REG - Eneraqua Technolgs. - Half-Year Trading Update

Eneraqua TechnologiesAnnouncement

31/08/2023 07:00

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RNS Number : 8686K  Eneraqua Technologies PLC  31 August 2023

31 August 2023

 

The information contained within this announcement is deemed to constitute
inside information as stipulated under the retained EU law version of the
Market Abuse Regulation (EU) No. 596/2014 (the "UK MAR") which is part of UK
law by virtue of the European Union (Withdrawal) Act 2018. The information is
disclosed in accordance with the Company's obligations under Article 17 of the
UK MAR. Upon the publication of this announcement, this inside information is
now considered to be in the public domain.

 

Eneraqua Technologies plc

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

 

Impact of Recent Government Announcement on Net Nutrient Neutrality

Half-Year Trading Update

and Notice of Results

 

Eneraqua Technologies plc, a provider of specialist energy and water
efficiency solutions, provides an update on trading for the six months ended
31 July 2023 (H1 FY24) and on the full year outlook following the planned
reforms and changes to the net nutrient rules recently announced by the UK
Government.

 

Proposed changes to net nutrient neutrality rules announced by the UK
Government

 

On 29 August 2023, the UK Government ("Government") announced its intention to
change the legislation that governs development in nitrate-sensitive areas.
The Government announcement was unexpected with no prior consultation and
Government is yet to announce further details enabling the Board to understand
the full implications of the proposals.

 

Since 2017, developers have been required to ensure new developments do not
cause increased nitrate emissions into the local environment. Eneraqua, as
part of its broader water product offering, provides a service to developers
and planning bodies whereby using our Control Flow HL2024 technologies, can
offset the nutrient and water emissions from a planned development.

 

Through the Levelling Up and Regeneration Bill, the Government is proposing to
remove this obligation on developers. In its place it is expected that there
will be an enlarged mitigation programme through the Natural England Nutrient
Mitigation Scheme ("Scheme"). The Scheme is currently based on the generation
of nutrient neutrality credits that are created by projects and then purchased
by developers to offset the emissions from the new construction.

 

As the Group currently understands the Scheme, if the present approach of
generating and supplying credits through the Scheme is maintained, there may
be enhanced opportunities for Control Flow HL2024 technologies given that they
represent the lowest-cost offset solution.  However, the Group has no clarity
at this point and will be engaging with Government in the coming weeks to
understand the exact nature of the Scheme.  Notwithstanding, the Group
currently expects there to be an impact on the Group's trading expectations
for the current year, as set out below.

 

Trading for H1 2024 - Return to net cash positive position

 

The first half of the year has seen the Group continue to make solid progress
both in terms of continuing contracts and new opportunities which are being
pursued. H1 revenue is expected to be at least £26.0m (H123: £24.3m) and
profitable on an EBITDA basis, in line with management expectations.  In
light of the previously notified lower gross margins expected from the Group's
energy contracts, management has focussed on cost control and working capital
management. As a result of these efforts, the Group generated cash flow from
operations of c.£4.9m and returned to a net cash position of £0.5m (gross
cash of £5.9m), as the working capital investment made towards the end of
FY23 unwound.

 

The Group's order book(1) across Energy and Water stands at £146.3m of which
48% is currently anticipated to be delivered in the remainder of FY24. While
we are mindful of continued caution from the public sector and local
authorities on their capital budgets, we are encouraged that the inflation
impact from last year is unwinding.  We continue to engage closely with all
our clients to ensure projects are delivered as planned and remain focused on
building a strong pipeline for FY25.

 

In Energy, notable major contracts in H1 include:

 ·         the Group's first NHS Trust award of an £11.3m contract involving replacement
           of an end of life combined heat & power (CHP) and steam boilers with a low
           carbon heat pump solution;
 ·         a £12.7m contract for the replacement of an end of life gas-fired district
           heating system with a low-carbon heat-pump based system in West London; and
 ·         a £7.2m contract for a world-class museum and art gallery, and leisure centre
           complex for the replacement of old gas-fired system again with a new
           low-carbon heat pump solution.

 

These contracts will commence in H2 FY24 with the majority of revenue
recognised in FY25.

 

Our international businesses in India, Spain and Holland are performing as per
our expectations, with pilot projects underway to replicate the benefits of
Control Flow HL2024 seen in the UK.  The integration of the recent Vriend
acquisition into the Group is progressing well.

