TIDMYU.
RNS Number : 5057A
Yu Group PLC
30 September 2020
Yü Group PLC
(the "Group")
Results for the six months to 30 June 2020
STRONG UNDERLYING PERFORMANCE AND FOUNDATION LAID FOR
SUSTAINABLE LONG-TERM GROWTH
Yü Group PLC (AIM; YU.), the independent supplier of gas,
electricity and water to the UK corporate sector, announces its
unaudited half year results for the six months to 30 June 2020.
Bobby Kalar, Group Chief Executive Officer, said :
"T he first half of the trading year has been highly unusual and
somewhat extraordinary. The modelled impact of COVID-19 on our
customers indicated significant headwinds from sustained reductions
in expected volumes, a material increase in the inability to pay
bills and a slow-down in new business being booked. While no one
could have predicted with any certainty how deep or how long the
effects of COVID-19 would be, I am very pleased with how well the
business has performed in such a challenging macro environment.
Customer energy usage volume has continued to trend upwards and
August consumption was up to around 90% of pre-COVID levels, cash
collection has broadly been equal or better than billed monthly
revenue month on month and new business continues to grow at
greater rate than H1 2019. I'm particularly pleased that our
customer journey from 'prospect' through to 'cash' is performing
well. The 'hard yards' of the last two years are really bearing
fruit.
Whilst there is little room for complacency, we must draw
comfort from the fact that the rebuilding of Yü Group over the last
two years has been a significant contributing factor in enabling
the business to withstand and outperform expectations in the
period. Our reset is behind us and the business is now moving to
its key scaling phase as legacy low margin contracts have virtually
'washed through' the book and been replaced by good quality, better
margin contracts. Most notably the first two months of Q3 bookings
have been the strongest to date.
Strategically rebalancing our book over the last 18 months has
meant an expected reduction in meter points, but with a strong
forward order book we now expect run rate meter point growth to
accelerate to circa 17,000 by FY 2020 and for that positive
momentum to continue in to FY 2021 and beyond.
The recent purchase of Bristol Energy's B2B book and the
seamless customer integration on to our scalable operating platform
was 'text book' and is testament to the organisation's strong
capability and appetite. The acquisition has seen a circa 40% meter
point increase with no notable additional cost to serve burden, has
added significant value across the business and has been
immediately cash generative. This has provided a proven template
and I look forward to repeating this exercise shortly.
The dedication and principled discipline of my team is
commendable, and I thank them for their continued support when
responding to the situation.
Whilst the Board is very aware of the macroeconomic uncertainty
stemming from the pandemic, we are also aware of our
responsibilities to all stakeholders who look forward to the
business realising its full growth potential, and as such I very
much look forward to updating the market in due course."
Financial Highlights
Six months to
30 June
2020 2019
--------------------------- -------- --------
FINANCIAL: GBP'000 unless
stated
Revenue 45,873 56,561
Adjusted EBITDA (1) (1,846) (2,674)
Loss for the period (1,711) (2,716)
Operating cash inflow 16,476 3,177
Cash 17,886 17,421
Loss per share:
Adjusted (10)p (15)p
Statutory (11)p (17)p
--------------------------- -------- --------
(1) 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.
-- Revenue of GBP45.9m (GBP56.6m in H1 2019) as a result of
COVID-19 during initial lockdown and following a controlled
deceleration during the reset period of early 2019.
-- Strong average monthly bookings being achieved of GBP6.2m
(GBP3.2m in H1 2019) at higher margins.
-- Adjusted EBITDA impacted by COVID-19 but otherwise performing
well and continuing improving trend.
-- Net cash of GBP17.9m at 30 June 2020, underpinned by the
Group's trading agreement and reduced requirements to post cash
collateral to support the Group's forward energy contracts.
-- Positive billing to cash conversion at 99.5%.
-- Net Customer Contribution of 2.2% (1.4% in H1 2019) increased
as legacy contracts expire, despite material impact of
COVID-19.
Operational Highlights
-- Board took swift and decisive action to control the impact of
COVID-19 including resetting hedging policies to mitigate the risk
of a second hard lockdown, utilisation of government schemes and
reducing some discretionary overhead spend.
-- Maintained high-quality customer service, with a consistent 4.5-star Trustpilot score.
-- Continued investment in digital solutions and automation to
improve customer journey and drive efficiencies, including new
sales portal access for partners to accelerate growth, and new
Smart Meter programme.
-- Successful acquisition and post-acquisition integration of
Bristol Energy Limited's ("Bristol Energy") B2B customer book which
is already net cash positive and earnings accretive, providing a
proven template and methodology for future opportunities.
-- Updated processes well embedded with new Board, advisors and
further strengthened management team.
Current Trading and Outlook
-- Marked increase in customer demand since period end with
August customer demand recovering, and now at c. 90% of pre
COVID-19 levels.
-- Contracted revenue for FY 2021 at 31 August 2020, already at an estimated GBP71.7m.
-- Strong monthly bookings in July and August with significant
acceleration anticipated during H2 2020.
-- Net Customer Contribution is expected to improve leading to a
lower EBITDA loss in H2 2020, driven by the recovery from the
initial demand shock caused by COVID-19, legacy low margin
contracts expiring, and with the Bristol Energy acquisition already
earnings accretive.
-- Bristol Energy expected to contribute revenue of c. GBP10m
across the 16 months ended 31 December 2021, at mid-single digit
margin. Contracts are expected to contribute beyond 2021 at c.
GBP4.5m revenue.
