Eenergy Group (LSE:EAAS) — Investor Presentation

0:00 Good morning, and welcome to the EENERGY GROUP PLC Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time by the Q and A tab situated in the right hand corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question received in the meeting itself. However, the company will review your questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. And I'd now like to hand you over to Harvey Sinclair, CEO. Good morning to you, sir. Good morning.

0:32 So I'd like to just begin the presentation really by introducing the business to those that aren't familiar with the story. As you know, EENERGY came to the market in 2020 to build a end to end energy services business proposition where we're able to help companies get to net zero without using their own capital and providing a simple journey to net zero that was both possible and profitable. I think as we finish, the last financial year, we are strategically very well positioned, having successfully integrated all of our businesses. And I think this is a year which we look back on as a year of investment where we have really focused on ensuring we have a scalable operating platform.

1:19 And and often is the case with buy and build strategies that these areas of focus aren't really prioritized, and we've really made sure that we're well positioned for what we see as being strong tailwinds in the market. As a combined business, we've got an incredibly strong track record over twenty years in the energy management sector. We've now built a very reliable and sticky customer base where we're seeing reoccurring revenues from over 2,000 customers. One of the real highlights for the year has been the strong trajectory in building our forward order book, which now stands over 25,000,000.

2:04 And I'm pleased to say that, you know, we have driven our adjusted EBITDA from point eight to 3,000,000. So that's obviously reflected in a strong revenue performance, 64% up. And I think, overall, what we've got here is a business which is an exciting opportunity in the market, in particular, in some of the growth sectors such as EV and PV. Post period end, we've seen really exciting growth. And as you all have been aware, the disappointing energy services revenue performance in 2022 has been as a result of COVID and some of the difficulty we had with accessing sites. But I'm pleased to say over the last three recurring quarters that we've seen consistent revenue growth where we're now annualizing the energy services business over 18,500,000.

2:59 The energy market itself is providing us with a almost like a perfect storm, and we're seeing even at these subsidized prices, customers facing into three to 400% increases on pre COVID energy price levels. So the real focus in the market for all of our customers right now is how can they reduce their consumption, how can they buy more cheaply by essentially looking at on-site generation, and I think that is providing us with a big opportunity as we solve those problems for customers. We've now succinctly characterized our services into four propositions for customers.

3:45 And as you can see from this diagram, the first pillar of our proposition is where the energy management division sits. So this is providing access to our customers with two things. Firstly, the lowest cost grid energy. So it's the lowest cost clean grid energy through our tendering platform, which is a proprietary IP that we own, and also access to the lowest cost on-site PV power generation that customers can expect to achieve. So this is a business that's got a high margin performance. It's approximately 50% of group revenues. It is a very well run business. Delvin Lane, who is from utility team, is the MD of this business, we're looking at seeing a significant increase in our forward order book, which you will have seen 39% up from the from the previous period.

4:42 The other three pillars are what make up our energy services business. So we have our smart metering business, previously named Measure My Energy, which is now being rebranded as MyZero. It's a proprietary platform. This is all around helping customers access visible data on their circuit level consumption within their buildings. So this is a platform that is sold to customers via our subscription model. We finance this via an operating lease through our panel of funders. So it's a balance sheet light revenue model for us, which means that we're able to finance through third parties hardware, and then we have the expectation that we'll have a subscription revenue model post the end of any asset financing.

5:33 This business has grown from a standing start significantly over the last nine months, and we've seen huge appetite in the market for these services. And it's very much the key to many of our service propositions when we talk to customers, either on the energy procurement side, which is the access pillar, or when we talk to them around energy wastage management or energy reduction.

5:59 The reduced pillar is very much where our business grew organically from. This is the old e light business, which is now under the EENERGY brand. And this is where we help our customers reduce their consumption. It is driven through an energy as a service concept, which means that the savings unlocked from the solutions we provide, whether that's lighting, HVAC, or controls, are used to pay for effectively a fixed monthly subscription cost that the customer pays. So it's self financed through one of our panel of funders. This is a business which is now annualizing 18,500,000 in this financial year and where we saw huge performance over the last three quarters consistently. And then finally, we have our Connect division, which is our organically grown e charge and e solar business where we're trying to capitalize on the huge tailwinds of demand for EV charging and also for solar.

