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RNS
Yu Group PLC  -  YU.   

Preliminary Results

Released 07:00 28-Mar-2017

RNS Number : 6784A
Yu Group PLC
28 March 2017
 

Yü Group PLC
(the "Group")

Preliminary results for the year ended 31 December 2016

Yü Group PLC, the independent supplier of gas and electricity to the UK corporate sector, announces its preliminary results for the year to 31 December 2016.

HIGHLIGHTS

Financial

·     Revenue increased to £16.3m (14 months to 31 December 2015: £3.9m);

·     Gross margin increased to 21.2 per cent (14 months to 31 December 2015: 19.3 per cent);

·     Adjusted operating profit (excluding IPO costs and share based payments) of £205,000 (14 months to 31 December 2015: loss of £1.0m);

·     Loss for the year of £1.4m (14 months to 31 December 2015: £0.8m); and

·     Proposed final dividend of 1.5p per share, making a full year dividend pay-out of 2.25p per share.

 

Key Performance Indicators


31 December 2016

31 December 2015

% increase / (decrease)





Contracted revenue*

£27.8m

£8.4m

231%

Number of half hourly meters

473

36

1,214%

Number of non-half hourly meters

2,351

521

351%

Number of gas meters

1,497

550

172%

Total meter numbers

4,321

1,107

290%

Average monthly new bookings

£3.7m

£0.9m

311%

 

*Contracted revenue comprises the estimated value of revenue for the subsequent 12 months under contract with customers. The actual amount recognised might vary by up to 10% of this value, due to the inherent estimation involved in the calculation.

 

Operational

·     Successful admission to AIM on 17 March 2016 raising £7.5m gross, principally to support the Group's stated hedging policy;

·     Exit from Controlled Market Entry for half-hourly meters achieved during the period, enabling the Group to supply high-usage electricity customers;

·     Increased investment in sales channels and staff to support scaling of the business with headcount increasing to 72 staff (31 December 2015: 40) and further recruitment planned; and

·     Renewal rate continues to be in line with expectations, in excess of 80 per cent.

 

Bobby Kalar, the Group Chief Executive Officer, said: "2016 was an excellent year for the Group from both an operational and financial standpoint. We have followed our IPO in March with strong growth in all our key performance indicators with exceptional revenue growth and underlying profitability being delivered ahead of management expectations. Our hedging and energy purchasing has proved robust through what has been a turbulent market for energy suppliers.

 

"With contracted revenue for 2017 standing at £27.8m at the year end, supplemented by £8.0m in new sales booked this year as at 24 March 2017 and a strong pipeline of new business we are confident that we can continue to build our record of strong profitable growth."

 

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

 

Nick Parker

 

 

 

Shore Capital

+44 (0) 20 7408 4090

Bidhi Bhoma

 

Edward Mansfield

 

Anita Ghanekar

 

 

 

Alma PR

+44 (0) 20 8004 4218

John Coles

 

Hilary Buchanan

 

Robyn McConnachie

 

 

 

 

Notes to Editors

Information on the Group

 

Yü Group is an independent supplier of gas and electricity focused on servicing larger corporate and SME businesses throughout the UK. It has no involvement in the domestic retail market. The Group was founded by Bobby Kalar and is listed on the AIM market of the London Stock Exchange following a successful IPO in March 2016.

 



 

CHAIRMAN'S STATEMENT

Introduction

I am pleased to present the first annual results of Yü Group PLC following the Company's successful admission to AIM on 17 March 2016.  The Company raised net proceeds of £6.0m which have been used to support our rapid growth.

Sales growth and cash generation

Little more than two years ago, the business posted annualised sales of some £500,000 and now for the year to December 2016 revenues have risen to over £16m. The Board are confident that the Group will continue to grow at a rapid rate with a concurrent progression in the Group's profitability and cash generation.

With relatively low levels of capital expenditure and a substantial potential marketplace of SMEs and larger corporates, the Board are confident in the Group's ability to generate cash to support the dividend policy which is a key element of our on-going strategy for delivering healthy returns to investors.

