Eenergy Group (LSE:EAAS) — Interim Results

0:02 Morning, ladies and gentlemen, and welcome to the EENERGY GROUP PLC Interim Results Investor Presentation. Company may not be in a position to answer every question received during the meeting itself. Have the company review all questions submitted today, and we'll publish responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll, and you're we'd be appreciative of your participation. And I'd now like to hand over to

0:33 CEO, Harvey Sinclair. Good morning. Good morning. So I'm very pleased with the progress the business has made since our last update. We've clearly been through a period of both stabilization post integration, in particular for the energy management division, but also a period of very strong growth for the Energy Services division. Despite the focus on integration and delivering operating model efficiencies, we've seen really strong growth both revenue, which is up 58, and importantly, EBITDA, which is up 85% year on year. Underlying non acquisition related organic growth has also been very steady with Energy Management at 8% year on year, and this division is now well poised to expand into new and exciting areas within the sustainability service arena.

1:25 In tandem, we've been extremely pleased with the strong revenue growth within energy services, which has grown 80% year on year as the business starts to scale multiple revenue streams across new services to new and existing customers. Post period, our momentum in sales for q three is driving revenue into q four, and we've already got 93% visibility on our full year revenue expectation. We've worked really hard this year to stabilize our net debt position, and I'm confident the business is going to deliver healthy cash generation as we move into Q4. We had £1,100,000 of cash as of last Friday, noting £500,000 of that was in relation to a strategic partnership, which is due to close in the next few weeks.

2:17 In terms of our customer proposition, this slide really explains both how we offer our customers our various services, but also links back to our respective revenue models. We provide our customers with four very, very clear services, and effectively, they form part of a journey to net zero. And these are executed either by energy management or through energy services. On the left hand side, you can see our access pillar, which is essentially the provision of lowest cost clean energy to our customers either in the public sector or in the corporate C and I space. Our revenues are generated largely as a result of commissions paid through energy suppliers. We take a very conservative revenue recognition policy here where we recognize 80% over the life of the contract.

3:09 We've got a very robust customer base here where we are renewing on average 85% of our customers who generally sign three year contracts. We have healthy gross margin of 77%, and this platform here provides access to a number of customers from which we can sell energy services. Across energy services, we have three pillars. The first is around tackling energy wastage for our customers. As we talked about in the past, a third of all energy consumed by buildings is wasted, and we believe it is almost impossible to get to net zero unless you have a really clear visible access to your circuit level data. We have our energy efficiency division, which was our core business.

3:54 This is helping customers reduce their demand for energy across their portfolios, and we've successfully launched our PV and EV charging business under the Connect division. These three pillars all largely work off the same revenue model, which is where we utilize the financing of our energy solutions via third parties off balance sheet to EENERGY and where we take a effective margin on installation of those solutions through the sale of receivables back to our funders. The margins across these divisions are as follows, 50% in the smart metering business, between 3436% in the energy efficiency division, 30% in our EV charging business, and between 2530% for our solar business.

4:48 So hopefully, that is clear on how we monetize our various services. We've got a number of growth drivers in our business. Clearly, we're in a very strong market where there are tailwinds helping drive momentum for all customers on the journey to net zero. Clearly, is a high energy price environment. We believe that's going to be sustained into the future. Our integrated net zero proposition helps our customers deal with one partner strategically. We think that is extremely valuable. A lot of our competitors are single product service providers. Our multi service offering, I think, resonates very strongly with our customers, and particularly in the public sector where frameworks are used, to acquire, services to customers.

5:42 Our innovative as a service solution is incredibly powerful in a capital constrained environment. And in particular for the public sector where, capital is in particular scarcity, I think our as a service solution is really resonating very well. Within energy management, clearly, we've got a very sticky customer base, and these customers are leaning towards EENERGY now as their energy consultancy to drive pathways to net zero. Now our key differentiation as a business has always been around our two platforms, and we think these really differentiate ourselves in the market. Our proprietary reverse auction platform in the energy management sector really does push us put us in a separate sector to everybody else. And I think the way in which we're developing that platform is starting to give a digitized feeling to our customers in managing their energy data.

6:35 Our smart metering platform is developed in house, and we have both hard hardware and software that we're able to monetize across both divisions. I think one of the things that we're starting to see as we progress into the second half is our pivot to much larger customers, and we're starting to see, you know, large multisite customers both in education and health care, engage with us, which gives us a level of greater predictability. So I'm pleased to report another strong period of significant growth across the business. Revenue of $15,100,000 was up 58% year on year, driving adjusted EBITDA growth of 87% to 1,500,000.

7:25 In a period without any m and a, we've been able to show a much cleaner p and l with exceptionals of only $2.50 k, down from 1,200,000 in the prior year. That's enabled us to report profit before tax of 400,000, which is a marked turnaround on the 1,000,000 loss before tax last time. I'm pleased with the significant momentum in Energy Services in particular. During the period, 10,600,000 of TCV was signed, including a high level of repeat business, and we're showing strong initial momentum in both e solar and e charge, which we expect to be key drivers of growth going forward.

