EuroSite Power Reports Second Quarter 2020 Financial Performance
COVID-19 hits performance but UK operating company maintains positive EBITDA
MACCLESFIELD, UK, August 13, 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 challenging trading conditions during the second quarter due to the COVID-19 pandemic. Second quarter 2020 revenues reduced 61.84% to $409,601 when compared to the $1,073,462 revenues posted for second quarter 2019. While the Company reported a non-GAAP adjusted negative EBITDA for the quarter of -$16,048 (Q2 2019: -$79,041) its UK operating company was still able to maintain a positive EBITDA of £11,989 for the quarter (Q2 2019: -£19,703) having achieved a positive cash flow in each month of the quarter. Combined with a stronger first quarter performance the Company achieved a non-GAAP adjusted EBITDA of $73,353 for the first half of the year, comparing favourably to the $2,826 reported for the same period in 2019.
Following the enforced closure by the UK government of hotel accommodation, indoor fitness studios, gyms, swimming pools, spas and other indoor leisure centers after March 20, 2020 the Company saw daily generation output fall by as much as 75%. New business development activity and construction of new projects also ceased, with the Company taking advantage of the UK Governments Corona Virus Job Retention Scheme (furlough) to help retain staff during the downturn. Despite these challenges the business operated throughout the period of lockdown maintaining energy generation to those customers who were open for business and Management report that all departments are now operating following the easing of restrictions during June and July.
Liquidity improved during the quarter with reported cash and cash equivalents on June 30, 2020 of $1,259,918, an increase of $563,872 compared to the cash on hand on March 31, 2020. This followed the agreement to sell part of the Company’s shareholding in Cyprus based FCN Energy Logistics Limited, parent company and sole owner of Blue Grid Gas and Power S.A.
Management also implemented a range of other measures to improve day-to-day liquidity including accessing all available financial support programmes provided by the UK government and reaching mutual agreement with directors and staff to temporarily reduce salaries by 20%. In addition, the UK operating company successfully secured a £100,000 ($ 130,000) loan facility under the terms of the UK’s Coronavirus Business Interruption Loan Scheme although the company is yet to draw down in this facility.
“As expected, the second quarter has been heavily impacted by COVID-19. At the same time, we were very focused on cost mitigation efforts which provided some resilience. Generating output was higher than or initial modelling had suggested which helped the UK operation to maintain a positive cash flow.” said Dr Elias Samaras, CEO. “A lot of uncertainty remains as the UK emerges from its Coronavirus restrictions, and we still see some challenging quarters ahead”.
“Now that lockdown has eased our customers’ sites are reopening and we have seen an encouraging increase in the energy generation to these customers but we still expect it to take some time before we see a return to normal levels of energy generation.” said Paul Hamblyn, Chief Operating Officer and Managing Director. “While the hospitality and leisure sectors have been hit hard by the pandemic other opportunities are being developed in those sectors less affected by the impact of the lockdown measures and we were particularly pleased to have been recently named as a supplier on Crown Commercial Service’s Heat Networks and Electricity Generation Assets DPS Agreement.”
COVID-19 impacts financial performance, but UK operation remains EBITDA positive
Second quarter 2020 energy generation fell by 62.79% to 5,151,799 kWh compared to 13,846,238 kWh in the same quarter last year. This was the result of the enforced closure of all hotel accommodation, indoor fitness studios, gyms, swimming pools, spas and other indoor leisure centers by the UK government. As a result, total revenue decreased 61.84% to $409,601 for Q2 2020 compared to $1,073,462 for same quarter in 2019
Energy revenue for the second quarter was $397,383 compared to $965,083 for the same period last year, a fall of 58.82%
Gross profit decreased by 76.71% to $ 40,848 for the second quarter 2020 compared to $ 175,415 for the same quarter in 2019. This represented a gross margin of 9.97% for the quarter compared to 16.34% for the same quarter last year.
