Yu Group PLC Annual Report 2018

← All annual reports

FY2018 Annual Report · Yu Group PLC

Loading PDF…

GROUP PLC

POWERING
BUSINESS

YÜ GROUP PLC
Annual report and financial statements 2018

STRATEGIC REPORT

Who we are

PROVIDERS OF
BUSINESS ENERGY
AND UTILITY SOLUTIONS

Yü Group PLC is a specialist supplier of energy and utility
solutions to UK businesses.

We offer commercial electricity, gas and water supply solutions to SMEs
(small and medium-sized enterprises) and corporate customers.

As a business utility specialist, we combine expert, personal service and competitive
fixed prices tailored to individual business needs.

We have grown rapidly, in a significant market, and we now supply energy to thousands
of sites across the UK.

Our experienced management team has considerable knowledge of the energy sector.
This is combined with a can-do, customer first and innovative culture that means we can
adapt rapidly to capitalise on opportunities in the evolving energy market.

WHAT WE DO

We provide a
one-stop-shop
for businesses’
gas, water and
electricity needs

We provide
excellent service,
and continually
innovate to provide
new solutions to
our customers

We are a highly
scalable business,
in a significant
market, and have
a strong forward
contract book

We have an
experienced team,
committed
to delivering
profitable growth

We have invested
in systems,
governance and
controls to enhance
the management
of our risks

Business review

Financial review
• Revenue increased by 77 per cent. to £80.6m

(2017: £45.6m)

• Adjusted EBITDA1 loss of £6.3m (2017: £1.5m
profit), following a detailed accounting review

•

• Restatement of prior year accounts, reducing

31 December 2017 net assets by £2.4m

• Cash and cash equivalents of £14.6m at

31 December 2018

• Contracted revenue for 2019,

as at 31 December 2018, of £88m

• Overdue customer receivables2 of nine days
at 31 December 2018, down from 14 days
at 31 December 2017

• Raised £11.6m (net of costs) from a share placing

in March 2018

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

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

Operational review
•

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

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

• Continued to trade forward gas and electricity

markets to reduce risk of energy market volatility

• Launch of our business water retail product offering

• Maintained customer service levels (including

three ring pick up policy)

We have improved our
systems and processes,
and further strengthened
our team, to focus on
sustainable growth and
margin improvement.”

Strategic report
01 Business review

Corporate governance
20 Board of Directors

Financial statements
30

Independent auditor’s report

02 Our business model

22 Corporate governance report

04 Chairman’s statement

25 Audit committee report

06 Chief Executive Officer’s statement

26 Remuneration report

09 Finance review

12 Our strategy

14 Our key performance indicators

15 Risks and uncertainties

18 Our people

28 Directors’ report

Statement of Directors’
responsibilities

Consolidated statement
of profit and loss and other
comprehensive income

Consolidated and Company
balance sheet

Consolidated statement
of changes in equity

Company statement of changes
in equity

Consolidated statement
of cash flows

Notes to the consolidated
financial statements

53 Notice of annual general meeting

56 Company information

Read more about us on our website
www.yugroupplc.com

Annual report and financial statements 2018 YÜ GROUP PLC

STRATEGIC REPORTOur business model

BUSINESS UTILITY
SPECIALISTS

Controlled growth in a significant market

Trading under the brand Yü Energy, we supply electricity, gas, water
and other solutions to business customers. We are a direct supplier,
not a broker. We serve small, medium and large corporate businesses
across Great Britain.

Our customer centric approach, combined with our unique
multi-utility offering, has enabled us to grow rapidly into one
of the UK’s leading business energy suppliers.

We are continuously expanding our offering to bring new solutions
to our customers that make it easier for them to manage their utilities.

Through our commitment to providing high standards of service, we
aim to build strong relationships with our customers and retain their
business year after year.

Our experienced management team, growing sales and product
teams, and improved systems and governance processes support
our business in delivering the foundations for controlled and
sustainable growth.

The business has grown rapidly, although we remain a small player
with the ability to scale. We are now well placed to leverage our
systems and processes to restore and enhance profitability as
the business develops.

Our trading and hedging policy, which is supported by strong cash
reserves, ensures that we reduce the risk from significant energy
market volatility.

Read about our strategy
Pages 12 and 13

Read about our people
Pages 18 and 19

YÜ GROUP PLC Annual report and financial statements 2018

OUR MARKETS

Gas, electricity and water
We provide SMEs and larger corporate
businesses with an innovative
multi-utility offer covering gas, electricity
and water supply. This is specifically
designed to help business customers
save time and money and is tailored
to their specific business needs. This
is a substantial market with over a
million potential customers in the UK.

Smart solutions
Our product range is expanding
to enhance our business utilities offer.
We already offer smart meters, smart
devices and electric vehicle charge
points. We will continue to bring new
solutions to help our customers
benefit from technology, making
it easier to manage their utilities.

Serving portfolios across
Great Britain
We are experts in managing a broad
spectrum of energy portfolios from
single sites to more complex multi-site
business energy requirements. Our
core markets span a wide range of
different industry sectors such as
care homes, retail, food and leisure,
offices and industrial sites.

We supply thousands of businesses
throughout Great Britain.

New connections
We provide business meter
installations for both gas and
electricity, to connect new
developments to a utility supply.

Business to business
We focus on B2B activities, where our
experts can add value and long-term
partnerships can be made. We do not
target the domestic market, where
multiple suppliers are present.

STRATEGIC REPORTHOW WE DEVELOP
OUR BUSINESS

WHAT MAKES
US DIFFERENT

OUR FOCUS

We contract with customers to provide
energy supply over a fixed period. This
“subscription” model ensures a strong
foundation for future growth, and a high
degree of visibility of expected revenues.

At 31 December 2018, the Group had
£88m of contracted revenue for the
year ending 31 December 2019.

Small and medium-sized entities
Our SME sales team engages with clients
directly, via our outbound contact centres
(including from our expanding offices in
Leicester) or through an increasing online
presence. We enable businesses to get
a quote and sign up to our services
quickly and easily.

Corporate accounts
An experienced team of account
and business development managers
focus on medium-sized and large scale,
multi-site clients that require face to
face engagement for their more
complex energy requirements.

We are the official energy partner
to Trent Bridge cricket ground
providing gas, electricity and
water supply together with
energy efficiency consultancy.

Brokers
We work with carefully selected broker
partners which recommend Yü Energy
as a supplier. Our broker team engages
with these third parties to secure
customer acquisitions, renewals
and new connections.

Renewals and
relationship management
We have a dedicated team focused
on renewing contracts prior to expiry.
We also work hard to deliver leading
customer service, across the entire
customer lifecycle, to ensure the
ongoing development of our services
offered to existing customers.

Customer service
Our team provides an expert personal
service. We answer the phone in less
than three rings, ensuring businesses
can quickly resolve any queries,
leaving them free to focus on
running their businesses.

Call pick up times average
eight seconds.

Fixed price and bundled offerings
Our fixed price contracts result
in our customers knowing exactly
how much they will be paying
for their energy.

In addition to gas and electricity
supply, we launched our water supply
offering in 2018.

Innovation and growing
product range
Our multi-utility offer covers gas,
electricity and water supply. We also
offer smart technologies, including
smart meters, and a range of energy
solutions including electric vehicle
charge points.

We provide a fresh, new approach
to business energy to ensure our
customers can access good value,
quality solutions.

We are small enough to be agile,
whilst big enough to think beyond
our core offer.

Flexibility
Different businesses have different
needs. That is why we offer a range
of different tariffs, billing options,
contract durations and structures.
We work in partnership with our
customers to find the best solution
to suit their businesses.

Shareholders
Our combination of rapid growth,
experienced management,
predictable future revenues and
strong balance sheet has established
the foundations of a scalable business.

The Group continues to invest in
systems and processes to focus on
improving margin to drive profitability
and manage risks, alongside developing
new products and services to provide
further opportunities to grow in what
is a significant UK market.

Cash at 31 December 2018:

£14.6m

Customers
Competitive, fixed prices and an expert,
responsive personal service is tailored
to the needs of businesses, combined
with an innovative and growing product
offering. This makes it easier for
customers to manage their energy
needs, providing them with more time
to focus on running their business.

Number of customer meters served
at 31 December 2018:

9,723

People
The rapid growth of the business has
created numerous job opportunities in
teams across the business. In addition
to the Nottingham office, the Group is
expanding its presence in Leicester.

Number of employees as
at 31 December 2018:

154

Annual report and financial statements 2018 YÜ GROUP PLC

STRATEGIC REPORTChairman’s statement

COMMITTED TO BUILDING
SOLID FOUNDATIONS

We have improved and continue to strengthen
governance and internal controls.

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

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

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

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

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

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

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

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

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

Ralph Cohen
Chairman
15 May 2019

Ralph Cohen
Chairman

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

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

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

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

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

YÜ GROUP PLC Annual report and financial statements 2018

STRATEGIC REPORTQ

Q&A with the Chairman

I and the rest of the Board
are taking all appropriate actions.

What lessons have been learned from the year?

The Group has experienced rapid growth over the last
few years, and we can now see that certain data, financial
and system processes could not keep up with the growth.

The last few months have been used to reset the Group’s
activities to upgrade key internal controls and processes.

We are also being more selective in the growth of our
business and more focused on improving profitability
through various measures.

The key element that stands out is the clear desire across
the entire Yü Group team to make things right, to deliver
great customer service whilst building a sustainable
business. The Board and I will ensure that all lessons
learnt continue to be applied, so the Group can be stronger
and better prepared to manage growth in the future.

What is the role and responsibility of the Board?

As a Board, we recognise our responsibility for ensuring
the proper governance and control of the Group and to
develop and deliver our strategy. I, together with the Board’s
other Non-executive Director, John Glasgow, form separate
Board committees covering audit and remuneration
matters, and our roles provide additional checks and
balances to the Executive Directors of the business.

The Board and its sub-committees rely on various
internal processes and systems; the skill, diligence and
specialist knowledge of Board members; and external
partners and advisers. We believe we have a capable
and experienced Board, across all functions, which
is ever more aware of its roles and responsibilities
to govern the business appropriately.

Whilst there have been material lessons in the year,
the Board is absolutely committed to returning the Group
to profitability and has already made some significant
steps forward.

I have every confidence that the commercial and internal
control measures already implemented have enhanced our
business and that this process is accelerating. The Board
and senior management team have the right attitude and
experience to identify and implement improvements and
there is a real and deep desire to improve shareholder value.

How involved have you and the Board been in implementing new corporate governance policies?

As Chairman of the Board, I have already seen
improvements led by the Executive Directors. These
initiatives have ranged from the implementation of various
new governance policies, to the formalisation of delegated
levels of authority and the enhancement of credit and
risk management policies and collection processes. Our
Chief Financial Officer and Group Financial Controller
provide a regular update to the Board on internal control
matters. It is clear to me that the entire business has
stepped up to focus on fixing historical issues in
processes and data management.

I have also enhanced processes to improve the effectiveness
of the Board, and the assessment of Directors’ performance
in their various roles.

John Glasgow and I, as members of the remuneration
committee, have reduced our own remuneration level,
and the remuneration level of the Chief Executive Officer
and Chief Operating Officer, effective 1 April 2019.

In addition, the audit committee has taken various steps
to challenge previous ways of working, which had evolved
with the Group’s rapid growth. Actions have included:

• appointment of RSM as the new external auditor,
in January 2019, to ensure a fresh review of the
Group’s activities;

• meeting more regularly, on a formal and informal basis,
to provide greater visibility throughout the business;

• appointing PwC LLP to provide an independent review of
the internal control environment and to aid investigation
into the data issues being experienced by the Group.
Following this initial forensic review, which confirmed
internal findings, the audit committee has instructed
a follow up health check by PwC, and was pleased
to confirm the progress made by management
in a short period of time; and

•

the instruction, and review of findings, of a detailed
and independent investigation by DLA Piper LLP.

Annual report and financial statements 2018 YÜ GROUP PLC

STRATEGIC REPORTChief Executive Officer’s statement

RESTORING PROFITABILITY

We are working tirelessly to enhance our
shareholders’ confidence in the business.

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

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

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

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

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

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

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

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

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

Bobby Kalar
Chief Executive Officer

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

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

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

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

YÜ GROUP PLC Annual report and financial statements 2018

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

This helps to drive additional customer acquisition for
time-pressured business customers who want a quick
and easy approach to switching their energy.

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

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

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

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

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

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

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

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

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

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

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

We have also launched an online quoting tool, enabling small
businesses to get a business energy quote in under a minute.

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

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

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

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

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

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

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

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

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

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

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

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

Bobby Kalar
Chief Executive Officer
15 May 2019

Annual report and financial statements 2018 YÜ GROUP PLC

STRATEGIC REPORTChief Executive Officer’s statement continued

Q&A with the CEO

We have an experienced team, bringing together an innovative
and customer centric ethos, a can-do attitude, and a renewed
focus on financial and operational control.

What work has been prioritised over the last
six to 12 months?

I believe we have reset the business – establishing a
new foundation to prepare us for the next five years.

We have been, rightly, prioritising governance, process
and data management improvement and I believe we
have come a long way in enhancing our financial and
operational controls and management information.

We have upgraded certain systems, accounting and
data processes, and recruited and will continue to recruit
new team members to further strengthen our business
as required.

Whilst this has kept us busy, we have continued to focus
on growth and have developed various new products to
provide to our core customer base.

As majority shareholder
and founder of the
Group, I am absolutely
committed to the future
success of the business
for all of its stakeholders.”

Bobby Kalar
Chief Executive Officer

What are your biggest focus areas for 2019
and beyond?

My focus can be summarised in three words: excellence,
results and growth.

As well as excellence in our systems and processes, more
fundamentally I believe our customers deserve an excellent
service and we will not compromise our standards.

Our margins, profitability and cash generation results are
equally as important. Whilst our cash position is strong,
and we continue to hold no debt, we will not be complacent.
We have already implemented (and will continue to do so)
various initiatives to enhance the commercial opportunity
ahead of us.

Finally, we are committed to realising growth – but in a
controlled manner. From retention of existing customers
to driving new sales through multiple channels, I am
confident that we will continue to develop our relatively
small position in what is a significant UK market.

What gives you confidence in the future
of the Group?

I am immensely proud of the business that I founded in
2013. We operate in a market which has not been known,
traditionally, for its customer service, innovation and value.
However, I believe we are disrupting that and layering in
further differentiation will further strengthen our position.

My confidence is founded in the exceptional team that
has been created along the way. My colleagues across the
business have a wide range of experience from large and
small companies. We have the knowledge, resources and
passion throughout the business, and it is those values
that will drive our future success.

I have every confidence that the Group will deliver
sustainable and profitable growth, alongside great
customer service and the creation of new opportunities
for our people.

YÜ GROUP PLC Annual report and financial statements 2018

STRATEGIC REPORTFinance review

IMPROVING CONTROLS
AND RESULTS

I am confident that we have fixed the material system and process
issues and can now build on these business foundations.

