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Fulcrum Utility Services Ld LSE:FCRM London Ordinary Share KYG368851047 ORD 0.1P (DI)
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Gas Water & Utilities 46.1 1.3 0.7 57.9 90

Fulcrum Utility Services Ltd Final results for the year ended 31 March 2020

06/08/2020 7:00am

UK Regulatory (RNS & others)


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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 GBP46.1 million (2019: GBP48.9 million) 
   --      Adjusted EBITDA from continuing operations* GBP4.5 million (2019: GBP10.9 million**) 
   --      Profit before tax of GBP1.3 million (2019: GBP6.0 million**) 
   --      Free cash flows*** of GBP6.5 million (2019: (GBP0.4) 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 GBP6.0 million as at 31 March 2020 (2019: GBP3.8 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 GBP66.2 million (2019: GBP60.5 million)

   --      Growth in the housing order book, up 24% to GBP25 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: GBP26.6 million vs. H1 GBP19.5 million) and Adjusted EBITDA from continuing operations* up 115% (H2: GBP3.1 million vs. H1 GBP1.4 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 GBP48 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 GBP17.9 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   Adjustments   As reported 
                                           GBPm          GBPm          GBPm 
------------------------  ---------------------  ------------  ------------ 
 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        IFRS 16   As restated 
                                           reported    adjustments          GBPm 
                                               GBPm           GBPm 
------------------------  -------------------------  -------------  ------------ 
 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:

 
                                                        +44 (0)114 280 
                                                         4102 
Fulcrum Utility Services Limited 
 Daren Harris, Chief Executive Officer 
                                                         +44 (0)20 7397 
 Cenkos Securities plc (Nominated adviser and broker)    8900 
 Max Hartley (Nomad) / Michael Johnson (Sales) 
 
 N+1 Singer (Joint Corporate Broker)                     +44 (0)20 7496 
 Sandy Fraser / Rachel Hayes / Carlo Spingardi           3000 
 
 Camarco (Financial PR advisers) 
 Ginny Pulbrook / Tom Huddart                            +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 GBP46.1 million, down 5.8% on FY19. Profit before tax was GBP1.3 million and adjusted EBITDA from continuing operations was GBP4.5 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 GBP25 billion, with potential for an additional GBP10 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 GBP25 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 GBP48 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 GBP17.9 million against an original cost to the Group of GBP10.7 million, which has subsequently been revalued at GBP12.8 million. This has resulted in a total gain, before expenses of disposal, of GBP5.1 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 GBP66.2 million, and has seen continued growth, reaching GBP68 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 GBP66.2 million, demonstrating the Group's work-winning ability in difficult market conditions. Significant orders in the year included a GBP3.2 million contract to install new high-voltage electrical infrastructure for two 50MW gas peaking plants in North East England; a GBP2.4 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 GBP1.8 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 GBP2.8 million to GBP46.1 million (2019: GBP48.9 million) predominantly due to the impact of COVID-19, as described above. Infrastructure revenues were particularly impacted falling GBP4.1 million to GBP41.8 million (2019: GBP45.9 million). This, however, was offset by utility asset ownership revenues which delivered a GBP1.2 million increase to GBP4.2 million (2019: GBP3.0 million).

Adjusted EBITDA from continuing operations* for the period decreased to GBP4.5 million, broadly in line with management expectations (2019: GBP10.9 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 GBP10 million in full, leaving the business debt free as at 1 April 2020, other than lease obligations, and with net cash balances of GBP6.0 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 GBP1.7 million. As at 31 March 2020, the Group had net cash of GBP6.0 million (2019: GBP3.8 million), a GBP2.2 million increase against the prior period. Net cash inflow from investing activities was GBP4.8 million, benefiting from the GBP16.8 million of receipts from the disposal of utility assets, offset by investment in utility assets of GBP11.5 million.

