Final results for the year ended 31 December 2021
22 March 2022
Yü Group PLC
("Yü Group" or the "Group")
Final results for the year ended 31 December 2021
STRONG FY21 PERFORMANCE WITH ACCELERATED PROFITABLE GROWTH
STRENGH OF BUSINESS PROVEN IN CURRENT MARKET CONDITIONS
Yü Group PLC (AIM: YU.), the independent supplier of gas, electricity and water to the UK corporate sector, announces its final audited results for the year to 31 December 2021.
Bobby Kalar, Group Chief Executive Officer, stated:
"We have delivered on our promise to deliver profitable growth, which is set to continue.
2021 was a remarkable year and a stellar performance that's seen the Group outperform forecasts in terms of profitability, growth and forward looking contracted revenue. Despite the turbulence of the global energy commodity market the business has remained focussed and disciplined underpinned by our robust hedging strategy. Our strategy is working well and the 'hard yards' have harvested rewards. With a very strong start to 2022 I'm pleased our January and February bookings, revenue and profitability have continued the momentum demonstrated in 2021.
Our operational KPI's used to measure and track performance drove over-performance in 2021. Revenue has increased by 53% to £155m, adjusted EBITDA and profit after tax leapt to £1.7m and £4.5m respectively, from losses in 2020, average monthly booking have jumped by 66% compared to £8.3m last year and the meter points on supply have increased by 83% in the year. I'm pleased our winning formula will continue in 2022 and beyond.
Our inorganic strategy is contributing positively to our growth ambition. Being awarded the AmpowerUK B2B customer book in November by Ofgem, and two more customer books this year, provides an endorsement of our credentials and gives us confidence we are ready for bigger books be it via acquisition or via Ofgem's Supplier of Last Resort process.
We are making good progress with our Digital by Default strategy, which is seeing us design optimal processes for our customers with the launch of our digital customer portal and CRM customer journey. This year we will be supporting our customers transition on to our digital platform while continuing to deliver our unparalleled level of service. We now have the digital foundations in place and firmly embedded and we are looking forward to further enrichment of our data to drive profitable growth.
It's been a tough year for the energy industry in terms of unprecedented wholesale gas volatility causing some suppliers to exit the market, exacerbated by the effects of the pandemic. However, our results show we have not only 'weathered the storm' but 'blown it away' in all key areas. Our forward order book at 31 December 2021 stands at a record £157m to outflow during FY22. Our Digital by default transformation strategy is progressing well, and we've once again demonstrated our ability to migrate customer books onto our scalable platform. Our focus this year will be to continue the momentum of 2021 with continued emphasis on growth, profitability and further developing our already strong forward order book.
We've become one of the fastest growing utility challenger brands in the UK and central to this success as always are the amazing people who I have the good fortune to work with every day. A huge thank you to all my team."
Financial & Operational Highlights:
|
31 December |
2021 |
2020 |
|
|
£'000 |
£'000 |
|
|
|
|
|
Revenue |
155,423 |
101,527 |
|
Adjusted EBITDA 1 |
1,724 |
(1,714) |
|
Profit for the year |
4,451 |
(1,165) |
|
Operating cash inflow/(outflow) |
(774) |
12,102 |
|
Cash |
7,049 |
11,740 |
|
Overdue customer receivables 2 |
7 days |
8 days |
|
Earnings per share: |
|
|
|
Adjusted |
15p |
(11)p |
|
Statutory |
27p |
(7)p |
· Strong revenue growth, up 53%, to £155.4m (FY20: £101.5m), driven by high organic growth and the integration of AmpowerUK's customer book
o Further SoLR awards of Whoop Energy and Xcel Power since period end
· Profit after tax of £4.5m up from a £1.2m loss in FY20
· Underlying profitability continues to improve, with adjusted EBITDA increasing to £1.7m from a £1.7m loss
· Average annualised monthly bookings of £13.8m, an increase from £8.3m in FY20
· Total meter points stood at 31,862, an increase of 83% from the end of FY20
· Navigated global commodity market price increases via our robust hedging policy
· Launch of 'Digital by Default' strategy and new customer portal to increase scale, drive efficiency and create further value
· Cash of £7.0m (FY20: £11.7m), following investment into 'Digital by Default' strategy including the opening of the new Leicester innovation centre
Current Trading
· Good revenue visibility with significant forward contracted revenues book in excess of £290m, of which £157m due to deliver in FY22 (an increase of 69% on FY21)
· Positive FY21 momentum carried into the start of the year with strong bookings, revenue and profit performance in January and February 2022
· Maintained strict hedging policy to mitigate against volatile market conditions
Outlook
· Significant confidence in high revenue growth based on increased forward contract book
· Despite turbulence in the wider external market, we remain strong and focussed on delivering continued profitable and controlled growth
· Well positioned given different regulatory framework to B2C suppliers and value of hedge book
· Excited about the long term benefits we will unlock from our 'Digital by Default' strategy
Analyst presentation
A presentation for analysts will be held at 9am GMT today, Tuesday 22 March 2022. Anyone wishing to attend should please contact yugroup@tulchangroup.com for further information.
Market Abuse Regulation (MAR) Disclosure
The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ('MAR') which has been incorporated into UK law by the European Union (Withdrawal) Act 2018. Upon the publication of this announcement via Regulatory Information Service ('RIS'), this inside information is now considered to be in the public domain.
1 Adjusted EBITDA is earnings before interest, tax, depreciation and amortisation, and also before non-recurring items, share based payments and unrealised gains or losses on derivative contracts. See reconciliation in note 7 to the financial statements below.
2 Overdue customer receivables is expressed in days of sales, and relates to the total balance, net of provisions, of accrued income which is outside of the normal billing cycle, plus overdue trade receivables (net of VAT and CCL).
For further information, please contact:
Yü Group PLC
Bobby Kalar
Paul Rawson
+44 (0) 115 975 8258
SP Angel Corporate Finance LLP
Jeff Keating
Bruce Fraser
Caroline Rowe
+44 (0) 20 3470 0470
Tulchan Group
Giles Kernick
Olivia Peters
Oliver Norgate
+44 (0) 20 7353 4200
Notes to Editors
Information on the Group
Yü Group PLC, trading as Yü Energy, is an independent supplier of gas, electricity and water focused on servicing the SME and corporate sector throughout the UK. It has no involvement in the domestic retail market. The Group was listed on the AIM market of the London Stock Exchange in March 2016.
CHAIRMAN'S STATEMENT
STRONG GROWTH AND FURTHER STRATEGIC PROGRESS
· Strength of business has allowed the Group to successfully manage market volatility
· The Group remains well placed to take advantage of market opportunities and to deliver significant and profitable growth
I am pleased to introduce our 2021 annual results after what has been a challenging yet fruitful year for the Group.
When I was appointed in January 2020 the Group prepared to set out on a new and exciting stage in its evolution. This was to scale up rapidly in a controlled manner, and to increase the maturity of its governance, enabling it to become a large player in a growing market.
Since then our country, industry and Group have together faced significant challenges, which as a Group we have successfully overcome. The Covid-19 pandemic and more recently the "energy crisis" and a European war have brought unprecedented increases in the volatility of global commodity prices. This has led to some high profile business failures within the wider domestic supply sector.
Despite this, my summary statement from our 2020 annual report still holds true: "The Group is now ready to launch a period of accelerated and sustainable growth as it scales up to address and increase its rightful share of a £50bn+ market." The tests set by unpredictable increases in energy costs and the subsequent consolidation in our industry have shown clearly that our systems and management team are both robust and resilient.
As an agile challenger and post the headwinds of 2020 and 2021, we now operate in a larger, less competition-filled market. We remain concentrated on and determined in both maintaining margin and increasing our market share.
Delivering on our strategic priorities: Bigger, Better, Faster and Stronger
The Group's strategy is delivering profitable results. Our Bigger, Better, Faster and Stronger priorities - delivering significant growth, organic and inorganic, leveraging economies of scale to improve financial results, providing digitally led innovation, and maintaining robust risk management - are consistently applied by our management and are well understood throughout the organisation.
Our results show a 53% year on year increase in revenue. Basic earnings per share is 27p/share, up from a 7p/share loss in 2020. Net profit after tax is £4.5m, up from a £1.2m loss in the previous year; adjusted EBITDA increased to £1.7m, from 2020's £1.7m loss.
We finished 2021 with £157m of revenue already contracted for the current year, providing further evidence of our growth potential and the opportunities available in a consolidating market. I look forward to reporting further revenue growth in 2022 as we take advantage of the available market opportunity. We anticipate playing an active role in the consolidation process as well as exploiting our advantages as an agile challenger whose customer service remains second to none.
The Group's investment in our Digital by Default programme is set to deliver significant benefit to future results. Innovation that allows us to attract and serve customers better, understanding their behaviour and anticipating their needs, gives us a competitive advantage that will further enhance growth and increase profitability.
As Chairman, I am particularly pleased by the mature, robust and balanced approach to governance which is now embedded throughout the organisation. We have an experienced Board that provides the necessary combination of challenge and oversight while supporting agile operational decision making and the performance culture needed to innovate and excel in a competitive industry. The Board is ensuring that the Group's growth journey from the opportunities presented by the market is conducted within a sustainable and profitable framework.
Our Audit Committee, working closely with the Executive Committee ("ExCo"), has continued to refine the framework for our robust risk and opportunity management processes.
Our Remuneration Committee, in a difficult market, has maintained the alignment of incentives with Group strategy and shareholder interests.
Engaging with key stakeholders as we grow
As the Group matures, the Board and I are mindful of our commitments to all stakeholders.
Ofgem appointed us as Supplier of Last Resort ("SoLR") for AmpowerUK's circa 8,200-meter-point business, along with two further customer books in February 2022 (Whoop Energy Limited and Xcel Power Limited), demonstrating the regulator's trust in the ability of our people and systems to implement such projects. This followed successful integrations of two other customer books during 2020; we now have a clear, replicable process to follow as we identify further opportunities, allowing us to bring in and be ready to onboard thousands of new customers in a matter of hours.
Our approach to the environment and sustainability is covered later in this annual report.
We are convinced that key drivers of the Group's performance are the wellbeing of our people, the continual innovation of our product offerings, and the reduction of our impact on our planet. We have made strides in all three areas and will continue to do so as our business evolves.
We continue to seek improvement in our stakeholder engagement processes and this is an area receiving constant attention.
We remain highly conscious of the need to ensure that our equity proposition reaches the widest possible audience of institutions and investors that may wish to join us on our growth journey.
Summary - relishing challenges and maturely treating risks as opportunities
Over the past two years the Group has more than passed the tests that have been set by a series of "black swan" events which have given rise to abnormally extended and exceptional "macro-market" conditions.
The Group's well-proven resilience is the direct result of increased maturity and of an intelligently inculcated positive, "can-do" attitude to challenges. This has nurtured colleagues' proven abilities in identifying and extracting advantage and upside from the risks and opportunities presented.
The combination of these qualities has, yet again, led to a very marked improvement in the Group's results.
As a key independent disruptor- challenger your Board expects the Group to continue to benefit from a period of accelerated and sustainable growth, enhancing performance via its digital programme, and increasing its share of a £50bn+ market.
CHIEF EXECUTIVE OFFICER'S STATEMENT
OUR BUSINESS MODEL IS MORE THAN DELIVERING AS WE CONTINUE RAPID GROWTH
· A pleasing performance that once again underscores the fundamental strength and maturity of our business as we continue to secure profitable growth
It's been an incredible year not just for the Group but for the industry domestically and globally. Significant events continue to change the landscape of the energy industry which I'll expand on later in this report. In terms of the Group (during what I consider to be a once in a generation event) it has been an exceptional year in which we have exceeded operational KPIs and analysts' forecasts.