Market conditions, risk management and margins

The market for energy suppliers has been somewhat turbulent throughout the year under review with a high degree of volatility being experienced by all participants. Against that background, our policy of hedging our supply commitments has proved to be extremely successful. Our ability to achieve this by participating within the global commodities market with reliable counterparties would not have been possible without the funds raised at the time of the IPO.

Due to the close co-operation between our sales personnel and our commercial team (who manage the hedging and pricing operations of the business) we have been able to maintain steady margin, while also delivering the very best customer service.

Customer service and support

In the last year we have won Service Provider of the Year awards as well as accolades from industry bodies such as Cornwall Insights, which stated that "service level is very good" and "Yü Energy is a standout for smaller suppliers."

As the business grows, one of the challenges of which the Board is very aware is the need to maintain the high level of customer service and flexibility, while at the same time ensuring that fixed costs, particularly in relation to bad debts, do not increase disproportionately. This challenge will continue but our rapidly growing revenues will fully support the requisite investment in staff and systems.

Our people

Staff levels have grown rapidly in the last year with the average number of employees increasing from 32 to 58 in the 12 months to December 2016. I would like to express the gratitude of the Board to all these employees, both longer serving and more recently joined, who have contributed so much to the success of the business. Their dedication and hard work has been exemplary during a period of rapid growth which has put considerable pressure on the business as a whole. These demands are unlikely to lessen as we continue to grow at a rapid rate but the Board is confident that the Company will be able to recruit the additional staff that will be needed to meet these challenges.

Dividend

The Group, on admission, adopted a progressive dividend policy and paid its maiden dividend in early January 2017 in relation to the first half of 2016. The Company intends to pay a final dividend of 1.5p per ordinary share for the year to December 2016, subject to shareholder approval at the AGM to be held on Thursday 25 May 2017.

The proposed final dividend will be payable on 12 September 2017 to shareholders on the register on 11 August 2017 and the shares will go ex-dividend on 10 August 2017.

Ralph Cohen

Chairman

 

 

Chief Executive Officer's statement

Introduction

The year to 31 December 2016 was one of dramatic change within the Group and I am therefore particularly pleased that the growth plans developed during 2015 for the business have been delivered in full. At the beginning of 2016 we planned for revenue to grow from £3.9m in the 14 months to December 2015 to more than £14m by the end of the year. The results we are now reporting show that revenue of £16.3m exceeded our target by 16 per cent.

In addition, due to a robust margin and a tight control over fixed costs, it has been possible to deliver adjusted operating profit (before exceptional IPO costs and share based payment charges) ahead of schedule. It is because of our confidence in the future growth of the Group and the ability of the business to generate cash that we were able to declare an interim dividend for our shareholders, ahead of expectations. We remain positive regarding the future growth opportunities of the Group.

The volatile market that the energy industry has experienced had the potential to cause some difficulties, but the business model - with a firm hedging policy at its core - has demonstrated that even in difficult markets there is an opportunity for a customer focused supplier to deliver the service and products the market requires at a sensible margin.

Our strategic objectives

Risk-averse operations

At the time of the IPO in March 2016, the strategic priority was to ensure that the Group had a strong enough balance sheet to be able to support its hedging and energy purchasing strategy. By utilising some of the funds raised in the IPO to lodge collateral through letters of credit with trading counterparties in the wholesale energy market, this objective was successfully delivered.

Sales growth and sustainable margins

The next priority was to deliver on the rapid growth opportunity that was apparent following achievement of supply accreditation from the regulator and exit from Controlled Market Entry ("CME") for both non-half-hourly and half-hourly meters. This was achieved with annualised sale bookings (being the forecast annual sales value of new contracts signed) averaging £3.7m per month during 2016 and customer numbers (as measured by meter points) seeing a near fourfold increase over the period. A firm pricing policy combined with effective hedging has meant that margins on these sales are in line with market norms for a business in an increasingly competitive industry. When combined with a renewal rate in excess of 80 per cent, this gives us confidence that profitable growth will continue.

 

 

Cost control and customer service

An on-going focus is to maintain tight control over costs, while at the same time developing infrastructure and back office support to ensure that customer service levels are sustained. On occasion this balance has been challenging but, overall, during the year we have been successful. We have kept a close watch over credit control procedures and ensured timely payment of outstanding debts by our customers.

