REG - eEnergy Group PLC - Disposal of Energy Management Division

EenergyAnnouncement

22/01/2024 07:00

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RNS Number : 4228A  eEnergy Group PLC  22 January 2024

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF
REGULATION 2014/596/EU AS IT FORMS PART OF THE LAW OF ENGLAND AND WALES BY
VIRTUE OF THE EUROPEAN UNION (WITHDRAWAL) ACT 2018.

 

 

 

22 January 2024

 

eEnergy Group plc

("eEnergy", "the Company" or "the Group")

 

Disposal of Energy Management Division

and

Notice of General Meeting to approve the Disposal

 

eEnergy (AIM: EAAS), the net zero digital energy services provider, is pleased
to announce that it has entered into an agreement to sell the Company's wholly
owned energy management division (the "Energy Management Division") to Flogas
Britain Limited ("Flogas") for initial consideration of £29.1 million (the
"Transaction" or "Disposal"), and additional contingent consideration based on
the trading performance of the Energy Management Division for the period to 30
September 2025.

 

Flogas is part of DCC Energy and a subsidiary of DCC plc, a leading
international sales, marketing and support services group.

 

Highlights:

·      Initial total consideration of £29.1 million, comprising £25.0
million cash ("Initial Cash Consideration) being received by the Group with
the balance of £4.1 million being used to repay amounts due from the Group to
the Energy Management Division

·      Initial Cash Consideration will be paid on completion following
approval of the Transaction by eEnergy shareholders at a General Meeting to be
held on or about 7 February 2024

·      Initial total consideration equates to an enterprise value of
£30 million after customary adjustments reflecting net debt and normalised
working capital

·      Additional contingent consideration, estimated by the Company to
be in the range of £8 million to £10 million, subject to the Energy
Management Division achieving strong growth in line with its business plan,
linked to net cash generated by the Energy Management Division from completion
to 30 September 2025 (the "Earnout Period"),

·      Net proceeds will be used to pay down the Group's debt facilities
of £8.1 million in full, to reinvest into high growth energy services
division which grew 87% in the 12-month period up to 30 June 2023 and for
general working capital purposes

·      Transaction delivers an immediate return on £23.4 million
invested into the Energy Management Division since December 2020, with
potential to benefit from the performance of the division through the Earnout
Period

·      Disposal unlocks significant value for shareholders and will
enable eEnergy to focus on its dedicated energy services business, driving the
continued roll out of its EV and Solar products and enabling investment into
other high growth opportunities

·      Strengthened balance sheet will remove cash constraints which
have held back growth in recent periods, as a result of which the Board
currently expect trading for the period to 31 December 2023 to be at the lower
end of market expectations.

 

The Company expects to announce a trading update for the 18-month period ended
31 December 2023 in the second half of February 2024.

 

Harvey Sinclair, eEnergy CEO, comments: "I am pleased to announce this
agreement to sell our Energy Management Division to Flogas. Once approved by
Shareholders, the Transaction will unlock significant immediate cash for
eEnergy and give the opportunity to deliver significant additional value to
shareholders through the Earnout Period. Whilst Energy Management is the
smaller by revenue of our two divisions, the initial transaction proceeds
alone will be c. 90% of eEnergy's current market capitalisation.

 

"The sale of the Energy Management Division will allow us to focus entirely on
our similar sized, high growth Energy Services Division which grew 87% in the
past 12 month period despite being undercapitalised. The sale will simplify
our business, strengthen our balance sheet and will bring the opportunity to
invest further in the higher growth segments of Solar and EV Charging across
the UK.

 

"I would like to thank our colleagues in the Energy Management Division. They
will have an excellent new owner in Flogas who is in an ideal position to take
the business forward."

