Yu Group (LSE:YU.) — Investor Presentation

0:01 Good afternoon, ladies and gentlemen. Welcome to the YU Group PLC Interim Results Investor Presentation. Can be submitted at any time via the Q and A tab that's just situated on the right hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it is appropriate to do so and these will be available via your investor meet company dashboard.

0:33 Before we begin, I would like to submit the following poll. And I would now like to hand you over to the executive management team from YU Group PLC. Bobby, Paul, good afternoon. Good afternoon, Jake, and thanks for hosting us today, and a warm welcome to all of your listeners. Before I start the presentation, I'd like to say that management have been very busy keeping their heads down, delivering on these exceptional results, strengthening, getting ready to scale the business for successive periods. But I do appreciate that some of the our investment community may feel as though we haven't engaged, as much as we could or should have done. And and for that, I'd like to apologize in advance and and and tell you that we'll be addressing that going forwards. This is actually our last presentation in what's been the busiest roadshow to date. I'm glad to be going home after this, but just to give your listeners an update, we've had the best roadshow, and we've seen a very mixed bag of of very interesting, and large institutions.

1:29 So, hopefully, that will, develop as we go on further and as we continue to keep delivering successive results. Okay. Let's get into the presentation. So I'll start the presentation. I'll go through some of the slides in terms of what we do, who we are, why we got here, why our confidence and such forth. Then I'll hand over to Paul, who will take you through the financial figures. By way of introduction, my name is Bobby Collette. I'm the CEO of YU GROUP PLC and and founder. And to my left is Paul Rawson, my CFO, who's been with the business since 2018. I'll leave you to read that by yourselves.

2:15 Joss?

2:18 Are we? What do we do? What do we serve? So we are a b to b supplier of gas and electricity. The SME market is our sweet spot. We are not a domestic supplier, and we have multi sites multiproduct offerings. We use TPI's as a route to market. That's one of the channels we use. We have other channels, that we use, in order to gain our customers. And we have other complementary bolt on, opportunities and products that we sell, the EV side, the smart metering side, and the n NGS analytics. We also have green products, but that's we don't see we don't sell many of those. A large proportion of of standard gas electricity fixed term fixed price contracts. By way of executive summary, what are we gonna talk to you about today? Well, of course, we're gonna talk to you about the numbers. We're gonna talk to you about our confidence in, continuing to drive that growth, continue to keep deliver those those numbers, how we're gonna scale, how we're so confident that we'll be able to do so.

3:18 We will talk to you about the impact of YouSmart. We will talk to you about the positive impact. We'll talk to you about digital by default and the confidence it gives us to continue to keep scaling sustainably and profitably, to new heights. And then we'll also talk to you about sort of our targets, where we see and and what that looks like in the short short term and certainly in the medium term.

3:46 So sustainably scaling our business. What gives us the confidence in terms of our ability to continue growing the way we are delivering those results? So I'll start off with the left hand side. We've still got 3,300,000 meter points out there in the industry, small meter points, half hourly meter points, non half hourly meter points, but the market has reduced. So from 2018, that's an all time high of about ninety, ninety five suppliers. We've now seen a contraction over the years in terms of competitor landscape to about thirty eight thirty eight suppliers. And that's as a consequence of some customers moving out of the market, some consolidation. We see we saw some competitors exit the market during the pandemic and subsequent energy crisis and energy price rises.

4:34 But we the point is we've still got a similar same number of customers to go at, but a much more reduced competitor landscape. That's brought much more of an orderly market in terms of our competitor landscape, and we've been able to see that by the number of contracts that we're winning and the margins that we're winning them at. Currently, we're a 1.2% market share business, in in a huge opportunity market. 2,400,000 customers are generally held by the big six, and, they're they're they're our target audience to keep chipping away at them and taking market share. I think, we've got we've got 39,000 40,000 meters on supply. I think we'll finish the year at about 45, 47,000 meters, which then gives us an excellent springboard, to really drive scale, really grow the business. And our target our new target is is a 100,000 meters. It is an ambition. It's certainly not forecasted, and it's it's not it's not, you know, it's not linear in terms of number of meters equals number of revenue. We do supply different segments. And as a consequence of that, we we, you know, we will we will deliver or we will report the numbers up as and when we get them.

