eEnergy Group Plc (A1Z1.F) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the eEnergy plc Post-AGM Investor Presentation. [Operator Instructions] I would also like to remind you that this presentation and meeting is being recorded. [Operator Instructions] And I would now like to hand over to Rick Williams, CFO; and Harvey Sinclair, CEO from eEnergy Group. Good afternoon to you both.

Good afternoon. So we're really thrilled with the progress the business has made over the last 12 months. And as you will have seen from our results, we delivered what we said we would set out to deliver when we came to the market Jan 2020. In summary, we've seen strong organic growth coming out of the business of over 75% year-on-year. And in total, taking into account the acquisition growth, we've seen a 200% revenue growth from last year. So we are seeing strong tailwinds in our sector where our services are being adopted by our customers at the pace which we expected. We're seeing really interesting cross-sell opportunities coming through from our recently secured acquisitions. And I think we're seeing, for the first time, the net zero agenda finally getting traction within the market at a pace where it's starting to really accelerate our growth. We're seeing 41% growth in the as-a-service market, which is evident that the as-a-service business model is starting to really disrupt the energy market across the U.K. and Europe. And as you can see from the research that we're following. There's huge evidence to back this up. So 4 acquisitions since we floated in the market. Those acquisitions are being integrated. Some have been fully integrated. So RSL lighting solutions has been fully integrated since our acquisition in the summer of 2020, and that has helped us expand our position in the public schools market in the multi-academy trust. And we've seen huge traction there with multisite opportunities being now in our pipeline, having secured initial projects last year. Our pipeline for future growth has been accelerating over the last 3 months. And in fact, we've acquired more opportunities since the beginning of this financial year in the education sector than we have done in the last 12 months. This is evidence of the client base and the events market coming to life again and the huge, I guess, traction we've made in the education sector, where we're starting to pick up multichannel acquisition results as a result of everything we've done over the last 2 years. Just on a pro forma basis, approximately 55% of our annualized revenue comes from our energy efficiency business and 45% from our energy management business. And as you have seen, our largest, most recent acquisition, UtilityTeam, which was secured in September is starting to begin the integration process that we're starting with Beond, and we expect that the 2 companies will be fully integrated over the next 6 months. I think it's worth just recapping for our audience the structure of the organization now. We -- as a result of the acquisition of UtilityTeam, we have Delvin Lane, who is our MD of the Energy Management division. Delvin has over 25 years' experience in the energy services sector, previously Chief Operating Officer of Anesco; and previous to that, MD as [ Centrica Energy ] Management, Energy Services business. So a really strong commercial leader who's taken over both the Beond and the UtilityTeam Energy Management division. Simon Smith, who recently joined, was the ex-Group Sales and Marketing Director of [indiscernible] Yu Energy and comes again from a huge number of relevant roles in previous sectors such as energy management, procurement as a service. So a broad set of experiences that enable him to be well positioned to run the energy efficiency business. And underneath those 2 direct reports sit our sort of, if you like, divisional directors at the MyZeERO platform, which is operating across both businesses. And then we have a C-suite that is supporting on growth strategy, integration, M&A and corporate development activity. Just moving on to our summary of the brands that we have. So the -- I guess the brand strategy is to move our customer-facing proposition to an eenergy.com customer-facing brand. At the moment, we have a very strong brand in MyZeERO, which is starting to really gain traction as a product brand. But what we have established is the need to talk to our customers in a simple, single message that allows them to see a single proposition, one-stop shop, if you like, of services that can deliver a net zero solution using capital-free solutions. And so the goal is that we will be, I guess, launching the eenergy.com brand officially in Q3, which is calendar Q1 between February and March that allows us to bring together the synergies of both Beond the UtilityTeam under a single brand. It allows us to be seen as a leader in the market, top 5 energy management player where we're delivering services within that proposition. eLight will continue to be Light as a Service proposition, but I guess, positioned as part of Energy Efficiency as a Service under the eEnergy brand. So streamlining our customer acquisition strategy will save a huge amount of resource in amalgamating our 4 current lead gen teams in one location in London and then our regional teams working at the energy brand across multiple sectors and multiple customer bases. Clearly, a transformational year, having acquired 4 businesses. We've had lots of integration, I guess, work streams to deliver on. I'm pleased to say that integration has gone really well. I think we've demonstrated that we've been maintaining the organic growth that we had expected in a tough climate where half the year was caught up in a pandemic. I think we've been able to demonstrate significant appetite for cross-selling with our core key accounts that we've acquired through the Energy Management division. We have all shown strong appetite for downstream energy efficiency solutions. And the launch of MyZeERO as a new brand has been well received, and we've already signed our first stand-alone contract from MyZeERO, having only officially launched it 30 days ago. So I'm really pleased with that, if you like, progress we've made since IPO at an operating level. I'll hand over to Rick so we can talk more about the split of revenues and financials.

