Eenergy Group (LSE:EAAS) — Half Year Results

0:01 Good morning, ladies and gentlemen, and welcome to the EENERGY GROUP PLC Half Year Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time via the Q and A tab that's just situated on the right hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today, and we'll publish those responses where it is appropriate to do so.

0:30 Before we begin, as usual, we would just like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to the executive management team from EENERGY GROUP PLC. Harvey, good morning, sir. Good morning, and welcome to everybody. Following on from our trading update a few weeks ago, pleased to give you a further update. It's been a very busy and productive six months. We've had a lot of change across the group as we referred in our last update. The key message here is we've taken this opportunity to realign our group following the sale of the energy management division. We've restructured in order to deliver a number of efficiencies. We've invested in a lot of technology, and we've been busy growing our pipeline. So some key highlights over the last few months being, obviously, a major contract one with Spot Healthcare Group, one of our largest contracts ever secured to date.

1:27 So the revenue in the period up 34% and, you know, a very strong sales pipeline growth in that first half. So whilst the financials in the first half are disappointing, What they don't reflect is the progress and the the momentum that the business has had in this period, which we're now seeing come through into q three and q four, which I'd like to focus some time on this presentation. We've invested in some senior people hires. Nick Clark joined as our chief operating officer, and we've appointed John Gahan as our new CFO, which I'll also talk about shortly. H two started very strong. We've we've got sight of our record best ever record quarter for revenue, and we expect to deliver over 9,200,000 in the third quarter, which is a transformational quarter from a revenue growth perspective and from a profitability perspective.

2:27 And what's also worth mentioning is that we've now got coverage of our q four forecast where 60% of that forecast is already contracted. And I'll be talking through the bridge on how we are guiding for, you know, confidence to the end of the year.

2:49 So just for those investors that are are new to the story, a refined operating model, commercial model, I think I think the key focus here is to emphasize how our core service, which is the reduction pillar of our offering to customers, remains essentially a very strong core competency in our group. So this is where we are offering our customers energy reduction services where for no capital down, they're able to transition their LED lighting or energy efficiency controls to deliver a significant saving and where they're able to unlock free cash flow in doing so. Core focus being public sector.

3:37 This part of the the the division is very profitable. It's a 38 to 40% gross margin business, and we're aiming to be targeting the business to north of 40% gross margins as we go into the future periods. This business has got a strong addressable market. We've got a leadership position in the education sector. As I talk about the market opportunity shortly, you'll see us pivoting into new verticals in the public space, which we think have huge areas for growth. The the area where we've been investing a lot of time and a lot of resource is effectively building a solar business, the renewables division within the energy services group, which has been organically grown from a standing start over the last eighteen months and which has seen transformational growth in the last six to nine months.

4:30 So this is where we're offering, again, turnkey solutions for our customers to start generating their own on-site energy through a rooftop or ground solar solution and increasingly carport solutions where we're able to offer them a capital free solution using our NatWest facility. And, again, focused on the public sector, education being a core part of our market. Gross margins are lower. That's partly a dynamic of the solar sector. But, again, a very, very strong growth part of our business and very complementary to RNG efficiency solutions. Both of these divisions have standalone operating teams, but they share a customer acquisition sales strategy team. They they share a a support team around finance. They share a support team around marketing. So we've got a lot of efficiencies in the way we run these two divisions.

5:28 They are part and parcel of the same team, but they have different operational dynamics. Charging is still part of our strategy, but it's a opportunistically led strategy where our customers in reduction of generation are also requesting a effectively a stepping stone into the charging infrastructure strategy, and we're we're picking up handfuls of charges on each of our projects. We're not driving the charging strategy. It's much more of a supporting strategy around customers wanting to reduce or generate. And And then I think our value proposition is always centered around that end to end finance solution. The NatWest facility and the NatWest product is a key component of our proposition to the public sector.

