ENERGY ACTION LIMITED — Earnings Release 2013

Aug 19, 2013

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ASX/Media Release

For immediate release

Tuesday, 20 August 2013

Energy Action delivers 26% increase in operating[1] NPAT to $5.0 million

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• FY2013 operating[1] NPAT a record $5.0m - up 26% on FY2012

• Revenue up 28% to $22 million

• Activ8 revenue up 19%

• Fully franked dividend of 8.65 cents for the full year

• Future contracted revenue at $76.5 million

• Since 2005 procured $5.3 billion in energy contracts

• Well placed to pursue growth – organic and via strategic acquisitions

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Energy management and procurement company Energy Action Limited (ASX: EAX) (“Energy Action”) today reported strong results with operating[1] net profit after tax (NPAT) of $5.0 million, a 26% increase on the prior year. Statutory NPAT was $4.4 million, a 21% increase on FY2012.

Revenue was $22.2 million, up 28% (FY2012: $17.4 million). Basic earnings per share (EPS) was 16.98[2] cents per share.

Energy Action finished the year with a robust cash position of $6.2 million and no debt, giving the company the financial flexibility to pursue organic and acquisitive growth opportunities.

Given the strong financial performance, the Directors have declared a fully franked final dividend of 5.10 cents per share for the six months to 30 June 2013, payable on 13 September 2013. This takes total dividends for FY2013 to 8.65 cents, fully franked.

Key financial metrics

	FY13	FY12	Variance
Revenue ($m)	22.2	17.4	28%
Operating1NPAT ($m)	5.0	4.0	26%
Statutory NPAT ($m)	4.4	3.6	21%
Future contracted revenue ($m)	76.5	65.5	17%
Earnings per share (statutory)2	16.98c	15.13c	12%
Dividends per share	8.65c	7.20c	20%

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• 1 – before acquisition costs of $0.5m and amortisation of customer relationships ($0.2m), both relating to the acquisition of Ward Consulting Services.

• 2 – after acquisition costs and amortisation of customer relationships. Number of shares includes 596,000 shares which is the estimated number of shares to be issued on 30 September 2013 to the Vendor of Ward Consulting Services.

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Strong growth in revenue.... underpinned by new sites under contract

Activ8 revenue, which accounts for a pproximately 60% of total group revenue, g rew strongly in FY2013, with $12.9 million revenue, a 19% in c rease on FY2012. The number of Activ8 sit e s under contract grew by 16% to 8,472 sites. Average Activ8 c o ntract duration increased 0.4% to 50 mont h s.

During the year, approximately 70% of AEX customers also signed up to the A ctiv8 monitoring product, demonstrating the reverse auction pl a tform’s value as a cross-selling tool. Custo m er retention was 91%.

The company continued to increase volumes across its proprietary rever s e auction platform, the Australian Energy Exchange (AEX), with 1,390 successful auctions, representing a 14% increase over FY12. Total auction bid value increa s ed 13% to $398[1] million mainly as a result of the average price per MWh increasing 13%, from $51.30 t o $58.12.

Operational metrics
	FY13	FY12	Varian ce
No. of successful auctions	1,390	1,225	14%
Average auction contractd uration	26.9	32.5	(17% )
MWhs sold (Auction platfo rm)	6.87m	6.85m	0.3%
Average $/MWh	$58.12	$51.30	13%
Total auction bid value1	$398m	$351m	13%
No. of auction customers	4,908	4,393	12%
No. of auction sites under contract	9,598	8,079	19%
Average Activ8 contract du ration	50.0	49.8	0.4%
No. of Activ8 sites underc ontract	8,472	7,311	16%
No. of Activ8 & Wardm under contract2 onitoring sites	9,478	n/a

1 – electricity component of c o ntract only, ie excludes network and environmental charges 2 – includes Ward Consulting 1,006 sites

Large site auction revenue increas e d 18% to $4.9m. Overall auction revenu e , including ‘small sites’, increased 6% to $5.4 million as a re s ult of a decline in small sites volumes. Energy Action faces stronger competition in the small sites segme n t however the Group is focussing on improving small site volumes.

Auction contract durations

Energy Action’s auction revenue g r owth was achieved despite a shortening in the average length of energy contracts (32.5 to 26.9 months) due to uncertainty around the Federal G overnment’s carbon tax legislation. Uncertainty around the c arbon tax resulted in a lack of a wholesal e market for electricity in 2016 and beyond and therefore o u r customers were only able to lock in p r icing for periods ending December 2015.

