Yü Group enters energy trading agreement with SmartestEnergy Limited
LONDON: Yü Group, the independent supplier of gas, electricity and water focused on servicing the business sector throughout the UK, has entered into a new structured trading agreement with SmartestEnergy Limited.
The Group has, until now, relied on a number of trading arrangements to access wholesale electricity and gas commodity markets. Such arrangements enable the Group to hedge its position through the forward purchase of energy commodity volume to balance against the forecasted demand of its customer contracts. These arrangements mitigate the Group's risk but require the Group to post cash collateral to support the forward contracts, absorbing material levels of the Group's existing available cash balance.
The structured trading agreement (Hedging Facility) with Smartest will currently provide a variable credit facility up to £13 million, to support the Group's hedging position, leading to a corresponding benefit to the Group's cash position.
The Hedging Facility is structured so that the credit line grows in line with the business as it scales. This has a material benefit in reducing the working capital requirement of the Group, allowing the Board to focus the deployment of available funds to drive the Group's growth and enhance shareholder value.
The Group will exclusively purchase energy commodity from Smartest, at market competitive and transparent prices, so as to meet its customers' requirements over the five-year term of the Hedging Facility, and has provided certain security and commitments, following an extensive period of due diligence, in order to benefit from the new credit facility.
As announced in the Group's FY 2018 annual report and subsequently, a key strategic priority of the Board has been to reduce cash volatility, to enable a focus on other investment areas to drive growth, whilst accessing competitive trading arrangements.
Following a detailed review of various market opportunities with major energy players, the Board is pleased to have concluded this new structured arrangement which represents a major new milestone in the Group's evolution.
It is expected that the Group will transfer existing outstanding forward trades so that it releases the cash benefit during FY 2020, up to an amount of £13 million.
Robert Groves, SmartestEnergy's CEO commented: "SmartestEnergy is delighted to have entered into a wholesale trading partnership with Yü Energy, one of the fastest growing and most exciting challengers in the business energy supply market. After an extensive period of due diligence, we were impressed with the breadth of management team, the strategy in place to scale the business and the available opportunities for the business. Through this partnership, SmartestEnergy will support Yü Energy in managing the complex risks associated with volatile and challenging market conditions. We look forward to working together with the leadership team at Yü Energy as they continue to grow their business."
Bobby Kalar, Chief Executive Officer of Yü Group, commented: "Traditional trading arrangements create significant cash collateral requirements in a declining energy commodity market, and overcoming this barrier was the main reason the business listed in 2016. Removing cash volatility with trading counterparties removes the need for the Group to ring fence cash. This agreement means we no longer have a need to tie up our cash and instead use our position to unlock new opportunities whilst scaling our customer base. Our industry has seen some turbulent times recently and this strategic partnership with Marubeni's UK subsidiary SmartestEnergy supports the Company as it pursues its growth ambitions.
"I am delighted that we have concluded this new arrangement to unlock a multi-million cash benefit with such a well-respected strategic partner whose ambitions are in line with ours. Having considered several options, SmartestEnergy's ethics, flexibility and always putting the customer first made them the obvious choice. The agreement is also future proof, so that the credit facility grows with the business, enabling us to scale this business more quickly and profitably. This agreement signals the start of long and beneficial relationship between two businesses who share growth ambitions. I look forward to providing further updates in H1 2020 after we realise the benefit in our cashflow from this major new partnership, and after we further leverage our strong balance sheet to drive business growth."