5th Dec 2016 08:53
LONDON (Alliance News) - Flowgroup PLC on Monday stressed its energy supply business is performing well and is "insulated" from the external issues that have been hitting smaller UK energy suppliers as it tries to boost confidence in the business following a poor year for its share price.
Flowgroup has developed its own boiler that generates electricity as it burns gas to heat homes. But Flowgroup also has an energy supply business named Flow Energy, which has joined a flood of independent suppliers that have entered the UK market to challenge the Big Six over the past few years.
While smaller suppliers are continuing to successfully take energy customers away from the Big Six suppliers - Centrica PLC's British Gas, SSE PLC, EDF Energy, E.ON, nPower and ScottishPower - some have started to crumble under the increasing amount of competition and inability to deal with volatile wholesale energy prices.
Confidence in smaller suppliers is likely to take a hit after one, GB Energy, recently closed up shop after "swift and significant increases in energy prices" in recent months.
The Big Six suppliers have been capitalising on the closure. EDF Energy, on its website, has stated that customers "may be concerned" about the closure of GB Energy, advising them to switch to EDF to receive a "reliable and secure service from gas and electricity experts".
Last week, both Centrica's British Gas and SSE said they will freeze their standard variable tariff through the winter months as they use their energy wholesale price hedging strategies to their advantage. The ability to freeze prices for months at a time is a key advantage that the Big Six suppliers have over the majority of their competition.
Flowgroup, on Monday, published a statement to try to allay fears over Flow Energy, noting it has its own hedging strategy, which sets it apart from other smaller suppliers in the market.
"As stated, management has insulated the business from external issues that have affected smaller suppliers with the Flow Energy Business benefiting from hedging provisions which protect it from fluctuations in the price of wholesale energy for its customers," said the company.
"Since that update, the directors have noted that a competing energy supplier has ceased trading, citing the increase in wholesale energy prices and its inability to hedge forward as the reason," Flowgroup added.
"The directors also note the recent fall in the company's share price and would emphasise that the company's hedging agreements with Shell Energy Europe Ltd, its energy trading partner, remain in place and are robust," the company said.
Flowgroup's share price has not performed well in 2016. Shares are currently trading about 20% lower than a week ago and 33% lower than a month ago. They have more than halved since the start of 2016.
On Monday morning, shares were trading down 1.7% to 7.25 pence per share. At the start of 2016, shares were trading at 15.45p.
"As well as the hedging of wholesale energy prices, the company also has arrangements in place to hedge against fluctuations in gas costs over the winter months when customers' consumption can be more volatile," said Flowgroup.
"The directors believe that these arrangements, which have been in place since December 2015, enable the Flow Energy business to remain secure and continue to perform well. The Directors maintain that current market conditions favour more established providers, like Flow, which have robust energy trading strategies, systems and processes, and believe that the company can continue to grow this part of the business in 2017," the company added.
By Joshua Warner; [email protected]; @JoshAlliance
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