Risk management

The Board considers risk assessment, identification of mitigating actions and related internal controls to be fundamental to achieving the Group’s strategic objectives.

The Corporate Governance Report on 37–46 of the 2020 Annual Report describes the systems and processes through which the Directors manage and mitigate risk.

Our principal risks

The Board recognises that the nature and scope of the Group’s risks can change, so it regularly reviews the risks faced as well as the systems and processes in place to mitigate them. The principal risks to achieving the Group’s objectives are set out below. The risk factors described are not an exhaustive list or an explanation of all risks. Additional risks and uncertainties relating to the Group, including those that are not currently known to the Group or that the Group currently deems immaterial, may individually or cumulatively also have a material adverse effect on the Group’s business operations, results and/or financial condition.

Risks within the Company’s control

In its Annual Report and Accounts for the year ended 31 March 2019, the Company reported on the principal risks and uncertainties affecting the Group and actions taken to mitigate these risks. This report has been updated, with new risks included, together with an update on mitigating actions.

COVID-19

The COVID-19 pandemic has become a principal risk for the business and is detailed below.

Description

There is a risk that:

  •  The recent outbreak and global spread of COVID-19 has a significant and prolonged impact on the UK economy and may disrupt our supply chain and our customers’ projects and adversely impact our operations.
  • The temporary emergency public safety measures which the UK government introduced, continue for an extended period of time, increasing pressure on our operations due to an economic downturn.

Mitigating actions

The safety and wellbeing of our people, customers and the communities we work in continues to be our number one priority. In line with the measures introduced by the UK government, we took our responsibility to safeguard the wellbeing of our field based people and the communities they work in seriously, by postponing the delivery of all non-essential utility connection and infrastructure works. Works were fully remobilised in line with government advice and utility works are now delivered under COVID-secure guidelines.

The proceeds from the sale of the Group’s domestic customer gas connection assets and associated meters to ESP, significantly strengthen the Group’s balance sheet and we continue to have strong relationships with our bank and are in advanced discussions regarding the provision of new facilities. We are also backed by our retained, regulated asset base and its recurring income, to support the Group’s longer-term needs. The Board continues to monitor the situation closely and explore further actions as necessary to support the Group’s liquidity.

Regarding the impact of an economic downturn, our Executive Committee is monitoring events closely with regular Board oversight, to evaluate impact and design appropriate response strategies. Risks associated with an economic downturn are mitigated by our limited market share in key sectors. Our wide breadth of offering and diversified position, across multiple sectors, also reduce our exposure to volatility in individual markets.

Risk status

New

Description

There is a risk that:

  • The strategy currently being pursued is not the most effective or efficient and that alternative strategies may be more appropriate.

Mitigating actions

The Group’s strategy is agreed by the Board at an annual strategy meeting and thereafter regularly reviewed at Board meetings and by the Executive Directors. The Board engages with management and employees to ensure the strategy is communicated and understood and that all employees have a clear understanding of the potential benefits and risks of the strategy. The Group maintains a close watch on, and assesses, the relevant market drivers that influence the Group’s strategic priorities to ensure that its growth strategy remains relevant and appropriate.

Risk status

No change

Description

There is a risk that:

  • The Group loses its valued and talented employees.

Mitigating actions

The Group has put in place competitive reward and recognition packages to all, comprising a blend of short and long-term incentives for senior managers and Executives. Employee development programmes are in place to assess, manage and develop the leadership skills of employees throughout the organisation. In addition, we invest in succession planning and improving learning and development, giving opportunities for employees to upgrade skills. The Group’s culture and approach to employee engagement continue to be differentiators in attracting and retaining talent.

Risk status

No change

Description

There is a risk that:

  • The macroeconomic conditions in the UK impact the ability of the Group to execute its strategy and growth plans.

Mitigating actions

We closely monitor market developments across our key sectors and we proactively engage with government and regulatory bodies to keep informed of market developments.

The Group expects that future market changes will, in the main, continue to be driven by the move to cleaner energy, in line with the UK’s 2050 net-zero target. The Board believes that this presents a significant growth opportunity for the Group considering its specialist skills, experience and capabilities.

