TIDMYU.
RNS Number : 6847M
Yu Group PLC
18 September 2019
Yü Group PLC
(the "Group")
Results for the six months to 30 June 2019
Yü Group PLC (AIM; YU.), the independent supplier of gas,
electricity and water to the UK corporate sector, announces its
half year results for the six months to 30 June 2019.
Financial Review:
Six months to Year to
30 June 31 December
2018 (1)
2019 2018 (1)
---------------------------------- ------------------ -------------
Revenue (GBP'000) 56,561 33,220 80,635
Gross Margin % 3.2% 6.7% 4.0%
Overheads % (charged to adjusted
EBITDA) 7.9% 9.9% 11.8%
Adjusted EBITDA (GBP'000)
(2) (2,674) (1,045) (6,283)
Loss for the period (GBP'000) (2,716) (895) (6,267)
Operating cash inflow/(outflow)
(GBP'000) 3,177 1,980 (1,320)
Cash (GBP'000) 17,421 18,207 14,612
(Loss)/earnings per share:
Adjusted (14.8)p (7.7)p (37.0)p
Statutory (16.7)p (5.9)p (42.0)p
Dividend per share - 1.2p 1.2p
================================== -------- -------- -------------
Notes
1 - 2018 is after certain prior year restatements, consistent
with the methodology applied in FY 2018 annual accounts and as
further disclosed in note 3 of the interim results. Net assets at
30 June 2018 have reduced by GBP4.9m. Payments to third party
intermediaries have also been reclassified from overheads to cost
of sales.
2 - Adjusted EBITDA is earnings before interest, tax,
depreciation and amortisation and also before non-recurring costs,
share based payments and unrealised gains or losses on derivative
contracts. For FY 2018, it also excludes the impact of first-time
adoption of IFRS 9.
-- Revenue increased by 70 per cent. to GBP56.6m (H1 2018: GBP33.2m following restatement)
-- Adjusted EBITDA loss of GBP2.7m, an improvement of GBP2.6m on
H2 2018 loss of GBP5.3m (H1 2018: GBP1.0m loss following
restatement)
-- Cash and cash equivalents of GBP17.4m at 30 June 2019,
despite energy commodity market volatility resulting in GBP3.4m of
cash prepayments to trading counterparties. H2 2019 cash expected
to reduce due to a planned industry payment falling due
-- Contracted revenue of GBP45m for H2 2019. Revenues for FY
2019 expected to be approximately GBP105m
-- At 31 August 2019, contracted revenue for FY 2020 in excess of GBP65m
-- Higher gross margins on new contracts being achieved,
targeting a blended gross margin in high single digits as legacy
contracts expire
-- Overheads reduced to 7.9 per cent. of revenues (H1 2018: 9.9
per cent. and FY 2018: 11.8 per cent.)
Operational Review:
-- Reviewed business plan, to reconfirm strategic priorities following a period of reset
-- Senior management team strengthened with recruitment of a new
Sales and Marketing Director and Head of Debt and Commercial
Operations
-- New sales office in Leicester, increasing the team to 40
people; and investment in a new automated sales platform. Plans to
extend sales operation further with the development of a new
purpose-built office
-- Embedded various internal control improvements and processes,
supported by a second health-check by PwC, readying the Group for
an acceleration in its growth profile
-- Successfully rolled out energy efficiency reporting to customer base
-- Maintained strong customer service levels
Bobby Kalar, Group Chief Executive Officer, said:
"I'm pleased to report that our sales expansion is going to plan
and the compliance and governance measures introduced are
performing well. While low margin legacy contracts are still being
washed through our accounts, we have taken action to improve our
positioning. I look forward to updating the market on our
performance and growth ambitions.
"The investment case for the business remains the same and
market opportunities remain high. I still believe that Yü offers a
fresh approach for small and medium sized businesses who have not
been traditionally engaged in the utilities market. As founder,
majority shareholder and CEO, I am more confident than ever that
our Group is ready and able to take advantage of the enormous
market opportunity available to us."
The information communicated in this announcement would have
constituted inside information for the purposes of Article 7 of
Regulation 596/2014.
For further information please contact:
Yu Group PLC +44 (0) 115 975 8258
Bobby Kalar
Paul Rawson
Shore Capital +44 (0) 20 7408 4090
Edward Mansfield
Anita Ghanekar
James Thomas
Alma PR +44 (0) 7780 901 979
Josh Royston
John Coles
Hilary Buchanan
Helena Bogle
Notes to Editors
Information on the Group
Yü Group PLC, trading as Yü Energy, is an independent supplier
of gas, electricity and water focused on servicing the business
sector throughout the UK. It has no involvement in the domestic
retail market. The Group was listed on the AIM market of the London
Stock Exchange in March 2016.
Chief Executive Officer's Statement
The Board is pleased with the progress made in the first six
months of the year. The business has been reset following the
accounting issues discovered last year, we have bolstered the
management team and are confident in the governance and controls
now in place. With continued development of the contract book and a
focus on quality of business and margins, the Board's objective is
returning the Group to profit as soon as possible.
Group revenues for the period were GBP56.6m (2018, as restated:
GBP33.2m) with contracted revenue of GBP45m, as at 30 June 2019,
which is expected to be recognised in H2 2019. The EBITDA loss to
30 June 2019 was GBP2.7m, being a material reduction on the GBP5.3m
EBITDA loss in H2 2018. The Board anticipates incremental
improvement with EBITDA loss in H2 2019 expected to be
significantly lower and continued progression in FY 2020 as the
historic contract book continues to expire. We made a decision to
temper the rate of revenue growth as we implemented the new
processes and focussed on improving margins. We are now in a
position to resume our focus on growth utilising the solid
foundations in place.
The business and investment case for Yü Group has not changed.
We are a one-stop-shop for businesses gas, electricity and water
needs with a focus on excellence of service and providing
innovative solutions. With a strong order book and clear market
opportunity, we are confident in the long-term prospects for the
Group. Our cash position is robust and we are exploring
opportunities to make greater use of this cash to drive our growth
strategy.
Business Priorities
The Board has reviewed the Group's strategy and direction and
have commenced implementation of various initiatives.
The Group's purpose is to make it easier for businesses to
manage their utilities and, through Yü innovation and simplicity,
we make this happen. We differentiate ourselves from the
competition through great service, bundling solutions in innovative
ways, and accessing the market through new channels. In an enormous
gas and power market across Great Britain, the Group is well
positioned to scale rapidly.
The Board has revalidated its four key strategic focus areas,
all with the objective to drive shareholder value over the
five-year business plan horizon:
1. Growth: by scaling our gas and power supply services in what
is a significant market; a focus on retention of good customers;
and by layering on new services and products. The recent increased
investment in our Leicester sales office will drive continued
controlled growth to reap benefits of scale.
2. Cost Efficiency: through close management of bad debts and
the operating cost base, and utilisation of digital tools to
automate processes. Improvements have already been made, and the
Board are committed to continually refining the systems and
processes to enable economies of scale and drive down the level of
overheads as a percentage of revenues.
