow/(outflow) from investing activities




 




4,835




(12,187)





Cash flows from financing activities


 






 




Dividends paid


7


(3,331)


(4,738)




Borrowings


14


7,000


3,000




Interest paid and banking charges (non-IFRS 16)


 


(273)


(73)




IFRS 16 - principal payments


12


(797)


(784)




IFRS 16 - interest payments


12


(119)


(113)





Proceeds from issue of share capital




 




180




521






Net cash inflow/(outflow) from financing activities




 




2,660




(2,187)





Increase/(decrease) in net cash and cash equivalents


 


9,149


(2,607)





Cash and cash equivalents at beginning of year




 




6,824




9,431






Cash and cash equivalents at end of year




15




15,973




6,824




 
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
This preliminary announcement does not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. 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 2020 and 31 March 2019. The auditors have reported on those financial statements. Their reports were unqualified. The audit report in relation to the financial statements for the year ended 31 March 2020 includes an emphasis of matter paragraph drawing attention to note 1 which refers to the global Coronavirus pandemic.
The financial statements have not yet been delivered to the Registrar of Companies but will be in due course. 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 European Union and effective at 31 March 2020, 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
The Group's business activities, together with the factors likely to affect future development, performance and position, are set out in the Strategic Report on pages 2 to 33 of the annual report. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Chief Executive's Statement on pages 15 and 16 of the annual report. In addition, note 30 to the financial statements includes the Group's processes for managing its capital and its exposure to credit and liquidity risks.
At 31 March 2020 the Group had net assets of £46.3 million (2019 restated: £45.3 million), including net cash of £6.0 million (2018: £3.8 million) as set out in the consolidated balance sheet on page 52 and note 28 of the annual report. In the year ended 31 March 2020, the Group generated a profit after tax of £1.5 million and had net cash inflows of £9.1 million after investing £5.0 million in external utility assets, £3.3 million paid in dividends and receiving £7.0 million of borrowings.
The Group's forecasts and projections, after taking account of sensitivity analysis of changes in trading performance and corresponding mitigating actions, show that the Group has adequate cash resources for the foreseeable future.
COVID-19 was declared a global pandemic on 11 March 2020 by the World Health Organization, and on 19 March 2020 the Coronavirus Act was introduced in the UK, with unprecedented restrictive measures being put in place nationally to help prevent the spread of COVID-19, ensure safety and wellbeing, protect health services and try and stabilise the economy.
The Group has played a key part in ensuring that key utility infrastructure continues to operate during this difficult period, however, the continuing spread of the virus and the associated restrictions on public life are expected to impact trading performance in 2020/21 with the timing of the return to normality and growth uncertain.
Therefore, considering the impact of COVID-19 on the business, a range of potential downside planning scenarios have been developed, including a significant reduction to 2020/21 revenues across the Group, reflecting a protracted period of lockdown and a further severe but plausible downside scenario of a second lockdown later in the same financial year. Reverse stress testing has been conducted to identify the theoretical loss of revenue and liquidity that the Group could manage without impacting its viability which would in turn impact upon the Company.
The Directors have been very proactive in their response to COVID-19 and have introduced significant measures to preserve cash and minimise costs, for example utilising the Coronavirus Job Retention Scheme (CJRS) whilst still allowing the business to function.
This approach provides the Directors with reasonable comfort that the Group's going concern has been assessed to a severity level which more than accommodates the current assessment of the shape and scale of the economic impact of the COVID-19 pandemic, and, having undertaken this review, the Directors have a reasonable expectation that the Company has adequate resources to fund its operations for a period of 12 months from the date of approval of these financial statements. For this reason, they continue to adopt the going concern basis in preparing the accounts.
Adoption of new and revised International Financial Reporting Standards (IFRSs) and IFRIC interpretations
In the year ended 31 March 2020, the Group adopted IFRS 16 "Leases" for the first time, the impact of which is shown below.
IFRS 16 "Leases"
IFRS 16 is effective for all accounting periods beginning on or after 1 January 2019. The Group applied IFRS 16 retrospectively, restating prior year comparatives. Practical expedients were applied to take the recognition exemption for both short-term and low value leases, as well as to account for any lease and associated non-lease components as a single arrangement.
Impact on financial statements
Upon transition to IFRS 16 at 31 March 2018, the Group recognised an opening right-of-use asset of £2.9 million and a lease liability of £3.1 million. Including adjustments for related balances that existed under IAS 17, the retained earnings of the Group on transition reduced by £0.1 million.
The Group's lease liabilities relate to properties and vehicles. The lease liability under IFRS 16 is lower than that shown in the operating lease commitment note previously presented (in accordance with IAS 17) primarily due to the discounting of the future payments.
The opening right-of-use asset is lower than the opening lease liability as it reflects the higher depreciation of the right-of-use asset compared to the reduction on the lease liability over the same period of time. Upon transition to IFRS 16 the weighted average incremental borrowing rate applied to the lease liabilities was 3.15%.
The impact on the consolidated statement of comprehensive income was a decrease in profit before taxation for the year ending 31 March 2020 of £10,000 (2019: decrease of £15,000). Operating profit increased by £109,000 in the year ended 31 March 2020 (2019: increase of £98,000) as the depreciation on right-of-use assets was lower than the IAS 17 rental charge. Interest costs charged to the income statement increased by £119,000 in the year ended 31 March 2020 (2019: increase of £113,000) with the addition of higher finance costs on the newly recognised lease liability.
The Group's adjusted EBITDA from continuing operations increased by £916,000 in the year ended 31 March 2020 (2019: increase of £897,000) as a result of the IAS 17 rental charges no longer being shown in the consolidated statement of comprehensive income.
There was no impact on net cash flows, although the presentation of the consolidated cash flow statement changed, with an increase in cash inflows from operating activities in the year ended 31 March 2020 of £916,000 (2019: £897,000) being offset by a corresponding increase in net cash outflows from financing activities.
The adoption of IFRS 16 did not have a significant impact on the Group's effective tax rate.
Full details of the transitional impact on adoption of IFRS 16 are presented in note 17.
Other new amendments and interpretations that became mandatory for the first time during the year ended 31 March 2020 are listed below, none of which had a significant impact on the Group's results.
•    Amendments to IFRS 9 "Financial Instruments" - Prepayment features with negative compensation
•    Annual improvements to IFRS standards 2015-2017 cycle
•    IFRIC 23 "Uncertainty over Income Tax"
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 (loss)/profit 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 2020




