-Smart metering contract cancelled

-Second half turned to losses

-Strategic shift with asset purchases

Shares in energy infrastructure provider Fulcrum Utility Services (FCRM:AIM) fell as much as 28% to 6.5p on Friday after the firm delivered a comprehensive tale of woe for the fourth quarter of its financial year to March.

By midday the shares had pared their loss to 7.3p, a decline of 20%, although that still left them considerably below the 12p level at which the company raised cash in December 2021.

EARNINGS IMPACT

The firm said that since its fundraise, the UK energy market had experienced ‘considerable turbulence’ which had badly affected its smart meter business.

In particular, the performance and profitability of the group's smart meter exchange and management contract with energy supplier E (Gas and Electricity) Limited was ‘acutely impacted in the final quarter of the year, primarily as a result of the insolvency of several of the group's other energy supplier customers and one of the Group's labour-only subcontractors’.

As a result, the group has since terminated the contract, reducing its order book.

Meanwhile, cost and supply chain pressures have weighed on the profits of its core multi-utility contracting business, in particular major multi-utility and complex electrical infrastructure projects ‘which are inherently specialist and longer-term in nature’.

The combination of problems in smart metering and the multi-utility business mean group EBITDA (earnings before interest, taxes, depreciation and amortization) for the last financial year will be just £0.5 million compared with £1 million at the half-year stage, implying the firm made a second-half loss.

COMPLETE OVERHAUL

Interim chief executive Antony Collins was appointed in January to help turn the business around.

Together with his team, Collins is ‘actively reviewing the group's activities to ensure optimal performance and to identify opportunities to improve profitability and to deliver long term, sustainable growth for the benefit of all shareholders’.

There is a strong suggestion that part of the solution is to buy assets from distressed sellers.

The board says that ‘whilst presenting risks, the current instability in the energy market also produces opportunities for the group to acquire asset portfolios at attractive valuations’.

Its current utility assets, which were valued at over £36 million in March, ‘continue to generate recurring income and provide attractive and predictable long-term returns’.

Using that logic, the board believes ‘additional asset ownership presents a significant growth opportunity for the group’ and therefore it ‘continues to identify and review asset acquisition opportunities and is at varying stages of discussion and due diligence with several opportunities’.

LEARN MORE ABOUT FULCRUM

Find out how to deal online from £1.50 in a SIPP, ISA or Dealing account.

Issue Date: 13 May 2022