3. Cash Generation: via increasing gross margin, the
minimisation of debtors and accrued income, and monitoring cash
volatility caused by the Group's trading arrangements. The Group
currently benefits from a strong cash position and is already
seeing benefits from improved credit and debt collection processes,
and a more commercial approach to its operations.
4. Solid Foundations: to continually improve the business to
provide a great experience to customers and internal teams, whilst
ensuring good governance and the management of risks (including
commodity exposures). New processes, third party reviews and
development of key teams, whilst retaining industry leading
customer service levels has taken significant effort in H1 2019.
These actions enable a solid and robust foundation for the Group to
build on.
The Board are fully committed to executing this plan and look
forward to updating the market on progress at regular
intervals.
Operational Review
The key focus during H1 2019 was to conduct a full review of the
systems and controls supplemented with a second health check report
from PwC. The period under review confirmed the completion and
routine operations of key control and process improvements across
financial and operational functions, and the benefits have started
to materialise through improved Management Information with greater
visibility of our profitability. The Board is confident that the
Group has established strong business foundations and systems from
which to scale the business, in line with the available market
opportunity.
The overall vision of delivering energy requirements to the B2B
SME sector with best-in-class customer service support throughout
the customer journey remains the Group's core ethos. During the
current and previous periods, refinements were made to the
execution of this vision. The initiatives implemented around sales
acquisition and customer lifecycle strategy, including improved
onboarding processes, credit checks and process automation, have
resulted in better margin and lower credit risk customer
acquisitions. As a result, average monthly bookings for the
six-month period under review are at a higher margin compared to
last year, albeit revenue booked is at a lower level. In addition,
a greater focus on customer retention process has been established.
The improvements these measures are expected to deliver will flow
through in due course. Retention levels in the near term will be
impacted as the Group actively manages out legacy low margin
contracts as they wash through the book.
The Board is confident in scaling up the business, and
investment in the business platform continues. The Group recently
announced the expansion of its Leicester sales operations to drive
sales and customer retention, as well as the appointment of a Group
Sales and Marketing Director to strengthen the senior management
team and sales operation. Our new Leicester office currently has 40
people utilising new systems and processes to gain market
share.
Continued implementation of certain technology and systems is a
core priority with process automation in both sales and the
back-office driving efficiency and control. The Board is also
progressing integration of proven tools, used in different ways, to
drive new disruptive sales channels, providing customer's access to
quotes quickly and enabling the Group to engage otherwise
disengaged segments of the market. The Group is excited to be
developing these solutions and will update the market more fully in
due course.
New products and services have been added, including the
provision of energy efficiency reports and consultancy to customers
to reduce their energy bill. Whilst such new services are not yet
contributing significantly to the Group's revenue and EBITDA, the
Board remain committed to enhancing its offering to build on the
existing multi-utility (gas, power and water) supply to business
customers, differentiated by great customer service.
Market
The market opportunity remains substantial. Our sole focus is on
providing energy and related services to small and medium sized
businesses. We have not seen any new entrants into the space and
the competitive landscape remains dominated by large energy
companies that do not have the flexibility, quality of customer
service and range of innovative products that we are able to offer
our target sector.
Energy prices have declined significantly over the period, which
provides the Group with the ability to extend contracts beyond the
existing term whilst ensuring an 'inflation proof' price for the
end customer. The Group has also continued to hedge its forward gas
and power requirement in line with an agreed risk mandate.
Financial Review
The Group had revenues of GBP56.6m in H1 2019, a 70% increase
from H1 2018. With good visibility of future revenue, the Group
anticipates revenues in excess of GBP105m for the full year to 31
December 2019.
Despite significantly reduced bookings (in revenue terms) in H1
2019, as management took time to reset business processes around
sales and onboarding, there remains a strong contract book for FY
2020, with GBP65m already contracted at 31 August 2019. Whilst the
level of revenue growth has reduced from that previously
experienced, the gross margin percentage achieved from bookings in
2019 are significantly above the bookings in 2018, which will lead
to a positive impact on gross margin in future periods. The legacy
contracts will continue to dilute margins in until FY 2021, at
which time the majority of low margin contracts will have
expired.
Having made the appropriate adjustments to sales and onboarding
processes, the Group is now scaling its sales activities in its
core markets and therefore anticipates increased bookings at higher
margins. Due to the contract acquisition and "go-live" cycle, such
future bookings will largely crystallise in revenues and gross
margin from FY 2021.
Consistent with the adjustments disclosed in the FY 2018 annual
report, and other market announcements, the Board has restated the
H1 2018 results as disclosed in note 3. The Group has also adopted
IFRS 16 (Leases) and as such has recognised a GBP0.6m asset and
corresponding lease liability related to the Nottingham head
office, as disclosed in note 1 to these half-year results. In
addition, the Board has also decided to reclassify certain payments
to Third-Party Intermediaries to cost of sales, as opposed to
overheads, leading to reduced gross margin and an equal reduction
to operating costs.
Gross margin, after adjustment, is 3.2% of revenues for the
period, a reduction from historic levels (4% for FY 2018; 6.7% in
H1 2018). This decline is a consequence of the previously signed
low margin contracts as described above, which will continue to
dilute margin, albeit at a reducing impact across the contract
portfolio in H2 2019 and FY 2020. For H1 2019, the priority has
been on securing new bookings, and optimising other commercial
activity, so as to achieve an overall blended gross margin in high
single digits over the customer lifecycle.
The Board has also performed various actions to manage overheads
more closely. Such overheads charged to Adjusted EBITDA (which
includes bad debts) reduced to 7.9% of revenues (11.8% for FY 2018;
9.9% in H1 2018). The operational investment in sales that has
recently mobilised will cause some increase in overheads in the
short term, though the Board believes that other overheads can
benefit from significant economies of scale due to its utilisation
of certain systems.
Trade receivables, net of provision, increased to GBP5.7m at 30
June 2019 (an increase of GBP2.6m from 31 December 2018) mainly as
a result of some sales invoices not falling due at the balance
sheet date, and due to the application of new charges to overdue
debts. This increase was mitigated by a GBP3.3m reduction in
accrued income (GBP6.4m at 30 June 2019; GBP9.7m at 31 December
2018). In addition, accruals increased significantly to GBP22.9m
(31 December 2018: GBP15.6m) due to the growth of the business and
for certain industry payments which fall due in H2 2019.
Cash at 30 June 2019 was GBP17.4m (GBP18.2m at 30 June 2018;
GBP14.6m at 31 December 2018). Whilst this level of cash was
broadly in line with expectation, and is sufficient to meet a large
industry payment due in H2 2019, the decrease in energy commodity
markets has led to some temporary volatility caused by cash margin
calls (GBP3.4m at 30 June 2019) on hedging arrangements with third
parties. Such margin calls arise when commodity markets decrease
when compared to the traded price of the Group's hedging position,
being the Mark to Market position ("MtM"), and results in the
requirement to post cash collateral where such MtM exceeds agreed
credit lines. This cash collateral is recovered as the MtM position
changes and as the forward hedge trades out. The Board continues to
assess options to consider how to use its cash to drive greater
value, whilst ensuring there is sufficient cash to manage future
energy commodity market volatility.
