REG - Yu Group PLC - Final results for the year ended 31 December 2021
22/03/2022 07:00
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RNS Number : 5229F Yu Group PLC 22 March 2022
22 March 2022
Yü Group PLC
("Yü Group" or the "Group")
Final results for the year ended 31 December 2021
STRONG FY21 PERFORMANCE WITH ACCELERATED PROFITABLE GROWTH
STRENGH OF BUSINESS PROVEN IN CURRENT MARKET CONDITIONS
Yü Group PLC (AIM: YU.), the independent supplier of gas, electricity and
water to the UK corporate sector, announces its final audited results for the
year to 31 December 2021.
Bobby Kalar, Group Chief Executive Officer, stated:
"We have delivered on our promise to deliver profitable growth, which is set
to continue.
2021 was a remarkable year and a stellar performance that's seen the Group
outperform forecasts in terms of profitability, growth and forward looking
contracted revenue. Despite the turbulence of the global energy commodity
market the business has remained focussed and disciplined underpinned by our
robust hedging strategy. Our strategy is working well and the 'hard yards'
have harvested rewards. With a very strong start to 2022 I'm pleased our
January and February bookings, revenue and profitability have continued the
momentum demonstrated in 2021.
Our operational KPI's used to measure and track performance drove
over-performance in 2021. Revenue has increased by 53% to £155m, adjusted
EBITDA and profit after tax leapt to £1.7m and £4.5m respectively, from
losses in 2020, average monthly booking have jumped by 66% compared to £8.3m
last year and the meter points on supply have increased by 83% in the year.
I'm pleased our winning formula will continue in 2022 and beyond.
Our inorganic strategy is contributing positively to our growth ambition.
Being awarded the AmpowerUK B2B customer book in November by Ofgem, and two
more customer books this year, provides an endorsement of our credentials and
gives us confidence we are ready for bigger books be it via acquisition or via
Ofgem's Supplier of Last Resort process.
We are making good progress with our Digital by Default strategy, which is
seeing us design optimal processes for our customers with the launch of our
digital customer portal and CRM customer journey. This year we will be
supporting our customers transition on to our digital platform while
continuing to deliver our unparalleled level of service. We now have the
digital foundations in place and firmly embedded and we are looking forward to
further enrichment of our data to drive profitable growth.
It's been a tough year for the energy industry in terms of unprecedented
wholesale gas volatility causing some suppliers to exit the market,
exacerbated by the effects of the pandemic. However, our results show we have
not only 'weathered the storm' but 'blown it away' in all key areas. Our
forward order book at 31 December 2021 stands at a record £157m to outflow
during FY22. Our Digital by default transformation strategy is progressing
well, and we've once again demonstrated our ability to migrate customer books
onto our scalable platform. Our focus this year will be to continue the
momentum of 2021 with continued emphasis on growth, profitability and further
developing our already strong forward order book.
We've become one of the fastest growing utility challenger brands in the UK
and central to this success as always are the amazing people who I have the
good fortune to work with every day. A huge thank you to all my team."
Financial & Operational Highlights:
31 December 2021 2020
£'000 £'000
Revenue 155,423 101,527
Adjusted EBITDA 1 1,724 (1,714)
Profit for the year 4,451 (1,165)
Operating cash inflow/(outflow) (774) 12,102
Cash 7,049 11,740
Overdue customer receivables (2) 7 days 8 days
Earnings per share:
Adjusted 15p (11)p
Statutory 27p (7)p
· Strong revenue growth, up 53%, to £155.4m (FY20: £101.5m), driven
by high organic growth and the integration of AmpowerUK's customer book
o Further SoLR awards of Whoop Energy and Xcel Power since period end
· Profit after tax of £4.5m up from a £1.2m loss in FY20
· Underlying profitability continues to improve, with adjusted EBITDA
increasing to £1.7m from a £1.7m loss
· Average annualised monthly bookings of £13.8m, an increase from
£8.3m in FY20
· Total meter points stood at 31,862, an increase of 83% from the end
of FY20
· Navigated global commodity market price increases via our robust
hedging policy
· Launch of 'Digital by Default' strategy and new customer portal to
increase scale, drive efficiency and create further value
· Cash of £7.0m (FY20: £11.7m), following investment into 'Digital by
Default' strategy including the opening of the new Leicester innovation centre
Current Trading
· Good revenue visibility with significant forward contracted revenues
book in excess of £290m, of which £157m due to deliver in FY22 (an increase
of 69% on FY21)
· Positive FY21 momentum carried into the start of the year with strong
bookings, revenue and profit performance in January and February 2022
· Maintained strict hedging policy to mitigate against volatile market
conditions
Outlook
· Significant confidence in high revenue growth based on increased
forward contract book
· Despite turbulence in the wider external market, we remain strong and
focussed on delivering continued profitable and controlled growth
· Well positioned given different regulatory framework to B2C suppliers
and value of hedge book
· Excited about the long term benefits we will unlock from our 'Digital
by Default' strategy
Analyst presentation
A presentation for analysts will be held at 9am GMT today, Tuesday 22 March
2022. Anyone wishing to attend should please contact yugroup@tulchangroup.com
for further information.
Market Abuse Regulation (MAR) Disclosure
The information contained within this announcement is deemed by the Company to
constitute inside information as stipulated under the Market Abuse Regulations
(EU) No. 596/2014 ('MAR') which has been incorporated into UK law by the
European Union (Withdrawal) Act 2018. Upon the publication of this
announcement via Regulatory Information Service ('RIS'), this inside
information is now considered to be in the public domain.
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
7 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
Bobby Kalar
Paul Rawson
+44 (0) 115 975 8258
SP Angel Corporate Finance LLP
Jeff Keating
Bruce Fraser
Caroline Rowe
+44 (0) 20 3470 0470
Tulchan Group
Giles Kernick
Olivia Peters
Oliver Norgate
+44 (0) 20 7353 4200
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.
CHAIRMAN'S STATEMENT
STRONG GROWTH AND FURTHER STRATEGIC PROGRESS
· Strength of business has allowed the Group to successfully manage
market volatility
· The Group remains well placed to take advantage of market
opportunities and to deliver significant and profitable growth
I am pleased to introduce our 2021 annual results after what has been a
challenging yet fruitful year for the Group.
When I was appointed in January 2020 the Group prepared to set out on a new
and exciting stage in its evolution. This was to scale up rapidly in a
controlled manner, and to increase the maturity of its governance, enabling it
to become a large player in a growing market.
Since then our country, industry and Group have together faced significant
challenges, which as a Group we have successfully overcome. The Covid-19
pandemic and more recently the "energy crisis" and a European war have brought
unprecedented increases in the volatility of global commodity prices. This has
led to some high profile business failures within the wider domestic supply
sector.
Despite this, my summary statement from our 2020 annual report still holds
true: "The Group is now ready to launch a period of accelerated and
sustainable growth as it scales up to address and increase its rightful share
of a £50bn+ market." The tests set by unpredictable increases in energy costs
and the subsequent consolidation in our industry have shown clearly that our
systems and management team are both robust and resilient.
As an agile challenger and post the headwinds of 2020 and 2021, we now operate
in a larger, less competition-filled market. We remain concentrated on and
determined in both maintaining margin and increasing our market share.
Delivering on our strategic priorities: Bigger, Better, Faster and Stronger
The Group's strategy is delivering profitable results. Our Bigger, Better,
Faster and Stronger priorities - delivering significant growth, organic and
inorganic, leveraging economies of scale to improve financial results,
providing digitally led innovation, and maintaining robust risk management -
are consistently applied by our management and are well understood throughout
the organisation.
Our results show a 53% year on year increase in revenue. Basic earnings per
share is 27p/share, up from a 7p/share loss in 2020. Net profit after tax is
£4.5m, up from a £1.2m loss in the previous year; adjusted EBITDA increased
to £1.7m, from 2020's £1.7m loss.
We finished 2021 with £157m of revenue already contracted for the current
year, providing further evidence of our growth potential and the opportunities
available in a consolidating market. I look forward to reporting further
revenue growth in 2022 as we take advantage of the available market
opportunity. We anticipate playing an active role in the consolidation process
as well as exploiting our advantages as an agile challenger whose customer
service remains second to none.
The Group's investment in our Digital by Default programme is set to deliver
significant benefit to future results. Innovation that allows us to attract
and serve customers better, understanding their behaviour and anticipating
their needs, gives us a competitive advantage that will further enhance growth
and increase profitability.
As Chairman, I am particularly pleased by the mature, robust and balanced
approach to governance which is now embedded throughout the organisation. We
have an experienced Board that provides the necessary combination of challenge
and oversight while supporting agile operational decision making and the
performance culture needed to innovate and excel in a competitive industry.
The Board is ensuring that the Group's growth journey from the opportunities
presented by the market is conducted within a sustainable and profitable
framework.
Our Audit Committee, working closely with the Executive Committee ("ExCo"),
has continued to refine the framework for our robust risk and opportunity
management processes.
Our Remuneration Committee, in a difficult market, has maintained the
alignment of incentives with Group strategy and shareholder interests.
Engaging with key stakeholders as we grow
As the Group matures, the Board and I are mindful of our commitments to all
stakeholders.
