TIDMFCRM
RNS Number : 7440X
Fulcrum Utility Services Ltd
23 December 2019
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN
PART, IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD
CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH
JURISDICTION
EMBARGOED FOR RELEASE AT 7.00 AM
23 December 2019
Fulcrum Utility Services Limited
("Fulcrum", the "Group" or the "Company")
Proposed sale of domestic customer gas connection assets and
order book
Fulcrum announces that it has entered into a conditional sale
and purchase agreement to sell its domestic customer gas connection
assets, including the order book and associated meters, to
E.S. Pipelines Limited ("ESP") (the "Sale").
Highlights
-- Sale of domestic customer gas connection assets, including
the order book and associated meters (the "Assets"), for a net
consideration of approximately GBP33 million in cash
-- Total gross consideration of approximately GBP46 million in
cash; the net consideration approximately of GBP33 million is
stated after deducting future costs in relation to the build out of
the external order book assets of GBP13 million, for which Fulcrum
will remain liable
-- Initial cash consideration of approximately GBP17 million
payable on Completion, with the balance relating to part-complete
networks and the internal and external order books to be received
over the next four years, as assets are built out and transferred
to ESP
-- The Sale significantly strengthens Fulcrum's balance sheet.
The Company will repay existing borrowings of approximately GBP12
million in full on Completion, and has started the process of
exploring replacement facilities better suited to the requirements
of the Group
-- The Company intends to commence a share buy-back programme
anticipated to return approximately GBP4 million to shareholders
over the next four years. The buy-back programme will track the
expected build out and realisation profile of the balance of the
Assets
-- The 2019/20 interim dividend will be deferred until Completion
-- Fulcrum will retain its Independent Gas Transporter ("IGT")
and Independent Distribution Network Operator ("IDNO") licences.
The Company will continue to grow its design and build activities
in the industrial and commercial ("I&C") segment of the market,
both working with ESP as an asset adopter under an arrangement
entered into at the same time as the Sale and, where appropriate,
continuing to independently design, build and add I&C assets to
its own portfolio of assets
-- In the domestic segment of the utilities market, Fulcrum will
continue to grow its gas and electrical connection design and build
activities, but will not adopt assets once completed; ESP will be
Fulcrum's preferred asset adopter
-- The Sale will also allow the Group to more actively pursue
opportunities for growth in the multi-utility infrastructure
market
-- The Sale is conditional on Ofgem approval and the Competition
and Markets Authority ("CMA") indicating that it does not intend to
launch a merger investigation in respect of the Sale (or if it does
launch such an investigation, the CMA clearing the Sale without an
in-depth (Phase 2) review)
Philip Holder, Fulcrum's Chairman, commented:
"This transaction realises substantial value for the Company's
existing and contracted domestic gas assets. It significantly
strengthens our balance sheet and will provide a basis for a return
of capital to shareholders. Fulcrum's core growth strategy will
focus on its design and build activities, as well as on continuing
to adopt assets in its traditional I&C market where
appropriate. Our new relationship with ESP will enhance the
Company's capabilities in the future in all segments of the
market."
The preceding summary should be read in conjunction with the
full text of this announcement.
MAR
The information contained within the announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulations (EU) No. 596/2014 ("MAR"). Upon the
publication of this announcement via Regulatory Information Service
("RIS"), this inside information is now considered to be in the
public domain.
Definitions
Unless otherwise defined, capitalised terms in this announcement
shall have the meaning as set out in the 'definitions' section
below.
