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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Utilitywise | LSE:UTW | London | Ordinary Share | GB00B6WVD707 | ORD 0.1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 1.903 | 1.806 | 2.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Jul 2019 to Jul 2024
TIDMUTW
RNS Number : 5345I
Utilitywise plc
22 March 2018
22 March 2018
Utilitywise plc
("Utilitywise", the "Company" or the "Group")
Final results
for the year ended 31 July 2017
Utilitywise, a leading independent utility cost management consultancy, announces its audited financial results for the year ended 31 July 2017
Financial summary
-- Revenue of GBP67.8m, broadly unchanged compared to FY16 (as restated), which was impacted by a GBP6.0m non-cash negative adjustment due to the adjustment in under-consumption ("leakage") rates on live contracts less than GBP50,000 as at 31 July 2016 to the FY17 leakage rate
-- Adjusted EBITDA(1) of GBP(8.6)m, a decrease of GBP10.2m compared to FY16 (as restated), impacted by the GBP6.0m non-cash adjustment to revenue noted above, along with a GBP1.7m negative impact from new contracts in the year having a higher leakage accounting rate than in FY16.
-- Adjusted loss before tax(2) of GBP(8.5)m, a decrease of GBP10.2m compared to FY16 (as restated), primarily due to the same reasons that impacted EBITDA, as set out above
-- Adjusted fully diluted loss per share(3) of 9.2 pence (FY16: loss per share of 1.1 pence, as restated)
-- Group net liabilities of GBP15.6m (FY16: net assets of GBP16.3m, as restated), the GBP31.9m reduction in equity impacted by:
o Non-cash goodwill and intangible asset impairment losses of GBP17.3m
o Non-cash negative revenue adjustment of GBP6.0m to procurement contracts as set out above
-- Group net liabilities exclude unrecognised deferred tax assets of GBP7.2m, relating to tax losses
Operational highlights
-- Growth in total customer numbers of c. 4,000 -- Growth in closing order book(4) of Enterprise division of GBP4.5m
-- An improvement in efficiency from the Group's team of Energy Consultants, with an increase in Gross Enterprise (UK & Ireland) order book additions of GBP15.6m from an increase in closing headcount of 30
-- Energy Consultant attrition reduced to 59% from 72% -- A further increase in net promoter score from 58 to 60.
Simon Waugh, Non-executive Chairman, said:
"The past 12 months have been difficult for the Group and all of its stakeholders, not least for its shareholders. The Board has been dealing with a number of challenges, including increasing the transparency of its capital structure, dealing with contract under-consumption issues, primarily as a result of legacy issues from earlier years, and undergoing a fundamental review of the Group's revenue recognition policies. The review of these policies has led to the adoption of what the Board considers to be a very conservative recognition policy in respect of revenue on procurement contracts. This is more conservative than the advice received from an 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.
"As well as working with Brendan and the Management team in resolving these issues, I have taken the opportunity to spend time in the business, during my time as both Senior Independent Director and Chairman. Having done so, I am enthusiastic about the future prospects of the Group. We have a clearly stated Strategy for Growth for the period 2017-2021, which includes the creation of significant shareholder value from both the Enterprise and Corporate divisions, as well as medium-term plans for international expansion. The growth potential of corporate controls and "intelligent building" enablement, through "internet of things" technology is very exciting. I would like to thank shareholders and other key partners and stakeholders of the Group, both for their patience while the short-term issues have been resolved and for their ongoing support of the business."
Brendan Flattery, Chief Executive Officer, commented:
"The Group has traded in line with the expectations during the first half of the year ended 31 July 2018. We are particularly pleased with the performance of the Corporate division which has seen continued growth in the first half and is expected to continue to grow in the second half of the year. However, the significant delay in the completion of the 2017 year-end audit has had a somewhat destabilising effect on several key stakeholders of the Group, including colleagues in the short-term. Accordingly, it is now expected that the Enterprise division, in particular, to have a softer second half of the financial year, due to these short-term uncertainties. We remain confident of the long-term growth prospects of all parts of the business and are working to ensure that the impact on the business is a short-term one. However, it is now expected that the trading and, therefore, profit of the Group as whole in the second half of the financial year will be below expectation and will be lower than the first half of the year."
(1) Adjusted EBITDA means earnings before interest, taxation, depreciation and amortisation and adjusted EBITDA is stated before exceptional income and costs and non-cash accounting charges for share based payments, as set out in the financial review
(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, as set out in the financial review
(3) Adjusted loss per share is stated before exceptional income and costs, non-cash accounting charges for share based payments and amortisation of intangible assets acquired through business combinations and the tax impact of those items
(4) Order book means total value of closed transactions in the period, which may either be included within revenue in the period or is included within future secured revenue
There will be a call for analysts at 10.15am today. For details , please contact Redleaf Communications at utilitywise@redleafpr.com or 020 3757 6865.
This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014
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
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.
Strategic report
Chairman's statement
I am pleased to deliver my first statement as Chairman of the Group, having taken over the position from Geoff Thompson when he stepped down from the Board at the Annual General Meeting on 30 January 2018.
I would like to pay tribute to Geoff and the Group that he has built and I look forward to working with Brendan Flattery and the rest of the Board as the Group builds on that legacy and continues to execute its strategic priorities.
I would also like to thank Jeremy Middleton, Richard Feigen and Paul Hailes, who have all stepped down from the Board in recent weeks, for their contributions to the success of the Company over recent years, and to wish them well for the future.
A process is underway to identify at least one suitable non-executive director to join the Board in the short term.
The past 12 months have been difficult for the Group and all of its stakeholders, not least for its shareholders. The Board has been dealing with a number of challenges, including:
-- Increasing the transparency of its capital structure to its stakeholders;
-- Dealing with contract under-consumption issues, primarily as a result of legacy issues from earlier years, as previously announced in June 2017; and
-- Undergoing a fundamental review of its revenue recognition policies, including independent reviews of both existing contract revenue accounting and also early-adoption of IFRS 15, with those two reviews carried out by two separate major accounting firms.
In particular, the Group's review of its revenue recognition accounting policies which initially arose due to the observation that larger value contracts appear to exhibit higher levels of average under-consumption, and agreement of those with auditors, has led to the following consequences:
The Group adopting what the Board considers to be a very conservative recognition policy in respect of revenue on procurement contracts - 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.
An unexpectedly and regrettably drawn out year-end audit process, meaning that these financial results are being announced substantially later than expected and after the Group's AGM. A separate general meeting will be convened in due course to seek shareholder approval for the 2017 Annual Report and Accounts.
I have taken the opportunity to spend time in the business, during my time as both Senior Independent Director and Chairman and, despite the short-term issues of legacy under-consumption and the year-end audit delay as explained above, I am enthusiastic about the future prospects of the business.
The Group has a clearly stated Strategy for Growth for the period 2017-2021, which includes the creation of significant shareholder value from both the Enterprise and Corporate divisions, as well as medium-term plans for international expansion. The growth potential of corporate controls and "intelligent building" enablement, through "internet of things" (IoT) technology is very exciting.
The Group has continued to grow its customer numbers during the year ended 31 July 2017 and we are rightly proud of our strong net promoter score of 60, which has improved since the previous year.
I would like to thank shareholders and other key partners and stakeholders of the Group, both for their patience whilst the above noted short-term issues have been concluded and for their ongoing support of the business.
I would also like to pay tribute to all colleagues in the business, who have continued to perform with great optimism and resilience over the past year and upon whose efforts and endeavours the success of the business depends.
Due to the evolution of the Group's capital structure and the recent amendments to the Group's 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, it intends to recommence the payment of dividends at an expected dividend cover of 4x, subject to this being supported by the capital structure and free cash flow of the Group in due course.
As set out above, I remain convinced of the growth potential of the Group and the Board looks forward to delivering significant value to our shareholders over the coming years.
