Eenergy Group (LSE:EAAS) — Interim Results

0:01 Good morning, ladies and gentlemen. Welcome to the EENERGY GROUP PLC interim results investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time via the q and a tab that's just situated on the right hand corner of your screen. Please just simply type in your questions and press send. 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 and needs to be available via your investor meet company dashboard.

0:33 Before we begin, I would like to submit the following poll, and I would now like to hand you over to the executive management team from EENERGY GROUP PLC, Harvey Crispin. Good morning. Good morning. Thank you. So I'm pleased to report another good set of strong results, which demonstrates really good continued organic growth across the business. And this has been following a period of successful integration and new product launches. Revenue is up 50% to 33,200,000. Adjusted EBITDA is up 55% to 4.7, and we've achieved a PBT of 1.1 from a previous loss of 2,200,000. Encouraging, there is now 90% visibility of revenues for the full period to f y twenty three to December, and we've got the foundations in place to deliver full year trading expectations.

1:24 We've got a really large qualified pipeline that's come as a result of really strong sales activity over the last twelve months. We've now got these high levels of contracted revenues locked in, which you've not seen before. We've got really increasing engagement across our existing customers who are now looking to, consume different services, that we've launched across multiple parts of the business. And I'm pleased to say that we're now profitable, and our operating cash flows are improving. That said, we are very focused on net cash generation. And whilst we're not quite where we want to be, we've seen real improvement in the EBITDA to cash ratios, and we've got a very clear plan and trajectory to meet these targets over the coming months. And that's something that Chris is gonna talk a little bit more detail about later.

2:11 As we think about our growth, in particular, around solar with increasingly large project wins on the horizon as demonstrated by our recent wins this week, the board are considering and reviewing a number of strategic options to strengthen our balance sheet to enable this growth to continue. Just to recap on our customer proposition revenue model, which I've discussed before, We have two divisions. We have energy management, and we have energy services. The energy management division is very much a supply side procurement platform where we are increasingly starting to deliver net zero consulting solutions to our customers, and we're able to give them access to the lowest cost clean energy through that platform.

2:58 It's very much a platform play. We've got differentiated technology in this space in a competitive market where we stand out very clearly from our peers. This is a business where we've got strong visibility on our revenues, and we've got very strong and high gross margins at 78%. We've got 400 customers in this division, and we're exceeding 85% renewal rate. So we spent a lot of time over the last twelve months post integration centering around our customers, centering around the launch of a an an an upgraded unified platform where we have a one ecosystem where all of our customers are able to manage their entire energy portfolios and where we're giving them full transparency on the nature of their contracts, the nature of their pricing, and the way in which they're able to manage access to power and gas over their over their three year horizons.

3:57 So strong sticky customer base and where we have increasing renewal rates. So we're increasing our renewal rates over the period from where we were this time last year, and we're starting to see more and more product innovation coming through this platform. The growth in this area is going to come from the the consulting division within energy management, which provides advisory consulting services around energy compliance and reporting, but also net zero strategies. And it's very much tip of the spear around organizations right now thinking about energy wastage, thinking about compliance around reporting. So a really clear plan with this within this division and some exciting new hires the business. We've hired the ex head of Schneider who now runs all commercial activity in our international division, he's got a proven track record of building out consulting revenues for businesses in the sector.

4:59 Our measure division actually sits across both both companies. It's more closely aligned with energy management now as we start to launch and sell a product, which is a subscription product, allowing our customers for zero cost to be able to access data within their buildings to give them a really granular visible view of where they're consuming and therefore wasting energy across their portfolios. Really differentiated. It's one of only a few platforms in The UK. It's very much part of that platform play within the NG Access division. And I think this is going to be a real strong growth line for the business because in the education sector and multi site retail, hospitality, and property subsectors, there is a real need and a real gap for customers to be able to tackle a zero cost solutions once they've got visible energy data.

5:56 Strong gross margins targeting 50%, revenues recognized on installation. We've got full support from a panel of funding partners that have underwritten the technology. So we're able now to fund off balance sheet solutions, whereas a year ago, we were, trialing this product, and we were holding these meters on our own balance sheet. It was a cash drain, over the last year. We're now able to have a cash positive product as we've been underwritten by a panel of high quality funding partners. So really very exciting part of of our strategy going forward. We then have our reduced section, which is all around how do we help customers reduce their energy consumption. This was the core business that was launched back in 2013.

