FULCRUM UTILITY SERVICES

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2 CONTENTS SUMMARY INFO THE WATCHER WATCHER INVESTMENT THESIS INVESTMENT RATIONALE ABOUT THE COMPANY A TARGETED GROWTH STRATEGY MANAGEMENT TEAM MANAGEMENT OUTLOOK 2

3 SUMMARY INFO Fulcrum is an independent multi-utility service provider and the only independent utilities infrastructure provider covering the whole of Britain. It designs and project manages connections to gas pipelines for customers seeking either a new connection or the alteration or refurbishment of an existing connection. Formerly part of National Grid, Fulcrum became a listed AIM stock in It is highly cash generative, which removes the need for debt financing on what is a sound balance sheet. It is able to negotiate contracting terms that provide payment in arrears for many of its projects, which, coupled with high contact visibility, creates an attractive returns profile, in Watcher Chris Boxall s opinion. THE WATCHER CHRIS BOXALL Christopher Boxall is Joint Chief Executive and Chief Investment Officer of Fundamental Asset Management Ltd. Fundamental is an independent, owner-managed investment management firm with unrivalled knowledge of the AIM market. It has successfully provided AIM Portfolio Management with Inheritance Tax planning to private investors, trusts and institutions since 2004, significantly outperforming major UK stock market indices. The business is led by founders and joint chief executives Christopher Boxall and Stephen Drabwell. Chris is responsible for research and stock selection and qualified as a Chartered Accountant in He was formerly with Deloitte & Touche, Senior Adviser with a specialist business consultancy and, prior to founding Fundamental, at Washington Financial Group. Fundamental Asset Management has extensive experience in investing in AIM-listed companies and has delivered returns to clients for more than 11 years. The firm s investment ethos for AIM IHT portfolios is conservative and valuebased. At its foundation is in-depth in-house research, which includes visiting and meeting senior management of hundreds of companies each year. Fundamental AM portfolios invest in AIM companies that have the following key characteristics; Demonstrable earnings Cash generation Robust balance sheets Well-aligned management Compelling dividend yield 3

4 CHRIS INVESTMENT THESIS The Group was formerly part of National Grid and arrived on AIM in 2010 following a reverse into a listed shell, Marwyn Capital I Limited. It initially struggled, but everything changed following the appointment of Martin Donnachie as CEO in May 2013, who restructured things entirely. Costs were cut dramatically and in January 2015 a move was announced to take the management of operational delivery in-house, giving the company direct control, from design through to installation across England and Wales. INVESTMENT RATIONALE This business has a terrific model, combining short-term contracting, albeit with decent six months-plus contract visibility, and long-term asset ownership, offering great long-term visibility of earnings and annuitylike returns from its growing portfolio of pipeline assets. Contract terms mean FCRM receives payment well in advance of work for the majority of its jobs. CHRIS SPECIFIC ATTRACTIONS TO FULCRUM UTILITY SERVICES 1. Return on equity 2. Zero debt 3. Highly cash generative 4. Large addressable market with multiple revenue extensions from its core offering The opportunity to combine electricity cables in their gas installations offers further growth opportunities. The latest suggested move into metering will consume cash and increase debt, but will offer longer-term visibility, much like pipeline assets. This business has a terrific model Chris Boxall Chief Executive and Chief Investment Officer of Fundamental Asset Management Ltd 4

