TIDMYU.
RNS Number : 8134I
Yu Group PLC
06 April 2020
Yü Group PLC
(the "Group")
Final results for the year ended 31 December 2019
Yü Group PLC (AIM; YU.), the independent supplier of gas,
electricity and water to the UK business sector, announces its
final results for the year to 31 December 2019.
Financial Review:
31 December 2019 2018
------------------------------ --------- --------
GBP'000 GBP'000
Revenue 111,613 80,635
Adjusted EBITDA (4,242) (6,283)
Loss for the year (4,968) (6,267)
Operating cash outflow (11,280) (1,320)
Cash 2,377 14,612
Overdue customer receivables 7 days 9 days
Loss per share:
Adjusted (24.0)p (37.0)p
Statutory (31.0)p (42.0)p
Dividend per share 0p 1.2p
============================== ========= ========
-- Revenue increased by 38 per cent. to GBP111.6m (2018:
GBP80.6m). Statutory loss of GBP5.0m for FY 2019, an improvement of
20.7 per cent. on FY 2018 (GBP6.3m loss)
-- Gross margin improvement, with 4.9 per cent. for FY 2019
(2018 restated(1): 4 per cent.), and 6.7 per cent. for H2 2019 (2.1
per cent. for H2 2018)
-- Adjusted EBITDA(2) loss of GBP4.2m (2018 loss: GBP6.3m),
above market expectations. H2 2019 losses less than 60 per cent. of
H1 2019 loss as legacy, low margin contracts continue to expire
-- Overdue customer receivables of seven days at 31 December
2019, an improvement from nine days at 31 December 2018(3)
-- Net cash of GBP1.8m (net of lease liability under IFRS 16 )
at 31 December 2019 (2018: GBP14.6m). Cash collateral of GBP10.4m,
prior to the impact of the new GBP13.0m credit facility to support
the Group's hedging activities
-- Contracted revenue for 2020, as at 31 December 2019, of
GBP79.5m (GBP88m at 31 December 2018 contracted for 2019) based on
estimated usage of customers (prior to any impact from
Covid-19)
o Legacy, low margin contracts account for GBP35m of contracted
revenue for FY 2020, and less than GBP5m for FY 2021
-- Financial impact from Covid-19, including available support
from the Government, is evolving and is deemed to represent a
material risk for the Group. Available cash at 31 March 2020 of
GBP10.9m, with a further GBP6.1m in collateral deposits
Operational Review:
-- Business continuity plan deployed in reaction to Covid-19.
Proactive monitoring and forward analysis of business and financial
risks together with rolling mitigation programmes have been
undertaken and are being implemented
-- Reshaping of the Board finalised and senior management team strengthened in key areas
-- Business fully reset with stronger governance, internal
control and management. Further investment in systems and
technology to automate key processes
-- Reducing impact expected from legacy, low margin contracts in
FY 2020. New contracts secured at higher margin
-- Sales bookings achieving higher gross margins and increasing
in H2 2019. Significant market opportunity remains
-- Trustpilot score of 4.5 stars (2018: 3.5 stars), a leader in the B2B energy supply market
-- Commercial arrangements finalised for new Leicester office
due to open in 2021 to support the Group's growth ambition
Bobby Kalar, Group Chief Executive Officer, said:
"One of the main objectives of the year under review was to
strengthen our internal processes so that scaling would not create
further pressure points on the business as we have witnessed in the
past. We have been working on transforming the customer journey
from 'prospect' through to 'cash' and I'm pleased with the positive
results so far.
Significant milestones have been achieved and we are now well
placed to deliver profitable growth. Improvements made during the
year included adopting more disciplined processes and cost
controls, and focusing on enhancing gross margin, and as a result
the Group has exceeded market forecasts for revenues and adjusted
EBITDA for 2019.
Whilst there has been, to date, a manageable financial and
operational impact of Covid-19, the Board continues to assess the
rapidly evolving situation which adds a level of uncertainty as we
start the new year. Looking forward, we expect revenue, bad debt,
operating cashflow to be impacted, as well as temporary reduced
sales growth. However, the Group is in a more robust position than
previously, with significantly improving margins on the contracts
we have booked. The Group has available cash of GBP10.9m at 31
March 2020, with an additional GBP6.1m in cash collateral deposits
with trading counterparties expected to be available in Q2
2020.
The health and welfare of our employees is paramount and I'm
pleased we have been able to successfully transition all of our
workforce to working remotely with negligible impact to the running
of the business. As is the case with many UK businesses at this
time, we have been focusing on cost savings as well as utilising
the assistance offered by HMRC.
The fundamental market opportunity remains significant, with the
Group at present only servicing 0.2 per cent. of the B2B market.
The Group is now in a position, once the economic context recovers,
to drive sustainable, profitable growth, with a fresh, new approach
to businesses' utility needs. As such, we continue to be confident
in the medium and long term market opportunities, and look forward
to getting back to disrupting the energy market through significant
and profitable growth. I would like to thank all of our employees
for their consistent hard work and I look forward to updating the
market again in due course ."
The information communicated in this announcement would have
constituted inside information for the purposes of Article 7 of
Regulation 596/2014.
[1] The year ended 31 December 2018 has been restated to
reclassify GBP2,625,000 of amounts payable to third-party
intermediaries from operating costs to cost of sales.
2 Adjusted EBITDA is earnings before interest, tax, depreciation
and amortisation, and also before non-recurring items, share based
payments and unrealised gains or losses on derivative contracts.
For FY 2018, it also excludes the impact of first-time adoption of
IFRS 9. See reconciliation in note 3 to this financial report.
3 Overdue customer receivables is expressed in days of sales,
and relates to the total balance, net of provisions, of accrued
income which is outside of the normal billing cycle, plus overdue
trade receivables (net of VAT and CCL).
4 IFRS 16 results in a lease liability and corresponding asset
being booked, for assets used under operating leases.
For further information please contact:
Yu Group PLC +44 (0) 115 975 8258
Bobby Kalar
Paul Rawson
Shore Capital +44 (0) 20 7408 4090
Edward Mansfield
Anita Ghanekar
James Thomas
Alma PR +44 (0) 20 3405 0205
Josh Royston
John Coles
Hilary Buchanan
Helena Bogle
Notes to Editors
Information on the Group
Yü Group PLC, trading as Yü Energy, is an independent supplier
of gas, electricity and water focused on servicing the corporate
sector throughout the UK. It has no involvement in the domestic
retail market. The Group was listed on the AIM market of the London
Stock Exchange in March 2016.
The impact of Covid-19
This pandemic is clearly a worrying time for the global
population, for people in the UK, and, of course, the wider economy
and our business customers.
The business priority has, rightly, been on ensuring our
colleagues', customers' and other stakeholders' health and safety
is considered. We have closely followed official health advice,
taken steps to mitigate the impact on our employees, and
successfully implemented our business continuity plan.
The impact on the Group's financial performance and liquidity is
dependent on a variety of factors: from the time for which the
virus materially impacts society; the Government action to protect
the UK economy, particularly the support it provides to small and
medium-sized entities; and the ability for our customers to
continue their operations through this difficult period and
beyond.
The Group's revenues are generated from activities across
various business customers' market segments, from retail,
education, leisure and offices through to care homes, manufacturers
and data centres. The Board has assessed its contracted revenue for
the year to 31 March 2021 and has identified 43 per cent. is
generated from sectors which may be at higher risk of impact from
Covid-19; 41 per cent. from customers with a medium risk profile;
and 16 per cent. from lower risk customers.
The anticipated reduction in revenue and, potentially, margin
within various customer segments (resulting from a lower energy
consumption) combined with potential for delay in the collection of
customer receivables, and anticipated increased levels of bad debt,
represents a significant risk to the Group. Any potential breach of
covenants related to the new trading facility and the level of
commercial credit which it affords will require close management in
order to mitigate any potentially adverse impact on the Group's
financial performance.
As at 31 March 2020 the Group had GBP10.9m cash at bank, plus a
further GBP6.1m in cash collateral which is expected to become
available in Q2 2020 due to the new structured trading arrangement.
The Board is currently comfortable, based on analysis to date and
announcements by the Government to support businesses, that there
is sufficient headroom (and levers, if required) in the Group's
cash position without recourse to seeking additional equity to
support the Group's capital base.
Nonetheless, unpredictability regarding the possible future
impacts of Covid-19 on our business is highly complex to accurately
model and this, in and of itself, constitutes a potential material
uncertainty regarding the ability to wholly and unreservedly affirm
the forward-looking statement of going concern. As such, the
Directors have made an appropriate disclosure to this effect in the
published audited annual accounts of the Group.
Whilst our priority is on playing our part in ensuring the world
can recover from the de-stabilisation caused by Covid-19, the
business consequences for the Group are still evolving, and are
being closely and actively monitored by the Board.
Chairman's statement
Introduction
Since joining Yü Group PLC as Chairman in January 2020, I have
been impressed by the progress, resilience and determination to
succeed, as demonstrated during the recent "reset" of the business.
Systems and processes have been improved, the Executive Management
Team has been strengthened, new partnerships have been established
which support the Group's cash position and ability to hedge risks,
and there is a clear strategy to scale in a GBP35 billion business
to business ("B2B") addressable market.
To further support this, the Board has taken action to provide
very strong foundations upon which we can seek to effectively
manage the current economic turmoil with a view to driving growth
once the market recovers.
Indeed, we are already seeing the impact of implementing the
actions required to achieve our strategic priorities. In FY 2019,
prior to the outbreak of Covid-19, sales increased 38 per cent. to
GBP111.6m supported by a substantial improvement of gross margin on
new business now booked at "high single digit" levels. Losses
reduced from GBP2.7m in H1 2019 to GBP1.6m in H2 2019 as legacy,
low margin contracts continued to expire from the contract book,
and we have managed down the impact of bad debt to 2.7 per cent. in
FY 2019 (from 4.5 per cent. in FY 2018). We believe the platform is
now in place for the Group to weather the current economic storm
and grow in a controlled manner at the appropriate juncture.
Strengthening of the Board will support, mentor and challenge an
ambitious Executive
I joined the Board as Independent Chairman with the mission to
ensure that the Group takes an effective, mature and
well-considered approach to implementing the "best in class"
governance structures required in order to move the Group on to the
next stages in its evolution.
One of my principal roles is to ensure collegiate adherence to a
clearly defined governance framework which is designed to enable
robust, well-challenged and effective decision-making behaviours,
these being indispensable to securing the Group's future and
achieving sustainable growth in due course.
The Board and the Executive have recently undergone a "refresh"
and I am joined on the Board by two further Independent
Non-executive Directors who will significantly increase the Board's
ability to support and mentor Yü Group's wider Executive Management
Team. My new colleagues are:
Tony Perkins, who was also appointed in January 2020, joins the
Group as our Senior Independent Director. Tony was previously at
accountants BDO where he was appointed a partner in 1990, having
joined in 1980. He has acted for many fully listed and AIM
companies in the professional services, natural resources,
technology, manufacturing and retail sectors. He has extensive
experience in financial, governance and risk management and has
advised on corporate strategy, transactions and expansion of
businesses in the UK and internationally. Tony has held senior
management positions at BDO as a member of the firm's leadership
team including head of its London operations and national head of
audit. Tony brings vastly significant finance, audit and compliance
expertise to the Board. He also serves as Chairman of the Audit
Committee whose remit now includes a revitalised focus on risk and
opportunity assurance.