6:18 Not only is it compliant, it's also incredibly competitively priced, and it is in a contract form which public sector are comfortable with engaging with. Data is a big part of everything we do both in the capturing of data through our proprietary apps, which we use to assess projects with. It's something we're developing internally on a continuous basis that drives efficiencies, but also provides providing data to our customers post installation so that they can verify savings. I I referenced in the last update a lot of research we've been doing both through our partners and internally to assess the addressable market, in particular in the education sector, but also reaching out into the the health care sector.

7:08 This is a still very, very large addressable market where 65% of the education sector remains addressable for lighting, and that is a 2,000,000,000 market opportunity alone. So there is not a short tail of opportunity left in the race to net zero. We think this is a 10 total transition for the education sector. Clearly, the next five years are going to be the the bulk of the addressable market for for for companies like ourselves to to capture. And 50% of the NHS still has to transition to LED lighting. So for lighting alone, we see the opportunity to be very big. And I think the decision internally is to double down on our energy efficiency lighting solutions Given its high margin profile in in business, we think that there is a huge opportunity to to capture more market share. And so we are doubling down on our efforts to really capture as much of that market share as we can over the next five years.

8:13 Solar clearly is a bigger addressable market. You know, there is less than less than 10% of the public sector that transitioned to rooftop or ground solar. And so we think this is a longer term larger tail of a of an opportunity in the market. And I think that the opportunity for us at EENERGY at the moment is to capture that service proposition, high quality service reputation where you've got a lot of the smaller players competing at the lower end and where the larger projects, the multisite projects require a more credible quality led service offering, and that's where we're positioning ourselves. Again, the capital free solution being our differentiator because as budgets are constrained, the opportunity for the public sector to transition is much greater if they don't have to deploy capital.

9:11 And in the long term, if you like, macro environment, what's driving our business opportunity is definitely a more favorable regime at the government level. I think regulation and red tape has been softened. We've already seen it in the last couple of months where there's been an increasing number of frameworks open up within the NHS for net zero solutions, and we're starting to see an increased momentum as we come out of the summer of, I guess, projects that were on hold starting to be accelerated again because I think there is quite a lot of internal pressure within the public sector to gain momentum over the next three to five years to meet their net zero goals. Definitely a need for end to end solutions.

9:59 Volatile energy prices are now becoming a theme for our customers where I think in this nondomestic b to b space and particularly for the larger users, there is no longer this hope that or or potentially naive thought that there's going to be a decline in energy prices. I think people have started to accept that there is a sustained position in energy, which they have to face into, and there's just a more growing demand for cutting costs within their infrastructure. So turnkey decarbonization solutions are starting to become back on the agenda, which is good for our business model. What I want to focus on is, I guess, focus around the routes to market.

10:51 Our business historically has always been led around a direct route to market through a direct sales team using our routes to market, using our various marketing channels to drive customer acquisition, and then rolling out those customer opportunities to our sales cycle. I think that's quite different to a lot of our competitors who have largely historically worked on framework agreements, framework agreements being either closed or open. So if you have a closed framework, it means you've got to apply to be a part of that framework, and then you've got the right to bid and tender within the the life cycle of that that framework, which is typically three to five years. And then open frameworks where you've got ability to compete for bids in an open environment.

11:39 We spent the last nine months building out, I guess, our position on closed frameworks, which we've been successful on. We've now got, I think, six frameworks we're appointed on, and we're part of a platform now where we can bid with the various components and compliance necessary within the public sector and a number of other frameworks as well. So particularly in the NHS, which are new frameworks for us, we believe that this is gonna open up hugely attractive route to market, and we think that the framework strategy will now complement our direct route to market significantly for growth into '25 and '26. Average order values, we're hoping will start to increase as those frameworks that we're bidding for reach into the sort of 7 figure territory.

