FIELD SYSTEMS DESIGNS HOLDINGS PLC - Annual Financial Report PR Newswire

FIELD SYSTEMS DESIGNS HOLDINGS PLC                                               

CHAIRMAN’S STATEMENT

The Board presents the results of Field Systems Designs Holdings plc (FSD) for the year ended 31 May 2019.

It is pleasing to see the sustained turnover and operating profits reflected by the current year’s results. Turnover from the water industry improved during the year as the cycle of expenditure under Asset Management Programme 6 (AMP6) peaked. This activity served to offset the much-reduced sales contribution from the Energy from Waste sector (EfW). The Group’s move to diversify into the EfW sector has proven a difficult venture due to the contractual stance adopted by its main customer whose own activities in delivering these complex projects have proven so troublesome.

The FSD Group was fully engaged on projects from frameworks in the water sector this year and is now looking ahead to 2020 to refresh the pre-qualification process as framework plans by water utilities are rolled forward into AMP7. The Water Services Regulation Authority, (Ofwat) is taking a tough stance on water companies in its latest periodic review (AMP7), covering the five years to 2025, challenging their budgets as the regulator demands lower bills and imposes sector-wide targets on leakage, pollution and flooding. Ofwat has approved the business plans of just a few water companies across England and Wales and has sent the remainder back to their drawing-boards to revisit their figures and revise their expenditure proposals. Those companies appealing against the regulator’s tougher stance will see a final ruling in December 2019 and until this point in time their expenditure plans are uncertain.

Whilst FSD is fully committed to assist water companies, and the Tier 1 framework contractors chosen under AMP7 to manage their expenditure, the absence of any solid expenditure forecasts is making planning ahead for FSD more complicated than normal. However, FSD is confident that the quality of its delivered projects and its well-established business credentials that have earned FSD its position on their supply-chain arrangements in the past, together with the reputation of its talented engineering and installation personnel, will serve us well this time around.

The board is positive about the outlook for Group performance over the next financial year and is well-positioned with a strong cash balance and good opening order book to maximise the benefits from future opportunities.

D K Bird

Chairman

31 October 2019

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 2019 and the unaudited group income statement for the year then ended have been extracted from the Group's 2019 statutory financial statements upon which the auditors opinion has not yet been issued.

These financial statements 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 NEX Exchange Growth Market rules.

FIELD SYSTEMS DESIGNS HOLDINGS PLC                                               

STRATEGIC REPORT

The directors present the Strategic Report for Field Systems Designs Holdings Plc (‘the Company’) and its subsidiary undertakings (together referred to as ‘the Group’) for the year ended 31 May 2019.

OPERATIONAL PERFORMANCE

The Group achieved a turnover of £21.8 million for the year to 31 May 2019, a reduction of 16% on last year, reflecting the continued pick-up in work from the Water Industry offset by the completion of works in the EfW sector with two major projects now ending.


Turnover was generated as follows:                2019            2018

                                                     £               £


Water and Sewerage treatment                17,415,655      12,509,786

Power generation and Energy from Waste       4,328,449      12,752,185

Transport and Tunnel infrastructure             21,189         634,495

                                       --------------- ---------------

                                            21,765,293      25,896,466

                                             =========       =========



Gross profit margins improved in the year ended 31 May 2019 to 8% from 6.6% last year. Gross margins were under downward pressure due to projects suffering from the tough contractual stance adopted by its customer in the Energy from Waste sector and have therefore improved as the volumes in this sector have reduced.

The improved contribution from its reduced turnover left the Group with operating profits for the year of £551,125 (2018: £551,389). The directors are pleased to report a solid Group profit after tax of £423,769 for the year ended 31 May 2019 (2018: £494,863). The directors do not recommend the payment of a dividend. (2018: £Nil)

BUSINESS REVIEW

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

Water and Sewerage

FSD successfully secured, engineered, managed and installed a volume of Mechanical and Electrical (M&E) installation projects during the year across the 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 improved significantly in the Water Industry in 2019 where 80% of turnover was derived (2018: 48%). 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 AMP6 frameworks and supply-chain arrangements.

Power generation and Energy from Waste

In 2019 20% of turnover was derived from the Power and EfW sector (2018: 49%). FSD worked primarily on Energy from Waste projects, undertaking major electrical installation works at Levenseat and Hull on projects which use advanced thermal treatment gasification technology. There was also work undertaken during the year on generators, and power station outage maintenance works supporting installations completed in the past.