Enquiries
+44 (0)114 280
4102
Fulcrum
Philip Holder, Chairman / Daren Harris, Chief Financial
Officer +44 (0)20 3696
7260
Smith Square Partners LLP (Financial adviser)
Jonathan Coddington / Matt Alexander
+44 (0)20 7397
Cenkos Securities plc (Nominated adviser and broker) 8900
Max Hartley / Callum Davidson
Camarco (Financial PR adviser) +44 (0)20 3757
Ginny Pulbrook / Tom Huddart 4992
Notice to all investors
Smith Square Partners LLP ("Smith Square"), which is authorised
and regulated in the United Kingdom by the Financial Conduct
Authority, is acting exclusively as financial adviser to Fulcrum
and no-one else in connection with the Sale and will not be
responsible to anyone other than Fulcrum for providing the
protections afforded to clients of Smith Square nor for providing
advice in connection with the Sale or any matter referred to
herein. Neither Smith Square nor any of its subsidiaries, branches
or affiliates owes or accepts any duty, liability or responsibility
whatsoever (whether direct or indirect, whether in contract, in
tort, under statute or otherwise) to any person who is not a client
of Smith Square in connection with this announcement, any statement
contained herein, the Sale or otherwise.
Cenkos Securities plc ("Cenkos") which is authorised and
regulated in the United Kingdom by the Financial Conduct Authority,
is acting solely for Fulcrum in relation to the Sale in its
capacity as Nominated adviser and broker and no-one else and will
not be responsible to anyone other than Fulcrum for providing the
protections afforded to clients of Cenkos nor for providing advice
in relation to Fulcrum or any other matter referred to in this
announcement.
Forward-looking statements
This announcement contains "forward-looking statements". These
forward-looking statements may be identified by the use of
forward-looking terminology, including the terms "anticipates",
"expects", "may", "will", "could", "would", "shall", "should" or
similar expressions or, in each case, their negative or other
variations or comparable terminology, or by discussions of
strategy, plans, objectives, goals, future events or
intentions.
These forward-looking statements include all matters that are
not historical facts and include statements regarding the
intentions, beliefs or current expectations of the Directors
concerning, among other things, Fulcrum's results of operations,
financial condition, prospects, growth, strategies and the
industries in which Fulcrum operates.
Forward-looking statements speak only as of the date of such
statements and, except as required by applicable law, Fulcrum
undertakes no obligation to update or revise publicly any
forward-looking statements, whether as a result of new information,
future events or otherwise. The information contained in this
announcement is subject to change without notice and Fulcrum, Smith
Square and Cenkos do not assume any responsibility or obligation to
update publicly or review any of the forward-looking statements
contained herein, save as required by law, regulation or the AIM
Rules.
Background to and reasons for the Sale
Fulcrum is a long-established provider of utility infrastructure
services to the domestic, commercial and industrial markets
throughout mainland UK. The Company's services range from the
design, installation or alteration of utility services for single
site properties to large, complex multi-site projects. It also owns
and operates gas and electrical assets (under its IGT and IDNO
licences) that connect properties to the main UK gas and
electricity networks once they are completed.
ESP Utilities Group is one of the UK's largest and longest
established IGTs and IDNOs. It owns and operates gas and
electricity networks and gas smart meters all over the UK with over
650,000 customers connected on a variety of residential, industrial
and commercial networks. ESP Utilities Group is owned by funds
managed by 3i Infrastructure plc.
The market for the design, installation and ownership of these
types of infrastructure assets has evolved significantly in the
last few years. As the values being ascribed to domestic connection
assets by participants in the market have increased materially,
reflecting the attractions of the predictable, stable, long-term
regulated cash flows associated with them, clients such as
housebuilders have increasingly demanded that the value of the
completed assets is reflected in the pricing structure agreed for
undertaking these design and build projects. For larger domestic
asset projects, this can result in all or a significant part of the
effective profit margin on contracts being accounted for by the
values ascribed to the completed assets, while the short-term net
cash flows associated with larger domestic projects are often
marginal or negative.
Fulcrum's main competitors in the gas and electrical utility
connection ownership sector (being other IGT and/or IDNO licence
holders) are significantly larger businesses, which are typically
owned by large, private, infrastructure investment funds, and which
may not face the same funding constraints that Fulcrum does as a
smaller quoted business.