 

Ivan Trevor, Managing Director, Flogas Britain comments: "Flogas are delighted
to welcome the Energy Management Division of eEnergy Group plc to DCC Energy.
Together with Certas and the recent acquisitions of Protech, Centreco and
DTGen, this acquisition further expands our capability in energy management
services, providing a comprehensive range of products and services to partner
with our customers on their journey to Net Zero and supporting our ambition to
halve the carbon emissions of the energy we supply by 2030. "

 

Background to the Transaction

 

As announced on 8 November 2023, in early 2023, the Board received a number of
unsolicited approaches expressing an interest in acquiring the Energy
Management Division. As a result, the Board engaged professional advisers to
conduct a strategic review of the Energy Management Division and evaluate
these approaches.

 

Following further evaluation of these approaches, the Board resolved that the
offer from Flogas represented the best option to unlock significant potential
value for shareholders. In coming to this decision, the Board also recognised
the long-term proposition to create further value for the Group by
re-investing the net proceeds into its high growth energy services division
("Energy Services Division").

 

Both the Group's Energy Management Division and Energy Services Division are
high growth businesses with strong market positions in attractive growth
markets. The Energy Management Division, for the 12-month interim period to 30
June 2023, reported revenues of £13.6 million (up 17% on FY 2022) and Adj
EBITDA* of £4.4 million (up 20% on FY 2022).

 

The Initial Cash Consideration of £25.0 million delivers an immediate return
on the £23.4 million invested into the Energy Management Division since the
initial acquisition of Beond Group Limited in December 2020. As at 30 June
2023 the reported unaudited net asset value in the Group of the Energy
Management Division was £26.7 million (including goodwill created on
acquisition). Payments of contingent consideration through the Earnout Period
(estimated by the Company to be in the range of £8 million to £10 million,
subject to the Energy Management Division achieving strong growth in line with
its business plan) would further enhance returns to eEnergy Group
shareholders.

 

Going forward, eEnergy will focus on accelerating growth in the Energy
Services Division, supported by re-investment of the majority of the cash
received, following debt paydown.  During the same 12-month period to 30 June
2023, the Energy Services Division reported revenues of £19.5 million and Adj
EBITDA* of £2.3 million, up 87% and 131% respectively on FY 2022,
demonstrating significant and growing demand.

 

* Adj EBITDA is Earnings before interest,  tax, depreciation and
amortisation, excluding exceptional items. Exceptional Items are those items
which, in the opinion of the Directors, should be excluded in order to provide
a consistent and comparable view of the underlying performance of the Energy
Management Division's  ongoing business and include transaction related
items, restructuring and integration costs .

 

Transaction and Use of Proceeds

 

The Transaction will be effected through the sale of the entire issued share
capitals of eEnergy Consultancy Limited, eEnergy Insights Limited and eEnergy
Management Limited (the "EM Subsidiaries"). Completion is expected to occur,
subject to shareholder approval as detailed further below, within three
business days of the General Meeting ("Completion").

 

The Initial Cash Consideration, payable by Flogas on Completion, will be £25
million.  Under the terms of the Transaction agreement, a further £4.1
million of the initial consideration will be used to repay amounts due from
the Group to the Energy Management Division, bringing the initial total
consideration to £29.1 million. The Initial Consideration reflects an
estimate of the financial position of the EM Subsidiaries at Completion and
may be subject to certain subsequent adjustments to take account of the actual
financial position of the EM Subsidiaries at Completion, with the intention
that they are being sold on a debt free/cash free basis and with a normalised
level of working capital. In addition, further amounts in relation to certain
historical contingent liabilities of the EM Subsidiaries may be paid to
eEnergy as additional consideration to the extent that such liabilities do not
crystallise.

 

As set out in its latest interim results, the Board identified a need to
strengthen the Group's balance sheet.

 

Part of the Initial Cash Consideration will be applied to the repayment of the
Group's debt facilities with HSBC Innovation Finance (previously known as
Silicon Valley Bank) in the amount of £5m and which are due for repayment in
February 2024, and its other subordinated debt comprising secured discounted
capital bonds, also due for repayment in May 2024. The repayment of these
aggregate £8.1 million of Group borrowings (inclusive of accrued interest)
will significantly strengthen the balance sheet, making the Group debt free.
The Company has continued discussions with various parties as an alternative
option to refinance these facilities. In the unlikely event that the Disposal
did not proceed for any reason, the Directors are confident that the Company
would be able to extend its debt facilities to allow those alternative options
to be concluded and would be required to  strengthen the balance sheet  on a
timely basis to support the growth in the Group's combined operations and for
general working capital purposes.