Transport and Tunnels

Electrical installation works on cable tunnels have their own complexities due to the additional access, egress and safety issues which FSD carefully manage with their experienced trained personnel. The Group continues to support such tunnelling works as they arise, dealing competently with the complications these projects involve.

Telemetry, Building services, Maintenance, Instrumentation, Controls and Automation

FSD continues to undertake smaller electrical installation service contracts across various sectors offering customers timeliness and value for money. An electrical workshop facility with tooling and equipment enables the Group to react quickly by producing various in-house components including small isolator builds, lighting panels and remote monitoring enclosure pre-assemblies.

Mechanical design, fabrication and installation

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 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.

Brexit

The people of the UK voted to leave the EU (Brexit) on 23 June 2016 and there continues to be volatility in financial markets, in currency markets and uncertainty over future actions by governments and businesses. The Group has completed a review of the implications of the decision to leave the EU and assessed scenarios around the ongoing uncertainties as the Brexit deadlines of March and October 2019 have passed and we head for the third extension to 31 January 2020. While there remains uncertainty about the precise terms of Brexit, we have considered the impact on our business as part of our risk management process. The directors believe that the short-term effects are inflationary, primarily on material pricing due to weaker sterling, but that the long-term relationships with our supply chain will aid our business to remain resilient under the range of most likely scenarios.

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 governed by OFWAT. At the beginning and the end of each AMP the water industry suffers a downturn as all competing companies operating in this industry are chasing a reduced volume of available work. The Group mitigates these uncertainties by continually monitoring changes in its market sector, by focusing its sales efforts on non-water industry work-flows and reviewing regularly forecasted sales opportunities to ensure that adequate sales volumes can be secured.

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.

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.

Health and safety

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 penetrated other sectors such as tunnelling, the power industry and energy from waste market to ensure a constant pipeline of enquiries. 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 and derivatives are used to hedge against known commodity price and exchange rate exposures in contractual arrangements secured by the Group. There may not always be instruments that provide accurate hedging or readily available markets for such hedges.

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 4.2 (2018: 4.2) 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 OHSAS 18001:2007 and is in the process of transitioning to ISO 45001. Achilles UVDB, the Utilities Sector Vendor Database performance assessor, regularly review the Group's processes for managing and installing electrical services, as well as its fault resolution procedures. The results of the 2019 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 0.17 (2018: Zero).

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 CEMARS (Certified Emissions Measurement and Reduction Scheme) accreditation in 2010 and now works to the principles of ISO 14064-1:2006 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.

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 OHSAS 18001:2007 and are currently going through a transition period to update to BS ISO 45001:2018 Occupational health and safety management systems, by late 2019 (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 as we have achieved 5 consecutive Gold awards we have now attained a Gold Medal Award status. 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 the EEF, ECA and CITB.

EMPLOYEES

Group employee numbers have decreased from an average of 199 in 2018 to 180 in 2019 reflecting the reduction in turnover and a change in the mix of work scope during the year.

We are pleased to place on record the appreciation of the efforts and support given to the Group by its employees, who continue to make a significant contribution to the Group.

PENSIONS

The Scheme’s funding position has reduced slightly from a surplus of £274,000 at the start of the year to a surplus of £253,000 at the end of the year. The Group is not recognising the surplus and so the Group's defined benefit pension scheme funding position as at 31 May 2019 has been maintained at £Nil, a target reached in 2017. This is derived from the Group's most recent actuarial review and reflects market conditions as at 31 May 2019. There was a settlement gain of £39,000 (2018: £67,000) released to the profit and loss account during the year following the payment of a cash equivalent transfer value to deferred members withdrawing from the defined benefit scheme; this was offset by a one-off provision of £47,000 for the potential cost to the scheme arising from GMP equalisation.

CORPORATE RESPONSIBILITY

The Group recognises its responsibilities to the people it employs, its customers and suppliers, its shareholders, the wider community and to the environment. We 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 entered the new financial year with an opening order book of £8.2 million (2018: £12.0 million).

The Group’s principal source of revenue historically has been from the Water Industry and key to its financial success is its continued participation in the various frameworks being formulated by the Water Utilities in selecting their preferred supply chain.