John Glasgow continues as an Independent Non-executive Director
and serves as Chairman of the Remuneration Committee and, with me,
will serve on the Audit Committee. John brings deep industry,
commercial and technical knowledge to the Board, having been head
of strategy at the establishment of the new E.ON energy services
business, E.ON director of new connections & metering and
director of operations and asset management at E.ON Central
Networks. During this time John was also a board member of the
Energy Networks Association and a member of the DECC Energy
Emergencies Executive Committee (E3C). Upon leaving E.ON John
became managing director of Sterling Power Utilities Ltd. John is
also a board member of the St Modwen Environmental Trust.
The Board is therefore now rebalanced, and complying with best
practice, is comprised of three Independent Non-executive Directors
with two Executive Directors:
Bobby Kalar, Executive Director, Board member and Chief
Executive Officer, now also chairs a re-designed Executive
Committee ("ExCo") and is responsible to the Board for the
day-to-day management and implementation of the agreed Board
strategies, to which he is a major strategy contributor.
Paul Rawson, Executive Director, Board member, also serves as
our Chief Financial Officer and Company Secretary. Paul has
significant industry and financial experience, as part of the Engie
Group (ex GDF-Suez) and has been instrumental in implementing our
"reset" as well as the embedding and enhancement of various "best
practice" processes also suggested in the PwC reports which the
Group commissioned.
Whilst we have recently focused on strengthening the
effectiveness of our governance and the implementation of
strengthened and joined-up internal controls across the business,
it is vital for us to continue ensuring that the business retains
an agile, pivotable "industry disruptive" mindset.
I believe that the Board now has the appropriate structure,
balance and blend of skills together with the expertise and
experience that will enable appropriate challenge, constructive
strategic debate and the promotion of the best interests of all of
our shareholders and stakeholders.
I am delighted to have joined this young, robust and now
well-structured Group, which I believe has a bright future, a fresh
outlook and a significant and value-generating market to
address.
An experienced Executive Management Team
Reporting to the Board via the CEO, a strong and experienced
management team has now been re-engineered and tasked with
implementing the business plan as agreed by the Board. The ExCo,
led by the CEO, consisting of the management team of Executive
Directors and senior managers, will drive the day to day activities
of the business, reporting to and seeking counsel from the
Board.
The Group has strengthened its management team during FY 2019,
including the appointment of a Sales and Marketing Director and a
Head of Commercial Operations to improve the bill to cash cycle of
the Group. A new Group Operations and Transformation Director has
also been appointed to digitalise key sales and operational
processes, and to further enhance the Group in preparation for
future growth. As part of this Garry Pickering, previously COO, has
taken a new role on this newly formed ExCo to ensure continued
focus on the Group's hedging of commodity risks.
The strength-in-depth of the Executive Management Team will help
the continuing evolution of our business, ultimately enabling a
lower cost to serve, improved gross margins and a great service for
our customers.
This strength has been recently and amply demonstrated in the
efficient and level-headed response to undertaking the extensive
planning required to put in place effective mitigation action plans
in order to address the varied challenges occasioned by the
coronavirus outbreak.
Covid-19
In response to the recent outbreak of the coronavirus disease,
Covid-19, we have successfully deployed the Group's business
continuity plan. Whilst there has been little material financial or
operational impact to date, my colleagues across the business are
working tirelessly with key partners and stakeholders to ensure
continued and effective delivery of our services to customers. Our
seasoned and mature teams' proven professional ability to model,
hedge and risk manage abnormal movements in commodity prices and
partner and customer behaviours is complemented and supported by
our new trading arrangements as well as robust working capital and
cash positions.
The Group remains debt free and the Board remains focused on
ensuring that, whilst we may be required to temporarily flex our
planned rates of ambitious organic growth, we will remain well
positioned to take advantage, in due course, of such significant
market opportunities as may arise from the current period of
uncertainty.
The measures taken, and the potential risks to the Group
associated with the Covid-19 outbreak, are further detailed in the
Finance Review and the risks and uncertainties section of the
annual report.
Strategic focus
The Board remains resolute in its determination to scale the
business, differentiating itself by the level of customer service
it offers and its agility in providing new and disruptive solutions
and by constant evolution to increase customers' ease of
interaction and access to the benefits of the solutions we
offer.
Whilst the impact of Covid-19 will create some new and
challenging priorities for the Board, the four pillars of our
medium to long-term strategy remain: (i) to focus on generating
controlled growth through the provision of existing and new
products and services; (ii) to achieve sustainable profitability
through gross margin and overhead management; (iii) to generate
cash and reduce the working capital required; and (iv) to ensure
sound foundations for the business from customer service to
engaging with our employees through to acting in accordance with
appropriately high standards of corporate governance.
The future
Notwithstanding recent developments re the coronavirus the rest
of the Board and I believe that the business, after its "reset" now
has a great and exciting opportunity to challenge and disrupt our
market and to deliver, in future, on our strategy to scale.
I look forward to updating our shareholders and other key
stakeholders in due course.
Chief Executive Officer's Statement
As a consequence of previous uncontrolled rapid growth, a "back
to basics" root and branch approach has allowed the Group to focus
on key areas which required strengthening, and parts of the
business that were inefficient or heavily reliant on manual
processes. The full journey of our customers' lifecycle has been
redesigned so that an efficient process targets a right first-time
mentality: from "prospect to booking", "sale to registration" and
"bill to cash".
I'm pleased that this approach and continued development during
the year has established a strong focus on enhancing gross margin
and cost discipline, along with refocused sales and operational,
financial and commercial controls.
These actions are starting to be reflected in the Group's
financial performance and will continue to be as low margin
contracts expire and are washed out of the forward contract
book.
Adjusted EBITDA loss has decreased to GBP4.2m (2018: GBP6.3m),
which is better than market expectations, and our H2 2019 (loss of
GBP1.6m) performance was significantly better than H1 2019 (loss of
GBP2.7m) and H2 2018 (loss of GBP5.2m).
As the Group continues to mature, I am pleased that the culture
and behaviours in the business are now fully aligned to providing
customers with a high quality service.
The Board is confident that the results of the Group will
continue to progress with improved margins secured as new contracts
are booked and the economy recovers from the impact of Covid-19.
With that in mind, the Board and I remain convinced in the future
potential for the Group to expand and realise profitable
growth.
Strategic review
The purpose of our Group is to provide Yütility Simplicity, that
is, to make it easy for businesses across the UK to access simple,
innovative products for their utility supply. It has never been
more appropriate to support small businesses, who are the bedrock
of a thriving UK economy.
Our strategic priorities span four key areas and we use these
focus areas to drive our business performance:
Growth. There is an enormous addressable B2B market. Our
priority is to scale via the supply of gas, electricity and water
to businesses across the UK. This growth is generated through
various sales channels and the core business activities are
complemented by additional products.
Profitability. We continue to take steps to ensure the long-term
profitability of the Group. We are enhancing gross margins through
a more selective, albeit still ambitious, growth strategy and a
focus on managing customer lifecycle value. We also focus on
reducing overheads, particularly as we scale.
Cash generation. The Group benefits from a cash generative
working capital cycle and a new trading arrangement to cover its
trading requirements, which structurally results in a positive
operational cash flow despite the Group's growth. Our focus is to
closely manage the prompt billing and collection of the Group's
revenues and to manage cash carefully to drive long-term value. The
Group also continues to implement new digital tools to automate
processes which are appropriate for a growing business.
Solid foundations. Ensuring a focus on good customer service,
demonstrating our values and behaviours by engaging with employees,
being clear on organisational accountability and maintaining fit
and proper governance processes are all key considerations in the
Group's activities.
Covid-19
The business risk related to Covid-19 is further detailed in the
Finance Review, and the annual report, together with the actions
taken to mitigate, as much as possible, the risks.
This pandemic is clearly a worrying time for the global
population, for people in the UK, and, of course, for the wider
economy and our business customers. Our Group generates a
significant proportion of revenue from sectors which are likely to
have been materially impacted by Covid-19, which we are continuing
to monitor.
As CEO of a growing and maturing business, my priority has been
ensuring our colleagues', customers' and other stakeholders' health
and safety is considered. We have closely followed official health
advice, taken steps to mitigate the impact on our employees, and
successfully implemented our business continuity plan.
I'm proud of my team's response and thank them for their
continued efforts to maintain health and safety, whilst keeping the
business running to serve our customers and key partners. In line
with Government guidance all of our staff have been successfully
transitioned to remote working status with minimal disruption to
customers or working practices.
Market context
There has been a significant reduction in forward gas and
electricity commodity market prices during 2019 and early 2020,
driven by various macroeconomic factors, including excess gas
becoming available in the global market and, more recently, the
economic impact Covid-19 is having on economic growth. This
commodity market price reduction has two contrasting impacts on our
business. Firstly, customers are more likely to take advantage of
the lower market to "lock in" the reduction for the coming years.
Whilst the revenue booked may be lower in absolute terms (as a
result of the lower commodity market) for individual customers, the
margin per customer opportunity is not adversely impacted.
Secondly, a reducing forward commodity market leads to trading
counterparties being exposed to mark-to-market risk if the purchase
of commodity is not fulfilled, traditionally leading to "cash
calls" being made. Such cash calls led to GBP10.4m of deposits
being lodged as collateral with trading counterparties at 31
December 2019 (GBPnil at 31 December 2018).
Our new structured trading arrangement with SmartestEnergy, part
of the major Japanese entity Marubeni provides a c.GBP13.0m
variable credit facility which is designed to scale up in tandem
with the growth in the business. This has the key benefit of
freeing up cash, enabling a more efficient use of the Group's
capital. I'm pleased that our Group has secured this new
arrangement; following a period of significant due diligence, our
strategic goals and core principles are aligned and I look forward
to working closely with our new partners over the coming months and
years.
Market opportunity
I founded this business when, as a small business owner myself
(operating in the care home sector), I had lost all faith in the
major energy companies. I didn't feel as though I was receiving a
fair service, or value for money and all I wanted was an easy
experience and to feel like a customer. It is this position that
drives me in my passion to provide a new approach, based on
simplicity and innovation.
Competition in the B2B energy supply market is less prevalent
than the domestic sector. In the last nine months, there have been
no new B2B supply licence applications to Ofgem for either gas or
electricity. There are additional barriers to entry in the B2B
market, such as the need to provide half hourly pricing, which
requires additional operations and technical capability. The B2B
market is dominated by larger players who have inefficient,
expensive and inflexible systems and less ability to understand and
serve the customer. I believe that the market dynamics give the
Group a great opportunity. Our success in this market depends on
providing simple and innovative solutions which can be accessed
easily; a good, fair, service to our customers so they remain with
us; and by controlling our costs as we scale.
Once the economy recovers the potential for growth is enormous.
As in the business to consumer market, opportunities will arise
where synergies will further push our growth and provide greater
return. We currently only serve 0.2 per cent. of the B2B market and
our Group is now in a position to scale rapidly, offering a fresh,
new approach to businesses' utility needs.
The Group offers leading customer service and simple, innovative
products to businesses across the UK. For example, we are the only
multi-utility (gas, electricity and water) supplier enabling
business customers to receive simple bundled products for all their
utilities. Our three-ring pick up policy, UK call centre and use of
digital technologies make it easy for customers and partners to
engage with us.
