REG - Yu Group PLC - Results for the six months to 30 June 2023
26/09/2023 07:00
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RNS Number : 5964N Yu Group PLC 26 September 2023
Yü Group PLC
(the "Group")
Results for the six months to 30 June 2023
MOVING TO THE SCALE STAGE OF OUR JOURNEY
Yü Group PLC (AIM: YU.), the independent supplier of gas and electricity,
meter asset owner, and installer of smart meters to the UK corporate sector,
announces its unaudited half-year results for the six months to 30 June 2023.
Highlights
£'m unless stated 6 months to 30 June 12 months to 31 Dec
H1 2023 H1 2022 Change FY 2022
Financial
Revenue 194.9 129.2 +51% 278.6
Adjusted EBITDA(1) 13.7 2.7 +407% 7.9
Profit before tax 8.9 5.5 +62% 5.8
Operating cash inflow 18.7 10.3 +82% 14.7
Net cash 36.6 15.7 +133% 19.0
Earnings per share (diluted):
Adjusted 58p 10p +480% 30p
Statutory 40p 26p +54% 26p
Dividend per share 3p - +3p 3p
Operational
Average monthly bookings 51.3 14.3 +259% 24.5
Meter points (#'000) 39.7 26.1 +52% 25.5
Funded Smart Meter Assets (#'000) 1.3 - +1.3 -
· Revenue growth of 51% to £194.9m (H1 2022: £129.2m), through
continued execution of growth strategy.
· Adjusted EBITDA increased to £13.7m (H1 2022: £2.7m) as the Group
benefits from increased net customer contribution through differentiated
market offering.
· Profit before tax increased to £8.9m (H1 2022: £5.5m), reflecting a
£4.2m unrealised non-cash charge (H1 2022: £3.3m gain) for financial
derivatives due to the Group's hedging policy and declining commodity prices.
· Digital platform and market position have enabled average monthly
bookings to increase to £51.3m (H1 2022: £14.3m) while the number of meter
points has increased by 52%.
· Expansion of Yü Smart, the Group's smart metering business,
providing improved customer insights and enabling more favourable customer and
Group outcomes. Rollout of smart meters commenced with c4,000 installed at the
end of H1 2023, of which 1,300 owned and to provide an annuity income for the
Group.
· Group remains well capitalised with strong cash position of £36.6m
(H1 2022: £15.7m). Operating cash inflow of £18.7m is up 82% (H1 2022:
£10.3m).
· Interim dividend of 3 pence per share (H1 2022: nil) as part of the
Group's progressive dividend policy.
Outlook
· The Board expects the strong revenue and margin performance to
continue for H2 2023, with adjusted EBITDA now expected to exceed £33m for FY
2023, being substantially ahead of current market expectations.
· The Group has an established and scalable platform, and management
are confident that the Group can deliver continued significant growth in FY
2024 as it benefits from its subscription model and market positioning, and
strong margins on forward contracts. The Digital by Default platform,
differentiated offering and current small share of a substantial market
provides the Board with confidence in driving sustainable growth for the long
term.
· As of 31 August 2023, contracted revenue of £358m is due to deliver
in 2024; a 201% year-on-year increase. In addition, the Group has a further
c£145m contracted revenue for FY 2025 and beyond, underpinning the long-term
growth trajectory of the business.
· The ambition of achieving revenues of £500m at a 5% EBITDA margin is
no longer a stretch target for the Group, with the margin target already
exceeded and as such management will re-evaluate its ambition for 2024 and
beyond.
Note:
1. Adjusted EBITDA represents earnings before interest, tax,
depreciation and amortisation. It also excludes the loss or gain in relation
to the movement in the Group's financial derivative asset and liability.
Bobby Kalar, Chief Executive Officer, said:
"We have kept our promise and delivered profitable, sustainable growth in H1
2023 and I look forward to doing the same in H2 2023 and beyond.
I'm pleased to report another set of excellent results reflecting our
continuing strong and predictable performance. Keeping in mind this is our
sixth consecutive and consistent set of results improvement, our ability to
sustainably grow the business is well proven and we are now firmly in the
scale stage of our journey.
Our financial KPI's continue to perform ahead of expectations. Revenue is up
by 51% to £194.9m, cash has increased 133% to £36.6m, average monthly
bookings have increased by 259% to £51.3m and EBITDA has grown over 400% to
£13.7m, compared to H1 2022. We now forecast a new record performance to
follow in H2 2023 and we expect to see EBITDA over £33m for FY 2023, up from
current market expectations of c£19m.
Our Yü Smart business is now fully embedded and delivering impressive results
since its launch in January 2023 and I'm pleased that meter installation
numbers are growing by the month. I expect the Group to have installed at
least 10,000 meters by the end of this year. I believe the integration of Yü
Smart to the supply business will be a game changer in terms of the Group's
ability to better understand customer usage and payment habits.
We have strong foundations, a proven strategy and great momentum in a
substantial market. We look forward to continuing to deliver in H2 2023 and
beyond."
Yü Group PLC +44 (0) 115 975 8258
Bobby Kalar
Paul Rawson
Liberum - Nominated Adviser and Broker +44 (0) 20 3100 2000
Edward Mansfield
Satbir Kler
Teneo +44 (0) 20 7353 4200
Giles Kernick
Tom Davies
Analyst presentation
A presentation for analysts will be held at 9.00am today, 26 September at the
offices of Teneo, 85 Fleet Street, EC4Y 1AE. To register to attend or for
webcast details please contact Yugroup@teneo.com.
Notes to Editors
Information on the Group
Yü Group PLC is a leading challenger 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 2023 the Group launched Yü Smart to support growth
through new opportunities in smart metering installation.
With a significant opportunity in a £50bn+ addressable market, Yü Group is
fast approaching the stated goal of £500m revenue, and is already exceeding
the 5%+ EBITDA margin target.
Chief Executive Officer's Statement
I'm delighted to again announce a record performance and strong continuing
momentum, as we continue to benefit from our robust strategic priorities:
· Bigger - high organic growth in a significant market with a less
competitive landscape.
· Better - unlocking commercial opportunities using operational
leverage and focussed working capital management to drive improved
profitability above our stated 5% EBITDA margin target, and strong cash
generation.
· Faster - our Digital by Default and smart metering investments bring
new market opportunities and operational efficiency; and
· Stronger - delivered through an experienced team, a focus on customer
service to differentiate our offer, and a robust commodity hedging strategy to
protect against volatile markets.
Delivering on our Vision
It's been a tough few years for the energy industry and we've seen significant
consolidation in the B2B gas and electricity supply sector primarily due to
the impacts and aftermath of the pandemic and the 'energy crisis' compounded
by the war in Ukraine. I'm pleased that the Group has successfully navigated
these challenges and generated, from H1 2020, revenue CAGR of 51% alongside
improved margins and cash generation - which is testament to the resilience of
the business. With industry headwinds of the past few years quickly becoming
tail-winds, I am confident we will continue seeing the financial benefits of
our bigger, better, faster, stronger strategy.
Energy commodity market prices have declined c75% compared to the same time
last year. Nevertheless, our differentiated offering has enabled the Group to
record significant organic growth and gain further market share, cementing our
position as a leading challenger brand. Average monthly bookings are up 259%
to £51.3m on the same period in 2022, and meter points have increased 52% in
H1 2023 to 39,700. Our customers are 'locking in' longer term supply contracts
more quickly to avoid commodity volatility and guarantee price certainty.
The addressable market is some 3.3m business meter points, which today is
largely dominated (though with a declining market share) by large suppliers.
The Group remains well positioned to continue to grow its 1.2% market share as
it differentiates through market-leading customer experience and speed of
delivery through its leading digital platform, providing ample scope for
sustainable growth over the medium term. The Group's management team and
systems have been invested in to build a business capable of delivering
significant scale.
Our vision remains to scale our business sustainably, and while the Group will
continue to explore 'bolt on' value-add opportunities, we have consistently
demonstrated our ability to grow organically.
The Group is well-positioned for continued growth in a market that has
consolidated competition, higher barriers to entry and increased regulator
financial fitness checks for all entrants. I'm pleased our strong balance
sheet and disciplined governance means we are ideally positioned to benefit
from this new environment.
