REG - Yu Group PLC - Final results
14/03/2023 07:00
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RNS Number : 8065S Yu Group PLC 14 March 2023
Yü Group PLC
("Yü Group" or the "Group")
Final results for the year ended 31 December 2022
DELIVERING THE GROWTH STORY AT PACE
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 2022.
Bobby Kalar, Group Chief Executive Officer, stated:
"I'm pleased to report another fantastic year for Yü Group. We have once
again clearly demonstrated our ability to surpass financial performance
metrics and, with the strong momentum we have in the business, we are
confident of this recurring theme continuing into 2023.
Our record breaking financial performance and significant strategic progress
is a testament to the strength of the Group. Revenue increased 79%, EBITDA
increased 359%, contracted revenue is up 57% and cash increased by £11.9m.
Reflecting our continued confidence in the business we are also pleased to
recommend the reinstatement of a progressive dividend policy. To achieve this
despite the backdrop of a turbulent energy market is credit to the strong
foundations we have in place and the ability and character of the team.
It's been a busy year! Developing and integrating our smart metering business,
Yü Smart from a standing start to a fully functioning business performing at
pace has been a particular highlight. I'm proud to lead a team who have seized
this opportunity to build and grow new capabilities. I clearly see the ability
for the Group to accelerate its profitability by leveraging off our growing
revenues and providing new services. Cash flow and cash management will remain
a key focus, including through our smart meter rollout.
The EBRS scheme has worked well and rightly delivered support to our business
customers. We will continue working with BEIS to champion assistance to UK
businesses.
Whilst our industry has been plagued by negative impacts and a lack of
investment and support, I am immensely proud to report our progress and
development. The market opportunity is huge, we have a scalable platform, and
we are primed and ready to grow.
We have got off to a fantastic start in 2023 with our exceptional performance
continuing. Whilst we remain vigilant, we look forward to delivering continued
shareholder value in 2023 and beyond."
Financial & Operational Highlights:
31 December 2022 2021 Change
£'000 unless stated
Financial:
Revenue 278,587 155,423 +79%
Adjusted EBITDA 1 7,909 1,724 +359%
Profit before tax 5,840 3,392 +72%
Earnings per share (pence):
Adjusted, fully diluted 30p 14p +114%
Statutory, Basic 29p 27p +7%
Final dividend per share (pence) 3p - +3p
Operating cash inflow/(outflow) 14,737 (774) +£15.5m
Net Cash (2) 18,810 6,782 +177%
Overdue customer receivables (days) (3) 5 days 7 days -2 days
Operational:
Average Monthly Bookings (£'m) £24.5m £13.8m +78%
Contracted Revenue for next FY (£'m) £247m £157m +57%
Meter Points (#) 25,500 31,900 -20%
Smart meter installations (#) 1,033 N.A. -
Strong financial performance
· Strong revenue growth, up 79%, to £278.6m (FY21: £155.4m).
Confidence in continuing growth supported by forward order book in excess of
£350m, of which £247m (up 57% in the year) delivers in FY23.
· Adjusted EBITDA up 359% to £7.9m (2021: £1.7m) with adjusted
operating margin improved significantly to 2.8% (FY21: 1.1%).
· Profit before tax up 72% to £5.8m (FY21: £3.4m), after non-cash
charge of £0.9m relating to derivative accounting (2021: £3.3m gain)
reflected.
· Earnings per share, adjusted and fully diluted, increased 114% to 30p
(FY21: 14p).
· Strong operating cash inflow of £14.7m (FY21: £0.8m outflow), with
£18.8m net cash (net of £0.2m lease liability) available as at 31 December
2022 (2021: £6.8m).
· Board proposes a final dividend of 3p per share (2021: nil) as part
of progressive dividend policy, balancing working capital and investing for
growth.
Significant strategic progress
· Further enhancement of 'Digital by Default' platform improving
customer experience, driving efficiencies, and creating value through data
science.
· Successful roll out of Yü Smart benefiting customers and improving
debtor control and profitability. Yü Smart is expected to generate a positive
EBITDA contribution in FY23.
Current trading and outlook
· Very strong start to 2023 with average monthly bookings significantly
ahead of the record £24.5m in FY22 and contracted revenue of £247m as at 31
December 2022 for FY23.
· Meter points now accelerating following strategic rationalisation in
FY22 and after the late 2021 uplift from the acquisition of the AmpowerUK
portfolio.
· Improving customer cash collection performance and reduced bad debt
exposure, alongside continued overhead efficiency benefits from 'Digital by
Default' and positive contribution from Yü Smart, all provide potential for
additional margin growth.
· Management target further improvement in adjusted EBITDA margin from
the 2.8% generated in FY22 (FY21: 1.1%).
Analyst presentation
A presentation for analysts will be held at 10am GMT today, Tuesday 14 March
2023. Anyone wishing to attend should please contact yugroup@teneo.com for
further information.
1 Adjusted EBITDA is earnings before interest, tax, depreciation and
amortisation, and unrealised gains or losses on derivative contracts. For
FY21, adjusted EBITDA also excludes share based payments and non-recurring
expenses. See reconciliation in note 7 to the financial statements below.
(2) Net cash refers to cash and cash equivalents less the debt in the Group
being £0.2m of lease liabilities.
(3) Overdue customer receivables is expressed in days of sales, and relates to
the total balance, net of provisions, of accrued income which is outside of
the normal billing cycle, plus overdue trade receivables (net of VAT and CCL).
For further information, please contact:
Yü Group PLC +44 (0) 115 975 8258
Bobby Kalar
Paul Rawson
Liberum +44 (0) 20 3100 2000
Edward Mansfield
William Hall
Cara Murphy
Teneo +44 (0) 20 7353 4200
Giles Kernick
Alec Tidbury
Notes to editors
Information on the Group
Yü Group PLC is a leading supplier of gas and electricity focused on
servicing the corporate sector throughout the UK. We drive innovation through
a combination of user-friendly digital solutions and personalised, high
quality customer service. The Group plays a key role supporting businesses in
their transition to lower carbon technologies with a commitment to providing
sustainable energy solutions.
Yü Group has a clear strategy to deliver sustainable profitable growth and
value for all of our stakeholders, built on strong foundations and with a
robust hedging policy. In 2022 the Group launched Yü Smart and Yü Charge to
support growth through new opportunities in smart metering and EV charge
installation. With a significant opportunity in a £50bn+ addressable market,
Yü Group continues to deliver on the medium term goal of £500m of revenues
with an adjusted EBITDA margin in excess of 4%.
CHAIRMAN'S STATEMENT
Delivering high growth, shareholder returns, innovation and expert risk
management.
· Maintaining a steadfast commitment to "best-in-class" corporate
governance as we scale the business to meet our highly ambitious targets in a
£50bn+ market.
· An experienced, seasoned board and a highly resolute, expert
management team have continued to thrive and continued to deliver impressive
results in the face of multiple "Black Swan" challenges.
It is my pleasure to update you on the Group's further progress toward more
meaningful and sustainable profitability, and for the first time in recent
years, the proposed resumption of a modest dividend. We continue to scale our
activities at pace, whilst maintaining a robust and mature approach to
governance, margin protection and effective risk mitigation.
Since my appointment as Independent Non-Executive Chairman in January 2020,
the Group has successfully weathered and emerged stronger from a succession of
"black swan" events. Although still with us, the effects of the pandemic from
2020 onward and severe disruption in the energy supply markets leading to many
failed suppliers in 2021 are starting to abate. In 2022 the war in Ukraine and
movements in the macro-politics of energy supply in general, ushered in a
period of extreme market volatility resulting in greatly increased commodity
prices.
Whilst, more recently, commodity prices have normalised (partly due to
unusually warm temperatures across Europe, a slight increase in available gas
storage levels and relatively lower seasonal demand) we are very aware of the
impact across the markets that such market volatility can have. In particular,
we give great regard to the effects of this volatility on our loyal customers
as well as any resultant changes or moves in the regulatory and political
context to which, as suppliers of energy to UK business, we are subject.
I'm pleased and proud to report that the Group, supported by an experienced
Board and a resolute, highly expert management team, has continued to thrive
and deliver impressive results in the face of these multiple challenges; the
ultimate testament to the strength of the Group.