The hard work and discipline knitted into the fabric of the business over the past few years continue to serve us well against the volatile gas markets and the tailwinds of the pandemic. Our people, processes and systems have enabled us to unlock opportunities which have been gross margin enhancing. The last two years have tested our ability to operate well in such a complex market and I am pleased our performance continues to go from strength to strength at a time when the competitive landscape map has been clearly redrawn and narrowed.
Our strategy is simple, do it better and faster to become bigger and stronger. Testament to this is the double-digit growth in meter points on supply, revenues increasing by over 50%, the forward contracted revenue book in excess of £290m, profitability extensively ahead of market expectations and average customer contract terms at 30 months.
Last year the Group demonstrated its appetite and ability to complement its organic growth by successfully acquiring Bristol Energy's business-to-business ("B2B") customer book, a wholly owned subsidiary of Bristol City Council, and a smaller customer gas book from a Midlands based supplier. This year we have reviewed some significant B2B customer book acquisition opportunities which were within our sweet spot, and we continue to remain disciplined and selective. It's my view that we will see further significant opportunities to grow by acquisition.
In November, through a selective tender process, Ofgem awarded the Group its first Supplier of Last Resort B2B book. AmpowerUK, which operated in the small and medium sized business space and had approximately 8,200 meter points. A smooth transition onboarded these customers onto our scalable operating platform and the sales teams have been moving these contracts from standard variable to fixed rate contracts at current market prices. A further two small books were awarded to the Group via this process by Ofgem in February 2022. I am incredibly pleased in our ability to migrate such books onto our platforms without losing value. Our relationship with Ofgem remains strong.
The ongoing energy volatility and its effects on UK energy suppliers have created confusion that somehow Ofgem's regulatory framework of B2C suppliers is the same as B2B suppliers. Nothing can be further from the truth. There are two major factors that have resulted in a record number of energy suppliers ceasing to operate in the market this year:
1. The price cap which applies to B2C suppliers to help protect domestic customers from inflation busting tariffs once their contracted tariff had ended. This sensible approach has spectacularly backfired as the current global gas price hikes were not factored in and B2C suppliers, which effectively were being forced to operate a loss-making business, failed. No such restriction applies to B2B suppliers and, despite the gas price hikes, B2B suppliers can pass those increased commodity costs onto customers very quickly.
2. Forward hedging contracted commodity de-risks market volatility shock and preserves gross margin at the point of sale. Suppliers which have not adopted this strategy run the risk of being exposed if wholesale commodity markets move away from them. Very quickly, unhedged suppliers can end up servicing loss-making contracts which is unsustainable. This is even more of a risk for domestic suppliers, where (unlike in the B2B segment) customers can typically leave a fixed price contract by giving 30days' notice.
A combination of one or both the above scenarios has caused 31 energy suppliers to cease trading since 1 January 2021 with all but 5 being B2C suppliers. While I see opportunities in a shrinking market, the impact of stubbornly high commodity prices and the uncertainty of the Russian conflict will indeed impact bills for customers who will still be recovering from the devastating financial effect of the pandemic.
Yü Group has a risk adverse hedging policy in place and therefore has not been affected materially by commodity volatility shock. In current times we keep a close eye on the significant asset we hold on our long-term hedge book.
Being Digital by Default
As a disruptor I see the future as a highly scalable, data-driven business bringing innovative products to our customers. We know that creating the ability for a customer to self-serve by default is the way the world is moving. Automating manual processes will bring the right level of predictable outcomes and allow us to scale as opportunities present themselves. We have successfully integrated our first Robotic Process Automation ("RPA") project, called "Rambo", saving hundreds of resource hours a month. This year we will introduce more RPAs allowing processes to be completed faster and cheaper. Further, based on the transactional nature of the back-office function, making the right decisions at the opportune time can enhance gross margin and reduce value loss and our data warehouse will give us a single view of the customer lifecycle and habits.
Yü Group has begun this transformation and invested in digitising and automating the business in 2021. This investment has delivered a brilliantly simple set of digital services enabling our customers and the Group to be Digital by Default and this, alongside automation of our back-office processes, has supported significant customer growth while allowing us to reduce our cost to serve. We have made significant progress already, completing discovery stages and undertaking various "sprints" to stand up various enhancements.
These improvements include data collection and capture capability, automated dynamic dashboard views of key performance indicators and integrated middleware to allow greater API integration and various intellectual property developments to integrate systems together. We still have a number of automated and digital deliverables that we will launch this year via continued sprints and evolution. These phases will use decomposition and pattern recognition to enable complex processes and value enhancing decision making to be instantaneous through the use of RPA and inhouse developed algorithms.
Our people
As always, our people are front and centre of the Group's success. The uncertainty around returning to the office has been a challenge for some of our colleagues.
This year we have increased staff numbers in areas aligned to our strategic direction, namely digital transformation, operations and collections. We have also continued with our internal apprentice talent pipeline programme, which has been life changing for the individuals.
New Leicester innovation centre
For the first phase of the project, the office was opened in May 2021 for the sales, marketing and digital transformation teams.
Our staff have been exposed to the latest office designs to help with our innovation ambitions, and the feedback has been outstanding.
Wholesale market volatility
Commodity prices have reached record highs this year due to both macro and micro events which in effect have created the perfect storm. Due to a colder European spring, which followed a longer than expected winter, demand continued and supplies remained low.
In normal circumstances the UK would have covered the shortfall in supply with Liquified Natural Gas ("LNG"), but Asia has procured huge quantities as it transitioned its energy supply from coal to gas. Brazil and Argentina increased their import levels of LNG, also squeezing European delivery of LNG. In short, an unnatural demand for LNG by world nations meant that demand outstripped LNG supply. The ongoing Russian conflict has compounded the situation further and while the UK imports an exceedingly small percentage volume from Russia, the same cannot be said for other European countries and a further squeeze on LNG imports to the UK could see price hikes continue for some time.
Our trading team has worked to policy on ensuring it is setting market reflective contract prices. However, businesses which have not budgeted for the significant increase in their utility costs at the time of renewal may struggle to pay.
Landscape
Our ability to service UK businesses with their energy needs quickly and competitively is evident in terms of year on year growth and we will continue to grow the business in terms of volume as well as revenue. Adjusted EBITDA improvement will be a particular focus and our digital transformation programmes will contribute significantly by reducing wastage, speeding up transactional processes and reducing the cost to serve. Despite B2B suppliers exiting, the market remains competitive albeit less crowded.
We will continue to develop best practice opportunities and use our entrepreneurial agility to react to market conditions quickly.
The wholesale gas and electricity market environment remains turbulent, and we will continue to monitor our price curves very carefully. Our hedge position remains strong, and our forward prices reflect market costs. We will also monitor and support our customers, who will begin to feel the impacts of the market gas volatility when they come to renew their existing supply contract terms.
Outlook
· Current trading remains very strong, providing a high level of excitement in the future
· High revenue growth forecasted, to add to the £157m already contracted for FY 2022 at the end of 2021
· Continued profitability improvement to continue the strong trajectory in gross margin and operation leverage already demonstrated
· Our Digital by Default programme set to further enhance profitability over the short to medium term, as we acquire more customers, deliver efficiency savings from our largely fixed overhead base, and drive value from data driven decisions
· Well positioned, with an increasing market opportunity and a significant value from the hedge book
· Ability to add value enhancing acquisitions to complement high organic growth
Summary
In summary, despite turbulence in the wider external market, we remain strong and focused so as to deliver continued growth in revenue and profitability.
I am excited about the further benefits we will unlock from our Digital by Default programme and I look forward to proactively engaging with shareholders to further expand our reach to existing and potential investors and other stakeholders.
I look forward to updating on our progress in the coming months.
FINANCE REVIEW
INCREASING PROFITABILITY AS THE BUSINESS SCALES
· We continue strong momentum in financial results, governed via our clear financial framework
In overview
· Revenue increase of £53.9m (53%)
· Contracted revenue for FY 2022 up 69% to £157m, and increased number of "out of contract" customers
· Adjusted EBITDA increased to £1.7m, up £3.4m year on year
· Profit for the year up £5.7m in the year, to £4.5m
· £7.0m cash available at 31 December 2021 (2020: £11.7m)
· £3.7m capital investment to drive forward growth and overhead benefit
Results summary
Results for the year to 31 December 2021 are significantly increased on the previous year and continue the strong upward momentum.
Revenue increased 53.1% in the year to £155.4m (2020: £101.5m) as high organic growth from new bookings combined with the integration of AmpowerUK's customer book in November 2021 and higher tariffs as a result of commodity market prices.
Adjusted EBITDA of £1.7m (2020: loss of £1.7m) continues the strong trajectory which has been evident over recent years. The £3.4m year on year improvement follows the clearly defined strategy to increase net customer contribution whilst extracting efficiency savings in overheads as the Group scales. The impact from the Covid-19 pandemic, which was estimated at £1.7m in FY 2020, has also been largely mitigated during FY 2021.
The statutory profit for the year of £4.5m represents a £5.7m increase in the year (2020: loss of £1.2m). Basic earnings per share of 27p was achieved, up from a loss of 7p per share in 2020.
Group net cash of £6.8m (2020: £11.4m) was held. A net decrease in cash and cash equivalents of £4.7m (2020: net increase of £9.4m) during 2021 is predominantly a result of £3.7m of investment in capital expenditure. Working capital cash flow movements in customer receivables and trade payables have also increased significantly as the Group scaled revenue in Q4 2021 and as a consequence of the increased commodity market prices.
Significantly increasing revenues
The Group typically provides one, two or three year contracts, which gives good forward visibility via a contracted revenue subscription model. The Group also realises other revenues, which are generated from a growing number of "out of contract" customers (who prefer the flexibility to remain on our supply under a fully flexible arrangement) or through other services or charges levied.
The Group exited 2020 with an estimated £93m of contracted revenue to deliver in FY 2021. The AmpowerUK integration added approximately £15m of revenue for the last two months of the year, and contracts secured in 2021, and other revenues, contributed approximately £38m.
A further £9m was delivered through a now exited low margin contract, resulting in the total £155m revenue delivered in FY 2021. As a result of record bookings in 2021, the level of contracted revenue estimated to deliver in FY 2022, as we exited 2021, was £157m, representing a substantial (69%) year on year increase on which to build further revenue.
The Group is also serving additional out of contract customers, at increased tariffs reflective of the market conditions, providing further revenue growth opportunity.
The increased contracted revenue and pool of customers providing out of contract revenue opportunity provide the Board with significant confidence that a very strong organic growth rate will continue in FY 2022.
Improved profitability
The Board continues to utilise adjusted EBITDA as its core profitability measure, being a close proxy to the recurring and "cash like" profitability of the Group.
Adjusted EBITDA increased by £3.4m during the year, to £1.7m. A £1.2m profit in the second half of 2021 was achieved, up from £0.5m in H1 2021 and £0.1m in H2 2020.
With the exception of the first six months of 2020, which were materially impacted due the initial Covid-19 lockdown, the Group has continued to improve underlying profitability for each six month period from 2019.
Adjusted EBITDA at 1.1% of revenue (2020: -1.7%) is derived from the profitability from customer contracts (referred to as net customer contribution) of 6.7% less general overheads, which are already sized for significant growth, of 5.6%.
Recognising the progress made already to bring the Group to a profitable footing, the Board remains focused on further improving adjusted EBITDA to achieve higher returns. Increasing net customer contribution whilst creating further overhead benefits is core to this strategy.
Gross margin improved to 9.8% for the year (2020: 7.6%) demonstrating the successful mitigation provided by the deployed hedging strategy, and the focus on managing customer contract lifecycle value. The continually improved systems and processes which are now firmly embedded in the organisation are providing further enhancement in value, and this is set to continue as the digital programme delivers additional benefit.
The integration of AmpowerUK customers and the increased revenue in Q4 2022 led to a higher bad debt charge in the second half of the year. The full year charge of 3.1% of revenue was therefore comparable to FY 2020 of 3.1%.