Net cash inflow from financing activities of GBP2.7 million was predominantly due to increased borrowings of GBP7 million, offset by GBP3.3 million in dividend payments and GBP1 million in lease and interest payments relating to IFRS 16. The GBP10 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 GBP0.9 million during the year, reflecting the utility asset net revaluation increase of GBP2.8 million and retained profit for the period of GBP1.5 million, offset by the final 2019 dividend totalling GBP3.3 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 GBP221,118. 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 GBP66.2 million, and has seen continued growth, reaching GBP68 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 GBP25 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

 
                                                                               Year 
                                                                    Year      ended 
                                                                   ended   31 March 
                                                                31 March       2019 
                                                                    2020   Restated 
                                                        Notes    GBP'000    GBP'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

 
                                                                                           Retained      Total 
                                                  Share     Share  Revaluation    Merger   earnings     equity 
                                                capital   premium      reserve   reserve   Restated   Restated 
                                        Notes   GBP'000   GBP'000      GBP'000   GBP'000    GBP'000    GBP'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

 
                                                  31 March 
                                       31 March       2019 
                                           2020   Restated 
                                Notes   GBP'000    GBP'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

 
                                                                               Year 
                                                                    Year      ended 
                                                                   ended   31 March 
                                                                31 March       2019 
                                                                    2020   Restated 
                                                        Notes    GBP'000    GBP'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 GBP46.3 million (2019 restated: GBP45.3 million), including net cash of GBP6.0 million (2018: GBP3.8 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 GBP1.5 million and had net cash inflows of GBP9.1 million after investing GBP5.0 million in external utility assets, GBP3.3 million paid in dividends and receiving GBP7.0 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 GBP2.9 million and a lease liability of GBP3.1 million. Including adjustments for related balances that existed under IAS 17, the retained earnings of the Group on transition reduced by GBP0.1 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 GBP10,000 (2019: decrease of GBP15,000). Operating profit increased by GBP109,000 in the year ended 31 March 2020 (2019: increase of GBP98,000) 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 GBP119,000 in the year ended 31 March 2020 (2019: increase of GBP113,000) with the addition of higher finance costs on the newly recognised lease liability.

The Group's adjusted EBITDA from continuing operations increased by GBP916,000 in the year ended 31 March 2020 (2019: increase of GBP897,000) 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 GBP916,000 (2019: GBP897,000) 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                          Year ended 31 March 
                                                           2020                                       2019 Restated 
                                            ---------------------------------   ----------------------------------- 
                                          Infrastructure:   Utility             Infrastructure:   Utility 
                                                   Design   assets:                      Design   assets: 
                                                      and   Own and     Total               and   Own and     Total 
                                                    Build   Operate     Group             Build   Operate     Group 
                                                  GBP'000   GBP'000   GBP'000           GBP'000   GBP'000   GBP'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     Operating (loss)/profit excluding exceptional items, 
 continuing operations       amortisation and depreciation and equity-settled 
                                                        share based payments. 
Adjusted profit before       Profit before taxation excluding amortisation of 
 taxation                 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 
                                                            GBP'000   GBP'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 
                                                          GBP'000   GBP'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 
                                                         GBP'000   GBP'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 
                                  GBP'000   GBP'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       Year 
                                                            ended      ended 
                                                         31 March   31 March 
                                                             2020       2019 
                                                          GBP'000    GBP'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       Year 
                             ended      ended 
                          31 March   31 March 
                              2020       2019 
                           GBP'000    GBP'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       Year 
                                      ended      ended 
                                   31 March   31 March 
                                       2020       2019 
                                    GBP'000    GBP'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       Year 
                                   ended      ended 
                                31 March   31 March 
                                    2020       2019 
                                 GBP'000    GBP'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 
                                                             GBP'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 GBP3,071,000.

