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Yu Group shares have shed more than four-fifths of their value after the company issued a profit warning concerning its inability to recover unpaid bills from customers.
In a trading statement, the company said it expects profits to be £10 million lower than previous market expectations, resulting in a loss for the current financial year.
Yu Group operates the business supplier Yu Energy and entered the water retail market in December 2017 with the launch of Yu Water.
The company was owed £4.2 million in unpaid bills at the end of 2017 and £4.3 million as of the end of June this year.
After reviewing the amount owed by each customer, the board has concluded that a “significant amount” of the debt is unrecoverable and must therefore be written off.
It has also decided to increase its provisions for bad debt which it concluded are insufficient for the level of non-payment it is currently experiencing.
According to the statement, profits have additionally been affected by tough market conditions that “continue to compress the gross margins available to energy suppliers”.
The company said it will commission a “forensic review” of its systems to identify and rectify any underlying issues. It said it expects to return to profitability in the 2019 financial year, “albeit at a lower margin than previous expectations”.
Bobby Kalar, chief executive of Yu Group, said: “As founder and majority shareholder, nobody is more disappointed in this development than me.
“Our booked revenue from new sales remains strong and contracted revenue for 2019 is already £67 million as at the end of September 2018.
“We have improved internal controls around working capital management and the board is absolutely focused on restoring the profitability of the business.”
Yu Group is listed on the London Stock Exchange’s AIM market for smaller, growing companies. Before the announcement its shares were trading at 580p. The price has since plummeted to 120p – a drop of more than four-fifths.
The company reported an adjusted pre-tax profit of £3.1 million on revenues of £47 million in its most recent full-year results.
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