REG - Yu Group PLC - Final Results
19/03/2024 07:00
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RNS Number : 3209H Yu Group PLC 19 March 2024
19 March 2024
Yü Group PLC
("Yü Group" or the "Group")
Final results for the year ended 31 December 2023
Yü Group PLC (AIM; YU.), the independent supplier of gas and electricity, and
meter asset owner and installer of smart meters, to the UK corporate sector
announces its final audited results for the year to 31 December 2023.
The Group continues to report significant growth in revenue, profitability,
cash generation and other key metrics. The Board expects to continue to
deliver sustainable and profitable growth as the significant market
opportunity available is seized by the Group's differentiated position and
digital capabilities.
Financial & Operational Highlights
31 December 2023 2022 Change
£'000 unless stated
Financial:
Revenue 460,001 278,587 +65%
Adjusted EBITDA1 42,616 7,909 +439%
Profit before tax 39,699 5,840 +580%
Earnings per share:
Adjusted, fully diluted £1.82 £0.30 +£1.52
Statutory, Basic £1.85 £0.29 +£1.56
Dividend per share (Interim & Final) 40p 3p +37p
Operating cash inflow 16,132 14,737 +£1.4m
Net Cash(2) 32,122 18,970 +£13.2m
Net Cash plus collateral(3) 81,944 18,970 +£63.0m
Overdue customer receivables (days)(4) 4 5 -1 days
Operational:
Average Monthly Bookings (£'m) 55.5 24.5 +127%
Contracted Revenue for next FY (£'m) 520 247 +111%
Aggregate Contracted Revenue (£'m) 826 361 +129%
Meter Points Supplied (#) 53,400 25,500 +109%
TrustPilot Score (#) 4.1 4.0 +0.1
Employee Engagement (%) 84% 80% +4%
Smart meter installations (#) 8,500 1,033 +7,467
Smart-Meter Index-linked, annualised Income (£'m) 0.16 - +£160k
Financial performance
· Revenue of £460.0m, up 65% in year (FY22: £278.6m) following strong
sales bookings.
· Adjusted EBITDA at £42.6m (FY22: £7.9m), with strong Net Customer
Contribution(5) performance as the Group scales and benefits from its market
positioning and investment in digital and smart meters.
· Profit before tax increased to £39.7m (FY22: £5.8m) and fully
diluted, adjusted EPS of £1.82 (FY22: £0.30).
· Net Cash plus collateral at 31 December 2023 of £81.9m (FY22:
£19.0m), representing £4.89 per share.
· Operational cash inflow of £16.1m (FY22: £14.7m) after £49.8m
collateral outflow, now fully returned, as part of energy trading
arrangements.
· Final recommended dividend of 37p per share (FY22: 3p), providing
total FY23 dividend of 40p per share (FY22: 3p) which is covered 4.6x by
earnings.
· Capital reduction process commenced to cancel the share premium
account and increase distributable reserves by £11.9m to enable further
flexibility around future capital distributions.
Strong operational delivery
· New five-year, transformational, trading agreement with Shell Energy
Europe Limited ("Shell"), provides efficient access to commodity markets,
sized for significant continued growth whilst transforming the Group's working
capital profile by removing the requirement to post cash as collateral. Cash
previously lodged as collateral has now returned to the Group post period end.
· Continued focus on customer service resulting in 4.1 TrustPilot score
(FY22: 4.0). Investment in UK contact centre capability and further shift
towards digital-led contact provides strong market positioning for the Group.
· Yü Smart continues to scale providing operational benefits alongside
a growing high margin annuity income, with increasing headcount expected to
provide growth, efficiency benefits and national coverage.
Current trading and outlook
· Strong bookings and margin performance is continuing into 2024,
despite lower commodity market environment.
· Expect to deliver organic growth of c. 50% in FY24 despite lower
commodity prices:
o £520m contracted revenue at end of 2023 for FY24 delivery (2022: £247m
for FY23), plus strong bookings momentum and further non-contracted book.
o Board targets significant market-share growth (from current 1.4%).
· The Board targets over 25,000 smart meters owned by the end of 2024
to provide benefits on customer lifecycle value, together with a recurring,
index-linked, annuity income of c.£1m per annum.
· Strong profitability expected as the Group benefits from its
well-hedged commodity position; investment in digital; expansion of smart
meters; and service-led market positioning.
· Very strong operational cash generation forecasted for FY24, from
EBITDA conversion to cash and the working capital benefits of the new trading
agreement with Shell.
· Board confirms the intent to progressively increase dividend
distribution, in a sustainable manner, as earnings grow whilst maintaining at
least 3x cover on EPS in the short to medium term.
Bobby Kalar, Chief Executive Officer, stated:
"It's been an extraordinary year and I'm very pleased with our strong
performance, delivering another record breaking set of results. We have a
strong forward order book which continues to build into 2024, and with this
high degree of predictability, I remain confident in delivering another strong
performance and continuing to deliver further shareholder value in 2024 and
beyond.
We've made significant strategic and operational progress. I'm very excited by
the capability of Yü Smart and the value it creates for the Group. We have a
transformational new commodity trading agreement with Shell, and all the
foundations and digital-led systems in place to ensure continued growth.
We are increasing our dividend payment to reward our loyal investors and we
look forward to providing further growth in shareholder distributions.
I'm grateful to the Board who continue to deliver the right blend of challenge
and encouragement to me and my team."
Analyst presentation and publication of annual report
A presentation for analysts will be held at 9am GMT today, Tuesday 19 March
2024. Anyone wishing to attend should please contact yugroup@teneo.com
(mailto:yugroup@teneo.com) for further information.
An electronic version of the full annual report will be published on the
Group's website, www.yugroupplc.com (http://www.yugroupplc.com) , later today
(19 March 2024).
1 Adjusted EBITDA is earnings before interest, tax, depreciation and
amortisation, and gains or losses on derivative contracts. 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,
excluding any lease liabilities.
(3) Net cash plus the £49.8m of cash held as collateral against the previous
hedging agreement at 31 December, since returned to the Company, post year
end, on entry into the new facility with Shell.
(4) 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).
(5) Net Customer Contribution represents gross margin less bad debt as a
percentage of revenue.
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
Satbir Kler
Anake Singh
Teneo +44 (0) 20 7353 4200
Giles Kernick
Tom Davies
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 (in a
£50bn+ addressable market) and value for all of our stakeholders, built on
strong foundations and with a robust hedging policy. The Group has achieved a
compound annual growth rate of over 60% over the last four years, and has
consistently improved margin and profitability performance. In 2023 the Group
launched Yü Smart and Yü Charge to support growth through new opportunities
in smart metering installation.
Chairman's Statement
DELIVERING OUR STRATEGY
Delivering strong organic growth and sustainable returns within the framework
of a strong commitment to best-in-class corporate governance and risk
management.
In the face of a turbulent and volatile year for commodity prices where energy
prices experienced a precipitous decline, Yü Group's financial results have
continued to demonstrate rapid and controlled positive momentum. Since January
2020, we have scaled at a 65% compound annual growth sales rate and now have
achieved a modest 1.4% share of our £50 billion-plus addressable
business-to-business energy supply market. We have become an increasingly
well-recognised challenger and disruptor in our chosen markets and this has
been recognised across the board from winning the AIM Company of the Year to
The Sunday Times People awards.
In many ways, this has been an exceptional year and I have confidence in the
Group's ability to continue its high organic growth in volumes sold and to
maintain attractive margins. Our platform has been established and proved out
and we are now seeking to materially grow our market share in the coming
years. We enter FY24 with a forward order book of £826m to deliver in the
coming years, of which £520m is contracted revenue for FY24.
The team, under the energetic stewardship of Bobby Kalar as Chief Executive
Officer, continue to focus on ensuring high customer service levels,
introducing innovative customer-centric products and increasing impetus on
meter supply and installation whilst maintaining strict controls and processes
that underpin our business. The further development of our essential core
"Digital by Default" technological platform is proceeding apace.
The Group's unique market positioning and clearly differentiated customer
proposition offer customers simple, quick and easy access to energy and to the
efficient management of that supply.
Delivering results
Since 2019 Yü Group has demonstrated continued positive progress in financial
results. Revenues increased by 65% in the year to £460.0m (2022: £278.6m);
adjusted EBITDA rose to £42.6m (2022: £7.9m), representing a 9.3% EBITDA
margin (2022: 2.8%); and earnings per share (on an adjusted, fully diluted
basis) grew to £1.82 (2022: £0.30).
