EuroSite Power Reports First Quarter 2020 Financial Performance
Increased gross margin and profitability for UK operating company
MACCLESFIELD, UK, May 14, 2020 -- EuroSite Power Inc. (OTCPK: EUSP, the "Company") an On-Site Utility solutions provider, offering clean electricity, heat, hot water and cooling solutions to healthcare, hospitality, housing and leisure centers in the United Kingdom (UK) and Europe, reported first quarter 2020 gross margin increased to 33.6% in 2020, delivering a gross profit of $384,700 for the quarter. This compares to the 30.1% gross margin and £396,092 gross profit reported in the same quarter last year. Revenues for the quarter reduced 12.9% to $ 1,145,978 when compared to the $1,315,471 reported in the first quarter of 2019, the result of one-off turnkey revenues in 2019 not applying this year. While the Company reported a net operating loss for the quarter of $ 87,968 (Q1 2019: $ 89,068) its UK operating company reported a net profit for the first quarter of £ 18,517 having achieved profitability in each month of the quarter. Investors are reminded that this result means that the UK operating company has now been profitable for the last two quarters.
The Company also reports that it has closed its first deal for its new high efficiency chiller offer, part of its diversification program. The deal announced was closed with an existing customer, Roko Health Clubs and the system will be installed at their sports and health club facility in York. The 270kW chiller is being supplied under the terms of a 15-year On-Site Utility agreement and funding will be provided by one of the Company existing pool of funders. Operation and maintenance of the chiller will be provided by EuroSite Power and the customer will simply pay a monthly usage fee based on the electricity consumed by the chiller. Overall Roko Health Clubs are forecast to reduce their carbon footprint by 27 tons per year while replacing their existing chiller without the need for any capital investment and without running costs, including the Company’s charges increasing from existing levels.
During the quarter, the Company made a further $565,099 investment into its Joint Venture, FCN Energy Logistics Limited. This investment is to be used by FCN Energy Logistics’ 100% owned subsidiary, Blue Grid Gas & Power to purchase LNG distribution assets in Greece in preparation for LNG supply contracts due for closure during 2020 and to fund ongoing operating expenses.
The Company also reported the impact of the global Coronavirus pandemic on its operation and cash liquidity. Energy generation from the Company’s fleet of Combined Heat & Power units has decreased around 60% since March 20,2020 when the UK government enforced the closure of all hotel accommodation, indoor fitness studios, gyms, swimming pools, spas and other indoor leisure centers. While revenue is much reduced as a consequence the Company continues to bill its customers normally and receivables are broadly being collected on time. Some employees have been furloughed under the UK government’s Coronavirus Job Retention Scheme and all directors and staff of the UK operating company have agreed to take pay cuts and forego certain benefits. In addition, the UK operating company has successfully accessed a range of business support schemes deployed by the UK government and secured a £100,000 ($ 123,680) loan facility under the terms of the UK’s Coronavirus Business Interruption Loan Scheme.
Commenting on the first quarter’s results and the current crisis Chief Executive Officer, Dr Elias Samaras said “Our aim had been to achieve profitability this year and the fact that our UK operation has been profitable for the past 6 months is a sign that we were moving in the right direction. Of course, Coronavirus will likely interrupt our plans, but I am confident that the work being done to manage the immediate effects of the crisis will help mitigate both the short and medium term risks for the Company”.
“With almost all our customers operating in the sectors closed down as a result of the current crisis we had originally feared that revenue would disappear, but generation has remained possible and we can still access around half of our sites to service units or attend to breakdowns” said Paul Hamblyn, Chief Operating Officer and Managing Director. “While it’s unclear when our customer’s sites can reopen, I believe that our medium-term future is strengthened by our strategy to diversify our offering based upon our proven OSU model. This is already starting to bear fruit as evidenced by the recent agreement with Roko Health Clubs to provide a new high efficiency chiller. This strategy of delivering a broader range of fully funded, innovative energy solutions opens up far more sectors than the hospitality and leisure sectors normally associated with CHP. I am, therefore, confident we can bounce back from the current crisis such that we can begin building on the underlying success of the past 6 months”.
