The directors present the strategic report for the year ended 31 July 2016.
The principal activity of the company was the supply of retail electricity to business customers.
The company is an independent UK-owned utilities supplier, offering highly competitive products, with the opportunity for every new electricity customer to have a smart meter installed. This enables thousands of SME businesses across the UK to exercise greater control of their costs and save on their energy bills.
Business review and financial performance
Dual Energy Direct Limited continued to grow substantially through 2016, with customer numbers growing by 73% and revenue for the year increasing by 49% to £62.6m. The mild UK winter in 2015/16, combined with exceptionally low global oil prices, suppressed wholesale costs and contributed to the gross margin rising from 11.1% to 14.7%.
Despite the 73% increase in customer numbers, the operating expenses were carefully controlled and only increased by 21%, which meant that profit before tax grew by 317% to £5.2m. The net assets of the company have increased by £3.9m to £4.1m, with no borrowing at year end.
Dual Energy Direct Limited has continued to maintain market-leading prices during its rapid growth phase, and the benefit realised from low wholesale energy prices in the second half of the financial year has delivered above average margins during the period. However, the directors acknowledge that the tight electricity system margins during winter 2016/17 and increased volatility in wholesale prices will lead to greater challenges ahead. The company will continue to target long-term sustainable growth in customer numbers, profitability and balance sheet strength.
The major restriction to this growth is linked to liquidity, and this is managed through careful planning, daily cash flow monitoring and access to bank deposit accounts, as well as forward purchasing of energy contracts. Dual Energy Direct Limited’s cash generation and balance sheet strength have continued to improve significantly, and the company has carried on investing further in the areas that are going to generate strong returns.
The successful business model that Dual Energy Direct Limited has deployed involves working closely with selected energy brokers and utility experts, and developing a compelling sales partner programme. This is combined with superior products offered at extremely competitive prices, and supported by dedicated UK Customer Services.
The growth and success of the company in recent years is testament to the quality and dedication of the company’s staff and industry partners, and the directors have every confidence that the plans, products and people are in place to continue to achieve substantial profitable growth over the coming years.
The principal risks and uncertainties facing the company relate to volatility in wholesale energy costs, bad debt risk and competitive price pressure.
The company seeks to mitigate the risk of volatility in wholesale energy costs by securing electricity under forward contracts. This approach is subject to significant senior management oversight, in order to strike a suitable balance between the risk of prices increasing and impacting on profitability, and the risk of prices decreasing and leading to mark to market calls. The company maintains a prudent view in hedging ahead, to ensure it has the cash resources to meet all expected demands as they fall due.
The risk of bad debt is managed in a variety of ways that are integrated within the business model. Smart meter readings reduce the likelihood of estimates and inaccuracies, which can lead to higher levels of default. Dual Energy Direct Limited adopts a ‘direct debit only’ policy to reduce the lead time between billing and payment, and has also invested in an industry leading pre-pay system to counter the potential for growing debtor balances.
The business energy market is very competitive and Dual Energy Direct Limited seeks to offer highly attractive prices to new and existing customers. In addition to competitive prices, the company offers further benefits to its customers, such as fixed payment plans, price guarantees, UK Customer Services, and is leading the way in providing free smart meters to all customers.
On behalf of the board
The directors present their annual report and financial statements for the year ended 31 July 2016.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
The results for the year are set out on page 7.
Ordinary dividends were paid amounting to £244,420. The directors do not recommend payment of a further dividend.
The directors believe that there are currently no future developments requiring disclosure.
The auditor, Carpenter Box, is deemed to be reappointed under section 487(2) of the Companies Act 2006.
The company operates management policies designed to minimise its exposure to financial risk.
Price risk
The company is exposed due to the volatile nature of the energy industry. This is mitigated through detailed analysis of expected energy usage along with the utilisation of forward contracts to fix the future costs of energy to the company.
Credit risk
The company operates a number of policies and procedures designed to mitigate credit risk. In particular, before entering into transactions with new customers a detailed credit review is undertaken to determine whether or not, in the opinion of the directors, the customer has the ability to meet its debts as they fall due. Security deposits are also taken where necessary.
Liquidity and cash flow risk
The company operates a range of policies to ensure there is sufficient liquidity and cash to meet its liabilities. Regular cash flow forecasts are prepared to ensure the company is able to pay its debts as they fall due.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, the directors are required to:
select suitable accounting policies and then apply them consistently;
make judgements and accounting estimates that are reasonable and prudent;
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
We have audited the financial statements of Dual Energy Direct Limited for the year ended 31 July 2016 which comprise the s tatement of c omprehensive Income , the statement of financial position , the s tatement of c hanges in e quity and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), including FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland".