Our cash position has been robust and will be materially enhanced in H1 24 by
our new commodity trading agreement with Shell. This arrangement provides the
Group with scalable, "capital light" access to the ability to supply and to
manage hedges on wholesale commodities without the previous requirement to
post significant amounts of cash collateral. At 31 December 2023, cash and
collateral posted equated to £4.89 per share, providing a strong foundation
from which to accelerate investment in further growth and increase returns.
In addition to the 3p interim dividend, the Board is recommending a final 2023
dividend of 37p per share (2022: 3p). Strong cash generation remains a focus,
and we hope to maintain and enhance our progressive dividend policy as Group
earnings and cash flow increase whilst retaining ample cover of at least 3x
earnings.
Recognition in The Sunday Times' "Best Places to Work 2023" illustrates
increasing maturity and the fostering of a "can-do" and agile culture. We have
continued to attract industry-leading talent to key positions to assist in
driving further growth. Cohesive, highly engaged teams of seasoned,
industry-experienced professionals and colleagues are delivering in a volatile
market, and we continue to build our teams with our sights firmly set on
achieving revenue of £1 billion p.a. and beyond.
Health and safety, customer service, risk, credit, employee engagement and
compliance indicators have all performed strongly and continue to drive
performance within an agile and entrepreneurial culture.
We do not intend to rest on our laurels and are highly ambitious for the
future.
Our commitment to shareholders and stakeholders
We remain steadfast in our commitment to best-in-class corporate governance,
details of which are covered more fully in the corporate governance section of
the annual report.
Ahead of requirement, we have adopted the 2023 Quoted Companies Alliance
("QCA") Code early to assist in the promotion of best practice.
The Board, through activities overseen by the Audit Committee and delivered
through the Executive Committee, has also continued to improve the Group's
risk and opportunity framework, ensuring that it is deeply embedded throughout
the organisation. During the course of FY23, this was particularly robust in
ensuring an "eyes wide open" approach to assessing risk and the determination
of judiciously balanced levels of risk and opportunity appetite.
Focus on our commodity hedging arrangements remains a large part of our risk
management strategy. Extensive external review and due diligence conducted in
2023 and early 2024 as part of our major new commodity trading agreement with
Shell allowed us to enter into a mutually beneficial trading and commodity
hedging arrangement. Our commodity hedging programme has been stress-tested
over various black-swan events which increased commodity volatility to 20 year
highs and we have demonstrated through our results that our hedging remains
robust even in highly volatile markets.
We remain focused on delivering for shareholders and continue to evolve our
engagement activities. This year our first on-site "Capital Markets Day" was
hosted by our Chief Executive Officer and Leadership Team. I was particularly
pleased to hear the feedback from investors and potential investors alike who
were able to see, first hand, the "bench strength" throughout our
organisation.
We have made further appointments to support our interactions with Ofgem,
Ofwat and our other regulators. We continue to deliver the BEIS energy support
schemes which supported our customers through a difficult period in energy
markets. As our business and market share grow, we will engage proactively
with regulators and all other stakeholders.
Summary
Yü Group continues to not just weather the storms of the commodity markets
and other "black-swan" macro-events but is also able to succeed by agility,
maturity and determination, in turning threats into opportunities. This is
thanks to its highly committed team to whom I am grateful for all their
"beyond the call" efforts. We intend to continue to deliver increasing and
sustainable value to our shareholders.
Robin Paynter Bryant
Chairman
Chief Executive Officer's Statement
CONTINUING TO DELIVER SIGNIFICANT AND SUSTAINABLE GROWTH
A fantastic performance for the Group, and significant growth to come.
I'm very pleased to report another excellent performance for the Group
achieved against the backdrop of softening commodity markets. There is a
substantial market growth opportunity in the SME supply space for a challenger
brand like ours to focus on, and our growth strategy is delivering. Our market
share has grown 40% in a year but still only stands at 1.4% providing ample
scope for future growth; and we have the platform in place and the opportunity
is there.
I'm proud to say that my management team has navigated the Group's performance
such that we've exceeded all our financial targets even accounting for three
upgrades to market guidance. We have a robust balance sheet, a very strong
forward order book and significant momentum in growth and customer service
metrics. With this backdrop I'm confident in the continued growth trajectory
and ability to outperform against our own ambitious internal targets. I'm also
very pleased that growth this year has seen us become the thirteenth largest
supplier in the UK Business supply sector.
While there are challenges as well as opportunities in every business, the gas
and power market has seen unprecedented volatility over the past years which
has impacted both suppliers and customers alike. In order to support our
customers during the cost of energy crisis we introduced a number of support
measures such as agreeing short term supply contracts to "blending and
extending" customers who were in existing contracts. These initiatives worked
well and helped our customers overcome difficult periods. The Group's
performance exceeded expectations; and in a falling market has proved it can
continue scaling sustainably using our strong balance sheet.
Yü Energy
I'm delighted with the performance of our retail energy supply business, with
our digital platforms performing well, enabling our growth by using data to
drive decisions. Our retail business has consistently exceeded its KPIs
delivering strong cash generation, growth in contracted meter point numbers
and commodity volumes. This is especially pleasing given that wholesale
commodity prices have been falling. Whilst nobody can predict the future given
what the industry has been through over the past few years, I'm pleased we
have a very strong forward order book that has contracted revenues in excess
of £500m for 2024 and is now filling contracts into 2027.
Our market positioning, digital tools and customer service focus are providing
a huge opportunity to scale in this significant market. We very much intend to
"stick to our knitting" and continue to scale our electricity and gas supply
activities materially over the coming months and years, taking market share
from established players. Our trajectory in early 2024 has been on-track, with
meter points supplied growing from the 53,400 at 31 December 2023, and we
intend to work hard to accelerate growth in a sustainable manner.
Yü Smart and meter ownership
Our Yü Smart business installs new generation smart meters (known as SMETs2)
onto our customers' premises. These meters provide customers with significant
benefits to understand their energy consumption and expected costs. They also
provide greater insight into customer usage and payment habits via real time
data. Whilst 2023 was a year of learning and understanding how best the Group
could take advantage of this new complementary opportunity, the Yü Smart team
successfully installed over 8,500 meters. As expected, we have encountered
various hurdles that are typical to a startup business. From combining the two
business capabilities in a single customer offer, to scaling installation
capability or securing enough metering assets, I'm pleased we've tackled these
challenges well, and with a new and strengthened management team in place I am
very confident we will see significant asset installation growth in 2024 and
beyond.
The small quota of third-party assets which we inherited and were obliged to
install have now fulfilled and I'm pleased that we now only install our own
assets, allowing the Group to grow our asset annuity income. On the whole I'm
very excited and looking forward to delivering new highs in Yü Smart.
Transformational trading agreement with Shell
In February 2024 the Group entered into a transformational new five year
exclusive trading agreement with Shell. The old trading agreement, while not
due to expire for another year, was no longer fit for purpose or fit for the
future for two specific reasons. Firstly, the much talked about black-swan
events our industry experienced over the past few years caused wholesale
commodity prices to climb to all-time highs and then come crashing down to
historic norms over a three year period. A mechanism in the old trading
agreement meant that if our mark to market exposure exceeded our agreed credit
line the Group was required to post cash as collateral for the excess or
unwind the hedge position. The Group was able to utilise its strong balance
sheet coupled with significant cash generation to post the required cash as we
weathered the storm, but the Board recognised this was an inefficient use of
capital. Secondly, in a falling commodity market, our growth ambitions were at
risk due to the limitations of the previous hedging facility and our balance
sheet.
Following a 14 month process the agreement with Shell removes these obstacles,
sees all of our cash returned to our balance sheet and allows unhindered
growth to significant levels with no requirement to lodge cash. In terms of
the management team getting comfortable with our ability to sustainably grow,
this has been a game changing move and I'm looking forward to building on our
already positive relationship with Shell.
Current trading and outlook
We have commenced 2024 continuing the strong momentum from 2023.
Our forward contract book is continuing to grow from the £520m at 31 December
2023 (£247m at 31 December 2022 for FY23) which is due to deliver this year.
I believe the substantial market opportunity, our offer, and our small market
share enables this significant growth to continue, and we guide to a growth
rate for FY24 of c.50% at this stage.
We also continue to invest in sales, marketing, digital and other projects
which will increase the Group's customer service, differentiation, and cost
efficiency, making use of our strong balance sheet and cash position.
Our new agreement with Shell provides significant cash benefits for FY24, and
in recognition of this I'm pleased to confirm a substantial increase in the
final dividend payment of 37p (FY22: 3p) which we recommend to shareholders.
We also guide that we will develop our progressive dividend policy going
forward such that the dividend over the short to medium term will, after
accounting for continued earnings growth, reduce dividend cover to broadly 3x
EPS which should see further material progress to distributions.
I look forward to updating the market on progress in the coming months.