Thanks, Harvey. I'm very conscious that we presented the results for the full year FY '21, only 6 weeks ago on Investor Meet Company. So I'll cover this at a fairly high level. If you've heard it before, please accept my apologies. I think in terms of the group as we stand today, reflecting the acquisition of UtilityTeam, I think Harvey touched on it already. We are -- 55% of our revenue is coming from energy efficiency, 45% is coming from energy management, which is clearly a big shift from where we were in the prior year and reflects kind of the targets that we set ourselves in terms of our strategy. Geographically, we are split. We were in the prior year, 50-50 U.K. and Ireland. The growth in the U.K. has been significantly stronger. The acquisitions that we have made have been in the U.K. And so today, on that pro forma basis, roughly 1/7 of the business is in Ireland and 6/7 is in the U.K. And then in terms of the sector split, we've talked previously about the focus that we had on education and the very deliberate step that we made to focus our Light as a Service proposition on the education market. Actually, on a pro forma basis, we are much more balanced. Education is still our most significant sector, but we've got a good footprint in the public sector and health care and a more balanced portfolio of commercial and industrial opportunities, which I think as we look at the sort of -- indeed, we are in post-COVID. But post-COVID recovery, I think, puts us in a good place. So that's kind of how the group shapes up today. Harvey, do you want to talk about the strategy?

Sure. Some of you may have seen this, if you got infographic before. But essentially, as you can see, we've got 2 divisions. And those 2 divisions are working very closely together, essentially through a shared data analytics platform that is being rolled out to our energy management customers on the premise that any customer that is currently buying brown energy, in our view, should be actively or in process of considering a green, sustainable energy source. So eEnergy's #1, if you like, priority is to ensure that our customers can see and understand the value of switching from brown to green energy through utilization of our zero carbon marketplace, our [ eAuction ] platform, delivering best price that environment and the transparent selection of products of the sustainable energy sources that are available to them alongside the risk profile that matches their needs. We run a lot of very, very complex customers who have very complex energy requirements and very high volumes. So our #1 goal is to transition all our customers to green, sustainable energy sources. The second objective is to ensure that their contracts are being managed efficiently and that they are able to optimize their supply of energy in a way which is efficient and generally the most cost-efficient way for their operating platforms. At the heart of energy management is the provision of in-building data. This is a disruptive service that we are now able to offer through the MyZeERO platform, which we've started to engage with our customers having launched the platform this month, which allows our customers who are accessing our procurement services to access their in-building consumption data through the utilization of our platform using a subscription model. So what does that really mean? On average, most buildings waste between 30% and 40% of their energy through the way in which their buildings are run or through inefficient technologies or through what we call the energy leaky bucket. And by getting access to where their consumption is being consumed and therefore whether energy waste exists, they're able to do zero cost actions that enable at least a 10% reduction in their overall consumption. Having also accessed their in-building data, our customers are then able to access energy efficiency, if you like, solutions through our demand side reduction division, which is reducing spend through as a service; and using the metering to align performance, which means that we can be ready to performance contracts as well, which means that the customers are more likely to adopt energy efficiency measures if there can be a level of accountability to the savings. And then finally, the Energy Management division provides consultancy and data insights as to intelligence is available from the raw data that we're providing our customers. So that suite of services is a combination of the best of both services that Beond and UtilityTeam offer and the addition of our MyZeERO IoT data analytics platform. And we'll talk a little bit more about the analytics platform in a while, but it really is one of the, if you like, I guess, unique differentiators of the energy proposition in that part