Ofgem appointed us as Supplier of Last Resort ("SoLR") for AmpowerUK's circa
8,200-meter-point business, along with two further customer books in February
2022 (Whoop Energy Limited and Xcel Power Limited), demonstrating the
regulator's trust in the ability of our people and systems to implement such
projects. This followed successful integrations of two other customer books
during 2020; we now have a clear, replicable process to follow as we identify
further opportunities, allowing us to bring in and be ready to onboard
thousands of new customers in a matter of hours.
Our approach to the environment and sustainability is covered later in this
annual report.
We are convinced that key drivers of the Group's performance are the wellbeing
of our people, the continual innovation of our product offerings, and the
reduction of our impact on our planet. We have made strides in all three areas
and will continue to do so as our business evolves.
We continue to seek improvement in our stakeholder engagement processes and
this is an area receiving constant attention.
We remain highly conscious of the need to ensure that our equity proposition
reaches the widest possible audience of institutions and investors that may
wish to join us on our growth journey.
Summary - relishing challenges and maturely treating risks as opportunities
Over the past two years the Group has more than passed the tests that have
been set by a series of "black swan" events which have given rise to
abnormally extended and exceptional "macro-market" conditions.
The Group's well-proven resilience is the direct result of increased maturity
and of an intelligently inculcated positive, "can-do" attitude to challenges.
This has nurtured colleagues' proven abilities in identifying and extracting
advantage and upside from the risks and opportunities presented.
The combination of these qualities has, yet again, led to a very marked
improvement in the Group's results.
As a key independent disruptor- challenger your Board expects the Group to
continue to benefit from a period of accelerated and sustainable growth,
enhancing performance via its digital programme, and increasing its share of a
£50bn+ market.
CHIEF EXECUTIVE OFFICER'S STATEMENT
OUR BUSINESS MODEL IS MORE THAN DELIVERING AS WE CONTINUE RAPID GROWTH
· A pleasing performance that once again underscores the fundamental
strength and maturity of our business as we continue to secure profitable
growth
It's been an incredible year not just for the Group but for the industry
domestically and globally. Significant events continue to change the landscape
of the energy industry which I'll expand on later in this report. In terms of
the Group (during what I consider to be a once in a generation event) it has
been an exceptional year in which we have exceeded operational KPIs and
analysts' forecasts.
The hard work and discipline knitted into the fabric of the business over the
past few years continue to serve us well against the volatile gas markets and
the tailwinds of the pandemic. Our people, processes and systems have enabled
us to unlock opportunities which have been gross margin enhancing. The last
two years have tested our ability to operate well in such a complex market and
I am pleased our performance continues to go from strength to strength at a
time when the competitive landscape map has been clearly redrawn and narrowed.
Our strategy is simple, do it better and faster to become bigger and stronger.
Testament to this is the double-digit growth in meter points on supply,
revenues increasing by over 50%, the forward contracted revenue book in excess
of £290m, profitability extensively ahead of market expectations and average
customer contract terms at 30 months.
Last year the Group demonstrated its appetite and ability to complement its
organic growth by successfully acquiring Bristol Energy's business-to-business
("B2B") customer book, a wholly owned subsidiary of Bristol City Council, and
a smaller customer gas book from a Midlands based supplier. This year we have
reviewed some significant B2B customer book acquisition opportunities which
were within our sweet spot, and we continue to remain disciplined and
selective. It's my view that we will see further significant opportunities to
grow by acquisition.
In November, through a selective tender process, Ofgem awarded the Group its
first Supplier of Last Resort B2B book. AmpowerUK, which operated in the small
and medium sized business space and had approximately 8,200 meter points. A
smooth transition onboarded these customers onto our scalable operating
platform and the sales teams have been moving these contracts from standard
variable to fixed rate contracts at current market prices. A further two small
books were awarded to the Group via this process by Ofgem in February 2022. I
am incredibly pleased in our ability to migrate such books onto our platforms
without losing value. Our relationship with Ofgem remains strong.
The ongoing energy volatility and its effects on UK energy suppliers have
created confusion that somehow Ofgem's regulatory framework of B2C suppliers
is the same as B2B suppliers. Nothing can be further from the truth. There are
two major factors that have resulted in a record number of energy suppliers
ceasing to operate in the market this year:
1. The price cap which applies to B2C suppliers to help protect domestic
customers from inflation busting tariffs once their contracted tariff had
ended. This sensible approach has spectacularly backfired as the current
global gas price hikes were not factored in and B2C suppliers, which
effectively were being forced to operate a loss-making business, failed. No
such restriction applies to B2B suppliers and, despite the gas price hikes,
B2B suppliers can pass those increased commodity costs onto customers very
quickly.
2. Forward hedging contracted commodity de-risks market volatility shock
and preserves gross margin at the point of sale. Suppliers which have not
adopted this strategy run the risk of being exposed if wholesale commodity
markets move away from them. Very quickly, unhedged suppliers can end up
servicing loss-making contracts which is unsustainable. This is even more of a
risk for domestic suppliers, where (unlike in the B2B segment) customers can
typically leave a fixed price contract by giving 30days' notice.
A combination of one or both the above scenarios has caused 31 energy
suppliers to cease trading since 1 January 2021 with all but 5 being B2C
suppliers. While I see opportunities in a shrinking market, the impact of
stubbornly high commodity prices and the uncertainty of the Russian conflict
will indeed impact bills for customers who will still be recovering from the
devastating financial effect of the pandemic.
Yü Group has a risk adverse hedging policy in place and therefore has not
been affected materially by commodity volatility shock. In current times we
keep a close eye on the significant asset we hold on our long-term hedge book.
Being Digital by Default
As a disruptor I see the future as a highly scalable, data-driven business
bringing innovative products to our customers. We know that creating the
ability for a customer to self-serve by default is the way the world is
moving. Automating manual processes will bring the right level of predictable
outcomes and allow us to scale as opportunities present themselves. We have
successfully integrated our first Robotic Process Automation ("RPA") project,
called "Rambo", saving hundreds of resource hours a month. This year we will
introduce more RPAs allowing processes to be completed faster and cheaper.
Further, based on the transactional nature of the back-office function, making
the right decisions at the opportune time can enhance gross margin and reduce
value loss and our data warehouse will give us a single view of the customer
lifecycle and habits.
Yü Group has begun this transformation and invested in digitising and
automating the business in 2021. This investment has delivered a brilliantly
simple set of digital services enabling our customers and the Group to be
Digital by Default and this, alongside automation of our back-office
processes, has supported significant customer growth while allowing us to
reduce our cost to serve. We have made significant progress already,
completing discovery stages and undertaking various "sprints" to stand up
various enhancements.
These improvements include data collection and capture capability, automated
dynamic dashboard views of key performance indicators and integrated
middleware to allow greater API integration and various intellectual property
developments to integrate systems together. We still have a number of
automated and digital deliverables that we will launch this year via continued
sprints and evolution. These phases will use decomposition and pattern
recognition to enable complex processes and value enhancing decision making to
be instantaneous through the use of RPA and inhouse developed algorithms.
Our people
As always, our people are front and centre of the Group's success. The
uncertainty around returning to the office has been a challenge for some of
our colleagues.
This year we have increased staff numbers in areas aligned to our strategic
direction, namely digital transformation, operations and collections. We have
also continued with our internal apprentice talent pipeline programme, which
has been life changing for the individuals.
New Leicester innovation centre
For the first phase of the project, the office was opened in May 2021 for the
sales, marketing and digital transformation teams.
Our staff have been exposed to the latest office designs to help with our
innovation ambitions, and the feedback has been outstanding.
Wholesale market volatility
Commodity prices have reached record highs this year due to both macro and
micro events which in effect have created the perfect storm. Due to a colder
European spring, which followed a longer than expected winter, demand
continued and supplies remained low.
In normal circumstances the UK would have covered the shortfall in supply with
Liquified Natural Gas ("LNG"), but Asia has procured huge quantities as it
transitioned its energy supply from coal to gas. Brazil and Argentina
increased their import levels of LNG, also squeezing European delivery of LNG.
In short, an unnatural demand for LNG by world nations meant that demand
outstripped LNG supply. The ongoing Russian conflict has compounded the
situation further and while the UK imports an exceedingly small percentage
volume from Russia, the same cannot be said for other European countries and a
further squeeze on LNG imports to the UK could see price hikes continue for
some time.
Our trading team has worked to policy on ensuring it is setting market
reflective contract prices. However, businesses which have not budgeted for
the significant increase in their utility costs at the time of renewal may
struggle to pay.
Landscape
Our ability to service UK businesses with their energy needs quickly and
competitively is evident in terms of year on year growth and we will continue
to grow the business in terms of volume as well as revenue. Adjusted EBITDA
improvement will be a particular focus and our digital transformation
programmes will contribute significantly by reducing wastage, speeding up
transactional processes and reducing the cost to serve. Despite B2B suppliers
exiting, the market remains competitive albeit less crowded.
We will continue to develop best practice opportunities and use our
entrepreneurial agility to react to market conditions quickly.
The wholesale gas and electricity market environment remains turbulent, and we
will continue to monitor our price curves very carefully. Our hedge position
remains strong, and our forward prices reflect market costs. We will also
monitor and support our customers, who will begin to feel the impacts of the
market gas volatility when they come to renew their existing supply contract
terms.