5. Operating (loss)/profit

Included in operating (loss)/profit are the following charges:

 
                                                                Year 
                                                     Year      ended 
                                                    ended   31 March 
                                                 31 March       2019 
                                                     2020   Restated 
                                                  GBP'000    GBP'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 
                        Year      ended 
                       ended   31 March 
                    31 March       2019 
                        2020   Restated 
                     GBP'000    GBP'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 GBP9.3 million (2019: GBP10.0 million) of tax losses for which deferred tax assets of GBP1.8 million (2019: GBP1.7 million) have been recognised. During the period GBP0.1 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 GBP1.8 million (2019: GBP1.4 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 
                                                              Year      ended 
                                                             ended   31 March 
                                                          31 March       2019 
                                                              2020   Restated 
                                                           GBP'000    GBP'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          Deferred     Deferred 
                                                    tax assets   tax liabilities   tax assets          Deferred 
                                                                                     Restated   tax liabilities 
                                                       GBP'000           GBP'000      GBP'000           GBP'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       Year 
                                                           ended      ended 
                                                        31 March   31 March 
                                                            2020       2019 
                                                         GBP'000    GBP'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 
                                                                Year      ended 
                                                               ended   31 March 
                                                            31 March       2019 
                                                                2020   Restated 
                                                             GBP'000    GBP'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    31 March 
                                                                   2020        2019 
                                                                 Number      Number 
                                                              of shares   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   Fixtures 
                                        Utility          under        and    Computer 
                                         assets   construction   fittings   equipment     Total 
                                        GBP'000        GBP'000    GBP'000     GBP'000   GBP'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 GBP0.5 million (2019: GBP1.2 million) of meter assets valued at cost less depreciation to date.

Disposals include utility assets with a net book value of GBP12,795,000 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 GBP14.0 million (2019: GBP18.7 million).

11. Intangible assets

 
                                                               Brand      Software 
                                                                 and           and 
                                                            customer   development 
                                            Goodwill   relationships         costs     Total 
Reconciliation of carrying amount            GBP'000         GBP'000       GBP'000   GBP'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:

 
                                         Fulcrum   Dunamis       CDS     Total 
As at 31 March 2019 and 31 March 2020    GBP'000   GBP'000   GBP'000   GBP'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.

 
                      31 March  31 March 
                          2020      2019 
Right-of-use assets    GBP'000   GBP'000 
--------------------  --------  -------- 
Land and buildings       1,234     1,481 
Plant and machinery      1,486     1,110 
--------------------  --------  -------- 
Total                    2,720     2,591 
--------------------  --------  -------- 
 
 
                                   31 March  31 March 
                                       2020      2019 
                                    GBP'000   GBP'000 
---------------------------------  --------  -------- 
Additions to right-of-use assets        938       508 
---------------------------------  --------  -------- 
 

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

 
                                      31 March  31 March 
                                          2020      2019 
Depreciation on right-of-use assets    GBP'000   GBP'000 
------------------------------------  --------  -------- 
Land and buildings                         247       236 
Plant and machinery                        562       565 
------------------------------------  --------  -------- 
Total                                      809       801 
------------------------------------  --------  -------- 
 
 
                                 Land and buildings    Plant and machinery 
                                --------------------  --------------------- 
                                 31 March   31 March    31 March   31 March 
                                     2020       2019        2020       2019 
Maturity of lease liabilities     GBP'000    GBP'000     GBP'000    GBP'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 
------------------------------  ---------  ---------  ----------  --------- 
 
 
                                             31 March  31 March 
                                                 2020      2019 
Other impact on profit and loss               GBP'000   GBP'000 
-------------------------------------------  --------  -------- 
Finance costs on leases                           119       113 
Expense on short-term and low value leases         97       127 
-------------------------------------------  --------  -------- 
Total                                             216       240 
-------------------------------------------  --------  -------- 
 
