Eenergy Group (LSE:EAAS) — Company Introduction & Results overview

0:02 Good afternoon, ladies and gentlemen, and welcome to the E Energy Group PLC Company Introduction Results Overview. Throughout the presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time via the Q and A tab situated on the right hand corner of your screen. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so. These will be available on your Investor Meet company dashboard.

0:29 I'd also like to remind you this presentation is being recorded. But before we begin, we'd like to submit the following poll. I'd now like to hand you over to Harvey Sinclair, CEO of EENERGY GROUP PLC. Good afternoon, Harvey. Good afternoon, and thank you for inviting me to present today. So EENERGY came to market in January of this year. Our core business, E Light, provides companies with energy efficiency as a service through lighting. I'd like to give you an overview of the business, and then I can talk more broadly about our m and a strategy and then talk through some of the current trading updates we have and q one, if you like, forecast and update for the year.

1:15 So as I mentioned, energy efficiency as a service is a way for organizations and public sector companies to be able to reduce their energy costs through a subscription service, which means that they can access energy efficiency technology without having to invest in that technology itself. Their monthly service fees are more than covered through the savings that the technology itself unlocks. And what that means is that the customers are able to release cash flow from moving to technology such as LED lighting. E Light, which is our core business, is now the market leader for providing light as a service in the education sector and has over a thousand completed projects across both commercial, industrial, and education.

2:01 The business has seen explosive growth since the beginning of this financial year, and we've seen 500% year on year growth, of which 350% comes from pure organic growth trajectory. We see that the education sector is a fantastic place to be right now. We see it as being incredibly COVID resilient. We've seen huge uptake in our business model over the last six months, and it's a very large addressable market with over 25,000 addressable schools that have not yet switched to LED lighting. The business sees a £1,500,000,000 market opportunity. Our own internal goal is to achieve 10% market share in the next three to four years, and we think that's very realistic based on some of the trajectories we're seeing.

2:51 We're also working in some interesting commercial sectors at the moment, in particular, food services, health care, distribution, logistics. And in fact, this is where our company's heritage started, and we have over a 100 case studies and successful testimonials from the commercial industrial sector. I think what we see at the moment is, organizations, public sector, education organizations are all now seeking a fundamental energy efficiency strategy. They're all looking to drive sustainability goals. They're all looking to, achieve a a goal to net zero. And so we think that this provides the business with a fantastic opportunity over the coming years.

3:37 In terms of our, broader energy efficiency, energy services strategy, One of the reasons, the company came to the market was so that we could, deploy a m and a buy and build strategy, something I've successfully done before on AIM, and, we think that the energy services market is very fragmented. There are lots of very, disparate services being offered, and we think that there is an opportunity to consolidate, one operating platform, one clear customer message through buying, strategically interesting, businesses, in particular, in the energy management sector where we see huge strategic, synergistic growth opportunities. So just, I guess, to summarize, we've got a very compelling business model.

4:27 It's a proven business model now with over a thousand projects. We've seen huge strong momentum in q one, and we've got a very mature market of of proposals. Our business has a track record of closing 40% of its proposals in front of customers within ninety to a hundred and twenty days. And that proposal pipeline is currently sitting at over 20,000,000. So we see this as a a very, I guess, interesting time for the business. The ELITE core business has broken past profitability now for the last five months, month on month, and we see the group hitting its breakeven target after group costs by the end of this calendar year. We've touched on the market opportunity, which is for energy efficiency as a service over worth over 25,000,000,000.

5:17 And in The UK alone, the education sector is worth 1,500,000,000. We are now the market leader in this sector. So just to summarize those who haven't had the opportunity to understand exactly what it is we do, We we provide customers, and in particular, education, so schools, the ability to move to LED lighting for a fixed monthly service fee. What that means is we provide a turnkey solution of both designing and specifying the right solution that's going to deliver the right level of savings to that customer without them having to invest any capital upfront. We then manage the delivery of that solution, and we then, provide them with a fit and forget solution for seven years.