Simon Waugh
Non-executive Chairman
21 March 2018
Change in accounting policy - revenue recognition
The Group derives a material element of its revenue from commissions, due to the Group from utility companies, in respect of utility contracts with end customers that the Group delivers to those utility companies. The final value of commission due to the Group on each contract is determined by the actual level of utility consumption of the end customer over the life of that contract. The Group estimates the amount of revenue that is due at the start of each contract, with the final value ultimately known with certainty once the contract ends.
The Group bases its initial revenue estimates on the data and experience that the Group has in respect of those contracts, in particular in respect of the propensity of those contracts to demonstrate over or under-consumption of energy, compared to the initial contractual expectation, across their lives. Historically, the Group has formed this accounting estimate by determining the average level of under-consumption on contracts that have matured in the previous year, with a fundamental assumption that the body of matured contracts is both homogenous within itself and with the contracts that remain live at the balance sheet date. However, upon closer scrutiny than previously, the Board has observed that procurement contracts typically display different levels of under-consumption at different value levels, i.e. that larger contracts, on average, appear to under-consume by greater proportions than smaller contracts.
As a result, the Group has carried out a review of its revenue accounting policies in respect of procurement contracts. That review included the engagement of an independent accounting firm, who issued an accounting opinion to the Board of Directors. The key outcomes of that review were as follows:
-- The previous "homogenous" method of estimating expected under-consumption on contracts, was inappropriate, due to the different under-consumption levels between different contract values;
-- The matured and live contracts should be split into value cohorts/tranches that are more likely to correlate to one another and an under-consumption rate should be determined separately for each tranche;
-- The trend of under-consumption should be observed for each tranche and the accounting rate set at broadly the worst level seen in the past four years, rather than most recently observed; and
-- Very high value contracts (subsequently determined to be contracts greater than GBP50,000 individual value) are sufficiently small in number that it is not possible to use historic data from matured contracts to form a reliable estimate of expected future performance of live contracts. Accordingly, revenue will be recognised on these contracts on an individual contract basis, based upon contract consumption data obtained directly from energy suppliers, in respect of each contract. This includes a minimum number of consumption data points over a minimum period of time before any revenue is now recognised in relation to these contracts.
After further discussion of these points with the Group's auditors, the Board has now adopted a revenue policy which added in a further contingency element, such that the under-consumption rates to be assumed in the accounts are a further degree worse than the worst level seen over the past four years. This policy decision was taken by the Board wholly to achieve a position that was convergent with the external auditor's view of compliance with accounting standards in this area.
Accordingly, as a result of the accounting advice given to the Board by an independent accounting firm, the subsequent discussions with the Group's auditor, including their interpretation of relevant accounting standards and having taken appropriate legal advice, the Board has adopted the above accounting policies in respect of initial revenue recognition on procurement contracts. This was in order to achieve a statutory financial statement outcome that would constitute a true and fair view, thereby discharging the Board's duties under the Companies Act 2006 in this regard.
The Board anticipates that this revised accounting is likely to cause the reported results of the Group to potentially become much more volatile from one accounting period to the next and, therefore, difficult to present on a consistent basis. It is expected that it will continue to do so in future. It also potentially causes a significant divergence between the accounting profit of the Group and its cash flows in any one accounting period. The accounting rates of under-consumption for contracts less than GBP50,000, used in the 2017 financial results are as follows:
Hot Features
Premium
4-years Actual Rates
worst rate observed
seen used 2017
% % %
Tranche A 21.1% 26.3% 10.8%
Tranche B 21.7% 24.7% 21.7%
Tranche C 26.3% 30.8% 26.3%
Total contracts
< GBP50,000 (FY17) 23.2% 27.7% 18.6%
--------- -------- ----------
Total contracts
< GBP50,000 (FY16) 21.7% 24.6% 16.2%
Each of the under-consumption rates set out in the above table is based on a two-year lookback period. The Board considers that a two-year lookback period is likely to give a more accurate reflection of contract under-consumption as there can be a time delay between a contract reaching maturity and its final value being established with the energy supplier. Accordingly, a two-year look back period offers a wider time period in which to maximise the amount of matured contracts that have had their ultimate values finalised, thereby improving the quality of the data available. Accordingly, the "Rates observed 2017" are those on contracts that have reached maturity in the two-year period 1 August 2015 to 31 July 2017.
The accounting under-consumption rate used in the year for contracts greater than GBP50,000 was 52.2% (FY16: 73.6%). This compared to the actual leakage rates seen on maturing contracts of 51.0% (FY16: 39.5%). However, historic data is less relevant on contracts greater than GBP50,000 as leakage rates are determined using latest consumption data on a contract-by-contract basis rather than historic data.
The actual weighted average rates of under-consumption observed on all contracts that have reached maturity in the past four years, using the same two-year lookback data explained above, are as follows:
Less
All than
GBP50k
contracts only
% %
FY17/16 21.0% 17.7%
FY16/15 19.3% 16.0%
FY15/14 21.4% 19.3%
As announced in January 2018, these rates are higher than the 15% average under-consumption rate, stated in previous years' results announcements, due to the erroneous extraction and analysis of the contract data in those years.
The adoption of the above accounting policies have had a significant impact on both the accounting profit and the net assets of the Group, in particular due to:
-- The potentially significant difference in the leakage rate used in a particular financial year for contracts less than GBP50,000, compared to the leakage observed in that year
-- The need to have a minimum number of data consumption points over a minimum time period in order to recognise any revenue on contracts greater than GBP50,000.
As an example of the arithmetic sensitivity of the accounting estimates to changes in assumptions, if provision had been made for under-consumption in the financial statements at the actual rates observed on maturing contracts less than GBP50,000 in the relevant two-year look back periods, the theoretical summary impact would have been as follows:
Financial year FY17 FY16 Two-year lookback period FY17/16 FY16/15 --------------------------------- ---------- ---------- Weighted average rate observed on ended contracts 17.7% 16.0% --------------------------------- ---------- ---------- Actual weighted average rate used 27.7% 24.6% --------------------------------- ---------- ---------- Arithmetic difference in rates 10.0% 8.6% --------------------------------- ---------- ---------- Difference applied to live GBP15.6m GBP12.1m contracts at balance sheet date --------------------------------- ---------- ----------
For contracts greater than GBP50,000, at each year-end balance sheet date, there will now be contracts that have gone live during the financial year that have not yet had any revenue recognised on them. The expectation is that some revenue will be recognised on them in the following financial year, once there is sufficient consumption data to trigger the revenue recognition. If the in-year leakage rate was assumed to eventually apply to those contracts at the end of the same financial year, then the impact in the following year would be as follows:
Financial year FY17 FY16 Value of contracts greater than GBP7.0m GBP12.3m GBP50,000 with no revenue yet recognised -------------------------------------------- --------- ---------- Actual weighted average rate used on live contracts > GBP50,000 52.2% 73.6% -------------------------------------------- --------- ---------- Theoretical revenue to recognise GBP3.3m GBP3.2m in following financial year -------------------------------------------- --------- ----------
The above tables show that, in the example circumstances shown, the theoretical impact of policies are:
-- A GBP18.9m reduction in the net assets of the Group as at 31 July 2017, being GBP15.6m in respect of contracts less than GBP50,000 and GBP3.3m in respect of contracts greater than GBP50,000;
-- A GBP15.3m reduction in net assets as at 31 July 2016, on an equivalent basis for all contracts; and
-- A GBP3.6m reduction in the accounting profit of the Group in FY17, being the difference between the two balance sheet impacts, on an equivalent basis for all contracts.
Business review
The summary adjusted(3) financial results for the Group for the year ended 31 July 2017 showed the following:
-- Revenue of GBP67.8m, broadly unchanged compared to FY16 (as restated), which was impacted by a GBP6.0m non-cash negative adjustment due to the adjustment in under-consumption ("leakage") rates on live contracts less than GBP50,000 as at 31 July 2016 to the FY17 leakage rate
-- EBITDA of GBP(8.6)m, a decrease of GBP10.2m compared to FY16 (as restated), impacted by the GBP6.0m non-cash adjustment to revenue noted above, along with a GBP1.7m negative impact from new contracts in the year having a higher leakage accounting rate than in FY16.