The relationship between gross margin performance and bad debt is carefully monitored, with management targeting net customer contribution when assessing various sales channels or customer segments available to it.
Net customer contribution at 6.7% has increased in 2021 (2020: 6.1%, or 4.5% including the impact of Covid-19 losses). General overheads of 5.6% for 2021 (2020: 6.2%) have started to show benefit from economies of scale. These overheads consist of cost to acquire ("CtA") (sales and marketing related costs), cost to serve ("CtS") (operational and customer service systems and people to deliver our core services) and general administrative costs (premises, occupancy and support function costs).
CtA was 1.6% of revenue in 2021, as benefits from new digital sales acquisition tools launched in 2020 were secured. CtS and general administrative overheads were each 2.0% of revenues.
Further scale benefits are targeted in general administrative costs which are largely fixed in nature. CtS is also targeted to increase at a slower rate than revenue, as the benefits from the Group's digital investment are realised.
In summary, the momentum and forward targeting of improvement to net customer contribution, coupled with the efficiency benefit in general overheads, are the core areas of the Board's strategy to further increase adjusted EBITDA.
Robust performance
In addition to a pleasing and robust adjusted EBITDA, the Group's profit for the year of £4.5m is significantly increased (2020: loss of £1.2m). This result is after £1.1m of tax credit (2020: £0.4m); and £0.2m (2020: £0.3m) of share based payments. The tax credit reflects an increased deferred tax asset, predominantly from brought forward tax losses which (based on the announced increase to future corporate tax rates) are more valuable to the Group.
The profit for the year also includes, before tax, a £3.3m (2020: £1.0m) unrealised gain on derivative contracts. This gain arises on a small proportion of forward commodity purchase contracts which do not match the strict definition of own use under IFRS 9, and are therefore assessed at fair value at the balance sheet date. With the high global commodity market prices the level of gain has increased substantially during FY 2021.
The Board believes that the associated financial asset (being a non-cash item) will reduce should the commodity market restabilise.
Non-recurring costs of £0.6m (2020: £nil) relate to the accrual of the Group's estimated share of expected costs "mutualised" across the energy supply industry from the unprecedented level of supplier failures. The Board is disappointed to be incurring such industry costs which are outside the control of the Group.
Cash flow and working capital
The Group had net cash of £6.8m at 31 December 2021 (2020: £11.4m), consisting of £7.0m of cash less lease liabilities. The Group has no other debt.
A net decrease in cash and cash equivalents of £4.7m for the year (2020: increase of £9.4m) consists of a £0.8m operating cash outflow (2020: £12.1m inflow); a £0.2m repayment of leases and interest (2020: £0.1m); and £3.7m (2020: £2.6m) of capital expenditure.
For operating activities, trade and other receivables before the movement in financial derivative assets increased by £19.7m (2020: £0.3m), with trade and other payables increasing by £17.5m (2020: £4.0m).
Significantly increased revenue for the month of December 2021, with the integration of AmpowerUK customers and increased out of contract customers at market reflective higher tariffs, accounted for a £10.8m increase in accrued income to £22.0m (2020: £11.2m). This level of accrued income is fully supported by invoices raised in January 2022 and aligns with the Group's normal billing cycle.
As well as the growth in revenues, trade and other receivables also increased as a result of payments to third-party intermediaries ("TPIs") on commencement of introduced sales contracts, and the increased derivative financial asset recognised under IFRS 9.
Countering the significant increase in receivables due to the Group's sales growth, current trade and other payables increased by £17.5m (2020: £4.0m) which is largely a result of increased accrued expenses for industry and energy costs.
Following significant growth in revenues secured from the AmpowerUK integration, the record organic growth secured, and the higher energy market prices, the Board is focused on ensuring the increased level of working capital movements is managed appropriately as we rapidly transition to a higher price environment. In particular the Board is mindful of the potential delay to our customers' ability to make payments in view of the significantly increased cost of energy which is being suffered by those who have not locked in contract tariffs at lower market prices.
For FY 2020, deferred HMRC payments of £3.6m were held under the Government's Covid-19 support package, which reduced to £1.4m at 31 December 2021. FY 2020 also included a one-off cash inflow of £10.2m as the new structured commodity trading arrangement resulted in a repayment of previously lodged cash collateral. The credit limit in place under the Group's trading arrangement is not currently being utilised in view of the high global market prices.
As set out in detail in the annual report, the Board monitors the credit limit provided and risks and mitigation available to it related to the credit risk with trading counterparties. The Board also reviews any impact on credit limits and liquidity depending on the level of global commodity prices compared to the value of the Group's forward hedged position.
The £3.7m of capital expenditure in FY 2021 includes £2.6m (in addition to the £1.2m paid prior to FY 2021) for the freehold acquisition and fit-out of our new innovation centre established in Leicester. A further £1.1m was invested in software and systems as part of the Group's Digital by Default strategy. The innovation centre and Digital by Default investments are targeted to drive significant revenue and profitability improvement in the short and medium term.
Summary: continuing to successfully implement our financial framework
We continue to apply our financial framework, to scale revenues (organically and inorganically) and increase adjusted EBITDA via improved net customer contribution and reduced overheads (powered by digital efficiency), whilst maintaining robust cash and working capital management.
With £157m of contracted revenue already secured for FY 2022 as we exited 2021, a stronger market positioning and a higher market value opportunity following the energy crisis, and increased numbers of customers on out of contract agreements, we remain confident that top-line growth will continue. We also continue to review the market for value enhancing acquisition opportunities.
With this scale in revenue, we look to continue to enhance gross margin whilst driving down our cost of bad debt. We therefore target increasing net customer contribution from the 6.7% (2020: 6.1% pre-Covid-19 impact) achieved in FY 2021, combined with targets to reduce general overheads from the 5.6% in FY 2021 (2020: 6.2%).
In short, the Board is fully driven to further increase adjusted EBITDA from the 1.1% achieved in FY 2021 and on significantly increased revenue.
Condensed consolidated statement of profit and loss and other comprehensive income
For the year ended 31 December 2021
|
| Notes | 31 December 2021 £'000 | 31 December 2020 £'000 |
| Revenue |
| 155,423 | 101,527 |
| Cost of sales |
| (140,180) | (93,858) |
| Gross profit |
| 15,243 | 7,669 |
| Operating costs before non-recurring items and share based payment charges |
| (9,407) | (6,807) |
| Operating costs - non-recurring items | 7 | (644) | - |
| Operating costs - share based payment charges | 21 | (249) | (320) |
| Total operating costs | 4 | (10,300) | (7,127) |
| Net impairment losses on financial and contract assets | 16 | (4,799) | (3,127) |
| Other gains | 7 | 3,344 | 1,011 |
| Operating profit / (loss) |
| 3,488 | (1,574) |
| Finance income | 5 | - | 74 |
| Finance costs | 5 | (96) | (39) |
| Profit / (loss) before tax |
| 3,392 | (1,539) |
| Taxation | 9 | 1,059 | 374 |
| Profit / (loss) and total comprehensive income for the year |
| 4,451 | (1,165) |
| Earnings / (loss) per share |
|
|
|
| Basic | 8 | £0.27 | (£0.07) |
| Diluted | 8 | £0.26 | (£0.07) |
Condensed consolidated balance sheet
At 31 December 2021
| Notes | 31 December 2021 £'000 | 31 December 2020 £'000 |
ASSETS |
|
|
|
Non-current assets |
|
|
|
Intangible assets | 11 | 1,333 | 606 |
Property, plant and equipment | 12 | 3,751 | 1,377 |
Right-of-use assets | 13 | 193 | 273 |
Deferred tax assets | 15 | 5,932 | 4,789 |
Trade and other receivables | 16 | 870 | - |
|
| 12,079 | 7,045 |
Current assets |
|
|
|
Trade and other receivables | 16 | 40,441 | 18,267 |
Cash and cash equivalents | 17 | 7,049 | 11,740 |
|
| 47,490 | 30,007 |
Total assets |
| 59,569 | 37,052 |
LIABILITIES |
|
|
|
Current liabilities |
|
|
|
Trade and other payables | 18 | (49,743) | (31,430) |
Non-current liabilities |
|
|
|
Trade and other payables | 18 | (541) | (1,109) |
Total liabilities |
| (50,284) | (32,539) |
Net assets |
| 9,285 | 4,513 |
EQUITY |
|
|
|
Share capital | 20 | 82 | 82 |
Share premium | 20 | 11,690 | 11,690 |
Merger reserve | 20 | (50) | (50) |
Accumulated losses | 20 | (2,437) | (7,209) |
|
| 9,285 | 4,513 |
Condensed consolidated statement of changes in equity
For the year ended 31 December 2021
| Share capital £'000 | Share premium £'000 | Merger reserve £'000 | Retained earnings £'000 | Total £'000 |
Balance at 1 January 2021 | 82 | 11,690 | (50) | (7,209) | 4,513 |
Total comprehensive income for the year |
|
|
|
|
|
Profit for the year | - | - | - | 4,451 | 4,451 |
Other comprehensive income | - | - | - | - | - |
| - | - | - | 4,451 | 4,451 |
Transactions with owners of the Company |
|
|
|
|
|
Contributions and distributions |
|
|
|
|
|
Equity-settled share based payments | - | - | - | 237 | 237 |
Deferred tax on share based payments | - | - | - | 84 | 84 |
Proceeds from share issues | - | - | - | - | - |
Total transactions with owners of the Company | - | - | - | 321 | 321 |
Balance at 31 December 2021 | 82 | 11,690 | (50) | (2,437) | 9,285 |
|
|
|
|
|
|
Balance at 1 January 2020 | 82 | 11,690 | (50) | (6,424) | 5,298 |
Total comprehensive income for the year |
|
|
|
|
|
Loss for the year | - | - | - | (1,165) | (1,165) |
Other comprehensive income | - | - | - | - | - |
| - | - | - | (1,165) | (1,165) |
Transactions with owners of the Company |
|
|
|
|
|
Contributions and distributions |
|
|
|
|
|
Equity-settled share based payments | - | - | - | 320 | 320 |
Deferred tax on share based payments | - | - | - | 60 | 60 |
Total transactions with owners of the Company | - | - | - | 380 | 380 |
Balance at 31 December 2020 | 82 | 11,690 | (50) | (7,209) | 4,513 |
Condensed consolidated statement of cash flows
For the year ended 31 December 2021
| 31 December 2021 £'000 | 31 December 2020 £'000 |
Cash flows from operating activities |
|
|
Profit / (loss) for the financial year | 4,451 | (1,165) |
Adjustments for: |
|
|
Depreciation of property, plant and equipment | 255 | 215 |
Depreciation of right-of-use assets | 80 | 204 |
Amortisation of intangible assets | 352 | 132 |
Unrealised gains on derivative contracts | (3,344) | (1,011) |
Increase in trade and other receivables | (19,700) | (320) |
Increase in trade and other payables | 17,468 | 3,978 |
Cash received on obtaining customer contracts | 378 | - |
Decrease in cash collateral deposits lodged with trading counterparties | - | 10,158 |
Finance income | - | (74) |
Finance costs | 96 | 39 |
Taxation | (1,059) | (374) |
Share based payment charge | 249 | 320 |
Net cash (used in)/from operating activities | (774) | 12,102 |
Cash flows from investing activities |
|
|
Purchase of property, plant and equipment | (2,629) | (921) |
Payment of software development costs | (1,079) | - |
Net cash used for purchase of customer books | - | (1,673) |
Net cash used in investing activities | (3,708) | (2,594) |
Cash flows from financing activities |
|
|
Cash settled share based payment charge | (12) | - |
Interest (paid)/received | (77) | 35 |
Principal element of lease payments | (120) | (180) |
Net cash used in financing activities | (209) | (145) |
Net (decrease)/increase in cash and cash equivalents | (4,691) | 9,363 |
Cash and cash equivalents at the start of the year | 11,740 | 2,377 |
Cash and cash equivalents at the end of the year | 7,049 | 11,740 |
Notes to the condensed consolidated financial report
1. Significant accounting policies
Yü Group PLC (the "Company") is a public limited company incorporated and domiciled in the United Kingdom, with company number 10004236. The Company is limited by shares and the Company's ordinary shares are traded on AIM. These condensed consolidated financial statements ("Financial Statements") as at and for the year ended 31 December 2021 comprise the Company and its subsidiaries (together referred to as the "Group"). The Group is primarily involved in the supply of electricity, gas and water to small and medium sized entities ("SMEs") and larger corporates in the UK.