6:04 Typically, our schools are always cash flow positive from day one, which means that an average school can unlock anything from 15 to £25,000 of surplus cash in year one from which they can then invest into their organization. We win businesses. We win business as a result of, you know, multichannel marketing strategy. We've got huge referral network now, and we're finding that the more business we win, the more regional referrals we are getting. And that strong, if you like, referral base is being supported by both, you know, digital social media activities and direct marketing. In terms of how we make our money, we have a panel of dedicated funding arrangements.

6:51 In Ireland, we have a, 15,000,000 dedicated SPV fund, which, is recently secured through Suzy, which is a Swiss energy efficiency fund. And at the end of the day, that that is, enabling our business to, I guess, derisk taking any, balance sheet risk on funding because we, sell our receivables on a finished contract to that fund and are cash flow positive within the month of installation. And in The UK, we have a panel of, financial, I guess, master sale agreements with our funders that allow us to sell our receivables in the same way. And we are, progressing discussions to secure a dedicated committed facility of over 50,000,000 for our UK projects in the coming weeks. So it's something we're working on. We wanna replicate what we've done in Ireland so that we've got, again, a a clear runway of funding for all of our projects at competitive rates on a funding contract that appears to the customer that it's E Line that's funding the project, without any of the risk of having, if you like, that funding on our own balance sheet.

8:04 In terms of market drivers for energy efficiency and service, they really fall into two counts. You've got regulatory drivers, which is, really driven by, government and society's demand for reduction of carbon carbon emissions, whether that's, the energy savings scheme, ESOS, or whether it's the minimum EU energy efficiency directive. So there's a lot of pressure from a regulatory standpoint. More practically, however, we find that aging infrastructure is usually the number one demand for upgrading to energy efficiency lighting, I e, old lights are failing. The second is really a drive for, cost savings through energy efficiency. That's a win win for most of our customers.

8:49 The ability to release free cash and, I guess, general carbon reduction strategy objectives. Our operating model is one of the key things that differentiates ourselves, and there there are at least three areas of our operating model where we differentiate ourselves. The first is how we capture data. So we have we have designed, built, and developed a bespoke data capture app, which allows our auditors and surveyors to efficiently and accurately catch data at a property. It doesn't mean just counting inventory of lighting. It also means capturing light levels through light meters, height and dimensions of rooms, and also operating hours for each particular room that we capture information on in a way which is quick, efficient, and it syncs with a cloud based analytics tool that we built that allows the automation of a proposal to a customer within twenty four hours of having done a survey.

9:58 The analytics engine that we have built is intelligent. It it builds off a database that it learns from. It removes human error when it comes to designing solutions, and it means that we're able to optimize the solution for a customer where they can effectively be assured of maximum long term savings and maximum long term financial, if you like, outputs for that contract. We've designed a bespoke simple service contract, which in the same way that the solar industry relies on the power purchase agreement, we believe our contract form gives us a differentiation for our customers. It's a simple, easy contract to sign, and it gives them the trust and security that they are signing something which has credibility behind it, but also doesn't require lawyers to review it.

10:53 And then the third piece really is in the supply chain management and supply chain delivery. So procurement of our technology, We have an exclusive arrangement with panel of three OEM providers that will enable us as a business to procure product at between 2030% cheaper than wholesale. So what that means is we can demonstrate that our solution paid for monthly over a course of seven years is only marginally more expensive than if they were to, procure a product and install via a contractor and use their own capital. That's always been the goal of our business is how do you drive such value into our life as a service contracts over seven years or potentially longer with no downside and no perceived no perceived, I'm sorry, premium to being able to do that over that course.

