TIDMUTW
RNS Number : 5347I
Utilitywise plc
22 March 2018
22 March 2018
Utilitywise plc
("Utilitywise" or "the Company")
Questions and answers for shareholders
Utilitywise plc (AIM:UTW), a leading independent utility cost
management consultancy, published its full year results for the
year ended 31 July 2017 ("FY17") on 22 March 2018. In light of the
delay in publication of those results and related suspension of the
Company's shares, the Board has published the following Q&A to
provide answers to frequently asked questions by investors about
the situation. If investors have further questions, they should
email InvestorRelations@utilitywise.com
Why were the full-year results delayed so significantly?
On 15 November 2017, Utilitywise announced a delay to the
announcement of its final results for FY17. This delay was due to
the Group's external auditor requesting a further independent
review from another leading firm of Utilitywise's methodology and
accounting policy for recognising revenue on its energy procurement
contracts.
A further update was given to the market on 17 January 2018
regarding the outcome of that review, including the material impact
on the financial results of the Group. A substantial amount of work
was then required to update and restate a large number of historic
energy procurement contract values to cater for the change in
accounting policy.
Despite all efforts, the volume of work that was subsequently
required, including a significant additional amount of audit work
from the external auditor, it was not possible to complete that
work until 21 March 2018. At that point, the Board moved to
immediately approve the accounts and announce the results for the
year ended 31 July 2017.
What is the outcome of the changes?
The key changes are set out in a separate section in the
Strategic Report section of the FY17 year-end results announcement
and FY17 Annual Report.
In summary, Utilitywise is adopting what the Board considers to
be a very conservative recognition policy in respect of revenue on
energy procurement contracts. It is more conservative than the
advice received from the independent accounting firm, after
subsequent discussions with the Group's auditors, due to the
adoption of additional contingency under-consumption rates over and
above those recommended by the independent firm for contracts of
value less than GBP50,000.
Is this issue related to the previous announcement regarding
repayments of commissions to an energy supplier?
No. That was a separate one-off issue (which was announced on 29
June 2017) where the Group agreed to make repayments of commissions
totalling GBP7.6m between June 2017 and December 2020 to one energy
supplier, of which GBP4.8m was paid in FY17.
There have been improvements in the internal controls of both
Utilitywise and the energy supplier since August 2016, which
mitigate the risk of significant under-consumption in the energy
procurement contracts versus the estimated usage of those contracts
agreed at the outset. The Board is confident that contracts placed
after August 2016 with the customer will show more normal levels of
consumption over the lives of those contracts and that the risk of
similar issues with other suppliers is minimal.
What is the impact on the revenue and profit of the Group?
The revised accounting policy can be seen to have a material
negative impact on the reported revenue and accounting profit of
the Group in the short-term. However, the revised accounting policy
changes affect the timing of revenue recognition rather than the
absolute value of the energy procurement contracts that the Group
places, in particular for contracts less than GBP50,000, which make
up the substantial majority of the aggregate live contract value of
the Group. It has had no impact on the cash flows of the Group.
Furthermore, the Directors do not anticipate that there will be any
future impact on the cash flows of the Group as a result of the
revised accounting policy.
How will the changes to the accounting policy impact the
day-to-day management of the business in the future?
Internally, management use a constant assumed under-consumption
rate of 20% across all of its energy procurement contracts to take
account of the fact that, whilst contracts more than GBP50,000
typically under-consume at significantly more than 20% (52.2% in
FY16/17), contracts less than GBP50,000, which make up the majority
of the live book, on average have been observed to under-consume at
less than 20% (17.7% in FY16/17), meaning that the overall average
across all maturing contracts in recent years has been around 20%
(21.0% in FY16/17 and 19.3% in FY15/16).
Importantly, this is also now the basis upon which the Group
declares its performance against its interest cover covenant with
the bank and is the level at which management observes its EBITDA
to be broadly analogous to operating cash flow.
What about cash flow?
The accounting policy changes do not have any impact on the
historic or future cash flows of the Group.
The negative operating cash flow of the Group in the year ended
31 July 2017 is unrelated to these policy changes and was due to
the repayment of GBP4.8m to an energy supplier, as explained below,
plus a further GBP2.8m of payments for non-trading items, such as
legal costs and restructuring. Without these non-recurring items,
the Group had positive operating cash flow in the year.
Why is the balance sheet of the Group now negative (net
liabilities)?
