Yü Group PLC
(the "Group")

Final results for the year ended 31 December 2018

Yü Group PLC (AIM; YU.), the independent supplier of gas, electricity and water to the UK corporate sector, announces its final results for the year to 31 December 2018.

Financial Review:

 

31 December	2018	2017 (restated)
	£'000	£'000
Revenue	80,635	45,631
Adjusted EBITDA*	(6,283)	1,537
Adjusted PBT	(6,618)	1,271
(Loss)/profit for the year	(6,267)	711
Operating cash (outflow)/inflow	(1,320)	533
Cash	14,612	4,887
Overdue customer receivables**	9 days	14 days
(Loss)/earnings per share:
Adjusted	(37.0)p	10.0p
Statutory	(42.0)p	5.0p
Dividend per share	1.2p	3.0p

 

*Adjusted EBITDA is earnings before interest, tax, depreciation and amortisation and also before non-recurring costs, share based payments and unrealised gains or losses on derivative contracts. For FY 2018, it also excludes the impact of first time adoption of IFRS 9.

** Overdue customer receivables relate to the total accrued income which is outside of the normal billing cycle, plus overdue trade receivables (net of VAT and CCL), net of provision for doubtful debts.

 

·     Revenue increased by 77 per cent. to £80.6m (2017: £45.6m)

·     Adjusted EBITDA loss of £6.3m (2017: £1.5m profit), following a detailed accounting review

·     Restatement of prior year accounts, reducing 31 December 2017 net assets by £2.4m

·     Cash and cash equivalents of £14.6m at 31 December 2018 and £16.5m at 30 April 2019

·     Contracted revenue for 2019, as at 31 December 2018, of £88m

·     Overdue customer receivables of 9 days at 31 December 2018, down from 14 days at 31 December 2017

·     Raised £11.6m (net of costs) from a share placing in March 2018

 

 

Operational Review:

 

·     Implementation of new control, accounting and governance processes, supported by a third-party review by PwC

·     Invested in further strengthening management, sales and product development teams, and back office teams to improve systems, controls and management information

·     Continued to trade forward gas and electricity markets to reduce risk of energy market volatility

·     Launch of our business water retail product offering

·     Maintained customer service levels (including three ring pick up policy)

 

Bobby Kalar, Group Chief Executive Officer, said:

"The accounting and system failings uncovered in the second half of 2018 have had a major impact on the Group and I would personally like to apologise to all our stakeholders for the mistakes made. We have made significant progress in implementing new systems and processes and the Board is confident that we have weathered the storm.

"The business rationale remains strong with an enormous potential market for a high-quality service provider of gas, electricity and water to the SME and corporate sector. I believe the Group is well placed to achieve long term profitable growth underpinned by the people and systems we have in place."

 

The information communicated in this announcement would have constituted inside information for the purposes of Article 7 of Regulation 596/2014.

For further information please contact:

 

Yu Group PLC	+44 (0) 115 975 8258
Bobby Kalar
Paul Rawson
Shore Capital	+44 (0) 20 7408 4090
Edward Mansfield
Anita Ghanekar James Thomas
Alma PR	+44 (0) 20 3405 0205
Josh Royston John Coles
Hilary Buchanan
Helena Bogle

 

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 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

Review of the year

The continued growth of the business in the year was overshadowed by the serious accounting issues identified in a review by our incoming CFO in October 2018. This resulted in a readjustment to the Group's profitability expectations and has led to a deeply disappointing set of results, with a net loss recognised for FY 2018 of £6.3m.  In addition, a further £2.4m reduction to the previously reported net assets at 31 December 2017 has been recognised. 

The Group has experienced rapid growth over the last few years and we can now see that certain data, financial and systems processes did not keep up with the requirements of a larger business.  Whilst issues such as the level of bad debt and revenue recognised as accrued income had always been reviewed, the quality of the data at operational level was, in hindsight, insufficient.  On behalf of the Board I apologise for the damage these shortcomings have inflicted on the Group and assure you that it has intensified my own, and the whole Board's, desire to ensure solid foundations are built for the future. 

The Group remains debt free and, at 31 December 2018, held £14.6m of cash.  Investment in the Group's growth has continued, with over 35 per cent. of our staff at 31 December 2018 being focused on sales, marketing and product development. 

 

Market context

The discovery of the accounting issues coincided with a deterioration in trading conditions in energy supply markets.  There has been a spate of business failures in the recent past in the domestic energy supply sector, due in some measure to a difficult set of market conditions.  Energy commodity costs increased significantly throughout FY 2018, and the adverse weather conditions, particularly the "Beast from the East" in early 2018, led to some unexpected costs.  

Yü Group, by contrast, operates in the business to business sector.  We use our experienced team and strong cash reserves to operate a hedging policy that reduces the Group's exposure to volatile commodity markets in line with an agreed risk mandate.

 

Controlling growth

The Group has expanded significantly, from revenues of less than £4m in 2015 to revenues in excess of £80m in 2018.  The Board recognises that this rapid growth, despite continued investment, outstripped the capabilities of the Group's systems and controls.      

The audit committee and the wider Board have led and implemented numerous measures over recent months to improve governance and internal controls.  The weaknesses identified were particularly focused around the control of complex energy data across many thousands of customer sites; the revenue recognised in our accounts based on these data sources; the recoverability of our trade receivables based on our credit control processes; and the forecasting of gross margin. 

The Board has worked tirelessly in investigating and resolving these matters and will continue to make further incremental improvements as appropriate.  The Board is also co-operating fully with the Financial Conduct Authority, and all other regulatory bodies. 

While many of these governance and internal control improvements have been identified and addressed internally, the Board also commissioned an independent review, by DLA Piper LLP and PwC LLP, in relation to the data and accounting processes, and a more general review of the internal controls in operation across the Group.  A new auditor, RSM, was also appointed to provide a clear and fresh review of our financial status and results.