 




Year ended 31 March 2019 Restated 






 




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


41,848


4,253


46,101


 


45,921


2,984


48,905




Adjusted EBITDA from continuing operations*


2,341


2,207


4,548


 


9,131


1,793


10,924




Share based payment charge


6


-


6


 


(115)


-


(115)





Depreciation and amortisation




(2,887)




(1,132)




(4,019)




 




(2,687)




(701)




(3,388)





Reportable segment operating (loss)/profit before exceptional items


(540)


1,075


535


 


6,329


1,092


7,421




Cost of sales - exceptional items


-


(1,766)


(1,766)


 


-


(883)


(883)





Administrative expenses - exceptional items




(832)




(38)




(870)




 




(396)




(15)




(411)





Reporting segment operating (loss)/profit


(1,372)


(729)


(2,101)


 


5,933


194


6,127




Profit on sale of subsidiary - exceptional items


-


3,886


3,886


 


-


-


-





Net finance expense




(219)




(253)




(472)




 




-




(173)




(173)






(Loss)/profit before tax




(1,591)




2,904




1,313




 




5,933




21




5,954
















*       Adjusted EBITDA from continuing operations is operating (loss)/profit excluding the impact of exceptional items, depreciation, amortisation and equity-settled share based payment charges. Full reconciliation of Alternative Performance Measures (APMs) are 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
As detailed in the Chief Financial Officer's Statement, 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 period-on-period comparisons and making it easier for users of the accounts to identify trends.




Alternative Performance Measure




Definition





Adjusted revenue


Adjusted revenue is Group revenue after adding asset value revenue previously credited to revenue, now credited to cost of sales under IFRS 15.




Adjusted EBITDA from continuing operations


Operating (loss)/profit excluding exceptional items, amortisation and depreciation and equity-settled share based payments.