-- Strategy on track to deliver sustainable, long-term
profitable growth. Expected return to revenue growth (vs. 2019) in
FY 2021 with adjusted EBITDA tracking towards break-even despite
continued investment in sales and marketing.
This announcement contains inside information for the purposes
of Article 7 of Regulation (EU) 596/2014.
For further information, please contact:
Yü Group PLC
Bobby Kalar
Paul Rawson +44 (0) 115 975 8258
SP Angel Corporate Finance
LLP
Jeff Keating
Bruce Fraser
Caroline Rowe +44 (0) 20 3470 0470
Tulchan Group
David Allchurch
Giles Kernick +44 (0) 20 7353 4200
Analyst presentation
A presentation for analysts and investors will be held at
10:00am today, Wednesday 30 September 2020. For details please
contact Yugroup@tulchangroup.com.
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. For 2019 the Group had revenue of c.
GBP112m.
Chief Executive Officer's Statement
The Board is pleased to report its progress during the six
months to 30 June 2020 which show encouraging underlying
performance despite the impact of COVID-19.
Business Review
The strengthened Board and management team continue to implement
the Group's strategic priorities: to focus on sustainable growth
(organic and via selective M&A); ensuring a clear focus on
profitable customer contracts and by leveraging overheads;
generating cashflow to invest in growth; and maintaining the solid
business foundations developed on which to scale the Group.
The Group's average monthly bookings (being the annualised
revenue booked on new contracts) significantly increased in H1 2020
to GBP6.2m (a 94% increase on H1 2019 bookings of GBP3.2m). The
Board is pleased to see this growth in bookings which has been
achieved via a new sales strategy deployed across multiple sales
channels which includes new digital 'easy access' portals to
efficiently meet market demand. As a consequence of the work
already performed, and the fact that monthly bookings in July and
August performed very strongly, the Board anticipates H2 2020
average monthly bookings to be significantly above the GBP6.2m
achieved in H1 2020.
With the significant increase in bookings, the Group has
continued to prioritise contracts which will provide suitable
contract lifecycle value, leading to increased net customer
contribution and, therefore, improved EBITDA. Work to optimise net
customer contribution is generating results from various
initiatives across the customer lifecycle journey, from gross
margin required at point of sale to cross-sell, and via improved
credit control processes.
In addition to strong organic growth performance and improving
profitability, the Group acquired the B2B customer book of Bristol
Energy during August 2020. The acquisition provided a complementary
contract book with an additional 4,000 meter points, and a robust
customer base, which was, within a matter of days, successfully
migrated onto the Group's scalable platform.
The Group, at 31 August 2020, estimates the revenue achievable
from its forward contract book to impact FY 2021 to be GBP71.7m,
though continues to monitor any material impact on customer demand
from COVID-19. This level of revenue provides a solid base, to be
increased as new bookings are added monthly, on which to expect
increased revenues during 2021. This estimate assumes energy
consumption remains broadly at current levels.
The Group's strategy is to drive sustainable profitable organic
growth, layered with value enhancing M&A where there is a clear
strategic fit, in order to increase market share whilst limiting
incremental overhead cost.
Operational Review
The Group has relaunched its sales strategy which is delivering
significant results. The initial mission of the Group, which
remains today, revolved around providing great service to customers
- which is often over-looked by energy suppliers. We strive to
provide easy, simple, services, to provide Yütility Simplicity.
In H1 2020 we have launched new products, such as the agile and
assist plans to give customers greater flexibility through
COVID-19. The Group has also launched new customer acquisition
portals, facilitating easier access to our energy plans whilst
reducing the costs we incur to acquire customers.
Whilst large incumbents struggle with transformation, our
nimble, efficient and robust system allows the Group to quickly add
new initiatives to take advantage of market opportunities.
We continue to refine and develop existing systems, including
the use of RPA (Robotic Process Automation). As part of the
continued focus on reducing overheads as the Group scales, RPA is
being installed across various processes to continually improve
business efficiency whilst also further improving customer service
levels.
The Group is deploying SMETS2 smart meters, which the Directors
expect to cover a large part of the Group's revenue in the medium
term and unlock new market opportunities. Such meters generate
significant benefits to customers, who can gain greater insight on
their energy usage to be able to manage cost and carbon impacts
more closely. SMETS2 meters also have the potential to unlock
significant opportunities for the Group, including reducing costs
to bill, providing energy trading value opportunities, and wider
customer lifecycle enhancements including a much closer management
of bad debt.
The Board is pleased to report that the robust systems and
processes implemented are now firmly established and operating
well, as evidenced by the successful integration of the Bristol
Energy customer book.
Throughout the pandemic our team have worked safely and
productively whilst continuing to meet customer demand -
maintaining the 4.5 star Trustpilot score - a leader in the B2B
energy supply sector.
The new strengthened corporate governance structures deployed at
Board and at executive committee level are providing the
appropriate leadership across multiple disciplines, creating the
foundation to aggressively challenge and disrupt a GBP35billion
addressable market. This reinvigorated approach follows the work
performed in 2018 and 2019, and the Board is pleased to report the
finalisation of the AIM investigation which enables clear focus on
the future.
COVID-19
The swift and professional response of our teams in deploying
our business continuity plan has allowed the business to continue
to operate efficiently and productively throughout the
pandemic.
The Board and wider management team has also worked hard to
ensure the health and wellbeing of staff and partners which has
been prioritised during this difficult time, respecting Government
guidelines as measures change.
Our customer service team has provided updates and support to
our small business customers, to sign-post support available and to
make them aware of initiatives which can support them during the
economic uncertainty.
The Board has also closely monitored its cashflow and its risks
to a significant economic downturn and taken steps to review
hedging risk policies and customer demand forecasts.
