Yu Group inks new hedging deal with Shell Energy Europe

The AIM-traded firm said the agreement, with an initial term of five years, marked the culmination of a 12-month selection and due diligence process, and was effective immediately.

It said the facility replaced the previous arrangement with SmartestEnergy, which had been in place since 2019.

Under the old arrangement, Yu Group said it scaled up its operations and managed risks by procuring gas and electricity at fixed prices to support its expanding customer base.

Recent unprecedented volatility in energy markets, coupled with Yu Group's rapid growth, led to the company exceeding its available credit under the old facility.

As a result, Yu Group was required to post £49.8m as collateral at the end of December to support its hedging strategy.

The board said the new hedging facility with Shell Energy offered several key benefits, as it was structured to facilitate access to commodity markets, supporting the company's growth agenda and potential expansion opportunities.

Notably, under the new arrangement, Yu Group said it would not be obliged to deposit cash as collateral to support mark-to-market movements due to energy price fluctuations, as was required under the previous facility.

Additionally, the company said it would benefit from Shell's extensive commodity trading access and market-reflective prices.

The agreement would release cash that would previously have been tied up on the balance sheet to support its hedging policy.

As a result, £52.25m of cash previously lodged under the old facility had now returned to Yu Group, with further significant cash benefits expected in the coming months.

“I'm very excited for the future of the group and look forward to working with Shell Energy Europe - one of Europe's largest traders of gas, power and environmental products,” said chief executive officer Bobby Kalar.

“This new strategically important facility is the result of a thorough selection process and is further validation of the strength and maturity of Yu Group following the extensive due diligence and stress-testing of our business model.

“The new hedging facility unlocks over £50m of cash currently posted as collateral and removes a material working capital constraint to the business lifting exposure to mark to market movements from future energy market fluctuations.”

That, Kalar said, would provide the company with substantial strategic and financial benefits, enabling increased distributions while continuing to invest to deliver on its growth agenda.

“I recognise it's been a very busy period for my team and would like to thank them for their continued support.

“I look forward to the future with absolute confidence.”

Yu Group said it would announce its results for the year ended 31 December on 19 March.

At 1106 GMT, shares in Yu Group were up 12% at 1,299.2p.

Reporting by Josh White for Sharecast.com.