-- Loss before tax of GBP(8.5)m, a decrease of GBP10.2m compared to FY16 (as restated), primarily due to the same reasons that impacted EBITDA, as set out above
-- Adjusted fully diluted loss per share of 9.2 pence (FY16: loss per share of 1.1 pence, as restated)
-- Group net liabilities of GBP15.6m (FY16: net assets of GBP16.3m, as restated), the GBP31.9m reduction in equity impacted by:
o Non-cash goodwill and intangible asset impairment losses of GBP17.3m
o Non-cash negative revenue adjustment of GBP6.0m to procurement contracts as set out above
-- Group net liabilities exclude unrecognised deferred tax assets of GBP7.2m, relating to tax losses
The statutory equivalents of the above are set out in the financial review below.
As well as the leakage rate change impacts, summarised above, in accordance with the revised revenue accounting policy of the Group, the above revenue and profit figures also exclude contracts greater than GBP50,000 of total value GBP7.0m that went live during the current year where no revenue has been recognised at the balance sheet date, in accordance with the Groups accounting policy. Once further consumption data points are obtained, it is expected that some level of revenue will be recognised on those contracts in FY18, based upon that consumption data.
The Group's cash flows are not impacted by the above accounting policy changes and the Net Debt of the Group as at 31 July 2017, increased from GBP5.5m (as restated) to GBP19.0m, including the impact of GBP4.8m repayment to energy supplier and GBP2.8m of exceptional payments in the year, as set out in the financial review.
The above results were underpinned by a number of achievements, including:
-- Growth in total customer numbers of c. 4,000 -- Growth in closing order book of Enterprise division of GBP4.5m
-- An improvement in efficiency from the Group's team of Energy Consultants, with an increase in Gross Enterprise (UK & Ireland) order book additions of GBP15.6m from an increase in closing headcount of 30
-- Energy Consultant attrition reduced to 59% from 72% -- A further increase in net promoter score from 58 to 60.
(3) Adjusted means stated before exceptional income and costs, non-cash accounting charges for share based payments and amortisation of intangible assets acquired through business combinations, as set out in the financial review
Divisional performance
During the year, the Group operated from two main divisions. The performance of both divisions is reported separately. All references to Adjusted EBITDA below refer to Earnings before interest, taxation, depreciation and amortisation (EBITDA), stated before exceptional income and costs and non-cash accounting charges for share based payments, as defined above. Divisional revenues are stated before the elimination of intersegment revenue.
Enterprise division
The total number of Enterprise customers increased in the UK and Ireland by 8% to 33,106 and in Europe by 23% to 7,985, equating to an overall Enterprise Division increase of 11% equating to 4,039.
Enterprise revenue added to order book increased by 18% to GBP30.1m (2016: GBP25.6m) in the year. This was from an increase in Energy Consultant headcount of 5% as at 31 July 2016, compared to the same position in the prior year, in line with the aim of the business to move away from a direct correlation between headcount numbers and revenue volumes, upon which an element of the Group's growth had been based in previous years. Energy Consultant staff turnover was 59% compared to 72% in the previous year.
The revenue and EBITDA of the division were as follows:
FY16
FY17 (restated) Change
GBP'm GBP'm GBP'm
---------------- --------- ------------- ---------
Revenue 54.8 52.1 2.7
---------------- --------- ------------- ---------
EBITDA (9.1) 0.3 (9.4)
---------------- --------- ------------- ---------
EBITDA margin (16.6)% 0.6% (17.2)%
---------------- --------- ------------- ---------
The year-on-year change is summarised as follows:
Revenue EBITDA
GBP'm GBP'm
--------------------------------- --------- --------
FY16 (as restated) 52.1 0.3
--------------------------------- --------- --------
Change in leakage rates
on live contracts less
than GBP50,000 as at
31 July 2016 (6.0) (6.0)
--------------------------------- --------- --------
FY16 with closing live
contracts less than GBP50,000
adjusted to FY17 leakage
rates 46.1 (5.7)
--------------------------------- --------- --------
Other changes 8.7 (3.4)
--------------------------------- --------- --------
FY17 54.8 (9.1)
--------------------------------- --------- --------
It can be seen that after adjusting the opening live contracts to the current year leakage rate, that revenue increased by 19% from GBP46.1m to GBP54.8m and negative EBITDA worsened by 60% from GBP(5.7)m to GBP(9.1)m. This GBP3.4m worsening of EBITDA includes a negative GBP1.7m year-on-year impact of new contracts in FY17 recognised at a lower initial revenue rate than equivalent contracts in FY16, as a result of the change in leakage rate on contracts less than GBP50,000.
FY17 EBITDA was also impacted by a change in costs mix compared to FY16 (as restated). No costs have been deferred to future periods as a result of the change in revenue accounting policy.
Corporate division
The Corporate division offers a comprehensive portfolio of products and services designed to assist larger companies with more complex energy needs in managing their energy consumption. These include both energy procurement and services designed to give customers enhanced control over their energy. This includes the use of Utilitywise IoT-enabled hardware and software intelligent platform that can provide customers with a single gateway and control over every operational system within their building, regardless of what devices they comprise.
The revenue and EBITDA of the division were as follows:
FY17 FY16 Change
GBP'm GBP'm GBPm
---------------- ------- ------- --------
Revenue 13.6 17.1 (3.5)
---------------- ------- ------- --------
EBITDA 0.4 1.2 (0.8)
---------------- ------- ------- --------
EBITDA margin 2.9% 7.0% (4.1)%
---------------- ------- ------- --------
FY17 was a year of transition for the Corporate division, as it has sought to change its mix to drive an increasing proportion of its revenue and EBITDA from the delivery of energy services rather than procurement.
The division exited the prior year in a loss-making position, with negative EBITDA in the second half of FY16 of GBP0.45m. That annualised exit rate of negative GBP0.9m EBITDA became a profit of GBP0.4m EBITDA in the current year, which was split equally at GBP0.2m in each half of FY17. This has positioned the division for significant future growth as it entered FY18 and the Board retains significant growth ambitions for this business in the medium term.
However, the view of future revenues, required to be used in line with accounting standards for the purposes of impairment, has caused the Group to recognise aggregate impairment losses of GBP17.3m against its investments in two cash generating units, which both form part of the Corporate division. Details of those impairments are set out in the financial review. That non-cash accounting loss has been recognised as an exceptional item within the Group's income statement in the current year. Despite this adjustment, the Corporate division forms a key part of the Group's Strategy for Growth, as announced in March 2017.
Financial review
Group overview
A summary of the Group's performance, where "adjusted" means excluding exceptional items, amortisation of intangible assets acquired in business combinations and share-based payment charges in the year ended 31 July 2017 ("FY17"), along with the change compared to the prior year ("FY16"), as restated, is as follows:
Adjusted basis:
FY16
GBP'm except where
stated FY17 (restated) Change
Revenue 67.8 67.7 0.1
--------------------------- -------- ------------- --------
Adjusted EBITDA (defined
below) (8.6) 1.5 (10.1)
--------------------------- -------- ------------- --------
Adjusted (loss)/profit
before tax (8.5) 1.6 (10.1)
--------------------------- -------- ------------- --------
Diluted earnings
per share (9.2)p (1.1)p (8.1)p
--------------------------- -------- ------------- --------
Statutory basis:
FY16
GBP'm except where
stated FY17 (restated) Change
Revenue 67.8 67.7 0.1
------------------------ --------- ------------- ---------
(Loss)/profit before
tax (30.4) 2.3 (32.7)
------------------------ --------- ------------- ---------
Diluted earnings
per share (34.9)p 0.7p (35.6)p
------------------------ --------- ------------- ---------
Net cash flow from
operating activities (3.4) 13.6 (17.0)
------------------------ --------- ------------- ---------
Group net assets (15.6) 16.3 (31.9)
------------------------ --------- ------------- ---------
The above profit before tax is stated after charging GBP0.6m (FY16: GBP0.1m) for fees paid to the Group's external auditor in respect of the year-end audit. The current year figure includes GBP0.5m of additional audit fees, over and above the fees originally agreed by the Audit Committee, as a result of the significantly elongated and delayed year-end audit process. This additional fee will be a cash outflow during FY18.