5:46 The contracted revenue, it's an interesting metric. We've got 360,000,000 locked in, in our contract book, which will outflow in 2024, and a further 145,000,000 locked in, which will outflow in 2025. And that's why we have the confidence in terms of our revenue visibility. We have great forward looking revenue visibility. We can see our profitability in terms of

6:11 our EBITDA, in terms of our gross margin. So we we have confidence that we will hit or exceed our numbers both in this year and following years. Gents?

6:25 So I wanna talk about smart metering and its effects. I won't talk too much about what the the the nuance in in the industry apart from saying that the government has mandated by. The government has mandated suppliers that they have to install a quota, a certain quota of smart meters on their customers' premises. And and, obviously, that goes for all suppliers. We've installed 4,000 meters so far. We've probably got a run rate of about 6,000 year to date, and we're quite confident that we'll hit about 10,000 meters, year end. We've taken on, some debts in terms of financing those assets. It's a well short path, and I'll have Paul talk to you about that in a few seconds. But this gives us great insight into into customer usage, but, also, it allows us to understand customer payment habits.

7:17 And and, obviously, we can help the customer. It's given the prepay options and such all. So it this is a real positive thing, and I think given the fact that we have this capability in house, again, we can control the predictability and and measure sort of the the outcome. I'm confident that we're gonna succeed. There's a there's a pie chart there at the bottom left hand side. It shows that 48% of eligible businesses don't have a smart meter on them. So they're effectively still using dumb dumb meters. So there's a great opportunity for us not only to continue scaling our core energy supply business, but complement that by putting a meter on that wall as well. And that obviously creates a annuity income then going forward. So we have that capability. We've started installing meters after life getting our licenses from off German, getting all the equipment, the vans, the and hiring the engineers and health and safety and and everything else that that it takes to install.

8:12 And now we are we are scaling that engineering capability to get more geography around The UK. And as we continue to keep scaling that, we will continue to install, the meters. Currently, YU Smart has one customer, which is U Energy. So we will sell the the the the contract, and then we'll go install the meter if the the customer is eligible. But we do have opportunities going forward, to do the same for other suppliers. But, again, just to stress that at this moment in time, we're only focused on serving one customer, which is us effectively, YU Energy.

8:51 This slide points to our tech stack. So digital by default, all the contracts that we sell, whether the half hourly or non half hourly, go through this platform. We've spent the last three years building this. You can see from, the the various, pieces there. They're all plug and play off the shelf, best in breed. Our platform is Salesforce. I think the secret sauce is how have we stitched all these together, how we program these together so they all produce a a an outcome to to better help us understand how much we how much we charge to the contracts, how much we tender, who we tender to, how do we protect our gross margin, how do we check the credit risk and profile of those customers, how do we know who those customers are in terms of location and and segmentation.

9:40 And then finally, how do we continue to keep monitoring the credit risk and how do we register, how do we supply, how do we bill those customers? So that is what we call digital by default. Every single supply, every single quote, every single

9:54 tender that we win, every single registration, and every single meter goes through the system. And so it's one source of the truth. So we've we've we've established this platform. We're using this platform. Now we will, in the in the successive periods, continue to enrich this platform and use the data that we get from this platform to better understand customer usage, better understand customer habits, and then develop and create more richness.

10:23 So our numbers, this is a great slide slide to demonstrate momentum. I won't take all of these stats, but I'll I'll pick a few amount. So 40,000 meters, we've talked about that already. 51,300,000, that's average contracted bookings we're doing on a monthly basis. So every single month since q four last year to date and continuing with to date, we have done at least 50,000,000 £51,000,000 of annualized bookings a month. And that's what's created that £360,000,000 contract revenue book for 2024. And if you if you think if we continue adding 50 odd million in in September, October, November, and December, we're in good shape to exit December with about £550,000,000 of contracted revenue locked in ready to outflow in 2024.