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.
give a true and fair view of the state of the company's affairs as at 31 July 2016 and of its profit for the year then ended;
have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
have been prepared in accordance with the requirements of the Companies Act 2006.
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;
the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements; and
in the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have identified no material misstatements in the Strategic Report and the Directors’ Report.
adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or
the financial statements are not in agreement with the accounting records and returns; or
certain disclosures of directors' remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
The statement of comprehensive income has been prepared on the basis that all operations are continuing operations.
Dual Energy Direct Limited is a company limited by shares incorporated in England and Wales. The registered office is Premium House, The Esplanade, Worthing, West Sussex, BN11 2BJ.
These financial statements have been prepared in accordance with FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”) and the requirements of the Companies Act 2006.
The financial statements are prepared in sterling , which is the functional currency of the company. Monetary a mounts in these financial statements are rounded to the nearest £.
The financial statements have been prepared under the historical cost convention. The principal accounting policies adopted are set out below.
These financial statements for the year ended 31 July 2016 are the first financial statements of Dual Energy Direct Limited prepared in accordance with FRS 102, The Financial Reporting Standard applicable in the UK and Republic of Ireland. The date of transition to FRS 102 was 1 August 2014. An explanation of how transition to FRS 102 has affected the reported financial position and financial performance is given in note 22.
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 . T he company has therefore taken advantage of e xemptions from the following disclosure requirements:
Section 7 ‘Statement of Cash Flows’ – Presentation of a statement of cash f low and related notes and disclosures ;
Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instrument Issues’ – Carrying amounts, interest income/expense and net gains/losses for each category of financial instrument; basis of determining fair values; details of collateral, loan defaults or breaches, details of hedges, hedging fair value changes recognised in profit or loss and in other comprehensive income ;
Section 33 ‘Related Party Disclosures’ – Compensation for key management personnel .
The company has taken advantage of the exemption under section 400 of the Companies Act 2006 not to prepare consolidated accounts. The financial statements present information about the company as an individual entity and not about its group .
In respect of the year ended 31 July 2016, the company has early adopted The Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015 (SI 2015/980).
A t the time of approving the financial statements , t he directors have a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future. Thus t he directors continue to adopt the going concern basis of accounting in preparing the financial statements.
Any variance in units charged to customers and billed by suppliers due to estimated bills is recognised in the balance sheet until actual data is available
Related commission expenses are recognised on the basis of paid usage by customers using an accruals basis and are included in the cost of sales.
Other income represents gains on the purchase and utilisation of climate change levy certificates recognised in the period to which they relate.
Intangible assets acquired separately from a business are recognised at cost and are subsequently measured at cost less accumulated amortisation and accumulated impairment losses. Intangible assets acquired on business combinations are recognised separately from goodwill at the acquisition date if the fair value can be measured reliably.
Amortisation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives on the following bases:
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 .
Interests in subsidiaries are initially measured at cost and subsequently measured at cost less any accumulated impairment losses. The investments are assessed for impairment at each reporting date and any impairment losses or reversals of impairment losses are recognised immediately in profit or loss.
A subsidiary is an entity controlled by the company . Control is the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities.
At each reporting period end date, the company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Financial instruments are recognised in the group 's statement of financial position when the group becomes party to the contractual provisions of the instrument.
Financial assets and liabilities are offset , with the net amounts presented in the financial statements , when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.
The group enters into basic financial instruments transactions that result in the recognition of financial assets and liabilities like trade and other accounts receivable and payable, loans from banks and loans from related parties.
Debt instruments like loans and other accounts receivable and payable are initially measured at present value of the future payments and subsequently at amortised cost using the effective interest method . Debt instruments that are payable or receivable within one year are measured, initially and subsequently, at the undiscounted amount of the cash or other consideration expected to be paid or received.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership to another entity. Financial liabilities are derecognised when, and only when, the company’s obligations are discharged, cancelled, or they expire.
The company uses commodity purchase contracts to protect its exposure to fluctuations in electricity commodity prices. When commodity purchase contracts have been entered into and continue to be held for the purpose of receipt or delivery of a non-financial item in accordance with the entity's expected purchase, sale or usage requirements, they are considered to be eligible for the 'own use exemption'. As a result these contracts fall outside the scope of sections 11 and 12 of FRS 102 and are therefore not accounted for as derivatives.
