21 August 2023

FULCRUM UTILITY SERVICES LIMITED

("Fulcrum", the "Company" or "the Group")

Final results for the year ended 31 March 2023 ("FY23")

Financial performance in line with management's expectations:

•     Revenue down 18% to £50.6 million (2022: £61.8 million)

•     Adjusted EBITDA¹ of £(6.2) million (2022: £0.5 million)

•     Loss before tax of £25.7 million (2022: £14.2 million)²

•     Cash outflow from operating activities of £12.5 million (2022: £7.6 million)

•     Adjusted earnings per share of (3)p (2022: (1.4)p) and basic earnings per share of (6.3)p (2022: (5.2)p)

•     Net debt³ of £2.6 million as at 31 March 2023 (2022: £11.2 million net cash)

•     Net assets of £20.7 million (2022: £45.9 million)

¹Adjusted EBITDA is operating loss excluding the impact of exceptional items, other net gains, fair value gains on derivatives, depreciation, amortisation and equity-settled share-based payment charges.

²Includes £17.8 million of exceptional items (2022: £10.6 million) including £12.2 million for impairment of intangible assets (2022: £2.3 million) and £2.2 million for onerous contracts (2022: £5.6 million).

³ Net debt includes £6m (2022: £nil) of borrowings that has been accounted for as an embedded derivative.

Laying a path back to profitability

In the year we acted to protect the Group in uncertain market conditions and initiated a review of various strategic options in order to maximise value for shareholders.

The review identified several opportunities and operational improvements, leading to the divestment in Smart metering, the implementation of a leaner operating model, the formation of a streamlined Senior Leadership Team and the development of a more targeted sales strategy.

Facility extension

Further to the Company's announcement on 6 April 2023, with regards to an amendment to the Group's convertible loan facility, the Board is pleased to confirm that the Company's major shareholders have agreed to extend the term of the existing Facility Agreement ("Facility Extension") from 1 November 2023 to 31 December 2024. All other terms and conditions of the Facility Agreement are unchanged.

The Facility Extension will ensure the Group continues to have adequate working capital and is expected to provide the Group with the funding required for the trading year ahead and will support the continued execution of the Group's strategy and Fulcrum's journey back to profitability.

The agreement to extend the term of the Facility Agreement by Bayford and Harwood, each being a substantial shareholder of the Company, constitutes a related party transaction with each Lender under rule 13 of the AIM Rules. Accordingly, the directors who are independent of the Facility, being Jennifer Babington and Dominic Lavelle, (the "Independent Directors") consider, having consulted with Cenkos Securities plc, acting in its capacity as the Company's nominated adviser and broker, that the Facility Extension is fair and reasonable insofar as the Company's shareholders are concerned.

Recommendation to delist

An outcome of the Group's ongoing strategic review is the Board's recommendation to seek to cancel the Company's admission to trading on AIM (the "Cancellation"). A separate announcement has been made with regards to the Cancellation, but it is the Board's considered view that the Cancellation will support the Group's return to profitability by removing significant ongoing costs associated with the Company's shares being admitted to trading on AIM. Cancellation is also expected help to simplify the business and improve its agility. 

Annual Report and AGM notice 

The Company's Annual Report and Accounts for the year ended 31 March 2023 and the Notice of the 2023 Annual General Meeting ('AGM') will be available on the Company's website later today at https://investors.fulcrum.co.uk/

Commenting on the full year results, Lindsay Austin, Interim Chief Executive Officer, said:

Our FY23 results reflect the legacy issues and the difficult conditions that the Group has operated in, however we are now in a stronger position and laser focused on our path back to profitability as we continue to make improvements at pace.

I believe that the opportunities for the Group and its Fulcrum, Dunamis and Maintech Power businesses are significant and reinforced by strong market fundamentals.

We are confident in the Group's potential and its return to success.

This announcement contains inside information.

Enquiries:

Notes to Editors:

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

Chair's statement

This year we reset, refocused, restructured and refinanced the business to lay better foundations to support our return to profitability. This focused on addressing identified issues, implementing improvements, and developing a clear strategy.