Bobby Kalar
Chief Executive Officer
Finance Review
STRONG REVENUE AND MARGIN GROWTH
Our financial framework allows a clear focus as we continue to grow
organically, improve margins and maintain financial discipline.
In overview
· Revenue increased 65% to £460m.
· Contracted revenue for FY24 delivery already at £520m (up 111% on
prior year).
· Adjusted EBITDA increased to £42.6m (2022: £7.9m) as the Group
scales.
· Profit before tax increased to £39.7m (2022: £5.8m).
· Net cash inflow of £13.5m, with closing net cash of £32.1m and
further £49.8m collateral posted to support energy hedging prior to new Shell
agreement.
· Net cash and collateral equates to £4.89 per share.
· Adjusted, fully diluted EPS of £1.82, up from £0.30.
· Final dividend of 37p per share recommended, with 3p interim paid in
year.
· Dividend targeted to be increased over short to medium term to
approximately 3x cover from EPS, and capital reduction process commenced to
increase flexibility of distributable reserves.
Financial metrics
£m unless stated 2023 2022 Change
Revenue 460.0 278.6 +65.1%
Gross margin % 18.1% 15.8% +2.3%
Net Customer Contribution(1) % 14.9% 8.2% +6.7%
General overheads(2) % (5.7%) (5.3%) (0.4%)
Adjusted EBITDA % 9.3% 2.8% +6.5%
Adjusted EBITDA 42.6 7.9 +34.7
Profit before tax 39.7 5.8 +33.9
Net cash flow 13.5 11.9 +1.6
Net cash(3) 32.1 19.0 +13.1
Net cash, plus cash collateral 81.9 19.0 +62.9
Overdue customer receivables 4 days 5 days -1 day
Earnings per share (adjusted, fully diluted) £1.82 £0.30 +£1.52
Dividend per share (interim and final) 40p 3p +37p
Results summary
The Board is pleased to report a continued strong trajectory in financial
performance, with the year ended 31 December 2023 being the fifth consecutive
year of consistent and significant revenue and profitability improvement.
Revenue of £460.0m represents a 65.1% increase in year, with gross margin,
Net Customer Contribution, adjusted EBITDA, profit before tax and earnings per
share ("EPS") all materially improved year on year. This performance reflects
a clear focus on strong financial and commercial discipline and our unique
market position and customer proposition (enabled through digital) despite the
volatile market environment.
The Group's cash generation has been very strong during 2023, benefiting from
good collections of customer trade receivable balances, though impacted by
£49.8m of collateral posted to support our commodity hedging arrangements. As
part of our new commodity hedging arrangements with Shell, this collateral has
now returned to Group cash reserves, providing a substantial uplift to
operational cash flow in H1 24.
With adjusted, fully diluted EPS at £1.82 and £4.89 net cash and collateral
per share, the Board has considered its capital allocation policy and
confirmed the intention to maintain a progressive dividend policy. An
increased final dividend of 37p (2022: 3p) is proposed, leading to a total
dividend for the year of 40p. The Board also confirms an intent to reduce
dividend cover to 3x, allowing for an increased dividend in the short to
medium term.
Very strong organic growth
The £181.4m (being 65.1%) increase in revenue year on year continues the
significant top-line growth, with a 65.4% compound annual growth rate ("CAGR")
delivered from January 2020.
The Group is well positioned to deliver further strong revenue growth in FY24
through an increased contract book, with £520m already secured for delivery
in FY24 and a further £306m beyond.
In addition to this £520m contracted for FY24, a further £29m of annualised
equivalent revenue(4) is being delivered from customers who are not in
contract. There is also an expectation of further revenue from contracts which
are to be booked in 2024. For context, FY23 achieved £213m (86%) in
additional revenue from the £247m contracted at exit of 2022, through in-year
bookings and customers not in contract.
Such revenue growth reflects the competitive positioning and sales efficiency
delivered through our digital platform and the scale of the addressable market
available.
The forward revenue growth has increased significantly despite it being at a
substantially lower price per MWh of energy delivered than the price at the
market peak in late 2022. The significant decrease in global commodity markets
during FY23 has been countered by the Group taking increased market share and
the ability to contract customers for a longer period than was the case in
that extreme high price environment.
Significant profitability increase
Adjusted EBITDA reconciliation
£m 2023 2022
Adjusted EBITDA 42.6 7.9
% of revenue 9.3% 2.8%
Adjusted items:
Loss on derivative contracts (3.0) (0.9)
Depreciation and amortisation (1.5) (1.1)
Statutory operating profit 38.1 5.9
The Board is very pleased to report an improved profitability performance,
with £42.6m adjusted EBITDA (2022: £7.9m) and profit before tax of £39.7m
(2022: £5.8m). This has led to EPS on an adjusted, fully diluted basis
increasing to £1.82 (2022: £0.30).
Net Customer Contribution, being gross margin less bad debt as a percentage of
revenue, has increased 6.7% to 14.9% in the year, which flows broadly to the
adjusted EBITDA improvement of 6.5% to 9.3%.
Gross margin has improved significantly following strong performance on new
bookings because of the Group's market position. Customer lifecycle value has
also increased via deeper customer insight through data analytics and as
customers lock in blend and extend contracts to obtain the benefit from
declining global commodity markets.
Gross margin also includes the benefit of certain industry costs reduced in
the period and a higher contribution from uncontracted customers, which the
Board forecasts to have a reduced impact in FY24 due to the lower commodity
price environment.
Bad debt at 3.1% of revenue maintains the Board's caution in ensuring
appropriate provisions are made for potential bad debt on trade receivables
and accrued income, with customer collections running at 98% of the billed
value during FY23.
The Board is confident that gross margin and net customer contribution will
continue to perform strongly and that the market characteristics and
differentiated customer proposition provide the opportunity for strong
sustainable margins to be available over the coming years.
The Board continues to set an ambition to reduce overheads incurred to acquire
and serve customers utilising technology to allow operational investment in
core growth supporting overheads. General overheads have increased by 0.4% to
5.7% of revenue, with operational efficiency savings offset by further
investment in marketing and sales, digital costs, the mobilisation of Yü
Smart, and in charges for equity-settled share based payments.
Profit before tax includes £1.6m of net finance income (2022: £0.1m net
expense) from interest received on the increased cash and collateral balances
held and a £3.0m (2022: £0.9m) loss on derivative accounting to reverse the
31 December 2022 asset. There is no derivative asset or liability at the
balance sheet date following assessment that all forward hedges are for the
Group's own use, and are therefore not fair valued.
The tax charge of £8.8m (2022: £1.1m) includes £4.2m of non-cash deferred
tax charges as the Group utilises brought forward tax losses.
Commodity hedging and cash collateral
Well-publicised commodity market movements have led to a volatile market
context over recent years. The post-pandemic increases in global commodity
markets further increased in FY22 due to the Ukraine and Russia conflict. This
was followed by a significant and rapid softening in prices during FY23 and
early FY24 as gas storage filled and UK supply became more secure. The current
wholesale price is now broadly comparable to pre-pandemic levels, masking the
large volatility over the past years.
The Group's commodity hedging strategy has protected the margins achieved
during this volatile period due to strict tolerance and risk limits. However,
the volatility in commodity markets (following a rapid decline in commodity
markets) and the high level of bookings growth achieved did result in the
credit limit with our previous trading counterparty being exceeded, requiring
the posting of cash collateral. The Group had £49.8m of cash collateral
posted at 31 December 2023 to cover that forward potential credit exposure in
full, which was an inefficient use of capital.
The new five-year strategic trading agreement with Shell, signed in February
2024, does not require cash collateral to be posted in the normal course and
is set to scale with the Group to over £1 billion in revenue. The agreement
with Shell followed a detailed market testing process and a period of due
diligence performed on the Group's operational and financial performance and
policies.
The Board is very pleased to be working with a group of Shell's significant
scale and standing and looks forward to reporting the benefits through
continued hedging activities with increased cash flow and cash availability
along with wider benefits, in due course.
Cash and balance sheet management
Cash increased by £13.5m in the year, or by £63.3m excluding the posting of
cash collateral related to hedging arrangements (since unwound) as referred to
above. Net cash, which is net of borrowings, increased from £19.0m to
£32.1m.
Cash flow £m 2023 2022
Adjusted EBITDA 42.6 7.9
Hedging related cash collateral (49.8) -
Other working capital movement 23.3 6.8
Operating cash flow 16.1 14.7
Investing activities (1.5) (2.6)
Financing activities (1.1) (0.2)
Net cash movement in year 13.5 11.9
Closing cash balance 32.5 19.0
Net cash 32.1 19.0
Group receivables increased by £27.8m whilst payables increased by £49.6m as
set out in the statement of cash flows. These movements include the impact of
strong cash collection performance on customer trade receivables, resulting in
broadly flat trade receivables balances and increased operational investment
of prepaid customer acquisition and sales costs to £10.7m (2022: £2.0m).