Outlook
· Current trading remains very strong, providing a high level of
excitement in the future
· High revenue growth forecasted, to add to the £157m already
contracted for FY 2022 at the end of 2021
· Continued profitability improvement to continue the strong trajectory
in gross margin and operation leverage already demonstrated
· Our Digital by Default programme set to further enhance profitability
over the short to medium term, as we acquire more customers, deliver
efficiency savings from our largely fixed overhead base, and drive value from
data driven decisions
· Well positioned, with an increasing market opportunity and a
significant value from the hedge book
· Ability to add value enhancing acquisitions to complement high
organic growth
Summary
In summary, despite turbulence in the wider external market, we remain strong
and focused so as to deliver continued growth in revenue and profitability.
I am excited about the further benefits we will unlock from our Digital by
Default programme and I look forward to proactively engaging with shareholders
to further expand our reach to existing and potential investors and other
stakeholders.
I look forward to updating on our progress in the coming months.
FINANCE REVIEW
INCREASING PROFITABILITY AS THE BUSINESS SCALES
· We continue strong momentum in financial results, governed via our
clear financial framework
In overview
· Revenue increase of £53.9m (53%)
· Contracted revenue for FY 2022 up 69% to £157m, and increased number
of "out of contract" customers
· Adjusted EBITDA increased to £1.7m, up £3.4m year on year
· Profit for the year up £5.7m in the year, to £4.5m
· £7.0m cash available at 31 December 2021 (2020: £11.7m)
· £3.7m capital investment to drive forward growth and overhead
benefit
Results summary
Results for the year to 31 December 2021 are significantly increased on the
previous year and continue the strong upward momentum.
Revenue increased 53.1% in the year to £155.4m (2020: £101.5m) as high
organic growth from new bookings combined with the integration of AmpowerUK's
customer book in November 2021 and higher tariffs as a result of commodity
market prices.
Adjusted EBITDA of £1.7m (2020: loss of £1.7m) continues the strong
trajectory which has been evident over recent years. The £3.4m year on year
improvement follows the clearly defined strategy to increase net customer
contribution whilst extracting efficiency savings in overheads as the Group
scales. The impact from the Covid-19 pandemic, which was estimated at £1.7m
in FY 2020, has also been largely mitigated during FY 2021.
The statutory profit for the year of £4.5m represents a £5.7m increase in
the year (2020: loss of £1.2m). Basic earnings per share of 27p was achieved,
up from a loss of 7p per share in 2020.
Group net cash of £6.8m (2020: £11.4m) was held. A net decrease in cash and
cash equivalents of £4.7m (2020: net increase of £9.4m) during 2021 is
predominantly a result of £3.7m of investment in capital expenditure. Working
capital cash flow movements in customer receivables and trade payables have
also increased significantly as the Group scaled revenue in Q4 2021 and as a
consequence of the increased commodity market prices.
Significantly increasing revenues
The Group typically provides one, two or three year contracts, which gives
good forward visibility via a contracted revenue subscription model. The Group
also realises other revenues, which are generated from a growing number of
"out of contract" customers (who prefer the flexibility to remain on our
supply under a fully flexible arrangement) or through other services or
charges levied.
The Group exited 2020 with an estimated £93m of contracted revenue to deliver
in FY 2021. The AmpowerUK integration added approximately £15m of revenue for
the last two months of the year, and contracts secured in 2021, and other
revenues, contributed approximately £38m.
A further £9m was delivered through a now exited low margin contract,
resulting in the total £155m revenue delivered in FY 2021. As a result of
record bookings in 2021, the level of contracted revenue estimated to deliver
in FY 2022, as we exited 2021, was £157m, representing a substantial (69%)
year on year increase on which to build further revenue.
The Group is also serving additional out of contract customers, at increased
tariffs reflective of the market conditions, providing further revenue growth
opportunity.
The increased contracted revenue and pool of customers providing out of
contract revenue opportunity provide the Board with significant confidence
that a very strong organic growth rate will continue in FY 2022.
Improved profitability
The Board continues to utilise adjusted EBITDA as its core profitability
measure, being a close proxy to the recurring and "cash like" profitability of
the Group.
Adjusted EBITDA increased by £3.4m during the year, to £1.7m. A £1.2m
profit in the second half of 2021 was achieved, up from £0.5m in H1 2021 and
£0.1m in H2 2020.
With the exception of the first six months of 2020, which were materially
impacted due the initial Covid-19 lockdown, the Group has continued to improve
underlying profitability for each six month period from 2019.
Adjusted EBITDA at 1.1% of revenue (2020: -1.7%) is derived from the
profitability from customer contracts (referred to as net customer
contribution) of 6.7% less general overheads, which are already sized for
significant growth, of 5.6%.
Recognising the progress made already to bring the Group to a profitable
footing, the Board remains focused on further improving adjusted EBITDA to
achieve higher returns. Increasing net customer contribution whilst creating
further overhead benefits is core to this strategy.
Gross margin improved to 9.8% for the year (2020: 7.6%) demonstrating the
successful mitigation provided by the deployed hedging strategy, and the focus
on managing customer contract lifecycle value. The continually improved
systems and processes which are now firmly embedded in the organisation are
providing further enhancement in value, and this is set to continue as the
digital programme delivers additional benefit.
The integration of AmpowerUK customers and the increased revenue in Q4 2022
led to a higher bad debt charge in the second half of the year. The full year
charge of 3.1% of revenue was therefore comparable to FY 2020 of 3.1%.
The relationship between gross margin performance and bad debt is carefully
monitored, with management targeting net customer contribution when assessing
various sales channels or customer segments available to it.
Net customer contribution at 6.7% has increased in 2021 (2020: 6.1%, or 4.5%
including the impact of Covid-19 losses). General overheads of 5.6% for 2021
(2020: 6.2%) have started to show benefit from economies of scale. These
overheads consist of cost to acquire ("CtA") (sales and marketing related
costs), cost to serve ("CtS") (operational and customer service systems and
people to deliver our core services) and general administrative costs
(premises, occupancy and support function costs).
CtA was 1.6% of revenue in 2021, as benefits from new digital sales
acquisition tools launched in 2020 were secured. CtS and general
administrative overheads were each 2.0% of revenues.
Further scale benefits are targeted in general administrative costs which are
largely fixed in nature. CtS is also targeted to increase at a slower rate
than revenue, as the benefits from the Group's digital investment are
realised.
In summary, the momentum and forward targeting of improvement to net customer
contribution, coupled with the efficiency benefit in general overheads, are
the core areas of the Board's strategy to further increase adjusted EBITDA.
Robust performance
In addition to a pleasing and robust adjusted EBITDA, the Group's profit for
the year of £4.5m is significantly increased (2020: loss of £1.2m). This
result is after £1.1m of tax credit (2020: £0.4m); and £0.2m (2020: £0.3m)
of share based payments. The tax credit reflects an increased deferred tax
asset, predominantly from brought forward tax losses which (based on the
announced increase to future corporate tax rates) are more valuable to the
Group.
The profit for the year also includes, before tax, a £3.3m (2020: £1.0m)
unrealised gain on derivative contracts. This gain arises on a small
proportion of forward commodity purchase contracts which do not match the
strict definition of own use under IFRS 9, and are therefore assessed at fair
value at the balance sheet date. With the high global commodity market prices
the level of gain has increased substantially during FY 2021.
The Board believes that the associated financial asset (being a non-cash item)
will reduce should the commodity market restabilise.
Non-recurring costs of £0.6m (2020: £nil) relate to the accrual of the
Group's estimated share of expected costs "mutualised" across the energy
supply industry from the unprecedented level of supplier failures. The Board
is disappointed to be incurring such industry costs which are outside the
control of the Group.
Cash flow and working capital
The Group had net cash of £6.8m at 31 December 2021 (2020: £11.4m),
consisting of £7.0m of cash less lease liabilities. The Group has no other
debt.
A net decrease in cash and cash equivalents of £4.7m for the year (2020:
increase of £9.4m) consists of a £0.8m operating cash outflow (2020: £12.1m
inflow); a £0.2m repayment of leases and interest (2020: £0.1m); and £3.7m
(2020: £2.6m) of capital expenditure.
For operating activities, trade and other receivables before the movement in
financial derivative assets increased by £19.7m (2020: £0.3m), with trade
and other payables increasing by £17.5m (2020: £4.0m).
Significantly increased revenue for the month of December 2021, with the
integration of AmpowerUK customers and increased out of contract customers at
market reflective higher tariffs, accounted for a £10.8m increase in accrued
income to £22.0m (2020: £11.2m). This level of accrued income is fully
supported by invoices raised in January 2022 and aligns with the Group's
normal billing cycle.
As well as the growth in revenues, trade and other receivables also increased
as a result of payments to third-party intermediaries ("TPIs") on commencement
of introduced sales contracts, and the increased derivative financial asset
recognised under IFRS 9.
Countering the significant increase in receivables due to the Group's sales
growth, current trade and other payables increased by £17.5m (2020: £4.0m)
which is largely a result of increased accrued expenses for industry and
energy costs.
Following significant growth in revenues secured from the AmpowerUK
integration, the record organic growth secured, and the higher energy market
prices, the Board is focused on ensuring the increased level of working
capital movements is managed appropriately as we rapidly transition to a
higher price environment. In particular the Board is mindful of the potential
delay to our customers' ability to make payments in view of the significantly
increased cost of energy which is being suffered by those who have not locked
in contract tariffs at lower market prices.