Cash management and shareholder returns

Finally, a key objective is to optimise cash management to support future growth as well as the Group's progressive dividend policy. The Group has a strong balance sheet with healthy cash reserves. Letters of credit were issued during the year for £3.4m in total which are approximately 65 per cent utilised by our trading counterparties. We also absorbed some cash resources into working capital during the year as we moved from collecting cash from our customers in advance to billing in arrears. This change in our billing policy was necessary in order to access some of the higher value customer accounts and has proven to be successful. It has meant the utilisation of circa £2.7m of our cash generation during the year.

Our market place

Yü Group PLC has no intention of becoming a supplier to the domestic energy market. There are approximately 5.4m businesses in the UK, of which, according to recent industry surveys, a significant percentage have rarely, if ever, changed their energy supplier. This provides a significant opportunity for SME and larger corporates to make savings. Yü Energy, our trading name, engages both directly with this target customer base as well as via the energy broking community. Approximately two-thirds of the Group's revenues are derived from direct engagement, thus providing the best possible prices for the end user as well as more direct client service levels. This approach helps to ensure that as a supplier we understand a client's needs in terms of their corporate structure, invoicing, and the provision of ancillary services. It also helps ensure that renewal rates remain high.

In April 2017, the water industry within England and Wales will be opened up for greater competition.  While this sector has a different regulatory structure and commercial drivers to the Company's core activity of electricity and gas supply, it is our intention to add water supply to our activities in order to expand the range of bundled services that we are able to offer to our customer base.

Outlook

The new financial year has started well, with contracted revenue for 2017 already amounting to £27.8m. The rapid sales growth seen in 2016 is expected to continue through 2017 with the annual value of new sales booked so far to 24 March 2017 exceeding £8.0m. As markets become increasingly competitive, the Directors are conscious of the pitfall of chasing turnover where margins are unsustainably low and the importance of conserving our capital base for our hedging activities while at the same time ensuring strong cash generation. The sales force has therefore focused and continues to focus on ensuring margins remain stable and that the customer service is such that the renewal rates remain high, thus underpinning the predictable element of the revenue model. The subscription model of signing customers up to a fixed term contract enables the Group to have good visibility of future revenues. This facet of the business coupled with the scalability of our model provides the Board with considerable confidence and support for our belief in future growth.

Bobby Kalar

Chief Executive

 

Finance Review

Introduction

2016 has been a year of substantial growth. The two key events that have driven this growth were the admission of the Company's shares to AIM on the London Stock Exchange in March 2016, and the exit from all CME regulations in respect of half-hourly meters in April 2016.

The IPO was extremely successful, raising £6.0m (net of costs). These funds have allowed the Group to invest in its sales and support functions, which, coupled with the lifting of the CME regulations, has resulted in significant growth in the customer base. Gas customer numbers have risen to 1,497 (2015: 550) and electricity customers are up to 2,824 (2015: 557). The proceeds of the IPO have also provided the Group with the necessary collateral to support its hedging activities in the wholesale energy market.

Current year results

Revenue in 2016 increased to £16.3m (14 months ended 31 December 2015: £3.9m) as a result of the factors mentioned above. Gross margins have improved to 21.2 per cent (2015: 19.3 per cent). Loss for the year before tax was £1.5m (2015: £1.0m). After adjusting for interest, exceptional IPO costs, and share based payments, the Group achieved an adjusted operating profit of £205,000 (2015: Loss of £1.0m).

The Directors are of the opinion that by reporting the adjusted operating profits before charging share based payments a more representative figure for the relevant profitability of the company can be derived. The investing community and other stake holders, such as credit reference agencies, need to be able to calculate this level of profitability in order to assess more accurately the true value of the business and  its credit worthiness. In the opinion of the Directors, substantial non-cash charges, such as share based payments, do not materially affect the credit worthiness or short term enterprise value of the business and thus adjustment is required so that sensible assessments can be made. Furthermore, the adjusted operating profit is the measure by which the Board assesses the performance of the business on a continuing basis.

The Group changed its invoicing policy in the year from invoicing in advance to invoicing in arrears to enable the Group to access higher value customers. This change has had a substantial impact on the Group balance sheet, creating a trade debtor balance of £2.7m (2015: £nil).