5 ABOUT THE COMPANY Fulcrum is the UK s market-leading independent energy and multi-utility infrastructure provider. It continues to be the only independent utility infrastructure provider covering the whole of Britain. Its breadth of services, coupled with national capability, is unmatched and ranges from the design, installation or alteration of utility services for single-site properties to large and complex multi-site projects. What They Do: Fulcrum s core business areas include: Gas connections: Fulcrum services a complete range of customers and projects, from single-site connections to infrastructure projects of national significance. The business is able to deliver a holistic gas service to its customers by combining connection, disconnection, metering and outlet pipework services. Dual Fuel and Multi-utility connections: Fulcrum offers dual fuel and multi-utility solutions for all types of development, allowing its customers to benefit from the efficiencies of a coordinated delivery. Regulated pipeline operations: Through its subsidiary, Fulcrum Pipelines Limited, Fulcrum is licensed as an Independent Gas Transporter, owning and operating a growing portfolio of gas infrastructure that connects properties to the main UK gas networks. These assets generate income from the transportation of gas between the main regional gas networks and individual properties. Fulcrum Pipelines Limited is regulated by Ofgem as an Independent Gas Transporter. Fulcrum Investment Proposition: Fulcrum has a track record of excellence in customer service coupled with sector-leading credentials, including multiple awards for health and safety, and delivery. In 2016 Fulcrum won Company of the Year and Manager of the Year at the prestigious Gas Industry Awards. Internal culture: Fulcrum continues to develop its people, who have the expertise, passion and commitment required to support its customers and provide leading levels of service, whilst at the same time ensuring the very highest of engineering and health and safety standards. Customer-centric focus: Fulcrum also continues to build its business around its customers and their specific needs. It listened to their requirements to develop customer-centric, sector leading services delivered in line with the company s values. Source: Company Website 5

6 A TARGETED GROWTH STRATEGY Delivered Through Progress in 2015/16 Priorities for 2016/17 Key Accounts Nurturing profitable relationships with repeat customers Customer service excellence Improved customer satisfaction levels British Gas Business contract extended to 2018; now includes electricity 1.0m electricity contract won Increasing the number of multi-utility contracts won Account growth through trusted delivery Sustained emphasis on customer service excellence Major Projects National sales force Ability to deliver significant projects anywhere in mainland UK Increased investment in team New gas, electricity and multi-utility contracts won Secured contracts for major developments across the UK, including the 4.0m Speyside gas pipeline Expanding the pipeline of new opportunities Increasing the number of multi-utility contracts won Housing Cost effective delivery model Asset ownership ability New housing division In-house gas, electricity and water experts New housing and multiutility contracts secured Increasing housing activity by using cash to unlock large asset values Technical Sales Prominent online visibility Responsive, customer-led technical sales service 38% year-on-year online sales growth Launch of third brand, FirstElectricity Continued investment in search engine optimisation to stimulate more growth Joined-up, added value online services Source: Company Website 6

7 MANAGEMENT TEAM Philip Bernard Holder, Chairman: Philip has over 30 years experience in the utilities sector. From 1997 to March 2007, Philip was Managing Director of East Surrey Holdings, the mid-cap water and gas utilities business. Until March 2010, Philip was full time Operational Adviser to The Infrastructure Partnership. He is also an Operational Adviser to Harwood Private Equity, which manages the Trident Private Equity funds. Philip is also currently a Non-executive Director of Dee Valley Group. Martin Donnachie, Chief Executive Officer: Martin has extensive experience gained from a range of interim leadership roles and, earlier in his career, 12 years of experience in the house-building and construction services sectors. He was Divisional Managing Director of the successful affordable housing division of Rok plc from 2007 until Previously, he held Managing Director roles at George Wimpey plc, Morris Homes Limited and AEA Technology plc. Martin is a Chartered Accountant and in his early career he held a series of finance roles. Martin Harrison, Chief Financial Officer: Martin has experience gained from a range of senior finance leadership roles from within the infrastructure services and construction products sectors. Prior to joining Fulcrum, he was Divisional Finance Director of Lafarge Tarmac Contracting from 2010 to 2014 with financial responsibility for the UK and Middle East markets. Previously, Martin spent three years with KPMG working on merger and acquisitions transactions and corporate restructuring projects and 11 years with Saint Gobain/BPB plc. Martin is a member of the Institute of Chartered Accountants in England and Wales. Source: Company Website MANAGEMENT OUTLOOK Fulcrum has continued to make excellent progress this year, delivering on its objectives and strategy. The management of direct labour, brought in-house on 1st April 2015, has delivered an improved customer experience with an efficient, integrated end-to-end operating model. With its robust and scalable operating platform, combined with a sustained focus on customer service excellence, the company can look forward to building on recent contract wins and further expanding its multi-utility services. The Group s order book and operating cash flow are strong and support Fulcrum s strategy for growth. Fulcrum believes the outlook remains positive and that the Group continues to be well positioned to make further progress in Source: Company Annual Report and Accounts 2016 USEFUL LINKS London Stock Exchange Company website Company investor relations Financial year end: end of March Interims: end of September 7

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