Gross margin increases, and UK operation continues profitable trend
Overall gross margin including depreciation increased to 33.57% for Q1 2020 compared to 30.11% for Q1 2019, the result of softening gas prices and greater fleet efficiency
Overall gross margin excluding depreciation increased to 46.26% for the first quarter of this year compared to 40.85% for the same quarter in 2019
Overall gross profit including depreciation for the first quarter 2020 decreased by 2.88% to $ 384,700 compared to $ 396,092 in the first quarter of 2019
Total revenue decreased 12.88% to $ 1,145,978 for Q1 2020 compared to $ 1,315,471 for same quarter in 2019, the result of no turnkey revenue being recognised this year compared to last
Energy revenue for the first quarter 2020 was $ 1,145,978 compared to $ 1,153,198 for the same period last year, a decrease of 0.63%. This resulted from year-on-year exchange rate variations. Energy revenue at the UK level increased 1.04% to £ 894,946 in Q1 2020 compared to £ 885,739 in Q1 2019
The net loss for the first quarter 2020 of $ 87,968 compared to a net loss of $ 89,068 for the first quarter 2019, an improvement of 1.23%
Non-GAAP EBITDA cash flow for the first quarter 2020 was positive at $ 89,402 compared to a positive $ 82,614 in Q1 2019, an improvement of 8.22%
The UK operating company delivered a net profit £ 18,516 for the quarter compared to a £ 22,739 profit for the first quarter 2019. The profitable result for this quarter continues the trend of profitability first reported for the fourth quarter 2019
EBITDA cash flow for the UK operating company for the first quarter 2020 was positive at £ 144,820 compared to positive £142,999 recorded for the same quarter last year, an improvement of 1.27%
Additional financial headlines
The Company made a further € 500,000 ($ 565,099) capital injection into its 50% Joint Venture, FCN Energy Logistics Limited. This investment represents half of a total € 1,000,000 investment planned during 2020 and is to be used by FCN Energy Logistics’ 100% owned subsidiary, Blue Grid Gas & Power to purchase LNG distribution assets in preparation for LNG supply contracts due for closure throughout 2020 and to fund ongoing operating expenses
Expenditure relating to construction in progress was $1,014,870 during the first quarter 2020
Liquidity and cash position on March 31, 2020 was $ 696,046. This represents a reduction of $ 1,185,928 on the cash balance on December 31, 2019, the result of both the investment in FCN Energy Logistics and increased expenditure on construction in progress
Total energy production decreased by 0.49% to 14,745,081 kWh for quarter ended March 31, 2020 as compared to the same period in 2019, the result of site closures caused by the global Coronavirus pandemic
Operational fleet capacity at March 31, 2020 was 40 systems at 38 sites totalling 5,100kW (of which 717kW are non-OSU systems maintained for others). This compares to 40 systems at 37 sites totalling 4,835kW (511kW non-OSU) at the end of March 2019
The 100kW unit installed at the International Convention Centre Wales was brought into operation during the quarter
Installation of the systems at both the Ricoh Arena and Benton Hall Golf & Country club were completed during March 2020, but site closures caused by the Coronavirus crisis meant that commissioning could not be finished as planned for first quarter 2020
Contracted backlog at March 31, 2020 - 9 systems totalling 910kW
In response to further TEDOM units exiting their warranty period and the Company taking over responsibility for maintenance, an additional service technician was hired during the first quarter 2020
New business development
Closed its first deal for a high efficiency chiller. The 270kW unit will be supplied under a 15-year On-Site Utility agreement to Roko Health Clubs for their sports and health club facility in York.
Coronavirus crisis - impacts and response
Energy generation and revenue has fallen by approximately 60%, the result of enforced closures of all hotel accommodation, indoor fitness studios, gyms, swimming pools, spas and other indoor leisure centers by the UK government
UK operating expenses have fallen as a result of UK staff members working from home, reduced corporate travel and lower/subsidised payroll costs
All UK directors and other staff have agreed to temporary pay cuts of 20%, together with the suspension of certain other benefits
Seven UK staff members have been furloughed under the UK government’s Coronavirus Job Retention Scheme, allowing the Company to recover up to £13,600 ($ 16,820) of its monthly wage costs. This payment is a grant and does not need to be repaid. The remaining five staff members continue to provide full-time operational, service and administrative support to its customers
The UK company has received a £ 10,000 ($ 12,368) non-refundable emergency cash grant and deferred payment of payroll taxes for at least three months
The Company has reached agreements with both customers and suppliers to ensure that both receivables and payables can be managed appropriately during the duration of the crisis
The UK company has received a cash payment of £ 67,666 ($ 83,690) representing the Enhanced Capital Allowance tax incentives that were due following submission of its UK corporation tax returns for both 2018 and 2019
The UK company anticipates that it will be due a VAT refund for the current quarter and expects this payment to be received in June
The Company has been paid the £134,322 ($ 166,129) project funding associated with the Benton Hall Golf & Country Club. This represents the first project funded by Close Brothers
Draw down of the project funding for the two other completed projects, International Convention Centre Wales and Rioch Arena has been interrupted by the current crisis and the Company currently believes these projects will not be able to be funded until after the crisis ends
In view of the expected revenue downturn and reduced liquidity caused by the current crisis, the Company is reconsidering its € 1,000,000 investment commitment to its Joint Venture, FCN Energy Logistics
To provide greater flexibility the Company has secured a £100,000 ($ 123,680) loan facility with its UK banker, NatWest. This 6-year term loan can be drawn down at any time within the next 6-months and includes special terms provided under the UK government’s Coronavirus Business Interruption Loan Scheme
Outlook and risks
Due to the current Coronavirus crisis the outlook for 2020 is uncertain but contingency planning is exploring a range of different options designed to accommodate the various means the UK may exit the current lock down measures. Management will provide more updates as the situation develops
While the UK operating company has now delivered a net profit for six consecutive months it now expects losses to return as the impact of Coronavirus effects revenue generation in the second quarter 2020 and beyond
Losses within the Blue Grid Gas & Power Joint Venture are increasing as new hires add expense ahead of revenue being generated from the anticipated LNG gas supply contracts anticipated later this year
Management consider the overall outlook for financial performance in 2020 to be uncertain
The Company now files its financial statements under the Alternative Reporting Standard (ARS). Financial reports, which are prepared in accordance with US GAAP, are generally provided within 45 days of period end (90 days for fiscal year end results) and are reported to maintain at least the OTC Pink Limited Information tier.