The Group ended the year with a healthy cash balance of £5.2m, of which £1.4m was held in short-term deposits and £3.4m is being used to support letters of credit.

Overall the most significant cash cost for the business is the wholesale cost of electricity, but due to our hedging policy the margin achieved thereon has remained relatively stable despite the volatility in the market. The second highest cost incurred is the transportation of this electricity around the country to our customers, followed by the cost of gas. While employee costs remain an important cash outflow, the additional expenditure on various government taxes such as Feed-In Tariffs, Renewable Obligation Certificates and the Climate Change Levy are a significant part of the customers' bills.

Dividend

It was stated in the Group's Admission Document that the Board intended to adopt a progressive dividend policy. A maiden interim dividend of 0.75p per share was paid to shareholders on 5 January 2017, and the board is now recommending the payment of a final dividend of 1.5p per share, subject to shareholder approval at the Company's AGM on 25 May 2017.

Contracted revenue

One of the key advantages of the Group's business model is the predictability of revenue streams. Average contract length for our customers is approximately 15 months and given that the selling price is contractually fixed and the consumption of the customer base can be reliably forecast, it means that forecast contracted revenue, which assumes no new sales going forward, can be estimated with reasonable certainty to the extent of a 10 per cent margin of error.

At the start of the new-year the contracted revenue for 2017 was in excess of £27m.

 

Annualised bookings

Each month a key management review point in order to assess the growth of the sales pipeline is to monitor the annualised value of contracts sold. The level of sales each month will fluctuate dependent upon the time of the year and the number of sales staff, as well as whether we manage the sales team to focus on margin or revenue. The average monthly sales bookings has risen from £900,000 per month in 2015 to £3.7m per month in 2016.

Letters of credit

At the year end the Group had issued £3.4m of letters of credit, which were supported by way of cash on deposit with the Group's bankers. The Group constantly assesses the level of this collateral against its operations in the commodity market to ensure that there is sufficient support for its hedging operations. Cash and cash equivalents at the end of the year stood at £5.2m.

 

Nick Parker

Chief Financial Officer



 

Condensed consolidated statement of profit and loss and other comprehensive income for the year ended 31 December 2016

 


31 December 2016


14 Months ended 31 December 2015


Adjusted

Exceptional Items and share based payments

Total


Adjusted

Exceptional Items

Total


£'000

£'000

£'000


£'000

£'000

£'000









Revenue

             16,264

   -  

    16,264


3,880

  -  

3,880

Cost of Sales

(12,821)

  -  

(12,821)


(3,132)

  -  

(3,132)

Gross Profit

             3,443

   -  

    3,443


748

-  

748









Operating costs before exceptionals and IFRS 2

(3,238)

-

(3,238)


(1,735)

-

(1,735)

Operating costs - exceptional IPO costs

-

(379)

(379)


-

(33)

(33)

Operating costs - IFRS 2 share option charge

-

(1,344)

(1,344)


-

-

-

Total operating costs

(3,238)

(1,723)

(4,961)


(1,735)

(33)  

(1,768)









Profit/(Loss) from operations

205

(1,723)

(1,518)


(987)

 (33)  

(1,020)









Finance Income

                   19

   -  

  19


   -  

    -  

              -  

Finance Costs

(29)

  -  

(29)


-

   -  

-









Profit/(Loss) before tax

195

(1,723)

(1,528)


(987)

  (33)  

(1,020)









Taxation

                   (59)  

228  

          169  


204

-  

204









Profit/(Loss) for the Year

136

(1,495)

(1,359)


(783)

  (33)  

(816)









Other comprehensive income

                   -  

-  

  -  


-  

-  

              -  









Total comprehensive income/(expense) for the year

136

(1,495)

(1,359)


(783)

 (33)  

(816)









Loss per share








Basic and diluted



£0.10




£0.08

 



 

Condensed consolidated balance sheet

At 31 December 2016

 