The Board believes that the Sale will put Fulcrum in a stronger
position to pursue a strategy of winning design and build work
across the IGT, IDNO and multi-utility infrastructure space, in
partnership with asset owners, and will provide the opportunity for
Fulcrum to generate substantial value for its shareholders.
Summary terms of the proposed sale of the Assets
The Company has entered into a conditional sale and purchase
agreement with ESP for the sale of substantially all of its
domestic customer gas connection assets, including order book
assets and associated meters, for a net consideration of
approximately GBP33 million payable in cash. The total gross
consideration for the transaction is approximately GBP46 million;
the expected net consideration of approximately GBP33 million is
stated after deducting future costs in relation to the build out of
the external order book assets of GBP13 million, for which Fulcrum
will remain liable.
The Sale is conditional on Ofgem approval and the CMA indicating
that it does not intend to launch a merger investigation in respect
of the Sale (or if it does launch such an investigation, the CMA
clearing the Sale without an in-depth (Phase 2) review). It is
currently anticipated that completion will occur in Q1 2020.
Pursuant to the terms of the Sale, it is intended that the first
tranche of assets relating to Fulcrum's existing asset estate will
be hived down into a newly formed subsidiary and this subsidiary
will then be transferred to ESP. This subsidiary, containing the
first tranche of Assets, will be transferred at Completion and the
cash consideration payable in respect of this initial tranche is
expected to be
GBP17 million.
As the internal and external order books are built out,
subsequent tranches of Assets will be hived down into newly created
subsidiaries at approximately twelve month intervals (or when the
value of the assets ready to be transferred exceeds GBP6.5
million), and these subsidiaries will then be transferred to ESP in
return for the relevant portion of the consideration. The total
annualised revenues associated with the Assets (including order
book assets) once they are all complete and connected is expected
to be approximately GBP3.6 million, including meter income. The
build out and transfer of the Assets is expected to be
substantially complete within four years with Fulcrum remaining
liable for the associated build out costs. All income generated by
connections and meters prior to their transfer to ESP will be
retained by Fulcrum.
The Company intends to work with ESP as its preferred asset
adopter to bid for domestic construction projects. The arrangements
with ESP provide for the Group to receive certain enhanced payments
from ESP over the next five years if certain milestones are
achieved for new domestic connections. In relation to I&C
assets, the Company has entered into an arrangement with ESP for a
period of five years under which it has agreed to bid jointly in
relation to a certain quantity of I&C assets on an annual
basis, whilst also retaining the ability to adopt I&C assets
itself (subject to certain asset size and annual value limits).
The consideration for the Sale is subject to certain clawback
provisions over a three year period in the event of, inter alia, a
change of control of the Company, of approximately 15 per cent. or
7.5 per cent. of the consideration if the change of control occurs
within one year or between one and three years of Completion
respectively.
Use of proceeds
The net proceeds of the Sale, after the costs associated with
the build out of the external order book, professional fees and
other transaction costs, are expected to be approximately GBP32
million. Fulcrum will continue to incur construction costs in
relation to the contracted internal order book assets included in
the Sale. The Assets comprise, in total, approximately 76,000
domestic and mixed use customer gas connection pipelines and
associated equipment.
As at 30 September 2019, the book value of the existing assets
which form part of the Sale was
GBP19 million; the gain on disposal of those existing assets
after fees and expenses is approximately
GBP5 million. In the twelve months ended 31 March 2019, the
existing assets which form part of the Sale generated profit before
tax of approximately GBP0.5 million.
The Group will use the initial tranche of consideration to,
inter alia, repay in full existing borrowings on Completion of
approximately GBP12 million. Sale proceeds will also be utilised to
meet Fulcrum's working capital requirements, including in relation
to the build out of order book assets. The Company intends to
commence a share buy-back programme anticipated to return
approximately GBP4 million to shareholders over the next four
years. The buy-back programme will track the expected build out and
realisation profile of the balance of the Assets.