The audit committee recognises the positive reaction by the employees of Yü Group in embracing the new processes and controls required to enhance the business. 

Based on this, the Board is confident that our controls and processes are more robust and that the necessary foundations are in place to deliver, in a controlled manner, the future growth of the business.

 

The future

My boardroom colleagues and I are absolutely committed to restoring profitability as soon as possible, whilst recognising that it will take a little time for low margin contracts to expire. 

Numerous initiatives are in progress to restore shareholder value.  These include ensuring that robust and efficient back office systems and controls are in place; cross-selling additional product offerings to our existing customers; and closely monitoring the Group's working capital requirements and bad debt exposure.

The Board considers that the Group's continued customer service focus, strong balance sheet and cash position and  significant market opportunity, provide a positive base from which to recover from the setbacks of 2018.  I look forward to providing further updates on these topics in due course.

 

 

Chief Executive Officer's Statement

Introduction

The Group increased revenue significantly during the year ended 31 December 2018 and continued to deliver excellent customer service whilst remaining focused on driving core growth and investment for the future.

That said, the announcement by the Company on 24 October 2018 regarding the accountancy and systems shortcomings has had a profound effect on both the business and me personally. These issues are of a magnitude that initially shocked, and the financial results have left me deeply disappointed, particularly so in trusted people and partners on whom the business relied upon for expertise.  However, I am determined to redress the historic issues and reposition the business to grow shareholder value.

The Group was founded to address a gap in the market for a fresh, nimble supplier which could scale. There remains a considerable opportunity, but as we have seen over the past few years other players have tried to enter the market, resulting in more competition. We have seen competitor models that sacrifice margin and/or take significant market risks to scale and then fall foul to commodity market volatility. We will continue to trade forward gas and electricity markets to reduce risks of market volatility and build a scalable and sustainable business. 

Following internal reviews and external advice, policies and procedures have been put in place to allow us to embrace change whilst maintaining continuity of service. In short, lessons have been learnt and implemented. I believe there is still a huge opportunity to grow our business, especially since Ofgem recently announced tighter licensing rules for prospective new suppliers. The business has made good progress and, along with my management team, I remain absolutely committed to pushing the business onwards and upwards and getting us back on track for measured growth, with an aim to restore shareholder faith and value in the business.

Our cash position remains strong with £14.6m as of 31 December 2018, and we are debt free.  I believe our cash position will be enhanced by a greater emphasis on credit control and revenue protection.

As a consequence of an upward wholesale commodity market, we have seen greater use of brokers by businesses which require validation and assurance that they are getting the most competitive deal. We work well with a select number of brokers whose aims and ethics are aligned with ours.

Customer service and satisfaction continues to be our driver and a key differentiator.  As we have introduced greater policy compliance and processes and focused on ensuring the relationship with our customers is on a sensible commercial basis, there will inevitably be some changes to satisfaction statistics.  This is to be expected and I am confident will only be temporary.  

The challenge for the year ahead is to continue to invest and grow our core product offering and manage our risks.  We also will utilise new technologies to provide greater business efficiency, and plan to strengthen our management team further so that we can more readily deploy innovation and technology to develop and launch products that complement our core business faster.

 

Our people

Our people remain at the heart of everything we do. Maintaining a good Company environment and culture whilst experiencing rapid growth has been a challenge but the business has worked hard to develop and foster a set of values and behaviours that has seen a cultural shift in habits and outcomes.  Investment in our people has and will continue to yield benefits.

Finding colleagues with the right mix of skills and experience to help drive the performance of the business is vital for ensuring the continuing strength of the Group.  Looking at our people and trying to understand how we can help them help the Group is something we have done throughout the year.

Our new Chief Financial Officer, Paul Rawson, joined in September 2018.  Paul has many years of financial and operational experience and, most significantly, relevant sector expertise having previously been responsible for a large energy business. Paul has been a welcome addition to the team and is working hard to further strengthen the finance and operational functions.

We have also developed our management team in the last year, with some senior appointments across sales, product development, commercial, operations, finance, debt collection and credit control.

Our increasing investment in our teams across all business activities provides a genuine opportunity for the Group's future.  We are small enough to maintain a focus on customer service, delivering great new products to market, and to harness an agile and innovative culture.  We also have the necessary scale to be able to invest in the people, processes and systems to ensure we are an efficient and professional business.

With our focus on involving our employees in our journey, I am pleased to confirm that in 2019 we will be launching a Save As You Earn scheme for employees to invest in the shares of the Group.

 

Growth

We continue to invest in sales and strategy to help deliver better sales through different platforms and teams.  Increased investment in sales systems has helped promote customer engagement and improve the onboarding journey.

During FY 2018 our average monthly new bookings (being the annualised revenue value of contracts secured) was £8.4m. The Group is now being more prudent in the new business it books, with an increased focus on quality, and average monthly new bookings have therefore significantly reduced in the first four months of 2019.

In an upward commodity market, we have seen greater use of Third Party Intermediaries ("TPI") by businesses which require validation and assurance that they are getting the most competitive deal. The TPI channel, which is high volume but lower margin, has been impacted with the increased focus on the quality of business and margin.  We are working hard to be selective in what contracts we onboard, with particular emphasis on credit risk, sector and margin.

2019 and beyond will see the business leveraging the overhead investment in product development, design and deployment. We will continue to scale our portfolio in a measured way but also use our customer portfolio to identify opportunities that complement our core product range and offer these through all of our sales channels.

The Board is focused on identifying incremental revenue opportunities within our existing commercial book throughout 2019. Retention of customers is very important to the growth of our business and our average contract term for contracts live at 31 December 2018 is 22 months, up from 18 months in December 2017.

Our retention rate tracks the level of customer meters that are still supplied gas, power and water over a given period.  The retention rate was 43 per cent. between 31 December 2017 and 31 December 2018 (consistent with the 43 per cent. for the previous year).  We continue to provide customers with favourable new contract terms or flexible transition arrangements for times when their initial contract expires.