The Group has also entered into a conditional agreement to
purchase a newly developed office building and land at a site in
central Leicester, in line with its business plan to continue to
invest in expanding its sales operations. It is envisaged that this
office will become operational in early 2021.
Outlook
The results for the first half of the financial year demonstrate
a resetting of the business operations with a renewed emphasis on
profitability and clarity of contract book. The Group made good
progress against its core strategic growth objective in the B2B SME
segment of the energy market.
The Group expects revenue of approximately GBP105m for the full
year to 31 December 2019 as a result of the existing contract book,
combined with incremental bookings growth from new accounts and
additional revenue, beyond that contracted, from existing
customers.
Revenues in FY 2020 are anticipated to be broadly flat due to
the Board taking time to reset certain sales processes in H1 2019
and active management to exit the Group from lower margin legacy
contracts. Longer term, the Group expects revenues to grow
significantly with a renewed emphasis on sales.
Gross margins are expected to increase as the legacy contracts
time expire, and the Group benefits from its positive commercial
actions. EBITDA loss in the second half of 2019 is therefore
anticipated to be significantly lower than H1 2019 and will
continue to fall in 2020.
The Group's balance sheet is robust, providing the necessary
capital to support the Group's ambitions.
The market opportunity is as attractive as ever. The Group now
has the platform and processes in place from which to scale the
operations and investment in the teams, infrastructure and
portfolio of products has continued. While these initiatives will
take time to deliver an acceleration in growth, the Board is
confident in the long-term outlook for the Group.
Condensed consolidated statement of profit and loss and other
comprehensive income
For the six months ended 30 June 2019
6 months 6 months 12 months
ended ended ended 31
30 June 30 June December
2019 2018 2018
(Unaudited) (Unaudited
- Restated) (Audited)
GBP'000 GBP'000 GBP'000
--------------------------- --- --- ------------ ------------- ----------
Revenue 56,561 33,220 80,635
Cost of sales (54,775) (30,984) (77,387)
------------------------------------- ------------ ------------- ----------
Gross profit 1,786 2,236 3,248
------------------------------------- ------------ ------------- ----------
Operating costs before
non-recurring items,
unrealised gains on
derivative contracts
and IFRS 2 charges (4,657) (3,463) (11,963)
Operating costs -
non-recurring items (67) - (441)
Operating costs -
unrealised (losses)/gains
on derivative contracts (367) 727 (125)
Operating costs -
IFRS 2 charges 57 (370) (314)
------------------------------------- ------------ ------------- ----------
Total operating costs (5,034) (3,106) (12,843)
------------------------------------- ------------ ------------- ----------
Loss from operations (3,248) (870) (9,595)
Finance income 19 8 21
Finance costs (27) (33) (63)
------------------------------------- ------------ ------------- ----------
Loss before tax (3,256) (895) (9,637)
Taxation 540 - 3,370
------------------------------------- ------------ ------------- ----------
Loss for the period (2,716) (895) (6,267)
-------------------------------- ------- ------------ ------------- ----------
Other comprehensive income - - -
-------------------------------- --- ------------ ------------- ----------
Total comprehensive
income for the period (2,716) (895) (6,267)
------------------------------------- ------------ ------------- ----------
Earnings per share
Basic GBP(0.17) GBP(0.06) GBP(0.42)
Diluted - - -
------------------------------------- ------------ ------------- ----------
Amounts payable to Third-Party Intermediaries of GBP1,719,000
have been included in cost of sales in the 6 months ended 30 June
2019. The comparative periods have been restated to reclassify
amounts that had previously been included in operating costs (6
months ended 30 June 2018: GBP970,000; Year ended 31 December 2018:
GBP2,625,000).
Condensed consolidated balance sheet
At 30 June 2019
1 January
30 June 30 June 2018 (Audited 31 December
2019 (Unaudited) 2018 (Unaudited - Restated) 2018 (Audited)
GBP'000 - Restated) GBP'000 GBP'000
GBP'000
------------------------------- --------------------- ----------------- -------------- ----------------
ASSETS
Non-current assets
Property, plant and equipment 364 632 539 395
Right-of-use asset 562 - - -
Intangible assets 53 55 56 54
Deferred tax 3,866 1,631 1,568 3,325
------------------------------- --------------------- ----------------- -------------- ----------------
4,845 2,318 2,163 3,774
------------------------------- --------------------- ----------------- -------------- ----------------
Current assets
Trade and other receivables 16,139 11,694 10,165 13,569
Cash and cash equivalents 17,421 18,207 4,887 14,612
------------------------------- --------------------- ----------------- -------------- ----------------
33,560 29,901 15,052 28,181
------------------------------- --------------------- ----------------- -------------- ----------------
Total assets 38,405 32,219 17,215 31,955
------------------------------- --------------------- ----------------- -------------- ----------------
LIABILITIES
Current liabilities
Trade and other payables (30,493) (14,428) (10,458) (21,517)
Non-current liabilities (441) (492) (371) -
------------------------------- --------------------- ----------------- -------------- ----------------
Total liabilities (30,934) (14,920) (10,829) (21,517)
------------------------------- --------------------- ----------------- -------------- ----------------
Net assets 7,471 17,299 6,386 10,438
------------------------------- --------------------- ----------------- -------------- ----------------
EQUITY
Share capital 81 81 70 81
Share premium 11,690 11,689 - 11,689
Merger reserve (50) (50) (50) (50)
Retained earnings (4,250) 5,579 6,366 (1,282)
------------------------------- --------------------- ----------------- -------------- ----------------
7,471 17,299 6,386 10,438
------------------------------- --------------------- ----------------- -------------- ----------------
Condensed consolidated statement of changes in equity
For the six months ended 30 June 2019
Share Share Merger Retained
capital premium reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- -------- -------- -------- --------- --------
Balance at 1 January 2019 81 11,689 (50) (1,282) 10,438
---------------------------------- -------- -------- -------- --------- --------
Total comprehensive income
for the period
Loss for the period - - - (2,716) (2,716)
Other comprehensive income - - - - -
---------------------------------- -------- -------- -------- --------- --------
- - - (2,716) (2,716)
---------------------------------- -------- -------- -------- --------- --------
Transactions with owners
of the Company
Contributions and distributions
Equity-settled share based
payments - - - (57) (57)
Deferred tax on share based
payments - - - - -
Proceeds from share issues - 1 - - 1
Equity dividend paid in
the year - - - (195) (195)
---------------------------------- -------- -------- -------- --------- --------
Total transactions with
owners of the Company - 1 - (252) (251)
---------------------------------- -------- -------- -------- --------- --------
Balance at 30 June 2019 81 11,690 (50) (4,250) 7,471
---------------------------------- -------- -------- -------- --------- --------
Balance at 1 January 2018
(as previously reported) 70 - (50) 8,793 8,813
Impact of prior period adjustment
(note 3) - - - (2,427) (2,427)
---------------------------------- -------- -------- -------- --------- --------
Balance at 1 January 2018
(restated) 70 - (50) 6,366 6,386
---------------------------------- -------- -------- -------- --------- --------
Total comprehensive income
for the period
Loss for the period (restated) - - - (895) (895)
Other comprehensive income - - - - -
---------------------------------- -------- -------- -------- --------- --------
- - - (895) (895)
---------------------------------- -------- -------- -------- --------- --------