I am also extremely pleased with the recognition received in the Sunday Times
Best Places to Work 2023, which is testament to the culture our colleagues are
collectively creating.
Delivering sustainable growth with strong momentum
The Board is pleased with progress in relation to top line growth and margin
expansion and believes its Digital by Default platform and the investment in
Yü Smart, coupled with its differentiated market position, will enable margin
to continue to expand in the short and medium term. Therefore, the ambition of
achieving revenues of £500m at a 5% EBITDA margin is no longer a stretch
target for the Group and as such management will re-evaluate its ambition for
2024 and beyond.
The events of the past few years have stress-tested the Group's ability to
grow sustainably in a volatile market. Having successfully navigated the
challenges and emerged stronger, management believe there is even more
opportunity in this huge addressable market. While energy has been a topical
subject over the past few years, I see no let-up or substitute for the UK's
appetite or reliance on the use of gas and electricity, and while some
businesses will close, others will open in their place. As such I see the
remaining B2B suppliers benefitting from this less competitive, more orderly
market. This is reflective of our growth in our contracted meter points which
we target to increase significantly.
I am pleased to report that, from its establishment in late 2022, the
investment in Yü Smart is now bearing fruit. The Group has installed c4,000
meters, of which 1,300 were funded by the Group at 30 June 2023, and we expect
to reach over 10,000 meters installed by the end of the year. As well as
customer and operational benefits due to this smart meter roll-out, the
financing of meters will, in the medium-term, drive an index-linked and
enduring annuity income stream for the Group, providing positive ROI. There
remains a significant opportunity to unlock smart metering opportunities, with
48% of business-to-business meters still requiring conversion and mandatory
targets on suppliers.
Outlook
With a very strong performance in H1, and visibility of our forward looking
contract book, I expect that H2 2023 will be even stronger. While our focus
remains on delivering our 2023 targets our 2024 contract book is building
significantly with £358m already due to be delivered in 2024.
We will continue to invest in our Yü Smart business and accelerate our smart
meter installations program, and take market share as we move to the scale
stage of our journey. I look forward to reporting progress in the coming
months.
Financial Review
£'m unless stated 6 months to 30 June 12 months to 31 Dec
H1 2023 H1 2022 Change FY 2022
Revenue 194.9 129.2 +51% 278.6
Gross Margin 33.6 18.2 +85% 44.1
Gross margin % 17.2% 14.1% +3.1% 15.8%
Net customer contribution % 13.1% 6.7% +6.4% 8.2%
General overheads % (6.0%) (4.6%) (1.4%) (5.3%)
Adjusted EBITDA % 7.0% 2.1% +4.9% 2.8%
Adjusted EBITDA(1) 13.7 2.7 +11.0 7.9
Depreciation (0.6) (0.6) - (1.1)
Financial derivative (loss)/gain (4.2) 3.3 (7.5) (0.9)
Tax (1.6) (1.0) (0.6) (1.1)
Profit after tax 7.3 4.4 +2.9 4.8
Earnings per share (diluted):
Adjusted 58p 10p +48p 30p
Statutory 40p 26p +14p 26p
Operating cash inflow 18.7 10.3 +8.4 14.7
Overdue customer receivables 4days 7days (3)days 5days
Net cash 36.6 15.7 +20.9 19.0
Dividend per share 3p - +3p 3p
Substantial revenue growth and margin expansion
The six months to 30 June 2023 delivered significant organic growth, with
revenue of £194.9m, up 51% on H1 2022 and already at 70% of the total for the
12 months to 31 December 2022.
Strong bookings provide confidence in continued revenue growth into H2 2023
and beyond. Contracted revenues of £358m to deliver in FY 2024 (at 31 August
2023) are up 201% on the same period last year, and already above the £247m
contracted for FY 2023 as we exited 2022. In addition, the Group has
contracted revenues of c£145m for FY 2025 and beyond underpinning the
long-term growth trajectory of the business.
More pleasingly, gross margin, net customer contribution and adjusted EBITDA
margin continue to improve in parallel with strong growth at the top line.
The competitive environment and the Group's market positioning have enabled
healthy margins to be secured. The Group's robust and optimised pricing
systems, focus on delivering to the otherwise under-serviced SME segment,
efficient customer service and vertical integration via Yü Smart has
delivered a 17.2% gross margin in H1 2023 (H1 2022: 14.1%). Margins secured
(and hedged in relation to commodity prices) on the forward contract book are
also robust.
The utilisation of our Digital by Default platform and data analytics allows
further enhancement of customer lifecycle value, including renewal strategies,
customer receivables management and operational and hedging efficiency.
The investments made in the people, systems and processes, and the market
opportunity available, manifest themselves in an improved net customer
contribution (which measures gross margin less bad debt as a percentage of
revenue). The Group achieved 13.1% for H1 2023, a continued progression from
6.7% achieved for H1 2022 and 9.4% for H2 2022 (FY 2022: 8.2%).
In addition to the increased gross margin of 17.2%, the charge for bad debt
has reduced to 4.1% of revenue (from 7.4% in H1 2022) reflecting strong cash
collection from customers. The utilisation of Yü Smart to support customer
debt management services and improve customer outcomes remains a significant
management focus for further improvement to NCC in H2 2023 and beyond.
It is also of note that Overdue Customer Receivables ("OCR"), a measure of
delayed billings and overdue debt net of provisions, is at only 4 days' sales.
This is a result of the closing bad debt provision reflecting the uncertainty
in energy markets and the wider economic context and allowing for the removal
of some BEIS customer subsidies. Cash collection in H1 2023 was c98% of billed
value, suggesting a potential to achieve an ongoing 2% bad debt charge should
current performance continue. The Board continue to monitor the level of bad
debt and highlights the potential for further significant upside to underlying
profitability.
General overheads at 6.0% of revenue (H1 2022: 4.6%) reflect the investment in
mobilising Yü Smart activities, certain share-based payment charges, and
investment in sales and marketing to further accelerate growth.
Adjusted EBITDA margin of 7.0% for H1 2023 is above the stated 5.0% management
target and the Board will look to further invest in growth and efficiency
enabling overheads to further build market share and take advantage of the
Group's scalable platforms and drive operational leverage.
Strong balance sheet and cash position
The Group's profit after tax of £7.3m (H1 2022: £4.4m) is net of a £4.2m
charge (H1 2022: £3.3m gain) on the movement in the recognised financial
derivative liability (31 December 2022: asset) for a small proportion of
forward commodity trades which do not meet the strict criteria of own-use
contracts under accounting standards. This unrealised charge is a result of a
declining commodity market. The Board exclude such gain or loss from adjusted
EBITDA as it is unrealised, non-cash, and is considered in the pricing
strategy and energy balancing operations of the Group.
Adjusted EPS, fully diluted, for the six months to 30 June 2022 is 58p, up 48p
(H1 2022: 10p). Reflecting the non-cash financial derivative charge referred
above, Statutory Reported EPS is 40p (H1 2022: 26p including gain on financial
derivative).
Operating cash inflow of £18.7m (H1 2022: £10.3m) benefits from strong
customer receivable collection rates. The performance is also net of £16.5m
of outflow in respect of the prepayment of energy commodity costs.
The Group has incurred capital-expenditure of £0.4m in H1 2023 (H1 2022:
£1.6m) which is predominantly due to the investment in smart meters. As the
Group starts to scale its funding in smart meter assets, an investment in
c10,000 new smart meters would have capital-expenditure of approximately £2m,
with an index-linked, recurring, 15+ year anticipated annuity income stream of
c£0.4m per year. This annuity provides additional margin value in addition to
the other very significant financial and operational benefits that smart
meters enable.
The Board expects a new £5.2m debt facility to close in the short term, with
debt drawdowns to commence in H2 2023 as the Group's smart metering
installations scale. The funding will introduce a manageable level of debt to
the Group, secured on the smart meter assets and funded over a 12+ year term
without recourse to the wider Group.
During H1 2023, the Group recognised £1.6m of right-of use assets, and
related lease liabilities, under IFRS 16 (Leases). This includes £1.0m in
relation to the extension of the lease of the Group's Nottingham head office
and £0.6m for short term leases of motor vehicles for utilisation by the
Group's engineering team.