In addition, our internal criteria to select the right growth
opportunities has been enhanced and we now target our efforts more
carefully regarding the customers we wish to serve and the channels
we use to develop our business.
Bookings
Bookings represent the annualised value of contracts secured
during a period and are a core indicator for business growth. Our
average monthly bookings for FY 2019 were GBP4.2m (FY 2018:
GBP8.4m), with an increase in H2 2019 (GBP5.3m) when compared to H1
2019 (GBP3.2m). The Board believes the Group can now manage
significantly increased levels of bookings, post the establishment
of new automated processes and stronger governance.
Gross margin on bookings during FY 2019 have averaged high
single digit gross margins, which is broadly double the gross
margins achieved on bookings in FY 2018. This increased gross
margin will continue to flow through to an improved financial
position over FY 2020 and beyond as the legacy, low margin
contracts expire.
The Group ended 2019 with GBP79.5m of revenue, prior to any
impact from Covid-19, contracted for FY 2020. Of the contracted
revenue, approximately GBP45m was booked in FY 2019 at increased
margins. The remaining GBP35m contracted revenue are legacy, low
margin contracts. The majority of these legacy contracts will
expire in FY 2020, leading to enhanced gross margins from FY
2021.
Our business foundations
We have always had ambitious plans to scale the business and to
that end the Group has established strong business foundations upon
which to build. These systems will help us manage the unprecedented
market turmoil that is currently being experienced and will leave
us well positioned as and when the situation improves.
Customer service also remains a top priority. The Group
continues to offer a three-ring pick up policy, providing dedicated
relationship managers to resolve customer queries. Our Trustpilot
score has improved from 3.5 stars at 31 December 2018 to 4.5 stars
at 31 December 2019. This score ranks the Group as a leader in the
B2B energy supply sector.
As well as the strengthened and refocused Board, an experienced
and committed management team has been established to drive
business performance. We have implemented a new people strategy and
work hard to engage and empower teams and to promote the Group's
values.
We have also commenced an ambitious plan to build on improved
sales and onboarding processes to bring new digital tools to our
customers and to utilise them to improve efficiency in our
operations.
Summary
I am satisfied that the business has turned a corner and
achieved a full reset. Our goal, in time, is to be one of the
largest "go to" SME utility suppliers in the UK.
The work done has been immense:
-- strengthening of the Board to create good corporate
governance and a support mechanism for the Executive to explore new
synergies;
-- redesigning the organisational structure and recruiting a
strong Executive Committee to manage the sales strategy, commercial
function and risk management;
-- a renewed discipline on gross margin throughout the business
and a strong approach to debt management, which is already showing
a positive impact;
-- our new deal with SmartestEnergy which has effectively
removed cash as a barrier to growth and means we can significantly
scale the business for the next three to four years without having
to lodge cash;
-- a commitment to further accelerate our customer experience by
digitising our business and reducing the cost to serve; and
-- utilising data to drive insight to better understand market
habits and risks, which I believe is a game changing growth
accelerator.
Notwithstanding the challenges caused by Covid-19, I am
confident the past "chapter" can now be closed and am expecting to
report more positive updates in the future.
Lastly this has been an enormous team effort and my sincere
gratitude to all my team; I look forward to returning the business
back to profit soon.
Outlook
The business has been reset and I fully believe that the
experience and processes we now have established will drive
sustainable, profitable growth, once the economic context recovers.
Gross margin improved to 4.9 per cent. for FY 2019 (2018 restated:
4 per cent.), and 6.7 per cent. for H2 2019 (2.1 per cent. for H2
2018).
Our Adjusted EBITDA loss has decreased significantly, from
GBP5.3m in H2 2018 to GBP1.6m in H2 2019, and our overdue customer
receivables position has improved by two days, to stand at seven
days, demonstrating our clear financial and working capital
discipline.
The Group exceeded market forecasts in relation to revenues and
Adjusted EBITDA in FY 2019.
The Board is continuously assessing and managing the impact of
the Covid-19 outbreak on the business and the financial and
operational performance of the Group. Some revenue reduction impact
is anticipated as a result of lower demand from business customers
across Great Britain, and as sales bookings decrease due to a
change in customer priorities. The impact from Covid-19 on bad
debt, operating cash flows (through late payment of customer
receivables) and reduced sales growth is also uncertain, as the UK
economy deals with the impact of the pandemic, although the
reassurance from the UK Government to support businesses is
pleasing to hear.
The Group's business model, strategy and risk management are in
a much more robust position than previously, with significantly
improving margins and Adjusted EBITDA in the medium term. Although
the short-term business consequences from the outbreak of Covid-19
are largely uncertain, the medium to long-term growth opportunity
remains clear and the Group's core target.
6 Source: independent analysis from Bfy Consulting of B2B energy
supply market, February 2020.
Finance Review
Results
The results for the year to 31 December 2019 have seen a 38 per
cent. growth in revenue to GBP111.6m (2018: GBP80.6m). Most
encouragingly, the tighter commercial and financial management
across the business is now being evidenced in the improved
financial results.
The Group's Adjusted EBITDA loss of GBP4.2m for FY 2019 exceeded
market expectations and is significantly below the GBP6.3m loss
level in FY 2018. The half-yearly trend is also encouraging, with
the Adjusted EBITDA loss reducing from GBP5.2m for H2 2018, to
GBP2.7m for H1 2019 and GBP1.6m for H2 2019.
GBP'000 H2 2019 H1 2019 H2 2018 H1 2018
Revenue 55,052 56,561 47,305 33,330
-------- -------- -------- --------
Gross margin % 6.7% 3.2% 2.1% 6.7%
-------- -------- -------- --------
Adjusted EBITDA (1,568) (2,674) (5,238) (1,045)
-------- -------- -------- --------
The Group recorded a gross margin of 4.9 per cent. for FY 2019,
an improvement from the 4.0 per cent. recognised in FY 2018 . Gross
margin in H2 2019 achieved 6.7 per cent., compared to 2.1 per cent.
in H2 2018 and 3.2 per cent. in H1 2019. This improvement in gross
margin from H2 2018 to H2 2019 reflects the reduced impact of
legacy, low margin contracts after the various initiatives taken by
the Group in early 2019.
Assessing the impact of Covid-19
The potentially unprecedented (in modern times) impact as a
result of the Covid-19 virus pandemic is an evolving picture across
the world - and the health, societal and economic impacts are still
being understood as the Group's annual accounts are published.
The Board is committed to working with all stakeholders, our
customers, colleagues, suppliers, regulators and members of the
local communities in which we operate, to ensure the Group plays
its part in combating the virus, and its associated impacts.
The business and financial risks associated with the Covid-19
outbreak are being closely monitored by the Board, and mitigating
actions are being taken where possible. The key business risks and
actions include:
-- Health and safety: The Group is taking appropriate steps to
protect its employees and other key stakeholders, based on
Government advice.
-- Business continuity and customer service : The Group has
implemented its business continuity plan to ensure key operations
and customer service teams can operate, alongside key support
functions.
-- Lower commodity sales volume: Social distancing and the
potential closure or reduction in business output across the UK is
likely to suppress customer demand for energy, which reduces
revenues, gross margin and, ultimately, the EBITDA of the Group.
Significant differences between forecasted customer demand and
actual demand can also create additional risks (or opportunities)
from commodity market volatility as the Group rebalances its hedged
position. The Board will continue to monitor this risk and take
appropriate action to reduce the impact.
-- Curtailed growth: The Group's strategic priorities include a
significant focus to scale the business to benefit from the
economies of scale, and to achieve profitability. The Group also
planned the further expansion of sales activities in a new
Leicester office. The impact on UK businesses may reduce the
ability to scale at the rates previously considered and this is
being closely monitored by the Board.
-- Economic context, bad debt and working capital: The
Government has announced certain measures to support businesses
across the UK - specifically aimed at small and medium-Sized
Entities, which is the Group's target market. However, the economic
impact of the virus pandemic could impact the ability for customers
to meet their contractual liabilities on time, impacting cash flow,
and could ultimately lead to higher levels of bad debt and reduce
the Group's profitability.
Measures at UK level, including the announced Government support
to businesses, together with the swift and robust measures taken by
the Group during 2020, are mitigating some of the impact of the
Covid-19 outbreak. In addition, the Group's new trading arrangement
with SmartestEnergy has created additional cash flow to provide a
level of headroom to the Group's balance sheet, leading to a more
robust position.
Ultimately, like many other companies, the Board considers that
there is currently a material new risk in the Group's business
model which needs to be monitored carefully. Such uncertainty
predominantly relates to the wider economic impact of the Covid-19
outbreak, and the timescales over which the virus may continue to
disrupt the UK economy. In view of the level of uncertainty, the
Board has concluded that such uncertainty is so material that it
may cause significant doubt on the Group's ability to continue as a
going concern, as disclosed in note 1 to the financial
statements.
The Board is focused on protecting, first and foremost, the
health and safety of its colleagues, customers and partners, at
what is a difficult time for all. The Board is also confident in
the Group's ability to "weather the storm", especially after the
work done in FY 2019 to fully reset the Group.
Analysing profitability
The Board monitors profitability, as a percentage of revenue, by
breaking down Adjusted EBITDA between net customer contribution and
general overheads:
Net customer contribution represents the contribution to profit
of the Group's core activities and consists of gross margin
(excluding any non-recurring items excluded from Adjusted EBITDA)
less bad debt.
General overheads, being overheads charged to Adjusted EBITDA
excluding bad debt, represents the investment in sales, general
administrative costs and the costs incurred to manage the customers
contracts.
% of revenues FY 2019 FY 2018
Adjusted EBITDA (3.8%) (7.8%)
-------- --------
Of which:
-------- --------
Net customer contribution 2.5% (0.4%)
-------- --------
General overheads (6.3%) (7.4%)
-------- --------
Net customer contribution for FY 2019 was 2.5 per cent.,
compared to a negative contribution of 0.4 per cent. in FY 2018.
The improvement is a consequence of the higher gross margins
through stronger commercial actions and the reduction in the level
of bad debt. The Board targets a "mid to high single digit" net
customer contribution based on the revised sales and commercial
policies now in place - with ultimately the Group achieving nearer
the level of 12.4 per cent. reported (after restatement) for FY
2017. This target is prior to the impact of the Covid-19 outbreak,
which is further considered below.
General overheads have decreased as a proportion of revenue to
6.3 per cent. in FY 2019 (2018: 7.4 per cent.). The Group has
continued to invest significantly in sales and marketing to take
advantage of the market opportunity available. The remaining
overheads are allocated between cost to serve, which is expected to
benefit from economies of scale as the Group grows and automates
processes, and the more fixed in nature general administrative
costs.
As the Group grows over the medium term, the level of general
overheads as a percentage of revenue is expected to decrease based
on the Group benefiting from economies of scale.
The Group's loss for the year was GBP5.0m, an improvement from
the GBP6.3m loss in FY 2018. The loss for FY 2019 includes costs
outside of Adjusted EBITDA related to certain non-recurring items,
share based payment charges and unrealised losses on derivative
contracts. The reconciliation of statutory loss to Adjusted EBITDA
is included in note 3 of the financial statements.