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

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

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

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

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

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

Further information in relation to these matters is included
in the Q&A with the CFO (page 11) and note 3 to the accounts.

Paul Rawson
Chief Financial Officer

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

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

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

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

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

Annual report and financial statements 2018 YÜ GROUP PLC

STRATEGIC REPORTFinance review continued

I am pleased with the progress made in understanding the detailed financial
position of the Group. I now feel able to focus on driving commercial initiatives,
building on the system and process improvements made over a relatively
short period of time.”

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

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

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

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

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

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

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

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

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

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

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

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

Paul Rawson
Chief Financial Officer
15 May 2019

In reporting Adjusted EBITDA, the Group excludes certain gains and
losses, including: interest; tax; depreciation; amortisation; charges
from equity-settled share based payments; and unrealised gains or losses
on derivative contracts. Adjusted EBITDA also excludes any one-off
restructuring costs and, for FY 2018, the charges related to first-time
adoption of IFRS 9 "Financial Instruments".

Accrued income in layman’s terms

We recognise revenue in our accounts based on the
consumption of energy that we supply, and then bill
our customers as soon as we are able and in accordance
with the agreed terms. The value of accrued income is the
level of revenue recognised in excess of the amount that
has been invoiced at the balance sheet date.

As energy is typically invoiced to customers shortly after
the end of the month in which customers have taken supply,
to allow the collection or estimation of utility meter readings,
a level of accrued income is always expected.

Older (known as aged) accrued income can also arise, for
example when customers join mid-month, or if a meter
reading or technical industry issue is experienced which
prevents an invoice being raised in a timely manner.

YÜ GROUP PLC Annual report and financial statements 2018

STRATEGIC REPORTQ&A with the CFO

My team and I have undertaken significant and detailed
internal reviews of financial and commercial data.

Why has the business posted a loss in FY 2018?

The Group has grown rapidly, with revenues nearly
quadrupling between FY 2016, when the Group was admitted
to trading on AIM, and FY 2018.

As with many growing and innovative businesses there
has been a drive to bring fresh new ideas to the market
and to focus on customer service. The Group has, in places,
not been able to keep up with the scale of growth and
has acquired some low margin contracts.

The Group has booked a bad debt charge of £5.4m
(of which £3.6m is charged in Adjusted EBTIDA) in FY 2018,
considerably adverse to initial expectations.

The level of accrued income has also been reset, based
on revised data and accounting processes, leading to an
accounting loss in the year and a prior year restatement.
The accounting review also identified that gross margins
being achieved across the contract portfolio is at lower
rates than initially envisaged.

In addition, the Group has continued to invest in costs,
particularly for staff in sales, marketing and product
development, to drive growth. This investment obviously
creates a level of drag on the profitability of the Group,
but should provide future long-term value.

What improvements have been made
to the financial controls of the Group?

My team and I have undertaken significant and
detailed internal reviews of financial and commercial
data over the last few months. New reconciliation
controls over data transferring between systems have
been implemented, together with a revised methodology
around revenue recognition.

We have also strengthened some key roles, including
experienced managers supporting our finance and credit
control teams. Other appointments are planned, and
budgeted, to further strengthen the team to ensure
the improvements already made are continued.

I am pleased with the work performed internally and
feel confident that we have fixed the material system
and process issues.

In addition, the Board has been supported from additional
advisory services, including a detailed forensic review,
by PwC, of our historical financial data and of our internal
control environment. This review has been welcomed
and gives all of the Board a greater degree of confidence
in the progress made and the work still to do.

What work has been done to increase profitability?

As part of the reset of our business, various initiatives
have already been implemented to improve profitability.
These span the following areas:

• Reducing bad debt: A new credit and income protection
policy has enhanced the credit checks performed on new
customers, before agreeing a sale. System and process
improvements have also been implemented, including the
recent implementation of a new customer contact platform,
to improve efficiency in our debt collection activities.

•

Improved customer value: We are being more selective
in the sales channels and markets we serve. In addition,
we have an increased focus on retention of customers,
and the development of our service offering beyond
gas and electricity supply.

• Leveraging our fixed cost base: By ensuring processes
and systems can support growth, and adopting additional
automation, the Group can serve a growing customer
base with a relatively minor incremental increase in
the costs incurred to serve the customer.

Whilst some low margin contracts will continue to dilute
margins in FY 2019, we are committed to finding the right
balance between sales acquisition and lifecycle customer value.

The Board is focused on ensuring the Group returns to
profitability as soon as possible, albeit at more modest
gross margin percentages.

What is the cash position of the Group?

The Group held £14.6m of cash at 31 December 2018, of
which £3.5m was placed on deposit to support collateral
requirements for trading counterparties.

The Board believes it is appropriate to maintain a cash
balance to cover volatility caused by the Group’s trading
agreements, and forecasts this exposure on a regular
basis. Significant reductions in commodity markets in early
2019, for example, have led to the requirement for additional
cash to be posted with trading counterparties, reducing
the balance of cash effectively available. In view of the
potential for such market movements to impact the cash
position of the Group, the Board continues to review
options in relation to trading arrangements to reduce
this element of volatility.

The Group’s working capital requirement is also closely
monitored, with a renewed focus to minimise overdue debt
and the level of billing outside of normal patterns. We are
pleased that this indicator has reduced to nine days of
sales at 31 December 2018.

Annual report and financial statements 2018 YÜ GROUP PLC

STRATEGIC REPORTOur strategy

A CLEAR STRATEGY

Establishing a solid foundation to scale the business
in a significant UK market.

Progress in 2018

Priorities in 2019

1.
GROW THE BUSINESS

• Achieved 77 per cent. growth in revenue in FY 2018

• Launched a new water supply offer

• Continued investment in developing new products and services

• Exited 2018 with £88m of revenue contracted for FY 2019

• Refocused sales and renewals teams towards customer lifecycle objectives

• Enhanced management information relating to profit and cash

optimisation levers

• Reset the business to focus on profitable growth

2.
MANAGE THE COST BASE

• Net cash of £14.6m as at 31 December 2018

• Renewed focus on customer related working capital balances,

with overdue customer receivables down 36 per cent. to nine days

3.
GENERATE CASH

• No debt outstanding

• Expansion of direct sales team with new

Leicester sales office

• Focus on profitable growth and customer

lifecycle value

• Development of product range across energy

solutions and smart technologies

• Maintain high levels of customer service with

calls answered within nine seconds (three rings)

•

Identify and implement profit improvement

initiatives, realising cost savings through

operational efficiencies

•

Investment in CRM system and online sales,

and improvements to increase productivity

of sales activity

• Continued development of back office

systems and processes as a base for

scalable, cost efficient growth

• Ensure sufficient cash resources for hedging

collateral requirements

• Further strengthen credit control and

commercial functions and processes to

reduce the bad debt charge

•

Implemented new governance policies

• Further embedding of internal control processes

• Developed new financial, accounting and data management processes

• Continue to operate hedging policy

4.
MANAGE RISK

and controls

• Continued hedging forward energy requirements to meet customer

requirements, in line with an agreed risk mandate

• Received an independent third party review of our controls, systems

and processes from PwC

•

Increased bench strength within key teams,

including the recruitment of a new Finance

Manager and a Business Improvement Manager

to support our growth and business change

agenda, and enhancing our commercial

and debt recovery capabilities

YÜ GROUP PLC Annual report and financial statements 2018

STRATEGIC REPORTProgress in 2018

Priorities in 2019

GROW THE BUSINESS

• Achieved 77 per cent. growth in revenue in FY 2018

• Launched a new water supply offer

• Continued investment in developing new products and services

• Exited 2018 with £88m of revenue contracted for FY 2019

• Refocused sales and renewals teams towards customer lifecycle objectives

• Enhanced management information relating to profit and cash

optimisation levers

• Reset the business to focus on profitable growth

MANAGE THE COST BASE

• Net cash of £14.6m as at 31 December 2018

• Renewed focus on customer related working capital balances,

with overdue customer receivables down 36 per cent. to nine days

GENERATE CASH

• No debt outstanding

• Expansion of direct sales team with new

Leicester sales office

• Focus on profitable growth and customer

lifecycle value

• Development of product range across energy

solutions and smart technologies

• Maintain high levels of customer service with
calls answered within nine seconds (three rings)

•

Identify and implement profit improvement
initiatives, realising cost savings through
operational efficiencies

Investment in CRM system and online sales,
and improvements to increase productivity
of sales activity

• Continued development of back office
systems and processes as a base for
scalable, cost efficient growth

• Ensure sufficient cash resources for hedging

collateral requirements

• Further strengthen credit control and

commercial functions and processes to
reduce the bad debt charge

•

Implemented new governance policies

• Further embedding of internal control processes

• Developed new financial, accounting and data management processes

• Continue to operate hedging policy

MANAGE RISK

and controls

• Continued hedging forward energy requirements to meet customer

requirements, in line with an agreed risk mandate

• Received an independent third party review of our controls, systems

and processes from PwC

•

Increased bench strength within key teams,
including the recruitment of a new Finance
Manager and a Business Improvement Manager
to support our growth and business change
agenda, and enhancing our commercial
and debt recovery capabilities

TRENT BRIDGE CRICKET GROUND
– POWERED BY YÜ ENERGY
In October 2018 we announced our partnership with
Nottinghamshire County Cricket Club ("Notts CCC") to power
Trent Bridge cricket ground. Recognised as an iconic international
sporting venue, Trent Bridge is not only the best attended UK
cricket venue outside of London, it also holds a global top 10
ranking for spectator experience at sporting venues.

Notts CCC was shortly due to renew its supply contract and was
looking for a long-term partner to deliver a cost-effective solution
for its future energy and water needs. The energy requirements
spanned multiple meters and locations, powering the cricket
ground, training facilities and conferencing and media centre.

It was our unique multi-utility offer and focus on customer care
alongside an open, transparent approach to partnerships that
was appealing to Trent Bridge and acted as a key driver behind
its decision to have all its energy and water needs provided by
a single supplier.

A wide-ranging, long-term partnership was agreed with Notts CCC
which will see us powering both the club’s Trent Bridge cricket
ground and training ground with the supply of gas, electricity
and water. The partnership provides an excellent platform to
build awareness of Yü Energy and to showcase the Group’s
multi-utility offering.

Our partnership with Yü Energy is a natural
fit given its commitment to the East Midlands,
its national outlook and its commitment to
working with like-minded businesses
to make a meaningful difference through
energy supply. We are especially pleased
to have found an energy partner with a
whole-hearted commitment to customer
service and innovation.”

Michael Temple
Notts CCC Commercial Director

Annual report and financial statements 2018 YÜ GROUP PLC

STRATEGIC REPORTOur key performance indicators

Contracted revenue

£88m +76%

2018

2017

2016

Link to strategy

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

The Group has continued to expand its revenue during FY 2018.

Average monthly new bookings

£8.4m +65%

2018

2017

2016

5.1

3.7

Link to strategy

8.4

Bookings represents the annualised revenue of new business signed in the year.
Such bookings will result in additional contracted revenue, dependent on contract
start dates. The significant growth experienced in FY 2018 has been reduced at the
start of FY 2019 as a result of a review of the customer acquisition strategy.

The average contract term for new bookings is 22 months.

Total meter points

9,723 0.3% of GB market

2018

2017

2016

4,321

9,723

7,361

Cost management
(overheads charged to Adjusted
EBITDA as a % of revenue)

15.1% +3.5%

2018

2017

2016

15.1

11.6

21.9

Overdue customer receivables
(average number of days overdue)

9 days -36%

2018

2017

2016

Link to strategy key:

Link to strategy

The total meter points demonstrate the gas and electricity supply points served
by the Group.

The total UK business gas and electricity market is more than 3.3 million meters,
highlighting that there is significant market opportunity available.

Link to strategy

The Group monitors its efficiency and cost management by comparing operational
expenditure as a percentage of revenue. Overheads as a percentage of revenues
have increased by 3.5 per cent. between FY 2017 and FY 2018. This increase is largely
as a consequence of an increased charge for bad debt (4.5 per cent. of revenues in
FY 2018). The Board has also continued to invest in sales and product development
to expand the Group’s business offering towards more profitable growth areas,
and in systems and people to provide a strong business foundation.

Link to strategy

The Group seeks to minimise the amount outstanding in relation to key customer
receivable balances, compared with the revenue recognised. Such balances are, net of
provisions, the amounts held in relation to accrued income which is beyond the normal
one month billing cycle, plus trade receivables (net of VAT and CCL) that are overdue.

Grow the business

Manage the cost base

Generate cash

Manage risk

YÜ GROUP PLC Annual report and financial statements 2018

STRATEGIC REPORTRisks and uncertainties

RISK MANAGEMENT

We have assessed our principal risks and uncertainties based
on the likelihood of their occurrence and potential impact.

Approach to risk
The Board is responsible for maintaining the Group’s risk
management and internal control systems and for monitoring
risk and mitigation of risk in line with the Group’s objectives.

The key features of the Group’s systems of internal control are:

• a risk and internal control improvement register is

maintained and reviewed regularly by the Board. The risks
are identified and discussed by the department heads and
senior management before being reported to the Board;

• an organisational structure with clear segregation of duties,

control and levels of authority;

• strong policies and procedures have been put in place
around what constitutes good governance and a solid
internal control framework;

•

internal audit is provided by independent ad-hoc third party
reviews and via an internal compliance and quality function;

the appointment of our Group Financial Controller, Simon
Martin, as internal control and risk manager, to give clear
authority and accountability for monitoring and reporting
on the internal control environment of the Group; and

•

formal hedging policies and a risk mandate that govern the
Group’s approach to forward purchase of commodity contracts.

BOARD
The Board of Directors is ultimately responsible
for risk management

AUDIT COMMITTEE
Liaises with external auditor and advisers to ensure
control environment is managed

SENIOR MANAGEMENT TEAM
Assesses key risks in all areas of the business and
the necessary action to help mitigate those risks

h
g
H

t
c
a
p
m

m
u
d
e
M

w
o
L

INTERNAL
CONTROL
MANAGER
Monitoring
and reporting
on control
environment
of the Group

COMPLIANCE
AND QUALITY
TEAM
Testing of key
areas of internal
control and
compliance

THIRD
PARTY
REVIEWS
Ad-hoc review

POLICIES, PROCEDURES, REPORTING AND REVIEW
Documented controls, delegated levels of authority
and management review processes

Low

Medium
Likelihood

High

Annual report and financial statements 2018 YÜ GROUP PLC

STRATEGIC REPORT

Risks and uncertainties continued

Description

Mitigation

Change

1. Revenue recognition

Due to the inherent nature of the industry and its
reliance upon estimated meter readings, revenue
includes the Directors’ best estimate of differences
between estimated sales and billed sales. When
customers are unable to be billed for technical
reasons, such as a failure in communicating to
an automatic meter, a best estimate of the level of
accrued income that is to be recognised also needs
to be made by management. Given the process for
estimating involves a number of variables, there
is a risk that the level of accrued income reported
is inaccurate and not ultimately recoverable.