31 December 2016


31 December 2015





£'000


£'000

ASSETS







Non-current assets





Property plant and equipment


209


155

Intangible assets



  57


59

Deferred tax



467


204





733


418








Current assets






Trade and other receivables


4,891


1,063

Cash and cash equivalents


5,197


47





10,088


1,110








Total assets



10,821


1,528








LIABILITIES






Current liabilities






Trade and other payables


(5,340)


(2,514)








Non-current liabilities


(72)  


     -








Total liabilities



(5,412)


(2,514)








Net assets



5,409


(986)








Equity







Share capital



70


50

                           -

Share premium



  -


-

Merger reserve



(50)


(50)

Retained earnings



5,389


(986)





5,409


(986)

 



 

Condensed consolidated statement of changes in equity

For the year ended 31 December 2016



Share  Capital

Share Premium

Merger Reserve

Retained Earnings

TOTAL



£'000

£'000

£'000

£'000

£'000








Balance at 1 January 2016


50

-

(50)

(986)

(986)








Total comprehensive income for the year







Loss for the year


-

-

-

(1,359)

(1,359)

Other comprehensive income


-

-

-

-

-



-

-

-

(1,359)

(1,359)








Transactions with owners of the company







Contributions and distributions







Equity settled share based payments


-

-

1,272

1,272

Deferred tax on share based payments


-

-

-

69

69

Proceeds from IPO share issue


20

7,480

-

-

7,500

Share issue costs


-

(1,087)

                         

-

(1,087)

Capital restructuring


-

(6,393)

-

6,393

-








Total transactions with owners

20

-

7,734

7,754








Balance at 31 December 2016


70

-

5,389

5,409















Balance at 1 November 2014


50

-

(50)

(170)

(170)








Total Comprehensive Income for the period






                      

Loss for the period


-

-

-

(816)

(816)

Other comprehensive income


-

-

-

-

-



-

-

-

(816)

(816)








Transactions with owners of the company






                      

Contributions and distributions






                      

Equity settled share based payments


                 -

-

-

-

-

Share issue costs


-

-

-

-

-

Total transactions with owners

-

-

-

-

-








Balance at 31 December 2015


50

-

(50)

(986)

(986)

 



 

Condensed consolidated statement of cash flows

For the year ended 31 December 2016

 








2016



2015








£'000



£'000

Cash flows from operating activities








Loss for the financial year





(1,359)



(816)

Adjustments for:










Depreciation of property plant and equipment



108



80

Amortisation of intangible assets





2



2

Finance income






(19)



-

Finance costs






29



-

Taxation







(169)



(204)

Share based payment charge




1,344



    -  

Increase in trade and other receivables




(3,828)



(920)

Increase in trade and other creditors




3,022



2,018












Net cash from operating activities




(870)



160












Cash flows from investing activities








Purchase of intangible assets





          -  



(20)

Purchase of property plant and equipment




(162)



(130)

Interest received






19



-












Net cash from investing activities




(143)



(150)












Cash flows from financing activities



















Net proceeds from issue of new shares




6,413



          -  

Proceeds from loan






          -  



82

Repayment of borrowings





(250)



(79)












Net cash from financing activities




6,163



3












Net increase in cash and cash equivalents



5,150



13

Cash and cash equivalents at the start of the year



47



34

Cash and cash equivalents at the end of the year


5,197



47

 

 



 

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 2016 comprise the Company and its subsidiaries (together referred to as the "Group"). The Group is primarily involved in the supply of energy 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 2016, 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 2016 or 2015 but is derived from those financial statements.

Statutory financial statements for 2015 have been delivered to the registrar of companies and those for 2016 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.

Summary of impact of Group restructure and Initial Public Offering

On 17 March 2016, the Company listed its shares on AIM. In preparation for this Initial Public Offering ('IPO') the Group was restructured. The restructure has impacted a number of the current year and comparative primary financial statements and notes.

For the consolidated financial statements of the Group, prepared under IFRS, the principles of reverse acquisition accounting under IFRS 3'Business Combinations' have been applied. The steps to restructure the Group had the effect of Yü Group PLC being inserted above KAL-Energy Limited as the holder of the KAL-Energy Limited share capital.

