REG - Yu Group PLC - Interim Results
27/09/2022 07:00
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RNS Number : 7075A Yu Group PLC 27 September 2022
Yü Group PLC
(the "Group")
Results for the six months to 30 June 2022
CONTINUED FINANCIAL AND OPERATIONAL OUTPERFORMANCE
Yü Group PLC (AIM; YU.), the independent supplier of gas, electricity and
water to the UK corporate sector, and smart meter installation services,
announces its unaudited half year results for the six months to 30 June 2022.
Bobby Kalar, Chief Executive Officer, said:
"We continue to reiterate our promise to keep delivering profitable growth and
are confident this is set to continue.
I'm very pleased to report another set of excellent results reflecting a
strong and reliable performance. Remembering this is our fourth consecutive
and consistent set of results I'm proud to confirm our key financial KPI's are
performing well and have exceeded our forecasts following two recent upgrades.
Revenue is up by 96%, cash in hand has increased 37%, average monthly booking
have increased by 49% and EBITDA has jumped over 400% compared to H1 2021. Our
strategy is working well and our strengthened and highly disciplined business
driven by our joined up processes, people and platforms continues to deliver a
seamless customer experience.
Our digital transformation program is on course and several digital projects
are now live and embedded into the business. We will see additional benefits
of reduced operating costs, better efficiencies and greater predictability as
we scale these digital channels.
While I'm pleased with the recent government Energy Bills Relief Scheme
announcement, pledging support for business customers with their increased
energy costs, I fear businesses will feel the ongoing pressure of volatile
wholesale commodity prices for some time. We will continue to work hard to
help our customers manage these difficult market conditions.
A £300m Mark to Market trading position gives me comfort our hedge book is
very strong, in accordance with our hedging policy, and provides significant
confidence in forward gross margin.
The successful launch of Yü Smart is a game changer in terms of value chain
ownership. As well as supplying energy to our business customers we have
gained certification from the Retail Energy Code (REC) and approval from
Elexon and Xoserve to operate as a Meter Equipment Manager (MEM) and Meter
Installer (MI) for both gas and electricity customers, creating the
opportunity to install and maintain SMETS2 meters. In addition, owning the
asset, creating an annuity income, provides an exciting new value pool for the
Group to benefit from. I look forward to updating the market as we rapidly
scale this capability.
We performed well in the pandemic; even better in 2021, despite challenges in
the market; and we expect even better performance in the remainder of 2022 and
beyond. I'm reassured our business continues to prosper and will use its
strength and experience as an anchor for any further turbulence. As we
continue to enjoy the fruits of our hard work, I look forward to delivering
significant shareholder value in the near future.
Finally, I would like to thank my wonderful team who continue to support the
Board's target to achieve £500m revenue at over 4% EBITDA as soon as
possible."
Highlights
£'m unless stated 6 months ended 30 June 12 months
2022 2021 Change 2021
Financial
Revenue 129.2 65.8 96% 155.4
Adjusted EBITDA(1) 2.7 0.5 440% 1.7
Profit after tax 4.4 0.9 389% 4.5
Cash 15.7 11.5 37% 7.0
Earnings per share (diluted):
Adjusted 10p 0.4p +9.6p 14p
Statutory 26p 5p +21p 26p
Operational
Average monthly bookings 14.3 9.6 49% 13.8
Meter points (#'000) 26.1 20.8 25% 31.9
Note:
1. Adjusted EBITDA represents earnings before interest, tax,
depreciation and amortisation. It also excludes the gain of £3.3m in relation
to the Group's financial derivative asset and, in 2021, excluded share based
payment charges and non-recurring costs.
· Revenue growth of 96.3% to £129.2m (H1 2021: £65.8m), through
strong organic growth, as the Group benefits from its improved customer
proposition
· Digital by Default strategy accelerating the benefits of operational
leverage and margin expansion with EBITDA margins expanding to 2.1% (H1 2021:
0.8%),
o Gross margin improvement from 7.8% to 14.1%
o Overhead costs have decreased from 6.1% of revenue in H1 2021, to 4.6% in H1
2022
· Adjusted EBITDA increased to £2.7m (H1 2021: £0.5m), and already
exceeding the 12 months of FY 2021
· Profit before tax increased to £4.4m (H1 2021: £0.9m) benefiting
from a £3.3m gain based on our ~£0.3bn MtM hedge position, leading to a
£7.3m financial derivative asset at H1 2022
· Robust commodity hedging position is underpinning strong performance,
as the business is well protected against unprecedented price volatility in
the energy markets
· Average monthly bookings have increased by 49% to £14.3m (H1 2021:
£9.6m) while the number of meter points has increased by 25% compared with 30
June 2021
· Yü Smart successfully launched and will further improve debtor
control, margins and profitability as it scales, and asset ownership will
unlock new annuity incomes for the Group
· Group remains well capitalised with strong cash position at £15.7m
(H1 2021: £11.5m). Reflecting confidence in the ongoing performance of the
Group, the Board is actively considering the introduction of a progressive
dividend to be confirmed at the Company's full year results, with capital
allocation being balanced against the growth opportunities presented to the
Group.
Outlook
· The Board expects the record H1 performance to continue for the
remainder of the financial year and beyond, with continued strong trading
already evident in Q3 2022
· Contracted revenue of £119m secured for 2023, at 31 August 2022,
providing good forward revenue visibility
· Yü Smart is expected to become profitable in FY 2023 with
significant opportunities to develop and grow the business and unlock new
margin opportunities
· The Board welcomes the support announced by the government through
the energy bill relief scheme, which provides clarity and will help businesses
through the coming winter.
Yü Group PLC +44 (0) 115 975 8258
Bobby Kalar
Paul Rawson
Liberum - Nominated Adviser and Broker +44 (0) 20 3100 2000
Edward Mansfield
William Hall
Cara Murphy
Tulchan Group +44 (0) 20 7353 4200
Giles Kernick
Olivia Peters
Analyst presentation
A presentation for analysts will be held at 9.00am today, 27 September at the
offices of Tulchan Communications, 85 Fleet Street, EC4Y 1AE. To register to
attend or for webcast details please contact Yugroup@tulchangroup.com .
Notes to Editors
Information on the Group
Yü Group PLC, trading as Yü Energy, is a leading supplier of gas and
electricity focused on servicing the corporate sector throughout the UK. We
drive innovation through a combination of user-friendly digital solutions and
personalised, high quality customer service. The Group plays a key role
supporting businesses in their transition to lower carbon technologies with a
commitment to providing sustainable energy solutions.
Yü Group has a clear strategy to deliver sustainable profitable growth and
value for all of our stakeholders built on strong foundations and with a
robust hedging policy. In 2022 the Group launched Yü Smart to support growth
through new opportunities in smart metering and EV charge installation. With a
significant opportunity in a £50bn addressable market Yü Group continues to
deliver on the medium term goal of £500m of revenues with an adjusted EBITDA
margin in excess of 4%.
Chief Executive Officer's Statement
Delivering on our strategy
I'm delighted to report a very strong trading and financial performance, with
continued improvement in profitability and with the Group exceeding all key
financial and operational metrics.
We have now delivered four half-year periods of consistent and consecutive
growth and I'm excited about the momentum we are carrying in to H2 2022 and
beyond.
Our strategic focus on being Bigger (high growth), Better (more profitable),
Faster (digital by default) and Stronger (cash and governance focus) continues
to deliver.
