Energy S.p.A. (ENY) Earnings Call Transcript & Summary

Good afternoon, everyone, and thank you very much for being here with us in this -- attending this conference call. As you know, this morning, the Board of Directors approved the half year 2023 financial results. And I would like to pass the floor to Mr. Davide Tinazzi, Co-founder and CEO of the company, to comment on some strategic, let's say, highlights, financial highlights, together with Mr. Dan Manfroi, the CFO of the company. Please, Mr. Tinazzi, the floor is yours.

Thank you, Mara. Good afternoon to everybody here, and thank you for joining us for this presentation. I shared the screen, and I go directly through presentation for this. All the materials here will be in our website at the Investor area, Investor Relations area. Mara, can you see us? Can you see the screen? Can you confirm?

Yes, I confirm.

Okay. Yes. Here with me, I have also Daniele Manfroi, who has been already introduced by Mara.

Good afternoon.

Okay. So today's agenda is to go through Point 2 and 3 in half an hour, and Point 4 for question and answer in the remaining half an hour. We are going to skip Point 1 as many of you already know Energy. And for the ones that want more about Energy, you can find out here in the presentation that, as I said, is attached in Investor Relators area in our website. [Presentation] Of this part, I just want to point out one single thing, is that in the strategy of energy, we are moving from the status of advanced system integrator to full system integrator, which involves to verticalize some part of the components of our energy storage system, either both hardware and software especially power electronics, controlling electronics, and soon also batteries. And on software regarding EMS, which is the controlling software and cloud computing based on the cloud, also taking advantage of IoT solution, Internet of Things. So we went to IPO also for accelerating this trajectory that we are accomplishing. So let's go directly to Point 2, which is related to the H1 2023 financial highlights, and I leave the floor to Daniele.