Trading and EBITDA
During FY17, Group revenue was broadly unchanged at GBP67.8m (FY16: GBP67.7m, as restated).
Adjusted Earnings before interest, taxation, depreciation and amortisation (EBITDA) is calculated as follows:
FY16
GBP'm except where stated FY17 (restated) Change
--------------------------------
Operating (loss)/profit (31.4) 1.4 (32.8)
-------------------------------- -------- ------------- --------
Exceptional items 20.9 (3.2) 24.1
-------------------------------- -------- ------------- --------
Share option (credit)/expense (0.3) 0.6 (0.9)
-------------------------------- -------- ------------- --------
Depreciation 0.7 0.8 (0.1)
-------------------------------- -------- ------------- --------
Amortisation of intangible
assets 1.5 1.9 (0.4)
-------------------------------- -------- ------------- --------
Adjusted EBITDA (8.6) 1.5 (10.1)
-------------------------------- -------- ------------- --------
The main changes in the Adjusted EBITDA of the Group are as follows:
GBP'm
----------------------------------------- -------
FY16 adjusted EBITDA (as restated) 1.5
----------------------------------------- -------
Non-cash change in Enterprise
EBITDA due to change in leakage
rate on contracts less than GBP50,000
live as at 31 July 2016 (6.0)
----------------------------------------- -------
Other changes in Enterprise division (3.3)
----------------------------------------- -------
Changes in Corporate division (0.8)
----------------------------------------- -------
FY17 adjusted EBITDA (8.6)
----------------------------------------- -------
Exceptional items
Exceptional items in the year comprise the following:
-- GBP17.3m aggregate non-cash impairment losses, which relates to goodwill and intangible assets, of which GBP13.4m was in respect of the the t-Mac Technologies cash generating unit and GBP3.9m was in respect of the Corporate (excluding t-mac) cash generating unit.
-- GBP3.4m of charges for legal and restructuring events
-- GBP0.5m of additional audit fees, over and above the annual fee originally agreed by the Audit Committee, as a result of the significant additional work carried out in respect of revenue accounting policy adjustments
-- GBP0.2m credit in respect of an adjustment to a historic dilapidations provision
Earnings per share
Diluted adjusted earnings per share, with Adjusted earnings stated before exceptional items, non-cash accounting charges for share-based payments and amortisation of intangible assets acquired in business combinations and the associated tax impact of these adjustments was a loss per share of 9.2 pence (2016: loss per share of 1.1 pence, as restated). Adjusted Earnings, stated on the same basis as above, were GBP(7.1)m (FY16: GBP(0.8)m, as restated) and the weighted average number of shares in issue, on a diluted basis, increased by 1% from 78,099,000 to 78,946,000 shares.
Dividend
An interim dividend of 2.3p per share was declared in April 2017. No final dividend has been declared.
Balance sheet
As explained above, the updated revenue accounting policy has the effect of reducing the net assets of the Group. The Group balance sheet is summarised below on a statutory basis:
31 July
2016
31 July
GBP'm 2017 (restated) Change
-----------------------------------
Goodwill and intangible
assets 16.9 34.2 (17.3)
----------------------------------- --------- ------------- --------
Property, plant and equipment 5.4 5.6 (0.2)
----------------------------------- --------- ------------- --------
Accrued revenue 34.5 34.7 (0.2)
----------------------------------- --------- ------------- --------
Deferred revenue (47.0) (42.7) (4.3)
----------------------------------- --------- ------------- --------
Other net liabilities (excluding
net debt) (6.4) (10.0) 3.6
----------------------------------- --------- ------------- --------
Net debt (19.0) (5.5) (13.5)
----------------------------------- --------- ------------- --------
Net (liabilities)/assets (15.6) 16.3 (31.9)
----------------------------------- --------- ------------- --------
The Group balance sheet has moved to a negative net assets position at 31 July 2017. This is summarised as follows:
31 July
GBP'm 2017
---------------------------------------- ---------
Net assets excluding impairment
losses and tax asset not recognised 8.9
---------------------------------------- ---------
Non-cash impairment losses recognised
in FY17 (17.3)
---------------------------------------- ---------
Aggregate deferred tax assets
not recognised as at 31 July 2017 (7.2)
---------------------------------------- ---------
Net liabilities (as above) (15.6)
---------------------------------------- ---------
The non-cash impairment losses relate to the write down of goodwill and other intangible assets during FY17, as explained above.
As a result of the cumulative revenue adjustments made by the Group, additional tax losses arise which can be used by the Group to relieve against taxable profits in future periods. A change in UK tax legislation during 2017 means that it is expected that those losses will be recovered more quickly than before. However, as the relevant legislation was not substantively enacted until after the 31 July 2017 balance sheet date, accounting standards require that the impact of that legislation cannot be considered in determining the level of recovery of these tax assets. Accordingly, deferred tax assets of GBP7.2m have been derecognised in the balance sheet. Those assets remain available to offset future taxable profits of the Group.
As explained in the accounting policy section above, the change in the Group's revenue accounting policy has also caused a significant reduction in the net assets of the Group. The FY17 Annual Report and Accounts of the Group includes a note that considers key judgements and sensitivities in the preparation of the financial results. This indicates that, if the live contracts less than GBP50,000 as at 31 July 2017 subsequently all matured at the rates observed during FY16/17, then the net assets of the Group would ultimately increase by GBP15.6m in the future.
Cash flows and net debt
The cash flow of the Group is summarised as follows:
GBP'm FY17 FY16 Change --------------------------- -------- -------- -------- Cash flow from operating activities (3.4) 13.6 (17.0) --------------------------- -------- -------- -------- Interest and corporate tax payments (3.3) (2.5) (0.8) --------------------------- -------- -------- -------- Capital expenditure (1.9) (0.8) (1.1) --------------------------- -------- -------- -------- Dividend payments (5.1) (4.2) (0.9) --------------------------- -------- -------- -------- Receipts from issue of equity 0.5 1.3 (0.8) --------------------------- -------- -------- -------- Net cash flow (13.2) 7.4 (20.6) --------------------------- -------- -------- -------- Opening net debt - as restated (#) (5.5) (13.0) 7.5 --------------------------- -------- -------- -------- Non cash movement in net debt (0.3) 0.1 (0.4) --------------------------- -------- -------- -------- Closing net debt (19.0) (5.5) (13.5) --------------------------- -------- -------- --------
(#) See prior period adjustments below
The negative operating cash flow in the current year was impacted by a GBP4.8m repayment to an energy supplier in respect of projected under-consumption on certain contracts, the substantial majority of which the Group had originally received commissions for in 2015 and 2016 and which had previously been announced in June 2017. Further exceptional cash flows, in respect of legal and restructuring etc. totalled GBP2.8m in the year.
The closing net debt balance is made up as follows:
31 July 31 July
GBP'm 2017 2016 Change
---------------- --------
Bank loans 24.7 13.1 11.6
---------------- --------- --------- --------
Cash (10.1) (12.2) 2.1
---------------- --------- --------- --------
Net bank debt 14.6 0.9 13.7
---------------- --------- --------- --------
Other loans 4.4 4.6 (0.2)
---------------- --------- --------- --------
Net debt 19.0 5.5 13.5
---------------- --------- --------- --------
The contractual maturity date of the bank debt is April 2019. As explained below, as a result of the changes in accounting policy, the Group was in breach of certain banking covenants as at the balance sheet date and those breaches were subsequently waived by the bank.