The financial risks associated with COVID-19 remain as reported
in the FY 2019 annual report, and are as further described in notes
1 and 10 to the interim financial statements. Broadly, these risks
arise from potential falls in customer demand, an increase in
certain industry costs, and the wider economic uncertainty and its
resulting impact on bad debt. Ultimately these impacts are, by
nature, difficult to predict with a great level of certainty and
can create a material variability in the Group's EBITDA achievable
from its customer contracts.
Customer demand for electricity and gas was impacted in April
2020 with a sharp shock during the lockdown period, via a c35%
instant drop in customer demand. This unexpected immediate fall
across the portfolio resulted in lower revenues. More materially,
however, the event also resulted in the Group needing to sell back
excess energy purchased, at a lower price in view of the market
dynamics at that time, resulting in a mark to market loss. This
demand shock has since largely recovered and is becoming more
foreseeable and manageable across the portfolio, meaning the Group
can mitigate much of this risk for the future.
Certain other 'non-commodity' costs also increased during H1
2020 as a result of the mechanisms by which grid operators and
generators pass through costs. Some of these costs may be passed
through to end customers thereby potentially reducing their
impact.
Finally, the wider economic context is anticipated to have some
impact on expected credit losses and bad debt over the medium term,
although the Board are pleased to report that cash collected to 31
August 2020 is close to 100% of the value of invoices raised.
The estimated adverse impact on H1 2020 Adjusted EBITDA as a
consequence of all of the above is GBP1.6m.
In mitigating part of the impact of COVID-19, the Group
furloughed a small number of roles at the beginning of the lockdown
period in order to address the potential likely impact of the
pandemic. The ability to defer c. GBP4m of HMRC VAT and PAYE
payments was also taken.
The enhanced government measures to reduce the spread of
COVID-19 announced in September 2020 may reduce customer demand
during Q4 2020 and Q1 2021, though the Group anticipates its
exposure to mark to market losses to be significantly reduced due
to its revised hedging policy and the fact that the market appears
to be now factoring in some elements of COVID-19 risk.
The risks and material uncertainties related to COVID-19 will
continue to be closely monitored by the Board, and revised actions
taken wherever possible to reduce the impact on the Group. However,
the Board believes that the measures already put in place to date
will serve to mitigate the adverse effects on results for H2 2020
and beyond. In short, the Group is well positioned to weather the
storm and the Board has confidence in an eventual return to
profitability.
Bristol Energy acquisition
The acquisition of the B2B customer book and associated customer
receivables of Bristol Energy occurred in August 2020 and is
therefore not consolidated in the interim accounts to 30 June
2020.
The initial consideration of GBP1.2m has been reduced to GBP0.8m
during August due to a contractual adjustment mechanism designed to
reflect post-acquisition movements in the forward commodity market.
A further consideration amount of GBP0.6m is payable in August
2021, and a reconciliation of certain debtor balances acquired is
due in Q4 2020.
The GBP0.8m cash outflow, being the acquisition consideration to
date, includes c. GBP1.1m of customer receivables at book value.
The majority of these have been received in August and early
September. As a result, the acquisition is already cash
positive.
The contracts acquired were seamlessly migrated during August
and the resultant customers are now being serviced on the Group's
proven systems. The Group acquired a small team of industry
specialists as part of the acquisition who also filled vacancies in
existing roles. This implementation (adding significant numbers of
additional contracts for limited incremental overhead) is further
evidence of the Group's ability to unlock scale benefits
(organically or via M&A).
The Board anticipates a contribution to revenue of approximately
GBP10m across the 16 months ended 31 December 2021, at mid-single
digit percentage of revenue converted to margin.
Financial Review
Revenues in H1 2020 were GBP45.9m, a reduction compared with
GBP56.6m reported in H1 2019. This reflects the deliberately slowed
bookings during FY 2019 as the Group reset its sales strategy. In
addition, a c. GBP8.0m impact on H1 2020 revenue has occurred due
to the reduction in customer demand for energy due to the COVID-19
lockdown, which was particularly evident during April and May
2020.
Revenues for July and August have increased significantly with
demand closer (at approximately 90%) to pre COVID-19 levels, and
due to an improved bookings performance.
Net Customer Contribution, being gross margin less bad debt
charge, is maintaining a positive trend at 2.2% of revenue for H1
2020 (H1 2019: 1.4%). Gross margin initiatives (to enhance customer
lifecycle value), and improvements to the credit control cycle (to
reduce bad debt), are driving this improvement, together with the
expiry of low margin legacy contracts (which will mainly time
expire by the end of FY 2020). These positive drivers are
contributing to a continued and material improvement to Net
Customer Contribution.
Nonetheless, the COVID-19 impact for H1 2020 is estimated at
GBP1.6m and reduces the reported position. On an estimated
normalised (pre COVID-19) basis, therefore, the Net Customer
Contribution for H1 2020 increases from 2.2% to approximately 4.9%.
As this normalised position is diluted due to the expiring (in
2020) low margin contracts, and also before factoring in the
benefit from the Bristol Energy acquisition, management are
confident in continuing an upward trend in this key profitability
measure.
General overheads of 6.3% of revenue is broadly aligned to FY
2019 despite the reduction in revenues. The Board continues to
invest in sales and marketing to drive growth, which is already
sized to meet the Group's ambitious organic growth plan and
represents around a third of the overhead spend. The remaining
overheads are split between cost to serve (which the Board looks to
reduce as a proportion of revenues as the Group scales) and general
administrative costs which tend to be largely fixed in nature.