of the market. On the energy efficiency as a service side, we always lead with lighting. So we have a market-leading, light-as-a-service solutions provider in eLight, which is part of the eEnergy energy efficiency proposition. Lighting is always the first measure that a building operator or owner should deploy because of all soft benefits that come out of lighting in addition to the energy savings and carbon footprint reduction. And then we are very focused now on providing our customers with energy optimization. And what we mean by that is managing the assets, the energy-consuming assets, in a property more efficiently over ripping stuff out and retrofitting new technologies. So most of our customers have a fear of operational disruption. And what we're finding is that there is a 20% energy reduction price, if you like, to win with customers by optimizing their building portfolios. That's typically with IoT and controls and integrated building management solutions. And through the tracking and measurement and accountability that our smart metering platform can deliver enables us to engage with our customers on a share of savings model. And typically, our customers will retain 30% of the savings that we enable in the project on the basis that they are not deploying their own capital. And then finally, one of the most exciting parts of the growth opportunity, I think, going forward will be eEnergy's move into renewables, and renewables also capture the opportunity with EV charging. So we're currently in the process of advancing a joint venture partnership with 2 very established service providers in both the solar space and the EV space that will allow us the opportunity to enter this market, leveraging our customers without deploying balance sheet capital on building up a new business. It allows us to enter the market quickly, leverage our existing customers and take an attractive share of economics on deploying solar solutions to our customers across both the education and the commercial/industrial sector and start deploying EV solutions as part of our charge point operating network, if you like, business plan we are developing. And whilst that's in incubation, the feedback from our existing customers has been extremely positive about the demand of those services that they're looking for us to provide them. So I think, look, just moving on to the 2.4 slide, which is really talking about the smart metering. There is a huge, huge opportunity for our group to leverage our existing customer base and probably the most disruptive products and service that we've got in our armory of solutions. Having spoken to our top customers and attended events over the last 3 months, the overriding demand in the market right now is for effectively accessing energy data and energy wastage opportunities, and we think our new MyZeERO platform is going to capture that opportunity and really provide us with potentially future monthly recurring revenue streams as we start to scale that platform across all of our customers. The next slide brings to life how our services are translated to a customer. So on Slide 2.5, you'll see that we've got a, what we call, carbon waterfall. This is a current customer of ours that we engage with a new customer, we've engaged with in April as a GBP 3 million a year annual energy spend. They were previously procuring brown energy, and we've outlined a carbon waterfall for this customer that they embraced from day 1. And on the right, you'll see the downstream revenue opportunity for the eEnergy business, corresponding value proposition to the customer significantly more. But I'm talking really about the, if you like, the share of energy savings that we are able to capture and demonstrate that our multiple revenue streams that we're now able to capture and now possible having, if you like, pull together the service proposition that we now have since IPO. So we've into locked this customer effectively a consultancy agreement, which is a retainer to drive that business from brown to green energy using our platform. We've then engaged with this customer using our platform for smart metering, and then we've delivered energy reduction solutions through Light as a Service. So you can see that the first phase of -- if you like, solutions that we provided, which we delivered over a 3-month period, has captured just over GBP 1 million worth of net revenue to eEnergy. We've then had the opportunity to go back to this customer, having recalibrated their revised energy consumption using metering platform, and we've now gone to a proposal where we will optimize all of their buildings using IoT and controls to give a further 20% reduction on their spend. And in fact, that contract size is now estimated to be GBP 0.75 