6:43 We've done over 1,500 projects now across lighting controls. 80% of that sits within the education sector. Strong growth, consistently high margins of 35 to 40% despite inflationary price pressures we've been able to maintain in instances, increase that margin. Increasing demand, no loss of appetite across any of our public sector divisions that need our service. And increasingly, we're half starting to see much larger project wins where one customer now has ten, fifteen, or 20 projects, whereas two years ago, that was very much a one project, one customer business. So starting to see scale. The the division has doubled in size in the last twelve months. We expect to see significant growth coming through again.

7:32 We're going deeper into education, local authorities, further education, higher education, deep penetration of the multi cabin trust sector, starting to penetrate into universities, and also starting to reach out into private health care with some big wins in that sector this year and also starting, albeit small, within the, you know, the public sector NHS trusts. Finally, the connect, which is a new organically launched division a year ago, both solar on-site PV solutions. So solar as a service, whether that's funded through third party operating leases or power purchase agreements. We now have a suite of products that that allow our customers to fund these projects off balance sheet, and some customers do choose to pay through their own capital solutions. So solar being the big part of this little emerging product range, but with EV being foot in the foot in the ground when we're starting to talk to customers about their connectivity for the transition to EV.

8:38 And we've got, you know, slightly more modest margins because of the nature of service solutions, but we're confident these 25 to 30% gross margins can be met.

8:49 And as evidenced by some recent big contract wins, A lot of these projects have high values, and we're we're quite excited about the growth prospects over the next twelve months. Continued strong growth drivers across the market. And despite exceptionally high energy prices this time last year coming off to to recent levels, those those recent levels are still consistently higher than the trend over the last decade. So what's happened in in the majority of our organizations that we talk to is a mindset change where there is no longer, you know, a behind the scenes strategy on decarbonization.

9:34 It's very much on the the main board agenda for every organization we speak to, whether that's a midsize customer who has a £250,000 spend or a large customer that has, you know, ten to a hundred million pound spend on energy in the year. We're seeing that compliance regulation is biting much harder. The need for decarbonization has been triggered through financial pains a year ago and is very much part of their budgeting cycle now to think about how how deliver both decarbonization, but also how can cash flow be released from energy projects without deploying capital. And that's very much where our innovative as a service solution hits home very hard because most most of of the customers we talk to, whether they're private or public sector, are balance sheet constrained, do have other budgetary pressures.

10:27 And even if they do have capital available for projects, would much rather focus on revenue generating or essential infrastructure upgrades than, if you like, additional energy efficiency or energy renewable solutions, which is why funded solutions off balance sheet so attractive. And this enables them to accelerate and release cash flow at the same time. So always thinking about how do we make going green profitable for a customer rather than just meeting their obligations to decarbonize. I think a very big part of the EENERGY story is around an integrated proposition. So in energy services, it's about having one trusted partner that can take them on a, you know, identification of energy wastage, reduction in demand, and now starting to get them off grid thinking about how they can save 30% on self funded PV solutions and starting their journey onto the the EV trajectory.

11:27 Technology is a really big part of our strategy. It always has been. We see ourselves as highly differentiated across all parts of our business now, whether that's from the unified platform in the energy management division or the differentiated smart sub metering platform we have and the data insights software that is highly differentiated or whether it's through the internal tools that we're developing in energy services. A number number of of years years ago, ago, we we we invested a lot of money into building tools that would enable us to get data from sites quickly and accurately to provide automated solutions via a digital platform that can be trusted by our customers faster than our competitors. And that's very much one of our, you know, key strengths when we're seeing multisite customers. It's the ability to get an accurate data and where the energy saving opportunities are and automated solutions that are driven by the app that avoids a lot of manual and costly processes.

12:27 So that does help us achieve scale. It's been one of the it's one of the levers that I think will will drive cash generation into our business as we become leaner in in our our operating model in energy services, which as you'll see through today's presentation is very much now our key focus. We think of ourselves as, you know, trying to get a big share of our wallet from a big share of the wallet from our customers by diversifying revenue streams across those portfolio customers, and that's really starting to come through now as we start seeing customers wanting to move to on-site generation from perhaps a lighting or energy reduction plan. Those thousand plus customers that we've won over the last five years are highly engaged in contract, now talking to us about solar and EV.

13:14 And that's in addition to the the continued and growing new business pipeline, which we have a very steady model for. I'll hand over to Chris then to talk through the financial highlights, and then we'll we'll talk through some of the outlook opportunities shortly. Thanks, Harvey. I'm pleased to report another period of significant growth across the group. Revenue of 33,200,000 was up 50% on the twelve month period to June 2022, and that drove adjusted EBITDA growth of 55% to 4,700,000. Our exceptional cost was significantly down on the comparable period, which included the costs related to the acquisition and integration of the utility team. And that enabled us to report profit before tax of 1,100,000, which was a marked turnaround on the 2,200,000 loss before tax for f y twenty two.