Transactions with owners
of the Company
Contributions and distributions
Equity-settled share based
payments - - - 249 249
Deferred tax on share based - - - - -
payments
Proceeds from share issues 11 12,079 - - 12,090
Share issue costs - (390) - - (390)
Equity dividend paid in
the year - - - (141) (141)
---------------------------------- -------- -------- -------- --------- --------
Total transactions with
owners of the Company 11 11,689 - 108 11,808
---------------------------------- -------- -------- -------- --------- --------
Balance at 30 June 2018
(restated) 81 11,689 (50) 5,579 17,299
---------------------------------- -------- -------- -------- --------- --------
Condensed consolidated statement of cash flows
For the six months ended 30 June 2019
6 months 6 months 12 months
ended ended ended 31
30 June 30 June December
2019 2018 2018
(Unaudited) (Unaudited (Audited)
- Restated)
GBP'000
GBP'000 GBP'000
----------------------------------------------------- ------------ ------------- ----------
Cash flows from operating activities
Loss for the financial period (2,716) (895) (6,267)
Adjustments for:
Depreciation of property, plant and equipment
and right-of-use assets 196 152 291
Amortisation of intangible assets 1 1 2
Finance income (19) (8) (21)
Finance costs 27 33 63
Taxation (540) - (3,370)
Share based payment charge (57) 249 685
Increase in trade and other receivables (2,570) (1,528) (3,404)
Increase in trade and other creditors 8,855 3,855 11,072
(Decrease)/increase in provisions for employee
benefits - 121 (371)
----------------------------------------------------- ------------ ------------- ----------
Net cash from/(used in) operating activities 3,177 1,980 (1,320)
----------------------------------------------------- ------------ ------------- ----------
Cash flows from investing activities
Purchase of property, plant and equipment (105) (244) (147)
Net Interest (9) 8 (42)
----------------------------------------------------- ------------ ------------- ----------
Net cash used in investing activities (114) (236) (189)
----------------------------------------------------- ------------ ------------- ----------
Cash flows from financing activities
Net proceeds from share placing and option exercises 1 11,717 11,700
Dividend paid during the year (195) (141) (466)
Payment of lease liabilities (60) - -
----------------------------------------------------- ------------ ------------- ----------
Net cash (used in)/from financing activities (254) 11,576 11,234
----------------------------------------------------- ------------ ------------- ----------
Net increase in cash and cash equivalents 2,809 13,320 9,725
Cash and cash equivalents at the start of the
period 14,612 4,887 4,887
----------------------------------------------------- ------------ ------------- ----------
Cash and cash equivalents at the end of the
period 17,421 18,207 14,612
----------------------------------------------------- ------------ ------------- ----------
Notes to the condensed consolidated half yearly financial
statements
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
half yearly financial statements ("Half yearly financial
statements") as at and for the six months ended 30 June 2019
comprise the Company and its subsidiaries (together referred to as
the "Group"). The Group is primarily involved in the supply of
electricity, gas and water to SMEs and larger corporates in the
UK.
Basis of preparation
The condensed consolidated interim financial information for the
six months ended 30 June 2019 has been prepared in accordance with
the presentation, recognition and measurement requirements of
applicable International Financial Reporting Standards adopted by
the European Union ('IFRS') except that the Group has not applied
IAS 34, Interim Financial Reporting, which is not mandatory for UK
Companies listed on AIM, in the preparation of the condensed
consolidated interim financial information.
The unaudited condensed consolidated interim financial report
for the six months ended 30 June 2019 does not include all of the
information required for full annual financial statements, and does
not comprise statutory accounts within the meaning of section 434
of the Companies Act 2006. This report should therefore be read in
conjunction with the Group financial statements for the year ended
31 December 2018, which is available on the Group's investor
website. The comparative figures for the year ended 31 December
2018 have been audited. The comparative figures for the half year
ended 30 June 2018 are unaudited.
The accounting policies adopted in these condensed consolidated
half yearly financial statements are consistent with the policies
applied in the 2018 group financial statements.
The condensed consolidated financial information is presented in
British pounds sterling (GBP) and all values are rounded to the
nearest thousand (GBP000) except where otherwise indicated.
Going concern
At 30 June 2019 the Group had net assets of GBP7.5m (31 December
2018: net assets of GBP10.4m). Management prepares detailed budgets
and forecasts of financial performance and cash flow over the
coming 12 to 36 months.
The Group's hedging strategy and cash collateral requirements
for its trading arrangements are principal considerations of the
Board when assessing the Group's ability to continue as a going
concern, as are the timing of certain material payments to industry
in H2 2019. Management has also considered the material losses
incurred in FY 2018 and any subsequent impact on the potential to
control the level of bad debt incurred by the Group, the ability to
enhance gross margin on customer contracts, and the control of key
financial data in the business.
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 the financial information in conformity with
adopted IFRSs requires the use of estimates and assumptions.
Although these estimates are based on management's best knowledge,
actual results ultimately may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the
period in which the estimates are revised and in any future periods
affected. The key areas of estimation and judgement are the level
of accrual for unbilled revenue, the inputs to the IFRS 2 share
option charge calculations and the recoverability of deferred tax
assets and trade receivables.
Revenue recognition
The Group enters into contracts to supply gas, electricity and
water to its customers. Revenue represents the fair value of the
consideration received or receivable from the sale of actual and
estimated gas, electricity and water supplied during the period,
net of discounts, Climate-change levy and value-added tax. Revenue
is recognised on consumption.
Revenue is recognised when the associated risks and rewards of
ownership have been transferred, to the extent that it is probable
that the economic benefits associated with the transaction will
flow to the Group, and where the revenue can be measured
reliably.
Due to the nature of the energy supply industry and its reliance
upon estimated meter readings, both gas and electricity revenue
includes the Directors' best estimate of differences between
estimated sales and billed sales. The Group makes estimates of
customer consumption based on available industry data, and also
seasonal usage curves that have been estimated through historical
actual usage data.
Financial instruments
Non-derivative financial instruments
Non-derivative financial instruments comprise trade and other
receivables, cash and cash equivalents and trade and other
payables.
Trade and other receivables
Trade and other receivables are recognised initially at fair
value. Subsequent to initial recognition they are measured at
amortised cost using the effective interest method, less any
impairment losses.
Trade and other payables
Trade and other payables are recognised initially at fair value.
Subsequent to initial recognition they are measured at amortised
cost using the effective interest method.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and short-term
deposits (monies held on deposit are accessible with one month's
written notice). Bank overdrafts that are repayable on demand and
form an integral part of the Group's cash management are included
as a component of cash and cash equivalents.