7:01 So, again, what we've demonstrated is the ability to to deliver a huge pipeline of qualified projects in the solar division, and we have over 9,000,000 sorry, nine megawatts of contracts under heads of terms that have all come from existing customers. And the growth drivers for our energy service division are in part, through our existing channels and framework agreements that we have both in the public sector, but also with our events platform. It's also through leveraging our customers that sit within the, energy management division. There's a brief timeline here which talks about really the the trajectory we've we've come through over the last twelve, eighteen months.

7:48 And as you can see, we've got a very consistent brand proposition now, which sees our customers engaging with us with a with a very clear proposition under a central EENERGY brand with some of our product services sitting underneath them. I'll just hand over to Chris now, and then I'll talk about some of the the growth drivers that we're seeing underpin our business. Thanks, Harvey. So you'll have seen in the prelims, we've we've confirmed the headline numbers we we presented in the trading update back in in July. So 22,100,000 of of revenue, that's up 63% in in the year. Obviously, that's contributed to by the acquisition of utility team September 2022 2021. Apologies.

8:40 The the strong underlying growth as well, particularly in that energy management business. That that the combined energy management business has performed ahead of expectations at at the acquisition. And that's demonstrated in in some of the slides we'll come on to that shows the forward order book growth of that business, which is essentially the contracted forward revenues growing strongly since January, which is obviously a clean period from an acquisition perspective and ending the year at a 25,000,000 forward order book. Adjusted EBITDA of of 3,000,000, again, strongly up on on f y f y twenty one, 264% up, obviously, again, aided by the acquisition of of utility team as well.

9:29 PBT loss of of of one point PBT loss of 1,600,000. And we had exceptional items during the year of related to the acquisition, related to integration costs, and and also some strategic initiatives, the launch of eSolar and and eCharge in particular. We also had some noncash items around particularly around the write off of the the brand names in utility team and and beyond, which we had acquired and and and accounted for in the purchase price accounting. But with the strategic decision to fully integrate those businesses and and launch under the, you know, one EENERGY brand from July 1 onwards, those that that those brands were written down.

10:21 And that that's the key bridge between the the the EBITDA and and and the PBT. In terms of energy management and energy services, revenue roughly roughly split equally between the two businesses, slightly favoring energy management. Strong gross margins in in in energy management up up on the year in largely driven by a strategic shift away from third party introduction partners and also, again, the the benefits of acquiring utility team from from from a scale perspective. Energy services, a little bit disappointing year from a revenue perspective.

11:08 Most of that decrease or most of the the the the the drag on revenues came in Ireland. As as Harvey's talked about, yeah, COVID lockdowns were longer and deeper in Ireland and and The UK, and that really impacted the Irish performance. What that does is whilst we whilst we're showing a flat gross margin year on year, actually, underlying gross margin in The UK increased strongly. That that's hidden by the fact that Irish gross margins have tended to be stronger than than in The UK, and that mix is is is is what's kinda causing the the the headline gross margin to to to be flatter. I think some some good KPIs coming out of those two businesses on on the right hand side of this chart. So, yeah, in energy management, average contract duration increased by 27% to to twenty eight months in the year.

12:04 And then on the energy services side, strong growth in average value per per project.

12:15 In terms of the balance sheet, so the the this slide talks around the the the cash impact of the year, looking at the the the net debt bridge for the year. And and we saw a 5,200,000 deterioration in the net debt position during the during the course of the year. And and and this slide just talks to the key contributors to that. So with exceptionals taken into account, as I previously referred to, we had what I'd referred to as cash adjusted earnings of of negative 500,000. We then had CapEx within the business of of of 600,000 and build up of E meter stock, which we are now deploying, of of 800,000.