Forward visibility
The Group monitors its forward contract book which gives good
visibility of the revenues expected (on a normalised, pre Covid-19
basis) over the coming periods from contracts which have been
entered into. At 31 December 2019, the Group had such contracted
revenues of GBP79.5m for FY 2020.
The level of contracted revenue is below the GBP88m contracted
at 31 December 2018 for FY 2019. This slowdown follows a reset of
the Group's commercial strategy in early 2019, which contributed to
a reduced level of average monthly bookings for FY 2019, of GBP4.2m
(2018: GBP8.4m). Whilst the level of gross margin on bookings has
increased significantly, the reduced bookings are expected to
result in a flatter revenue in FY 2020.
Legacy contracts, which were typically booked at low single
digit gross margins, are expiring and are either being renewed at
higher margins or "positively lost" (i.e. not renewed) due to the
stricter commercial and financial criteria now applied. These
legacy, low margin contracts contribute approximately GBP35m of the
GBP79.5m contracted revenue for FY 2020, and less than GBP5m for FY
2021. As these low margin contracts time expire and are replaced by
higher-margin contracts, the net customer contribution is expected
to increase.
Forward contracted revenue for the year to 31 March 2021 is
split between 43 per cent. of customers who are likely to be
significantly impacted by Covid-19, such as schools, retail
outlets, hotels, restaurants and leisure venues. Medium risk
customer segments, such as supply to offices, manufacturing plants
and construction sites, represent 41 per cent. of contracted
revenue, and the remaining 16 per cent. relates to lower risk
businesses such as manufacturing and healthcare sites.
The reduced volume of energy will reduce revenues and gross
margin for FY 2020, though such impact will depend on the overall
impact across all business sectors on their energy consumption, and
the length of time for which the Covid-19 crisis continues. The
reduced margin, impact on hedging position of any over-purchased
consumption and any consequential impact to bad debt and working
capital management may be significant to the Group, though is not
easily estimated in view of the evolving nature of the crisis.
Balance sheet, Net cash and working capital performance
Customer receivables have reduced by GBP0.6m in the year despite
the Group's revenue growth. Trade receivables have decreased by
GBP0.2m to GBP2.9m (net of GBP4.9m provision) at 31 December 2019
(31 December 2018: balance of GBP3.1m, net of GBP4.8m provision).
Accrued income, net of expected credit loss provisions, has
decreased by GBP0.4m to GBP9.3m at 31 December 2019 (GBP9.7m at 31
December 2018).
Overdue customer receivables ("OCR") were seven days at 31
December 2019, an improvement of two days from the position at 31
December 2018. The Board is pleased with the continued performance
on OCR, having reduced the metric from 14 days at 31 December 2017,
which is utilised to ensure revenue and debtors are under close
management.
The Group has net cash, being cash and cash equivalents less
debt (in the form of lease liabilities), of GBP1.8m, excluding
GBP10.4m of cash posted with trading counterparties. In accordance
with IFRS 16 "Leases", a liability of GBP0.6m has been recognised
in the year, with a corresponding asset value of GBP0.5m. The
recognition of this liability and assets relates, primarily, to
property leased by the Group under operating leases which were,
prior to IFRS 16, not held as an asset or liability on the Group's
balance sheet. The Group continues to have no bank or other
debt.
The Group's total cash outflow during the year to 31 December
2019 was GBP12.2m, of which GBP11.3m relates to operational
activities.
Of the operational cash outflow, GBP10.4m is attributable to the
payment of trading counterparty deposits required in line with the
Group's forward commodity trading arrangements due to the
significant decline in forward commodity markets.
The benefit from the Group's new structured trading arrangement
with SmartestEnergy (the "Facility"), providing a variable credit
line of approximately GBP13m, had not been realised at 31 December
2019. The new Facility will free up cash which would otherwise be
needed as collateral with trading counterparties. To secure the
Facility, the Group has agreed certain covenants, and fixed and
floating charges, related to the main trading subsidiaries of the
Group. Regular and constructive dialogue with our trading partners
in relation to the potential impact of the Covid-19 pandemic on
aspects of the Facility arrangement has been welcomed by the
Board.
The remaining operational cash outflow of GBP0.9m mainly derives
from the Adjusted EBITDA loss, the prepayment of certain industry
costs, and the benefit from the Group's positive working capital
cycle.
The Group is investing in a new purpose-built sales, marketing
and innovation office in Leicester. This property has led to a cash
outflow in H2 2019 of GBP0.3m, and a further GBP0.7m which has been
paid in Q1 of FY 2020. The Group targets financing the residual
value through a loan facility, when appropriate during FY 2020.
Beyond the new property, the Group does not expect significant
capital expenditure beyond the level in FY 2019.
The Group paid the 2018 interim dividend in January 2019. The
Board does not propose the payment of a dividend for FY 2019.
Cash position and liquidity
The Group has cash available, with GBP10.9m cash at bank at 31
March 2020 and a further GBP6.1m in cash collateral.
UK Government announcements related to the deferral of VAT, and
potential financing, provides additional comfort, and the Group
also has certain other commercial levers to manage its liquidity
over this period of uncertainty.
Summary
The Group has taken numerous financial and commercial measures
to improve its financial returns and to benefit from the available
market opportunity. These results are starting to be shown in the
evolution of the financial results of the Group.
The impact of Covid-19 represents an evolving and material
uncertainty to the Group's business model, though the Board
continues to take all appropriate action to protect health and to
mitigate, to the extent possible, the impact which the pandemic has
on the Group's financial performance.
7 Adjusted EBITDA is earnings before interest, tax, depreciation
and amortisation, and before certain exceptional or one-off costs.
The reconciliation between IFRS and Adjusted EBITDA, as an
alternative reporting measure, is included in note 3 to the
condensed financial statements.
8 Gross Margin % is after reclassification of third-party
intermediary costs to be included in cost of sales. Such costs were
previously allocated as overheads.
Condensed consolidated statement of profit and loss and other
comprehensive income
For the year ended 31 December 2019
31 December 31 December
2019 2018 (restated)
GBP'000 GBP'000
------------------------------------------------------- ----------- ----------------
Revenue 111,613 80,635
Cost of sales (106,128) (77,387)
------------------------------------------------------- ----------- ----------------
Gross profit 5,485 3,248
------------------------------------------------------- ----------- ----------------
Operating costs before non-recurring items, unrealised
gains on derivative contracts and IFRS 2 charges (10,362) (11,963)
Operating costs - non-recurring items (378) (441)
Operating costs - unrealised losses on derivative
contracts (518) (125)
Operating costs - IFRS 2 charges (125) (314)
------------------------------------------------------- ----------- ----------------
Total operating costs (11,383) (12,843)
------------------------------------------------------- ----------- ----------------
Loss from operations (5,898) (9,595)
Finance income 33 21
Finance costs (112) (63)
------------------------------------------------------- ----------- ----------------
Loss before tax (5,977) (9,637)
Taxation 1,009 3,370
------------------------------------------------------- ----------- ----------------
Loss for the year (4,968) (6,267)
------------------------------------------------------- ----------- ----------------
Other comprehensive income - -
------------------------------------------------------- ----------- ----------------
Total comprehensive income for the year (4,968) (6,267)
------------------------------------------------------- ----------- ----------------
Earnings per share
Basic (GBP0.31) (GBP0.42)
Diluted - -
------------------------------------------------------- ----------- ----------------
The year ended 31 December 2018 has been restated to reclassify,
due to a change in accounting policy, GBP2,625,000 of amounts
payable to third-party intermediaries from operating costs to cost
of sales.
Condensed consolidated balance sheet
At 31 December 2019
31 December 31 December
2019 2018
GBP'000 GBP'000
------------------------------ ----------- -----------
ASSETS
Non-current assets
Intangible assets 52 54
Property, plant and equipment 671 395
Right of use assets 481 -
Deferred tax 4,355 3,325
------------------------------- ----------- -----------
5,559 3,774
------------------------------ ----------- -----------
Current assets
Trade and other receivables 25,886 13,569
Cash and cash equivalents 2,377 14,612
------------------------------- ----------- -----------
28,263 28,181
------------------------------ ----------- -----------
Total assets 33,822 31,955
------------------------------- ----------- -----------
LIABILITIES
Current liabilities
Trade and other payables (28,076) (21,517)
Non-current liabilities (448) -
------------------------------- ----------- -----------
Total liabilities (28,524) (21,517)
------------------------------- ----------- -----------
Net assets 5,298 10,438
------------------------------- ----------- -----------
EQUITY
Share capital 82 81
Share premium 11,690 11,689
Merger reserve (50) (50)
Retained earnings (6,424) (1,282)
------------------------------- ----------- -----------
5,298 10,438
------------------------------ ----------- -----------
Condensed consolidated statement of changes in equity
For the year ended 31 December 2019
Share Share Merger Retained
capital premium reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- -------- -------- -------- --------- --------
Balance at 1 January 2019 81 11,689 (50) (1,282) 10,438
Adjustment following adoption
of IFRS 16 - - - (125) (125)
-------------------------------- -------- -------- -------- --------- --------
Adjusted balance at 1 January
2019 81 11,689 (50) (1,407) 10,313
-------------------------------- -------- -------- -------- --------- --------
Total comprehensive income
for the year
Loss for the year - - - (4,968) (4,968)
Other comprehensive income - - - - -
-------------------------------- -------- -------- -------- --------- --------
- - - (4,968) (4,968)
-------------------------------- -------- -------- -------- --------- --------
Transactions with owners
of the Company
Contributions and distributions
Equity-settled share based
payments - - - 125 125
Deferred tax on share based
payments - - - 21 21
Proceeds from share issues 1 1 - - 2
Equity dividend paid in
the year - - - (195) (195)
-------------------------------- -------- -------- -------- --------- --------
Total transactions with
owners of the Company 1 1 - (49) (47)
-------------------------------- -------- -------- -------- --------- --------
Balance at 31 December 2019 82 11,690 (50) (6,424) 5,298
-------------------------------- -------- -------- -------- --------- --------
Balance at 1 January 2018 70 - (50) 6,366 6,386
-------------------------------- -------- -------- -------- --------- --------
Total comprehensive income
for the year
Loss for the year - - - (6,267) (6,267)
Other comprehensive income - - - - -
-------------------------------- -------- -------- -------- --------- --------
- - - (6,267) (6,267)
-------------------------------- -------- -------- -------- --------- --------
Transactions with owners
of the Company
Contributions and distributions
Equity-settled share based
payments - - - 685 685
Deferred tax on share based
payments - - - (1,600) (1,600)
Proceeds from share issues 11 12,079 - - 12,090
Share issue costs - (390) - - (390)
Equity dividend paid in
the year - - - (466) (466)
-------------------------------- -------- -------- -------- --------- --------
Total transactions with
owners of the Company 11 11,689 - (1,381) 10,319
-------------------------------- -------- -------- -------- --------- --------
Balance at 31 December 2018 81 11,689 (50) (1,282) 10,438
-------------------------------- -------- -------- -------- --------- --------
Condensed consolidated statement of cash flows
For the year ended 31 December 2019
31 December 31 December
2019 2018
GBP'000 GBP'000
----------------------------------------------------- ----------- -----------
Cash flows from operating activities
Loss for the financial year (4,968) (6,267)
Adjustments for:
Depreciation of property, plant and equipment and
right-of-use assets 397 291
Amortisation of intangible assets 2 2
Finance income (33) (21)
Finance costs 112 63
Taxation (1,009) (3,370)
Share based payment charge 125 685
Increase in cash collateral deposits lodged with
trading counterparties (10,408) -
Increase in trade and other receivables (1,909) (3,404)
Increase in trade and other creditors 6,411 11,072
Decrease in provisions for employee benefits - (371)
----------------------------------------------------- ----------- -----------
Net cash used in operating activities (11,280) (1,320)
----------------------------------------------------- ----------- -----------
Cash flows from investing activities
Purchase of property, plant and equipment (565) (147)
Net interest (79) (42)
----------------------------------------------------- ----------- -----------
Net cash used in investing activities (644) (189)
----------------------------------------------------- ----------- -----------
Cash flows from financing activities
Net proceeds from share placing and option exercises 2 11,700
Dividend paid during the year (195) (466)
Repayment of borrowings and leasing liabilities (118) -
----------------------------------------------------- ----------- -----------
Net cash (used in)/from financing activities (311) 11,234
----------------------------------------------------- ----------- -----------
Net (decrease)/increase in cash and cash equivalents (12,235) 9,725
Cash and cash equivalents at the start of the year 14,612 4,887
----------------------------------------------------- ----------- -----------
Cash and cash equivalents at the end of the year 2,377 14,612
----------------------------------------------------- ----------- -----------
Notes to the condensed consolidated financial report
1. Significant accounting policies
Yü Group PLC (the "Company") is a public limited company
incorporated and domiciled in the United Kingdom. The Company's
ordinary shares are traded on AIM. These condensed consolidated
financial statements ("Financial statements") as at and for the
year ended 31 December 2019 comprise the Company and its
subsidiaries (together referred to as the "Group"). The Group is
primarily involved in the supply of electricity, gas and water to
SMEs and larger corporates in the UK.