 
                                                            31 March  31 March 
                                                                2020      2019 
Cash flows in respect of leases                              GBP'000   GBP'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  31 March 
                                                                  2020      2019 
                                                               GBP'000   GBP'000 
------------------------------------------------------------  --------  -------- 
Authorised 
500,000,000 ordinary shares of GBP0.001 each                       500       500 
------------------------------------------------------------  --------  -------- 
Allotted, issued and fully paid 
222,117,945 (2019: 221,303,106) ordinary shares of GBP0.001 
 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 GBP815 (2019: GBP10,647) to employees exercising vested share options. The shares issued in the year had a nominal value of GBP0.001 each and were issued at GBP0.221 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 GBP20 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 GBP10.0 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  31 March 
                                     2020      2019 
                                  GBP'000   GBP'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

 
                           Nominal        Year  31 March  31 March 
                          interest          of      2020      2019 
              Currency        rate    maturity   GBP'000   GBP'000 
-----------  ---------  ----------  ----------  --------  -------- 
                           LIBOR + 
Borrowings         GBP        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  31 March 
                                2020      2019 
                             GBP'000   GBP'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 GBP60,817 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

 
                                                             Year 
                                                            ended 
                                                         31 March 
                                                             2020                     Year 
                                                        Excluding          IFRS      ended 
                                                             IFRS            16   31 March 
Impact on profit for the year ended 31 March                   16   adjustments       2020 
 2020                                           Notes     GBP'000       GBP'000    GBP'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 
-----------------------------------------------------  ----------  ------------  --------- 
 
 
                                                             Year 
                                                            ended 
                                                         31 March                     Year 
                                                             2019                    ended 
                                                        Excluding          IFRS   31 March 
                                                             IFRS            16       2019 
Impact on profit for the year ended 31 March                   16   adjustments   Restated 
 2019                                           Notes     GBP'000       GBP'000    GBP'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 
-----------------------------------------------------  ----------  ------------  --------- 
 
 
                                                     31 March          IFRS 
                                                         2020            16  31 March 
                                                    Excluding   adjustments      2020 
                                                         IFRS 
                                                           16 
  Balance sheet impact at 31 March 2020     Notes     GBP'000       GBP'000   GBP'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 
-------------------------------------------------  ----------  ------------  -------- 
 
 
                                                  31 March 
                                                      2019 
                                                 Excluding          IFRS   31 March 
                                                      IFRS            16       2019 
                                                        16   adjustments   Restated 
Balance sheet impact at 31 March 2019    Notes     GBP'000       GBP'000    GBP'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 
----------------------------------------------  ----------  ------------  --------- 
 
 
                                                  31 March 
                                                      2018 
                                                 Excluding          IFRS   31 March 
                                                      IFRS            16       2018 
                                                        16   adjustments   Restated 
Balance sheet impact at 31 March 2018    Notes     GBP'000       GBP'000    GBP'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 GBP632,000 (2019: GBP628,000) and a credit to administrative expenses of GBP284,000 (2019: GBP269,000). Under IFRS 16 the right-of-use asset is depreciated over the lease term, and consequently a depreciation charge of GBP567,000 was incurred within cost of sales in the year ended 31 March 2020 (2019: GBP573,000) alongside a further depreciation charge of GBP242,000 in administrative expenses (2019: GBP228,000).

In addition, debits that had previously been taken through the statement of comprehensive income relating to lease incentives were reversed, leading to a GBP2,000 decrease to administrative expenses in the year ended 31 March 2020 (2019: GBP2,000 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 GBP119,000 (2019: GBP113,000).

The net impact of the above adjustments to profit before tax for the year ended 31 March 2020 was a charge of GBP10,000 (2019: GBP15,000).

(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 GBP100,000 at 31 March 2020 (2019: GBP98,000) 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 GBP29,000 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 GBP916,000 (2019: GBP897,000) being offset by a corresponding increase in net cash outflows from financing activities.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

FR BRGDIDBGDGGU

(END) Dow Jones Newswires

August 06, 2020 02:00 ET (06:00 GMT)

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