Reducing the percentage of revenue ratio to general overheads
remains a key priority of the Board. Automation is viewed as a key
driver in the achievement of efficiencies, enabling the Group to
scale whilst increasing profitability, and enabling continued
investment in growth.
Adjusted EBITDA loss of GBP1.8m is a continued improvement when
compared with the prior period (GBP2.7m for H1 2019 and GBP2.2m for
H2 2019). This improvement is despite the estimated GBP1.6m one-off
impact of COVID-19 on the Group's performance as noted above.
The net loss on a statutory basis for H1 2020 of GBP1.7m further
demonstrates the improving underlying performance of the Group
despite the impact of COVID-19 (H1 2019: GBP2.7m; FY 2019:
GBP5.0m).
The Group held GBP17.9m of cash, with no debt, at 30 June 2020
(GBP17.4m at 30 June 2019; GBP2.4m at 31 December 2019). Operating
cash has performed well, with an inflow of GBP16.5m for the period
(H1 2019: GBP3.2m), good cash conversion on customer receivables,
the benefit of new trading facilities and some deferral of HMRC
payments as part of COVID-19 relief schemes.
In line with the normal operating cycles the Group has settled
industry payments during August 2020 and remains debt free despite
the investment to acquire the Bristol Energy B2B book. The Group
held cash of GBP5.6m at 31 August 2020, and continued to have no
debt, despite these large outflows being paid during August.
Current trading and outlook
Monthly bookings for H2 2020 are expected to be significantly
ahead of H1 2020 and continue at a high level under the Group's new
sales strategy.
Revenues for H2 2020 are expected to be above the GBP45.9m
reported for H1 2020. This increase is expected to be driven by a
recovery in customer demand following the initial COVID-19
lockdown, the acquisition of Bristol Energy which started to
contribute to Group revenues from August, and the increased organic
growth levels reflected in the increased monthly bookings.
Whilst revenues for FY 2020 are anticipated to be below those of
FY 2019, the Board anticipate continuing and accelerating growth in
2021 and beyond as market share is gained.
Net Customer Contribution is expected to improve from the 2.2%
in H1 2020 (4.9% on a normalised basis) as the one-off impacts of
COVID-19 fade and the acquired Bristol Energy contracts contribute
to earnings. This upward trend is expected to continue in 2021, as
the benefit from the expiry of legacy low margin contracts being
replaced with higher margin contracts booked during 2019 and 2020
takes effect.
Adjusted EBITDA is expected to be higher for H2 2020 due to the
improved net customer contribution and continued control of
overheads.
For 2021, the Board targets Adjusted EBITDA returning to
break-even despite continued significant investment in the Group's
sales function. In the near to medium term, investment in our sales
processes should flow directly through to profit as the Group
leverages its existing controlled overheads and reaps the benefits
of scaling up.
Operating cashflow is expected to be positive for FY 2020, with
cash at 31 December 2020 forecast to be significantly above the 31
December 2019 balance of GBP2.4m. In line with normal cycles, the
operating cashflow for FY 2020 is anticipated to be lower than the
GBP16.4m reported for H1 2020 with industry payments due in H2 2020
being already settled.
Condensed consolidated statement of profit and loss and other
comprehensive income
For the six months ended 30 June 2020
6 months 6 months 12 months
ended ended ended 31
30 June 30 June December
2020 2019 2019
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
--------------------------- --- --- ------------ ------------ ----------
Revenue 45,873 56,561 111,613
Cost of sales (43,246) (54,775) (106,128)
------------------------------------- ------------ ------------ ----------
Gross profit 2,627 1,786 5,485
------------------------------------- ------------ ------------ ----------
Operating costs before
non-recurring items,
unrealised gains on
derivative contracts
and IFRS 2 charges (4,660) (4,657) (10,362)
Operating costs -
non-recurring items - (67) (378)
Operating costs -
unrealised gains/(losses)
on derivative contracts 137 (367) (518)
Operating costs -
IFRS 2 charges (166) 57 (125)
------------------------------------- ------------ ------------ ----------
Total operating costs (4,689) (5,034) (11,383)
------------------------------------- ------------ ------------ ----------
Loss from operations (2,062) (3,248) (5,898)
Finance income 7 19 33
Finance costs (31) (27) (112)
------------------------------------- ------------ ------------ ----------
Loss before tax (2,086) (3,256) (5,977)
Taxation 375 540 1,009
------------------------------------- ------------ ------------ ----------
Loss for the period (1,711) (2,716) (4,968)
-------------------------------- ------- ------------ ------------ ----------
Other comprehensive income - - -
-------------------------------- --- ------------ ------------ ----------
Total comprehensive
income for the period (1,711) (2,716) (4,968)
------------------------------------- ------------ ------------ ----------
Earnings per share
Basic GBP(0.11) GBP(0.17) GBP(0.31)
Diluted - - -
------------------------------------- ------------ ------------ ----------
Condensed consolidated balance sheet
At 30 June 2020
30 June 30 June 31 December
2020 (Unaudited) 2019 (Unaudited) 2019 (Audited)
GBP'000 GBP'000 GBP'000
------------------------------- --------------------- --------------------- ----------------
ASSETS
Non-current assets
Property, plant and equipment 1,429 364 671
Right-of-use asset 415 562 481
Intangible assets 51 53 52
Deferred tax 4,730 3,866 4,355
------------------------------- --------------------- --------------------- ----------------
6,625 4,845 5,559
------------------------------- --------------------- --------------------- ----------------
Current assets
Trade and other receivables 10,985 16,139 25,886
Cash and cash equivalents 17,886 17,421 2,377
------------------------------- --------------------- --------------------- ----------------
28,871 33,560 28,263
------------------------------- --------------------- --------------------- ----------------
Total assets 35,496 38,405 33,822
------------------------------- --------------------- --------------------- ----------------
LIABILITIES
Current liabilities
Trade and other payables (31,369) (30,593) (28,076)
Non-current liabilities (374) (466) (448)
------------------------------- --------------------- --------------------- ----------------
