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

Good morning, ladies and gentlemen. Welcome to the eEnergy Group plc Interim Results Investor Presentation. Throughout this recorded presentation, investors will be in a listen-only mode. [Operator Instructions] The company may not be in a position to answer every question received during the meeting itself, however, the company will review all questions submitted today, and will publish responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll and we'll be appreciative of your participation. And I'd now like to hand over to CEO, Harvey Sinclair. Good morning.

Good morning. So I'm very pleased with the progress the business has made since our last update. We've clearly been through a period of both stabilization post integration, in particular for the Energy Management division, but also a period of very strong growth for the Energy Services division. Despite the focus on integration and delivering operating model efficiencies, we've seen really strong growth, both revenue, which is up 58% and importantly, EBITDA, which is up 85% year-on-year. Underlying nonacquisition-related organic growth has also been very steady with energy management by 8% year-on-year. And this division is now well poised to expand into new and exciting areas within the sustainability service arena. In tandem, we've been extremely pleased with the strong revenue growth within Energy Services which has grown at 80% year-on-year as the business starts to scale multiple revenue streams across new services to new and existing customers. Post period, our momentum in sales for Q3 is driving revenue into Q4, and we've already got 93% visibility on our full year revenue expectation. We've worked really hard this year to stabilize our net debt position, and I'm confident that the business is going to deliver healthy cash generation as we move into Q4. We had GBP 1.1 million of cash as of last Friday, noting GBP 0.5 million of that was in relation to a strategic partnership, which is due to close in the next few weeks. In terms of our customer proposition, this slide really explains both how we offer our customers our various services, but also links back to our respective revenue models. We provide our customers with 4 very, very clear services. And effectively, they form part of the journey to net zero. And these are executed either by Energy Management or through Energy Services. On the left-hand side, you can see our access pillar, which is essentially the provision of lowest cost clean energy to our customers, either in the public sector or in the corporate C&I space. Our revenues are generated largely as a result of commissions paid through energy suppliers, and we take a very conservative revenue recognition policy here where we recognize 80% over the life of the contract. We've got a very robust customer base here, where we are renewing, on average, 85% of our customers who generally sign 3-year contracts. We have a healthy gross margin of 77%, and this platform here provides access to a number of customers from which we can sell Energy Services. Across Energy Services, we have 3 pillars. The first is around tackling energy wastage for our customers. As we talked about in the past, 1/3 of all energy consumed by buildings is wasted, and we believe it is almost impossible to get to net zero unless you have a really clear visible access to your circuit-level data. We have our Energy Efficiency division, which was our core business. This is helping customers reduce their demand for energy across their portfolios, and we've successfully launched our TV and EV charging business under the Connect division. These 3 pillars will largely work off the same revenue model, which is where we utilize the financing of our energy solutions by third parties, off-balance sheet to energy, and where we take an effective margin on installation of those solutions through the sale of receivables back to our funders. The margins across these divisions are as follows: 50% in the smart metering business; between 34% and 36% in the Energy Efficiency division; 30% in our EV charging business; and between 25% and 30% for our solar business. So hopefully, that is clear on how we monetize our various services. We've got a number of growth drivers in our business. Clearly, we're in a very strong market where there are tailwinds helping drive momentum for all customers on the journey to net zero. Clearly, there is a high energy price environment. We believe that's going to be sustained into the future. Our integrated net zero proposition helps our customers deal with one partner strategically. We think that is extremely valuable. A lot of our competitors are single product service providers. Our multiservice offering, I think, resonates very strongly with our customers, and particularly in the public sector where frameworks are used to acquire services to customers. Our Innovative-as-a-Service solution is incredibly powerful in a capital-constrained environment. And in particular for the public sector where capital is, in particular, scarcity, I think our as-a-service solution is really resonating very well. Within Energy Management, clearly, we've got a very sticky customer base. And these customers are leaning towards eEnergy now as their energy consultancy to drive pathways to net zero. Now our key differentiation as a business has always been around our 2 platforms, and we think these really differentiate ourselves in the market. Our proprietary reverse auction platform in the Energy Management sector really does put us in a separate sector to everybody else. And I think the way in which we're developing that platform is starting to give a digitized feeling to our customers in managing their energy data. Our smart metering platform is developed in-house, and we're going to have both hardware and software that we're able to monetize across both divisions. I think one of the things that we're starting to see as we progress into the second half is our pivot to much larger customers, and we're starting to see large multisite customers both in education and health care engage with us, which gives us a level of greater predictability.

