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

Good morning, and welcome to the eEnergy Group plc investor presentation. [Operator Instructions] Questions are encouraged and it can be submitted at any time by the Q&A tab situated in the right corner of your screen. Just simply tap 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 all questions submitted today and publish responses when it's appropriate to do so. [Operator Instructions]. And I'd now like to hand you over to Harvey Sinclair, CEO. Good morning, sir.

Good morning. 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 an 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. And often is the case with buy-and-build strategies, 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 20 years in the energy management sector. We've now built a very reliable and sticky customer base where we're seeing re-occurring 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 at over GBP 25 million. And I'm pleased to say that we have driven our adjusted EBITDA from GBP 0.8 million to GBP 3 million. 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 -- and 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 3 recurring quarters that we've seen consistent revenue growth where we're now annualizing the Energy Services business over GBP 18.5 million. 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 300% 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 4 propositions for customers. 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 2 things. Firstly, the lowest cost grid energy. So it's the lowest cost clean grid energy through our tendering platform, which is the 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. Devin Lane who is from the UtilityTeam is the MD of this business. And we're looking at seeing a significant increase in our forward order book, which you will have seen 39% up from the previous period. The other 3 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 My ZeERO, is 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 by our subscription model. We financed 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. This business has grown from a standing start significantly over the last 9 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. The Reduce pillar is very much where our business grew organically from. This is the LED light business which is now under the energy 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 the customer pays. So self-finance through one of our panel funders. This is a business which is now annualizing GBP 18.5 million in this financial year and where we saw huge performance over the last 3 quarters consistently. And then finally, we have our Connect division, which is our organically grown eCharge and eSolar business, where we're trying to capitalize on the huge tailwinds of demand for EV charging and also for solar. So again, what we've demonstrated is the ability to deliver a huge pipeline of qualified projects in the solar division and we have over 9 million -- sorry, 9 megawatts of contracts under heads of terms that have all come from existing customers. And the growth drivers for our Energy Services division are in part and 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 time line here, which talks about really the trajectory we've come through over the last 12, 18 months. And as you can see, we've got a very consistent brand proposition that receives our customers engaging with us with a very clear proposition under a central energy brand with some of our product services sit underneath them. I'll just hand over to Crispin now, and then I'll talk about some of the growth drivers that we're seeing underpin our business.