11:17 And, again, it should be seen as another reason why we are confident that we will exit this year having hit our numbers and obviously go into 2024 with a real big contract book.

11:28 £36,600,000 of cash in the bank, which is great on the balance sheet, and, it puts us in a really strong position to allow us to continue to keep scaling and look at other opportunities as and when they present themselves. A £13,700,000 EBITDA there in the first half, and the brokers reforecasted that they expect us to achieve at least 33,000,000, so 20,000,000 in h two.

11:57 The last stat I'll I'll I'll just talk about very quickly is the bottom left. We have a workforce of 271. We've accelerated that with the onboarding of YU Smart and the engineers and the back office staff and and such all. So that's seen a growth in that. That's not that's not organic at YU. YU Energy, the supply the supply side of it, but it's both YU Smart and U Energy together.

12:22 The next slide, kind of nods to what we've what I've just spoken to you about in terms of stats, but we wanted to show you the period on period growth and how how that is tracking and trending, from sort of back in 2020 at onwards. And we'll continue to do so because it shows the health of business, and it shows, that we are tracking in the right way.

12:46 Okay. Yeah. Thank you. Always a pleasure to follow, Bobby, but totally just changed slightly for for an accountant. So I think first slide on here, Giles, it's pleasing to report such good numbers, and it's part of our financial framework that we published a few years ago. And what is that financial framework? First and foremost, it's organic growth. It's scale in an absolutely enormous market. So to be a £1,000,000,000 energy supplier, you're still relatively small. So we've

13:18 got a lot of market opportunity and a lot of good for revenue visibility. Of course, revenue is vanity, and we're all about the profit and the EBITDA and the cash generation ultimately. So we're we're very focused. The second bit of our financial plan is about improving customer life cycle value. What does that mean? It means solid gross margin, control our bad debts, and really really optimize commercial contract life cycle. How do you do that? Well, you cross sell and you you sell them gas. If you sell a customer gas, sell electricity, or you renew contracts at good margins as well and make those make those customers

13:54 value the service that we provide. We're not the cheapest on price. We we make reasonable margins, and we make sustainable margins. So we can see that margin in the book. So that's the second bit of the framework. The third bit is about leveraging overheads as we get bigger, as we benefit from our digital platform. Scale revenue scales, but the overhead line doesn't scale as much. So we get operational efficiency as as we scale the business. And the fourth bit of the of the financial framework is about managing cash, but it's it's also about solid foundations. It's about managing risk as well. So we particularly, hedging risk, that's a big element of our business. We're constantly looking to hedge our commodity position. We sell a fixed price contract. We go out and hedge that commodity for the one, two, three year period that we sold it at. So all of that is reflected in these numbers. Obviously, the numbers have been very positive in half one. Revenue up 51% to just shy of 200,000,000.

14:55 Adjusted EBITDA is 7% margin, which has been above our our target, if I'm honest. So some market volatility provides good margin opportunity, I'm a a very cautious guy. So five to 7% as a sort of a a range of EBITDA going forward. We've made very good profit after tax. So this is despite a noncash item. So there's a financial derivative gain that's a sorry, loss in the half year, which is all about the the forward value of our mark to market position. It doesn't convert to cash, and we have premium in our cost stack. So we always adjust for that in our EBITDA. It's not really a cash like item. And then we've got really good adjusted fully diluted earnings per share. So at 58 p for the half year, it should be well, it's already close to double the full year of 2022.

15:48 We expect half two to be very strong as well. So we're very confident in EPS growth. Good operational operational cash flow and a dividend per share. So we're still early in our dividend journey. It's 3p final at the end of last year. We've done 3p interim, which suggests 6p full year, but we'll see.

16:08 So that that will take 90 sort of on a on a on a like like for like basis. So that's the sort of overview. Let's if we go to the next slide, I guess this is this is all about momentum and how do we grow this business and half on half year on half year in terms of the left hand hand graph shows the revenue growth, which we talked about, the the organic opportunity to grow this business. So the compound annual growth rate is 51%, we will continue to grow in half '2. And with that forward contracted revenue that what we spoke about earlier, 358,000,000 already contracted to deliver in 2024, that's already significantly more than the 247,000,000 yet to the December 22 through 2023.