The Group's payable for renewable obligation certificates increased to £21.8m
at 31 December 2023, up from £11.3m at 2022.
Net current assets increased to £32.4m (2022: £1.3m), and net assets
increased to £46.8m (2022: £14.8m).
Capital investment of £1.5m (2022: £2.6m) largely consists of £0.4m on
fixtures and fittings associated with the expansion of our wholly owned
Leicester office to facilitate growth in our customer contact centre and
£0.8m investment in smart metering assets.
The financed smart meter assets relate to the Group's strategy to finance
assets in return for a 15+ year index-linked annuity revenue stream. The
£0.8m investment represents c.4,100 meter assets which are expected to
generate an index-linked £0.16m/annum in rental income.
To facilitate increased investment and provide a lower overall cost of
capital, a Group special purpose company entered into a new asset-backed debt
financing arrangement with Siemens Finance, which is non-recourse to the wider
Group and provides funding over a 10 year term. The initial facility is
£5.2m, to finance c.20,000 meters. In FY23, £0.5m of the facility was drawn
down, pre costs.
The Board target over 25,000 meters owned by the end of 2024 to provide
benefits on customer lifecycle value, together with a recurring, index-linked,
annuity income of c.£1m per annum.
Dividend and capital management
The Group will continue to invest in sales, marketing and assets, such as for
the Digital by Default initiatives and meter assets, from the cash generated
from operations. Surplus cash beyond the amount invested (or for the meter
assets, raised from efficient use of debt) is expected which the Board intends
to distribute to shareholders to the extent inorganic investment opportunities
are not identified.
The Board therefore recommends the payment of a final dividend of 37p per
share, being c.£6.2m payable on 20 June 2024. The shares will go ex-dividend
on 30 May 2024 and the record date is 31 May 2024.
The Board has considered capital allocation and confirm a progressive dividend
policy with an intent to increase dividends over the short to medium-term to
approximately 3x dividend cover on EPS. This provides significant forward
progression from FY23.
The Board also propose, for consideration as a special resolution at the
annual general meeting (and subject to necessary court approvals) to cancel
£11.9m of share premium which would be credited to distributable reserves.
This provides further flexibility to increase distributions in FY24 or beyond.
Summary: controlled progression
In summary, the Board is very pleased to report this substantially enhanced
financial performance which builds on the work to reset the Group's financial
and commercial strategies over recent years.
There remains a clear line of sight to revenue growth based on the contracts
already secured at 31 December 2023, which will be supplemented by
uncontracted supply of energy and new bookings secured and to deliver in FY24.
Revenue visibility for FY25 and beyond is already building significantly.
Adjusted EBITDA and profit before tax are expected to continue to benefit from
our investment in digital and our focus on optimising customer lifecycle
value, whilst the new hedging agreement with Shell provides a very material
benefit not least in H1 2024 as the £49.8m cash collateral at 31 December
2023 returns to Group cash.
Adjusted (and reported), fully diluted EPS has already grown significantly and
is expected to continue to grow, as is the £4.89 per share of net cash
(including collateral) held.
Dividends are expected to continue to increase as earnings grow and the Group
transitions to a dividend cover ratio of c.3x in the short to medium term.
The Board is therefore extremely pleased to report these improved results for
FY23 and assure shareholders of a focus to deliver on further ambitious
targets over the medium term.
Paul Rawson
Chief Financial Officer
1. Net Customer Contribution is gross margin less bad debt.
2. General overheads is the overhead expenses, excluding bad debt, charged to
adjusted EBITDA.
3. Net Cash is the cash less borrowings as per note 27 to the financial
statements.
4. Annualised equivalent revenue from non-contracted customers reflects the 31
December 2023 annualised volume of energy and prices on that date.
Consolidated statement of profit and loss and other comprehensive income
For the year ended 31 December 2023
Notes 31 December 31 December
2023 2022
£'000 £'000
Revenue 460,001 278,587
Cost of sales (376,959) (234,462)
Gross profit 83,042 44,125
Operating costs before share based payment charges (26,347) (15,565)
Operating costs - share based payment charges 24 (1,258) (284)
Total operating costs (27,605) (15,849)
Net impairment losses on financial and contract assets 17 (14,309) (21,420)
Loss on derivatives 7 (3,046) (926)
Operating profit 4 38,082 5,930
Finance income 5 1,722 1
Finance costs 5 (105) (91)
Profit before tax 39,699 5,840
Taxation 9 (8,839) (1,071)
Profit and total comprehensive income for the year 30,860 4,769
Earnings per share
Basic 8 £1.85 £0.29
Diluted 8 £1.69 £0.26
Consolidated balance sheet
At 31 December 2023
31 December 31 December
2023 2022
£'000 £'000
ASSETS
Non-current assets
Intangible assets 11 2,561 3,111
Property, plant and equipment 12 4,613 3,641
Right-of-use assets 13 1,676 113
Deferred tax assets 15 1,969 5,300
Trade and other receivables 17 5,231 -
Financial derivative asset 18 - 1,562
16,050 13,727
Current assets
Inventory 16 546 345
Trade and other receivables 17 127,222 54,339
Financial derivative asset 18 - 1,484
Cash and cash equivalents 19 32,477 18,970
160,245 75,138
Total assets 176,295 88,865
LIABILITIES
Current liabilities
Trade and other payables 20 (123,845) (73,860)
Corporation tax payable 9 (4,016) -
Borrowings 21 (3) -
(127,864) (73,860)
Non-current liabilities
Trade and other payables 20 (1,281) (206)
Borrowings 21 (352) -
(1,633) (206)
Total liabilities (129,497) (74,066)
Net assets 46,798 14,799
EQUITY
Share capital 23 84 83
Share premium 23 11,909 11,785
Merger reserve 23 (50) (50)
Retained earnings 23 34,855 2,981
46,798 14,799
Consolidated statement of changes in equity
For the year ended 31 December 2023
Share Share Merger Retained Total
capital premium reserve earnings £'000
£'000 £'000 £'000 £'000
Balance at 1 January 2023 83 11,785 (50) 2,981 14,799
Total comprehensive income for the year
Profit for the year - - - 30,860 30,860
Other comprehensive income - - - - -
- - - 30,860 30,860
Transactions with owners of the Company
Contributions and distributions
Equity-settled share based payments - - - 1,150 1,150
Deferred tax on share based payments - - - 866 866
Proceeds from share issues 1 124 - - 125
Equity dividends paid in the year - - - (1,002) (1,002)
Total transactions with owners of the Company 1 124 - 1,014 1,139
Balance at 31 December 2023 84 11,909 (50) 34,855 46,798
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
Other comprehensive income - - - - -
- - - 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
Equity dividends paid in the year - - - - -
Total transactions with owners of the Company 1 95 - 649 745
Balance at 31 December 2022 83 11,785 (50) 2,981 14,799
Consolidated statement of cash flows
For the year ended 31 December 2023
31 December 31 December
2023 2022
£'000 £'000
Cash flows from operating activities
Profit for the financial year 30,860 4,769
Adjustments for:
Depreciation of property, plant and equipment 400 325
Depreciation of right-of-use assets 408 80
Amortisation of intangible assets 680 648
Loss on derivative contracts 3,046 926
Increase in inventory (201) (345)
Increase in trade and other receivables (27,848) (17,000)
Increase in cash collateral for commodity trading arrangements (49,820) -
Increase in trade and other payables 49,584 23,889
National insurance on share options exercised (108) -
Finance income (1,722) (1)
Interest received 1,278 -
Finance costs 105 91
Taxation charge 8,839 1,071
Corporation tax paid (627) -
Share based payment charge 1,258 284
Net cash from operating activities 16,132 14,737
Cash flows from investing activities
Purchase of property, plant and equipment (1,372) (215)
Payment of software development costs (130) (2,210)
Payment of consideration on business combination - (216)
Net cash used in investing activities (1,502) (2,641)
Cash flows from financing activities
New borrowings 356 -
Net proceeds from share option exercises 125 96
Cash-settled share based payment charge - (74)
Interest paid on borrowings (4) -
Interest paid on lease obligations (81) (13)
Other interest paid (20) (63)
Repayment of principal element of borrowings (1) -
Repayment of principal element of lease obligations (496) (121)
Dividends paid (1,002) -
Net cash from/(used in) financing activities (1,123) (175)
Net increase in cash and cash equivalents 13,507 11,921
Cash and cash equivalents at the start of the year 18,970 7,049
Cash and cash equivalents at the end of the year 32,477 18,970
Notes to the 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. 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 2023 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, and the installation,
ownership and service of smart meters.