Continuing to deliver on our strategic priorities
Our mantra and priorities remain the same, being Bigger, Better, Faster and
Stronger.
Financially, we have delivered results ahead of management's expectations for
the year, and our momentum continues to build. Our FY22 revenue increased
significantly, up 79.2% to £278.6m. Adjusted EBITDA has grown from £1.7m to
£7.9m. Profit before tax is up 71% to £5.8m (FY21: £3.4m). Adjusted, fully
diluted, EPS increased from 14p to 30p, a 114% increase. Importantly these
results flowed through into cash with net cash held at the end of the period
increased to £18.8m, up from £6.8m in 2021.
Reflecting our strengthened balance sheet your Board has recommended a final
dividend of 3p per share as part of the reinstatement of a progressive
dividend policy. We have deliberately proposed a modest dividend to allow for
capital to continue to be invested in to support our continued organic growth
and provide flexibility to undertake additional value-accretive potential
M&A activities which could further enhance the business and accelerate
shareholder returns.
Beyond these financial returns, we are pleased to report strong performance
across other metrics: including in customer service and employee engagement.
Encouraged by the indefatigable and entrepreneurial vision of our CEO and
supported by a close-knit senior team of industry-leading quality, we have
continued to invest in technology to maintain the key customer-centric
differentiation of our challenger, agile, business. We continue to position
ourselves as the most agile and leading challenger to the more established and
larger market participants in a £50bn+ market.
Our strategies are demonstrably delivering results and enable the Group to
grow our customer book and increase our top-line sales whilst paying close
attention to the quality of our margins across the links in the value-added
chain and cash collection. Simultaneously we are promoting continual
operational efficiencies within the Group's operations as we drive scale. The
recognition that came from having won the Utility Week "Award for Digital
Transformation" is a testament to the impact of the work undertaken to date.
We have an ongoing programme of further innovations scheduled for 2023 and
beyond.
Our acquisition of certain assets of Magnum Utilities Ltd in the year, which
has been rebranded and is now fully operational as Yϋ Smart, also launches a
new income stream for the Group and is set to unlock significant business
control, pricing, rental and big data-mining benefits over the near and medium
term.
The Directors have an ongoing mission and mandate to identify and consider
further value-enhancing M&A opportunities in order to progress the
profitability of the Group. These are supplementary to our ambitious targets
for accelerating prudent organic growth.
Strength in depth
Your Board's constant philosophy has been to establish, maintain and encourage
a team ready to scale the Group to beyond the £500m mark of revenue. We have
at Board, ExCo and senior leadership levels, established highly experienced
and ambitious specialist teams. We continue to ensure that all of our teams
are fit and capable of realising the Group's ambition to achieve measured
acceleration in the increase of revenue and adjusted EBITDA.
The Group's operational evolution into new business unit ("BU") structures,
reporting to the CEO, has seen the establishment of focused senior management
teams to further drive specified business objectives. Close integration and
cultural alignment ensure that optimal outcomes receive meritocratic focus as
we continue to unlock cross-functional synergies and extract the maximum from
every link in the value added chains across the business. Significant and
stretching short-term and long-term targets have been appropriately set to
align outcomes with reward.
Your Board anticipates a highly positive impact from this approach, both on
the Group's overall performance in 2023 and beyond.
Engagement with our stakeholders and regulatory bodies
During FY22 the Group appointed Liberum as its nominated adviser and broker
("NOMAD") as part of a set of wider objectives to enhance our shareholder
reach. Our advisers provide us with robust support in ensuring compliance with
AIM regulations, whilst also enhancing the quality of our engagement with both
institutional and individual investors.
The Board and management team of the Group take a pro-active approach to
engagement with our main Regulators, being Ofgem, Ofwat, the FCA and AIM. We
have established and continue to develop best practices across the varying
regulated areas as they evolve. During the year there has been an increased
level of engagement with Ofgem and BEIS in response to changes in external
market conditions and the need to address any potential increase in political
and/or reputational risk.
Our approach to customers in debt, and aspects of the management of some of
the Group's key assets have been topics of useful dialogue. During the year
the Group successfully mobilised to deliver various urgent Government business
customer support schemes originating from BEIS. The most material of these was
the Energy Bill Relief Scheme ("EBRS") which provides a large proportion of
business customers with a significant reduction in their energy bills from 1
October 2022 to 31 March 2023.
We continue to engage with stakeholders and will fully and promptly pass
through all benefits due to our customers to support them through this period
of unprecedentedly volatile and high energy commodity prices. Post the EBRS
scheme, we will also implement further schemes as appropriate. We note that
current lower commodity market pricing conditions still suggest a significant,
though hopefully less material, impact on our business customers' bills.
Ensuring good governance and risk management
To reflect our newer activities in the installation of smart meters and EV
charging units, the Group has established a Safety, Health, Environmental and
Quality ("SHEQ") Committee comprised of Bobby Kalar (CEO), John Glasgow
(Independent non-executive Director) and other appropriately qualified
colleagues.
Your Board maintains a steadfast commitment to "best-in-class" corporate
governance. We seek to ensure that we can take advantage of the significant
market opportunities available to us whilst keeping a tight focus on the
mitigation of risk. This we effect by ensuring that our governance framework,
structures, and day-to-day practices are fit and robust enough to be able to
treat and navigate even abnormal or atypical market developments, both now and
in the future, as "business as usual".
We continue to evolve the Group's internal capability as we scale, including
through further developing our own internally available risk and internal
control resources.
Reports on the activities of the Board, including the various topics
considered and the Board's Committees, are set out in the Corporate Governance
section of the annual report.
Our risk management framework and principal risks and uncertainties are
outlined further in the annual report, and have been well tested and reviewed
by management, the Audit Committee and the Board.
Summary: retaining agility and control
Global and market conditions have thrown us several interesting challenges and
yet we have emerged stronger than ever. We continue to deliver our Bigger,
Better, Faster and Stronger strategic objectives whilst maintaining our
characteristic agility as a determined challenger/disruptor.
Whilst we are pleased with the turn-around in the Group's performance over the
last few years we continue to guard against complacency regarding the ongoing
improvements in our governance and operational structures.
I'm enthusiastic and confident about what the future holds for your company
and very much look forward to further updating Shareholders at our scheduled
annual general meeting.
CHIEF EXECUTIVE OFFICER'S STATEMENT
Record financial performance and clear momentum.
· A record breaking financial, operational and growth performance,
exceeding our expectations and delivering shareholder value.
· I am in no doubt that we will continue to deliver strong results and
growth over the coming years.
It has been an incredible year for the Group and despite continued uncertainty
in wholesale commodity markets I'm very pleased with our performance. I am in
no doubt that we will continue to deliver strong results and growth over the
coming years.
Our plan was to be Bigger, Better, Faster and even Stronger than in 2021.
Having achieved this outcome in 2022, our plan for 2023 is continue this
momentum and demonstrate our evolution into a pure scale mode.
Our revenue, adjusted EBITDA, cash generation, and numerous operational
indicators exceeded management expectations in 2022. We have also hit the
ground running and continuing to build momentum into 2023. I therefore remain
very confident in the Group's ability to continue to deliver our ambitious
strategy and unlock significant shareholder value.
Demonstrating resilience and growing in an evolving market
2022 continued to provide market challenges to energy suppliers. In March
2022, as we woke to the announcement that Russia had invaded Ukraine, we saw
unprecedented volatility in the wholesale gas market sending all time high
forward prices even higher.
The energy industry has seen perennial speculation about the sustainability
and profitability of disruptive challengers in the gas and power supply
markets. While the domestic supplier sector has experienced headwinds with the
energy price cap, I see a clear path to significant growth opportunities in
the business supply sector.
Commodity markets have normalised more recently, but prices compared to
historic norms remain high, though less than their peak in Q3 2022. In light
of this reduction in prices, and the peak over winter 2022/23, we do not
anticipate any material impact on the Group through the new amended Government
support scheme from April 2023.
We remain fully hedged in our commodity position which is evidenced in our
improved profitability despite the market volatility. However, we have seen
some operational disruption, particularly as market prices have been so
volatile leading to the need for the Group to temporarily and proactively
suspend new sales acquisition activities at several points during 2022. This
reduced the level of new customer bookings that could otherwise have been
achieved. We have also seen, perhaps understandably, customers more willing to
fix prices for only a short period, again reducing the forward contract book,
though we still exit 2022 with record levels of forward revenue contracted.
