The directors present the strategic report for the year ended 31 March 2023.
Turnover for the year was £41.6m (2022: £27.8m) an increase of 49.8%. This increase is predominately due to new contracts with customers being secured during both 2023 and 2022, in addition to price increases in-line with increased costs. Consumption of electricity across the entire portfolio has increased when compared to the prior year as a direct result of a move away from gas usage, and in turn gas usage as fallen. Other factors include a combination of: seasonal variations when compared to the previous year; increase in average customer size. The overall business performance was in line with the Directors’ expectations.
Continued effective management of cost of sales has resulted in gross profit increasing from 22.3% to 28.9%, this is a significant achievement in these very challenging times.
Other operating income includes £2.4m (2022: £Nil) received from the UK Government under the Energy Bills Support Scheme.
Close controls implemented in respect of all administrative costs by the management team, together with the financial benefit of improved gross profit margins, has resulted in profit before tax increasing from 5.9% to 10.1%.
During the year, it was decided to formally release fellow group debts amounting to £2.7m (2022: £Nil). These have been presented as exceptional given their quantum and one-off nature.
Overall, a profit before tax of £4.2m (2022: £1.6m) which was in-line with the Directors expectations and illustrates the effective management of the company.
The balance sheet remains strong at £7.2m (2022: £4.4m) and the directors are satisfied with this, believing it places the company in a strong and stable position financially for the future.
Objectives and strategy
The objective of the company is to deliver long term value to the owners. The Board’s strategy to achieve this is based upon the following principles:
Continued growth by continuing to offer relevant, competitively priced products into core markets, underpinned by high quality service for customers.
Commitment to the rollout of smart metering and other industry initiatives to improve the accuracy of billing and customer experience.
To attract, retain and develop exceptional senior managers to continuously improve the organisation’s capabilities and present challenge to the dominant suppliers in the market.
Diversification into new market segments or adjacent markets to support growth and spread risk.
The company seeks to manage risk through a combination of Board oversight, operational routines and policies. The principal risks are aggregated as follows:
Commodity risk
Commodity risk being the risk of volatility in the price of wholesale energy impacting customer margins. The company seeks to manage this risk by utilising forward energy contracts that align to the term and pricing of customer contracts.
Ukraine war and energy costs
The Ukraine war has resulted in increased costs generally, increasing wages and general overhead costs. The effect on energy prices has been significant. These inflation related price increases are expected to remain for some time to come.
Liquidity risk
The risk that the company is unable to meet its financial obligations due to insufficient credit or cash reserves. This is managed on a short and long-term basis with reference to internal working capital strategies and access to external funding.
Credit risk
The risks of bad debt from the customer portfolio and the risk of failure of a counterparty or supplier to meet its contractual obligations. A credit onboarding process is followed for new customers, which predominantly includes direct debit as the principal means of payment and trade debtors are monitored on an ongoing basis. The financial position of suppliers is assessed for long term sustainability as contracts to purchase energy are agreed.
Industry specific risks
The UK non-domestic supply market is highly competitive, and while risk is present in all markets, this continues to be an attractive place to do business.
Operating in a regulated market opens up regulatory and political risks as well as costs, and it is a feature of normal operations that such risks, costs and changes must be accommodated, albeit that they may cause disruption and/or prices changes for customers.
The business has continued to mitigate the risks noted above through the following strategies:
Ensuring the business has the right skills and capabilities to monitor and maintain compliance with regulatory requirements.
Offering products that pass or share risk with end users combined with comprehensive hedging strategies to reduce exposure.
The company reviews and monitors its performance against a number of key performance indicators both financial and non-financial. The principal measures include revenue growth, maintaining service levels, improvement of gross margins and net profit, together with maintaining both net current assets and net assets. These are reviewed by the management team and reported to the Board on a monthly basis.
The directors have and will continue to monitor all of the KPI’s and daily operating controls and maintain a strong focus on increasing performance in all aspects of the business.
The main KPI’s and corresponding results are as follows:
|
| 2023 |
| 2022 |
|
|
|
|
|
Turnover growth |
| 49.80% |
| 74.80% |
Gross profit % |
| 28.90% |
| 22.30% |
Profit before tax |
| £4.2m |
| £1.6m |
Profit before tax % |
| 10.10% |
| 5.90% |
Bank |
| £8.8m |
| £4.6m |
Net assets |
| £7.2m |
| £4.4m |
The turnover growth achieved in 2023 illustrates the successful business growth strategies implemented, as well as the general price increases as seen across the industry.
The gross profit margin has been successfully improved via cost management implementations.
The improved net profit margin has been achieved through effective cost control measures.
The company has maintained significant net assets and cash, illustrating continued and increased liquidity, achieved by efficient working capital controls and procedures. This illustrates the company's strengthened financial position.
On behalf of the board
The directors present their annual report and financial statements for the year ended 31 March 2023.
The results for the year are set out on page 9.
Ordinary dividends were paid amounting to £37,000. The directors do not recommend payment of a further dividend.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
The company is continuing to provide commercial gas and electricity and related services. The company expects to continue with its current activities in future periods.