For FY 2020, deferred HMRC payments of £3.6m were held under the Government's
Covid-19 support package, which reduced to £1.4m at 31 December 2021. FY 2020
also included a one-off cash inflow of £10.2m as the new structured commodity
trading arrangement resulted in a repayment of previously lodged cash
collateral. The credit limit in place under the Group's trading arrangement is
not currently being utilised in view of the high global market prices.
As set out in detail in the annual report, the Board monitors the credit limit
provided and risks and mitigation available to it related to the credit risk
with trading counterparties. The Board also reviews any impact on credit
limits and liquidity depending on the level of global commodity prices
compared to the value of the Group's forward hedged position.
The £3.7m of capital expenditure in FY 2021 includes £2.6m (in addition to
the £1.2m paid prior to FY 2021) for the freehold acquisition and fit-out of
our new innovation centre established in Leicester. A further £1.1m was
invested in software and systems as part of the Group's Digital by Default
strategy. The innovation centre and Digital by Default investments are
targeted to drive significant revenue and profitability improvement in the
short and medium term.
Summary: continuing to successfully implement our financial framework
We continue to apply our financial framework, to scale revenues (organically
and inorganically) and increase adjusted EBITDA via improved net customer
contribution and reduced overheads (powered by digital efficiency), whilst
maintaining robust cash and working capital management.
With £157m of contracted revenue already secured for FY 2022 as we exited
2021, a stronger market positioning and a higher market value opportunity
following the energy crisis, and increased numbers of customers on out of
contract agreements, we remain confident that top-line growth will continue.
We also continue to review the market for value enhancing acquisition
opportunities.
With this scale in revenue, we look to continue to enhance gross margin whilst
driving down our cost of bad debt. We therefore target increasing net customer
contribution from the 6.7% (2020: 6.1% pre-Covid-19 impact) achieved in FY
2021, combined with targets to reduce general overheads from the 5.6% in FY
2021 (2020: 6.2%).
In short, the Board is fully driven to further increase adjusted EBITDA from
the 1.1% achieved in FY 2021 and on significantly increased revenue.
Condensed consolidated statement of profit and loss and other comprehensive
income
For the year ended 31 December 2021
Notes 31 December 31 December
2021 2020
£'000 £'000
Revenue 155,423 101,527
Cost of sales (140,180) (93,858)
Gross profit 15,243 7,669
Operating costs before non-recurring items and share based payment charges (9,407) (6,807)
Operating costs - non-recurring items 7 (644) -
Operating costs - share based payment charges 21 (249) (320)
Total operating costs 4 (10,300) (7,127)
Net impairment losses on financial and contract assets 16 (4,799) (3,127)
Other gains 7 3,344 1,011
Operating profit / (loss) 3,488 (1,574)
Finance income 5 - 74
Finance costs 5 (96) (39)
Profit / (loss) before tax 3,392 (1,539)
Taxation 9 1,059 374
Profit / (loss) and total comprehensive income for the year 4,451 (1,165)
Earnings / (loss) per share
Basic 8 £0.27 (£0.07)
Diluted 8 £0.26 (£0.07)
Condensed consolidated balance sheet
At 31 December 2021
Notes 31 December 31 December
2021 2020
£'000 £'000
ASSETS
Non-current assets
Intangible assets 11 1,333 606
Property, plant and equipment 12 3,751 1,377
Right-of-use assets 13 193 273
Deferred tax assets 15 5,932 4,789
Trade and other receivables 16 870 -
12,079 7,045
Current assets
Trade and other receivables 16 40,441 18,267
Cash and cash equivalents 17 7,049 11,740
47,490 30,007
Total assets 59,569 37,052
LIABILITIES
Current liabilities
Trade and other payables 18 (49,743) (31,430)
Non-current liabilities
Trade and other payables 18 (541) (1,109)
Total liabilities (50,284) (32,539)
Net assets 9,285 4,513
EQUITY
Share capital 20 82 82
Share premium 20 11,690 11,690
Merger reserve 20 (50) (50)
Accumulated losses 20 (2,437) (7,209)
9,285 4,513
Condensed consolidated statement of changes in equity
For the year ended 31 December 2021
Share Share Merger Retained Total
capital premium reserve earnings £'000
£'000 £'000 £'000 £'000
Balance at 1 January 2021 82 11,690 (50) (7,209) 4,513
Total comprehensive income for the year
Profit for the year - - - 4,451 4,451
Other comprehensive income - - - - -
- - - 4,451 4,451
Transactions with owners of the Company
Contributions and distributions
Equity-settled share based payments - - - 237 237
Deferred tax on share based payments - - - 84 84
Proceeds from share issues - - - - -
Total transactions with owners of the Company - - - 321 321
Balance at 31 December 2021 82 11,690 (50) (2,437) 9,285
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
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 2021
31 December 31 December
2021 2020
£'000 £'000
Cash flows from operating activities
Profit / (loss) for the financial year 4,451 (1,165)
Adjustments for:
Depreciation of property, plant and equipment 255 215
Depreciation of right-of-use assets 80 204
Amortisation of intangible assets 352 132
Unrealised gains on derivative contracts (3,344) (1,011)
Increase in trade and other receivables (19,700) (320)
Increase in trade and other payables 17,468 3,978
Cash received on obtaining customer contracts 378 -
Decrease in cash collateral deposits lodged with trading counterparties - 10,158
Finance income - (74)
Finance costs 96 39
Taxation (1,059) (374)
Share based payment charge 249 320
Net cash (used in)/from operating activities (774) 12,102
Cash flows from investing activities
Purchase of property, plant and equipment (2,629) (921)
Payment of software development costs (1,079) -
Net cash used for purchase of customer books - (1,673)
Net cash used in investing activities (3,708) (2,594)
Cash flows from financing activities
Cash settled share based payment charge (12) -
Interest (paid)/received (77) 35
Principal element of lease payments (120) (180)
Net cash used in financing activities (209) (145)
Net (decrease)/increase in cash and cash equivalents (4,691) 9,363
Cash and cash equivalents at the start of the year 11,740 2,377
Cash and cash equivalents at the end of the year 7,049 11,740
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, with company number 10004236. The Company is
limited by shares and 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 2021 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 small and medium sized entities
("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 UK-adopted International
Accounting Standards in conformity with the requirements of the Companies Act
2006 and effective at 31 December 2021, 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 2021 or 2020 but is derived from those financial statements.
Statutory financial statements for 2020 have been delivered to the registrar
of companies and those for 2021 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 change in the basis of preparation from 2020 is required by UK Company Law
for the purposes of financial reporting as a result of the UK's exit from the
European Union on 31 January 2020 and the cessation of the transition period
on 31 December 2020. This change does not constitute a change in accounting
policy, rather a change in the framework which is required to group use of
IFRS in company law. There is no impact on the recognition, measurement or
disclosure between the two.
The condensed consolidated financial information is presented in British
pounds sterling (£) and all values are rounded to the nearest thousand
(£000) except where otherwise indicated.
Going concern
The financial statements are prepared on a going concern basis.
At 31 December 2021 the Group had net assets of £9.3m (2020: £4.5m) and cash
of £7.0m (2020: £11.7m).
Management prepares detailed budgets and forecasts of financial performance
and cash flow (including capital commitments) 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 (including those set out in
the Strategic Report) and sensitivities in relation to performance, the energy
market and the wider economy.
The Group has demonstrated significant progress in its results. This has led
to adjusted EBITDA profitability in 2021 (a close profitability measure to
cash generated from operations), which is a significant turnaround in
performance from the losses of 2018 and 2019 and continues the positive trend
in 2020 despite the impact in that year of Covid-19.
The profitability delivered in 2021 has been achieved by robust and
disciplined management of gross margin; the addition of value enhancing
integrations (such as the acquisition of Bristol Energy in 2020 and the
integration of AmpowerUK's business book during 2021); and the continued
prudent hedging policy protecting the Group from the significant commodity
market price increases recently experienced.
The Group has embarked on an ambitious Digital by Default implementation
strategy to help drive further cost efficiency which is expected to further
enhance financial performance as the Group scales.
Group available cash remains at significant levels, with £7.0m available at
31 December 2021. Cash held has reduced in 2021 because of an investment in a
newly built innovation and sales office in Leicester; an increased investment
in sales acquisition costs and the digital programme; and the commencement of
payments on VAT deferred as part of the UK Government's Covid-19 relief
scheme. In view of the significant growth in the business, working capital
movements have increased from Q4 2021, with a £19.7m increased in trade and
other receivables (excluding the financial derivative asset) largely mitigated
by a £17.5m increase in trade and other payables.
The Group has no debt other than £0.3m (at 31 December 2021) in respect of
the lease for the Group's Nottingham office.
The Board has assessed risks and sensitivities and potential mitigation steps
available to it in detail and continues to monitor risk and mitigation
strategies in the normal course of business.
Hedging arrangements and volatile energy markets
A 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, (the "Trading Agreement") enables the
Group to purchase electricity and gas on forward commodity markets. The
Trading Agreement enables forecasted customer demand to be hedged in
accordance with an agreed risk mandate (further detailed in the Group's risk
and uncertainties reporting in the Strategic Report). With the unprecedented
increase in commodity market prices for forward gas and electricity, this
hedging position has and continues to protect the Group.