However, in accordance with accounting standards, the loan balances are presented as current liabilities in the balance sheet as at 31 July 2017. As at the date of approval of the FY17 financial statements, these loans are considered to be non-current liabilities.
The other loans are due for repayment between the year ended 31 July 2018 and the year ended 31 July 2022.
Financing and banking covenants
The activities of the Group are substantially funded by a GBP25m revolving credit facility (RCF) with a single lender, Royal Bank of Scotland plc. The RCF facility matures in April 2019.
As at 31 July 2017, the undrawn committed facilities of the Group were GBP10.4m, net of cash and cash equivalents.
At the balance sheet date, the Group had two main financial performance covenants:
-- Ratio of earnings before interest, taxation, depreciation and amortisation (EBITDA) to net debt ("leverage") not to exceed 2.0x
-- Ratio of earnings before interest, taxation and amortisation (EBITA) to interest charges ("interest cover") not to be less than 5.0x
The Group certified compliance with the above covenants based upon its internal management reporting. However, the significant changes to the Group's revenue recognition policy mean that the final, audited results of the Group for FY17 show breaches of both of the above covenants.
Prior to the approval of the FY17 accounts, the bank confirmed waivers of these breaches and replaced the above covenants with amended covenants as follows:
-- Minimum liquidity covenant, which sets out maximum balance sheet positions on a monthly basis, taking into account the Group's net debt as well as amounts due back to energy suppliers in respect of projected under-consumption
-- EBITA interest cover, with EBITA determined on an assumed constant under-consumption rate of 20% on procurement contracts.
As at the date of approval of the FY17 financial statements, the Group is in compliance with these covenants and expects to remain so in future.
The Group is also required to have capital expenditure less than GBP1.5m in any one financial year. The final audited accounts for FY17 indicated cash flow in respect of capital expenditure of GBP1.9m. Prior to the approval of the FY17 accounts, the bank also confirmed a waiver of this breach.
Prior period adjustments
The Group has made prior period adjustments in respect of Revenue of procurement contracts, Own shares and Fixed-payment liabilities, as set out in the notes to the accounts.
The Revenue adjustments have a material impact on the reported revenue and profit of the Group, as explained above. They have no impact on the cash flows or other underlying economic performance of the Group.
The Own shares and Fixed-payment liabilities have not have a material impact on either the profit and loss account or the cash flow statement of the Group but do materially amend the restated net debt of the Group as at 31 July 2016 as follows:
GBP'm 31 Jul
2016
---------------------------------- --------
Net debt (as originally
stated in FY16 Annual
Report and Accounts) 0.2
---------------------------------- --------
Reclassification of liabilities
from trade and other
payables 4.0
---------------------------------- --------
Correction of loan balances 0.5
---------------------------------- --------
Reclassification of own
shares out of cash 0.8
---------------------------------- --------
Net debt (as restated) 5.5
---------------------------------- --------
Net restatement 5.3
---------------------------------- --------
Adoption of IFRS 15
Subsequent to the balance sheet date, on 1 August 2017 the Group early-adopted IFRS 15 (Revenue from Contracts with Customers). The summary qualitative impact of the adoption of this standard is set out in the notes to the accounts.
Principal risks and uncertainties
The principal risks and uncertainties of the Group are set out in the annual report, which is available on the Group's website www.utilitywise.com.
Board changes
On 13 December 2017, Jeremy Middleton stepped down from the Board.
On 30 January 2018, Geoff Thompson stood down from the Board. He was replaced as Chairman by Simon Waugh, who himself was replaced as Senior Independent Director by Kathie Child-Villiers.
On 30 January 2018, Richard Feigen and Paul Hailes retired from the Board by rotation at the Annual General Meeting and did not stand for re-election.
Outlook
The Group has traded in line with the Board's expectation during the first half of the year ended 31 July 2018. The Board is particularly pleased with the performance of the Corporate division which has seen continued growth in the first half and is expected to continue to grow in the second half of the year. However, the significant delay in the completion of the 2017 year-end audit has had a somewhat destabilising effect on several key stakeholders of the Group, including colleagues in the short-term. Accordingly, the Board now expects the Enterprise division, in particular, to have a softer second half of the financial year, due to these short-term uncertainties. The Board remains confident of the long-term growth prospects of all parts of the business and is working to ensure that the impact on the business is a short-term one. However, it is now expected that the trading and, therefore, profit of the Group as whole in the second half of the financial year will be below expectation and will be lower than the first half of the year.
By order of the Board
Richard Laker
Director
21 March 2018
Consolidated statement of total comprehensive income
For the year ended 31 July 2017
31 July 2017 31 July 2016 (restated)
------------------------------------------------------- ----------------------------------------------------
Exceptional Exceptional
and and adjusting
adjusting items
Adjusted items(2) Total Adjusted (2) Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 67,756 - 67,756 67,734 - 67,734
Cost of
sales (61,167) - (61,167) (51,638) - (51,638)
Gross profit 6,589 - 6,589 16,096 - 16,096
Total operating
income 192 249 441 493 5,740 6,233
Total
administrative
expenses (16,316) (22,154) (38,470) (15,850) (5,097) (20,947)
(Loss)/profit
from operations (9,535) (21,905) (31,440) 739 643 1,382
EBITDA(1)
(excluding
share based
payments) (8,645) (20,865) (29,510) 1,528 3,191 4,719
Depreciation (696) - (696) (757) - (757)
Amortisation (194) (1,287) (1,481) (32) (1,909) (1,941)
Share option
credit/(expense) - 247 247 - (639) (639)
(Loss)/profit
from operations (9,535) (21,905) (31,440) 739 643 1,382
-------------------- --- ---------------------------- ------------- ---------- ---------- ---------------------------- ----------
Finance
income 1,777 - 1,777 1,566 - 1,566
Finance
expense (765) - (765) (674) - (674)
---------------------------- ------------- ---------- ---------- ---------------------------- ----------
(Loss)/profit
before tax (8,523) (21,905) (30,428) 1,631 643 2,274
Taxation 1,325 1,920 3,245 (2,451) 678 (1,773)
(Loss)/profit
for the
year attributable
to equity
holders
of parent
company (7,198) (19,985) (27,183) (820) 1,321 501
Other
comprehensive
income
Items that
may be
reclassified
to profit
or loss
Exchange
difference
on translation
of foreign
operation 56 - 56 12 - 12
Total
comprehensive
income
attributable
to equity
holders
of parent
company (7,142) (19,985) (27,127) (808) 1,321 513
Earnings
per share:
Basic (9.2) (34.9) (1.1) 0.7
Diluted (9.2) (34.9) (1.1) 0.7
---------------------------- ------------- ---------- ---------- ---------------------------- ---------- ---
(1) EBITDA means earnings before interest, taxation, depreciation
and amortisation.
(2) Exceptional and adjusting items before tax consist
of GBP20,866,000 (2016: GBP3,191,000 credit) of exceptional
items as detailed in Note 3 and GBP1,040,000 (2016: GBP2,548,000)
of other adjusting items relating to amortisation and
share option credit/expense as detailed above.