Following corporate reorganisation and de-registration of the Company’s common stock, with effect from January 1, 2017 foreign exchange gains/losses are reported in the cumulative translation adjustment (CTA) account on the Company’s balance sheet.
Fiscal year-end financial reports for the operating company, EuroSite Power Limited are audited by a PCAOB registered firm and the Company provides current information for the purposes of SEC Rules 144(c)(2) and 10b-5 using the OTC Disclosure & News Service. Financial statements for EuroSite Power Limited are prepared in accordance with UK GAAP, and consequently differences in accounting treatment and presentation may arise.
On-Site Utility (OSU)
EuroSite Power sells the energy produced from an on-site energy system to an individual property as an alternative to the outright sale of energy equipment. On-Site Utility solution customers only pay for the electricity or total energy produced by the system and receive either a guaranteed discount rate on the price of total energy or a fixed price for electricity. All system capital, installation, system maintenance and support are paid by EuroSite Power, and in the case of No Risk On-Site Utility solution customers all system fuel costs are also paid by EuroSite Power.
About EuroSite Power
The Company provides institutional, commercial and small industrial facilities with clean, reliable power, cooling, heat and hot water at lower costs than charged by conventional energy suppliers – without any capital or start-up costs to the energy user. More information can be found at www.eurositepower.co.uk.
This press release contains forward-looking statements under the Private Securities Litigation Reform Act of 1995 that involve a number of risks and uncertainties. Important factors could cause actual results to differ materially from those indicated by such forward-looking statements, as disclosed on the Company’s website and in financial statements held by OTC markets for the fiscal year ended December 31, 2018. This press release does not constitute an offer to buy or sell securities by the Company, its subsidiaries or any associated party and is meant purely for informational purposes. The statements in this press release are made as of the date of this press release, even if subsequently made available by the Company on its website or otherwise. The Company does not assume any obligation to update the forward-looking statements provided to reflect events that occur or circumstances that exist after the date on which they were made.
Investor Contact: Dr Elias Samaras - CEO
+44 (0)844 693 2848
Dr Elias Samaras is the founder, president and managing director of Digital Security Technologies S.A. He was also the founder and president of Plefsis Information Systems S.A. and City Messengers. Elias holds a Master of Science degree from MIT, a Doctor of Philosophy from Columbia University in New York, where he was also a professor for several years and an OPM from Harvard Business School.
Chief Operating Officer
Paul Hamblyn is Chief Operating Officer of EuroSite Power Ltd with responsibility for strategic and new business development of the business.Paul is highly experienced in the energy sector having built an enviable track record prior to joining EuroSite Power. This includes strategic level roles with Corona Energy and the ENER-G Group including 3 years as the Managing Director of ENER-G Efficiency.A leading expert on UK carbon regulation Paul is a regular speaker at major conferences including those organised by the Major Energy Users Council, the Local Government Association and the Westminster Energy Forum. He is also a formerCouncil Member of the Energy Services and Technology Association (ESTA). Paul is a CIBSE accredited Low Carbon Consultant and Energy Assessor as well as principal author of the award-winning CRC Toolkit developed for the London Energy Project.
UK General Manger
Chris Marsland is UK General Manger of EuroSite Power Ltd. He leads the UK operational company and directs its operational and administrative functions. Prior to joining Eurosite Power, Chris built up years of sector expertise in senior positions including the role of Technical Director at Centrica Business Solutions, formerly ENER-G Combined Power Limited. He also Chaired the Association for Decentralised Energy Commercial Forum and is an Association Board Member. Chris earned a first-class bachelor’s degree in electronic engineering and is both a Chartered Engineer and Fellow of the Institute of Engineering & Technology.