The revised revenue accounting policies of the Group have caused
a significant non-cash impact on the net assets of the Group. As
explained in the Strategic Report in the FY17 results:
-- If provision for under-consumption on contracts less than
GBP50,000 had been made at 31 July 2017 at the rate of
under-consumption observed in the two-year period to 31 July 2017,
the net assets of the Group would be c. GBP15m higher
-- The new accounting policy for contracts greater than
GBP50,000 means that no revenue has been recognised on
approximately GBP7m of live contracts until a minimum number of
energy consumption data points (i.e. meter readings) are obtained
from the energy supplier. At the under-consumption rate observed in
FY17, this would correspond to an increase in the net assets of the
Group of c. GBP3m.
-- As a result of the revenue policy changes, the Group also has
significant additional tax losses which will be used to offset
future taxable profits of the Group. This deferred tax asset is c.
GBP7m and is not recognised on the balance sheet as at 31 July
2017.
The above items total c. GBP25m, which exceeds the net
liabilities position of the Group as at 31 July 2017.
Has the Group breached its banking covenants?
The Group certified compliance with its main financial bank
covenants for the year ended 31 July 2017 based upon the Group's
management accounts at that time. The subsequent review and
non-cash amendment to revenue accounting policies mean that the
Group then fell into a technical retrospective breach of those
covenants, which had initially been set based on the previous
accounting policies of the Group. However, as announced to the
market on 1 February 2018, the Group agreed certain amendments to
its banking facility agreement with its lending bankers.
The new terms aligned Utilitywise's banking facility with the
non-cash accounting changes anticipated in the financial statements
for the year ended 31 July 2017 and beyond, as outlined in the
announcements on 17 January 2018 and 29 January 2018. The facility
amendments included the replacement and amendment of certain
covenants to take account of the Group's amended accounting
policies and also included waivers by the bank of all of the
retrospective technical breaches as part of those amendments.
Has Utilitywise incurred additional costs as a result of this
delay?
Additional costs of c. GBP0.8m were incurred by the Group in
bringing the year-end matters to a conclusion. This includes an
additional GBP0.5m of audit fees, over and above the normal fee
agreed by the Audit Committee. These costs have been charged as
exceptional items in the FY17 income statement. However, they will
be FY18 cash flows and, therefore, increase the expected net debt
of the Group by a similar amount as at 31 July 2018 as a
result.
When will you start paying dividends again?
Due to the evolution of our capital structure and the recent
amendments to our accounting policies, the Company is not able to
declare a final dividend for the year ended 31 July 2017. As
previously announced, once the Company has sufficient distributable
reserves out of which to pay dividends, the Board intends to
recommence the payment of dividends at an expected dividend cover
of 4x, subject to this being supported by the Group's capital
structure and free cash flow at that time.
Why do the FY17 results not include any financial analysis of
the impact of the adoption of IFRS15?
As previously announced, the Group early-adopted IFRS15 on 1
August 2017. The financial results include a qualitative
explanation of the key changes that arise as a result of the
early-adoption, the main one being that the Group will recognise
revenue on same supplier renewal contracts when they go-live,
rather than when they are signed, which was the position prior to 1
August 2017.
Best practice in this area is to give the full quantitative
analysis of the impact. However, the Board considered that it was
more important to finalise the accounts as quickly as possible,
given the already significant delay to have the suspension of the
Company's shares from trading on AIM lifted as soon as possible. As
a result, the decision was taken to give the qualitative
disclosures that meet the minimum requirements of accounting
standards with the intention of issuing the quantitative analysis
in the near future.
When will the annual report be published?
The annual report for FY17 is already available on the Group's
website at www.utilitywise.com. The annual report will also be
mailed to shareholders, and the Company will convene an
Extraordinary General Meeting to seek shareholder approval of the
accounts.
When will the interim results be announced?
It is expected that the interim results of the Group for the six
months ending 31 January 2018 will be announced on 23 April
2018.
For further information please contact:
Utilitywise plc 0330 303 0233
Brendan Flattery (CEO)
Richard Laker (CFO)
finnCap (NOMAD and broker) 020 7220 0500
Matt Goode / Henrik Persson (Corporate
Finance)
Simon Johnson (Corporate Broking)
Liberum (Joint broker) 020 3100 2000
Robert Morton / Steve Pearce
Redleaf Communications 020 3757 6865
Robin Tozer / Elisabeth Cowell utilitywise@redleafpr.com
This information is provided by RNS
The company news service from the London Stock Exchange
END
MSCSEESEEFASELD
(END) Dow Jones Newswires
March 22, 2018 03:02 ET (07:02 GMT)
Utilitywise (LSE:UTW)
Historical Stock Chart
From Jun 2024 to Jul 2024
Utilitywise (LSE:UTW)
Historical Stock Chart
From Jul 2023 to Jul 2024