Basis of preparation
Whilst the financial information included in this preliminary announcement has been prepared on the basis of the requirements of UK-adopted International Accounting Standards in conformity with the requirements of the Companies Act 2006 and effective at 31 December 2021, this announcement does not itself contain sufficient information to comply with International Accounting Standards.
The financial information set out in this preliminary announcement does not constitute the company's statutory financial statements for the years ended 31 December 2021 or 2020 but is derived from those financial statements.
Statutory financial statements for 2020 have been delivered to the registrar of companies and those for 2021 will be delivered in due course. The auditors have reported on those financial statements; their reports were (i) unqualified and (ii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
The change in the basis of preparation from 2020 is required by UK Company Law for the purposes of financial reporting as a result of the UK's exit from the European Union on 31 January 2020 and the cessation of the transition period on 31 December 2020. This change does not constitute a change in accounting policy, rather a change in the framework which is required to group use of IFRS in company law. There is no impact on the recognition, measurement or disclosure between the two.
The condensed consolidated financial information is presented in British pounds sterling (£) and all values are rounded to the nearest thousand (£000) except where otherwise indicated.
Going concern
The financial statements are prepared on a going concern basis.
At 31 December 2021 the Group had net assets of £9.3m (2020: £4.5m) and cash of £7.0m (2020: £11.7m).
Management prepares detailed budgets and forecasts of financial performance and cash flow (including capital commitments) over the coming 12 to 36 months. The Board has confidence in achieving such targets and forecasts and has performed comprehensive analysis of various risks (including those set out in the Strategic Report) and sensitivities in relation to performance, the energy market and the wider economy.
The Group has demonstrated significant progress in its results. This has led to adjusted EBITDA profitability in 2021 (a close profitability measure to cash generated from operations), which is a significant turnaround in performance from the losses of 2018 and 2019 and continues the positive trend in 2020 despite the impact in that year of Covid-19.
The profitability delivered in 2021 has been achieved by robust and disciplined management of gross margin; the addition of value enhancing integrations (such as the acquisition of Bristol Energy in 2020 and the integration of AmpowerUK's business book during 2021); and the continued prudent hedging policy protecting the Group from the significant commodity market price increases recently experienced.
The Group has embarked on an ambitious Digital by Default implementation strategy to help drive further cost efficiency which is expected to further enhance financial performance as the Group scales.
Group available cash remains at significant levels, with £7.0m available at 31 December 2021. Cash held has reduced in 2021 because of an investment in a newly built innovation and sales office in Leicester; an increased investment in sales acquisition costs and the digital programme; and the commencement of payments on VAT deferred as part of the UK Government's Covid-19 relief scheme. In view of the significant growth in the business, working capital movements have increased from Q4 2021, with a £19.7m increased in trade and other receivables (excluding the financial derivative asset) largely mitigated by a £17.5m increase in trade and other payables.
The Group has no debt other than £0.3m (at 31 December 2021) in respect of the lease for the Group's Nottingham office.
The Board has assessed risks and sensitivities and potential mitigation steps available to it in detail and continues to monitor risk and mitigation strategies in the normal course of business.
Hedging arrangements and volatile energy markets
A five year commodity trading arrangement between SmartestEnergy Ltd and the trading entities of the Group (Yü Energy Holding Limited and Yü Energy Retail Limited), signed December 2019, (the "Trading Agreement") enables the Group to purchase electricity and gas on forward commodity markets. The Trading Agreement enables forecasted customer demand to be hedged in accordance with an agreed risk mandate (further detailed in the Group's risk and uncertainties reporting in the Strategic Report). With the unprecedented increase in commodity market prices for forward gas and electricity, this hedging position has and continues to protect the Group.
As part of the Trading Agreement, SmartestEnergy Ltd holds security over the trading assets of the Group which could, ultimately and in extreme and limited circumstances, lead to a claim on some or all of the assets of the Group. In return, a variable commodity trading limit is provided, which scales with the Group, having the benefit of significantly reducing the need to post cash collateral from cash reserves.
The Board carefully monitors covenants associated with the Trading Agreement to assess the likelihood of the credit facility being reduced or withdrawn. Management also maintains close dialogue with SmartestEnergy Ltd in respect of such covenants and provides robust oversight of the relevant contracts.
The position in respect of the forward credit exposure is also monitored and forecasted to understand the potential risks which may arise:
a) Where commodity market prices increase, the Board considers credit and contractual exposure to SmartestEnergy Ltd, which (under a default position) could lead to the unwind of hedges with the loss of value due to the Group if not successfully recovered under the contract. With increased market prices, this exposure increased significantly during the year.
b) Where commodity market prices decrease, the Board considers whether the credit limit provided under the Trading Agreement is sufficient to prevent the potential for cash calls which may lead to a liquidity issue where in excess of the Group's cash reserves at that time. The Board also considers likely commercial outcomes relevant for such a scenario.
Despite the market volatility experienced in 2021, the Trading Agreement continues to operate well providing reliable, efficient and effective access to traded commodity markets.
The Board also considers its business model and compares it with competitors which have failed to determine any other risks in related to the volatile energy markets. As part of that assessment, the impact of the price cap on domestic suppliers (which the Group is not materially exposed to) has been considered. The failure of certain unhedged B2B suppliers has also been considered. The Board is satisfied that the Group's business model is adequately differentiated from these market issues.
In view of energy market volatility and the increased risk for the sector, the Board has also identified certain mitigation strategies to manage the commodity market and hedging credit limit exposures noted above, and continually assess the potential for material impact.
After detailed review, the Board has concluded that there are no liquidity issues likely to arise (outside of available mitigating strategies) in relation to the hedging arrangements and current market context.
Covid-19
The Group has successfully operated for approximately two years through the pandemic, with strong improvement in results still being delivered. Reviews of the impact of lockdowns have also provided the Board with adequate references to assess risks in relation to further changes as a result of the pandemic.
The Group successfully implemented its business continuity plan during the initial March 2020 lockdown and continues to operate to its high standards of customer care. Employees have been working productively either at home, in the office or under a hybrid working model.
The Board remains confident in the Group's ability to grow market share, despite the wider economic context caused by the pandemic.
The Group has also seen strong performance in cash collection since the pandemic began. The Board remains vigilant, however, over the short to medium term, on the basis of the increased risk of business failures in some markets which may be further compounded by increased energy prices.
Summary
Following extensive review of the Group's forward business plan and associated risks and sensitivities to these base forecasts (and available mitigation strategies), the Board concludes that it is appropriate to prepare the financial statements on a going concern basis.
Basis of consolidation
The consolidated accounts of the Group include the assets, liabilities and results of the Company and subsidiary undertakings in which Yü Group PLC has a controlling interest. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has all of the following: power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee); exposure, or rights, to variable returns from its involvement with the investee; and the ability to use its power over the investee to affect its returns. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group's accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.
Use of estimates and judgements
The preparation of the financial statements in conformity with adopted IFRSs requires the use of estimates and judgements. Although these estimates are based on management's best knowledge, actual results ultimately may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. The key areas of estimation and judgement are:
· the estimated consumption (in lieu of accurate meter readings) of energy by customers;
· the level of accrual for unbilled revenue;
· the recoverability of trade receivables;
· the level of forward energy commodity contracts which are not strictly for "own use" under IFRS 9;
· the assumptions input to the IFRS 2 share option charge calculations; and
· the recoverability of deferred tax assets.
Revenue estimates are based on industry knowledge or source information, where available, and can therefore represent estimates which are lower or higher than the actual out-turn of energy consumption once accurate meter readings are obtained.
To estimate the level of accrual for unbilled revenue, management estimates the level of consumption, and anticipated revenue, which is due to be charged to the customer, and recognises such revenue where it is considered that revenue will flow to the Group. The estimate of customer consumption is based on available industry data, and also seasonal usage curves that have been estimated through historical actual usage data.
Trade receivables recoverability is estimated, with appropriate allowance for expected credit loss provisions, based on historical performance and the directors' estimate of losses over the Group's customer receivable balances. Sensitivity analysis on estimates is provided in note 19.
The Group enters forward purchase contracts to hedge its position to closely match customers' expected demand over the term of the contract and does not engage in speculative trading. Factors such as the shape / granularity of traded products available (which do not perfectly align with customer demand) and variations in energy consumed by customers (as a result of varying customer behaviour and activity, and (particularly for gas) the weather impact) can influence the extent of trades which are not strictly for the Group's "own use". Such contracts are accounted for at fair value through the Group's profit or loss. The Board estimates the proportion of forward contracts which are to be assessed at fair value by considering the expected "normalised" forward traded position, with reference to historical performance on matching customer demand and the Group's robustly controlled hedging and risk strategy. Sensitivity analysis on estimates is provided in note 19.
The share option charge requires certain estimates, including the volatility in share price, risk-free rates and dividend yields, together with assessment of achievement of certain vesting conditions.
Deferred tax asset recoverability is assessed based on directors' judgement of the recoverability of the tax losses by the realisation of future profits over the short to medium term, which inherently is based on estimates.
Revenue recognition
The Group enters into contracts to supply gas, electricity and water to its customers. Revenue represents the fair value of the consideration received or receivable from the sale of actual and estimated gas, electricity and water supplied during the year, net of discounts, climate change levy and value-added tax. Revenue is recognised on consumption, being the point at which the transfer of the goods or services to the customer takes place, and based on an assessment of the extent to which performance obligations have been achieved.
Due to the nature of the energy supply industry and its reliance upon estimated meter readings, gas, electricity and water revenue includes the directors' best estimate of differences between estimated sales and billed sales. The Group makes estimates of customer consumption based on available industry data, and also seasonal usage curves that have been estimated through historical actual usage data. It also considers any adjustments expected where an estimated meter reading (using industry data) is expected to be different to the consumption pattern of the customer.
Financial instruments
Non-derivative financial instruments
Non-derivative financial instruments comprise trade and other receivables, cash and cash equivalents and trade and other payables.
Trade and other receivables
Trade and other receivables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method, less any impairment and expected credit losses.
Impairment
The Group has elected to measure credit loss allowances for trade receivables and accrued income at an amount equal to lifetime expected credit losses ("ECLs"). Specific impairments are made when there is a known impairment need against trade receivables and accrued income. When estimating ECLs, the Group assesses reasonable, relevant and supportable information, which does not require undue cost or effort to produce. This includes quantitative and qualitative information and analysis, incorporating historical experience, informed credit assessments and forward looking information. Loss allowances are deducted from the gross carrying amount of the assets.
Trade and other payables
Trade and other payables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and short-term deposits (monies held on deposit are accessible with one month's written notice). Cash and cash equivalents excludes any cash collateral posted with third parties. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash and cash equivalents.
Derivative financial instruments
The Group uses commodity purchase contracts to hedge its exposures to fluctuations in gas and electricity commodity prices. The majority of commodity purchase contracts are expected to be delivered entirely to the Group's customers and therefore the Group classifies them as "own use" contracts and outside the scope of IFRS 9 "Financial Instruments". This is achieved when:
• a physical delivery takes place under all such contracts;
• the volumes purchased or sold under the contracts correspond to the Group's operating requirements; and
• no part of the contract is settled net in cash.
