TIDMYU.
RNS Number : 8731T
Yu Group PLC
30 March 2021
Yü Group PLC
(the "Group")
Final results for the year ended 31 December 2020
-- Strong 2020 performance continuing into 2021
-- Strategy delivering with business on track for profitable growth
-- Strong cash position and strengthened management team underpin growth
Yü Group PLC (AIM; YU.), the independent supplier of gas,
electricity and water to the UK SME and Corporate sector, announces
its final results for the year to 31 December 2020.
Bobby Kalar, Chief Executive Officer, said:
" The business is primed and ready for profitable growth.
I am pleased to confirm a strong performance for FY2020 and a
good start to 2021, further strengthening our 2021 contracted
revenue from the GBP93m already secured in 2020 . Our strategy is
working well and as such the Board is confident that the business
is on track to deliver its operational KPIs and to report
profitable growth in FY2021. This has been a fantastic effort by
the whole team through a difficult period and is a huge boost for
2021 and beyond.
Our strong top line performance and earnings in FY2020 have
exceeded market expectations and are a clear indicator of the
Group's positive trajectory and speed of travel. Monthly bookings
have far exceeded the Board's expectations, particularly pleasing
in light of the ongoing economic impact of the pandemic. I'm
pleased to report that we've continued to see improved Q1 2021
booked revenue compared to the same period last year.
Net customer contribution, which measures gross margin less bad
debt, rose to 6.1% in 2020, up from 2.5% in 2019, demonstrating a
clear improving trend and this gives the Board significant comfort
that the business is performing ahead of plan.
Given the collective shock suffered by British businesses in an
extraordinary year, I am pleased with the Group's operational
performance. Our intra month bill to cash position has remained
strong and we continue to have significant cash in the bank, while
maintaining a laser like focus on collection of customer receivable
balances.
The Group acquired two cash generative customer books in 2020
and successfully integrated circa 5,000 meter points quickly and
seamlessly over a 24 hour period following completion of each
acquisition. Strategic acquisitions form part of our ambitious
scaling plan. As the market consolidates further, and with an
interesting pipeline of opportunities, I am confident the Group is
well placed to continue acquiring value creating books that
complement our portfolio.
It has clearly been a positive year for the Group, however, it
has also been a challenging period and I want to thank all the team
for their unwavering support, commitment and hard work. Having
quickly adapted to how our business operated and served our
customers under the lockdown, I'm proud of the resilience the Group
has shown. Record bookings, billing efficiencies and strong cash
collection throughout the year, as well as acquiring two competitor
customer books, shows organisational strength and is testament to
the team's progress and maturity.
I still passionately believe in the original growth opportunity
that prompted me to found this business and the very significant
growth and market share potential in this sector. As CEO and
majority shareholder, I remain fully committed to successfully
steering the business through this next exciting growth phase.
Underpinning our growth ambitions in an extraordinarily large
market is our sound balance sheet, experienced and vested
management team and scalable platform. We have made a good start to
2021. I'm pleased to be able to look forward to the future with
absolute confidence. From the 'hard yards' I see good times
ahead."
Financial Review:
31 December 2020 2019
--------------------------------- -------- ---------
GBP'000 GBP'000
Revenue 101,527 111,613
Adjusted EBITDA 1 (1,714) (4,242)
Loss for the year (1,165) (4,968)
Operating cash inflow/(outflow) 12,102 (11,280)
Cash 11,740 2,377
Overdue customer receivables 8 days 7 days
2
Loss per share:
Adjusted (11.0)p (24.0)p
Statutory (7.0)p (31.0)p
Dividend per share 0p 0p
================================= ======== =========
-- Revenue of GBP101.5m (2019: GBP111.6m), ahead of market expectations.
-- Strong adjusted EBITDA momentum, despite H1 2020 headwinds,
and significantly above market expectations:
o Adjusted EBITDA loss for the year of GBP1.7m, after GBP1.8m
loss in H1 which included significant impact from Covid-19.
o Adjusted EBITDA profit for H2 2020 of GBP0.1m, with a strong
start to Q1 2021.
-- Loss for the year (after tax) of GBP1.2m, significantly ahead
of market expectations (2019: loss of GBP5.0m).
-- Very strong cash performance. Cash held of GBP11.7m at 31
December 2020 (2019: GBP2.4m), with 99% of operational bill to cash
conversion.
Strategic and operational highlights:
-- Good revenue visibility with GBP93m contracted for FY 2021,
an increase of 16% on prior year (2019: GBP80m contracted for FY
2020).
-- Accelerating performance to deliver an ambitious organic growth rate:
o Average monthly bookings nearly doubled year-on year to
GBP8.3m (2019: GBP4.2m).
o Average contract term booked increased to 24 months (2019: 22
months).
-- Scalable platform fully tested, with successful onboarding of
two profitable acquisitions during H2 2020.
-- Resilient customer volumes and profitability in H2 2020, with
demand pick-up from the initial shock event of the first
lockdown.
Positioning for the future:
-- High revenue momentum in to 2021 from strong H2 2020
sequential revenue growth of 22% and record H2 monthly bookings of
GBP10.3m (up 62% on H1). New digital sales portal performing
well.
-- Targeting continued lengthening of average contract term to
strengthen contracted revenue, increased renewal rates and more
products per customer.
-- Significant improvement in net customer contribution expected
as legacy contracts have now washed through.
-- Efficiency initiatives underway to reduce overheads from 6.2% of revenue over medium term.
-- Sound balance sheet (cash GBP11.7m) with scope to add further
value creating acquisitions now scalable platform fully tested.
Outlook:
-- Good start to 2021 and Board expects strong revenue
performance, and adjusted EBITDA growth momentum providing
confidence in exceeding current market expectations as the Group
embarks on its rapid scale phase.
-- Strong cash position and strengthened management team
supports compelling organic and inorganic growth and value creation
ambitions. Significant scope to leverage proven scalable digital
platform and continue to increase market share.
The information communicated in this announcement would have
constituted inside information for the purposes of Article 7 of
Regulation 596/2014.
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.
See reconciliation in note 3 to the financial statements below.
2 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).
For further information please contact:
Yü Group PLC +44 (0) 115 975 8258
Bobby Kalar
Paul Rawson
SP Angel Corporate Finance LLP +44 (0) 20 3470 0470
Jeff Keating
Bruce Fraser
Caroline Rowe
Tulchan Group +44 (0) 20 7353 4200
David Allchurch
Giles Kernick
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 SME and
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.
A ROBUST AND RESILIENT PERFORMANCE
Resilience, growth and agility driven by breadth and depth of
expertise, a reinvigorated Board and a strengthened management
team.
Introduction
I am delighted to provide my second statement to shareholders
after what has been a pivotal, positive and highly constructive
year for the Group.
Since I joined the Board in January 2020 the world has been much
altered by a global pandemic. This continues to present evolving
challenges in the macro--environment within which we and our
customers' businesses operate. The Board's ethos remains one of
regarding challenging market conditions as providing opportunities
both to test the mettle in the Group's positive momentum, and to
leverage its now strengthened overall position.
New ways of working, improved systems and streamlined processes
have been stress--tested in the real world and have proved both
robust and scalable. Despite the pandemic these have resulted in a
c.60% reduction in year-on-year losses to an adjusted EBITDA
position of -GBP1.7m together with a strong bookings performance
and blended contract margins which have greatly improved by 2.7% to
7.6%. Bad debt has been contained at 3.1%.
In a clear demonstration of both intent and capability, last
year the Group made and integrated two immediately
earnings-enhancing acquisitions of competitors' books. The Group
generated operating cash flow of GBP12.1m and remains largely debt
free. We are now poised to significantly accelerate the realisation
of our ambitions for scaled and sustainable growth.
Robustly balanced decision-making processes and a clear and
effective Board relationship with the Executive Committee have
enabled agile leadership and the swift implementation of agreed
strategies.
Given the wider socio-economic context, a small profit in H2
2020 was most encouraging at this stage of our evolution. Perhaps
more notable has been the establishment of a clear trajectory,
evidenced by much-improved results, as legacy lower margin
contracts were put behind us. This trajectory is the result of
significant and sustained efforts made by all of my colleagues
throughout the Group.
In further and additional preparation for entering our
scaling-up phase, the Group has changed its nominated adviser and
broker and appointed new external corporate and financial
communications advisers. I joined an ambitious and growing business
and the team and I are delighted to have entered the next growth
phase for the Group in which we accelerate our clear potential to
generate further growth and sustainable profitability.
Momentum built on significant improvements and maintained
differentiation
Your Board, in accordance with modern corporate governance
practice, is now well balanced and comprises three independent
non-executive directors and two executive directors. An effective
blend of key skills across industry knowledge, M&A,
digitalisation and effective corporate and financial governance is
now being advantageously harnessed.
