Fulcrum Utility Services... Share Discussion Threads

[magic] 06/6/2019 17:29

FROM INVESTORS CHAMPION

"These issues could relate to the acquisition of Dunamis, whose growth potential has been stunted by changes in the capacity market.

The EU has suspended bidding in the market (which lets energy generators bid for contracts to provide back-up power to the UK grid in peak times) after receiving complaints that it favours fossil fuel companies.

This means Dunamis might not be worth as much as management expected when the acquisition was completed which would force the company to write-down some of the goodwill on the acquisition."

hxxps://www.investorschampion.com/channel/blog/aim-star-to-ominous-accounting-whats-gone-wrong-at-fulcrum

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On the goodwill side of things, it looks like this was £23.5 million from the Dunamis acquisition.
Fulcrum assets were listed as £75 million, liabilities £36 million
Overall Equity £36 million in the Annual Report.

If for instance, half of the goodwill, £12 million was written off, then equity would be down by 1/3. If all £23.5 million were written off, then that would be 2/3.

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KPMG AS AUDITOR, PAGE 29 OF ANNUAL REPORT
NEW RISK
Valuation of acquired intangible assets.

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I guess, if the Balance Sheet were to be so much weakened, the company could
- do a shares capital fundraising
- reduce/ eliminate dividend to preserve capital

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Interestingly, Martin Harrison around 10 years ago, at KPMG described his work as:

"Completed acquisition due diligence on a diverse UK and multi-national client base and market sectors including FMCG, manufacturing, retail, IT and engineering."

hxxps://www.linkedin.com/in/martin-harrison-676b724/


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2018 ANNUAL REPORT, PAGE 50

"The goodwill is attributable to the skills and technical talent of Dunamis’ workforce and the synergies expected to be achieved from
integrating the companies into the Group’s existing business.

Measurement of fair value
The relief-from-royalty method and multi-period excess earning method have been used when establishing the fair value of the intangible
assets. The relief-from-royalty method considers the discounted estimated royalty payments that are expected to be avoided as a result
of the brands being owned.

The multi-period excess earnings method considers the present value of the net cash flows expected to be generated by the customer relationships, by excluding any cash flows relating to contributory assets.

The fair value of Dunamis’ intangible assets (brands and customer relationships) has been measured provisionally, pending completion of an independent valuation.

If new information obtained within one year of the date of acquisition about facts and circumstances that existed at the date of acquisition identifies adjustments to the above amounts, or any additional provisions that existed at that date of acquisition, then the accounting for the acquisition will be revised."

hxxps://www.fulcrumutilityserviceslimited.co.uk/~/media/Files/F/Fulcrum/documents/fulcrum-utility-services-limited-annual-report-and-accounts-2018.pdf

[jl5006] 06/6/2019 15:29

I have already posted on LSE that IFRS 15 might be the problem. This came into effect for A/Cs years subsequent to jan 2018 so 2019 A/Cs first to be affected. Reasoning is that Financial reporting is said to be the issue

IFRS 15 establishes the principles that an entity applies when reporting information about the nature, amount, timing and uncertainty of revenue and cash flows from a contract with a customer. Applying IFRS 15, an entity recognises revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
To recognise revenue under IFRS 15, an entity applies the following five steps:
• identify the contract(s) with a customer.
• identify the performance obligations in the contract. Performance obligations are promises in a contract to transfer to a customer goods or services that are distinct.
• determine the transaction price. The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. If the consideration promised in a contract includes a variable amount, an entity must estimate the amount of consideration to which it expects to be entitled in exchange for transferring the promised goods or services to a customer.

[gopher] 05/6/2019 11:01

next cfo from KPMG - what are the odds?
No point in selling at this level as accounting issues looked priced in. Not sure we can assume that the departing CFO was out of her depth personality clashes in a small company look just as likely and she remains in post for now.

Looking back through thread this is a Company where accounting was raised before this all blew up

[topvest] 04/6/2019 19:54

Agreed. Probably some issues on the accounting front, but at this stage doesn't appear to be impact trading results or prospects. I guess KPMG are under a lot of pressure at the moment as well, so maybe they are being tougher. Not unusual to be fairly last minute, if an issue or two is unresolved, as the Audit Committee meeting will be towards the end of the timetable. Moving back a month gives time for the issues to be resolved and further meetings arranged to approve the accounts. To me it looks like the FD is just out of her depth and has drowned on workload. Solution will be to recruit a quality Interim Finance Director as soon as the results are done. At least the CEO is the previous FD, so he should be able to assist.

[gopher] 04/6/2019 19:08

To me, the last minute nature of this release and departure of CFO does indicate some serious disagreements around accounting but not trading.

[topvest] 04/6/2019 13:23

Let's see. The risk reward ratio is good at this price.
It's a nil cost share for me as I top sliced (albeit way too early), so I feel slightly better than most on holding out.
Remember that the Board topped-up just before the closed period as well.
There seems to be a natural default of assuming the worst in these sorts of situations, given a few high profile meltdowns.
This feels like an Air Partner rather than a Yu group style mess-up to me!