EAX has countered this industry wi d e issue by implementing market-leading ‘c a rbon exclusive’ auctions for the majority of clients through th e Australian Energy Exchange. As at 30 J u ne 2013 there were 897 sites with renewals after the end of 2015, compared to 2 in February 2013. As result, the impact of

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uncertainty around carbon tax is ex p ected to reverse. Currently 80% of all auct i ons are run on a carbon exclusive basis and we are seeing a n increase in contract durations.

Sustainability and efficiency revenue doubles

The Activ8+ product was the biggest source of revenue growth for EAX in FY201 3 , generating $2.1 million in revenue, a 105% increase on the p revious year. This was driven by an ongoin g trend among customers to implement sustainable and efficie n t business practices, and the positive impa c t of clean energy grants and incentives.

Energy Action continues to invest in t his product offering and building the team.

Ed Hanna, Energy Action’s Head of Sustainability and Efficiency said: “Energy Action will continue to invest in its Sustainability and Efficie n cy division – we continue to build the team a nd product offering. Our customers are increasingly conscio u s of using less energy and focused on effi c iency and conservation. Energy Action is an end to end en e rgy management business - we aim to f u rther enhance our offer, ensuring our customers have acces s to a full suite of products spanning procu r ement of energy, energy monitoring and energy efficiency and sustainability”.

Strong contribution from Ward Consulting

Ward Consulting has added signifi c ant value to EAX in the 11 months perio d since it was acquired, generating $1.5 million in revenue. W ard’s portfolio of blue-chip property, food and beverage and finance clients continues to provide cross-s e lling opportunities for the broader busines s , particularly through the Activ8+ sustainability and efficiency o ffering.

Future contracted revenue at a record $76.5 million

Energy Action’s CEO Valerie Dunc a n said: “This is an excellent result for Ene r gy Action. The company experienced continued growth acr o ss all of its divisions, and this is partic u larly pleasing given the challenging market conditions. As in d icated at the half-year, operating earnings w ere weighted 55% to the second half in FY2013, as a result o f a number of new contracts secured and a full six months of profit from Ward Consulting.

“The company has also responded t o uncertainty around the carbon tax by developing innovative ‘carbon exclusive’ auctions which allow our c ustomers to lock into energy contracts be y ond 2015. The feedback from our customers has been very e ncouraging, and we believe this solution will help mitigate the future revenue impact caused by the uncer t ain legislative environment.

“We continue to invest in the busine s s, and in the past year we have undertake n a significant restructure of our sales function, which will pr o vide us with increased opportunities to attract new customers and increase our retention and cross-s e lling capabilities. We have also invested in our Australian Energy Exchange platform to increase functi o nality and to ensure it remains a market lea d er.

“Revenue and profit generated from W ard Consulting over the past 11 months w a s pleasing, and we have been able to effectively cross sell ou r Activ8+ products to its suite of blue-chip clients in sectors where we significant growth potential. “Our future contracted revenue are at record levels, increasing $11 million, or 17%, $76.5 million at 30 June 2013 and our customer base remains loyal and diverse with retention rates a t 91%.

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Outlook

Energy Action is well placed to conti n ue delivering year-on-year revenue and pro f it growth, once again driven by strong operational perform a nce across the company’s broad suite of energy management products.

Whilst revenue growth is expected to exceed FY13’s, in FY14 Energy Action exp e cts to increase its operating NPAT by between 10-15% , compared to FY13. NPAT growth in FY14 i s expected to be tempered by the Group’s focus on in v esting in Sustainability & Efficiency product development, in our sales teams and in supporting marketing initiatives. We believe these investment s will put the Group in a strong position to benefit from the fa c t that we will know the majority of our custo m er’s contract end dates. This is because the majority of Com m ercial & Industrial customers will need to h a ve their contracts renewed during 2015 and Energy Ac t ion will be well placed to aggressively grow m arket share.

Valerie Duncan added: “We anticipat e that FY2014 will be another year of solid g r owth for the company, building on our successes to date. We remain focused on investing in the busine s s in particular Activ8+ and our sales teams, to further drive f uture organic growth, and we are continuin g to assess complementary, earnings accretive M &A opportunities.”

Excellent progress has been made i n regards to the executive search process fol l owing the announcement that Valerie Duncan i s retiring from her position as Managing Dire c tor. Valerie will continue in her role until a replacement is sec u red and will assist with the transition proces s . Following the appointment of a new CEO, Valerie w ill remain on the EAX Board of Directors, a s a Non-Executive Director.

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Further information:

Valerie Duncan, Managing Director: (61 2) 9633 6403 Nathan Francis, Chief Financial Officer & Company Secretary: (61 2) 9633 6405

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