This classification as "own use" allows the Group not to recognise the commodity purchase contracts on its balance sheet at the year end.
The commodity purchase contracts that do not meet the criteria listed above are recognised at fair value under IFRS 9. The gain or loss on remeasurement to fair value is recognised immediately in profit or loss.
Classification of financial instruments issued by the Group
Financial instruments issued by the Group are treated as equity only to the extent that they meet the following two conditions:
(a) they include no contractual obligations upon the Group to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable to the Group; and
(b) where the instrument will or may be settled in the Group's own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the Company's own equity instruments or is a derivative that will be settled by the Company exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments.
To the extent that this definition is not met, the proceeds of issue are classified as a financial liability. Where the instrument so classified takes the legal form of the Company's own shares, the amounts presented in these financial statements for called up share capital and share premium account exclude amounts in relation to those shares.
Details of the sensitivity analysis performed in relation to the Group's financial instruments are included in note 19.
Intangible assets
Intangible assets that are acquired separately by the Group are stated at cost less accumulated amortisation and accumulated impairment losses.
Intangible assets acquired in a business combination are initially recognised at their fair value at the acquisition date. Subsequent to initial recognition, intangible assets acquired in a business combination are reported at their initial fair value less amortisation and accumulated impairment losses.
Software and system assets are recognised at cost, including those internal costs attributable to the development and implementation of the asset in order to bring it into use. Cost comprises all directly attributable costs, including costs of employee benefits arising directly from the development and implementation of software and system assets.
Amortisation is charged to the statement of profit and loss on a straight-line basis over the estimated useful lives of the intangible assets from the date they are available for use. The estimated useful lives are as follows:
• Licence - 35 years
• Customer contract books - Over the period of the contracts acquired (typically 2 years)
• Software and systems - 3 to 5 years
Property, plant and equipment
Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.
Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. The estimated useful lives for the current and comparative periods are as follows:
• Freehold land - Not depreciated
• Freehold property - 30 years
• Computer equipment - 3 years
• Fixtures and fittings - 3 years
Assets under construction are not depreciated until the period they are brought into use.
Business combinations
The acquisition method of accounting is used to account for business combinations regardless of whether equity instruments or other assets are acquired.
The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity instruments issued or liabilities incurred by the acquirer to former owners of the acquiree and the amount of any non-controlling interest in the acquiree.
All acquisition costs are expensed as incurred to profit or loss.
On the acquisition of a business, the consolidated entity assesses the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the consolidated entity's operating or accounting policies and other pertinent conditions in existence at the acquisition date.
Contingent consideration to be transferred by the Group is recognised at the acquisition-date fair value. Subsequent changes in the fair value of the contingent consideration classified as an asset or liability are recognised in profit or loss. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity.
The difference between the acquisition-date fair value of assets acquired and liabilities assumed and the fair value of the consideration transferred is recognised as goodwill. If the consideration transferred and the pre-existing fair values are less than the fair value of the identifiable net assets acquired, being a bargain purchase to the Group, the difference is recognised as a gain directly in profit or loss on the acquisition date, but only after a reassessment of the identification and measurement of the net assets acquired and the consideration transferred.
Business combinations are initially accounted for on a provisional basis. The Group retrospectively adjusts the provisional amounts recognised and also recognises additional assets or liabilities during the measurement period, based on new information obtained about the facts and circumstances that existed at the acquisition date. The measurement period ends on the earlier of (i) 12 months from the date of the acquisition or (ii) when the acquirer receives all the information possible to determine fair value.
In determining whether an acquisition of an acquired set of activities and assets is a business, the "concentration test" methodology as outlined in IFRS 3 is utilised. Where substantially all of the fair value of the gross assets acquired are attributable to a single identifiable asset group, such as a customer list, then a business combination will not occur.
Leased assets
The Group as a lessee
For any new contract entered into the Group considers whether a contract is, or contains, a lease. A lease is defined as "a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration". To apply this definition the Group assesses whether the contract meets three key evaluations which are whether:
• the contract contains an identified asset, which is either explicitly identified in the contract or implicitly specified by being identified at the time the asset is made available to the Group;
• the Group has the right to obtain substantially all of the economic benefits from use of the identified asset throughout the period of use, considering its rights within the defined scope of the contract; and
• the Group has the right to direct the use of the identified asset throughout the period of use. The Group assess whether it has the right to direct "how and for what purpose" the asset is used throughout the period of use.
Measurement and recognition of leases as a lessee
At the lease commencement date, the Group recognises a right-of-use asset and a lease liability on the balance sheet. The right-of-use asset is measured at cost, which is made up of the initial measurement of the lease liability, any initial direct costs incurred by the Group, an estimate of any costs to dismantle and remove the asset at the end of the lease, and any lease payments made in advance of the lease commencement date (net of any incentives received).
The Group depreciates the right-of-use asset on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The Group also assesses the right-of-use asset for impairment when such indicators exist.
At the commencement date, the Group measures the lease liability at the present value of the lease payments unpaid at that date, discounted using the interest rate implicit in the lease if that rate is readily available or the Group's incremental borrowing rate.
Lease payments included in the measurement of the lease liability are made up of fixed payments (including in-substance fixed), variable payments based on an index or rate, amounts expected to be payable under a residual value guarantee and payments arising from options reasonably certain to be exercised.
Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is remeasured to reflect any reassessment or modification, or if there are changes in in-substance fixed payments.
When the lease liability is remeasured, the corresponding adjustment is reflected in the right-of-use asset, or profit and loss if the right-of-use asset is already reduced to zero.
The Group has elected to account for short-term leases and leases of low value assets using the practical expedients. Instead of recognising a right-of-use asset and lease liability, the payments in relation to these are recognised as an expense in profit or loss on a straight-line basis over the lease term.
On the statement of financial position, right-of-use assets are separately identified and lease liabilities have been included in trade and other payables.
Share based payments
Share based payment arrangements in which the Group receives goods or services as consideration for its own equity instruments are accounted for as equity-settled share based payment transactions, regardless of how the equity instruments are obtained by the Group.
The cost of equity-settled transactions with employees is measured by reference to the fair value on the date they are granted. Where there are no market conditions attaching to the exercise of the option, the fair value is determined using a range of inputs into a Black Scholes pricing model. Where there are market conditions attaching to the exercise of the options a trinomial option pricing model is used to determine fair value based on a range of inputs. The value of equity-settled transactions is charged to the statement of comprehensive income over the period in which the service conditions are fulfilled with a corresponding credit to a share based payments reserve in equity.
Employer's National Insurance costs arising and settled in cash on exercise of unapproved share options are included in the share based payment charge in the profit or loss, with no corresponding credit to reserves in equity.
Pension and post-retirement benefit
The Group operates a defined contribution scheme which is available to all employees. The assets of the scheme are held separately from those of the Group in independently administered funds. Payments are made by the Group to this scheme and contributions are charged to the statement of comprehensive income as they become payable.
Taxation
Tax on the profit or loss for the period comprises current and deferred tax. Tax is recognised in the statement of profit and loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable or receivable on the taxable income or loss for the period, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous periods.
Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination; and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised.
Segmental reporting
In accordance with IFRS 8 "Operating Segments", the Group has made the following considerations to arrive at the disclosure made in this financial information.
IFRS 8 requires consideration of the Chief Operating Decision Maker ("CODM") within the Group. In line with the Group's internal reporting framework and management structure, the key strategic and operating decisions are made by the Board of directors, which regularly reviews the Group's performance and balance sheet position and receives financial information for the Group as a whole. Accordingly, the Board of directors is deemed to be the CODM.
The Group's revenue and profit were derived from its principal activity, which is the supply of utilities to business customers in the UK. As a consequence the Group has one reportable segment, which is the supply of electricity, gas and water to businesses. Segmental profit is measured at operating profit level, as shown on the face of the statement of profit and loss.
As there is only one reportable segment whose profits/(losses), expenses, assets, liabilities and cash flows are measured and reported on a basis consistent with the financial statements, no additional numerical disclosures are necessary.
Standards and interpretations
The Group has adopted all of the new or amended accounting standards and interpretations that are mandatory for the current reporting period.
Any new or amended accounting standards or interpretations that are not yet mandatory have not been early adopted.
2. Segmental analysis
Operating segments
The directors consider there to be one operating segment, being the supply of utilities to businesses.
Geographical segments
100% of Group revenue is generated from sales to customers in the United Kingdom (2020: 100%) and is recognised at a point in time.
The Group has no individual customers representing over 10% of revenue (2020: nil).
3. Auditor's remuneration
| 2021 £'000 | 2020 £'000 |
Audit of these financial statements | 72 | 68 |
Amounts receivable by auditor in respect of: |
|
|
Audit of financial statements of subsidiaries pursuant to legislation | 44 | 40 |
| 116 | 108 |
4. Operating expenses
| 2021 £'000 | 2020 £'000 |
Profit / (loss) for the year has been arrived at after charging: |
|
|
Staff costs (see note 6) | 5,634 | 4,455 |
Depreciation of property, plant and equipment | 255 | 215 |
Depreciation of right-of-use assets | 80 | 204 |
Amortisation of intangible assets | 352 | 132 |
5. Net finance (income)/expense
| 2021 £'000 | 2020 £'000 |
Bank interest and other finance charges payable | 77 | 16 |
Interest on lease liabilities | 19 | 23 |
Total finance costs | 96 | 39 |
Bank interest receivable | - | (74) |
| 96 | (35) |
6. Staff numbers and costs
The average number of persons employed by the Group (including directors) during the period, analysed by category, was as follows:
| 2021 Number | 2020 Number |
Sales | 31 | 34 |
Administration | 114 | 77 |
| 145 | 111 |
The aggregate payroll costs of these persons were as follows:
| 2021 £'000 | 2020 £'000 |
Wages and salaries | 5,043 | 3,685 |
Social security costs | 539 | 373 |
Pension costs | 97 | 77 |
Share based payments | 249 | 320 |
| 5,928 | 4,455 |
Of which: Amounts charged to operating profit / (loss) Amounts related to development and implementation of computer software
| 5,634 294
| 4,455 -
|
There were three persons employed directly by the Company during the year ended 31 December 2021 (2020: four), being the non-executive directors. The Company's two (2020: three) executive directors who served during the year have service contracts with a wholly owned subsidiary of the Company.
Key management personnel
The aggregate compensation made to directors and other members of key management personnel (being members of the Group's Executive Committee comprising the Chief Executive Officer, Chief Financial Officer and other senior leaders) is set out below:
| £'000 | £'000 |
Short-term employee benefits | 1,191 | 1,013 |
Social security and pension costs | 165 | 170 |
Share based payments | 228 | 310 |
| 1,584 | 1,493 |
For 2020, £140,000 of employers National Insurance was previously disclosed in short-term employee benefits and has now been reclassified in social security and pension costs.
The highest paid director and remuneration of the executive directors are as referenced in the remuneration report of the annual report.
7. Reconciliation to adjusted EBITDA
A key alternative performance measure used by the directors to assess the underlying performance of the business is adjusted EBITDA.
| 2021 | 2020 |
| £'000 | £'000 |
Adjusted EBITDA reconciliation |
|
|
Operating profit / (loss) | 3,488 | (1,574) |
Add back: |
|
|
Non-recurring operational costs | 644 | - |
Unrealised gain on derivative contracts | (3,344) | (1,011) |
Share based payment charge | 249 | 320 |
Depreciation of property, plant and equipment | 255 | 215 |
Depreciation of right-of-use assets | 80 | 204 |
Amortisation of intangibles | 352 | 132 |
Adjusted EBITDA | 1,724 | (1,714) |
The non-recurring operational costs of £644,000 relates to accrued industry costs, from legislation governing the Renewable Obligation scheme, which are mutualised (i.e. spread) across energy market participants. These costs have increased significantly because of the unprecedented level of supplier failures; particularly impacting those operating in the domestic (business to consumer) market segment. The total charge to the Group for the compliance year ended 31 March 2021 is £454,000. A further £190,000 is estimated and accrued relating to the liability arising for the period from 1 April 2021 to 31 December 2021. The directors consider these mutualisation costs non-recurring during 2021 in view of the unprecedented and well-publicised challenges faced by some suppliers during the year. The directors do not envisage mutualisation costs will remain at such a significant level in the future. For 2020 the Group charged mutualisation costs against the adjusted EBITDA loss. These 2020 costs included the liability for the compliance period to 31 March 2020 of £78,000, being significantly below the £454,000 charge for the compliance year to 31 March 2021.
