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.
This repositioning was undertaken against a backdrop of uncertain and challenging market conditions which is reflected in a disappointing financial performance.
Reported revenue was £46.1 million, down 5.8% on FY19. Profit before tax was £1.3 million and adjusted EBITDA from continuing operations was £4.5 million.
Business performance was impacted in the first half of the year due to uncertain market conditions, the ongoing Capacity Market suspension and certain inefficiencies within the business.
These inefficiencies and the action taken to improve productivity are explained later in the Operational Review. Despite a substantial improvement in the second half of the year in a more certain market, the impact of COVID-19 impeded business operations towards the end of the financial year.
Although market conditions affected business performance, there is a substantial long-term opportunity for the Group to grow its revenues across markets that have attractive long-term drivers given the UK’s net-zero and smart energy revolution. This significant opportunity is clear and recently reinforced by, for example, Ofgem’s proposal for a five year investment programme of £25 billion, with potential for an additional £10 billion or more, to transform Britain’s energy networks to deliver emissions-free green energy.
The Group is well positioned to support the UK’s infrastructure requirements in an evolving energy landscape, with strategically critical capabilities and the Group will continue to focus its capabilities on enabling the UK to transition to a net-zero economy. This includes delivering services and solutions that are contributing to a greener future, such as designing and building utility infrastructure solutions to power and maintain renewable energy generating infrastructure, including battery storage sites, wind farms, solar farms and Electric Vehicle (EV) charging infrastructure.
The growth in electric vehicles in the UK is particularly exciting and I believe the Group has the specialist capabilities, skills and expertise needed to secure a significant share of this market as the country rapidly expands its EV charging network.
Delivering smart meter exchange programmes is another vital element of the net-zero and smart energy revolution and progress was made on developing our smart metering business in the year, positioning the Group well to take a share of the 30 million meters to exchange in the UK by mid-2025.
Equally, there is a highly attractive opportunity for growth in the UK housing market, as evidenced by the UK government’s commitment to build an average of 300,000 new homes each year by the mid-2020s. Although the Group has delivered sustained growth in its housing order book, up 24% in the year to £25 million, we are a relatively small player and a substantial share of the market is still available to us.
The sale of the Group’s existing and contracted domestic gas assets, announced in the year, realises substantial value for the Company. With a total gross consideration currently expected to be approximately £48 million in cash, the successful completion of the first tranche of the sale significantly strengthened our balance sheet. The sale of the first tranche of assets is now complete, with total proceeds of £17.9 million against an original cost to the Group of £10.7 million, which has subsequently been revalued at £12.8 million. This has resulted in a total gain, before expenses of disposal, of £5.1 million. The cash proceeds from the asset sale, coupled with robust financial discipline, will support a strong balance sheet and the generation of surplus cash in the future.
The Group’s core growth strategy is now focused on its 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.
Given the current economic uncertainty and the unquantifiable impact of COVID-19 on the Group's short-to-medium-term trading environment, the Group is prioritising maintaining the strength of its balance sheet and its cash reserves. As a result, the Group will not pay a dividend in respect of the financial year ended 31st March 2020.
In October 2019, we announced the departure of the 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 at 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.
Our people are critical to the Group’s success. They are talented individuals and we have a responsibility to support and nurture them. In the year, we bolstered the Group’s capabilities with some strategically important appointments and expanded our workforce to underpin our future growth. The Board is very proud of how our people have responded to, and adapted, during the COVID-19 pandemic. They have demonstrated true resilience and tenacity whilst delivering essential services to our customers. We are committed to bringing out the best in our people and aim to operate as a “Times Top 100” employer to ensure that we retain and recruit the very best. On behalf of the Board, I would like to thank all our employees for their continued hard work, commitment and contribution.
The Board recognises the fundamental importance of stakeholder engagement to the long-term success and sustainability of our business, and that effective engagement and collaboration will be crucial in supporting the UK’s net-zero revolution. Fulcrum is committed to developing effective dialogue and relationships with all stakeholder groups and the Board is committed to continually developing our business using learnings from the interactions we have with them.
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.
As at 31 March 2020, the Group recorded its highest ever order book, up 9% year on year to £66.2 million, and has seen continued growth, reaching £68 million at 30 June 2020. The Board believes that, despite the current economic conditions and uncertainty created by COVID-19, the political and legal commitment to decarbonise the UK to achieve a net-zero future, the substantial opportunity to design and build electrical networks to power the nation’s electric vehicles, the commitment to build an average of 300,000 new homes each year by the mid-2020s and the obligation to exchange 30 million domestic meters by mid-2025, present significant tailwinds and offer some very exciting growth opportunities for the Group. The Board is confident that the Group has a robust plan in place to capitalise on the UK’s energy infrastructure revolution and that it 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.
A year of a net-zero future
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 disagreements on who should bear the (at the time, emerging) COVID-19 risk. This is also reflected in the Group’s results.
