The directors present the strategic report and financial statements for the year ended 31 December 2019.
Principal Activity
Business review
The Directors are pleased with the progress made during the year, with turnover growing by £22.2m to £24.1m in our second year of active operations.
Orbit Energy successfully built its sales channels to reach and engage those customers who would benefit from switching supplier and enable them to access the savings and service that Orbit Energy can offer.
The Directors are also pleased to report that Orbit Energy built out its platform during the year to be able to manage and service customers with pre-payment meters, increasing the market it can service by approximately 20%.
Future developments
The Directors expect Orbit Energy to continue its growth journey, delivering great service and price to customers who have not yet been able to benefit from the deregulation and increased competition in the market. Driving growth enables the business to leverage the strong platform that is now in place and the wholesale energy deal with Shell Energy Europe Limited which provides stable prices and certainty to our customers.
Principal risks and uncertainties
The Risk Management committee, considers the below to be the principal risks.
Wholesale market Risk
Wholesale energy market volatility continues to be the most significant risk to an energy supply business in the UK. Orbit Energy manages and mitigates this risk through its key relationship with Shell Energy Europe Limited. Orbit Energy through this relationship can and does fully hedge its forecast customer demand.
Credit Risk
Orbit Energy manages its bad debt risk through a combination of products, technology and a high proportion of Direct Debit customers.
Operational Risk
Orbit Energy has built its platform to minimise operational risk by working with market leading partners with deep experience in the UK energy market.
Orbit Energy through its Risk management committee reviews its operational risks on a regular basis to ensure that any risk which falls outside of its tolerance, is actioned and monitored until it has been brought back within its appetite. Orbit Energy has built its platform to minimise operational risk by working with market leading partners
Covid-19
The Directors have considered the impact of COVID-19 in relation to their assessment of going concern and in their opinion have taken all reasonable steps to mitigate these factors.
As at the point of authorising the accounts, and for the foreseeable future, the directors consider the going concern assumption to still be appropriate.
The Directors acknowledge that given the currently rapidly changing business and social environment, there are likely to be significant unknown factors which may present themselves. Such factors are considered by the Directors to represent a general inherent level of risk to the energy retail sector in relation to the going concern assumption albeit not quantifiable at this time.
The Directors consider that Orbit Energy with its strong platform, strong team and committed parent companies is well placed to manage these uncertainties.
Financing
Orbit Energy Limited, while in its growth phase, accesses funding to meet its working capital requirements via its immediate parent company Shoreditch Energy Limited. Orbit Energy forecasts out its cashflow requirements at a daily level for a minimum of a rolling 12 months. Short term is monitored on an ongoing basis to ensure short term commitments are met and the long-range forecast is used to guide any requirements for additional capital.
KPIs
Growth: Turnover has increased to £24.1m in the first active year of supplying customers
Gross Margin: 5.4%
Service: 4.5 stars out of 5 at year end as measured by Trustpilot
On behalf of the board
The directors present their annual report and financial statements for the year ended 31 December 2019.
The results for the year are set out on page 7.
No ordinary dividends were paid. The directors do not recommend payment of a final 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's current policy concerning the payment of trade creditors is to:
settle the terms of payment with suppliers when agreeing the terms of each transaction;
ensure that suppliers are made aware of the terms of payment by inclusion of the relevant terms in contracts; and
pay in accordance with the company's contractual and other legal obligations.
Trade creditors of the company at the year end were equivalent to 21 day's purchases, based on the average daily amount invoiced by suppliers during the period.
HJS (Reading) Limited were appointed as auditor to the company and in accordance with section 485 of the Companies Act 2006, a resolution proposing that they be re-appointed will be put at a General Meeting.
We have audited the financial statements of Orbit Energy Limited (the 'company') for the year ended 31 December 2019 which comprise the income statement, the statement of financial position, the statement of changes in equity, the statement of cash flows and notes to the financial statements, including a summary of significant accounting policies . The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard , and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:
the directors' use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue .
Other information
The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact . We have nothing to report in this regard.
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' r eport 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.
In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identifie d material misstatements in the strategic report and the directors' r eport .
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
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.
As explained more fully in the directors' r esponsibilities s tatement, 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.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: http://www.frc.org.uk/auditorsresponsibilities . This description forms part of our auditor’s 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 income statement has been prepared on the basis that all operations are continuing operations.
Orbit Energy Limited is a private company limited by shares incorporated in England and Wales. The registered office is St Dunstan's House, 201 Borough High Street, London, SE1 1JA.
Revenue represents amounts receivable for goods and services provided in the normal course of business, net of trade discounts and value added tax. Revenue is recognised on the basis of energy supplied in the period.
Revenue for energy supply activities includes an assessment of energy supplies to customers between the date of the last meter reading and the year end. Unread energy is estimated using consumption patterns and is included in accrued income within debtors. Amounts received from customers on budget plans where payments have been received in advance of energy supplied are included in deferred income included in other creditors.
All revenues arise in the United Kingdom.
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 recognised in the income statement.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually, and whenever there is an indication that the asset may be impaired.
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 (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) 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.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
IFRS 13 establishes a single source of guidance for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. The resulting calculations under IFRS 13 affected the principles that the Company uses to assess the fair value, but the assessment of fair value under IFRS 13 has not materially changed the fair values recognised or disclosed. IFRS 13 mainly impacts the disclosures of the Company. It requires specific disclosures about fair value measurements and disclosures of fair values, some of which replace existing disclosure requirements in other standards.
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.
The company recognizes financial debt when the company becomes a party to the contractual provisions of the instruments. Financial liabilities are classified as either ' financial liabilities at fair value through profit or loss ' or ' other financial liabilities ' .
Other financial liabilities, including borrowings , t rade payables and other short-term monetary liabilities, are initially measured at fair value net of transaction costs directly attributable to the issuance of the financial liability. They are subsequently measured at amortised cost using the effective interest method . For the purposes of each financial liability, interest expense includes initial transaction costs and any premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding.
Financial liabilities are derecognised when, and only when, the company’s obligations are discharged, cancelled, or they expire.
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 company mitigates its risk versus volatile wholesale markets by forward buying energy in line with its customers’ requirements.
The company accordingly classifies these forward hedges as “matched” with our requirements to supply this energy to our customers.
No energy is forward bought on a speculative basis, and as such these purchases are outside of the scope of IAS39.
Rentals payable under operating leases, less any lease incentives received, are charged to profit or loss on a straight line basis over the term of the relevant lease except where another more systematic basis is more representative of the time pattern in which economic benefits from the lease d asset are consumed.
In the current year, the following new and revised Standards and Interpretations have been adopted by the company and have an effect on the current period or a prior period or may have an effect on future periods:
IFRS 16 - Leases
IFRIC 23 - Uncertainty of income tax treatments
At the date of authorisation of these financial statements, the following Standards and Interpretations, which have not yet been applied in these financial statements, were in issue but not yet effective (and in some cases had not yet been adopted by the EU):
IAS 1 - Presentation of financial statements
IAS 8 - Accounting policies, changes in accounting estimates and errors
IFRS 3 - Business combinations
Revised conceptual framework for financial reporting
In January 2020, the IASB issued amendments to IAS 1, which clarify the criteria used to determine whether liabilities are classified as current or non-current. These amendments clarify that current or non-current classification is based on whether an entity has a right at the end of the reporting period to defer settlement of the liability for at least twelve months after the reporting period. The amendments also clarify that ‘settlement’ includes the transfer of cash, goods, services, or equity instruments unless the obligation to transfer equity instruments arises from a conversion feature classified as an equity instrument separately from the liability component of a compound financial instrument. The amendments are effective for annual reporting periods beginning on or after 1 January 2022.