 

The balance of the net proceeds of the Initial Cash Consideration will be
reinvested to support accelerated growth in the Energy Services Division,
including through retaining increased interests in long-term revenue
generating assets to improve overall returns to the Group.

 

As part of the Transaction, further contingent cash consideration may also be
payable on the following basis and subject to the EM Subsidiaries delivering
an agreed minimum level of earnings during the period:

·      an amount equal to the free cashflow generation from the EM
Subsidiaries (excluding the impact of My ZeERO from completion to 30 September
2025; and

·      a payment per successfully completed My ZeERO Installation during
the same period as above.

 

The contingent consideration is estimated by the Company to be in the range of
£8 million to £10 million, subject to the Energy Management Division
achieving strong growth in line with its business plan, and is capped at £20
million.

 

Any contingent consideration will be payable in two instalments, covering the
period from completion to 30 September 2024, and the 12-month period to 30
September 2025.

 

The Group has provided certain warranties and indemnities to Flogas regarding,
inter alia, the business and tax affairs of the Energy Management Division and
has entered into certain restrictive covenants.

 

On Completion, the Company will enter into certain agreements, as set out
below:

 

·      The Company and Flogas will enter into a transitional services
agreement ("TSA") under which the Company will provide Flogas with certain
services as previously provided by the Company to the Energy Management
Division; and Flogas will provide the Company with certain reverse services as
previously provided by the Energy Management Division to the Group. Under the
terms of the TSA, the parties will migrate the relevant services as soon as
reasonably practicable and in any event both parties must migrate and cease to
use the services within 12 months of Completion.

·      The Company and the EM Subsidiaries will enter into a brand
licence agreement, under which the Company will grant the EM Subsidiaries a
non-exclusive, royalty-free, non-transferable licence to use certain
trademarks owned by the Company, for a period of two years from Completion,
for the purpose of the EM Subsidiaries carrying on each of their respective
businesses.

·      The Company and EML will also enter into a cross-referral and
licensing agreement (the "CLA"), under which the Company and EML shall
cross-refer the other party's services to their own client base with a
referral fee being paid for successful referrals. EML shall licence to the
Company the use of MY ZeERO, including the right permit the Company to sell up
to an agreed number of MY ZeERO eMeters per year to its client base. The CLA
is for an initial period of two years, following which it may be extended
further by mutual agreement. The CLA provides for non-compete provisions
between the Company and EML, in which the Company and EML are prohibited from
canvassing, soliciting or endeavouring to sell to or entice away any person
who is or was a client of the other party in respect of the relevant services
as at the date of the CLA.

 

 

Strategy of the continuing Group following the Disposal

 

The Disposal will allow the Group to focus entirely on its high growth Energy
Services Division, which grew 87% in the past 12-month period despite being
undercapitalised. The Disposal will simplify the Group's business, strengthen
its balance sheet and will bring the opportunity to invest further in the
higher growth segments of solar and EV charging across the UK.

 

 

Notice of General Meeting

 

In view of the size of the Energy Management Division relative to the Company,
the Disposal will result in a fundamental change in the business of the
Company for the purpose of Rule 15 of the AIM Rules and it is therefore
conditional upon the approval of Shareholders, amongst other matters.

 

Accordingly, that approval will be sought at a general meeting of the Company
to be held at 9.00 am on or about 7 February 2024 at Fieldfisher's offices,
9th Floor, Riverbank House, 2 Swan Lane, London EC4R 3TT, United Kingdom (the
"General Meeting").

 

Certain Shareholders (which include the following Directors: Nigel Burton,
Crispin Goldsmith, Andrew Lawley, David Nicholl, Harvey Sinclair and Gary
Worby) have irrevocably undertaken to vote or procure to vote in favour of the
resolution to be proposed at the General Meeting in respect of 165,902,704
Ordinary Shares, in aggregate, representing approximately 42.8% of the issued
ordinary share capital of the Company.