Growth has continued apace with revenues of £129.2m, up by 44% against H2
2021 and up 96% on H1 2022 (H1 2021: £65.8m), and already stands at 83% of
that achieved in FY 2021 (itself a record).
The high price environment being experienced in the market has resulted in an
increase in uncontracted revenues as businesses defer entry into fixed
contracts at elevated prices. Uncontracted revenues represented 18% of H1 2022
revenues.
Strong bookings performance led to a 25% growth in number of meter points
served and a high level of forward contracted revenue. As at 31 August 2022
the Group has £119m of contracted revenues for FY 2023 (up 31% on prior year)
underpinning the Group's growth trajectory in H2 2022 and beyond.
Profitability has also increased, and we maintain our target to achieve
revenues of £0.5bn, at 4%+ EBITDA.
Our Digital by Default programme has accelerated our margin development and is
delivering consistency of data across the Group to effectively serve customers
and manage the Group's risk profile. We see the investment made as a
significant growth driver for the future with a scalable platform now in
place. Customers can obtain a live priced quote in under 30 seconds, and
onboard seamlessly hands-free and without the need to contact in person. We
continue to automate customer experiences and have flexible and fully
configurable API plug and play technologies which can maintain our agility as
a leading challenger supplier. Our platform is designed to allow us to easily
enter new and complimentary product offerings.
This Digital by Default approach unlocks new sales channels, with the ability
for customers and energy broker (TPIs) to self-serve, bringing enhanced
overhead efficiency and operational leverage to improve margins. Alongside the
financial benefits the consistency of data enables informed decisions to
effectively manage risk and enables the Group to understand the needs and
habits of our customers through data analytics.
In summary, we have in place robust and scalable systems which is accelerating
growth - and this seamless customer experience, driven by our joined-up
processes, people and platforms, highlights the strength of our business.
Delivering from our strong foundations
Our commodity hedging position is a strong platform for continued success. The
Board estimates the value of the hedge book, on a Mark to Market ("MtM")
basis, at £300m at 20 September 2022. This provides significant market
opportunity over the rest of 2022 and FY 2023 and FY 2024.
Bad debt has increased in H1 2022 in absolute terms, reflecting the growth of
the business. Importantly overdue customer receivables have remained flat at 7
days. Alongside this gross margin has improved to 14.1% (H1 21: 7.8%) through
various commercial activities and a prudent and optimised hedge position.
Management expects to continue to navigate the highly volatile global market
prices utilising the digital tools, knowledge and processes developed over
recent times, and is confident in improving net customer contribution to
unlock further value.
The Board welcomes the announcement from government of the significant Energy
Bill Relief Scheme to support customers through the winter period. We continue
to work with BEIS on the implementation of the package, with details still
being assessed, though consider the impact on customers to be very helpful. We
remain hopeful that government will extend the scheme beyond the initial six
month period, if market prices require, for some customers in certain highly
impacted sectors.
The Group maintains a strong balance sheet and will consider investments to
drive further growth opportunities to scale even more rapidly. We remain
vigilant for any acquisitions available, though are disciplined (as has been
proven on our acquisitions to date) to target only value enhancing
opportunities.
Delivering for the future
The Group invested in the people, policies, processes and certain other
intellectual property of Magnum Utilities, a leading smart meter installer, in
Q2 2022. Since then, the team has been working to launch our new business
unit, Yü Smart, which has now successfully commenced operation with the first
meters installed and a growing team of meter installers in place.
Our Yü Smart business unit will provide metering services to our own energy
supply business alongside other suppliers. This service provides significant
benefits to our Group: to fully control the customer smart meter installation
journey; provide customers with additional insight on their energy usage; and
to reduce bad debt exposure in the supply business.
The acquisition also allows new growth initiatives in relation to EV charger
installations.
In addition, the Group will invest from Q4 2022 to own smart meter assets,
providing a long-term recurring and profitable annuity.
The Board is pleased with performance to date and have increased guidance on
two occasions this year. We maintain a positive outlook and note market
expectations are rightfully prudent in view of the high volatility in market
prices.
That said, the Board is confident on achieving the increased market
expectations and on the ability to deliver the Group's medium-term targets of
£500m revenues at 4%+ EBITDA.
The talent and commitment I can draw upon from our colleagues is leading us to
significantly improved performance, and I reiterate my thanks to them in
continuing to deliver the Group's objectives.
Financial Review
£'m unless stated H1 2022 H1 2021 FY 2021
Revenue 129.2 65.8 155.4
Gross Margin % 14.1% 7.8% 9.8%
Net Customer Contribution % 6.7% 6.8% 6.7%
Overheads % (4.6%) (6.1%) (5.6%)
Adjusted EBITDA % 2.1% 0.7% 1.1%
Adjusted EBITDA 2.7 0.5 1.7
Depreciation (0.6) (0.4) (0.7)
Non-recurring - - (0.6)
Share based payments - (0.2) (0.2)
Financial derivative gain 3.3 1.2 3.3
Tax (1.0) (0.2) 1.0
Profit after tax 4.4 0.9 4.5
Earnings per share (diluted):
Adjusted 10p 0.4p 14p
Statutory 27p 6p 26p
Operating cash flow 10.3 2.3 (0.8)
Overdue customer receivables 7days 7days 7days
Cash 15.7 11.5 7.0
Delivering significant increase in revenue
Group revenue has increased to £129.2m, a 96% increase on H1 2021, or 120%
increase after considering the previously announced exit in FY 2021 from a
£7m low margin contract.
This strong performance is a factor of the integrations of the various
Supplier of Last Resort ("SoLR") books in late 2021 and early 2022, together
with continued high monthly bookings (partially reflecting the high price
environment) and an increased contribution from customers wishing to remain on
our variable tariff.
£'m unless stated 6 months ended 30 June
Change 2022 2021
Revenue
Firm book (contracted) 51.8 104.3 52.5
Non-firm book (uncontracted) 18.9 23.4 4.5
Other (water and other charges) (0.1) 1.5 1.6
Exited contract (7.2) - 7.2
Total Revenue 63.4 129.2 65.8
Forward contracted revenue as at 31 August 2022, to deliver in FY 2023, is
£119m being 31% up on the comparable position at 31 August 2021. Along with
the SoLR books, the increase in uncontracted revenues is a result of customers
who have decided to delay entering a new fixed price contract because of the
high commodity market environment.
Management has significant confidence in achieving revenue market expectations
based on current trading.
Gross margin and Adjusted EBITDA are not expected to be impacted by the
government Energy Billing Relief Scheme. BEIS have also noted that the scheme
will be cash neutral for suppliers.
Delivering sustainable profitable growth
Gross margin has significantly improved in the period, to 14.1% (H1 2021:
7.8%) largely because of a strong hedge book and the significant uncontracted
customer base.
Bad debts have been provisioned at 7.4% (FY 2021: 3.1%) of revenues, on a
prudent basis reflecting the increased tariffs being experienced by customers.
The Energy Bill Relief Scheme, plus our drive to install additional smart
meters, are expected to reduce this level of bad debt in H2 2022, though
management will remain focussed on customer payment performance.
General overheads are benefiting from significant efficiency, largely driven
through investment in our Digital by Default strategy and continues to reduce
cost to acquire and cost to serve. Overheads at 4.6% of revenue are
significantly below the 5.6% across FY 2021, and trending positively towards
our target to achieve overheads below 3.5% of revenue at £500m revenues.
Whilst the Board are confident that this strong profitability trajectory will
continue in the short and medium term, there will be no complacency.
