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RNS
Yu Group PLC  -  YU.   

Preliminary Results

Released 07:00 06-Mar-2018

RNS Number : 7672G
Yu Group PLC
06 March 2018
 

Yü Group PLC
(the "Group")

Preliminary results for the year ended 31 December 2017

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 2017.

Financial Highlights:

 

31 December

2017

2016


£'000

£'000




Revenue

46,961

16,264

Operating profit/(loss) before tax:



Adjusted*

3,136

205

Statutory

2,296

(1,518)

Operating cash inflow/(outflow)

533

(870)

Cash

4,887

5,197




Earnings/(loss) per share:



Adjusted*

17.0p

1.0p

Statutory

13.0p

(10.2p)

Dividend per share

3.00p

2.25p

 

*Adjusted results are calculated before share based payments and unrealised gains on derivative contracts and, in 2016, IPO related costs.

 

·     Revenue almost trebled to £47 million compared to FY 2016 with a rapid increase in profitability

·     Achieved an adjusted operating margin of 6.7 per cent

·     Increase in contracted future revenue adding to the Group's high level of visibility:

contracted revenue for the year to 31 December 2018 in excess of £50 million, with FY2019 revenue ahead of previous expectations

revenues FY 2019 also is expected to be significantly ahead of current expectations

·     Proposed final dividend of 2.00 pence per share, making a total dividend for the year of 3.00 pence per share

 

 

Operational Highlights:

 

·     New office opened in Leicester city centre to house increase in average staff levels from 58 to 86 employees in the 12 months to December 2017

·     Licence granted, in December 2017, to supply water to the corporate sector under the name Yü Water

·     Yü Group commenced trading as a gas shipper post year end to enhance gas margins and market access

 

Bobby Kalar, Group Chief Executive Officer, said:

"This has been a record year for the Group with substantial increases in both sales and profits, reflecting the success of the business model. During the year we have invested carefully to position the business so that it can take advantage of the extensive opportunity available. Having had an opportunity to re-evaluate the growth potential of the business going forward, the Board has resolved to accelerate the growth targets, particularly with higher volume mid-sized corporate clients and energy brokers. As a result, our expectations for Group revenue over the next few years have increased significantly.

 

"The predictability within the business, coupled with the scalability of our model, provides the Board with considerable confidence in future 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

Edward Mansfield

 

Anita Ghanekar

 

 

 

Alma PR

+44 (0) 20 8004 4218

John Coles

 

Hilary Buchanan

 

Robyn Fisher

 

 

Notes to Editors

Information on the Group

 

Yü Group is an independent supplier of gas, electricity and water utilities focused on servicing larger corporate and SME businesses 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 following a successful IPO in March 2016.

 



 

CHAIRMAN'S STATEMENT

Review of the Year

The Board of Yü Group PLC is delighted to present another record set of annual results for the business for the year ended 31 December 2017.

The Group has continued to grow rapidly and has demonstrated the success of its business model by providing the UK business community with gas and electricity at reasonable prices supported by outstanding customer service. This has resulted in an almost threefold increase in revenues for the year under review and a rapid increase in profitability whilst continuing to invest in the future growth of the business.

The business continues to be cash generative at the operating level, despite continued investment over the last year in infrastructure, which included sales and support staff and improved systems. It is this investment that will underpin further rapid growth going forward, with an overall objective of achieving a steady underlying operating margin of 6 per cent of sales.

As the business continues to grow, one of the challenges is maintaining the high level of customer service and flexibility, while at the same time ensuring that fixed costs do not increase disproportionately.

The predictable nature of the Group's revenue model means that we are able to anticipate the likely level of revenues some years in advance. This provides the Board with a high degree of confidence that further rapid growth is sustainable as long as appropriate sales channels are maintained and there is continued investment in technical and administrative support staff.

The Group has now been supplying Half Hourly meters for approximately 18 months. This experience supports our view that our business is well suited to focus on this sector with particular emphasis on the small to medium-sized corporate and SME customers. The introduction of higher volume Half Hourly metered customers has resulted in a slight reduction in gross margins which is in line with the Board's expectations.

The market for energy suppliers has been less turbulent in the year under review when compared to the prior year but, nevertheless, our policy of hedging our supply commitments has continued to be extremely successful. Our risk management, pricing and hedging teams achieve this by participating within the global commodities market with reliable counterparties utilising our funds on deposit as collateral.

With relatively low levels of capital expenditure and a substantial potential marketplace, the Board is confident of the Group's ability to generate cash to support the dividend policy which is a key element of our ongoing strategy for delivering returns to investors.