11:50 So we see we see that as a real, if you like, differentiator for our business model. Here is an example of a typical contract. So very briefly, you can see that in the current year, this particular customer, which is this is a school example that we recently closed, is paying just under £78,000 to run and manage their old lighting solution. If I switch to the eLight specification, their new, electricity cost will drop nearly 70% down to £26,000 and will then rise at a 5% escalator, according to inflation. We think that a 5% escalator is nearly 50% less than what, the top Department of Energy believes energy prices will rise at. You'll then see a fixed cost annually for seven years, which is the e light service fee paid monthly.

12:46 And then the light green, if you got surplus, is the cash that is released to the school from day one annualized and rising through the course of that inflation. At the end of the seven years, the school can capture a 100% of those savings and indeed enter into a, secondary reduced, extended service and maintenance agreement with Elite that allows us to capture, additional revenues at that point, and, and and therefore protect the school from any perceived, maintenance or service risk. So in this particular example, this school will have saved, just over 430,000 of cash savings net of all fees over a ten year horizon and over and nearly one and a half million tons of carbon.

13:36 The contract economics, pretty straightforward. We recognize 85% of our total contract value. The 15% is essentially the finance cost. So we recognize revenues net of finance fees. And within that total revenue line, typically, 35 to 40% is gross profit. So we're averaging that at 35 and a half percent gross margin, and the goal is to get that to 40%. In terms of strategy about how we're growing the core business, we have sort of a number of levers we're pulling, which are pretty exciting. So in terms of our growth for sales, we have a very large mature pipeline.

14:22 Now that we have, successfully acquired, our only competitor, which I'll come to in a second, in the multi academy trust, sector of education, we have, the opportunity to start working with very large, education organizations that have a portfolio of schools underneath their trust mandate. So we're starting to see, in addition to the 20,000,000 pipeline of proposals for individual schools, which relates to something like a 120 proposals, we're starting to see some proposals have deal values of between 1 and 2,000,000. So we're seeing the targeted marketing around large trusts where we've now got the credentials having proven ourselves with a number of case studies is starting to show, you know, quite significant growth in our pipeline.

15:11 We talked a little bit about the Eli app which we've developed, which is an internal tool. We're actually looking to shrink-wrap this into a customer facing module that allows us to license this app, which is almost like a business in a box, to our subcontractors where they're able to go to small projects such as a primary school and on the back of a lead being qualified by ELITE, attend site, do an audit, and present a proposal live to that school there and then at site. So what that allows us to do is scale the smaller projects through third party partners and potentially see, you know, very, very scalable growth.

15:56 Now that particular opportunity and forecast has not been factored into any of our budgets, So we're going through a proof of concept phase at the moment, which seems to be working extremely well. And by the end of the year, we'll have more feedback to the market as to whether or not we believe this is something we can start forecasting. We're also in the process of launching e heat, which is a renewable heat solution to our customers. Simple terms, we're looking at how we can wrap up heating efficiency within a as a service solution the same way that the lighting lighting as a service works. We have landed on air source heat pumps as the most efficient and proven technology to drive down heating costs and principally hot water cost reduction.

16:47 And we are looking at a proof of concept for one of our major school customers, which is Marlborough College, which we're hoping to secure over the next term. If we're able to secure that contract, I think it I think it allows us to see a proof of concept sufficient that we can start rolling out the sales strategy without without really very much investment into that as a result of working with third party, you know, heating partners and using our own sales team as the commercial point of contact for our customers. So potentially, is a huge upside from our existing database of 400 schools clients across UK and Ireland to be able to leverage significant additional revenues over ten year contracts.

17:35 Moving on to our buy and build strategy, which is an incredibly important part of our growth strategy. As I've mentioned, it's a very highly it's a very fragmented, disenfranchised energy service sector. You've got lots of energy efficiency providers providing CapEx solution, which isn't particularly of interest to us because we believe that our hazard service model, is a huge differentiator in driving down cost of cost of consumption for our customers. And, ultimately, driving down consumption is the number one goal should be the number one goal of any building owner or operator. That said, energy services is generally something which energy management companies are looking to advise on. Energy management companies are principally energy brokers.