The 2019/20 interim dividend will be deferred until Completion.
Fulcrum has started the process of exploring new bank facilities
which are more suited to the requirements of the Group moving
forwards.
Strategy following Completion
The Board believes the Sale is in the best interest of
shareholders as a whole, realises substantial value for its
existing and order book domestic gas connection assets, and will
provide a more flexible and stronger base from which to actively
grow its construction business. The Board is committed to
identifying a permanent Chief Executive Officer to lead this next
phase of growth and a further announcement in this regard will be
made in due course.
Following the Sale and excluding assets forming part of the Sale
but yet to be transferred, Fulcrum retains a portfolio of
approximately 6,500 I&C connection assets, a small number of
domestic connections which form part of mixed networks and a small
portfolio of electrical connections.
Fulcrum will retain its IGT and IDNO licences. The Company will
continue to grow its design and build activities in the I&C
segment of the market, both working with with ESP as an asset
adopter under an arrangement entered into at the same time as the
Sale and, where appropriate, continuing to independently design,
build and add I&C assets to its own portfolio of assets.
I&C work has always been a particular strength of Fulcrum's and
the Group continues to win significant, attractively priced
contracts for I&C projects and the Board sees this as key to
Fulcrum's future growth.
In the domestic segment of the utilities market, Fulcrum will
continue to grow its gas and electrical connection design and build
activities, but will not adopt assets once completed; ESP will be
Fulcrum's preferred asset adopter.
The Sale will also allow the Group to actively pursue
opportunities for growth in the multi-utility infrastructure
market.
A copy of this announcement will be available free of charge,
subject to certain restrictions relating to persons in any
jurisdiction where release, publication or distribution of this
announcement would constitute a violation of the securities law of
such jurisdiction, for inspection on Fulcrum's website
(www.fulcrumutilityserviceslimited.co.uk).
Definitions
The following words and expressions shall have the following
meanings in this announcement unless the context otherwise
requires:
"AIM" the market of that name, operated
by the London Stock Exchange
"AIM Rules" the rules for AIM companies as
published by the London Stock
Exchange from time to time
"Assets" the approximately 76,000 existing
and contracted domestic customer
gas connection assets and associated
meters, plus certain I&C assets
being part of predominantly domestic,
mixed-use networks, which are
subject to the Sale
"Board" the Board of Directors of the
Company
"Cenkos" Cenkos Securities plc
"CMA" the Competition and Markets Authority
"Completion" completion of the Sale
"Directors" the directors of the Company
"ESP" E.S. Pipelines Limited
"Fulcrum", the "Group" or the Fulcrum Utility Services Limited
"Company"
"I&C" Industrial and Commercial
"IDNO" Independent Distribution Network
"IGT" Operator
"MAR" Independent Gas Transporter
"RIS" Market Abuse Regulations (EU)
No. 596/2014
Regulatory Information Service
"Sale" the proposed sale of the Assets
"Smith Square" Smith Square Partners LLP
Information on Fulcrum
Fulcrum is a multi-utility infrastructure and services provider
based in Sheffield, UK. The Company's primary business is the
provision of utility infrastructure services to the domestic,
commercial and industrial markets throughout the mainland UK. These
range from the design, installation or alteration of utility
services for single site properties to large complex multi-site
projects.
Through its subsidiaries, Fulcrum Pipelines Limited and Fulcrum
Electricity Assets Limited, Fulcrum is also licensed as an
Independent Gas Transporter and Independent Distribution Network
Operator, owning and operating gas and electrical assets that
connect properties to the main UK gas and electricity networks.
Fulcrum is also a meter asset manager, owning and operating meter
assets across mainland UK. In 2018 Fulcrum acquired the Dunamis
Group, an electrical infrastructure services company, creating one
of the UK's leading gas and electrical infrastructure services
groups.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
ACQDMMZZGZGGLZZ
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December 23, 2019 02:01 ET (07:01 GMT)
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