Inter alia, the Board's focus has been on: mapping its ambitious
objectives to a clearly defined and effective set of timelined
implementable strategies; evolving and maintaining the clarity of
efficient and appropriate management structures; embedding
"joined-up" risk assurance and corporate governance within a
judiciously defined risk / opportunity appetite. The Board has been
fully engaged in supporting and mentoring the Group's high calibre
Executive Management Team to enable us to achieve our position as
the growing principal disruptor and the leading "challenger"
business in the sector.
Key elements of the differentiation within the Group continue to
be: its nimble and entrepreneurial approach, its rigorous
customer-centricity and a constant "can-do" willingness to either
do things better or differently. A principal tenet of the Board has
been to seek to balance and maintain this agility whilst ensuring
the maturity of governance that is required to support the business
as it accelerates in its "scale-up", not least in its continuing
adoption of a vital "digital-first" approach.
Following on from last year's statement I am pleased to report
that the integration of the organisational and management
structures of the Board and the Executive Management Team, down
through the organisation as a whole is now well-embedded and
efficiently providing the framework for continued
out-performance.
A high-functioning, driven and effective Executive Committee
("ExCo") is in place and is actively pursuing its mandated growth
opportunities whilst improving processes and systems to contain
general overheads. These remain largely unchanged at 6.2% of sales.
The team has highly experienced and motivated individuals in place
and, importantly, the Group having thoroughly reviewed its
retention policies continues to attract and retain top-quality and
value-enhancing talent, at all levels, into its ranks.
The resilience of our systems and processes has been tested and
proven, not least by the completed acquisitions of two of our
competitors' customer books during H2 2020. These books were
speedily and seamlessly integrated into the Group's scalable
platform. Both acquisitions had very short investment payback
periods and were immediately earnings enhancing.
The Board has therefore a confirmed and evidenced confidence in
the ability of the Group to continue to scale, over the short to
medium term, both organically and by acquisition.
In keeping with last year's statement of intent to enhance and
improve our communications with the market and our investors, we
have appointed a new nominated adviser and broker and new corporate
and financial communications advisers in order to complement our
excellent in-house capabilities. These moves are part of a
programme to widen and deepen the Group's relationships with our
investor, banking and commercial audiences. We are seeking to
create a more engaged environment for our partners and stakeholders
in order to accelerate the meeting of our objectives for further
automation, digitalisation and scaling-up.
Implementation of risk assured governance without loss of
agility or opportunity
The benefits of having undergone a transformation in our
governance have included the adoption of a detailed, sophisticated
and robust approach to the identification, setting and management
of judiciously defined risk appetites. Top-to bottom line of sight
governance from risk assurance to strategic objectives underpinned
by "joined-up" internal processes- within a defined risk management
framework, are now embedded.
These are evidenced by regular and frequent standing
"intra--group" reviews at every level of the business. These
include a regular and dedicated ExCo-led risk assurance forum.
This, mentored and supported by the independent non-executive
directors of the Audit Committee, is mindful that the essential
speed and agility required of a challenger business remain
uncompromised.
The AIM investigation into the self-identified matters which
arose in 2018 was satisfactorily closed during 2020.
An ambitious and balanced strategy
Having achieved upward momentum in our performance, the Board is
now focused on the next phase of the Group's evolution.
The Group's strategic priorities span: delivering organic growth
supplemented by value-enhancing non-organic opportunities; driving
cash and profitability as outlined in our financial framework;
utilising digital technologies and innovation to assist in growth
and improve cost efficiency; and maintaining and evolving the
strong foundations of good governance and robust risk
management.
Now entering a significant scaleup phase with good momentum
The Covid-19 pandemic has clearly tested many businesses across
the world. In their mature response to the pandemic our staff,
throughout the organisation, have demonstrated great dedication and
fortitude. I sincerely thank them all for their clear focus on
prioritising adherence to Government guidelines whilst managing
these risks and continuing to deliver an unparalleled level of
service to our valued customers.
The Group is in a sound overall position, is largely debt free
and with many positive key indicators. Adjusted EBITDA losses have
been reduced by 60%, gross margins improved from 4.9% to 7.6%,
general overhead costs are contained at 6.2%, and newly developed
portal sales have contributed to a record H2 2020 performance, of
GBP10.3m in average monthly bookings.
With people, systems and networks now in place your Board is
highly confident in scaling the Group up to the next order of
magnitude within our sector.
In short, the Group is now ready to launch a period of
sustainable growth as it scales up to address and increase its
rightful share of a GBP35bn market.
CHIEF EXECUTIVE OFFICER'S STATEMENT
A DEFINING YEAR
A defining year underscoring the strength, maturity and momentum
of our business.
I'm particularly pleased with the strength, maturity and focus
the team have shown throughout the year. An incredibly strong
performance, in extraordinary economic circumstances, is a
testament to the hard work of the past few years, and I know this
will continue to benefit the Group as it continues to scale over
the coming years.
I have spoken passionately in previous statements about the
errors of the past and the need to reset and strengthen the
business: about tightening processes and controls, having stricter
corporate governance in place and closing gaps and cracks to stop
gross margin leakage throughout the customer lifecycle. In summary,
realigning the business for strong, sustained and profitable
growth, the results in these annual accounts show that we have
achieved this difficult but necessary result. This reset period is
now firmly behind us and I'm pleased and relieved to be able to
draw a line under that period of our business journey. Our focus is
now firmly on scaling the business (bigger, better, faster,
stronger) using our unique position to leverage partnerships and
other relationships to accelerate growth whilst enhancing
shareholder confidence.
Strong management team and organisational support
In the first quarter of 2020 the Group announced the appointment
of a new Chairman and a senior independent director creating a
Board composition of three independent non-executives and two
executive directors. Whilst the Board has only been physically able
to meet once before lockdown, I'm pleased with the blend of support
and challenge we've established during subsequent "Teams" Board
meetings. It was never going to be easy establishing a new Board
during this period, but the support and contribution of each Board
member has helped position the business for growth.
The ExCo has been simplified, streamlined and strengthened. Its
primary role is to deliver the Board's strategy and implement the
business plan, whilst managing communication from the Board to the
wider business and vice versa. Each member chairs and hosts
specific monthly business forums such as sales and marketing, debt
and commercial, people, risk and digital transformation. KPIs and
targets set in the business plan are validated, tracked, measured
and monitored in these forums. This level of analysis gives the
Board confidence that the business is collectively delivering in
accordance with the business plan. This strategy has been the
single biggest factor in both our performance in 2020 and the
heightened confidence the Board has in its ambition for sustainable
profitable growth.
I am confident the ExCo is adequately supported, vested and
incentivised to achieve targets set for 2021 and beyond. We are
experts in the B2B utilities market, and I expect to leverage our
position to target complementary opportunities.
Bigger (high growth)
The investment in our sales strategy has delivered very
impressive results and set the bar for subsequent years. We have
made some tough decisions to end relations with some channel
partners in favour of more specialised partners which are able to
better pinpoint our target market both demographically and
segmentally. Additionally, our digital channel launched in Q1 2020
has exceeded expectations producing annualised bookings of over
GBP21m in H2. Overall new booked business has outperformed
expectations, more so given the added pressure of Covid-19 and the
effect on British businesses. Our monthly run rate in 2020 averaged
GBP8.2m with H1 averaging GBP6.2m and H2 averaging GBP10.3m.
The management team has remained disciplined in targeting only
good quality, good margin contracts and with legacy low margin
contracts now behind us we are seeing improved gross margins being
realised in the business. The Group aims to at least maintain these
margins in forward years. Further, the Group will now target a
retention rate of 70%.
In addition to strong organic growth, the Group successfully
completed two competitor book acquisitions in H2 2020.
The combined books account for around 4,500 meters including
Bristol City Council and form part of the Group's strategic growth
plans. The acquisitions were immediately cash generative with no
noticeable additional cost to serve. I'm pleased to have
demonstrated the Group's appetite and ability to seamlessly migrate
these meters into our scalable operating platform over the course
of a weekend. We now have a proven template for deals and are
confident our operating model is robust. We are actively looking to
complement our accelerating organic portfolio with strategic
acquisitions as the utilities market further consolidates.
Better (more profitable)
It's relatively simple and easy to quickly grow a B2B supply
business by selling supply contracts to a vast addressable market.
The Group reported that it had tendered a combined GBP2.5bn of
available supply contracts in 2020. A modest additional 10% of
tendered business being secured would have seen booked revenue of
GBP250m generated, increasing bookings by a further 125% to that
achieved in 2020.