We are now in a stronger position, and I would like to share my personal thanks to all our team for their hard work and ongoing efforts in achieving this.

Results

The challenges faced by the business during the financial year ending 31 March 2023 are reflected in our full year results. However, encouragingly, the Group's full year performance was in line with the expectations set out in our Trading Update, published on 24 October 2022.

Dividend

Considering the full year performance, the Board will not be recommending the payment of a dividend in respect of the financial year ended 31 March 2023 but will continue to keep its dividend policy under review.

Outlook

Turning the Group's performance around has been a challenging task and is ongoing, but we are making good progress, at pace. The Board is pleased that the Group is on a path back to profitability, that its foundations are being continually strengthened to deliver a successful future, and that the Group is currently trading in line with management's expectations.

Medium to long-term market fundamentals are supported by the UK's transition to a low carbon economy and also continue to be very strong. Considering all of this, I am confident that the Group is well positioned to take advantage of the many and significant opportunities available to it as we move forward.

Jennifer Babington

Non-executive Chair

18 August 2023

Chief Executive Officer's statement

Positioning the Group for future profitability

Since joining Fulcrum as Interim CEO in January 2023 my priority has been to ensure the Group is positioned to capitalise on its core strengths and return to profitability.

Improvements have been made and positive outcomes were delivered in the year. We secured a healthy flow of new contracts, won under enhanced contractual terms to better protect margin and took action to mitigate loss making contracts.

Strong progress has continued to be made post year end and our focus continues to be on reducing costs, reducing overheads, improving efficiency and simplifying the business. The Group is now in a much-improved position, and we are pleased to have ongoing financial support from our major shareholders as we move forward.

Our recommendation to delist the business proactively supports the Group's path to profitability by significantly reducing costs in this financial year and on an enduring basis. It will also help us to simplify the business, its operations, and will improve the speed of decision making.

Financial performance and results

Total revenue decreased year on year by £11.3 million to £50.6 million (2022: £61.8 million). Infrastructure revenues were 19% lower than the previous year at £46.4 million (2022: £57.6 million). Utility asset ownership revenues remained at the same level as the previous year, at £4.2 million (2022: £4.2 million).

The Group had an operating loss of £24.6 million for the year (2022: £13.7 million). This loss includes exceptional costs of £17.8 million (2022: £10.6 million), depreciation and amortisation of £2.6 million (2022: £3.3 million), and a share-based payment charge of £0.1 million (2022: £0.6 million), offset by fair value gain on derivatives of £2 million (2022: £nil). Exceptional costs include the income statement impact of the impairment of our utility asset portfolio of £2.6 million (2022: £1.9 million) as a result of an independent, external valuation of those assets at year end, £12.2 million impairment of intangible assets, including £7.6 million for goodwill write down, £4.3 million of other intangibles and £0.3 million software (2022: £2.3 million) and £2.2 million of onerous contract losses (2022: £5.6 million) relating to forecast losses (net of provisions released) to be incurred on several complex high voltage infrastructure projects and losses incurred from 1 October 2022 and forecast to be incurred in respect of a number of onerous infrastructure projects, following a strategic review by the Board.

Adjusted EBITDA¹ for the year fell to £(6.2) million from £0.5 million in the prior year. Adjusted EBITDA was affected by a dilution of the gross margin, particularly as cost of materials were impacted by inflationary effects, and the impact of the uncertain energy sector making trading conditions more challenging. Administrative expenses (excluding exceptional items) reduced by 7%, as the business applied greater cost controls on discretionary spending.

The Group's network of utility assets, valued over £31 million as at 31 March 2023, generate recurring income and provide attractive and predictable long-term returns. We continued to adopt additional utility assets in the year, adding them to our income generating portfolio. The Group will continue to selectively adopt utility assets. All tranches of the asset sale to ESP were also successfully delivered during the year.

¹Adjusted EBITDA is operating loss excluding the impact of exceptional items, other net gains, fair value gain on derivatives, depreciation, amortisation, and equity-settled share-based payment charges.

