Utilitywise looks to sell business as funding runs dry

The AIM-traded firm said the strategic review would include a formal sale process of the company, and would also consider “all types” of corporate transactions, including the sale of certain parts or the whole of the group.

In addition, the board said it intended to continue discussions with its shareholders and its bank in relation to a potential equity fundraising and bank refinancing, alongside “all other” potential strategic options.

The company had previously announced that in the past two years, it had experienced a number of significant and unexpected challenges and legacy issues in its enterprise division that had hampered the pace of transformation, with a consequential impact on its financial performance.

Those challenges included the repayment of commission to an energy supplier, the overpayment of which arose due to “historically poor” operational controls, as well as “weaknesses” in industry processes relating to early termination of customer contracts, which had been exploited by third-party intermediary competitors, to 'break' certain of Utilitywise’s customers from energy contracts.

Another challenge was the introduction of lower caps to the amount of commission that third-party intermediaries could charge their customers by energy suppliers.

“In order to overcome these challenges, the group has made significant improvements to the operational controls within its business and is currently executing a clear strategy for differentiation and growth, whilst evolving its existing proposition in both its enterprise and corporate divisions,” the board said in its statement on Monday.

“Furthermore, the group is further developing its channel strategy to reduce the cost of customer acquisition in its enterprise division.”

The board said it anticipated that new revenue streams would be delivered by a strategy that placed emphasis on providing internet of things (IoT) based intelligent building technology solutions, which optimised building and organisational energy efficiencies.

Utilitywise said those solutions delivered “dynamic procurement strategies”, and remotely controlled and optimised the efficiency of mid-sized and corporate clients, through its corporate division.

It would also focus on optimising its core proposition by improving efficiencies, optimising sales channels and focusing on margin targets, and growing a new inbound sales channel through a price comparison website, which already existed and was said to be generating order book and revenue.

Utilitywise would also create a digitally driven channel, targeting micro-SME customers and offering a multi-utility bill management service with automation at its core, and offering its customers other utilities.

Following the addition of water and broadband to its core offering of electricity and gas, the board said it expected to add further utilities to its offering.

Finally, it said it would focus on in-life cross selling - that is, using its customer relationships “carefully and intelligently” to expose relevant products and services to customers and add value in-life, thus creating greater lifetime value and customer retention than a transactional model.

“The board believes that driving greater revenues from the group's corporate division and entering the micro-SME market will result in profitable growth and significant cash flows for the group in the medium term, along with offering further business services to its existing client base.

“However, the group requires to make investments in the business to the value of approximately £10m in order to execute this revised strategy.”

In addition to the requirement for new investments detailed above, Utilitywise said it had been in discussions with its bank in recent months with respect to the refinancing of its existing bank facilities, amounting to £25m in aggregate, which expire on 20 April.

The group's lending bank had reportedly indicated its willingness to refinance those banking facilities at the same level, on the condition that other funding was also obtained from alternative sources, such that the combined funding would allow it to make its necessary strategic investments.

It had therefore approached both new and existing investors to seek to conduct an equity fundraising, to provide sufficient additional equity capital for its investment and working capital requirements alongside the refinanced £25m banking facility.

“At this stage, the group has not attracted a sufficient level of interest in the proposed equity fundraising to satisfy the group's overall funding requirements for the period to 31 July 2021.

“As a result, the board has now concluded that it should commence the strategic review.”

Utilitywise said that, while the review was carried out, and in the absence of completion of the proposed fundraising and the proposed refinancing, or any other similar refinancing transaction, the board was continuing to discuss the provision of ongoing funding with the bank, but would be reliant upon the bank’s ongoing support.

“There can be no guarantee that the proposed equity fundraising, the proposed bank refinancing or any other refinancing transaction will be completed, nor as to the terms on which the fundraising, the refinancing or any other potential refinancing transaction may be completed.”

As a result, the board said it had launched a formal sale process within the meaning of the City Code on Takeovers and Mergers.

On the financial front, Utilitywise said the audit of the financial results of the group for the year ended 31 July was “substantially complete”.

However, in order for the board to approve and publish its annual report and accounts for the 2018 financial year, the proposed bank refinancing and the proposed equity fundraising, or equivalent re-financing or fundraising, would need to be completed, following shareholder approval of such proposed transaction.

“Given the current shortfall in investor appetite for the proposed equity fundraising, the group will not be in a position to publish its annual report and accounts for 2018 prior to close of business on 31 January,” the board said.

“In such circumstances, trading in the group's ordinary shares will be suspended from 0730 GMT on 1 February.”