 

New products

Whilst our core business is as a regulated supplier of utilities, we see synergies around value added products and services which would help our customers either make better or more efficient use of their energy usage.

The Group has developed various new propositions during the last 12 months and will continue to provide solutions to meet the needs of our customers. 

We have successfully launched a water supply offering and are the only major licensed provider of gas, power and water to GB businesses.

More recently, the Group has launched a product providing customers with access to smart meters and smart devices. This has been in response to the Government's SMETS 2 2020 deadline. Customers can request a free smart meter from us to be installed at their convenience.

Electric vehicles are on the increase as cost and access improve in the UK. In response we have launched an EV charging product for business customers who see the benefits and returns of having charging points installed in their car parks.

We have also launched an online quoting tool, enabling small businesses to get a business energy quote in under a minute. This helps to drive additional customer acquisition for time-pressured business customers who want a quick and easy approach to switching their energy.

 

Risk management

The Group has continued to forward purchase its energy commodity requirements to create an effective hedge to volatile energy markets.  Whilst it is not possible for any energy supplier to remove all the financial risk, I am confident that we have a robust hedging policy that mitigates our exposure to a manageable level.  The Group is fortunate to have significant sector expertise in this area.

Credit lines with trading partners have not grown with the increased revenue.  Cash is currently being used to manage the collateral requirements of the Company's hedging policy.  We continue to explore improved trading arrangements which may allow the Group to redirect cash into growth opportunities.

We have also enhanced, and continue to improve, our controls around customer credit checking and protecting our income, and have strengthened our team in this area.

I am confident that we now have robust management information, processes and systems that will enable us to focus on mitigating risk and maximising financial returns in the future.

 

Summary

The Board has worked tirelessly to steer the business through an extremely challenging period and we look forward to a period of stability.

Repositioning the business for sustainable growth and profitability is a key priority of mine. Whilst much has been done over the past six months to strengthen process and standardise working practices, I will not be content until we have restored shareholder trust and value.

The Group will continue to concentrate on getting value out of its contracted order book for 2019 and continue to selectively onboard profitable business. Being more efficient in our operations to capture value and recover cash is already yielding results and we will continue to find opportunities to strengthen this further.

I strongly believe that significant opportunities remain to continue to grow the business both in terms of scaling our supply offering and by launching products that sit comfortably within our core business.

I thank my team for all its work over the last few months, and I am convinced that the Group has a great future.

 

Outlook

Contracted revenue for FY 2019 was £88m at 31 December 2018, and the Board therefore expects revenues to exceed the level recognised in FY 2018.  The Board is, however, anticipating the year on year growth rate to be significantly below that previously achieved as a result of a more prudent level of bookings being targeted.

The Board targets gross margin of between 7.5 per cent. and 10 per cent. for FY 2019 and remains committed to managing overheads to target a positive adjusted EBITDA as soon as possible.

While there are opportunities in the B2C market, our commitment remains to be focused in the B2B market, where I believe we have an expertise.

 

Finance Review

Results

The results for the year to 31 December 2018 have seen a 77 per cent growth in revenues, to £80.6m (2017: £45.6m). 

Gross profit for FY 2018 was £5.9m (2017, as restated: £6.8m), resulting in a decline in gross margin percentage to 7.3 per cent (2017, as restated: 14.9 per cent).  This level of profitability is a result of a number of low margin contracts entered in to during 2017 and 2018, which has diluted the overall level of profitability achieved by the Group.  Such contracts will take time to expire in the context of our average contract term being 22 months.

The Group has recognised a net loss for the year of £6.3m (2017, as restated: profit of £0.7m).

A substantial increase in the bad debt provision of the Group has been incurred in FY 2018, with a charge to the income statement of £5.4m (FY 2017 restated charge of £0.2m).  These losses are largely as a result of a high proportion of the growth from contracts booked in FY 2017 and FY 2018 being with customers who have a poor payment history.  This resulted in limited recovery of trade receivables, and a significant expected credit loss at the end of the year.  The £5.4m charge for FY 2018 consists of a £3.6m bad debt charge and £1.8m in relation to the first-time adoption of IFRS 9.  Management of trade receivables is clearly a continued focus area of the Group for FY 2019 in view of the material impact on profitability during FY 2018.

Cash and working capital

The Group held £14.6m of cash and cash equivalents at 31 December 2018 (2017: £4.9m). 

The Group had an operating cash outflow of £1.3m (2017: £0.5m inflow) for the year, with a net increase in cash and cash equivalents of £9.7m (2017: £0.3m outflow).  The Group raised £11.6m, net of costs, in March 2018 through a placing of 1,200,000 new ordinary shares of £0.005 each.  The Group also paid dividends of £0.5m during the year.

The Board has now increased control and visibility of its working capital requirement, and particularly overdue customer receivables¹, which measures the days outstanding of overdue trade receivables and overdue billing.  The Board is pleased to see a 36 per cent reduction from the 14 days outstanding at 31 December 2017 to the nine days outstanding at 31 December 2018, although it will not be complacent in monitoring the position.

Of the £14.6m cash balance, £3.5m is held in deposits with the Group's bankers to support letters of credits ("LoCs") provided to trading counterparties.  Such LoCs provide a level of collateral required to support the Group's trading activities.  The Board continues to monitor the level of cash collateral required, including via LoCs, to maintain the increase in trading activities in line with expected revenue growth.  This requirement for cash collateral can also lead to volatility in the Group's cash balance in a falling commodity market, which the Board continues to monitor closely.  For this reason, the Board is reviewing alternative options for its trading arrangements.

Review of prior years

Following an internal review of data from the Group's billing and accounting systems and a review of the recoverability of trade receivables owed by customers and of the process for accounting for accrued income, the Board has concluded that a restatement of prior year accounts is necessary.