Share based payment charges, unrealised gains on derivatives and depreciation and amortisation of assets are excluded from adjusted EBITDA. This exclusion of gains and losses is in order for a "near cash, recurring profit" metric to be derived.
The unrealised gain on derivative contracts of £3,344,000 (2020: £1,011,000) arises from a small proportion of forward commodity hedges which do not meet the strict "own use" criteria under IFRS 9 ("Financial Instruments"). Such forward commodity trades are therefore recognised at their fair value, being a financial asset, as further described in note 16 and note 19.
The directors consider adjusted EBITDA to be a more accurate representation of underlying business performance and therefore utilise this measure as the primary profit measure in setting targets and managing financial performance.
8. Earnings per share
Basic earnings/(loss) per share
Basic earnings per share is based on the profit/(loss) attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding.
| 2021 £'000 | 2020 £'000 |
Profit/(loss) for the year attributable to ordinary shareholders | 4,451 | (1,165) |
|
|
|
| 2021 | 2020 |
Weighted average number of ordinary shares |
|
|
At the start of the year | 16,281,055 | 16,281,055 |
Effect of shares issued in the year | 18,591 | - |
Number of ordinary shares for basic earnings per share calculation | 16,299,646 | 16,281,055 |
Dilutive effect of outstanding share options | 1,099,153 | 929,830 |
Number of ordinary shares for diluted earnings per share calculation | 17,398,799 | 17,210,885 |
| 2021 £ | 2020 £ |
Basic earnings per share | 0.27 | (0.07) |
Diluted earnings per share | 0.26 | (0.07) |
Adjusted earnings per share
Adjusted earnings per share is based on the result attributable to ordinary shareholders before non-recurring items after tax and unrealised gains on derivative contracts and the cost of cash and equity-settled share based payments, and the weighted average number of ordinary shares outstanding:
| 2021 £'000 | 2020 £'000 |
Adjusted earnings per share |
|
|
Profit/(loss) for the year attributable to ordinary shareholders | 4,451 | (1,165) |
Add back (per note 7): |
|
|
Non-recurring items after tax (gross cost, before tax, of £644,000) | 522 | - |
Unrealised gain on derivative contracts after tax (gross gain, before tax, of £3,344,000) | (2,709) | (819) |
Share based payments after tax (gross cost, before tax, of £249,000) | 202 | 259 |
Adjusted basic profit/(loss) for the year | 2,466 | (1,725) |
Adjusted earnings/(loss) per share | £0.15 | £(0.11) |
Diluted adjusted earnings/(loss) per share | £0.14 | £(0.11) |
9. Taxation
| 2021 £'000 | 2020 £'000 |
Current tax charge |
|
|
Current year | - | - |
Adjustment in respect of prior years | - | - |
| - | - |
Deferred tax credit |
|
|
Current year | (631) | (287) |
Adjustment in respect of prior years | (428) | (87) |
| (1,059) | (374) |
Total tax credit | (1,059) | (374) |
Tax recognised directly in equity |
|
|
Current tax recognised directly in equity | - | - |
Deferred tax recognised directly in equity | (84) | (60) |
Total tax recognised directly in equity | (84) | (60) |
Reconciliation of effective tax rate |
|
|
Profit / (loss) before tax | 3,392 | (1,539) |
Tax at UK corporate tax rate of 19% (2020: 19%) | 644 | (292) |
Expenses not deductible for tax purposes | 26 | 5 |
Tax relief on exercise of share options | (18) | - |
Impact of temporary differences | (94) | - |
Adjustment in respect of prior periods - current tax | - | - |
Adjustments in respect of prior periods - deferred tax | (428) | (87) |
Utilisation of tax losses not recognised for deferred tax | - | - |
Increase in tax rate on deferred tax balances | (1,189) | - |
Tax credit for the year | (1,059) | (374) |
Deferred taxes at the balance sheet date have been measured using the enacted tax rates at that date and are reflected in these financial statements on that basis. Following the March 2021 Budget, the tax rate effective 1 April 2023 increases from the current 19% to 25%.
10. Dividends
The Group did not pay an interim dividend in relation to 2021 (2020: nil per share).
The directors do not propose a final dividend in relation to 2021 (2020: nil per share).
11. Intangible assets
| Electricity licence £'000 | Customer books £'000 | Software and systems £'000 |
Total £'000 |
Cost |
|
|
|
|
At 1 January 2021 | 62 | 686 | - | 748 |
Additions | - | - | 1,079 | 1,079 |
At 31 December 2021 | 62 | 686 | 1,079 | 1,827 |
Amortisation |
|
|
|
|
At 1 January 2021 | 12 | 130 | - | 142 |
Charge for the year | 2 | 343 | 7 | 352 |
At 31 December 2021 | 14 | 473 | 7 | 494 |
Net book value at 31 December 2021 | 48 | 213 | 1,072 | 1,333 |
|
|
|
|
|
Cost |
|
|
|
|
At 1 January 2020 | 62 | - | - | 62 |
Additions | - | 686 | - | 686 |
At 31 December 2020 | 62 | 686 | - | 748 |
Amortisation |
|
|
|
|
At 1 January 2020 | 10 | - | - | 10 |
Charge for the year | 2 | 130 | - | 132 |
At 31 December 2020 | 12 | 130 | - | 142 |
Net book value at 31 December 2020 | 50 | 556 | - | 606 |
The useful economic life of the acquired electricity licence is 35 years, which represents the fact that the licence can be revoked by giving 25 years' written notice but that this notice cannot be given any sooner than 10 years after the licence came into force in January 2013.
The customer book intangibles relate to the two separate acquisitions that took place in 2020. The customer book intangibles represent the fair value of the customer contracts purchased in those acquisitions. The intangible assets are being amortised over a useful economic life of two years, representing the average contract length of the customer books acquired.
Software and systems assets relate to investments made in third-party software packages, and directly attributable internal personnel costs in implementing those platforms, as part of the Group's Digital by Default strategy.
The amortisation charge is recognised in operating costs in the income statement.
12. Property, plant and equipment
| Freehold land £'000 | Freehold Property £'000 | Assets under construction £'000 | Fixtures and fittings £'000 | Computer equipment £'000 | Total £'000 |
Cost |
|
|
|
|
|
|
At 1 January 2021 | 150 | - | 1,013 | 80 | 335 | 1,578 |
Transfer from asset under construction | - | 1,013 | (1,013) | - | - | - |
Additions | - | 2,261 | - | 265 | 103 | 2,629 |
Disposals | - | - | - | (8) | (85) | (93) |
At 31 December 2021 | 150 | 3,274 | - | 337 | 353 | 4,114 |
Depreciation |
|
|
|
|
|
|
At 1 January 2021 | - | - | - | 41 | 160 | 201 |
Charge for the year | - | 73 | - | 70 | 112 | 255 |
Disposals | - | - | - | (8) | (85) | (93) |
At 31 December 2021 | - | 73 | - | 103 | 187 | 363 |
Net book value at 31 December 2021 | 150 | 3,201 | - | 234 | 166 | 3,751 |
|
|
|
|
|
|
|
Cost |
|
|
|
|
|
|
At 1 January 2020 | 150 | - | 190 | 215 | 1,007 | 1,562 |
Additions | - | - | 823 | - | 98 | 921 |
Disposals | - | - | - | (135) | (770) | (905) |
At 31 December 2020 | 150 | - | 1,013 | 80 | 335 | 1,578 |
Depreciation |
|
|
|
|
|
|
At 1 January 2020 | - | - | - | 146 | 745 | 891 |
Charge for the year | - | - | - | 30 | 185 | 215 |
Disposals | - | - | - | (135) | (770) | (905) |
At 31 December 2020 | - | - | - | 41 | 160 | 201 |
Net book value at 31 December 2020 | 150 | - | 1,013 | 39 | 175 | 1,377 |
The buildings relate to the new Energy Centre property in Leicester which has been brought into use during the year. The property is a sales, marketing and innovation hub for the Group's activities.
13. Right-of-use assets and lease liabilities
| Right-of-use assets £'000 |
Cost |
|
At 1 January 2021 | 799 |
Additions | - |
Disposals | - |
At 31 December 2021 | 799 |
Depreciation |
|
At 1 January 2021 | 526 |
Charge for the year | 80 |
Disposals | - |
At 31 December 2021 | 606 |
Net book value at 31 December 2021 | 193 |
|
|
Cost |
|
At 1 January 2020 | 955 |
Additions | - |
Disposals | (156) |
At 31 December 2020 | 799 |
Depreciation |
|
At 1 January 2020 | 474 |
Charge for the year | 204 |
Disposals | (152) |
At 31 December 2020 | 526 |
Net book value at 31 December 2020 | 273 |
The Group has a lease arrangement for its main office facilities in Nottingham. Other leases are short term or of low value underlying assets. A lease for a temporary Leicester office and a lease for one vehicle were terminated during 2020.
The Nottingham office lease is reflected on the balance sheet as a right-of-use asset and a lease liability at 31 December 2021 and 31 December 2020.
The table below provides details of the Group's right-of-use asset and lease liability recognised on the balance sheet at 31 December 2021:
Right-of-use asset | Remaining term | Asset carrying amount | Lease liability | Depreciation expense | Interest expense |
Premises | 2.5 years | £193,000 | £267,000 | £80,000 | £19,000 |
The total cash outflow for leases in 2021 was £120,000 (2020: £180,000).
Lease payments not recognised as a liability
The Group has elected not to recognise a right-of-use asset or lease liability for short-term leases (leases of expected terms of 12 months or less) or leases of low value assets. Payments under such leases are expensed on a straight-line basis. During FY 2021 the amount expensed to profit and loss was £1,000 (2020: £1,000).
None of the above leases of the Group are with the Company entity directly.
14. Investments in subsidiaries
The Company has the following direct and indirect investments in subsidiaries:
Company name | Country of incorporation | Holding | Proportion of shares held | Nature of business |
Yü Energy Holding Limited | United Kingdom | Ordinary shares | 100% | Gas shipping services |
KAL Portfolio Trading Limited | United Kingdom | Ordinary shares | 100% | Dormant |
Yü Services Limited | United Kingdom | Ordinary shares | 100% | Dormant |
Yü Energy Retail Limited | United Kingdom | Ordinary shares | 100% | Supply of energy to businesses |
Yü Group Management Limited | United Kingdom | Ordinary shares | 100% | Dormant |
Yu Water Limited | United Kingdom | Ordinary shares | 100% | Supply of water to businesses |
All of the above entities are included in the consolidated financial statements and have the same registered address as Yü Group PLC.
