Utilitywise plc Early Adoption of IFRS 15 (7990K)

TIDMUTW

RNS Number : 7990K

Utilitywise plc

13 April 2018

13 April 2018

Utilitywise plc

("Utilitywise", the "Company" or the "Group")

Early adoption of IFRS 15

Utilitywise, a leading independent utility cost management consultancy, today provides an update regarding the financial impact of its early-adoption of the accounting standard IFRS 15 (Revenue from Contracts with Customers) on 1 August 2017, interpretations of which are mandatory for future accounting periods from 1 January 2018.

As previously notified, there is no impact on the cash flows of the Group, as a result of the adoption of this accounting standard.

The final results of the Group for the year ended 31 July 2017 ("FY17") were announced on 22 March 2018 and were the final results of the Group to recognise revenue in accordance with the accounting standard IAS 18 (Revenue).

The FY17 final results stated that, given the delay in announcement of those results, the priority of the Board of Directors was to finalise and publish the 2017 Annual Report as soon as possible. The change in accounting policy for revenue recognition and the time required to prepare restated information and the detailed disclosures of the financial effect of the adoption of IFRS 15 would further delay the finalisation of the financial statements for the year ended 31 July 2017. Accordingly, separate publication of the financial effects of the adoption of IFRS15 on the Group for FY17 would be made in due course. Those financial impacts are now set out below.

Summary impact of adoption of IFRS 15

IAS 18 requires that revenue is recognised when it is "probable that future economic benefit will flow" to the Group. The Group's accounting policy to comply with IAS 18 in respect of energy procurement contracts was to recognise revenue upon the commencement of a new customer contract or upon the signature of a Renewal Contract, respectively. In respect of a Renewal Contract, this is on the grounds that it is considered "probable" that the renewed contract will ultimately be honoured by the customer, which meets the recognition requirements of IAS 18, the Group having no further contractual obligations in respect of those transactions

The FY17 final results included a qualitative summary of the impact of the adoption of IFRS15, a summary of which is as follows:

-- IFRS 15 requires that revenue is recognised at the "transaction price" when certain contractual obligations are met but with any "variable consideration" elements of the price recognised when it is "highly probable" that there will be no reversal of that revenue.

-- Initial revenue is recognised on procurement contracts when the transaction price can be reliably estimated and it is highly probable that there will be no material reversal of variable consideration amounts in subsequent periods.

-- Given that there can be a significant time delay between the signature of a Renewal Contract and the contract subsequently commencing, it is considered that the delay means that the likelihood of the contract being honoured remains probable, as required by IAS 18, but does not meet the "highly probable" condition of IFRS 15. It is determined that the highly probable condition is met when the renewed contract comes into effect, rather than upon the signature of the Renewal Contract. This has the effect of deferring revenue to later accounting periods, as a result of the adoption of IFRS 15.

-- Separately identifiable, incremental costs associated with this deferred revenue, primarily relating to attributable commission payments, will also be deferred and recognised in the same accounting period as the revenue to which they directly relate.

On 31 July 2017, the Group announced the financial impacts of the early-adoption of IFRS 15. Those impacts included a difference in respect of the initial revenue recognition value, having previously been c. 85% of contract value under IAS 18 and adjusted to 80% of initial contract value under IFRS 15.

As a result of the subsequent review and amendments to the Group's revenue accounting policies, as announced on 17 January 2018, 29 January 2018 and in the FY17 final results and FY17 Annual Report, it is now considered that the value of initial revenue recognition on procurement contracts meets the requirements of both IAS 18 and IFRS 15. Accordingly, other than the timing of recognition of revenue (and associated costs) on same supplier renewal contracts, there are no other material differences in revenue policy and estimation methodology compared to the IAS 18 policy.

Summary financial impact of transition to IFRS 15

The summary impacts of the transition to IFRS15 on the Group's revenue, Adjusted EBITDA(1) and Adjusted(2) loss before tax ("LBT") for the year ended 31 July 2017 are set out below:

 
 GBP'm                            FY17       FY17       FY17 
                                 Revenue   Adjusted   Adjusted 
                                            EBITDA      LBT 
 Existing GAAP (IAS 18 basis)     67.8      (8.6)      (8.5) 
 Recognition of renewals 
  on contract commencement        (4.4)     (4.4)      (4.4) 
 Deferral of commissions            -        1.3        1.3 
 Discounting adjustments 
  - revenue                        0.7       0.7        0.7 
 Discounting adjustments 
  - finance charges                 -         -        (0.5) 
 IFRS 15 basis                    64.1      (11.0)     (11.4) 
                                --------  ---------  --------- 
 

The summary impacts of the transition to IFRS15 on the Group's total balance sheet equity as at 31 July 2017 and 31 July 2016 are set out below:

 
 GBP'm                              FY17     FY16 
                                   Group    Group 
                                   equity   equity 
 Existing GAAP (IAS 18 basis)      (15.6)    16.3 
 Cumulative impact of earlier 
  years on equity                  (14.3)   (11.4) 
 In year profit before tax 
  impacts                          (2.9)    (2.9) 
 Taxation effects - adjustments 
  at headline tax rate              0.4      0.5 
 Unrecognised deferred tax 
  assets                           (0.4)    (0.5) 
 IFRS 15 basis                     (32.8)    2.0 
                                  -------  ------- 
 

(1) EBITDA means earnings before interest, taxation, depreciation and amortisation, stated before exceptional income and costs, non-cash accounting charges for share based payments and amortisation of intangible assets acquired through business combinations

(2) Adjusted loss before tax is stated before exceptional income and costs, non-cash accounting charges for share based payments and amortisation of intangible assets acquired through business combinations

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            [e-mail] 
 

About Utilitywise

Utilitywise is a leading independent utility cost management consultancy, which has established trading relationships with a number of major UK and European energy suppliers and provides services to its customers designed to assist them in achieving better value out of their energy contracts, reduced energy consumption and lower carbon footprint. Utilitywise is a UK company quoted on the AIM market of the London Stock Exchange. For more information, please visit www.utilitywise.com.

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The company news service from the London Stock Exchange

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April 13, 2018 02:00 ET (06:00 GMT)