As part of the Trading Agreement, SmartestEnergy Ltd holds security over the
trading assets of the Group which could, ultimately and in extreme and limited
circumstances, lead to a claim on some or all of the 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 the Trading Agreement
to assess the likelihood of the credit facility being reduced or withdrawn.
Management also maintains close dialogue with SmartestEnergy Ltd in respect of
such covenants and provides robust oversight of the relevant contracts.
The position in respect of the forward credit exposure is also monitored and
forecasted to understand the potential risks which may arise:
a) Where commodity market prices increase, the Board considers credit
and contractual exposure to SmartestEnergy Ltd, which (under a default
position) could lead to the unwind of hedges with the loss of value due to the
Group if not successfully recovered under the contract. With increased market
prices, this exposure increased significantly during the year.
b) Where commodity market prices decrease, the Board considers whether
the credit limit provided under the Trading Agreement is sufficient to prevent
the potential for cash calls which may lead to a liquidity issue where in
excess of the Group's cash reserves at that time. The Board also considers
likely commercial outcomes relevant for such a scenario.
Despite the market volatility experienced in 2021, the Trading Agreement
continues to operate well providing reliable, efficient and effective access
to traded commodity markets.
The Board also considers its business model and compares it with competitors
which have failed to determine any other risks in related to the volatile
energy markets. As part of that assessment, the impact of the price cap on
domestic suppliers (which the Group is not materially exposed to) has been
considered. The failure of certain unhedged B2B suppliers has also been
considered. The Board is satisfied that the Group's business model is
adequately differentiated from these market issues.
In view of energy market volatility and the increased risk for the sector, the
Board has also identified certain mitigation strategies to manage the
commodity market and hedging credit limit exposures noted above, and
continually assess the potential for material impact.
After detailed review, the Board has concluded that there are no liquidity
issues likely to arise (outside of available mitigating strategies) in
relation to the hedging arrangements and current market context.
Covid-19
The Group has successfully operated for approximately two years through the
pandemic, with strong improvement in results still being delivered. Reviews of
the impact of lockdowns have also provided the Board with adequate references
to assess risks in relation to further changes as a result of the pandemic.
The Group successfully implemented its business continuity plan during the
initial March 2020 lockdown and continues to operate to its high standards of
customer care. Employees have been working productively either at home, in the
office or under a hybrid working model.
The Board remains confident in the Group's ability to grow market share,
despite the wider economic context caused by the pandemic.
The Group has also 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
which may be further compounded by increased energy prices.
Summary
Following extensive review of the Group's forward business plan and associated
risks and sensitivities to these base forecasts (and available mitigation
strategies), 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 intra-group 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 recoverability of trade receivables;
· the level of forward energy commodity contracts which are not
strictly for "own use" under IFRS 9;
· the assumptions input to the IFRS 2 share option charge
calculations; and
· the recoverability of deferred tax assets.
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. The estimate of customer consumption is based
on available industry data, and also seasonal usage curves that have been
estimated through historical actual usage data.
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.
Sensitivity analysis on estimates is provided in note 19.
The Group enters forward purchase contracts to hedge its position to closely
match customers' expected demand over the term of the contract and does not
engage in speculative trading. Factors such as the shape / granularity of
traded products available (which do not perfectly align with customer demand)
and variations in energy consumed by customers (as a result of varying
customer behaviour and activity, and (particularly for gas) the weather
impact) can influence the extent of trades which are not strictly for the
Group's "own use". Such contracts are accounted for at fair value through the
Group's profit or loss. The Board estimates the proportion of forward
contracts which are to be assessed at fair value by considering the expected
"normalised" forward traded position, with reference to historical performance
on matching customer demand and the Group's robustly controlled hedging and
risk strategy. Sensitivity analysis on estimates is provided in note 19.
The share option charge requires certain estimates, including the volatility
in share price, risk-free rates and dividend yields, together with assessment
of achievement of certain vesting conditions.
Deferred tax asset recoverability is assessed based on directors' judgement of
the recoverability of the tax losses by the realisation of future profits over
the short to medium term, which inherently is based on estimates.
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.
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 credit loss allowances for trade receivables
and accrued income at an amount equal to lifetime expected credit losses
("ECLs"). Specific impairments are made when there is a known impairment need
against trade receivables and accrued income. When estimating ECLs, 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 are included in note 19.
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 are initially 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.
Software and system assets are recognised at cost, including those internal
costs attributable to the development and implementation of the asset in order
to bring it into use. Cost comprises all directly attributable costs,
including costs of employee benefits arising directly from the development and
implementation of software and system assets.
Amortisation is charged to the statement of profit and loss on a straight-line
basis over the estimated useful lives of the intangible assets 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)
• Software and
systems
- 3 to 5 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 Group is recognised at the
acquisition-date fair value. Subsequent changes in the fair value of the
contingent consideration classified as an asset or liability are 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 values are less than the fair value of the identifiable net assets
acquired, being a bargain purchase to the Group, the difference is recognised
as a gain directly in profit or loss 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
Group 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 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.
In determining whether an acquisition of an acquired set of activities and
assets is a business, the "concentration test" methodology as outlined in IFRS
3 is utilised. Where substantially all of the fair value of the gross assets
acquired are attributable to a single identifiable asset group, such as a
customer list, then a business combination will not occur.
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 asset 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 are separately
identified 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.
Employer's National Insurance costs arising and settled in cash on exercise of
unapproved share options are included in the share based payment charge in the
profit or loss, with no corresponding credit to reserves in equity.
Pension and post-retirement benefit
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 to 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 profits/(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 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% of Group revenue is generated from sales to customers in the United
Kingdom (2020: 100%) and is recognised at a point in time.
The Group has no individual customers representing over 10% of revenue (2020:
nil).
3. Auditor's remuneration
2021 2020
£'000 £'000
Audit of these financial statements 72 68
Amounts receivable by auditor in respect of:
Audit of financial statements of subsidiaries pursuant to legislation 44 40
116 108
4. Operating expenses
2021 2020
£'000 £'000
Profit / (loss) for the year has been arrived at after charging:
Staff costs (see note 6) 5,634 4,455
Depreciation of property, plant and equipment 255 215
Depreciation of right-of-use assets 80 204
Amortisation of intangible assets 352 132
5. Net finance (income)/expense
2021 2020
£'000 £'000
Bank interest and other finance charges payable 77 16
Interest on lease liabilities 19 23
Total finance costs 96 39
Bank interest receivable - (74)
96 (35)
6. Staff numbers and costs
The average number of persons employed by the Group (including directors)
during the period, analysed by category, was as follows:
2021 2020
Number Number
Sales 31 34
Administration 114 77
145 111
The aggregate payroll costs of these persons were as follows:
2021 2020
£'000 £'000
Wages and salaries 5,043 3,685
Social security costs 539 373
Pension costs 97 77
Share based payments 249 320
5,928 4,455
Of which: 5,634 4,455
Amounts charged to operating profit / (loss) 294 -
Amounts related to development and implementation of computer software
There were three persons employed directly by the Company during the year
ended 31 December 2021 (2020: four), being the non-executive directors. The
Company's two (2020: three) executive directors who served during the year
have service contracts with a wholly owned subsidiary of the Company.
Key management personnel
The aggregate compensation made to directors and other members of key
management personnel (being members of the Group's Executive Committee
comprising the Chief Executive Officer, Chief Financial Officer and other
senior leaders) is set out below:
£'000 £'000
Short-term employee benefits 1,191 1,013
Social security and pension costs 165 170
Share based payments 228 310
1,584 1,493
For 2020, £140,000 of employers National Insurance was previously disclosed
in short-term employee benefits and has now been reclassified in social
security and pension costs.
The highest paid director and remuneration of the executive directors are as
referenced in the remuneration report of the annual report.
7. Reconciliation to adjusted EBITDA
A key alternative performance measure used by the directors to assess the
underlying performance of the business is adjusted EBITDA.
2021 2020
£'000 £'000
Adjusted EBITDA reconciliation
Operating profit / (loss) 3,488 (1,574)
Add back:
Non-recurring operational costs 644 -
Unrealised gain on derivative contracts (3,344) (1,011)
Share based payment charge 249 320
Depreciation of property, plant and equipment 255 215
Depreciation of right-of-use assets 80 204
Amortisation of intangibles 352 132
Adjusted EBITDA 1,724 (1,714)
The non-recurring operational costs of £644,000 relates to accrued industry
costs, from legislation governing the Renewable Obligation scheme, which are
mutualised (i.e. spread) across energy market participants. These costs have
increased significantly because of the unprecedented level of supplier
failures; particularly impacting those operating in the domestic (business to
consumer) market segment. The total charge to the Group for the compliance
year ended 31 March 2021 is £454,000. A further £190,000 is estimated and
accrued relating to the liability arising for the period from 1 April 2021 to
31 December 2021. The directors consider these mutualisation costs
non-recurring during 2021 in view of the unprecedented and well-publicised
challenges faced by some suppliers during the year. The directors do not
envisage mutualisation costs will remain at such a significant level in the
future. For 2020 the Group charged mutualisation costs against the adjusted
EBITDA loss. These 2020 costs included the liability for the compliance period
to 31 March 2020 of £78,000, being significantly below the £454,000 charge
for the compliance year to 31 March 2021.