New internal policies, processes and guidelines have been
introduced in the year to help ensure that the Group’s revenue
recognition policy is appropriate, and that accrued income
is at a manageable level.

The level of accrued income held at 31 December 2018,
which has not been billed in January 2019, is £0.4m (2017,
as restated: £1.1m). This level of accrued income is net of
a provision based on an assessment, under IFRS 9, of the
level of expected credit loss of the balance. This area of the
Group’s revenue is continuously assessed in order to ensure
the amounts are recoverable or are not recognised in revenue.

2. Credit risk – customers do not pay their bills

With the high growth in the business, the wider
economic environment and the inherent risk that
customers may not be able to pay, there is a risk of
the Group incurring losses due to the non-payment
of invoices.

New more stringent credit checking policies have been
introduced to be more prudent in the contracts secured
by the Group.

In addition, the Group has invested significantly in new systems
and processes to enable efficiencies in the collection process
and has increased the level of resources.

The Group is taking steps to utilise pay as you go functionality,
to allow an alternative solution to customers who would have
traditionally struggled to obtain regular credit trading terms.

3. Trading risk – volatility in commodity prices

The energy commodity market has been extremely
volatile in recent times. Both increases and decreases
in the market price pose a risk to the Group. When
the commodity market price rises there is a risk to
future profitability if the Group’s forward position
is not fully hedged. When the commodity market
falls it opens the Group up to a cash liquidity risk,
as the mark-to-market position the business holds
with its commodity trading counterparties leads
to an increased likelihood of a “cash call”
for additional trading security.

The trading team at Yü Group is highly experienced.
It operates a robust and timely commodity purchasing
strategy to ensure the Group maintains an efficient and
effective hedge in accordance with an agreed risk mandate.
Whilst such mandate does not eliminate all risks, it reduces
the amounts of profit at risk based on assumptions
surrounding market volatility.

The Group also holds a significant cash balance, allowing the
business to provide cash collateral to its trading counterparties,
either directly or through standby letters of credit, ensuring
the Group can continue to hedge, despite the volatile market
conditions. The Board will continue to identify further
mitigation available, for example via alternative
trading arrangements.

YÜ GROUP PLC Annual report and financial statements 2018

STRATEGIC REPORTChange key:

Increase

No change

Decrease

Mitigation

Change

To deal with the risk of system downtime, the business
has a business continuity plan. This involves system
backups and measures to restore business operation
as soon as possible.

Reconciliation of energy consumption and financial data,
particularly in relation to the Group’s bill to cash cycle,
has been improved, with more robust processes now
being adopted and having been tested as part of an
independent forensic review.

To help mitigate against a potential data security breach,
the business operates robust physical and system access
controls. Controls are in place on all IT systems used
in the business and elements of these are subject
to external audit.

Description

4. Data integrity

As with any energy supply business, the Group is
reliant on large amounts of data for the business to
function effectively. If systems are unavailable for
a prolonged period, there is a risk that the business
would be unable to issue invoices to customers or to
communicate with the energy industry and so would
be unable to collect the cash necessary to settle its
liabilities or operate under its licence obligations.

There is also a risk that data control processes
are not present to reconcile data across financial,
billing and other systems, leading to inappropriate
reporting and potential loss to the Group.

Dealing with large volumes of data also presents
a risk in terms of a potential data security breach.
There have been several high-profile data security
breaches in other organisations over the last few
years. Such a breach incurs both financial and
reputational penalties.

5. Relationship with regulatory bodies

The Group is a licensed gas, electricity and water
supplier, and therefore has a direct relationship with
the various regulatory bodies within the industry,
in particular Ofgem. If the Group fails to maintain an
effective relationship with these regulatory bodies
and comply with its licence obligations, it could
be subject to fines or even the removal of its
respective licences.

The Group has a management team and senior staff
with extensive industry experience and broad experience
in dealing effectively with the various regulatory bodies. During
2018 the Group introduced an internal compliance team that
focuses, amongst other things, on energy industry regulatory
compliance and any ongoing regulatory communication that
the Group is involved in. The Group monitors and takes
appropriate actions in relation to complying with regulation.

As an AIM company, the Group is also subject to
certain financial regulations and regulatory bodies,
such as the AIM Rules for Companies and the
Financial Conduct Authority (“FCA”). During 2018
the Group announced that after an internal review
the trading performance for the year would be
materially below previous market expectations due
to both historical accounting errors and reduced
trading performance. Following these announcements,
the risk of loss due to regulatory investigations
is heightened.

The market announcements in Quarter 4 of 2018 around the
reduced profitability of the Group were extremely disappointing
for the Board. Following the internal identification of the
issues, the Group engaged external legal and accounting
specialists to conduct a forensic review of the business,
its accounting records and underlying data. Steps have
been taken to address those issues and ensure they do not
reoccur going forward.

The Board is committed to ensuring that the requirements
of any regulatory review is complied with. The Board is
therefore co-operating fully with the requirements of
the FCA, and other regulators, to ensure the matters
identified in Q4 2018 are resolved appropriately.

Brexit

The Directors have considered the impact of Brexit (and a further delayed Brexit) on the business, and at this stage, do
not believe that it will have a significant impact on either the day to day running, or the longer-term prospects, of the Group.

Paul Rawson
Chief Financial Officer
15 May 2019

Annual report and financial statements 2018 YÜ GROUP PLC

STRATEGIC REPORT
Our people

INVESTING IN PEOPLE

We have the knowledge, resources and passion throughout the
business and it is those values that will drive our future success.

As our organisation grows, it is vital that our team grows with
us. We have continued our focused investment in people to
ensure the Group is well placed to take advantage of market
opportunities whilst maintaining high standards of service
delivery. During the year, total headcount increased from
110 to 154.

The Group has invested in systems and processes to ensure
a rigorous approach to performance leadership, training
and development to ensure consistent standards and strong
people capability in a growing business. We have implemented
new HR and learning management systems to boost people
capability and compliance. This includes our new online
eLearning platform which provides an effective, scalable and
consistent approach to learning across the Group. Our rigorous
approach to performance leadership continues to raise internal
standards and support the drive for increased productivity.

Our agile culture ensures we can quickly react to have the
appropriate skills and resources in place to support our evolving
business priorities. Our career pipeline planning has led to an
increased number of internal moves, bringing enhanced career
opportunities and a more flexible, cross-skilled team.

We continue to review our employee benefits ensuring a
competitive package to attract and retain the right people with
the right skillset. For example, we plan to launch a Save As You
Earn scheme to more closely align employee and shareholder
objectives and enhance employee engagement in the Group.

During 2018, we further strengthened our senior management
team with key appointments to enhance our capability in sales and
product development to help drive our future growth ambitions.

Our apprenticeship and placement programmes provide a
constant stream of fresh thinking, new talent and diversity
into the organisation as well as creating rewarding career
opportunities for talented young people. We have fostered
close links to universities and educational institutions across
the East Midlands to develop this pipeline.

Waqar Ahmed, IT Apprentice

Read about our Board
Pages 20 and 21

Read about our governance
Pages 22 to 24

YÜ GROUP PLC Annual report and financial statements 2018

STRATEGIC REPORTBUILDING FUTURE CAREERS WITH APPRENTICESHIPS
We are on a mission to build lifelong careers
across the Group and apprenticeships are a key
part of this strategy. Apprenticeships provide a
great pipeline of new talent and fresh thinking into
the business and we will be continuing to invest
in this element of our people strategy.

Our IT Apprentice Waqar Ahmed embodies
this. Waqar has been an IT Apprentice since
November 2017. The work experience he has
gained at Yü Energy complements his studies for
his IT Technician Level 3 qualification. Waqar has
flourished during his time as an apprentice and
he has become an integral part of our IT team,
so much so that he won Colleague of the Year.

I have found my IT apprenticeship to be really
rewarding. It is great getting the combination
of hands-on practical experience whilst
working towards a recognised qualification.
Every day is different; it really tests you and
I am always learning something new.”

Waqar Ahmed
IT Apprentice

Annual report and financial statements 2018 YÜ GROUP PLC

Board of Directors

Ralph Cohen
Independent Non-executive Chairman

Bobby Kalar
Chief Executive Officer

Paul Rawson
Chief Financial Officer

Skills and experience
Ralph has held various senior executive
positions within the energy and water
divisions of the Paris based Vivendi
Group between 1981 and 2001. This
included 10 years as managing director
of Associated Electricity Supplies Limited
and 10 years as finance director and
subsequently managing director of
Associated Heat Services Plc, a listed
subsidiary for part of this period. In total
he has spent more than 25 years working
in the energy sector in roles covering
energy services, importation of electricity
and electricity supply. He previously
spent nine years at Ernst & Young.
Latterly, he was the founding partner of
MC Consultancy Services, where he was
closely associated with major projects,
including electricity supply opportunities
in Europe and M&A projects.

Skills and experience
Bobby has a degree in electrical and
electronics engineering, having started
his career working as an electronics
engineer at Marconi PLC. In 2000, having
moved to London to work for COLT
Telecommunications, he headed a team
of engineers involved with the bid and
installation of the congestion charge
scheme in London on behalf of the Mayor
of London’s Transport for London initiative.
Following this major project Bobby
invested in the care home sector,
eventually owning and running a group
of four care homes. In 2013 he sold the
care homes so that he could focus on the
market opportunity presented by the
deregulation of the energy sector.
He is the sole founder of the Group.

Skills and experience
Paul has a degree in accountancy
and is a qualified chartered accountant
(ICAEW) with a history in financial and
commercial management in high growth
businesses. In 2001 he left KPMG to join
the energy industry in what is now the
Engie Group, where he held various
senior financial and general management
positions. These ranged from the
financial and commercial aspects of a
£100m investment project to generate
and supply energy across the London
Olympic Park to a number of energy
related M&A transactions. Paul was
latterly responsible, as Divisional CEO,
for energy solutions spanning the
retail supply of gas and electricity to
businesses; the provision of low carbon
generation, energy Software as a Service
and smart building technologies; and the
launch of a domestic energy retail offer.

External appointments
Ralph was for 10 years, until April 2015,
the CFO and is now a non-executive
director of Judges Scientific plc.

External appointments
None.

YÜ GROUP PLC Annual report and financial statements 2018

CORPORATE GOVERNANCECommittee key

A Audit committee

R Remuneration committee

Chairman

Garry Pickering
Chief Operating Officer

John Glasgow
Independent Non-executive Director

Skills and experience
Garry has a degree in economics
from Nottingham Trent University. He
commenced work with East Midlands
Electricity PLC in February 1997, which
was ultimately acquired by E.ON. He
has 20 years’ experience in electricity
and gas markets, the vast majority spent
managing the financial risks associated
with a supply and generation portfolio.
He has worked on projects including the
deregulation of the UK electricity supply
businesses and the implementation of
the New Electricity Trading Arrangements
that underpin the operation of the current
UK electricity industry. His final role at
E.ON, based in Düsseldorf, Germany, was
as head of UK power portfolio optimisation.
He left E.ON and returned to the UK in
January 2015 in order to join the Group
and oversee its operational requirements
including energy purchasing and
risk management.

Skills and experience
John has over 35 years’ experience in
engineering, operations, trading and IT
across the energy industry. Senior roles
have included head of Powergen technical
audit and head of Powergen’s energy
management centre, covering energy
trading and power plant portfolio
optimisation, and general manager
of Powergen Energy Solutions. Latterly,
he was in board roles including head of
strategy at the establishment of the
new E.ON Energy Services business,
E.ON director of new connections and
metering and director of operations
and asset management at E.ON Central
Networks. During this time John was also
a board member of the Energy Networks
Association and a member of the DECC
Energy Emergencies Executive Committee
(“E3C”). Upon leaving E.ON John became
managing director of Sterling Power
Utilities Ltd until autumn 2013.

External appointments
None.

External appointments
John is also a board member of the
St Modwen Environmental Trust.

Annual report and financial statements 2018 YÜ GROUP PLC

CORPORATE GOVERNANCECorporate governance report

EFFECTIVE GOVERNANCE

Statement by the Directors on compliance
with the Code of best practice
The Board seeks to follow best practice in corporate governance
appropriate to the Company’s size and in accordance with the
regulatory framework that applies to AIM companies. In response
to changes in guidance for the corporate governance of quoted
companies, the Board has decided to apply and adhere to the
Quoted Companies Alliance (“QCA”) Code.

The QCA Code ensures a worthwhile, effective and flexible
governance model. It encourages positive engagement between
the Company and all its stakeholders. Good governance is one
of the foundations of a sustainable corporate growth strategy.
The QCA Code is constructed around 10 broad principles. The
appropriate application of these principles will ensure that good
governance practices are in place. Details of how the Group is
applying those principles can be found on the investor relations
section of the Company website at www.yugroupplc.com.

The Board
The Group is controlled through a Board of Directors, which
at 31 December 2018 comprised a Non-executive Chairman,
three Executive Directors and one other Non-executive Director,
for the proper management of the Company and the Group.
The Chairman is Ralph Cohen and the Chief Executive Officer
is Bobby Kalar. Both of the Non-executive Board members,
Ralph Cohen and John Glasgow, are considered to be independent.

During 2018, the Board appointed Paul Rawson as Chief Financial
Officer, following a formal recruitment process. Nick Parker, the
previous Chief Financial Officer, left the Board on 31 July 2018.

The Board operates both formally, through Board and committee
meetings, and informally, through regular contact among Directors
and senior leadership team members. There is a schedule of
matters that are specifically referred to the Board for its decision,
including approving interim and annual financial results, setting
and monitoring of strategy and examining business expansion
possibilities. It is a requirement that the Board be supplied with
information in a timely manner, in a form and quality appropriate
to enable it to discharge its duties.

The Directors can obtain independent professional advice at the
Group’s expense in the performance of their duties as Directors.

Board committees
The Board committees comprise the audit committee
and the remuneration committee.

Audit committee
The audit committee comprises two members, who are
both Non-executive Directors: Ralph Cohen (Chairman) and
John Glasgow. The Group’s external auditor, along with the
wider Board, is invited (as appropriate) to attend the audit
committee meetings.

Remuneration committee
The Chairman of the remuneration committee is John Glasgow;
Ralph Cohen is the other Non-executive member. The committee
meets periodically as required and is responsible for overseeing
the policy regarding Executive remuneration and for approving
the remuneration packages for the Group’s Executive Directors.
It is also responsible for reviewing incentive schemes for the
Group as a whole.

Nominations committee
As the Board is small, there is currently no separate nominations
committee. This will be reviewed as the Group and Board develop
over time. The appointment of new Directors is considered by
the Board as a whole.

Risk management and internal controls
The Directors are responsible for the Group’s system of internal
control and for reviewing its effectiveness, while the role of
management is to implement Board policies on risk management
and control. The Board has implemented various improvements
to the internal control environment operating within the Group
over recent months, including formalising delegated levels of
authority, and documenting overarching governance and internal
control processes and related roles and responsibilities.