By applying the principles of reverse acquisition accounting, the Group is presented as if Yü Group plc has always owned KAL-Energy Limited. The comparative Income Statement and Balance Sheet are presented in line with the previously presented KAL-Energy Limited position. The comparative and current year consolidated reserves of the Group are adjusted to reflect the statutory share capital and share premium of Yü Group PLC as if it had always existed, adjusted for movements in the underlying KAL-Energy Limited share capital and reserves until the share for share exchange.

The steps taken to restructure the Group are explained in more detail in the Group Reorganisation section below. The impact on the primary consolidated financial statements is as follows:

•      Equity reflects the capital structure of Yü Group PLC. Following the restructure a merger reserve of £49,800 was recognized being the difference between the nominal value of the shares issued for consideration on the acquisition of KAL-Energy and the share capital of the existing KAL-Energy Group

•      As part of the restructuring of the Group and the IPO, a number of shares in Yü Group PLC were issued in exchange for cash. The premium arising on the issue of shares was allocated to share premium.

•      Costs relating directly to the new issue of shares have been deducted from the share premium account. Attributable IPO Costs are allocated between share premium and the income statement in proportion to the number of shares traded on admission.

•      A resolution was passed by the Company at a general meeting to cancel the share premium account as part of a capital reduction. This became effective from 22 June 2016 following high court approval.

Group reorganisation

Prior to IPO the Group undertook a reorganisation in preparation for the transaction.

The effect of this reorganisation was to insert a new ultimate parent company, Yü Group PLC, into the Group. This company acquired the entire issued share capital of KAL-Energy Limited, as summarised below.

Yü Group PLC became the ultimate parent company of the Group by acquiring KAL-Energy Limited in exchange for the issue of new shares.

The key steps of the process were as follows:

•      On incorporation on 15 February 2016, 100 Ordinary shares of £1.00 each were allotted and issued.

•      On 16 February 2016, the existing 100 ordinary shares of £1.00 were subdivided into 20,000 shares of £0.005 each.

•      On 18 February 2016, the Company allotted 9,980,000 ordinary shares of £0.005 each in connection with a share-for-share exchange transaction pursuant to which the Company acquired beneficial ownership of 100 per cent of the share capital of KAL-Energy Limited.

•      The Company has recorded a £nil cost of investment and a merger reserve of £50,000, in the Company only accounts (in line with IAS 27 paragraph 13), as KAL-Energy Limited was in a negative net asset position at that date.

•      As part of the Company's admission to AIM on 17 March 2016, 4,054,055 new ordinary shares of £0.005 each were issued. These shares were placed at £1.85 per share, resulting in additional share capital of £20,270 and share premium of £7,479,730.

Going concern

At 31 December 2016 the Group had net assets of £5.4m (2015: net liabilities of £1.0m). Management prepare 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.

Use of estimates and judgements

The preparation of 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.

Revenue recognition

The Group enters into contracts to supply gas and electricity to its customers. Revenue represents the fair value of the consideration received or receivable from the sale of actual and estimated gas and electricity supplied during the year, net of discounts, climate change levy and value added tax. For both electricity and gas supplied, 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 inherent nature of the industry and its reliance upon estimated meter readings, 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 historic actual usage data.

 

2. Segmental analysis

Operating segments

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

Geographical segments

100 per cent of the Group revenue is generated from sales to customers in the United Kingdom (2015: 100 per cent).

The Group has no individual customers representing over 10 per cent of revenue (2015: none).

 

3. Exceptional items

The Group incurred legal and professional fees in the year ended 31 December 2016 of £379,000 (2015: £33,000) in relation to the placing of ordinary shares and admission to AIM.

 

4. Earnings per share

Basic loss per share 




















Basic loss per share is based on the loss attributable to ordinary shareholders and the weighted average number of

ordinary shares outstanding.


















