Flowgroup has announced it will “actively pursue” the disposal of its energy supply business, Flow Energy, due to pressure on margins and a disire to pursue growth in its smart boiler busienss.
The intention to sell off Flow Energy, which has 250,000 customer fuel accounts, was revealed last week in a trading update.
The statement said that, although the business “has progressed well and is delivering growth” wholesale market volatility has recently caused gross margins to come “under pressure”. It added that this pressure was exacerbated because “we have priced to compete with a range of new entrants offering reduced tariffs to customers to gain market share”.
Given this operating environment, the board of Flowgroup decided that disposal of its retail arm could be advantageous to the rest of the business. This includes a manufacturing enterprise for smart microCHP boilers which the company believes have the potential to be “market-leading”.
The trading update said that Flowgroup has already “received a number of approaches expressing interest” in acquisition of Flow Energy “which has continued to perform well in a dynamic and fast‐changing market place”.
Based on these indicative offers, the board ruled that disposal of Flow Energy “could, if completed, provide sufficient funding for the microCHP business through to the point at which the technology is commercialised in Europe”.
The update concluded: “As a result, the Board has concluded that the disposal of Flow Energy is something that it should actively pursue.”
Negotiations for the disposal are now ongoing. Any proposed deal will be conditional on shareholder approval.
In late 2016, energy supplier GB Energy Supply ceased trading due to volatile wholesale market conditions which proved incompatible with its short term hedging strategy.
Speaking at Energy UK’s annual conference in November last year, Cornwall Energy associate Peter Atherton said he expected market conditions and other rising busienss costs to lead to a “shake out” of smaller suppliers this winter. Atherton said the number of energy suppliers in the market could fall from more than 50 to as few as 15.