Liquidity and net cash

The Group's trading performance for the year has resulted in a cash outflow from operating activities of £12.5 million (2022: £7.6 million). As at 31 March 2023, the Group had net debt of £2.6 million (2022: £11.2 million net cash).

Net cash inflow from investing activities was £0.4 million (2022: £1.4 million), benefiting from £3.7 million of net receipts (£3.6 million received for planned tranche sales and £0.2 million received for additional consideration from tranche sales in previous years, less £0.1 million of transaction costs), from the disposal of utility assets (2022: £7 million), offset by investment in utility and other assets of £3.3 million (2022: £5.6 million).

Net cash inflow from financing activities of £4.3 million (2022: £13.4 million) was predominantly due to the draw down on the Facility Agreement of £6 million, less transaction costs related to the convertible debt facility of £0.5 million, and £1.1 million in lease and interest payments (2022: £1.4 million).  Net cash outflows in the year ended 31 March 2023 for exceptional items in cost of sales and administrative expenses were £2.5 million (2022: £1.6 million).

Reserves and net assets

Net assets decreased by £25.2 million during the year to £20.7 million (2022: £45.9 million), primarily resulting from the decrease in intangible assets to £3 million (2022: £15.6 million) and a decreased cash balance of £3.4 million (2022: £11.2 million). The Group suffered a net revaluation impairment on the utility asset portfolio of £3.3 million (2022: £1.9 million net revaluation gain). Net assets per share at 31 March 2023 were 5.2p per share (2022: 11.5p).

As at 31 March 2023, the issued share capital of the Company was 399,313,458 ordinary shares (2022: 399,313,458) with a nominal value of £339,313 (2022: £339,313). At the end of the year, the Group operated one Save As You Earn (SAYE) scheme.

Lindsay Austin

Interim Chief Executive Officer

18 August 2023

Consolidated statement of comprehensive income

for the year ended 31 March 2023

Adjusted EBITDA 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.

Consolidated statement of changes in equity

for the year ended 31 March 2023

Consolidated balance sheet

as at 31 March 2023

The financial statements were approved by the Board of Directors on 18 August 2023 and were signed on its behalf by:

Jennifer Babington

Non-executive Chair

Company number FC030006

Consolidated cash flow statement

for the year ended 31 March 2023

1. Accounting policies

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

Basis of preparation

The financial information set out in this preliminary announcement has been derived from the Group's consolidated financial statements for the years ended 31 March 2023 and 31 March 2022. The audited financial information included in this preliminary results announcement for the year ended 31 March 2023 and audited information for the year ended 31 March 2022 does not comprise statutory accounts within the meaning of section 434 Companies Act 2006.  The information has been extracted from the audited non statutory financial statements for the year ended 31 March 2023 which will be delivered to the Registrar of Companies in due course.  Non statutory financial statements for the year ended 31 March 2022 were approved by the Board of directors and have been delivered to the Registrar of Companies. The report of the independent auditors for the year ended 31 March 2023 and 2022 respectively on these financial statements were unqualified.

Whilst the financial information included in this preliminary announcement has been prepared on the basis of the requirements of International Financial Reporting Standards as adopted by the United Kingdom, 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 derivatives and certain non-current assets. Historical cost is generally based on the fair value of the consideration given in exchange for assets.

Going concern

At 31 March 2023 the Group had net assets of £20.7 million (2022: £45.9 million), net current liabilities of £12.6 million (2022: £3.5 million), cash of £3.4 million (2022: £11.2 million) and a convertible loan note derivative liability of £4.2 million (2022: £nil) as set out in the consolidated balance sheet on in note 18. In the year ended 31 March 2023, the Group suffered a loss after tax of £25.1 million (2022: £13.4 million) and had net cash outflows of £7.8 million (2022: net cash inflows of £7.2 million).

These financial statements are prepared on the basis that the Group is a going concern. In forming its opinion as to going concern, the Board has prepared cash flow forecasts based upon its assumptions with particular consideration of the key risks and uncertainties, as well as taking into account available borrowing facilities. The going concern period assessed is until 30 September 2024 which has been selected as it can be projected with a good degree of expected accuracy.