The Board notes net assets of £22.1m at 30 June 2023, an increase on the
£13.8m at 30 June 2022. Net current assets are £16.6m, up £11.6m from the
£5.0m at 30 June 2022.
Net cash of £36.6m is up £20.9m on 30 June 2022 after accounting for the
£16.5m of prepaid energy commodity costs referred to above. As expected, the
Group repaid its £15.2m annual Renewable Obligation Certificate liability to
Ofgem on 31 August 2023, and cash is now expected to significantly increase to
31 December 2023.
Dividend
The Board paid £0.5m in dividends in June 2023, following the 3p final FY
2022 dividend declared at the annual general meeting. There was no interim
dividend or payments in the previous year.
As part of its capital allocation policy balancing working capital and
investment for growth, the Board is establishing a progressive dividend
policy.
The Board is now declaring a 3p per share interim dividend (H1 2022: nil),
equating to a payment of £0.5m. The shares will go ex-dividend on 23 November
2023 and the record date is 24 November 2023, with a payment date of 20
December 2023.
Condensed consolidated statement of profit and loss and other comprehensive
income
For the six months ended 30 June 2023
6 months ended 6 months ended 12 months ended
30 June 30 June 31 December
2023 2022 2022
(Unaudited) (Unaudited) (Audited)
Notes £'000 £'000 £'000
Revenue 194,899 129,221 278,587
Cost of sales (161,336) (111,008) (234,462)
Gross profit 33,563 18,213 44,125
Operating costs before share based payment charges (12,027) (6,405) (15,565)
Operating costs - share based payment charges 19 (471) (48) (284)
Total operating costs 3 (12,498) (6,453) (15,849)
Net impairment losses on financial and contract assets 13 (8,085) (9,614) (21,420)
Unrealised (loss) / gain on derivatives 5 (4,221) 3,355 (926)
Operating profit 8,759 5,501 5,930
Finance income 4 178 - 1
Finance costs 4 (36) (24) (91)
Profit before tax 8,901 5,477 5,840
Taxation 7 (1,591) (1,040) (1,071)
Profit and total comprehensive income for the year 7,310 4,437 4,769
Earnings per share
Basic 6 £0.44 £0.27 £0.29
Diluted 6 £0.40 £0.26 £0.26
Condensed consolidated balance sheet
At 30 June 2023
Notes 30 June 30 June 31 December
2023 2022 2022
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
ASSETS
Non-current assets
Intangible assets 9 2,810 2,578 3,111
Property, plant and equipment 10 3,838 3,636 3,641
Right-of-use assets 11 1,533 153 113
Deferred tax assets 7 3,709 4,892 5,300
Financial derivative asset 16 - 1,793 1,562
11,890 13,052 13,727
Current assets
Stock 12 297 - 345
Trade and other receivables 13 53,794 32,525 54,339
Financial derivative asset 16 - 5,534 1,484
Cash and cash equivalents 14 36,621 15,657 18,970
90,712 53,716 75,138
Total assets 102,602 66,768 88,865
LIABILITIES
Current liabilities
Trade and other payables 15 (73,070) (48,754) (73,860)
Financial derivative liability 16 (1,049) - -
(74,119) (48,754) (73,860)
Non-current liabilities
Trade and other payables 15 (6,276) (4,243) (206)
Financial derivative liability 16 (126) - -
(6,402) (4,243) (206)
Total liabilities (80,521) (52,997) (74,066)
Net assets 22,081 13,771 14,799
EQUITY
Share capital 83 83 83
Share premium 11,786 11,690 11,785
Merger reserve (50) (50) (50)
Retained earnings 10,262 2,048 2,981
22,081 13,771 14,799
Condensed consolidated statement of changes in equity
For the six months ended 30 June 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 period
Profit for the period - - - 7,310 7,310
Other comprehensive income - - - - -
- - - 7,310 7,310
Transactions with owners of the Company
Contributions and distributions
Equity-settled share based payments - - - 471 471
Deferred tax on share based payments - - - - -
Proceeds from share issues - 1 - - 1
Equity dividend paid in the period - - - (500) (500)
Total transactions with owners of the Company - 1 - (29) (28)
Balance at 30 June 2023 83 11,786 (50) 10,262 22,081
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 49
Balance at 30 June 2022 83 11,690 (50) 2,048 13,771
Condensed consolidated statement of cash flows
For the six months ended 30 June 2023
6 months ended 6 months ended 12 months ended
30 June 30 June 31 December
2023 2022 2022
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
Cash flows from operating activities
Profit for the financial period 7,310 4,437 4,769
Adjustments for:
Depreciation of property, plant and equipment 167 168 325
Depreciation of right-of-use assets 228 40 80
Amortisation of intangible assets 339 332 648
Unrealised loss / (gain) on derivative contracts 4,221 (3,355) 926
Decrease / (increase) in stock 48 - (345)
Decrease / (increase) in trade and other receivables 545 4,814 (17,000)
Increase in trade and other payables 3,900 2,767 23,889
Finance income (178) - (1)
Finance costs 36 24 91
Taxation 1,591 1,040 1,071
Share based payment charge 471 48 284
Net cash from operating activities 18,678 10,315 14,737
Cash flows from investing activities
Purchase of property, plant and equipment (364) (53) (215)
Payment of software development costs (38) (1,205) (2,210)
Payment of consideration on business combination - (372) (216)
Net cash used in investing activities (402) (1,630) (2,641)
Cash flows from financing activities
Net proceeds from share option exercises 1 1 96
Cash-settled share based payment charge - - (74)
Interest received / (paid) 142 (17) (76)
Principal element of lease payments (268) (61) (121)
Equity dividends paid (500) - -
Net cash used in financing activities (625) (77) (175)
Net increase in cash and cash equivalents 17,651 8,608 11,921
Cash and cash equivalents at the start of the period 18,970 7,049 7,049
Cash and cash equivalents at the end of the period 36,621 15,657 18,970
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 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 SMEs and larger corporates in the UK.
Basis of preparation
The condensed consolidated interim financial information for the six months
ended 30 June 2023 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 2023 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 2022, which is available on the Group's investor
website (yugroupplc.com). The comparative figures for the year ended 31
December 2022 have been audited. The comparative figures for the half year
ended 30 June 2022, and the actual figures for the half year to 30 June 2023,
are unaudited.
The accounting policies adopted in these condensed consolidated half yearly
financial statements are consistent with the policies applied in the 2022
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 2023, the Group had net assets of £22.1m (30 June 2022: £13.8m
and 31 December 2022: £14.8m) and cash of £36.6m (30 June 2022: £15.7m and
31 December 2022: £19.0m).
Management prepares detailed budgets and forecasts of financial performance
and cash flow (including capital commitments) over the coming 18 months as a
minimum. 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 and
cash liquidity. This has led to adjusted EBITDA profitability (a close
profitability measure to cash generated from operations) in H1 2023 which is
significantly above the same period in 2022. Cash available has also increased
significantly, and is above more cautious management forecasts.
The directors are pleased to note the increased cash balance, and the
consistent cash generation and improvement in the financial position of the
Group.
The Board continue to ensure the implementation of a hedging and trading risk
mandate which reduces profit risk whilst also considering Group credit lines,
and in particular to avoid margin calls from counterparties which are beyond
the Group's then cash balance. The board is also considering potential medium
term approaches to hedging arrangements.
Summary
Following extensive review of the Group's forward business plan and associated
risks and sensitivities to these base forecasts (and available mitigation
strategies), the Board concludes that it is appropriate to prepare the
financial statements on a going concern basis.
Basis of consolidation
The consolidated accounts of the Group include the assets, liabilities and
results of the Company and subsidiary undertakings in which Yü Group PLC has
a controlling interest. Control is achieved when the Group is exposed, or has
rights, to variable returns from its involvement with the investee and can
affect those returns through its power over the investee. Specifically, the
Group controls an investee if, and only if, the Group has all of the
following: power over the investee (i.e. existing rights that give it the
current ability to direct the relevant activities of the investee); exposure,
or rights, to variable returns from its involvement with the investee; and the
ability to use its power over the investee to affect its returns. When
necessary, adjustments are made to the financial statements of subsidiaries to
bring their accounting policies into line with the Group's accounting
policies. All intra-Group assets and liabilities, equity, income, expenses and
cash flows relating to transactions between members of the Group are
eliminated in full on consolidation.