16:56 So we're getting really good forward revenue visibility and a good margins as well. The the right hand graph is the the EBITDA trend, and, unfortunately, my OCD doesn't quite kick in here because it more or less doubles or more than doubles on each half yearly basis. You can see point 1.5 to 1.2. Unfortunately, 2.7 to 5.2 doesn't quite work. But we have guided to making in excess of 33,000,000 EBITDA in the full year, so that suggests close to 20,000,000 EBITDA just for half two. And we're we're we're doing we're we're trending well on that. And then the the the third slide here, which is is this one, which is the cash position cash position of the business. Yeah.

17:43 The cash position of the business, which is very strong, actually. So we did have a prepayment, £16,000,000 operational cash flow. It's close to 19,000,000 operational cash flow, so good EBITDA to cash flow conversion. Typically, we do have half one as a better half half than half two because we have an annual rock payment. But what happened in half one this year as well, we also paid 16,500,000 prepayment of cash collateral related to our hedging position. So really good, strong. It's good to see EBITDA turning to cash. We have a very tight cash working capital cycle. We're very quick on billing, so we build December's consumption in early January. That converts to cash seven days later, typically, and we then pay our cost of sales. So, yeah, good cash conversion, it should see us forward even in this high growth scale that we're in now.

18:45 Thanks, Paul. Okay. So, look. What I wanna see in the outlook, we are focused on delivering very strong, profitable, sustainable growth. We're we're excited, to be driving the use smart business, and the digital by default. We're we're very excited to see how that is gonna further complement our growth opportunity, scale opportunity sustainably. You know, let's be clear. We remain very focused on attacking what is a huge market and and increasing our share, our ownership of of that market. The competitive landscape has reduced, as I talked about earlier on, but, again, creating an orderly, more orderly market. So, again, it gives us opportunity to operate in what is a, you know, a closed club effectively.

19:36 I'm very excited about the future for the group, and I'm really looking forward to coming back in March and presenting full year figures. Thank you. Perfect. Bobby, Paul, if I may just jump back in there. Thank you very much indeed for your presentation this afternoon. Ladies and gentlemen, please do continue to submit your questions just by using the Q and A tab that's situated on the right hand corner of your screen. But just while the team take a few moments to review those questions that were submitted already, I would like to remind you that a recording of this presentation along with a copy of the slides and the published q and a can be accessed via your investor dashboard. Bobby, Paul, we did receive a number of pre submitted questions ahead of today's event. And as you can see, we've also received a number of questions throughout your presentation this afternoon as well. So firstly, thank you to all of those on the call for taking the time to submit their questions. And Giles, if I may just hand back to you to chair the Q and A session with the team, and then I'll pick up from you at the end. Thank you.

20:32 Thank you, Jake. Well, we've had a a number of questions about capital allocation and and dividend, so we'll group those together. Yeah. Are you able to provide further guidance on dividend policy? What is your capital allocation policy going forward? And the company is accumulating a lot of cash. Are the board still looking for acquisitions? Yeah. All a good set of questions, Charles. I mean, let me start by saying it's a great place to be. It's a really good position of strength. It's a good problem to have. I think I'll I'll answer that by saying there's three main areas of capital allocation that we consider. The first one is investing in the business, which grows. The second one is any acquisition, m and a opportunities that may present themselves in the near future.

21:21 And the third one is the capital returns and the dividend policy that Paul talked to us about. And I think that's that's where we are in our thinking at the moment, But we will continue to keep reviewing this, and we'll provide more information in due course. Thank you. As you scale further and add significant numbers of new meter points, is it fair to assume that average revenue per meter will fall? Or to put it another way, will a 50% increase in meter points translate into a 50% increase in revenue? No. It's no. It's not straightforward as that. We don't disclose that level of detail. No no two meter consumptions are the same in terms of their their profile and and in terms of sort of premium risk margins. What I can say is I've continued to deliver strong growth in all of our financial KPIs, and I have no reason to believe that we won't continue to keep doing that both this year and successive years. Great. Thank you.