It should be recognised that the Group’s system of internal
control is designed to manage, rather than eliminate, the risk
of failure to achieve the Group’s business objectives and can
only provide reasonable, and not absolute, assurance against
material misstatement or loss.

The Group operates a series of controls to meet its needs.
These controls include, but are not limited to, a clearly defined
organisational structure, written policies, a comprehensive
annual strategic planning and budgeting process and detailed
monthly reporting. The annual budget is approved by the Board
as part of its normal responsibilities. In addition, the budget
figures are regularly reforecast to facilitate the Board’s
understanding of the Group’s overall position throughout
the year and this reforecast is reported to the Board in
addition to the reporting of actual results during the year.

YÜ GROUP PLC Annual report and financial statements 2018

CORPORATE GOVERNANCEENHANCING OUR FINANCE
AND OPERATIONAL
CAPABILITY
Introduction to our CFO
Paul Rawson joined the Group in September 2018 as
Chief Financial Officer. Paul is an experienced energy
sector finance director and a qualified chartered
accountant. He also has significant experience in
commercial and operations management, largely
gained at Engie, where Paul had roles including
managing director of energy services and divisional
CEO of a £1.3bn revenue energy solutions and
supply business.

Since joining the Group, Paul, with the assistance
of his team, has implemented various control
and governance process improvements – and

taken steps to improve the
management information available
to the Board to improve profitability
and cash flow.

The recruitment process involved the appointment
of headhunters who were charged with identifying an
appropriate candidate to meet the Board’s objectives.
The process was managed, on behalf of the Board,
by Ralph Cohen, as Chairman, Bobby Kalar, as CEO,
and by Garry Pickering, as COO. Remuneration
was set by the remuneration committee.

I have spent my first few months at Yü Group focused on getting
under the skin of the Group’s financial and operational processes.
Whilst the issues identified were material, I am immensely grateful
to the finance, operations and wider teams for their commitment
in delivering the necessary improvements. I have also received full
backing from the Board to invest in some key areas, such as in finance
and credit control teams, and in some key system areas. I am convinced
that our experienced team, agile and customer centric organisation,
and improved commercial and internal control management
processes will pay dividends in the years to come.”

Annual report and financial statements 2018 YÜ GROUP PLC

CORPORATE GOVERNANCECorporate governance report continued

Risk management and internal controls continued
The Group has experienced rapid expansion and certain controls
have not kept up with this growth. Controls around the integrity
and reconciliation of data, the analysis of credit risk of customers,
the forecasting of gross margin and the recognition of revenue
have all been reviewed and upgraded in recent months. The work
performed by the Board and the wider management team has
been further supplemented by an independent and thorough
forensic review into key areas of concern for the Group. Whilst in
any Group there continues to be a risk that the systems, processes
and procedures that are in place are not fit for purpose, the level
of work performed to date, and the clear management focus given
to this topic, provides the Board with improved confidence in
the control environment of the Group.

The audit committee receives reports from management and
the external auditor concerning the system of internal control
and any material control weaknesses. Any significant risk issues
are referred to the Board for consideration. The audit committee
has, in 2018 and in the first months of 2019, received reports
from third parties appointed to thoroughly investigate the
matters leading to the losses in FY 2018, and the prior period
adjustment, to ensure all learnings and corrective actions are
taken. The Board has also enhanced its compliance and quality
processes by the creation of a new team which is responsible
for monitoring compliance with relevant policies.

Shareholder communications
The Chief Executive Officer and the Chief Financial Officer
regularly meet with institutional shareholders to foster a mutual
understanding of objectives. In particular, an extensive programme
of meetings with analysts and institutional shareholders is held
following the announcement of results. Feedback from these
meetings and market updates prepared by the Company’s
nominated adviser are presented to the Board to ensure it has
an understanding of shareholders’ views. The Chairman and the
other Non-executive Director are available to shareholders to
discuss strategy and governance issues.

The Directors encourage the participation of all shareholders,
including private investors, at the annual general meeting and
as a matter of policy the level of proxy votes (for, against and
vote withheld) lodged on each resolution is declared shortly
after the meeting by means of an announcement on the London
Stock Exchange and via the Company’s website. The annual
report and accounts are published on the Company’s website,
www.yugroupplc.com, and can be accessed by shareholders.

Our people
A significant part of the foundations of the Group has been
the continued investment in our team.

During 2018 our team grew from 110 to 154 people. We will
continue to invest in growing our team, where appropriate, to
take advantage of the market opportunity and expand the skills
available to the Group to meet its strategic objectives.

BOARD COMPOSITION
Non-executive Chairman (1)
Non-executive Directors (1)
Executive Directors (3)

TENURE
More than three years (2)
Between one and three years (2)
Under one year (1)

SECTOR EXPERIENCE
Previous energy sector experience (4)
Other energy sector experience (1)

20+

40+

M 80+

YÜ GROUP PLC Annual report and financial statements 2018

CORPORATE GOVERNANCE40
+
20
+
20
+
M
20
+
60
+
M
Audit committee report

STRENGTHENED OVERSIGHT
OF OUR ACTIVITIES

Ralph Cohen
Committee Chairman

MEMBERS

Ralph Cohen Committee Chairman

John Glasgow

Membership and scope of the audit committee
During the year, the audit committee comprised of two members,
who are both Non-executive Directors: Ralph Cohen (Chairman)
and John Glasgow. The Group’s external auditor, along with the
wider Board, is invited to attend the audit committee meetings.

The audit committee has responsibility for, among other things,
the monitoring of the financial integrity of the financial statements
of the Group and the involvement of the Group’s auditor in that
process. It focuses, in particular, on compliance with accounting
policies and ensuring that an effective system of audit and
financial control is maintained.

The ultimate responsibility for reviewing and approving the
annual report and accounts and the half-yearly reports remains
with the Board.

The audit committee meets at least twice a year at the appropriate
times in the financial reporting and audit cycle, and at such
other times as may be deemed necessary.

The terms of reference of the audit committee cover such
issues as membership and the frequency of meetings, together
with requirements of any quorum for, and the right to attend,
meetings. The responsibilities of the audit committee covered
in its terms of reference include the following: external audit,
financial reporting, internal controls and risk management.
The terms of reference also set out the authority of the
committee to carry out its responsibilities.

Any non-audit services that are to be provided by the external
auditor are reviewed in order to safeguard auditor objectivity
and independence. The external auditor has the opportunity
during the audit committee meetings to meet privately with
committee members in the absence of Executive management.

The audit committee is responsible for reviewing the
Company’s procedures for the identification, assessment,
management and reporting of risks.

The Company has a whistleblowing policy, in which staff may
notify management or Non-executive Directors of any concerns
regarding suspected wrongdoing or dangers at work.

Review
The audit committee met four times during 2018.

The audit committee was responsible for instructing, and
reviewing the outcome from, an independent forensic review by
PwC LLP and DLA Piper LLP. This review was requested following
the identification of accounting and reporting concerns that
were raised to the audit committee in October 2018.

In January 2019, the audit committee, following a selection
process, appointed RSM UK Audit LLP as external auditor
for the Group.

The audit committee continues to take a lead role in reviewing
the internal control processes applied within the Group, and in
appropriately following up the findings from the independent
internal investigation to ensure all actions are taken following
the issues announced in October 2018.

Ralph Cohen
Chairman of the audit committee
15 May 2019

Annual report and financial statements 2018 YÜ GROUP PLC

CORPORATE GOVERNANCERemuneration report

REVIEWING
PERFORMANCE

The remuneration committee
makes recommendations to the
Board on matters relating to
remuneration, terms of service,
granting of share options and
other equity incentives.”

John Glasgow
Committee Chairman

MEMBERS

John Glasgow Committee Chairman

Ralph Cohen

As an AIM listed company, Yü Group PLC is not required to comply
with Schedule 8 to the Large and Medium-sized Companies and
Groups (Accounts and Reports) Regulations 2008. The content
of this report is unaudited unless stated.

Membership of the remuneration committee
During the year, the remuneration committee comprised the
two Non-executive Directors, John Glasgow (Chairman of the
remuneration committee) and Ralph Cohen. The remuneration
committee reviews the performance of the Executive Directors
and makes recommendations to the Board on matters relating
to remuneration, terms of service, granting of share options
and other equity incentives.

Remuneration policy
The objectives of the remuneration policy are to enable the
Company to attract, retain and motivate its Executive Directors,
while ensuring that the overall remuneration of Executive Directors
is aligned with the performance of the Group and preserves an
appropriate balance of remuneration and shareholder value.

Non-executive Directors
Remuneration of the Non-executive Directors is determined by
the Executive Directors. Non-executive Directors are not entitled
to pensions, annual bonuses or employee benefits. They are
entitled to participate in share option arrangements relating to
the Company’s shares but neither of them does at this time.

The annual fee for each Non-executive Director is set at £35,000
per annum. Their appointment may be terminated with three
months’ written notice at any time.

Directors’ remuneration
The normal remuneration arrangements for Executive
Directors consist of basic salary, employer contributions to
defined contribution pensions, annual performance related
bonuses and participation in a long-term incentive plan.

No Executive Director bonuses are payable in the year ended
31 December 2018.

The CEO and COO have service agreements that can be terminated
by either party by giving at least 12 months’ written notice.
The service agreement with the CFO can be terminated by
either party by giving at least six months’ written notice, such
notice increasing by one month for each completed year of
service to a maximum of 12 months in total.

The remuneration committee set, after considering an appropriate
market level, the basic salary and package of the CFO prior
to appointment.

Directors’ interests
Details of the Directors’ shareholdings are included in the
Directors’ Report on page 28.

YÜ GROUP PLC Annual report and financial statements 2018

CORPORATE GOVERNANCEDirectors’ share options
Aggregate emoluments disclosed in the Directors’ remuneration table do not include any amounts for the value of options to
acquire ordinary shares in the Company granted to or held by the Directors. Details of options for Directors who served during
the year are as follows:

Executive
Bobby Kalar

Nick Parker (resigned 31 July 2018)

Garry Pickering

Paul Rawson (appointed 3 September 2018)

Non-executive
Ralph Cohen

John Glasgow

Number of
options at
31 Dec 2018

Weighted
average
exercise price

172,504

106,205

138,042

6,539

—

£2.90

£2.07

£2.90

£8.67

—

Following the year end, on 25 February 2019, Paul Rawson was awarded 250,000 share options with an exercise price of £0.005.
The options are scheduled to vest on 25 February 2022 and can be exercised from that time until they lapse on 25 February 2029.

In addition, following the end of the year, certain share options awarded to Bobby Kalar and Garry Pickering are deemed to have
lapsed. These options, which had an exercise price of £0.005, were for 16,570 shares for Bobby Kalar and for 13,295 shares for
Garry Pickering. The share options of Nick Parker are further referred to below.

As a result of the above, on 15 May 2019, Nick Parker had no outstanding share options, Bobby Kalar and Garry Pickering held
155,934 and 124,747 share options respectively (at weighted average exercise prices of £3.21 and £3.21), and Paul Rawson held
256,539 share options (at a weighted average exercise price of £0.23 per share).

Directors’ remuneration

Executive
Bobby Kalar

Nick Parker (resigned 31 July 2018)

Garry Pickering

Paul Rawson (appointed 3 September 2018)

Non-executive
Ralph Cohen

John Glasgow

Salary/fees
£’000

Bonus
£’000

Benefits
£’000

Employer’s
pension
contributions
£’000

Pay in lieu
of notice
£’000

Total 2018
£’000

Total 2017
£’000

250

117

200

694

—

167

—

167

260

284

203

875

250

200

—

720

Effective 1 April 2019, the base salary of the Chief Executive Officer, Bobby Kalar, and the Chief Operating Officer, Garry Pickering, along
with the annual fees for both of the Non-executive Directors (Ralph Cohen and John Glasgow), have been reduced by 10 per cent.

During the year ended 31 December 2018, Garry Pickering exercised 500,000 share options generating a gain at the prevailing
market price on exercise of £5,580,000. Nick Parker also exercised 500,000 share options generating a gain at the prevailing
market price on exercise of £5,130,000. No shares were sold by Garry Pickering or Nick Parker during the year.

Save As You Earn (“SAYE”) scheme
The Group intends to launch a SAYE scheme during 2019. The SAYE scheme will be open to all employees, including Executive and
Non-executive Directors, and provide a savings plan for up to £500 per month, over a three year period. These savings can then be utilised
to acquire shares in the ordinary share capital of the Group at a 20 per cent. discount of the share price fixed on launch of the scheme.
The remuneration committee believes such a scheme will increase alignment between the interests of employees and shareholders.

Remuneration of former CFO
Nick Parker, former CFO of the Group, maintained share options when leaving the Group over a total of 106,205 shares (48,455 shares
at an exercise price of £0.005 per share; 50,412 share options at an exercise price of £2.84; and 7,338 share options at an exercise price
of £10.38). Subsequently, the Board considers, and has resolved that, Nick Parker’s 106,205 outstanding share options have lapsed
under the rules of the Group’s employee share option plan.

John Glasgow
Chairman of the remuneration committee
15 May 2019

Annual report and financial statements 2018 YÜ GROUP PLC

CORPORATE GOVERNANCEDirectors’ report

The Directors present their annual report and the audited
consolidated financial statements of the Group for the year
ended 31 December 2018 (“FY 2018”).

Strategic Report
The Group has chosen in accordance with section 414C(11) of
the Companies Act 2006 (Strategic Report and Directors’ Report)
Regulations 2013 to set out in the Group’s Strategic Report
certain information required by Schedule 7 of the Large and
Medium-sized Companies and Groups (Accounts and Reports)
Regulations 2008 to be contained in the Directors’ Report.

Registered office
The registered office of Yü Group PLC (registered in England
and Wales no. 10004236) is CPK House, 2 Horizon Place,
Nottingham Business Park, Mellors Way, Nottingham NG8 6PY.

Dividends
The Board does not propose the payment of a final dividend
in respect of FY 2018 (FY 2017: 2.0p per share).

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

Directors
The Directors of the Group during the year and up to the date
of signing the financial statements were:

• Ralph Cohen
•
John Glasgow
• Bobby Kalar
• Nick Parker (resigned 31 July 2018)
• Paul Rawson (appointed 3 September 2018)
• Garry Pickering

Significant shareholders
The Company is informed that, at 1 May 2019, individual
registered shareholdings of more than 3 per cent. of the
Company’s issued share capital were as follows:

Number of ordinary % of issued ordinary
share capital

shares held

Bobby Kalar
Miton Asset Management
Barclays Wealth
Jamieson Principal
Pension Fund
Canaccord Genuity Group
Nick Parker
Hargreaves Lansdown
Garry Pickering

8,648,649
1,322,027
820,300

785,000
644,525
521,605
511,693
500,000

53.12%
8.12%
5.04%

4.82%
3.96%
3.20%
3.14%
3.07%

Employees
The Group’s Executive management regularly delivers
Company-wide briefings on the Group’s strategy and
performance. These briefings contain details of the
Group’s financial performance where appropriate.