13:07 I'll come back to the utility team acquisition impact of of the 1,200,000 positive, which which broadly yeah. Which contributes to mitigate the the energy management increase in cash forward order book. Then the important thing on the energy management side and also on the energy services side, when we talk about this cash forward order book impact, we're talking about pushing cash into the future. This is cash still available to collect. And so, for example, in energy management, where we have a 25,000,000 revenue forward order book, the cash collections associated with that revenue forward order book are actually slightly higher. So we've still got that that cash still to come. What we've seen in energy management and energy services for for different reasons is that where we expect

13:58 typical a 90% conversion of revenue to to cash For f y twenty two, both of those businesses experienced a lower conversion revenue to cash, both around 70% mark. In the energy management side, that was driven by by two factors. One was a a general shift in supplier terms away from from upfronts. So so payments upfront on on signing contracts or on on contract go live with that cash coming over the life of the contract instead. And then with the book that we acquired with utility team in particular, we we recognized during diligence that we were acquiring a book that had had some of those up fronts already and therefore had some had had lower cash generation going forward. And that's one of the reasons why, you know, the the the the the deal we negotiated gave that net debt of 1,200,000 to to to mitigate or or net cash rather of of 1,200,000 to to to mitigate that short term impact of of of the acquisition of the book we acquired.

15:10 On the energy services side, we've got two key two key contributors towards that lower revenue conversion. One being simply that June was a very strong revenue month for us. Our business model in energy services is we we only find we we we sell receivables. We sell the customer receivables to a third party finance provider. That only happens once the once the project is complete. And, typically, that happen there there there's a two and a half week or so delay between completing the project and actually receiving that cash in. So what that means is most of that revenue recognized in in June, which, like I say, was a strong revenue month, would have fallen into the current year in terms of cash collections.

15:58 At the same time, we we entered into a we entered into a new funding arrangement with with Susie. That is yeah. Benefits of that is it's a lower cost of capital, and it's a committed facility. But it does mean that we are submitting batches of projects to funding once a month rather than on the run as we complete the projects. That had a that that obviously has a timing impact on on the cash collection collection cycle. As I mentioned, that's one of the contributors to to that overhang in from June cash collections. It's also one of the things that has impacted on cash in in in the current year to date. We also at the year end, we have 1,200,000 of projects funded on balance sheet. Again, these are projects where we we have contracted with customers to to pay us over time. So this is future cash collections.

16:56 But, obviously, that is a balance sheet investment that that we've made during the year. That includes the myZero meters that that that we think is a really good opportunity. It strongly resonates with with customers. It's a it's a, yeah, exciting product in its own right. It's also an exciting entry point into conversations with customers, and and we're well advanced now with discussions on financing those those meters to to to mitigate the the the balance sheet investment that that that we make in in rolling it that out. In terms of the the post year end position, we've we've we've paid down 500,000 of legacy HMRC liabilities.

17:46 So these were essentially where we took we took advantage of tolerance from from HMRC in in allowing delayed payments during COVID, and we're now paying those back. We've that that impact of of SUSI batch funding as as the business as energy services has grown well this year has had about a point 8,000,000 impact, and that is broadly that two and a half week delay that I mentioned just now. We also typically over the summer have a seasonally weak cash receipts period for for energy management, which is now reversing November, December being to the strongest cash collection months in energy management.

18:33 But q one, we we we've forecasted would only be 18% of of full year cash receipts just given consumption patterns during the year and also the linkage of a number of cash receipts to October start dates on on contracts. In terms of the the momentum in the business, I think, yeah, these these two slot these two charts show that momentum that coming through really strongly both in terms of group revenue growth and then also the impact on on EBITDA growth. In the energy management business, that growth is underpinned by strong new business wins, but but underpinned by low customer churn rates.

19:22 So, yeah, 85% retention rates in on contracts that came up for renewal in the period. On the energy services side, that that momentum that that strong momentum which we carried into this year where we're seeing about 4,500,000 average quarterly TCV sales since January last year, That's

19:45 strongly contributed by the tailwinds in the market that that that Harvey has mentioned around customer economics from sustained higher energy prices and also now seeing really strong benefits of that of the cross sell strategy coming through with the launch of new product categories, including, yeah, my zero, echarge, and and eSoda. I'd also, yeah, successfully converting higher value projects as as as as I've mentioned previously. That growth has driven increased investments in working capital partly through the reasons I I I I've mentioned around the the the project funding dynamics within energy services, partly with those larger contracts, larger projects in energy services tend to be longer, tend to be more complex.