As a result, the Group's net assets at 31 December 2017 have been reduced by £2.4m.  This adjustment mainly relates to a reduction in the trade and other receivables balance at 31 December 2017 and 1 January 2017 of £2.8m and £1.3m respectively.

Revenue Visibility

A feature of the Group's business model is that it enters into contracts with businesses to supply essential services.  These contracts typically have a fixed price per kWh of energy consumed, for an estimated level of consumption.  Whilst consumption can vary from this forecast, the Board has a good level of certainty over the revenue to be expected from its contracts, following improvements to the management of data in relation to revenue recognition processes.

The Group also benefits from economies of scale as the business grows its offer, having established appropriate systems and teams to cater for growth.

At the end of 2018 the Group supplied over 9,700 separate meters with gas, electricity or water.  The majority of these services were provided to small, medium and multi-site corporate businesses across Great Britain.  The level of meters supplied represents only 0.3 per cent of the GB business market, highlighting the size of the opportunity available to the Group.

At 31 December 2018, the Group had £88m of revenue contracted for FY 2019 (31 December 2017: £50m for FY 2018).  Whilst encouraging in revenue terms, the margin achievable from these contracts, and the level of bad debt charge being experienced by the Group, has led the Board to review its sales acquisition and customer lifecycle strategy.  This has led to a significantly reduced level of monthly bookings in the first four months of FY 2019 when compared with the same period for FY 2018. 

Profitability

The Group has previously reported adjusted profit before tax as a key alternative business measure.  Following review, the Board now considers that adjusted earnings before interest, tax, depreciation and amortisation ("Adjusted EBITDA") is a more appropriate measure² in order to review the normalised profit which is potentially convertible to cash.

Adjusted EBITDA for the year ended 31 December 2018 is a loss of £6.3m (2017: profit of £1.5m).  

The Board has implemented various initiatives to improve Adjusted EBITDA for FY 2019 and beyond, including:

·    enhancing gross margin via a more focused sales acquisition and customer lifecycle strategy.  The Board is working on initiatives to enhance the 7.3% gross margin achieved in FY 2018 to a higher, single digit percentage over the short to medium term;

·    reducing overheads (before bad debt and broker commissions) as a percentage of revenue by leveraging existing systems and teams as the business scales up.  Such overheads represented 7.3% of revenue in FY 2018.  The Board is working on initiatives so that the absolute value of such overheads does not increase from FY 2018 levels, despite revenue growth;

·     a significant focus on improvements to reduce the level of bad debt charge included in overheads, which totalled £3.6m in Adjusted EBITDA for FY 2018, representing 4.5% of revenue.

These initiatives will take time to deliver results to increase the Adjusted EBITDA reported by the Group. However, the Board has every confidence that, after the work performed to date, we can turn around the fortunes of the Group.

Dividends

The Group paid an interim dividend of 1.2p per share (2017 interim: 1p per share).  No final dividend is being declared (2017: 2p per share).

 

1 Overdue customer receivables relate to the total accrued income which is outside of the normal billing cycle, and overdue trade receivables (net of VAT and CCL), net of provision for doubtful debts

2 In reporting Adjusted EBITDA, the Group excludes certain gains and losses, including: Interest; Tax; Depreciation; Amortisation; Charges from equity settled share-based payments; unrealised gains or losses on derivative contracts.  Adjusted EBITDA also excludes any one-off restructuring costs and, for FY 2018, the charges related to first time adoption of IFRS 9 (Financial Instruments).

 

 

 

Condensed consolidated statement of profit and loss and other comprehensive income

For the year ended 31 December 2018

 

			31 December 2018 £'000		31 December 2017 (restated) £'000
	Revenue		80,635		45,631
	Cost of sales		(74,762)		(38,813)
	Gross profit		5,873		6,818
	Operating costs before non-recurring items, unrealised gains on derivative contracts and IFRS 2 charges		(14,588)		(5,194)
	Operating costs - non-recurring items		(441)		-
	Operating costs - unrealised (losses)/gains on derivative contracts		(125)		259
	Operating costs - IFRS 2 charges		(314)		(1,099)
	Total operating costs		(15,468)		(6,034)
	(Loss)/profit from operations		(9,595)		784
	Finance income		21		14
	Finance costs		(63)		(68)
	(Loss)/profit before tax		(9,637)		730
	Taxation		3,370		(19)
	(Loss)/profit for the year		(6,267)		711
	Other comprehensive income		-		-
	Total comprehensive (expense)/income for the year		(6,267)		711
	Earnings per share
	Basic		£(0.42)		£0.10
	Diluted		-		£0.09

 

 

 

Condensed consolidated balance sheet

At 31 December 2018

 

		31 December 2018 £'000	31 December 2017 (restated) £'000			1 January 2017 (restated) £'000
ASSETS
Non-current assets
Property, plant and equipment		395	539			209
Intangible assets		54	56			57
Deferred tax		3,325	1,568			467
		3,774	2,163			733
Current assets
Trade and other receivables		13,569	10,165			3,557
Cash and cash equivalents		14,612	4,887			5,197
		28,181	15,052			8,754
Total assets		31,955	17,215			9,487
LIABILITIES
Current liabilities
Trade and other payables		(21,517)	(10,458)			(5,340)
Non-current liabilities		-	(371)			(72)
Total liabilities		(21,517)	(10,829)			(5,412)
Net assets		10,438	6,386			4,075
EQUITY
Share capital		81	70			70
Share premium		11,689	-			-
Merger reserve		(50)	(50)			(50)
Retained earnings		(1,282)	6,366			4,055
		10,438	6,386			4,075

 

 

 

Condensed consolidated statement of changes in equity

For the year ended 31 December 2018

 