12:30 And we're quite confident now that we've got a proposition that will score highly on those those those bid criteria. We've also built an indirect partnership framework of channel partners where these are b to b service providers offering complementary services to energy services solutions. So they have a right to play in

12:53 those discussions, and these partners then take a commission for introducing EENERGY as a complementary energy reduction or energy generation partner. So for example, it might be working with energy consultants, FM providers, m and e contractors who are all already entrenched with a customer and who now want to open up additional services and they need a delivery partner where EENERGY has started to to play in that game. So for example, Redaptive, who is a large energy services player in The States, has started to look to offer its European customers who are part of a, if you like, a strategy that's been that's been implemented in the in The US.

13:40 They want a strategy for their European projects, for their European rollout customers, and we've now got the ability to start working with them to to deliver net zero solutions using using their existing existing customer base. So quite exciting to build a three pronged strategy out to the market. We're confident this will be an inflection point for our growth, and the pipeline that we've been building suggests suggests that f FY twenty five will will start seeing the benefits of that. Within all of this, we've had to build and invest quite a lot of infrastructure around frameworks, tendering, and procurement in the public sector. And I think that investment's gonna start paying off in in a big way in FY twenty five.

14:28 In terms of transformational highlights, I think, know, just to summarize, we've we've invested quite a lot in our systems and infrastructure. So as part of the energy management exit, we had a number of systems that we needed to rebuild. So for example, our CRM platform, we had to rebuild from scratch because the the existing CRM platform went with the energy management division. That's given us the advantage of rebuilding our workflows and processes to be more fit for purpose with the business that we now have, and that's starting to really drive efficiency in the sales cycles and also in our customer management of projects post contract signing. We've we've developed further our proprietary survey and data app, which was built around the lighting proposition.

15:19 That's now been advanced, which allows us to get to site data faster and automation of proposals faster. That then can reduce our sales cycle, can increase our conversion rate. We we know from, I guess, the data that we see with customers that the faster we move assessment of an opportunity through to proposal, the greater the conversion rate. So that's been a big focus over the last six months. And we've also invested, as I previously mentioned, around

15:51 software platforms for frameworks. We've we've built a solo team from scratch, and that's facilitated what will be, you know, a 500% year on year growth, if you like, performance. And that team has been headhunted from competitors. These were people that weren't looking to move. We've now got a very experienced solar team from ground up through to the management function of that that team, and we're we believe we've got a a best in class capable management team to drive that business through future growth. Finance has had a huge investment. We we've we've spent the last eighteen months building out an ERP system that's now integrated with our CRM system, and that's starting to play much more, I guess, much more value into the group as we start to get more more visibility on financial information.

16:44 So I think that's been time well spent, investment well spent, and we'll start to see dividends for investors going forward as a result of that scalability. I'll hand over to Chris for now, and I'll dive dive back in afterwards. Thanks, Harvey. So as Harvey has has referenced, first half has been a period of restructuring and separation as well as being impacted by at the at the start of the period by the balance sheet constraints ahead of the disposal of of the energy management division. That's reflected in the in the results of the business for the period. So core revenue of of 6,000,000 down from 11,000,000 in the in the comparative period. So that's on a like for like basis, the continuing business only with the contribution from energy management stripped out.

17:38 That led to adjusted EBITDA loss of 2,000,000, which is down from 500,000 contribution profit in the previous period. We have seen good momentum coming through h one building into q two, and we've seen very strong sales in the period. So contract value signed in h one as a whole of 14,600,000, which is up from 11% sorry, up 11% from 13,200,000 for the same period last year. The investments we've made in the restructuring and separation have included implementation of new stand alone IT and accounting systems as well as the establishment of the NatWest facility, and that's reflected in the operating cash flows reported for h one.

18:28 Another key area of focus for h one has been pricing and supply chain. That's included NatWest, and that's helped drive strong margin improvement through the period. So whilst gross margins were down for h 19.2% for the period versus 32 and a half percent for for for the comparative period. We've seen strong recovery through q two and into h two from that those management actions. We're seeing LED now consistently outperforming the target of 38%, Harvey referenced earlier, and solar recovering towards the the target range. And we're expecting that to or we're targeting that to deliver a circa 50% improvement in percentage terms in the blended gross margin percentage for h two.