Outlook

 

In light of the prevailing uncertainty, until the details and mechanics of the
Scheme are finalised, the Group expects clients will delay projects until
there is greater clarity. The Group had budgeted that work relating to the
prevailing net nutrient neutrality rules would generate up to £2m of EBITDA
in FY24. It now expects clients to delay all or a large majority of this work
until there is clarity on the Government's proposals which will materially
impact the Group's ability to deliver against its original budget. As a result
of this hiatus the Board now expects that the outturn EBITDA for FY24 will be
materially below current market expectations.(2)

Notwithstanding the immediate impact of the announcement by the UK Government,
the Board believes that the prospects of the Group remain strong, supported by
a number of sector tailwinds. Absent of the Government announcement, the Group
was trading in line with management expectations for the year. The actions of
one government are not expected to materially impact on these long-term
prospects, particularly as the Group diversifies products offering across
energy and water, as well as across global geographies, including the UK,
Continental Europe and India.

 

Confirmation of Dividend

As a sign of the Board's continued confidence in the Group's strategy and
prospects, the full year dividend of 1.2 pence per share, previously announced
on 23 May 2023, will be paid on 15 September 2023 to all shareholders that
were on the register on 18 August 2023. The shares went ex-dividend on 17
August 2023.

 

Date of Results

Results for the H1 FY24 period are expected to be announced on 11 October
2023.

 

Mitesh Dhanak, CEO of Eneraqua Technologies commented: "The first half of the
financial year has been solid and in-line with our expectations. We have
continued to grow revenues and secure a number of new contract wins. It is
clear that the underlying drivers of our end markets remain strong, with
growth seen in both Energy and Water in the UK and in our other regions of
operation.

"Looking ahead, the proposed changes to the nutrient-neutrality rules were
unexpected and outside the Group's control.  In the short term the
uncertainty created is expected to have a negative impact on EBITDA by up to
£2m in the current financial year.  However if the market-based credits
approach is retained then it may create increased opportunities for our
Control Flow HL2024 technologies as they are the lowest-cost nutrient
mitigation solution available.  In the meantime, we have proactively
considered the impact of this event in its entirety and are already focused on
the mitigating actions we can take and will continue to monitor the situation
as it evolves.

"We remain focused on the delivery of the Board's growth plans for the current
year as well as the strengthening of our ability to deliver long term value
for our shareholders."

 

Notes

1.    Order book as at 29 August 2023

2.    Group consensus EBITDA is £8.8m for FY24

 

For more information, please contact:

 

 Eneraqua Technologies plc               Via Alma PR
 Mitesh Dhanak, CEO                      www.eneraquatechnologies.com (http://www.eneraquatechnologies.com)
 Iain Richardson, CFO

 Liberum - Nominated adviser and Broker  +44(0)203 100 2000
 Edward Mansfield
 Benjamin Cryer

 Singer Capital Markets (Joint Broker)   +44 (0)20 7496 3000
 Sandy Fraser
 Justin McKeegan
  Asha Chotai

 Alma PR - Financial PR and IR           +44(0)20 3405 0205
 Justine James                           eneraqua@almapr.co.uk
 Sam Modlin
 Will Ellis Hancock

 

Notes to editors

 

Eneraqua Technologies (AIM:ETP) is a specialist in energy and water
efficiency. The Group has two divisions energy and water. Energy is the larger
division, with the Company focused on clients with end of life gas, oil or
electric heating and hot water systems. The Group provides turnkey retrofit
district or communal heating systems based either on high-efficiency gas or
ground/air source heat pump solutions that support Net Zero and
decarbonisation goals.

 

The water division is a growing service offering focused on water efficiency
upgrades for utilities and commercial clients including hotels and care
homes.

 

The activities in both divisions are underpinned by the Company's wholly-owned
intellectual property, the Control Flow HL2024 family of products which reduce
water wastage and improve the performance of heating and hot water systems.

 

The Company's main country of operation is the United Kingdom. The Company's
head office is based in London with additional offices in Leeds, Washington
(Sunderland), India, Spain and the Netherlands. The Company has 168 employees,
with the majority employed within the UK. Eneraqua Technologies has received
the London Stock Exchange's Green Economy Mark.

 

To find out more, please visit:  www.eneraquatechnologies.com
(http://www.eneraquatechnologies.com)

 

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