	Share capital £'000	Share premium £'000	Merger reserve £'000	Retained earnings £'000	Total £'000
Balance at 1 January 2018 (as previously reported)	70	-	(50)	8,793	8,813
Impact of prior period adjustment (note 3)	-	-	-	(2,427)	(2,427)
Balance at 1 January 2018 (restated)	70	-	(50)	6,366	6,386
Total comprehensive income for the year
Loss for the year	-	-	-	(6,267)	(6,267)
Other comprehensive income	-	-	-	-	-
	-	-	-	(6,267)	(6,267)
Transactions with owners of the Company
Contributions and distributions
Equity-settled share based payments	-	-	-	685	685
Deferred tax on share based payments	-	-	-	(1,600)	(1,600)
Proceeds from share issues	11	12,079	-	-	12,090
Share issue costs	-	(390)	-	-	(390)
Equity dividend paid in the year	-	-	-	(466)	(466)
Total transactions with owners of the Company	11	11,689	-	(1,381)	10,319
Balance at 31 December 2018	81	11,689	(50)	(1,282)	10,438
Balance at 1 January 2017 (as previously reported)	70	-	(50)	5,389	5,409
Impact of prior period adjustment (note 3)	-	-	-	(1,334)	(1,334)
Balance at 1 January 2017 (restated)	70	-	(50)	4,055	4,075
Total comprehensive income for the year
Profit for the year	-	-	-	711	711
Other comprehensive income	-	-	-	-	-
	-	-	-	711	711
Transactions with owners of the Company
Contributions and distributions
Equity-settled share based payments	-	-	-	800	800
Deferred tax on share based payments	-	-	-	1,116	1,116
Equity dividend paid in the year	-	-	-	(316)	(316)
Total transactions with owners of the Company	-	-	-	1,600	1,600
Balance at 31 December 2017 (restated)	70	-	(50)	6,366	6,386

 

 

 

Condensed consolidated statement of cash flows

For the year ended 31 December 2018

 

	2018 £'000	2017 (restated) £'000
Cash flows from operating activities
(Loss)/profit for the financial year	(6,267)	711
Adjustments for:
Depreciation of property, plant and equipment	291	211
Amortisation of intangible assets	2	1
Finance income	(21)	(14)
Finance costs	63	68
Taxation	(3,370)	19
Share based payment charge	685	800
Increase in trade and other receivables	(3,404)	(6,608)
Increase in trade and other creditors	11,072	5,046
(Decrease)/increase in provisions for employee benefits	(371)	299
Net cash (used in)/from operating activities	(1,320)	533
Cash flows from investing activities
Purchase of property, plant and equipment	(147)	(541)
Net Interest	(42)	14
Net cash used in investing activities	(189)	(527)
Cash flows from financing activities
Net proceeds from share placing and option exercises	11,700	-
Dividend paid during the year	(466)	(316)
Repayment of borrowings	-	-
Net cash from/(used in) financing activities	11,234	(316)
Net increase/(decrease) in cash and cash equivalents	9,725	(310)
Cash and cash equivalents at the start of the year	4,887	5,197
Cash and cash equivalents at the end of the year	14,612	4,887

 

 

 

Notes to the condensed consolidated financial report

 

1. Reporting entity

Yü Group PLC (the "Company") is a public limited company incorporated and domiciled in the United Kingdom. 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 2018 comprise the Company and its subsidiaries (together referred to as the "Group"). The Group is primarily involved in the supply of electricity, gas and water to SMEs and larger corporates in the UK.

Basis of preparation

Whilst the financial information included in this preliminary announcement has been prepared on the basis of the requirements of International Financial Reporting Standards ("IFRSs") in issue, as adopted by the European Union ("EU") and effective at 31 December 2018, this announcement does not itself contain sufficient information to comply with IFRS.

The financial information set out in this preliminary announcement does not constitute the company's statutory financial statements for the years ended 31 December 2018 or 2017 but is derived from those financial statements.

Statutory financial statements for 2017 have been delivered to the registrar of companies and those for 2018 will be delivered in due course. The auditors have reported on those financial statements; their reports were (i) unqualified (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

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

At 31 December 2018 the Group had net assets of £10.4m (2017: restated net assets of £6.4m). Management prepares detailed budgets and forecasts of financial performance and cash flow over the coming 12 to 36 months. Based on the current projections the Directors consider it appropriate to continue to prepare the financial statements on a going concern basis.

The Group's hedging strategy and cash collateral requirements of the required trading arrangements are principal considerations of the Board when assessing the Group's ability to continue as a going concern. Management has also considered the material losses incurred in FY 2018 and any subsequent impact on the potential to control the level of bad debt incurred by the Group, the ability to enhance gross margin on customer contracts, and the control of key financial data in the business.  The regulatory context of the Group, following the accounting issues notified to the market in 2018, is a further principal consideration.

Use of estimates and judgements

The preparation of the financial information in conformity with adopted IFRSs requires the use of estimates and assumptions. 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 level of accrual for unbilled revenue, the inputs to the IFRS 2 share option charge calculations and the recoverability of deferred tax assets and trade receivables.

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.

Revenue is recognised when the associated risks and rewards of ownership have been transferred, to the extent that it is probable that the economic benefits associated with the transaction will flow to the Group, and where the revenue can be measured reliably.

Due to the nature of the energy supply industry and its reliance upon estimated meter readings, both gas and electricity 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.

The Directors have considered the new revenue standard, IFRS 15 "Revenue from Contracts with Customers". Having reviewed the framework of the new standard in detail, and given the Group's current revenue recognition policy and the nature of the industry in which the Group operates, it is not believed that IFRS 15 has any material impact on the Group's revenue recognition methodology.

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 losses.

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). 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. 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

Following the adoption of IAS 32, 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's 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.

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 grant date fair value of share based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The fair value of the options granted is measured using an option valuation model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the vesting date. For share based payment awards with non-vesting conditions, the grant date fair value of the share based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.

Taxation

Tax on the profit or loss for the period comprises current and deferred tax. Tax is recognised in the statement of profit and loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable or receivable on the taxable income or loss for the period, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous periods.

Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination; and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised.

 

2. Segmental analysis

Operating segments

The Directors consider there to be one operating segment, being the supply of electricity, gas and water to SMEs and larger corporates.

Geographical segments

100 per cent of the Group revenue is generated from sales to customers in the United Kingdom (2017: 100 per cent).

The Group has no individual customers representing over 10 per cent of revenue (2017: nil).

 

3. Prior Period Adjustment - Correction of an error

Following a detailed accounting review carried out by the Board and the audit committee in Quarter 4 of 2018, a prior period adjustment has arisen.  These adjustments relate to errors that impact the financial statements previously reported for the years ended 31 December 2016 and 31 December 2017.

The errors arose as a result of the incorrect measurement of accrued income (based on an inaccurate data set being utilised) and due to the impairment of trade receivables. 

The impairment of trade receivables is a result of ledger reconciliation issues between the Group's accounting and billing systems, and the non-recoverability of amounts due from customers who had entered administration or liquidation at the relevant balance sheet date. The Group has therefore not restated the prior year in relation to any provision against trade receivables on customer balances due at 31 December 2017 which have, in many cases, not been paid during FY 2018.  Such balances have resulted in a bad debt charge for FY 2018 and are therefore included the FY 2018 reported loss for the year.

The Board has also reviewed whether a further adjustment for IFRS 9 is appropriate at 1 January 2018, on first-time adoption of the accounting standard.  No further adjustment has been made to trade receivables as any additional expected credit loss anticipated at that point is not considered to be significant.

The Board and audit committee have implemented various control and improvement measures as a result of the identification of the prior period errors.

The net impact in relation to the errors identified is to reduce the level of trade and other receivables reported in the previously reported financial statements and a resulting impact on tax.  This reduction is £1,334,000 in relation to the 31 December 2016 balance sheet.  The cumulative impact at 31 December 2017 is to reduce trade and other receivables by £2,846,000 (of which £1,512,000 reduces the profit before tax for the year ending 31 December 2017) and to reduce the corporation tax liability by £419,000.

The total impact on equity is to reduce the 31 December 2016 balance by £1,334,000 and to reduce the 31 December 2017 balance by £2,427,000. The net impact for the year ended 31 December 2017 is a decrease in profit of £1,093,000.

 

Impact on equity (Increase/(decrease) in equity)

	31 December 2017 £'000	1 January 2017 £'000
Trade and other receivables	(2,846)	(1,334)
Total Assets	(2,846)	(1,334)
Corporation tax payable	419	-
Total liabilities	419	-
Net impact on equity	(2,427)	(1,334)

 

 

Impact on statement of profit or loss (increase/(decrease) in profit)

 

		31 December 2017 £'000
Revenue		(1,330)
Operating costs		(182)
Corporation tax expense		419
Net impact on profit for the year		(1,093)

 

 

Impact on basic, diluted and adjusted Earnings Per Share (EPS) (Increase/(decrease) in EPS)

 

		31 December 2017 pence
Basic EPS attributable to ordinary shareholders		(0.8)
Diluted EPS attributable to ordinary shareholders		(0.7)
Adjusted EPS attributable to ordinary shareholders		(0.7)

 

4. Reconciliation to Adjusted EBITDA

A key alternative performance measure used by the Directors to assess the underlying performance of the business is adjusted EBITDA.

 

	2018 £'000	2017 £'000
Adjusted EBITDA Reconciliation
(Loss)/profit from operations	(9,595)	784
Add back:
Non-recurring items	441	-
Impact of first time adoption of IFRS 9	1,768	-
Unrealised loss/(gain) on derivative contracts	125	(259)
Depreciation of property plant and equipment	291	211
Amortisation of intangibles	2	1
Equity-settled share based payment charge	685	800
Adjusted EBITDA	(6,283)	1,537

 

The Group previously reported adjusted profit before tax, which is adjusted EBITDA less interest, depreciation and amortisation. Adjusted profit before tax is a loss of £6,618,000 (2017: restated profit of £1,271,000).

The 2018 non-recurring items of £441,000 consist of £210,000 of restructuring payroll costs and £231,000 of legal and professional fees in relation to the Q4 2018 accounting review and ongoing regulatory investigation.

 

5. Earnings per share

Basic (loss)/earnings per share

Basic (loss)/earnings per share is based on the (loss)/profit attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding.

	2018 £'000	2017 (restated) £'000
(Loss)/profit for the year attributable to ordinary shareholders	(6,267)	711

 

	2018	2017
Weighted average number of ordinary shares
At the start of the year	14,054,055	14,054,055
Effect of shares issued in the year	787,370	-
Number of ordinary shares for basic earnings per share calculation	14,841,425	14,054,055
Dilutive effect of outstanding share options	768,025	1,133,070
Number of ordinary shares for diluted earnings per share calculation	15,609,450	15,187,125

 

	2018 £	2017 (restated) £
Basic earnings per share	(0.42)	0.05
Diluted earnings per share	-	0.05

 

Adjusted earnings per share

Adjusted earnings per share is based on the result attributable to ordinary shareholders before exceptional items and the cost of cash and equity-settled share based payments, and the weighted average number of ordinary shares outstanding:

	2018 £'000	2017 (restated) £'000
Adjusted earnings per share
(Loss)/profit for the year attributable to ordinary shareholders	(6,267)	711
Add back:
Non-recurring items after tax (see note 4)	357	-
Unrealised loss/(gain) on derivative contracts after tax	101	(210)
Share based payments after tax	254	912
Adjusted basic earnings for the year	(5,555)	1,413

 

	2018 £	2017 (restated) £
Adjusted earnings per share	(0.37)	0.10

 

 

6. Dividends

The Group proposed and paid an interim dividend in relation to 2018 of 1.2p per share (2017: 1.0p per share). The total interim dividend of £195,211 was paid to shareholders on 8 January 2019.