Thank you, Davide. So we go quickly through the main key numbers that we have included in our press release and this presentation regarding the H1 2023. As already anticipated in July, we, of course, confirm within the half year financial report that the revenues were recorded EUR 39.3 million net revenues. And the EBITDA is EUR 8.5 million, which equals to 21.8% margin on revenues. While in financial terms, the net financial position is EUR 4.6 million, and the net income after we cumulated taxes, of course, accounts for EUR 5.5 million, which is 13.9% marginality on total revenues. We must, of course, consider and confirm that the external context has a significant impact on the results. In particular, the top line where we have a decrease compared to last year results, so 30 June 2022. And of course, against also our expectation, as we already explained during the summer. And this is mainly due to the sudden stop of the credit transfer mechanism, which allowed the increase flow into the lower part of the supply chain, especially installers in the past. Despite this, of course, we continue to manage the situation in order and get the results that we explained here. And we have more details, of course, in the table next to this presentation. In terms of revenues, of course, we have a slowdown for the company compared especially to the trend that the company has achieved over the last years, I would say, actually is the first semester, which is lower than the previous year's one. And so we accounted for EUR 53.3 million in the first part of 2022, as you can see in the graph. This slide just to highlight this, let's say, unexpected and very single occurrence at least in the last 4 years, but I can say actually also in the previous years from the company foundation. When we go drilling to the type of revenues that we have achieved, we can see some key, let's say, factors or some key drivers. On the left, in terms of geographic, in this semester, we could keep the 15% that we have already achieved in the full year of 2022, but we are significantly higher than the first semester of each 2022. Which confirms that despite volumes, actually, the composition in terms of geographic still confirms our effort and commitment towards the export market, especially as we said, Europe, in this case, for 14% of revenues and the U.S. by 1%. In the center graph, instead, we can see a comparison between the 2 semesters in terms of product category. So I recall here that we have 2 different product main families. One is the small and large and typically below the 50 kilowatt power, which is dedicated to residential application or small shops on, let's say, small application. And we have the extra-large over the 50 kilowatt hour, which is dedicated to industrial and large commercial and agrible type application. And we can see a significant increase in terms of shares of revenues in this latter category. And this represents exactly the trajectory of the company that we want to keep and maintain and even develop more in the future. In absolute terms, this 5% represents also in absolute terms, a value which is quite comparable to last year. So we kept this value quite steady growing despite all. On the right graph, we can see the composition of revenues by channel, which is basically a little bit moving. Still, we are increasing. I would like to point the lowest segment, which is the 7% in gray color of H1 2023, growing from 4% to 7%, and this is especially what we call the EPC installers, and that's where the extra-large products are dedicated especially. And then in the blue color, we can see the generalist distribution, which is a small decrease. And in the other 2 gray colors, we can see weight of Value-Added Reseller, which is a little bit increased compared to the one year ago situation. In terms of systems sold, of course, we have smaller numbers, both in terms of number of parts sold and of power. But this is quite in line in terms of, let's say, in relative terms, this is quite in line with the revenues. About marginality profitability. So we can see we are in line with expectation. Of course, EUR 8.5 million equals to 21.8% EBITDA margin. And this is less than the last year's results. So I'm especially referring to June last year. We were at 27.7%, but many times we explained that it was a temporary situation. And despite all we had our, let's say, guidelines on 20%, which is where we believe we should stick to. And in this semester, we can say that the price -- let's say, price effect, let's call it price effect, that we have experienced temporary higher margins is basically off. So we had a very small impact on it on the 21.8%. The EBIT, of course, is slightly lower, but we are strongly investing internally. And so we, at this moment, we say this is not fully reflected because most of the investments we have done in the first semester are running investment and not completed. So we cannot account for amortization and deposition on them as for now. And the difference, you can see the difference between the EBITDA margin of H1 2022. We had just 0.2% difference from EBITDA to EBIT. This time, we have 1.4. Moving to the financial position. So we are on a net terms, EUR 4.6 million is decreasing compared to the absolute value that we have recorded on the end of last year, which was EUR 8.2 million. Of course, as of today, we are in the middle of the financial year. So we cannot say we can make easy comparison in terms of the ratio with the EBITDA. But the composition has slightly changed and we are adapting. We adapted actually our composition on debt side, say, financial debt side, and also at the same time leveraging the net working capital in order to keep this condition of net financial position under control for the time being and to, let's say, say through this situation of lower revenues that we have expected. And we have now 2 views on the cash flow bridge. The first view is starting from the EBIT and going to the net cash flow, which I can say immediately is positive as you may have already noticed. And how this could happen, the building up of the construction of this result is basically composed by reduction or many or some components, especially combination between, let's say, the combination between having the net capital not absorbing the EBIT. And we have, of course, no changes in the equity. And we have all the other components, which still are, of course, making the impact on taxes and CapEx, investment and the financial income that we can already say it's higher than the past, of course, but we all know that we're having this [indiscernible] channel of the previous years. If we then move into another view, which is the cash to cash from end of '22 to the situation that we can record today. We can actually see the same, let's say, picture in other terms. And over, let's say, that we have also changed -- we can highlight here that we have operated a change in the short-term debt versus the long-term debt. And this reflects also how, let's say, the way we decided to manage and leverage the composition of the net working capital and over also considering also the investment side that we have continue to go. I can confirm that at this point, we have, in any case, continued and then we went on with our investment plan.