Optimisation of our £300m MtM valued hedge book, coupled with further focus
on bad debt and leveraging scale benefits in overheads all provide positive
momentum into FY 2023. Commercial strategies identified and tested in various
market conditions over recent years should also provide opportunity to unlock
value - in high or decreasing commodity market environments.
In addition, our activities in Yü Smart will unlock additional value in the
supply chain, whilst supporting a reduction in bad debt. A c£1.3m working
capital requirement (financed from Group cash reserves) and investment of
c£2.7m into meter assets from Q4 2022 and into FY 2023 could generate (post
tax, pre indexation) levered returns of over 30% and a recurring, profitable
annuity income.
Delivering strong cash flow and working capital
The Group has a strong balance sheet, with £15.7m cash available on 30 June
2022, up from £11.5m at June 2021. The Group continues to have no debt.
On 31 August 2022 the Group settled its full annual ROC bill on time, and
closed August with £5.1m of cash, being ahead of management expectations.
Group cash by 31 December 2022 is targeted to significantly exceed the £7.0m
cash held on 31 December 2021.
Whilst the Board remain mindful on the pressures on customers, and the level
of bad debt provisioning has increased, Overdue Customer Receivables (being an
indicator of unprovided for customer receivables at the balance sheet date)
have remained flat at 7days of sales (H1 2021: 7 days). The roll out of smart
meters under the Yü Smart business will further enhance the Group's debtor
controls. The Board are currently examining the most appropriate means to
finance the expansion of the Yü Smart business but can confirm it will be
without recourse to equity.
Delivering on our financial framework
Our clear management targets remain; to deliver £500m revenue at over 4%
EBITDA in the medium term.
We will achieve this by continued discipline across our financial framework:
to drive organic and inorganic growth; unlocking customer lifecycle
opportunities and optimising our hedge book; whilst benefiting from overhead
and digital driven overhead efficiencies as we maintain cash discipline.
The Board look forward to updating stakeholders in the coming months as we
progress towards these objectives.
Condensed consolidated statement of profit and loss and other comprehensive
income
For the six months ended 30 June 2022
6 months ended 6 months ended 12 months ended
30 June 30 June 31 December
2022 2021 2021
(Unaudited) (Unaudited) (Audited)
Notes £'000 £'000 £'000
Revenue 129,221 65,816 155,423
Cost of sales (111,008) (60,673) (140,180)
Gross profit 18,213 5,143 15,243
Operating costs before non-recurring items and share based payment charges (6,405) (4,400) (9,407)
Operating costs - non-recurring items 5 - - (644)
Operating costs - share based payment charges 17 (48) (191) (249)
Total operating costs 3 (6,453) (4,591) (10,300)
Net impairment losses on financial and contract assets 12 (9,614) (632) (4,799)
Other gains 5 3,355 1,248 3,344
Operating profit 5,501 1,168 3,488
Finance income 4 - 1 -
Finance costs 4 (24) (25) (96)
Profit before tax 5,477 1,144 3,392
Taxation 7 (1,040) (224) 1,059
Profit and total comprehensive income for the year 4,437 920 4,451
Earnings per share
Basic 6 £0.27 £0.06 £0.27
Diluted 6 £0.26 £0.05 £0.26
Condensed consolidated balance sheet
At 30 June 2022
Notes 30 June 30 June 31 December
2022 2021 2021
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
ASSETS
Non-current assets
Intangible assets 9 2,578 359 1,333
Property, plant and equipment 10 3,636 3,776 3,751
Right-of-use assets 11 153 233 193
Deferred tax assets 4,892 4,566 5,932
Trade and other receivables 12 1,793 - 870
13,052 8,934 12,079
Current assets
Trade and other receivables 12 38,059 19,185 40,441
Cash and cash equivalents 13 15,657 11,473 7,049
53,716 30,658 47,490
Total assets 66,768 39,592 59,569
LIABILITIES
Current liabilities
Trade and other payables 14 (48,754) (30,439) (49,743)
Non-current liabilities
Trade and other payables 14 (4,243) (3,564) (541)
Total liabilities (52,997) (34,003) (50,284)
Net assets 13,771 5,589 9,285
EQUITY
Share capital 83 82 82
Share premium 11,690 11,690 11,690
Merger reserve (50) (50) (50)
Retained earnings/(accumulated losses) 2,048 (6,133) (2,437)
13,771 5,589 9,285
Condensed consolidated statement of changes in equity
For the six months ended 30 June 2022
Share Share Merger Retained Total
capital premium reserve earnings £'000
£'000 £'000 £'000 £'000
Balance at 1 January 2022 82 11,690 (50) (2,437) 9,285
Total comprehensive income for the period
Profit for the period - - - 4,437 4,437
Other comprehensive income - - - - -
- - - 4,437 4,437
Transactions with owners of the Company
Contributions and distributions
Equity-settled share based payments - - - 48 48
Deferred tax on share based payments - - - - -
Proceeds from share issues 1 - - - 1
Total transactions with owners of the Company 1 - - 48 1
Balance at 30 June 2022 83 11,690 (50) 2,048 13,771
Balance at 1 January 2021 82 11,690 (50) (7,209) 4,513
Total comprehensive income for the period
Profit for the period - - - 920 920
Other comprehensive income - - - - -
- - - 920 920
Transactions with owners of the Company
Contributions and distributions
Equity-settled share based payments - - - 156 156
Deferred tax on share based payments - - - - -
Proceeds from share issues - - - - -
Total transactions with owners of the Company - - - 156 156
Balance at 30 June 2021 82 11,690 (50) (6,133) 5,589
Condensed consolidated statement of cash flows
For the six months ended 30 June 2022
6 months ended 6 months ended 12 months ended
30 June 30 June 31 December
2022 2021 2021
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
Cash flows from operating activities
Profit for the financial period 4,437 920 4,451
Adjustments for:
Depreciation of property, plant and equipment 168 72 255
Depreciation of right-of-use assets 40 48 80
Amortisation of intangible assets 332 247 352
Unrealised gains on derivative contracts (3,355) (1,248) (3,344)
Decrease/(increase) in trade and other receivables 4,814 330 (19,700)
Increase in trade and other payables 2,767 1,523 17,468
Cash received on obtaining customer contracts - - 378
Finance income - (1) -
Finance costs 24 25 96
Taxation 1,040 224 (1,059)
Share based payment charge 48 156 249
Net cash from/(used in) operating activities 10,315 2,296 (774)
Cash flows from investing activities
Purchase of property, plant and equipment (53) (2,360) (2,629)
Net payment of software development costs (1,205) (119) (1,079)
Net cash invested on acquisition of assets and on obtaining operating licence (372) - -
Net cash used in investing activities (1,630) (2,479) (3,708)
Cash flows from financing activities
Cash-settled share based payment charge - - (12)
Net proceeds from share option exercises 1 - -
Interest (paid)/received (17) (24) (77)
Principal element of lease payments (61) (60) (120)
Net cash used in financing activities (77) (84) (209)
Net increase/(decrease) in cash and cash equivalents 8,608 (267) (4,691)
Cash and cash equivalents at the start of the period 7,049 11,740 11,740
Cash and cash equivalents at the end of the period 15,657 11,473 7,049
Notes to the condensed consolidated financial statements
1. Significant accounting policies
Yü Group PLC (the "Company") is a public limited company incorporated in the
United Kingdom, with company number 10004236. The Company is limited by shares
and the Company's ordinary shares are traded on AIM.