The Water Utilities each have their own MEICA frameworks with different approaches to their mechanism and methodologies of spend. Sales volumes in the Water Industry have been strong this year however AMP6 runs for five years to April 2020 when AMP7 will commence and run for a further five years in line with Ofwat’s business plan approval programme. Consequently FSD is looking ahead to next year to restart the process of pre-qualification as plans by water utilities for AMP7 begin to emerge.

FSD will continue to be fully involved in the prequalification processes with the regional Utilities and will strive to secure its position on frameworks and strategic alliances with water process companies as they roll forward their arrangements into AMP7.

In the Energy from Waste (EfW) sector volumes have declined during the current year and this is set to continue next year. FSD have excellent credentials and are continuing to pursue suitable new EfW opportunities; however a number of established Engineering, Procurement and Construction (EPC) contractors have now decided not to pursue further opportunity from the EfW sector and FSD are finding that onerous commercial conditions of contract are limiting the remaining available opportunities.

There are other avenues for growth opening up to the Group following recent investment in the development of a team of specialists who will complement existing business services by enabling FSD to offer telemetry and process automation services in both the water and power industries. The momentum for new opportunities is growing and should receive a boost when new spend budgets are released under AMP7.

The board continues to react to customer demands and invest in training to keep quality standards high, whilst pursuing operational efficiencies to best position the business for the opportunities ahead.

On behalf of the board

Nigel Billings

Managing Director

31 October 2019

FIELD SYSTEMS DESIGNS HOLDINGS PLC                                              

GROUP INCOME STATEMENT

for the year ended 31 May 2019


  2019 2018

     £    £



   


TURNOVER                                             21,765,293   25,896,466

Cost of sales                                      (20,005,388) (24,176,037)

                                                        _______      _______

GROSS PROFIT                                          1,759,905    1,720,429

Operating expenses                                  (1,208,780)  (1,169,040)

                                                        _______      _______

GROUP OPERATING PROFIT                                  551,125      551,389


Defined benefit scheme settlements and                  (8,000)       67,000
past service costs

Interest receivable and similar income                   13,300        9,696

Interest payable and similar charges                    (3,799)      (3,552)

                                                        _______      _______

PROFIT ON ORDINARY

ACTIVITIES BEFORE                                       552,626      624,533
TAXATION

Taxation                                              (128,857)    (129,670)

                                                        _______      _______

PROFIT ON ORDINARY

ACTIVITIES AFTER TAXATION
ATTRIBUTABLE TO THE OWNERS OF THE PARENT COMPANY
                                                        423,769      494,863

                                                         ======       ======

EARNINGS PER SHARE

Basic                                                7.9p   9.2p

                                                   ====== ======

Diluted                                              7.8p   9.1p

                                                   ====== ======

                   All operations are continuing.



FIELD SYSTEMS DESIGNS HOLDINGS PLC                                             

GROUP STATEMENT OF FINANCIAL POSITION

As at 31 May 2019


                                                    2019       2018

                                                       £          £

FIXED ASSETS

Tangible assets                                  680,632    504,133

CURRENT ASSETS

Stock – raw materials                             58,257    151,379

Debtors                                        5,343,066  7,598,742

Cash at bank and in hand                       4,798,845  3,972,722

                                                ________   ________

                                              10,200,168 11,722,843

                                                ________   ________

CREDITORS

Amounts falling due within one year            6,886,434  8,631,719

                                                ________   ________

NET CURRENT ASSETS                             3,313,734  3,091,124

                                                ________   ________

TOTAL ASSETS LESS CURRENT

LIABILITIES                                    3,994,366  3,595,257

CREDITORS

Amounts falling due after more than one year      19,082      4,742

PROVISIONS FOR LIABILITIES

Deferred taxation                                 59,000     39,000

Post-employment employee benefits                      -          -

                                                ________   ________

NET ASSETS                                     3,916,284  3,551,515

                                                 =======    =======

CAPITAL AND RESERVES

Called up share capital                          569,250    569,250

Share premium account                            158,750    158,750

Other reserves                                   370,033    370,033

Profit and loss account                        2,818,251  2,453,482

                                                ________   ________

TOTAL SHAREHOLDERS’ EQUITY                     3,916,284  3,551,515

                                                 =======    =======



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

31 October 2019 by:-

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

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