Derivative financial instruments
The Group uses commodity purchase contracts to hedge its
exposures to fluctuations in gas and electricity commodity prices.
The majority of commodity purchase contracts are expected to be
delivered entirely to the Group's customers and therefore the Group
classifies them as "own use" contracts and outside the scope of
IFRS 9. This is achieved when:
-- a physical delivery takes place under all such contracts;
-- the volumes purchased or sold under the contracts correspond
to the Group's operating requirements; and
-- no part of the contract is settled net in cash.
This classification as "own use" allows the Group not to
recognise the commodity purchase contracts on its balance sheet at
the period end.
The commodity purchase contracts that do not meet the criteria
listed above are recognised at fair value under IFRS 9. The gain or
loss on remeasurement to fair value is recognised immediately in
profit or loss.
Classification of financial instruments issued by the Group
Following the adoption of IAS 32, financial instruments issued
by the Group are treated as equity only to the extent that they
meet the following two conditions:
(a) they include no contractual obligations upon the Group to
deliver cash or other financial assets or to exchange financial
assets or financial liabilities with another party under conditions
that are potentially unfavourable to the Group; and
(b) where the instrument will or may be settled in the Group's
own equity instruments, it is either a non-derivative that includes
no obligation to deliver a variable number of the Company's own
equity instruments or is a derivative that will be settled by the
Company's exchanging a fixed amount of cash or other financial
assets for a fixed number of its own equity instruments.
To the extent that this definition is not met, the proceeds of
issue are classified as a financial liability. Where the instrument
so classified takes the legal form of the Company's own shares, the
amounts presented in these financial statements for called up share
capital and share premium account exclude amounts in relation to
those shares.
Share based payments
Share based payment arrangements in which the Group receives
goods or services as consideration for its own equity instruments
are accounted for as equity-settled share based payment
transactions, regardless of how the equity instruments are obtained
by the Group.
The grant date fair value of share based payment awards granted
to employees is recognised as an employee expense, with a
corresponding increase in equity, over the period that the
employees become unconditionally entitled to the awards. The fair
value of the options granted is measured using an option valuation
model, taking into account the terms and conditions upon which the
options were granted. The amount recognised as an expense is
adjusted to reflect the actual number of awards for which the
related service and non-market vesting conditions are expected to
be met, such that the amount ultimately recognised as an expense is
based on the number of awards that do meet the related service and
non-market performance conditions at the vesting date. For share
based payment awards with non-vesting conditions, the grant date
fair value of the share based payment is measured to reflect such
conditions and there is no true-up for differences between expected
and actual outcomes.
Changes in Accounting Policies - IFRS 16 Leases
This note explains the impact of the adoption of IFRS 16 Leases
on the Group's financial statements and discloses the new
accounting policies that have been applied from 1 January 2019.
The Group has adopted IFRS 16 retrospectively from 1 January
2019 and has not restated comparatives for the 2018 reporting
period, as permitted under the specific transitional provisions in
the standard. The reclassifications and the adjustments arising
from the new leasing rules are therefore recognised in the opening
balance sheet on 1 January 2019.
Adjustments recognised on adoption of IFRS 16
On adoption of IFRS 16, the Group recognised lease liabilities
in relation to leases which had previously been classified as
'operating leases' under the principles of IAS 17 Leases. These
liabilities were measured at the present value of the remaining
lease payments, discounted using the Group's incremental borrowing
rate as of 1 January 2019. The weighted average incremental
borrowing rate applied to the lease liabilities on 1 January 2019
was 2%.
The Group doesn't have any leases that were previously
classified as finance leases under IAS 17.
GBP'000
------------------------------------------- ---------
Operating lease commitments disclosed
at 31 December 2018 669
Less:
Impact of Discounting (40)
Short term leases recognised as an expense
on a straight-line basis (6)
------------------------------------------- ---------
Lease liability recognised at 1 January
2019 623
------------------------------------------- ---------
Of Which: 125
Current lease liabilities 498
Non-current lease liabilities
------------------------------------------- ---------
In applying IFRS 16 for the first time, the Group has used the
following practical expedients permitted by the standard:
-- the use of a single discount rate to a portfolio of leases
with reasonably similar characteristics
-- reliance on previous assessments on whether leases are onerous
-- the accounting for operating leases with a remaining lease
term of less than 12 months as at 1 January 2019 as short-term
leases
-- the exclusion of initial direct costs for the measurement of
the right-of-use asset at the date of initial application, and
-- the use of hindsight in determining the lease term where the
contract contains options to extend or terminate the lease.
The Group leases its head office premises and a number of cars.
Rental contracts are typically made for fixed periods of 3 to 10
years but may have extension options. Lease terms are negotiated on
an individual basis and contain different terms and conditions. The
lease agreements do not impose any covenants, but leased assets may
not be used as security for borrowing purposes.
Until the 2018 financial year, leases of property, plant and
equipment were classified as either finance or operating leases.
Payments made under operating leases (net of any incentives
received from the lessor) were charged to profit or loss on a
straight-line basis over the period of the lease.
From 1 January 2019, leases are recognised as a right-of-use
asset and a corresponding liability at the date at which the leased
asset is available for use by the Group. Each lease payment is
allocated between the liability and finance cost. The finance cost
is charged to profit or loss over the lease period so as to produce
a constant periodic rate of interest on the remaining balance of
the liability for each period. The right-of-use asset is
depreciated over the shorter of the asset's useful life and the
lease term on a straight-line basis.
Assets and liabilities arising from a lease are initially
measured on a present value basis. Lease liabilities include the
net present value of the following lease payments:
-- fixed payments (including in-substance fixed payments), less
any lease incentives receivable
-- variable lease payment that are based on an index or a rate
-- amounts expected to be payable by the lessee under residual value guarantees
-- the exercise price of a purchase option if the lessee is
reasonably certain to exercise that option, and
-- payments of penalties for terminating the lease, if the lease
term reflects the lessee exercising that option.
The lease payments are discounted using the interest rate
implicit in the lease. If that rate cannot be determined, the
Group's incremental borrowing rate is used, being the rate that the
Group would have to pay to borrow the funds necessary to obtain an
asset of similar value in a similar economic environment with
similar terms and conditions
Right-of-use assets are measured at cost comprising the
following:
-- the amount of the initial measurement of lease liability
-- any lease payments made at or before the commencement date
less any lease incentives received
-- any initial direct costs, and
-- restoration costs.
Taxation
Tax on the profit or loss for the period comprises current and
deferred tax. Tax is recognised in the statement of profit and loss
except to the extent that it relates to items recognised directly
in equity, in which case it is recognised in equity.
Current tax is the expected tax payable or receivable on the
taxable income or loss for the period, using tax rates enacted or
substantively enacted at the balance sheet date, and any adjustment
to tax payable in respect of previous periods.
Deferred tax is provided on temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. The following
temporary differences are not provided for: the initial recognition
of goodwill; the initial recognition of assets or liabilities that
affect neither accounting nor taxable profit other than in a
business combination; and differences relating to investments in
subsidiaries to the extent that they will probably not reverse in
the foreseeable future. The amount of deferred tax provided is
based on the expected manner of realisation or settlement of the
carrying amount of assets and liabilities, using tax rates enacted
or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is
probable that future taxable profits will be available against
which the temporary difference can be utilised.