The Group remains committed to fair treatment of people
with disabilities in relation to job applications, training, promotion
and career development. Every effort is made to find alternative
jobs for those who are unable to continue in their existing job
due to disability.

The Group takes a positive approach to equality and diversity.
The Group promotes equality in the application of reward policies,
employment and development opportunities, and aims to support
employees in balancing work and personal lifestyles.

Annual general meeting
The annual general meeting of the Group is to be held on
27 June 2019. The notice of meeting appears on pages 53
to 55 of these financial statements.

Political and charitable donations
During the year ended 31 December 2018 the Group made
political donations of £nil (2017: £nil) and charitable donations
of £nil (2017: £250).

Supplier payment policy and practice
The Group does not operate a standard code in respect of
payments to suppliers. The Group agrees terms of payment
with suppliers at the start of business and then makes
payments in accordance with contractual and other legal
obligations. The number of creditor days outstanding at
31 December 2018 was six days (2017: 12 days).

Statement of disclosure of information to auditor
As at the date this report was signed, so far as each of the
Directors is aware, there is no relevant information of which
the auditor is unaware and each Director has taken all steps that
he ought to have taken as a Director in order to make himself
aware of any relevant audit information and to establish that
the auditor is aware of that information.

Auditor
Following the year end, on 30 January 2019, the Board of
Directors appointed RSM UK Audit LLP as the new external
auditor to the Group. In accordance with section 489 of
the Companies Act, a resolution for the reappointment
of RSM UK Audit LLP as auditor of the Company is to
be proposed at the forthcoming annual general meeting.

On behalf of the Board

Directors’ shareholdings
The beneficial interests of the Directors in the share capital
of the Company at 1 May 2019 were as follows:

Paul Rawson
Director
15 May 2019

Executive Directors
Bobby Kalar
Paul Rawson
Garry Pickering

Non-executive Directors
Ralph Cohen
John Glasgow

Number of ordinary % of issued ordinary
share capital

shares held

8,648,649
—
500,000

54,054
10,000

53.12%
—
3.07%

0.33%
0.06%

YÜ GROUP PLC Annual report and financial statements 2018

CORPORATE GOVERNANCEStatement of Directors’ responsibilities
In respect of the annual report and the financial statements

The Directors are responsible for preparing the Strategic
Report and the Directors’ Report and the financial statements
in accordance with applicable law and regulations.

Company law requires the Directors to prepare Group
and Company financial statements for each financial year.
The Directors are required by the AIM Rules of the London
Stock Exchange to prepare Group financial statements in
accordance with International Financial Reporting Standards
(“IFRS”) as adopted by the European Union (“EU”) and have
elected under company law to prepare the Company financial
statements in accordance with United Kingdom Generally
Accepted Accounting Practice (United Kingdom Accounting
Standards and applicable law).

The Group financial statements are required by law and IFRS
adopted by the EU to present fairly the financial position and
performance of the Group; the Companies Act 2006 provides
in relation to such financial statements that references in
the relevant part of that Act to financial statements giving
a true and fair view are references to their achieving
a fair presentation.

Under company law the Directors must not approve the
financial statements unless they are satisfied that they give
a true and fair view of the state of affairs of the Group and the
Company and of the profit or loss of the Group for that period.

In preparing each of the Group and Company financial
statements, the Directors are required to:

select suitable accounting policies and then apply
them consistently;

make judgements and accounting estimates that
are reasonable and prudent;

for the Group financial statements, state whether they
have been prepared in accordance with IFRSs adopted
by the EU and for the Company financial statements state
whether applicable UK accounting standards have been
followed, subject to any material departures disclosed
and explained in the Company financial statements; and

prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the Group
and the Company will continue in business.

The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group’s
and the Company’s transactions and disclose with reasonable
accuracy at any time the financial position of the Group and the
Company and enable them to ensure that the financial statements
comply with the Companies Act 2006. They are also responsible
for safeguarding the assets of the Group and the Company
and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Yü Group PLC website.

Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.

Annual report and financial statements 2018 YÜ GROUP PLC

CORPORATE GOVERNANCEIndependent auditor’s report
To the members of Yü Group PLC

Opinion
We have audited the financial statements of Yü Group PLC
(the “parent company”) and its subsidiaries (the “Group”) for the
year ended 31 December 2018 which comprise the consolidated
statement of profit and loss and other comprehensive income,
the consolidated and Company balance sheets, the consolidated
and Company statements of changes in equity, the consolidated
statement of cashflows and the notes to the financial statements,
including a summary of significant accounting policies. The
financial reporting framework that has been applied in the
preparation of the Group financial statements is applicable
law and International Financial Reporting Standards (IFRSs)
as adopted by the European Union. The financial reporting
framework that has been applied in the preparation of the
parent company financial statements is applicable law and
United Kingdom Accounting Standards, including Financial
Reporting Standard 101 “Reduced Disclosure Framework”
(United Kingdom Generally Accepted Accounting Practice).

In our opinion:

•

the financial statements give a true and fair view of the
state of the Group’s and of the parent company’s affairs
as at 31 December 2018 and of the Group’s loss for the
year then ended;

the Group financial statements have been properly
prepared in accordance with IFRSs as adopted by
the European Union;

the parent company financial statements have been
properly prepared in accordance with United Kingdom
Generally Accepted Accounting Practice; and

the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.

Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law.
Our responsibilities under those standards are further

described in the Auditor’s responsibilities for the audit of the
financial statements section of our report. We are independent of
the Group and the parent company in accordance with the ethical
requirements that are relevant to our audit of the financial
statements in the UK, including the FRC’s Ethical Standard
as applied to SME listed entities and we have fulfilled our other
ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.

Conclusions relating to going concern
We have nothing to report in respect of the following matters in
relation to which the ISAs (UK) require us to report to you where:

•

the directors’ use of the going concern basis of accounting
in the preparation of the financial statements is not
appropriate; or

the directors have not disclosed in the financial statements
any identified material uncertainties that may cast significant
doubt about the Group’s or the parent company’s ability to
continue to adopt the going concern basis of accounting for
a period of at least twelve months from the date when the
financial statements are authorised for issue.

Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the Group
and parent company financial statements of the current period
and include the most significant assessed risks of material
misstatement (whether or not due to fraud) we identified,
including those which had the greatest effect on the overall
audit strategy, the allocation of resources in the audit and
directing the efforts of the engagement team. These matters
were addressed in the context of our audit of the Group and
parent company financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion
on these matters.

The risk

Our response

Revenue recognition and accrued income
(Refer to accounting policy on page 38 regarding revenue and accrued income, note 3 on the prior period adjustments
and note 16 regarding trade and other receivables)

During the year and following an accounting review
initiated by the Group, it was concluded that there were
issues with application of the Group’s revenue recognition
and associated policies. This led to a number of corrections
which had a significant impact on the Group’s results.
Appropriate and accurate income recognition is required
to be applied by the Directors to ensure that revenue
is accrued and recognised appropriately in the financial
statements. Revenues are based on the volumes supplied
to customers using estimates and meter readings. Where
recent meter information is limited, assumptions are made
to estimate the volumes of energy consumed by customers.
Actual and expected usage information, together with
the contractual rates are used to accrue revenue which
is then billed to customers. There is a risk that revenue
is recognised inappropriately.

For revenue and accrued income we verified the appropriateness
of the recognition policy applied. We selected a sample of contracts
and transactions and considered whether revenue had been
recognised in accordance with the contract and was subsequently
billed. For income accrued at the year end, additional procedures
were undertaken to check that this was subsequently billed.
We considered the integrity of the revenue information used
for the basis of our procedures through agreement through to
the financial systems and amounts recognised in the financial
statements. Analytical procedures have been performed on
revenue and accrued income. We considered the Group’s
disclosures in relation to revenue recognition.

YÜ GROUP PLC Annual report and financial statements 2018

FINANCIAL STATEMENTSKey audit matters continued

The risk

Our response

Trade receivable and accrued income recoverability
(Refer to accounting policy on page 38 regarding revenue and accrued income, note 3 on the prior period adjustments,
note 16 regarding trade and other receivables and note 19 (c) which considers credit risk)

The Group has a significant number of customers with a
varied credit risk profile which could impact the recoverability
of trade receivables and income accrued on customer
contracts. The majority of trade receivables are past due
and a proportion of accrued income is not billed immediately
following the month end which means it can become old
and more difficult to recover. Management’s assessment
of the recoverability and expected credit loss for trade
receivables and accrued income with their customers is
inherently judgemental. There is a risk that the net trade
receivables and accrued income will be recovered at
amounts materiality different to the value recognised.

The methodology utilised by management to calculate
the provision including expected credit loss was reviewed. We
independently profiled the Group’s customers using external data
to verify their identity, to identify those accounts with a potentially
elevated credit risk and quantify the potential exposure within
both trade receivables and accrued income. We selected a sample
of accounts and performed detailed testing to invoices and cash
receipts. The impairment and expected credit loss provision was
considered through a combination of analytical procedures,
the results of tests of detail and recent collection history.

Prior period adjustments
(Refer to accounting policy on page 38 regarding revenue and accrued income, note 3 on the prior period adjustments,
note 16 regarding trade and other receivables and note 19 (c) which considers credit risk)

Following an accounting review carried out by the Group,
it was concluded that adjustments were required for errors
in the previously reported financial statements, impacting
both 2016 and 2017. The Group concluded that the errors
arose as a result of incorrect measurement of accrued
income, reconciliation issues and the inappropriate
valuation of trade receivables which should have been
impaired. There is a risk that the errors recorded do not
meet the requirements of IAS 8, Accounting Policies,
Changes in Accounting Estimates and Errors.

We discussed and reviewed the approach taken by the Group
and how the principles applied met the requirements of IAS 8.
We assessed management’s analysis and the information used to
quantify the adjustments at 2016 and 2017 for accounts receivable,
accrued income and the associated ledger reconciliation corrections.
Procedures included performing sample testing to check the
adjustments by reference to subsequent billing and receipts
information. For trade and other receivables provisioning, we
selected certain accounts to verify that a correction for impairment
was recognised appropriately, that is when the impairment conditions
existed at the applicable balance sheet date. We reviewed the
resulting entries and disclosures in the financial statements.

Financial Conduct Authority investigation
(Refer to note 22)

The FCA commenced an investigation following the internal
accounting review and associated market announcements.
There is a risk that the accounting and disclosure implications
of this process are not fully considered and reflected in
the financial statements.

Having gained an initial understanding from the Board,
we reviewed correspondence and held direct discussions with
the Group’s advisers to obtain an understanding of the current
situation and expected implications. Based on this understanding,
we reviewed the disclosure included in the financial statements.

Our application of materiality
When establishing our overall audit strategy, we set certain
thresholds which help us to determine the nature, timing
and extent of our audit procedures. When evaluating whether
misstatements, both individually and on the financial statements
as a whole, could reasonably influence the economic decisions
of the users we take into account the qualitative nature and
the size of the misstatements. During planning materiality
for the Group financial statements as a whole was calculated
as £400,000, which was not significantly changed during the
course of our audit. Materiality for the parent company

financial statements as a whole was calculated as £150,000.
We agreed with the Audit Committee that we would report to
them all unadjusted differences in excess of £25,000, as well as
differences below that threshold that, in our view, warranted
reporting on qualitative grounds.

An overview of the scope of our audit
Our Group audit approach focused on the Company, the
two main UK trading subsidiaries and the consolidation which
have been subject to a full scope audit to Group materiality.

Annual report and financial statements 2018 YÜ GROUP PLC

FINANCIAL STATEMENTSIndependent auditor’s report continued
To the members of Yü Group PLC

Other information
The directors are responsible for the other information.
The other information comprises the information included
in the annual report, other than the financial statements
and our auditor’s report thereon. Our opinion on the financial
statements does not cover the other information and, except
to the extent otherwise explicitly stated in our report, we do
not express any form of assurance conclusion thereon.

Responsibilities of directors
As explained more fully in the statement of directors’
responsibilities set out on page 29, the directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view, and for such internal
control as the directors determine is necessary to enable
the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.

In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there
is a material misstatement in the financial statements or a
material misstatement of the other information. If, based on
the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to
report that fact. We have nothing to report in this regard.

Opinions on other matters prescribed
by the Companies Act 2006
In our opinion, based on the work undertaken in the course
of the audit:

•

the information given in the Strategic Report and the
Directors’ Report for the financial year for which the
financial statements are prepared is consistent with
the financial statements; and

•

the Strategic Report and the Directors’ Report have been
prepared in accordance with applicable legal requirements.

Matters on which we are required to report
by exception
In the light of the knowledge and understanding of the Group and
the parent company and their environment obtained in the course
of the audit, we have not identified material misstatements in
the Strategic Report or the Directors’ Report.

We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report
to you if, in our opinion:

• adequate accounting records have not been kept by the
parent company, or returns adequate for our audit have
not been received from branches not visited by us; or

•

the parent company financial statements are not in
agreement with the accounting records and returns; or

• certain disclosures of directors’ remuneration specified

by law are not made; or

• we have not received all the information and explanations

we require for our audit.

In preparing the financial statements, the directors are
responsible for assessing the Group’s and the parent company’s
ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern
basis of accounting unless the directors either intend to
liquidate the Group or the parent company or to cease
operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit
of the financial statements
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to
issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with ISAs (UK) will always
detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users
taken on the basis of these financial statements.

A further description of our responsibilities for the audit
of the financial statements is located on the Financial
Reporting Council’s website at: http://www.frc.org.uk/
auditorsresponsibilities. This description forms part
of our auditor’s report.

Use of our report
This report is made solely to the Company’s members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
Company’s members those matters we are required to state to
them in an auditor’s report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company’s members
as a body, for our audit work, for this report, or for the opinions
we have formed.