20:35 That can mean anything from, you know, it being a three week installation instead of a one week installation to requiring special equipment that's that that that perhaps has longer lead times on it. The what what that means is that pushes out the cash collection cycle and and and one of the contributors on on working capital.

21:03 I've talked about the growth in the forward order book during the year in energy management. So strong growth, 39% growth for from December 31 through to 09/30/2022, and 18% growth since June 30. And that's obviously, yeah, post the acquisition of utility team, so that's all organic.

21:28 If I pick up on the momentum in energy services, the charts on the right shows the strong growth in energy services TCV sales. So this is sort of contracted pipeline before it converts into revenue strongly ahead of of this time last year. TCV sales from January through to the end of September was 77% up on the same period last year. And for q one to September, a 120% up. What that means is we now have a a strong contracted forward revenue pipeline within energy services. Our target is that we have, you know, one quarter coverage on on on energy on the energy services revenue budget. We we were close to that at the end of September, and and and with strong sales in October, we we we we're at that level or above.

22:19 And, clearly, that that strong performance, that strong visibility on the future both in terms of contracted future revenues and also in terms of the existing pipeline give us good visibility for for for the next quarter and for the coming year.

22:35 Then the other point the the other important point to highlight on this slide is is the contribution made from repeat customers from existing customers emphasizing that cross sell point. So 40% 42% of the pipeline coming from repeat customers.

22:56 In terms of mitigating those working capital dynamics I I I highlighted previously, Obviously, this has been a key focus for for for the exact team and the board over over recent months.

23:11 We have implemented on on the Miserro side. We I mentioned we're well advanced with funders on a solution to to to fund the Mizeiro meters. We're also seeing a a pivot from customers towards CapEx funded projects, so where the customer funds the project than it being a funded solution. That is strongly favorable from a cash perspective for for for from our perspective,

23:44 and and and that is a a dynamic that is continuing. We're also looking at our supply chain across the business both from a cost perspective, but also that has benefits on on on working capital in terms of diversifying supply chains. So I thought I would introduce some background to our new strategic investor and. So we're we're delighted to have John Foley join the board. John brings a huge amount of experience in in both the public markets, but also in complementary and adjacent sectors to, I guess, the market we're in and very much led the the recent debt financing round. So looking forward to his contributions on the board

24:40 and and and working with him on our strategies as we go forward. And as you'll see from his track record, hugely valuable insights from the the PLC side of things. I think it's worth just reflecting about what we're trying to achieve at EENERGY. There is a there's a crossover between building a business for growth and building a business for long term value, which can be challenging when you're on the public markets where we're looking to achieve short term cash generation and, you know, effectively short term profitability at the same time. We think we've got a really good balance. Our investment case is very compelling. We know that the energy markets are driving really strong drivers, and the tailwinds are accelerating, not just because of the climate action and regulatory pressures, but now because, essentially cost is driving, you know, so many of the decisions. And when you start to see energy prices match rent prices for businesses operating, if you like, costs, you realize that there is an extremely strong focus on on reducing demand and addressing energy wastage. So these strong tailwinds, we do not see them letting up. We see there being a consistently and long sustained period of high energy prices well and above where the subsidized prices are

26:11 at the moment. I think having integrated a single brand proposition, the ability to talk to customers is much easier. We've now got a very, very message which allows customers to navigate a lot of noise in the energy sort of sector where customers are confused or overwhelmed by various different offers. So to have one partner like EENERGY being able to navigate them on their journey to net zero through one clear message, not only from an outwardly facing perspective is that strong, but internally, it means that our sales and marketing functions can be optimized, can be trained, and can be leveraged much more clearly. I see this as a platform business.

26:58 You know, one of the things that I think investors have to recognize is we are building a platform which we can build long term value in. We've got three clear platforms now, which we are effectively owners of, and that that is the reverse auction marketplace technology, which we're continuing to develop. And that is, you know, something we've acquired from Beyond, which is now mobilized across the entire group. We've got the intelligence smart metering business and the software platform that goes with that and the data analytics and capabilities that has, and our central digitized client experience, which is the portal we're developing internally. That's supported by some of the clever apps that we've we've we've developed in house over the last three years to support our operating efficiencies.