Adjusted profit before taxation


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) Adjusted revenue



 


31 March


31 March




 


2020


2019





 




£'000




£'000





Revenue


46,101


48,905




Adjusted for:






 





Asset value revenue previously credited to revenue prior to adoption of IFRS 15, now credited to cost of sales (see note 1)




6,707




8,151






Like-for-like adjusted revenue




52,808




57,056




 
(b) Reconciliation of operating (loss)/profit to "adjusted EBITDA from continuing operations"











31 March








31 March


2019








2020


Restated





 




£'000




£'000





Operating (loss)/profit


(2,101)


6,127




Adjusted for:






 




Exceptional items within operating (loss)/profit (note 4)


2,636


1,294




Amortisation and depreciation


4,019


3,388





Equity-settled share based payments




(6)




115






Adjusted EBITDA from continuing operations




4,548




10,924




 
(c) Reconciliation of profit before tax to "adjusted profit before tax"











31 March








31 March


2019








2020


Restated





 




£'000




£'000





Profit before tax


1,313


5,954




Adjusted for:






 




Exceptional items included in cost of sales


1,766


883




Exceptional items included in administrative expenses


870


411





Amortisation of acquired intangibles




1,356




1,354






Adjusted profit before tax




5,305




8,602




 
(d) Net assets per share



 






31 March








31 March


2019








2020


Restated





 




£'000




£'000





Net assets at end of period


46,307


45,328




Issued shares at end of period


222,118


221,303





Net assets per share




20.8p




20.5p




 
4. Exceptional items




 




Year ended
31 March
2020
£'000




Year ended
31 March
2019
£'000





Exceptional items included in cost of sales


1,766


883




Exceptional items included in administrative expenses


870


411





Profit on sale of subsidiary - exceptional items




(3,886)




-






 




(1,250)




1,294




 
(a) Exceptional items included in cost of sales




 




Year ended
31 March
2020
£'000




Year ended
31 March
2019
£'000






Fixed asset impairment




1,766




883






 




1,766




883




 
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
2020
£'000




Year ended
31 March
2019
£'000





Restructuring costs


641


276





One-off legal and adviser costs




229




135






 




870




411




 
Restructuring costs relate to employee exit and severance costs.
(c) Profit on sale of subsidiary




 




Year ended
31 March
2020
£'000




Year ended
31 March
2019
£'000






Profit on sale of subsidiary




(3,886)




-






 




(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
£'000





Consideration - proceeds received


(16,756)




Consideration - retention (receivable in September 2021)


(500)





Consideration - deferred (received 30 June 2020)




(670)





Total consideration


(17,926)




Net book value of assets acquired


9,724




Revaluation in prior periods


3,071





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 £3,071,000.
5. Operating (loss)/profit
Included in operating (loss)/profit are the following charges:




 




Year ended
31 March
2020
£'000




Year ended
31 March
2019
Restated
£'000





Amortisation of intangible assets


1,791


1,612




Depreciation of property, plant and equipment


1,419


975





Depreciation of right-of-use asset




809




801




 
6. Taxation




 




Year ended
31 March
2020
£'000




Year ended
31 March
2019
Restated
£'000





Current tax


128


620





Deferred tax




(371)




422






Total tax charge




(243)




1,042




 
A change to the main UK corporation tax rate, announced in the Budget on 11 March 2020, was substantively enacted on 17 March 2020. The rate applicable from 1 April 2020 now remains at 19.0%. Deferred tax balances have been adjusted accordingly and are calculated on the basis that they will unwind at 19.0%.
The Group has £9.3 million (2019: £10.0 million) of tax losses for which deferred tax assets of £1.8 million (2019: £1.7 million) have been recognised. During the period £0.1 million of the deferred tax asset was utilised against taxable profits. The deferred tax asset is expected to be recovered over 12 years. The Group also has unrecognised tax losses of £1.8 million (2019: £1.4 million), for which no deferred tax asset is recognised as there is insufficent certainty over whether the losses will reverse.
Reconciliation of effective tax rate




 




Year ended
31 March
2020
£'000




Year ended
31 March
2019
Restated
£'000






Profit before taxation




1,313




5,954





Tax using the UK corporation tax rate of 19.0% (2019: 19.0%)