8:10 We show on this slide a demonstrable track record of revenue and earnings growth since coming to market in 2020. And that includes through an intensive integration period. We're continuing to deliver strong organic growth in both parts of the business with clear momentum for H2 and beyond.

8:33 That 5058% revenue growth reflects strong execution across both parts of the business. I'm pleased with the 8% organic growth posted by Energy Management off the period of off the back of a period of intensive focus on integration and challenging market conditions with unprecedented volatility in energy prices. This has been underpinned by low customer churn and our strong customer proposition. We've seen particularly high growth in energy services, reflection reflecting the execution of the cross sell strategy and favorable market conditions which support our compelling customer economics. We've got good momentum in new business wins sustained over the last twelve months, and that will continue to show through into revenues for f for for H two and beyond.

9:28 The strong revenue growth feeds through into benefits of operational gearing, driving an increase in adjusted EBITDA by 87% and an increase in the adjusted EBITDA margin of 140 basis points compared to the prior year. We've maintained our product gross margins despite inflationary pressures and reinvested those profits into sales, marketing and delivery to drive long term growth, and we're already seeing the benefits of that investment.

9:59 Turning to working capital. After a significant cash burn in previous periods, the transition to new payment cycles is now embedded, and management actions have stabilized working capital going forward. The significant increase in net debt and working capital was driven by a GBP 3,300,000 increase in accrued revenue. That largely relates to the move to batch funding and energy services. I'm also pleased that we've significantly reduced our legacy liabilities to HMRC, which we expect to clear on schedule in q four. We did a good job negotiating contingent consideration in relating to the utility team acquisition. We managed to agree a final settlement well below the amount provided in the year end balance sheet, and the payment we did make was largely settled for noncash.

10:50 Our working capital is now stabilized, and the actions taken will further strengthen cash flows into H2. I think the progress made on working capital is demonstrated on this slide, which shows a modest increase in net debt during Q3 to the March 24 and represents a strong step forward compared to cash burn levels in previous periods. So how have we achieved this? We've secured improved supplier terms in energy management, reversing trends from previous periods. We've secured off balance sheet funding for the first phase of my zero meters. That cash had previously been funded through working capital. The fundamental value of our proposition has reflected increased demand for CapEx projects in energy services, which has a significantly beneficial cash flow profile to us compared to the funded product.

11:46 We've also diversified our supply chains. We're now sourcing from three major lighting suppliers who are able to play off with each other to get the best terms on pricing and credit. As a result of these actions, we're expecting to be cash positive for H2 as a whole, and we're targeting normalized cash conversion of EBITDA to cash towards the tail end of the year once we have completed the scheduled pay down of legacy liabilities. We're addressing the structure of the group's capital base and borrowing facilities under the guidance of the new chairman ahead of a debt refinancing later in the calendar year. We believe that's something we could do now, but we think we'll optimize our position by waiting to refinance off the back of strong full year numbers.

12:32 In terms of the outlook, as Harvey's mentioned, we've got visibility on 93% of our full year revenue expectations as of mid March and a strong pipeline to deliver the remaining new business. I'll now turn to Harvey to talk to the operating factors which underpin the outlook. So we're seeing accelerating sales in Energy Services. Post period, we've had a record Q3 in terms of sales, and that's driving visibility of revenue into Q4. One of these particular growth areas has been the pivot to healthcare as well as a sustained acquisition win of large multi site customers in education. The continued investment in our digitized strategy for energy management has meant that our customer experience has strengthened, and as a result, we're able to maintain robust customer renewal rates.

13:28 We're also seeing in H2 the impact of the sales in solar and EV charging from prior periods, which are now impacting revenue in this period, which were absent this time last year. And then as a result of the operating efficiencies that we've been able to deliver in the business in the integration period, we're starting to see that cost gearing coming through to h two, which will deliver those additional gearing benefits. So in summary, I think a few key points worth mentioning. We believe we're really well positioned to take advantage of this fast growing market, and and our leadership position in education is starting to leverage really well into health care. We're delivering strong organic growth and have got visibility on 93% of full year revenues, which combined with our ability to maintain margins and those ability to control costs, gives us the confidence to maintain our FY 'twenty three expectations.

14:28 Importantly, we're seeing underlying profitability flowing through to cash generation in H2. We put a material reduction in exceptional charges this year, so we're expecting to deliver a much cleaner EBITDA performance. As Christmas mentioned, there's been much progress made in normalizing our working capital post period end, and we expect to clear all remaining debt like items in Q4 along with a more normalized creditor position. And finally, we continue to innovate in our proprietary technology, which we believe underpins a huge differentiation in the market. And that concludes our presentation today. Thank you. That's great. Chris and Harvey, thank you very much indeed for updating investors this morning. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on the right hand corner of your screen.