Consolidated statement of financial position
As at 31 July 2017
As at As at
31 July 31 July
2017
2016
(restated)
GBP'000 GBP'000
---------------------------------- ---- ---------- -------------
Non-current assets
Property, plant and equipment 5,380 5,589
Goodwill 10,903 23,808
Intangible assets 5,992 10,423
Accrued revenue 20,545 15,677
Total non-current assets 42,820 55,497
---------------------------------------- ---------- -------------
Current assets
Inventories 342 559
Trade and other receivables 23,782 27,827
Corporation tax debtor 3,729 -
Cash and cash equivalents 10,076 12,237
Total current assets 37,929 40,623
---------------------------------------- ---------- -------------
Total assets 80,749 96,120
---------------------------------------- ---------- -------------
Current liabilities
Trade and other payables 38,136 41,567
Corporation tax liability - 1,172
Loans and other borrowings 26,301 1,572
Current provisions - 526
---------------------------------------- ---------- -------------
Total current liabilities 64,437 44,837
---------------------------------------- ---------- -------------
Non-current liabilities
Trade and other payables 28,468 16,857
Loans and other borrowings 2,732 16,187
Deferred tax liability 753 1,909
Non-current provision - -
Total non-current liabilities 31,953 34,953
---------------------------------------- ---------- -------------
Total liabilities 96,390 79,790
---------------------------------------- ---------- -------------
Net (liabilities)/assets (15,641) 16,330
---------------------------------------- ---------- -------------
Equity attributable to equity
holders of the parent company
Called-up share capital 79 79
Share premium 14,667 14,129
Merger reserve 9,532 9,532
Share option reserve 890 1,359
Own shares reserve (748) (748)
Foreign currency reserve 26 (30)
Retained earnings (40,087) (7,991)
---------------------------------------- ---------- -------------
Total equity (15,641) 16,330
---------------------------------------- ---------- -------------
Consolidated statement of changes in equity
For the year ended 31 July 2017
Own
shares Foreign
Share reserve
Share Share option Merger Retained currency
capital premium reserve reserve earnings reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------- -------------- --------- --------- --------- --------- ---------- ---------- ----------
At 1 August
2015 (as
originally
stated) 77 12,873 1,600 9,532 22,081 (42) 46,121
Prior period
adjustments - - - (748) - (26,992) - (27,740)
---------------- -------------- --------- --------- --------- --------- ---------- ---------- ----------
As at 1
August
2015
(restated) 77 12,873 1,600 (748) 9,532 (4,911) (42) 18,381
---------------- -------------- --------- --------- --------- --------- ---------- ---------- ----------
Profit
for the
period
(restated) - - - - - 501 - 501 Other comprehensive income - - - - - - 12 12 ---------------- -------------- --------- --------- --------- --------- ---------- ---------- ---------- Total comprehensive income for the year - - - - - 501 12 513 Dividends paid - - - - - (4,218) - (4,218) Share option expense - - 639 - - - - 639 Deferred tax on share options - - (367) - - - - (367) Tax on equity items - - - - - 124 - 124 Issue of shares 2 1,256 - - - - - 1,258 Reserves transfer relating to share based payments - - (513) - - 513 - - ---------------- -------------- --------- --------- --------- --------- ---------- ---------- ---------- Total contributions by and distributions to owners 2 1,256 (241) - - (3,581) - (2,564) ---------------- -------------- --------- --------- --------- --------- ---------- ---------- ---------- As at 31 July 2016 79 14,129 1,359 (748) 9,532 (7,991) (30) 16,330 ---------------- -------------- --------- --------- --------- --------- ---------- ---------- ---------- Loss for the period - - - -- -- (27,183) - (27,183) Other comprehensive income - - - - -- - 56 56 ---------------- -------------- --------- --------- --------- --------- ---------- ---------- ---------- Total comprehensive income for the year - - - - -- (27,183) 56 (27,127) Dividends paid - - - - -- (5,136) -- (5,136) Share option credit -- -- (247) -- -- -- -- (247) Deferred tax on share options -- -- -- -- -- -- -- -- Tax on equity items -- -- -- -- -- 1 -- 1 Issue of shares -- 538 -- -- -- -- -- 538 Reserves transfer relating to share based payments -- -- (222) -- -- 222 -- - ---------------- -------------- --------- --------- --------- --------- ---------- ---------- ---------- Total contributions by and distributions to owners -- 538 (469) -- -- (4,913) -- (4,844) ---------------- -------------- --------- --------- --------- --------- ---------- ---------- ---------- As at 31 July 2017 79 14,667 890 (748) 9,532 (40,087) 26 (15,641) ---------------- -------------- --------- --------- --------- --------- ---------- ---------- ----------
Consolidated cash flow statement
For the year ended 31 July 2017
31 July 31 July
2017
2016
(restated)
GBP'000 GBP'000
------------------------------------------- ---------- -------------
Operating activities
(Loss)/profit before tax (30,428) 2,274
Finance income (1,777) (1,566)
Finance expense 765 674
Depreciation of property, plant
and equipment 696 758
Share option (credit)/expense (247) 639
Loss on disposal of fixed assets - 21
Amortisation of intangible fixed
assets 1,481 1,941
Exceptional release of contingent
consideration - (5,740)
Impairment of goodwill and intangible
assets 17,315 1,315
------------------------------------------- ---------- -------------
(12,195) 316
Change in trade and other receivables 948 (6,615)
Change in inventories 216 84
Change in trade and other payables 8,191 20,182
Change in provisions (526) (345)
------------------------------------------- ---------- -------------
8,829 13,306
------------------------------------------- ---------- -------------
Cash flows from operating activities (3,366) 13,622
Income taxes paid (2,810) (1,814)
------------------------------------------- ---------- -------------
Net cash flows from operating activities (6,176) 11,808
------------------------------------------- ---------- -------------
Investing activities
Purchase of property, plant and
equipment (489) (467)
Purchase of intangible assets (1,460) (318)
Finance income 8 18
Net cash flows used in investing
activities (1,941) (767)
------------------------------------------- ---------- -------------
Financing activities
Issue of shares 539 1,258
Loans repaid (5,700) (5,025)
Loans received 16,700 4,000
Finance expense (503) (674)
Dividends paid (5,136) (4,218)
------------------------------------------- ---------- -------------
Net cash flows used in financing
activities 5,900 (4,659)
------------------------------------------- ---------- -------------
Net (decrease)/increase in cash
and cash equivalents (2,217) 6,382
Translation gain on cash and cash
equivalents 56 110
Cash and cash equivalents at beginning
of period 12,237 5,745
------------------------------------------- ---------- -------------
Cash and cash equivalents at end
of period 10,076 12,237
------------------------------------------- ---------- -------------
Notes
1 Basis of preparation and accounting policies
The financial information set out herein does not constitute the Group's statutory accounts for the year ended 31 July 2017 or the year ended 31 July 2016 within the meaning of section 435 of the Companies Act 2006, but is derived from those accounts.
The information has been derived from the audited statutory accounts for each of those years upon which an unqualified audit opinion was expressed and which did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
The audited accounts for the year ended 31 July 2017 will be posted to all shareholders in due course and are immediately available on the Group's website at www.utilitywise.com.
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union (EU).
Utilitywise plc is incorporated and domiciled in the United Kingdom.
2 Segment information
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision maker ("CODM") has been identified as the management team, including, amongst others, the Chief Executive Officer, Non-executive Chairman and Chief Financial Officer.
During the year, the Group serviced both Enterprise and Corporate businesses. The Board considers that the services were offered from two distinct segments in the current year.
Operating segments are determined based on the internal reporting information and management structure within the Group. Information regarding the results of the reportable segment is included below. Performance is based on segment Adjusted Earnings before income taxation, depreciation and amortisation (EBITDA), which is operating profit or loss stated before depreciation, amortisation, share-based payment expenses and any exceptional items, as reported in the internal management reports that are reviewed by the CODM. The segment EBITDA, as defined above, is used to measure performance. Revenues disclosed below represent revenues to external customers.
The Enterprise Division derives its revenues from energy procurement by negotiating rates with energy suppliers for small and medium sized business customers throughout the UK, Republic of Ireland and certain European markets. The Corporate Division derives its revenues from energy procurement of larger industrial and commercial customers, providing an account care service and offering a variety of utility management products and services designed to assist customers in managing their energy consumption.