2. Segmental analysis
Operating segments
The Directors consider there to be one operating segment, being
the supply of electricity, gas and water to SMEs and larger
corporates.
Geographical segments
100 per cent of the Group revenue is generated from sales to
customers in the United Kingdom (2018: 100 per cent).
The Group has no individual customers representing over 10 per
cent of revenue (2018: nil).
3. Prior Period Adjustment - Correction of an error
Following a detailed accounting review carried out by the Board
and the audit committee in Quarter 4 of 2018, there have been prior
period adjustments. The adjustments relate to errors that impact
the annual financial statements previously reported for the years
ended 31 December 2016 and 31 December 2017, and the interim
statement for the 6 months ended 30 June 2018.
The errors arose as a result of the incorrect measurement of
accrued income (based on an inaccurate data set being utilised) and
due to the impairment of trade receivables.
The impairment of trade receivables is a result of ledger
reconciliation issues between the Group's accounting and billing
systems, and the non-recoverability of amounts due from customers
who had entered administration or liquidation at the relevant
balance sheet date. The Group has therefore not restated the prior
periods in relation to any provision against trade receivables on
customer balances due at 31 December 2017 and 30 June 2018 which
had, in many cases, not been paid during FY 2018. Such balances
resulted in a bad debt charge for FY 2018 and were therefore
included the FY 2018 reported loss for the year.
The Board and audit committee have implemented various control
and improvement measures as a result of the identification of the
prior period errors.
The net impact in relation to the errors identified is to reduce
the level of trade and other receivables reported in the previously
reported financial statements and a resulting impact on tax. The
cumulative impact at 30 June 2018 is to reduce trade and other
receivables by GBP5,751,000 (of which GBP2,905,000 reduces the
profit before tax for the 6 month period ending 30 June 2018) and
to reduce the corporation tax liability by GBP801,000.
The total impact on equity is to reduce the 31 December 2017
balance by GBP2,427,000 and to reduce the 30 June 2018 balance by
GBP4,950,000.
Impact on equity (Increase/(decrease) in equity)
30 June 1January
2018 2018
GBP'000 GBP'000
Trade and other receivables (5,751) (2,846)
Total Assets (5,751) (2,846)
Corporation tax payable 801 419
Total liabilities 801 419
----------------------------- --------- --------
Net impact on equity (4,950) (2,427)
----------------------------- --------- --------
Impact on statement of profit or loss (increase/(decrease) in
profit)
30 June
2018
GBP'000
Revenue (2,617)
Operating costs (288)
Corporation tax expense 382
Net impact on profit for the year (2,523)
----------------------------------- --------
Impact on basic, diluted and adjusted Earnings Per Share (EPS)
(Increase/(decrease) in EPS)
30 June
2018
pence
Basic EPS attributable to ordinary shareholders (16.5)
Diluted EPS attributable to ordinary shareholders -
Adjusted EPS attributable to ordinary shareholders (16.6)
4. Reconciliation to Adjusted EBITDA
A key alternative performance measure used by the Directors to
assess the underlying performance of the business is adjusted
EBITDA.
30 June 2019 30 June 31 December
GBP'000 2018 2018
GBP'000 GBP'000
----------------------------------------------- ------------ -------- -----------
Adjusted EBITDA Reconciliation
Loss from operations (3,248) (870) (9,595)
Add back:
Non-recurring items 67 - 441
Impact of first time adoption of IFRS 9 - 150 1,768
Unrealised loss/(gain) on derivative contracts 367 (727) 125
Depreciation of property plant and equipment
and right-of-use assets 196 152 291
Amortisation of intangibles 1 1 2
Equity-settled share based payment charge (57) 249 685
----------------------------------------------- ------------ -------- -----------
Adjusted EBITDA (2,674) (1,045) (6,283)
----------------------------------------------- ------------ -------- -----------
The non-recurring items of GBP67,000 (year ended 31 December
2018: GBP441,000) consists of restructuring payroll costs and legal
and professional fees in relation to the Q4 2018 accounting review
and subsequent regulatory investigation.
5. Earnings per share
Basic (loss)/earnings per share
Basic (loss)/earnings per share is based on the (loss)/profit
attributable to ordinary shareholders and the weighted average
number of ordinary shares outstanding.
30 June 30 June 31 December
2019 2018 2018
GBP'000 GBP'000 GBP'000
-------------------------------------------------------- -------- -------- -----------
Loss for the year attributable to ordinary shareholders (2,716) (895) (6,267)
-------------------------------------------------------- -------- -------- -----------
30 June 30 June 31 December
2019 2018 2018
------------------------------------------------- ---------- ---------- -----------
Weighted average number of ordinary shares
At the start of the period 16,267,555 14,054,055 14,054,055
Effect of shares issued in the period 8,727 1,237,016 787,370
------------------------------------------------- ---------- ---------- -----------
Number of ordinary shares for basic earnings per
share calculation 16,276,282 15,291,071 14,841,425
Dilutive effect of outstanding share options 737,120 971,302 768,025
------------------------------------------------- ---------- ---------- -----------
Number of ordinary shares for diluted earnings
per share calculation 17,013,402 16,262,373 15,609,450
------------------------------------------------- ---------- ---------- -----------
30 June 30 June 31 December
2019 2018 2018
GBP GBP GBP
--------------------------- -------------- ------- -----------
Basic loss per share (0.17) (0.06) (0.42)
Diluted earnings per share - - -
--------------------------- -------------- ------- -----------
Adjusted earnings per share
Adjusted earnings per share is based on the result attributable
to ordinary shareholders before exceptional items and the cost of
cash and equity-settled share based payments, and the weighted
average number of ordinary shares outstanding:
30 June 30 June 31 December
2019 2018 2018
GBP'000 GBP'000 GBP'000
-------------------------------------------------------- -------- -------- -----------
Adjusted earnings per share
Loss for the year attributable to ordinary shareholders (2,716) (895) (6,267)
Add back:
Non-recurring items after tax (see note 4) 54 - 357
Unrealised loss/(gain) on derivative contracts after
tax 297 (589) 101
Share based payments after tax (46) 300 254
-------------------------------------------------------- -------- -------- -----------
Adjusted basic earnings for the year (2,411) (1,184) (5,555)
-------------------------------------------------------- -------- -------- -----------
30 June 30 June 31 December
2019 2018 2018
GBP GBP GBP
---------------------------- ------- ------- -----------
Adjusted earnings per share (0.15) (0.08) (0.37)
---------------------------- ------- ------- -----------
6. Taxation
The tax credit for the period has been estimated using a blended
rate of 19.0% on taxable profits and losses and 17.0% on deferred
tax items.
7. Dividends
The directors do not propose the payment of an interim dividend
in relation to 2019 (2018: 1.2p per share).