22:11 Question for you, Paul. You're now having to prepay for supplies and post cash collateral. Will this become a permanent requirement and therefore increase in line with increasing turnover? I guess the short answer is no, but I have to add a little bit of flavor. Clearly, commodity hedging strategy has staked as well through COVID, through the energy prices going up significantly in 2021 and then even further in 2022. And now they're softening a bit. So they they've come down quite materially actually this year. So the commodities hedging strategy is is doing well. It, you protects our gross margin. It protects our business. We also have a significant credit line, which with our trading counterparty.

22:58 That was sized for normal market conditions. But clearly, market conditions haven't been so normal lately. So very high prices now coming to low prices. The the the delta is quite significant. Of course, now we're at low prices and we're booking trades trades at at lower lower prices, there's less waiting to go down. So that's the way this works. So in short, we'll be looking to to reduce that cash collateral, if you like, in the coming weeks and months. Thank you, Paul. Another question for you, Paul. Cash flow is always significantly higher than EBITDA. It was very useful for the rock liability to have been separately disclosed. I assume these funds are effectively ring fenced. Could this liability be shown separately in the creditors note to the accounts and the payment be shown separately in the cash flow statement?

23:47 I think just for everyone's benefit of people who haven't heard of renewable obligation certificates or ROCs as we call them, these are an obligation on the supplier to either buy certificates or to pay at what's called a buyout price. We have to pay in by the August 31, the monies for our liability for the end of March for the year before. So I absolutely love this from a working capital point of view. It's it's great to have that cash in our bank. We paid 15,200,000 to put put some scale on it. We paid 15,200,000 on August 31, and we've always hit our rock In terms of disclosure, I think, you know, clearly, there's material amount there. There's material amounts sometimes in cash collateral. We just talked about 16,000,000 in cash collateral on the other side, but we will, of course, try and make sure that the investors have sufficient sufficient disclosure to to to see the wood for the trees, let's say.

24:43 Thank you, Paul. Bobby, one for you. How much capacity in terms of revenue and staff do you have in your current office buildings before you will need to make the next move to larger premises? We've got a great deal of capacity across the group to significantly keep on scaling the business. We we can take it to £1,000,000,000 beyond comfortably. So so, yeah, plenty of capacity. Also, alongside our introduction of digital by default, you know, we are also reducing our cost to serve. So where we've got the the text back doing the work, doing the thinking, doing the decision making, that will then impact and continue to keep impacting and and as we scale the business.

25:32 Thank you. Another one for you, Bobby. How are you seeing customer payment profiles, and how is this impacting your provisioning? Okay. So we've got a very diverse customer base. We we just I think we've disclosed it in in in some of the slides somewhere. So so we we have capability to understand profile segmentation. And and so therefore, we can decide pick pick and choose in terms of the customer our customer base. No single customer accounts more than 5% of revenues. So, you know, it's it's very diverse. With the success of USmart and the scaling up of USmart, we we we definitely expect to see a reduction in the bad debt just charge despite very prudent provisioning.

26:20 Just to just 98% of bills invoiced every month are collected. So that would suggest that the 3.8, and it there is charges really 2%. So, you know, we've got plenty of provision built in there. But it's, again, I can't say enough about the smart metering or the advent of the smart meeting revolution in the business SME sector. I think it's gonna be a game changer. It it can take time. It won't happen in in a year as as suppliers swap out their quoted adult meters, smart meters, we will see much more accurate consumption and usage information out there. We will be able to accurately bill our customers reducing the need for estimation and not paying, but we will also have the ability to manage bad debt by, you know, if necessary, putting customers on to prepaid who are consistent bad players.