million, so far more than we had originally established. And then finally, the customers asked us to evaluate the on-site generation opportunity, which we think is in excess of GBP 0.5 million. So it's like in the old world of what would a customer be worth, so I'd say our Beond or UtilityTeam, 0.5 million over a 10-year period. In the new world where we're able to capture their journey to net zero, satisfying all the customers' requirements and at the same time releasing somewhere in excess of GBP 6 million over 10 years of energy savings, equated to a minimum of 20% of the GBP 3 million spend at the low end and an aspirational 30% of their spend reduction means their opportunity for energy savings of between GBP 6 million and GBP 9 million over the 10-year period, and we are capturing in excess of GBP 2.5 million worth of net revenue on that journey. So I think it just brings to life this slide, the downstream revenue opportunities that we have with our customers as a result of deploying energy as a service through the EMG strategy. There are lots of drivers in our business. Some are market and macro drivers and some are internal, what I would call, integration synergies and efficiency drivers. There's a tailwind for customers in the market, public sector or commercial/industrial, to move to a green supply of energy. That is an open door that we are working through at the moment, and we're capturing huge market share by being positioned as a sustainable green procurement platform provider. There is a huge demand for energy data. Customers now realize that if they haven't got the data and intelligence on where they're consuming and how they're wasting their energy, it's very, very difficult, almost impossible for them to deploy a net zero strategy on reducing their demand. We are looking at disrupting our procurement business through the energy management as a service business model, and we're using data insights in the MyZeERO platform to drive effectively long-term revenue streams for our business. We're looking at digitizing our overall energy proposition, and we want eEnergy to be seen as the digital energy services brand. It's very much part of our core focus, how we can be positioned as a brand, which is innovative, creative, forward-thinking and at the sort of forefront innovation when it comes to using finance to unlock energy efficiency savings and to deliver clean renewable solutions. One of the big drivers is obviously leveraging our existing customer base. One of the key rationale drivers of this buy-and-build story was to acquire as many customers we could and then leverage those customers for those multiple downstream revenue opportunities. Clearly, we're working hard on efficiencies. And whilst this isn't a cost-cutting, buy-and-build investment thesis, there are some interesting efficiencies and scale to achieve through optimizing our processing platforms, our data gathering platforms and our reporting platforms. And then finally, there is, without doubt, a once-in-a-lifetime opportunity from an economic perspective to capture huge market share of the renewable green revolution that exists with solar and now EV solutions that are starting to be adopted through the transition of both high electricity costs and people's desire for electric vehicles. Back to you, Rick.

Yes. As I said previously, I'm conscious that we have presented the FY '21 results before, so I'll keep this at a relatively high level. Yes, I think, as Harvey has described, FY '21 the year to June '21 was a transformational year for us. We've seen substantial growth in our organic activity. It's 75% revenue increase. It is 69% increase in the number of projects that we have completed and installed. So very pleased with the progress that we've made. We've strengthened that leadership position that we have in the market and particularly in the education market with the acquisition of RSL and the integration of RSL into the business. And yes, I think in essence, it has been a very positive year for us. It rounded off with the acquisition of UtilityTeam in September. So if I just focus on some of the highlights. Our reported revenue is 3x what it was in FY '20 at GBP 13.6 million. And as I say, that's organic revenue of 75% growth. And that's come from both the increased number of projects, but I think potentially more significantly, the increased average value in the projects that we are installing, which is what's driven that revenue growth and enabled us to report our profits, maiden profit in the year. As well as the increase in the top line, we've also been able to improve our gross margin in the core Light as a Service project delivery. And that's up 360 basis, which comes from a number of factors, but particularly the relationship