Field Systems Designs Holdings Plc - Annual Financial Report

Field Systems Designs Holdings plc 2023 Annual Results

FIELD SYSTEMS DESIGNS HOLDINGS PLC                                               

CHAIRMAN’S STATEMENT

The Board presents the results of Field Systems Designs Holdings plc and its subsidiaries (FSD) for the year ended

31 May 2023.

I am pleased to report that FSD is finally returning to a more normalised period of trading. The disruption caused by the COVID-19 virus is behind us; the impact of Brexit is contained; and although global uncertainties such as the Ukranian invasion remain of major concern, with its resultant impact on inflation; the future is looking more positive.

The pandemic was most difficult for FSD due to its effect on our clients’ design and programming for their Asset Management Programme (AMP) and its consequential impact on our order intake.

The negative media publicity regarding the performance of the Water Industry continues, and there is mounting public and government pressure to push on with maintaining their water process infrastructure. Despite the pressure by OFWAT to resume their 2020-2025 spend budgets the framework expenditure plans by water utilities were still not being rolled forward into AMP7. However this is set to change as new orders are now forthcoming from the Water Industry, and there is more of an urgency in evidence as they seek to make investment decisions before inflationary pressures overtake them.

The improved current year’s Group financial results support the decisions made by management to retain our core skilled resource base across the Group, and consequently FSD can still present itself to its industry as a well-established Mechanical and Electrical contractor fully equipped to offer a high-quality delivery.

FSD is confident that a high quantum of order intake remains within the Water industry in which it operates and so it is expected that the quality of our track record, added to the reputation of our talented mechanical and electrical personnel leaves us in prime position to benefit from the resumption of a more normalised investment cycle. The Group is well-positioned with a strong cash balance and an experienced workforce to support the restart of AMP7 projects now so needed to protect the environment.

The Board expect business volumes to continue to grow, and whilst there will be battles ahead with inflation and competition for limited labour resources, there is now belief that a buoyant trading period lies ahead.

D K Bird

Chairman

PUBLICATION OF NON-STATUTORY ACCOUNTS

The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in the Companies Act 2006.

The group statement of financial position as at 31 May 2023 and the group income statement for the year then ended have been extracted from the Group's 2023 statutory financial statements, which have not yet been delivered to the registrar of companies. The directors of Field Systems Designs Holdings plc accept responsibility for this announcement and confirm compliance with the AQSE Growth Market rules.

STRATEGIC REPORT

The directors present the Strategic Report for Field Systems Designs Holdings Plc and its subsidiary undertakings (together referred to as ‘the Group’) for the year ended 31 May 2023.

OPERATIONAL PERFORMANCE

The Group achieved a turnover of £13.8 million for the year to 31 May 2023, an improvement of 70% on last year. These results show significantly improved turnover and profitability, which reflect the reduced impact of COVID-19 on the business and an improvement in the inflow of work from the UK Water Industry AMP7 delivery programme.

The Water Industry’s seventh Asset Management Programme (AMP7) commenced in April 2020, and framework plans by water utilities were rolled forward. The impact of COVID-19, and conflicts between water utilities and OFWAT in challenging their 2020-2025 expenditure budgets, caused many new orders expected by FSD under AMP7 to be delayed for three years, but now order intake and consequential turnover are improving rapidly.

Group revenues include transactions with three customers that amount to 10 per cent or more of the Group's total annual revenues; the total amount of revenues from those customers amounts to £7.9million from the Water and Sewage treatment sector.

Trading conditions normalised this year bouncing back from the COVID-19 era with underlying gross margins improving in the year to 9.5% from a gross loss last year.

The Group made a gross profit of £1,307,256 compared to a gross loss last year of £(1,392,490). Overall these improved operating conditions left the Group with operating profits for the year of £258,037 (2022: loss £(1,905,277)).

The consolidated results show a group profit after tax of £353,073 (2022: £(1,818,860)).

BUSINESS REVIEW

The Field Systems Designs Group (FSD) focuses on delivering specialist mechanical and electrical design and installation works.

