Yu Group fuelled for growth

Yu Group (YU) completed controlled market entry in April 2016, a month after raising £6m through its float on the Alternative Investment Market (Aim). Since then its growth has been rapid.

Yu supplies electricity and gas to both small and, more recently, large companies, and it avoids the domestic retail market that is proving such a political hot potato. The company uses a network of energy brokers to save its clients money, but at the core of its strategy is a focus on customer service. This includes providing each client with their own individual account manager, a promise to pick up the phone by the third ring and tailored tariffs. Customers' needs can be quite complex, ranging over many sites and different types of usage. Yu believes its approach of simplifying energy procurement as much as possible provides it with a massive opportunity to grow because the big six have simply "forgotten the meaning of providing excellent customer service". So far this contention has been borne out by results.  

The company reported a fourfold increase in revenue in 2016 to £16.3m, and in the first six months of 2017 managed sales of £20.8m. Meanwhile, customer renewal rates are running at 80 per cent. The opportunity for future growth remains massive. Last year the group reported that around 90 per cent of small- and medium-sized enterprises (SMEs) are customers of the big six, of whom 40 per cent have not considered changing in the past five years. It estimates a market size of more than 2m potential customers, compared with the 4,300 gas and electricity meters it served at the end of last year. 

The company needs limited capital to grow, but does need staff to win new customers and provide the level of service it expects will underpin growth. To this end, it increased employee numbers from 67 to 102 in the six months to June 2017. Meanwhile, the cashed-up balance sheet and cash-generative nature of the business provide solid backing for its hedging policies and collateral for securing supply deals.

Yu Group has also recently started pursuing larger corporate clients with more vigour. While this adds to the growth potential, it has led to a slimming in the gross margin from 21 per cent to 17.7 per cent,  due in part to an increase in commission paid to energy brokers for larger companies. Changes to the water market mean Yu has also recently added water supply to its offering, which should further increase the attractiveness of its service.