TIDMUTW
RNS Number : 5073M
Utilitywise plc
31 July 2017
31 July 2017
Utilitywise plc
("Utilitywise", the "Company" or the "Group")
Early Adoption of IFRS 15
Utilitywise, a leading independent utility cost management
consultancy, today announces that it will adopt the accounting
standard IFRS 15 (Revenue from Contracts with Customers) on 1
August 2017. The adoption of IFRS 15 is mandatory from 1 August
2018.
Highlights:
-- New accounting standard, IFRS 15 to be adopted on 1 August 2017
-- Main changes:
o Recognition of revenue from same supplier renewals ("Renewal
Contracts") upon contract commencement rather than contract
signature;
o Initial recognition value of procurement contracts (new
business and Renewal Contracts) at 80% rather than 85%;
-- No impact on commercial activities or cash flows but change
expected to lead to close correlation between accounting earnings
and operating cash flows;
-- Material impact on future accounting revenue recognition and, therefore, profits;
-- Utilitywise will now have an increased future order book as
at 30 June 2017 of GBP43.3 million;
-- Due to impact on retained earnings, Utilitywise will not pay
a final dividend in respect of the year ended 31 July 2017.
o Intention to recommence the payment of dividends in respect of
the year ended 31 July 2018, subject to successful process to
create sufficient distributable reserves.
To ensure shareholders have the highest level of visibility, the
Board has decided, in accordance with the early-adoption provisions
of IFRS 15, to implement the standard, one year ahead of schedule.
Therefore, the results for the year ended 31 July 2017, expected to
be published on 17 October 2017, will be the last results presented
under the existing accounting standard, IAS 18 (Revenue) and will
also include a reconciliation of the results to the equivalent
position presented in accordance with IFRS 15.
The year ended 31 July 2018 will be the first financial year of
the Group to be prepared under IFRS 15. The financial statements
for earlier years will also be restated to reflect the change in
accounting policy. Restated summary income statement and balance
sheet information for the years ended 31 July 2014, 31 July 2015
and 31 July 2016, respectively, is set out below.
Following the decision to adopt early, and after taking
appropriate professional advice including from an independent
accounting firm, the Board has determined that the revenue and
profit of the Group will be materially impacted by the
implementation of IFRS15 as set out below. However, there will also
be a significant reduction in the level of accrued revenue carried
in the Group's balance sheet.
There is no impact on the commercial activities or cash flows of
the Group, as a result of the adoption of this accounting standard.
Following the changes, the Board anticipates that the Group will
report EBITDA and operating cash flows that are closely aligned in
future years.
There will be a meeting for analysts at 11.00am today at the
offices finnCap, 60 New Broad Street, London EC2M 1JJ. To register
to attend, please contact Redleaf Communications at
utilitywise@redleafpr.com or 020 7382 4730.
Revenue recognition criteria
The Group currently recognises revenue in accordance with IAS
18, which requires that revenue is recognised at "fair value" when
it is "probable that future economic benefit will flow" to the
Group. The Group currently recognises 85% of the estimated total
value of procurement contracts as revenue upon the initial revenue
recognition point for those contracts, 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.
Timing of revenue recognition on Renewal Contracts
As detailed above, the Group currently 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 the
existing accounting standard, IAS 18, the Group having no further
contractual obligations in respect of those transactions. Renewal
Contract revenue typically comprises 20%-25% of Group revenue, of
which 10%-15% of the value of those Renewal Contracts typically
commences in the same year that the Renewal Contracts are
signed.
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 adoption of IFRS 15 causes the de-recognition of an
aggregate value of Renewal Contracts of GBP24.3m from the financial
periods ending 31 July 2014, 31 July 2015 and 31 July 2016, which
is then expected to be recognised as revenue in the future periods
in which those contracts subsequently commence.
Value of initial revenue recognition on procurement
contracts
Following the adoption of IFRS15, the initial revenue
recognition point will be the point at which contracts commence for
both acquisition and Renewal Contracts, as detailed above. Based on
a number of factors, including commercial terms with suppliers and
the market generally, the Board has determined that, whilst 85%
remains probable, only 80% of the value is "highly probable" for
the purposes of revenue recognition in accordance with the
requirements of IFRS 15. Accordingly, the Board has determined that
the Group's initial revenue recognition value should change from
85% to 80% of the estimated total value of each procurement
contract, upon the adoption of IFRS 15.
The GBP24.3m aggregate Renewal Contract revenue referred to
above (from the financial periods ending 31 July 2014, 31 July 2015
and 31 July 2016) is based upon 85% initial recognition value under
existing accounting policies. After adjusting this to 80% initial
recognition value upon the adoption of IFRS 15, the aggregate
Renewal Contract value reduces to GBP22.9m. This updated initial
recognition value is then expected to be recognised in future
financial years as follows:
Expected contracts 85% 85% to 80%
commencing in basis 80% adj basis
financial year
ended
GBP'm GBP'm GBP'm
31 July 2017 11.0 (0.6) 10.4
31 July 2018 6.5 (0.4) 6.1
31 July 2019 3.5 (0.2) 3.3
31 July 2020 2.1 (0.1) 2.0
1 August 2020
or later 1.2 (0.1) 1.1
24.3 (1.4) 22.9
------- --------- -------
Impact on Group future order book
The changes to accounting policies gives rise to a future order
book as at 30 June 2017 of GBP43.4m, split between GBP20.4m of
secured revenue from contracts secured with new customers and
GBP23.0m of secured revenue from same supplier renewal contracts,
both of which will be recognised at the point of contract
commencement upon the adoption of IFRS 15.