Financial Controller & Company Secretary
Laura Chambers is EuroSite Power Ltd’s Financial Controller and Company Secretary. An experienced finance professional, Laura has undertaken financial planning and analysis roles at number of blue-chip businesses including Astra Zeneca. She also spent 7 years at Kellogg’s European Finance Services Centre (EFSC). Qualified as a Chartered Accountant at KPMG’s Manchester office, Laura brings strong organisational skills and broad finance experience to the team.
Head of Operations
Stephen Butler is EuroSite Power Ltd’s Head of Operations. Having joined the company in 2012 as Chief Engineer, Stephen has moved through the business into his current role. With an impressive resume that includes senior mechanical engineering roles at Thames Water and ENER-G Combined Heat and Power Ltd, Stephen brings strong operational, project management and technical experience to the team. He is a Technician Member of the Institution of Engineering and Technology (TMIET).
UK Sales Manager
Martin Evans is our UK Sales Manager. A well-known and seasoned energy sector specialist, he brings a wealth of commercial experience - from start-ups to corporate level engagement – to our team. With a career spanning over 30 years, he has spent much of his career in technology led businesses and manufacturing including aviation and automotive. Martin’s previous roles at cutting-edge low carbon businesses including Grid Beyond, WEMS International and EnergyQuote JHA have given him a unique insight into the challenges faced by many of the UK’s most intensive energy users. He has also amassed over 15 years direct experience in commercial asset finance. Martin studied Applied Chemistry at the University of Manchester.
Mark Brown is our Account Manager. An experienced energy sector professional - particularly in the fields of CHP and renewable technologies - Mark has worked in engineering and technical roles for over 20 years. This includes 11 years at Cogenco UK (now fully integrated into Veolia’s CHP business). A great communicator with a positive approach to creative problem solving and troubleshooting, Mark is a key member of our customer-facing team. He holds qualifications from the Institute of Leadership and Management.
Jacques de Saussure
Non-Executive Chairman of the Board
Jacques de Saussure was Senior Managing Partner of the Pictet Group from 2010 until June 2016 after being elected partner of Pictet in 1987. Founded in Geneva in 1805, Pictet Group is one of Europe’s leading independent wealth and asset managers with EUR 437 billion of assets under management and custody as of 31 December 2015. Jacques is a member of the board of the Swiss Bankers Association and has also served as Vice Chairman of the Swiss Stock Exchange, which merged into SIX group in 2008, where he remained member of the board until 2010. Jacques holds a Master’s degree from MIT’s Sloan School of Management.
Dr Ahmed F. Ghoniem
Dr. Ahmed F. Ghoniem has been a member of our Board of Directors since January 2011. He is the Ronald C. Crane Professor of Mechanical Engineering at the Massachusetts Institute of Technology (MIT). He is also the director of the Center for 21st Century Energy and the head of Energy Science and Engineering at MIT, where he plays a leadership role in many energy-related activities, initiatives and programs. Ahmed holds a Ph.D. in Mechanical Engineering from the University of California, Berkeley, and an M.S. and B.S. in Mechanical Engineering from Cairo University.
Joan Giacinti is the founder and Chief Executive Officer of Sofratesa Group with headquarters in Santo Domingo, Dominican Republic. Joan is also a founder of Aerodom, a concessionaire chosen by the Dominican government to develop, operate and manage airports in the Dominican Republic, which in 2008 was acquired by Advent International. He is the President of the Caribbean region of the French Trade Councils, “Conseillers du Commerce Exterieur” and the President for the Americas of the Forum Francophone des Affaires (FFA). He is also decorated with the Ordre national du Mérite by the President of the French Republic. Joan is a graduate from the École des Hautes Études Commerciales de Paris (HEC).
Marcel Cassard joined Deutsche Bank in 1997 where he is now a member of the Global Markets Executive Committee and Global Head of Fixed Income and Economics Research. Marcel also heads the Bank’s Global Macro Strategy Group, which advises the Board and clients on broad market risks and global economic and financial developments. Previously, Marcel spent five years at the International Monetary Fund. Previous to that, he was an Economist at the Council of Economics Advisers in the Executive Office of the U.S. President. Marcel holds a PhD in Economics from Columbia University.
Mr. Stelios Zavvos
Stelios Zavvos is the Founder and CEO of Zeus Capital Management, a private equity group. With over 35 years of corporate, finance and real estate experience, Stelios is also the Founder and CEO of Continental American Capital, an investment group that focused on real estate investment and financing in the USA. He has served as a Member of the Board of Directors of the NASDAQ listed Star Bulk Carriers Corp, serving on the Board’s Audit Committee. He has also held executive positions in blue-chip companies such as Citibank, Johnson & Johnson and Procter & Gamble. SteliosZavvos holds an MBA from Harvard Business School and an MSc in Civil Engineering.