Total liabilities (31,743) (31,059) (28,524)
------------------------------- --------------------- --------------------- ----------------
Net assets 3,753 7,346 5,298
------------------------------- --------------------- --------------------- ----------------
EQUITY
Share capital 82 81 82
Share premium 11,690 11,690 11,690
Merger reserve (50) (50) (50)
Retained earnings (7,969) (4,375) (6,424)
------------------------------- --------------------- --------------------- ----------------
3,753 7,346 5,298
------------------------------- --------------------- --------------------- ----------------
Condensed consolidated statement of changes in equity
For the six months ended 30 June 2020
Share Share Merger Retained
capital premium reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- -------- -------- -------- --------- --------
Balance at 1 January 2020 82 11,690 (50) (6,424) 5,298
-------------------------------- -------- -------- -------- --------- --------
Total comprehensive income
for the period
Loss for the period - - - (1,711) (1,711)
Other comprehensive income - - - - -
-------------------------------- -------- -------- -------- --------- --------
- - - (1,711) (1,711)
-------------------------------- -------- -------- -------- --------- --------
Transactions with owners
of the Company
Contributions and distributions
Equity-settled share based
payments - - - 166 166
Deferred tax on share based
payments - - - - -
Proceeds from share issues - - - - -
Equity dividend paid in
the year - - - - -
-------------------------------- -------- -------- -------- --------- --------
Total transactions with
owners of the Company - - - 166 166
-------------------------------- -------- -------- -------- --------- --------
Balance at 30 June 2020 82 11,690 (50) (7,969) 3,753
-------------------------------- -------- -------- -------- --------- --------
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 period
Loss for the period - - - (2,716) (2,716)
Other comprehensive income - - - - -
-------------------------------- -------- -------- -------- --------- --------
- - - (2,716) (2,716)
-------------------------------- -------- -------- -------- --------- --------
Transactions with owners
of the Company
Contributions and distributions
Equity-settled share based
payments - - - (57) (57)
Deferred tax on share based - - - - -
payments
Proceeds from share issues - 1 - - 1
Equity dividend paid in
the year - - - (195) (195)
-------------------------------- -------- -------- -------- --------- --------
Total transactions with
owners of the Company - 1 - (252) (251)
-------------------------------- -------- -------- -------- --------- --------
Balance at 30 June 2019 81 11,690 (50) (4,375) 7,346
-------------------------------- -------- -------- -------- --------- --------
Condensed consolidated statement of cash flows
For the six months ended 30 June 2020
6 months 6 months 12 months
ended ended ended 31
30 June 30 June December
2020 2019 2019
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
----------------------------------------------------- ------------ ------------ ----------
Cash flows from operating activities
Loss for the financial period (1,711) (2,716) (4,968)
Adjustments for:
Depreciation of property, plant and equipment
and right-of-use assets 186 196 397
Amortisation of intangible assets 1 1 2
Finance income (7) (19) (33)
Finance costs 31 27 112
Taxation (375) (540) (1,009)
Share based payment charge 166 (57) 125
Decrease/(increase) in cash collateral deposits
lodged with trading counterparties 9,358 - (10,408)
Decrease/(increase) in trade and other receivables 5,543 (2,570) (1,909)
Increase in trade and other creditors 3,284 8,855 6,411
Net cash from/(used in) operating activities 16,476 3,177 (11,280)
----------------------------------------------------- ------------ ------------ ----------
Cash flows from investing activities
Purchase of property, plant and equipment (878) (105) (565)
Net interest (24) (9) (79)
----------------------------------------------------- ------------ ------------ ----------
Net cash used in investing activities (902) (114) (644)
----------------------------------------------------- ------------ ------------ ----------
Cash flows from financing activities
Net proceeds from share placing and option exercises - 1 2
Dividend paid during the year - (195) (195)
Repayment of borrowings and lease liabilities (65) (60) (118)
----------------------------------------------------- ------------ ------------ ----------
Net cash used in financing activities (65) (254) (311)
----------------------------------------------------- ------------ ------------ ----------
Net increase/(decrease) in cash and cash equivalents 15,509 2,809 (12,235)
Cash and cash equivalents at the start of the
period 2,377 14,612 14,612
----------------------------------------------------- ------------ ------------ ----------
Cash and cash equivalents at the end of the
period 17,886 17,421 2,377
----------------------------------------------------- ------------ ------------ ----------
Notes to the condensed consolidated half yearly financial
statements
1. Reporting entity
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
half yearly financial statements ("Half yearly financial
statements") as at and for the six months ended 30 June 2020
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
The condensed consolidated interim financial information for the
six months ended 30 June 2020 has been prepared in accordance with
the presentation, recognition and measurement requirements of
applicable International Financial Reporting Standards adopted by
the European Union ('IFRS') except that the Group has not applied
IAS 34, Interim Financial Reporting, which is not mandatory for UK
Companies listed on AIM, in the preparation of the condensed
consolidated interim financial information.
The unaudited condensed consolidated interim financial report
for the six months ended 30 June 2020 does not include all of the
information required for full annual financial statements, and does
not comprise statutory accounts within the meaning of section 434
of the Companies Act 2006. This report should therefore be read in
conjunction with the Group financial statements for the year ended
31 December 2019, which is available on the Group's investor
website. The comparative figures for the year ended 31 December
2019 have been audited. The comparative figures for the half year
ended 30 June 2019 are unaudited.