The Group also continues to work towards a more balanced revenue base to reduce reliance on specific utility services in an evolving energy landscape.

Risk status

No change

Description

There is a risk that:

  • The markets in which the Group operates become increasingly competitive and the actions of the Group’s competitors, including those from organisations that may be larger and/or have greater capital resources, and/or our own inaction, has a significant and adverse impact on the Group.

Mitigating actions

Our wide breadth of offering and diversified position across multiple sectors reduce our exposure to volatility in individual competitive markets. The variety and volume of customers serviced mean that the Group is also not reliant on any customer. These risks are managed through the corporate planning and review processes. To ensure that we remain competitive, we monitor market developments and pursue feedback from customers on the competitiveness of all tenders and bids.

Considering the specialist, technical and regulated nature of the Group’s operations and the market in which it operates, there are high barriers to entry for new competitors.

Risk status

No change

Description

There is a risk that:

  • The inherent risks from operating in the utility infrastructure market, such as reliance on ageing infrastructure as well as the risk of downtime or low productivity caused by interruptions or equipment failures, are realised.
  • The Group loses one or more of its licences, which it requires in order to carry out the design, build, project management, ownership and maintenance of utility infrastructure.
  • The regulatory environment could change, which may have a direct and significant impact on the Group’s regulated activities.

Mitigating actions

The Group seeks to reduce the risk of losses arising from these circumstances through careful planning, robust operational guidelines and the sharing of risk with client and supplier organisations and by putting in place suitable insurance arrangements. The Group also maintains proactive engagement with a variety of government and regulatory bodies to keep informed, and ahead, in an evolving market landscape.

Risk status

No change

Description

There is a risk that:

  • Accidents on our sites could lead to potential injury to, or loss of, human life, reputational damage and financial penalties.

Mitigating actions

We ensure that the Board’s health and safety strategy is implemented by our comprehensive management systems and controls, overseen by our Group health and safety team to minimise the likelihood and impact of accidents. We have also developed and sustained a strong “safety-first” culture which has delivered improvements in behavioural safety and safety performance.

Risk status

No change

Description

There is a risk that:

  • The Group does not have the working capital management and funding required to deliver on its strategy and future growth plans.

Mitigating actions

The proceeds from the sale of the Group’s domestic customer gas connection assets and associated meters to ESP significantly strengthen the Group’s balance sheet. Proceeds from the first tranche of the sale were also used repay existing debt of £10 million in full, leaving the business debt free as at 1 April 2020, other than operating lease obligations. In granting commercial credit terms, careful attention is paid to the timing of cash receipts and payments over the period of contract delivery. Where necessary, a deposit is requested from customers prior to commencing work and invoicing milestones with customers are matched where possible to the invoicing patterns of our supply chain.

We also continue to have strong relationships with our bank and are in advanced discussions regarding the provision of new facilities.

Risk status

No change

Description

There is a risk that:

  • Computer systems outages and interruptions could affect the ability to conduct day-to-day operations, which could result in loss of sales and delays to cash flow.
  • Key systems could be breached causing financial loss, data loss, disruption or damage and any theft or misuse of data held within the Group’s systems and this could have both reputational and financial implications for the Group.

Mitigating actions

The Group’s IT strategies are reviewed regularly to ensure they remain appropriate, with business continuity and disaster recovery testing performed. We have a dedicated internal IT support team which works closely with our external support advisers to ensure that regular updates to technology, infrastructure, communications and application systems occur. The Group has advanced centralised hardware and software security in place to ensure protection of commercial and sensitive data. For new IT projects, our technology advisers are utilised in conjunction with internal project management, restricting access to data, systems and code and ensuring all systems are secure and up to date.

Risk status

No change

Description

There is a risk that:

  • Fulcrum could be impacted by the UK’s leaving the European Union by the end of 2020, particularly the supply chain for goods sourced from within the EU.
  • Additional timescales, tariffs or import costs related to sourcing materials from the EU would create additional customer cost and could introduce delays in delivery.

Risk status

Reduced