The fact is being able to "attract, contract and extract" good
quality, good gross margin business that will complete the
lifecycle journey from "booking through to cash" without margin
leakage and take additional products during their term, and remain
"sticky" for a further term, is in fact very difficult. It's often
tempting to compromise quality for quantity in a market where scale
is important. The "hard yards" have paid off for the Group and
we've developed strong expertise in successfully and selectively
being able to "attract" and "contract" business that completes the
lifecycle journey and "extract" profit. The Group will remain
resolutely focused and disciplined in maintaining this strategy and
is confident that the result will contribute positively to our
EBITDA.
Our systems now allow us to track the position of any contract
in our portfolio and pinpoint whether it is contributing positively
or negatively to the target profit. Such granularity and speed is a
game changer in our business and having removed significant gaps
and cracks in the business we've created a well-oiled organisation.
I'm pleased that the results speak for themselves.
Faster (digital first)
Having complete confidence around the strength of the business,
the Group will now focus on making the customer journey (from
tender through to cash) faster, through a digital-first
strategy.
I've spoken previously about the Group's desire to automate and
digitalise our front facing and back office business processes.
Although we've already made great strides, the Group emphasis is on
delivering its digital strategy in 2021 for benefit in 2022.
The recruitment of Jason Prothero as Commercial and Digital
Transformation Director earlier this month shows clear intent in
the Group's appetite to embrace innovation through technology.
Having established strong foundations, automating and digitally
transforming the business will allow us to optimise the business by
removing costs and manual processes, whilst also providing a better
customer experience.
The Group sees automation and digitalisation as an opportunity
to further disrupt the market, and to scale more quickly and
predictably. It will also enable efficiencies in cost to serve and
cost to acquire, enabling bottom line profitability to be increased
further as the Group scales.
Stronger (robust and resilient)
If ever there was an ideal opportunity to stress-test the
strength of a business, then Covid-19 provided it. We successfully
transitioned our workforce to remote working before lockdown with
no disruption to the levels of customer service or business
operations as we launched our business continuity plan.
Q1 2020
With a newly formed Board, and after the work to reset the
Group, the business started 2020 in a strong position with
significant optimism.
Q2 2020
April saw usage volumes impacted directly because of lockdown as
our customers used 35% less energy than they expected in a normal
April period. During Q2 the business did not see levels of customer
debt increase as previously modelled and our strong billing
performance meant we were able to collect payments for the energy
used. New sales bookings remained strong and continued to grow
month on month. The impact of the reduced levels of volume usage in
Q2 meant that not only did our customers use less energy but we
also had to sell the excess energy back to the grid at a lower
price than originally purchased due to commodity market
movements.
The EBITDA impact to the business due to Covid-19 was the
predominant driver of the GBP1.8m loss incurred in H1. Excluding
the impact of the first, shock, lockdown, I'm confident our
business was set to meet its previous objectives of returning to
break-even position during H1.
Q3 2020
As the UK came out of lockdown and businesses began to find new
ways of operating, customer volume levels increased to 90% of
pre-Covid-19 levels and pleasingly sales momentum continued into Q3
with July recording a record bookings month of GBP13.3m. Very
strong billing and cash collection performance continued, with the
business seeing 99.5% of monthly billed revenue collected and tight
controls maintained around customer debt management. During the
period the Group successfully onboarded c. 4,000 meter points onto
its operating platform. This was the Group's first acquisition and
a test case for further such opportunities. An excellent team
effort and a determination to immediately enhance value saw the
business manage the full migration process quickly and
seamlessly.
Q4 2020
The announcement that from the 5 November the UK would go into
its second lockdown echoed fears that customer volume usage would
be impacted as in Q2. More businesses that had managed to survive
thus far may not financially survive a second lockdown and the net
effect on our business could be worse than before.
However, apart from a slight dip in volume in November the
business felt little impact in this second lockdown and by December
customer volume usage had increased to 93%. All other KPIs trended
in line with Q3.
Summary
It certainly has been a year of four quarters and each quarter
has brought new challenges which we have successfully overcome. We
enter the new financial year in a strong position and with
excitement.
In summary:
We have a strong balance sheet even after purchasing two
customer books.
-- Our sales strategy has worked well with good margin business
being booked and with all legacy contracts behind us. I see the
sales momentum and discipline continuing to drive performance and
deliver profits.
-- Strengthening our billing and cash collection performance has
had an immediate positive impact on intramonth cash collected.
Combined this year we have collected 99% of what we have billed in
the year. For 2021, we expect to see a similar performance.
-- Customer receivables have been closely monitored throughout
the year, and our overdue balance performance remains strong at
eight days.
-- A strengthened and much improved Board and Executive
Committee is ready to take the business to half a billion of
revenue.
-- We are an entrepreneurial, agile and ambitious business with
the strong foundations on which to scale.
Finally, I'd like to extend my heartfelt gratitude to the whole
team who have helped and supported the Group by playing an integral
part of delivering a defining year.
Outlook
I am extremely pleased to report that the new financial year has
started strongly building on our very strong 2020 performance. As
we entered 2021 contracted revenue was already over 90% of the
revenue recorded in FY 2020. We will continue to build as we add
new sales bookings through acquisition of new customers and via
renewal and cross-sell to existing customers.
Average monthly bookings during Q1 2021 are performing ahead of
2020 following a very strong H2 2020 where monthly bookings
averaged GBP10.3m. Bookings represent an annualised value of
contracts, and typically our contracts are offered over a one, two
or three-year term leading to additional forward revenue being
secured with our average contract term increasing from 22 months in
2019 to 24 months in 2020 with further improvements targeted for
FY21.
Renewal rates of 60% are also targeted to increase to over 70%;
and the average number of products enjoyed by each customer is
expected to expand. As a result of this accelerating organic growth
performance we expect revenue in FY 2021 to be significantly above
the GBP101.5m delivered in FY 2020; and ahead of market
expectations. We also expect adjusted EBITDA to be significantly
ahead of market expectations for 2021.
Our confidence is based on the high quality, profitable and
growing contract book in place; the impact of H2 2020 acquisitions
to flow into 2021; and a strong emphasis on control of overheads
using digital technology as the Group embarks on its rapid scale
phase.
In addition, management continue to review the potential for
earnings enhancing acquisitions of competitors' customer books.
These would provide further significant value increasing our scale
and providing benefits via our platform, whilst unlocking
significant cross sell opportunities. I believe these opportunities
will arise over the short to medium term, as the market looks to
consolidate.
FINANCE REVIEW
STRONG AND IMPROVING UNDERLYING PERFORMANCE
A clear and pleasing improvement in our performance, delivered
under our robust financial framework.
Results
The results for the year to 31 December 2020 demonstrate clear
momentum in the financial performance of the Group.
Revenues of GBP101.5m (2019: GBP111.6m) were ahead of market
expectations. A very strong H2 2020 performance, at GBP55.6m (21%
higher than H1 2020), was achieved as accelerated new sales
bookings and book acquisitions strengthened revenues, and customer
energy consumption recovered post the initial "shock" of the first
lockdown.
The Group's loss for the year ended 31 December 2020 was
GBP1.2m, significantly below the GBP5.0m loss for the prior
year.
Adjusted EBITDA(1) loss at GBP1.7m for the year was
significantly improved from the prior year (2019: loss of GBP4.2m).
The Board is also pleased to note H2 2020 showed an adjusted EBITDA
profit of GBP0.1m (H1 2020: GBP1.8m loss, largely due to Covid-19).
Whilst this level of profit is not at the scale the Board is
satisfied with, it is pleasing to see the Group return to a
profitable footing with positive trends across all key
indicators.
Analysing profitability
Gross margin for the year was 7.6%, up from 4.9% in 2019 despite
the 1.5% impact of Covid-19 during 2020. Gross margin for H2 2020
was 9.1% (H1 2020: 5.7%, 2019: 4.9%), showing significant
improvement.
Net customer contribution(2) , representing underlying
profitability achieved from customer contracts, was 6.1% for the
full year and 6.3% for H2 2020. Management is pleased to report
this 2.5x increase in H2 2020 from the prior year (2019: 2.5%).
Continued positive momentum in net customer contribution is
targeted by management. Legacy, low margin contracts have, as
expected, washed through during 2020. They are now replaced with
higher quality, higher margin contracts, and the Group continues to
focus on customer lifecycle initiatives.
The Board is pleased to report that, at 31 December 2020,
contracted revenue for 2021 is GBP93m, consisting wholly of these
new improved margin contracts. The improving net customer
contribution performance in 2020, to 6.1%, is after a 3.1% charge
for bad debt (2019: 2.5%). The level of provisioning has been
increased in view of the wider economic context caused by Covid-19,
despite solid cash collection for FY 2020. The Board targets a
reduced bad debt charge in 2021 to support continued improvement in
net customer contribution.
Estimating the impact of Covid-19
Isolating the impact of the pandemic on the financial results
reported is a complex exercise which requires management judgement.