These condensed consolidated half yearly financial statements as at and for
the six months ended 30 June 2022 comprise the Company and its subsidiaries
(together referred to as the "Group"). The Group is primarily involved in the
supply of electricity, gas and water to SMEs and larger corporates in the UK.
Basis of preparation
The condensed consolidated interim financial information for the six months
ended 30 June 2022 has been prepared in accordance with UK-adopted
International Accounting Standards.
The unaudited condensed consolidated interim financial report for the six
months ended 30 June 2022 does not include all of the information required for
full annual financial statements and does not comprise statutory accounts
within the meaning of section 434 of the Companies Act 2006. This report
should therefore be read in conjunction with the Group annual report for the
year ended 31 December 2021, which is available on the Group's investor
website (yugroupplc.com). The comparative figures for the year ended 31
December 2021 have been audited. The comparative figures for the half year
ended 30 June 2021, and the actual figures for the half year to 30 June 2022,
are unaudited.
The accounting policies adopted in these condensed consolidated half yearly
financial statements are consistent with the policies applied in the 2021
Group financial statements.
The consolidated financial statements are presented in British pounds sterling
(£), which is the functional and presentational currency of the Group. All
values are rounded to the nearest thousand (£'000), except where otherwise
indicated.
Going concern
The financial statements are prepared on a going concern basis.
At 30 June 2022 the Group had net assets of £13.8m (30 June 2021: £5.6m and
31 December 2021: £9.3m) and cash of £15.7m (30 June 2021: £11.5m and 31
December 2021: £7.0m).
Management prepares detailed budgets and forecasts of financial performance
and cash flow (including capital commitments) over the coming 12 to 36 months.
The Board has confidence in achieving such targets and forecasts and has
performed comprehensive analysis of various risks 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 profitability (a close profitability measure to
cash generated from operations) in H1 2022 which is significantly above the
same period in 2021.
The Group has increased gross margin, whilst controlling general overheads,
leading to improved financial outcomes. The Board has continued to invest in
state of the art systems which is expected to provide further returns over the
short to medium term. The Group's investment into Yu Smart, the engineering
capability to accelerate the roll out of smart meters to existing and new
customers, also provides confidence in further improving profitability.
Group available cash remains at significant levels, and the Group has met its
obligation to pay its annual Renewable Obligation scheme liability for the
compliance year to 31 March 2022 to Ofgem by the 31 August 2022 deadline.
The Group has no debt other than £0.2m (£0.3m at 31 December 2021) in
respect of the lease for the Group's Nottingham office.
The Board has assessed risks and sensitivities and potential mitigation steps
available to it in detail and continues to monitor risk and mitigation
strategies in the normal course of business.
Volatile energy markets
Global energy markets have significantly increased, resulting in an underlying
increase in costs to acquire wholesale costs which are having to be passed on
to customers in their prices.
The Board has reviewed the Group's hedge position, which provides significant
mitigation to the rising energy costs from its current portfolio. The Group
has also, on various occasions, suspended or amended its sales acquisition
targets to prevent signing potentially loss making business.
The Board remain vigilant in relation to the risk of bad debt as customers
renew contracts onto significantly increased rates, though note that the level
of bad debt rate, and extent of support provided by Government, is under
significant public discussion. The Board has considered various scenarios to
consider the position in respect of profitability as impacted by the level of
bad debt, and the mitigating value of the forward hedge book where markets
remain high.
Hedging arrangements
A five year commodity trading arrangement between SmartestEnergy Ltd and the
trading entities of the Group (Yü Energy Holding Limited and Yü Energy
Retail Limited), signed December 2019, ("the Trading Agreement") enables the
Group to purchase electricity and gas on forward commodity markets. The
Trading Agreement enables forecasted customer demand to be hedged in
accordance with an agreed risk mandate. With the unprecedented increase in
commodity market prices for forward gas and electricity, this hedging position
has and continues to protect the Group.
As part of the Trading Agreement, SmartestEnergy Ltd holds security over the
trading assets of the Group which could, ultimately and in extreme and limited
circumstances, lead to a claim on some of the main trading assets of the
Group. In return, a variable commodity trading limit is provided, which
scales with the Group, having the benefit of significantly reducing the need
to post cash collateral from cash reserves.
The Board carefully monitors covenants associated with the Trading Agreement
to assess the likelihood of the credit facility being reduced or withdrawn.
Management also maintains close dialogue with SmartestEnergy Ltd in respect of
such covenants and provides robust oversight of the relevant contracts.
The position in respect of the forward credit exposure is also monitored and
forecasted to understand the potential risks which may arise:
a) Where commodity market prices increase, the Board considers credit
and contractual exposure to SmartestEnergy Ltd, which (under a default
position) could lead to the unwind of hedges with the loss of value due to the
Group if not successfully recovered under the contract. With increased market
prices, this exposure increased significantly during the year.
b) Where commodity market prices decrease, the Board considers whether
the credit limit provided under the Trading Agreement is sufficient to prevent
the potential for cash calls which may lead to a liquidity issue where in
excess of the Group's cash reserves at that time. The Board also considers
likely commercial outcomes relevant for such a scenario.
Despite the market volatility experienced in 2021 and 2022, the Trading
Agreement continues to operate well providing reliable, efficient and
effective access to traded commodity markets.
The Board also considers its business model and compares it with competitors
which have failed to determine any other risks related to the volatile energy
markets. As part of that assessment, the impact of the price cap on domestic
suppliers (which the Group is not materially exposed to) has been considered.
The failure of certain unhedged B2B suppliers has also been considered. The
Board is satisfied that the Group's business model is adequately
differentiated from these market issues.
In view of energy market volatility and the increased risk for the sector, the
Board has also identified certain mitigation strategies to manage the
commodity market and hedging credit limit exposures noted above, and
continually assess the potential for material impact.
Covid-19
The Group's response to Covid-19, with continued operation and servicing of
customers, provides confidence in the Group's ability to continue to trade
were further lock-downs required due to the pandemic. The Board do not,
therefore, foresee any liquidity issues likely to arise as a result of
Covid-19, though will continue to monitor the situation.
Summary
Following extensive review of the Group's forward business plan and associated
risks and sensitivities to these base forecasts (and available mitigation
strategies), the Board concludes that it is appropriate to prepare the
financial statements on a going concern basis.
Basis of consolidation
The consolidated accounts of the Group include the assets, liabilities and
results of the Company and subsidiary undertakings in which Yü Group PLC has
a controlling interest. Control is achieved when the Group is exposed, or has
rights, to variable returns from its involvement with the investee and has the
ability to affect those returns through its power over the investee.
Specifically, the Group controls an investee if, and only if, the Group has
all of the following: power over the investee (i.e. existing rights that give
it the current ability to direct the relevant activities of the investee);
exposure, or rights, to variable returns from its involvement with the
investee; and the ability to use its power over the investee to affect its
returns. When necessary, adjustments are made to the financial statements of
subsidiaries to bring their accounting policies into line with the Group's
accounting policies. All intra-Group assets and liabilities, equity, income,
expenses and cash flows relating to transactions between members of the Group
are eliminated in full on consolidation.
Use of estimates and judgements
The preparation of the financial statements in conformity with adopted IFRSs
requires the use of estimates and judgements. Although these estimates are
based on management's best knowledge, actual results ultimately may differ
from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimates are revised and in any future periods affected. The key areas of
estimation and judgement remain as detailed in the Group's 2021 annual report.