Despite this we have managed to continue to deliver high service levels and
have significant momentum into 2023, with bookings being at record levels
despite this market context and volatility.
Shaking the tree as a growing and leading challenger supplier remains our
focus. We pride ourselves on bringing innovation to a benign market,
underpinned by our digital by default approach. This continues to provide
differentiation for the Group.
We also now see a less crowded business-to-business market, with fewer larger
suppliers which leads to a more sustainable market, and also has the benefit
of enabling the Group to differentiate as a leading challenger. Barriers to
entry are high, and compliance with regulatory requirements even more
heightened in view of the wider context.
In summary, in a volatile market we have performed very well; we have
maintained our discipline and we combine innovation, including through
digital, with robust risk management. I'm convinced, as markets settle, we can
improve our performance even further.
Forming Yϋ Smart
The Group acquired the management team and certain processes and policies of
Magnum Utilities Ltd in May 2022, forming the basis of Yϋ Smart - a new
business set up to deliver installation and maintenance services for smart
meters.
I'm pleased with the integration of this new team, who were busy over the
summer of 2022 securing appropriate accreditations to operate from August
2022.
Whilst the business will first and foremost focus on installing smart meters
for our supply customers, the service is also being offered to other suppliers
(in the domestic or non-domestic sectors) and has already secured a contract
with a third-party supplier.
The integration and formation of this new team is an exciting evolution for
the Group, backed by a mandate from Government to accelerate the
implementation. Smart meters provide significant benefits to our customers and
to the Group's operation, and our involvement in the engineering activities is
expected to provide further profitability improvement in 2023 and beyond.
Ambitious objectives
In addition to the establishment of Yϋ Smart, we have ambitious further
targets to deliver benefits over the short to medium term. These include:
Organically scaling the business
Revenue increased by 79% in 2022, to £279m. With bookings continuing the
strong momentum from Q4 2022 as we enter 2023, and significant differentiation
in our offering including through digital, we target significant organic
revenue increase for 2023 and beyond.
Reduction of bad debt
Our charge for bad debt has increased in 2022 (from 3.1% to 7.7% of revenue),
reflecting the higher commodity markets though also a consequence of the
Supplier of Last Resort ("SoLR") appointments made in late 2021 and early
2022. The lack of some customer information through the SoLR process led to
difficulties in following our normal debt processes, and it took some time to
work through the non-paying customer book (albeit such customers generated
higher gross margins). For 2023, we target a significant reduction in bad debt
through this newly cleansed book. We also plan further operational
improvements to reduce this cost significantly.
Value enhancing acquisitions
We have demonstrated over the last three and a half years our ability to
identify and implement value enhancing acquisitions. We will continue to
assess potential acquisitions and will utilise our strong balance sheet where
the target meets our strategic objectives.
Providing shareholder value
My team have delivered across numerous stretch targets in 2022 and I have
every confidence that they will continue to over deliver in 2023 and further.
Alongside these targets, we have also worked hard to improve our stakeholder
engagement, including with shareholders.
Our confidence in the Group's balance sheet is reflected in the establishment
of a progressive dividend policy, commencing with our recommendation to
shareholders of a 3p per share final dividend for FY23. The ex-dividend date
is 1 June 2023, with a payment date of 20 June 2023.
We have also worked hard to develop our investor reach, working with Liberum
and other stakeholders to engage with numerous potential investors, as well as
ensuring engagement with existing stakeholders.
The Group continues to transform. I'm pleased to see the increased business
scale being reflected in the engagement we have with existing and potential
shareholders.
Outlook
· Current trading remains strong as we enter 2023 and we are confident
of achieving current market expectations;
· Significant revenue growth expected, supplementing the £247m
contracted at the end of 2022 to deliver in 2023;
· Management target continued improvement in adjusted EBITDA margin,
with reduced bad debt and continued overhead efficiency benefit as we benefit
from our investment in digital;
· Yϋ Smart now fully operational and targeted to install several
thousand meters in 2023; and
· Continue to seek strategic acquisitions where they enhance returns.
Continuing to deliver
Despite turbulence in the wider market, I'm pleased and proud to note that we
over delivered against our financial and operational targets in 2022.
The opportunity ahead of us remains huge, and I and the rest of the Board and
management will continue to drive performance to unlock shareholder benefit. I
would also like to thank the entire Yϋ Group team for their continued
efforts.
I look forward to updating the market on our progress in the coming months.
FINANCE REVIEW
Increased revenue, adjusted EBITDA and cash.
· We continue strong momentum in financial results, governed via our
clear financial framework
In overview
· Revenue increased 79% to £279m
· Contracted revenue for FY23 of £247m, up 57% on prior year
· Adjusted EBITDA increased to £7.9m, up £6.2m year on year
· Profit before tax increased 72% to £5.8m
· Operating cash inflow of £14.7m, with net cash available of £18.8m
· Adjusted, fully diluted, EPS of 30p, up 16p in the year
· Final dividend of 3p per share recommended
Financial metrics Change 2022 2021
£m unless stated
Revenue +79.2% 278.6 155.4
Gross margin % +6.0% 15.8% 9.8%
Net customer contribution % +1.5% 8.2% 6.7%
General overheads % +0.3% (5.3%) (5.6%)
Adjusted EBITDA % +1.7% 2.8% 1.1%
Adjusted EBITDA +6.2 7.9 1.7
Profit before tax +2.4 5.8 3.4
Net cash flow +16.6 11.9 (4.7)
Closing cash balance +12 19.0 7.0
Overdue customer receivables -2 days 5 days 7 days
Earnings per share (adjusted, fully diluted, pence) +16p 30p 14p
Dividend per share (pence) +3p 3p -
Results summary
Our financial performance for the year ended 31 December 2022 delivered above
management expectations in revenue, EBITDA and cash, and the Board is
confident in continuing this strong trajectory.
Revenue of £278.6m represents a 79.2% growth in year, and we exited 2022 with
£246.8m (up 57% on the prior year) already contracted to deliver in 2023.
Adjusted EBITDA (the Board's key profitability measure) at £7.9m (2021:
£1.7m) represents 2.8% (2021: 1.1%) of revenue. This performance reflects
higher net customer contribution margins (as we secure additional customer
lifecycle value) combined with improved overhead efficiency from the Group's
investment in digital.
Adjusted EBITDA reconciliation 2022 2021
£m
Adjusted EBITDA 7.9 1.7
% of revenue 2.8% 1.1%
Adjusted items:
Non-recurring costs - (0.6)
Unrealised (loss)/gain on derivative contracts (0.9) 3.3
Share based payment charge (FY21 only) - (0.2)
Depreciation and amortisation (1.1) (0.7)
Statutory operating profit 5.9 3.5
Reported profit before tax has increased by 72% to £5.8m, reflecting
significantly higher adjusted EBITDA (up 359%) in the year, though non-cash
derivative accounting gains reported in FY21 have not, as expected, continued.
The Group continues to follow its stated financial framework to:
· drive significant organic growth, supplemented by M&A where value
enhancing;
· improve profitability via increasing customer margins and unlocking
significant overhead leverage savings through our Digital by Default
investments; and
· maintain robust cash management.
The Board is pleased to announce the proposal of a final dividend of 3p per
share, established under a progressive dividend policy.
Building recurring revenue
The Group has recorded a 79.2% growth in revenue year on year (an increase of
£123.2m) and has good visibility for FY23.
FY22 revenue included a significant contribution from new bookings, despite
some customers in H1 and Q3 2022 delaying entering new contracts based on the
high commodity market environment. Record monthly bookings of new customers,
at £48.6m for Q4 2022, were noted. FY22 revenue also included £70m (2021:
£11m) from uncontracted ("Non-Firm") customers.
Contracted revenue continues to provide significant forward visibility in to
FY23, with £247m already contracted at the end of 2022 (2021: £157m to
deliver in 2022). Contract bookings remain strong as we enter FY23, providing
management with significant confidence that the Group will continue its
significant growth trajectory on an organic basis.