27:49 Moving on to the the essence of our model, is around how can you drive profitability to customers by helping them reduce their energy spend without the needing to raise capital for those projects, you know, is ever more relevant given how capital constrained most of our customers, whether that's public sector or or or private commercial businesses face. As you can see, last year was challenging from cash generation, but let's not forget we have not lost value in the business. We've just moved cash into the forward order book. And that forward order book now, which is in excess of 27,000,000 to be collected over the next three to four years, is part of our business model in terms of proving to investors that we've got reoccurring diversified revenue streams.

28:43 You know, our team is now embedded in. We've we've we've added recently to to the c suite with a chief people officer, and I think we've we've now got a very capable team able to scale this business going forward. When I look at the outlook for this year, we are you know, I guess the consensus is we are 30,000,000 revenues looking to deliver 5,000,000 of EBITDA. And as we start to get visibility in our first half year, we are confident about tracking that expectation, and we're starting to get a lot more visibility on our energy services forward order book, which previously has been the area of the business which hasn't scaled as fast. And over the last three quarters, we're now seeing that both the tailwinds, the combination of the post integrated platform is now taking advantage of the market as we expected it to a year ago.

29:44 One of the key things that's driving growth is our ability to win larger contracts. You'll have seen from the r and s that we've just recently won a large framework agreement. This is a circa £2,500,000 contract for 48 academy schools. We're now the leader in the education sector for providing energy services, and our route to market is very well entrenched. And we're starting to see huge opportunity outside of energy efficiency projects with lighting and controls, but but also now EV charging and solar starting to be our second wave of revenue opportunity both for future, but also more importantly, previous customers that we're in contract with. And that business is now, you know, annualizing 18,500,000 based on our quarterly performance, and that's nearly a 100% up from the whole of f y twenty two.

30:41 So I think I'd I'd welcome now the ability to Crispin and I to answer some of the questions that have come through and hopefully give some confidence around the business going forward. Harvey, Crispin, thank you very much for your presentation. Ladies and gentlemen, please do continue submit your questions just using the Q and A tab situated on the top right hand corner of your screen. Just while the company take a few moments to review those questions submitted today, I'd like to remind you that the recording of this presentation along with a copy of the slides and the published Q and A can be accessed via investor dashboard. Received a number of questions from investors and I want to start off the Q and A session with these. The first one reads as follows. Can you please provide some color on the market and the energy crisis? Are you still seeing a tailwind? Absolutely.

31:26 The the tailwind is increasing strongly. There is no there's no let up in customers' demand, and and the markets that we address are very addressable in the sense that over 80% of the customers that we talk to haven't haven't effectively got an active energy action plan to reduce their consumption or indeed start generating their own renewable energy. Perfect. Thank you very much. The next question asks, you talk about large contracts you're winning. How big are these? So if we go back two years, our average project size was between 30 and £50,000, and we were very much one client, one project from a direct sales model. As we've evolved the energy services business in particular, we've been able to embed ourselves within a number of very core frameworks, and we've started to talk to and win large multisite customers.

32:19 So our average order value has gone significantly higher and now ranges between sort of $2.50 and 1,000,000 in the energy services market, and we're often now seeing opportunities that are in excess of 500,000. And as you've seen recently, we're now talking about 1 to £3,000,000 contracts being within our scope. And and and that, I think, demonstrates a huge ability to scale. Perfect. Thanks very much, Harvey. The next question is really around results and asks why they went out later this year. Yeah. So the timing of the results was was driven by the the the timing of the the the fundraise process we we announced at the same time. So so those two processes are aligned. Obviously, there was a lot of documentation around the the the fundraise and and that sort of drove both both in terms of that delay you talked about, but in terms of the timing of the release on on Friday afternoon, that was the driver.

33:22 Perfect. Thank you. The share price has dropped since the full year. Can you explain the performance, please? So we're very disappointed with the performance of the share price. We don't think it reflects what we're achieving. It is is a a challenging time on the markets at the moment. I think at the moment, I'd just like to reiterate the fact we are building a platform for long term growth. Very few buy and build platforms ever integrate. That integration cost both time and investment last year. I think we've got a very strong business. The growth drivers are coming through very clearly. I don't think we're being recognized for that yet, but we're focused on building consistent long term value, and I'm confident that we have a very valuable business in the energy.