Share based payment charges, unrealised gains on derivatives and depreciation
and amortisation of assets are excluded from adjusted EBITDA. This exclusion
of gains and losses is in order for a "near cash, recurring profit" metric to
be derived.
The unrealised gain on derivative contracts of £3,344,000 (2020: £1,011,000)
arises from a small proportion of forward commodity hedges which do not meet
the strict "own use" criteria under IFRS 9 ("Financial Instruments"). Such
forward commodity trades are therefore recognised at their fair value, being a
financial asset, as further described in note 16 and note 19.
The directors consider adjusted EBITDA to be a more accurate representation of
underlying business performance and therefore utilise this measure as the
primary profit measure in setting targets and managing financial performance.
8. Earnings per share
Basic earnings/(loss) per share
Basic earnings per share is based on the profit/(loss) attributable to
ordinary shareholders and the weighted average number of ordinary shares
outstanding.
2021 2020
£'000 £'000
Profit/(loss) for the year attributable to ordinary shareholders 4,451 (1,165)
2021 2020
Weighted average number of ordinary shares
At the start of the year 16,281,055 16,281,055
Effect of shares issued in the year 18,591 -
Number of ordinary shares for basic earnings per share calculation 16,299,646 16,281,055
Dilutive effect of outstanding share options 1,099,153 929,830
Number of ordinary shares for diluted earnings per share calculation 17,398,799 17,210,885
2021 2020
£ £
Basic earnings per share 0.27 (0.07)
Diluted earnings per share 0.26 (0.07)
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 on
derivative contracts and the cost of cash and equity-settled share based
payments, and the weighted average number of ordinary shares outstanding:
2021 2020
£'000 £'000
Adjusted earnings per share
Profit/(loss) for the year attributable to ordinary shareholders 4,451 (1,165)
Add back (per note 7):
Non-recurring items after tax (gross cost, before tax, of £644,000) 522 -
Unrealised gain on derivative contracts after tax (gross gain, before tax, of (2,709) (819)
£3,344,000)
Share based payments after tax (gross cost, before tax, of £249,000) 202 259
Adjusted basic profit/(loss) for the year 2,466 (1,725)
Adjusted earnings/(loss) per share £0.15 £(0.11)
Diluted adjusted earnings/(loss) per share £0.14 £(0.11)
9. Taxation
2021 2020
£'000 £'000
Current tax charge
Current year - -
Adjustment in respect of prior years - -
- -
Deferred tax credit
Current year (631) (287)
Adjustment in respect of prior years (428) (87)
(1,059) (374)
Total tax credit (1,059) (374)
Tax recognised directly in equity
Current tax recognised directly in equity - -
Deferred tax recognised directly in equity (84) (60)
Total tax recognised directly in equity (84) (60)
Reconciliation of effective tax rate
Profit / (loss) before tax 3,392 (1,539)
Tax at UK corporate tax rate of 19% (2020: 19%) 644 (292)
Expenses not deductible for tax purposes 26 5
Tax relief on exercise of share options (18) -
Impact of temporary differences (94) -
Adjustment in respect of prior periods - current tax - -
Adjustments in respect of prior periods - deferred tax (428) (87)
Utilisation of tax losses not recognised for deferred tax - -
Increase in tax rate on deferred tax balances (1,189) -
Tax credit for the year (1,059) (374)
Deferred taxes at the balance sheet date have been measured using the enacted
tax rates at that date and are reflected in these financial statements on that
basis. Following the March 2021 Budget, the tax rate effective 1 April 2023
increases from the current 19% to 25%.
10. Dividends
The Group did not pay an interim dividend in relation to 2021 (2020: nil per
share).
The directors do not propose a final dividend in relation to 2021 (2020: nil
per share).
11. Intangible assets
Electricity Customer Software
licence books and systems Total
£'000 £'000 £'000 £'000
Cost
At 1 January 2021 62 686 - 748
Additions - - 1,079 1,079
At 31 December 2021 62 686 1,079 1,827
Amortisation
At 1 January 2021 12 130 - 142
Charge for the year 2 343 7 352
At 31 December 2021 14 473 7 494
Net book value at 31 December 2021 48 213 1,072 1,333
Cost
At 1 January 2020 62 - - 62
Additions - 686 - 686
At 31 December 2020 62 686 - 748
Amortisation
At 1 January 2020 10 - - 10
Charge for the year 2 130 - 132
At 31 December 2020 12 130 - 142
Net book value at 31 December 2020 50 556 - 606
The useful economic life of the acquired electricity licence is 35 years,
which represents the fact that the licence can be revoked by giving 25 years'
written notice but that this notice cannot be given any sooner than 10 years
after the licence came into force in January 2013.
The customer book intangibles relate to the two separate acquisitions that
took place in 2020. The customer book intangibles represent the fair value of
the customer contracts purchased in those acquisitions. The intangible assets
are being amortised over a useful economic life of two years, representing the
average contract length of the customer books acquired.
Software and systems assets relate to investments made in third-party software
packages, and directly attributable internal personnel costs in implementing
those platforms, as part of the Group's Digital by Default strategy.
The amortisation charge is recognised in operating costs in the income
statement.
12. Property, plant and equipment
Freehold land Freehold Property Assets under Fixtures and Computer Total
£'000 £'000 construction fittings equipment £'000
£'000 £'000 £'000
Cost
At 1 January 2021 150 - 1,013 80 335 1,578
Transfer from asset under construction - 1,013 (1,013) - - -
Additions - 2,261 - 265 103 2,629
Disposals - - - (8) (85) (93)
At 31 December 2021 150 3,274 - 337 353 4,114
Depreciation
At 1 January 2021 - - - 41 160 201
Charge for the year - 73 - 70 112 255
Disposals - - - (8) (85) (93)
At 31 December 2021 - 73 - 103 187 363
Net book value at 31 December 2021 150 3,201 - 234 166 3,751
Cost
At 1 January 2020 150 - 190 215 1,007 1,562
Additions - - 823 - 98 921
Disposals - - - (135) (770) (905)
At 31 December 2020 150 - 1,013 80 335 1,578
Depreciation
At 1 January 2020 - - - 146 745 891
Charge for the year - - - 30 185 215
Disposals - - - (135) (770) (905)
At 31 December 2020 - - - 41 160 201
Net book value at 31 December 2020 150 - 1,013 39 175 1,377
The buildings relate to the new Energy Centre property in Leicester which has
been brought into use during the year. The property is a sales, marketing and
innovation hub for the Group's activities.
13. Right-of-use assets and lease liabilities
Right-of-use
assets
£'000
Cost
At 1 January 2021 799
Additions -
Disposals -
At 31 December 2021 799
Depreciation
At 1 January 2021 526
Charge for the year 80
Disposals -
At 31 December 2021 606
Net book value at 31 December 2021 193
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
The Group has a lease arrangement for its main office facilities in
Nottingham. Other leases are short term or of low value underlying assets. A
lease for a temporary Leicester office and a lease for one vehicle were
terminated during 2020.
The Nottingham office lease is reflected on the balance sheet as a
right-of-use asset and a lease liability at 31 December 2021 and 31 December
2020.
The table below provides details of the Group's right-of-use asset and lease
liability recognised on the balance sheet at 31 December 2021:
Right-of-use asset Remaining term Asset carrying Lease liability Depreciation Interest expense
amount expense
Premises 2.5 years £193,000 £267,000 £80,000 £19,000
The total cash outflow for leases in 2021 was £120,000 (2020: £180,000).
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 2021 the amount expensed to profit and loss was
£1,000 (2020: £1,000).
None of the above leases of the Group are with the Company entity directly.
14. Investments in subsidiaries
The Company has the following direct and indirect investments in subsidiaries:
Company name Country of Holding Proportion of Nature of business
incorporation shares held
Yü Energy Holding Limited United Kingdom Ordinary shares 100% Gas shipping services
KAL Portfolio Trading Limited United Kingdom Ordinary shares 100% Dormant
Yü Services Limited United Kingdom Ordinary shares 100% Dormant
Yü Energy Retail Limited United Kingdom Ordinary shares 100% Supply of energy to businesses
Yü Group Management Limited United Kingdom Ordinary shares 100% Dormant
Yu Water Limited United Kingdom Ordinary shares 100% Supply of water to businesses
All of the above entities are included in the consolidated financial
statements and have the same registered address as Yü Group PLC.
15. Deferred tax assets
Deferred tax assets are attributable to the following:
2021 2020
£'000 £'000
Property, plant and equipment (45) (32)
Tax value of loss carry-forwards 5.812 4,740
Share based payments 165 81
5,932 4,789
Movement in deferred tax in the period:
At Recognised Recognised At
1 January 2021 in income directly in equity 31 December 2021
£'000 £'000 £'000 £'000
Property, plant and equipment (32) (13) - (45)
Tax value of loss carry-forwards 4,740 1,072 - 5,812
Share based payments 81 - 84 165
4,789 1,059 84 5,932
At Recognised Recognised At
1 January 2020 in income directly in equity 31 December 2020
£'000 £'000 £'000 £'000
Property, plant and equipment (32) - - (32)
Tax value of loss carry-forwards 4,366 374 - 4,740
Share based payments 21 - 60 81
4,355 374 60 4,789
The deferred tax asset is expected to be utilised by the Group in the coming
years. The Board forecasts sufficient taxable income as a result of the growth
in the customer base and increased profitability against which it will utilise
these deferred tax assets.
