Utilitywise has now released its interim results for the year ending 2016.
Revenues increased when compared to the first half of last year with a £7.1M growth in Enterprise revenue and a £3.3M increase in corporate revenue. Cost of sales increased to a lesser degree and the gross profit was up £2.4M. There was a £5.7M contingent consideration release that did not occur last year, but this was partially offset by a £1.3M goodwill impairment, a £445K growth in amortisation charges, £341K of restructuring costs and a £1.4M growth in other admin costs so that the operating profit increased by £4.8M. Finance expenses decreased somewhat and tax payments were modestly lower which meant that the profit for the period came in at £10.4M, a growth of £4.9M year on year.
When compared to the end point of last year, total assets increased by £8.2M, driven by a £10.2M growth in receivables, partially offset by a £1.3M reduction in the value of goodwill and a £756K fall in other intangible assets. Total liabilities declined somewhat during the period as a £5.6M decrease in payables was partially offset by a £4M increase in borrowings and a £1.2M growth in current tax liabilities. The end result was a net tangible asset level of £19.8M, a growth of £10.8M over the past six months.
Before movements in working capital, cash profits increased by £6.5M to £15.M. As is always the case with Utilitywise, however, the problems occur in the working capital movements as once again a huge increase in receivables and a decline in payables along with a modest increase in tax payments meant that there was a cash outflow through operations of £1.4M, an improvement of £2.2M year on year at least. Capex was fairly negligible with a £199K purchase of property, plant and equipment along with a £229K spend on intangibles which meant that before financing there was a cash outflow of £1.8M. Strangely, despite not actually generating any cash, the group still paid out some cash in dividends so they had to take out a new loan of £4M to give a cash flow of £444K and a cash level at the period-end of £6.9M.
The profit in the Enterprise division was £4.1M, a growth of £203K year on year. The group have seen a consistent renewal rate of about 80% by meter volume of their Enterprise customers. During the period they continued to increase their contracted customers, increasing the total customer base by 33% to 28,384 and 77% of revenues came from new customers as opposed to 58% in the same period of 2015.
During the period the group appointed a new People Operations Manager with which they have focused on reducing the attrition rate which has increased throughout the year. This is now reducing with the focus on improving the quality of their hiring, building their recruitment strategy to match their multi-channel strategy and developing team manager capabilities. The group have also launched a new online switching platform.
In the period, they received £3.6M from a supplier who agreed to harmonise the payment terms on extension contract with that of newly acquired customers. The cash conversion of the division will continue to improve as they negotiate with suppliers to change their teams on extension contracts and the absolute proportion of extensions contracted reduces as it has in the period to 23%, down from 42% in 2015. European expansion continues to perform in line with expectations and they will continue to evolve their business model and expand their resources deployed on the French, German, Belgian and Netherlands markets in the coming year.
The number of customers benefitting from the “smartdash” data analytics software the group acquired with t-mac is currently 1,281 and a plan is in place to roll out the software to all customers as group arrange installation of their AMR Smart Meter. This data-led service enables a wider and more comprehensive dialogue around energy management with customers and includes the deployment of their Edd:e monitoring hardware alongside the t-mac controls hardware as a key part of this.
The profit in the Corporate division was £1.6M, an increase of £116K when compared to the first half of last year as the business incorporated the acquired t-mac business. This growth was supported by significant customer wins in the medium-sized business space, although the £2.2M of revenue from t-mac was at a lower margin than the core procurement business. The group have also benefited from good revenue growth in the non-procurement business specifically related to the ESOS which was also at lower gross margins than the procurement business.
As usual there were various exceptional items incurred during the period. There was £341K in relation to restructuring and reorganisation costs and £29K of onerous lease costs. There is also a credit of £5.7M which has arisen from the release of deferred consideration in relation to the acquisition of t-mac technologies where earn-out criteria were not met and a related goodwill impairment charge of £1.3M. The business is performing satisfactorily but the revenue streams to be derived from the full integration into the wider energy services offering are largely planned to fall outside the earn out period and the order book and business activity without these will not be sufficient currently to pay further sums to the vendors and the impairment charge reflects the timing changes to the revenue and profits arising from the business.
A key driver of growth has been the addition of revenue generating energy consultants and at the end of January the headcount had increased to 625 up from 449 at the end of the first half of last year. The secured pipeline at the period-end was £24.7M compared to £23.5M at the same point of last year and by the end of March, the secured pipeline had increased to £26.6M.
