Yü Group CEO Bobby Kalar is planning more acquisitions, having taken on Bristol Energy last month.
The firm’s share priced climbed 20 per cent in early trading on the back of strong results following a significant restructure over the last two years.
While it posted an Ebitda loss of £1.8m for six months to 30 June, the company appears to have put its troubles to bed. Kalar said £1.6m of that loss was Covid-related. Meanwhile he said customer energy consumption in August was back up to 90 per cent of pre-Covid levels, cash collection is “equal or better than billed monthly revenue month on month”, and new business is stronger then the prior period.
Fall and recovery
Yü discovered a major hole in its accounts in October 2018, leading it to post a £6.3m loss for that year. Its share price collapsed, auditors were brought in and the Financial Conduct Authority launched an investigation into the company.
The problems stemmed from booking revenue that was not actually recoverable from clients. It had tried to grow too fast without sufficient checks and balances.
The resulting clean up (the FCA dropped its investigation in May 2019) led the firm to “reset” its business, said Kalar. But the process appears to have left Yü in a stronger position to navigate Covid than most business-to-business energy suppliers.
“It absolutely prepared us for Covid. Two years of resetting, a root and branch wash-through has stood us in very good staid. We strengthened our governance and put in place systems and markers that allow us to check the pulse of contracts all the way through,” he added.
That said, given the uncertainty facing businesses about whether to bring staff back into work, plus issues around clean air, social distancing and occupancy rates, bad debt across the industry is likely to get worse before it gets better.
Meanwhile, balancing costs have soared, while other non-commodity costs have been kicked down the road. That could lead to challenges across the market in 2021, but Kalar said Yü is prepared.
“We have a lot of brains in the business. Our approach to trading risk management allows us to flex pricing. We know the [non-commodity] price increases are coming and we have factored that into the price stack and taken it into account for both 2021 and 2022,” he said, “though I must caveat these are draft figures.”
Moreover, Kalar pointed out that soft wholesale market prices have negated some of the cost increases elsewhere.
Kalar admitted that “some customers have been worried about volume tolerance clauses”, given many have used less power and gas than stipulated in their contracts. But he said that Yü’s response is to try and negotiate longer-term contracts for better prices. As a result “in most cases” it has not had to enforce those clauses.
“Given the environment, [both sides] have been very fair,” said Kalar. “If they don’t have the money to pay, we don’t get the business.”
Yü reported that the integration of Bristol Energy into its business had been “text book”, which Kalar also attributed to the business overhaul undertaken since October 2018.
“We bought a business during lockdown. We put 40 per cent more meters into our operating platform over a weekend with negligible cost. That demonstrates we can go out and buy thousands of meter points with stressing the business – or our cash position,” said Kalar.
Yü intends to repeat the trick at the first opportunity, with many smaller suppliers likely to welcome an approach given the headwinds they faced even before Covid hit.
“I see more market consolidation. We are buyers and we have Smartest Energy backing [following an exclusivity and credit deal struck last year] which allows us to scale,” said Kalar. “So yes, it’s a buyers’ market and yes, we are constantly on the lookout for an acquisition.”
As majority shareholder, Kalar took a big hit when the company’s problems were unearthed in October 2018, sending its share price to around 100p. A month earlier it had been trading at 975p.
Asked whether and when it could regain that position, Kalar was dismissive.
“As CEO, I don’t measure the heartbeat of the business by its share price. My responsibility is to get the business back to where it can get to. It is up to shareholders to follow that story.”