Ian Wall (Senior Statutory Auditor)
For and on behalf of RSM UK Audit LLP, Statutory Auditor
Chartered Accountants
Suite A, 7th Floor
City Gate East
Tollhouse Hill
Nottingham
NG1 5FS
15 May 2019

YÜ GROUP PLC Annual report and financial statements 2018

FINANCIAL STATEMENTSConsolidated statement of profit and loss
and other comprehensive income
For the year ended 31 December 2018

Revenue

Cost of sales

Gross profit

Operating costs before non-recurring items, unrealised gains on derivative
contracts and IFRS 2 charges

Operating costs – non-recurring items

Operating costs – unrealised (losses)/gains on derivative contracts

Operating costs – IFRS 2 charges

Total operating costs

(Loss)/profit from operations

Finance income

Finance costs

(Loss)/profit before tax

Taxation

(Loss)/profit for the year

Other comprehensive income

Total comprehensive (expense)/income for the year

Earnings per share

Basic

Diluted

31 December
2018
£’000

Notes

80,635

(74,762)

5,873

31 December
2017
(restated)
£’000

45,631

(38,813)

6,818

(14,588)

(5,194)

(441)

(125)

(314)

(15,468)

(9,595)

(63)

(9,637)

3,370

(6,267)

—

(6,267)

£(0.42)

—

259

(1,099)

(6,034)

784

(68)

730

(19)

711

—

711

£0.05

Annual report and financial statements 2018 YÜ GROUP PLC

FINANCIAL STATEMENTSConsolidated and Company balance sheet
At 31 December 2018

ASSETS

Non-current assets

Property, plant
and equipment

Intangible assets

Deferred tax

Current assets

Trade and other
receivables

Cash and cash equivalents

Total assets

LIABILITIES

Current liabilities

Trade and other payables

Non-current liabilities

Total liabilities

Net assets

EQUITY

Share capital

Share premium

Merger reserve

Retained earnings

Group

Company

31 December
2018
£’000

31 December
2017 (restated)
£’000

1 January
2017 (restated)
£’000

31 December
2018
£’000

31 December
2017
£’000

Notes

395

3,325

3,774

13,569

14,612

28,181

31,955

(21,517)

—

(21,517)

10,438

11,689

(50)

(1,282)

10,438

539

1,568

2,163

10,165

4,887

15,052

17,215

(10,458)

(371)

(10,829)

6,386

—

(50)

6,366

6,386

209

467

733

3,557

5,197

8,754

9,487

(5,340)

(72)

(5,412)

4,075

—

(50)

4,055

4,075

—

4,642

12,365

17,007

—

1,599

1,355

4,404

5,759

7,358

—

(371)

17,007

6,987

11,689

(50)

5,287

17,007

—

(50)

6,967

6,987

The Company is taking advantage of the exemption in section 408 of the Companies Act 2006 not to present its individual
statement of comprehensive income and related notes. The Company incurred a loss of £300,000 for the year (2017: £908,000).

The financial statements on pages 33 to 52 were approved by the Board of Directors on 15 May 2019 and signed on its behalf by:

Bobby Kalar
Chief Executive Officer

Paul Rawson
Chief Financial Officer

YÜ GROUP PLC Annual report and financial statements 2018

FINANCIAL STATEMENTSConsolidated statement of changes in equity
For the year ended 31 December 2018

Share
capital
£’000

Share
premium
£’000

Merger
reserve
£’000

Retained
earnings
£’000

Balance at 1 January 2018
(as previously reported)

Impact of prior period adjustment (note 3)

Balance at 1 January 2018 (restated)

Total comprehensive income for the year

Loss for the year

Other comprehensive income

Transactions with owners of the Company

Contributions and distributions

Equity-settled share based payments

Deferred tax on share based payments

Proceeds from share issues

Share issue costs

Equity dividend paid in the year

Total transactions with owners
of the Company

Balance at 31 December 2018

Balance at 1 January 2017
(as previously reported)

Impact of prior period adjustment (note 3)

Balance at 1 January 2017 (restated)

Total comprehensive income for the year

Profit for the year

Other comprehensive income

Transactions with owners of the Company

Contributions and distributions

Equity-settled share based payments

Deferred tax on share based payments

Equity dividend paid in the year

Total transactions with owners of
the Company

—

Balance at 31 December 2017 (restated)

—

12,079

(390)

—

11,689

—

(50)

—

(50)

—

(50)

—

(50)

—

(50)

8,793

(2,427)

6,366

(6,267)

—

(6,267)

685

(1,600)

—

(466)

(1,381)

(1,282)

5,389

(1,334)

4,055

711

—

711

800

1,116

(316)

1,600

6,366

Total
£’000

8,813

(2,427)

6,386

(6,267)

—

(6,267)

685

(1,600)

12,090

(390)

(466)

10,319

10,438

5,409

(1,334)

4,075

711

—

711

800

1,116

(316)

1,600

6,386

Annual report and financial statements 2018 YÜ GROUP PLC

FINANCIAL STATEMENTSCompany statement of changes in equity
For the year ended 31 December 2018

Balance at 1 January 2018

Total comprehensive income for the year

Loss for the year

Other comprehensive income

Transactions with owners of the Company

Contributions and distributions

Share based payments

Deferred tax on share based payments

Proceeds from share issues

Share issue costs

Equity dividend paid in the year

Total transactions with owners
of the Company

Balance at 31 December 2018

Balance at 1 January 2017

Total comprehensive income for the year

Loss for the year

Other comprehensive income

Transactions with owners of the Company

Contributions and distributions

Share based payments

Deferred tax on share based payments

Equity dividend paid in the year

Total transactions with owners of
the Company

Balance at 31 December 2017

Share
capital
£’000

Share
premium
£’000

—

12,079

(390)

—

11,689

—

Merger
reserve
£’000

(50)

Retained
earnings
£’000

6,967

—

(50)

—

(50)

(300)

—

(300)

685

(1,599)

—

(466)

(1,380)

5,287

6,275

(908)

—

(908)

800

1,116

(316)

1,600

6,967

Total
£’000

6,987

(300)

—

(300)

685

(1,599)

12,090

(390)

(466)

10,320

17,007

6,295

(908)

—

(908)

800

1,116

(316)

1,600

6,987

YÜ GROUP PLC Annual report and financial statements 2018

FINANCIAL STATEMENTSConsolidated statement of cash flows
For the year ended 31 December 2018

Cash flows from operating activities

(Loss)/profit for the financial year

Adjustments for:

Depreciation of property, plant and equipment

Amortisation of intangible assets

Finance income

Finance costs

Taxation

Share based payment charge

Increase in trade and other receivables

Increase in trade and other creditors

(Decrease)/increase in provisions for employee benefits

Net cash (used in)/from operating activities

Cash flows from investing activities

Purchase of property, plant and equipment

Net interest

Net cash used in investing activities

Cash flows from financing activities

Net proceeds from share placing and option exercises

Dividend paid during the year

Repayment of borrowings

Net cash from/(used in) financing activities

Net increase/(decrease) in cash and cash equivalents

Cash and cash equivalents at the start of the year

Cash and cash equivalents at the end of the year

31 December
2018
£’000

31 December
2017
(restated)
£’000

(6,267)

291

(21)

(3,370)

685

(3,404)

11,072

(371)

(1,320)

(147)

(42)

(189)

11,700

(466)

—

11,234

9,725

4,887

14,612

711

211

(14)

800

(6,608)

5,046

299

533

(541)

(527)

—

(316)

—

(316)

(310)

5,197

4,887

Annual report and financial statements 2018 YÜ GROUP PLC

FINANCIAL STATEMENTSNotes to the consolidated financial statements

1. Significant accounting policies
The consolidated financial statements of the Group for the year ended 31 December 2018 were approved and authorised for issue in
accordance with a resolution of the Directors on 15 May 2019. Yü Group PLC is a public limited company incorporated in the United Kingdom,
with company number 10004236. The Company is limited by shares and the Company’s ordinary shares are traded on AIM.

Basis of preparation
The consolidated financial statements have been prepared in accordance with EU-endorsed International Financial Reporting
Standards (“IFRSs”), IFRIC interpretations and the Companies Act 2006. The Company has elected to prepare its parent company
financial statements in accordance with UK accounting standards (UK Generally Accepted Accounting Practice), including
FRS 101 “Reduced Disclosure Framework”.

The consolidated financial statements are presented in British pounds sterling (£) and all values are rounded to the nearest
thousand (£’000), except where otherwise indicated.

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

The Group’s hedging strategy and cash collateral requirements of the required trading arrangements are principal considerations of
the Board when assessing the Group’s ability to continue as a going concern. Management has also considered the material losses
incurred in FY 2018 and any subsequent impact on the potential to control the level of bad debt incurred by the Group, the ability
to enhance gross margin on customer contracts, and the control of key financial data in the business. The regulatory context of
the Group, following the accounting issues notified to the market in 2018, is a further principal consideration. For details on this,
and the other principal risks facing the Group, please see pages 15 to 17.

Basis of consolidation
The consolidated accounts of the Group include the assets, liabilities and results of the Company and subsidiary undertakings
in which Yü Group PLC has a controlling interest. Control is achieved when the Group is exposed, or has rights, to variable returns
from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically,
the Group controls an investee if, and only if, the Group has all of the following: power over the investee (i.e. existing rights that give
it the current ability to direct the relevant activities of the investee); exposure, or rights, to variable returns from its involvement with
the investee; and the ability to use its power over the investee to affect its returns. When necessary, adjustments are made to the
financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intragroup
assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are
eliminated in full on consolidation.

Use of estimates and judgements
The preparation of the financial statements in conformity with adopted IFRSs requires the use of estimates and assumptions.
Although these estimates are based on management’s best knowledge, actual results ultimately may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the
period in which the estimates are revised and in any future periods affected. The key areas of estimation and judgement are the
level of accrual for unbilled revenue, the inputs to the IFRS 2 share option charge calculations and the recoverability of deferred
tax assets and trade receivables.

Revenue recognition
The Group enters into contracts to supply gas, electricity and water to its customers. Revenue represents the fair value of the
consideration received or receivable from the sale of actual and estimated gas, electricity and water supplied during the year,
net of discounts, Climate Change Levy and Value Added Tax. Revenue is recognised on consumption.

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

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

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

Financial instruments
Non-derivative financial instruments
Non-derivative financial instruments comprise trade and other receivables, cash and cash equivalents and trade and other payables.

Trade and other receivables
Trade and other receivables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised
cost using the effective interest method, less any impairment and expected credit losses.

YÜ GROUP PLC Annual report and financial statements 2018

FINANCIAL STATEMENTS1. Significant accounting policies continued
Financial instruments continued
Trade and other payables
Trade and other payables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised
cost using the effective interest method.

Cash and cash equivalents
Cash and cash equivalents comprise cash balances and short-term deposits (monies held on deposit are accessible with one month’s
written notice). Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are
included as a component of cash and cash equivalents.

Derivative financial instruments
The Group uses commodity purchase contracts to hedge its exposures to fluctuations in gas and electricity commodity prices.
The majority of commodity purchase contracts are expected to be delivered entirely to the Group’s customers and therefore
the Group classifies them as “own use” contracts and outside the scope of IFRS 9. This is achieved when:

• a physical delivery takes place under all such contracts;

•

the volumes purchased or sold under the contracts correspond to the Group’s operating requirements; and

• no part of the contract is settled net in cash.

This classification as “own use” allows the Group not to recognise the commodity purchase contracts on its balance sheet at the year end.

The commodity purchase contracts that do not meet the criteria listed above are recognised at fair value under IFRS 9. The gain
or loss on remeasurement to fair value is recognised immediately in profit or loss.

Classification of financial instruments issued by the Group
Following the adoption of IAS 32, financial instruments issued by the Group are treated as equity only to the extent that they meet
the following two conditions:

(a) they include no contractual obligations upon the Group to deliver cash or other financial assets or to exchange financial assets

or financial liabilities with another party under conditions that are potentially unfavourable to the Group; and

(b) where the instrument will or may be settled in the Group’s own equity instruments, it is either a non-derivative that includes
no obligation to deliver a variable number of the Company’s own equity instruments or is a derivative that will be settled by
the Company’s exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments.

To the extent that this definition is not met, the proceeds of issue are classified as a financial liability. Where the instrument so
classified takes the legal form of the Company’s own shares, the amounts presented in these financial statements for called up
share capital and share premium account exclude amounts in relation to those shares.

Intangible assets
Intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and accumulated impairment losses.

Amortisation is charged to the statement of profit and loss on a straight-line basis over the estimated useful lives of the intangible assets,
unless such lives are indefinite. Intangible assets with an indefinite useful life and goodwill are systematically tested for impairment
at each balance sheet date. Other intangible assets are amortised from the date they are available for use. The estimated useful
lives are as follows:

• Licence

– 35 years

Property, plant and equipment
Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.

Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property,
plant and equipment. The estimated useful lives for the current and comparative periods are as follows:

• Computer equipment – 3 years

• Fixtures and fittings – 3 years

Leased assets and lease obligations
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership
to the lessee. All other leases are classified as operating leases. Assets acquired under finance leases are capitalised in the balance
sheet at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the
lease. The corresponding liability to the lessor is recorded in the balance sheet as a finance lease obligation. The lease payments
are apportioned between finance charges to the income statement and a reduction of the lease obligations.

Rental payments under operating leases are charged to the income statement on a straight-line basis over the applicable lease periods.

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.

Annual report and financial statements 2018 YÜ GROUP PLC

FINANCIAL STATEMENTSNotes to the consolidated financial statements continued

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

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

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

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

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

Segmental reporting
In accordance with IFRS 8 “Operating Segments”, the Group has made the following considerations to arrive at the disclosure made
in this financial information.

IFRS 8 requires consideration of the Chief Operating Decision Maker (“CODM”) within the Group. In line with the Group’s internal
reporting framework and management structure, the key strategic and operating decisions are made by the Board of Directors,
which regularly reviews the Group’s performance and balance sheet position and receives financial information for the Group
as a whole. Accordingly, the Board of Directors is deemed to be the CODM.

The Group’s revenue and profit were derived from its principal activity, which is the supply of electricity, gas and water to SMEs and larger
corporates in the UK. As a consequence the Group has one reportable segment, which is the supply of electricity, gas and water to SMEs
and larger corporates. Segmental profit is measured at operating profit level, as shown on the face of the statement of profit and loss.

As there is only one reportable segment whose losses, expenses, assets, liabilities and cash flows are measured and reported
on a basis consistent with the financial statements, no additional numerical disclosures are necessary.

Standards and interpretations
The following adopted IFRSs have been issued but have not been applied by the Group in these financial statements. Their
adoption is not expected to have a material effect on the financial statements unless otherwise indicated:

• Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to IAS 16 and IAS 38) (effective date

31 December 2016);

•

IFRS 14 “Regulatory Deferral Accounts” (effective date 31 December 2016); and

• Amendments to IAS 12 “Recognition of Deferred Tax Assets for Unrealised Losses” (EU endorsed 6 November 2017).

IFRS 16 “Leases”
IFRS 16 “Leases” is applicable for annual reporting periods commencing 1 January 2019, and as such has not yet been applied
by the Group. The Group expects to apply IFRS 16 from 1 January 2019. The standard replaces IAS 17 “Leases” and for lessees will
eliminate the classifications of operating leases and finance leases. Subject to exceptions, a “right-of-use” asset will be capitalised
in the balance sheet, measured at the present value of the unavoidable future lease payments to be made over the lease term.
A liability corresponding to the capitalised lease will also be recognised, adjusted for lease prepayments, lease incentives received,
initial direct costs incurred and an estimate of any future restoration, removal or dismantling costs. Straight-line operating lease
expense recognition will be replaced with a depreciation charge for the leased asset (included in operating costs) and an interest
expense on the recognised lease liability (included in finance costs). In the earlier periods of a lease, the expenses associated with
the lease under IFRS 16 will be higher when compared to lease expenses under IAS 17. However EBITDA (earnings before interest,
tax, depreciation and amortisation) results will be improved as the operating expense is replaced by interest expense and
depreciation in profit or loss under IFRS 16. For classification within the statement of cash flows, the lease payments will be
separated into both a principal (financing activities) and interest (either operating or financing activities) component.