34:08 And I think that will be reflected in in the coming reporting cycles. Thank you very much. The next question reads as follows. In the recent VOXX interview, Harvey Sinclair described Energy Management as being on budget, by which I take to mean revenue being on budget for the year. What is the quarterly revenue budget for Energy Management? Yeah. So and, obviously, I've mentioned the split for f y twenty two was was broadly evenly split between energy services and energy management. Our expectation is that energy services will grow more more rapidly than energy management this year, and that's consistent with with with the with the budget for q one. Thank you very much.

34:54 What is the breakdown for the q one revenue of 7,600,000 between energy management and energy services? So I think, yeah, I'd refer to the question I I I just gave. Perfect. Thanks very much. A slightly longer question, so do bear with. In the preliminary results, you stated contract future revenues in energy services of 3,100,000 at 09/30/2022, implying circa 69% coverage of q two revenue budget. Forward order book increased in q two to imply a 100% coverage for q two revenue target. This implies a q two energy services budget slash revenue target of £4,500,000. Is the circa £2,500,000 framework agreement included within this contracted future revenues of 4,500,000, or as it is still subject to contracts, is it excluded, and would it be added into future contracted revenue once the underlying contracts have been signed?

35:53 So, no, it isn't included. And and, yes, it will be included in in the future contracted revenues as those contracts are signed. Perfect. Thank you very much. Question here from Hugh, which are so many so many thanks for you guys speaking to investors. In the last presentation, I asked about your shared savings model. During your June presentation, you spoke about the one third customer retained and two thirds for EAAS. Does this mean in year five, for example, shared savings income line will grow as as savings grow? So it it it's quite a complex question. So at the moment, we present our our economic model to customers as a share of savings, our financial economic model is to fix our repayments.

36:46 There are odd exceptions where we have some performance contracts, which are what I would call exploratory solutions, but they are nonmaterial in our overall revenue mix. That that's up two or 3%. So the bulk of all of our, if you like, pay as you go contracts with customers are fixed to the customer, but sold as a share of the savings we're estimating or tracking for that customer. Perfect. Another question here from you. I'd also like to ask about the SUSI facility. 10,000,000 seems like it will soon run out given your growth. Will this facility be organically expanded, or do you need to re renegotiate? Yeah. So we have good support from Susie.

37:33 I think we we're talking to them about the next stage of that relationship. The the the 10,000,000 certainly isn't a cap on on on that relationship. It does also give us the opportunity to review other funding options, which we do. Maybe one final question on a similar theme. In in the short term, what's the likelihood of further funding required? From a project funding perspective, I think there is an increasing need to expand our our funding options. As as Christian said, we're working very closely with Susie. We have huge positive relations with our our panel of funders that exist, and I think the appetite for our projects continues to grow as as the business grows.

38:27 We've raised, obviously, a debt instrument. That debt instrument has been raised to support our working capital for this year. We're confident that this year will be a cash generative year. We're clearly still recovering from some balance sheet investments, but as it stands organically, we believe this business is self sustainable. Harvey, Crispin, thank you very much for that. I think you've addressed those questions you can from investors. And, of course, the company will review all the questions submitted today, and we'll publish those responses on the Investor Meet company platform. But just before we direct investors to provide you with their feedback, which I know is particularly important to you both, Harvey, could I just ask you for a few closing comments? Yeah. I think this is a tough market.

39:12 Being on AIM is a is a tough platform at the moment for the business. We we believe we have a strong business with strong growth drivers. We're in a very clear opportunity in the market at the moment, and I think the the growth in customers is what investors should get comfort from. And I'd like to reiterate how much emphasis we're putting on our technology bias in terms of the platforms we are building and growing. And I think over time, as I said in the reporting cycles, the value will start to reflect in the market. Harvey, Crispin, thanks once again for updating investors today. Could I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations?

39:59 This will only take a few moments to complete, but some sure will 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, and good morning to you all.