I'll take the floor here to go through the strategic achievements and objectives. The line of strategy that we have been deploying still stick on the strategies that we declare once in IPO. First line is supply and manufacturing. They go to market. This is the second line. And then the promotion of our Zero Co2 brand. For the supply and manufacturing, we changed to the in-sourcing and industrialization of the production phases and pursuing strategic M&A. We moved in a new plan. This was still in 2022, and we acquired a new area, just nearby. And we increased the human resources at the end of June this year to 54. Right now, we are already 62 currently. And what we are doing here is in this new area, is launching a Phase 1 of the production facility for assembly of batteries. It's going on right now, and we target to complete it by the end of the year. And the maximum capacity of the line will be 800 batteries per day depending on the model, and that would drive to production capacity of 4 megawatt hour in terms of capacity of the total amount of batteries produced. Actually, the target of this line is not the production volume, but is to understand the level of automation to apply duties assembly process in order to have clear ideas for the Phase II, which will involve a much bigger building, which is already under construction, where there will be 10 lines, longer lines of production. So we are going to [indiscernible] in the first stage the level of automation in order to keep in one side flexibility, but in the other side, efficiency. Of course, we also improved the industrialization of the XL family, XL family that has been expanded with new models and which is under production in the current place that we have since last year. In the first semester of this year, we announced that we joint venture with our partner and supplier [indiscernible]. The new companies is [indiscernible], 30% owned by Energy, 70% by [indiscernible]. And the target of this company is to have technology transfer, manufacturing know-how, capacity transfer, and also networking and strategic transfer and co-design of some models in order to produce in the gigafactory that correspond to Phase II, several different models of batteries for capacity that is going to be of some gigawatt hour per year. So Phase 1 will be totally -- the output of Phase I will be totally dedicated to Energy and needs while the capacity, total output of Phase I will be also be available for supplying batteries to other parties. During the summer, actually, this was already in the second semester of this year, we announced to have established a new company, which is Energy in Cloud, sr.l, which acquired the Cloud Computing, an existing company, dedicated to, of course, cloud computing and Internet of Things applications. That was in order to push our energy capacity to provide services. The new entity is 73% owned by Energy and 27% by Cloud Concluding. In terms of services, of course, the main target will be to have the software and service to manage the energy communities, which we are expecting to be a way for sharing energy between consumers, so end users that have a need to produce and store and share energy. As a matter of fact, this kind of new model would replace in terms of incentives, the previous systems of giving incentives to the CapEx. This incentive will be on the shared energy. Thanks to that, Energy will become the only European operator to have virtually integrated various stages of store system production in terms of hardware, but also in terms of software and cloud that will ensure data security and privacy in accordance with European standards. Regarding the go-to-market, we further expanded the distribution model in order to supply at the European level all the new clients. Here, I mentioned some activities done in the past, but currently, I can let you know that we are pushing activities all over Europe, especially for the C&I sector. I skip this one, which is related to branding through also new products. So I think the time for the presentation is over, so we can directly go to the question and answer and having your questions received.

Roberto, the floor is yours.

Thanks for the presentation. Two questions for now, and I'll leave the floor to the colleagues. And my first question is on revenues. What are your expectations? You had minus 26% year-on-year in the first half. So I'm wondering what your expectations are for second half of this year? My second question is on the EBITDA margin. Which was slightly above your indication at the July press release. I'm wondering if, firstly, what the drivers were supporting this, let's say, better than expected margin. And secondly, if this margin could be sustainable also for the second half of 2023. Thank you very much.