Use of estimates and judgements
The preparation of the financial statements in conformity with adopted IFRSs
requires the use of estimates and judgements. Although these estimates are
based on management's best knowledge, actual results ultimately may differ
from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimates are revised and in any future periods affected. The key areas of
estimation and judgement remain as detailed in the Group's 2022 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.
The Group's operations include the supply of metering services, or the
installation of metering assets, on behalf of Group companies. Such revenues
are eliminated on consolidation. Where services for metering services or
metering installation services are for the benefit of third parties, revenue
is recognised in line with the work performed. Revenue for smart metering
services is recognised at a point in time.
Government support to customers
The Energy Bills Relief Scheme ("EBRS"), and certain less material (for the
Group) other schemes, implemented by HM Government, through BEIS, results in
customers being provided financial support through a contribution to their
energy charges. Under the EBRS arrangement, amounts receivable from BEIS do
not impact the Group's contract with customers, and therefore the amounts
contributed under EBRS are treated as a cash payment towards customer bills.
As such, revenue recognised is based on the amount chargeable per the contract
with customers which is gross of the amount contributed through EBRS.
Financial instruments
Non-derivative financial instruments
Non-derivative financial instruments comprise trade and other receivables,
cash and cash equivalents and trade and other payables.
Trade and other receivables
Trade and other receivables are recognised initially at fair value. Subsequent
to initial recognition they are measured at amortised cost using the effective
interest method, less any impairment and expected credit losses.
Impairment
The Group has elected to measure credit loss allowances for trade receivables
and accrued income at an amount equal to lifetime expected credit losses
("ECLs"). Specific impairments are made when there is a known impairment need
against trade receivables and accrued income. When estimating ECLs, the Group
assesses reasonable, relevant and supportable information, which does not
require undue cost or effort to produce. This includes quantitative and
qualitative information and analysis, incorporating historical experience,
informed credit assessments and forward looking information. Loss allowances
are deducted from the gross carrying amount of the assets.
Trade and other payables
Trade and other payables are recognised initially at fair value. Subsequent to
initial recognition they are measured at amortised cost using the effective
interest method.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and short-term deposits
(monies held on deposit are accessible with one month's written notice). Cash
and cash equivalents exclude any cash collateral posted with third parties and
bank accounts which are secured by the Group's bankers (or others). It also
excludes cash held in bank accounts which have, as part of government schemes
such as EBRS, cash balances which are not yet transferred to the Group's main
operating bank accounts.
Bank overdrafts that are repayable on demand and form an integral part of the
Group's cash management are included as a component of cash and cash
equivalents.
Derivative financial instruments
The Group uses commodity purchase contracts to hedge its exposures to
fluctuations in gas and electricity commodity prices. Most commodity purchase
contracts are expected to be delivered entirely to the Group's customers and
therefore the Group classifies them as "own use" contracts and outside the
scope of IFRS 9 "Financial Instruments". This is achieved when:
• a physical delivery takes place under all such contracts;
• the volumes purchased or sold under the contracts correspond to
the Group's operating requirements; and
• no part of the contract is settled net in cash.
This classification as "own use" allows the Group not to recognise the
commodity purchase contracts on its balance sheet at the year end.
The commodity purchase contracts that do not meet the criteria listed above
are recognised at fair value under IFRS 9. The gain or loss on remeasurement
to fair value is recognised immediately in profit or loss.
Classification of financial instruments issued by the Group
Financial instruments issued by the Group are treated as equity only to the
extent that they meet the following two conditions:
(a) they include no contractual obligations upon the Group to deliver cash
or other financial assets or to exchange financial assets or financial
liabilities with another party under conditions that are potentially
unfavourable to the Group; and
(b) where the instrument will or may be settled in the Group's own equity
instruments, it is either a non-derivative that includes no obligation to
deliver a variable number of the Company's own equity instruments or is a
derivative that will be settled by the Company exchanging a fixed amount of
cash or other financial assets for a fixed number of its own equity
instruments.
To the extent that this definition is not met, the proceeds of issue are
classified as a financial liability. Where the instrument so classified takes
the legal form of the Company's own shares, the amounts presented in these
financial statements for called up share capital and share premium account
exclude amounts in relation to those shares.
Details of the sensitivity analysis performed in relation to the Group's
financial instruments are included in note 17.
Intangible assets
Intangible assets that are acquired separately by the Group are stated at cost
less accumulated amortisation and accumulated impairment losses.
Intangible assets acquired in a business combination are initially recognised
at their fair value at the acquisition date. After initial recognition,
intangible assets acquired in a business combination are reported at their
initial fair value less amortisation and accumulated impairment losses.
Goodwill arising on business combination is accounted for in line with the
business combination disclosure.
Software and system assets are recognised at cost, including those internal
costs attributable to the development and implementation of the asset in order
to bring it into use. Cost comprises all directly attributable costs,
including costs of employee benefits arising directly from the development and
implementation of software and system assets.
Amortisation is charged to the statement of profit and loss on a straight-line
basis over the estimated useful lives of the intangible assets from the date
they are available for use. The estimated useful lives are as follows:
•
Licence
- 35 years
• Customer contract books
- Over the period of the contracts acquired
(typically 2 years)
• Software and systems
- 3 to 5 years
Goodwill is not amortised, as it is subject to impairment review.
Property, plant and equipment
Items of property, plant and equipment are measured at cost less accumulated
depreciation and accumulated impairment losses.
Depreciation is recognised in profit or loss on a straight-line basis over the
estimated useful lives of each part of an item of property, plant and
equipment. The estimated useful lives for the current and comparative periods
are as follows:
• Freehold land
- Not depreciated
• Freehold property
- 30 years
• Plant and machinery
- 5 to 15 years
• Computer equipment
- 3 years
• Fixtures and fittings
- 3 years
Business combinations
The acquisition method of accounting is used to account for business
combinations regardless of whether equity instruments or other assets are
acquired.
The consideration transferred is the sum of the acquisition-date fair values
of the assets transferred, equity instruments issued or liabilities incurred
by the acquirer to former owners of the acquiree and the amount of any
non-controlling interest in the acquiree.
All acquisition costs are expensed as incurred to profit or loss.
On the acquisition of a business, the consolidated entity assesses the
financial assets acquired and liabilities assumed for appropriate
classification and designation in accordance with the contractual terms,
economic conditions, the consolidated entity's operating or accounting
policies and other pertinent conditions in existence at the acquisition date.
Contingent consideration to be transferred by the Group is recognised at the
acquisition-date fair value. Subsequent changes in the fair value of the
contingent consideration classified as an asset or liability are recognised in
profit or loss. Contingent consideration classified as equity is not
remeasured and its subsequent settlement is accounted for within equity.
The difference between the acquisition-date fair value of assets acquired and
liabilities assumed, and the fair value of the consideration transferred is
recognised as goodwill. If the consideration transferred and the pre-existing
fair values are less than the fair value of the identifiable net assets
acquired, being a bargain purchase to the Group, the difference is recognised
as a gain directly in profit or loss on the acquisition date, but only after a
reassessment of the identification and measurement of the net assets acquired
and the consideration transferred.
Business combinations are initially accounted for on a provisional basis. The
Group retrospectively adjusts the provisional amounts recognised and
recognises additional assets or liabilities during the measurement period,
based on new information obtained about the facts and circumstances that
existed at the acquisition date. The measurement period ends on the earlier of
(i) 12 months from the date of the acquisition or (ii) when the acquirer
receives all the information possible to determine fair value.
In determining whether an acquisition of an acquired set of activities and
assets is a business, the "concentration test" methodology as outlined in IFRS
3 is utilised. Where substantially all the fair value of the gross assets
acquired are attributable to a single identifiable asset group, such as a
customer list, then a business combination will not occur.