Non-Firm volume on supply as at 31 December 2022 was 99GWh, representing
(based on 31 December 2022 tariffs) annualised revenue of £59m. Non-Firm
volume averaged 123GWh in FY22 due to the particularly significant H1 2022
contribution from our appointment as Supplier of Last Resort for AmpowerUK,
Xcel Power and Whoop Energy in late 2021 and early 2022.
Investment in Yü Smart
Adjusted EBITDA includes £1.1m of operational expenditure during the ramp up
of our new smart metering and EV charger installation business.
The Group acquired the management and support team, policies and intellectual
property of Magnum Utilities Limited for a total investment (consideration and
implementation costs) of £0.2m. Metering assets of £0.3m have also been
acquired, in order for the Group to finance installations to provide an
annuity revenue stream.
The Group expects to achieve significant returns from this new activity with
positive EBITDA from engineering activities in FY23 replacing costs previously
outsourced by the Group. In addition, management expects further benefits
through increased penetration of smart meters, including:
· additional real-time data to improve billing and hedging accuracy;
· increased growth rates through the ability to offer more appropriate
products to certain business segments;
· revenue and bad debt protection, including the potential for
customers to access Pay As You Go products; and
· asset returns, from the installation of assets.
In relation to assets, the Board is considering an investment strategy to
invest in customer assets, largely funded by debt, which would provide
potentially significant additional shareholder value.
Leveraging overheads and delivering profit
The Group's overheads were 5.3% of revenue (2021: 5.6%), which includes 0.4%
(as % of revenue) impact from the investment in Yü Smart. Excluding Yü Smart
overheads were 4.9% of revenue, a 0.7% improvement, driven through digital and
scale benefits, with further value expected over the short to medium term.
Management is targeting a 3.7% overhead at £0.5bn revenue, representing a
£8m adjusted EBITDA improvement at that scale.
General overheads actual and management target FY22 Medium-Term Target
£m
Revenue £279m £500m
General overheads %:
Cost to acquire 1.1% 0.9%
Cost to serve 1.7% 1.4%
New business and innovation 0.4% 0.2%
General administrative 2.1% 1.5%
Total general overheads % 5.3% 3.7%
Overhead cost £14.8m* £18.5m
Overhead saving at scale £8.0m
* General overheads comprises £15.85m operating costs charged to the income
statement, less depreciation and amortisation (as per note 4) of £1.05m.
The Group has recognised a £0.9m loss (2021: £3.3m gain) on derivative
accounting. This is mechanically a result of the falling commodity markets
leading to a lower mark-to-market asset in respect of a small proportion of
forward commodity hedges. The Group holds a £3.0m financial derivative asset
(2021: £4.0m) as at 31 December 2022 which is expected to unwind over the
medium term. The Board notes that the derivative accounting gain or loss is a
non-cash item, hence its consistent exclusion from the Group's adjusted EBITDA
result.
Taxation charge of £1.1m (2021: £1.1m credit) is through deferred taxation,
with the Group carrying forward large trading loss allowances (with an asset
value of £4.7m) to be set against the Group's future taxable profits. The
credit in FY21 included the benefit from an increased corporation tax rate
announced, which enhanced the value of carried forward allowances.
Cash and balance sheet management
Cash increased by £11.9m in the year. The Group remains debt free save for
£0.2m of operating lease liability.
Cash flow 2022 2021
£m
Adjusted EBITDA 7.9 1.7
Working capital movement 6.8 (2.5)
Operating cash flow 14.7 (0.8)
Investing activities (2.6) (3.7)
Financing activities (0.2) (0.2)
Net cash movement in year 11.9 (4.7)
Closing cash balance 19.0 7.0
Group receivables and payables have broadly increased in alignment to the
Group's business activities, providing a working capital benefit to cash. A
VAT deferral of £1.1m related to Covid-19 was fully repaid in Q1 2022 which
has been more than off-set by increased payables as the Group benefits from
its positive working capital profile.
Capital investment includes £2.2m of Digital by Default investment, targeted
to further enhance Group returns through growth and efficiency benefits. It
also includes the capital investment of £0.3m in establishing Yü Smart.
Dividend and capital management
The Board recommends the payment of a final dividend of 3p per share, being
circa £0.5m payable in June 2023. The level of dividend is sized to represent
the significant potential opportunities to utilise Group cash to further
develop the business.
Capital plans, in order of priority, for the Group are:
1. Working capital and securitisation management,
including maintaining or enhancing credit lines for commodity hedging
2. Operational investment in marketing and sales to
drive additional organic growth
3. Capital investment in Digital by Default to drive
growth and/or overhead efficiency
4. Asset investment, including in smart meters or EV
infrastructure, largely supported through debt
5. Inorganic growth, with targeted acquisitions which
meet our hurdle rate
6. Dividend or other shareholder return of investment
The Board targets a progressive dividend policy, broadly aligned to earnings
growth as the Group benefits from the stated strategy.
Summary: controlled progression
In summary, the Group is well placed to continue to improve financial returns
to shareholders.
There is significant confidence in maintaining strong growth in revenue; and
our investment in digital and our focus on customer lifecycle value is
expected to further improve adjusted EBITDA margin.
Our approach to commodity hedging continues to deliver despite significant
market volatility. Our investment in Yü Smart provides a significant profit
improvement opportunity from FY23 and beyond.
The Board is therefore pleased to report these significantly improved results
in FY22 at revenue, adjusted EBITDA and cash level, and remain focused on
continuing to improve these measures over the short to medium term.
CONDENSED FINANCIAL STATEMENTS
Condensed consolidated statement of profit and loss and other comprehensive
income
For the year ended 31 December 2022
Notes 31 December 31 December
2022 2021
£'000 £'000
Revenue 278,587 155,423
Cost of sales (234,462) (140,180)
Gross profit 44,125 15,243
Operating costs before non-recurring items and share based payment charges (15,565) (9,407)
Operating costs - non-recurring items 7 - (644)
Operating costs - share based payment charges 22 (284) (249)
Total operating costs (15,849) (10,300)
Net impairment losses on financial and contract assets 16 (21,420) (4,799)
Other (losses) / gains 7 (926) 3,344
Operating profit 4 5,930 3,488
Finance income 5 1 -
Finance costs 5 (91) (96)
Profit before tax 5,840 3,392
Taxation 9 (1,071) 1,059
Profit and total comprehensive income for the year 4,769 4,451
Earnings per share
Basic 8 £0.29 £0.27
Diluted 8 £0.26 £0.26
Condensed consolidated balance sheet
At 31 December 2022
Notes 31 December 31 December
2022 2021
£'000 £'000
ASSETS
Non-current assets
Intangible assets 11 3,111 1,333
Property, plant and equipment 12 3,641 3,751
Right-of-use assets 13 113 193
Deferred tax assets 15 5,300 5,932
Trade and other receivables 16 - -
Financial derivative asset 17 1,562 870
13,727 12,079
Current assets
Stock 345 -
Trade and other receivables 16 54,339 37,339
Financial derivative asset 17 1,484 3,102
Cash and cash equivalents 18 18,970 7,049
75,138 47,490
Total assets 88,865 59,569
LIABILITIES
Current liabilities
Trade and other payables 19 (73,860) (49,743)
Non-current liabilities
Trade and other payables 19 (206) (541)
Total liabilities (74,066) (50,284)
Net assets 14,799 9,285
EQUITY
Share capital 21 83 82
Share premium 21 11,785 11,690
Merger reserve 21 (50) (50)
Retained earnings/(accumulated losses) 21 2,981 (2,437)
14,799 9,285
Condensed consolidated statement of changes in equity
For the year ended 31 December 2022
Share Share Merger Retained Total
capital premium reserve earnings £'000
£'000 £'000 £'000 £'000
Balance at 1 January 2022 82 11,690 (50) (2,437) 9,285
Total comprehensive income for the year
Profit for the year - - - 4,769 4,769
- - - 4,769 4,769
Transactions with owners of the Company
Contributions and distributions
Equity-settled share based payments - - - 210 210
Deferred tax on share based payments - - - 439 439
Proceeds from share issues 1 95 - - 96
Total transactions with owners of the Company 1 95 - 649 745
Balance at 31 December 2022 83 11,785 (50) 2,981 14,799
82 11,690 (50) (7,209) 4,513
Balance at 1 January 2021
Total comprehensive income for the year
Profit for the year - - - 4,451 4,451
- - - 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
Condensed consolidated statement of cash flows
For the year ended 31 December 2022
31 December 31 December
2022 2021
£'000 £'000
Cash flows from operating activities
Profit for the financial year 4,769 4,451
Adjustments for:
Depreciation of property, plant and equipment 325 255
Depreciation of right-of-use assets 80 80
Amortisation of intangible assets 648 352
Unrealised loss/(gains) on derivative contracts 926 (3,344)
Increase in stock (345) -
Increase in trade and other receivables (17,000) (19,700)
Increase in trade and other payables 23,889 17,468
Cash received on obtaining customer contracts - 378
Finance income (1) -
Finance costs 91 96
Taxation 1,071 (1,059)
Share based payment charge 284 249
Net cash from/(used in) operating activities 14,737 (774)
Cash flows from investing activities
Purchase of property, plant and equipment (215) (2,629)
Payment of software development costs (2,210) (1,079)
Payment of consideration on business combination (216) -
Net cash used in investing activities (2,641) (3,708)
Cash flows from financing activities
Net proceeds from share option exercises 96 -
Cash-settled share based payment charge (74) (12)
Interest paid (76) (77)
Principal element of lease payments (121) (120)
Net cash used in financing activities (175) (209)
Net increase/(decrease) in cash and cash equivalents 11,921 (4,691)
Cash and cash equivalents at the start of the year 7,049 11,740
Cash and cash equivalents at the end of the year 18,970 7,049
Notes to the condensed consolidated financial statements
1. Significant accounting policies
Yü Group PLC (the "Company") is a public limited company incorporated 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 2022 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 2022, 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 2022 or 2021 but is derived from those financial statements.
