Losses increased to £2.1m last year on sales up 15% to £40.4m at environmental support services counter Fountains, but the result belies a strong turnaround masterminded by new chief executive Richard Haddon.

A period of poor trading, culminating in half-time losses of £2.4m, begat an EGM, as a group of shareholders wanted chairman Barry Gamble removed from the board. An overwhelming majority backed the current board and Gamble agreed to sit back and take a non-executive role once a permanent replacement was found.

Haddon, who had taken a temporary role in May and decided to make it a permanent one in November, oversaw an immediate return to profits in May, and has gone on to deliver profits in every month since. He attributes the reversal in fortunes to a focus on a more ‘managed services’ approach, forging into new markets and going for bigger contracts, outsourcing to subcontractors where necessary.

To mitigate risk the company has reduced its dependence on rail contracts, which Haddon says are becoming more short-term: ‘we’ll only take rail contracts now if they’re profitable’. The sales mix going forward shows more revenues coming from maintenance and utilities contracts. Recent contract wins include Richmond Park and Tower Hamlets local authority – which has been immediately profitable.

Investments in plant have cut back some staff costs, a high-margin acquisition in the US has performed ahead of expectations, and Fountains is also in the midst of transferring its processes over to the UK operations. Strong cashflow in the second half means for a healthy balance sheet and £3.8m cash still left.

House broker Collins Stewart, appointed back in May, has yet to issue forecasts. The order book is up from £85m to £97m (of which 75% is already secured) and Haddon says ‘we’ve got £120m we’re waiting to hear about’. Fountains is profitable, has reduced its dependency on one sector, continues to reduce its cost base and is winning ever-bigger contracts. Speculative buy.