Transition accounting approach
The Group expects to apply the modified retrospective approach to transition accounting.

Impact
The Group currently enters into a small number of operating leases, primarily for the rent of the office buildings and a number
of vehicles for use by employees (see note 22). Based on the leases entered into by the Group at 31 December 2018, the Group
would anticipate an approximate £0.5m “right-of-use” asset and a corresponding £0.5m lease liability being recognised at
31 December 2019. The profit and loss impact of the new standard is not expected to be material to the Group accounts.

YÜ GROUP PLC Annual report and financial statements 2018

FINANCIAL STATEMENTS2. Segmental analysis
Operating segments
The Directors consider there to be one operating segment, being the supply of electricity, gas and water to SMEs and larger corporates.

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

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

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

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

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

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

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

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

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

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

Trade and other receivables

Total assets

Corporation tax payable

Total liabilities

Net impact on equity

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

Revenue

Operating costs

Corporation tax expense

Net impact on profit for the year

Impact on basic, diluted and adjusted earnings per share (“EPS”) (increase/(decrease) in EPS)

Basic EPS attributable to ordinary shareholders

Diluted EPS attributable to ordinary shareholders

Adjusted EPS attributable to ordinary shareholders

31 December 2017
£’000

1 January 2017
£’000

(2,846)

419

(1,334)

—

(2,427)

(1,334)

31 December 2017
£’000

(1,330)

(182)

419

(1,093)

31 December 2017
Pence

(0.8)

(0.7)

Annual report and financial statements 2018 YÜ GROUP PLC

FINANCIAL STATEMENTSNotes to the consolidated financial statements continued

4. Auditor’s remuneration

Audit of these financial statements

Amounts receivable by auditor in respect of:

Audit of financial statements of subsidiaries pursuant to legislation

Other services pursuant to legislation:

– Corporate tax services

– Payroll services

2018
£’000

149

2017
£’000

—

The 2018 auditor’s remuneration represents amounts payable to RSM UK Audit LLP and its associates. The 2017 comparative
figures were amounts payable to KPMG LLP.

5. Operating expenses

Profit for the year has been arrived at after charging:

Staff costs (see note 7)

Depreciation of property, plant and equipment

Amortisation of intangibles

Operating lease rentals

6. Net finance costs

Bank charges

Bank interest receivable

2018
£’000

2017
£’000

5,067

4,244

291

145

2018
£’000

(21)

211

149

2017
£’000

(14)

7. Staff numbers and costs
The average number of persons employed by the Group (including Directors) during the period, analysed by category, was as follows:

Sales

Administration

The aggregate payroll costs of these persons were as follows:

Wages and salaries

Social security costs

Pension costs

Share based payments

2018
Number

2017
Number

136

2018
£’000

4,287

422

314

5,067

2017
£’000

2,844

301

—

1,099

4,244

There are two persons employed directly by the Company during the year ended 31 December 2018 (2017: two), being the
Non-executive Directors. The Company’s three (2017: three) Executive Directors have service contracts with a wholly owned
subsidiary of the Company.

YÜ GROUP PLC Annual report and financial statements 2018

FINANCIAL STATEMENTS7. Staff numbers and costs continued
Key management personnel
The aggregate compensation made to Directors and other members of key management personnel of the Group is set out below:

Short-term employee benefits

Pension costs

Share based payments

2018
£’000

1,377

654

2,049

2017
£’000

972

—

695

1,667

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

Adjusted EBITDA reconciliation

(Loss)/profit from operations

Add back:

Non-recurring items

Impact of first-time adoption of IFRS 9

Unrealised loss/(gain) on derivative contracts

Depreciation of property, plant and equipment

Amortisation of intangibles

Equity-settled share based payment charge

Adjusted EBITDA

2018
£’000

(9,595)

441

1,768

125

291

685

2017
£’000

784

—

(259)

211

800

(6,283)

1,537

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

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

9. 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.

(Loss)/profit for the year attributable to ordinary shareholders

Weighted average number of ordinary shares

At the start of the year

Effect of shares issued in the year

Number of ordinary shares for basic earnings per share calculation

Dilutive effect of outstanding share options

Number of ordinary shares for diluted earnings per share calculation

Basic earnings per share

Diluted earnings per share

2018
£’000

(6,267)

2017
(restated)
£’000

711

2018

2017

14,054,055

787,370

—

14,841,425

14,054,055

768,025

1,133,070

15,609,450

15,187,125

2018
£

(0.42)

—

2017
(restated)
£

0.05

Annual report and financial statements 2018 YÜ GROUP PLC

FINANCIAL STATEMENTSNotes to the consolidated financial statements continued

9. Earnings per share continued
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:

Adjusted earnings per share

(Loss)/profit for the year attributable to ordinary shareholders

(6,267)

711

2018
£’000

2017
(restated)
£’000

Add back:

Non-recurring items after tax (see note 8)

Unrealised loss/(gain) on derivative contracts after tax

Share based payments after tax

Adjusted basic earnings for the year

Adjusted earnings per share

10. Taxation

Current tax charge

Current year

Adjustment in respect of prior years

Deferred tax credit

Current year

Adjustment in respect of prior years

Total tax (credit)/charge

Tax recognised directly in equity

Current tax recognised directly in equity

Deferred tax recognised directly in equity

Total tax recognised directly in equity

Reconciliation of effective tax rate

(Loss)/profit before tax

Tax at UK corporate tax rate of 19% (2017: 19.25%)

Expenses not deductible for tax purposes

Tax relief on exercise of share options

Adjustment in respect of prior periods – current tax

Adjustments in respect of prior periods – deferred tax

Utilisation of tax losses not recognised for deferred tax

Reduction in tax rate on deferred tax balances

Taxation (credit)/charge for the year

357

101

254

(5,555)

2018
£

(0.37)

2018
£’000

—

(13)

(3,357)

—

(3,357)

(3,370)

—

(1,600)

(9,637)

(1,831)

(1,927)

—

369

(3,370)

—

(210)

912

1,413

2017
(restated)
£

0.10

2017
(restated)
£’000

(25)

(11)

—

1,116

730

141

—

(25)

(128)

Reductions in the UK corporation tax rate from 20 per cent. to 19 per cent. (effective from 1 April 2017) and a further reduction
to 17 per cent. (effective from 1 April 2020) were substantively enacted on 6 September 2016. This will reduce the Group’s future
corporation tax charge accordingly. Deferred taxes at the balance sheet date have been measured using these enacted tax rates
and reflected in these financial statements.

YÜ GROUP PLC Annual report and financial statements 2018

FINANCIAL STATEMENTS11. Dividends
The Group proposed and paid an interim dividend in relation to 2018 of 1.2p per share (2017: 1.0p per share). The total interim
dividend of £195,211 was paid to shareholders on 8 January 2019.

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

12. Intangible assets

Cost

At 1 January 2018

Additions

Disposals

At 31 December 2018

Amortisation

At 1 January 2018

Charge for the year

Disposals

At 31 December 2018

Net book value at 31 December 2018

Cost

At 1 January 2017

Additions

Disposals

At 31 December 2017

Amortisation

At 1 January 2017

Charge for the year

Disposals

At 31 December 2017

Net book value at 31 December 2017

Electricity
licence
£’000

—

The useful economic life of the acquired electricity licence is 35 years, which represents the fact that the licence can be revoked
by giving 25 years’ written notice but that this notice cannot be given any sooner than 10 years after the licence came into force
in January 2013.

Annual report and financial statements 2018 YÜ GROUP PLC

FINANCIAL STATEMENTSNotes to the consolidated financial statements continued

13. Property, plant and equipment

Cost

At 1 January 2018

Additions

At 31 December 2018

Depreciation

At 1 January 2018

Charge for the year

At 31 December 2018

Net book value at 31 December 2018

Cost

At 1 January 2017

Additions

At 31 December 2017

Depreciation

At 1 January 2017

Charge for the year

At 31 December 2017

Net book value at 31 December 2017

14. Investments in subsidiaries
The Company has the following investments in subsidiaries:

Computer
equipment
£’000

Fixtures and
fittings
£’000

788

139

927

358

230

588

339

382

406

788

206

152

358

430

189

197

141

135

189

109

Total
£’000

977

147

1,124

438

291

729

395

436

541

977

227

211

438

539

Company name

KAL-Energy Limited

Yü Energy Limited

Country of
incorporation

Holding

Proportion of
shares held

United Kingdom Ordinary shares

Warrant Collections Limited

United Kingdom Ordinary shares

Kensington Power Limited

United Kingdom Ordinary shares

Yü Water Limited

United Kingdom Ordinary shares

All of the above entities are included in the consolidated financial statements.

Nature of business

Gas shipping services

Dormant

Supply of energy to businesses

Dormant

100%

All of the above entities have the same registered address as Yü Group PLC. The address is listed as part of the Company
information on page 56.

15. Deferred tax assets
Deferred tax assets are attributable to the following:

Property, plant and equipment

Tax value of loss carry-forwards

Share based payments

Group

Company

2018
£’000

(32)

3,357

—

3,325

2017
£’000

(32)

—

1,600

1,568

2018
£’000

—

2017
£’000

—

1,599

YÜ GROUP PLC Annual report and financial statements 2018

FINANCIAL STATEMENTS15. Deferred tax assets continued
Movement in deferred tax in the period:

Property, plant and equipment

Tax value of loss carry-forwards

Share based payments

Property, plant and equipment

Tax value of loss carry-forwards

Share based payments

At
1 January 2018
£’000

Recognised
in income
£’000

Recognised
directly in equity
£’000

At
31 December 2018
£’000

(32)

—

1,600

1,568

—

3,357

—

3,357

—

(1,600)

(32)

3,357

—

3,325

At
1 January 2017
£’000

Recognised
in income
£’000

Recognised
directly in equity
£’000

At
31 December 2017
£’000

(33)

203

297

467

(203)

187

(15)

—

1,116

(32)

—

1,600

1,568

The deferred tax asset is expected to be utilised by the Group in the coming years. The Group is forecast to generate sufficient
taxable income as a result of the growth in the customer base against which it will utilise these deferred tax assets.

Group

2018
£’000

2017 (restated)
£’000

Company

2018
£’000

2017
£’000

16. Trade and other receivables

Gross trade receivables

Provision for doubtful debts and expected credit loss

Accrued income – net of provision

Prepayments

Other receivables

Financial derivative asset

Amount due from subsidiary undertaking

7,898

(4,803)

3,095

9,688

245

406

135

—

10,474

13,569

2,681

(272)

2,409

6,876

235

386

259

—

7,756

10,165

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

Opening balance

Additional provisions recognised

Provision utilised in the year

Unused amounts reversed

—

4,642

4,462

2018
£’000

272

4,531

—

4,803

—

1,355

2017 (restated)
£’000

222

—

272

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

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

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

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

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

Annual report and financial statements 2018 YÜ GROUP PLC

FINANCIAL STATEMENTSNotes to the consolidated financial statements continued

17. Cash and cash equivalents

Cash at bank and in hand

Short-term deposits

Group

Company

2018
£’000

11,112

3,500

14,612

2017
£’000

1,387

3,500

4,887

2018
£’000

8,865

3,500

12,365

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.

18. Trade and other payables

Group

Company

Current

Trade payables

Accrued expenses

Corporation tax

Other payables

Non-current

Group share bonus liabilities

2018
£’000

1,231

15,603

4,667

21,517

2017
(restated)
£’000

2,044

7,081

1,304

10,458

—

371

2018
£’000

—

2017
£’000

904

3,500

4,404

2017
£’000

—

371

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

Details of the Group share bonus scheme are included in note 21.

19. 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.

YÜ GROUP PLC Annual report and financial statements 2018

FINANCIAL STATEMENTS19. Financial instruments and risk management continued
(b) Market risk continued
Commodity and energy prices continued
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 do not meet the stringent requirements of IFRS 9, and so are subject to fair value
measurement through the income statement.

The fair value mark-to-market adjustment at 31 December 2018 is a loss of £125,000 (2017: gain of £259,000). See note 16
for the corresponding derivative financial asset.

The Group’s exposure to commodity price risk according to IFRS 7 is measured by reference to the Group’s IFRS 9 commodity contracts.
IFRS 7 requires disclosure of a sensitivity analysis for market risks that is intended to illustrate the sensitivity of the Group’s financial
position and performance to changes in market variables impacting upon the fair values or cash flows associated with the
Group’s financial instruments.

Therefore, the sensitivity analysis provided below discloses the impact on profit or loss at the balance sheet date assuming that
a reasonably possible change in commodity prices had occurred, and been applied to the risk exposures in place at that date.
The reasonably possible changes in commodity price used in the sensitivity analysis were determined based on calculated
or implied volatilities where available, or historical data.

The sensitivity analysis has been calculated on the basis that the proportion of commodity contracts that are IFRS 9 financial
instruments remains consistent with those at that point. Excluded from this analysis are all commodity contracts that are not
financial instruments under IFRS 9.

Open market price of forward contracts

UK gas (p/therm)

UK power (£/MWh)

Reasonably
possible increase/
decrease in
variable

Impact on profit
and net assets
£’000

+/-10%

226

300

Liquidity risk from commodity trading
The Group’s trading arrangements can result in a cash call being made by counterparties 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
counterparties. Whilst such a cash call would not impact the Group’s profit, it would have an impact on the Group’s cash reserves.

(c) Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual
obligations, and arises principally from the Group’s receivables from customers.

These trading exposures are monitored and managed at Group level. All customers are UK based and turnover is made up of a large
number of customers each owing relatively small amounts. New customers have their credit checked using an external credit
reference agency prior to being accepted as a customer.

Credit risk is also managed through the Group’s standard business terms, which require all customers to make a monthly payment
predominantly by direct debit. At the year end there were no significant concentrations of credit risk. The carrying amount of the
financial assets represents the maximum credit exposure at any point in time.

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

Not past due

Past due (0–30 days)

Past due (31–120 days)

More than 120 days

2018
£’000

104

1,949

1,006

3,095

2017
(restated)
£’000

1,419

629

309

2,409

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

Annual report and financial statements 2018 YÜ GROUP PLC

FINANCIAL STATEMENTSNotes to the consolidated financial statements continued

19. Financial instruments and risk management continued
(d) Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Board is responsible for
ensuring that the Group has sufficient liquidity to meet its financial liabilities as they fall due and does so by monitoring cash flow
forecasts and budgets. In order to enter into the necessary commodity purchase contracts, the Group is required to lodge funds
on deposit with its bank. These funds (£3.5m at 31 December 2018) are used as collateral, allowing the bank to issue letters of credit
(“LOCs”) to the relevant trading counterparties in the wholesale energy market. The Board has considered the cash flow forecasts,
along with the collateral and LOC requirements, for the next 12 months, which show that the Group expects to operate within
its working capital facilities throughout the year.