Leased assets
The Group as a lessee
For any new contract entered into the Group considers whether a contract is,
or contains, a lease. A lease is defined as "a contract, or part of a
contract, that conveys the right to use an asset (the underlying asset) for a
period of time in exchange for consideration". To apply this definition the
Group assesses whether the contract meets three key evaluations which are
whether:
• the contract contains an identified asset, which is either
explicitly identified in the contract or implicitly specified by being
identified at the time the asset is made available to the Group;
• the Group has the right to obtain substantially all of the
economic benefits from use of the identified asset throughout the period of
use, considering its rights within the defined scope of the contract; and
• the Group has the right to direct the use of the identified asset
throughout the period of use. The Group assesses whether it has the right to
direct "how and for what purpose" the asset is used throughout the period of
use.
Measurement and recognition of leases as a lessee
At the lease commencement date, the Group recognises a right-of-use asset and
a lease liability on the balance sheet. The right-of-use asset is measured at
cost, which is made up of the initial measurement of the lease liability, any
initial direct costs incurred by the Group, an estimate of any costs to
dismantle and remove the asset at the end of the lease, and any lease payments
made in advance of the lease commencement date (net of any incentives
received).
The Group depreciates the right-of-use assets on a straight-line basis from
the lease commencement date to the earlier of the end of the useful life of
the right-of-use asset or the end of the lease term. The Group also assesses
the right-of-use asset for impairment when such indicators exist.
At the commencement date, the Group measures the lease liability at the
present value of the lease payments unpaid at that date, discounted using the
interest rate implicit in the lease if that rate is readily available or the
Group's incremental borrowing rate.
Lease payments included in the measurement of the lease liability are made up
of fixed payments (including in-substance fixed), variable payments based on
an index or rate, amounts expected to be payable under a residual value
guarantee and payments arising from options reasonably certain to be
exercised.
Subsequent to initial measurement, the liability will be reduced for payments
made and increased for interest. It is remeasured to reflect any reassessment
or modification, or if there are changes in in-substance fixed payments.
When the lease liability is remeasured, the corresponding adjustment is
reflected in the right-of-use asset, or profit and loss if the right-of-use
asset is already reduced to zero.
The Group has elected to account for short-term leases and leases of low value
assets using the practical expedients. Instead of recognising a right-of-use
asset and lease liability, the payments in relation to these are recognised as
an expense in profit or loss on a straight-line basis over the lease term.
On the statement of financial position, right-of-use assets are separately
identified and lease liabilities have been included in trade and other
payables.
Stock
Stock is held at the lower of cost and net realisable value.
Share based payments
Share based payment arrangements in which the Group receives goods or services
as consideration for its own equity instruments are accounted for as
equity-settled share based payment transactions, regardless of how the equity
instruments are obtained by the Group.
The cost of equity-settled transactions with employees is measured by
reference to the fair value on the date they are granted. Where there are no
market conditions attaching to the exercise of the option, the fair value is
determined using a range of inputs into a Black Scholes pricing model. Where
there are market conditions attaching to the exercise of the options a
trinomial option pricing model is used to determine fair value based on a
range of inputs. The value of equity-settled transactions is charged to the
statement of comprehensive income over the period in which the service
conditions are fulfilled with a corresponding credit to a share based payments
reserve in equity.
Employer's National Insurance costs arising and settled in cash on exercise of
unapproved share options are included in the share based payment charge in the
profit or loss, with no corresponding credit to reserves in equity.
Pension and post-retirement benefit
The Group operates a defined contribution scheme which is available to all
employees. The assets of the scheme are held separately from those of the
Group in independently administered funds. Payments are made by the Group to
this scheme and contributions are charged to the statement of comprehensive
income as they become payable.
Taxation
Tax on the profit or loss for the period comprises current and deferred tax.
Tax is recognised in the statement of profit and loss except to the extent
that it relates to items recognised directly in equity, in which case it is
recognised in equity.
Current tax is the expected tax payable or receivable on the taxable income or
loss for the period, using tax rates enacted or substantively enacted at the
balance sheet date, and any adjustment to tax payable in respect of previous
periods.
Deferred tax is provided on temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts
used for taxation purposes. The following temporary differences are not
provided for: the initial recognition of goodwill; the initial recognition of
assets or liabilities that affect neither accounting nor taxable profit other
than in a business combination; and differences relating to investments in
subsidiaries to the extent that they will probably not reverse in the
foreseeable future. The amount of deferred tax provided is based on the
expected manner of realisation or settlement of the carrying amount of assets
and liabilities, using tax rates enacted or substantively enacted at the
balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that
future taxable profits will be available against which the temporary
difference can be utilised.
Segmental reporting
In accordance with IFRS 8 "Operating Segments", the Group has made the
following considerations to arrive at the disclosure made in this financial
information.
IFRS 8 requires consideration of the Chief Operating Decision Maker ("CODM")
within the Group. In line with the Group's internal reporting framework and
management structure, the key strategic and operating decisions are made by
the Board of directors, which regularly reviews the Group's performance and
balance sheet position and receives financial information for the Group as a
whole. Accordingly, the Board of directors is deemed to be the CODM.
The Group's revenue and profit were derived from its principal activity, which
is the supply of utilities to business customers in the UK. Consequently, the
Group has one reportable segment, which is the supply of electricity, gas and
water to businesses. Segmental profit is measured at operating profit level,
as shown on the face of the statement of profit and loss.
As there is only one reportable segment whose profit, expenses, assets,
liabilities and cash flows are measured and reported on a basis consistent
with the financial statements, no additional numerical disclosures are
necessary.
Standards and interpretations
The Group has adopted all of the new or amended accounting standards and
interpretations that are mandatory for the current reporting period.
2. Segmental analysis
Operating segments
The directors consider there to be two operating segments, being the supply of
utilities to businesses ("Yü Retail") and the installation, maintenance and
financing of energy assets ("Yü Smart"). Information on the revenues arising
from the installation, maintenance and financing of energy assets will be
disclosed separately when the revenue becomes material to the Group. Segmental
assets and liabilities are not reviewed by the Board.
Geographical segments
100% of Group revenue is generated from sales to customers in the United
Kingdom (2022: 100%) and is recognised at a point in time.
The Group has no individual customers representing over 10% of revenue (2022:
none).
3. Operating profit
30 June 30 June 31 December
2023 2022 2022
£'000 £'000 £'000
Profit for the period has been arrived at after charging:
Staff costs 6,757 3,147 9,045
Depreciation of property, plant and equipment 167 168 325
Depreciation of right-of-use assets 228 40 80
Amortisation of intangible assets 339 332 648
4. Net finance income / (expense)
30 June 30 June 31 December
2023 2022 2022
£'000 £'000 £'000
Bank interest receivable 92 - 1
Other interest receivable 86 - -
Total finance income 178 - 1
Bank interest and other finance charges payable - (17) (77)
Interest on lease liabilities (36) (7) (14)
Total finance costs (36) (24) (91)
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
2023 2022 2022
£'000 £'000 £'000
Adjusted EBITDA reconciliation
Operating profit 8,759 5,501 5,930
Add back:
Unrealised loss / (gain) on derivative contracts 4,221 (3,355) 926
Depreciation of property, plant and equipment 167 168 325
Depreciation of right-of-use assets 228 40 80
Amortisation of intangibles 339 332 648
Adjusted EBITDA 13,714 2,686 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 unrealised loss on derivative contracts of £4,221,000 (30 June 2022:
£3,355,000 gain, and 31 December 2022: £926,000 loss) arises from a small
proportion of forward commodity hedges which do not meet the strict "own use"
criteria under IFRS 9 ("Financial Instruments"). Such portion of forward
commodity trades are recognised at their fair value. The unrealised loss in
the period is a result of the declining value of global commodity markets
during H1 2023. The Board exclude such gain or loss from adjusted EBITDA as it
is unrealised, and as it is considered in the contract pricing strategy and
energy balancing operations of the Group.
