(Alliance News) - Shares dropped in Fulcrum Utility Services Ltd on Monday as it reported a swing to a loss in a difficult interim period, leading to expectations of a drop in annual earnings.
Shares in the Sheffield-based multi-utility infrastructure and services provider were 9.6% lower at 24.85 pence on Monday in London.
Fulcrum also announced an agreement to sell its domestic customer gas connection assets, including the order book and associated meters, to ES Pipelines Ltd for GBP46 million.
The payment comprises a net consideration of GBP33 million, plus GBP13 million in future costs in relation to the build out of external order book assets, for which Fulcrum will remain liable.
Fulcrum said the sale will significantly strengthen its balance sheet, and on its completion will repay GBP12 million in existing borrowings.
In addition, Fulcrum said it will start a share-buyback programme to return GBP4 million to its shareholders over the next four years.
The deal is conditional on two regulatory conditions. The first is gaining approval from UK energy industry regulatory Ofgem. The second is the UK Competition & Markets Authority not launching a merger investigation. Alternatively, if the CMA does launch an investigation, the competition regulator must clear the sale without an in-depth review.
For the six months to the end of September, Fulcrum reported a pretax loss of GBP941,000, swinging from a profit of GBP3.0 million, on revenue that declined by 21% to GBP19.5 million from GBP24.8 million the year before.
The company attributed the weaker performance to economic uncertainty, and to the capacity market suspension by the EU in November 2018, which caused a delay in the starting of new contracts.
The capacity market lets energy generators bid for contracts to provide back-up power to the UK grid in peak times over winter. However, the market was suspended by the EU in November 2018 due to claims that it favoured fossil fuel companies.
Fulcrum's order book as at September 30 was GBP62.6 million, up 3.7% from GBP60.5 million at the end of March
Fulcrum has deferred its interim dividend until the sale of its domestic gas assets, as it will use the proceeds for the payout.
Looking ahead, Fulcrum said there are indications that the utility connections market is improving, with a number of substantial contracts being won.
As a result, the company expects a stronger second half performance in its current financial year. Due to the difficult first half, however, Fulcrum expects full-year adjusted earnings before interest, taxes, depreciation and amortisation to be around GBP5 million, down 53% from GBP10.7 million the prior year.
"The sale of our domestic utility assets to ESP also significantly strengthens our balance sheet and will provide a basis for a return of capital to shareholders. The group's core growth strategy will focus on its design and build utility connections activities, as well as on continuing to adopt assets in its traditional Industrial & Commercial market where appropriate," said Chair Phil Holder.
By Dayo Laniyan; dayolaniyan@alliancenews.com
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