The full impact of the pandemic is, therefore, reflected in the
Group's reported adjusted EBITDA and not included as an exceptional
cost. In calculating net customer contribution as an underlying
performance metric, management has made an estimate of the
significant one-off costs incurred.
A fall in customer energy consumption was particularly evident
in April and May 2020, at the time of the first lockdown, when
demand fell to c.65% of normal levels. This "shock" volume
reduction led to an over-hedged (i.e. a long) traded commodity
position which coincided with a significant decline in commodity
prices caused by the near global lockdown. The combined consequence
was a gross margin loss on the over-purchased energy. In addition,
there were significant additional costs over the same period in
operating the national energy system which were passed through to
energy suppliers.
Management estimates that a substantial proportion of the
GBP1.8m loss incurred in H1 2020 was a direct result of the initial
shock of the first lockdown.
For H2 2020, customer energy volumes have been more stable, at
c.90% of pre pandemic demand, and management have implemented some
risk mitigation and commercial strategies for this new normal.
Whilst the Group's revenues and gross margin have been impacted,
the extent of the impact is more difficult to isolate than the
costs incurred during the initial shock of the first lockdown. The
Group's internal net customer contribution metric for H2 2020 has
not, therefore, been adjusted.
Clear results under our financial framework
Our financial framework is entering a new phase after
significant reset work over the last two and a half years.
-- Scaling recurring revenues: We plan to secure significant
organic revenue growth to take advantage of the available market
opportunity. Average monthly bookings accelerated during 31
December 2020, rising from GBP4.2m in FY 2019 to GBP10.3m in H2
2020. The Group also exited 2020 with good forward revenue
visibility, with GBP93m already contracted for FY 2021 - an
increase of 16% on the comparable measure from 2019.
-- EBITDA, by increasing net customer contribution ("NCC"): We
optimise anticipated NCC at point of sale and throughout the
contract lifecycle. Our NCC (which is pre the impact of Covid-19)
has improved to 6.1% in FY 2020 (2.5% in FY 2019). The expiry of
low margin contracts, the immediately earnings enhancing
acquisition of two customer books, and certain customer lifecycle
value campaigns have increased NCC to 6.3% for H2 2020. Management
continues to invest effort to enhance this measure further in the
short term and to reduce the negative impact of bad debt.
-- EBITDA, by controlling overheads: We manage general overhead
levels closely to gain scale benefits on our fixed base cost. For
FY 2020 these overheads were 6.2% of revenues, a small improvement
from FY 2019 of 6.3%. These overheads split, broadly, into three
equal categories (cost to acquire, cost to serve and management
overhead). Scale benefits are expected to reduce the level of
overheads as a % of revenues. The use of digital technologies to
acquire new business and serve our customers is also expected to
drive further benefit.
-- Managing cash: A laser focus on customer receivables
management, plus the utilisation of our scalable commodity trading
arrangements with our partner, SmartestEnergy, have led to an
improvement of GBP9.4m in available cash during FY 2020, to a
balance of GBP11.7m at 31 December 2020. The Group plans to utilise
available cash resources to acquire new customer books which fit
our strict value criteria.
Customer receivables and accrued income
The Board has been pleased to see cash conversion on customer
receivables during FY 2020 at 99% of billed levels, which suggests
an under 1% underlying bad debt rate on new debtors arising. In
addition, it is encouraging to note the genuine diversity of
businesses served by the Group: from healthcare, manufacturing and
the public sector through to hospitality, leisure and retail.
Through close management, and careful dialogue and support for
customers, there has been no evidence in 2020 of significant
impacts on working capital or bad debts from the pandemic. This
resilience is partly as sectors most impacted by lockdowns are
consuming less energy and thereby generating less revenue and
customer receivable balances - giving the Group a structural
reduction on some bad debt risk.
Risk models implemented by the Group carefully concentrate
resources to identify potential issues in order for appropriate
support and action to be taken. Process improvements made during
2019 and 2020 have paid dividends for the Group in this respect.
The Group continues to deploy new technologies to support its
credit control activities.
In view of the potential wider economic impact from the pandemic
the Board has assessed, with reference to third-party forecasts,
the potential risk of increased business failures across various
sectors.
As a result of this analysis the Group results include a prudent
70% uplift in the expected credit loss provision against certain
customer receivable and accrued income balances.
Customer receivable balances, gross of provisions, were GBP8.1m
at 31 December 2020 (2019: GBP7.8m). At 31 December 2020 the total
provision for expected credit loss is GBP5.2m, being 64% of the
gross receivable balance (2019: GBP4.9m, being 63% of the gross
receivable balance). For accrued income, a provision of GBP0.9m is
held, being 7.5% of the gross balance (2019: GBP0.2m provision,
being 2% of the gross balance).
The charge to the income statement for expected credit loss and
bad debt is 3.1% of revenue (2019: 2.8%). This charge includes the
impact of additional prudent provisioning as a result of the wider
economic context caused by the pandemic; despite the strong cash
collection performance on customer receivables noted to date.
Management target a reduced charge for FY 2021 which would enable
further increases in adjusted EBITDA.
Investments, balance sheet and cash
The Group has taken possession of its new purpose-built office
in Leicester which will be used as a hub for sales, marketing and
innovation activities. The balance sheet at 31 December 2020 held
GBP1.0m in assets under construction and GBP0.2m as land. A further
GBP2.2m, being the total capital commitment as disclosed in note
12, was paid in Q1 2021 and financed by the cash reserves of the
Group.
The Group successfully acquired two customer books, and
associated customer receivable balances, during H2 2020. The assets
acquired and consideration are disclosed in note 14.
The acquisition of the business customer activities of Bristol
Energy completed in August 2020, for consideration of GBP1.3m. The
acquisition included GBP1.3m (net of provision) of trade debtors
and accrued income balances, which were largely converted to cash
within four weeks of completion of the contract, leading to a quick
payback period. The customer book acquired for GBP0.6m is included
in intangible assets, and the Group also recognised a GBP0.6m
industry liability which is payable in August 2021.
The Group generated an operating cash inflow of GBP12.1m during
FY 2020 (2019: GBP11.3m outflow). After the investment in property
and other outflows, the cash balance at 31 December 2020 is
GBP11.7m (2019: GBP2.4m).
The cash flow for the year includes the benefit of GBP10.2m for
the return of certain cash collateral posted as part of forward
trading commitments. These repayments were a consequence of the
agreement with SmartestEnergy, who provide a commodity trading
limit which scales with the Group, reducing the need to provide
cash collateral. The relationship continues to be positive.
The Group has also taken advantage of the deferral of c.GBP3.6m
of HMRC payments of VAT and PAYE otherwise due in H1 2020, which
will be repaid during 2021 and 2022. Post 31 December 2020, the
Group's cash performance has continued to be strong.
Summary
There has been significant progress during FY 2020 in the
Group's financial performance despite the obvious headwinds caused
by the pandemic. The Group generated a small profit during H2 2020,
and momentum is building with a clear financial framework in place
covering:
-- significant organic growth, with higher quality and higher margin contracts;
-- increasing net customer contribution through customer
lifecycle value initiatives and close management of bad debt;
-- achieving clear scale benefits in overheads, to leverage the
fixed costs of the Group and drive efficiency utilising digital
technologies; and
-- continuing to closely manage cash, utilising scalable trading
commodity arrangements and investing in further customer book/asset
purchases where they have clear earnings and cash upside.
With these building blocks now in place the Group is well placed
to continue the strong trajectory and generate returns within the
near future.
1. 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 below to
this financial information.
2. Net customer contribution represents, as a percentage of
revenue, gross margin less bad debt. It also excludes the estimated
impact of Covid-19 incurred during H1 2020. Without this estimate
of Covid-19 impact, the net customer contribution for the year
would be 4.5%.