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
2023 2022 2022
£'000 £'000 £'000
Profit for the year attributable to ordinary shareholders 7,310 4,437 4,769
30 June 30 June 31 December
2023 2022 2022
Weighted average number of ordinary shares
At the start of the period 16,649,618 16,316,215 16,316,215
Effect of shares issued in the period 12,938 125,000 180,818
Number of ordinary shares for basic earnings per share calculation 16,662,556 16,441,215 16,497,033
Dilutive effect of outstanding share options 1,615,188 804,932 1,722,632
Number of ordinary shares for diluted earnings per share calculation 18,277,744 17,246,147 18,219,665
30 June 30 June 31 December
2023 2022 2022
Basic earnings per share £0.44 £0.27 £0.29
Diluted earnings per share £0.40 £0.26 £0.26
Adjusted earnings per share
Adjusted earnings per share is based on the result attributable to ordinary
shareholders before non-recurring items after tax and unrealised gains on
derivative contracts and the weighted average number of ordinary shares
outstanding:
30 June 30 June 31 December
2023 2022 2022
£'000 £'000 £'000
Adjusted earnings per share
Profit for the year attributable to ordinary shareholders 7,310 4,437 4,769
Add back:
Unrealised loss / (gain) on derivative contracts after tax (June 2023: gross 3,292 (2,718) 750
loss, before tax, of £4,221,000 per note 5)
Adjusted basic profit for the period 10,602 1,719 5,519
Adjusted earnings per share £0.64 £0.10 £0.33
Diluted adjusted earnings per share £0.58 £0.10 £0.30
7. Taxation
The tax charge for the period has been estimated using a rate of 19% for the
period to 31 March 2023 and 25% for the period after, considering certain
allowances and adjustments in calculating the Group's taxable profits and an
over provision in FY 2022.
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. The deferred tax arises in view of significant tax losses available to
set against future profits of the Group.
8. Dividends
The Group reinstated its progressive dividend policy based on the 2022 annual
results. The 2022 final dividend of 3 pence per share, being £500,000 in
total, was paid in June 2023.
The directors propose an interim dividend for the period to 30 June 2023 of 3
pence per share (2022: nil per share). The interim dividend is payable 20
December 2023.
9. 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 - - - 38 38
At 30 June 2023 62 216 686 3,327 4,291
Amortisation
At 1 January 2023 16 - 686 440 1,142
Charge for the period 1 - - 338 339
At 30 June 2023 17 - 686 778 1,481
Net book value at 30 June 2023 45 216 - 2,549 2,810
Cost
At 1 January 2022 62 - 686 1,079 1,827
Additions 142 230 - 1,205 1,577
At 30 June 2022 204 230 686 2,284 3,404
Amortisation
At 1 January 2022 14 - 473 7 494
Charge for the period 1 - 172 159 332
At 30 June 2022 15 - 645 166 826
Net book value at 30 June 2022 189 230 41 2,118 2,578
The useful economic life of the acquired electricity licence is 35 years,
which represents the fact that the licence can be revoked by giving 25 years'
written notice but that this notice cannot be given any sooner than 10 years
after the licence came into force in January 2013.
Goodwill of £216,000 arose on the acquisition of the management and certain
other assets of Magnum Utilities Limited in May 2022, as disclosed in the 2022
annual report. The acquisition created the foundations for the Yϋ Smart
business unit. The goodwill and licence investment recognised in June 2022 was
subsequently reclassified in the 31 December 2022 balance sheet.
Goodwill is reviewed 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 the two separate acquisitions that
took place in 2020. They represent the fair value of the customer contracts
purchased in those acquisitions. The intangible assets were amortised over a
useful economic life of two years, representing the average contract length of
the customer books acquired.
Software and systems assets relate to investments made in third-party software
packages, and directly attributable internal personnel costs in implementing
those platforms, as part of the Group's Digital by Default strategy.
The amortisation charge is recognised in operating costs in the income
statement.
10. Property, plant and equipment
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 - - 94 227 43 364
At 30 June 2023 150 3,274 436 300 533 4,693
Depreciation
At 1 January 2023 - 182 205 - 301 688
Charge for the period - 55 51 7 54 167
At 30 June 2023 - 237 256 7 355 855
Net book value at 30 June 2023 150 3,037 180 293 178 3,838
Cost
At 1 January 2022 150 3,274 337 - 353 4,114
Additions - - - - 53 53
At 30 June 2022 150 3,274 337 - 406 4,167
Depreciation
At 1 January 2022 - 73 103 - 187 363
Charge for the period - 55 57 - 56 168
At 30 June 2022 - 128 160 - 243 531
Net book value at 30 June 2022 150 3,146 177 - 163 3,636
Plant and machinery additions relate to investment in smart metering assets,
which are expected to have an economic life of 15 years.
11. Right-of-use assets and lease liabilities
Buildings Motor Vehicles
£'000 £'000 Total
£'000
Cost
At 1 January 2023 799 - 799
Additions 1,033 615 1,648
At 30 June 2023 1,832 615 2,447
Amortisation
At 1 January 2023 686 - 686
Charge for the period 76 152 228
At 30 June 2023 762 152 914
Net book value at 30 June 2023 1,070 463 1,533
Cost
At 1 January 2022 799 - 799
Additions - - -
At 30 June 2022 799 - 799
Amortisation
At 1 January 2022 606 - 606
Charge for the period 40 - 40
At 30 June 2022 646 - 646
Net book value at 30 June 2022 153 - 153
The Group has a lease arrangement for its office facilities in Nottingham and
Bolton. The Nottingham lease has been extended (on an arms-length basis)
during the period, resulting in a £1,033,000 increase in the right-of-use
asset.
The Group leases vans for engineers in order to provide smart metering
installation services. Due to the increase in engineers and associated vans, a
£615,000 additional asset and lease liability is recognised during the
period.
12. Stock
30 June 30 June 31 December
2023 2022 2022
£'000 £'000 £'000
Stocks of goods for resale 297 - 345
297 - 345
Stock relates to smart meters purchased which are expected to be installed on
customer sites as part of the Group's objective of installing and financing
new smart meters.
13. Trade and other receivables
30 June 30 June 31 December
2023 2022 2022
£'000 £'000 £'000
Current
Gross trade receivables 34,049 23,320 30,977
Provision for doubtful debts and expected credit loss (23,329) (13,672) (19,499)
Net trade receivables 10,720 9,648 11,478
Accrued income - net of provision 17,410 14,994 31,842
Prepayments 5,190 3,854 3,065
Other receivables 20,474 4,029 7,954
53,794 32,525 54,339
Movements in the provision for doubtful debts and expected credit loss in
gross trade receivables are as follows:
30 June 30 June 31 December
2023 2022 2022
£'000 £'000 £'000
Opening balance 19,499 6,007 6,007
Provisions recognised less unused amounts reversed 7,864 10,813 21,071
Provision utilised in the year (4,034) (3,148) (7,579)
Closing balance - provision for doubtful debts and expected credit loss 23,329 13,672 19,499
The directors have assessed the level of provision at 30 June 2023 by
reference to the recoverability of customer receivable balances post the
period end, and believe the provision carried is appropriate and cautious in
view of the context of the wider energy market and economy. The provision for
expected credit loss on accrued income is £2,051,000 (30 June 2022: £340,000
and 31 December 2022: £1,830,000).
The total net impairment losses on financial and contract assets of
£8,085,000 (H1 2022: £9,614,000 and FY 2022: £21,420,000) consists of
£7,864,000 (H1 2022: £10,813,000 and FY 2022: £21,071,000) on trade
receivables, and £221,000 (H1 2022: credit of £1,199,000 and FY 2022: charge
of £349,000) on accrued income.
The directors consider that the carrying amount of trade and other receivables
approximates to their fair value due to their maturities being short term.
Other receivables include amounts paid in relation to the Group's commodity
hedging arrangements as cash collateral, and are expected to be recoverable in
the short term.
14. Cash and cash equivalents
30 June 30 June 31 December
2023 2022 2022
£'000 £'000 £'000
Cash at bank and in hand 36,621 15,657 18,970
36,621 15,657 18,970
The cash and cash equivalents balance exclude £500,000 of cash which is
included in other receivables, as it is held on deposit and secured under
arrangements with the Group's bankers.