18:26 And as most of you probably be aware, the utilities companies in The UK sell their energy services through sell energy supply through energy brokers. We believe that the energy brokers market is misaligned with our with with the customers on the basis that they work to a supplier pays model. And the supplier pays model doesn't incentivize them to reduce down consumption because they're being paid on consumption by the utilities providers. We we believe that by acquiring a number of strategic energy management companies that have got strategically synergistic customer base opportunities for us as eLight and as eHeat, we're able to work with our customers, have an open transparent supply market through a technical interface that allows them to procure energy, green energy that is, and then work with the energy management companies to see a energy consumption reduction strategy that allows them to overall meet their carbon zero goals.

19:34 We've we've progressed a number of discussions with two or three very interesting energy management businesses. We're moving forward those discussions to the extent that the vendors of those businesses have bought into taking equity as a big a big percentage of any deal negotiations we're talking about. And we think that's going to be something we can progress this calendar year. So we're we're looking at businesses that got EBITDA ranges of between 1 and 2,000,000. We're looking at multiples between six and seven times, and we think the the synergies of cross selling into their customer base and moving into a end to end customer, if you like, life cycle of reducing spend is something that's very attractive and and and very commercially attractive to EENERGY.

20:29 Moving on. Just an update on our first acquisition, which is Renewable Solutions Lighting. The company we bought for a 100% paper in June of this year. We've had a successful three month integration period. The business has far exceeded our expectations, and have already delivered over 75% of their annual revenue target in the first quarter. So we think this business will be extremely accretive from an earnings perspective, and we've even been able to utilize their office in Berries and Edmonds as a e Elight Training Academy base for all of our contractor training going forward. So it's been a very successful acquisition, and the team has been fully integrated. So just to recap, we are as part of our M and A strategy, we're looking to progress through organic organic growth, the light as a service business.

21:26 We're looking to expand that into heat as a service. We're then looking at acquiring one or two very strategic energy management businesses that allows us to get access to, you know, thousands of customers whom we can upsell light as a service to and move the energy management model to a SaaS based, I guess, a SaaS based consumer customer offering through a great use of measurement and analytics from the data points we get from the meters within those energy management businesses to allow

22:00 us to provide a full end to end solution. In terms of the financials for the for the year 2020, we saw revenue up 14%, gross margin increased to 35 and a half percent, and and, generally, we've seen a strong performance for the year given the the onset of COVID in April earlier this year. So we we see the we see the prospects of the business very strong. As I've mentioned, we've we've completed 65 projects in the first quarter, up from a 120 in the full year of 2020. So we can see that there's significant tipping point in the business.

22:45 And I think all of the drivers that are essentially at play in our market, whether that's regulatory, whether that's government initiatives, whether that's pressure to go to a to a green and more sustainable future, we're all helping E Light get increased momentum.

23:05 And then I think in terms of just finalizing our outlook, whilst we are cautiously optimistic of the, you know, the outcome of the education sector in the sense that it's not impacted in the same way that perhaps commercial businesses are being impacted. We are obviously keeping a close eye on what any future lockdown might hold for us. Our personal view as a business is that schools will be the last, I guess, point of lockdown. But that said, we have experienced now that when schools do go into lockdown, they tend to want to be able to utilize that time of low occupancy as a as an opportunity to start, you know, delivering either energy efficiency or operating efficiency strategies for that particular school.

24:02 So I think that probably summarizes the presentation. I'm happy to answer any questions. Harvey, thank you very much for that presentation there. Ladies and gentlemen, do continue to submit your questions using the Q and A tab situated on the right hand corner of your screen. Simply type your question and press send.

24:21 But just while the company take a few moments to review the questions that we've had in today, I'd like to remind you the recording of this presentation, along with a copy of the slides and the published Q and A, can be accessed via our investor dashboard in the Investor Meet company platform. Lastly, before I do hand back to Harvey, I'd like to remind you that your feedback is important to the company. Immediately after the presentation has ended, you will be redirected for the opportunity to provide feedback in order for the company to better understand your views and expectations. Harvey, perhaps if I can just address a couple of questions that we've had through to you, if that's okay?