19:24 That includes, as I said, the benefits of NatWest. We've got a panel on the right hand side just to to to summarize that and recap that again. If you look down to the bottom part of the panel, just very quickly, for every million pounds of cash we draw from NatWest, that comes with a a corresponding effective 150 k cash investment from EENERGY, and that gives us 300 k plus share of future cash flows over over the life of the contract. So that's typically seven to ten years for the customer receivable. And that also gives us a 100 k additional margin, which is reflected or reflective of the improved pricing we get on this facility versus our other funders.

20:12 The exceptional costs for the period reflect the restructuring and separation investments we we've referenced previously. They also reflect a review and simplification of the of the group structure, a number of energy management entities and holding structures were retained as part of the transaction to keep that transaction as clean as possible. And and so there's a there's a simplification process on that front. And it also includes the the the transaction accounting itself. Thanks, Avi. Sorry. Actually, just to touch on this slide, the the this recaps on some of those key highlights, but also on the right hand side, that strong £15,000,000 of forward order book coming into H 2, which is reflective of the of the good period of sales we had through the second half of the period.

21:13 Thanks. I just want to sort of dwell for a second on the the opportunity we have with NatWest and how those those numbers that Crispin just referenced work in practice. So with previous funders where we were drawing a million, let's say, for example, on a a single project or a collection of projects, we would have cashed out all of our interest in that project and made our cash margin alongside our profit margin at the point of completion. What we're now doing with NatWest

21:44 with improved finance rates is that we're leaving behind some carried interest in that project, and we're effectively investing that 150,000 that would otherwise be in a cash margin on that million, which turns into 300,000 over the life of the contract. So there is a a corresponding future improvement in our cash deferred income line, which we'll start to see as we go through our reporting cycle for the so the more we invest and the more we close with Networse, the the stronger that forward order cash flow will be. We think it's a fantastic opportunity to build mid to long term value in the in the group, we think that's going to drive significant shareholder value.

22:31 Happy to pick up some questions towards the end on this as I'm sure you may have you may have some. But look, years ago, frankly, a disappointing h one on many fronts, but a very strong underlying strategy that's delivering results for h two. We've got a really big h two requirement. As you can see, yeah, north of 20,000,000 revenues versus six in the first half. When we break it down, you can see here in the bridge, q three, as we've talked about, we've got line of sight on circa 9.2 plus revenue. So that's a record quarter for us by some margin. And then the remaining q four to go number, which is north of 10,000,000, 60% of that is locked in contracted projects either already started or about to start.

23:26 The remaining 3 to 4,000,000 is a mixture of advanced legals for solar that we are landing either with existing customers or with new projects that are just going through the final planning, you know, connection type issues. And the remainder of that block will be a run rate of LED lighting projects that we're expecting to close in the normal course of business. Obviously, the risks here are more around timing. Clearly, q four winter months, more challenging than summer months to install to install construction projects on roofs than than perhaps we've we've been out of in the summer. But, you know, experienced team who are planning these projects with that in mind.

24:16 And so And so we are still maintaining that we are gonna hit our guidance on revenue for the period. So lots to do and clearly demonstrates an underlying run rate for this business that we're capable of doing,

24:29 and hopefully, we can maintain as we go into FY twenty five. Just as a summary, I think four key points there. Market opportunity is huge. Right to play in this market is absolutely first class for EENERGY now. We've we've established a leadership position in education. We've got credibility now in in in care. We're starting to expand into further education, universities, colleges. Very strong pipeline,

24:58 historically proven conversion rates and frameworks that will drive that market opportunity forward. Competition, I think, is starting to become less of a concern for EENERGY. We've got higher barriers to entry, in particular, in solar. And I think also barriers to entry within the the framework the framework environment and also within the education environment plays to our advantage. The financing function and the bedding down of our NatWest facility is absolutely core to our proposition and provides another barrier to entry to our competitors. And then I think the operational improvements we've made around team and around the platform gives us the opportunity to start focusing now on EBITDA improvements as as we start going into the FY '25 period. And that's really where I'll be focusing a lot of my efforts, which is around optimization of our p and l with John, who's our new CFO, thinking about how we can use those efficiencies to start driving, you know, a more of a geared p and l to profitability.

