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

Okay. Then I'm pretty sure, I think we can start. Good morning to everybody. We are here with Mr. Tinazzi and then Mr. Manfroi as usual to present you the first semester 2024 results. I'll leave the stage to both Mr. Tinazzi and Mr. Manfroi. Just to note, the presentation is available on -- also in -- at the Energy website.

Federico, thank you, Federico. Welcome to everybody. Let's start with the H1 2025 consolidated results presentation. Please, my name is Davide Tinazzi. I'm the CEO and Co-Founder of Energy S.p.A., Energy Group actually.

And my name is Daniele Manfroi, the CFO in Energy.

The agenda of this meeting is to describe the new role that in 2024 Energy has acquired with quite a change of the scheme, which was planned to happen this year. And then we will talk about the market context and company strategies, and we dig into the financial results of H1 2024, the future outlook. And then there will be 15 minutes dedicated to question and answers and some an excess in case we need some support. Please, let's start. A unique integrated player. So as I introduce Energy Group, now it's a group. It is a leading full system technology manufacturer. If you have been following Energy as BESS, Battery Energy Storage Systems player, in Europe, you know that we started in 2013. We have been -- which make us to be the eldest storage system player in Europe. And we have been progressing our positioning in the market, increasing year-by-year our capacity to include added value in our systems by verticalization of different processes in order to reach out the ability to deliver "Made in" devices with other services all around. So the new definition of the position of Energy is as written here, full system technology manufacturer of BESS. And we are -- we can deliver also cloud engineering services in the Italian and European market. Those 2 new services in cloud and engineering support to our customers are thanks to our new M&A activities that we have been doing in last 2 years, and that made us becoming a group starting from the July of this year. So the icon here on the left represent this idea that Energy is the product and software manufacturer on top of the group. And then the 2 companies that are controlled by Energy, our Energyincloud or the cloud platform development, the IoT software and the AI software. And then Enermore, which is an engineering company, which can provide engineering services for projects and for operations on site. These systems already deployed all over Europe are more than 60,000 units. On the Italian market, we have a 7% market share, quite constant, either in the good times and also on the bad time. Like this year, we have been able to maintain that positioning, that market share. In terms of power, more than 300-megawatt power sold since inception and 1 gigawatt hour capacity, which again makes us one of the biggest players in terms of manufacturer in Europe. And of course, as I said, in Italy, we are the very pioneer. Please, let go on. Let's see the market context and the company strategies. BESS is a long-term trend, which is driven by the following factors, which are linked one to the others. The first one is fluctuation in energy prices. From this year, let's say, January, June period, we have an amount of negative prices due to the penetration of renewables much higher than the negative -- the hours of negative prices that we had all over the previous 5 years. So it means that the European electrical grid needs storage systems in order to balance the effect of renewables. Otherwise, renewables will be no longer an interesting investments because of the very high number of hours per year of negative price. What I'm talking about is every day happening in the Northern of Europe, while it's still in the South of Europe and in Italy for certain mechanisms, we don't have these evidence yet, but soon also in Italy once the price of electricity for renewables and electricity coming from fossil fuels will be decoupled, we will have this event also in Italy. That point is risk of blackouts and need to stabilize the grid. Again, negative prices comes because it's an attempt to discourage energy feeding in, in the grid from the renewables. And this is an attempt to prevent blackouts, which are the further negative stat or the fact that the electrical grid is making stable. So in some countries like in Sweden, where we have quite a market share there in Stockholm area, there are programmed blackouts due to this issue. The growing demand of EV is related to the need of energy storage systems. Well, the growing demand of EV actually is one of the causes of the previous problems. And also, so is indirectly driving the need of BESS market, but also is directly driving the need of BESS market because for the superchargers, certainly high power chargers for EV storage system often are the only way to have the necessary power available, even in area where the grid is not sufficient to power up that special function. This is particularly evident where the EV vehicles are using for commercial activities if there's trucks. So highways, which are going to host charging stations for trucks are in need for EVs. And due to this issue, we had a new mix of market here for energy, which I will explain later. So in the different segments of the market, what has been happening in the first semester? For the residential, the market is in a stagnant phase all over Europe, all over Europe. So the target for Energy here has been to maintain the market share in Italy because for residential market, Italy is our by far biggest market. So consolidating existing strong relationship with clients, even if that requires some sacrifices. And then the action that is still ongoing is promoting the zeroCO2 own brand. In the commercial and industrial segment, the market actually is in a growth phase over Europe, especially in the Northern part of Europe. Regarding Italy, the market is in early development. It is expected to grow strongly because of specific incentive, which is Industry 5.0, which is the first time that there is a national incentive in this size of the market, even though the announcement -- the premature announcement of the incentive has caused a watch and wait effect. So a market that was linearly growing in Italy little by little has been frozen in last 6 months because of this announcement. We have now all the application decrees since the end of August, and