24:55 Sure. The first one we have had in really is looking at with the the question says, with the shift to working from home, what impact is this having on you? So I guess, as a result of being very focused on the education sector, it's had very little impact. You know, schools operate in a different way, and therefore, the work from home culture for our customers hasn't hasn't impacted schools. Working from home as a business, fortunately, we've been set up as a virtual business since really 2018. We're very client focused, so our our key project focus project focus staff work remotely, and we've been able to use technology to bring together information sharing and and management leadership quite effectively.

25:50 So I would say the shift from working to home has not impacted our business, and it's in fact it's it's probably helped us work more efficiently. Fantastic. Thank you very much. And you have probably covered most of this off, but another question we've got here. What areas you're looking to make acquisitions in? Are you looking to grow predominantly from M and A or organically? And I do appreciate you covered quite a bit of that on your strategy, but if there's anything else to add at all. Look, in summary, we see, like, doubling in size over the next three years from being a sort of a circa 12 to 14 current annualized turnover business to circa 30 in the next three years as as an organic growth strategy. When I look outside of that, what we're looking to do is we're looking to acquire somewhere between 3 and 4,000,000 of earnings in the next twelve months, through the energy management strategy that will give us access to hundreds of customers that are directly related to the if you're a E Light proposition.

26:49 And through the launch of EHEAP, we'll supplement share of wallet through additional energy services. And then probably the last remaining two areas are looking to acquire a business in the metering, sub metering, and energy consumption analytics piece so we can plug that into our tech platform, which will effectively be the, you know, the second generation of what an energy management company does for our customers. So we can we can really provide screen based analytics and behavioral consumption changes that they need. And then finally, probably through m and a, looking at the generation space, starting to look at how solar and PV so the PV and batteries can impact our customers both from a sort of carbon and financial perspective.

27:36 That's great. Thank you. Another one we've got here, which is what is your cash flow cycle? And I appreciate you sort of touched on this a little bit as well, but, just if there's any other further clarity you can give to investors, that'd be great. Sure. So, we're very cash flow positive on our projects. So we take sixty to ninety day terms on all of our supply chain, which means that, we have no cash outgoings from the moment we sign a contract to the moment we complete a project. Our financial arrangements mean that our funders, who we've got master sale agreements, pay us the gross revenue within one to two weeks of completing the installation from which we then pay our supply chain, which means that we are no more than a few weeks different between cash flow and p and l.

28:28 Fantastic. Thank you very much indeed. If you could just have a little look at the Q and A panel there, Harvey. We've had a number of questions also come through. You could perhaps just have a little scan down there and if you could out who it's from and the question, please, so investors can can hear the question and your answers where appropriate, that'd be great. Okay. So a question here, see that we typically sell to an organization.

28:52 We always have two points of contact, whether that's commercial or whether that's in the education space, That's facilities. So the facilities manager is usually the sponsor of any project, but, ultimately, the decision maker is either the financial director or the bursar. In terms of our, I guess, our gross margin, we do think there's an opportunity to further increase our gross margin, and we think that we may be in the early forties, mid 40% in the next couple of years. So definitely increasing as we get further economies of scale within our supply chain, but we think that's a healthy margin. And we don't want to, if you like, take value from the customer's proposal in a in a material way.

29:38 Another question here. Hospitals and other areas in public sector are definitely on our radar. I think the transition in education is probably to start working with colleges and universities, and we started to build a a small pipeline in those areas. And that's, very interesting because the project size is large. Health care, absolutely. We think that, you know, private and public sector, if you like medical facilities, whether that's in customer customer patient care or whether it's in the pharmaceutical services space, both are seeing, you know, obviously, a lot of increased operating hours, and therefore, energy prices are increasing.