15. Deferred tax assets
Deferred tax assets are attributable to the following:
| 2021 £'000 | 2020 £'000 |
Property, plant and equipment | (45) | (32) |
Tax value of loss carry-forwards | 5.812 | 4,740 |
Share based payments | 165 | 81 |
| 5,932 | 4,789 |
Movement in deferred tax in the period:
| At 1 January 2021 £'000 | Recognised in income £'000 | Recognised directly in equity £'000 | At 31 December 2021 £'000 |
Property, plant and equipment | (32) | (13) | - | (45) |
Tax value of loss carry-forwards | 4,740 | 1,072 | - | 5,812 |
Share based payments | 81 | - | 84 | 165 |
| 4,789 | 1,059 | 84 | 5,932 |
| At 1 January 2020 £'000 | Recognised in income £'000 | Recognised directly in equity £'000 | At 31 December 2020 £'000 |
Property, plant and equipment | (32) | - | - | (32) |
Tax value of loss carry-forwards | 4,366 | 374 | - | 4,740 |
Share based payments | 21 | - | 60 | 81 |
| 4,355 | 374 | 60 | 4,789 |
The deferred tax asset is expected to be utilised by the Group in the coming years. The Board forecasts sufficient taxable income as a result of the growth in the customer base and increased profitability against which it will utilise these deferred tax assets.
16. Trade and other receivables
| 2021 £'000 | 2020 £'000 |
Current |
|
|
Gross trade receivables | 11,618 | 8,129 |
Provision for doubtful debts and expected credit loss | (6,007) | (5,162) |
Net trade receivables | 5,611 | 2,967 |
Accrued income - net of provision | 21,972 | 11,169 |
Prepayments | 4,183 | 1,355 |
Other receivables | 5,573 | 2,148 |
Financial derivative asset | 3,102 | 628 |
| 40,441 | 18,267 |
Non-current |
|
|
Financial derivative asset | 870 | - |
Movements in the provision for doubtful debts and expected credit loss in gross trade receivables are as follows:
| 2021 | 2020 |
| £'000 | £'000 |
Opening balance | 5,162 | 4,901 |
Provisions recognised less unused amounts reversed | 4,185 | 2,420 |
Provision utilised in the year | (3,340) | (2,159) |
Closing balance - provision for doubtful debts and expected credit losses | 6,007 | 5,162 |
The directors have assessed the level of provision at 31 December 2021 by reference to the recoverability of customer receivable balances post the year end, and believe the provision carried is adequate.
In addition to the amounts recognised in relation to trade receivables, there was an additional provision charged in the period of £614,000 (2020: £707,000), leading to a total provision against accrued income at 31 December 2021 of £1,481,000 (2020: £867,000). Expected credit losses and the recognition, where appropriate, of previous customer credit balances are recognised in operating costs.
The net impairment losses on financial and contract assets of £4,799,000 (2020: £3,127,000) consists of £614,000 (2020: £707,000) provision charged for expected credit loss on accrued income, and £4,185,000 (2020: £2,420,000) provision for bad debts and expected credit loss on trade receivables.
The financial derivative asset is the only trade and other receivable that falls due after more than one year.
The directors consider that the carrying amount of trade and other receivables approximates to their fair value due to their maturities being short term.
Prepayments of £4,183,000 (2020: £1,355,000) increased as a result of certain prepaid costs to third-party intermediaries on the commencement of contracts, and for certain software licence costs connected with the Group's Digital by Default investment.
Other receivables includes £250,000 (2020: £250,000) paid in cash to trading counterparties as collateral. It also includes £142,000 which is due to cover loss-making contracts acquired following the appointment of the Group as Supplier of Last Resort of AmpowerUK's activities.
The current and non-current financial derivative asset of £3,972,000 (2020: £628,000) is the fair value of a small proportion of the Group's overall forward gas and power purchase contracts. Such contracts do not meet the strict criteria of being for the Group's "own use" under IFRS 9. They are stated at their Mark to Market fair value (being the excess of: i) the volume of commodity purchased valued at market prices available at the balance sheet date; over ii) the traded price of the forward contracts). The asset has increased in the year due to the significant increase in forward gas and power market prices. The risks and sensitivities in relation to the asset are further detailed in note 19.
17. Cash and cash equivalents
| 2021 £'000 | 2020 £'000 |
Cash at bank and in hand | 7,049 | 11,740 |
| 7,049 | 11,740 |
As disclosed in note 16, cash and cash equivalents exclude £500,000 of cash, which is included in other receivables. This cash balance is held on deposit and secured under arrangements with the Group's bankers.
18. Trade and other payables
| 2021 £'000 | 2020 £'000 |
Current |
|
|
Trade payables | 3,690 | 2,319 |
Accrued expenses and deferred income | 34,545 | 19,250 |
Lease liabilities | 107 | 102 |
Tax and social security | 6,188 | 5,224 |
Other payables | 5,213 | 4,535 |
| 49,743 | 31,430 |
Non-current |
|
|
Accrued expenses and deferred income | 381 | - |
Tax and social security | - | 843 |
Lease liabilities | 160 | 266 |
| 541 | 1,109 |
On 7 November 2021 the Group was appointed by Ofgem as Supplier of Last Resort for AmpowerUK's customer book. As part of the appointment, the Group agreed to honour an element of customer credit balances which had accrued prior to appointment, and to serve a small number of loss-making contracts for the period to April 2022. There was no consideration payable by the Group. At 31 December 2021, other payables included £230,000 of customer credit balances and estimated losses on onerous contracts acquired on the AmpowerUK business. A corresponding £142,000 asset is held, as disclosed in note 16. The integration of AmpowerUK's customer book was not considered to be a business and therefore not accounted for as a business combination.
On 23 November 2021 the Group obtained a number of small business customers from another energy supplier. Due to the prevailing market conditions at the time of the transaction the total consideration was negative, resulting in a payment to the Group of £378,000 to take on the customer contracts. The fair value of identifiable assets obtained consisted of £368,000 of onerous contract liabilities and £10,000 of customer credit balance liabilities. At 31 December 2021, other payables included £358,000 relating to these balances.
Non-current accrued expenses, and an element of current accrued expenses, relate to the estimated ROC mutualisation liability as detailed in note 7.
Details of lease liabilities are included in note 13.
At 31 December 2020, non-current other payables relate to deferred VAT and PAYE payments under the UK Government's Covid-19 business relief schemes. Such liabilities are included in current other payables at 31 December 2021 and will be fully paid during the first quarter of 2022.
19. Financial instruments and risk management
The Group's principal financial instruments are cash, trade and other receivables, trade and other payables and derivative financial assets.
Derivative instruments, related to the Group's hedging of forward gas and electricity demand, are level 1 financial instruments and are measured at fair value through the statement of profit or loss. Such fair value is measured by reference to quoted prices in active markets for identical assets or liabilities. All derivatives are held at a carrying amount equal to their fair value at the period end.
The Group has exposure to the following risks (including the impact of the Covid-19 pandemic) from its use of financial instruments:
a) commodity hedging and derivative instruments (related to customer demand and market price volatility, and counterparty credit risk);
b) customer credit risk;
c) liquidity risk; and
d) foreign exchange risk.
(a) Commodity trading and derivative instruments
The Group is exposed to market risk in that changes in the price of electricity and gas may affect the Group's income or liquidity position. The use of derivative financial instruments to hedge customer demand also results in the Group being exposed to risks from significant changes in customer demand (beyond that priced into the contracts), and counterparty credit risk with the trading counterparty.
Commodity and energy prices and customer demand
The Group uses commodity purchase contracts to manage its exposures to fluctuations in gas and electricity commodity prices. The Group's objective is to reduce risk in energy prices by entering into back-to-back energy contracts with its suppliers and customers, in accordance with a Board approved risk mandate. Commodity purchase contracts are entered into as part of the Group's normal business activities.
The majority of commodity purchase contracts are expected to be delivered entirely to the Group's customers and are therefore classified as "own use" contracts. These instruments do not fall into the scope of IFRS 9 and therefore are not recognised in the financial statements. A proportion of the contracts in the Group's portfolio are expected to be settled net in cash where 100% of the volume hedged is not delivered to the Group's customers and is instead sold back via the commodity settlement process in order to smooth demand on a real-time basis. An assumption is made (based on past experience) of the proportion of the portfolio expected to be settled in this way and these contracts are measured at fair value. The gain or loss on remeasurement to fair value is recognised immediately in profit and loss.
As far as practical, in accordance with the risk mandate, the Group attempts to match new sales orders (based on estimated energy consumption, assuming normal weather patterns, over the contract term) with corresponding commodity purchase contracts. There is a risk that at any point in time the Group is over or under-hedged. Holding an over or under-hedged position opens the Group up to market risk which may result in either a positive or negative impact on the Group's margin and cash flow, depending on the movement in commodity prices.
Well-publicised increases in global gas and electricity commodity prices have increased the potential gain or loss for an over or under-hedged portfolio, and the Group continues to closely monitor its customer demand forecast to manage volatility. The Group also applies premia in its pricing of contracts to cover some market volatility (which has proven to be robust despite the market context), and contracts with customers also contain the ability to pass through costs which are incurred as a result of customer demand being materially different to the estimated volume contracted.
The fair value Mark to Market adjustment at 31 December 2021 for those contracts not assumed to be strictly for "own use" is a gain of £3,344,000 (2020: gain of £1,011,000). See note 16 for the corresponding derivative financial asset.
The Group's exposure to commodity price risk according to IFRS 7 is measured by reference to the Group's IFRS 9 commodity contracts. IFRS 7 requires disclosure of a sensitivity analysis for market risks that is intended to illustrate the sensitivity of the Group's financial position and performance to changes in market variables impacting upon the fair values or cash flows associated with the Group's financial instruments.
Therefore, the sensitivity analysis provided below discloses the impact on profit or loss at the balance sheet date assuming that a reasonably possible change in commodity prices (determined based on calculated or implied volatilities where available, or historical data) had occurred and been applied to the risk exposures in place at that date. In view of the volatile nature of commodity markets, the sensitivity analysis is based on a change of up to +/-25% in commodity markets, though additional volatility may be incurred in view of the current, unprecedented, energy market context of volatility.
The sensitivity analysis has been calculated on the basis that the proportion of commodity contracts that are IFRS 9 financial instruments remains consistent with those at that point. Excluded from this analysis are all commodity contracts that are not financial instruments under IFRS 9.
Open market price of forward contracts | Reasonably possible increase/ decrease in variable | 2021 Impact on profit and net assets £'000 | 2020 Impact on profit and net assets £'000 |
UK gas (p/therm) | +/-25% | 793 | 103 |
UK power (£/MWh) | +/-25% | 1,470 | 364 |
|
| 2,263 | 467 |
In addition to the sensitivity noted above, the estimate of the forward derivative contracts assessed as "own use" results in the financial asset recognised. If the level of own use of such forward contracts was amended by +/-1%, then the financial asset and resulting impact on profit and net assets would be £1,088,000. Such a sensitivity could occur if, for example, the Group's estimated forecasted demand from customer contracts was impacted by factors such as prolonged abnormal weather patterns, or further unexpected and severe Covid-19 lockdowns. In mitigation, however, demand balancing activities and trading will significantly reduce any potential gain or loss arising from the sensitivity noted above, and the Board approved hedging policy is designed so as to protect (to the extent possible) the gross margin as sold on each contract. Customer prices also include premia in their pricing to account for certain levels of market risk as a result of the above in order to reduce the potential for negative impact on Group profitability.
Liquidity risk from commodity trading
The Group's trading arrangements can result in the need to post cash or other collateral to trading counterparties when commodity markets are below the Group's average weighted price contracted forward. A significant reduction in electricity and gas markets could lead to a material cash call from these trading counterparties in the absence of a suitable trading credit limit. Whilst such a cash call would not impact the Group's profit (as it represents a forward credit risk assessment of the counterparty), it would have an impact on the Group's cash reserves.
The structured trading arrangement, entered into with SmartestEnergy in December 2019, has reduced this liquidity risk in view of the significant credit limit being provided. This arrangement provides a significant trading credit limit (secured on the main trading entities of the Group and subject to compliance with certain covenants) and as such reduces the need to lodge cash collateral when commodity markets decrease. As disclosed in note 1, the Board has considered the cash flow forecasts, along with the interaction in trading credit limits and the potential need for cash collateral or Letter of Credit support. The Board also monitors the position in respect of commodity markets and has mitigation plans in place where credit limits are predicted to be exceeded to reduce, where possible, the potential impact on the Group due to short-term cash calls. In extreme circumstances, such mitigation may include (prior to security being enacted) reducing the Group's hedged position (reducing liquidity risk in exchange for increased risk to future market increases) through to commercial discussion to waive the requirement to post cash collateral over a short-to medium-term period; or the agreement to provide additional remedial action.