Our people

Staff levels have grown rapidly in the last year with the average number of employees increasing from 58 to 86 in the 12 months to December 2017. I would like to express the gratitude of the Board to all these employees 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, with the opening of our new office in Leicester, the Company will be able to recruit the additional staff that will be needed to meet these challenges.

Dividend

The Group has adopted a progressive dividend policy, whilst ensuring that the level of distribution is sustainable and supported by a healthy dividend cover. The Group intends to pay a final dividend of 2.00p per ordinary share for the year to 31 December 2017, subject to shareholder approval at the AGM to be held on Thursday 24 May 2018. When combined with the interim dividend that was paid in January 2018, this makes a total dividend for the year of 3.00p per ordinary share.

The proposed final dividend will be payable on 11 September 2018 to shareholders on the register on 3 August 2018 and the shares will go ex-dividend on 2 August 2018.

Ralph Cohen

Chairman

 

 

 

Chief Executive Officer's statement

Introduction

The year ended 31 December 2017 was one of further rapid growth within the Group and I am particularly pleased that the plans developed during 2015, before the Group's IPO in 2016, have been surpassed. At the beginning of 2017 we had anticipated that revenue would grow from £16.3m in the year to December 2016, to more than £30m by the end of this year. The results that we are now reporting show that revenue of £47.0m exceeded our target by approximately 50 per cent. This outperformance has been delivered by increasing the sales profile of the business as we focus on our large target market.

As we become more experienced at managing our sales channels and forecasting the annualised revenue that is likely to become contracted each month, we have had an opportunity to re-evaluate the growth potential of the business going forward. As a result, our expectations for Group revenue over the next few years have increased.

Furthermore, as the Group's model has developed, management have increased clarity on the level of overhead costs and infrastructure required to deliver this growth and, as a result, we have increased confidence about the overall level of profitability going forward. With this in mind it is management's objective to achieve an underlying operating margin in the region of 6 per cent on a consistent basis in years to come.

Our strategic objectives

Risk-averse operations

Since the inception of the Group, the key strategic objective has been to ensure that the business operates in a risk-averse manner. The IPO in March 2016 was undertaken to ensure that the Group had the capital required to support its hedging and energy purchasing strategy through letters of credit. We intend to continue to maintain our hedging policy, to minimise risk from fluctuations in energy prices, by lodging collateral in the form of letters of credit with counterparties in the wholesale energy market. As the Group grows rapidly, this objective will continue to be a key priority.

Sales growth and sustainable margins

As has been mentioned, the growth potential of the Group is greater than had previously been anticipated. During 2017, the Group achieved annualised sales bookings (being the forecast annual sales value of new contracts signed) averaging £5.1m per month and customer numbers (as measured by meter points) rising by 70 per cent 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.

Cash management and shareholder returns

Our ongoing 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 and a strong corporate culture are maintained. On occasion this balance has been challenging but, overall, during the year we have been successful. While the vast majority of our customers pay by direct debit, there are still certain customers, such as managing agents who, under the regulations of their governing body, have no option but to make payment by BACS once their clients have paid them. We have to maintain close controls over our credit control procedures and ensure timely payment of outstanding debts by our customers. At the end of the year under review, particularly due to the holiday period, cash collections were supressed, impacting the year end cash balances of the Group. This position has now been rectified.

In line with the focus on credit control, 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 £3.5m in total. It has become apparent that as the Group grows, its credibility within the energy market place has improved and as such so has its credit rating. In consequence, it is anticipated that in due course the level of trade credit afforded to the Group will improve.

People

Recruiting engaged and motivated staff remains a priority and a challenge within the business.  While we continue actively to recruit, train and develop in all areas of the business to help manage our rapid growth, it is fair to say that the business has and continues to invest in a more corporate culture. The ambassadors of any successful business are its people and in order to develop and maintain a positive corporate environment the business has introduced a Senior Leadership Team. Reporting directly to the executive directors they have specific industry disciplines which will help the business achieve its strategic and financial objectives. Greater industry exposure means that we are attracting a better standard of workforce which in turn has had a positive impact on the culture of the business. I look forward to maintaining this environment.

Recent developments

Yü Group PLC intends to 'stick to its knitting' in an environment where it can take advantage of its expertise and has no intention of becoming a supplier to the domestic energy market. The SME and corporate utilities market is large enough to provide significant opportunities to scale. While the competitive landscape is constantly changing, this change is reflective of participants who are both joining and leaving the market. It is our desire to create clear distance between us and these participants. Our intention, through consistency of message and targeting of our customers, is that we remain focused on our core utilities market and opportunities that may help growth and do not intend to be distracted by other more diverse activities.