Statutory financial statements for 2021 have been delivered to the registrar
of companies and those for 2022 will be delivered in due course. The auditors
have reported on those financial statements; their reports were (i)
unqualified and (ii) did not contain a statement under section 498 (2) or (3)
of the Companies Act 2006.
The condensed consolidated financial statements are presented in British
pounds sterling (£), which is the functional and presentational currency
of the Group. 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 2022 the Group had net assets of £14.8m (2021: £9.3m) and
cash of £19.0m (2021: £7.0m).
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 (a close profitability measure to cash generated from
operations) in 2022 of £7.9m (2021: £1.7m), which continues the very strong
momentum in the Group's results occurring since 2018. Management is confident
in continuing this improvement in profitability based on its business model.
The profitability delivered in 2022 has been achieved by robust and
disciplined management of gross margin; the successful integration of new
customer books awarded to the Group by Ofgem (AmpowerUK, Xcel and Whoop
Energy), and includes £1.1m op-ex investment in Yü Smart, a business which
is expected to significantly contribute to the Group's financial performance.
The Group has continued its prudent hedging policy protecting the Group from
the significant commodity market price volatility recently experienced, and
has successfully implemented BEIS's Energy Bill Relief Scheme ("EBRS").
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 is at a historic high level, with £19.0m available at 31
December 2022, a material increase on the £7.0m at the end of 2021. This
increase is despite significant investment in digital tools to improve
profitability over the medium term, and the investment in Yü Smart.
The Group has no debt other than £0.2m (at 31 December 2022) 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.
Customer receivables and bad debt
The Board consider customer receivable risks in view of increased energy
prices and cost of living pressures which impact the wider market. With
increased levels of bad debt in FY22, the Board perform sensitivities on
material changes to customer payment behaviour including the timing of
payments or if bad debt levels continue to increase.
The Group has extensive mitigating actions in place. This includes credit
checks at point of sale and throughout the customer lifecycle, the requirement
for some customers to pay reasonable security deposits at the point of sale,
and the offering (ensuring compliance with regulation and good industry
practice) of pay as you go products which enable certain customers to access
more favourable tariffs. The Group also supports customers with payment plan
arrangements, for those customers who will, when able, provide payment, and
will ultimately (for some customers, as appropriate based on the
circumstances) progress legal and/or disconnection proceedings to mitigate
ongoing bad debt.
The Board has also considered the impact of reduced regulatory support
following the planned removal of the Energy Bill Relief Scheme ("EBRS") from 1
April 2023, to be replaced with a less significant scheme for business
customers.
In view of the reduced market prices, and the Group's ability to manage debt
through various mitigating actions, the Board is confident that there will be
no material impact relevant to the going concern assumption.
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
volatility in commodity market prices for forward gas and electricity, this
hedging position and the Board defined risk strategy 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 2021 and Q3 and early Q4
of 2022.
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 be more than the Group's available cash
reserves. The Board also considers likely commercial outcomes relevant for
such a scenario, and mitigating actions available to the Group. Mitigating
actions include, where possible, unwinding forward commodity hedge positions
to prevent the credit position increasing further, which may expose the Group
to increased risk over the medium to long term.
Despite the market volatility experienced in 2022 and early 2023, the Trading
Agreement continues to operate well and provides 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 related to the volatile energy
markets. This risk is considered lower than in the previous year, and the
Board is satisfied that the Group's business model is adequately
differentiated from these market issues.
The Board has also considered the impact of reduced regulatory support
following the planned removal of the Energy Bill Relief Scheme ("EBRS") from 1
April 2023, replaced with a less significant scheme for business customers. In
view of the reduced market prices, and the Group's ability to manage debt, the
Board is confident that there will be no material impact relevant to the going
concern assumption for the accounts.
After a 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.
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 can
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;
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. The utilisation of smart or automatic meters is significant and
growing in the Group, which reduces the amount estimated.
• the level of accrual for unbilled revenue;
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. The accrual for unbilled
revenue is based on prudent assumptions where management has some doubt on the
ability to bill such charges to customers.
• the accrual for certain energy costs;
Certain gas and electricity costs (for example, balancing of the Group's
commodity purchases across industry participants; or the allocation to the
Group of "unidentified gas" which the industry spreads across market
participants) are based on industry or management estimates based on knowledge
of the market, historic norms and estimates of the expected out-turn position
which may be over or underestimates.
• the recoverability of trade receivables and related expected
credit loss provision;
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.
Management also conducts a detailed review of significant debtor balances at
the year end, including exposure after VAT and CCL, provisions and other
accounting adjustments are considered. Sensitivity analysis on estimates is
provided in note 20.
• the level of forward energy commodity contracts which are not
strictly for "own use" under IFRS 9;
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 20.
• the assumptions input to the IFRS 2 share option charge
calculations;
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 including achievement of share
price and EBITDA targets in performance shares.
• the recoverability of deferred tax assets.
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.
The Group's operations include the supply of metering services, or the
installation of metering assets, on behalf of Group companies. Such revenues
are eliminated on consolidation. Where services for metering services or
metering installation services are for the benefit of third parties, revenue
is recognised in line with the work performed. Revenue for smart metering
services is recognised at a point in time.
Government support to customers
The Energy Bills Relief Scheme ("EBRS"), and certain less material (for the
Group) other schemes, implemented by HM Government, through BEIS, results in
customers being provided financial support through a contribution to their
energy charges. Under the EBRS arrangement, amounts receivable from BEIS do
not impact the Group's contract with customers, and therefore the amounts
contributed under EBRS are treated as a cash payment towards customer bills.
As such, revenue recognised is based on the amount chargeable per the contract
with customers which is gross of the amount contributed through EBRS.
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 exclude any cash collateral posted with third parties and
bank accounts which are secured by the Group's bankers (or others). It also
excludes cash held in bank accounts which have, as part of government schemes
such as EBRS, cash balances which are not yet transferred to the Group's main
operating bank accounts.
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. Most 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 20.
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. After initial recognition,
intangible assets acquired in a business combination are reported at their
initial fair value less amortisation and accumulated impairment losses.
Goodwill arising on business combination is accounted for in line with the
business combination disclosure.
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
Goodwill is not amortised, as it is subject to impairment review.
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
• Plant and machinery
- 5 to 15 years
• Computer equipment
- 3 years
• Fixtures and fittings
- 3 years
Assets under construction include smart metering, or other metering, assets
which are acquired by the Group on the basis that they will be installed on
customer premises.
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
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 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 assesses whether it has the right to
direct "how and for what purpose" the asset is used throughout the period of
use.