During the period the group bolstered their senior management team with the arrival of Brin Sheridan as COO and Adrienne McFarland as People Operations Director. Also, it was announced that founder and CEO Geoff Thompson will move to a new role as Executive Chairman. The board have already identified an external candidate to replace Geoff and will release further details once his/her start date is agreed.
The group have announced the immediate change to its existing payment terms with another key energy supplier. The supplier has agreed to amend its terms such that any future extension secured to a contract that has not expired receives the same cash payment terms as for a new contract, in this case 80% of the expected revenue from the contract falling due on the extension signing and the remainder at maturity subject to the normal reconciliation process. They have also agreed that this change of terms will apply to historic accrued revenue balances and the group will therefore receive £2.3M in cash from the supplier before the year-end.
Of particular focus going forward will be the continued implementation of the productivity initiatives and emphasis on the recruitment strategy within the Enterprise division. In addition they will continue to focus on the roll-out of their Utility Management Plan with the development of the Corporate division’s energy services offering alongside growth in the core procurement business. The productivity measures in their Enterprise division, with a lower attrition rate in the second half will see an improved second half of the year performance against the first half. Overall they remain on track to deliver revenue and EBITDA margins in line with expectations.
The net accrued revenue balance has a maturity profile which has about 34% due within one year and the balance of 66% extending into the future. This compares to 43% due within one year as of the end of 2015.
At the end of the period the group had a net debt position of £10.2M compared to a net cash position of £1.6M at the same point of last year with £6.4M of cash being spent on the t-mac acquisition and the board believe the second half will be a stronger cash period. After a 29% increase in the interim dividend, the shares yield 3.3% which increases to 3.9% on the full year forecast. The forecast forward PE ratio is 8.7.
Overall then, on the face of it this has been a decent period for the group. Profits are up, as are net assets but the age old problem here is cash generation and despite improving there was a cash outflow from operations due to continued increases in receivables. For what it’s worth, both divisions increased profitability but the group have been hit by high levels of staff attrition, which is apparently now under control. The group has made progress in signing up another supplier on improved terms and with a forward dividend yield of 3.9% and PE ratio of 8.7 the shares look cheap. The inability of the group to make any cash, however, means that I am not buying in here any time soon.
On the 8th August the group released a trading update covering the first half of the year. The group expects to report significant revenue growth in the period with revenues of at least £82M. Adjusted EBITDA is expected to be up £200K to £18M and net debt at the year-end was £200K compared to £6.7M at the end of last year with improved commercial terms in the Enterprise division yielding some improvement in cash flow. This is expected to continue into 2017.
The Enterprise division continued to grow its contracted customer base, increasing total Enterprise customer numbers by 21% to 30,552 with about 75% of revenues coming from new customers compared to 62% last year. Overall Enterprise revenue added to the order book during the period increased by 35% to £84.5M. Future secured revenue was £25.6M sat the year-end, an increase of £900K year on year and the energy consultant headcount was up 15 to 625.
Staff attrition has continued to be a challenge. Although the actions taken to address this are well underway, it has had an impact on the performance of this division in the period. The group are already seeing the benefits of these actions, however, and they therefore expect energy consultant headcount to increase in the new financial period. The investment in building the group’s multi-channel approach has increased costs in the short term but this will drive customer acquisition and assist the actions taken to reduce attrition.
The European business has performed well in the year and will achieve the break-even position targeted. The customer base has increased in line with board expectations and will be built upon whilst targeting and improvement in the revenue per energy consultant in the year ahead.
Steve Atwell who was brought in to the division to start its transformation has left with immediate effect to pursue opportunities in the technology sector and has been replaced by Chris Charlton who has been with the business for six years, holding a number of senior positions.
The corporate division has traded satisfactorily and as with enterprise, it is going through a major transformation as it builds upon the t-mac acquisition to provide the wider energy services capability. The roll out of the Smartdash data analytics software acquired with t-mac is continuing and a plan is underway to roll out the software to all customers as they arrange installation of their AMR Smart Meter. The partnership with Dell to introduce internet of things building automation solutions to customers is progressing well with trials underway and the group see a significant opportunity to roll this out to both new and existing customers.
On the 9th August the group announced the appointment of Brendan Flattery as CEO, effective from the start of October. He joins the group from Sage where he was European president. As previously announced, founder and CEO Geoff Thompson will become executive chairman and current chairman, Richard Feigen, will remain on the board as a non-executive director.