15:17 Just want the company to take a few moments to review your questions submitted already. I'd like to remind you that a recording of this presentation along with a copy of the slides and the published Q and A will be accessible via your Investor Meet company dashboard. Chris and Harvey, as you can see, you've had a number of questions from investors today. So thank you, first, to everybody for their engagement this morning. Perhaps if I may, Harvey, if I just hand back to you to read out any of those questions and give a response where it's appropriate to do so, and I'll pick up from you at the end. Okay. Sure. One of the questions here is any plans to expand our services into new verticals and sectors? It's a great question. I think one of our core pillars now is health care. We think it's a direct complement to our education strategy. We're going deeper into education to move into further education, higher education, as well as the peripheries around around that. So within health care, for example, we are very focused in the private health care space at the moment, and having won a number of standalone NHS projects, we believe we've now got sufficient reference base for for which we can sort of leverage into frameworks.

16:25 In terms of other sectors, we're really focused at the moment on some c and I sectors, in particular food related sectors, which we think lend themselves really to our MyZero proposition. So hopefully that answers that question.

16:43 I just mean there's one here about legacy liabilities. Yeah. So the HMRC legacy liabilities were built up during COVID when HMRC were quite cooperative, quite tolerant of of postponing payments to HMRC. We've we've entered into a payment plan with HMRC back in the summer, and we're on schedule to complete that payment plan during q four, as previously said. Just looking at some of these other questions. Yes. So question, are you pleased that the company has now produced positive PBT of 700,000 for the half year? That's on an adjusted basis. I'm particularly pleased we've delivered point 4,000,000 reported PBT after all adjustments, as I said, off the back of a period of of low exceptionals without any m and a, and I think that's a a good step forward for the business.

17:40 And we've reiterated this morning in the r and s that that that we're maintaining our expectations for the full year. And there's a question here. Of the 48 academy schools under the framework agreement, how many have been converted to contracts? I think this is referring to a particularly large contract we rewarded some months ago. Actually, these these schools are yet to be installed, and in fact, we have got visibility on these being in installed over the course of April, May, and June. The question here around what is the current status of the subordinated debt facility?

18:25 Yes. So I think as I said in the presentation, we're expecting to refinance both the subordinated debt facility and the revolving credit facility later in the year. That's something we think we could do now, but I think we'll optimize our position by waiting until we've delivered the full year numbers. There's a question here. Who are our main competitors? So I think in all of our respective areas, we have both direct and indirect competitors. Clearly, in the energy management arena, we have a known set of peer group comparables. As of this year, we've I think we've been ranked sixth by the Cornwall Insights in terms of our position in the energy consultancy arena, we actually won large energy consultancy of the year.

19:17 So when we look at our competitors, I think they are ranging from some of the the public company listed vehicles like Inspired all the way through to some of the niche players in the market, For example, energy and the education space. In the energy services division, I think we have niche competitors in solar and EV charging, but we have actually relatively few competitors, and particularly in the mid market where we where we kind of operate around that energy service as a service proposition. I think if you were to say who who were our large competitors at a infrastructure level, you'd you'd look at companies like Onge or some of the other, I guess, energy services businesses.

20:19 Looking through these questions. There's a question here around when, if any, do you foresee to raise any more cash funding? We we have no no intention of doing a fundraise. We're we're we're focused on organic growth. We've got an exciting future ahead of us, and we're we're pleased with our operating plan at the moment to be able to deliver that over the current and future reporting periods. There's a question on accounts receivable as well. I think the primary balance within accounts receivable is accrued revenues, and and that's a function of, the the the switch to batch funding and the and the payment terms in in energy management. We we do track that closely, but we see, obviously, the the the inverse of the accrued revenue is that is strong contracted cash flows for the future.

21:29 Think that is have you any plans to list on the main market? I think that's probably something that's not on our agenda at the moment. That's great. Addresses the majority of those questions. That's great. Harvey, Chrisman, thank you very much indeed. And I think a number of the outstanding questions are duplicates of the originals that you've answered. And anything that does come through from this point onwards, we'll make available to you post today's meeting. Harvey, Chrisman, I know investor feedback is particularly important to the company, and I'll shortly redirect to those on the call to give you their thoughts and expectations. But I wonder before doing so, if I may, Harvey, just ask you for a few closing comments, and then I'll send investors to give you their feedback. Oh, so as we as we stand here today, I'm really pleased with the the way we've turned our finances around over the last six months.

22:23 I think we've got an amazing pipeline. I think we've got a very slick integrated offering now with operating efficiencies coming through in the right ratio to to to generate cash and earnings. So I think the future is incredibly exciting for the group, and I'm looking forward to delivering on our numbers for the next six months. That's great. Harvey, thank you very much indeed, Crispin, for your time this morning and for updating investors. Can I please ask investors on the call not to close this session as we'll now automatically redirect you for the opportunity to provide your feedback in order that the company can better understand your views and expectations? This will only 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'd like to thank you for attending today's presentation.

23:10 Good morning to you all.