Revenue recognition
The Group enters into contracts to supply gas, electricity and water to its
customers. Revenue represents the fair value of the consideration received or
receivable from the sale of actual and estimated gas, electricity and water
supplied during the year, net of discounts, climate change levy and
value-added tax. Revenue is recognised on consumption, being the point at
which the transfer of the goods or services to the customer takes place, and
based on an assessment of the extent to which performance obligations have
been achieved.
Due to the nature of the energy supply industry and its reliance upon
estimated meter readings, gas, electricity and water revenue includes the
directors' best estimate of differences between estimated sales and billed
sales. The Group makes estimates of customer consumption based on available
industry data, and also seasonal usage curves that have been estimated through
historical actual usage data. It also considers any adjustments expected where
an estimated meter reading (using industry data) is expected to be different
to the consumption pattern of the customer.
Financial instruments
Non-derivative financial instruments
Non-derivative financial instruments comprise trade and other receivables,
cash and cash equivalents and trade and other payables.
Trade and other receivables
Trade and other receivables are recognised initially at fair value. Subsequent
to initial recognition they are measured at amortised cost using the effective
interest method, less any impairment and expected credit losses.
Impairment
The Group has elected to measure credit loss allowances for trade receivables
and accrued income at an amount equal to lifetime expected credit losses
("ECLs"). Specific impairments are made when there is a known impairment need
against trade receivables and accrued income. When estimating ECLs, the Group
assesses reasonable, relevant and supportable information, which does not
require undue cost or effort to produce. This includes quantitative and
qualitative information and analysis, incorporating historical experience,
informed credit assessments and forward looking information. Loss allowances
are deducted from the gross carrying amount of the assets.
Trade and other payables
Trade and other payables are recognised initially at fair value. Subsequent to
initial recognition they are measured at amortised cost using the effective
interest method.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and short-term deposits
(monies held on deposit are accessible with one month's written notice). Cash
and cash equivalents excludes any cash collateral posted with third parties.
Bank overdrafts that are repayable on demand and form an integral part of the
Group's cash management are included as a component of cash and cash
equivalents.
Derivative financial instruments
The Group uses commodity purchase contracts to hedge its exposures to
fluctuations in gas and electricity commodity prices. The majority of
commodity purchase contracts are expected to be delivered entirely to the
Group's customers and therefore the Group classifies them as "own use"
contracts and outside the scope of IFRS 9 "Financial Instruments". This is
achieved when:
• a physical delivery takes place under all such contracts;
• the volumes purchased or sold under the contracts correspond to
the Group's operating requirements; and
• no part of the contract is settled net in cash.
This classification as "own use" allows the Group not to recognise the
commodity purchase contracts on its balance sheet at the year end.
The commodity purchase contracts that do not meet the criteria listed above
are recognised at fair value under IFRS 9. The gain or loss on remeasurement
to fair value is recognised immediately in profit or loss.
Classification of financial instruments issued by the Group
Financial instruments issued by the Group are treated as equity only to the
extent that they meet the following two conditions:
(a) they include no contractual obligations upon the Group to deliver cash
or other financial assets or to exchange financial assets or financial
liabilities with another party under conditions that are potentially
unfavourable to the Group; and
(b) where the instrument will or may be settled in the Group's own equity
instruments, it is either a non-derivative that includes no obligation to
deliver a variable number of the Company's own equity instruments or is a
derivative that will be settled by the Company exchanging a fixed amount of
cash or other financial assets for a fixed number of its own equity
instruments.
To the extent that this definition is not met, the proceeds of issue are
classified as a financial liability. Where the instrument so classified takes
the legal form of the Company's own shares, the amounts presented in these
financial statements for called up share capital and share premium account
exclude amounts in relation to those shares.
Intangible assets
Intangible assets that are acquired separately by the Group are stated at cost
less accumulated amortisation and accumulated impairment losses.
Intangible assets acquired in a business combination are initially recognised
at their fair value at the acquisition date. Subsequent to initial
recognition, intangible assets acquired in a business combination are reported
at their initial fair value less amortisation and accumulated impairment
losses.
Software and system and supply and operating licence assets are recognised at
cost, including those internal costs attributable to the development and
implementation of the assets to bring them into use. Cost comprises all
directly attributable costs, including costs of employee benefits arising
directly from the development and implementation of the asset.
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:
• Supply and Operating Licence - 10
years to 35 years
• Customer contract books
- Over the period of the contracts acquired
(typically 2 years)
• Software and systems
- 3 to 5 years
Property, plant and equipment
Items of property, plant and equipment are measured at cost less accumulated
depreciation and accumulated impairment losses.
Depreciation is recognised in profit or loss on a straight-line basis over the
estimated useful lives of each part of an item of property, plant and
equipment. The estimated useful lives for the current and comparative periods
are as follows:
• Freehold land
- Not depreciated
• Freehold property
- 30 years
• Computer equipment
- 3 years
• Fixtures and fittings
- 3 to 5 years
Assets under construction are not depreciated until the period they are
brought into use.
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.
Taxation
Tax on the profit or loss for the period comprises current and deferred tax.
Tax is recognised in the statement of profit and loss except to the extent
that it relates to items recognised directly in equity, in which case it is
recognised in equity.
Current tax is the expected tax payable or receivable on the taxable income or
loss for the period, using tax rates enacted or substantively enacted at the
balance sheet date, and any adjustment to tax payable in respect of previous
periods.
Deferred tax is provided on temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts
used for taxation purposes. The following temporary differences are not
provided for: the initial recognition of goodwill; the initial recognition of
assets or liabilities that affect neither accounting nor taxable profit other
than in a business combination; and differences relating to investments in
subsidiaries to the extent that they will probably not reverse in the
foreseeable future. The amount of deferred tax provided is based on the
expected manner of realisation or settlement of the carrying amount of assets
and liabilities, using tax rates enacted or substantively enacted at the
balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that
future taxable profits will be available against which the temporary
difference can be utilised.
2. Segmental analysis
Operating segments
The directors consider there to be one operating segment, being the supply of
utilities to businesses.
Geographical segments
100% of Group revenue is generated from sales to customers in the United
Kingdom (2021: 100%) and is recognised at a point in time.
The Group has no individual customers representing over 10% of revenue (2021:
nil).
3. Operating expenses
30 June 30 June 31 December
2022 2021 2021
£'000 £'000 £'000
Profit for the period has been arrived at after charging:
Staff costs 3,147 2,703 5,634
Depreciation of property, plant and equipment 168 72 255
Depreciation of right-of-use assets 40 48 80
Amortisation of intangible assets 332 247 352
4. Net finance (income)/expense
30 June 30 June 31 December
2022 2021 2021
£'000 £'000 £'000
Bank interest and other finance charges payable 17 17 77
Interest on lease liabilities 7 8 19
Total finance costs 24 25 96
Bank interest receivable - (1) -
24 24 96
5. Reconciliation to adjusted EBITDA
A key alternative performance measure used by the directors to assess the
underlying performance of the business is adjusted EBITDA.
30 June 30 June 31 December
2022 2021 2021
£'000 £'000 £'000
Adjusted EBITDA reconciliation
Operating profit 5,501 1,168 3,488
Add back:
Non-recurring operational costs - - 644
Unrealised gain on derivative contracts (3,355) (1,248) (3,344)
Share based payment charge - 191 249
Depreciation of property, plant and equipment 168 72 255
Depreciation of right-of-use assets 40 48 80
Amortisation of intangibles 332 247 352
Adjusted EBITDA 2,686 478 1,724
The Board has decided to include, from 2022, the share based payment charge in
adjusted EBITDA in order to reflect that such charges are regular operating
charges of the business. The share based payment charge was excluded from
adjusted EBITDA in 2021. On a comparable basis the 30 June 2021 and 31
December 2021 adjusted EBITDA results would decrease by £191,000 and
£249,000 respectively.
