FIELD SYSTEMS DESIGNS HOLDINGS PLC - Half-year Report

FIELD SYSTEMS DESIGNS HOLDINGS PLC                                               

INTERIM RESULTS

The Board of Field Systems Designs Holdings plc (FSD), a specialist installation and engineering Group providing mechanical and electrical design and installation services in the water, power, and waste industries, announces its interim results for the six months to 30 November 2021.

OVERVIEW

The results for the first six months of this financial year show significantly reduced turnover and profitability compared to the prior period.

The consolidated results for the six months to 30 November 2021 show group turnover of GBP2.6million; (2020 GBP5.7million) with a group loss after tax of GBP(1,270,000); (2020 GBP(209,000).

COVID-19 has had a serious impact on the release of work in the UK Water Industry. The unexpected fall in order intake and turnover due to the pandemic created an excess in labour resources which placed a cost burden on the group with no productive output in return. Key personnel were retained in anticipation of workflows from the Water companies which never materialised.

Two major projects suddenly terminated in October 2021 when its customer NMCN went into administration. There were considerable costs and disruption to operations in the demobilisation from sites and the financial impact from unpaid debts.

These two exceptional events, together with ongoing projects working under the disruptive and costly stringent COVID safety rules, caused gross profit margins to fall, and with overheads no longer relative to the volume of business, this resulted in losses.  

The group maintains a healthy balance sheet and the level of cash remains robust.

COVID-19

The global pandemic has had a major impact on the release of work in the primary market of the Group being the UK Water Process industry.

The UK water utilities have asset management programmes (AMPs) governed by OFWAT which run in 5-year cycles where supplier frameworks are created to deliver their infrastructure and maintenance investment. FSD has established itself as a key supplier in the industry with membership of multiple frameworks and preferred supplier agreements.

Unfortunately the timing of the pandemic could not have been worse, as the last 5-year investment programme (AMP6) ended in April 2020, just as the virus hit the economy. Normally at this stage of the five-year cycle FSD would have experienced a marked step-up in investment and engineering activity as capital projects are approved and construction begins. The global Coronavirus crisis coincided with the start of AMP7 when, under the guidance of OFWAT, water companies agree their budget determinations with the Competition and Markets Authority (CMA) which sets out the water- rates companies can charge their customers over the investment period.

A number of water companies challenged their determination by OFWAT for the AMP7 investment period, which runs from 2020 to 2025. These challenges together with concerns over COVID-19 caused UK Water Utilities to cease their new investment plans to preserve their cash resources, to protect their staff, thereby ceasing engineering design work, and to delay the start of impending projects until the outlook for the economy was clearer.

Consequently, the impact on FSD was that the next investment cycle (AMP7) was effectively delayed two years from April 2020 to March 2022. Our customers held back placement of new orders so eliminating any quantum of new work to start as old projects were completed.

CUSTOMER FAILURE

The Group was in contract on two major projects with NMCN, formerly known as North Midland Construction, and which ceased trading on 4 October 2021 after 75 years in business. One project for Severn Trent Water was at its conclusion whilst the other for the States of Jersey was in its infancy. FSD was under intense programme pressure from NMCN on both contracts at that time, with assurances of their solvency by their relevant project teams. Their sudden cessation caused considerable disruption to our operations due to the demobilisation of staff, the redistribution of resources and the loss of forecast turnover and margin. The unpaid debts amounted to in excess of £300,000.

OUTLOOK

The expectation is for an improved second half for the May 2022 Financial Year, as order intake gains momentum in early 2022, followed by a further increase in turnover for the May 2023 Year-end, and thereafter, as normality returns.

The AMP7 budgetary expenditure targets still need to be spent by the Water Utilities, albeit now over a shorter time-period, in order to meet their regulatory obligations and respond to the significant environmental challenges they face with increased demand for water and the negative impacts of sewage spills and leakage.

The delayed period of expenditure has created difficulties for FSD, struggling to sustain its labour resources during a period of low turnover; however there now approaches an influx of projects as work levels ramp up rapidly while the water companies strive to catch up on the delay to starting AMP7.

The flipside to this period of stagnation, with a scarcity of project opportunities, is that fortunately the projects FSD have tendered over this extended period have not been lost, merely delayed, and so FSD is confident that it is in prime position as normality resumes to prosper from the growing workload emerging from the Water sector.

There are clear signs of new AMP7 projects finally being prepared for release, the order book has been filling since the New Year to pre-COVID levels and with secured orders of over £7 million the outlook is now positive. The trading conditions ahead look promising for FSD and having been nominated on frameworks and allocated a number of key projects the Group now prepares itself for a busy period of activity as it faces a steep incline in project awards.

The positive public announcements from the main water utilities confirm that the proposed 2020-2025 budgets remain to be spent. In fact the regulatory bodies will insist that this is the case as infrastructure investment is so desperately needed to keep our UK population watered and the environment clean.

FSD has strengthened its management team by a new Board director appointment and retained the majority of its experienced workforce so as to react swiftly as the Utility Companies restart projects and expect as we emerge from the shadow of COVID that business volume will return and that a improved trading period lies ahead as the water industry catches up the ground lost to COVID-19.

N Billings

Managing Director

28 February 2022

FIELD SYSTEMS DESIGNS HOLDINGS PLC                                              

UNAUDITED COMPREHENSIVE INCOME STATEMENT

for the six months ended 30 November 2021

NOTES:

1.         The directors of Field Systems Designs Holdings plc accept responsibility for this announcement.

2.         This interim statement has neither been audited, nor reviewed by our auditors, Shipleys LLP.

FIELD SYSTEMS DESIGNS HOLDINGS PLC                                             

UNAUDITED GROUP STATEMENT OF FINANCIAL POSITION

As at 30 November 2021