The auditor, Cowgill Holloway LLP, is deemed to be reappointed under section 487(2) of the Companies Act 2006.
Basis for opinion
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Other information
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of our audit:
the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.
We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from our general commercial and sector experience, and through discussions with the directors (as required by auditing standards) and discussed with the directors the policies and procedures regarding compliance with laws and regulations. We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance throughout the audit. The potential effect of these laws and regulations on the financial statements varies considerably.
Firstly, the company is subject to laws and regulations that directly affect the financial statements including financial reporting legislation and taxation legislation. We assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items.
Secondly, the company is subject to many other laws and regulations where the consequences of non-compliance could have a material effect on amounts or disclosures in the financial statements, for instance through the imposition of fines or litigation or the loss of the company's license to operate. We identified the following areas as those most likely to have such an effect: laws related to energy supply activities and the regulated nature of the energy industry, employment law, data protection and health & safety.
Auditing standards limit the required audit procedures to identify non-compliance with these laws and regulations to enquiry of the directors and inspection of regulatory and legal correspondence, if any. Through these procedures we did not become aware of any actual or suspected non-compliance.
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further removed non-compliance with laws and regulations (irregularities) is from the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards would identify it. In addition, as with any audit, there remained a higher risk of non-detection of irregularities, as these may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. We are not responsible for preventing non-compliance and cannot be expected to detect non-compliance with all laws and regulations.
We design procedures in line with our responsibilities, outlined below to detect material misstatement due to fraud:
Matters are discussed amongst the audit engagement team regarding how and where fraud might occur in the financial statements and any potential indicators of fraud
Identifying and assessing the design and effectiveness of controls that management have in place to prevent and detect fraud
Detecting and responding to the risks of fraud following discussions with management and enquiring as to whether management have knowledge of any actual, suspected or alleged fraud;
A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Use of our report
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.
The profit and loss account has been prepared on the basis that all operations are continuing operations.
Eco Green Management Limited is a private company limited by shares incorporated in England and Wales. The registered office is 4305 Park Approach, Leeds, LS15 8GB.
The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.
This company is a qualifying entity for the purposes of FRS 102, being a member of a group where the parent of that group prepares publicly available consolidated financial statements, including this company, which are intended to give a true and fair view of the assets, liabilities, financial position and profit or loss of the group. The company has therefore taken advantage of exemptions from the following disclosure requirements:
Section 4 ‘Statement of Financial Position’: Reconciliation of the opening and closing number of shares;
Section 7 ‘Statement of Cash Flows’: Presentation of a statement of cash flow and related notes and disclosures;
Section 33 ‘Related Party Disclosures’: Compensation for key management personnel.
The financial statements of the company are consolidated in the financial statements of Yorkshire Gas and Power Limited. These consolidated financial statements are available from the group's registered office, 4305 Park Approach, Leeds, LS15 8GB.
Turnover relating to fees charged in relation to disconnection costs, late payments and cancellations are recognised on a receipts basis due to uncertainty of recovery.
The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is credited or charged to profit or loss.
Basic financial assets, which include debtors and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.
Other financial assets, including investments in equity instruments which are not subsidiaries, associates or joint ventures, are initially measured at fair value, which is normally the transaction price. Such assets are subsequently carried at fair value and the changes in fair value are recognised in profit or loss, except that investments in equity instruments that are not publicly traded and whose fair values cannot be measured reliably are measured at cost less impairment.
The company enters into forward contracts for a variety of periods to purchase electricity and gas. Energy procurement contracts are entered into and continue to be held for the purpose of the receipt of a non-financial item which is in accordance with the Company's expected purchase and sale requirements and are therefore out of scope of financial instruments. Energy contracts that are not financial instruments are recognised as "own use contracts" and disclosed as an energy purchase commitment.
Forward contracts to purchase energy are accounted for in the statement of comprehensive income in the period in which the supply of power occurs.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the company transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.
Basic financial liabilities, including creditors, bank loans, loans from fellow group companies and preference shares that are classified as debt, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.
Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.
Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Amounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.
The company enters into forward contracts for a variety of periods to purchase electricity and gas. Energy procurement contacts are entered into and continue to be held for the purpose of the receipt of a non-financial item which is in accordance with the company's expected purchase and sale requirements and are therefore out of the scope of financial instruments. Energy contracts that are not recognised as financial instruments are recognised as "own use contracts" and disclosed as an energy purchase commitment.
Forward contracts to purchase energy are accounted for in the statement of comprehensive income in the period in which the supply of power occurs.
Financial liabilities are derecognised when the company’s contractual obligations expire or are discharged or cancelled.
Equity instruments issued by the company are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.
In the application of the company’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.
The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are as follows.
The nature of the energy industry in the UK, in which Eco Green Management Limited operates, is such that turnover recognition is subject to a degree of estimation.
Turnover derived from the supply of energy includes an estimate of the value of gas and electricity supplied to customers between the date of the last meter reading and the end of the reporting period. Estimation of the number of units consumed but not yet processed through the settlement process are based on industry data until final reconciliation data is received.
