Avro had ‘no external funding or hedging facility’

A report by the administrator of failed supplier Avro Energy has given a blunt assessment of the company’s financial stability and highlighted the scale of funding that would have been needed to keep it afloat.

Alvarez & Marsal describes the company, which supplied 580,000 customers, as having “no external funding or security over its assets”, relying solely on working capital.

Its report confirms that Avro’s “lack of any hedging instrument in respect of its energy purchases” left it at the mercy of soaring wholesale prices.

Assessing the historic performance of the company, which was founded in 2014 by Jake Brown at the age of 20, the administrator cites significant revenue growth achieved through low-price, fixed-term supply contracts and a focus on a low operating cost base.

It points out that draft financial statements for the year to June 2020 showed a net profit of £30 million from a turnover of £421 million with net assets of £2.4 million on the balance sheet.

However, a year later the company was recording net liabilities of £55 million. A cash flow forecast produced in September of this year predicted £71 million of funding would be required by the end of October, rising to £258 million by the end of March 2022.

Alvarez & Marsal was appointed on 16 August to assess Avro’s options, as it grappled with the cost of buying power and of meeting its £56 million Renewables Obligation. The administrator’s report reveals that out of 132 parties contacted about injecting funds into the company, 12 expressed an interest, 10 went as far as signing non-disclosure agreements and seven requested meetings with management.

It was agreed in September that there was no realistic prospect of raising the funds required or of avoiding insolvency, so the company entered the Supplier of Last Resort process. Its customers were ultimately picked up by Octopus Energy.