Measurement and recognition of leases as a lessee
At the lease commencement date, the Group recognises a right-of-use asset and
a lease liability on the balance sheet. The right-of-use asset is measured at
cost, which is made up of the initial measurement of the lease liability, any
initial direct costs incurred by the Group, an estimate of any costs to
dismantle and remove the asset at the end of the lease, and any lease payments
made in advance of the lease commencement date (net of any incentives
received).
The Group depreciates the right-of-use assets on a straight-line basis from
the lease commencement date to the earlier of the end of the useful life of
the right-of-use asset or the end of the lease term. The Group also assesses
the right-of-use asset for impairment when such indicators exist.
At the commencement date, the Group measures the lease liability at the
present value of the lease payments unpaid at that date, discounted using the
interest rate implicit in the lease if that rate is readily available or the
Group's incremental borrowing rate.
Lease payments included in the measurement of the lease liability are made up
of fixed payments (including in-substance fixed), variable payments based on
an index or rate, amounts expected to be payable under a residual value
guarantee and payments arising from options reasonably certain to be
exercised.
Subsequent to initial measurement, the liability will be reduced for payments
made and increased for interest. It is remeasured to reflect any reassessment
or modification, or if there are changes in in-substance fixed payments.
When the lease liability is remeasured, the corresponding adjustment is
reflected in the right-of-use asset, or profit and loss if the right-of-use
asset is already reduced to zero.
The Group has elected to account for short-term leases and leases of low value
assets using the practical expedients. Instead of recognising a right-of-use
asset and lease liability, the payments in relation to these are recognised as
an expense in profit or loss on a straight-line basis over the lease term.
On the statement of financial position, right-of-use assets are separately
identified and lease liabilities have been included in trade and other
payables.
Stock
Stock is held at the lower of cost and net realisable value.
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. Consequently, 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 profit, 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 two operating segments, being the supply of
utilities to businesses ("Yü Retail") and the installation, maintenance and
financing of energy assets ("Yü Smart"). Information on the revenues arising
from the installation, maintenance and financing of energy assets will be
disclosed as an operating separately when the revenue becomes material to the
Group. Segmental assets and liabilities are not reviewed by the Board.
Geographical segments
100% of Group revenue, for both financial years, is generated from sales to
customers in the United Kingdom (2021: 100%) and is recognised at a point in
time.
The Group has no individual customers representing over 10% of revenue (2021:
none).
3. Auditor's remuneration
2022 2021
£'000 £'000
Audit of the Group financial statements 95 72
Amounts receivable by auditor in respect of:
Audit of financial statements of subsidiaries pursuant to legislation 55 44
150 116
4. Operating profit
2022 2021
£'000 £'000
Profit for the year has been arrived at after charging:
Staff costs (see note 6) 9,045 5,634
Depreciation of property, plant and equipment 325 255
Depreciation of right-of-use assets 80 80
Amortisation of intangible assets 648 352
5. Net finance (income)/expense
2022 2021
£'000 £'000
Bank interest and other finance charges payable 77 77
Interest on lease liabilities 14 19
Total finance costs 91 96
Bank interest receivable (1) -
90 96
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:
2022 2021
Number Number
Engineering 7 -
Sales 24 31
Administration 159 114
190 145
The aggregate payroll costs of these persons were as follows:
2022 2021
£'000 £'000
Wages and salaries 8,004 5,043
Social security costs 719 539
Pension costs 144 97
Share based payments 284 249
9,151 5,928
Of which:
Amounts charged to operating profit 9,045 5,634
Amounts related to development and implementation of computer software 106 294
There were three persons employed directly by the Company during the year
ended 31 December 2022 (2021: three), being the non-executive directors. The
Company's two (2021: two) 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:
2022 2021
£'000 £'000
Short-term employee benefits 2,445 1,191
Social security and pension costs 375 165
Share based payments 252 228
3,072 1,584
The highest paid director and remuneration of the executive directors are as
disclosed in the Remuneration Committee Report in 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.
2022 2021
£'000 £'000
Adjusted EBITDA reconciliation
Operating profit 5,930 3,488
Add back:
Share based payment charge - 249
Unrealised loss/(gain) on derivative contracts 926 (3,344)
Non-recurring operational costs - 644
Depreciation of property, plant and equipment 325 255
Depreciation of right-of-use assets 80 80
Amortisation of intangibles 648 352
Adjusted EBITDA 7,909 1,724
The directors consider adjusted EBITDA to be a more accurate representation of
underlying business performance (linked to cash from recurring and normalised
profitability, and available for shareholders) and therefore utilise it as the
primary profit measure in setting targets and managing financial performance.
From 2022, share based payment charges are included (i.e. set against)
adjusted EBITDA.
The unrealised loss on derivative contracts of £926,000 (2021: gain of
£3,344,000) 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 17. Such
amounts are typically non-cash impacting.
The non-recurring operational costs in 2021 of £644,000 relates to accrued
industry costs mutualised across energy market participants. There are no such
costs or gains in 2022.
8. Earnings per share
Basic earnings per share
Basic earnings per share is based on the profit attributable to ordinary
shareholders and the weighted average number of ordinary shares outstanding.
2022 2021
£'000 £'000
Profit for the year attributable to ordinary shareholders 4,769 4,451
2022 2021
Weighted average number of ordinary shares
At the start of the year 16,316,215 16,281,055
Effect of shares issued in the year 180,818 18,591
Number of ordinary shares for basic earnings per share calculation 16,497,033 16,299,646
Dilutive effect of outstanding share options 1,722,632 1,099,153
Number of ordinary shares for diluted earnings per share calculation 18,219,665 17,398,799
2022 2021
£ £
Basic earnings per share 0.29 0.27
Diluted earnings per share 0.26 0.26
Adjusted earnings per share
Adjusted earnings per share is based on the result attributable to ordinary
shareholders before non-recurring items after tax, unrealised losses or gains
on derivative contracts and the weighted average number of ordinary shares
outstanding (for 2021, the share based payment charge is excluded):
2022 2021
£'000 £'000
Adjusted earnings per share
Profit for the year attributable to ordinary shareholders 4,769 4,451
Add back operating profit adjusting items (per note 7):
Non-recurring items after tax - 522
Unrealised loss/(gain) on derivative contracts after tax (gross loss, before 750 (2,709)
tax, of £926,000)
Share based payments after tax - 202
Adjusted basic profit for the year 5,519 2,466
Adjusted earnings per share £0.33 £0.15
Diluted adjusted earnings per share £0.30 £0.14
9. Taxation
2022 2021
£'000 £'000
Deferred tax charge/(credit)
Current year 1,365 (631)
Adjustment in respect of prior years (294) (428)
Total tax charge/(credit) 1,071 (1,059)
Tax recognised directly in equity
Current tax recognised directly in equity - -
Deferred tax recognised directly in equity (439) (84)
Total tax recognised directly in equity (439) (84)
Reconciliation of effective tax rate
Profit before tax 5,840 3,392
Tax at UK corporate tax rate of 19% (2021: 19%) 1,110 644
Expenses not deductible for tax purposes 50 26
Tax relief on exercise of share options (135) (18)
Impact of temporary differences 130 (94)
Adjustments in respect of prior periods - deferred tax (243) (428)
Timing difference on utilisation of deferred tax balances 159 -
Increase in tax rate on deferred tax balances - (1,189)
Tax charge/(credit) for the year 1,071 (1,059)
There is no current tax charge for the year (2021: nil).
Deferred taxes at the 31 December 2022 and 31 December 2021 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 from 1 April 2023 increases from the current 19% to 25%.
10. Dividends
The Group did not pay an interim dividend in relation to 2022 (2021: nil per
share).
The directors propose a final dividend in relation to 2022 of 3p per share
(2021: nil per share).
11. Intangible assets
Electricity Goodwill Customer Software and
licence £'000 books systems Total
£'000 £'000 £'000 £'000
Cost
At 1 January 2022 62 - 686 1,079 1,827
Additions - 216 - 2,210 2,426
At 31 December 2022 62 216 686 3,289 4,253
Amortisation
At 1 January 2022 14 - 473 7 494
Charge for the year 2 - 213 433 648
At 31 December 2022 16 - 686 440 1,142
Net book value at 31 December 2022 46 216 - 2,849 3,111
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
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.