8. Trade and other receivables
31 December
30 June 30 June 2018
2019 2018 GBP'000
GBP'000 GBP'000
------------------------------------------ --------- --------- ------------
Gross trade receivables 12,033 5,996 7,898
Provision for doubtful debts and expected
credit loss (6,313) (722) (4,803)
5,720 5,274 3,095
Accrued income - net of provision 6,431 4,406 9,688
Prepayments 186 643 245
Other receivables 3,802 385 406
Financial derivative asset - 986 135
10,419 6,420 10,474
------------------------------------------ --------- --------- ------------
Total trade and other receivables 16,139 11,694 13,569
------------------------------------------ --------- --------- ------------
Movements in the provision for doubtful debts and expected
credit loss are as follows:
30 June 30 June 31 December
2019 2018 2018
GBP'000 GBP'000 GBP'000
--------------------------------- -------- -------- -----------
Opening balance 4,803 272 272
Additional provisions recognised 1,510 450 4,531
Provision utilised in the year - - -
Unused amounts reversed - - -
--------------------------------- -------- -------- -----------
Closing balance 6,313 722 4,803
--------------------------------- -------- -------- -----------
In addition to the GBP1,510,000 (year ended 31 December 2018:
GBP4,531,000) provision recognised in relation to trade
receivables, there was a reduction in the provision made against
accrued income of GBP534,000 (year ended 31 December 2018: increase
of GBP875,000). The net bad debt and expected credit loss charge
for the period was therefore GBP976,000 (year ended 31 December
2018: GBP5,406,000).
None of the Group's receivables fall due after more than one
year.
The Directors consider that the carrying amount of trade and
other receivables approximates to their fair value.
Other receivables mainly comprises cash collateral posted to
trading counterparties as cash collateral, as a result of margin
calls based on a reduction in energy commodity markets.
9. Cash and cash equivalents
30 June 2019 30 June 31 December
GBP'000 2018 2018
GBP'000 GBP'000
---------------------------------------- -------- -----------
Cash at bank and in hand 13,921 14,707 11,112
Short-term deposits 3,500 3,500 3,500
--------------------------------- ------ -------- -----------
Total cash and cash equivalents 17,421 18,207 14,612
--------------------------------- ------ -------- -----------
The short-term deposit relates to cash held at bank which is
utilised to support collateral, in the form of letters of credits,
with trading counterparties. Subsequent to the period end, the
Directors decided to remove the short-term deposit of GBP3,500,000,
with the letters of credits cancelled and replaced with direct cash
collateral.
10. Trade and other payables
30 June 30 June 31 December
2019 2018 2018
GBP'000 GBP'000 GBP'000
--------------------------------------- -------- ------------------- -----------
Current
Trade payables 2,457 901 1,231
Accrued expenses 22,894 12,101 15,603
Corporation tax 16 92 16
Derivative financial liability 232 - -
Lease liabilities 121 - -
Other payables 4,773 1,334 4,667
--------------------------------------- -------- ------------------- -----------
Total current trade and other payables 30,493 14,428 21,517
--------------------------------------- -------- ------------------- -----------
Non-current
Group share bonus liabilities - 492 -
Lease liabilities 441 - -
--------------------------------------- -------- ------------------- -----------
Details of the Group share bonus scheme are included in note
12.
Following the adoption of IFRS 16 Leases, the Group now
recognises lease liabilities on its balance sheet, along with a
corresponding right-of-use asset. Further details on this change in
accounting policy are given in note 1.
11. Financial instruments and risk management
The Group's principal financial instruments are cash, trade
receivables, trade payables and derivative financial assets and
liabilities. The Group has exposure to the following risks from its
use of financial instruments:
(a) Fair values of financial instruments
Fair values
Derivative financial instruments are measured at fair value
through profit and loss. The derivative instruments are level 1
financial instruments and their fair value is therefore measured by
reference to quoted prices in active markets for identical assets
or liabilities. All derivatives are held at a carrying amount equal
to their fair value at the period end.
(b) Market risk
Market risk is the risk that changes in market prices, such as
commodity and energy prices, will affect the Group's income.
Commodity and energy prices
The Group uses commodity purchase contracts to manage its
exposures to fluctuations in gas and electricity commodity prices.
The Group's objective is to reduce risk from fluctuations in energy
prices by entering into back to back energy contracts with its
suppliers and customers, in accordance with a board approved risk
mandate. Commodity purchase contracts are entered into as part of
the Group's normal business activities. The majority of commodity
purchase contracts are expected to be delivered entirely to the
Group's customers and are therefore classified as "own use"
contracts. These instruments do not fall into the scope of IFRS 9
and therefore are not recognised in the financial statements. A
proportion of the contracts in the Group's portfolio are expected
to be settled net in cash where 100 per cent of the volume hedged
is not delivered to the Group's customers and is instead sold back
to the grid in order to smooth demand on a real time basis. An
assumption is made based on past experience of the proportion of
the portfolio expected to be settled in this way and these
contracts are measured at fair value. The gain or loss on
remeasurement to fair value is recognised immediately in profit or
loss.
As far as possible, in accordance with the risk mandate, the
Group attempts to match new sales orders with corresponding
commodity purchase contracts. There is a risk that at any point in
time the Group is over or under hedged. Holding an over or under
hedged position opens the Group up to market risk which may result
in either a positive or negative impact on the Group's margin and
cash flow, depending on the movement in commodity prices.
The Board continues to evaluate the use of commodity purchase
contracts and whether their classification as "own use" is
appropriate. The key requirements considered by the Board are as
listed below:
-- whether physical delivery takes place under the contracts;
-- the volumes purchased or sold under the contract correspond
to the Group's operating requirements; and
-- whether there are any circumstances where the Group would settle the contracts net in cash.
All commodity purchase contracts are entered into exclusively
for own use, to supply energy to business customers. However as
noted above, a number of these contracts don't meet the stringent
requirements of IFRS 9, and so are subject to fair value
measurement through the income statement.
The fair value mark to market adjustment at 30 June 2019 is a
loss of GBP367,000 (6 months ended 30 June 2018: gain of
GBP727,000). See note 10 for the corresponding derivative financial
liability.
Liquidity risk from commodity trading
The Group's trading arrangements can result in a cash call being
made by counter-parties when commodity markets are below the
Group's traded position. A significant reduction in electricity and
gas markets could lead to a material cash call from the Group's
trading counter-parties. Whilst such a cash call would not impact
the Group's profit, it would have an impact on the Group's cash
reserves.
(c) Credit risk
Credit risk is the risk of financial loss to the Group if a
customer or counterparty to a financial instrument fails to meet
its contractual obligations, and arises principally from the
Group's receivables from customers.
These trading exposures are monitored and managed at Group
level. All customers are UK based and turnover is made up of a
large number of customers each owing relatively small amounts. New
customers have their credit checked using an external credit
reference agency prior to being accepted as a customer.
Credit risk is also managed through the Group's standard
business terms, which require all customers to make a monthly
payment predominantly by direct debit. At the period 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.