(249)


(1,131)




Non-taxable items


535


(37)




Capital allowances in excess of depreciation


-


-




Effect of change in rate of corporation tax


(62)


(109)




Tax deductions for share options exercised


16


788




Adjustment to tax charge in respect of previous year's corporation tax


(128)


(122)




Adjustment to tax charge in respect of previous year's deferred tax


219


(431)





Release of previously recognised losses




(88)




-






Total tax charge




243




(1,042)




 
Movement in deferred tax balances



 



31 March 2020




 




31 March 2019






 
 
 
 




Deferred
tax assets
 
£'000




Deferred
tax liabilities
 
£'000




 
 
 
 




Deferred
tax assets
Restated
£'000




Deferred
tax liabilities
 
£'000





At beginning of period


1,729


(5,186)


 


2,223


(3,411)




Recognised in profit or loss










 


 


 




Adjustment in respect of previous years


-


219


 


(203)


(228)




Tax losses utilised


(49)


-


 


(258)


-




Effect of change in rate of corporation tax


200


(263)


 


(26)


(54)




Newly recognised deferred tax liability


-


-


 


-


98




Origination/reversal of other timing differences


(7)


358


 


(7)


-




Released tax liability


-


-


 


-


257




Release of previously recognised losses


(89)


-


 


-


-




Recognised in other comprehensive income










 


 


 





Revaluation of property, plant and equipment




-




(321)




 




-




(1,848)






At the end of the period




1,784




(5,193)




 




1,729




(5,186)




 
7. Dividends
In the year ended 31 March 2020, the following dividends were paid:




 




Year ended
31 March
2020
£'000




Year ended
31 March
2019
£'000





Equity dividend






 




Paid during the year:






 




Final dividend in respect of 2018: 1.4p per share


-


3,085




Interim dividend in respect of 2019: 0.75p per share


-


1,653





Final dividend in respect of 2019: 1.5p per share




3,331




-






Total dividends




3,331




4,738




 
No interim dividends were declared and no final dividends are proposed relating to the year ended 31 March 2020.
8. Earnings per share (EPS)
(a) Basic earnings per share
The calculation of basic and diluted earnings per share has been based on the following profit attributable to ordinary shareholders and weighted average number of ordinary shares outstanding:




 




Year ended
31 March
2020
£'000




Year ended
31 March
2019
Restated
£'000





Profit for the year used for calculation of basic EPS


1,556


4,912




Exceptional items included in cost of sales


1,766


883




Exceptional items included in administration expenses


870


411




Remove tax relief on exceptional items


(501)


(246)





Amortisation of intangibles




1,356




1,354






Profit for the year used for calculation of adjusted EPS




5,047




7,315




 
Number of shares ('000):




 




31 March
2020
Number
of shares




31 March
2019
Number
of shares





Weighted average number of ordinary shares for the purpose of basic EPS


221,907


217,205





Effect of potentially dilutive ordinary shares




4,901




9,838






Weighted average number of ordinary shares for the purpose of diluted EPS




226,808




227,043





EPS






 




Basic


0.7p


2.3p





Diluted basic




0.7p




2.2p





Adjusted basic


2.3p


3.4p





Adjusted diluted basic




2.2p




3.2p




 
9. 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 2018


25,042


9,524


821


1,077


36,464




Additions


3,566


17,343


234


142


21,285




Assets completed in period


19,922


(19,922)


-


-


-




Asset uplift to revaluation reserve


-


1,100


-


-


1,100





Revaluation




11,380




-




-




-




11,380





At 31 March 2019


59,910


8,045


1,055


1,219


70,229




Additions


6,019


17,672


10


88


23,789




Assets completed in period


18,338


(18,338)


-


-


-




Asset uplift to revaluation reserve


-


951


-


-


951




Revaluation


3,036


-


-


-


3,036





Disposals




(13,721)




-




-




(31)




(13,752)






At 31 March 2020




73,582




8,330




1,065




1,276




84,253





Accumulated depreciation


 


 


 


 


 




At 1 April 2018


(8,332)


(6,938)


(426)


(847)


(16,543)




Depreciation charge for the period


(694)


-


(165)


(116)