14 months ended











31 December









2016


2015









£'000


£'000













Loss attributable to ordinary shareholders



(1,359)


(816)




















2016


2015


Weighted average number of ordinary shares


















At the start of the year





10,000,000


10,000,000


Effect of shares issued in the year




3,212,229


    -  













Weighted average number of ordinary shares


13,212,229


10,000,000




















2016


2015









£


£













Basic loss per share






(0.10)


(0.08)













Adjusted earnings per share









Adjusted earnings per share is based on the result attributable to ordinary shareholders before


exceptional items and the cost of share based payments, and the weighted average number of ordinary

shares outstanding:



















2016


2015









£'000


£'000


Adjusted earnings per share









Loss for the year



(1,359)


(816)


Add back:











Exceptional items






379


   -  


Share based payment charge after tax




1,116


     -  













Adjusted basic earnings/(loss) for the year




136


(816)




















2016


2015









£


£













Adjusted earnings/(loss) per share




0.01


(0.08)













 

 

Diluted loss per share

Due to the Group having losses in each of the periods, the fully diluted loss per share for disclosure purposes as shown in the condensed consolidated statement of comprehensive income is the same as the basic loss per share.

 

 

5. Dividends

The Group proposed and paid an interim dividend in relation to 2016 of 0.75p per share. The total interim dividend of £105,405 was paid to shareholders on 5 January 2017.

The proposed final dividend in relation to 2016, of 1.5p per share, will be subject to approval at the AGM on 25 May 2017.

 

6. Taxation








14 months ended








31 December






2016


2015






£'000


£'000

Current tax charge






Current year




(25)


     -  

Adjustment in respect of prior years


 -


  -  






(25)


    -  









Deferred tax credit






Current year




219


   204

Adjustment in respect of prior years


(25)


     -  






194


   204









Total tax credit




169


   204









Tax recognised directly in equity













Current tax recognised directly in equity


     -  


      -  

Deferred tax recognised directly in equity


69


   -  









Total tax recognised directly in equity


              69


    -  

















Reconciliation of effective tax rate













Loss before tax




1,528


   1,020









Tax at UK Corporate tax rate of 20%


306


   204

Expenses not deductible for tax purposes


(73)


(10)

Adjustment in respect of prior periods - deferred tax

(25)


   -

Deferred tax recognised on previous losses

-


33

Reduction in tax rate on deferred tax balances

(39)


(23)









Taxation credit for the year



169


    204

 

7. Trade and other receivables





2016


2015





£'000


£'000








Trade receivables



  2,663


    - 

Accrued income



   1,904


      1,005

Prepayments



  83


    35

Other receivables



   241


     -

Loans to connected parties


   -


    23





   4,891


      1,063

 

8. Cash and cash equivalents






2016


2015






£'000


£'000









Cash at bank and in hand



379 


47

Short term deposits




      4,818


-






5,197


47

 

9. Trade and other payables





2016


2015





£'000


£'000








Current






Trade payables



431


  157

Loans from connected parties


  -  


   250

Accrued expenses



3,602


  647

Deferred income



  -  


  1,227

Corporation tax



25


-

Other payables



1,282


233





5,340


     2,514

 

Non-current




Group share bonus liabilities

                                                 72


-

 

10. Financial instruments and risk management

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

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 minimise risk from fluctuations in energy prices by entering into back-to-back energy contracts with its suppliers and customers. Commodity purchase contracts are entered into as part of the Group's normal business activities, the Group classifies them as "own use" contracts. This classification as "own use" allows the Group not to recognise the commodity purchase contracts on its balance sheet at the year end.

As far as possible the Group attempts to match up all 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 has evaluated and continues to evaluate the use of commodity purchase contracts and whether their classification as "own use" is appropriate. On the basis that the key requirements are as listed below, it has concluded that this classification is appropriate:

·      Physical delivery takes place under all contracts;

·      The volumes purchased or sold under the contract correspond to the Group's operating requirements;

·      The contracts are not considered to be written options as defined by IAS 39;

·      There are no circumstances where the Group would settle the contracts net in cash, nor does the Group take delivery of the commodities and sell them within a short period for trading purposes.

 

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 amount of customers each owing relatively small amounts. Any potential new customer has 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 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 at the balance sheet date was:

 






2016


2015






£'000


£'000









Not past due



1,434


-

Past due (0-30 days)



523


-

Past due (31-120 days)



670


-

More than 120 days




36


-






2,663


-

 

At 31 December 2016 the Group held a provision against doubtful debts of £50,000 (2015: £nil).

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 (£3.4m at 31 December 2016) 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 2016 the Group had £5.2m of cash and bank balances.

Foreign currency risk

The Group trades entirely in sterling, hence it has no foreign currency risk.