Condensed consolidated statement of profit and loss and other
comprehensive income
For the year ended 31 December 2020
31 December 31 December
2020 2019
GBP'000 GBP'000
-------------------------------------------------- ----------- -----------
Revenue 101,527 111,613
Cost of sales (93,858) (106,128)
-------------------------------------------------- ----------- -----------
Gross profit 7,669 5,485
-------------------------------------------------- ----------- -----------
Operating costs before non-recurring items,
unrealised gains on derivative contracts and
share based payment charges (9,934) (10,362)
Operating costs - non-recurring items - (378)
Operating costs - unrealised losses on derivative
contracts 1,011 (518)
Operating costs - share based payment charges (320) (125)
-------------------------------------------------- ----------- -----------
Total operating costs (9,243) (11,383)
-------------------------------------------------- ----------- -----------
Operating loss (1,574) (5,898)
Finance income 74 33
Finance costs (39) (112)
-------------------------------------------------- ----------- -----------
Loss before tax (1,539) (5,977)
Taxation 374 1,009
-------------------------------------------------- ----------- -----------
Loss for the year (1,165) (4,968)
-------------------------------------------------- ----------- -----------
Other comprehensive income - -
-------------------------------------------------- ----------- -----------
Total comprehensive income for the year (1,165) (4,968)
-------------------------------------------------- ----------- -----------
Earnings per share
Basic (GBP0.07) (GBP0.31)
Diluted (GBP0.07) (GBP0.31)
-------------------------------------------------- ----------- -----------
Condensed consolidated balance sheet
At 31 December 2020
31 December 31 December
2020 2019
GBP'000 GBP'000
------------------------------ ----------- -----------
ASSETS
Non-current assets
Intangible assets 606 52
Property, plant and equipment 1,377 671
Right of use assets 273 481
Deferred tax 4,789 4,355
------------------------------- ----------- -----------
7,045 5,559
------------------------------ ----------- -----------
Current assets
Trade and other receivables 18,267 25,886
Cash and cash equivalents 11,740 2,377
------------------------------- ----------- -----------
30,007 28,263
------------------------------ ----------- -----------
Total assets 37,052 33,822
------------------------------- ----------- -----------
LIABILITIES
Current liabilities
Trade and other payables (31,430) (28,076)
Non-current liabilities (1,109) (448)
------------------------------- ----------- -----------
Total liabilities (32,539) (28,524)
------------------------------- ----------- -----------
Net assets 4,513 5,298
------------------------------- ----------- -----------
EQUITY
Share capital 82 82
Share premium 11,690 11,690
Merger reserve (50) (50)
Accumulated losses (7,209) (6,424)
------------------------------- ----------- -----------
4,513 5,298
------------------------------ ----------- -----------
Condensed consolidated statement of changes in equity
For the year ended 31 December 2020
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 2020 82 11,690 (50) (6,424) 5,298
-------------------------------- -------- -------- -------- --------- --------
Total comprehensive income
for the year
Loss for the year - - - (1,165) (1,165)
Other comprehensive income - - - - -
-------------------------------- -------- -------- -------- --------- --------
- - - (1,165) (1,165)
-------------------------------- -------- -------- -------- --------- --------
Transactions with owners
of the Company
Contributions and distributions
Equity-settled share based
payments - - - 320 320
Deferred tax on share based
payments - - - 60 60
Equity dividend paid in
the year - - - - -
-------------------------------- -------- -------- -------- --------- --------
Total transactions with
owners of the Company - - - 380 380
-------------------------------- -------- -------- -------- --------- --------
Balance at 31 December 2020 82 11,690 (50) (7,209) 4,513
-------------------------------- -------- -------- -------- --------- --------
Condensed consolidated statement of cash flows
For the year ended 31 December 2020
31 December 31 December
2020 2019
GBP'000 GBP'000
----------------------------------------------------- ----------- -----------
Cash flows from operating activities
Loss for the financial year (1,165) (4,968)
Adjustments for:
Depreciation of property, plant and equipment 215 289
Depreciation of right-of-use assets 204 108
Amortisation of intangible assets 132 2
Finance income (74) (33)
Finance costs 39 112
Taxation (374) (1,009)
Share based payment charge 320 125
Decrease/(Increase) in cash collateral deposits
lodged with trading counterparties 10,158 (10,408)
Increase in trade and other receivables (948) (1,909)
Increase in trade and other creditors 3,595 6,411
----------------------------------------------------- ----------- -----------
Net cash from/(used in) operating activities 12,102 (11,280)
----------------------------------------------------- ----------- -----------
Cash flows from investing activities
Purchase of property, plant and equipment (921) (565)
Purchase of customer books (1,673) -
----------------------------------------------------- ----------- -----------
Net cash used in investing activities (2,594) (565)
----------------------------------------------------- ----------- -----------
Cash flows from financing activities
Net proceeds from share placing and option exercises - 2
Net interest 35 (79)
Dividend paid during the year - (195)
Repayment of borrowings and leasing liabilities (180) (118)
----------------------------------------------------- ----------- -----------
Net cash used in financing activities (145) (390)
----------------------------------------------------- ----------- -----------
Net increase/(decrease) in cash and cash equivalents 9,363 (12,235)
Cash and cash equivalents at the start of the
year 2,377 14,612
----------------------------------------------------- ----------- -----------
Cash and cash equivalents at the end of the year 11,740 2,377
----------------------------------------------------- ----------- -----------
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 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
Whilst the financial information included in this preliminary
announcement has been prepared on the basis of the requirements of
International Accounting Standards in conformity with the
requirements of the Companies Act 2006 and effective at 31 December
2020, this announcement does not itself contain sufficient
information to comply with International Accounting Standards.
The financial information set out in this preliminary
announcement does not constitute the company's statutory financial
statements for the years ended 31 December 2020 or 2019 but is
derived from those financial statements.
Statutory financial statements for 2019 have been delivered to
the registrar of companies and those for 2020 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 2020 the Group had net assets of GBP4.5m (2019:
GBP5.3m) and net cash of GBP11.4m (2019: GBP1.8m).
Management prepare 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 Board
has confidence in achieving such targets and forecasts and has
performed comprehensive analysis of various risks and sensitivities
in relation to performance.
The Group has demonstrated significant progress in its results
due to various actions taken by the Board. Losses have decreased
significantly from 2018, notwithstanding the initial impact of
Covid-19 particularly experienced in H1 2020. This strong momentum
is forecasted to continue and lead to a return to profitability.
The turnaround has been as a result of clear commercial action to
focus on contract lifecycle value, including the termination of low
margin legacy contracts which are now replaced by higher margin
contracts with more robust customers.
Group available cash increased by GBP9.4m during 2020, to
GBP11.7m. This increase is despite the investment in the
acquisition of two earnings enhancing customer books and the
deposit payment on a newly built innovation and sales office in
Leicester. The strong performance in cash has been due to the close
control over customer receivables and the return of previously
provided cash collateral required on legacy commodity trading
agreements.
The Group has no debt other than GBP0.3m (at 31 December 2020)
recognised from IFRS 16 as a consequence of operating leases for
the Group's premises.
The five year commodity trading arrangement between
SmartestEnergy Ltd and the trading entities of the Group (Yü Energy
Holding Limited and Yü Energy Retail Limited), signed December
2019, enables the Group to purchase electricity and gas on forward
commodity markets in line with its hedging strategy, supporting the
Group's commodity hedging position. As part of the arrangement,
SmartestEnergy Ltd holds security over the trading assets of the
Group. In return, a variable commodity trading limit is provided,
which scales with the Group, having the benefit of significantly
reducing the need to post cash collateral from cash reserves. The
Board carefully monitors covenants associated with this agreement
to assess the likelihood of the credit facility being reduced.
Covid-19
The Board has taken steps to mitigate, where possible, the
impact from Covid-19 and continues to be mindful of future risks.
These steps are explained in more detail in the Strategic Report of
the full Annual Report and Accounts.
The Group successfully implemented its business continuity plan
during lockdown and continues to operate to its high standards of
customer care.
The initial lockdown, in March and April 2020, had an immediate
and significant impact on customer demand, and market prices,
leading to losses reported in H1 2020. H1 2021 has improved
significantly as the impact from the pandemic is better
understood.
The Board remains confident in the ability to grow market share,
despite the wider economic context caused by the pandemic.
The Group has seen strong performance in cash collection since
the pandemic began. The Board remains vigilant, however, over the
short to medium term, on the basis of the increased risk of
business failures in some markets.
The Board has adequate visibility, based on the outcome from
previous lockdowns, of scenarios to consider when assessing risks
to the Group from Covid-19 and has assessed such risks in its
assessment of the ability of the Group to continue as a going
concern.
Further details of the sensitivity analysis carried out is shown
in note 10.
Summary
Following extensive review of the Group's forward business plan
and associated risks and sensitivities to these base forecasts, the
Board concludes that it is appropriate to prepare the financial
statements on a going concern basis.
Basis of consolidation
The consolidated accounts of the Group include the assets,
liabilities and results of the Company and subsidiary undertakings
in which Yü Group PLC has a controlling interest. Control is
achieved when the Group is exposed, or has rights, to variable
returns from its involvement with the investee and has the ability
to affect those returns through its power over the investee.
Specifically, the Group controls an investee if, and only if, the
Group has all of the following: power over the investee (i.e.
existing rights that give it the current ability to direct the
relevant activities of the investee); exposure, or rights, to
variable returns from its involvement with the investee; and the
ability to use its power over the investee to affect its returns.
When necessary, adjustments are made to the financial statements of
subsidiaries to bring their accounting policies into line with the
Group's accounting policies. All intragroup assets and liabilities,
equity, income, expenses and cash flows relating to transactions
between members of the Group are eliminated in full on
consolidation.