The Directors do not propose a final dividend in relation to 2018 (2017: 2.0p per share).

7. Trade and other receivables

	Group			Company
	2018 £'000	2017 (restated) £'000		2018 £'000	2017 £'000
Gross trade receivables	7,898	2,681		-	-
Provision for doubtful debts and expected credit loss	(4,803)	(272)		-	-
	3,095	2,409		-	-
Accrued income - net of provision	9,688	6,876		-	-
Prepayments	245	235		-	-
Other receivables	406	386		-	-
Financial derivative asset	135	259		-	-
Amount due from subsidiary undertaking	-	-		4,642	1,355
	10,474	7,756		4,642	1,355
	13,569	10,165		4,462	1,355

 

Movements in the provision for doubtful debts and expected credit loss are as follows:

	2018 £'000	2017 (restated) £'000
Opening balance	272	50
Additional provisions recognised	4,531	222
Provision utilised in the year	-	-
Unused amounts reversed	-	-
	4,803	272

 

In addition to the £4,531,000 (2017: £222,000 restated) provision recognised in relation to trade receivables, there was an additional provision of £875,000 (2017: £nil) made against accrued income.

None of the Group's receivables fall due after more than one year.

The amount due from subsidiary undertakings in the books of Yü Group PLC is non-interest bearing and is repayable on demand. The Board of Yü Group PLC has considered the provisions around impairment of inter-company indebtedness contained within IFRS 9 "Financial Instruments" and has concluded that in light of future growth and profitability projections and the control exerted over its subsidiary operations, it is satisfied that there is no case for impairment of its intercompany receivables.

The Directors consider that the carrying amount of trade and other receivables approximates to their fair value.

Trade receivables and accrued income at 31 December 2017 have been restated by £266,000 and £2,580,000 respectively to correct the error as explained in note 3. In addition, an amount of £5,294,000 has been reclassified at 31 December 2017, which reduces trade receivables and increases accrued income by £5,294,000 respectively.

 

8. Cash and cash equivalents

	Group			Company
	2018 £'000	2017 £'000		2018 £'000	2017 £'000
Cash at bank and in hand	11,112	1,387		8,865	904
Short-term deposits	3,500	3,500		3,500	3,500
	14,612	4,887		12,365	4,404

 

The short-term deposit relates to cash held at bank which is utilised to support collateral, in the form of letters of credits, with trading counterparties. 

 

 

9. Trade and other payables

	Group			Company
	2018 £'000	2017 (restated) £'000		2018 £'000	2017 £'000
Current
Trade payables	1,231	2,044		-	-
Accrued expenses	15,603	7,081		-	-
Corporation tax	16	29		-	-
Other payables	4,667	1,304		-	-
	21,517	10,458		-	-
Non-current
Group share bonus liabilities	-	371		-	371

 

The 2017 corporation tax liability balance has been restated (previously stated as a liability of £448,000) as a result of the prior period adjustment and reduction in Group profit as described in note 3.

Details of the Group share bonus scheme are included in note 11.

 

10. Financial instruments and risk management

The Group's principal financial instruments are cash, trade receivables, trade payables and derivative financial assets and liabilities. The Group has exposure to the following risks from its use of financial instruments:

(a) Fair values of financial instruments

Fair values

Derivative financial instruments are measured at fair value through profit and loss. The derivative instruments are level 1 financial instruments and their fair value is therefore 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.

(b) Market risk

Market risk is the risk that changes in market prices, such as commodity and energy prices, will affect the Group's income.

Commodity and energy prices

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 from fluctuations 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 per cent of the volume hedged is not delivered to the Group's customers and is instead sold back to the grid 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 or loss.

As far as possible, in accordance with the risk mandate, the Group attempts to match new sales orders 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.

The Board continues to evaluate the use of commodity purchase contracts and whether their classification as "own use" is appropriate. The key requirements considered by the Board are as listed below:

•           whether physical delivery takes place under the contracts;

•           the volumes purchased or sold under the contract correspond to the Group's operating requirements; and

•           whether there are any circumstances where the Group would settle the contracts net in cash.

All commodity purchase contracts are entered into exclusively for own use, to supply energy to business customers. However as noted above, a number of these contracts don't meet the stringent requirements of IFRS 9, and so are subject to fair value measurement through the income statement.

The fair value mark to market adjustment at 31 December 2018 is a loss of £125,000 (2017: gain of £259,000). See note 7 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 had occurred, and been applied to the risk exposures in place at that date. The reasonably possible changes in commodity price used in the sensitivity analysis were determined based on calculated or implied volatilities where available, or historical data.

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.

	Reasonably	Impact on profit
	Possible increase/	and net assets
Open market price of forward contracts	decrease in variable	£'000
UK gas (p/therm)	+/-10 %	74
UK power (£/MWh)	+/-10 %	226
		300

 

Liquidity risk from commodity trading

The Group's trading arrangements can result in a cash call being made by counter-parties when commodity markets are below the Group's traded position. A significant reduction in electricity and gas markets could lead to a material cash call from the Group's trading counter-parties. Whilst such a cash call would not impact the Group's profit, it would have an impact on the Group's cash reserves.

(c) 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.

These trading exposures are monitored and managed at Group level. All customers are UK based 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 represents the maximum credit exposure at any point in time.

The ageing of trade receivables, net of bad debt provision, at the balance sheet date was:

	2018 £'000	2017 (restated) £'000
Not past due	104	52
Past due (0-30 days)	1,949	1,419
Past due (31-120 days)	1,006	629
More than 120 days	36	309
	3,095	2,409

 

At 31 December 2018 the Group held a provision against doubtful debts of £5,678,000 (2017: restated £272,000). The 2018 provision is a combined provision against both trade receivables (£4,803,000) and accrued income (£875,000).