The 2021 non-recurring operational costs of £644,000 relates to accrued
industry costs, from legislation governing the Renewable Obligation scheme,
which are mutualised (i.e. spread) across energy market participants.
Unrealised gains on derivative contracts and depreciation and amortisation of
assets are excluded from adjusted EBITDA. This exclusion of gains and losses
is in order for a "near cash, recurring profit" metric to be derived.
The unrealised gain on derivative contracts of £3,355,000 (30 June 2021:
£1,248,000 and 31 December 2021: £3,344,000) arises from a small proportion
of forward commodity hedges which do not meet the strict "own use" criteria
under IFRS 9 ("Financial Instruments"). Such forward commodity trades are
therefore recognised at their fair value, being a financial asset.
The directors consider adjusted EBITDA to be a more accurate representation of
underlying business performance and therefore utilise this measure as the
primary profit measure in setting targets and managing financial performance.
6. 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.
30 June 30 June 31 December
2022 2021 2021
£'000 £'000 £'000
Profit for the year attributable to ordinary shareholders 4,437 920 4,451
30 June 30 June 31 December
2022 2021 2021
Weighted average number of ordinary shares
At the start of the period 16,316,215 16,281,055 16,281,055
Effect of shares issued in the period 125,000 - 18,591
Number of ordinary shares for basic earnings per share calculation 16,441,215 16,281,055 16,299,646
Dilutive effect of outstanding share options 804,932 1,303,043 1,099,153
Number of ordinary shares for diluted earnings per share calculation 17,246,147 17,584,098 17,398,799
30 June 30 June 31 December
2022 2021 2021
Basic earnings per share £0.27 £0.06 £0.27
Diluted earnings per share £0.26 £0.05 £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 and unrealised gains on
derivative contracts and, for 2021, the cost of cash and equity-settled share
based payments, and the weighted average number of ordinary shares
outstanding:
30 June 30 June 31 December
2022 2021 2021
£'000 £'000 £'000
Adjusted earnings per share
Profit for the year attributable to ordinary shareholders 4,437 920 4,451
Add back (per note 5):
Non-recurring items after tax - - 522
Unrealised gain on derivative contracts after tax (gross gain, before tax, of (2,718) (2,709)
£3,355,000)
(1,011)
Share based payments after tax - 155 202
Adjusted basic profit for the period 1,719 64 2,466
Adjusted earnings per share £0.10 £0.004 £0.15
Diluted adjusted earnings per share £0.10 £0.004 £0.14
7. Taxation
The tax charge for the period has been estimated using a rate of 19% on
taxable profits. The Group has incurred a charge against deferred tax in the
period, rather than a current tax charge.
Deferred taxes at the balance sheet date have been estimated using the enacted
tax rates at that date and are reflected in these financial statements on that
basis. Following the March 2021 Budget, the tax rate effective from 1 April
2023 increases from the current 19% to 25%.
8. Dividends
The directors do not propose an interim dividend in relation to 2022 (2021:
nil per share).
9. Intangible assets
Goodwill Operating Customer Software and
£'000 licence books systems Total
£'000 £'000 £'000 £'000
Cost
At 1 January 2022 - 62 686 1,079 1,827
Additions 230 142 - 1,205 1,577
At 30 June 2022 230 204 686 2,284 3,404
Amortisation
At 1 January 2022 - 14 473 7 494
Charge for the year - 1 172 159 332
At 30 June 2022 - 15 645 166 826
Net book value at 30 June 2022 230 189 41 2,118 2,578
Investments in intangible assets include the costs related to the formation of
the Yü Smart business which will install, maintain and finance smart meters,
and provide electric vehicle charger installations. Goodwill arises on the
purchase of assets from Magnum Utilities Limited, including the proven
management and support team and operational policies and procedures.
Investments also include the costs to obtain appropriate licences and
accreditations and bring the business into operation.
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.
For comparative purposes, the net book value of intangible assets decreased
from £606,000 at 1 January 2021 to £359,000 at 30 June 2021.
10. Property, plant and equipment
Group Freehold land Freehold property Fixtures and Computer Total
£'000 £'000 fittings equipment £'000
£'000 £'000
Cost
At 1 January 2022 150 3,274 337 353 4,114
Additions - - - 53 53
Disposals - - - - -
At 30 June 2022 150 3,274 337 406 4,167
Depreciation
At 1 January 2022 - 73 103 187 363
Charge for the year - 55 57 56 168
Disposals - - - - -
At 30 June 2022 - 128 160 243 531
Net book value at 30 June 2022 150 3,146 177 163 3,636
For comparative purposes, the net book value of property, plant and equipment
assets increased from £1,377,000 at 1 January 2021 to £3,776,000 at 30 June
2021 as a result in the investment in the Group's freehold property in
Leicester.
11. Right-of-use assets and lease liabilities
Group Right-of-use
assets
£'000
Cost
At 1 January 2022 799
Additions -
Disposals -
At 30 June 2022 799
Depreciation
At 1 January 2022 606
Charge for the year 40
Disposals -
At 30 June 2022 646
Net book value at 30 June 2022 153
The Group has a lease arrangement for its office facilities in Nottingham.
Other leases are short term or of low value underlying assets.
For comparative purposes, the net book value of right-of-use assets decreased
from £273,000 at 1 January 2021 to £233,000 at 30 June 2021.
12. Trade and other receivables
30 June 30 June 31 December
2022 2021 2021
£'000 £'000 £'000
Current
Gross trade receivables 23,320 11,017 11,618
Provision for doubtful debts and expected credit loss (13,672) (6,272) (6,007)
Net trade receivables 9,648 4,745 5,611
Accrued income - net of provision 14,994 8,569 21,972
Prepayments 3,854 2,094 4,183
Other receivables 4,029 1,901 5,573
Financial derivative asset 5,534 1,876 3,102
38,059 19,185 40,441
Non-current
Financial derivative asset 1,793 - 870
Movements in the provision for doubtful debts and expected credit loss in
gross trade receivables are as follows:
30 June 2022 30 June 2021 31 December 2021
£'000 £'000 £'000
Opening balance 6,007 5,162 5,162
Provisions recognised less unused amounts reversed 10,813 1,110 4,185
Provision utilised in the year (3,148) - (3,340)
Closing balance - provision for doubtful debts and expected credit losses 13,672 6,272 6,007
The directors have assessed the level of provision at 30 June 2022 by
reference to the recoverability of customer receivable balances post the year
end, and believe the provision carried is adequate.
The total net impairment losses on financial and contract assets of
£9,614,000 (30 June 2021: £632,000 and 31 December 2021: £4,799,000)
consists of a credit of £1,199,000 (30 June 2021 credit: £478,000 and 31
December 2021 charge: £614,000) for expected credit loss on accrued income,
and £10,813,000 (30 June 2021 charge: £1,110,000 and 31 December 2021
charge: £4,185,000) provision for bad debts and expected credit loss on trade
receivables.
The directors consider that the carrying amount of trade and other receivables
approximates to their fair value due to their maturities being short term.