Use of estimates and judgements
The preparation of the financial statements in conformity with
adopted IFRSs requires the use of estimates and judgements.
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
assumptions input 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.
Deferred tax asset 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 Directors' 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, gas, electricity and water 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. It also considers any adjustments expected where
an estimated meter reading (using industry data) is expected to be
different to the consumption pattern of the customer including as a
result of the Covid-19 pandemic.
Government grants
Grants from the government are recognised at their fair value
where there is a reasonable assurance that the grant will be
received and the group will comply with all attached
conditions.
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.
Impairment
The Group has elected to measure loss allowances for trade
receivables and accrued income at an amount equal to lifetime
expected credit losses (ECL's). Specific impairments are made when
there is a known impairment need against trade receivables and
accrued income. When estimating ECL's, the Group assesses
reasonable, relevant and supportable information, which does not
require undue cost or effort to produce. This includes quantitative
and qualitative information and analysis, incorporating historical
experience, informed credit assessments and forward looking
information. Loss allowances are deducted from the gross carrying
amount of the assets.
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 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.
Details of the sensitivity analysis performed in relation to the
Group's financial instruments is included in note 10.
Intangible assets
Intangible assets that are acquired separately by the Group are
stated at cost less accumulated amortisation and accumulated
impairment losses.
Intangible assets acquired in a business combination and
recognised separately from goodwill are initial recognised at their
fair value at the acquisition date. Subsequent to initial
recognition, intangible assets acquired in a business combination
are reported at their initial fair value less amortisation and
accumulated impairment losses.
Amortisation is charged to the statement of profit and loss on a
straight-line basis over the estimated useful lives of the
intangible assets, unless such lives are indefinite. Intangible
assets with an indefinite useful life and goodwill are
systematically tested for impairment at each balance sheet date.
Other intangible assets are amortised from the date they are
available for use. The estimated useful lives are as follows:
-- Licence - 35 years
-- Customer contract books - Over the period of the contracts
acquired (typically 2 years)
Property, plant and equipment
Items of property, plant and equipment are measured at cost less
accumulated depreciation and accumulated impairment losses.
Depreciation is recognised in profit or loss on a straight-line
basis over the estimated useful lives of each part of an item of
property, plant and equipment. The estimated useful lives for the
current and comparative periods are as follows:
-- Freehold land - Not depreciated
-- Freehold property - 30 years
-- Computer equipment - 3 years
-- Fixtures and fittings - 3 years
Assets under construction are not depreciated until the period
they are brought into use.
Business combinations
The acquisition method of accounting is used to account for
business combinations regardless of whether equity instruments or
other assets are acquired.
The consideration transferred is the sum of the acquisition-date
fair values of the assets transferred, equity instruments issued or
liabilities incurred by the acquirer to former owners of the
acquiree and the amount of any non-controlling interest in the
acquiree. All acquisition costs are expensed as incurred to profit
or loss.
On the acquisition of a business, the consolidated entity
assesses the financial assets acquired and liabilities assumed for
appropriate classification and designation in accordance with the
contractual terms, economic conditions, the consolidated entity's
operating or accounting policies and other pertinent conditions in
existence at the acquisition date.
Contingent consideration to be transferred by the acquirer is
recognised at the acquisition-date fair value. Subsequent changes
in the fair value of the contingent consideration classified as an
asset or liability is recognised in profit or loss. Contingent
consideration classified as equity is not remeasured and its
subsequent settlement is accounted for within equity.
The difference between the acquisition-date fair value of assets
acquired and liabilities assumed and the fair value of the
consideration transferred is recognised as goodwill. If the
consideration transferred and the pre-existing fair value are less
than the fair value of the identifiable net assets acquired, being
a bargain purchase to the acquirer, the difference is recognised as
a gain directly in profit or loss by the acquirer on the
acquisition date, but only after a reassessment of the
identification and measurement of the net assets acquired and the
consideration transferred.
Business combinations are initially accounted for on a
provisional basis. The acquirer retrospectively adjusts the
provisional amounts recognised and also recognises additional
assets or liabilities during the measurement period, based on new
information obtained about the facts and circumstances that existed
at the acquisition date. The measurement period ends on either the
earlier of (i) 12 months from the date of the acquisition or (ii)
when the acquirer receives all the information possible to
determine fair value.
Leased assets
The Group as a lessee
For any new contract 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; and
-- 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 the 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.
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 cost of equity settled transactions with employees is
measured by reference to the fair value on the date they are
granted. Where there are no market conditions attaching to the
exercise of the option, the fair value is determined using a range
of inputs into a Black-Scholes pricing model. Where there are
market conditions attaching to the exercise of the options a
trinomial option pricing model is used to determine fair value
based on a range of inputs. The value of equity
settled-transactions is charged to the Statement of Comprehensive
Income over the period in which the service conditions are
fulfilled with a corresponding credit to a share-based payments
reserve in equity.
Pension and Post-retirement benefits
The group operates a defined contribution scheme which is
available to all employees. The assets of the scheme are held
separately from those of the group in independently administered
funds. Payments are made by the group to this scheme and
contributions are charged in the Statement of Comprehensive Income
as they become payable.
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.
Segmental reporting
In accordance with IFRS 8 "Operating Segments", the Group has
made the following considerations to arrive at the disclosure made
in this financial information.
IFRS 8 requires consideration of the Chief Operating Decision
Maker ("CODM") within the Group. In line with the Group's internal
reporting framework and management structure, the key strategic and
operating decisions are made by the Board of Directors, which
regularly reviews the Group's performance and balance sheet
position and receives financial information for the Group as a
whole. Accordingly, the Board of Directors is deemed to be the
CODM.
The Group's revenue and profit were derived from its principal
activity, which is the supply of utilities to business customers in
the UK. As a consequence the Group has one reportable segment,
which is the supply of electricity, gas and water to businesses.
Segmental profit is measured at operating profit level, as shown on
the face of the statement of profit and loss.
As there is only one reportable segment whose losses, expenses,
assets, liabilities and cash flows are measured and reported on a
basis consistent with the financial statements, no additional
numerical disclosures are necessary.
Standards and interpretations
The Group has adopted all of the new or amended accounting
standards and interpretations issued by the International
Accounting Standards Board ("IASB") that are mandatory for the
current reporting period.
Any new or amended accounting standards or interpretations that
are not yet mandatory have not been early adopted.
2. Segmental analysis
Operating segments
The Directors consider there to be one operating segment, being
the supply of utilities to businesses.
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.
2020 2019
GBP'000 GBP'000
----------------------------------------------- ------- -------
Adjusted EBITDA reconciliation
Operating loss (1,574) (5,898)
Add back:
Non-recurring operational costs - 378
Non-recurring mutualisation costs related to
domestic energy supplier failures - 236
Unrealised (gain)/loss on derivative contracts (1,011) 518
Equity-settled share based payment charge 320 125
Depreciation of property, plant and equipment 215 289
Depreciation of right-of-use assets 204 108
Amortisation of intangibles 132 2
----------------------------------------------- ------- -------
Adjusted EBITDA (1,714) (4,242)
----------------------------------------------- ------- -------
The 2019 non-recurring 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 Board has not treated costs incurred in 2020 of
GBP180,000 as non-recurring (and hence such costs are set against
adjusted EBITDA) on the basis of a reasonable expectation that such
mutualisation costs may continue due to failure of domestic energy
suppliers.
The unrealised (gain)/loss on derivative contracts is excluded
from adjusted EBITDA in view of its non-cash nature, with
significant potential variability as the forward energy commodity
market moves.
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.
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.
2020 2019
GBP'000 GBP'000
-------------------------------------------------------- -------- --------
Loss for the year attributable to ordinary shareholders (1,165) (4,968)
-------------------------------------------------------- -------- --------
2020 2019
----------------------------------------------- ---------- ----------
Weighted average number of ordinary shares
At the start of the year 16,281,055 16,267,555
Effect of shares issued in the year - 11,133
----------------------------------------------- ---------- ----------
Number of ordinary shares for basic earnings
per share calculation 16,281,055 16,278,688
Dilutive effect of outstanding share options 929,830 786,547
----------------------------------------------- ---------- ----------
Number of ordinary shares for diluted earnings
per share calculation 17,210,885 17,065,235
----------------------------------------------- ---------- ----------
2020 2019
GBP GBP
--------------------------- ------ ------
Basic earnings per share (0.07) (0.31)
Diluted earnings per share (0.07) (0.31)
--------------------------- ------ ------
Adjusted earnings per share
Adjusted earnings per share is based on the result attributable
to ordinary shareholders before non-recurring items after tax and
unrealised (gains)/losses on derivative contracts, and the cost of
cash and equity-settled share based payments, and the weighted
average number of ordinary shares outstanding:
2020 2019
GBP'000 GBP'000
-------------------------------------------------------- -------- --------
Adjusted earnings per share
Loss for the year attributable to ordinary shareholders (1,165) (4,968)
Add back:
Non-recurring items after tax - 497
Unrealised loss on derivative contracts after
tax (gross gain of GBP1,011,000) (819) 420
Share based payments after tax (gross cost of
GBP320,000) 259 101
-------------------------------------------------------- -------- --------
Adjusted basic loss for the year (1,725) (3,950)
-------------------------------------------------------- -------- --------
2020 2019
GBP GBP
---------------------------- ------ ------
Adjusted earnings per share (0.11) (0.24)
---------------------------- ------ ------
5. Dividends
The Group did not pay an interim dividend in relation to 2020
(2019: nil per share).