(d) 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. In order to enter into the necessary commodity purchase contracts, the Group is required to lodge funds on deposit with its bank. These funds (£3.5m at 31 December 2018) are used as collateral, allowing the bank to issue letters of credit ("LOCs") to the relevant trading counterparties in the wholesale energy market. The Board has considered the cash flow forecasts, along with the collateral and LOC requirements, for the next 12 months, which show that the Group expects to operate within its working capital facilities throughout the year.

Any excess cash balances are held in short-term, interest bearing deposit accounts. At 31 December 2018 the Group had £14.6m of cash and bank balances, as per note 8.

(e) Foreign currency risk

The Group trades entirely in pounds sterling and therefore it has no foreign currency risk.

 

11. Share based payments

The Group operates a number of share option plans for qualifying employees of the Group. Options in the plans are settled in equity in the Company. The options are subject to a vesting schedule, but not conditional on any performance criteria being achieved. The only vesting condition is that the employee is employed by the Group at the date when the option vests.

The terms and conditions of the grants made under the schemes are as follows:

		Exercisable between
Date of grant	Expected term	Commencement	Lapse	Exercise price	Vesting schedule	Amount outstanding at 31 December 2018
17 February 2016	2	17 February 2018	17 February 2026	£0.09	1	-
17 February 2016	3	17 February 2019	17 February 2026	£0.09	2	40,500
22 December 2016	3	22 December 2019	22 December 2026	£3.25	2	13,500
6 April 2017	3	6 April 2020	6 April 2027	£0.005	2	114,270
6 April 2017	6.5	6 April 2020	6 April 2027	£2.844	2	208,632
28 September 2017	6.5	28 September 2020	28 September 2027	£5.825	2	54,000
9 April 2018	3	9 April 2021	9 April 2028	£0.005	2	43,160
9 April 2018	6.5	9 April 2021	9 April 2028	£10.38	2	92,689
26 September 2018	6.5	26 September 2021	26 September 2028	£8.665	2	6,539
						573,290

 

The following vesting schedules apply:

1.    50 per cent of options vest on first anniversary of date of grant and 50 per cent vest on second anniversary.

2.    100 per cent of options vest on third anniversary of date of grant.

The number and weighted average exercise price of share options were as follows:

	2018	2017
Balance at the start of the period	1,464,310	1,094,500
Granted	154,317	396,810
Forfeited	(31,837)	(27,000)
Lapsed	-	-
Exercised	(1,013,500)	-
Balance at the end of the period	573,290	1,464,310
Vested at the end of the period	-	500,000
Exercisable at the end of the period	-	-
Weighted average exercise price for:
Options granted in the period	£7.41	£2.43
Options forfeited in the period	£5.67	£0.09
Options exercised in the period	£0.09	-
Exercise price in the range:
From	£0.005	£0.005
To	£10.380	£5.825

 

The fair value of each option grant is estimated on the grant date using a Black Scholes option pricing model with the following fair value assumptions:

	2018	2017
Dividend yield	0.29-0.35%	0.3%
Risk-free rate	1.5%	1.5%
Share price volatility	36.0-36.7%	30.4-33.4%
Expected life (years)	3-6.5 years	3-6.5 years
Weighted average fair value of options granted during the period	£5.67	£3.27

 

The share price volatility assumption is based on the actual historical share price of the Group since IPO in March 2016.

The Group had previously operated a share bonus plan for all qualifying employees of the Group. The plan was intended to be settled in cash if certain financial targets were met. The value of the bonus pool was to be determined by the number of notional shares contributed to the pool (50,000 per year based on achievement of certain financial targets) and the share price growth of each tranche of shares. However given the financial performance of the Group in 2018, the restatement of prior year financial figures and the subsequent decline in the Group share price, the scheme has been closed.

The total expenses recognised for the year arising from share based payments, are as follows:

	2018 £'000	2017 £'000
Equity-settled share based payment expense	685	800
Cash-settled share based payment (gain) / expense	(371)	299
	314	1,099

 

12. Commitments

Capital commitments

The Group had no capital commitments at 31 December 2018 (2017: £nil).

Contingent liabilities

Following the findings of the internal accounting review in October 2018, the Financial Conduct Authority ("FCA") commenced an investigation as to whether the market announcements made by the Group between 6 March 2018 and 24 October 2018 accurately reflected the Group's financial status.  The Board is also providing information via its nominated advisor in relation to adherence to AIM rules.  

The Board is not able to confirm with any certainty the likelihood and, if appropriate, the quantum of any losses to be incurred as a result of such investigations. 

The Board has reviewed the matter with its legal advisors and considered regulator guidelines on fines and precedent cases.  This review has led the Board to consider that any loss, if incurred, is not likely to be significant in the context of the Group's ability to trade as a going concern.  The Board will continue to co-operate fully with regulators to ensure the matters are resolved as soon as possible, and that all lessons are learnt.

The Group had no contingent liabilities at 31 December 2017.

 

13. Related parties and related party transactions

 

The Group has transacted with the following related parties during the current and prior financial periods:

•           CPK Investments Limited (an entity owned by Bobby Kalar); and

•           Better Business Energy Limited (an entity owned by Bobby Kalar);

CPK Investments Limited owns the property from which the Group operates and rents it to Kensington Power Limited under an operating lease. During 2018 the Group paid £120,000 in lease rentals and service charges to CPK Investments Limited (2017: £120,000). The amount owing to CPK Investments at 31 December 2018 was £nil.

During the prior year £51,207 owed by Better Business Energy Limited was written off. The amount owing to/from Better Business Energy Limited at 31 December 2018 was £nil (2017: £nil).

All transactions with related parties have been carried out on an arm's length basis.

 

14. Post-balance sheet events

There are no significant or disclosable post-balance sheet events.

Copies of the Annual Report and Accounts for the year ended 31 December 2018 will be available to download from the Company's website at www.yugroupplc.com later today, Wednesday 15 May 2019. Hard copies will be posted to shareholders on 28 May 2019.