FSD successfully secured, engineered, managed and installed a volume of Mechanical and Electrical (M&E) installation projects during the year across the water and sewerage sector as the Group strives to complete to budget a quality job in a safe working manner and maintain its reputation as a respected industry specialist. Sales volumes in the Water Industry in 2023 provided 100% of group turnover (2022: 90%). The Group undertook a diversity of projects for a number of different Water Utilities in many regions of the United Kingdom, working for multiple Tier One contractors under AMP7 frameworks and supply-chain arrangements.

In 2023 no turnover was derived from the Power generation sector (2022: 10%) as there were no power station outage maintenance works undertaken during the year.

The pipework fabrication facility owned by the Group gives its mechanical subsidiary the flexibility to respond to customer’s needs promptly when taking on the mechanical elements of M&E installation contracts, The Group has grown its client base by creating a reputation for quality in-house mechanical design, fabrication and site installation services.

PRINCIPAL RISKS AND UNCERTAINTIES

The board regularly undertakes a review of business risks and uncertainties confronting the Group and evaluates the significant project risks affecting its business. The following issues are the principal risks and uncertainties faced by the Group.

Economic

The Group’s business may be affected by market forces beyond its control. During a downturn all competing companies operating in the same industry sectors will be impacted by economic and political change that will alter the volume and value of available work.

World Markets

The impact on currency markets and businesses following Brexit continue to impact the business affecting both pricing and ease of supply. Similarly, the impact of commodity pricing and supply as a consequence of the war in Ukraine has affected the availability of commodity-derived products. The directors have reviewed these implications on our business as part of our risk management process. The short-term effects are inflationary, primarily on material pricing, and there has been additional care taken over tender pricing and duration of validity periods. The long-term relationships with our supply chain have aided our business to remain resilient under these circumstances. We also endeavour to advise customers to consider carefully the longer lead-times and volatile material prices as part of their order placement programming strategy.

COVID-19

The unpredictable nature of the Coronavirus pandemic and the timing of its cessation created uncertainty estimating the impact of future events which was highly challenging. The directors have reviewed the key areas of risk to the business and the potential negative impact of the residual effects of COVID-19 on the business, which includes determining the likelihood of customers to meet their debts as they fall due, the impact on supplier’s performance and ability to supply goods, the impact on levels of human resources, and the difficulty in predicting the level of future order intake.

Cyclical trading

The Group is heavily reliant on the Water industry and its business is affected by the cyclical nature of the UK market caused by the 5-year Asset Management Programmes (AMPs) governed by OFWAT. At the beginning and the end of each AMP the water industry has historically suffered a downturn as competing companies are chasing a reduced volume of available work. This was exacerbated recently by the impact of COVID on client engineering, programming and resourcing. The mitigation of these uncertainties by continually monitoring changes in the sector has proved challenging, with accurate sales information proving difficult to obtain with any reliability.

Skilled personnel

The Group is dependent on the quality, attention and diligence of its personnel across the full spectrum of its skill disciplines. The Group’s ability to attract, retain, train and motivate its skilled management and personnel will be reflected by business growth, profitability and a reputation for quality work. The Group offers ‘added-value’ to its customers by offering a superior quality of project management, engineering and supervisory resource to complement its installation services. It is this wealth of knowledge and experience that sets FSD aside from its competition.

Health and safety

The board reviews personnel issues on a monthly basis and the Safety, Health, Environment and Quality manager (SHEQ) ensures there is investment in training programmes for site and management to broaden the competence, knowledge and experience of its employees. The Group continues to promote the further training and improvement of staff; benefitting where applicable from the introduction of the government Apprenticeship Levy. The Group demands effective and successful management of health and safety risks by its supply-chain and similar demands are rightly made by its own customer base. Constant vigilance is paramount and any accident can have serious consequences. The commitment to enforcing safe working and adherence to regulation is strong at board level and flows through the organisation through qualified specialists, continual instruction and training. The Group is extremely aware of the potential for an ‘incident’ to damage the Group and gives constant attention to ensuring that this risk is kept to a minimum. The board, supported by a highly qualified health and safety specialist, endorses the importance of vigilant health and safety practices.