Any excess cash balances are held in short-term, interest bearing deposit accounts. At 31 December 2018 the Group had £14.6m
of cash and bank balances, as per note 17.

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

20. Share capital and reserves

Share capital

2018
Number

2018
£’000

2017
Number

Allotted and fully paid ordinary shares of £0.005 each

16,267,555

14,054,055

2017
£’000

The Company has one class of ordinary share which carries no right to fixed income. The holders of ordinary shares are entitled
to receive dividends as declared and are entitled to one vote per share at meetings of the Company.

At 1 January 2018 (restated)

Loss for the year

Share based payment charge

Proceeds from share issues

Share issue costs

Deferred tax on share based payment charge

Equity dividend paid

At 31 December 2018

At 1 January 2017 (restated)

Profit for the year

Share based payment charge

Deferred tax on share based payment charge

Equity dividend paid

At 31 December 2017 (restated)

Share
capital
£’000

Share
premium
£’000

—

12,079

(390)

—

11,689

—

Merger
reserve
£’000

(50)

—

(50)

—

(50)

Retained
earnings
£’000

6,366

(6,267)

685

—

(1,600)

(466)

(1,282)

4,055

711

800

1,116

(316)

6,366

On 14 March 2018 the Company completed the placing of 1,200,000 new ordinary shares of £0.005 each. The placing price
of the new shares was £10.00 per placing share. £390,000 of legal and professional fees were incurred in relation to the share
placing and have been deducted directly from the Company’s share premium account. The placing on 14 March 2018 raised
£11,610,000, net of costs.

The merger reserve was created as part of the 2016 Group reorganisation.

On 14 March 2018 Nick Parker exercised 500,000 share options. The exercise price was £0.09 per share.

On 16 March 2018 Garry Pickering exercised 500,000 share options. The exercise price was £0.09 per share.

On 8 August 2018 an employee exercised 13,500 share options. The exercise price was £0.09 per share.

YÜ GROUP PLC Annual report and financial statements 2018

FINANCIAL STATEMENTS21. Share based payments
The Group operates a number of share option plans for qualifying employees of the Group. Options in the plans are settled in
equity in the Company. The options are subject to a vesting schedule, but not conditional on any performance criteria being
achieved. The only vesting condition is that the employee is employed by the Group at the date when the option vests.

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

Exercisable between

Date of grant

Expected term

Commencement

Lapse

Exercise
price

Vesting
schedule

Amount
outstanding at
31 December 2018

17 February 2016

22 December 2016

6 April 2017

28 September 2017

9 April 2018

26 September 2018

6.5

17 February 2018

17 February 2026

17 February 2019

17 February 2026

22 December 2019

22 December 2026

6 April 2020

6 April 2027

28 September 2020

28 September 2027

9 April 2021

9 April 2028

26 September 2021

26 September 2028

£0.09

£3.25

£0.005

£2.844

£5.825

£0.005

£10.38

£8.665

—

40,500

13,500

114,270

208,632

54,000

43,160

92,689

6,539

573,290

The following vesting schedules apply:

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

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

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

Balance at the start of the period

Granted

Forfeited

Lapsed

Exercised

Balance at the end of the period

Vested at the end of the period

Exercisable at the end of the period

Weighted average exercise price for:

Options granted in the period

Options forfeited in the period

Options exercised in the period

Exercise price in the range:

From

2018

2017

1,464,310

1,094,500

154,317

(31,837)

—

(1,013,500)

396,810

(27,000)

—

573,290

1,464,310

—

£7.41

£5.67

£0.09

£0.005

£10.380

500,000

—

£2.43

£0.09

—

£0.005

£5.825

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

Dividend yield

Risk-free rate

Share price volatility

Expected life (years)

Weighted average fair value of options granted during the period

2018

0.29–0.35%

1.5%

2017

0.3%

1.5%

36.0–36.7%

30.4–33.4%

3–6.5 years

£5.67

£3.27

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

Annual report and financial statements 2018 YÜ GROUP PLC

FINANCIAL STATEMENTSNotes to the consolidated financial statements continued

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

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

Equity-settled share based payment expense

Cash-settled share based payment (gain)/expense

22. Commitments
Operating lease commitments
The total amount payable under non-cancellable operating leases is as follows:

Payable within one year

Payable within two to five years

Payable after five years

2018
£’000

685

(371)

314

2018
£’000

130

489

669

2017
£’000

800

299

1,099

2017
£’000

145

486

170

801

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

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

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

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

The Group had no contingent liabilities at 31 December 2017.

23. Related parties and related party transactions
The Group has transacted with the following related parties during the current and prior financial periods:

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

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

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

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

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

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

YÜ GROUP PLC Annual report and financial statements 2018

FINANCIAL STATEMENTSNotice of annual general meeting

Notice is given that the third annual general meeting of Yü Group PLC (“the Company”) will be held at DLA Piper UK LLP,
160 Aldersgate Street, London EC1A 4HT on 27 June 2019 at 11.30am for the following purposes:

To consider and, if thought fit, to pass the following resolutions as ordinary resolutions:

To receive the Company’s annual accounts and the Strategic, Directors’ and Auditor’s Reports for the year ended
31 December 2018.

To re-elect John Glasgow, who retires by rotation as a Director of the Company pursuant to Article 94 of the Company’s Articles
of Association.

3. To re-elect Paul Rawson, who retires as a Director of the Company pursuant to Article 90.2 of the Company’s Articles of Association.

4. To reappoint RSM UK Audit LLP as the auditor of the Company.

5. To authorise the audit committee to determine the remuneration of the auditor.

That, pursuant to section 551 of the Companies Act 2006 (“the Act”), the Directors be generally and unconditionally authorised
to allot shares in the Company or to grant rights to subscribe for or to convert any security into shares in the Company up
to an aggregate nominal amount of £27,135.09, provided that this authority shall expire at the conclusion of the next annual
general meeting of the Company after the passing of this resolution or on 20 September 2020 (whichever is the earlier), save
that the Company may make an offer or agreement before this authority expires which would or might require shares to
be allotted or rights to subscribe for or to convert any security into shares to be granted after this authority expires and the
Directors may allot shares or grant such rights pursuant to any such offer or agreement as if this authority had not expired.

This authority is in substitution for all existing authorities under section 551 of the Act (which, to the extent unused at the date
of this resolution, are revoked with immediate effect).

To consider and, if thought fit, pass the following resolutions as special resolutions:

That, subject to the passing of resolution 6 and pursuant to section 570 of the Act, the Directors be and are generally empowered
to allot equity securities (within the meaning of section 560 of the Act) for cash pursuant to the authority granted by resolution 6
as if section 561(1) of the Act did not apply to any such allotment, provided that this power shall be limited to the allotment
of equity securities:

7.1

in connection with an offer of equity securities (whether by way of a rights issue, open offer or otherwise):

7.1.1

to holders of ordinary shares in the capital of the Company in proportion (as nearly as practicable) to the
respective numbers of ordinary shares held by them; and

7.1.2

to holders of other equity securities in the capital of the Company, as required by the rights to those securities or,
subject to such rights, as the Directors otherwise consider necessary,

but subject to such exclusions or other arrangements as the Directors may deem necessary or expedient in relation to
treasury shares, fractional entitlements, record dates or any legal or practical problems under the laws of any territory
or the requirements of any regulatory body or stock exchange; and

7.2 otherwise than pursuant to paragraph 7.1 of this resolution, up to an aggregate nominal amount of £8,140.52,

and this power shall expire at the conclusion of the next annual general meeting of the Company after the passing of this
resolution or on 20 September 2020 (whichever is the earlier), save that the Company may make an offer or agreement before
this power expires which would or might require equity securities to be allotted for cash after this power expires and the
Directors may allot equity securities for cash pursuant to any such offer or agreement as if this power had not expired.

This power is in substitution for all existing powers under section 570 of the Act (which, to the extent unused at the date
of this resolution, are revoked with immediate effect).

Annual report and financial statements 2018 YÜ GROUP PLC

FINANCIAL STATEMENTS

Notice of annual general meeting continued

That, pursuant to section 701 of the Act, the Company be and is generally and unconditionally authorised to make market
purchases (within the meaning of section 693(4) of the Act) of ordinary shares of £0.005 each in the capital of the Company,
provided that:

8.1

the maximum aggregate number of ordinary shares which may be purchased is 1,628,105;

8.2

the minimum price (excluding expenses) which may be paid for an ordinary share is £0.005; and

8.3

the maximum price (excluding expenses) which may be paid for an ordinary share is an amount equal to 105 per cent.
of the average of the middle market quotations for an ordinary share as derived from the Daily Official List of the London
Stock Exchange plc for the five business days immediately preceding the day on which the purchase is made,

and (unless previously revoked, varied or renewed) this authority shall expire at the conclusion of the next annual general
meeting of the Company after the passing of this resolution or on 20 September 2020 (whichever is the earlier), save that the
Company may enter into a contract to purchase ordinary shares in the capital of the Company before this authority expires
under which such purchase will or may be completed or executed wholly or partly after this authority expires, and may make
a purchase of ordinary shares in the capital of the Company pursuant to any such contract as if this authority had not expired.

By order of the Board

Paul Rawson
Secretary
15 May 2019

Registered office:
CPK House
2 Horizon Place
Nottingham Business Park
Mellors Way
Nottingham
United Kingdom
NG8 6PY

Registered in England and Wales no. 10004236

Notes
Entitlement to attend and vote
1.

The right to vote at the meeting is determined by reference to the register of members of the Company. Only those persons
whose names are entered on the register of members of the Company at 6.00pm on 25 June 2019 (or, if the meeting is adjourned,
6.00pm on the date which is two working days before the date of the adjourned meeting) shall be entitled to attend and vote in
respect of the number of shares registered in their names at that time. Changes to entries on the register of members after that
time shall be disregarded in determining the rights of any person to attend and/or vote (and the number of votes they may cast)
at the meeting.

Proxies
2.

A shareholder is entitled to appoint another person as his or her proxy to exercise all or any of his or her rights to attend and
to speak and vote at the meeting and, on a poll, vote instead of him or her. A proxy need not be a shareholder of the Company.

A shareholder may appoint more than one proxy in relation to the meeting, provided that each proxy is appointed to exercise
the rights attached to a different share or shares held by that shareholder. Failure to specify the number of shares each proxy
appointment relates to or specifying a number which when taken together with the numbers of shares set out in the other
proxy appointments is in excess of the number of shares held by the shareholder may result in the proxy appointment
being invalid.

4. A proxy may only be appointed in accordance with the procedures set out in note 7 and the notes to the proxy form.

5. The appointment of a proxy will not preclude a shareholder from attending and voting in person at the meeting.

A proxy does not need to be a member of the Company but must attend the annual general meeting to represent you.
Details of how to appoint the Chairman of the annual general meeting or another person as your proxy using the proxy form
are set out in the notes to the proxy form. You may appoint more than one proxy to attend on the same occasion.

A form of proxy is enclosed. When appointing more than one proxy, complete a separate proxy form in relation to each
appointment. Additional proxy forms may be obtained by the proxy form being photocopied. State clearly on each proxy
form the number of shares in relation to which the proxy is appointed.

YÜ GROUP PLC Annual report and financial statements 2018

FINANCIAL STATEMENTS

Notes continued
Proxies continued
8.

A vote withheld is not a vote in law, which means that the vote will not be counted in the calculation of votes for or against the
resolution. If no voting indication is given in the proxy form, your proxy will vote or abstain from voting at his or her discretion.
Your proxy will vote (or abstain from voting) as he or she thinks fit in relation to any other matter which is put before the AGM.

In the case of joint holders, where more than one of the joint holders purports to appoint a proxy, only the appointment
submitted by the most senior holder will be accepted. Seniority is determined by the order in which the names of the joint
holders appear in the Company’s register of members in respect of the joint holding (the first-named being the most senior).

10. To be valid, a proxy form must be received by post or (during normal business hours only) by hand at the offices of the

Company’s registrars, Neville Registrars Limited, Neville House, Steelpark Road, Halesowen, West Midlands B62 8HD, no later
than 11.30am on 25 June 2019 (or, if the meeting is adjourned, no later than 48 hours (excluding any part of a day that is not
a working day) before the time of any adjourned meeting).

11. To change your proxy instructions simply submit a new proxy appointment using the methods set out above. Any amended

proxy appointment received after the time specified above will be disregarded.

12. Where you have appointed a proxy using the hard-copy proxy form and would like to change the instructions using another

hard-copy proxy form, please contact Neville Registrars Limited.

13. If you submit more than one valid proxy appointment, the appointment received last before the latest time for the receipt

of proxies will take precedence.

14. In order to revoke a proxy instruction you will need to inform the Company by sending a signed hard-copy notice clearly stating

your intention to revoke your proxy appointment to Neville Registrars Limited. In the case of a member which is a company,
the revocation notice must be executed under its common seal or signed on its behalf by a duly authorised officer of the company
or an attorney for the company. Any power of attorney or any other authority under which the revocation notice is signed
(or a notarially certified copy of such power or authority) must be included with the revocation notice. The revocation notice
must be received by Neville Registrars Limited prior to the commencement of the annual general meeting or adjourned
meeting at which the vote is given or, in the case of a poll taken otherwise than on the same day as the meeting or adjourned
meeting, before the time appointed for taking the poll.

15. If you attempt to revoke your proxy appointment but the revocation is received after the time specified then your proxy

appointment will remain valid.

Corporate representatives
16. A shareholder which is a corporation may authorise one or more persons to act as its representative(s) at the meeting.

Each such representative may exercise (on behalf of the corporation) the same powers as the corporation could exercise
if it were an individual shareholder, provided that (where there is more than one representative and the vote is otherwise
than on a show of hands) they do not do so in relation to the same shares. A Director, the Company Secretary or other person
authorised for the purpose by the Company Secretary may require all or any such persons to produce a copy of the resolution
of authorisation certified by an officer of the corporation before permitting him to exercise his powers.

Method of voting
17. Voting on all resolutions will be decided on a show of hands unless a poll is duly demanded (i) before or on declaration of the

result of a vote on a show of hands or (ii) on the withdrawal of any other demand for a poll.

Documents available for inspection
18. The following documents will be available for inspection during normal business hours at the registered office of the Company and
at the Company’s business address, CPK House, 2 Horizon Place, Nottingham Business Park, Mellors Way, Nottingham NG8 6PY,
from the date of this notice until the time of the meeting. They will also be available for inspection at the place of the meeting
from at least 15 minutes before the meeting until it ends:

18.1 copies of the service contracts of the Executive Directors; and

18.2 copies of the letters of appointment of the Non-executive Directors.

Biographical details of Directors
19. Biographical details of all those Directors who are offering themselves for reappointment at the meeting are set out on

pages 20 and 21 of the enclosed annual report and accounts.

Annual report and financial statements 2018 YÜ GROUP PLC

FINANCIAL STATEMENTS