26:19 And that concludes our presentation today. Perfect. Harvey, Crispin, if I may just jump back in there. And thank you very much indeed for your presentation this morning. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab that's situated on the top right hand corner of your screen. But just while the company take a few moments to review those questions that were submitted already, I'd just like to remind you that a recording of this presentation,

26:41 along with a copy of the slides and the published Q and A, can all be accessed via your investor dashboard. Guys, as you can see there, we have received a number of questions throughout your presentation this morning. And thank you to all of those on the call for taking the time to submit their questions. But Katie, at this point, if I may hand over to you just to chair the Q and A with the team. And if I pick up from you at the end, that would be great. Thank you. Thanks very much, Jake. Thanks both for the presentation. We've had several questions. There's a couple questions just around the kind of 8 to 10,000,000 contingency of the sale. If you could kind of go into any more detail around that or provide an update. Christian, do wanna address that, please? Yes. Sure. So the the the two performance periods on which that is measured, the first ends today, so the period to Sept end of September this year and then to end of September next year.

27:40 Under the terms of the agreement that the buyer, Flow Gas, has three months to, yeah, pull together their accounting for the period and notify us of what that looks like, and then there's a sort of normal period of of review and challenge to to go through through before we sort of settle on a on a final kind of answer. So we we will have yeah. By the end of the calendar year, we we should have the the initial view through from on on what that first period looks like, which, yeah, we would expect to kind of settle and agree on fairly quickly, shortly thereafter. Thank you, Crispin. Another question is just about the relationship with Lucyco and how that's working out.

28:29 Yeah. They're pretty good. Obviously, John Hornby is on our board. We built a strong relationship with Lucyco. We are very pleased with the service we get. The quality of the product is excellent. We've got, obviously, preferred terms regarding both price and delivery capabilities. So I would say it's going from strength to strength, and we are looking to, you know, invest heavily in that relationship going forward. Thanks very much, Harvey. Someone's just asked a question around the frameworks and just maybe slightly more clarity on well, the question was when do you realistically anticipate the first framework win, but maybe just a little bit more information around that. Sure.

29:15 So there there's gonna be two types of framework wins. There's going to be the frameworks, which are called direct awards. These are customers that we've originated ourself. So for example, it might be an NHS large project that we've originated through our own reach to market, but which we then use a framework to be able to, I guess, seek closure of that contract in our favor. And that's probably going to be in q four. So we hope to win our first direct award within either a large further education, multisite, or a an HS contract before the end of the year. For tenders, which are client opportunities originated through the framework, which we bid on, so they're not originated by the business.

30:08 Again, I'd like to think we could get at least one under the belt before the end of the year, but it might be that doesn't happen until the first quarter. Thank you, Harvey. We've had another couple questions around the NatWest facility. Kind of how long will that last in concept of expected sales? What happens when it's used up? Can you give us any more information on how it creates residual value? And just maybe around the investment figure, bit more clarity on that. Okay. So, look, the the the appetite for net worth is very strong. So it's not that we've got one facility, and that's the end of our relationship. This is the beginning of a longer term relationship where we expect to be able to expand, you know, in the long term. So in terms of it running out, we would like to think that we will use this facility up in the next two to three years based on run rate, possibly sooner if we're fortunate enough to win some large 8 figure deals through frameworks.

31:14 In terms of the way it works, I'll talk through at a high level the concept and then maybe Chris then goes into the detail. But previous funding solutions that we've deployed have cashed out our projects completely. So instead of a customer signing up to a CapEx deal where, for example, it was a million pound project, they're they're deploying their own finance, and they would expect a four to five year payback, for example, on that project. We are wrapping up a monthly or quarterly payment scheme over the course of seven or ten years that includes cost of of finance. Finance. And over the course of that seven years, there's a total commitment, a total contract value.