16. Trade and other receivables
2021 2020
£'000 £'000
Current
Gross trade receivables 11,618 8,129
Provision for doubtful debts and expected credit loss (6,007) (5,162)
Net trade receivables 5,611 2,967
Accrued income - net of provision 21,972 11,169
Prepayments 4,183 1,355
Other receivables 5,573 2,148
Financial derivative asset 3,102 628
40,441 18,267
Non-current
Financial derivative asset 870 -
Movements in the provision for doubtful debts and expected credit loss in
gross trade receivables are as follows:
2021 2020
£'000 £'000
Opening balance 5,162 4,901
Provisions recognised less unused amounts reversed 4,185 2,420
Provision utilised in the year (3,340) (2,159)
Closing balance - provision for doubtful debts and expected credit losses 6,007 5,162
The directors have assessed the level of provision at 31 December 2021 by
reference to the recoverability of customer receivable balances post the year
end, and believe the provision carried is adequate.
In addition to the amounts recognised in relation to trade receivables, there
was an additional provision charged in the period of £614,000 (2020:
£707,000), leading to a total provision against accrued income at 31 December
2021 of £1,481,000 (2020: £867,000). Expected credit losses and the
recognition, where appropriate, of previous customer credit balances are
recognised in operating costs.
The net impairment losses on financial and contract assets of £4,799,000
(2020: £3,127,000) consists of £614,000 (2020: £707,000) provision charged
for expected credit loss on accrued income, and £4,185,000 (2020:
£2,420,000) provision for bad debts and expected credit loss on trade
receivables.
The financial derivative asset is the only trade and other receivable that
falls due after more than one year.
The directors consider that the carrying amount of trade and other receivables
approximates to their fair value due to their maturities being short term.
Prepayments of £4,183,000 (2020: £1,355,000) increased as a result of
certain prepaid costs to third-party intermediaries on the commencement of
contracts, and for certain software licence costs connected with the Group's
Digital by Default investment.
Other receivables includes £250,000 (2020: £250,000) paid in cash to trading
counterparties as collateral. It also includes £142,000 which is due to cover
loss-making contracts acquired following the appointment of the Group as
Supplier of Last Resort of AmpowerUK's activities.
The current and non-current financial derivative asset of £3,972,000 (2020:
£628,000) is the fair value of a small proportion of the Group's overall
forward gas and power purchase contracts. Such contracts do not meet the
strict criteria of being for the Group's "own use" under IFRS 9. They are
stated at their Mark to Market fair value (being the excess of: i) the volume
of commodity purchased valued at market prices available at the balance sheet
date; over ii) the traded price of the forward contracts). The asset has
increased in the year due to the significant increase in forward gas and power
market prices. The risks and sensitivities in relation to the asset are
further detailed in note 19.
17. Cash and cash equivalents
2021 2020
£'000 £'000
Cash at bank and in hand 7,049 11,740
7,049 11,740
As disclosed in note 16, cash and cash equivalents exclude £500,000 of cash,
which is included in other receivables. This cash balance is held on deposit
and secured under arrangements with the Group's bankers.
18. Trade and other payables
2021 2020
£'000 £'000
Current
Trade payables 3,690 2,319
Accrued expenses and deferred income 34,545 19,250
Lease liabilities 107 102
Tax and social security 6,188 5,224
Other payables 5,213 4,535
49,743 31,430
Non-current
Accrued expenses and deferred income 381 -
Tax and social security - 843
Lease liabilities 160 266
541 1,109
On 7 November 2021 the Group was appointed by Ofgem as Supplier of Last Resort
for AmpowerUK's customer book. As part of the appointment, the Group agreed to
honour an element of customer credit balances which had accrued prior to
appointment, and to serve a small number of loss-making contracts for the
period to April 2022. There was no consideration payable by the Group. At 31
December 2021, other payables included £230,000 of customer credit balances
and estimated losses on onerous contracts acquired on the AmpowerUK business.
A corresponding £142,000 asset is held, as disclosed in note 16. The
integration of AmpowerUK's customer book was not considered to be a business
and therefore not accounted for as a business combination.
On 23 November 2021 the Group obtained a number of small business customers
from another energy supplier. Due to the prevailing market conditions at the
time of the transaction the total consideration was negative, resulting in a
payment to the Group of £378,000 to take on the customer contracts. The fair
value of identifiable assets obtained consisted of £368,000 of onerous
contract liabilities and £10,000 of customer credit balance liabilities. At
31 December 2021, other payables included £358,000 relating to these
balances.
Non-current accrued expenses, and an element of current accrued expenses,
relate to the estimated ROC mutualisation liability as detailed in note 7.
Details of lease liabilities are included in note 13.
At 31 December 2020, non-current other payables relate to deferred VAT and
PAYE payments under the UK Government's Covid-19 business relief schemes. Such
liabilities are included in current other payables at 31 December 2021 and
will be fully paid during the first quarter of 2022.
19. Financial instruments and risk management
The Group's principal financial instruments are cash, trade and other
receivables, trade and other payables and derivative financial assets.
Derivative instruments, related to the Group's hedging of forward gas and
electricity demand, are level 1 financial instruments and are measured at fair
value through the statement of profit or loss. Such fair value is 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.
The Group has exposure to the following risks (including the impact of the
Covid-19 pandemic) from its use of financial instruments:
a) commodity hedging and derivative instruments (related to customer
demand and market price volatility, and counterparty credit risk);
b) customer credit risk;
c) liquidity risk; and
d) foreign exchange risk.
(a) Commodity trading and derivative instruments
The Group is exposed to market risk in that changes in the price of
electricity and gas may affect the Group's income or liquidity position. The
use of derivative financial instruments to hedge customer demand also results
in the Group being exposed to risks from significant changes in customer
demand (beyond that priced into the contracts), and counterparty credit risk
with the trading counterparty.
Commodity and energy prices and customer demand
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 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 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 and loss.
As far as practical, in accordance with the risk mandate, the Group attempts
to match new sales orders (based on estimated energy consumption, assuming
normal weather patterns, over the contract term) 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.
Well-publicised increases in global gas and electricity commodity prices have
increased the potential gain or loss for an over or under-hedged portfolio,
and the Group continues to closely monitor its customer demand forecast to
manage volatility. The Group also applies premia in its pricing of contracts
to cover some market volatility (which has proven to be robust despite the
market context), and contracts with customers also contain the ability to pass
through costs which are incurred as a result of customer demand being
materially different to the estimated volume contracted.
The fair value Mark to Market adjustment at 31 December 2021 for those
contracts not assumed to be strictly for "own use" is a gain of £3,344,000
(2020: gain of £1,011,000). See note 16 for the corresponding derivative
financial asset.
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 (determined based on calculated or implied
volatilities where available, or historical data) had occurred and been
applied to the risk exposures in place at that date. In view of the volatile
nature of commodity markets, the sensitivity analysis is based on a change of
up to +/-25% in commodity markets, though additional volatility may be
incurred in view of the current, unprecedented, energy market context of
volatility.
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.
Open market price of forward contracts Reasonably 2021 Impact on profit 2020 Impact on profit
possible increase/ and net assets and net assets
decrease in £'000 £'000
variable
UK gas (p/therm) +/-25% 793 103
UK power (£/MWh) +/-25% 1,470 364
2,263 467
In addition to the sensitivity noted above, the estimate of the forward
derivative contracts assessed as "own use" results in the financial asset
recognised. If the level of own use of such forward contracts was amended by
+/-1%, then the financial asset and resulting impact on profit and net assets
would be £1,088,000. Such a sensitivity could occur if, for example, the
Group's estimated forecasted demand from customer contracts was impacted by
factors such as prolonged abnormal weather patterns, or further unexpected and
severe Covid-19 lockdowns. In mitigation, however, demand balancing activities
and trading will significantly reduce any potential gain or loss arising from
the sensitivity noted above, and the Board approved hedging policy is designed
so as to protect (to the extent possible) the gross margin as sold on each
contract. Customer prices also include premia in their pricing to account for
certain levels of market risk as a result of the above in order to reduce the
potential for negative impact on Group profitability.
Liquidity risk from commodity trading
The Group's trading arrangements can result in the need to post cash or other
collateral to trading counterparties when commodity markets are below the
Group's average weighted price contracted forward. A significant reduction in
electricity and gas markets could lead to a material cash call from these
trading counterparties in the absence of a suitable trading credit limit.
Whilst such a cash call would not impact the Group's profit (as it represents
a forward credit risk assessment of the counterparty), it would have an impact
on the Group's cash reserves.
The structured trading arrangement, entered into with SmartestEnergy in
December 2019, has reduced this liquidity risk in view of the significant
credit limit being provided. This arrangement provides a significant trading
credit limit (secured on the main trading entities of the Group and subject to
compliance with certain covenants) and as such reduces the need to lodge cash
collateral when commodity markets decrease. As disclosed in note 1, the Board
has considered the cash flow forecasts, along with the interaction in trading
credit limits and the potential need for cash collateral or Letter of Credit
support. The Board also monitors the position in respect of commodity markets
and has mitigation plans in place where credit limits are predicted to be
exceeded to reduce, where possible, the potential impact on the Group due to
short-term cash calls. In extreme circumstances, such mitigation may include
(prior to security being enacted) reducing the Group's hedged position
(reducing liquidity risk in exchange for increased risk to future market
increases) through to commercial discussion to waive the requirement to post
cash collateral over a short-to medium-term period; or the agreement to
provide additional remedial action.