This approach helps to ensure that as a utility 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 order to facilitate and accelerate our rapid growth the Group has recently opened a new office in Leicester city centre. This will enable us to take advantage of the talent pool Leicester has to offer while developing a template model, designed to increase sales.

In April 2017, the water industry within England and Wales opened up for greater competition. While this sector has a different regulatory structure and commercial drivers to the Group's core activity of electricity and gas supply, we have now been granted a licence to supply water to the corporate sector under the name Yü Water. This will enable us to expand the range of bundled services that we are able to offer to our customer base. While this is a good opportunity for the Group to improve its presence in the market, it is not anticipated that this additional supply opportunity will require any significant investment above and beyond the resource and infrastructure already in place.

Due to priorities around the business we have in the past used third parties to ship our gas product. While we were relatively small, accepting the charges for providing these services were not significant. However, as of 1 February 2018, our gas portfolio had grown to a level such that it became worthwhile for the Group to undertake its own shipping. In consequence, the Group has used its gas shipping licence to become a registered gas shipper with capability to distribute gas throughout the UK. This is a service that the Group can now deliver both on behalf of itself and potentially for others.

Outlook

The new financial year has started well, with contracted revenue for 2018 at the year end amounting to more than £50m. The rapid sales growth seen in 2017 is expected to continue through 2018. As a result, revenues for FY 2018 are expected to be ahead of current market forecasts with revenues for FY 2019 significantly ahead of current market expectations. In consequence, operating profits for both FY 2018 and FY 2019 and expected to be ahead of current market expectations after taking into account planned investment in infrastructure and staffing to support the Group's continued growth.

As would be expected, the Group has faced challenges during the year. However, we remain focused and disciplined. As we continue to grow the corporate framework we expect to be tested in areas around cash flow, culture, infrastructure, resource and, above all, by the impact of growth. I welcome these challenges head on as they will help to shape the business and make it more robust. I also look forward to the future with confidence and a belief that to date we have only scratched the surface of what can be achieved.

The experience of the last 18 months, as the Group has become exposed to the larger UK corporate sector in terms of its customer base, has meant that the Board is now able to predict with a high degree of confidence, the growth of the Group over the next few years. This predictability within 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

Results overview

The year to 31 December 2017 has once again been a further year of substantial growth. Revenue in 2017 increased almost three-fold to £47.0 m (2016: £16.3m) while gas customer numbers have risen by 75 per cent to 2,620 (2016: 1,497) and electricity customers are up by 68 per cent to 4,741 (2016: 2,824).

Gross margins have declined slightly to 17.4 per cent from 21.2 per cent in the prior year due to the greater emphasis on larger corporate customers as the Group increased its involvement in the Half Hourly meter sector. Profit before tax for the year was £2.2m (2016 loss: £1.5m). After adjusting for interest, unrealised gains on derivative contracts and share based payments, the Group achieved an adjusted operating profit of £3.1m (2016 profit before IPO costs, interest and share based payments: £0.2m).

The Directors are of the opinion that by reporting the adjusted operating profits before share based payments and unrealised gains on derivative contracts, a more representative figure for the relevant underlying profitability of the Group can be derived. In the opinion of the Directors, substantial non-cash charges, such as share based payments, do not materially affect the short term enterprise value of the business and thus adjustment is required so that sensible assessments can be made.

Regarding unrealised gains or losses on derivative contracts, the Group enters into forward contracts for the purchase of power and gas to avoid any risk associated with selling fixed price contracts to our customers. The Board regards all of these contracts as being for the "own use" of the Group. However, under the rules of IAS39, some of these contracts do not qualify for the "own use exemption" due to the need to balance our portfolio as customers' actual usage is ultimately confirmed on a daily basis. In consequence, accounting rules require that certain of these contracts must be measured at fair value, which is in essence the difference between the price we have secured in the contract, and the price we could have achieved in the market at the year end. Changes in fair value are recognised as an exceptional item in the income statement. This accounting treatment, under the stringent rules of IAS39, has no impact upon our risk averse approach towards ensuring our contracts with our customers are, as far as practically possible, matched with an appropriate forward purchase contract with the wholesale commodity market.

The Group ended the year with a healthy cash balance of £4.9m, of which £3.5m is being used to support letters of credit.

