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Yu Group shares surge higher after accounting review

“We have made significant progress in implementing new systems and processes and the board is confident that we have weathered the storm”
electricity
Yu Group apologised to shareholders for “the mistakes made”

Shares in Yu Group PLC (LON:YU.) sparked back into life on Wednesday after the energy supplier to SMEs posted a smaller than expected loss for last year, after a detailed accounting review was carried out into previous accounting problems.

In October the AIM-listed outfit lost more than 80% of its market value following a warning that £10mln would have to be chopped from full year profits after admitting it had estimated and invoiced for more electricity than it actually sold.

READ: Yü Group shocker as energy supplier slashes full-year profit guidance to reflect accounting issues

Signed off by new auditor RSM, final results showed an adjusted loss before tax of £6.2mln for 2018, which was lower than the £7.35mln-£7.85mln indicated in January, as revenues jolted up 77% to £80.6mln. A statutory loss per share of 42p compared to a restated 5p of earning per share for 2017.

There was a £5.4mln charge after a large increase in bad debt provisions as a result of a high proportion of growth coming from contracts booked with customers who have a poor payment history, resulting in a significant expected credit loss at the end of the year.

After operating cash outflow of £1.3mln leaving it with cash of £14.6mln at the end of December. By the end of April 2019, the coffers were up to £16.5mln.

Weathering the storm?

As well as apologising to shareholders for “the mistakes made”, chief executive Bobby Kalar claimed the group had made “significant progress in implementing new systems and processes and the board is confident that we have weathered the storm”.

Management of trade receivables is “clearly a continued focus area”, Kalar said, noting a 36% reduction in overdue customer receivables to nine days by the end of the year, from 14 days a year earlier.

But with £3.5mln of the £14.6m cash balance held in bank deposits to support letters of credits to trading counterparties, directors said that the resulting potential volatility in cash balances in falling commodity markets meant they are “reviewing alternative options”.

Contracted revenue for 2019 was £88m by the end of December and so the board expects revenues to increase on last year, though the rate of growth will be significantly lower as a result of a “more prudent level of bookings”, alongside a targeted gross margin of 7.5%-10%.

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

Yu shares were up 75% to 162.2p by lunchtime on Wednesday. 

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