14:08 I'm pleased with the continued significant momentum in energy services in particular with 26,400,000 of TCV signed in the period, which was up 76% from the 15,000,000 in f y twenty two at a high level of repeat business within that. There's strong momentum in eSolar, as Harvey's talked about, in particular, with 29 megawatts under signed contracts or signed heads of terms at the 06/30/2023. That pipeline has built up over several months. Solar has long lead times, and this pipeline is now mature, converting into revenue in the current period and also giving us visibility on revenues into FY '24. We expect solar to be a key driver of growth for the business going forward.

15:01 We've got a demonstrable track record of revenue and earnings growth since coming to market, including through an intensive integration period. We're continuing to deliver strong organic growth across both parts of the business, and we've got clear momentum for the rest of f y twenty three and beyond.

15:26 Strong execution across both parts of the business delivered 50% revenue growth. I'm pleased with the 5% organic growth posted by Energy Management off the back of a period of intensive focus on integration and challenging market conditions with unprecedented volatility in energy prices. We've invested in the service delivery platform to ensure a best in class customer experience through the life of the relationship, and that should maintain and enhance our high retention rates under future revenues. We've seen particularly high growth of 87% in energy services, reflecting execution of cross sell strategy, continued favorable market conditions, which support the dynamics. And we've got sustained momentum in new business wins, giving a strong foundation for continued growth.

16:21 The strong revenue growth and the benefits of operational gearing drove 55% adjusted EBITDA growth with an EBITDA margin up 40 basis points from the prior year. We've maintained product gross margins despite inflationary pressures and reinvested those profits into sales, market, and delivery to drive long term growth. We continue to see the benefits of that investment. We have seen a significant increase in working capital. That reflects a stronger balance sheet, but it led to a funding requirement for the business in the period in November last year.

17:02 The growth in working capital was primarily driven by a 6,200,000 increase in accrued revenue, which represents contracted future cash receipts for the business. That partly reflects the organic growth in both energy services and energy management and has been accentuated by longer lead times on solar projects and the interest we retain in completed funded projects, which deliver a recurring contracted cash flow to the business over the contract life. The 1,800,000 pay down of legacy liabilities represents a major step forward for the business and the strengthening of the balance sheet. We did a good job negotiating the contingent consideration relating to the utility team acquisition. We managed to agree the final settlement well below the amount provided in the balance sheet, which enabled the release that you see here.

17:55 And the payment we did make was largely settled for noncash. 1,100,000 increase in other net working capital largely relates to noncash remapping of balance sheet line items as part of our new ERP implementation. Whilst the position stabilized during the period, improved working capital management and cash generation is the key management focus. This is stabilizing net debt after significant cash burn in previous periods. This is notable looking at the second half of the period, which delivered a cash inflow from operating activities of naught 700,000 compared to a 2,000,000 outflow for the first half.

18:41 This reduced the net debt increase in that second half period to naught 400,000 after paying naught 900,000 to clear the historical HMRC overdue ban at amounts. That increase in net debt was down from circa 3,000,000 plus increases in each of the previous six month periods. However, cash generation remains below target levels, and as I've said, is a key focus for management. On that, we've made good progress already on energy management. We've improved contract terms negotiated with energy suppliers, and we're growing we've got a growing contracted cash flows from customer contracts signed in previous periods.

19:25 That's put the business on an improving trajectory with cash conversion increasing from 34% for the twelve month period to 03/23/2023 to 63% for the twelve months to June. And we have a clear path for further improvement, a targeted 75% operating cash conversion in FY '24. We're now targeting migrating energy services from 50% operating cash conversion to a targeted 75% for FY '23. Off balance sheet funding solutions support that. We now have funding in place funding solutions in place for all of our product set and new facilities to fund myZero and solar now drawing down.

20:10 At the same time, we're focusing on improving operating margins in that part of the business, which will further improve cash conversion. We have commenced the process to refinance the group's corporate debt facilities ahead of the scheduled repayment dates in early twenty twenty four. We're engaging with interested parties and have initial support.