that we have with our OEM provider in the U.K., enabling us to have better pricing, better cost and translate that into the marketplace. So that improved top line, the improved gross margin is what ultimately has driven our adjusted EBITDA of GBP 0.8 million, which is our maiden profit and is the switch from GBP 1.5 million loss in the prior year and indeed the bottom line profit before exceptional items as well. I think a lot of those key financial stats are focused on the organic business, the Light as a Service business. But actually, within the energy management business, we acquired Beond in December. We've got just over 6 months of results within FY '21, but we've also seen substantial organic growth within the Energy Management business, too, and a 9% increase in the number of meters that we have under management. And then really thinking about, if you like, how that translates into our balance sheet position, we are very pleased to report that we've ended the year, that we ended June with GBP 0.8 million of cash -- net cash, after accounting for leases as debt, which is an increase from the net debt position that we had in the prior year. Now where does that growth come from in terms of the revenue growth? Well, I think as I touched on earlier as we talk about the pro forma, as I talked about the pro forma revenue, including UtilityTeam, we've seen growth in all of our markets. But in particular, we've seen that growth in the U.K. market both in terms of RSL, but actually in terms of the existing eLight business and the significant growth that we see 124% in eLight U.K. year-on-year. So that's the driver for the growth. And how that's translated into the profit? Yes, a lot of the additional -- the move, the increase in our adjusted EBITDA is driven by that increased gross margin coming off the increased volume of an increased revenue that we've seen. I said part of that is as a result of the relationship that we've got with Venture Lighting, they were our OEM manufacturer. We've also seen a benefit in Ireland by moving to a different funding structure with the facility -- the committed facility that we have from SUSI Partners, which increases our share -- has increased our share of the contract value. So we've chosen to reinvest some of that incremental profit back into the business in sales and marketing and operating -- operational capacity so that we can deliver the volumes of activity that we are seeing across the enlarged group. So I think that's really all I was going to say on the FY '21 results. Harvey, should you just talk about the outlook?

Sure. So I think there are a lot of drivers that we are focused on right now. I think operationally moving to a single brand; clarity of focus on our messaging; giving us a differentiated proposition, which allows us to cut through the noise in what is increasingly fragmented and crowded noisy net zero media at the moment and almost owning that net zero space for the mid-market and public sector. so that we can become a trusted partner for our customers with an end-to-end solution that requires 0 capital that gets them to achieve their goals. I think probably the 3 exciting areas of growth are going to be the development of our smart metering platform as we build out our kind of meters under management, whether that's the submeters under management, not main meters, and how we get a foothold within the emerging, very rapidly growing solar and EV space, and particularly the EV space with the opportunity to do that through a quick entry using a preferred partner on an exclusive basis with preferred pricing to be able to leverage platforms that exist that allows us to leverage our end customers. So I see the macro trends continuing at a pace. I think that we've established a broad and strong brand in the energy that can now be leveraged to a wider customer audience. I'm extremely excited about what 2022 is going to hold for the business.

That's perfect. Thank you very much indeed to both Rick and Harvey for updating investors this afternoon. [Operator Instructions] But just while Rick and Harvey take a few moments to review those investor 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&A, can be accessed via your Investor Meet Company dashboard. I'd also like to remind you that your feedback is important to the company. And immediately after this presentation has ended, we'll redirect you for the opportunity to provide feedback in order for the company to better understand your views and expectations. Rick, Harvey, I haven't given you any time at all to look at the questions really that are coming from investors. But perhaps if I may, if I could hand back to you and ask you to read through those questions and give a response where it's appropriate to do so.