 

The Directors believe that the Transaction will promote the success of the
Company for the benefit of shareholders as a whole. Accordingly, they
unanimously recommend shareholders vote in favour of the resolution to approve
the Disposal at the General Meeting as they have irrevocably undertaken to do
in respect of their own beneficial holdings, amounting to (in aggregate)
39,185,333 Ordinary Shares representing 10.1% of the share capital of the
Company.

 

Shareholders are reminded that the Disposal is conditional, amongst other
things, on the passing of the Resolution to be proposed at the General
Meeting. Should the Resolution not be passed, the Disposal will not proceed.
In such an event, the Company would be required to settle Flogas' third party
costs and expenses relating to the Disposal, capped at £0.9 million.

 

A circular containing the notice of the General Meeting will be made available
shortly on the Company's website at www.eenergyplc.com
(http://www.eenergyplc.com) .

 

Analyst and Investor Call

 

Following completion, Harvey Sinclair, CEO, and Crispin Goldsmith, CFO, will
be hosting an online presentation, open to all existing and potential
shareholders via Investor Meet Company the day after Completion. Questions can
be submitted pre-event via the Investor Meet Company dashboard up until 9.00
am the day before the meeting or at any time during the live presentation.

 

Investors can sign up to Investor Meet Company for free and add to meet
eEnergy Group plc via:

https://www.investormeetcompany.com/eenergy-group-plc/register-investor
(https://www.investormeetcompany.com/eenergy-group-plc/register-investor)

 

eEnergy will also be hosting an online analyst briefing on the morning after
Completion at 11.00 am. Analysts wishing to attend should contact
eEnergy@tavistock.co.uk (mailto:eEnergy@tavistock.co.uk) to register.

 

 

 

For further information, please visit www.eenergyplc.com
(http://www.eenergyplc.com) or contact:

 

 eEnergy Group plc                              Tel: +44 20 7078 9564
 Harvey Sinclair, Chief Executive Officer       info@eenergyplc.com (mailto:info@eenergyplc.com)

 Crispin Goldsmith, Chief Financial Officer

 Strand Hanson Limited (Nominated Adviser)      Tel: +44 20 7409 3494
 Richard Johnson, James Harris

 Canaccord Genuity Limited (Joint Broker)       Tel: +44 20 7523 8000
 Max Hartley, Harry Pardoe (Corporate Broking)

 Turner Pope Investments (Joint Broker)         Tel: +44 20 3657 0050
 Andy Thacker, James Pope                       info@turnerpope.com (mailto:info@turnerpope.com)

 Tavistock                                      Tel: +44 207 920 3150
 Jos Simson, Simon Hudson, Katie Hopkins        eEnergy@tavistock.co.uk (mailto:eEnergy@tavistock.co.uk)

 

 

About eEnergy Group plc

eEnergy (AIM: EAAS) is a net zero energy services provider, empowering
organisations to achieve net zero by tackling energy waste and transitioning
to clean energy, without the need for upfront investment. It is making net
zero possible and profitable for all organisations in four ways:

 ·             Transition to the lowest cost clean energy through the Group's digital
               procurement platform and energy management services. 
 ·             Tackle energy waste with granular data and insight on energy use and dynamic
               energy management. 
 ·             Reduce energy use with the right energy efficiency solutions without upfront
               cost. 
 ·             Reach net zero with onsite renewable generation and electric vehicle (EV)
               charging.

 

eEnergy is a Top 5 B2B energy company and has been awarded the Green Economy
Mark by London Stock Exchange.

 

 

About Flogas Britain Limited

Flogas is one of the largest distributors of off-grid energy in the UK and has
over 30 years' experience of providing innovative energy solutions to both
commercial and domestic customers.  The business is at the forefront of the
energy transition having developed a prominent track record in converting
customers from higher emissions fuels to lower carbon and cleaner solutions
for the last decade.

 

Headquartered in Leicestershire, Flogas has revenues in excess of £300
million and employs over 1,200 people across its multi-sited operation across
Britain.

 

 

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