Trading counterparty credit risk
In mirror opposite to the liquidity risk noted above, the Group carries credit risk to trading counterparties where market prices are above the average weighted price contracted forward. In view of the significant rise in energy commodity markets this credit risk has increased significantly to be greater than £100m at certain periods during 2021. This credit exposure is predominantly with the Group's main trading counterparty.
The Board monitors the position in respect of credit exposure with its trading counterparties, and contracts only with major organisations which the Board considers to be robust and of appropriate financial standing.
(b) Customer or other counterparty credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Group's receivables from customers (in addition to trading counterparties as noted in section (a) above).
These operational exposures are monitored and managed at Group level. All customers operate in the UK and turnover is made up of a large number of customers each owing relatively small amounts. New customers have their credit checked using an external credit reference agency prior to being accepted as a customer.
Credit risk is also managed through the Group's standard business terms, which require all customers to make a monthly payment predominantly by direct debit. At the year end there were no significant concentrations of credit risk. The carrying amount of the financial assets (less the element of VAT and climate change levy ("CCL") included in the invoiced balance, which is recoverable in the event of non-payment by the customer) represents the maximum credit exposure at any point in time.
The Board considers the exposure to debtors based on the status of customers in its internal debt journey, the level of customer engagement in finding an appropriate solution, the customer's creditworthiness, the provision for doubtful debts and expected credit loss held, the level of reclaimable VAT and CCL on the balances, and cash received after the period end.
At 31 December 2021 the Group held a provision against doubtful debts and expected credit loss of £7,488,000 (2020: £6,029,000). This is a combined provision against both trade receivables at £6,007,000 (2020: £5,162,000) and accrued income at £1,481,000 (2020: £867,000). The increase reflects higher amounts due as a result of the significant growth in Group revenues in the year, and the integration of the AmpowerUK customer book during November 2021.
If the recoverability of customer receivables is +/-5% to that assessed by the directors, the gain or loss arising recognised in the income statement and impacting net assets would be +/-£32,000. If the expected customer credit loss rate on accrued income was +/- 10%, the gain or loss would be +/-£144,000.
(c) Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Board is responsible for ensuring that the Group has sufficient liquidity to meet its financial liabilities as they fall due and does so by monitoring cash flow forecasts and budgets.
Management also monitors the position in respect of the Group's performance against covenants as part of its trading arrangements, to ensure credit limits as part of such transactions are monitored, and any credit cover requirements for other industry participants which are standard in the energy sector.
Any excess cash balances are held in short-term deposit accounts which are either interest or non-interest accounts. At 31 December 2021 the Group had £7,049,000 (2020: £11,740,000) of cash and bank balances, as per note 17.
(d) Foreign currency risk
The Group trades entirely in pounds sterling and therefore it has no foreign currency risk.
Impact from the Covid-19 pandemic
Whilst the Covid-19 pandemic continues to have a significant impact on the UK economy, these events are now largely considered as part of the Group's business as usual operations. Previous impacts have been on customer demand and market price volatility, the potential to continue to operate an efficient business model under "lockdown", and the potential for increased levels of bad debt as a result of the wider economic context.
The Group has performed well despite the impact of Covid-19, and the Board is confident in its ability to continue to monitor and mitigate such risks. As a result, the impact of the Covid-19 pandemic is implicitly included in the sections above.
20. Share capital and reserves
Share capital | 2021 Number | 2021 £'000 | 2020 Number | 2020 £'000 |
Allotted and fully paid ordinary shares of £0.005 each | 16,316,215 | 82 | 16,281,055 | 82 |
The Company has one class of ordinary share which carries no right to fixed income. The holders of ordinary shares are entitled to receive dividends as declared and are entitled to one vote per share at meetings of the Company.
The movement in reserves is as per the condensed statement of changes in equity.
Share capital represents the value of all called up, allotted and fully paid shares of the Company. On 12 July 2021 an employee exercised 35,160 share options. The exercise price was £0.005 per share.
The share premium account represents amounts received in excess of the nominal value of shares on the issue of new shares, net of any direct costs of any shares issued.
The merger reserve was created as part of the 2016 Group reorganisation prior to listing.
Retained earnings comprises the Group's cumulative annual profits and losses.
21. Share based payments
The Group operates a number of share option plans for qualifying employees. Options in the plans are settled in equity in the Company. The options are subject to a vesting schedule, details of which are listed below.
The terms and conditions of the outstanding grants made under the Group's schemes are as follows:
|
| Exercisable between |
|
|
|
| |
Date of grant | Expected term | Commencement | Lapse | Exercise price | Vesting schedule | Amount outstanding at 31 December 2021 | Amount outstanding at 31 December 2020 |
17 February 2016 | 3 | 17 February 2019 | 17 February 2026 | £0.09 | 1 | 27,000 | 27,000 |
22 December 2016 | 3 | 22 December 2019 | 22 December 2026 | £3.25 | 1 | 13,500 | 13,500 |
6 April 2017 | 3 | 6 April 2020 | 6 April 2027 | £0.005 | 1 | 43,950 | 79.110 |
6 April 2017 | 6.5 | 6 April 2020 | 6 April 2027 | £2.844 | 1 | 87,900 | 158,220 |
28 September 2017 | 6.5 | 28 September 2020 | 28 September 2027 | £5.825 | 1 | 40,500 | 40,500 |
9 April 2018 | 6.5 | 9 April 2021 | 9 April 2028 | £10.38 | 1 | 59,084 | 78,351 |
26 September 2018 | 6.5 | 26 September 2021 | 26 September 2028 | £8.665 | 1 | 6,539 | 6,539 |
25 February 2019 | 6.5 | 25 February 2022 | 25 February 2029 | £1.09 | 1 | 48,497 | 53,333 |
25 February 2019 | 3 | 25 February 2022 | 25 February 2029 | £0.005 | 1 | 250,000 | 250,000 |
18 June 2019 | 3 | 1 August 2022 | 1 February 2023 | £1.40 | 2 | 62,483 | 86,138 |
4 October 2020 | 3 | 30 April 2023 | 4 October 2030 | £0.005 | 3 | 210,696 | 287,312 |
4 October 2020 | 3 | 30 April 2024 | 4 October 2030 | £0.005 | 3 | 172,388 | 210,696 |
1 June 2021 | 3 | 30 April 2024 | 4 October 2030 | £0.005 | 3 | 76,616 | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,099,153 | 1,290,699 |
Weighted average remaining contractual life of options outstanding at 31 December 2021 | 7.1years |
| |||||
The following vesting schedules apply:
1. 100% of options vest on third anniversary of date of grant.
2. 100% of options vest on third anniversary of the Save As You Earn ("SAYE") savings contract start date.
3. Level of vesting is dependent on a performance condition, being the Group's share price at pre-determined dates in the future.
The number and weighted average exercise price of share options were as follows:
| 2021 Shares
| 2020 Shares
|
Balance at the start of the period | 1,290,699 | 830,468 |
Granted | 76,616 | 498,008 |
Forfeited | (233,002) | (37,777) |
Lapsed | - | - |
Exercised | (35,160) | - |
Balance at the end of the period | 1,099,153 | 1,290,699 |
Vested at the end of the period | 278,473 | 318,330 |
Exercisable at the end of the period | 278,473 | 318,330 |
Weighted average exercise price for: |
|
|
Options granted in the period | £0.005 | £0.005 |
Options forfeited in the period | £1.88 | £1.35 |
Options exercised in the period | £0.005 | - |
Exercise price in the range: |
|
|
From | £0.005 | £0.005 |
To | £10.38 | £10.38 |
The fair value of each option grant is estimated on the grant date using an appropriate option pricing model with the following fair value assumptions:
| 2021 | 2020 |
Dividend yield | 0% | 0% |
Risk-free rate | 1.5% | 1.5% |
Share price volatility | 114.6% | 117.1% |
Expected life (years) | 3 years | 3 years |
Weighted average fair value of options granted during the period | £2.30 | £0.90 |
The share price volatility assumption is based on the actual historical share price of the Group since IPO in March 2016.
The total expenses recognised for the year arising from share based payments are as follows:
| 2021 £'000 | 2020 £'000 |
Equity-settled share based payment expense | 237 | 320 |
Cash-settled share based payment expense | 12 | - |
Total share based payment charge | 249 | 320 |
Cash-settled share based payment expense relates to employer's National Insurance payable on unapproved share options when exercised.
22. Commitments
Capital commitments
The Group has entered into contracts to develop its digital platform as part of the Digital by Default strategy. Such contracts may be terminated with a limited timescale and as such are not disclosed as a capital commitment.
The Group has no other capital commitments at 31 December 2021. At 31 December 2020, the Group had capital commitments related to the investment in freehold buildings of £2,207,000.
Security
Yü Group PLC provides parent company guarantees on behalf of its wholly owned subsidiaries to a small number of industry counterparties as is common place for the energy sector.
The Group entered into an arrangement with a commodity trading counterparty, SmartestEnergy Limited, in December 2019. As part of the arrangement, there is a requirement to meet certain covenants and a fixed and floating charge over the main trading subsidiaries of the Group, Yü Energy Holding Limited and Yü Energy Retail Limited.
As disclosed in note 16, included in other receivables of the Company and the Group is an amount of £500,000 held in a separate bank account over which the Group's bankers have a fixed and floating charge.
Contingent liabilities
The Group had no contingent liabilities at 31 December 2021 (2020: £nil).
23. Related parties and related party transactions
The Group has transacted with CPK Investments Limited (an entity owned by Bobby Kalar). CPK Investments Limited owns one of the properties from which the Group operates via a lease to Yü Energy Retail Limited. During 2021 the Group paid £120,000 in lease rental and service charges to CPK Investments Limited (2020: £120,000). There was no amount owing to CPK Investments Limited at 31 December 2021 (2020: £10,000 creditor).
All transactions with related parties have been carried out on an arm's length basis.
24. Net cash/(net debt) reconciliation
The net cash/(net debt) and movement in the year were as follows:
| 2021 £'000 | 2020 £'000 |
Cash and cash equivalents | 7,049 | 11,740 |
Lease liabilities | (267) | (368) |
Borrowings | - | - |
Net cash | 6,782 | 11,372 |
| Borrowings £'000 | Leases £'000 | Cash £'000 | Total £'000 |
Net cash/(net debt) as at 1 January 2020 | - | (597) | 2,377 | 1,780 |
Cash flows | - | 180 | 9,363 | 9,543 |
New and exited leases | - | 72 | - | 72 |
Interest and other changes | - | (23) | - | (23) |
Net cash/(net debt) as at 31 December 2020 | - | (368) | 11,740 | 11,372 |
Cash flows | - | 120 | (4,691) | (4,571) |
Interest and other changes | - | (19) | - | (19) |
Net cash/(net debt) as at 31 December 2021 | - | (267) | 7,049 | 6,782 |
25. Post-balance sheet events
The Group was appointed by Ofgem as Supplier of Last Resort for two small suppliers (Whoop Energy Limited and Xcel Power Limited) from 19 February 2022. The appointment provided an additional circa.850meter points.
There are no other significant post-balance sheet events.
Annual Report and Annual General Meeting
Copies of the Annual Report and Accounts for the year ended 31 December 2021 will be available to download from the Company's website at www.yugroupplc.com later today, Tuesday 22 March 2022. Hard copies will be posted to shareholders on 4 April 2022.
The AGM is scheduled to take place on 26 May 2022 and the AGM notice is included in the Annual Report and Accounts.
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