The company is currently assessing the impact of these new accounting standards and amendments. The company does not believe that the amendments to IAS 1 will have a significant impact on the classification of its liabilities, as the conversion feature in its convertible debt instruments is classified as an equity instrument and therefore, does not affect the classification of its convertible debt as a non-current liability.
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, if the revision affects only that period, or in the period of the revision and future periods if 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 outlined below.
Revenue is measured at the fair value of the consideration received and receivable.
Revenue for the supply of energy includes an assessment of the value of energy supplied to customers including an estimated value of the volume between the date of the last invoice and the end of the period. Revenue is estimated using consumption patterns on a meter by meter basis, taking into account weather patterns, forecasts and the difference between actual meter readings returned and system estimates. Revenue is presented net of sales tax, returns, rebates and discounts.
The judgements applied and the underlying assumptions are considered to be appropriate at the balance sheet date.
The annual depreciation charge on fixed assets is sensitive to changes in the estimated useful economic lives and residual values of the assets, and these are reassessed annually.
The deferred tax asset arising from tax losses incurred over the past three years which are available to be carried forward and offset against future profits has not been recognised at 31 December 2019 due to the uncertainty concerning the exact timescale as to its recoverability. The losses can be carried forward indefinitely and have no expiry date.
The average monthly number of persons (including directors) employed by the company during the year was:
Their aggregate remuneration comprised:
The charge for the year can be reconciled to the loss per the income statement as follows:
The main UK corporation tax rate of 19% reduces to 18% (effective 1 April 2020) . A further rate reduction to 17% (effective from 1 April 2020) was substantively enacted in September 2016.
The cumulative unprovided deferred tax asset is expected to be reversed at the rate of 17%.
The industry accreditation licenses have been valued at £100,000 the original purchase price of dormant company with the active licences on 24 July 2017. The directors consider the fair valuation at 31 December 2019 still to be £100,000.
At 31 December 2019, had the licences been carried at historical cost less accumulated amortisation and accumulated impairment losses, their carrying amount would have been £nil.
The revaluation surplus is disclosed in note 19. This is a non distributable reserve.
Trade receivables disclosed above are classified as loans and receivables and are therefore measured at amortised cost.
The directors consider that the carrying amount of trade and other receivables is approximately equal to their fair value.
No significant receivable balances are impaired at the reporting end date.
The deferred tax asset arising from tax losses incurred over the past two years has not been provided for in the financial statements at 31 December 2019 due to the uncertainty concerning the exact timescale as to its recoverability. The company has estimated tax losses of £11,199,895 (2018 - £3,975,524) available to be carried forward and offset against future profits.
The total costs charged to income in respect of defined contribution plans is £17,809 (2018 - £7,706).
The company has one class of ordinary shares which carry no right to fixed income.
On 26 April 2019 1 ordinary share was issued for £250,000.
On 2 December 2019 1 ordinary share was issued for £2,150,000.
Post year end on 25 June 2020 a further 1 ordinary share was issued for £1,200,000.
Amounts recognised in profit or loss as an expense during the period in respect of lease arrangements are as follows:
The minimum annual fees and rental under operating leases in the year amounted to £828,309 during 2019 and £663,513 during 2018
Set out below are the future cash outflows to which the lessee is potentially exposed that are not reflected in the measurement of lease liabilities:
During 2020 the company issued an additional 1 ordinary £1 share for £1,200,000 creating a further share premium account of £1,199,000.
On 9 October 2020 Genie Energy UK Limited purchased the remaining shares from its former joint venture partner to become the 100% owner of Orbit Energy Limited.
The remuneration of the directors, who are key management personnel, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures .
During the year the company entered into the following transactions with related parties:
Energy Global Investments Pty Ltd, a company registered in Australia, owns 26.78% (2018: 32.67%) of Shoreditch Energy Limited.
The following amounts were outstanding at the reporting end date:
No guarantees have been given or received.