The accounting policies adopted in these condensed consolidated
half yearly financial statements are consistent with the policies
applied in the 2019 group financial statements.
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
At 30 June 2020 the Group had net assets of GBP3.8m (31 December
2019: net assets of GBP5.3m). Management prepares detailed budgets
and forecasts of financial performance and cash flow over the
coming 12 to 36 months. The Group has confidence in achieving such
targets and forecasts in a normal and reasonably stretched business
environment.
The Group's hedging strategy and cash collateral requirements
for its trading arrangements are principal considerations of the
Board when assessing the Group's ability to continue as a going
concern. The structured (including security over the Group's main
operating assets) trading arrangement was entered in to with
SmartestEnergy in late 2019 and has materially reduced risk of
downside volatility in the Group's cashflow and has played a
significant part in the Group generating an operational cash inflow
in H1 2020 of GBP16.4m. This arrangement has various covenants
which, were they not to be met, could trigger a reduced level of
credit line being made available to the Group increasing short term
liquidity risk in certain market conditions. COVID-19 impacts have
increased the likelihood of such credit line reductions being
triggered, although management's base case assumes sufficient
coverage to avoid such an event.
The Board also monitors the Group's working capital requirement
and cashflow, which is typically cash generative throughout the
majority of the year. In August of each year, however, a
significant energy industry payment falls due which typically
creates a cash low point and could, in extreme circumstances, lead
to Ofgem revoking the licence to operate if the payment is not
made. The August 2020 payment was settled in full and on time, and
hence the risk in the short term is minimal.
The Board is pleased with its management of the assessed risks
associated with COVID-19, and is now better prepared to mitigate
(to the extent possible) against certain events (particularly the
mark to market losses in H1 2020) which could impact the ability to
continue as a going concern. That said, the second phase of
COVID-19 measures announced in September 2020 will impact certain
sectors which are served by the Group, and the level of potential
impact is difficult to predict with certainty. The Board assess the
threat of an increase in bad debt were a significant part of the
Group's customer base to fail as a consequence of the wider
economic environment.
Based on the above the Directors consider it appropriate to
continue to prepare the financial statements on a going concern
basis. However, consistent with the 2019 annual report, the ongoing
COVID-19 pandemic has created sufficient risk and wider economic
instability that 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.
These 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 information 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 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 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 period,
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 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). 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. 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 period 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
Following the adoption of IAS 32, 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.
Leases
The Group as a lessee
For any new contracts entered into, 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.
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 the non-current assets balance and lease
liabilities have been included in trade and other payables.
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.
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 (2019: 100 per cent).
The Group has no individual customers representing over 10 per
cent of revenue (2019: 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.
30 June 2020 30 June 31 December
GBP'000 2019 2019
GBP'000 GBP'000
----------------------------------------------- ------------ -------- -----------
Adjusted EBITDA Reconciliation
Loss from operations (2,062) (3,248) (5,898)
Add back:
Non-recurring items - 67 614
Unrealised (gain)/loss on derivative contracts (137) 367 518
Depreciation of property plant and equipment
and right-of-use assets 186 196 397
Amortisation of intangibles 1 1 2
Equity-settled share based payment charge 166 (57) 125
----------------------------------------------- ------------ -------- -----------
Adjusted EBITDA (1,846) (2,674) (4,242)
----------------------------------------------- ------------ -------- -----------
The non-recurring items incurred in the 6 month period ended 30
June 2019 and the year ended 31 December 2019 consisted of
restructuring payroll costs and legal and professional fees in
relation to the Q4 2018 accounting review and subsequent regulatory
investigation. No such costs were incurred in the 6 month period
ended 30 June 2020.
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.
30 June 30 June 31 December
2020 2019 2019
GBP'000 GBP'000 GBP'000
-------------------------------------------------------- -------- -------- -----------
Loss for the year attributable to ordinary shareholders (1,711) (2,716) (4,968)
-------------------------------------------------------- -------- -------- -----------
30 June 30 June 31 December
2020 2019 2019
------------------------------------------------- ---------- ---------- -----------
Weighted average number of ordinary shares
At the start of the period 16,281,055 16,267,555 16,267,555
Effect of shares issued in the period - 8,727 11,133
------------------------------------------------- ---------- ---------- -----------
Number of ordinary shares for basic earnings per
share calculation 16,281,055 16,276,282 16,278,688
Dilutive effect of outstanding share options 813,414 737,120 786,547
------------------------------------------------- ---------- ---------- -----------
Number of ordinary shares for diluted earnings
per share calculation 17,094,469 17,013,402 17,065,235
------------------------------------------------- ---------- ---------- -----------
30 June 30 June 31 December
2020 2019 2019
GBP GBP GBP
--------------------------- -------------- ------- -----------
Basic loss per share (0.11) (0.17) (0.31)
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:
30 June 30 June 31 December
2020 2019 2019
GBP'000 GBP'000 GBP'000
-------------------------------------------------------- -------- -------- -----------
Adjusted earnings per share
Loss for the year attributable to ordinary shareholders (1,711) (2,716) (4,968)
Add back:
Non-recurring items after tax (see note 3) - 54 497
Unrealised loss on derivative contracts after tax (111) 297 420
Share based payments after tax 134 (46) 101
-------------------------------------------------------- -------- -------- -----------
Adjusted basic earnings for the year (1,688) (2,411) (3,950)
-------------------------------------------------------- -------- -------- -----------
30 June 30 June 31 December
2020 2019 2019
GBP GBP GBP
---------------------------- ------- ------- -----------
Adjusted earnings per share (0.10) (0.15) (0.24)
---------------------------- ------- ------- -----------
5. Taxation
The tax credit for the period has been estimated using a rate of
19.0% on taxable profits and losses.