Dividend payments
It is expected that the adoption of IFRS 15 will leave the Group
with negative retained earnings on 1 August 2017. That is based
upon the restated retained earnings position as at 31 July 2016,
set out below, and then taking into account distributions made
since that date, along with expected post-tax losses in FY17. Those
losses are stated after, inter alia, exceptional items detailed in
the Group's 2017 interim results and the further accounting charges
announced in respect of projected under-consumption of contracts in
June 2017.
Accordingly, the Board hereby announces that it will not declare
a final dividend in respect of the year ended 31 July 2017, which
would ordinarily have been payable in December 2017, subject to
shareholder approval at the Annual General Meeting (AGM). This is
due to the fact that the Group will have insufficient distributable
profits out of which to pay a dividend. Furthermore, the Group will
not be in a position to declare interim or final dividends in
respect of subsequent financial years, until such time as it has
sufficient distributable reserves out of which to make such
payments.
The Board remains confident in the future prospects of the
business and confirms its intention to recommence the payment of
dividends at the earliest opportunity. Accordingly, the Board
confirms its intention to explore all options available to the
Group to create sufficient distributable reserves out of which
future dividends could be paid. Subject to being able to do this,
including seeking shareholder approval where relevant, for the year
ended 31 July 2018 and beyond the Board intends to distribute one
quarter of the Group's retained post-tax profits per annum to
shareholders as a dividend. One third of such dividend would be
payable following the announcement of the interim results and the
remaining two thirds would be paid following the announcement of
the full year results and subsequent shareholder approval at the
AGM. The Directors believe that this represents an attractive but
sustainable dividend policy, having regard to the availability of
the Company's distributable profits and operating cash flow.
Summary impact on financial statements of transition to IFRS
15
The summary impacts on the Group's income statement, Adjusted(1)
profit before tax, net assets and accrued income for the years
ended 31 July 2014 ("FY14"), 31 July 2015 ("FY15") and 31 July 2016
("FY16") are set out below:
Group revenue FY14 FY15 FY16
GBP'm GBP'm GBP'm
Existing GAAP 48.9 68.9 84.4
Recognition of renewals
on contract commencement (2.9) (14.0) (7.4)
Initial recognition at 80% (1.7) (1.9) (2.6)
Discounting adjustments 0.7 0.4 -
IFRS15 basis 45.0 53.4 74.4
------ ------- -------
Aggregate revenue impacts (3.9) (15.5) (10.0)
Group Adjusted(1) profit
before tax FY14 FY15 FY16
GBP'm GBP'm GBP'm
Existing GAAP 13.4 16.1 17.7
Aggregate revenue impacts (3.9) (15.5) (10.0)
Deferral of commissions 0.4 1.7 0.9
Financing element of discounting
adjustments - - (0.3)
IFRS15 basis 9.9 2.3 8.3
------ ------- -------
Aggregate profit before
tax impacts (3.5) (13.8) (9.4)
Closing net assets and equity FY14 FY15 FY16
GBP'm GBP'm GBP'm
Existing GAAP 32.9 44.8 58.0
Cumulative impact of earlier
years - (2.7) (13.8)
In year profit before tax
impacts (above) (3.5) (13.8) (9.4)
Taxation effects 0.8 2.8 1.8
IFRS15 basis 30.2 31.1 36.6
------ ------- -------
Closing equity (IFRS 15
basis) comprises:
Retained earnings 11.4 7.8 12.3
Other equity components 18.8 23.3 24.3
30.2 31.1 36.6
------ ------- -------
Closing accrued revenue FY14 FY15 FY16
GBP'm GBP'm GBP'm
Existing GAAP 18.6 31.5 40.5
Cumulative impact of earlier
years - (3.9) (18.9)
Recognition of renewals
on go-live (2.9) (14.0) (7.4)
Initial recognition at 80% (1.7) (1.9) (2.6)
Discounting/other adjustments 0.7 0.9 6.0
IFRS15 basis 14.7 12.6 17.6
------ ------- -------
Corporate tax impact
It is expected that the aggregate reduction in net assets as at
1 August 2017 will be tax deductible in the year ended 31 July
2018, being the financial year in which IFRS 15 is adopted by the
Group. It is expected that the associated aggregate corporate tax
recovery will occur during FY18 and FY19.
Banking covenants
The Group has a GBP25m revolving credit facility with a single
UK lender, which expires in April 2019. The facility has two main
financial covenants, which are tested quarterly and are as
follows:
-- Maximum ratio of net debt to EBITDA(2) (leverage) of 2x; and
-- Minimum ratio of EBITA(3) to interest charges (interest cover) of 5x.
The Group has obtained confirmation from the lender that these
covenants will continue to be tested using the financial results of
the Group as if IFRS 15 has not been adopted. The first such
covenant test date after the adoption of IFRS 15 by the Group will
be 31 October 2017.
Other impacts
No other material impacts are noted upon the adoption of IFRS
15.
(1) Adjusted profit 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
(2) 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
(3) EBITA means earnings before interest, taxation 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
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 7382 4730
Robin Tozer/David Ison
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.
This information is provided by RNS
The company news service from the London Stock Exchange
END
MSCRMMLTMBBJBAR
(END) Dow Jones Newswires
July 31, 2017 02:01 ET (06:01 GMT)
Utilitywise (LSE:UTW)
Historical Stock Chart
From Apr 2024 to May 2024
Utilitywise (LSE:UTW)
Historical Stock Chart
From May 2023 to May 2024