Goodwill of £216,000 arises on the acquisition of the management and certain
other assets of Magnum Utilities Limited in May 2022, as disclosed in note 26.
The acquisition created the foundations for the Yü Smart business unit
established in the year.
Goodwill is reviewed annually for signs of impairment. The underlying assets
related to the goodwill have been classified in a wider cash generating unity
related to smart metering activities.
The customer book intangibles relate to the two separate acquisitions that
took place in 2020. They represent the fair value of the customer contracts
purchased in those acquisitions. The intangible assets were 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
Group Freehold land and property Assets under Fixtures and Plant and Computer Total
£'000 construction fittings machinery equipment £'000
£'000 £'000 £'000 £'000
Cost
At 1 January 2022 3,424 - 337 - 353 4,114
Additions - - 5 73 137 215
At 31 December 2022 3,424 - 342 73 490 4,329
Depreciation
At 1 January 2022 73 - 103 - 187 363
Charge for the year 109 - 102 - 114 325
At 31 December 2022 182 - 205 - 301 688
Net book value at 31 December 2022 3,242 - 137 73 189 3,641
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 3,424 - 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 3,351 - 234 - 166 3,751
Freehold land of £150,000 (at cost and net book value) is included in
freehold land and property.
Assets under construction acquired in 2022 relates to smart meters which are
targeted to fit on customer sites.
13. Right-of-use assets and lease liabilities
Group Right-of-use
assets
£'000
Cost
At 1 January 2022 799
Additions -
At 31 December 2022 799
Depreciation
At 1 January 2022 606
Charge for the year 80
At 31 December 2022 686
Net book value at 31 December 2022 113
Cost
At 1 January 2021 799
Additions -
At 31 December 2021 799
Depreciation
At 1 January 2021 526
Charge for the year 80
At 31 December 2021 606
Net book value at 31 December 2021 193
The Group has a lease arrangement for its main office facilities in
Nottingham. Other leases are short term or of low value underlying assets. The
Nottingham office lease is reflected on the balance sheet as a right-of-use
asset and a lease liability at 31 December 2022 and 31 December 2021.
The table below provides details of the Group's right-of-use asset and lease
liability recognised on the balance sheet at 31 December 2022:
Right-of-use asset Remaining term Asset carrying Lease liability Depreciation Interest expense
Borrowing rate amount expense
Premises 1.5 years 5% £113,000 £160,000 £80,000 £14,000
The total cash outflow for leases in 2022 was £161,000 (2021: £120,000).
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 FY22 the amount expensed to profit and loss was
£40,000 (2021: £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,
all of which are incorporated in the United Kingdom:
Company name Holding Proportion of Nature of business
shares held
Yü Energy Holding Limited Ordinary shares 100% Gas shipping services and holding company
Yü Energy Retail Limited Ordinary shares 100%(1) Supply of energy to businesses
Yu Water Limited Ordinary shares 100% Supply of water to businesses
KAL Portfolio Trading Limited Ordinary shares 100% Dormant
Yü-Smart Limited Ordinary shares 100% Smart metering installation and maintenance
Yü Services Limited Ordinary shares 100% Dormant, holding company
Yü PropCo Limited Ordinary shares 100%(2) Dormant
Kensington Meter Assets Limited Ordinary shares 100%(2) Financing of energy meter assets
All of the above entities are included in the condensed consolidated financial
statements and are direct holdings of the Company except:
(1) Yü Energy Retail Limited is a subsidiary of Yü Energy Holding Limited
(2) Yü PropCo Limited and Kensington Meter Assets Limited are both
subsidiaries of Yü Services Limited
15. Deferred tax assets
Deferred tax assets are attributable to the following:
2022 2021
£'000 £'000
Property, plant and equipment (21) (45)
Tax value of loss carry-forwards 4,717 5,812
Share based payments 604 165
5,300 5,932
Movement in deferred tax in the period:
At Recognised Recognised At
1 January 2022 in income directly in equity 31 December 2022
£'000 £'000 £'000 £'000
Property, plant and equipment (45) 24 - (21)
Tax value of loss carry-forwards 5,812 (1,095) - 4,717
Share based payments 165 - 439 604
5,932 (1,071) 439 5,300
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
The deferred tax asset is expected to be utilised by the Group in the coming
years and there is no time limit to utilisation of such losses. 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
2022 2021
£'000 £'000
Current
Gross trade receivables 30,977 11,618
Provision for doubtful debts and expected credit loss (19,499) (6,007)
Net trade receivables 11,478 5,611
Accrued income - net of provision 31,842 21,972
Prepayments 3,065 4,183
Other receivables 7,954 5,573
54,339 37,339
Movements in the provision for doubtful debts and expected credit loss in
gross trade receivables are as follows:
2022 2021
£'000 £'000
Opening balance 6,007 5,162
Provisions recognised less unused amounts reversed 21,071 4,185
Provision utilised in the year (7,579) (3,340)
Closing balance - provision for doubtful debts and expected credit losses 19,499 6,007
The directors have assessed the level of provision at 31 December 2022 by
reference to the recoverability of customer receivable balances post the year
end, and believe the provision carried is appropriate.
An additional provision of £349,000 (2021: £614,000) for expected credit
loss on accrued income was charged in the period, leading to a total provision
at 31 December 2022 of £1,830,000 (2021: £1,481,000). Expected credit losses
and the recognition, where appropriate, of previous customer credit balances
are recognised in the income statement as net impairment losses on financial
and contract assets.
The net impairment losses on financial and contract assets of £21,420,000
(2021: £4,799,000) consist of £349,000 (2021: £614,000) provision charged
for expected credit loss on accrued income, and £21,071,000 (2021:
£4,185,000) provision for bad debts and expected credit loss on trade
receivables.
The directors consider that the carrying amount of trade and other receivables
approximates to their fair value due to their maturities being short term.
Other receivables include £2,100,000 receivable from the Government's Energy
Bill Relief Scheme (2021: £nil). Such amount was reclaimed and received by
the Group in January 2023.
Other receivables include a further £69,000 of cash held in bank accounts
owned by the Group which are related to Government led support for customers.
17. Financial derivative assets
2022 2021
£'000 £'000
Current 1,484 3,102
Financial derivative asset
Non-Current 1,562 870
Financial derivative asset
The current and non-current financial derivative asset of £3,046,000 (2021:
£3,972,000) 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 the volume of
commodity purchased valued at market prices available at the balance sheet
date over the traded price of the forward contracts). The asset has decreased
in the year largely due to the decrease in forward gas and power market prices
and as previous lower priced trades delivered in 2022. The risks and
sensitivities in relation to the asset are further detailed in note 20.
18. Cash and cash equivalents
2022 2021
£'000 £'000
Cash at bank and in hand 18,970 7,049
18,970 7,049
The cash and cash equivalents amounts exclude £569,000 of cash which is
included in other receivables. £500,000 of this cash balance is held on
deposit and secured under arrangements with the Group's bankers, with a
further £69,000 having been transferred to the Group as part of Government
led schemes which remains due to customers at the balance sheet date.
19. Trade and other payables
2022 2021
£'000 £'000
Current
Trade payables 4,636 3,690
Accrued expenses 55,281 34,545
Lease liabilities 112 107
Tax and social security 5,587 6,188
Other payables 8,244 5,213
Amounts due to subsidiary undertakings - -
73,860 49,743
Non-current
Accrued expenses 158 381
Lease liabilities 48 160
206 541
20. 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 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.
Increased volatility of global gas and electricity commodity prices has
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 2022 for those
contracts not assumed to be strictly for "own use" is a charge of £926,000
(2021: gain of £3,344,000). See note 17 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 2022 2021
possible increase/ Impact on profit Impact on profit
decrease in and net assets and net assets
variable £'000 £'000
UK gas (p/therm) +/-25% 831 793
UK power (£/MWh) +/-25% 2,227 1,470
3,058 2,263
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 £466,000 (2021: £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 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 because 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 (as
noted above) 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 with SmartestEnergy in December
2019, has reduced this liquidity risk in view of the significant credit limit
being provided. This arrangement provides the 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. Where markets fall rapidly and unexpectedly, the cash collateral
requirement may be greater than the Group's cash reserves. In extreme
circumstances, 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 such as holding
growth activities.