(975)




Hickman Shearer impairment


(3,428)


-


-


-


(3,428)




Impairment


-


(9,969)


-


-


(9,969)





Assets completed in period




(12,780)




12,780




-




-




-





At 31 March 2019


(25,234)


(4,127)


(591)


(963)


(30,915)




Depreciation charge for the period


(1,112)


-


(126)


(181)


(1,419)




Impairment from internal revaluation


(2,852)


-


-


-


(2,852)




Impairment


-


(11,197)


-


-


(11,197)




Assets completed in period


(11,749)


11,749


-


-


-





Disposals




927




-




-




23




950






At 31 March 2020




(40,020)




(3,575)




(717)




(1,121)




(45,433)





Net book value


 


 


 


 


 





At 31 March 2020




33,562




4,755




348




155




38,820






At 31 March 2019




34,676




3,918




464




256




39,314






At 1 April 2018




16,710




2,586




395




230




19,921




 
Utility assets include £0.5 million (2019: £1.2 million) of meter assets valued at cost less depreciation to date.
Disposals include utility assets with a net book value of £12,795,000 owned by one of the Group's former subsidiaries, Gas Newco 1 Ltd. The Group's equity holding in the subsidiary was disposed of on 31 March 2020. See note 4.
(b) Measurement of fair values
The fair value of utility assets (excluding meters) at 31 March 2020 was determined internally and was based upon the same principles as the external valuation, which was last performed by independent specialist valuers at 31 March 2019. When performing its valuation, management has used judgement in assessing the key assumptions used in the valuation model including asset life and occupancy rates. 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.
10. 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 2020 the balance was £14.0 million (2019: £18.7 million).
11. Intangible assets




Reconciliation of carrying amount




Goodwill
£'000




Brand and
 customer
relationships
£'000




Software and
development
costs
£'000




Total
£'000





Cost


 


 


 


 




At 31 March 2018


14,251


12,607


3,556


30,414





Additions




-




-




884




884





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





Accumulated amortisation and impairment


 


 


 


 




At 31 March 2018


-


(208)


(2,409)


(2,617)





Amortisation for the period




-




(1,354)




(258)




(1,612)





At 31 March 2019


-


(1,562)


(2,667)


(4,229)




Amortisation for the period


-


(1,356)


(435)


(1,791)





Disposals




-




-




9




9






At 31 March 2020




-




(2,918)




(3,093)




(6,011)





Net book value


 


 


 


 





At 31 March 2020




14,251




9,689




1,582




25,522






At 31 March 2019




14,251




11,045




1,773




27,069






At 31 March 2018




14,251




12,399




1,147




27,797












 
(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 intangibles might be impaired. Goodwill is tested for impairment by comparing the carrying amount of each CGU with the recoverable amount. 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 intangible asset is allocated across cash-generating units (CGUs). The goodwill held by the Group relates to either the infrastructure services CGU; Dunamis, which has two CGUs; or the CDS CGU.
A segment-level summary of the goodwill allocation is presented below:




As at 31 March 2019 and 31 March 2020




Fulcrum
£'000




Dunamis
£'000




CDS
£'000




Total
£'000






Goodwill




2,225




11,331




695




14,251




 
The recoverable amounts are determined based on value in use calculations which require assumptions. The annual impairment test was performed for the four CGUs identified above that have goodwill allocated to them. 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 above 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 summarised in the paragraph below.
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 7.2% and 9.0% (2019: between 8.2% and 13.3%) 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% (2019: 2.0%). This is prudently aligned with the inflation rate and is not considered to be higher than the long-term industry growth rate.
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, no reasonably possible changes to these assumptions resulted in an impairment charge being required.
12. 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
2020
£'000




31 March
2019
£'000





Land and buildings


1,234


1,481





Plant and machinery




1,486




1,110






Total




2,720




2,591




 




 




31 March
2020
£'000




31 March
2019
£'000






Additions to right-of-use assets




938




508




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




Depreciation on right-of-use assets




31 March
2020
£'000




31 March
2019
£'000





Land and buildings


247


236





Plant and machinery




562




565






Total




809




801




 



 



Land and buildings



 