6. Dividends
The directors do not propose the payment of an interim dividend
in relation to 2020 (2019: GBPnil per share).
7. Trade and other receivables
31 December
30 June 30 June 2019
2020 2019 GBP'000
GBP'000 GBP'000
------------------------------------------ --------- --------- ------------
Gross trade receivables 7,909 12,033 7,801
Provision for doubtful debts and expected
credit loss (5,381) (6,313) (4,901)
2,528 5,720 2,900
Accrued income - net of provision 5,338 6,431 9,278
Prepayments 783 186 2,185
Other receivables 2,336 3,802 11,523
8,457 10,419 22,986
------------------------------------------ --------- --------- ------------
Total trade and other receivables 10,985 16,139 25,886
------------------------------------------ --------- --------- ------------
Movements in the provision for doubtful debts and expected
credit loss are as follows:
30 June 30 June 31 December
2020 2019 2019
GBP'000 GBP'000 GBP'000
--------------------------------- -------- -------- -----------
Opening balance 4,901 4,803 4,803
Additional provisions recognised 1,902 1,510 2,931
Provision utilised in the period (1,422) - (2,833)
Unused amounts reversed - - -
--------------------------------- -------- -------- -----------
Closing balance 5,381 6,313 4,901
--------------------------------- -------- -------- -----------
In addition to the GBP1,902,000 (year ended 31 December 2019:
GBP2,931,000) provision recognised in relation to trade
receivables, there was a reduction in the provision made against
accrued income of GBP300,000 (year ended 31 December 2019: increase
of GBP159,000). The net bad debt and expected credit loss charge
for the period was therefore GBP1,602,000 (year ended 31 December
2019: GBP3,090,000).
None of the Group's receivables fall due after more than one
year.
The Directors consider that the carrying amount of trade and
other receivables approximates to their fair value.
Included in other receivables at 30 June 2020 is GBP1,050,000 of
cash paid to trading counterparties as cash collateral (31 December
2019: GBP10,408,000).
8. Cash and cash equivalents
30 June 2020 30 June 31 December
GBP'000 2019 2019
GBP'000 GBP'000
---------------------------------------- -------- -----------
Cash at bank and in hand 17,886 13,921 2,377
Short-term deposits - 3,500 -
--------------------------------- ------ -------- -----------
Total cash and cash equivalents 17,886 17,421 2,377
--------------------------------- ------ -------- -----------
The short-term deposits held at 30 June 2019 related to cash
held at bank which was utilised to support collateral, in the form
of letters of credit, with trading counterparties.
9. Trade and other payables
30 June 30 June 31 December
2020 2019 2019
GBP'000 GBP'000 GBP'000
--------------------------------------- -------- -------- -----------
Current
Trade payables 350 2,457 1,409
Accrued expenses and deferred income 22,378 22,894 20,889
Corporation tax - 16 -
Derivative financial liability 246 232 383
Lease liabilities 149 221 149
Other payables 8,246 4,773 5,246
--------------------------------------- -------- -------- -----------
Total current trade and other payables 31,369 30,593 28,076
--------------------------------------- -------- -------- -----------
Non-current
Lease liabilities 374 466 448
--------------------------------------- -------- -------- -----------
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.
Accessing such commodity forward markets can also increase
liquidity risk.
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 don't 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 30 June 2020 is a
gain of GBP137,000 (6 months ended 30 June 2019: loss of
GBP367,000). See note 9 for the corresponding derivative financial
liability.
Liquidity risk from commodity trading
The Group's trading arrangements can result in a cash call being
made by counter-parties 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 counter-parties. Whilst such a cash call would not
materially impact the Group's profit, it would have an impact on
the Group's cash reserves. The new structured trading arrangement
with SmartestEnergy has reduced this liquidity risk, by providing a
significant credit facility secured on the customer contracts,
accounts receivable and other assets of the Group which should
scale with the Group. This facility also contains covenants, which
the Group must meet, to maintain the credit facility. This trading
facility is secured on the main operating assets of the Group and
failure to adhere to covenants may reduce the credit line, which
could result in cash calls which the Group would have to lodge cash
collateral to meet. The Board monitors its compliance with
covenants, and the level of credit line and forward market
movements which could increase 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 period end there were
no significant concentrations of credit risk. The carrying amount
of the financial assets represents the maximum credit exposure at
any point in time.
At 30 June 2020 the Group held a provision against doubtful
debts and expected credit loss of GBP5,832,000 (31 December 2019:
GBP5,858,000). The provision is a combined provision against both
trade receivables (GBP5,381,000) and accrued income
(GBP451,000).
(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 may be
required to lodge funds on deposit with either it's bank or direct
with our commodity trading counterparties. At 30 June 2020 the
Group had GBP1.1m lodged as cash collateral with trading
counterparties (31 December 2019: GBP10.4m). On 16 December 2019
the Group announced a new structured trading arrangement with
SmartestEnergy. This arrangement provides a significant credit
facility and as such reduces the need to lodge cash collateral as
further described in (b) above. The Board has considered the cash
flow forecasts, along with the collateral requirements, for the
next 12 months, which show that the Group expects to operate within
its working capital facilities throughout the year.