In December 2022, the Group announced it had entered into an arrangement ("the Facility Agreement") with its two principal shareholders, Bayford Group and Harwood Capital, in respect of funding of up to £6 million by way of a convertible loan, to be drawn down in tranches as required and repaid by 1 November 2023. The provision of this funding was to support the Group to initiate a review of the various strategic options available to it to maximise value for all shareholders and to ensure the Group continued to have adequate working capital.

At 31 March 2023, the full £6 million made available in the Facility Agreement had been drawn down and on 6 April 2023, the Group announced that it had agreed to amend the Facility Agreement, under which the provision of funding was increased by £5 million, such that up to £11 million is to be provided as principal. On 9 August 2023, the Group's major shareholders agreed to extend the Facility Agreement that previously ran to 1 November 2023, out further to 31 December 2024. At the date of approval of these financial statements, £7m of the total £11m available had been drawn down.

The cash flow forecasts prepared by the Board reflect a cautious view on performance and include a range of sensitivities to stress-test the Group's liquidity; changes to the principal assumptions for these sensitivities include reductions in revenue and EBITDA. Some of these sensitivities do result in cash low points at several points in 2024, but the Directors are confident that the Group has in place immediate mitigating initiatives that can alleviate any such cash shortfalls in a short timeframe, if required.

Based on these considerations, together with the Directors' knowledge and experience of the markets in which the Group operates, the Directors consider it appropriate to adopt the going concern basis of accounting in the preparation of the Group's financial statements.

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

For the purposes of the preparation of these consolidated financial statements, the Group has applied all standards and interpretations that are effective for accounting periods beginning on or after 1 April 2022.

No new standards, amendments or interpretations to existing standards that have been published and that are mandatory for the Group's accounting periods beginning on or after 1 April 2023, or later periods, have been adopted early.

2. Operating segments

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

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

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

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

3. Alternative Performance Measures

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

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

(a) Reconciliation of operating loss to "adjusted EBITDA"

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

(c) Net assets per share

4. Exceptional items

(a) Exceptional items included in cost of sales

Fixed asset impairment relates to the impairment of utility assets not previously revalued upwards. Onerous contracts costs relate to forecast losses (net of provisions released) to be incurred on several complex high voltage infrastructure projects and losses incurred from 1 October 2022 and forecast to be incurred in respect of a number of onerous infrastructure projects, following a strategic review by the Board. See note 17 for further details.

(b) Exceptional items included in administrative expenses

Restructuring costs relate to employee exit and severance costs. Intangible asset impairment relates to the impairment of goodwill, brands and customer relationships and software and development costs. Onerous contracts costs relate to losses from the Group's smart meter exchange and management contracts with energy suppliers.

Net cash outflows in the year ended 31 March 2023 for exceptional items in cost of sales and administrative expenses were £2.5 million (2022: £1.6 million).

5. Other net gains

Included within other net gains are the following amounts:

Additional consideration receivable from utility asset sales in previous years is amounts due to the Group for utility assets sold in previous years that were non-metered when sold and became metered in the year ended 31 March 2023.

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

The loss on disposal of utility assets represents the loss arising on sale of certain of the Group's utility assets to a third party. The Group has entered into an agreement with the third party to sell part of its utility assets portfolio in structured tranches.

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 £1,145,000 (2022: £1,445,000).

6. Operating loss

Included in operating loss are the following charges:

7. Taxation

At Budget 2020, the UK government announced that the corporation tax main rate (for all profits except ring-fence profits) for the years starting 1 April 2021 and 2022 would be 19%. At Spring Budget 2021, the UK government announced that the corporation tax main rate would rise to 25% for companies with profits over £250,000 together with the introduction of a small profits rate of 19% with effect from 1 April 2023. The increase in the tax rate to 25% is considered to be substantively enacted, and accordingly the deferred tax balances expected to unwind after 1 April 2023 have been calculated using the 25% tax rate.