Plant and machinery






Maturity of lease liabilities




31 March
2020
£'000




31 March
2019
£'000




 




31 March
2020
£'000




31 March
2019
£'000





Less than one year


212 


236


 


560 


518




Between one and five years


943 


914


 


971 


634





In more than five years




312 




554




 




-




-






Total




1,467 




1,704




 




1,531 




1,152




 




Other impact on profit and loss




31 March
2020
£'000




31 March
2019
£'000





Finance costs on leases


119


113





Expense on short-term and low value leases




97




127






Total




216




240




 




Cash flows in respect of leases




31 March
2020
£'000




31 March
2019
£'000





IFRS 16 - principal payments


797


784




IFRS 16 - interest payments


119


113





Cash outflows relating to short-term and low value leases




97




127






Total




1,013




1,024




 
13. Share capital




 




31 March
2020
£'000




31 March
2019
£'000





Authorised






 





500,000,000 ordinary shares of £0.001 each




500




500





Allotted, issued and fully paid






 





222,117,945 (2019: 221,303,106) ordinary shares of £0.001 each




222




221




 
Ordinary shareholders are entitled to dividends as declared. During the year 814,839 ordinary shares (2019: 10.6 million ordinary shares) were issued with a nominal value of £815 (2019: £10,647) to employees exercising vested share options. The shares issued in the year had a nominal value of £0.001 each and were issued at £0.221 each.
 
14. 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 subsequently settled in full on 1 April 2020.
(a) Changes in liabilities arising from financing activities




 




31 March
2020
£'000




31 March
2019
£'000





At the beginning of the period


3,000


-





New borrowings




7,000




3,000






At the end of the period




10,000




3,000




 
(b) Terms and repayment schedule




 




Currency




Nominal
interest rate




Year of
maturity




31 March
2020
£'000




31 March
2019
£'000






Borrowings




GBP




LIBOR + 2.0%




2021




10,000




3,000




 
The Group has complied with the financial covenants (interest cover and leverage covenants) relating to the above facilities.
15. Reconciliation to net funds




 




31 March
2020
£'000




31 March
2019
£'000





Cash and cash equivalents


15,973


6,824





Borrowings




(10,000)




(3,000)






Net funds




5,973




3,824




 
16. 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 are included in the Remuneration Report on page 44 of the annual report.
In the year, purchases totalling £60,817 were made by the Group to companies in which key management personnel held significant interests. The purchases were for equipment hire and sub-contracting services used in the ordinary course of business.
17. Impact of transition to IFRS 16




Impact on profit for the year ended 31 March 2020




Notes




Year ended 
31 March
2020
Excluding 
IFRS 16
£'000




IFRS 16 
adjustments
£'000




Year ended 
31 March
2020
£'000






Revenue




 




46,101




-




46,101





Cost of sales - underlying


(i)


(32,020)


65


(31,955)





Cost of sales - exceptional items




 




(1,766)




-




(1,766)






Total cost of sales




 




(33,786)




65




(33,721)






Gross profit




 




12,315




65




12,380





Administrative expenses - underlying


(i)


(13,655)


44


(13,611)





Administrative expenses - exceptional items




 




(870)




-




(870)






Total administrative expenses




 




(14,525)




44




(14,481)





Operating loss


 


(2,210)


109


(2,101)




Profit on sale of subsidiary - exceptional items


 


3,886


-


3,886





Net finance expense




(i)




(353)




(119)




(472)





Profit before taxation


 


1,323


(10)


1,313





Taxation




 




250




(7)




243






Profit for the period attributable to equity holders of the parent




 




1,573




(17)




1,556




 




Impact on profit for the year ended 31 March 2019




Notes




Year ended
31 March
2019
Excluding
IFRS 16
£'000




IFRS 16
adjustments
£'000




Year ended
31 March
2019
Restated
£'000






Revenue




 




48,905




-




48,905





Cost of sales - underlying


(i)


(29,708)


55


(29,653)





Cost of sales - exceptional items




 




(883)




-




(883)






Total cost of sales




 




(30,591)




55




(30,536)






Gross profit




 




18,314




55




18,369





Administrative expenses - underlying


(i)


(11,874)


43


(11,831)





Administrative expenses - exceptional items




 