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 lower energy commodity
markets experienced at the end of 2022, this credit risk has reduced to
approximately £47m as at 31 December 2022, and has decreased in early 2023 as
global market prices have softened. 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, though increased prices have
resulted in greater amounts owed by some customers. New customers have their
credit checked using an external credit reference agency prior to being
accepted as a customer. The provision of a smart meter is also mandatory for
some sales channels.
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,
and required security deposits in advance where appropriate. At 31 December
2022 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 financing 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 2022 the Group held a provision against doubtful debts and
expected credit loss of £21,329,000 (2021: £7,488,000). This is a combined
provision against both trade receivables at £19,499,000 (2021: £6,007,000)
and accrued income at £1,830,000 (2021: £1,481,000). The increase reflects
an increased business activity and a higher value of Non-Firm revenue due to
increased market prices.
In relation to trade receivables, after provision and accounting for VAT
reclaimable, the exposure assessed by directors is less than 5% of the gross
balance. If this exposure was +/-1% of that assessed, the gain or loss arising
recognised in the income statement and impacting net assets would be
+/-£316,000.
If the expected customer credit loss rate on accrued income was +/-10%, the
gain or loss arising would be +/-£183,000.
(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.
The Board 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.
Scenarios of falling commodity markets, including potential to mitigate to
avoid significant margin calls for cash collateral, are also considered by the
Board.
In a very low probability scenario where long-term commodity prices along the
curve hedged by the Group decrease (from forward prices at 1 February 2023) by
25% for the Summer of 2023, and 50% thereafter, the Group could fully utilise
its credit line and require collateral of up to £22m unless this is otherwise
mitigated by actions from management. The Board believes such a scenario to be
a low probability, though monitors the position regularly to ensure
appropriate mitigating actions are instigated where appropriate. Such
mitigating actions would include, in certain market conditions, the need to
temporarily extend credit lines with trading counterparties, or to unwind some
of the forward hedged position to prevent this credit exposure arising to a
level which could not be met by the Group's cash reserves.
Any excess cash balances are held in short-term deposit accounts which are
either interest or non-interest accounts. At 31 December 2022 the Group had
£18,970,000 (2021: £7,049,000) of cash and bank balances (as per note 18).
(d) Foreign currency risk
The Group trades entirely in pounds sterling and therefore it has no foreign
currency risk.
21. Share capital and reserves
Share capital 2022 2022 2021 2021
Number £'000 Number £'000
Allotted and fully paid ordinary shares of £0.005 each 16,649,618 83 16,316,215 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. The movement in the year relates to the exercise of
various share options, at exercise prices of between £0.005 and £1.40.
The share premium account represents amounts received on the issue of new
shares in excess of their nominal value, net of any direct costs of any
shares issued. The share premium movement in the year relates to the excess,
where appropriate, of the price at which options were exercised during the
year over the £0.005 par value of those shares.
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.
22. 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 terms and conditions of the outstanding grants made under the Group's
schemes are as follows:
Exercisable between
Date of grant Expected Commencement Lapse Exercise Vesting Amount Amount
term price schedule outstanding at outstanding at
31 December 31 December
2022 2021
17 February 2016 3 17 February 2019 17 February 2026 £0.09 1 13,500 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 43,950
6 April 2017 6.5 6 April 2020 6 April 2027 £2.844 1 87,900 87,900
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 59,084
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 20,000 48,497
25 February 2019 3 25 February 2022 25 February 2029 £0.005 1 - 250,000
18 June 2019 3 1 August 2022 1 February 2023 £1.40 2 - 62,483
4 October 2020 3 30 April 2023 4 October 2030 £0.005 3 210,696 210,696
4 October 2020 3 30 April 2024 4 October 2030 £0.005 3 172,388 172,388
1 June 2021 3 30 April 2024 4 October 2030 £0.005 3 - 76,616
13 May 2022 1 30 April 2023 4 October 2030 £0.005 3 12,769 -
13 May 2022 2 30 April 2024 4 October 2030 £0.005 3 25,539 -
1 December 2022 3 1 January 2026 4 October 2030 £0.005 2 179,267 -
19 December 2022 3.3 30 April 2024 4 October 2030 £0.005 4 837,000 -
1,722,632 1,099,153
Weighted average remaining contractual life of options outstanding at 31 8.0 years 7.1 years
December 2022
The following vesting schedules apply to the options:
1. 100% of options vest on the third anniversary of date of grant.
2. 100% of options vest on the third anniversary of the Save As You Earn
("SAYE") savings contract start date.
3. The level of vesting is dependent on a performance condition, being
the Group's share price at pre-determined dates.
4. The level of vesting is dependent on a performance condition, being
the Group's EBITDA performance (or for 75,000 outstanding options, asset
installation targets) over a qualifying period.
The share price at the date of grant of options during 2022 was £2.08 at 13
May 2022, £3.93 at 1 December 2022 and £4.18 at 19 December 2022.
The number and weighted average exercise price of share options were as
follows:
2022 2021
shares shares
Balance at the start of the period 1,099,153 1,290,699
Granted 1,055,364 76,616
Forfeited (98,482) (233,002)
Lapsed - -
Exercised (333,403) (35,160)
Balance at the end of the period 1,722,632 1,099,153
Vested at the end of the period 284,973 278,473
Exercisable at the end of the period 284,973 278,473
Weighted average exercise price for:
Options granted in the period £0.393 £0.005
Options forfeited in the period £0.256 £1.880
Options exercised in the period £0.289 £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:
2022 2021
Dividend yield 0% 0%
Risk-free rate 2.1% 1.5%
Share price volatility 117% 115%
Expected life (years) 3 years 3 years
Weighted average fair value of options granted during the period £3.87 £2.30
The share price volatility assumption is based on the actual historical share
price of the Group since listing in March 2016.
The total expenses recognised for the year arising from share based payments
are as follows:
2022 2021
£'000 £'000
Equity-settled share based payment expense 210 237
Cash-settled share based payment expense 74 12
Total share based payment charge 284 249
Cash-settled share based payment expense relates to employer's National
Insurance payable on the exercise of unapproved (for tax purposes) share
options.
23. 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 2022 (2021: £nil).
Security
The Group entered an arrangement with a commodity trading counterparty,
SmartestEnergy Ltd, 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.
Yü Group PLC provides parent company guarantees on behalf of its wholly owned
subsidiaries to a small number of industry counterparties as is commonplace
for the utilities sector.
Included in other receivables 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 2022 (2021: £nil).
24. 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 2022 the
Group paid £120,000 in lease rental and service charges to CPK Investments
Limited (2021: £130,000). There was no amount owing to CPK Investments
Limited at 31 December 2022 (2021: £nil).
All transactions with related parties have been carried out on an arm's length
basis.
25. Net cash/(net debt) reconciliation
The net cash/(net debt) and movement in the year were as follows:
2022 2021
£'000 £'000
Cash and cash equivalents 18,970 7,049
Lease liabilities (160) (267)
Borrowings - -
Net cash 18,810 6,782
Borrowings Leases Cash Total
£'000 £'000 £'000 £'000
Net cash/(net debt) as at 1 January 2021 - (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
Cash flows - 121 11,921 12,042
Interest and other changes - (14) - (14)
Net cash/(net debt) as at 31 December 2022 - (160) 18,970 18,810
26. Business combinations
On 9 May 2022 the Group acquired (from administration) certain assets of
Magnum Utilities Limited, including the management team of the business. The
acquisition provided the foundation to create Yü Smart, being new Group
capability to install, service and maintain smart meters and EV charging
assets.
The values identified in relation to the acquisition are final at 31 December
2022. The fair values of the identifiable assets acquired and recognised at
the date of acquisition were £224,000 comprising IT and office equipment of
£8,000 and goodwill of £216,000. The goodwill is attributable to the
management team, operational and industry knowledge and policies and processes
of the acquired business.
Total consideration and other costs of £224,000 were paid at or closely after
completion. No further consideration is payable. The new business contributed
no revenue and total operating costs of £1,100,000 during the year, expensed
to operating costs in the income statement.
No business combinations or acquisitions took place in 2021.
27. Post-balance sheet events
There are no significant post-balance sheet events.
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