Overall, the most significant cash cost for the business is the wholesale cost of electricity. 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.

Contracted revenue

One of the key advantages of the Group's business model is the ability to forecast revenue streams. Average contract length for our customers continues to be 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 financial year, the contracted revenue for 2018 was in excess of £50m.

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 have risen from £3.7m per month in 2016 to £5.1m per month in 2017.

Letters of credit

At the year end the Group had issued £3.5m 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 £4.9m.

Dividend

The Group continues to pursue a progressive dividend policy. An interim dividend of 1.00p per share was paid to shareholders on 9 January 2018, and the board is now recommending the payment of a final dividend of 2.00p per share, subject to shareholder approval at the Company's AGM on 24 May 2018.

 

Nick Parker

Chief Financial Officer



 

Condensed consolidated statement of profit and loss and other comprehensive income for the year ended 31 December 2017

 


31 December 2017


31 December 2016


Adjusted

Exceptional Items unrealised gain on derivative contracts and IFRS 2 charges

Total


Adjusted

Exceptional Items and IFRS 2 charges

Total


£'000

£'000

£'000


£'000

£'000

£'000









Revenue

             46,961

   -  

    46,961


16,264

  -  

16,264

Cost of Sales

(38,813)

  -  

(38,813)


(12,821)

  -  

(12,821)

Gross Profit

             8,148

   -  

   8,148


3,443

-  

3,443









Operating costs before exceptionals, unrealised gain on derivative contracts and IFRS 2

(5,012)

-

(5,012)


(3,238)

-

(3,238)

Operating costs - exceptional Items

-

-

-


-

(379)

(379)

Operating costs - unrealised gains on derivative contracts

-

259

259


-

-

-

Operating costs - IFRS 2 charges

-

(1,099)

(1,099)


-

(1,344)

(1,344)

Total operating costs

(5,012)

(840)

(5,852)


(3,238)

(1,723)  

(4,961)









Profit/(Loss) from operations

3,136

(840)

2,296


205

 (1,723)  

(1,518)









Finance Income

                   14

   -  

  14


   19  

    -  

              19  

Finance Costs

(68)

  -  

(68)


(29)

   -  

(29)









Profit/(Loss) before tax

3,082

(840)

2,242


195

  (1,723)  

(1,528)









Taxation

                   (625)  

187  

         (438)  


(59)

228  

169









Profit/(Loss) for the Year

2,457

(653)

1,804


136

  (1,495)  

(1,359)









Other comprehensive income

                   -  

-  

  -  


-  

-  

              -  









Total comprehensive income/(expense) for the year

2,457

(653)

1,804


136

 (1,495)  

(1,359)









Earnings per share








Basic



£0.13




(£0.10)

Diluted



£0.12




(£0.10)

 



 

Condensed consolidated balance sheet

At 31 December 2017

 





31 December 2017


31 December 2016





£'000


£'000

ASSETS







Non-current assets





Property plant and equipment


539


209

Intangible assets



  56


57

Deferred tax



1,568


467





2,163


733








Current assets






Trade and other receivables


13,011


4,891

Cash and cash equivalents


4,887


5,197





17,898


10,088








Total assets



20,061


10,821








LIABILITIES






Current liabilities






Trade and other payables


(10,877)


(5,340)








Non-current liabilities


(371)  


  (72)  








Total liabilities



(11,248)


(5,412)








Net assets



8,813


5,409








Equity







Share capital



70


70

                           -  

Share premium



  -  


Merger reserve



(50)


(50)

Retained earnings



8,793


5,389





8,813


5,409

 



 

Condensed consolidated statement of changes in equity

For the year ended 31 December 2017



Share  Capital

Share Premium

Merger Reserve

Retained Earnings

TOTAL



£'000

£'000

£'000

£'000

£'000








Balance at 1 January 2017


70                     

-

(50)

5,389

5,409








Total comprehensive income for the year







Profit for the year


-                   

-

-

1,804

1,804

Other comprehensive income


-                     

-

-

-

-



-                     

-                       

-                         

1,804

1,804








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

-

-                       

-

1,600

1,600








Balance at 31 December 2017


70

-

(50)

8,793

8,813















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                    

-

(50)

5,389

5,409

 



 

Condensed consolidated statement of cash flows

For the year ended 31 December 2017

 








2017



2016








£'000



£'000

Cash flows from operating activities








Profit/(Loss) for the financial year





1,804



(1,359)

Adjustments for:










Depreciation of property plant and equipment



211



108

Amortisation of intangible assets





1



2

Finance income






(14)