The current and non-current financial derivative asset of £7,327,000 (30 June
2021: £1,876,000 and 31 December 2021: £3,972,000) is the fair value of a
small proportion of the Group's overall forward gas and power purchase
contracts. Such contracts do not meet the strict criteria of being for the
Group's "own use" under IFRS 9. They are stated at their Mark to Market fair
value (being the excess of: i) the volume of commodity purchased valued at
market prices available at the balance sheet date; over ii) the traded price
of the forward contracts). The asset has increased from the start of 2021 due
to the significant increase in forward gas and power market prices.
13. Cash and cash equivalents
30 June 30 June 31 December
2022 2021 2021
£'000 £'000 £'000
Cash at bank and in hand 15,657 11,473 7,049
15,657 11,473 7,049
The cash and cash equivalents balance exclude £500,000 of cash which is
included in other receivables. This cash balance is held on deposit and
secured under arrangements with the Group's bankers.
14. Trade and other payables
30 June 30 June 31 December
2022 2021 2021
£'000 £'000 £'000
Current
Trade payables 3,134 2,272 3,690
Accrued expenses and deferred income 31,783 17,589 34,545
Lease liabilities 109 80 107
Tax and social security 5,176 5,583 6,188
Other payables 8,552 4,915 5,213
48,754 30,439 49,743
Non-current
Accrued expenses and deferred income 4,139 3,330 381
Lease liabilities 104 234 160
4,243 3,564 541
The Group had previously taken advantage of the UK Government's Covid-19
business relief schemes. Such liabilities have now been settled in full and
were previously included in tax and social security (30 June 2021: £3,400,000
and 31 December 2021: £1,400,000).
Current accrued expenses at 30 June 2022 includes the Group's liability to pay
Ofgem the Renewable Obligation payment for the scheme period ended 31 March
2022. This liability was settled on-time on the payment due date of 31 August
2022.
15. Financial instruments and risk management
The Group's principal financial instruments are cash, trade and other
receivables, trade and other payables and derivative financial assets.
Derivative instruments, related to the Group's hedging of forward gas and
electricity demand, are level 1 financial instruments and are measured at fair
value through the statement of profit or loss. Such fair value is measured by
reference to quoted prices in active markets for identical assets or
liabilities. All derivatives are held at a carrying amount equal to their fair
value at the period end.
The Group has exposure to the following risks (including the impact of the
Covid-19 pandemic) from its use of financial instruments:
a) commodity hedging and derivative instruments (related to customer
demand and market price volatility, and counterparty credit risk);
b) customer credit risk; and
c) liquidity risk.
The Group has limited exposure to foreign exchange risk, save for the impact
on global commodity markets.
(a) Commodity hedging and derivative instruments
The Group is exposed to market risk in that changes in the price of
electricity and gas may affect the Group's income or liquidity position. The
use of derivative financial instruments to hedge customer demand also results
in the Group being exposed to risks from significant changes in customer
demand (beyond that priced into the contracts), and counterparty credit risk
with the trading counterparty.
Commodity and energy prices and customer demand
The Group uses commodity purchase contracts to manage its exposures to
fluctuations in gas and electricity commodity prices. The Group's objective is
to reduce risk in energy prices by entering into back-to-back energy contracts
with its suppliers and customers, in accordance with a Board approved risk
mandate. Commodity purchase contracts are entered into as part of the Group's
normal business activities.
The majority of commodity purchase contracts are expected to be delivered
entirely to the Group's customers and are therefore classified as "own use"
contracts. These instruments do not fall into the scope of IFRS 9 and
therefore are not recognised in the financial statements. A proportion of the
contracts in the Group's portfolio are expected to be settled net in cash
where 100% of the volume hedged is not delivered to the Group's customers and
is instead sold back via the commodity settlement process in order to smooth
demand on a real‑time basis. An assumption is made (based on past
experience) of the proportion of the portfolio expected to be settled in this
way and these contracts are measured at fair value. The gain or loss on
remeasurement to fair value is recognised immediately in profit and loss.
As far as practical, in accordance with the risk mandate, the Group attempts
to match new sales orders (based on estimated energy consumption, assuming
normal weather patterns, over the contract term) with corresponding commodity
purchase contracts. There is a risk that at any point in time the Group is
over or under-hedged. Holding an over or under-hedged position opens the Group
up to market risk which may result in either a positive or negative impact on
the Group's margin and cash flow, depending on the movement in commodity
prices.
Well-publicised increases in global gas and electricity commodity prices have
increased the potential gain or loss for an over or under-hedged portfolio,
and the Group continues to closely monitor its customer demand forecast to
manage volatility. The Group also applies premia in its pricing of contracts
to cover some market volatility (which has proven to be robust despite the
market context), and contracts with customers also contain the ability to pass
through costs which are incurred as a result of customer demand being
materially different to the estimated volume contracted.
The fair value Mark to Market adjustment at 30 June 2022 for those contracts
not assumed to be strictly for "own use" is a gain of £3,355,000 (30 June
2021: gain of £1,248,000 and 31 December 2021: gain of £3,344,000). See note
12 for the corresponding derivative financial asset.
Sensitivity analysis in relation to the movement in energy commodity markets
were noted in the annual financial statements.
Liquidity risk from commodity trading
The Group's trading arrangements can result in the need to post cash or other
collateral to trading counterparties when commodity markets are below the
Group's average weighted price contracted forward. A significant reduction in
electricity and gas markets could lead to a material cash call from these
trading counterparties in the absence of a suitable trading credit limit.
Whilst such a cash call would not impact the Group's profit (as it represents
a forward credit risk assessment of the counterparty), it would have an impact
on the Group's cash reserves.
The structured trading arrangement, entered into with SmartestEnergy in
December 2019, has reduced this liquidity risk in view of the significant
credit limit being provided. This arrangement provides a significant trading
credit limit (secured on the main trading entities of the Group and subject to
compliance with certain covenants) and as such reduces the need to lodge cash
collateral when commodity markets decrease. As disclosed in note 1, the Board
has considered the cash flow forecasts, along with the interaction in trading
credit limits and the potential need for cash collateral or Letter of Credit
support. The Board also monitors the position in respect of commodity markets
and has mitigation plans in place where credit limits are predicted to be
exceeded to reduce, where possible, the potential impact on the Group due to
short-term cash calls. In extreme circumstances, such mitigation may include
(prior to security being enacted) reducing the Group's hedged position
(reducing liquidity risk in exchange for increased risk to future market
increases) through to commercial discussion to waive the requirement to post
cash collateral over a short to medium-term period; or the agreement to
provide additional remedial action.
Trading counterparty credit risk
In mirror opposite to the liquidity risk noted above, the Group carries credit
risk to trading counterparties where market prices are above the average
weighted price contracted forward. In view of the significant rise in energy
commodity markets this credit risk has increased significantly to be greater
than £250m at certain periods. This credit exposure is predominantly with the
Group's main trading counterparty.
The Board monitors the position in respect of credit exposure with its trading
counterparties, and contracts only with major organisations which the Board
considers to be robust and of appropriate financial standing.
(b) Customer or other counterparty credit risk
Credit risk is the risk of financial loss to the Group if a customer or
counterparty to a financial instrument fails to meet its contractual
obligations and arises principally from the Group's receivables from customers
(in addition to trading counterparties as noted in section (a) above).
These operational exposures are monitored and managed at Group level. All
customers operate in the UK and turnover is made up of a large number of
customers each owing relatively small amounts. New customers have their credit
checked using an external credit reference agency prior to being accepted as a
customer.
The Board is aware of the Government's proposed energy price support package
to business to assist in mitigating the impact on significant price increases
which may reduce the likelihood of additional bad debt costs in the future.