Long term contracts – bidding

The majority of Group turnover is from fixed price and target price contracts. The failure to adequately assess from client’s specifications the full scope of works, the correct pricing of that work and the time required to complete the work may have serious ramifications on profitability. There are specific risk management procedures in place to ensure that prices estimated for fixed price contracts are accurate and to ensure the correct costing of successful bids as the work progresses. The Tender Approval Procedure (TAP) is a key risk management tool used to minimise these risks. The TAP completion process identifies tender project risks, assesses the probability of their occurrence, their impact if they do occur and actions necessary to manage them down to an acceptable level. This procedure is used to ensure that commercial and contractual risks are monitored and managed by the board.

Long term contracts – costing

Fixed price and target price contracts may also be subject to cost and time overruns, and the costs of additional work undertaken on variations may not be properly measured or fully recovered from the customer. The Project Summary Report (PSR) is a key risk management tool used to minimise these risks. The PSR completion process quantifies the value of project work undertaken after successful contract award, reviews the potential commercial risks and highlights any safety, technical, operational and environmental risks. This tool is used to ensure that commercial and contractual risks are monitored and managed by the board.

Competitiveness

The Group has a leading market position in sectors such as the water industry, and has also historically penetrated other sectors such as tunnelling, the power industry and energy from waste market. Nevertheless in an increasingly competitive environment and with cyclical volumes, accurate and competitive pricing is key to a successful contract award. The board constantly monitors the competitiveness of its cost base to ensure that its pricing remains competitive. Regular benchmarking and framework submissions also assist this process of review.

Financial instruments

The Group uses financial instruments when required to provide a financing base for the Group’s operations. The Group's financial instruments consist primarily of short-term debtors and creditors. The directors regularly review the Group's cash position to ensure that facilities exist for continuity of funding and effective cash management.

Cash flow

The Group has a strong balance sheet and access to additional debt funding, and trades comfortably within its current working capital. Customers may require additional project work to be undertaken and the Group may be required to fund this work for a period of time until the additional costs can be formally approved and funds received. The Group may also experience an increase in the level of credit given to customers as a consequence of a change in their financial status or payment systems. In such circumstances there are short-term cash-flow consequences which are managed carefully by the finance department and any consequences mitigated.

KEY PERFORMANCE INDICATORS (KPI’s)

The board uses both financial and non-financial (operational) performance indicators in the analysis and management of the business. The indicators relate both to financial and contractual performance and to other non-financial areas, including but not limited to, employees, health and safety, quality assurance, customer satisfaction and the environment. KPI’s are used by the management to run and monitor the business and many of the trends and results provide information which is commercially sensitive or is confidential in nature.

Financial

The main financial KPI used by the board is the measure of gross profit margin (being the gross project profit contribution as a percentage of turnover), as overheads can largely be controlled in line with budget, however margins on contractual activity are key to annual profitability. An overall target margin is set annually in advance after review of overhead structure and subsequently represents the average bid margin used in pricing projects. It is designed to cover Group overheads plus an element of profit. The gross profit margin used in the annual budgeting process is used to benchmark monthly performance and provides for a degree of margin erosion due to difficulties in fully recovering the value of additional works requested by customers. This varies according to market conditions.

The actual margin experience is reflected in the reported results and a detailed review is contained within the operational performance reported earlier in the Strategic Report.

Non-financial

The board measures customer satisfaction using an independent on-line survey assessment. A rolling 12-month record is kept of customer feedback on project completion with charitable donations used to encourage participation.

Customers are asked to complete answers to a number of questions regarding the performance of FSD as a whole and also at site level, on a scale of 1 (poor) to 5 (excellent) including such areas as the focus on Safety and the Environment, completion of site work to programme, contract financial management and standard of workmanship. The responses are used by the board as an independent confirmation of group performance levels and negative feedback is vigorously followed up and improvement measures implemented. The group targets an average score of 4.5 and the overall responses have been very close to this target with an average of 4.4 (2022: 4.5) during the year.

The ongoing independent assessments of the Group’s Safety, Quality and Environmental Standards are key to it maintaining the efficiency of its operational performance and adherence to high levels of site safety and environmental awareness.