Yes. Let's say in the press release that we released today regarding the possibility to foresee the second semester, well, the situation is quite complicated, either at the Italian national level to the international European one. Of course, and we already mentioned that the market, especially for residential, which used to be our main market, has been suddenly stopped by the stop of the tax transfer that even after reopening it in May after an initial catch up of the market all over the summer. And currently, we saw that the cash-in of the tax credits from the banks to end users or very limited. And that is really a strong bottleneck to the market. As you know, it seems that the solution to this situation, which is very dangerous for other sectors mainly but is very limiting to our sector too, and the solution to this situation every week appears to be close. But of course, is if the limitation of the cash-in of tax credits to installers and end users continue like this is quite difficult to predict how much this sector of the residential sector would contribute to our second semester. So we had to push our trajectory to be a major player in Sinai. So we put in the market new products, and we started new commercial activities all over Europe. But still, this is an emerging market, which has also some difficulties due to the higher interest rates. Of course, going back to the residential, the national perturbation due to the tax grade transfer stock is also overlapped to the background situation of cost of electricity that has decreased in Q2 and Q3, so less pressure on the end users. Interest rate is very high and inflation very high. So all over Europe, the residential market is really going down. Say, it's not possible for us having clear forecast for this semester. So it's now clear that results for 2023, the whole year, won't be totally achieved in terms of revenues. Of course, in terms of EBITDA, we are keeping our objective to maintain the 20% EBITDA, which, of course, is something complicated as long as revenues are unpredictable because of the very market [indiscernible] very short sight. The backlog is a little just EUR 6.6 million, which reflected the [indiscernible] of 1, 2 weeks, as we already mentioned. And we have been interacting with all our customers in order to see to get the best of their sentiment for the second semester. That time was much higher, much better sentiment than currently because what I'm seeing is basically what the old sector is saying that there is lack of visibility because of this very strong and harsh shortage of liquidity at the lower level of the bottleneck. So giving you a straight answer, it's not possible for Energy right now giving a clear view on the revenues. But yes, we already announced this morning that the targets for 2023 won't be totally achievable. And that would make our target for 2023 and 2024, [we declared in IPO], something that can be achieved in a longer time frame compared with what was defined previously in the IPO because, of course, it was a different scenario. Just to talk about scenarios, previously in this year, end of last year and previously in this year and also in the middle of the year, maybe May or June, everybody in our sector was waiting for some changes on the frame rules -- with the rules framework, sorry, regarding some possibility to exchange energy. So the energy communities, which are still waiting for something that also is expected every week to happen that is going on since February, this kind of announcement from the government and also some rules for dispatching services to the grid, which is something that would push on C&I market as it is already happening in Northern Europe. And also this actually was published back in July, but we expected in the sector, we expected that it was possible to be applied on the real market by this year, but still we are waiting for the daily technical rules and other guidelines from the authorities to be able to start. So things are happening, but are happening much lower than we expected to. And when I say we, not only energy, again, the whole sector than we expected to. So the only way for us is to go abroad where this kind of possibilities are already in place and where our technology know-how can be of advantage. So this is the answer I can provide to you better. And for the EBITDA, I pass the floor to Daniele.

And so regarding drivers who helped to maintain or set, let's say, the margin EBITDA at 21.8%. First of all, I would say, 2 main drivers, first is price, a kind of relative price stability. It means we completed our small step price increase campaign in January with the last small step as planned with the customer, clearly planned. In January, everything was running very well, I would say, also February. And then we, of course, leverage on prices in a very detailed and focused way in order to, let's say, maintain volumes and mix of customers that was sustainable for us. And the second driver is represented by the 5% that is basically EUR 2.5 million revenues on the extra large segment of products, which benefits from higher margins, as we already explained in the past, and that contributes also to keeping the EBITDA margin at the gross profit, let's say, at a certain level. On the other side, we have, of course, we still have a structure which is not so heavy but still has reached a certain level in terms of fixed costs. So this is the basic, say, fundamental reason behind the marginality that we have achieved in end of June.

Can I ask a follow-up for Daniele, specifically on revenues? Can we say -- I was looking at the chart, Page 16, which is the revenues chart. And my question is, full year 2022 was a discontinuity in the growth path. Can we say that at the moment, we can consider 2021 as the reference year on which we can also apply some kind of double-digit growth for the full year '23 revenues?

If we had conditions similar to 2021, I could say yes, but I cannot say yes at this moment. As Davide explained, conditions today are as such that we cannot make a rule on it, because if we could, we would have already done it.

Yes. For instance, for residential sector, 2021 was almost without the impact of no incentive schemes because there was a weighting effect because it was announced in May but took place late November. So 2021 is almost free from special incentives. It was just a 50%, which is structural. And so 2023 should be theoretically similar, right? Because it was almost was stopped at the end of February. But here, again, the matter is no longer the incentive scheme. The matter is liquidity to lower part of the supply chain. So at the storage level, so all the supply chain is growing at a slow speed, there's not enough cash in the system. So even without -- yes, without special incentives, it could be a double-digit growth there. But we frankly don't know what to expect in some weeks or months at the store level because frankly, many of them are really under very high pressure, very high pressure. And our customers, which our distributors are suffering for some overdue payments. So it's something that goes beyond our capacity to predict. Of course, Energy is here, we are keeping our investments and even further accelerating in order to be as ready as possible with multiple products for C&I market all over Europe, but for the national situation, I would say. But in general, for the residential situation all over Europe is difficult to say because is really shrinking this kind of market and quite unpredictable. It's not only energy that cannot forecast, is the whole supply chain and also analysts. If you check analysts like Bloomberg, like Standard & Poor's, they have problems to define what is going to happen in next months. Of course, we expect 2024 to be a much more stable year, especially if no new, I would say, political actions are taken. If it is [natural] market 2024, we'll be much more stable. But 2023 as now is going on is quite unpredictable.