The Directors do not propose a final dividend in relation to
2020 (2019: nil per share).
The 2018 interim dividend of GBP195,000 was paid to shareholders
in January 2019.
6. Right-of-use assets and lease liabilities
Right of Use
Assets
GBP'000
----------------------------------- -------------
Cost
At 1 January 2020 955
Additions -
Disposals (156)
----------------------------------- -------------
At 31 December 2020 799
----------------------------------- -------------
Depreciation
At 1 January 2020 474
Charge for the year 204
Disposals (152)
----------------------------------- -------------
At 31 December 2020 526
----------------------------------- -------------
Net book value at 31 December 2020 273
----------------------------------- -------------
Cost
At 1 January 2019 811
Additions 144
Disposals -
----------------------------------- -------------
At 31 December 2019 955
----------------------------------- -------------
Depreciation
At 1 January 2019 366
Charge for the year 108
Disposals -
----------------------------------- -------------
At 31 December 2019 474
----------------------------------- -------------
Net book value at 31 December 2019 481
----------------------------------- -------------
The Group has a lease arrangement for its main office facilities
in Nottingham. A lease for a temporary Leicester office, pending
the construction of a new purpose-built sales, marketing and
innovation hub in the city, was held in 2019 and was terminated
during 2020. One vehicle was leased in 2019, which was terminated
during 2020.
Other leases are short term or of low value underlying
assets.
The Nottingham office lease is reflected on the balance sheet as
a right-of-use asset and a lease liability at 31 December 2020
(2019: the Nottingham and temporary Leicester office were
included).
The property lease for the Nottingham office has a term of 3.5
years remaining at 31 December 2020.
Leases typically impose 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 Group's right-of-use
assets and lease liabilities recognised on the balance sheet at 31
December 2020:
Remaining Asset carrying Depreciation Interest
Right-of-use asset term amount Lease liability expense expense
------------------ --------- -------------- --------------- ------------ ---------
Premises 3.5 years GBP273,000 GBP368,000 GBP80,000 GBP23,000
------------------ --------- -------------- --------------- ------------ ---------
The total cash outflow for leases in 2020 was GBP180,000 (2019:
GBP118,000).
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 terms of
12 months or less) or leases of low value assets. Payments under
such leases are expensed on a straight-line basis. During FY 2020
the amount expensed to profit and loss was GBP1,000 (2019:
GBP6,000).
7. Trade and other receivables
Group Company
------------------ ------------------
2020 2019 2020 2019
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------- -------- -------- -------- --------
Gross trade receivables 8,129 7,801 - -
Provision for doubtful debts
and expected credit loss (5,162) (4,901) - -
---------------------------------------- -------- -------- -------- --------
Net trade receivables 2,967 2,900 - -
---------------------------------------- -------- -------- -------- --------
Accrued income - net of provision 11,169 9,278 - -
Prepayments 1,355 2,185 - -
Other receivables 2,148 11,523 500 500
Financial derivative asset 628 - - -
Amount due from subsidiary undertakings - - 14,747 15,545
---------------------------------------- -------- -------- -------- --------
18,267 25,886 15,247 16,045
---------------------------------------- -------- -------- -------- --------
Movements in the provision for doubtful debts and expected
credit loss are as follows:
2020 2019
GBP'000 GBP'000
--------------------------------------------------- ------- -------
Opening balance 4,901 4,803
Provisions recognised less unused amounts reversed 2,420 2,931
Provision utilised in the year (2,159) (2,833)
Closing balance - provision for doubtful debts
and expected credit losses 5,162 4,901
--------------------------------------------------- ------- -------
The Directors have assessed the level of provision at 31
December 2020 by reference to the recoverability of customer
receivable balances post the year end, and believe the provision
carried of GBP5,162,000 is adequate.
In addition to the GBP2,420,000 (2019: GBP2,931,000) provision
recognised during FY 2020 in relation to trade receivables, there
was an additional provision of GBP707,000 (2019: GBP159,000) made
against accrued income to consider the potential additional risk
related to Covid-19. Expected credit losses are recognised in the
bad debt expense line of the income statement.
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.
Group other receivables includes GBP250,000 (2019:
GBP10,408,000) paid in cash to trading counterparties as
collateral.
The Company other receivables balance of GBP500,000, which is
also included in the Group consolidated balance, relates to a bank
cash deposit. This cash deposit does not fulfil the criteria of
being classified as cash and cash equivalents in view of the
balance being secured for operational activities of the Group.
The amount due from subsidiary undertakings in the Company
accounts of Yü Group PLC at 31 December 2020 represents amounts
drawn down by the subsidiary undertakings as part of a 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). Included in the outstanding
amount at 31 December 2020 is GBP372,000 of accrued interest.
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 additional
expected credit loss provision of GBP37,500 be booked against the
outstanding intercompany receivables in 2020 (total ECL provision
of GBP287,500 at 31 December 2020 (2019: GBP250,000)).
8. Cash and cash equivalents
Group Company
------------------ ------------------
2020 2019 2020 2019
GBP'000 GBP'000 GBP'000 GBP'000
------------------------- -------- -------- -------- --------
Cash at bank and in hand 11,740 2,377 501 500
11,740 2,377 501 500
------------------------- -------- -------- -------- --------
As disclosed in note 7, the cash and cash equivalents amounts
excludes GBP500,000 of cash, which is included in Company and Group
other receivables. This cash balance is held on deposit and secured
under arrangements with the Group's bankers.
9. Trade and other payables
Group Company
------------------ ------------------
2020 2019 2020 2019
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- -------- -------- -------- --------
Current
Trade payables 2,319 1,409 - -
Accrued expenses and deferred
income 19,250 20,889 8 140
Lease liabilities 102 149 - -
Derivative financial liability - 383 - -
Other payables 9,759 5,246 - -
Amounts due to subsidiary undertakings - - 300 300
--------------------------------------- -------- -------- -------- --------
31,430 28,076 308 440
--------------------------------------- -------- -------- -------- --------
Non-current
Other payables 843 - - -
Lease liabilities 266 448 - -
--------------------------------------- -------- -------- -------- --------
1,109 448 - -
--------------------------------------- -------- -------- -------- --------
Details of the lease liabilities are included in note 6.
Current and non-current other payables at 31 December 2020
includes GBP3,600,000 related to VAT and PAYE which has been
deferred under the UK Government's Covid-19 business relief schemes
(2019: GBPnil). The balance is payable monthly in interest free
instalments from April 2021 to March 2022.
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) Customer or counterparty 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 provision for doubtful
debts and expected credit loss, at the balance sheet date was:
2020 2019
GBP'000 GBP'000
----------------------- -------- --------
Not past due 290 69
Past due (0-30 days) 1,816 1,529
Past due (31-120 days) 861 1,302
More than 120 days - -
----------------------- -------- --------
2,967 2,900
----------------------- -------- --------
At 31 December 2020 the Group held a provision against doubtful
debts and expected credit loss of GBP6,029,000 (2019:
GBP5,858,000). This is a combined provision against both trade
receivables (GBP5,162,000) and accrued income (GBP867,000).
(c) Commodity 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% of the
volume hedged is not delivered to the Group's customers and is
instead sold back to via the commodity settlement process 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 practical, 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 Group
applies premia in its pricing of contracts to cover some market
volatility.
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;
-- whether 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 2020 is
a gain of GBP1,011,000 (2019: loss of GBP518,000). See note 7 for
the corresponding derivative financial asset (2019: 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) +/-25% 103
UK power (GBP/MWh) +/-25% 364
--------------------------------------- ---------- ----------
467
--------------------------------------- ---------- ----------
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 in the absence of a suitable trading credit limit.
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 structured trading arrangement, entered into with
SmartestEnergy in December 2019, has reduced this liquidity
risk.
(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 secure appropriate credit lines
or lodge funds on deposit with either its bank or direct with our
commodity trading counterparties.