30:24 And so we're gonna start looking at framework agreements and, procurement tenders on how we might be able to get into some of these big bigger projects. Another question. If the opportunity for lighter services is so great, why diversify into other segments? So, you know, there's a couple of reasons. So lighter service is a project based business. We like the sort of recurring revenue streams. We think it's a good counterbalance to a high margin cash flow projects business, which we're starting to to become vertically integrated in where we're adding tech to our life as a service model to give us a unique differentiation. The heating as a service model will be based on a pure, you know, receivable line where we we retain the monthlies after the capital's being repaid. So we'll start to see moving into energy as a service contracts whereby we're taking monthly recurring revenue streams over a period of 10, possibly longer periods.

31:25 So then we'll have the balance of long term recurring revenue streams and project rich gross margin for your large multi site customers. Question here on in terms of the 15,000,000 backed by Susie, looking at current projections, how long will the 15,000,000 last? So the great thing about Susie is that they're Europe's largest energy efficiency fund. We've built a really good relationship with them. The 15,000,000 facility is a is a starting point. Susie expressed an interest to expand on that. And indeed, if we are able to deploy that 15,000,000 before the current three year projection, then there is appetite to provide a follow on fund. And they were in discussions with Susie about a UK specific education fund of 50 plus million. So we're obviously talking to a number of providers, but the the relationship with Susie is great, and we think they've got a lot of experience with light as a service across Europe.

32:33 That's what I had. Clearly, lots of opportunities available to energy right now, opportunities expanding to Europe. That's a really good question. So one of the things we've identified is how we might be able to, I guess, expand our offering across different territories. We're starting to see a lot of interest from companies that have done very well in the light or heating as a service space that would likely be part of a this vehicle. We don't think it's something that we're going to be focused on for the next twelve months, but it's something we would consider in the midterm. There's a question here on competitors. So we look. We're very fortunate having acquired RSL.

33:20 We have no direct meaningful competitor in the education space. In the corporate infrastructure commercial sector, there are a couple of reasonably large players that do energy efficiency as a service, of which lighting is one of their services. We don't see there as we don't see there as being one significant dominant player in providing lighting as a service, which we think is interesting because it allows us to have a clear proposition to the market. Our commercial strategy right now is very much to to focus on large strategic multi site customers. So we, at the moment, have a number of extremely valuable, you know, tender opportunities.

34:05 We've got a large pharmacy chain that we're working with, a thousand plus site rollout. We we we are looking to try and secure a relationship with that particular opportunity. We've gone down from over 10 tender competitors to the last two for a health care, health foods business with 600 sites. And we have a large opportunity with a financial institution with over 2,000 properties, which is also extremely advanced. And we think one of those three will make a decision before the end of this calendar year. So the challenge with these large multi site customers is it's very binary. If you win, you win a very big we're talking sort of 5 to £10,000,000 contract.

34:53 But obviously, if you don't win, you know, you're at zero. So we don't forecast these multi site commercial rollout customers at this stage because we think there's too much risk involved in getting that forecasting wrong. But, obviously, there'll be there'll be a key announcement event if we if we should secure one of those three contracts. Harvey, I think you've actually pretty much addressed all the questions from investors that you've come through there. So thank you very much for that. Just to remind investors that the company will review questions submitted. So if there are any more that come through, they will be reviewed by the companies and published on the investor me company platform.

35:44 Just like to say to everyone, well, thank you very much for coming along today. Thank you, Harvey, for presenting and updating investors. Could I invite ask investors not to close the sessions? You will now automatically be redirected for the opportunity to provide your feedback. If you've accessed this meeting from our website, the feedback page will appear in front of you just a couple of seconds after the end of the webinar. If you have access from the link in the email, you'll be asked to log in. Just takes a couple of seconds, and your feedback will be very much appreciated indeed. So on behalf of EENERGY, thank you very much indeed for attending today's session. That concludes today's presentation. So thank you very much indeed and thank you very much, Harvey. Thank you.