(411)




-




(411)






Total administrative expenses




 




(12,285)




43




(12,242)





Operating profit


 


6,029


98


6,127





Net finance expense




(i)




(60)




(113)




(173)





Profit before taxation


 


5,969


(15)


5,954





Taxation




 




(1,035)




(7)




(1,042)






Profit for the period attributable to equity holders of the parent




 




4,934




(22)




4,912




 




 
 
 
 
Balance sheet impact at 31 March 2020




 
 
 
 
Notes




31 March
2020
Excluding 
IFRS 16
£'000




IFRS 16 
adjustments
 
 
£'000




31 March
2020
 
 
£'000





Non-current assets


 
















Property, plant and equipment


 


38,820


-


38,820




Intangible assets


 


25,522


-


25,522




Right-of-use asset


(ii)


-


2,720


2,720





Deferred tax assets




 




1,769




15




1,784






 




 




66,111




2,735




68,846





Current assets


 
















Contract assets


 


12,279


-


12,279




Inventories


 


446


-


446




Trade and other receivables


 


6,826


-


6,826





Cash and cash equivalents




 




15,973




-




15,973






 




 




35,524




-




35,524






Total assets




 




101,635




2,735




104,370





Current liabilities


 
















Trade and other payables


(iv)


(12,009)


100


(11,909)




Contract liabilities


 


(27,905)


-


(27,905)




Borrowings


 


(10,000)


-


(10,000)




Current lease liability


(iii)


-


(772)


(772)





Provisions




 




(58)




-




(58)






 




 




(49,972)




(672)




(50,644)





Non-current liabilities


 
















Non-current lease liability


(iii)


-


(2,226)


(2,226)





Deferred tax liabilities




 




(5,193)




-




(5,193)






 




 




(5,193)




(2,226)




(7,419)






Total liabilities




 




(55,165)




(2,898)




(58,063)






Net assets




 




46,470




(163)




46,307





Equity


 
















Share capital


 


222


-


222




Share premium


 


389


-


389




Revaluation reserve


 


11,939


-


11,939




Merger reserve


 


11,347


-


11,347





Retained earnings




 




22,573




(163)




22,410






Total equity




 




46,470




(163)




46,307




 




Balance sheet impact at 31 March 2019




Notes




31 March
2019
Excluding
IFRS 16
£'000




IFRS 16
adjustments
£'000




31 March
2019
Restated
£'000





Non-current assets


 


 


 


 




Property, plant and equipment


 


39,314


-


39,314




Intangible assets


 


27,069


-


27,069




Right-of-use asset


(ii)


-


2,591


2,591





Deferred tax assets




 




1,707




22




1,729






 




 




68,090




2,613




70,703





Current assets


 


 


 








Contract assets


 


9,132


-


9,132




Inventories


 


607


-


607




Trade and other receivables


 


6,392


-


6,392





Cash and cash equivalents




 




6,824




-




6,824






 




 




22,955




-




22,955






Total assets




 




91,045




2,613




93,658





Current liabilities


 


 


 








Trade and other payables


(iv)


(10,946)


98


(10,848)




Contract liabilities


 


(26,343)


-


(26,343)




Borrowings


 


(3,000)


-


(3,000)




Current lease liability


(iii)


-


(754)


(754)





Provisions




 




(96)




-




(96)






 




 




(40,385)




(657)




(41,042)





Non-current liabilities


 


 


 








Non-current lease liability


(iii)


-


(2,102)


(2,102)





Deferred tax liabilities




 




(5,186)




-




(5,186)






 




 




(5,186)




(2,102)




(7,288)






Total liabilities




 




(45,571)




(2,759)




(48,330)






Net assets




 




45,474




(146)




45,328





Equity


 


 


 








Share capital


 


221


-


221




Share premium


 


210


-


210




Revaluation reserve


 


12,737


-


12,737




Merger reserve


 


11,347


-


11,347





Retained earnings




 




20,959




(146)




20,813






Total equity




 




45,474




(146)




45,328




 




Balance sheet impact at 31 March 2018




Notes




31 March
2018
Excluding
IFRS 16
£'000




IFRS 16
adjustments
£'000




31 March
2018
Restated
£'000





Non-current assets


 