Sure. Okay. I'll tackle, I think, some of the really main ones here. The question, how do we capture value in the share of savings model? And do we get more as energy prices increase? So we have a historic business model with Light as a Service where payments are fixed to the customer. And in that scenario, our customers would benefit fully from the rise in energy prices. We always took the view that it was important to do as much as we could for the customer whilst maintaining a healthy margin. That said, in the energy efficiency as a service contracts, which are based on metered savings, whereby we track on a share of savings basis, their starting point of consumption to their endpoint of consumption, there is an opportunity where we do take more of an advantage on energy price increases because we are sharing in the upside, and we're obviously using the metering platform to validate that. So I think it is important that we don't overemphasize how we're benefiting from energy price increases because I think that feels like a misalignment to the customer. But everything we do is transparent, so our customers are very aware of how our business model works. And I think it's a win-win for customer and service provider, and that's one of the benefits of energy as a service. The customers derisking both finance, technical risk and operating and maintenance risk through giving up the lion's share of the savings but without any of the risks. Overview of our competitors. I'll try and capture the bands of competitors that exist because there are no real absolute direct competitors in the markets we serve with the service proposition that we are evolving. At a high level, we've got some very big infrastructure-grade competitors in the likes of OMG Energy Services. SMS, for example, is a competitor. But we very rarely find ourselves -- in fact, I can't think of an example where we're coming into competition with SMS on a project because they are largely focused on much larger projects, and also their main meter domestic metering platform is obviously in the B2C space rather than the B2B space. So I wouldn't consider there to be a direct competitor, but they are a company we follow and think of them as a peer group comparable because their business model, albeit focused on a different part of the market, is not dissimilar to where we're headed. We have competitors in the energy management space, clearly, in the likes of Inspired Energy, who are a consolidator of the energy brokerage market, who obviously have aspirations to move into the net zero space. We believe that we are different and that we are tackling the net zero kind of opportunity from a position of first principles, which is energy efficiency and using procurement as a route to customer acquisition and ongoing dialogue with our customers. There are some interesting businesses in America, for example, as well as our investors looking at a company called Redaptive. Redaptive are in the process of an IPO at the moment. They were of a similar size to where we are now only 3 or 4 years ago, and they've now got expected market capital of $600 million, and they are in energy efficiency as a service business, originating originally from Lighting as a Service moving into a broader EEaaS proposition. And I think they are very, very interesting comparable, and we're very excited to see them come to the market because it gives us much more transparency from a global position as we seek to sort of expand what we do in the horizons and how we're going to do it. There's a question here on share price. I think we all share the current frustration with the share price having come off in the last few weeks. I haven't got any evidence as to why that is. I don't think it's based on any fundamentals. It's all, I think, driven by seller activity. I don't think that I'm focused in the short term about whether share prices. I'm thinking about the mid- to long term, creating shareholder value doing the right things. I don't want to react to where the share price is at the moment. I think it's an opportunity for investors to come in from what I see to be a value proposition and be here for the long term as we build long-term value. There's probably a question here for Rick on the finances.

Yes. I think that there's a specific question that's been asked as to what is the market consensus for our revenues and for our profits. We are working to build a broader research coverage of the business, which I think is as we have grown is becoming easier. But at the moment, the consensus for FY '22 is that we'll have revenues of just over GBP 26 million. So not -- almost doubling year-on-year. And the EBITDA will be GBP 4.5 million, equivalent to GBP 0.8 million being in FY '21. So those are the numbers that the Board and I consider to be the consensus at the moment. I think there is a question that's been asked about whether the school calendar has a bearing on when installations can be completed in particular? Do we have installations? Do we do them during term time? And I think the answer is there is a degree of seasonality, but I think one of the things that we've seen partially as a result of lockdown is a recognition that lighting projects in particular are not particularly disruptive and they can be installed on evenings and weekends. So the schools don't need to wait for the holidays in the way they may have historically done so for sort of capital projects. So I think there is definitely a degree of seasonality, but it isn't really constraining what we do. And our delivery model is actually is geared up to -- is geared up so that we can accommodate those peaks, where they occur because we use a network of eLight liberate partner installers across the U.K. and Ireland. So it isn't a particular constraint for us, but it is a degree of seasonality that we do see. I think the there's a question around the solar strategy. I think that you may want to just comment about whether it's an acquisition path that we're following or a partnership part and how the 2 might come together.