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(Alliance News) - Shares rose in Yu Group PLC on Monday as it announced a new hedging facility with electric utility firm SmartestEnergy Ltd.
Shares in the Nottingham-based supplier of utilities were 36% higher at 109.90 pence on Monday in London.
The hedging facility with SmartestEnergy will provide a GBP13 million variable credit facility to support Yu's hedging position. The facility is structured so that the credit line grows in line with the business as it scales.
This is expected to lead to a reduction in the group's working capital requirement, allowing Yu itself to focus its available funds to drive the group's growth and enhance shareholder value.
In addition, Yu will exclusively purchase energy commodities from SmartestEnergy, at market competitive prices, in order to meet its customer requirements over the facility's five-year term.
Until now, Yu has relied on several trading arrangements to access wholesale electricity and gas commodity markets.
These arrangements allow the group to hedge its position through the forward purchase of energy commodity volume, balanced out against the forecasted demand of its customer contracts.
Although this mitigates Yu's risk, it does require the group to post cash collateral to support its forward contracts, affecting its available cash balance.
"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," said Chief Executive Officer Bobby Kalar.
"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," Kalar added.
By Dayo Laniyan; dayolaniyan@alliancenews.com
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