15. Trade and other payables
30 June 30 June 31 December
2023 2022 2022
£'000 £'000 £'000
Current
Trade payables 2,448 3,134 4,636
Accrued expenses 50,777 31,783 55,281
Lease liabilities 327 109 112
Tax and social security 8,023 5,176 5,587
Other payables 11,495 8,552 8,244
73,070 48,754 73,860
Non-current
Accrued expenses 5,063 4,139 158
Lease liabilities 1,213 104 48
6,276 4,243 206
Current accrued expenses at 30 June 2023 include £15,204,000 for the Group's
liability to pay Ofgem the Renewable Obligation payment for the scheme period
ended 31 March 2023, which was paid in full on 31 August 2023.
Lease liabilities relate to the recognition of right-of-use assets for
operating leases in relation to offices and motor vehicles leased.
16. Financial derivative (liability) / asset
30 June 30 June 31 December
2023 2022 2022
£'000 £'000 £'000
Current
Financial derivative asset - 5,534 1,484
Financial derivative liability (1,049) - -
Non-current
Financial derivative asset - 1,793 1,562
Financial derivative liability (126) - -
The current and non-current financial derivative liability of £1,175,000 (30
June 2022: asset of £7,327,000 and 31 December 2022: asset of £3,046,000) is
the fair value of a small proportion of the Group's overall forward gas and
power purchase contracts. Such contracts do not meet the strict criteria of
being for the Group's "own use" under IFRS 9. They are stated at their Mark to
Market fair value (being the excess of the volume of commodity purchased
valued at market prices available at the balance sheet date over the traded
price of the forward contracts).
The directors consider the potential for tainting of hedges in the Group's
contract pricing strategy and balances the overall hedge position through
close operational management.
The liability has arisen in the period due to the decrease in forward gas and
power market prices and as previous trades delivered in early 2023. The charge
for the period is as disclosed in note 5.
17. Financial instruments and risk management
The Group's principal financial instruments are cash, trade and other
receivables, trade and other payables and derivative financial assets.
Derivative instruments, related to the Group's hedging of forward gas and
electricity demand, are level 1 financial instruments and are measured at fair
value through the statement of profit or loss. Such fair value is measured by
reference to quoted prices in active markets for identical assets or
liabilities. All derivatives are held at a carrying amount equal to their fair
value at the period end.
The Group has exposure to the following risks from its use of financial
instruments:
a) commodity hedging and derivative instruments (related to customer
demand and market price volatility, and counterparty credit risk);
b) customer credit risk; and
c) liquidity risk.
The Group trades entirely in pounds sterling and therefore it has no foreign
currency exchange risk.
(a) Commodity trading and derivative instruments
The Group is exposed to market risk in that changes in the price of
electricity and gas may affect the Group's income or liquidity position. The
use of derivative financial instruments to hedge customer demand also results
in the Group being exposed to risks from significant changes in customer
demand (beyond that priced into the contracts), and counterparty credit risk
with the trading counterparty.
Commodity and energy prices and customer demand
The Group uses commodity purchase contracts to manage its exposures to
fluctuations in gas and electricity commodity prices. The Group's objective is
to reduce risk in energy 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.
The majority of commodity purchase contracts are expected to be delivered
entirely to the Group's customers and are therefore classified as "own use"
contracts. These instruments do not fall into the scope of IFRS 9 and
therefore are not recognised in the financial statements. A proportion of the
contracts in the Group's portfolio are expected to be settled net in cash
where 100% of the volume hedged is not delivered to the Group's customers and
is instead sold back via the commodity settlement process in order to smooth
demand on a real-time basis. An assumption is made (based on past experience)
of the proportion of the portfolio expected to be settled in this way and
these contracts are measured at fair value. The gain or loss on remeasurement
to fair value is recognised immediately in profit and loss.
As far as practical, in accordance with the risk mandate, the Group attempts
to match new sales orders (based on estimated energy consumption, assuming
normal weather patterns, over the contract term) with corresponding commodity
purchase contracts. There is a risk that at any point in time the Group is
over or under-hedged. Holding an over or under-hedged position opens the Group
up to market risk which may result in either a positive or negative impact on
the Group's margin and cash flow, depending on the movement in commodity
prices.
Increased volatility of global gas and electricity commodity prices has
increased the potential gain or loss for an over or under-hedged portfolio,
and the Group continues to closely monitor its customer demand forecast to
manage volatility. The Group also applies premia in its pricing of contracts
to cover some market volatility (which has proven to be robust despite the
market context), and contracts with customers also contain the ability to pass
through costs which are incurred as a result of customer demand being
materially different to the estimated volume contracted.
The fair value Mark to Market adjustment at 30 June 2023 for those contracts
not assumed to be strictly for "own use" is a charge of £4,221,000 (30 June
2022: £3,355,000 gain; and 31 December 2022: £926,000 loss). See note 16 for
the corresponding derivative financial liability or asset.
The Group's exposure to commodity price risk according to IFRS 7 is measured
by reference to the Group's IFRS 9 commodity contracts. IFRS 7 requires
disclosure of a sensitivity analysis for market risks that is intended to
illustrate the sensitivity of the Group's financial position and performance
to changes in market variables impacting upon the fair values or cash flows
associated with the Group's financial instruments.
Therefore, the sensitivity analysis provided below discloses the impact on
profit or loss at the balance sheet date assuming that a reasonably possible
change in commodity prices (determined based on calculated or implied
volatilities where available, or historical data) had occurred and been
applied to the risk exposures in place at that date. In view of the volatile
nature of commodity markets, the sensitivity analysis is based on a change of
up to +/-25% in commodity markets, though additional volatility may be
incurred in view of the current, unprecedented, energy market context of
volatility.
The sensitivity analysis has been calculated on the basis that the proportion
of commodity contracts that are IFRS 9 financial instruments remains
consistent with those at that point. Excluded from this analysis are all
commodity contracts that are not financial instruments under IFRS 9.
Open market price of forward contracts Reasonably 2023 FY 2022
possible increase/ Impact on profit Impact on profit
decrease in and net assets and net assets
variable £'000 £'000
UK gas (p/therm) +/-25% 312 831
UK power (£/MWh) +/-25% 1,122 2,227
1,434 3,058
In addition to the sensitivity noted above, the estimate of the forward
derivative contracts assessed as "own use" results in the financial asset
recognised. If the level of own use of such forward contracts was amended by
+/-1%, then the financial asset and resulting impact on profit and net assets
would be £351,000 (2022: £466,000). Such a sensitivity could occur if, for
example, the Group's estimated forecasted demand from customer contracts was
impacted by factors such as prolonged abnormal weather patterns, or further
unexpected and severe Covid-19 lockdowns. In mitigation, however, demand
balancing activities and trading will significantly reduce any potential gain
or loss arising from the sensitivity noted above, and the Board approved
hedging policy is designed to protect (to the extent possible) the gross
margin as sold on each contract. Customer prices also include premia in their
pricing to account for certain levels of market risk because of the above in
order to reduce the potential for negative impact on Group profitability.
Liquidity risk from commodity trading
The Group's trading arrangements can result in the need to post cash or other
collateral to trading counterparties when commodity markets are below the
Group's average weighted price contracted forward. A significant reduction (as
noted above) in electricity and gas markets could lead to a material cash call
from these trading counterparties in the absence of a suitable trading credit
limit. Whilst such a cash call would not impact the Group's profit (as it
represents a forward credit risk assessment of the counterparty), it would
have an impact on the Group's cash reserves.
The structured trading arrangement, entered with SmartestEnergy in December
2019, has reduced this liquidity risk in view of the significant credit limit
being provided. This arrangement provides the trading credit limit (secured on
the main trading entities of the Group and subject to compliance with certain
covenants) and as such reduces the need to lodge cash collateral when
commodity markets decrease. The Board has considered the cash flow forecasts,
along with the interaction in trading credit limits and the potential need for
cash collateral or letter of credit support. The Board also monitors the
position in respect of commodity markets and has mitigation plans in place
where credit limits are predicted to be exceeded to reduce, where possible,
the potential impact on the Group due to short-term cash calls. Where markets
fall rapidly and unexpectedly, the cash collateral requirement may be greater
than the Group's cash reserves. In extreme circumstances, mitigation may
include (prior to security being enacted) reducing the Group's hedged position
(reducing liquidity risk in exchange for increased risk to future market
increases) through to commercial discussion to waive the requirement to post
cash collateral over a short to medium-term period; or the agreement to
provide additional remedial action such as holding growth activities.