Thanks, Harvey. So you'll have seen in the prelims, we've confirmed the headline numbers we presented in the trading update back in July. Say GBP 22.1 million of revenue. That's up 63% in the year. Obviously, that's contributed to by the acquisition of UtilityTeam in September 2022 -- 2021, apologies. There's strong underlying growth as well, particularly in the Energy Management business, that combined Energy Management business has performed ahead of expectations at the acquisition. And that's demonstrated 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 with a GBP 25 million forward order book. Adjusted EBITDA of GBP 3 million, again, strongly up on FY '21, 264% up, obviously, again, aided by the acquisition of UtilityTeam as well. PBT loss of GBP 1.6 million, and we had exceptional items during the year of -- related to the acquisition, related to integration costs and also some strategic initiatives, the launch of eSolar and eCharge, in particular. We also have some noncash items around -- particularly around the write-off of the brand names in UtilityTeam and beyond which we had acquired and accounted for in the purchase price accounting but with the strategic decision to fully integrate those businesses and launch under the one eEnergy brand from first of July onwards, those brands were written down. And that's the key bridge between the EBITDA and the PBT. In terms of Energy Management and Energy Services, the revenue roughly split equally between the 2 businesses, slightly favoring Energy Management. Strong gross margins in Energy Management, up on the year, largely driven by a strategic shift away from third-party introduction partners and also, again, the benefits of acquiring UtilityTeam from a scale perspective. Energy Services, a little bit disappointing year from a revenue perspective. Most of that decrease or most of the drag on revenues came in Ireland, as Harvey talked about, COVID lockdowns were longer and deeper in Ireland and the U.K., and that really impacted the Irish performance. What that does is whilst we're showing a flat gross margin year-on-year, actually, underlying gross margin in the U.K. increased strongly that's hidden by the fact that Irish gross margins have tended to be stronger than in the U.K. and that mix is what's kind of causing the headline gross margin to be flatter. I think some good KPIs coming out of those 2 businesses on the right-hand side of this chart. So yes, in Energy Management, average contract duration increased by 27% to 28 months in the year. And then on the Energy Services side, strong growth in average value per project. In terms of the balance sheet, this slide talks around the cash impact of the year looking at the net debt bridge for the year. And we saw a GBP 5.2 million deterioration in the net debt position during the course of the year. And this slide just talks to the key contributors to that. So with the exceptions taken into account, as I previously referred to, we had what I referred to as cash adjusted earnings of negative GBP 0.5 million. We then had CapEx within the business of GBP 0.6 million and buildup of eMeter stock, which we are now deploying of GBP 0.8 million. I'll come back to the UtilityTeam acquisition impact of the GBP 1.2 million positive, which broadly -- which contributes to mitigate the Energy Management increase in cash forward order book. I think 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. So this is cash still available to collect. And so for example, in Energy Management, where we have a GBP 25 million revenue forward order book, the cash collections associated with that revenue forward order book are actually slightly higher. So we've still got that cash still to come. What we've seen in Energy Management and Energy Services for different reasons is that where we expect a typical 90% conversion of revenue to cash for. FY '22, both of those businesses experienced a lower conversion of revenue to cash based around 70% mark. In the Energy Management side, that was driven by 2 factors. One was a general shift in supplier terms away from upfront. So payments upfront on signing contracts on contract go live with that cash coming over the life of the contract instead. And then with the book that we acquired with the UtilityTeam in particular, we recognized during diligence that we were acquiring a book that had some of those upfronts already and therefore, had some -- had lower cash generation going forward. And that's one of the reasons why the deal we negotiated gave that net debt of GBP 1.2 million to mitigate -- or net cash rather of GBP 1.2 million to mitigate that short-term impact of the acquisition of the book we acquired. On the Energy Services side, we've got 2 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 only find -- we sell receivables, we sell the customer receivables to a third-party finance provider. That only happens once the project is complete. And typically, that happens -- there's a 2.5-week also delay between completing the projects and actually receiving that cash in. So what that means is most of that revenue recognized in June, which, like I said, was a strong revenue month would have fallen into the current year in terms of cash collections. At the same time, we entered into a new funding arrangement with SUSI that is -- strategic 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 project. That had a -- that obviously has a timing impact on the cash collection cycle. As I mentioned, that's one of the contributors to that overhang from June cash collections. It's also one of the things that has impacted on cash in the current year-to-date. We also -- at the year-end, we have GBP 1.2 million of projects funded on balance sheet. Again, these are projects where we have contracted with customers to pay us over time. So this is future cash collections. But obviously, that is a balance sheet investment that we've made during the year. That includes the MY ZeERO meters that we think is a really good opportunity. It strongly resonates with customers. It's an exciting product in its own right. It's also an exciting entry point into conversations with customers. And we're well advanced now with discussions on financing those meters to mitigate the balance sheet investment that we make in rolling that out. In terms of the post year-end position, we've paid down GBP 0.5 million of legacy HMRC. So these were essentially where we took advantage of tolerance from HMRC in allowing delayed payments during COVID, and we're now paying those back. We've -- that impact of SUSI batch funding as the business as Energy Services has grown well this year, has had about GBP 0.8 million impact and that is broadly that 2.5 week delay that I mentioned just now. We also typically over the summer, have a seasonally weak cash receipt period for Energy Management, which is now reversing November, December being to the strongest cash collection months in Energy Management. But Q1, we forecasted would only be 18% 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 contracts. In terms of the momentum in the business, I think these 2 charts show that momentum coming through really strongly, both in terms of group revenue growth and then also the impact on EBITDA growth. In the Energy Management business, that growth is underpinned by strong new business wins, but underpinned by low customer churn rates. So yes, 85% retention rate in -- on contracts that came up for renewal in the period. On the Energy Services side, that momentum -- that strong momentum, which we carried into this year, where we're seeing about GBP 4.5 million average quarterly TCV sales since January last year. That's strongly contributed by the tailwinds in the market 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 MY ZeERO, eCharge and eSolar. I'd also -- successfully converting high-value projects, as I've mentioned previously. That growth has driven increased investments in working capital, partly through the reasons, I've mentioned around 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. That can mean anything from it being a 3-week installation instead of a 1-week installation to requiring special equipment that perhaps has longer lead times on it. The -- what that means is that pushes out the cash collection cycle and one of the contributors on working capital. I've talked about the growth in the forward order book during the year in Energy Management. So strong growth, 39% growth from 31 December through to 30th of September 2022 and 18% growth since the 30th of June. And that's obviously post the acquisition of UtilityTeam, so that's all organic. If I pick up on the momentum in Energy Services, the chart 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 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 Q1 to September, 120% up. What that means is we now have a strong contracted forward revenue pipeline within Energy Services. Our target is that we have one quarter coverage on the Energy Services revenue budget. We were close to that at the end of September and with strong sales in October, we're at that level or above. And clearly, 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 the next quarter and for the coming year. Then the other point -- the other important point to highlight on this slide is the contribution made from repeat customers from existing customers emphasizing that cross-sell point. So 42% of the pipeline coming from repeat customers. In terms of mitigating those working capital dynamics I highlighted previously, obviously, this has been a key focus for the exact team and the Board over recent months. We have implemented on the MY ZeERO side, I mentioned, we're well advanced with funders on a solution to fund the MY ZeERO meters. We're also seeing a pivot from customers towards CapEx funded projects, where the customer funds the project rather than it being a funded solution. That is strongly favorable from a cash perspective, from our perspective, and that is 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 working capital in terms of diversifying supply chains.