20:38 At least today, we have visibility on 90% of full year or full period revenue expectation. Robust near term pipeline to support the remaining. We have a excuse me. We have a robust near term pipeline to support the remaining new business wins, and the key focus for management is to deliver on that growth in a way which is more cash generative. I'll now hand back to Harvey for the summary. Thank you. So we're in a very exciting market, and I think what we see now is that the brand that EENERGY has created is really well positioned in this fast growing market. We've We've got got a a market leading position in education, and we're starting to leverage that with multiple services to existing and new customers. And we're able to now leverage that into other public sectors, which I think will deliver huge growth and value to shareholders.

21:32 It's great to see that we're now profitable, and we're starting to see those underlying operating cash coming coming through. Margins are maintained. I think we have a stronger than ever focus on cash. We're now managing the business on cash on cash priorities because we want to be able to show investors that we we can be cash generative consistently. And I think that's something that we are prioritizing over everything going forward. Our outlook is strong. That pipeline that we've built given our sales cycle is sometimes between six and twelve months is really, really, really getting momentum. And I think that over the next twelve months, we'll see the last twelve months worth of work and momentum coming through to to revenue.

22:25 The products continue to evolve. We have a fantastic tech team, which is developing innovation across both the smart metering platform and also our digital services outlook for energy management. And I think that solar is probably going to be the the fastest growth part of the energy service division as customers now realize the value proposition that they can get from from solar, whether that's through CapEx or through self funded solutions.

22:55 So the outlook I feel is looking strong for the energy, and I think we've got a good team to deliver on that strategy. Harvey, Chris, if I may just jump back in there. Thank you very much indeed for your presentation this morning. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab that's situated on the top right hand corner of your screen. But just while the team take a few moments to review those questions that were submitted already, I would like to remind you that a recording of this presentation along with a copy of the slides and the published q and a can be accessed via your investor dashboard. Harvey Crispin, as you can see, we have received a number of questions throughout your presentation this morning. Thank you to all of those on the call for taking the time to submit their questions. But, Katie, if I may just hand back to you just to share the q and a session with the team, and then I'll pick up from you at the end. Thank you.

23:47 Great. Thank you very much, Jake. First question is that an investor has said they know the share the company is in the the growth phrase. But what's the possible consideration of a dividend for shareholders in the future?

24:06 Shall I ask that first one? Yeah. Go ahead. So at the moment, our number one focus is to strengthen our balance sheet. I think once we've done that and we're starting to get more certainty about the building of our cash flows and the ability for us to scale in growth, that's that's, of course, something we can consider in the future. But for for now, over the next twelve months, I think it's all about building up a much more robust balance sheet for the business. Great. Thanks, Harvey. There's a couple questions on the payback on the loan. Are you on track, an interest next year? And then, additionally, are you looking at any further financing required or any, come back for additional cash?

24:55 So, obviously, I talked to the the refinancing point in the slides. We're we're engaged with a a number of interested parties, we're we're working to complete that refinancing ahead of the scheduled repayment dates in in in early in early twenty twenty four. Thanks, Crispin. Yep. There's a question around the share price and the valuation. And although you can't comment directly, do you have any thoughts about the valuation of the company being low in comparison to the peers? Yeah. It's always a difficult subject to to address. I think what I would urge investors to do is to look at our peer group.

25:41 There are plenty of benchmarks where I think we we we should be fairly compared to. And I think, clearly, we have an aspiration to be seeing our valuation reflected on the same basis that some of our peers have been valued at. So, yeah, there there's lots of comparables out there, and I think there are some good benchmarks from which we can aspire to be compared against. Next question is just about energy storage, and and you've spoken about it in the past through heating water, but someone's just questioning about batteries and future energy storage. Yeah. Look. There's there there's strong interest from my team to explore new products and services.

26:32 Batteries probably in the top two or three things we're looking at in the way that we can link it to on-site generation. We're also starting to think about corporate power purchase agreements and how we might build products across energy management that could offer customers across our portfolio the ability to trade their surplus energy through to other sort of off-site customers. So whether that's big land agents, whether that's big property management businesses, or whether it's large industrial portfolios or or waste recycling companies that have got big big sites to generate power. Often, batteries is a big part of that. I think what I would say, we've we've done a lot in the last two years.

27:19 We've moved from an m and a strategy to an organically an organic focused strategy. We've launched two new products. I think we've got to bed those down first. We've got to deliver profitability and, more importantly, cash generation from those. And then we'll be we'll be absolutely well positioned to then explore beyond FY 24 other services to our customers around battery storage, which I think can be financed in the same way that our other products are delivered. And then hopefully, also, by then, you'll see some economies of scale around paybacks and around financial modeling that isn't quite bankable at the moment. So I think a lot of financing partners can't quite see the reliability of battery projections that they can with other energy products.