Basis of preparation
Whilst the financial information included in this preliminary
announcement has been prepared on the basis of the requirements of
International Financial Reporting Standards ("IFRSs") in issue, as
adopted by the European Union ("EU") and effective at 31 December
2019, this announcement does not itself contain sufficient
information to comply with IFRS.
The financial information set out in this preliminary
announcement does not constitute the company's statutory financial
statements for the years ended 31 December 2019 or 2018 but is
derived from those financial statements.
Statutory financial statements for 2018 have been delivered to
the registrar of companies and those for 2019 will be delivered in
due course. The auditors have reported on those financial
statements; their reports were (i) unqualified and (ii) did not
contain a statement under section 498 (2) or (3) of the Companies
Act 2006.
The condensed consolidated financial information is presented in
British pounds sterling (GBP) and all values are rounded to the
nearest thousand (GBP000) except where otherwise indicated.
Going concern
The financial statements are prepared on a going concern
basis.
At 31 December 2019 the Group had net assets of GBP5.3m (2018:
net assets of GBP10.4m). Management prepares detailed budgets and
forecasts of financial performance and cash flow (including capital
commitments as disclosed in note 12) over the coming 12 to 36
months. The Group has confidence in achieving such targets and
forecasts in a normal business environment.
The Group's low margin, legacy contracts are unwinding and being
replaced with higher-margin contracts with more robust customers.
Losses have therefore decreased significantly, and the Directors
are confident of a continued improvement on a normalised basis.
In December 2019 the main trading entities of the Group (Yü
Energy Holding Limited and Yü Energy Retail Limited) entered into a
new structured trading arrangement, for an initial period of five
years, with SmartestEnergy Limited. The facility with Smartest will
currently provide a variable credit facility to support the Group's
hedging position, leading to a corresponding benefit to the Group's
cash position. The Board monitors covenants associated with this
facility.
The risks related to the Covid-19 pandemic have been assessed by
the Board and are further detailed in the Strategic Report included
in the full 2019 Annual Report and Financial Statements.
The unprecedented events, which are still evolving, are likely
to have a short to medium-term impact on the Group's financial
performance - though are not easily forecasted. The Directors have
prepared detailed revised forecasts based on a variety of scenarios
in relation to the pandemic, and stress cases of key
assumptions.
To date, the Group has not experienced any significant impact on
its financial performance.
The Directors have, however, considered the Groups exposure to
business segments which are expected to be materially impacted by
the social distancing measures introduced in March 2020. This
assessment has classified its forward contracted revenue (to March
2021) between segments which are high risk (retail, leisure venues
etc), medium risk (manufacturing, real estate etc) and lower risk
(for example, the healthcare or utility sector). The Group has a
significant (c45 per cent.) exposure to high risk sectors, with a
further c40 per cent. exposure in medium sectors.
The Group anticipates a reduced revenue and margin from such
customers, reducing forward profitability and resulting in a
Mark-to-Market loss on energy over-purchased which is to be sold
back to market. The Directors have also assumed that Covid-19 may
result in additional customer credit losses (in the form of bad
debt) or late customer payments, which will impact on the Group's
ability to generate operating cashflow.
The Directors are taking all available steps to efficiently
manage cashflow, to reduce costs and to plan appropriate mitigative
commercial actions to take during this period of instability across
the UK economy. Constructive dialogue is ongoing with the Group's
trading counterparty (who provide a material credit facility under
the Group's structured trading arrangements) related to the
potential future breach of certain covenants in the event of a
significant impact on business performance. Further, whilst the
Board has not yet secured assistance from sources of Government or
regulatory support (such as the deferral of certain industry
obligations and payments) as may be or become available,
discussions and representations are ongoing both through sector
representative groups and directly to Ofgem. The Board acknowledge
and welcome the Government's commitment to support businesses
through this uncertain period and awaits further information in
order to be in a position to gain access to such assistance as it
may potentially be able to secure.
The Directors assessment of scenarios related to Covid-19
continuing over Q2 2020 and beyond, with enhanced levels of credit
loss, may result in significant financial pressure and the
technical but commercially manageable temporary breach of certain
covenants.
Based on the above, the Directors believe that it remains
appropriate to prepare the financial statements on a going concern
basis. However in view of the unprecedented coronavirus outbreak,
and the risks it may pose to the Group, together with the
essentially unpredictable and constantly evolving nature of the
pandemic, the Directors have decided to formally note the existence
of a level of material uncertainty which may potentially cast doubt
on the Group's future ability to continue as a going concern.
The financial statements do not include any adjustments that
would result from the basis of preparation as a Going Concern being
inappropriate.
Use of estimates and judgements
The preparation of the financial statements in conformity with
adopted IFRSs requires the use of estimates and assumptions.
Although these estimates are based on management's best knowledge,
actual results ultimately may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the
period in which the estimates are revised and in any future periods
affected. The key areas of estimation and judgement are the
estimated consumption (in lieu of accurate meter readings) of
energy by customers, the level of accrual for unbilled revenue, the
inputs to the IFRS 2 share option charge calculations and the
recoverability of deferred tax assets and trade receivables.
Revenue estimates are based on industry knowledge or source
information, where available, and can therefore represent estimates
which are lower or higher than the actual out-turn of energy
consumption once accurate meter readings are obtained.
To estimate the level of accrual for unbilled revenue,
management estimates the level of consumption, and anticipated
revenue, which is due to be charged to the customer, and recognises
such revenue where it is considered that revenue will flow to the
Group.
Inputs to IFRS 2 share option charge calculations are based on
estimates of share price volatility, the expected time to exercise
of such options and the risk-free rate of return.
Deferred tax assets recoverability is assessed based on
Directors' judgement of the recoverability, by the realisation of
future profits, of the tax losses over the short to medium term,
which inherently is based on estimates.
Trade receivables recoverability is estimated, with appropriate
allowance for expected credit loss provisions, based on historical
performance and the Director's estimate of losses over the Group's
customer receivable balances.
Revenue recognition
The Group enters into contracts to supply gas, electricity and
water to its customers. Revenue represents the fair value of the
consideration received or receivable from the sale of actual and
estimated gas, electricity and water supplied during the year, net
of discounts, Climate Change Levy and Value Added Tax. Revenue is
recognised on consumption being the point at which the transfer of
the goods or services to the customer takes place and based on an
assessment of the extent to which performance obligations have been
achieved.
Due to the nature of the energy supply industry and its reliance
upon estimated meter readings, both gas and electricity revenue
includes the Directors' best estimate of differences between
estimated sales and billed sales. The Group makes estimates of
customer consumption based on available industry data, and also
seasonal usage curves that have been estimated through historical
actual usage data.
Financial instruments
Non-derivative financial instruments
Non-derivative financial instruments comprise trade and other
receivables, cash and cash equivalents and trade and other
payables.
Trade and other receivables
Trade and other receivables are recognised initially at fair
value. Subsequent to initial recognition they are measured at
amortised cost using the effective interest method, less any
impairment and expected credit losses.
Trade and other payables
Trade and other payables are recognised initially at fair value.
Subsequent to initial recognition they are measured at amortised
cost using the effective interest method.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and short-term
deposits (monies held on deposit are accessible with one month's
written notice). Cash and cash equivalents excludes any cash
collateral posted with third parties. Bank overdrafts that are
repayable on demand and form an integral part of the Group's cash
management are included as a component of cash and cash
equivalents.
Derivative financial instruments
The Group uses commodity purchase contracts to hedge its
exposures to fluctuations in gas and electricity commodity prices.
The majority of commodity purchase contracts are expected to be
delivered entirely to the Group's customers and therefore the Group
classifies them as "own use" contracts and outside the scope of
IFRS 9 "Financial Instruments". This is achieved when:
-- a physical delivery takes place under all such contracts;
-- the volumes purchased or sold under the contracts correspond
to the Group's operating requirements; and
-- no part of the contract is settled net in cash.
This classification as "own use" allows the Group not to
recognise the commodity purchase contracts on its balance sheet at
the year end.
The commodity purchase contracts that do not meet the criteria
listed above are recognised at fair value under IFRS 9. The gain or
loss on remeasurement to fair value is recognised immediately in
profit or loss.
Classification of financial instruments issued by the Group
Financial instruments issued by the Group are treated as equity
only to the extent that they meet the following two conditions:
(a) they include no contractual obligations upon the Group to
deliver cash or other financial assets or to exchange financial
assets or financial liabilities with another party under conditions
that are potentially unfavourable to the Group; and
(b) where the instrument will or may be settled in the Group's
own equity instruments, it is either a non-derivative that includes
no obligation to deliver a variable number of the Company's own
equity instruments or is a derivative that will be settled by the
Company's exchanging a fixed amount of cash or other financial
assets for a fixed number of its own equity instruments.
To the extent that this definition is not met, the proceeds of
issue are classified as a financial liability. Where the instrument
so classified takes the legal form of the Company's own shares, the
amounts presented in these financial statements for called up share
capital and share premium account exclude amounts in relation to
those shares.
Share based payments
Share based payment arrangements in which the Group receives
goods or services as consideration for its own equity instruments
are accounted for as equity-settled share based payment
transactions, regardless of how the equity instruments are obtained
by the Group.
The grant date fair value of share based payment awards granted
to employees is recognised as an employee expense, with a
corresponding increase in equity, over the period that the
employees become unconditionally entitled to the awards. The fair
value of the options granted is measured using an option valuation
model, taking into account the terms and conditions upon which the
options were granted. The amount recognised as an expense is
adjusted to reflect the actual number of awards for which the
related service and non-market vesting conditions are expected to
be met, such that the amount ultimately recognised as an expense is
based on the number of awards that do meet the related service and
non-market performance conditions at the vesting date. For share
based payment awards with non-vesting conditions, the grant date
fair value of the share based payment is measured to reflect such
conditions and there is no true-up for differences between expected
and actual outcomes.
