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Utilitywise – Woodford-backed dog returns from suspension… along with a profit warning

By Steve Moore | Thursday 22 March 2018

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Previously writing on Utilitywise (UTW) it was as the Woodford-backed dog currently suspended as unable to publish audited accounts, updates. The shares are today trading again after publication at last of results for the company’s year ended 31st July 2017!...

These have been significantly delayed “due to the group's external auditor requesting a further independent review from another leading firm of Utilitywise's methodology and accounting policy for recognising revenue on its energy procurement contracts” - and it concluded that “the historic methodology of using a single average under-consumption rate, to be applied equally to contracts of all sizes, was not an appropriate way of forming a reliable estimate for the purposes of revenue recognition”. November 2016-joined (as Senior Independent Director) and 30th January 2018-commenced Chairman Simon Waugh emphasises “contract under-consumption issues” and the adoption of a more conservative revenue recognition policy.

The result was, even on an adjusted basis, there a swing to a £8.5 million pre-tax loss on revenue of £67.8 million. With also particularly more than £5 million of dividends paid and exceptional costs, even after a net working capital inflow, net debt increased by £13.4 million to £19 million. There were in total £16.6 million increased liabilities of £96.4 million against just £2 million increased tangible assets of £63.9 million (and they including £44.3 million of receivables and accrued revenue).

Additionally, “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… 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”.

Despite all this though, Waugh states; “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 remain of the view that it is rebuilding trust in the numbers here which is required - and, at least until there is some clear (cash generation) demonstration, I’ll continue to avoid.

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