31 July 31 July
2017 2016
(restated)
GBP'000 GBP'000
----------------------- --------- -------------
Revenue
Enterprise 54,826 52,103
Corporate 13,574 17,104
Intersegment revenue (644) (1,473)
----------------------- --------- -------------
Total Group revenue 67,756 67,734
----------------------- --------- -------------
2 Segment information (continued)
31 July 31 July 31 July
2017 2017 2017
Enterprise Corporate Total
GBP'000 GBP'000 GBP'000
---------------------------------- ------------ ----------- ----------
Segment adjusted EBITDA (8,273) (371) (8,645)
Intercompany revenue (74) (570) (644)
Intercompany direct costs 572 72 644
Intercompany management charges (1,295) 1,295 -
Segment adjusted EBITDA post
intercompany adjustments (9,070) 426 (8,645)
---------------------------------- ------------ ----------- ----------
Share option credit 107 140 247
Exceptional income 249 - 249
Exceptional impairment - (17,315) (17,315)
Exceptional charges (3,485) (314) (3,799)
Finance income 1,777 - 1,777
Finance expense (765) - (765)
Depreciation (565) (131) (696)
Amortisation (16) (178) (194)
Taxation 2,182 112 2,294
---------------------------------- ------------ ----------- ----------
Segment loss after tax (9,586) (17,260) (26,846)
---------------------------------- ------------ ----------- ----------
31 July 31 July 31 July
2016 2016 2016
Enterprise Corporate Total
(restated) (restated) (restated)
GBP'000 GBP'000 GBP'000
------------------------------- ------------- ------------- -------------
Segment adjusted EBITDA (967) 2,685 1,718
Intercompany revenue - (1,473) (1,473)
Intercompany direct costs 1,473 - 1,473
Intercompany dividend income (191) - (191)
------------------------------- ------------- ------------- -------------
Segment adjusted EBITDA post
intercompany adjustments 315 1,212 1,527
Share option expense (444) (195) (639)
Exceptional income - 5,740 5,740
Exceptional charges (1,233) (1,315) (2,548)
Finance income 1,562 4 1,566
Finance expense (673) (1) (674)
Depreciation (560) (198) (758)
Amortisation (19) (11) (30)
Taxation (2,613) (479) (3,092)
------------------------------- ------------- ------------- -------------
Segment profit after tax (3,665) 4,757 1,092
------------------------------- ------------- ------------- -------------
3 Exceptional items
Exceptional income and charges, stated before applicable taxation effects, are as follows:
31 July 31 July
2017 2016
GBP'000 GBP'000
------------------------------------------- --------- ---------
Exceptional income:
Provision release (249) -
Contingent consideration - (5,740)
------------------------------------------- --------- ---------
(249) (5,740)
------------------------------------------- --------- ---------
Exceptional charges:
Goodwill impairment 12,905 1,315
Impairment of intangible assets 4,410 -
Legal, restructuring and re-organisation 3,349 1,233
Additional audit fee 450 -
21,115 2,548
------------------------------------------- --------- ---------
20,865 (3,192)
------------------------------------------- --------- ---------
Exceptional charges in the year ended 31 July 2017 comprise:
-- An impairment loss in respect of t-mac Technologies Limited CGU of GBP13,366,000 (Note 5)
-- An impairment loss in respect of the Corporate Division (excluding t-mac) CGU of GBP3,949,000 (Note 5).
-- Legal and settlement costs incurred as a result of a disputes with customers and competitors of GBP2,110,000.
-- Restructuring and re-organisation costs of GBP984,000; -- Other non-recurring legal and professional fees of GBP255,000; and
-- Additional non-recurring costs incurred in connection with the 2017 year-end audit of GBP450,000.
Exceptional items in the year ended 31 July 2016 relate to:
-- An impairment loss in connection to the acquisition cost of t-mac Technologies Limited
-- A credit of GBP5.7m from the release of deferred consideration where earn-out criteria were not met
-- A charge of GBP509,000 in relation to legal fees incurred as a result of a dispute with a competitor
-- Restructuring and re-organisation costs such as settlement payments of GBP678,000 4 Earnings per share
Basic earnings per share is calculated by dividing the profit attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the period.
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue to assume the conversion of all potentially dilutive ordinary shares. The Group has potentially dilutive ordinary shares, being those share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the period. Own shares held are excluded from the average number of shares used to calculate basic and diluted EPS.
31 July 31 July
2016
2017 (restated)
GBP'000 GBP'000
--------------------------------------------- ------------ -------------
(Loss)/profit used in calculating basic
and diluted EPS (27,127) 513
Exceptional items 20,865 (3,192)
Amortisation of intangible assets acquired
in business combinations 1,287 1,910
Share-based payment expense (247) 639
Tax impact of the above adjustments (1,920) (678)
--------------------------------------------- ------------ -------------
Earnings for the purpose of adjusted
basic and diluted EPS (7,142) (808)
--------------------------------------------- ------------ -------------
Number of shares
Weighted average number of shares for
the purpose of basic earnings per share 77,829,800 76,889,304
Effects of dilutive potential ordinary
shares from share options 1,116,625 1,209,737
--------------------------------------------- ------------ -------------
Weighted average number of shares for
diluted earnings per share 78,946,425 78,099,041
--------------------------------------------- ------------ -------------
Earnings per share
--------------------------------------------- ------------ -------------
Basic (34.9) 0.7
Diluted (34.9) 0.7
--------------------------------------------- ------------ -------------
Adjusted earnings per share
--------------------------------------------- ------------ -------------
Basic (9.2) (1.1)
Diluted (9.2) (1.1)
--------------------------------------------- ------------ -------------
In accordance with IAS33, a diluted loss per share
cannot be a lower loss per share than a basic loss
per share.
5 Impairment losses
The Group has three cash generating units (CGU), being the Enterprise Division, incorporating Utilitywise and Icon Communication Centres s.r.o.; the Corporate Division, incorporating Eco Monitoring Utility Systems, Clouds Environmental Consultancy, Aqua Veritas Consulting and Energy Information Centre but excluding t-mac Technologies Limited; and t-mac Technologies Limited, which forms the third CGU.
The valuation of the CGUs' goodwill impairment testing has been prepared on a value in use basis. Value in use is calculated as the net present value of the projected risk-adjusted post-tax cash flows plus a terminal value of the CGU. A pre-tax discount rate is applied to calculate the net present value of pre-tax cash flows. The discount rate is based on the CGU's weighted average cost of capital.
Impairment losses t-mac Technologies CGU
At 31 January 2017, as a result of a significant shortfall in financial performance against previous expectations, a potential impairment was identified in the t-mac CGU, which forms part of the Corporate division segment but is determined as a separate CGU.
Accordingly, a discounted cash flow was carried out to determine the value in use of the assets of the t-mac CGU, in accordance with IAS 36 (Impairment of Assets).
The following key assumptions were made in the value in use calculation as at 31 January 2017:
-- Five-year forecast period;
-- Revenues and costs based on past experience and cost estimates, with growth rates based on management estimates and forecasts, from internal and external market information;
-- Pre-tax discount rate of 12.9%, based upon the weighted average cost of capital, appropriately adjusted to take account of any risks not already accounted for in the forecast future undiscounted cash flows;
-- Terminal growth rate of 2.5%
The resulting value in use calculation was lower than the fair value of those assets less costs to sell, which itself was lower than the carrying value of the assets of the t-mac CGU.
Accordingly, an impairment was identified and the carrying value of the assets was written down to the fair value of those assets less costs to sell, being higher than the value in use, as an impairment loss.
The pre-tax value of the impairment loss was GBP13.4m which has been recognised as an exceptional item, as set out in note 3. The impairment loss was allocated first against the goodwill of GBP9.0m. The residual balance of the impairment was then allocated against the remaining assets on a pro-rata basis, which resulted in an impairment of GBP4.4m being allocated against intangible assets, as all other assets were already carried at their net realisable value in the balance sheet.
No change to this impairment loss has been noted as at the 31 July 2017 balance sheet date.
5 Impairment losses (continued)
At 31 January 2016, there was an impairment loss identified in relation to t-mac Technologies Limited of GBP1.3m.
The following key assumptions were made in the value in use calculation as at 31 January 2016:
-- Five-year forecast period;
-- Revenues and costs based on past experience and cost estimates, with growth rates based on management estimates and forecasts, from internal and external market information;
-- post-tax discount rate of 11.0%, based upon the weighted average cost of capital, appropriately adjusted to take account of any risks not already accounted for in the forecast future undiscounted post-tax cash flows;
-- Terminal growth rate of 2.5%
The resulting value in use calculation was lower than the carrying value of the assets of the t-mac CGU.
