Business energy and water supplier Yü Group said it will grow at a slower pace after suffering the affects of rapid expansion without sufficient checks and balances.
The company posted a net loss of £6.3m for full year 2018 and restated 2017 profit to £0.7m as a result of serious accounting issues discovered last year by incoming CFO Paul Rawson.
Those problems stemmed from taking on too many customers with poor payment records and inadequate controls and processes.
Last October, the company’s share price collapsed 80 per cent on the news. It has since partially recovered, though remains a fraction of its March 2018 peak.
It also attracted the attention of the Financial Conduct Authority, though the FCA said earlier this month it had discontinued its investigation.
Growing pains
“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,” said chairman Ralph Cohen in the company’s annual report.
The firm appointed PwC in November to lead a review of accounts and business. Following the review, Cohen said 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”. He added that Yü Group is now “more selective” in taking on new customers.
CEO Bobby Kalar owns 53 per cent of the company’s shares. Despite suffering a big hit from the share price collapse, Kalar said there remains “a huge opportunity to grow our business”. He added that Ofgem’s moves to tighten up licensing rules for new suppliers should also ease competitive pressures, though market volatility remains challenging.
Risk management
As commodity prices have increased, Kalar said more businesses are turning to third party intermediaries. However, Yü’s business via TPIs has diminished as it focuses on less risky, better margin customers.
“We are working hard to be selective in what contracts we onboard, with particular emphasis on credit risk, sector and margin,” said Kalar. As a result, average monthly bookings for the first four months of 2019 are “significantly down” and year-on-year growth rate will likely be “significantly below” previous years, he added. The company is targeting a margin of 7.5-10 per cent for full year 2019.
CFO Paul Rawson said it would “take time” to roll off low margin contracts taken on in 2017 and 2018 in a bid for growth.
Yü Group’s share price climbed 20 per cent on the back of the report.
Related stories:
Yü Group says losses no worse than expected, shares soar
FCA drops Yü Group investigation
Yü Group revisits accounts, finds hole, shares plummet
Yü Group hires accountants for “forensic review”
Yü Group posts big growth, eyes corporates and cross selling
Yü Group hires for Engie Energy Solutions CEO
Energy supplier Yü enters water market
Ofgem outlines tighter supply licence rules to prevent another house of cards
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