Taxation
Tax on the profit or loss for the period comprises current and
deferred tax. Tax is recognised in the statement of profit and loss
except to the extent that it relates to items recognised directly
in equity, in which case it is recognised in equity.
Current tax is the expected tax payable or receivable on the
taxable income or loss for the period, using tax rates enacted or
substantively enacted at the balance sheet date, and any adjustment
to tax payable in respect of previous periods.
Deferred tax is provided on temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. The following
temporary differences are not provided for: the initial recognition
of goodwill; the initial recognition of assets or liabilities that
affect neither accounting nor taxable profit other than in a
business combination; and differences relating to investments in
subsidiaries to the extent that they will probably not reverse in
the foreseeable future. The amount of deferred tax provided is
based on the expected manner of realisation or settlement of the
carrying amount of assets and liabilities, using tax rates enacted
or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is
probable that future taxable profits will be available against
which the temporary difference can be utilised.
Leased assets
The Group as a lessee
For any new contracts entered into on or after 1 January 2019,
the Group considers whether a contract is, or contains, a lease. A
lease is defined as "a contract, or part of a contract, that
conveys the right to use an asset (the underlying asset) for a
period of time in exchange for consideration". To apply this
definition the Group assesses whether the contract meets three key
evaluations which are whether:
-- the contract contains an identified asset, which is either
explicitly identified in the contract or implicitly specified by
being identified at the time the asset is made available to the
Group;
-- the Group has the right to obtain substantially all of the
economic benefits from use of the identified asset throughout the
period of use, considering its rights within the defined scope of
the contract;
-- the Group has the right to direct the use of the identified
asset throughout the period of use. The Group assess whether it has
the right to direct "how and for what purpose" the asset is used
throughout the period of use.
Leases signed before 1 January 2019 are treated in accordance
with the disclosure noted in changes in accounting policy
below.
Measurement and recognition of leases as a lessee
At lease commencement date, the Group recognises a right-of-use
asset and a lease liability on the balance sheet. The right-of-use
asset is measured at cost, which is made up of the initial
measurement of the lease liability, any initial direct costs
incurred by the Group, an estimate of any costs to dismantle and
remove the asset at the end of the lease, and any lease payments
made in advance of the lease commencement date (net of any
incentives received).
The Group depreciates the right-of-use assets on a straight-line
basis from the lease commencement date to the earlier of the end of
the useful life of the right-of-use asset or the end of the lease
term. The Group also assesses the right-of-use asset for impairment
when such indicators exist.
At the commencement date, the Group measures the lease liability
at the present value of the lease payments unpaid at that date,
discounted using the interest rate implicit in the lease if that
rate is readily available or the Group's incremental borrowing
rate.
Lease payments included in the measurement of the lease
liability are made up of fixed payments (including in-substance
fixed), variable payments based on an index or rate, amounts
expected to be payable under a residual value guarantee and
payments arising from options reasonably certain to be
exercised.
Subsequent to initial measurement, the liability will be reduced
for payments made and increased for interest. It is remeasured to
reflect any reassessment or modification, or if there are changes
in in-substance fixed payments.
When the lease liability is remeasured, the corresponding
adjustment is reflected in the right-of-use asset, or profit and
loss if the right-of-use asset is already reduced to zero.
The Group has elected to account for short-term leases and
leases of low-value assets using the practical expedients. Instead
of recognising a right-of-use asset and lease liability, the
payments in relation to these are recognised as an expense in
profit or loss on a straight-line basis over the lease term.
On the statement of financial position, right-of-use assets have
been included in property, plant and equipment and lease
liabilities have been included in trade and other payables.
Changes in accounting policies - IFRS 16 "Leases"
This note explains the impact of the adoption of IFRS 16
"Leases" on the Group's financial statements and discloses the new
accounting policies that have been applied from 1 January 2019.
The Group has adopted IFRS 16 retrospectively from 1 January
2019 and has not restated comparatives for the 2018 reporting
period, as permitted under the specific transitional provisions in
the standard. The reclassifications and the adjustments arising
from the new leasing rules are therefore recognised in the opening
balance sheet on 1 January 2019.
Adjustments recognised on adoption of IFRS 16
On adoption of IFRS 16, the Group recognised lease liabilities
in relation to leases which had previously been classified as
"operating leases" under the principles of IAS 17 "Leases". These
liabilities were measured at the present value of the remaining
lease payments, discounted using the Group's incremental borrowing
rate as of 1 January 2019. The weighted average incremental
borrowing rate applied to the lease liabilities on 1 January 2019
was 5 per cent.
The Group does not have any leases that were previously
classified as finance leases under IAS 17.
GBP'000
------------------------------------------- ---------
Operating lease commitments disclosed
at 31 December 2018 669
Less:
Impact of discounting (94)
Short-term leases recognised as an expense
on a straight-line basis (6)
------------------------------------------- ---------
Lease liability recognised at 1 January
2019 569
------------------------------------------- ---------
Of which:
Current lease liabilities 96
Non-current lease liabilities 473
------------------------------------------- ---------
In applying IFRS 16 for the first time, the Group has used the
following practical expedients permitted by the standard:
-- the use of a single discount rate to a portfolio of leases
with reasonably similar characteristics;
-- reliance on previous assessments on whether leases are onerous;
-- the accounting for operating leases with a remaining lease
term of less than 12 months as at 1 January 2019 as short-term
leases;
-- the exclusion of initial direct costs for the measurement of
the right-of-use asset at the date of initial application; and
-- the use of hindsight in determining the lease term where the
contract contains options to extend or terminate the lease.
For all contracts that existed prior to 1 January 2019, the
Group has not applied IFRS 16 to reassess whether each contract is,
or contains, a lease.
The impact of IFRS 16 on the previously reported equity of the
Group is GBP125,000 as detailed in the condensed consolidated
statement of changes in equity.
The Group had leases prior to 1 January 2019 for its Nottingham
office premises and a number of vehicles. Rental contracts are
typically made for fixed periods of 3 to 10 years but may have
extension options. Lease terms are negotiated on an individual and
arm's length basis and contain different terms and conditions. The
lease agreements do not impose any covenants.
For the financial year 2018 and prior, leases of property, plant
and equipment were classified as either finance or operating
leases. Payments made under operating leases (net of any incentives
received from the lessor) were charged to profit or loss on a
straight-line basis over the period of the lease.
From 1 January 2019, leases are recognised as a right-of-use
asset and a corresponding liability at the date at which the leased
asset is available for use by the Group. Each lease payment is
allocated between the liability and finance cost. The finance cost
is charged to profit or loss over the lease period so as to produce
a constant periodic rate of interest on the remaining balance of
the liability for each period. The right-of-use asset is
depreciated over the shorter of the asset's useful life and the
lease term on a straight-line basis.
Assets and liabilities arising from a lease are initially
measured on a present value basis. Lease liabilities include the
net present value of the following lease payments:
-- fixed payments (including in-substance fixed payments), less
any lease incentives receivable;
-- variable lease payments that are based on an index or a rate;
-- amounts expected to be payable by the lessee under residual value guarantees;
-- the exercise price of a purchase option if the lessee is
reasonably certain to exercise that option; and
-- payments of penalties for terminating the lease, if the lease
term reflects the lessee exercising that option.
The lease payments are discounted using the interest rate
implicit in the lease if such rate is available. If that rate
cannot be determined the Group's incremental borrowing rate is
used, being the rate that the Group would have to pay to borrow the
funds necessary to obtain an asset of similar value in a similar
economic environment with comparable terms and conditions
Right-of-use assets are measured at cost comprising the
following:
-- the amount of the initial measurement of lease liability;
-- any lease payments made at or before the commencement date
less any lease incentives received;
-- any initial direct costs; and
-- restoration costs.
Changes in accounting policies - third-party intermediary
costs
The year ended 31 December 2018 has been restated to reclassify,
due to a change in accounting policy, GBP2,625,000 of amounts
payable to third-party intermediaries from operating costs to cost
of sales.
2. Segmental analysis
Operating segments
The Directors consider there to be one operating segment, being
the supply of electricity, gas and water to SMEs and larger
corporates.
Geographical segments
100 per cent of the Group revenue is generated from sales to
customers in the United Kingdom (2018: 100 per cent).
The Group has no individual customers representing over 10 per
cent of revenue (2018: nil).
3. Reconciliation to Adjusted EBITDA
A key alternative performance measure used by the Directors to
assess the underlying performance of the business is Adjusted
EBITDA.
2019 2018
GBP'000 GBP'000
---------------------------------------------- ------- -------
Adjusted EBITDA reconciliation
Loss from operations (5,898) (9,595)
Add back:
Non-recurring operational costs 378 441
Non-recurring mutualisation costs 236 -
Impact of first-time adoption of IFRS 9 - 1,768
Unrealised loss on derivative contracts 518 125
Equity-settled share based payment charge 125 685
Depreciation of property, plant and equipment 397 291
Amortisation of intangibles 2 2
---------------------------------------------- ------- -------
Adjusted EBITDA (4,242) (6,283)
---------------------------------------------- ------- -------
The 2019 non-recurring operational costs of GBP378,000 consist
of restructuring payroll costs and legal and professional fees in
relation to the issue identified in the Q4 2018 accounting review
and regulatory investigation. No further costs beyond those accrued
are anticipated.
The mutualisation costs of GBP236,000 relate to Renewable
Obligation Certificate ("ROC") and Capacity Market costs that have
been levied on the Group over and above the expected costs, to
cover the cost of other failing suppliers in the market.
The unrealised loss on derivative contracts is excluded from
Adjusted EBITDA in view of its non-cash nature, with significant
variability as the forward energy commodity market moves.
Following the adoption of IFRS 16 the Group now recognises
depreciation on the right-of-use asset and an interest expense on
the lease liability as included in note 6. The comparable 2018
Adjusted EBITDA loss excluding the lease rental costs would have
been GBP6,138,000.
4. Earnings per share
Basic loss per share
Basic loss per share is based on the loss attributable to
ordinary shareholders and the weighted average number of ordinary
shares outstanding.
2019 2018
GBP'000 GBP'000
-------------------------------------------------------- -------- --------
Loss for the year attributable to ordinary shareholders (4,968) (6,267)
-------------------------------------------------------- -------- --------
2019 2018
----------------------------------------------- ---------- ----------
Weighted average number of ordinary shares
At the start of the year 16,267,555 14,054,055
Effect of shares issued in the year 11,133 787,370
----------------------------------------------- ---------- ----------
Number of ordinary shares for basic earnings
per share calculation 16,278,688 14,841,425
Dilutive effect of outstanding share options 786,547 768,025
----------------------------------------------- ---------- ----------
Number of ordinary shares for diluted earnings
per share calculation 17,065,235 15,609,450
----------------------------------------------- ---------- ----------
2019 2018
GBP GBP
--------------------------- ------ ------
Basic earnings per share (0.31) (0.42)
Diluted earnings per share - -
--------------------------- ------ ------
Adjusted earnings per share
Adjusted earnings per share is based on the result attributable
to ordinary shareholders before exceptional items and the cost of
cash and equity-settled share based payments, and the weighted
average number of ordinary shares outstanding:
2019 2018
GBP'000 GBP'000
-------------------------------------------------------- -------- --------
Adjusted earnings per share
Loss for the year attributable to ordinary shareholders (4,968) (6,267)
Add back:
Non-recurring items after tax (see note 3 - gross
cost of GBP614,000) 497 357
Unrealised loss on derivative contracts after
tax (gross cost of GBP518,000) 420 101
Share based payments after tax (gross cost of
GBP125,000) 101 254
-------------------------------------------------------- -------- --------
Adjusted basic loss for the year (3,950) (5,555)
-------------------------------------------------------- -------- --------
2019 2018
GBP GBP
---------------------------- ------ ------
Adjusted earnings per share (0.24) (0.37)
---------------------------- ------ ------
5. Dividends
The Group did not pay an interim dividend in relation to 2019
(2018: 1.2p per share).