 


 


 




Property, plant and equipment


 


19,921


-


19,921




Intangible assets


 


27,797


-


27,797




Right-of-use asset


(ii)


-


2,883


2,883





Deferred tax assets




 




2,194




29




2,223






 




 




49,912




2,912




52,824





Current assets


 


 


 


 




Contract assets


 


10,377


-


10,377




Inventories


 


209


-


209




Trade and other receivables


 


6,777


-


6,777





Cash and cash equivalents




 




9,431




-




9,431






 




 




26,794




-




26,794






Total assets




 




76,706




2,912




79,618





Current liabilities


 


 


 


 




Trade and other payables


(iv)


(10,743)


96


(10,647)




Contract liabilities


 


(25,900)


-


(25,900)




Borrowings


 


-


-


-




Current lease liability


(iii)


-


(716)


(716)





Provisions




 




(98)




-




(98)






 




 




(36,741)




(620)




(37,361)





Non-current liabilities


 


 


 


 




Non-current lease liability


(iii)


-


(2,416)


(2,416)





Deferred tax liabilities




 




(3,411)




-




(3,411)






 




 




(3,411)




(2,416)




(5,827)






Total liabilities




 




(40,152)




(3,036)




(43,188)






Net assets




 




36,554




(124)




36,430





Equity


 


 


 


 




Share capital


 


211


-


211




Share premium


 


21,042


-


21,042




Revaluation reserve


 


4,649


-


4,649




Merger reserve


 


11,347


-


11,347





Retained earnings




 




(695)




(124)




(819)






Total equity




 




36,554




(124)




36,430




 
(i) Statement of comprehensive income
Under the previous accounting standard for leases, IAS 17, lease costs were recognised on a straight-line basis over the term of the lease. The Group recognised these costs within cost of sales and administrative expenses. On adoption of IFRS 16 these lease costs have been removed and replaced with depreciation and finance charges.
The impact of removing the lease costs in the year ended 31 March 2020 was a credit to cost of sales of £632,000 (2019: £628,000) and a credit to administrative expenses of £284,000 (2019: £269,000). Under IFRS 16 the right-of-use asset is depreciated over the lease term, and consequently a depreciation charge of £567,000 was incurred within cost of sales in the year ended 31 March 2020 (2019: £573,000) alongside a further depreciation charge of £242,000 in administrative expenses (2019: £228,000).
In addition, debits that had previously been taken through the statement of comprehensive income relating to lease incentives were reversed, leading to a £2,000 decrease to administrative expenses in the year ended 31 March 2020 (2019: £2,000 decrease).
Under IFRS 16, finance costs are charged on the lease liability, which resulted in a finance charge in the year ended 31 March 2020 of £119,000 (2019: £113,000).
The net impact of the above adjustments to profit before tax for the year ended 31 March 2020 was a charge of £10,000 (2019: £15,000).
(ii) Right-of-use asset
IFRS 16 has resulted in the recognition of a right-of-use asset. This asset represents the Group's contractual right to access an identified asset under the terms of the lease contract.
(iii) Lease liability
IFRS 16 has resulted in the recognition of a lease liability. This liability represents the Group's contractual obligation to minimum lease payments during the lease term. The element of the liability payable in the next 12 months is recognised as a current liability with the balance recognised in non-current liabilities.
(iv) Working capital
Under IAS 17, the Group held a balance within working capital that related to certain lease incentives. The balance of £100,000 at 31 March 2020 (2019: £98,000) is no longer recognised under IFRS 16 as all payments, lease incentives and related costs are reflected in either the right-of-use asset or the lease liability.
(v) Taxation
A deferred tax asset of £29,000 was recognised on transition to IFRS 16 representing the timing difference on the amounts taken to reserves. The deferred tax asset created at the point of transition will unwind over the average life of the leases held at the date of transition.
(vi) Cash flow statement
The impact of transition to IFRS 16 had no impact on net cash flows. However, the presentation of the consolidated cash flow statement changed, with an increase in cash inflows from operating activities in the year ended 31 March 2020 of £916,000 (2019: £897,000) being offset by a corresponding increase in net cash outflows from financing activities.
 


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