RE: Cashflow27 Oct 2015 14:33
I think it is difficult for the non-accountant to understand cash flow changes by looking at changes in several balance sheet items.
I think what is happening with UTW is that a big chunk of what they book as sales in the year is payable in future years. If one of their customers signs up a three year contract with an energy supplier then UTW book all the estimated revenue over the life of the contract in the current year. I note an accrual for future income of £23M in the Balance Sheet (an increase of £13M over the previous year). I reckon the admin and sales expenses associated with getting the customer to sign the contract are largely paid out in the current year. This leads to a cash outflow when sales are increasing by significant amounts. This is what we have seen with this latest set of figures and this is why UTW are in the process of seeking to get more up front payments from the energy suppliers otherwise they may need to increase loans from banks again.
If UTW were less aggressive with their accounting they would only take credit for the amount they estimate they will earn on the energy supplied to customers in the current accounting year and disclose in a separate note what income should accrue in future years on signed contracts. UTW’s accounts would then look quite a bit different and they wouldn’t have any retained earnings.
It is factors like this that stop the share price racing ahead.
Eventually the cash should start rolling in and when it does I think the shares will rerate.