In December 2019 the Group announced a new structured trading
arrangement with SmartestEnergy Limited. This arrangement provides
a significant trading credit facility and as such reduces the need
to lodge cash collateral. As disclosed in note 1, the Board has
considered the cash flow forecasts, along with the interaction in
trading credit lines and the potential need for cash collateral or
Letter of Credit requirements.
At 31 December 2020 the Group had GBP0.25m lodged as cash
collateral with trading counterparties (2019: GBP10.4m). The
material reduction in cash posted is a result of the new structured
trading agreement, which is structured to scale with the Group's
business growth.
Any excess cash balances are held in short-term deposit accounts
which are either interest or non-interest accounts. At 31 December
2020 the Group had GBP11.7m 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 pandemic
The Covid-19 pandemic continues to have a significant impact on
the UK economy. Businesses have been able to take advantage of
various Government incentive schemes to help them through 2020;
however there is a risk that once this Government support ends
there could be an increase in customer payment defaults and a
reduction in the recoverability of customer receivables (being
trade receivables and accrued income).
The total customer receivable balance at 31 December 2020, net
of provision for doubtful debts and expected credit losses, is
GBP14,136,000. The Directors assess the level of provision as
adequate after consideration of cash received post 31 December
2020.
The risk of prolonged lockdowns or reduced Government support
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 also continues to
monitor any impact on the reduction of customer volume and
therefore the revenue of the Group.
In assessing sensitivity to the level of credit risk on customer
receivables, a 10% increase in the level of bad debt will result in
approximately GBP264,000 of additional expected credit loss.
If energy commodity volumes consumed by customers significantly
decrease as a result of further enforced lockdowns (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. This scenario
occurred in H1 2020. Whilst the Directors continue to take steps to
mitigate this risk, the sensitivity caused by a 10% decline in
contracted revenue for the year ended 31 December 2021 would reduce
gross margin by approximately GBP1,100,000, 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. Options in the plans are settled in equity in the
Company. The options are subject to a vesting schedule, details of
which are listed below.
On 4 October 2020, the Group made its first round of awards
under the new Executive LTIP. These awards are the first options
awarded by the Group to have vesting conditions linked to the share
price performance of the business.
The terms and conditions of the outstanding grants made under
the Group's schemes are as follows:
Exercisable between
---------------------------
Amount
outstanding
at
Expected Exercise Vesting 31 December
Date of grant term Commencement Lapse price schedule 2020
--------------- -------- ------------- ------------ -------- --------- ------------
17 February 17 February 17 February
2016 3 2019 2026 GBP0.09 1 27,000
22 December 22 December 22 December
2016 3 2019 2026 GBP3.25 1 13,500
6 April 2017 3 6 April 2020 6 April 2027 GBP0.005 1 79,110
6 April 2017 6.5 6 April 2020 6 April 2027 GBP2.844 1 158,220
28 September 28 September 28 September
2017 6.5 2020 2027 GBP5.825 1 40,500
9 April 2018 6.5 9 April 2021 9 April 2028 GBP10.38 1 78,351
26 September 26 September 26 September
2018 6.5 2021 2028 GBP8.665 1 6,539
25 February 25 February 25 February
2019 6.5 2022 2029 GBP1.09 1 53,333
25 February 25 February 25 February
2019 3 2022 2029 GBP0.005 1 250,000
1 February
18 June 2019 3 1 August 2022 2023 GBP1.40 2 86,138
4 October
4 October 2020 3 30 April 2023 2030 GBP0.005 3 287,312
4 October
4 October 2020 3 30 April 2024 2030 GBP0.005 3 210,696
--------------- -------- ------------- ------------ -------- --------- ------------
1,290,699
--------------- -------- ------------- ------------ -------- --------- ------------
The following vesting schedules apply:
1. 100% of options vest on third anniversary of date of grant.
2. 100% of options vest on third anniversary of the Save As You
Earn (SAYE) savings contract start date.
3. Level of vesting is dependent on a performance condition,
being the Group's share price at pre-determined dates in the
future
The number and weighted average exercise price of share options
were as follows:
2020 2019
------------------------------------- --------- ---------
Shares Shares
Balance at the start of the period 830,468 573,290
Granted 498,008 437,248
Forfeited (37,777) (166,570)
Lapsed - -
Exercised - (13,500)
------------------------------------- --------- ---------
Balance at the end of the period 1,290,699 830,468
------------------------------------- --------- ---------
Vested at the end of the period 318,330 40,500
------------------------------------- --------- ---------
Exercisable at the end of the period 318,330 40,500
------------------------------------- --------- ---------
2020 2019
------------------------------------- --------- ---------
Weighted average exercise price for:
Options granted in the period GBP0.005 GBP0.55
Options forfeited in the period GBP1.35 GBP2.29
Options exercised in the period - 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 an appropriate option pricing model with the following
fair value assumptions:
2020 2019
----------------------------------------------- ------- ------------
Dividend yield 0% 0%
Risk-free rate 1.5% 1.5%
Share price volatility 117.1% 124.3-127.8%
Expected life (years) 3 years 3-6.5 years
Weighted average fair value of options granted
during the period GBP0.90 GBP1.14
----------------------------------------------- ------- ------------
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:
2020 2019
GBP'000 GBP'000
------------------------------------------- -------- --------
Equity-settled share based payment expense 320 125
Total share based payment charge 320 125
------------------------------------------- -------- --------
12. Commitments
Capital commitments
The Group had committed, at 31 December 2020, to the purchase of
a newly developed office building and associated land at a site in
Leicester. At 31 December 2020 the Group had incurred GBP1,163,000
of cost (GBP150,000 of land and GBP1,013,000 of assets under
construction). The Group has a remaining capital commitment at 31
December 2020 of GBP2,207,000 (2019: GBP3,090,000).
Following the year end, on 10 February 2021, the Group settled
the commitment by payment, in cash, of the remaining balance (with
the exception of an immaterial retention amount) and took
possession of the completed building. The building, following
fit-out, will be occupied by the Group's sales, marketing and
digital innovation teams in mid-2021.
Security
The Group entered into an arrangement with a commodity trading
counterparty, SmartestEnergy Limited, in December 2019. As part of
the arrangement, there is 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 of the
Company and the Group 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 2020
(2019: 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 2020 the Group paid GBP120,000 in lease rental and
service charges to CPK Investments Limited (2019: GBP120,000). The
amount owing to CPK Investments at 31 December 2020 was GBP10,000
(2019: GBP10,000).
All transactions with related parties have been carried out on
an arm's length basis.
14. Business combinations
On 7 August 2020 Y ü Energy Retail Limited, a subsidiary of Y ü
Group PLC, acquired the business to business ("B2B") customer book
of Bristol Energy Limited for a total consideration of
GBP1,285,000. The acquisition is part of the Group's strategy to
drive growth, both organically and by supplementing via inorganic
acquisitions where earnings enhancing.
The values identified in relation to the acquisition of the
Bristol Energy B2B customer book are final as at 31 December 2020 .
The fair values of the identifiable assets acquired and the
liabilities recognised at the date of acquisition were as follows
:
2020
GBP'000
------------------------------------- --------
Customer book intangible asset 597
Trade receivables (net of provision) 924
Accrued income 344
Accruals (580)
Net identifiable assets acquired 1,285
------------------------------------- --------
The accrual balance acquired of GBP580,000 is due for payment in
August 2021.
The fair value of the consideration at the date of acquisition
is as follows:
2020
GBP'000
-------------------------------- --------
Cash paid at completion 841
Deferred consideration now paid 444
-------------------------------- --------
Total consideration paid 1,285
-------------------------------- --------
No further consideration is payable.
The fair value of the trade receivables acquired was GBP924,000.
The gross value was GBP1,050,000 with a provision against expected
non-payment of GBP126,000.
The trade receivables of GBP924,000 and the accrued income of
GBP344,000 were largely converted to cash promptly post the
completion of the acquisition.
On 9 November 2020, Yü Energy Retail Limited completed the
acquisition of another competitor B2B customer book adding further
meter points to the Group's gas customer portfolio. The transaction
involved cash consideration of GBP388,000 to acquire trade
receivables and accrued income, net of a GBP43,000 provision for
expected non-payment. A customer book intangible asset of GBP65,000
was also recognised.
No business combinations or acquisitions took place in 2019.
15. Post-balance sheet events
As disclosed in note 12, the Group completed its acquisition of
a new purpose built sales, marketing and innovation office. The
transaction completed on 10 February 2021.
There are no other significant or disclosable post-balance sheet
events.
Copies of the Annual Report and Accounts for the year ended 31
December 2020 will be available to download from the Company's
website at www.yugroupplc.com later today, Tuesday 30 March 2021.
Hard copies will be posted to shareholders on 13 April 2021.
The AGM is scheduled to take place on 27 May 2021 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 are unlikely to 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 are unlikely to 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 .
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END
FR UKOBRAKUOUAR
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