Gross margin excluding depreciation for Q2 2020 increased to 45.02% as compared to 29.63% for Q2 2019, the result of losses on Trunkey projects in 2019 not being repeated
Operating expenses fell 50.96% to $ 206,904 for the second quarter 2020, largely the result of the subsidy of payroll costs under the UK government’s Coronavirus Job Retention Scheme, various grants and temporary salary cuts. By comparison expenses in Q2 2019 were $ 421,901
The net loss for the second quarter 2020 reduced to $ 124,010, a decrease of 52.68% compared to the
$ 262,056 loss recorded in the second quarter of 2019
Non-GAAP adjusted EBITDA for Q2 2020 was a loss of $16,068 compared to a loss of $ 79,041 in the same period last year
The UK operating company continued to record positive EBITDA for the three months of the second quarter, resulting in a positive cash flow totalling £11,989. This compared to a loss for the second quarter 2019 of £19,703, a swing of 160.84%
Net loss per share was $ 0.002 in Q2 2020 compared with a loss of $ 0.003 per share in Q2 2019
The Company sold part of its share in Cyprus based FCN Energy Logistics Limited for a total consideration of
EUR 500,000 ($ 564,100) and in so doing reduced its holding to 28%
As a result, the Company’s cash position improved such that on June 30, 2020 it held at total of $ 1,259,918
Operational fleet capacity at June 30, 2020 was 40 systems at 38 sites totalling 5,100kW (of which 717kW are non-OSU systems maintained for others). This is the same as reported at the end of June 2019
Although the 100kW unit installed at the International Convention Centre Wales was brought into operation during the first quarter the closure of the venue due to the COVID crisis impacted upon its contribution to the business. The re-opening of this facility is scheduled for January 2021 and so the contract has been renegotiated so that it will now commence on opening and then run for 15-years
The system at Benton Hall Golf & Country Club which completed shortly before lockdown began in March 2020 has now been brought into operation
The system at Ricoh Arena has been fully commissioned but remains offline awaiting reopening of the stadium and subsequent drawdown of the project funding. It is anticipated that this system will be in operation during the third quarter
Construction of the remaining backlog projects ceased in March but restarted on site in June. Since restarting the 100kW system Brentwood Leisure Centre has been completed and brought into operation and a second 70kW system at the Castle Royle Golf & Country Club is nearing completion. In addition, the 270kW chiller system to be installed at Roko York is also under construction. All other remaining projects are awaiting planning consent, delayed due to the COVID crisis
Contracted backlog at June 30, 2020 - 9 systems totalling 910kW
In response to the COVID crisis one member of the service team resigned their position and management will not be replacing this role at this time
The Company has been named as a supplier on Crown Commercial Service’s (“CCS”) Heat Networks and Electricity Generation Assets DPS Agreement. CCS supports the UK public sector to achieve maximum commercial value when procuring common goods and services. In 2018/19, CCS helped the public sector to achieve commercial benefits worth £945m – supporting world-class public services that offer best value for taxpayers. As a named supplier the Company will be able to offer products and services under two services: Service 2 - Delivery services to install, manage and maintain any demand management or generation type; and Service 3 - Provision of Energy Purchase Agreements through directly wired electricity and/or directly connected heat interfaces
The Company has also been registered for Constructionline Silver Membership. This provides pre-qualification for the Company as a supplier of a range of work categories including combined heat and power (CHP) systems and installations. The aim is to increase the number of invitations to tender from a broader range of public and private sector organisations
Blue Grid Gas & Power, in which we now hold a minority secured their first LNG supply contract. Under the terms of the 3-year, 3,000 ton per year contract they will be supplying LNG to a steel plant in Montenegro owned by Turkish steel group Tosyali Holdings and is estimated to generate revenues of approx. EUR 1.8 million
The contract with Coca-Cola HBC that was temporarily suspended due to the COVID crisis has now been restarted and work is underway to identify additional efficiency projects that can be enacted under the terms of the contract
Outlook, COVID-19 response and risks
England began reopening hotels in mid-June with the other countries of the UK following so that most hotels were able to reopen by mid-July. Indoor fitness studios, gyms, swimming pools, spas and other indoor leisure centers have been able to reopen since July 25, 2020 in England with most other UK facilities being able to be open from August 1 however, not all customers have chosen to reopen and social distancing rules mean that energy demand has not returned to seasonal norms. Management remain uncertain about the speed of recovery added to which is the risk of further shutdowns if local or sectorial countermeasures are implemented to supress resurgence of the virus at any time
With funders altering their lending criteria, particularly for projects in the hospitality and leisure sectors management anticipates difficulty in securing new business within these sectors. In response management are developing opportunities in new sectors with both existing and new technology offers. In addition, turnkey projects are also being sought using the Crown Commercial Service and Constructionline portals to generate invitations to tender
With UK government support for business tapering off management expect payroll expenses to increase through the third and fourth quarters. Staffing levels will be kept under review
Liquidity is currently considered good, but as project expenditure increases as the Company builds out its current project backlog cash will be used to fund projects ahead of drawing down project funding on completion. With lending criteria tightening there is a risk that funding may be withdrawn during construction, so reducing liquidity. In response management have engaged with additional funders and have secured a £ 100,000 ($ 130,000) loan facility with its banker which remains available until October 9, 2020
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, 2019. 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.
Dr Elias Samaras
+44 844 693 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.