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 2023, 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 2023 or 2022 but is derived from those financial statements.
Statutory financial statements for 2022 have been delivered to the registrar
of companies and those for 2023 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 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 2023 the Group had net assets of £46.8m (2022: £14.8m) and
cash of £32.5m (2022: £19.0m). The Group also had £49.8m of cash collateral
posted with the Group's previous commodity trading counterparty,
SmartestEnergy Ltd.
Management prepares detailed budgets and forecasts of financial performance
and cash flow (including capital commitments) over the coming 18 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 continues to demonstrate significant progress in its results. This
has led to adjusted EBITDA (a close profitability measure to cash generated
from operations) in 2023 of £42.6m (2022: £7.9m), 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 Board has secured the full return of the £49.8m of cash
collateral in 2024, providing further confidence.
Profitability metrics have been improved in 2023 due to increased gross margin
as the Group leverages its differentiated offer and analytics to optimise its
commercial position. Bad debt has decreased, and the Group's investment in
Digital by Default is set to enable more efficient cost to acquire and cost to
serve, as well as further returns over the short to medium term.
Group cash liquidity at the operational level has remained strong, with the
key outflow related to energy commodity arrangements as covered below. The
Group has introduced a specific debt facility related to certain specific
smart metering asset financing arrangements. Such debt facility is expected to
be repaid from the investment in such smart meters and provides some cost of
capital benefit. Despite this debt introduction, the Group remains in a
significant net cash position.
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 considers customer receivable risks in view of the wider market, the
energy price environment and the Group's ability to contract and protect its
position in respect of late or non-payment. The performance for 2023 has
improved significantly as a result of improvements to processes, including new
analysis, changes in contracting strategies, increase in teams and the
expansion of the Group's smart meter rollout to improve customer outcomes.
The Board performed sensitivities on material changes to customer payment
behaviour including the timing of payments or if bad debt levels were 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
further bad debt.
The Board also notes that the prices now being quoted to customers are back to
a more normalised level, broadly equivalent to tariffs charged prior to the
rapid increase in global commodity markets experienced in 2021 and 2022.
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 new Trading Agreement
A new five-year commodity trading arrangement between Shell Energy Europe
Limited ("Shell") and the main entities of the Group (including Yü Group plc,
Yü Energy Holding Limited and Yü Energy Retail Limited), signed February
2024, ("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 risks and uncertainties reporting in the
Strategic Report). This hedging position and the Board defined risk strategy
has mitigated, and is expected to continue to mitigate, the impact on the
Group from underlying movements in global commodity markets.
As part of the Trading Agreement, Shell provides exclusive access to commodity
products and holds security over the main 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, Shell provides market
access without the need to post cash collateral in the normal course of
operation. The new arrangement with Shell provides significant advantages to
the Group's arrangements in effect at 31 December 2023. The significant
benefits of transacting with a major energy company such as Shell includes
support to Group cash liquidity through the release of the £49.8m of
collateral which was prepaid under legacy arrangements.
The Board carefully modelled in detail, and continues to monitor, certain
covenants related to profitability, net worth and liquidity associated with
the new Trading Agreement to assess the likelihood of any breach of such
agreement and the impact any such breach would likely have. Such scenarios
include reduced gross margin and increased bad debt, and the impact this would
have on the ability to maintain compliance with covenants.
After a detailed review, the Board has concluded that there are no liquidity
issues likely to arise in relation to the hedging arrangements and current
market context, and the new Trading Agreement should materially improve Group
cash liquidity and prospects for the future. The Board also considers that
there is sufficient headroom to ensure the Group meets covenants based on
various downside scenarios assessed.
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 they 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 includes some sales invoices raised which, where no actual meter read
has been available, are based on industry data and estimates or other source
information. Such invoices 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 on
invoiced sales.
• 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 underestimated.
• 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 recoverability of VAT and Climate
Change Levy ("CCL"), and provisions and other accounting adjustments.
Sensitivity analysis on estimates is provided in note 22.
• the assessment of forward energy commodity contracts as "own use"
under IFRS 9;
The Group enters into 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 demand of customers and the extent to which the
Group's forward commodity hedged position matches such customer demand.
The Board considers the extent to which forward contracts are entered into and
continue to be held for the purpose of delivery of energy that is matched to
customer expected volume. Factors considered in making this judgement include:
recent trading experience; historic accuracy in demand forecasting; and growth
in volumes supplied to customers. Based on an assessment of these factors
during the year ended 31 December 2023, the Board considers that the forward
commodity trades outstanding at the balance sheet date are intended to be
fully utilised for the Group's "own use" to meet expected customer demand in
the normal course of business, which is a change in judgement to that assessed
at 31 December 2022. The judgement in relation to forward contracts being for
"own use" results in such contracts not being assessed at fair value and
therefore with no unrealised financial derivative asset or liability
recognised at the balance sheet date.
• the assumptions input to the IFRS 2 share option charge
calculations; and
The share option charge requires certain estimates, including the volatility
in share price, risk-free rates and dividend yields, together with assessment
of the likelihood of achievement of certain vesting performance conditions
which are based on the Group's share price at pre-determined dates, or based
on EBITDA profitability over a pre-determined period.
• 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, and provides availability of smart meter assets. 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 with some
traditional (non-smart) meter types 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 from industry available
historical actual usage data, as appropriate for each site supplied by the
Group.
Revenues for the supply of metering services or the installation of metering
assets are, where for Group companies, eliminated on consolidation.
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, were in place
from 1 October 2022 to 31 March 2023 and resulted in customers being provided
financial support through a contribution to their energy charges. The Energy
Bills Discount Scheme ("EBDS") was in place from 1 April 2023 to the balance
sheet date, replacing EBRS.
Under the EBRS and EBDS arrangement, amounts receivable from BEIS do not
impact the Group's contract with customers, and therefore the amounts
contributed under the schemes 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
and EBDS.
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 specific impairments 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 or EBDS, 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. The Group's main
commodity trading activities 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, at fair value, on its balance sheet at the year
end.
To the extent that any commodity purchase contracts do not meet the criteria
listed above, then such contracts 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 22.
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.
Plant and machinery includes the Group's investment in smart metering assets,
which are recognised at cost, including those internal employee and other
costs attributable to the installation and commissioning of the asset to bring
it into use.
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
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.
Inventory
Inventory is held at the lower of cost, being all directly attributable costs,
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 predominantly delivered from its principal
activity, which is the supply of utilities to business customers in the UK.
However, following the development of the Yü Smart activity, after
development of the offering during 2022 and launch in 2023, and the ambition
to increase activities in the financing of smart meters, the Group is
introducing in 2023 new operational segments:
• Retail - being the supply of electricity, gas and water to business
customers in the UK, and the only operating segment generating revenue and
gross margin in the prior year;
• Smart - being the provision of engineering and related services to
install and maintain smart and other meters, and EV charging solutions as a
new operational segment in the year;
• Metering assets - being the ownership and rental of smart metering
assets as a new operational segment in the year; and
• Group - being a newly introduced operating segment representing
centrally managed Group functions, and other items which are not directly
attributable to the other operating segments.
Segmental profit is measured at two profit levels, being operating profit, as
shown on the face of the statement of profit and loss, and adjusted EBITDA, as
utilised by management to provide the underlying cash-like profitability of
the segment and as reconciled to operating profit in note 7.
Assets, liabilities and cash flows related to the various segments are managed
at the Group level and are therefore not allocated or disclosed for each
segment. The Group does disclose non-current assets and additions of such
assets, allocation of goodwill, and trade and other receivables by segment in
line with its management of the Group's operations.
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. This includes amendments to IAS 1
(Non-current liabilities with covenants) which is to be effective for periods
beginning on or after 1 January 2024 and the potential effects are to be
considered. All other amendments or standards are not expected to have a
material impact on the entity in the current or future reporting periods, or
on foreseeable future transactions.
2. Segmental analysis
Operating segments
The directors consider there to be three operating segments, being the supply
of utilities to businesses ("Yü Retail"), the installation and maintenance of
energy meters and other assets ("Yü Smart"), and the financing of new meters
("Metering assets"). In addition, the Group eliminates intra-segment trading,
where one segment trades with another, and has central income, expenses,
assets and liabilities ("Group") which are not directly attributable to the
three operating segments.