[jonc] 04/6/2019 11:07

I think that announcing the delay the day before the results were due to be released indicates some fundamental issues have been uncovered.

Adding a month or more to the timetable tells me that there are going to be some significant adjustments to previously stated figures.

Maybe they are not profitable and losses have been hidden in capitalised assets and cross charges.

On reflection I doubt if this will continue as a going concern.

[pireric] 04/6/2019 09:04

Think the market will shift to valuing this off a free cash flow multiple in the short to mid term topvest, given the issues YTD

[topvest] 04/6/2019 08:50

Share price seems to have steadied for now. Market cap is now only £50m. Definitely cheap given the £11m currently forecast adjusted EBITDA. Should recover to the 30-35 level if the news flow doesn't deteriorate further, and after the results are out.

[topvest] 03/6/2019 20:14

Yes, I've read as well. A good article. I suspect that some sort of write-down or restatement is coming, but doesn't look like its fundamentally changing the trading position. Not quite on the same scale as some others. I liken this more to the Air Partner mess-up, rather than a really serious issue but time will tell. They have again reiterated the current expectation of unchanged headline numbers, which they definitely wouldn't have done if it was a much bigger mess. Time will tell. One thing for sure, is that they need to get more transparent on adopted assets accounting. It doesn't massively impact the headline numbers, but mixing an asset operator / construction company with an asset owner can create question marks over one side doing business for the other. It also impacts the cash flow because they are effectively building assets in the contractor side (£4.2m revenue in 18) for capitalisation in the pipeline side (£3.5m in 18).

What fair value is used and is the profit reversed out?

"Adoption of utility assets:

Revenue relating to following the adoption of utility assets (included in Infrastructure revenue) is recognised at the point the assets is "adopted", which is when the performance obligation is satisfied. The value at which the revenue is recognised is the fair value of the asset held with the corresponding entry to tangible assets."

This is all a bit unfortunate and should be better explained. The pipeline assets are actually very valuable assets, but the way the results are presented is making investors nervous on cash generation in the contracting side of the business, because the message is not being articulated as clearly as it could.

[gopher] 03/6/2019 18:26

I registered and a decent article.

Accounting is a spooky subject for AIM cos & didn: realise that the CEO is ex CFO

[value viper] 03/6/2019 10:35

WowMarket had this absolutely right and makes one wonder who's leaked whatMessPerhaps market being overly harsh but price action not surprising So many of these apparently better quality AIM cos getting smashed and seems the finance functions just not up to speed in many casesDisappointing stuff

[topvest] 03/6/2019 10:16

I would guess at valuation and new revenue recognition standard + bad debt provisioning standard as being the most likely issue, maybe also combined with sloppy accounting generally. Of course, I'm guessing, but smacks of the FD not being on top of things and the auditors not being able to finalise their work on time. Also, sounds like the acquisitions have not been a stellar success so far. There could be a write-down of course, and more likely that forward numbers are being reduced than being increased but doesn't, on the face of it, sound terminal or really serious.

[topvest] 03/6/2019 10:09

20-25p range is more likely given the 10%+ yield. No hint of any issue on the dividend.

[fruitfly2] 03/6/2019 10:05

14p before results?

[topvest] 03/6/2019 09:43

Not good news today. Reading the RNS, I suppose that it could be connected with the acquisition accounting for prior year acquisitions as the independent valuations were provisional and needed inclusion this year-end. Could also be connected with implementation of IFRS 15 on revenue recognition. Remember that they completed a number of acquisitions just prior to the year-end last year. I'm going to stick with it though, as unless it's a total disaster the group is now very undervalued given its cash generative nature and valuable pipeline assets. Sounds like the FD has been over-whelmed and they need to recruit someone better. This is the worst sort of uncertainty, so no doubt the share price will test lows. It will probably rebound strongly once the facts are known and the uncertainty is removed. Easy with hindsight, but selling much higher up was the smart thing to do. Sellers seem to have sniffed-out something. Also, probably now a bid target once the results are released.

[soundsplausible] 03/6/2019 08:29

Things are starting to come together. We have seen the share price on a fairly consistant downward spiral, the FD deicdes to leave (and no indication why). Now there are delays to the results and unquantifiable issues being mentioned. Although these may not affect this years results you cannot discount that they may hit future earnings. Until they come clean as to what is up, it's squeeky bum time.

[solarno lopez] 03/6/2019 08:12

I am going to throw in a life line it is possible that the CFO was inexperienced and was totally overwhelmed by the task of accounting for the takeover and other matters.

The directors realised this and gave the 'order of the boot'

[solarno lopez] 03/6/2019 08:07

drop by 50%

[jonc] 03/6/2019 07:59

The word currently is ominous.This could easily half from these levels so much uncertainty.

[solarno lopez] 03/6/2019 07:39

Yes the guidance maybe correct but are there new write downs and they will be considered as exceptions and thus not covered by the guidance ?

[pictureframe] 03/6/2019 07:12

Guidance ok - maybe thats why CFO is going not up to the job

[george stobbart] 03/6/2019 07:09

Its going to be a bloody red Monday for the stock.

Recently the CFO left and now they are delaying the results.

Something fishy going on. Should close -20% today.