At 30 June 2019 the Group held a provision against doubtful
debts and expected credit loss of GBP6,654,000 (31 December 2018:
GBP5,678,000). The provision is a combined provision against both
trade receivables (GBP6,313,000) and accrued income
(GBP341,000).
(d) Liquidity risk
Liquidity risk is the risk that the Group will not be able to
meet its financial obligations as they fall due. The Board is
responsible for ensuring that the Group has sufficient liquidity to
meet its financial liabilities as they fall due and does so by
monitoring cash flow forecasts and budgets. In order to enter into
the necessary commodity purchase contracts, the Group is required
to lodge funds on deposit with its bank. These funds (GBP3.5m at 30
June 2019) 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 period. The
Board have also taken steps to remove certain LOC's to replace by
pure cash collateral, to reduce the costs incurred.
Any excess cash balances are held in short-term, interest
bearing deposit accounts. At 30 June 2019 the Group had GBP17.4m of
cash and bank balances, as per note 9.
(e) Foreign currency risk
The Group trades entirely in pounds sterling and therefore it
has no foreign currency risk.
12. Share based payments
The Group operates a number of share option plans for qualifying
employees of the Group. Options in the plans are settled in equity
in the Company. The options are subject to a vesting schedule, but
not conditional on any performance criteria being achieved. The
only vesting condition is that the employee is employed by the
Group at the date when the option vests.
On 18 June 2019, the Group made its first round of awards under
the new SAYE plan. This plan is available to all employees of the
Group.
The terms and conditions of the grants made under the schemes
are as follows:
Exercisable between
---------------------------
Amount
outstanding
at
Expected Exercise Vesting 31 December
Date of grant term Commencement Lapse price schedule 2018
-------------- -------- ------------- ------------ -------- --------- ------------
17 February 17 February 17 February
2016 2 2018 2026 GBP0.09 1 -
17 February 17 February 17 February
2016 3 2019 2026 GBP0.09 2 27,000
22 December 22 December 22 December
2016 3 2019 2026 GBP3.25 2 13,500
6 April 2017 3 6 April 2020 6 April 2027 GBP0.005 2 79,110
6 April 2017 6.5 6 April 2020 6 April 2027 GBP2.844 2 158,220
28 September 28 September 28 September
2017 6.5 2020 2027 GBP5.825 2 54,000
9 April 2018 3 9 April 2021 9 April 2028 GBP0.005 2 -
9 April 2018 6.5 9 April 2021 9 April 2028 GBP10.38 2 85,351
26 September 26 September 26 September
2018 6.5 2021 2028 GBP8.665 2 6,539
25 February 25 February 25 February
2019 6.5 2022 2029 GBP1.090 2 70,000
25 February 25 February 25 February
2019 3 2022 2029 GBP0.005 2 250,000
1 February
18 June 2019 3 1 August 2022 2023 GBP1.400 3 117,248
-------------- -------- ------------- ------------ -------- --------- ------------
860,968
-------------- -------- ------------- ------------ -------- --------- ------------
The following vesting schedules apply:
1. 50 per cent of options vest on first anniversary of date of
grant and 50 per cent vest on second anniversary.
2. 100 per cent of options vest on third anniversary of date of grant.
3. 100 per cent of options vest on third anniversary of savings contract start date.
The number and weighted average exercise price of share options
were as follows:
30 June 31 December
2019 30 June 2018 2018
------------------------------------- --------- ------------ -----------
Balance at the start of the period 573,290 1,464,310 1,464,310
Granted 437,248 147,778 154,317
Forfeited (136,070) - (31,837)
Lapsed - - -
Exercised (13,500) (1,000,000) (1,013,500)
------------------------------------- --------- ------------ -----------
Balance at the end of the period 860,968 612,088 573,290
------------------------------------- --------- ------------ -----------
Vested at the end of the period 27,000 - -
------------------------------------- --------- ------------ -----------
Exercisable at the end of the period 27,000 - -
------------------------------------- --------- ------------ -----------
Weighted average exercise price for:
Options granted in the period GBP0.55 GBP7.35 GBP7.41
Options forfeited in the period GBP1.62 GBP- GBP5.67
Options exercised in the period GBP0.09 GBP0.09 GBP0.09
------------------------------------- --------- ------------ -----------
Exercise price in the range:
From GBP0.005 GBP0.005 GBP0.005
To GBP10.380 GBP10.380 GBP10.380
------------------------------------- --------- ------------ -----------
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:
30 June 30 June 31 December
2019 2018 2018
----------------------------------------------- ------- ----------- -----------
Dividend yield 0% 0.3% 0.29-0.35%
Risk-free rate 1.5% 1.5% 1.5%
Share price volatility 36.0% 30.4-33.4% 36.0-36.7%
Expected life (years) 3-6.5 3-6.5 years 3-6.5 years
years
Weighted average fair value of options granted GBP0.85 GBP5.57 GBP5.67
during the period
----------------------------------------------- ------- ----------- -----------
The share price volatility assumption is based on the actual
historical share price of the Group since IPO in March 2016.
The Group had previously operated a share bonus plan for all
qualifying employees of the Group. The plan was intended to be
settled in cash if certain financial targets were met. The value of
the bonus pool was to be determined by the number of notional
shares contributed to the pool (50,000 per year based on
achievement of certain financial targets) and the share price
growth of each tranche of shares. However, given the financial
performance of the Group in 2018, the restatement of prior year
financial figures and the subsequent decline in the Group share
price, the scheme has been closed.
The total (credit)/expense recognised for the period arising
from share based payments, is as follows:
30 June 30 June 31 December
2019 2018 2018
GBP'000 GBP'000 GBP'000
-------------------------------------------- -------- -------- -----------
Equity-settled share based payment (credit)
/ expense (57) 249 685
Cash-settled share based payment (credit)
/ expense - 121 (371)
-------------------------------------------- -------- -------- -----------
(57) 370 314
-------------------------------------------- -------- -------- -----------
13. Commitments
Capital commitments
The Group has entered into a conditional agreement to purchase a
newly developed office building and associated land at a site in
Leicester city centre. The total cost is anticipated to be GBP3.4m,
with the cash outflow anticipated to be staggered between 2020 and
H1 2021 (30 June 2018: GBPnil).
Contingent liabilities
The Group had no contingent liabilities at 30 June 2019 (30 June
2018: GBPnil).
14. Related parties and related party transactions
The Group has transacted with CPK Investments Limited, an entity
owned by Bobby Kalar, during the current and prior financial
period.
CPK Investments Limited owns the Nottingham property from which
the Group operates and rents it to Kensington Power Limited under
an operating lease. During H1 2019 the Group paid GBP60,000 in
lease rentals and service charges to CPK Investments Limited (H1
2018: GBP60,000). The amount owing to CPK Investments at 30 June
2019 was GBPnil.
All transactions with related parties have been carried out on
an arm's length basis.
15. Post-balance sheet events
There are no significant or disclosable post-balance sheet
events.
This information is provided by RNS, the news service of the
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IR GGURCBUPBGRM
(END) Dow Jones Newswires
September 18, 2019 02:01 ET (06:01 GMT)
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