The Group has £7.4 million (31 March 2022: £12.5 million) of tax losses for which deferred tax assets of £1.9 million (31 March 2022: £3.1 million) have been recognised. The deferred tax asset is expected to be recovered over five years. The group also has unrecognised tax losses of £29.3 million (31 March 2022: £9.7 million) for which no deferred tax asset has been recognised as there is insufficient certainty over whether those losses will reverse.

Reconciliation of effective tax rate

Movement in deferred tax balances

8. Dividends

No dividends were paid in the year ended 31 March 2023 or 31 March 2022.

No interim dividends were declared and no final dividends are proposed relating to the year ended 31 March 2023.

9. Earnings per share (EPS)

Basic earnings per share

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

Number of shares

10. Property, plant and equipment

(a) Reconciliation of carrying amount

Utility assets include £1.1 million (2022: £0.4 million) of meter assets valued at cost less depreciation to date.

Internally adopted assets are stated at the full cost of construction of £1.2 million (2022: £3.7 million) less the deficit arising on internally adopted assets of £0.7 million (2022: £1.3 million).

Disposals include utility assets with a net book value of £4,415,000 that were disposed of as part of Tranches 5 and 6 of the utility assets sale as disclosed in note 5.

(b) Measurement of fair values

The fair value of utility assets was determined by external, independent specialist valuers, having appropriate recognised professional qualifications and experience in the assets being valued. The valuation established the fair value of the assets at 31 March 2023. The key assumptions used in the valuation model include current market prices, useful economic lives of the assets and income generated by the assets discounted using a weighted average cost of capital. The valuation technique used is classified as a Level 3 fair value (based on unobservable inputs) under IFRS 13.

The value in use assessment is sensitive to changes in the key assumptions used. Sensitivity analysis has been performed, with a 1% increase in the discount rate leading to a £0.8 million increase in the net impairment charge and a 1% reduction in the discount rate leading to a £0.9 million decrease in the net impairment charge.

The utility assets are the only financial assets that are held at fair value in the financial statements.

(c) Impairment loss

Following the valuation of the utility assets estate, a net impairment charge of £3.3 million (2022: £1.9 million net revaluation gain) was recorded. A revaluation gain of £2.6 million (2022: £4.3 million) was recognised in the revaluation reserve, with an impairment of £3.3 million (2022: £0.5 million) offset against the revaluation reserve and a £2.6 million impairment charge (2022: £1.9 million) included within exceptional items in cost of sales in the consolidated statement of comprehensive income.

11. Capital commitments

The Group has entered into contracts to purchase property, plant and equipment in the form of utility assets from external parties. At 31 March 2023 the balance was £3.8 million (2022: £5.5 million).

12. Intangible assets

a) Amortisation

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

(b) Impairment testing

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

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

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

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

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

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

The pre-tax cash flows that these projections produced were discounted at pre-tax discount rates based on the Group's beta adjusted cost of capital reflecting management's assessment of specific risks related to each cash-generating unit. Pre-tax discount rates of between 13% and 13.7% (2022: between 8.1% and 9.8%) 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% (2022: 2.0%). This is not considered to be higher than the long-term industry growth rate.

Following the review, the carrying value of the intangible assets exceeded the associated value in use for all of the CGUs. Consequently, an impairment of £2.2 million was made to the carrying value of goodwill in the Fulcrum CGU, and impairments of £5.4 million and £4.3 million were made to the carrying values of goodwill and brands and customer relationships, respectively, in the Dunamis CGUs.


A segment-level summary of the acquired intangible assets allocation is presented below:

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

Based on this analysis, the reasonably possible downside scenario to the discount rate would increase the impairment by £0.2 million, and the change to the long-term growth rate would increase the impairment by £0.2 million.

In addition to the above, an impairment charge of £0.3 million (2022: £0.2 million) has been recognised during the year ended 31 March 2023, for the costs associated with a project no longer being implemented.

13. Leases

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

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

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

During the year ended 31 March 2023, the Group disposed of a leased vehicle for a termination fee of £31,000. This resulted in a loss on lease modification in the statement of comprehensive income of £17,000. During the year ended 31 March 2022, the Group disposed of a leased vehicle for proceeds of £19,000. This resulted in a gain on lease modification in the statement of comprehensive income of £16,000.