The FSD Group is approved to the Quality Management Standard ISO 9001:2015, has an environmental management system approved to ISO 14001:2015, and a safety management system approved to ISO 45001; the standard for Occupational Health & Safety. FSD has also achieved a BSI-accredited Building Information Modelling (BIM) Standard BS EN 19650-2:2018.

Achilles UVDB, the Utilities Sector Vendor Database performance assessor, regularly reviews the Group's processes for managing and installing electrical services, as well as its fault resolution procedures. The results of the 2023 Achilles audit were again excellent, reflecting 100% scores in all 4 areas of the Management System Evaluation and 100% in all 4 areas of the Onsite Assessment; these assessments look at areas of health & safety, environment, quality and social corporate responsibilities.

The Group board has both corporate and personal responsibility to ensure that its operations are managed in a safe and environmentally controlled manner.

In common with its industry the Group measures its record on Health & Safety using an annual Accident Frequency Rate (AFR) chart showing lost time accidents per 100,000 man-hours worked. The AFR is currently zero (2022: zero). The group has recently achieved over 1.92 million man-hours without a reportable incident.

PENSIONS

The FSD pension scheme’s funding position, based on the year-end actuarial review, has reduced from a surplus of £639,000 at the start of the year to a surplus of £265,000 at the end of the year. The Group is not recognising the surplus and so the Group’s defined benefit pension scheme funding position has been maintained at zero, a target reached in 2017. The scheme attempted to secure a buy-in where the assets of the scheme would be used to secure its’ members’ benefits with a reputable insurance company, however the valuation proposed to secure the scheme liabilities was excessively high due to the small size of the scheme, so the buy-in was not pursued.

QUALITY ASSURANCE

FSD is approved to the Quality Management Standard BS EN ISO 9001:2015. The British Standards Institute (BSI) and Achilles, the Utilities Sector procurement performance assessor, regularly review the group's processes for managing and installing electrical services, as well as its fault resolution procedures. Recent assessments have again been successfully completed with excellent results from the UVDB Verify audits. The Group is committed to a strategy that provides its clients with a high-quality service that conforms to the client’s requirements. This strategy includes a strong management commitment to quality, the recruitment and retention of high calibre, experienced and well-trained staff, properly documented procedures, processes and controls, and compliance with all regulatory and legal requirements.

Quality Audits continue to be carried out across group sites on a regular basis to ensure compliance and to improve the group’s activities. The annual management review meeting assesses the group’s performance against targets and sets new targets.

ENVIRONMENT

FSD has an environmental management system approved to the international environment standard, ISO 14001:2015. The BSI and Achilles regularly review the Group's processes for managing its impact on the environment. The Group achieved its Achilles (Carbon Reduction Certification) accreditation in 2020, as it strives to minimise harm to the environment, prevent pollution and use best practice environment solutions wherever possible to minimise its carbon foot-print. A risk assessment approach is used to manage environmental matters, and to identify and assess key environmental hazards arising from business activities and manage them appropriately. FSD continues to report under the Toitū carbon footprint reduction programme through Achilles. An absolute reduction in Category 1 and 2 emissions of 289.90 tCO2e has been achieved against the base year. A reduction in emissions intensity (for Category 1, 2 and mandatory Category 3 and 4 emissions) of 0.79 tCO2e/ £M turnover has been achieved based upon a 4-year rolling average, adjusted for inflation.

HEALTH AND SAFETY

A commitment to Health and Safety is the Group’s number one priority. Every Board meeting starts by focusing on preserving high safety standards and promoting a positive safety culture within the Group, to ensure that our employees, customers, suppliers and the public are kept safe. FSD has a safety management system implemented across all sites that has successfully been approved to the Health and Safety Management System BS ISO 45001:2018 Occupational health and safety management systems (the internationally recognised standard for management of occupational health and safety risks). The Group achieved a ROSPA (Royal Society for the Prevention of Accidents) Gold award again this year, and we have achieved 9 consecutive Gold awards giving FSD Gold Medal Award status. FSD also gained Constructionline Platinum certification in 2023. There is a strong commitment at Board level, supported by a highly qualified health and safety specialist, which endorses the importance of vigilant health and safety practices and the investment in training for site and management to broaden the competence, knowledge and experience of its employees. This is supported by expert guidance provided by MAKEUK, ECA and CITB.