So I'm pleased to report another strong period of significant growth across the business. Revenue of GBP 15.1 million was up 58% year-on-year, driving adjusted EBITDA growth of 87% to GBP 1.5 million. In a period without M&A, we've been able to show a much cleaner P&L with exceptionals of only GBP 250,000, down from GBP 1.2 million in the prior year. That's enabled us to report profit before tax of GBP 0.4 million, which is a marked turnaround on the GBP 1 million loss before tax last time. I'm pleased with the significant momentum in Energy Services, in particular. During the period, GBP 10.6 million of TCV was signed, including a high level of repeat business. And we're showing strong initial momentum in both eSolar and eCharge, which we expect to be key drivers of growth going forward. We show on this slide a demonstrable track record of revenue and earnings growth since coming to market in 2020. That includes through an intensive integration period. We're continuing to deliver strong organic growth in both parts of the business with clear momentum for H2 and beyond. That 50% -- 58% revenue growth reflects strong execution across both parts of the business. I'm pleased with the 8% organic growth posted by Energy Management of the period of -- off the back of a period of intensive focus on integration and challenging market conditions with unprecedented volatility in energy prices. This has been underpinned by low customer churn and our strong customer proposition. We've seen particularly high growth in Energy Services, reflecting the execution of the cross-sell strategy and favorable market conditions which support our compelling customer economics. We've got good momentum in new business wins sustained over the last 12 months, and that will continue to show through into revenues for H2 and beyond. The strong revenue growth feeds through into benefits of operational gearing, driving an increase in adjusted EBITDA by 87% and an increase in the adjusted EBITDA margin of 140 basis points compared to the prior year. We've maintained our product gross margins despite inflationary pressures and reinvested those profits into sales, marketing and delivery to drive long-term growth, and we're already seeing the benefits of that investment. Turning to working capital. After a significant cash flow in previous periods, the transition to new payment cycles is now embedded, and management actions have stabilized working capital going forward. The significant increase in net debt and working capital was driven by a GBP 3.3 million increase in accrued revenue. That largely relates to the move to batch funding and Energy Services. I'm also pleased that we've significantly reduced our legacy liabilities to HMRC, which we expect to clear on schedule in Q4. We did a good job negotiating contingent consideration and relating to the UtilityTeam acquisition. We managed to agree a final settlement well below the amount provided in the year-end balance sheet, and the payment we did make was largely settled through noncash. Our working capital is now stabilized, and the actions taken will further strengthen cash flows into H2. The progress made on working capital is demonstrated on this slide, which shows a modest increase in net debt during Q3 to the 24th of March and represents a strong step forward compared to cash burn levels in previous periods. So how have we achieved this? We've secured improved supplier terms in energy management, reversing trends from previous periods. We've secured off-balance sheet funding for the first phase of MY ZeERO meters. That cash has previously been funded through working capital. The fundamental value of our proposition reflected increased demand for CapEx projects in Energy Services, which has a significantly beneficial cash flow profile to us compared to the funded product. We've also diversified our supply chains. We're now sourcing from 3 major lighting suppliers who are able to play off with each other to get the best terms on pricing and credit. As a result of these actions, we're expecting to be cash positive for H2 as a whole. And we're targeting normalized cash conversion of EBITDA to cash towards the tail end of the year once we have completed the scheduled paydown of legacy liabilities. We're addressing the structure of the group's capital base and borrowing facilities under the guidance of the new Chairman, ahead of a debt refinancing later in the calendar year. We believe that's something we could do now, but we think we'll optimize our position by waiting to refinance off the back of strong full year numbers. In terms of the outlook, as Harvey has mentioned, we've got visibility on 93% of our full year revenue expectations as of mid-March and a strong pipeline to deliver the remaining new business. I'll now turn to Harvey to talk to the operating factors which underpin the outlook.