2023 Retail Metering assets Intra-segment trading Group Total
£'000
£'000 Smart £'000 £'000 £'000
£'000
Revenue 459,797 5,555 76 (5,427) - 460,001
Cost of sales (377,797) (3,053) - 3,891 - (376,959)
Gross profit 82,000 2,502 76 (1,536) - 83,042
Operating costs, before share based payments and depreciation and amortisation (22,317) (2,027) (68) - (447) (24,859)
Share based payments (1,258) - - - - (1,258)
Depreciation and amortisation (1,028) (329) (21) - (110) (1,488)
Net impairment losses on financial and contract assets (14,309) - - - - (14,309)
Loss on derivatives (3,046) - - - - (3,046)
Operating profit 40,042 146 (13) (1,536) (557) 38,082
Adjusted EBITDA 44,116 475 8 (1,536) (447) 42,616
Non-current assets 9,814 804 1,018 (327) 4,741 16,050
Additions of non-current assets 695 872 1,139 (335) 133 2,504
Goodwill - 216 - - - 216
Trade and other receivables 131,822 236 103 (224) 516 132,453
In respect of the prior year, the Group's revenue, operating profit, adjusted
EBITDA and assets predominantly related to the retail supply of utilities and
therefore segmental reporting is not provided.
Geographical segments
100% of Group revenue, for both financial years, is generated from sales to
customers in the United Kingdom (2022: 100%).
The Group has no individual customers representing over 10% of revenue (2022:
none).
3. Auditor's remuneration
2023 2022
£'000 £'000
Audit of these financial statements 105 95
Amounts receivable by auditor in respect of:
Audit of financial statements of subsidiaries pursuant to legislation 60 55
165 150
4. Operating profit
2023 2022
£'000 £'000
Profit for the year has been arrived at after charging:
Staff costs (see note 6) 15,564 9,045
Depreciation of property, plant and equipment 400 325
Depreciation of right-of-use assets 408 80
Amortisation of intangible assets 680 648
5. Net finance income/(expense)
2023 2022
£'000 £'000
Bank interest receivable 783 1
Other interest received 939 -
Total finance income 1,722 1
Bank interest and other finance charges payable (20) (77)
Interest on borrowings (4) -
Interest on lease liabilities (81) (14)
Total finance costs (105) (91)
Net finance income/(expense) 1,617 (90)
Other interest received consists of amounts due on collateral posted with the
Group's previous commodity trading counterparty.
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:
2023 2022
Number Number
Engineering 32 7
Sales 27 24
Administration 236 159
295 190
The aggregate payroll costs of these persons were as follows:
2023 2022
£'000 £'000
Wages and salaries 13,082 8,004
Social security costs 1,487 719
Pension costs 240 144
Share based payments 1,258 284
16,067 9,151
Of which:
Amounts charged to operating profit 15,564 9,045
Amounts related to smart metering installation in property, plant and 503 -
equipment assets
Amounts related to development and implementation of computer software - 106
There were three persons employed directly by the Company during the year
ended 31 December 2023 (2022: three), being the
non-executive directors. The Company's two (2022: 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:
2023 2022
£'000 £'000
Short-term employee benefits 2,581 2,445
Social security and pension costs 407 375
Share based payments 1,068 252
4,056 3,072
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.
2023 2022
£'000 £'000
Adjusted EBITDA reconciliation
Operating profit 38,082 5,930
Add back:
Loss on derivative contracts 3,046 926
Depreciation of property, plant and equipment 400 325
Depreciation of right-of-use assets 408 80
Amortisation of intangibles 680 648
Adjusted EBITDA 42,616 7,909
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.
The loss on derivative contracts of £3,046,000 (2022: loss of £926,000)
arises on the reversal of the financial derivative asset recognised at 31
December 2022, as referenced in note 18.
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.
2023 2022
£'000 £'000
Profit for the year attributable to ordinary shareholders 30,860 4,769
2023 2022
Weighted average number of ordinary shares
At the start of the year 16,649,618 16,316,215
Effect of shares issued in the year 36,607 180,818
Number of ordinary shares for basic earnings per share calculation 16,686,225 16,497,033
Dilutive effect of outstanding share options 1,533,324 1,722,632
Number of ordinary shares for diluted earnings per share calculation 18,219,549 18,219,665
2023 2022
£ £
Basic earnings per share £1.85 0.29
Diluted earnings per share £1.69 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:
2023 2022
£'000 £'000
Adjusted earnings per share
Profit for the year attributable to ordinary shareholders 30,860 4,769
Add back operating profit adjusting items (per note 7):
Loss on derivative contracts after tax (gross loss, before tax, of 2,330 750
£3,046,000)
Adjusted basic profit for the year 33,190 5,519
Adjusted earnings per share £1.99 £0.33
Diluted adjusted earnings per share £1.82 £0.30
9. Taxation
2023 2022
£'000 £'000
Current tax charge
Current year 4,015 -
Adjustment in respect of prior years 627 -
4,642 -
Deferred tax charge
Current year 5,648 1,365
Adjustment in respect of prior years (1,451) (294)
4,197 1,071
Total tax charge 8,839 1,071
Tax recognised directly in equity
Current tax recognised directly in equity - -
Deferred tax recognised directly in equity (866) (439)
Total tax recognised directly in equity (866) (439)
Deferred taxes at 31 December 2023 and 31 December 2022 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 increased from 19% to 25%.
The corporation tax payable by the Group at 31 December 2023 was £4,016,000
(2022: £nil).
10. Dividends
The Group paid an interim dividend of 3p per share in 2023 (2022: nil per
share).
The directors propose a final dividend in relation to 2023 of 37p per share
(2022: 3p per share).
11. Intangible assets
Electricity Goodwill Customer Software and
licence £'000 books systems Total
£'000 £'000 £'000 £'000
Cost
At 1 January 2023 62 216 686 3,289 4,253
Additions - - - 130 130
At 31 December 2023 62 216 686 3,419 4,383
Amortisation
At 1 January 2023 16 - 686 440 1,142
Charge for the year 2 - - 678 680
At 31 December 2023 18 - 686 1,118 1,822
Net book value at 31 December 2023 44 216 - 2,301 2,561
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
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 arose on the acquisition of the management and certain other assets
of Magnum Utilities Limited in May 2022, forming the foundations for the Yϋ
Smart business unit to deliver the Group's smart metering installation
activities. Goodwill is tested annually for signs of impairment. The
underlying assets related to the goodwill have been classified in a wider cash
generating unit related to smart metering activities.
The customer book intangibles relate to 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.
The above intangible assets are Group assets only.
12. Property, plant and equipment
Group Freehold land Freehold property Fixtures and Plant and Computer Total
£'000 £'000 fittings machinery equipment £'000
£'000 £'000 £'000
Cost
At 1 January 2023 150 3,274 342 73 490 4,329
Additions - - 396 796 180 1,372
At 31 December 2023 150 3,274 738 869 670 5,701
Depreciation
At 1 January 2023 - 182 205 - 301 688
Charge for the year - 109 150 24 117 400
At 31 December 2023 - 291 355 24 418 1,088
Net book value at 31 December 2023 150 2,983 383 845 252 4,613
Cost
At 1 January 2022 150 3,274 337 - 353 4,114
Additions - - 5 73 137 215
At 31 December 2022 150 3,274 342 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 150 3,092 137 73 189 3,641
13. Right-of-use assets and lease liabilities
Group Buildings Motor vehicles Total
£'000 £'000 £'000
Cost
At 1 January 2023 799 - 799
Additions 198 804 1,002
Lease modifications 969 - 969
At 31 December 2023 1,966 804 2,770
Depreciation
At 1 January 2023 686 - 686
Charge for the year 149 259 408
At 31 December 2023 835 259 1,094
Net book value at 31 December 2023 1,131 545 1,676
Cost
At 1 January 2022 799 - 799
Additions - - -
At 31 December 2022 799 - 799
Depreciation
At 1 January 2022 606 - 606
Charge for the year 80 - 80
At 31 December 2022 686 - 686
Net book value at 31 December 2022 113 - 113
The Company entered into a new property lease in the year with a cost of
£134,000 (2022: £nil). There was no depreciation charge for the year (2022:
£nil). The net book value at 31 December 2023 of £134,000 (2022: £nil) is
included within the Group right-of-use asset as above.
The Group has a lease arrangement for its main office facilities in Nottingham
which was extended in the year (on an arm's-length basis with a related party
as disclosed in note 26), and a number of motor vehicle lease arrangements for
engineering installation activities. Other leases are short term or of low
value underlying assets.
The table below provides details of the Group's right-of-use assets and lease
liabilities recognised on the balance sheet at 31 December 2023:
Right-of-use asset Remaining term Borrowing rate Asset carrying Lease liability Depreciation Interest
amount expense expense
Premises 0.7 to 9.4 years 6% £1,131,000 £1,081,000 £149,000 £45,000
Motor vehicles 1.5 to 3.0 years 6% £545,000 £554,000 £259,000 £36,000
The total cash outflow for leases in 2023 was £577,000 (2022: £161,000).