EMPLOYEES

Our employees are fundamental to the success of the Group and we aim to be a responsible employer in our approach to the provision of training and remuneration and by making the health, safety and well-being of our employees one of our primary considerations in the way we do business. We are pleased to place on record our appreciation of the efforts and expertise demonstrated by our employees, who continue to make a significant contribution to the Group. Employee numbers decreased during the year from an average of 134 in 2022 to 130 in 2023, reflecting a change in the mix of work scope during the year. Management disseminates information to staff within the bounds of commercial confidentiality and consults with them at all levels on matters that affect the progress of the Group and concerns them as employees.

CORPORATE GOVERNANCE AND s172 REPORTING

The Group recognises its responsibilities to the people it employs, its customers and suppliers, its shareholders, the wider community, and the environment. In accordance with section 172 of the Companies Act 2006 the directors undertake to act in a way most likely to promote the long-term success of the Group for the benefit of its stakeholders.

The preceding strategies outlined in this report demonstrate the Group’s concern for the interests of its employees, its primary commitment to health and safety for its employees, customers, suppliers and the general public, and the instruments it uses to monitor the quality of its services and customer satisfaction. The Group has achieved accreditations, monitored externally, which are used to review the processes it operates to lessen its impact on the community and the environment.

The Board of directors meet quarterly to fulfil their duties and use bi-annual trading statements to communicate coherently the Group’s performance to its members. Operational duties are delegated to an executive management team who meet monthly to review our complex business operations and are charged with maintaining the reputation of the Group for high standards of business conduct by identifying, evaluating, managing and mitigating the risks faced by the Group.

FSD are a well-managed, responsible and ethical Group and are determined to be widely recognised for our quality of installation, the skills of our people and the seriousness with which we take our corporate responsibilities.

OUTLOOK

The Group’s principal source of revenue historically has been from the Water Industry. Sales volumes in the Water Industry finally started to grow this year as AMP7 expenditures eventually got underway, the programme having officially commenced in April 2020 with now only a few years remaining in line with OFWAT’s business plan approval programme until 2025.

FSD has prequalified on frameworks with multiple regional Utilities and their Tier 1 Contractors, and although slow to start all indications are that the release of works is now gaining pace.

The delay in releasing projects until this late stage of the five-year cycle has cost those businesses like FSD that were anticipating an earlier step-up in investment and engineering activity. However, with the global Coronavirus crisis now easing, and the pressure from government agencies to solve environment problems increasing, it is anticipated that the water companies will now accelerate their expenditure under AMP7 for the remainder of the cycle until 2025. FSD expects to be a benefactor of this rapid growth and the Board look forward to better performance and trading results ahead.

Looking ahead, we have already secured more than £7.9million of revenue for 2023/24 and have entered the new financial year with good momentum. We acknowledge the current inflationary pressures in the UK economy and will continue to focus on maintaining margins from our operations, and mitigating increases in associated commodity and energy costs, as well as other challenges in our supply chain.    

There are also early indications that the AMP7 to AMP8 transition will not create the traditional dip in activity, this being due to programmes being pushed out from the early part of AMP7 creating a potentially busy end to the Asset Management Period as it moves into AMP8.

The Board continues to react to customer demands and keep standards high, whilst creating operational efficiencies from improved turnover, and so leave the Group in prime condition for the longer-term opportunities ahead.

On behalf of the board

Nigel Billings

Managing Director  

FIELD SYSTEMS DESIGNS HOLDINGS PLC                                             

GROUP INCOME STATEMENT

for the year ended 31 May 2023

All operations are continuing.

FIELD SYSTEMS DESIGNS HOLDINGS PLC                                             

GROUP STATEMENT OF FINANCIAL POSITION

As at 31 May 2023

Approved by the board and signed on behalf of the board and authorised for issue on

5 October 2023 by:-

Bruce Smith.........................................Director

Nigel Billings......................................Director