(19)

Finance costs






68



29

Taxation







438



(169)

Share based payment charge




800



1,272  

Increase in trade and other receivables




(8,121)



(3,828)

Increase in trade and other creditors




5,047



3,022

Increase in provisions for employee benefits





299



72












Net cash from operating activities




533



(870)












Cash flows from investing activities








Purchase of intangible assets





          -  



-

Purchase of property plant and equipment




(541)



(162)

Interest received






14



19












Net cash from investing activities




(527)



(143)












Cash flows from financing activities



















Net proceeds from issue of new shares




-



        6,413  

Dividend paid during the year






          (316)  



-

Repayment of borrowings





-



(250)












Net cash from financing activities




(316)



6,163












Net (decrease)/increase in cash and cash equivalents



(310)



5,150

Cash and cash equivalents at the start of the year



5,197



47

Cash and cash equivalents at the end of the year


4,887



5,197

 

 



 

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 2017 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 2017, 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 2017 or 2016 but is derived from those financial statements.

Statutory financial statements for 2016 have been delivered to the registrar of companies and those for 2017 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 2017 the Group had net assets of £8.8m (2016: net assets of £5.4m). 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. The Group's hedging strategy is one of the principal considerations of the Board when assessing the Group's ability to continue as a going concern.

The Group is at risk from price movements in the gas and electricity market. Customers are signed up to fixed term contracts for the supply of energy at a fixed price. Any increase in the wholesale price of gas and electricity opens the Group up to a potential risk.

The Group's policy is to operate a robust and timely commodity (power and gas) purchasing strategy to maintain an efficient and effective hedge that backs the fixed price sales and protects the business against potential market volatility. Some of the funds raised by the Company as a result of the IPO have been used to ensure that the hedging policy is adhered to by providing collateral for letters of credit that are required by trading counterparties in the wholesale market.

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 electricity supply industry and its reliance upon estimated meter readings, electricity revenue includes the Directors' best estimate of differences between estimated sales and billed sales. The Group makes estimates of customer electricity consumption, based on available industry data, and also seasonal usage curves that have been estimated through historic actual usage data.

Electricity revenue for the year-ended 31 December 2017 of £40.0m (2016: £12.8m) includes £11.6m of revenue (2016: £3.4m) that has either been billed on estimated usage or has been accrued based on estimated 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 (2016: 100 per cent).

The Group has no individual customers representing over 10 per cent of revenue (2016: none).

 

3. Exceptional items

As described in the Finance Review, unrealised gains or losses on derivative contracts are treated as exceptional items, amounting to a gain of £259,000 as at 31 December 2017 (2016: nil).

IFRS2 charges in relation to share based payments are recognised as an exceptional item, being a cost of £1.1m in the year to 31 December 2017 (2016: £1.3m).

The Group incurred legal and professional fees in the year ended 31 December 2017 of £nil (2016: £379,000) in relation to the placing of ordinary shares and admission to AIM.

 

 

 

 

4. Earnings per share

Basic earnings per share 



















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

ordinary shares outstanding.






































2017


2016









£'000


£'000













Profit/(Loss) attributable to ordinary shareholders



1,804


(1,359)




















2017


2016


Weighted average number of ordinary shares


















At the start of the year





14,054,055


10,000,000


Effect of shares issued in the year




-


3,212,229  













Number of ordinary shares for basic calculation


14,054,055


13,212,229


Dilutive impact of outstanding share options


1,133,070


1,094,500


Number of ordinary shares for diluted calculation


15,187,125


14,306,729




















2017


2016









£


£


Earnings per share











Basic






0.13


(0.10)


Diluted






0.12


(0.09)













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:



















2017


2016









£'000


£'000


Adjusted earnings per share









Profit/(Loss) for the year



1,804


(1,359)


Add back:











Exceptional items






-


   379  


Unrealised gains on derivative contracts






(259)


-


Share based payment charge after tax




912


     1,116  













Adjusted basic earnings for the year




2,457


136




















2017


2016









£


£













Adjusted earnings per share




0.17


0.01













 

 

5. Dividends

The Group proposed and paid an interim dividend in relation to 2017 of 1.0p per share (2016: 0.75p per share). The total interim dividend of £140,541 was paid to shareholders on 9 January 2018.

The proposed final dividend in relation to 2017, of 2.0p per share (2016: 1.5p per share), will be subject to approval at the AGM on 24 May 2018.