Positively, at the year end, the Group recorded its highest value order book, up 9% to £66.2 million, demonstrating the Group’s work-winning ability in difficult market conditions. Significant orders in the year included a £3.2 million contract to install new high-voltage electrical infrastructure for two 50MW gas peaking plants in North East England; a £2.4 million contract to provide over 6km of new gas, water and electrical infrastructure to a new sustainable mixed-use residential, retail and commercial development in the East Midlands; and a £1.8 million contract to install new electrical infrastructure as part of a major regeneration scheme in South East London.
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 and commitments that will support our growth and we have developed a strategy to ensure we are 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.
Total revenue decreased by £2.8 million to £46.1 million (2019: £48.9 million) predominantly due to the impact of COVID-19, as described above. Infrastructure revenues were particularly impacted, falling £4.1 million to £41.8 million (2019: £45.9 million). This, however, was offset by utility asset ownership revenues which delivered a £1.3 million increase to £4.3 million (2019: £3 million).
Adjusted EBITDA from continuing operations* for the period decreased to £4.5 million, broadly in line with management expectations (2019: £10.9 million**).
This reduction was due to a combination of lower revenues, a dilution of the gross margin as a result of the mix of work and investment in the overheads to deliver improvements and lay the foundations for future growth.
Basic earnings per share reduced to 0.7p compared to 2.3p** in 2019. Adjusted basic earnings per share, before charging exceptional items, have decreased to 2.3p from 3.4p** in 2019.
The asset sale yields substantial value for our existing and contracted domestic gas assets and has significantly strengthened our balance sheet. The Group used the proceeds from the first tranche of the sale to repay its existing debt of £10 million in full, leaving the business debt free as at 1 April 2020, other than operating lease obligations, and with net cash balances of £6 million at close of business on 31 March 2020.
The Group has always placed a high priority on cash generation and the active management of working capital, resulting in a positive operating cash flow from trading activities of £1.7 million. As at 31 March 2020, the Group had net cash of £6 million (2019: £3.8 million), a £2.2 million increase against the prior period. Net cash inflow from investing activities was £4.8 million, benefiting from the £16.8 million of receipts from the disposal of utility assets, offset by investment in utility assets of £11.5 million.
Net cash inflow from financing activities of £2.7 million was predominantly due to increased borrowings of £7 million, offset by £3.3 million in dividend payments and £0.9 million in lease and interest payments relating to IFRS 16. The £10 million revolving credit facility with Lloyds Banking Group was fully paid off on 1 April 2020 from the proceeds of the asset sale. The cash proceeds from the asset sale, coupled with robust financial discipline, will enable Fulcrum to maintain a strong balance sheet and will support the generation of surplus cash in the future.
We are also in advanced discussions around a further facility that will improve the Group’s liquidity position and a further announcement will be made in due course.
Net assets increased by £1 million during the year, reflecting the utility asset net revaluation increase of £2.9 million, and retained profit for the period of £1.6 million, offset by the final 2019 dividend totalling £3.3 million. Net assets per share at 31 March 2020 were 20.8p per share (2019: 20.5p).
As at 31 March 2020, the issued share capital of the Company was 221,117,945 ordinary shares (2019: 221,303,106) with a nominal value of £221,118. At the end of the year, the Group operated a Growth Share Scheme (GSS) plan and three SAYE schemes. The principal terms of the remaining share option scheme are summarised in note 19 of the financial statements.
Despite a challenging year, the Group continued to make progress in positioning itself for future growth and success and, whilst there is still more to do to develop and improve the business and its operations, I am confident that Fulcrum will benefit from the UK’s net-zero and smart energy revolution.
Despite the impact of COVID-19, trading in the new financial year has seen continual improvement month on month and is expected to return to pre-COVID-19 levels in Q2 of FY21 and, as at 31 March 2020, the Group recorded its highest ever order book, up 9% year on year to £66.2 million, and has seen continued growth, reaching £68 million at 30 June 2020.
The successful execution of our strategy is now supported with our strongest ever order book, greater balance sheet strength, new strategic relationships, improved capabilities and an enhanced management team. We are strongly positioned to grow and to provide long-term, sustainable value for shareholders.
Building a stronger platform for future growth
In the year, we placed a 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.
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 we are already seeing the positive outcomes of their contribution.
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 the housing opportunities varies from 10 plots to over 1,000 plots and it is the higher end of this market that our relationship with ESP will help unlock for the Group.
Despite challenging economic conditions, our housing order book increased by 24%, to £25 million, in the year and there is a clear and significant opportunity for further growth. In addition to the UK government’s commitment to build an average of 300,000 new homes each year by the mid-2020s, we have a low market share, estimated at under 5%, with limited presence in some parts of the UK and therefore the opportunity to increase our presence in this market is clear.
To ensure we maximise our share in this strategically important market, we have been bolstering our sales teams 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 ensuring 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.
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 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.
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 the opportunity for future geographic expansion.
Whilst many improvements have been implemented in the year, there remains more to do to ensure that the business 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.