Any excess cash balances are held in short-term, interest
bearing deposit accounts. At 30 June 2020 the Group had GBP17.9m 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 has negatively impacted the UK economy and
the majority of UK businesses during H1 2020 and is expected to
continue to do so for the foreseeable future. As described earlier
in these financial statements, the Group has experienced reduced
customer consumption volumes from extended periods of enforced
lockdown along with isolated instances of credit loss as businesses
in certain sectors have struggled to settle their energy invoices
on time. The reduced customer consumption, combined with a low
commodity market, has resulted in mark-to-market losses being
incurred as the excess commodity has had to be sold back to the
commodity market at reduced prices.
The Board have however been pleased with the overall business
performance and resilience given the current economic backdrop and
are confident that the Group is well placed to deal with any
further uncertainty as we head into winter 2020 and beyond.
The total customer receivables balance at 30 June 2020, net of
provision for doubtful debts and expected credit losses, is
GBP7,866,000. The Directors assess the level of provision as
adequate after consideration of cash received post 30 June
2020.
The risk of a second wave of the virus and associated mass scale
lockdowns impacting the recoverability of customer receivables
balances in the future is being monitored closely by the Board. The
Board is also monitoring any impact that a second wave might have
on the reduction of customer volume, and therefore the revenue of
the Group.
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.
The terms and conditions of the 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 GBP1.090 2 53,333
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 GBP1.400 3 89,994
-------------- -------- ------------- ------------ -------- --------- ------------
796,547
-------------- -------- ------------- ------------ -------- --------- ------------
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 Board are considering a new performance share plan, which is
being finalised. No awards have been granted to date.
The number and weighted average exercise price of share options
were as follows:
30 June 31 December
2020 30 June 2019 2019
------------------------------------- --------- ------------ -----------
Balance at the start of the period 830,468 573,290 573,290
Granted - 437,248 437,248
Forfeited (33,921) (136,070) (166,570)
Lapsed - - -
Exercised - (13,500) (13,500)
------------------------------------- --------- ------------ -----------
Balance at the end of the period 796,547 860,968 830,468
------------------------------------- --------- ------------ -----------
Vested at the end of the period 250,830 27,000 40,500
------------------------------------- --------- ------------ -----------
Exercisable at the end of the period 250,830 27,000 40,500
------------------------------------- --------- ------------ -----------
Weighted average exercise price for:
Options granted in the period - GBP0.55 GBP0.55
Options forfeited in the period GBP1.34 GBP1.62 GBP2.29
Options exercised in the period - GBP0.09 GBP0.09
------------------------------------- --------- ------------ -----------
Exercise price in the range:
From GBP0.005 GBP0.005 GBP0.005
To GBP10.380 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:
30 June 30 June 31 December
2020 2019 2019
----------------------------------------------- ------- ----------- ------------
Dividend yield - 0% 0%
Risk-free rate - 1.5% 1.5%
Share price volatility - 36.0% 124.3-127.8%
Expected life (years) - 3-6.5 years 3-6.5 years
Weighted average fair value of options granted - GBP0.85 GBP1.14
during the period
----------------------------------------------- ------- ----------- ------------
The share price volatility assumption is based on the actual
historical share price of the Group since IPO in March 2016.
The total expense/(credit) recognised for the period arising
from share based payments is as follows:
30 June 30 June 31 December
2020 2019 2019
GBP'000 GBP'000 GBP'000
---------------------------------------------------- -------- -------- -----------
Equity-settled share based payment expense/(credit) 166 (57) 125
Cash-settled share based payment expense/(credit) - - -
---------------------------------------------------- -------- -------- -----------
166 (57) 125
---------------------------------------------------- -------- -------- -----------
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 30 June 2020 the Group has incurred
GBP1,175,000 of cost which is currently included in the fixed
assets total as GBP150,000 of land and GBP1,025,000 of assets under
construction. The Group has a remaining capital commitment at 30
June 2020 of GBP2,250,000 (30 June 2019: GBP3,400,000).
The remaining cash flows are anticipated to be incurred in late
2020 or early 2021, at which point the Group should take possession
of the completed building.
Security
The Group has entered into an arrangement with a new trading
counterparty, SmartestEnergy Limited, 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.
Included in other receivables is an amount of GBP500,000 held in
a separate bank account over which the Group bankers have a fixed
and floating charge.
Contingent liabilities
The Group had no contingent liabilities at 30 June 2020 (30 June
2019: GBPnil).
13. Related parties and related party transactions
The Group has transacted with CPK Investments Limited, an entity
owned by Bobby Kalar, during the current and prior financial
period.
CPK Investments Limited owns the Nottingham property from which
the Group operates and rents it to Yü Energy Retail Limited under
an operating lease. During H1 2020 the Group paid GBP60,000 in
lease rentals and service charges to CPK Investments Limited (H1
2019: GBP60,000). The amount owing to CPK Investments at 30 June
2020 was GBPnil.
All transactions with related parties have been carried out on
an arm's length basis.
14. Post-balance sheet events
On 10(th) August 2020 the Group announced that it had completed
the purchase of the B2B customer book from Bristol Energy Limited.
The Group paid GBP1.24m in initial consideration, with a further
GBP100,000 deferred for three months. An adjustment linked to
forward commodity market prices resulted in the consideration
payable by the Group being reduced by GBP403,000 during August
2020. Along with the customer contract book, c. GBP1.0m of trade
receivables were acquired as part of the transaction.
The transaction adds c. 4,000 meter points to the Groups
existing portfolio of c. 9,800.
As part of the transaction the Group assumed up to GBP580,000 of
industry liabilities payable in August 2021.
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END
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