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 FY23 the amount expensed to profit and loss was
£1,000 (2022: £40,000).
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 / holding company2
Yü PropCo Limited Ordinary shares 100%2 Dormant / property ownership2
Yü-Smart Limited Ordinary shares 100% Smart metering installation and maintenance
Yü Services Limited Ordinary shares 100% Holding company
Kensington Meter Assets Limited Ordinary shares 100%3 Ownership of energy meter assets
All of the above entities are included in the 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 was, after the balance sheet date,
transferred to be a direct subsidiary of KAL Portfolio Trading Limited. Both
entities were previously dormant.
(3) Kensington Meter Assets Limited is a subsidiary of Yü
Services Limited.
All entities have the same registered address as Yü Group PLC.
15. Deferred tax assets
Deferred tax assets are attributable to the following:
2023 2022
£'000 £'000
Property, plant and equipment (293) (21)
Tax value of loss carry-forwards 792 4,717
Share based payments 1,470 604
1,969 5,300
Movement in deferred tax in the period:
At Recognised Recognised At
1 January in income directly 31 December
2023 £'000 in equity 2023
£'000 £'000 £'000
Property, plant and equipment (21) (272) - (293)
Tax value of loss carry-forwards 4,717 (3,925) - 792
Share based payments 604 - 866 1,470
5,300 (4,197) 866 1,969
At Recognised Recognised At
1 January in income directly 31 December
2022 £'000 in equity 2022
£'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
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. Inventory
The Group has the following inventory balances in relation to its engineering
activities:
2023 2022
£'000 £'000
Stock of goods for resale 546 345
546 345
17. Trade and other receivables
2023 2022
£'000 £'000
Current
Gross trade receivables 39,435 30,977
Provision for doubtful debts and expected credit loss (27,651) (19,499)
Net trade receivables 11,784 11,478
Accrued income - net of provision 52,325 31,842
Prepayments 6,244 3,065
Cash collateral deposited for commodity hedging 49,822 -
Other receivables 7,047 7,954
127,222 54,339
Non-current
Prepayments 5,231 -
Movements in the provision for doubtful debts and expected credit loss in
gross trade receivables are as follows:
2023 2022
£'000 £'000
Opening balance 19,499 6,007
Provisions recognised less unused amounts reversed 14,824 21,071
Provision utilised in the year (6,672) (7,579)
Closing balance - provision for doubtful debts and expected credit losses 27,651 19,499
The directors have assessed the level of provision on net trade receivables at
31 December 2023 by reference to the recoverability of customer receivable
balances post the year end, and believe the provision carried is appropriate.
The provision is calculated based on an assessment of risk, including factors
such as the age of the balance outstanding, whether the customer remains being
supplied energy by the Group, and the extent and position of the balance in
the Group's credit control process.
A reduced provision of £120,000 (2022: increase of £349,000) for expected
credit loss on accrued income was credited (2022: charged) in the period,
leading to a total provision at 31 December 2023 of £1,710,000 (2022:
£1,830,000). 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 £14,309,000
(2022: £21,420,000) consist of a £120,000 credit (2022: £349,000 charge)
for expected credit loss on accrued income, £526,000 (2022: £nil) credit for
other balances written back, and £14,824,000 (2022: £21,071,000) 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.
The Group balance of £49,822,000 (2022: £nil) of cash collateral was
deposited with the Group's previous trading commodity partner to cover credit
exposure of that counterparty on the forward hedges entered into by the Group.
This collateral has been fully recovered as part of arrangements to secure new
trading arrangements with Shell. Group other receivables also includes
immaterial amounts due from BEIS related energy relief schemes (2022:
£2,100,000).
18. Financial derivative asset
2023 2022
£'000 £'000
Current
Financial derivative asset - 1,484
Non-current
Financial derivative asset - 1,562
There is no financial derivative asset or liability at 31 December 2023 as the
forward commodity trades outstanding are intended to be fully utilised for the
Group's "own use" (under IFRS 9) to meet expected customer demand in the
normal course of business. At 31 December 2022, the £3,046,000 financial
derivative asset reflected the fair value of a small proportion of the Group's
forward commodity trades which were not judged to meet the strict "own use"
criteria under IFRS 9.
19. Cash and cash equivalents
2023 2022
£'000 £'000
Cash at bank and in hand 32,477 18,970
32,477 18,970
The cash and cash equivalents amounts exclude £522,000 (2022: £569,000) of
cash which is included in other receivables.
20. Trade and other payables
2023 2022
£'000 £'000
Current
Trade payables 6,492 4,636
Accrued expenses 88,737 55,281
Lease liabilities 354 112
Tax and social security 15,347 5,587
Other payables 12,915 8,244
Amounts due to subsidiary undertakings - -
123,845 73,860
Non-current
Accrued expenses - 158
Lease liabilities 1,281 48
1,281 206
The contractual maturities (representing undiscounted contractual cash flows)
of the lease liabilities are as follows:
2023 2022
£'000 £'000
Maturity analysis
Expiring in less than one year 450 120
Expiring between two to five years 954 50
Expiring after more than five years 595 -
1,999 170
The remaining trade and other payables have undiscounted contractual cash
flows equal to their fair value and are payable within a year.
21. Borrowings
2023 2022
£'000 £'000
Current
Bank loan 3 -
Non-current
Bank loan 352 -
Borrowings relate to the Group's investment in smart meters which return an
index-linked, recurring annuity over a 15+ year term. The amount outstanding
relates to amounts drawn on a £5.2m facility, agreed during 2023, with
Siemens Finance in relation to the finance of such meters. Repayments are over
a 10 year period with a bullet repayment, and with an interest rate fixed at
the date of drawdown. The borrowings are fully secured on the assets of the
wholly owned subsidiary entity, Kensington Meter Assets Limited.
The bank loan is shown net of unamortised arrangement fees of £190,000 (2022:
£nil) which are being amortised over the life of the loan.
The contractual maturities (representing undiscounted contractual cash-flows)
of the bank loan are as follows:
2023 2022
£'000 £'000
Maturity analysis
Expiring in less than one year 67 -
Expiring between two to five years 268 -
Expiring after more than five years 530 -
Total 865 -
22. 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 where they are not treated as
"own use" under IFRS 9. 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 trades entirely in pounds sterling and therefore it has
no foreign currency risk.
The Group has exposure to the following risks from its use of financial
instruments:
a) commodity hedging and derivative instruments (related to customer
demand, market price volatility and counterparty credit risk);
b) customer credit risk; and
c) liquidity 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, 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 price volatility by entering into back-to-back (to
the extent practical) 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.
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.
If any of the contracts in the Group's portfolio are expected to be settled
net in cash and are not entered into so as to hedge, in the normal course of
business, the demand of customers, then such trades are measured at fair
value. The gain or loss on remeasurement to fair value is recognised
immediately in profit and loss. All forward trades were considered to meet the
criteria for "own use" at 31 December 2023.
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. In view of the Group's commodity hedging position and available
mitigation, any major deviation in customer demand is not considered to
deliver a material impact on the Group's financial performance.
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.
As contracts are expected to be outside of IFRS 9, there is no sensitivity
analysis provided on such contracts.
Liquidity risk from commodity trading
The Group's trading arrangements can, in the absence of suitable credit lines
or other arrangements being in place, result in the need to post cash or other
collateral to trading counterparties when commodity markets are below the
Group's average weighted price contracted forward. A significant reduction in
electricity and gas markets could, therefore, lead to a material exposure
arising for any trading counterparty which, in the absence of a suitable
credit arrangement, could result in credit support such as cash being required
as collateral.
As part of the Group's new Trading Agreement with Shell, signed in February
2024, there is no requirement in the normal course to provide any such credit
support and, as such, no impact on liquidity risk in the normal course of
business.
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 2023, this credit risk is not held at 31
December 2023. However, any such credit exposure would predominantly arise
with the Group's main trading counterparty, being Shell from February 2024.
The Board monitors the position in respect of credit exposure with its trading
counterparties, and contracts only with major organisations which the Board
considers to be robust and of appropriate financial standing.
(b) Customer or other counterparty credit risk
Credit risk is the risk of financial loss to the Group if a customer or
counterparty to a financial instrument fails to meet its contractual
obligations and arises principally from the Group's receivables from customers
(in addition to trading counterparties as noted in section (a) above).
These operational exposures are monitored and managed at Group level. All
customers operate in the UK and turnover is made up of a large number of
customers each owing relatively small amounts. New customers have their credit
checked using an external credit reference agency prior to being accepted as a
customer. 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 requires security deposits in advance where appropriate. At 31 December
2023 there were no significant concentrations of credit risk. The carrying
amount of the financial assets (less the element of VAT and CCL included in
the invoiced balance, which is recoverable in the event of non-payment by the
customer) represents the maximum credit exposure at any point in time.