The Directors do not propose a final dividend in relation to
2019 (2018: nil per share).
6. Leases
The Group has entered into lease arrangements for its main
office facilities in Nottingham and Leicester and for some
vehicles. With the exception of short-term leases and leases of low
value underlying assets, each lease is reflected on the balance
sheet as a right-of-use asset and a lease liability. The Group
discloses its right-of-use assets as a separate line item in fixed
assets on the face of the balance sheet and its lease liabilities
as part of trade and other payables.
Property leases generally have a lease term ranging from 3 years
to 10 years. Leases of vehicles are generally limited to a lease
term of 3 years.
Each lease typically imposes a restriction that, unless there is
a contractual right for the Group to sublet the asset to another
party, the right-of-use asset can only be used by the Group. Leases
are either non-cancellable or may only be cancelled by incurring a
substantive termination fee. Some leases contain an option to
extend the lease for a further term. For leases over office
buildings the Group is obligated to keep those properties in a good
state of repair and return the properties in their original
condition at the end of the lease. Further, the Group must insure
items of property, plant and equipment and incur maintenance fees
on such items in accordance with the lease contracts.
The table below provides details of the Groups right-of-use
assets and lease liabilities recognised on the balance sheet at 31
December 2019:
Right-of-use Remaining Asset carrying Lease liability Depreciation Interest expense
asset term amount expense
Premises 2.5 to 4.5 GBP473,000 GBP589,000 GBP104,000 GBP35,000
years
----------- --------------- ---------------- ------------- -----------------
Vehicles 2 years GBP8,000 GBP8,000 GBP4,000 GBP1,000
----------- --------------- ---------------- ------------- -----------------
Total GBP481,000 GBP597,000 GBP108,000 GBP36,000
----------- --------------- ---------------- ------------- -----------------
Lease payments not recognised as a liability
The Group has elected not to recognise a right-of-use asset or
lease liability for short-term leases (leases of expected term of
12 months or less) or for leases of low value assets. Payments
under such leases are expensed on a straight-line basis. During FY
2019 the amount expensed to profit and loss was GBP6,000.
7. Trade and other receivables
Group Company
------------------ ------------------
2019 2018 2019 2018
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------- -------- -------- -------- --------
Gross trade receivables 7,801 7,898 - -
Provision for doubtful debts
and expected credit loss (4,901) (4,803) - -
---------------------------------------- -------- -------- -------- --------
Net trade receivables 2,900 3,095 - -
---------------------------------------- -------- -------- -------- --------
Accrued income - net of provision 9,278 9,688 - -
Prepayments 2,185 245 - -
Other receivables 11,523 406 500 -
Financial derivative asset - 135 - -
Amount due from subsidiary undertakings - - 15,545 4,642
---------------------------------------- -------- -------- -------- --------
25,886 13,569 16,045 4,642
---------------------------------------- -------- -------- -------- --------
Movements in the provision for doubtful debts and expected
credit loss are as follows:
2019 2018
GBP'000 GBP'000
----------------------------------------------- ------- -------
Opening balance 4,803 272
Additional provisions recognised 2,931 4,531
Provision utilised in the year (2,833) -
Unused amounts reversed - -
----------------------------------------------- ------- -------
Closing balance - provision for doubtful debts
and expected credit losses 4,901 4,803
----------------------------------------------- ------- -------
The Directors have assessed the level of provision at 31
December 2019 by reference to the recoverability of customer
receivable balances post the year end, and believe the provision
carried of GBP4,901,000 is adequate.
In addition to the GBP2,931,000 (2018: GBP4,531,000) provision
recognised in relation to trade receivables, there was an
additional provision of GBP159,000 (2018: GBP875,000) made against
accrued income.
None of the Group's receivables fall due after more than one
year.
The amount due from subsidiary undertakings in the books of Yü
Group PLC at 31 December 2019 is non-interest bearing and is
repayable on demand. Subsequent to the year end, the subsidiary
undertakings drew down on the newly arranged formal loan facility
(key terms of which are that the loan is payable in 14 months
following written request from Yü Group PLC and interest is payable
by the subsidiary undertakings at a rate of 2 per cent. above Bank
of England base rate).
The Board of Yü Group PLC has considered the provisions around
impairment of intercompany indebtedness contained within IFRS 9
"Financial Instruments" and has concluded that an expected credit
loss provision of GBP250,000 be booked against the outstanding
intercompany receivables.
The Directors consider that the carrying amount of trade and
other receivables approximates to their fair value.
Group other receivables includes GBP10,408,000 (2018: GBPnil)
paid in cash to trading counterparties as collateral.
The Company other receivables balance of GBP500,000 relates to a
non-cash and cash equivalent deposit.
8. Cash and cash equivalents
Group Company
------------------ ------------------
2019 2018 2019 2018
GBP'000 GBP'000 GBP'000 GBP'000
------------------------- -------- -------- -------- --------
Cash at bank and in hand 2,377 11,112 500 8,865
Short-term deposits - 3,500 - 3,500
------------------------- -------- -------- -------- --------
2,377 14,612 500 12,365
------------------------- -------- -------- -------- --------
The short-term deposit at 31 December 2018 related to cash held
at bank which was utilised to support collateral in the form of
letters of credits with trading counterparties.
9. Trade and other payables
Group Company
------------------ ------------------
2019 2018 2019 2018
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- -------- -------- -------- --------
Current
Trade payables 1,409 1,231 - -
Accrued expenses and deferred
income 20,889 15,603 140 -
Corporation tax - 16 - -
Lease liabilities 149 - - -
Derivative financial liability 383 - - -
Other payables 5,246 4,667 - -
Amounts due to subsidiary undertakings - - 300 -
--------------------------------------- -------- -------- -------- --------
28,076 21,517 440 -
--------------------------------------- -------- -------- -------- --------
Non-current
Lease liabilities 448 - - -
--------------------------------------- -------- -------- -------- --------
Details of the lease liabilities are included in note 6.
10. Financial instruments and risk management
The Group's principal financial instruments are cash, trade
receivables, trade payables and derivative financial assets and
liabilities. The Group has exposure to the following risks from its
use of financial instruments:
(a) Fair values of financial instruments
Fair values
Derivative financial instruments are measured at fair value
through profit and loss. The derivative instruments are level 1
financial instruments and their fair value is therefore measured by
reference to quoted prices in active markets for identical assets
or liabilities. All derivatives are held at a carrying amount equal
to their fair value at the period end.
(b) Market risk
Market risk is the risk that changes in market prices, such as
commodity and energy prices, will affect the Group's income.
Commodity and energy prices
The Group uses commodity purchase contracts to manage its
exposures to fluctuations in gas and electricity commodity prices.
The Group's objective is to reduce risk from fluctuations in energy
prices by entering into back to back energy contracts with its
suppliers and customers, in accordance with a Board approved risk
mandate. Commodity purchase contracts are entered into as part of
the Group's normal business activities. The majority of commodity
purchase contracts are expected to be delivered entirely to the
Group's customers and are therefore classified as "own use"
contracts. These instruments do not fall into the scope of IFRS 9
and therefore are not recognised in the financial statements. A
proportion of the contracts in the Group's portfolio are expected
to be settled net in cash where 100 per cent. of the volume hedged
is not delivered to the Group's customers and is instead sold back
to the grid in order to smooth demand on a real time basis. An
assumption is made based on past experience of the proportion of
the portfolio expected to be settled in this way and these
contracts are measured at fair value. The gain or loss on
remeasurement to fair value is recognised immediately in profit or
loss.
As far as possible, in accordance with the risk mandate, the
Group attempts to match new sales orders with corresponding
commodity purchase contracts. There is a risk that at any point in
time the Group is over or under hedged. Holding an over or under
hedged position opens the Group up to market risk which may result
in either a positive or negative impact on the Group's margin and
cash flow, depending on the movement in commodity prices.
The Board continues to evaluate the use of commodity purchase
contracts and whether their classification as "own use" is
appropriate. The key requirements considered by the Board are as
listed below:
-- whether physical delivery takes place under the contracts;
-- the volumes purchased or sold under the contract correspond
to the Group's operating requirements; and
-- whether there are any circumstances where the Group would settle the contracts net in cash.
All commodity purchase contracts are entered into exclusively
for own use, to supply energy to business customers. However, as
noted above, a number of these contracts do not meet the stringent
requirements of IFRS 9, and so are subject to fair value
measurement through the income statement.
The fair value mark-to-market adjustment at 31 December 2019 is
a loss of GBP518,000 (2018: loss of GBP125,000). See note 9 for the
corresponding derivative financial liability.
The Group's exposure to commodity price risk according to IFRS 7
is measured by reference to the Group's IFRS 9 commodity contracts.
IFRS 7 requires disclosure of a sensitivity analysis for market
risks that is intended to illustrate the sensitivity of the Group's
financial position and performance to changes in market variables
impacting upon the fair values or cash flows associated with the
Group's financial instruments.
Therefore, the sensitivity analysis provided below discloses the
impact on profit or loss at the balance sheet date assuming that a
reasonably possible change in commodity prices had occurred and
been applied to the risk exposures in place at that date. The
reasonably possible changes in commodity price used in the
sensitivity analysis were determined based on calculated or implied
volatilities where available, or historical data.
The sensitivity analysis has been calculated on the basis that
the proportion of commodity contracts that are IFRS 9 financial
instruments remains consistent with those at that point. Excluded
from this analysis are all commodity contracts that are not
financial instruments under IFRS 9.
Reasonably
possible Impact
increase/ on profit
decrease and net
in assets
Open market price of forward contracts variable GBP'000
--------------------------------------- ---------- ----------
UK gas (p/therm) +/-50% 303
UK power (GBP/MWh) +/-50% 285
--------------------------------------- ---------- ----------
588
--------------------------------------- ---------- ----------
Liquidity risk from commodity trading
The Group's trading arrangements can result in a cash call being
made by counterparties when commodity markets are below the Group's
traded position. A significant reduction in electricity and gas
markets could lead to a material cash call from the Group's trading
counterparties. Whilst such a cash call would not impact the
Group's profit, it would have an impact on the Group's cash
reserves. As described below, the new structured trading
arrangement with SmartestEnergy has reduced this liquidity
risk.
(c) Credit risk
Credit risk is the risk of financial loss to the Group if a
customer or counterparty to a financial instrument fails to meet
its contractual obligations and arises principally from the Group's
receivables from customers.