27:15 Thank you. Paul, one for you. Why is the company taking on relatively expensive debt to fund YouSmart YU GROUP is throwing off so much cash? Would the company not be better funding the meters with this cash? It's a good question and something we we discussed to the board. We've been very proud and very glad to have no debt in this business. So we've got a net cash position. Okay. There's some lease liabilities, but that's didn't really count so much. But so we'll have a good net cash balance. And as you say, we're generating good operating cash flow. The The debt that we're looking at, we've not closed anything yet. We're, you know, we're actively engaged. It's very it's a well traveled path. It's very much secured on the assets that we invest in. They're nonrecourse to the rest of the group, tax efficient funding, and it frankly allows us to unlock more cash that we'll do more more interesting things with them. Probably sort of talked about the capital allocation policy, whether that's marketing, whether it's investment in growth, whether ultimately it's distributed back to shareholders. Shareholders. But we just felt having some specific debts on assets was the right thing to do.

28:23 Thanks, Paul. Bobby, a few questions about water. How's the water business going? Does the company intend to drive major expansion into the water side of the business? Yeah. We launched the, water business in 2018. It remains a relatively small part of our revenue portfolio. We are the only supplier who can supply a multi utility offering to our business customers of gas, electricity, and water. I think the investments in terms of it's very much to remain the same. So gas and power, and and we will just keep more to where it is. I think until we don't see, you know, other investment in in in water and we don't see some margin increase in in that sector, it's gonna be one of a still a a low value, low volume offers. But we're licensed, and we continue to keep serving a small segment of water customers.

29:21 Great. Thank you. One question from the chat. Hopefully, we can clarify. Does the meter target include acquisition or is that organic growth? I wouldn't say no to acquisition. These things could just pop up. But in our assumptions of meter growth, it's organic. Another just quick question from the chat. What do you think are the key reasons for customers coming to you? Speed, reliability, right first time. So we have a we have a decent portion of our business that's bought in from TPI's and brokers. If they could set up folks around, get a tender price, then these tenders are usually complicated. They take time. You've gotta make sure that the the credit profile is right, the the the tender profile is right. Our digital by default allows us to do that in in minutes. We can get the tenders out, and we are seeing that brokers are choosing us not only because they are actively moving their customers away from the big six, because of poor performance, but they're actively encouraging challenges of life. And if we as we continue we get it right first time every time.

30:29 And as long as we continue doing that and and providing that extra support for the brokers, we will continue to keep winning business. Right. Thank you. And then just a final question, where do you see the company in three years' time? I'm genuinely really excited in terms of where YU GROUP has come from and its journey and how we would be able to continue, you know, scaling the business and and strengthening the business and growing the business. And I'd like to think that we can look at offering more products in the future. But currently, management have their heads down. We have a core business, which is supplying gas and electricity to our business customers. This SME sector of the the business community. We will continue to keep scaling that business in. We will complement.

31:15 We will complement that with the smart side of the business and add sustainable sort of security to that. Again, we've got very strong foundations. We come back after three, you know, once in a lifetime events, the pandemic, the gas crisis, and and obviously, the the Ukraine conflict and, you know, we've achieved bigger, better, and delivered stronger growth and stronger performance. I think we've got a strong balance sheet, and we've got a very engaged and motivated board who who are, you know, very supportive in in in driving growth. Thank you, Jake. I'll hand back to you. And as you said, any other questions that coming, we can review offline. Absolutely. Bobby, Paul, Giles, thank you very much indeed for addressing all of those questions that came in from investors this afternoon. And of course, as you did just say, we will be able to give you back all of the questions as well as any further questions that do come through immediately after the presentation has ended just for you to review to then add any additional responses, of course, where it's appropriate to do so. And we'll publish all those responses out on the platform. But, Bobby, perhaps before really just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company. If I could please just ask you for a few closing comments just to wrap up with, that'd be great.

32:31 We we well, firstly, thank you, Jake, for hosting us, and and thank you to your listeners for for for signing in and and and wanting to listen to our our story. Thank you to them for following us and believing in us. You know, management are committed, management are focused. And like I said, you know, I'm I'm really looking forward to coming back year end and and and and, you know, presenting our full year results and then giving you a view of what twenty four twenty twenty four and beyond looks like. But, no, really appreciate, and thank you for taking time to listen to our presentation. Bobby, that's great. Thank you once again for taking the time to update investors this afternoon. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can better understand your views and expectations?

33:23 This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of YU GROUP PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all. Thank you.