Trading counterparty credit risk
In mirror opposite to the liquidity risk noted above, the Group carries credit
risk to trading counterparties where market prices are above the average
weighted price contracted forward. This credit exposure is predominantly with
the Group's main trading counterparty. With lower commodity prices, such risk
has reduced significantly during the period.
The Board monitors the position in respect of credit exposure with its trading
counterparties, and contracts only with major organisations which the Board
considers to be robust and of appropriate financial standing.
(b) Customer or other counterparty credit risk
Credit risk is the risk of financial loss to the Group if a customer or
counterparty to a financial instrument fails to meet its contractual
obligations and arises principally from the Group's receivables from customers
(in addition to trading counterparties as noted in section (a) above).
These operational exposures are monitored and managed at Group level. All
customers operate in the UK and turnover is made up of a large number of
customers each owing relatively small amounts, though increased prices have
resulted in greater amounts owed by some customers. New customers have their
credit checked using an external credit reference agency prior to being
accepted as a customer. The provision of a smart meter is also mandatory for
some sales channels.
Credit risk is also managed through the Group's standard business terms, which
require all customers to make a monthly payment predominantly by direct debit,
and requires security deposits in advance where appropriate. At 30 June 2023
there were no significant concentrations of credit risk. The carrying amount
of the financial assets (less the element of VAT and climate change levy
("CCL") included in the invoiced balance, which is recoverable in the event of
non-payment by the customer) represents the maximum credit exposure at any
point in time.
The Board considers the exposure to debtors based on the status of customers
in its internal debt journey, the level of customer engagement in finding an
appropriate solution, the customer's creditworthiness, the provision for
doubtful debts and expected credit loss held, the level of reclaimable VAT and
CCL on the balances, and cash received after the period end.
At 30 June 2023 the Group held a provision against doubtful debts and expected
credit loss of £23,329,000 (31 December 2022: £19,499,000) and £2,052,000
(31 December 2022: £1,830,000) against accrued income. The directors consider
the provision to be cautious on the basis of recent cash recovery rates,
though is maintained in view of the wider economic context.
In relation to trade receivables, after provision and accounting for VAT and
CCL reclaimable, the exposure assessed by directors is remains less than 5% of
the gross balance. If this exposure was +/-1% of that assessed, the gain or
loss arising recognised in the income statement and impacting net assets would
be +/-£800,000.
If the expected customer credit loss rate on accrued income was +/-10%, the
gain or loss arising would be +/-£205,000.
(c) Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its
financial obligations as they fall due. The Board is responsible for ensuring
that the Group has sufficient liquidity to meet its financial liabilities as
they fall due and does so by monitoring cash flow forecasts and budgets.
The Board also monitors the position in respect of the Group's performance
against covenants as part of its trading arrangements, to ensure credit limits
as part of such transactions are monitored, and any credit cover requirements
for other industry participants which are standard in the energy sector.
Scenarios of falling commodity markets, including potential to mitigate by
reducing the hedges places to avoid significant margin calls for cash
collateral, are also considered by the Board. In particular, the Board assess
a drop in prices of above 40% from current levels would require some
mitigation action.
Any excess cash balances are held in short-term deposit accounts which are
either interest or non-interest accounts. At 30 June 2023 the Group had
£36,621,000 (30 June 2022: £15,657,000; 31 December 2022: £18,970,000) of
cash and bank balances (as per note 14).
18. Share capital and reserves
Share capital 30 June 30 June 31 December 31 December
2023 2023 2022 2022
Number £'000 Number £'000
Allotted and fully paid ordinary shares of £0.005 each 16,663,118 83 16,649,618 83
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. The movement in the period relates to the exercise of
share options at an exercise price of £0.09.
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 period relates to the excess, where
appropriate, of the price at which options were exercised during the year over
the £0.005 par value of those shares.
The merger reserve was created as part of the 2016 Group reorganisation prior
to listing.
Retained earnings comprises the Group's cumulative annual profits and losses.
19. 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
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 13,500
6 April 2017 3 6 April 2020 6 April 2027 £0.005 1 43,950 43,950
6 April 2017 6.5 6 April 2020 6 April 2027 £2.844 1 87,900 87,900
28 September 2017 6.5 28 September 2020 28 September 2027 £5.825 1 40,500 40,500
9 April 2018 6.5 9 April 2021 9 April 2028 £10.38 1 59,084 59,084
26 September 2018 6.5 26 September 2021 26 September 2028 £8.665 1 6,539 6,539
25 February 2019 6.5 25 February 2022 25 February 2029 £1.09 1 20,000 20,000
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
13 May 2022 1 30 April 2023 4 October 2030 £0.005 3 12,769 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 4 October 2030 £0.005 2 160,323 179,267
19 December 2022 3.3 30 April 2024 4 October 2030 £0.005 4 762,000 837,000
1,615,188 1,722,632
Weighted average remaining contractual life of options outstanding 7.5 years 8.0 years
The following vesting schedules apply:
1. 100% of options vest on the third anniversary of date of grant.
2. 100% of options vest on the third anniversary of the Save As You Earn
("SAYE") savings contract start date.
3. The level of vesting is dependent on a performance condition, being
the Group's share price at pre-determined dates.
4. The level of vesting is dependent on a performance condition, being
the Group's EBITDA over a qualifying period.
The number and weighted average exercise price of share options were as
follows:
30 June 2023 31 December 2022
shares shares
Balance at the start of the period 1,722,632 1,099,153
Granted - 1,055,364
Forfeited (93,944) (98,482)
Lapsed - -
Exercised (13,500) (333,403)
Balance at the end of the period 1,615,188 1,722,632
Vested at the end of the period 494,938 284,973
Exercisable at the end of the period 494,938 284,973
Weighted average exercise price for:
Options granted in the period - £0.393
Options forfeited in the period £0.464 £0.256
Options exercised in the period £0.090 £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 the period
and the assumptions for FY 2022 are as follows:
30 June 2023 31 December 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 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
2023 2022
£'000 £'000
Equity-settled share based payment expense 471 210
Cash-settled share based payment expense - 74
Total share based payment charge 471 284
Cash-settled share based payment expense in 2022 relates to employer's
National Insurance payable on unapproved share options when exercised.
20. 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 2023 (30 June 2022:
nil).
Security
The Group entered an arrangement with a commodity trading counterparty,
SmartestEnergy Ltd, in December 2019. As part of the arrangement, there is a
requirement to meet certain covenants and a fixed and floating charge over the
main trading subsidiaries of the Group, Yü Energy Holding Limited and Yü
Energy Retail Limited.
Yü Group PLC provides parent company guarantees on behalf of its wholly owned
subsidiaries to a small number of industry counterparties as is commonplace
for the utilities sector.
Included in other receivables 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 2023 (2022: £nil).
21. 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 six
months to 30 June 2023 the Group paid £65,000 in lease rental and service
charges to CPK Investments Limited (30 June 2022: £60,000). There was no
amount owing to or from CPK Investments Limited at 30 June 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 arms-length basis).
All transactions with related parties have been carried out on an arm's length
basis.
22. Net cash / (net debt) reconciliation
The net cash / (net debt) in the period was as follows:
30 June 30 June 31 December
2023 2022 2022
£'000 £'000 £'000
Cash and cash equivalents 36,621 15,657 18,970
Borrowings - - -
Net cash 36,621 15,657 18,970
The movement in net cash / (net debt) and lease liabilities were as follows:
Sub-total Net Cash less leases
Cash Borrowings Net Cash Leases £'000
£'000 £'000 £'000 £'000
Balance as at 1 January 2023 18,970 - 18,970 (160) 18,810
Cashflows 17,651 - 17,651 268 17,919
Recognition of leases on acquired right-of-use assets - - - (1,648) (1,648)
Remeasurement of lease liabilities - - - 36 36
Interest - - - (36) (36)
Balance as at 30 June 2023 36,621 - 36,621 (1,540) 35,081
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