The spectacular growth story at challenger energy supplier Yu Group (YU.) has come unstuck. An internal review has revealed that Yu has underestimated the amount of bills unlikely to be paid and overestimated the energy consumption of several of its customers, meaning profits will be £10m shy of previous expectations in 2018. This will push the group back into a lossmaking position. Chief executive Bobby Kalar (who is also the founder and major shareholder) said “nobody is more disappointed in this development than me”, but investors (who provided £12m of cash in March through a share placing) clearly aren’t too happy either – the share price crashed more than 80 per cent on the day of the announcement.
The news highlights the risks for companies that use optimistic accounting techniques. Yu Group says it recognises the energy usage invoiced but not yet paid for, as ‘trade receivables’ and books future invoices for energy believed to have already been consumed by clients as ‘accrued income’ – a practice seen regularly across the energy industry.
But Yu Group’s receivables and accrued income make up a large proportion of its overall revenues (31 per cent and 12 per cent at the half-year stage), which means any mis-statement has a magnified effect on the overall financial results. True, receivables have only grown in line with total revenues, but as the group has accelerated, its loose accounting has been magnified.
A re-evaluation of how the group books its revenue means gross margins will be significantly lower in 2018 and beyond. In September, Mr Kalar said margin compression was to be expected when pursuing higher-value corporate clients – he will not have expected such a dramatic decline.