32:00 Our facility, effectively SPV, will effectively discount the total value by number, which gives us a revenue number that we recognize, we leave behind 20% of that project. So we are only cashing out 80%. So instead of cashing out a 100% of that project, we're cashing out 80%, means that we're leaving behind the cash we would have taken today. So the margin that we're making on that project is slightly better. So the gross margin that we recognize is better because of the better finance rates, but we're leaving behind some of the cash. That cash, every pound we leave behind, turns into £42 over the course of the contract that sits on our balance sheet.

32:48 We collect it monthly or quarterly, so it's amortizing. So we get a much greater return than if it was sitting behind in our business. And one of the reasons and benefits of disposing energy management was that we have a larger cash buffer in our business that allows us to invest our margin or percentage of our margin in cash to create a much greater return. Kristen, do you wanna add to that? Yeah. I think that that that's a good summary. In terms of the numbers I went through, I think just to reiterate, there's there's two effects. There's on the one hand, there's a cash retention in the project. On the other hand, the cash value of the project or or or the kind of overall value of the project is is higher because the the the pricing from that list is better.

33:40 So when we look at the sort of notional investment or the effective investment, it's it's both of those impacts together. So that's how that sort of a a 100 and 50 k notional investment is is is calculated. But then key point is, as as Harvey says, is we expect that to generate slightly more than two x over the life of the contract. And that's not just waiting to the end of the contract. That is, you know, receiving payments every quarter as the customer pays over the contract life. And that will sit on the balance sheet as deferred income. Is that right, Yeah. Sorry. Accrued. Yeah. Accrued income. So we'll start to pull that out as we start deploying.

34:25 And, again, it become part and parts of the inherent value of our business, which makes us very attractive, I think, as we start building that line out. Thank you very much, Harvey. And then just the final question is you're a master in the public space. Are there currently any plans to look at the private sector for opportunities? Yeah. That's a really good question because there is actually, and we talk very much about the public sector. But, you know, if we actually think about the the growth that we've seen this year on our solar project, it's actually been 70% commercial projects. So within the solar strategy, we've got a really, really big opportunity with a lot of large corporate landlords who we're working with who have got commercial tenants.

35:13 So we work with one of The UK's largest landlords, and they've got business parks, industrial parks that within those have commercial tenants that we're working with. So we've got a strategy to deploy solar independently of the public sector through our partnership channels, through our reach to market, working with corporate landlords, and also through our own reach to market around private health care. So it expires a private health care commercial organization in the public sector. And so, yes, going forward, the addressable market for us is enormous in the commercial space, and that will start to feature. And those projects will be larger. So the focus on those commercial nonpublic sector projects will have deal values. We're aspiring to have deal values of 500,000 to 1,000,000 plus.

36:06 And so I do hope that we'll we'll be continuing to secure half a dozen or more of those sorts of contracts in FY '25. Perfect. Katie, Harvey, Chrisman, if I may just jump back in there. Thank you very much indeed for being so generous of your time then addressing all of those questions that came in for investors this morning. And, of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended just for you to review and to then add any additional responses, of course, where it's appropriate to do so. And we'll publish all those responses out on the platform. But, Harvey, perhaps before really just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company, if I could please just ask you for a few closing comments just to wrap up with, that'd be great. Sure. So we think we've built a first class brand in the energy that's got a right to play and a right to win across the public sector in the race to net zero, which we see accelerating through to 2030. So a phenomenal five year trajectory ahead of us.

37:06 Margins improving in our business demonstrates an experienced operating model, particularly in lighting, huge addressable market in solar, and a very experienced team that we we are confident can deliver great results into f y twenty five. Perfect, Harvey. That's great. And thank you once again for updating investors this morning. Could I please ask investors not to close this session? You'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can really better understand your views and expectations. This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of EENERGY GROUP PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good morning to you all.