So I thought I would introduce some background to our new strategic investor and [ non-exec ]. So we're delighted to have John Foley join the Board. And John brings a huge amount of experience 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 recent debt financing land. So looking forward to his contributions on the Board and working with him on our strategy as we go forward. And as you'll see from this track record, hugely valuable insights from the PLCs, other things. I think it's worth just reflecting about what we're trying to achieve at eEnergy, 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 in the public markets where we're looking to achieve short-term cash generation and 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 not because essentially cost is driving 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 reducing demand and addressing energy waste. 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 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 strong message which allows customers to navigate a lot of noise in the energy sector where customers are confused or overwhelmed by various different offers. So as 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. 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 3 clear platforms now, which we are effectively owners of. And that is the reverse auction marketplace technology which we're continuing to develop. And that is something we've acquired from Beond, which is now mobilized across the entire group. We've got the intelligent Smart Metering business and the software platform that goes with that and the data analytics and capabilities that it 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 developed in-house over the last 3 years to support our operating efficiencies. Moving on to the essence of our model, which is around how can you drive profitability to customers by helping them reduce their energy spend without needing to raise capital for those projects is ever more relevant given how capital constrained most of our customers, whether that's public sector 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 just moved cash into the forward order book. And that forward order book now, which is in excess of GBP 27 million to be collected over the next 3 to 4 years, is part of our business model in terms of proving to investors that we've got recurring and diversified revenue streams. Our team is now bedded in. We've added recently to the C-suite with a Chief People Officer. And I think 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 -- I guess, the consensus is, we are GBP 30 million revenues looking to deliver GBP 5 million 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 3 quarters, we're now seeing that both the tailwinds, the combination of a post-integrated platform is now taking advantage of the market as we expected it to a year ago. One of the key things that's driving growth is our ability to win larger contracts. And you have seen from the RNS that we just recently won a large framework agreement. This is a circa GBP 2.5 million contract for 48 academy schools. We're now clearly 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 also now EV charging and solar starting to be our second wave of revenue opportunity, both to the future, but also more importantly, previous customers that we're in contact with. And that business is now annualizing GBP 18.5 million based on our quarterly performance, and that's nearly 100% up from the whole of FY '22. So I think I welcome now the ability to Crispin and I to answer some of the questions that have come through. And hopefully, get some confidence around the business going forward.

Harvey, Crispin, thank you very much for your presentation [Operator Instructions] Just while the company take a few moments to review those questions submitted today, I'd like to remind you the recording of this presentation, along with a copy of the slides and the published G&A can be accessed via our investor dashboard. Received a number of questions from investors, and I want to start with the Q&A session with these, the first one read as follows. Can you please provide some color on the market and the energy crisis? Are you still seeing a tailwind?

Absolutely. The tailwind is increasing strongly. There is no -- there's no less up in customers' demand and the markets that we address are very addressable in the sense that over 80% of the customers that we talk to haven't effectively got an active energy action plan to reduce their consumption or indeed start generating their own renewable energy.

Perfect. The next question asks, you talked about large contracts you're winning, how big it is?

So if we go back 2 years, our average project size was between GBP 30,000 and GBP 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 started to talk to and win large multi-site customers. So our average order value has gone significantly higher and now ranges between sort of GBP 250,000 and GBP 1 million in the Energy Services market, and we're often now seeing opportunities to earn in excess of GBP 0.5 million and as you've seen recently, we're now talking about GBP 1 million to GBP 3 million contracts being within our scope and that, I think, demonstrates a huge ability to scale.

Perfect. Thank you very much, Harvey. The next question is really around results and ask why they went out later this year.

Yes. So the timing of the results was driven by the timing of the fund raise process we announced at the same time. So you say those 2 processes are aligned. Obviously, there's a lot of documentation around the fundraise and that sort of drove both in terms of that delay you talked about, but in terms of the timing of the release on Friday afternoon, that was the driver.

Perfect. The share price has dropped since the full year, can you explain the performance, please?

So look, we're very disappointed with the performance of the share price. We don't think it reflects what we're achieving. It is a challenging time in the market 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, and I think that will be reflected in the coming reporting cycles.

And next question, reads as follows. In the recent quarter, since 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?

Yes. So obviously, I've mentioned the split for FY '22, was broadly -- even split between Energy Services and Energy Management. Our expectation is that Energy Services will grow more rapidly than Energy Management this year, and that's consistent with the budget for Q1.