The Board considers the exposure to debtors based on the status of customers
in its internal debt journey, the level of customer engagement in finding an
appropriate solution, the customer's creditworthiness, the provision for
doubtful debts and expected credit loss held, the level of reclaimable VAT and
CCL on the balances, and cash received after the period end.
At 31 December 2023 the Group held a provision against doubtful debts and
expected credit loss of £29,361,000 (2022: £21,329,000). This is a combined
provision against both trade receivables at £27,651,000 (2022: £19,499,000)
and accrued income at £1,710,000 (2022: £1,830,000). The increase reflects
the growth in the Group's activities, which is mitigated by strong customer
collections recorded in 2023.
In relation to trade receivables, after provision and accounting for VAT and
CCL reclaimable, the exposure assessed by directors is less than 3% 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
+/-£394,000.
If the expected customer credit loss rate on accrued income was +/-10%, the
gain or loss arising would be +/-£171,000.
(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, and any requirements
under its licence to operate including its Ofgem energy supply license.
As part of assessing the Group's liquidity, the Board considers: low
profitability; delays in customer receivable payments; major risks and
uncertainties; and the ability to comply with its Trading Agreements.
A low cash collection scenario, whereby customers delay or default on payment,
would result, per each 10% of cash collections compared to management's base
assumptions, in a full year impact on cash of £2,172,000.
Any excess cash balances are held in short-term deposit accounts which are
either interest or non-interest accounts. At 31 December 2023 the Group had
£32,477,000 (2022: £18,970,000) of cash and bank balances (as per note 19)
in addition to £49,800,000 cash collateral posted with our previous trading
counterparty which was repaid in Q1 2024.
23. Share capital and reserves
Share capital 2023 2023 2022 2022
Number £'000 Number £'000
Allotted and fully paid ordinary shares of £0.005 each 16,741,195 84 16,649,618 83
The Company has one class of ordinary share with nominal value of £0.005
each, 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 Group and Company-only movement in reserves is as per the 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 £5.825.
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 nominal value of those shares. As disclosed in note 30, the
directors will propose a resolution to shareholders at the Company's annual
general meeting so as to, subject to court approval, cancel the Company's
share premium account.
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.
24. 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
2023 2022
17 February 2016 3 17 February 2019 17 February 2026 £0.09 1 - 13,500
22 December 2016 3 22 December 2019 22 December 2026 £3.25 1 - 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 27,000 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 20,000
4 October 2020 3 30 April 2023 4 October 2030 £0.005 2 172,388 210,696
4 October 2020 3 30 April 2024 4 October 2030 £0.005 3 172,388 172,388
13 May 2022 1 30 April 2023 4 October 2030 £0.005 2 - 12,769
13 May 2022 2 30 April 2024 4 October 2030 £0.005 3 25,539 25,539
1 December 2022 3 1 January 2026 1 July 2026 £2.28 4 156,536 179,267
19 December 2022 3.3 31 March 2026 31 March 2033 £0.005 5 762,000 837,000
1,533,324 1,722,632
Weighted average remaining contractual life of options outstanding 7.1 years 8.0 years
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 have vested on the achievement of a performance
condition related to the Group's share price at a pre-determined date.
3 The level of vesting is dependent on a performance condition,
being the Group's share price at a pre-determined date.
4 100% of options vest on the third anniversary of the Save As You
Earn ("SAYE") savings contract start date.
5 The level of vesting is dependent on a performance condition,
being the Group's EBITDA performance over a qualifying period.
There were no share options granted during 2023.
The number and weighted average exercise price of share options were as
follows:
2023 2022
shares shares
Balance at the start of the period 1,722,632 1,099,153
Granted - 1,055,364
Forfeited (97,731) (98,482)
Lapsed - -
Exercised (91,577) (333,403)
Balance at the end of the period 1,533,324 1,722,632
Vested at the end of the period 416,861 284,973
Exercisable at the end of the period 416,861 284,973
Weighted average exercise price for:
Options granted in the period - £0.393
Options forfeited in the period £0.534 £0.256
Options exercised in the period £1.354 £0.289
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. There were no options granted in 2023, and
the following fair value assumptions were assumed in the prior year:
2023 2022
Dividend yield - 0%
Risk-free rate - 2.1%
Share price volatility - 117%
Expected life (years) - 3 years
Weighted average fair value of options granted during the period - £3.87
The share price volatility assumption in 2022 was 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:
2023 2022
£'000 £'000
Equity-settled share based payment expense 1,150 210
National Insurance costs related to exercise of share options 108 74
Total share based payment charge 1,258 284
National Insurance costs relate to Employer's National Insurance payable on
the exercise of unapproved (for tax purposes) share options.
25. 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 2023 (2022: £nil).
Security
The Group has entered into Trading Agreements with the Shell Group in February
2024 to provide access to commodity markets. As part of this arrangement there
is a requirement to meet certain covenants, a fixed and floating charge
(including mandate over certain banking arrangements in the event of default)
over the main trading subsidiaries of the Group, being Yü Energy Holding
Limited and Yü Energy Retail Limited, and a parent company guarantee from the
Company.
As part of the Group's activities in financing smart meters, a Group entity
has provided security over such assets in relation to bank debt provided by
Siemens Finance.
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.
As disclosed in note 17, included in other receivables of the Company and the
Group is an amount of £500,000 held in a separate bank account over which the
Group's bankers have a fixed and floating charge.
Contingent liabilities
The Group had no contingent liabilities at 31 December 2023 (2022: £nil).
26. 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 2023 the
Group paid £135,000 in lease rental and service charges to CPK Investments
Limited (2022: £120,000). There was a balance of £35,000 owing to CPK
Investments Limited at 31 December 2023 (2022: £nil).
The directors, after taking external advice including from an external
independent valuer, reviewed the terms of the lease with CPK Investments
Limited for the Nottingham head office. The Group entered into an agreement in
April 2023 to extend the term of the lease and amended certain terms (which
remain on an arm's-length basis).
All transactions with related parties have been carried out on an arm's length
basis.
27. Net cash/(net debt) reconciliation
The net cash/(net debt) and movement in the year were as follows:
2023 2022
£'000 £'000
Cash and cash equivalents 32,477 18,970
Borrowings (355) -
Net cash 32,122 18,970
The movements in net cash/(net debt) and lease liabilities were as follows:
Cash Borrowings Sub-total Leases Net cash less leases
£'000 £'000 net cash £'000 £'000
£'000
Balance as at 1 January 2022 7,049 - 7,049 (267) 6,782
Cash flows 11,921 - 11,921 121 12,042
Interest - - - (14) (14)
Balance as at 31 December 2022 18,970 - 18,970 (160) 18,810
Cash flows:
Movement in cash and cash equivalents 13,507 - 13,507 - 13,507
Drawdown of new borrowings - (356) (356) - (356)
Interest - (4) (4) (81) (85)
Repayment - 5 5 577 582
Recognition of leases on acquired right-of-use assets - - - (1,002) (1,002)
Modification of lease liabilities - - - (969) (969)
Balance as at 31 December 2023 32,477 (355) 32,122 (1,635) 30,487
28. Business combinations
There were no business combinations or acquisitions in 2023.
During 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 the new Group
capability to install, service and maintain smart meters and EV charging
assets. The fair value of the identifiable assets acquired was £224,000,
which was settled through consideration paid at or closely after completion.
29. Subsidiary audit exemption
As further disclosed in the full annual report, Yu Water Limited (company
number 09918643), Yü Services Limited (11440201) and Yü-Smart Limited
(12311416) are exempt from the requirements of an audit, for the year ended 31
December 2023, under section 479A of the Companies Act 2006.
30. Post-balance sheet events
The Group entered into the Trading Agreement with Shell Group in February
2024, and terminated its legacy arrangements with the previous trading
counterparty.
As disclosed in note 23, the directors will propose, for consideration as a
special resolution at the Company's annual general meeting and subject to the
necessary court approvals required for such a process, the cancellation of the
Company's share premium account. If successful, the share premium account of
£11,908,911 would be credited to distributable reserves.
On 19 February 2024, the shares of Yü PropCo Limited were sold (intra-Group)
by the Company to KAL Portfolio Trading Limited as part of a corporate
reorganisation. The freehold land and building held by the Company was then
sold by the Company to KAL Portfolio Trading Limited at the estimated market
value (equivalent to book value) of £3,133,777. These transactions do not
impact the Group's consolidated balance sheet position.
There are no other significant post-balance sheet events.
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