So we're seeing accelerating sales in Energy Services. Post period, we've had record Q3 in terms of sales, and that's driving visibility of revenue into Q4. One of these particular growth areas has been the pivot to health care as well as a sustained acquisition win of large multisite customers in education. The continued investment in our digitized strategy for Energy Management has meant that our customer experience has strengthened. And as a result, we're able to maintain robust customer renewal rates. We're also seeing in H2 the impact of the sales in solar and EV charging from prior periods, which are now impacting revenue in this period, which were absent this time last year. And then as a result of the operating efficiencies that we've been able to deliver in the business in the integration period, we're starting to see that cost gearing coming through to H2, which will deliver those additional gearing benefits. So in summary, I think a few key points worth mentioning. We believe we're really well positioned to take advantage of this fast-growing market, and our leadership position in education is starting to leverage really well into health care. We're delivering strong organic growth, and we've got visibility on 93% of full year revenues, which, combined with our ability to maintain margins and those ability to control costs, gives us the confidence to maintain our FY '23 expectations. Fortunately, we're seeing underlying profitability flowing through to cash generation in H2, and we've got a material reduction in exceptional charges this year, so we're expecting to deliver a much cleaner EBITDA performance. As Crispin has mentioned, there's been much progress made in normalizing our working capital post period end, and we expect to clear all remaining debt-like items in Q4, along with the more normalized credit position. And finally, we continue to innovate in our proprietary technology which we believe underpins a huge differentiation in the market. And that concludes our presentation today. Thank you.

That's great. Crispin and Harvey, thank you very much indeed for updating investors this morning. [Operator Instructions] Just while the company take a few moments to review your questions submitted already, I'd like to remind you that a recording of this presentation along with a copy of the slides and the published Q&A will be accessible via your Investor Meet company dashboard. Crispin and Harvey, as you can see, you've had a number of questions from investors today. So thank you, firstly, to everybody for their engagement this morning. Perhaps if I may, Harvey, if I just hand back to you to read out any of those questions and give a response where it's appropriate to do so. And I'll pick up from you at the end.

Okay. Sure. One of the questions here is, any plans to expand our services into new verticals and sectors? That's a great question. I think one of our core pillars now is health care. We think it's a direct complement to our education strategy. We're going deeper into education to move into further education, higher education as well as the peripheries around that. So within health care, for example, we are very focused in the private health care space at the moment. And having won a number of stand-alone NHS projects, we believe we've now got sufficient reference base for which we can sort of leverage into frameworks. In terms of other sectors, we're really focused, at the moment, on some C&I sectors, in particular, food-related sectors, which we think lend themselves really to our MY ZeERO proposition. So hopefully, that answers that question. Crispin, there's one here about legacy liabilities.

Yes. So the HMRC legacy liabilities were built up during COVID. When HMRC were quite cooperative, quite tolerant of sustaining payments to HMRC, we've entered into a payment plan with HMRC back in the summer, and we're on schedule to complete that payment plan during Q4, as previously said.

Just looking at some of these other questions.

Yes. So question, are you pleased that the company has now produced positive PBT of GBP 0.7 million for the half year? That's on an adjusted basis. I'm particularly pleased we've delivered GBP 0.4 million reported PBT after all adjustments, as I said, off the back of a period of low exceptionals without any M&A. And I think that's a good step forward for the business. And we've reiterated this morning in the RNS that we're maintaining our expectations for the full year.