Accordingly, an impairment was identified and the carrying value of the assets was written down to the fair value of those assets less costs to sell, being higher than the value in use, as an impairment loss.
The post-tax value of the impairment loss was GBP1.3m which has been recognised as an exceptional item, as set out in note 3. The impairment loss was allocated against the goodwill of GBP10.3m.
Impairment loss Corporate (excluding t-mac) CGU
At 31 July 2017, as a result of a significant shortfall in financial performance against previous and expectations, a potential impairment was identified in the Corporate (excluding t-mac) CGU, which forms the other part of the Corporate division segment and is determined as a separate CGU.
Accordingly, a discounted cash flow was carried out to determine the value in use of the assets of the Corporate (excluding t-mac) CGU, in accordance with IAS 36 (Impairment of Assets).
The following key assumptions were made in the value in use calculation as at 31 July 2017:
-- Five-year forecast period;
-- Revenues and costs based on past experience and cost estimates, with growth rates based on management estimates and forecasts, from internal and external market information;
-- Pre-tax discount rate of 12.3%, based upon the weighted average cost of capital, appropriately adjusted to take account of any risks not already accounted for in the forecast future undiscounted cash flows;
-- Terminal growth rate of 2.5%
The resulting value in use calculation was higher than the fair value of those assets less costs to sell, but lower than the carrying value of the assets of the Corporate (excluding t-mac) CGU.
Accordingly, an impairment was identified and the carrying value of the assets was written down to the value in use as an impairment loss.
The pre-tax value of the impairment loss was GBP3.95m which has been recognised as an exceptional item. The impairment loss was allocated against the goodwill of GBP14.28m. The remaining recoverable amount of the Corporate (excluding t-mac) CGU is GBP10.33m
6 Prior period adjustments
The Group has made prior period adjustments in respect of the following items:
Own shares
In 2013, the Group purchased certain of its own shares through an employee benefit trust, as a hedge against share option exercises. The value of the shares purchased was GBP748k. As at 31 July 2017, those shares are still held by the Group. The shares have historically been shown within "cash and cash equivalents" in the statement of financial position. In accordance with IAS 32 (Financial Statements: Presentation), those shares are required to be shown within equity.
Accordingly, a prior period adjustment has been made, which has the following impacts on the consolidated statement of financial position as at 31 July 2016 and 31 July 2015.
-- Reduction in cash and cash equivalents of GBP748,000, and -- Creation of "Own shares reserve" in equity with a balance of GBP748,000.
There is no impact on the consolidated income statement or consolidated cash flow statement of the Group in the year ended 31 July 2016.
Fixed-payment liabilities
The Group has maintained certain liabilities within "trade and other payables" within the statement of financial position, which include cash repayments to the counterparty, where the timing and amount of those repayments are not within the control of the Group and which include implicit financing charges. It is now concluded that it is more appropriate to classify those liabilities as "borrowings" rather than "trade and other payables" in the statement of financial position. It was further determined that those liabilities were understated due to the incorrect application of the effective interest rate method as at 31 July 2016 and at 31 July 2015 and, therefore, their carrying value should also be corrected. Accordingly, prior period adjustments have been made, which have the following impacts:
31 July 31 July
2016 2015
GBP'000 GBP'000
---------- ----------
Statement of financial
position:
Increase in borrowings 4,584 5,609
Decrease in trade and other
payables 3,957 4,980
Decrease in retained earnings 608 548
Decrease in corporation
tax liability 126 82
Income statement:
Increase in interest expense 104 630
Decrease in taxation charge 44 82
Cash flow statement:
(Decrease)/increase in
operating cash flow 1,245 2,603
Increase in interest payments 220 408
Increase in repayment of
loans 1,025 3,011
---------- ----------
6 Prior period adjustments (continued)
Revenue recognition - estimation methodology
During the year ended 31 July 2017, the Group has made a change to the methodology for estimating initial revenue recognition amounts on procurement contracts. The Group has previously based its entire rate of revenue recognition on contracts upon the overall consumption rates and final value of contracts that have matured in the previous year. The previous method of estimation is considered flawed due to both the erroneous extraction of data on matured contracts from the Group's systems and the way in which that data was subsequently analysed for the purposes of reliably estimating revenue. The need to change the estimation methodology is considered to have arisen through the incorrect previous application of accounting standards and through the inappropriate interpretation of data. Therefore, in accordance with IAS 8, this has been treated as an error and a prior period restatements are required as follows:
31 July
2016
GBP'000
----------
Statement of financial
position:
Decrease in non-current
accrued revenue 13,973
Increase in trade and other
receivables 8,170
Increase in trade and other
payables 36,301
(Decrease)/increase in
deferred tax liabilities (271)
Decrease in corporation
tax liabilities 24
Decrease in retained earnings 41,704
Income statement:
Decrease in revenue 16,694
Increase/(decrease) in
total administrative expense 47
Increase in finance income 708
Decrease in taxation charge 771
----------
There are no changes to the cash flow statement.
6 Prior period adjustments (continued)
Earnings per share impact of prior period adjustments
The prior period adjustments, noted above, have the following impacts:
31 July
2016
GBP'000
----------
Earnings for Basic and
Diluted EPS:
As originally stated 15,832
Adjustment - Fixed-payment
liabilities (60)
Adjustment - Revenue recognition (15,258)
----------
As restated 514
----------
Earnings for Adjusted Basic
and Adjusted Diluted EPS:
As originally stated 14,510
Adjustment - Fixed-payment
liabilities (60)
Adjustment - Revenue recognition (15,258)
----------
As restated (808)
----------
Average number of shares
for Basic EPS:
As originally stated 77,389
Adjustment - Own shares (500)
----------
As restated 76,889
----------
Average number of shares
for Diluted EPS:
As originally stated 78,599
Adjustment - Own shares (500)
----------
As restated 78,099
----------
Basic EPS
As originally stated 20.5p
As restated 0.7p
Diluted EPS
As originally stated 20.1p
As restated 0.7p
In accordance with IAS 33 (Earnings per Share), own shares held are required to be excluded from the average number of shares used in the calculation of basic and diluted EPS.
7 Adoption of IFRS 15
On 1 August 2017, the Group early-adopted IFRS 15 (Revenue from Contracts with Customers), interpretations of which are mandatory for future accounting periods from 1 January 2018.
Revenue recognition criteria
Until 31 July 2017, the Group recognised revenue in accordance with IAS 18 (Revenue), which 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, being the commencement of a new customer contract or upon the signature of a Renewal Contract, respectively.
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. Other than the timing of recognition of revenue on same supplier renewal contracts (see below), there are no other material differences in revenue policy and estimation methodology compared to the IAS 18 policy.
Timing of revenue recognition on Renewal Contracts
As detailed above, under IAS 18 the Group recognises revenue upon the signature by a customer of a Renewal Contract with their existing supplier. 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.
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 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.
The Directors have not identified any further material differences that are expected to arise on the adoption of IFRS15 on 1 August 2017.
The Group previously announced a restatement of the financial results for the years ended 31 July 2014, 2015 and 2016 on 31 July 2017. Following the change in accounting policy for revenue recognition in the financial statements for the year ended 31 July 2017, explained in the Strategic Report, the restated financial information as previously announced is expected to materially change.
7 Adoption of IFRS 15 (continued)
Given the change in accounting policy for revenue recognition, the time required to prepare restated information and the detailed disclosures of the financial effect of the adoption of IFRS15 would further delay the finalisation of the financial statements for the year ended 31 July 2017.
Given the priority of the Board of Directors to finalise and publish the 2017 Annual Report, separate publication of the financial effects of the adoption of IFRS15 on the Group will be made in due course.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR PGUUWWUPRUPP
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March 22, 2018 03:01 ET (07:01 GMT)
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