 

11. Share based payments

The Group operates an EMI share option plan for qualifying employees of the Group. Options in the plan 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.

During the year the company made the following grants:

 

Date of grant

Ex. Price

Expected term

Lapse date

Outstanding at 31 Dec 2016






17 February 2016

£0.09

2 Years

17 Feb 2026

1,000,000

17 February 2016

£0.09

3 Years

17 Feb 2026

81,000

22 December 2016

£3.25

3 Years

22 Dec 2026

13,500






 

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















2016


2015












Balance at the start of the period


     -  


    -  












Granted




   1,108,000


    -  



Forfeited




(13,500)


    -  



Lapsed




    -  


   -  



Exercised




    -  


     -  












Balance at the end of the period


    1,094,500





Vested at the end of the period


     -  





Exercisable at the end of the period


     -  























Weighted average exercise price for:










2016


2015












Options granted in the period


£0.13


      -  



Options forfeited in the period


£0.09


     -  



options exercised in the period


-


     -  












Exercise price in the range:







From




£0.09


     -  



To




£3.25


   -  



 

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:





2016


2015








Dividend yield




-


       -  

Risk free rate




1.50%


     -  

Share price volatility




35.39%


     -  

Expected life (years)




2.55


     -  

Weighted average fair value of options granted during the period


£1.75


     -  

 

The Group also operates a share bonus plan for all qualifying employees of the Group. The plan is settled in cash and is subject to certain financial targets for the next three financial years. On meeting these financial targets each financial year, 50,000 notional shares are awarded to the Group bonus pool. At the end of the third financial year (31 December 2018) the value of the pool will be based on the share price of the Group one week after the announcement of the results for the year ended 31 December 2018, and will be distributed to all qualifying employees. 

The total expenses recognised for the year and the total liabilities recognised at the end of the year, arising from share based payments are as follows:






2016


2015






£'000


£'000









Equity settled share based payment expense



1,272


-

Cash settled share based payment expense




72


-






1,344


-

 

11. Executive Bonuses

As a result of the financial performance in the year to 31 December 2016, the executive directors are entitled under the terms of their service contracts to cash bonuses amounting to £325,000 in aggregate, being £125,000 due to Bobby Kalar and £100,000 each to Nick Parker and Garry Pickering (together, the "Executive Directors"). The Executive Directors have agreed to waive these cash bonuses in full.  The Remuneration Committee has agreed that, in lieu of these bonuses, the Executive Directors be granted share options over ordinary shares in the Company, with the exercise price being the nominal value of the shares. The number of options to be granted is to be determined by reference to the amount of the bonus payment waived and the five day volume weighted average share price immediately following the announcement of the 2016 financial results. The options will be exercisable from the third anniversary of the date of grant. 

The new option award is accounted for under IFRS 2 to reflect the agreement in place at the year-end date which covers the service already provided by the Directors in 2016 and for further years of service until the options vest in April 2020. The IFRS 2 charge has therefore been split over the four year three month service period, with the charge taken in these financial statements in relation to 2016 being £81,126.  

This approach is designed to enable the Board to retain capital in the Group to support the continued momentum in the Group's growth and development, while providing the Executive Directors with a longer term incentive to increase shareholder value.

 

12. 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);

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

 • Jinny Kalar (wife of 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 2016 the Group paid £99,000 in lease rentals and service charges to CPK Investments Limited (14 months ended 31 December 2015: £72,000).

Of the £99,000 lease payments £35,000 was classified as a pre-paid dilapidation provision at the year end in relation to the newly refurbished first floor of the Group headquarters.

In 2014, the Group made payments on behalf of CPK Investments Limited for consultancy services totalling £23,006. This amount was outstanding at 31 December 2015, but was repaid during 2016.

Better Business Energy Limited has provided funding to the Group in the past to support working capital requirements, such as staff costs. The balance of the loan outstanding at 31 December 2015 was £250,000. This loan was repaid in full during 2016.

During the year, Jinny Kalar provided administration and consulting services to the Group. She received total remuneration of £20,500 during 2016.

All transactions with related parties have been carried out on an arms-length basis.

 

13. Post-Balance sheet events

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

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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