Can I give the floor to Andrea Bonfa? Andrea?

Good afternoon to everybody. Some of my questions have already been answered. I got some curiosity on the development path of the large-sized batteries. And I'm now understanding that also that segment of the business is being affected by a slowdown in the construction cycle and interest rate, if you can confirm so. Or anyway, what are your expectations in general from that segment of the business or the development of the new factory is evolving? And what are your expectations in the second half of the year and for 2024?

Yes. Thanks, Andrea. I'll start and then you can add Davide. Yes, starting from the last part, yes, I mentioned before that our investments, including the building of the facility are progressing according with this schedule. So by the end of this year, we are going to have the first line running whilst for the Phase II, the gigafactory construction phase has already started. And the full completion of the Phase II will be in 2025. So we are going to have 2024 Phase 1 running and manufacturing batteries for Energy. And regarding C&I, yes, there is an effect of interest rates that is lowering the taking off of these markets, but this is just partly is on the revenue side. C&I systems can not only allow entrepreneurs to save money on the electricity bill, but also to have some earnings coming from the services that the energy storage system can provide to the grid. And that's related to the country by country, the rule framework that is available in order to provide such services from private entities to the grid is something that is possible in Northern Europe, where we are pushing our products. And it's something that is starting in Italy as pilot projects where we are getting involved, but is not really already a business case. So yes, also C&I is not progressing at the speed we're expecting, but it is progressing. So that's why we further accelerated our activities in order to have the full portfolio of products and services available for pushing them in different countries.

Now, Federico, it's your time.

My first question is regarding this part of the remuneration. So I'm wondering about if you can give us an average return on capital of investments in C&I in terms of remuneration. It's low single digit or things like that because if someone has the availability in cash, maybe now with such high interest, maybe they are more motivated to invest [indiscernible] instead of C&I product? And the second question is regarding the [indiscernible] of the first 3 months, in that there's a seasonality starting from October, probably the demand is higher. But what are you seeing right now is starting from July, August.

I'll try to answer but maybe Davide will integrate. Regarding the first, if I [Audio Gap] compared to interest rates, it means an alternative investment, right? Okay.

If right now we have the liquidity, maybe you are forced or like [is in device] to invest where interest rates are lower and now you try to invest?

But still this much depends on the application, of course, but they are and we can see there are applications where investment on this kind of technology still gives higher profitability than just investing liquidity into stocks or -- of course, depending on the type of liquidity investment because we should compare with something which is stable. Of course, revenue...

Treasury bonds, 3%, 4%?

3%. No, no, no, we are higher, that's higher. By no means. Yes.

And if I can add something on this topic. This question relates much more to the grid scale storage systems related to grid scale PV or wind power plants because that's the typical market where investors that -- whilst talking about C&I, we are talking about entrepreneurs that are considering to invest in PV plus storage in order, yes, to have a relevant return on investment in some years, but also to safeguard their capacity of controlling the cost of electricity bill. And in some cases, also to make sure that they have electricity availability also in some harsh periods. In some countries in Europe is already forecast to have some periods of blackouts and companies, either if they have not planned that want to have PVs storage to make sure they don't have -- they are preventing from production discontinuities. So it's slightly different from a pure investment approach, which normally is applied to Greek scale projects.

And there was a second question.

So it was regarding the orders you have received in -- starting from July, how much below [indiscernible]?

Seasonality, I think it's not typical year at this point.

Exactly.

It's so different from the past that we cannot even see a seasonality topic here. This year, we cannot reflect it from the monthly revenues and orders received.