Trading counterparty credit risk
In mirror opposite to the liquidity risk noted above, the Group carries credit
risk to trading counterparties where market prices are above the average
weighted price contracted forward. In view of the significant rise in energy
commodity markets this credit risk has increased significantly to be greater
than £100m at certain periods during 2021. This credit exposure is
predominantly with the Group's main trading counterparty.
The Board monitors the position in respect of credit exposure with its trading
counterparties, and contracts only with major organisations which the Board
considers to be robust and of appropriate financial standing.
(b) Customer or other 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
(in addition to trading counterparties as noted in section (a) above).
These operational exposures are monitored and managed at Group level. All
customers operate in the UK 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 climate
change levy ("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 Board considers the exposure to debtors based on the status of customers
in its internal debt journey, the level of customer engagement in finding an
appropriate solution, the customer's creditworthiness, the provision for
doubtful debts and expected credit loss held, the level of reclaimable VAT and
CCL on the balances, and cash received after the period end.
At 31 December 2021 the Group held a provision against doubtful debts and
expected credit loss of £7,488,000 (2020: £6,029,000). This is a combined
provision against both trade receivables at £6,007,000 (2020: £5,162,000)
and accrued income at £1,481,000 (2020: £867,000). The increase reflects
higher amounts due as a result of the significant growth in Group revenues in
the year, and the integration of the AmpowerUK customer book during November
2021.
If the recoverability of customer receivables is +/-5% to that assessed by the
directors, the gain or loss arising recognised in the income statement and
impacting net assets would be +/-£32,000. If the expected customer credit
loss rate on accrued income was +/- 10%, the gain or loss would be
+/-£144,000.
(c) 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.
Management also monitors the position in respect of the Group's performance
against covenants as part of its trading arrangements, to ensure credit limits
as part of such transactions are monitored, and any credit cover requirements
for other industry participants which are standard in the energy sector.
Any excess cash balances are held in short-term deposit accounts which are
either interest or non-interest accounts. At 31 December 2021 the Group had
£7,049,000 (2020: £11,740,000) of cash and bank balances, as per note 17.
(d) Foreign currency risk
The Group trades entirely in pounds sterling and therefore it has no foreign
currency risk.
Impact from the Covid-19 pandemic
Whilst the Covid-19 pandemic continues to have a significant impact on the UK
economy, these events are now largely considered as part of the Group's
business as usual operations. Previous impacts have been on customer demand
and market price volatility, the potential to continue to operate an efficient
business model under "lockdown", and the potential for increased levels of bad
debt as a result of the wider economic context.
The Group has performed well despite the impact of Covid-19, and the Board is
confident in its ability to continue to monitor and mitigate such risks. As a
result, the impact of the Covid-19 pandemic is implicitly included in the
sections above.
20. Share capital and reserves
Share capital 2021 2021 2020 2020
Number £'000 Number £'000
Allotted and fully paid ordinary shares of £0.005 each 16,316,215 82 16,281,055 82
The Company has one class of ordinary share which carries no right to fixed
income. The holders of ordinary shares are entitled to receive dividends as
declared and are entitled to one vote per share at meetings of the Company.
The movement in reserves is as per the condensed statement of changes in
equity.
Share capital represents the value of all called up, allotted and fully paid
shares of the Company. On 12 July 2021 an employee exercised 35,160 share
options. The exercise price was £0.005 per share.
The share premium account represents amounts received in excess of the nominal
value of shares on the issue of new shares, net of any direct costs of any
shares issued.
The merger reserve was created as part of the 2016 Group reorganisation prior
to listing.
Retained earnings comprises the Group's cumulative annual profits and losses.
21. 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.
The terms and conditions of the outstanding grants made under the Group's
schemes are as follows:
Exercisable between
Date of grant Expected term Commencement Lapse Exercise Vesting Amount Amount
price schedule outstanding at outstanding at
31 December 2021 31 December 2020
17 February 2016 3 17 February 2019 17 February 2026 £0.09 1 27,000 27,000
22 December 2016 3 22 December 2019 22 December 2026 £3.25 1 13,500 13,500
6 April 2017 3 6 April 2020 6 April 2027 £0.005 1 43,950 79.110
6 April 2017 6.5 6 April 2020 6 April 2027 £2.844 1 87,900 158,220
28 September 2017 6.5 28 September 2020 28 September 2027 £5.825 1 40,500 40,500
9 April 2018 6.5 9 April 2021 9 April 2028 £10.38 1 59,084 78,351
26 September 2018 6.5 26 September 2021 26 September 2028 £8.665 1 6,539 6,539
25 February 2019 6.5 25 February 2022 25 February 2029 £1.09 1 48,497 53,333
25 February 2019 3 25 February 2022 25 February 2029 £0.005 1 250,000 250,000
18 June 2019 3 1 August 2022 1 February 2023 £1.40 2 62,483 86,138
4 October 2020 3 30 April 2023 4 October 2030 £0.005 3 210,696 287,312
4 October 2020 3 30 April 2024 4 October 2030 £0.005 3 172,388 210,696
1 June 2021 3 30 April 2024 4 October 2030 £0.005 3 76,616 -
1,099,153 1,290,699
Weighted average remaining contractual life of options outstanding at 31 7.1years
December 2021
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:
2021 2020
Shares Shares
Balance at the start of the period 1,290,699 830,468
Granted 76,616 498,008
Forfeited (233,002) (37,777)
Lapsed - -
Exercised (35,160) -
Balance at the end of the period 1,099,153 1,290,699
Vested at the end of the period 278,473 318,330
Exercisable at the end of the period 278,473 318,330
Weighted average exercise price for:
Options granted in the period £0.005 £0.005
Options forfeited in the period £1.88 £1.35
Options exercised in the period £0.005 -
Exercise price in the range:
From £0.005 £0.005
To £10.38 £10.38
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:
2021 2020
Dividend yield 0% 0%
Risk-free rate 1.5% 1.5%
Share price volatility 114.6% 117.1%
Expected life (years) 3 years 3 years
Weighted average fair value of options granted during the period £2.30 £0.90
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:
2021 2020
£'000 £'000
Equity-settled share based payment expense 237 320
Cash-settled share based payment expense 12 -
Total share based payment charge 249 320
Cash-settled share based payment expense relates to employer's National
Insurance payable on unapproved share options when exercised.
22. Commitments
Capital commitments
The Group has entered into contracts to develop its digital platform as part
of the Digital by Default strategy. Such contracts may be terminated with a
limited timescale and as such are not disclosed as a capital commitment.
The Group has no other capital commitments at 31 December 2021. At 31 December
2020, the Group had capital commitments related to the investment in freehold
buildings of £2,207,000.
Security
Yü Group PLC provides parent company guarantees on behalf of its wholly owned
subsidiaries to a small number of industry counterparties as is common place
for the energy sector.
The Group entered into an arrangement with a commodity trading counterparty,
SmartestEnergy Limited, in December 2019. As part of the arrangement, there is
a requirement to meet certain covenants and 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 16, included in other receivables of the Company and the
Group is an amount of £500,000 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 2021 (2020: £nil).
23. Related parties and related party transactions
The Group has transacted with CPK Investments Limited (an entity owned by
Bobby Kalar). CPK Investments Limited owns one of the properties from which
the Group operates via a lease to Yü Energy Retail Limited. During 2021 the
Group paid £120,000 in lease rental and service charges to CPK Investments
Limited (2020: £120,000). There was no amount owing to CPK Investments
Limited at 31 December 2021 (2020: £10,000 creditor).
All transactions with related parties have been carried out on an arm's length
basis.
24. Net cash/(net debt) reconciliation
The net cash/(net debt) and movement in the year were as follows:
2021 2020
£'000 £'000
Cash and cash equivalents 7,049 11,740
Lease liabilities (267) (368)
Borrowings - -
Net cash 6,782 11,372
Borrowings Leases Cash Total
£'000 £'000 £'000 £'000
Net cash/(net debt) as at 1 January 2020 - (597) 2,377 1,780
Cash flows - 180 9,363 9,543
New and exited leases - 72 - 72
Interest and other changes - (23) - (23)
Net cash/(net debt) as at 31 December 2020 - (368) 11,740 11,372
Cash flows - 120 (4,691) (4,571)
Interest and other changes - (19) - (19)
Net cash/(net debt) as at 31 December 2021 - (267) 7,049 6,782
25. Post-balance sheet events
The Group was appointed by Ofgem as Supplier of Last Resort for two small
suppliers (Whoop Energy Limited and Xcel Power Limited) from 19 February 2022.
The appointment provided an additional circa.850meter points.
There are no other significant post-balance sheet events.
Annual Report and Annual General Meeting
Copies of the Annual Report and Accounts for the year ended 31 December 2021
will be available to download from the Company's website at www.yugroupplc.com
(http://www.yugroupplc.com) later today, Tuesday 22 March 2022. Hard copies
will be posted to shareholders on 4 April 2022.
The AGM is scheduled to take place on 26 May 2022 and the AGM notice is
included in the Annual Report and Accounts.
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