 

6. Taxation






















2017


2016






£'000


£'000

Current tax charge






Current year




450


   25  

Adjustment in respect of prior years


 (25)


  -  






425


   25  









Deferred tax credit






Current year




(11)


   (219)

Adjustment in respect of prior years


24


     25  






13


   (194)









Total tax charge




438


   (169)









Tax recognised directly in equity













Current tax recognised directly in equity


     -  


      -  

Deferred tax recognised directly in equity


1,116


 69  









Total tax recognised directly in equity


             1,116


    69  

















Reconciliation of effective tax rate













Profit/(loss) before tax




2,242


   (1,528)









Tax at UK Corporate tax rate of 19.25% (2016: 20%)


432


   (306)

Expenses not deductible for tax purposes


6


73

Adjustment in respect of prior periods - current tax

(25)


   25

Adjustment in respect of prior periods - deferred tax

24


-

Reduction in tax rate on deferred tax balances

1


39









Tax charge/(credit) for the year



438


    (169)

 

 

 

7. Trade and other receivables





2017


2016





£'000


£'000








Trade receivables



  7,969


 2,663  

Accrued income



   4,162


      1,904

Prepayments



  235


    83

Other receivables



  386


    241  

Financial derivative asset


   259  


    -





  13,011


      4,891

 

8. Cash and cash equivalents






2017


2016






£'000


£'000









Cash at bank and in hand



1,387     


379

Short term deposits




3,500


4,818






4,887


5,197

 

9. Trade and other payables





2017


2016





£'000


£'000








Current






Trade payables



2,044


  431

Loans from connected parties


  -  


   -

Accrued expenses



7,081


  3,602

Corporation tax



448


25

Other payables



1,304


1,282





10,877


     5,340

 

Non-current




Group share bonus liabilities

371


72

 

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

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

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 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;

·     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 do not meet the stringent requirements of IAS 39, and so are subject to fair value measurement through the income statement.

The fair value mark to market adjustment at 31 December 2017 is £259,000.

 

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:

 






2017


2016






£'000


£'000









Not past due



5,346


1,434

Past due (0-30 days)



1,419


523

Past due (31-120 days)



1,022


670

More than 120 days




182


36






7,969


2,663

 

At 31 December 2017 the Group held a provision against doubtful debts of £101,000 (2016: £50,000).

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 2017) 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 2017 the Group had £4.9m 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 2017






6 April 2017

£0.005

3 Years

6 Apr 2027

114,270

6 April 2017

£2.844

6.5 Years

6 Apr 2027

228,540

28 September 2017

£5.825

6.5 Years

28 Sep 2027

54,000






 

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















2017


2016












Balance at the start of the period


1,094,500  


    -  












Granted




   396,810


  1,108,000  



Forfeited




(27,000)


   (13,500)  



Lapsed




    -  


   -  



Exercised




    -  


     -  












Balance at the end of the period


    1,464,310


1,094,500



Vested at the end of the period


  500,000  


-



Exercisable at the end of the period


     -  


-





















Weighted average exercise price for:










2017


2016












Options granted in the period


£2.43


      £0.13  



Options forfeited in the period


£0.09


    £0.09  



options exercised in the period


-


     -  












Exercise price in the range:







From




£0.005


     £0.09  



To




£5.825


   £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:





2017


2016








Dividend yield




0.3%


       -  

Risk free rate




1.50%


    1.50%  

Share price volatility




33.40%


    35.39%  

Expected life (years)




4.95


     2.55  

Weighted average fair value of options granted during the year


£3.25


     £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 movement in the share price during the period each tranche was awarded, 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:






2017


2016






£'000


£'000









Equity settled share based payment expense



800


1,272

Cash settled share based payment expense




299


72






1,099


1,344

 

Executive Bonuses

As a result of the financial performance in the year to 31 December 2017, the executive directors are entitled under the terms of their service contracts to cash bonuses amounting to approximately £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 Remuneration Committee intends that, in lieu of these bonuses, the Executive Directors will 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. The remuneration committee intends to calculate the number of options to be granted based on the first five trading days of April 2018. 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 2017 and for further years of service until the options vest in April 2021 and expire in April 2028. 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 2017 being £78,000.  

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 2017 the Group paid £120,000 in lease rentals and service charges to CPK Investments Limited (2016: £99,000). The amount owing to CPK Investments at 31December 2017 was £nil.

During the prior financial year, Jinny Kalar provided administration and consulting services to the Group. During the year she received total remuneration of £3,000 (2016: £20,500). The amount owing to Jinny Kalar at 31 December 2017 was £nil.

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

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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