Provisions against trade debtors are recognised when a loss is considered probable.
Trade debtors are stated net of the allowance for the impairment of bad and doubtful debts. Debtor balances are provided against based on the date the invoice is raised. Receivables are categorised based on customer and account type, attributing varying risk profiles to each possibility. The percentages applied to each category of aged receivables is based on the average loss for that category, based on historic experience. At the year-end, the directors have included a bad debt provision of £3,277,035 (2022: £1,962,505).
The company has long term commercial contracts in place for the purchase of gas and electricity. On the grounds that these contracts are held for the purpose of the delivery of a non-financial item in accordance with the company's expected purchase and sale requirements, the own use exemption has been applied. As a result, the agreements do not fall within the scope of Section 12 of FRS102 and are not accounted for as derivatives.
Renewable Obligation Certificates (ROCs) are certificates used by suppliers to demonstrate that they have met their renewable obligations. The value of a ROC is determined by the buy out price, set by the market, and a recycle element of the final ROC value determined once all energy suppliers have demonstrated either compliance or non-compliance. The company purchases ROCs on a net basis excluding the buy out which is returned to the generator, eliminating any recycle value differences. At the year-end, the directors have included an accrual for ROCs of £3,409,853 (2022: £2,918,212).
The directors have assessed that fee income in connection with disconnection costs, late payments and cancellations are by their nature highly irrecoverable. Therefore this income is only recognised on a receipts basis, as this is when it is certain that the economic benefits associated with the transaction will flow to the company. At the year-end, the directors have deferred income relating to fees of £1,430,463 (2022: £1,197,271).
During the year, the company formally waived a group debt of £2,698,111, which was owed by a fellow group company. This is considered exceptional based on its quantum and one-off nature.
Government grants received in the current year, relate to claims made from The Energy Bill Relief Scheme. In the prior year, government grant income related to claims made for the Coronavirus Job Retention Scheme.
The average monthly number of persons (including directors) employed by the company during the year was:
Their aggregate remuneration comprised:
The number of directors for whom retirement benefits are accruing under defined contribution schemes amounted to 2 (2022 - 3).
The actual charge for the year can be reconciled to the expected charge for the year based on the profit or loss and the standard rate of tax as follows:
Deferred tax has been recognised at a rate of 25%. In October 2022, the government announced an increase in the corporation tax main rate from 19% to 25% for companies with profit over £250,000. There is a small company rate of 19% for taxable profits under £50,000 and marginal relief available for profits falling between £50,000 - £250,000 with effect from 1 April 2023.
Bank loans are secured by a fixed and floating charge over the company's assets and were fully repaid on 14 June 2023.
Bank loans are secured by a fixed and floating charge over the company's assets and were fully repaid on 14 June 2023.
Bank loans are secured and subject to interest at 1.7% above the Bank of England base rate. The bank loans are fully repayable by monthly capital repayments of £16,667, with a maturity date of June 2026.
The bank loans have been fully repaid post year end on 14 June 2023.
The following are the major deferred tax liabilities and assets recognised by the company and movements thereon:
The deferred tax liability set out above relates to accelerated capital allowances, which are expected to reverse in the future, over the associated life of fixed assets.
The company operates a defined contribution pension scheme for all qualifying employees. The assets of the scheme are held separately from those of the company in an independently administered fund.
As at the year-end, there were no contributions due to the defined contribution schemes in respect of the current reporting year (2022: £Nil).
All share classes rank pari passu.
At the year end, the company was committed to purchase energy totalling £15,274,088 (2022: £16,169,916).
The commitment to purchase energy extended to September 2026 (2022: September 2025).
At the reporting end date the company had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:
The company has taken advantage of the exemption available in accordance with Financial Reporting Standard 102 Section 33, not to disclose transactions entered into between two or more members of a group, where any subsidiary party to the transaction is wholly owned.
During the year, the company paid rent of £91,518 (2022: £51,300) to the shareholder's pension scheme. At the year end no amounts (2022: £Nil) were owed to the pension scheme.
During the year, the company incurred consultancy and directors fees totalling £106,867 (2022: £95,195) from UK Energy Analytics Limited, a company controlled by a director. At the year end, an amount of £Nil (2022: £10,834) was due to UK Energy Analytics Limited, as included within other creditors. The balance is unsecured, non-interest bearing and repayable on demand.
During the year,the company procured legal services totalling £Nil (2022: £21,675) from Monica Saikia Limited, a company controlled by a director and ultimate shareholder. At the year end, no amounts (2022: £Nil) were due to Monica Saikia Limited.
The ultimate parent company is Yorkshire Gas and Power Limited, a company registered in England and Wales.
Eco Green Management Limited is consolidated within Yorkshire Gas and Power Limited's group financial statements and copies can be obtained from the group's registered office, 4305 Park Approach, Leeds, LS15 8GB.
The ultimate controlling party is deemed to be R Raichura by virtue of his majority shareholding in the Group's holding company, Yorkshire Gas and Power Limited.