These trading exposures are monitored and managed at Group
level. All customers are UK based and turnover is made up of a
large number of customers each owing relatively small amounts. New
customers have their credit checked using an external credit
reference agency prior to being accepted as a customer.
Credit risk is also managed through the Group's standard
business terms, which require all customers to make a monthly
payment predominantly by direct debit. At the year end there were
no significant concentrations of credit risk. The carrying amount
of the financial assets (less the element of VAT and CCL included
in the invoiced balance, which is recoverable in the event of
non-payment by the customer) represents the maximum credit exposure
at any point in time.
The ageing of trade receivables, net of bad debt provision, at
the balance sheet date was:
2019 2018
GBP'000 GBP'000
----------------------- -------- --------
Not past due 69 104
Past due (0-30 days) 1,529 1,949
Past due (31-120 days) 1,302 1,006
More than 120 days - 36
----------------------- -------- --------
2,900 3,095
----------------------- -------- --------
At 31 December 2019 the Group held a provision against doubtful
debts of GBP5,858,000 (2018: GBP5,678,000). This is a combined
provision against both trade receivables (GBP4,901,000) and accrued
income (GBP957,000).
(d) Liquidity risk
Liquidity risk is the risk that the Group will not be able to
meet its financial obligations as they fall due. The Board is
responsible for ensuring that the Group has sufficient liquidity to
meet its financial liabilities as they fall due and does so by
monitoring cash flow forecasts and budgets. In order to enter into
the necessary commodity purchase contracts, the Group is required
to lodge funds on deposit with either its bank or direct with our
commodity trading counterparties. At 31 December 2019 the Group had
GBP10.4m lodged as cash collateral with trading counterparties
(2018: GBP3.5m lodged as collateral with banking partners to
provide a letter of credit). On 16 December 2019 the Group
announced a new structured trading arrangement with SmartestEnergy
Limited. This arrangement provides a significant credit facility
and as such reduces the need to lodge cash collateral. The Board
has considered the cash flow forecasts, along with the collateral
and LOC requirements, for the next 12 months, which show that the
Group expects to operate within its working capital facilities
throughout the year excluding any impact from Covid-19 (as
disclosed in note 1 to this financial report and in the risks and
uncertainties section of the Strategic Report in the 2019 Annual
Report and Accounts).
Any excess cash balances are held in short-term, interest
bearing deposit accounts. At 31 December 2019 the Group had GBP2.4m
of cash and bank balances, as per note 8.
(e) Foreign currency risk
The Group trades entirely in pounds sterling and therefore it
has no foreign currency risk.
(f) Impact from the Covid-19 virus outbreak
The Covid-19 pandemic impacted the UK post the year end. There
is a risk that the resulting impact on the UK economy will reduce
the recoverability of customer receivables (being trade receivables
and accrued income).
The total customer receivables balance at 31 December 2019, net
of provision for doubtful debts and expected credit losses, is
GBP12,178,000. The Directors assess the level of provision as
adequate after consideration of cash received post 31 December
2019.
The risk of the virus outbreak impacting the recoverability of
customer receivables balances in the future is being monitored
closely by the Board and is further detailed in the Strategic
Report's review of the Risks and Uncertainties related to Covid-19.
The Board is also monitoring any impact in the reduction of
customer volume, and therefore the revenue of the Group.
The UK Government has noted the intention to do "whatever it
takes" to protect the economy, and as such the risk of significant
business failure is reduced.
However, in assessing sensitivity to the level of credit risk on
customer receivables, a 10 per cent. increase in the level of bad
debt will result in approximately GBP1,200,000 of additional
excepted credit loss.
If energy commodity volumes consumed by customers significantly
decrease as a result of the outbreak (and outside the normal
operating assumptions of the Group), there may be exposure to
additional mark-to-market volume risk as some of the volume
purchased forward would need to be sold. The impact could also be
increased if the reduction in customer demand coincided with
further declines in energy commodity markets. Whilst the Directors
have taken steps to mitigate this action, the sensitivity caused by
a 10 per cent. decline in contracted revenue for the year ended 31
March 2021 would reduce gross margin by approximately GBP350,000,
excluding any gain or loss on the sale of commodity.
11. Share based payments
The Group operates a number of share option plans for qualifying
employees of the Group. Options in the plans are settled in equity
in the Company. The options are subject to a vesting schedule, but
not conditional on any performance criteria being achieved. The
only vesting condition is that the employee is employed by the
Group at the date when the option vests.
On 18 June 2019, the Group made its first round of awards under
the new SAYE plan. This plan is available to all employees of the
Group.
The terms and conditions of the outstanding grants made under
the schemes are as follows:
Exercisable between
---------------------------
Amount
outstanding
at
Expected Exercise Vesting 31 December
Date of grant term Commencement Lapse price schedule 2019
-------------- -------- ------------- ------------ -------- --------- ------------
17 February 17 February 17 February
2016 3 2019 2026 GBP0.09 2 27,000
22 December 22 December 22 December
2016 3 2019 2026 GBP3.25 2 13,500
6 April 2017 3 6 April 2020 6 April 2027 GBP0.005 2 79,110
6 April 2017 6.5 6 April 2020 6 April 2027 GBP2.844 2 158,220
28 September 28 September 28 September
2017 6.5 2020 2027 GBP5.825 2 40,500
9 April 2018 6.5 9 April 2021 9 April 2028 GBP10.38 2 78,351
26 September 26 September 26 September
2018 6.5 2021 2028 GBP8.665 2 6,539
25 February 25 February 25 February
2019 6.5 2022 2029 GBP1.09 2 60,000
25 February 25 February 25 February
2019 3 2022 2029 GBP0.005 2 250,000
1 February
18 June 2019 3 1 August 2022 2023 GBP1.40 3 117,248
-------------- -------- ------------- ------------ -------- --------- ------------
830,468
-------------- -------- ------------- ------------ -------- --------- ------------
The following vesting schedules apply:
1. 50 per cent. of options vest on first anniversary of date of
grant and 50 per cent. vest on second anniversary.
2. 100 per cent. of options vest on third anniversary of date of grant.
3. 100 per cent. of options vest on third anniversary of savings contract start date.
The number and weighted average exercise price of share options
were as follows:
2019 2018
------------------------------------- --------- -----------
Balance at the start of the period 573,290 1,464,310
Granted 437,248 154,317
Forfeited (166,570) (31,837)
Lapsed - -
Exercised (13,500) (1,013,500)
------------------------------------- --------- -----------
Balance at the end of the period 830,468 573,290
------------------------------------- --------- -----------
Vested at the end of the period 40,500 -
------------------------------------- --------- -----------
Exercisable at the end of the period 40,500 -
------------------------------------- --------- -----------
Weighted average exercise price for:
Options granted in the period GBP0.55 GBP7.41
Options forfeited in the period GBP2.29 GBP5.67
Options exercised in the period GBP0.09 GBP0.09
------------------------------------- --------- -----------
Exercise price in the range:
From GBP0.005 GBP0.005
To GBP10.380 GBP10.380
------------------------------------- --------- -----------
The fair value of each option grant is estimated on the grant
date using a Black Scholes option pricing model with the following
fair value assumptions:
2019 2018
----------------------------------------------- ------------ -----------
Dividend yield 0% 0.29-0.35%
Risk-free rate 1.5% 1.5%
Share price volatility 124.3-127.8% 36.0-36.7%
Expected life (years) 3-6.5 years 3-6.5 years
Weighted average fair value of options granted
during the period GBP1.14 GBP5.67
----------------------------------------------- ------------ -----------
The share price volatility assumption is based on the actual
historical share price of the Group since IPO in March 2016.
The total expenses recognised for the year arising from share
based payments are as follows:
2019 2018
GBP'000 GBP'000
------------------------------------------------ -------- --------
Equity-settled share based payment expense 125 685
Cash-settled share based payment expense/(gain) - (371)
------------------------------------------------ -------- --------
125 314
------------------------------------------------ -------- --------
12. Commitments
Capital commitments
The Group has entered into an agreement to purchase a newly
developed office building and associated land at a site in
Leicester city centre. At 31 December 2019 the Group had incurred
GBP340,000 of cost which is currently included in the fixed assets
total as GBP150,000 of land and GBP190,000 assets under
construction. The Group has a remaining capital commitment at 31
December 2019 of GBP3,090,000 (2018: GBPnil).
The remaining cash flows are anticipated to be staggered between
2020 and H1 2021, at which time the Group should take possession of
the completed building.
Security
The Group has entered into an arrangement with a new trading
counterparty, SmartestEnergy Limited ("Smartest"), in December
2019. As part of this arrangement, Smartest has a fixed and
floating charge over the main trading subsidiaries of the Group, Yü
Energy Holding Limited and Yü Energy Retail Limited.
As disclosed in note 7, included in other receivables is an
amount of GBP500,000 held in a separate bank account over which the
Group's bankers have a fixed and floating charge.
Contingent liabilities
The Group had no contingent liabilities at 31 December 2019
(2018: GBPnil).
13. Related parties and related party transactions
The Group has transacted with CPK Investments Limited (an entity
owned by Bobby Kalar). CPK Investments Limited owns the property
from which the Group operates from via a lease to Yü Energy Retail
Limited. During 2019 the Group paid GBP120,000 in lease rentals and
service charges to CPK Investments Limited (2018: GBP120,000). The
amount owing to CPK Investments at 31 December 2019 was GBP10,000
(2018: GBPnil).
All transactions with related parties have been carried out on
an arm's length basis.
14. Post-balance sheet events
The Covid-19 pandemic started to materially impact the UK from
March 2020. The Directors' assessment of the potential risk and
impact are further disclosed in the risk and uncertainties section
of the Strategic Report in the 2019 Annual Report and Accounts, and
in note 1 to this financial report.
There are no other significant or disclosable post-balance sheet
events.
Copies of the Annual Report and Accounts for the year ended 31
December 2019 will be available to download from the Company's
website at www.yugroupplc.com later today, Monday 6 April 2020.
Hard copies will be posted to shareholders on 17 April 2020.
The AGM is scheduled to take place on 21 May 2020 and the AGM
notice is included in the Annual Report and Accounts. The Group
Chairman would like to make the following statement in relation to
the AGM:
The health of the Company's shareholders, as well as its
employees, is of paramount importance. In view of the UK Government
placing restrictions on travel because of the coronavirus
(Covid-19) pandemic, shareholders will not be permitted to attend
the annual general meeting in person. The Board encourages
shareholders to monitor the Company's website
(yugroupplc.com/investors) and regulatory news services for any
updates in relation to the annual general meeting that may need to
be provided. In the meantime, the Board encourages shareholders to
submit their proxy form as early as possible by post or
electronically as detailed in the notes to the notice of annual
general meeting and the proxy form.
Ordinarily, shareholders are entitled to appoint a proxy to
attend and to exercise all or any of their rights to vote and to
speak at the annual general meeting instead of the shareholder.
However, in view of the ongoing coronavirus pandemic, the Company
is encouraging ordinary shareholders to appoint the Chairman as
their proxy (either electronically or by post) with their voting
instructions as shareholders or their proxies will not be allowed
to attend the annual general meeting in person. The deadline for
doing this is set out in the notes to the notice of annual general
meeting and the proxy form. The Company is taking these
precautionary measures to safeguard its shareholders' and
employees' health and make the annual general meeting as safe and
efficient as possible .
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR EELFBBZLZBBZ
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