14. Share capital

Ordinary shareholders are entitled to dividends as declared. During the year ended 31 March 2023, no new ordinary shares were issued (2022: 177,195,513 new ordinary shares were issued which had a nominal value of £0.001 each and were issued at £0.12 each).

15. Interest-bearing loans and borrowings

On 1 December 2020, the Group entered into a two year Revolving Credit Facility agreement with Lloyds Banking Group for £10 million. This facility supported the financing, construction and acquisition of pipeline assets. During the year ended 31 March 2023 this facility reached maturity without renewal. No drawn downs or repayments were made by the Group during the year ended 31 March 2023 (2022: net repayment of £5.7 million).

Changes in liabilities arising from financing activities

As a result of the facility reaching maturity during the year with no renewal, no borrowings are outstanding as at 31 March 2023 (2022: £nil). At 31 March 2022, as there were no borrowings outstanding, the capitalised borrowing fees of £94,000 were included within trade and other receivables. During the year ended 31 March 2023, all remaining capitalised borrowing fees at 31 March 2022 were amortised.

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

16. Reconciliation to net (debt)/cash

17. Provisions

The provision for onerous contracts relates to future losses expected to be incurred on contracts deemed to be onerous. The amount and timing of the outflows related to these provisions are uncertain, but a reliable estimate has been made.

Of the £1,756,000 provision for onerous contracts, £430,000 (2022: £1,296,000) is expected to be settled in more than 12 months.

18. Derivatives

On 5 December 2022, the Group announced it had entered into an arrangement (the "Facility Agreement") in respect of funding of up to £6 million by way of a convertible loan, to be drawn down in tranches as required. The outstanding loan balance, inclusive of all interest and non-utilisation fees, is repayable on or before 1 November 2023, or can be converted into ordinary shares of Fulcrum Utility Services Limited (the "Company"), at the discretion of the lenders, from 1 April 2023. The conversion price will be the lower of the volume weighted average market value of the Company's ordinary shares in the 5 trading days immediately preceding the date of the conversion notice, or 0.5p per ordinary share. Security has also been provided to the lenders by way of a fixed charge over the share capital of all subsidiaries within the Group.

The conversion feature of the loan is an embedded derivative under IAS 32 and has therefore been accounted for as such under IFRS 9. Under IFRS 9, the conversion feature is recognised on the balance sheet as a derivative at fair value through profit and loss.

The fair value of the convertible feature was determined by external, independent specialist valuers, having appropriate recognised professional qualifications and experience in the liability being valued. A Monte Carlo model was used by the external, independent specialist valuers to determine the fair value of the convertible feature of the loan. The key assumptions used in the valuation model include current market prices and risk free rates, dividend yield and share price volatility. The valuation technique is classified as a Level 2 fair value (based on observable inputs) under IFRS 13.

At 31 March 2023, the full £6 million made available in the Facility Agreement had been drawn down.

19. 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 and key management personnel are included in the Remuneration Report of the Annual Report and Accounts.

In the year, sales totalling £1,429,368 (2022: £1,148,332) were made by the Group to companies in which key management personnel held significant interests, of which £311,730 (2022: £165,851) was still outstanding at the year end.

In the year, purchases totalling £1,011,814 (2022: £776,946) were made by the Group from companies in which key management personnel held significant interests, of which £282,683 (2022: £nil) was still outstanding at the year end. The purchases were for seconded staff, professional fees, subcontracted services and fuel cards used in the ordinary course of business.

During the year ended 31 March 2023, Fulcrum Utility Services Limited entered into the Facility Agreement with Bayford & Co Ltd ("Bayford") and Harwood Capital Management Limited Group ("Harwood"), through which Bayford and Harwood would make available funding of up to £6 million by way of a convertible loan, to be drawn down in tranches by the Group as required. Bayford and Harwood are substantial shareholders in the Group, and are each represented on the Group's board of directors. At 31 March 2023, the full £6 million made available in the Facility Agreement had been drawn down and remained outstanding, as well as £0.2 million of accrued interest and non-utilisation fees.