Equity instruments issued by the company are recorded at the proceeds received, net of direct issue costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.
The carrying amount of deferred tax assets is reviewed at each reporting end date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when the company has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority.
The cost of any unused holiday entitlement is recognised in the period in which the employee’s services are received.
Termination benefits are recognised immediately as an expense when the company is demonstrably committed to terminate the employment of an employee or to provide termination benefits.
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 following judgements (apart from those involving estimates) have had the most significant effect on amounts recognised in the financial statements.
The directors have reviewed the long term forward commercial agreements which the company has in place for the supply of electricity. It is considered that these contracts are held for the purpose of the delivery of electricity, which is a non-financial item, in accordance with the company's expected future purchase and sale requirements. These contracts are solely for the purchase of electricity for the company's own use to supply to its customers. Additionally the terms of these contracts state that the net settlement through the exchange of cash or another financial instrument is not permitted. As well as this the company has no prior history of settling these contracts in this manner. As a result all agreements result in the full delivery of electricity in accordance with the terms of the agreements in place.
On this basis the directors consider that these contracts fall outside the scope of Section 12 of FRS 102 and the ‘own use’ exemption has been applied. Therefore these contracts have not been treated as financial instruments and are not required to be fair valued at the balance sheet date.
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.
Revenue derived from the sale of energy includes an estimate of the value of electricity supplied to customers between the dates of the last meter reading and the end of the reporting period. Estimates of the number of units consumed but not yet processed through the settlement process are based on historic data until final reconciliation data is received.
Similarly purchase volumes are also subject to the same degree of estimation, with associated settlement costs dependant on the receipt of final reconciliation data.
The company operates in one principal area of activity, that of the supply of services, which is undertaken in the United Kingdom. Revenue is therefore made up 100% by the fees receivable in relation to the supply of these services.
The average monthly number of persons (including directors) employed by the company during the year was:
Their aggregate remuneration comprised:
The actual charge for the year can be reconciled to the expected charge based on the profit or loss and the standard rate of tax as follows:
Details of the company's subsidiaries at 31 July 2016 are as follows:
Included within other receivables is £6,658,353 (2015 - £3,384,614) which is held as a deposit with the company's energy supplier.
The restatement of the comparative above relates to a reanalysis of the amounts due to group undertakings of £1,775,374 which was previously shown as a non-current liability. This restatement is due to there being no formal loan agreements terms in place in relation to the repayment of this balance. The effect of the restatement has been to increase current liabilities by £1,775,374 and to reduce non-current liabilities by the same amount.
Deferred tax assets and liabilities are offset where the company has a legally enforceable right to do so. The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes:
The directors have considered the deferred tax assets and liabilities notes above and concluded that it is not possible to state the estimated assets and liabilities which will reverse within the next 12 months. This is due to the level of reversal being dependant on events which are not yet known.
Ordinary shares have attached to them full voting, dividend and capital distribution (including on winding up) rights.
The company is included in a joint security arrangement whereby all present and future indebtedness and liabilities owing to the bank are secured by a composite unlimited multilateral guarantee and a debenture given by all companies in the Dual Energy Group Limited group. At the balance sheet date there was no liability due under this arrangement.
At the balance sheet date the company has agreed forward contracts totalling £11,484,463 (2015 - £2,371,707) for the purchase of electricity to supply to its customers.
During the period charges of £105,600 (2015 - £42,000) were payable to Symbiant Technologies Limited, a fellow subsidiary of Dual Energy Group Limited. During the year charges totalling £1,236 (2015 - £5,156) were paid by Symbiant Technologies Limited. At the year end Symbiant Technologies Limited owed the company £11,220 (2015 - £600), this amount is included within trade creditors.
During the period charges of £1,300,402 (2015 - £1,113,575) were payable to Dual Energy Group Limited in respect of interest, wages and premises expenses. At the balance sheet date the company owed £20,100 (2015 - £3,975,374) to Dual Energy Group Limited, this amount is included within accruals in the current year.
The ultimate parent company is Dual Energy Group Limited, a company controlled by its directors and no one party has ultimate control.
Dual Energy Group Limited prepares consolidated financial statements and copies can be obtained from Companies House. The registered office of Dual Energy Group Limited is Amelia House, Crescent Road, Worthing, BN11 1QR.
In accordance with FRS 102 the computer software purchased by the company in the year ended 31 July 2015 has been reclassified from property, plant and equipment to intangible assets. The costs of the computer software can been seen at note 10. There have been no adjustments to equity or profit reported under previous UK GAAP as a result of this reclassification.