Federico, you have seen that road we already spoke about that when we gave the backlog in July, we outlined that it was not possible really to compare in no way the backlog given with the previous one because the visibility is really in days, okay? 10 days was at the time the maximum visibility that we had. The year before, and even the end of 2022, the visibility was weak, not the same month. So it's a completely different kind of visibility business, and up to now, the company is really seeing that orders come day after day with the visibility of really days. That is the kind of uncertainty where they try to drive the maximum efficiency on one side and strategy according to the strategy priorities on the other. So, of course, C&I development and C&I evolution in the business contribution to the total revenues will help them in maintaining the higher profitability, let's say, as compared to the traditional residential business. But that is where we are driving up to now. And according to the macro scenario, really, we have to deal with either interest rates, inflation and spending from everyone, let's say, consumer spending decreasing from everyone. So that's the way where we are working at the moment.

I just was wondering if I could have some feeling of what happened in [indiscernible] starting from July.

Nothing new.

[indiscernible].

Yes. One question on the financial position. Did you have any extraordinary item on cash flow? And what can we expect in the second half in terms of net financial position. So do you think that we can use the first half of 2023 as a reference for cash generation or did you have any in the first half you had any working capital changes, which was positive for cash generation or others?

As I said before during the presentation, we have leveraged over the management of the drivers within the net working capital in order to keep the financial position under control. Let's say that already you can see -- you will see easily from our balance sheet table, which is included into the press release. The net working capital is basically compounded by a higher level of inventory compared to the end of 2022 and a lower level of payments due from customers, of course, due to the, let's say, 2 factors, the shrinking of volumes, but at the same time also, we have not experienced any issues with the payment terms with customers. And then we have a higher position of overdue to suppliers. It means that we have leveraged our suppliers in order to maintain this. And we will, during the second semester, still normally, let's say, go back to a situation of balance where we have covering and fulfilling our duties to our suppliers, but we will have also an inventory decrease. So there will be 2 basic movements in this way. I'm expecting a financial position to increase again over the second semester. And in any case, let's say, main topic will be volumes because volumes of outbound goods, so revenues coming from selling of the goods will be the driver, which can help in this, let's say, control of the net financial position.

So basically, if I understood well, there could be a positive effect from cash generation also in the second half. And we can expect a lower net financial position versus June, end of June [indiscernible]?

No, no, no. I said the opposite higher [indiscernible]. I expect a higher [indiscernible] in the second semester. I don't want to give messages completely opposite from -- this is our current expectation. I said I expect higher, however, it is quite relevant, and we will see by the end of the year the role of the volume of goods sold. In terms of procuring to say, in terms of procurement, of course, we will not have an impact. We will not have a strong -- we'll have a very small impact in terms of procurement. I'm speaking about material procurement components, right?

Andrea, what time? Second time?

If it's possible for you to recap. It seems that the target related to the past will not be satisfied going forward. Can you remind us what sort of the impact on your current number of shares and so on and so forth?

Yes. Well, the past we're structuring in a way that 1/3 of the full amount of cost could be released by achieving the results of each year 2022, 2023 and 2024, okay? So regarding the 2022 has been achieved. So we have 2/3 of the part still there, say, if 2022 results were not reached, of course, part for the second year won't be canceled, won't be released, so they go to the market. Is that the mechanism that you want to understand, or?

Yes, basically, there will not be as a size or that will be canceled, how can they go to the market, sorry.

Yes, because canceled in the past means that the past go back as a normal shares of the shareholders, they won't be passed. So target for 2023 was about EUR 30 million EBITDA, EUR 30 million.

So it means that -- can shareholders will receive additional shares? How does it work?

Currently, the PAS, the parts are not are not tradable. So if the target will not -- or EBITDA will not be achieved by the end of this year, a part of this [past] will be canceled.

I don't know if I don't see any additional questions, let me check. If you have any additional questions, please do it now. No questions. Okay. I would like to thank you very much, indeed, everyone, who participated to this call, and thank you for your interest in the company. During the next weeks, we will be around Europe, really attending conferences and meeting investors. So let us know, please. I see here a number of investors based around Europe, really. So let us know if there is any interest in meeting the management, which will be either in Paris, Frankfurt and Munich during the next weeks. Thank you. Bye.