28:09 Thank you. There's a question about half year forecast, but I know we only provide twelve month forecasts. So I think we can continue to the next question. Net debt growth is down, but it's still positive. When do you expect net debt to decrease? So we're forecasting to be cash generative in the current period. And then from from f y twenty four, we're expecting a sort of normalized level of of cash conversion of profits. Thanks. Someone's just asking for a little bit of information about some of your main competitors, a few of their names, what do you feel your competitive advantages over over them?

29:03 Sure. So we have we have a wide ecosystem of competition in both parts of our business. So it's more difficult connect to a competitor that does exactly what we do as a group offering. But I think if we look to energy management, you would you would look at their competitive landscape in two areas. You would look at the supply side procurement businesses such as Inspired as being direct competitor on that supply side business. And then you would look at companies like Schneider, Accenture, as being direct competitors in the consulting net zero sustainability advisory space. We're trying to build out products and services that differentiate us in the consulting space, and we're using technology and our product innovation to differentiate ourselves into the procurement space. So our e auction platform, for example, delivers a three to 5% price improvement on, you know, open transparent pricing for market around gas and power when compared to traditional bro broking and procurement methods. So for that for that reason, we're very differentiated in supply side. On the energy services marketplace, you know, you've got a number of different types of competitors. You've got the delivery partners that focus on delivering projects.

30:29 You've got project you've got project funding and project finance modeling businesses that compete with the funding of different projects for different parts of the service sectors such as lighting, HVAC, solar, and EV. We're different because we both develop model finance and maintain solutions for customers as a one stop shop. We have a competitor or rather peer group comparable in America called Redaptive who we we follow quite closely. Redaptive are not in Europe and The UK. Like, we are they're a very comparable business. You know, on the smart metering side, you've got one or two platforms. You've got Panpower, who is Panorama Power, which was bought by Centrica a few years ago, which does exactly what my Xero does. So this is just an example of a few competitors in the space that investors might want to look at look and refer against.

31:28 Great. Thank you very much, Harvey, for that. I think the final question then is just someone commented about the need to explore strategic options to fund the growth in the solar pipeline when you've got a few funders already. And they're just wondering if you can discuss any more about these options that you're looking at. Yeah. Look. At a at a very high level, one of the challenges of of our growth is the move into much larger projects, you know, as evidenced by some of the the recent clients. You're starting to see deal values of several million pounds starting to come through. They're they're a very exciting opportunity. But but but as we start seeing contracts that are $5.06, £7,000,000 in value, there's a there's a consequence of that of those client wins around, you know, cash drain in the early part of that project cycle to cash generation.

32:24 And that cash generation cycle can be three, four, five months. It's it's pretty clear for investors to see we've had a constrained balance sheet for some time, we're working very hard organically and internally to improve that. So we've been discussing with strategic partners, investors around appetite to support this growth, thinking about strategic, if you like, strategic ideas around how we might improve our balance sheet. So we're looking at a number of different options. And so we don't want to rule out any of those options at the moment. But whatever we do explore, it's got to be value creation for shareholders. We're we're very mindful around ensuring that we deliver a return and that we deliver shareholder value. So we're just exploring options so that we can maintain our growth without stretching our existing balance sheet.

33:22 You. Katie, Harvey, Chris, if I may just jump back in there. Thank you very much indeed for addressing all of those questions that came in from investors this morning. And of course, as usual, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended just for you to review to then add any additional responses, of course, where it's appropriate to do so, and we'll publish all those responses out on the Investor Meet company platform. But, Harvey, perhaps before really just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company. If I could please just ask you for a few closing comments just to wrap up with, that'd be great. Yeah. I think three points I'd just like to start with. One, we're in a fantastic sector with huge growth prospects.

34:08 We built a great brand. We've got a lot of traction within many of our market sectors. We're well positioned to extract value from those sectors and deliver shareholder value from the work we've invested in to date. We're cash focused very much cash focused around delivering increased operating cash flows. We've come through a period of a huge integration disruption, which is now cleared and behind us. We've developed a number of exciting products, which we now want to monetize, and we're confident that we've got a team that can deliver those. So, hopefully, that's that's going to give great value to shareholders. Harvey, that's great. Thank you once again for updating investors this morning. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order the management team can better understand your views and expectations.

35:01 This may take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of EENERGY GROUP PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good morning to you all.