Credit risk is also managed through the Group's standard business terms, which
require all customers to make a monthly payment predominantly by direct debit.
At the year end there were no significant concentrations of credit risk. The
carrying amount of the financial assets (less the element of VAT and climate
change levy ("CCL") included in the invoiced balance, which is recoverable in
the event of non‑payment by the customer) represents the maximum credit
exposure at any point in time.
The Board considers the exposure to debtors based on the status of customers
in its internal debt journey, the level of customer engagement in financing an
appropriate solution, the customer's creditworthiness, the provision for
doubtful debts and expected credit loss held, the level of reclaimable VAT and
CCL on the balances, and cash received after the period end.
(c) Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its
financial obligations as they fall due. The Board is responsible for ensuring
that the Group has sufficient liquidity to meet its financial liabilities as
they fall due and does so by monitoring cash flow forecasts and budgets.
Management also monitors the position in respect of the Group's performance
against covenants as part of its trading arrangements, to ensure credit limits
as part of such transactions are monitored, and any credit cover requirements
for other industry participants which are standard in the energy sector.
Any excess cash balances are held in short-term deposit accounts which are
either interest or non-interest accounts.
16. Share capital and reserves
Share capital 30 June 30 June 31 December 31 December
2022 2022 2021 2021
Number £'000 Number £'000
Allotted and fully paid ordinary shares of £0.005 each 16,566,215 83 16,316,215 82
The Company has one class of ordinary share which carries no right to fixed
income. The holders of ordinary shares are entitled to receive dividends as
declared and are entitled to one vote per share at meetings of the Company.
The Group 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. On 13 May 2022, 250,000 share option were exercised at
a price of £0.005 per share.
The share premium account represents amounts received in excess of the nominal
value of shares on the issue of new shares, net of any direct costs of any
shares issued.
The merger reserve was created as part of the 2016 Group reorganisation prior
to listing.
Retained earnings comprises the Group's cumulative annual profits and losses.
17. Share based payments
The Group operates a number of share option plans for qualifying employees.
Options in the plans are settled in equity in the Company. The options are
subject to a vesting schedule, details of which are listed below.
The terms and conditions of the outstanding grants made under the Group's
schemes are as follows:
Exercisable between
Date of grant Expected Commencement Lapse Exercise Vesting Amount Amount
term price schedule outstanding at outstanding at
30 June 31 December
2022 2021
17 February 2016 3 17 February 2019 17 February 2026 £0.09 1 27,000 27,000
22 December 2016 3 22 December 2019 22 December 2026 £3.25 1 13,500 13,500
6 April 2017 3 6 April 2020 6 April 2027 £0.005 1 43,950 43,950
6 April 2017 6.5 6 April 2020 6 April 2027 £2.844 1 87,900 87,900
28 September 2017 6.5 28 September 2020 28 September 2027 £5.825 1 40,500 40,500
9 April 2018 6.5 9 April 2021 9 April 2028 £10.38 1 59,084 59,084
26 September 2018 6.5 26 September 2021 26 September 2028 £8.665 1 6,539 6,539
25 February 2019 6.5 25 February 2022 25 February 2029 £1.09 1 48,497 48,497
25 February 2019 3 25 February 2022 25 February 2029 £0.005 1 - 250,000
18 June 2019 3 1 August 2022 1 February 2023 £1.40 2 56,570 62,483
4 October 2020 3 30 April 2023 4 October 2030 £0.005 3 210,696 210,696
4 October 2020 3 30 April 2024 4 October 2030 £0.005 3 172,388 172,388
1 June 2021 3 30 April 2024 4 October 2030 £0.005 3 - 76,616
13 May 2022 3 30 April 2024 4 October 2030 £0.005 3 38,308 -
804,932 1,099,153
The following vesting schedules apply:
1. 100% of options vest on third anniversary of date of grant.
2. 100% of options vest on third anniversary of the Save As You Earn
("SAYE") savings contract start date. The SAYE shares were exercised in full
in early H2 2022 as disclosed in note 21.
3. Level of vesting is dependent on a performance condition, being the
Group's share price at pre-determined dates in the future.
The number and weighted average exercise price of share options were as
follows:
30 June 2022 31 December 2021
shares shares
Balance at the start of the period 1,099,153 1,290,699
Granted 38,308 76,616
Forfeited (82,529) (233,002)
Lapsed - -
Exercised (250,000) (35,160)
Balance at the end of the period 804,932 1,099,153
Vested at the end of the period 326,970 278,473
Exercisable at the end of the period 326,970 278,473
Weighted average exercise price for:
Options granted in the period £0.005 £0.005
Options forfeited in the period £0.10 £1.88
Options exercised in the period £0.005 £0.005
Exercise price in the range:
From £0.005 £0.005
To £0.005 £10.38
The fair value of each option grant is estimated on the grant date using an
appropriate option pricing model with the following fair value assumptions:
30 June 2022 31 December 2021
Dividend yield 0% 0%
Risk-free rate 1.5% 1.5%
Share price volatility 109.7% 114.6%
Expected life (years) 2 years 3 years
Weighted average fair value of options granted during the period £2.07 £2.30
The share price volatility assumption is based on the actual historical share
price of the Group since IPO in March 2016.
The total expenses recognised for the year arising from share based payments
are as follows:
30 June 31 December
2022 2021
£'000 £'000
Equity-settled share based payment expense 48 237
Cash-settled share based payment expense - 12
Total share based payment charge 48 249
Cash-settled share based payment expense in 2021 relates to employer's
National Insurance payable on unapproved share options when exercised.
18. 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 30 June 2022 (30 June 2021:
nil).
Security
Yü Group PLC provides parent company guarantees on behalf of its wholly owned
subsidiaries to a small number of industry counterparties as is common-place
for the energy sector.
The Group entered into an arrangement with a commodity trading counterparty,
SmartestEnergy Ltd, in December 2019. As part of the arrangement, there is a
requirement to meet certain covenants and a fixed and floating charge over the
main trading subsidiaries of the Group, Yü Energy Holding Limited and Yü
Energy Retail Limited.
Included in other receivables of 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 30 June 2022 (2021: £nil).
19. 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 the period
the Group paid £60,000 in lease rental and service charges to CPK Investments
Limited (30 June 2021: £60,000). There was no amount owing to CPK Investments
Limited at 30 June 2022 (2021: £nil).
All transactions with related parties have been carried out on an arm's length
basis.
20. Net cash/(net debt) reconciliation
The net cash/(net debt) and movement in the period were as follows:
30 June 30 June 31 December
2022 2021 2021
£'000
£'000
£'000
Cash and cash equivalents 15,657 11,473 7,049
Lease liabilities (213) (314) (267)
Borrowings - - -
Net cash 15,444 11,159 6,782
Borrowings Leases Cash Total
£'000 £'000 £'000 £'000
Net cash/(net debt) as at 1 January 2022 - (267) 7,049 6,782
Cash flows - 61 8,625 8,686
Interest and other changes - (7) (17) (24)
Net cash/(net debt) as at 30 June 2022 - (213) 15,657 15,444
21. Post-balance sheet events
On 9 August 2022 the Group announced the exercise of 56,570 Save As You Earn
share options at an exercise price of £1.40 per share.
On 8 September 2022 there was an announcement that the Government would launch
an energy price support scheme for domestic and non-domestic customers to
mitigate some of the impact of increased prices due to high global commodity
markets. The scheme is anticipated to run from 1 October 2022 for a period of
six months.
There are no other significant or disclosable balance sheet events.
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