let's say that September is the month for grinding all the necessary information then to start up with this market. Strategically, we target as previously defined in previous chances that we had to present our strategy. Our growth in the DACH market, which is Germany, Austria and Switzerland, and in Benelux, it's already happening. And we are quite satisfied of that, and we will keep on pushing. Regarding the utility scale, actually, it is a new business opportunity. Utility scaling is particularly dedicated to the stabilization of the grid because our systems that are not behind the meter, but are part of the grid itself. So I would say that both in Italy and the rest of Europe, the market penetration is starting from 2025 for Energy, even though we have some initial experiences in Benelux and in DACH area. In Italy area, not yet because this year, the program for utility scale storage systems has been postponed from Q2 this year to Q3 next year. The name of the program in Italy is [ Maxi ]. Initiatives of Energy for the utility scale is the construction of the Gigafactory because utility scale is going to generate the highest demand in terms of battery. And the Gigafactory that Energy is realizing is dedicated to the assembly here in Italy at our place of batteries starting from sales back. And that is related to the initiative of joint venture with Pylontech, which in terms of volumes is the biggest player -- the biggest manufacturer of batteries for stationary application, which means not for EVs. So this joint venture is strategical for the initiative of the Gigafactory in terms of technology and market collaboration. Please, let's go on. Now when we go into the activity that we have been carrying out in the first semester, and then we'll go through the numbers. First, the recent key facts, in January, we started the testing phase for the first battery production line of the new Gigafactory. The first line is dedicated to learn, is flexible for different typologies of batteries, and we are learning here how much automation we can push in, in order to reduce the workmanship needs. In February, we will count the U.S. Net-Zero Industry Act, which took force in end of June. It is European law and defines some guidelines for the future also in renewables and especially in batteries. And it says that for the public tenders, where European funds are involved that 40% of the supply has to be reserved to mainly Europe goods. So this is going to kind of protect and encourage European manufacturer in their initiatives. As I said, it is already law, so we are expecting that in tenders, this is applied. We already noticed before that in tenders, there is not have reserved area that is, how do you say, an advantage because you can have some additional points in your bidding if you manufacture products are involved. In May, Energy won the ASFINAG tender for the motorway concessionary. And we have all supplying BESS and related services for state-of-the-art multiple services. We are particularly proud of winning this tender because, as is written here, it is not only a supply of energy storage systems, but also related services, which are involving the activity of the sister companies that now belong to the Energy Group, which means that our strategical trajectory was the proper one. And regarding those BESS, the activity of those BESS is of cutting edge technology because they are not only supporting the -- or maximizing the self-use of renewables, but are also supporting the fast-charge EV charges for trucks and also supporting other energy flows related to the data center for particular, let me say, particular energy demanding software activities, and I cannot reveal more on that now. In May, we had also the acquisition of Enermore, which is a company based in Sterzing, as I said, is an engineering company, but not a classical one related to only electrical activities, but it can also develop some software, which is complementary to the -- how do I say, synergic to the software that is developed in the Energy cloud and also in Energy. So our software team now -- software guys now are half of the technical guys in the whole group. So we are really pushing into software services. And this is particularly focused the company on that market and can operate since several years in the Energy storage systems in the basis of design, control, installation and maintenance. You understand that having Enermore on board is providing the group the capacity to enrich the services that we can offer to our customers. Recently, in September, we started our network of ATC, the authorized technical assistance centers. This is to provide a capillary service all over the Italian territory, which includes commissioning of our systems support to the installers. And those additional services after sales to the end user in terms of enabling new functions whenever the ruling framework is going to make it possible. And here, I refer to the services to the grid that the Energy storage systems will be enabled to provide also here in Italy in the future, which are remunerated services, which we already performed in some countries in Europe where it is possible. And that makes the storage system shifting from an investment for saving on energy bill, of course, to an investment for gaining money because the services to the grid are well remunerated. And the reason for which are well remunerated is that, as I said at the beginning, they are necessary to prevent some issues on the grid. Okay, that's gone. So let's go into the overview of financial performances. So all I've been talking about till now represents the fact that Energy had a clear strategy and is executing it. And the first outcome is demonstrating that the strategy was correct, but we are moving here into a new scenario. The scenario of 2024 has much more worsened compared to 2023 and -- because it has been impacted by negative factors as a significant drop on price is really a price war, which has been injected from the EV price war which, of course, has involved battery manufacturers. And battery manufacturers in EV normally are also involved in storage system manufacturing or making batteries for storage systems, except for Pylontech, which is dedicated only to stationary application. But we are in the middle of a significant jump of prices and of overcapacity from China with an excess of supply in a condition of reduced demand. The demand has reduced because the persistency of high interest rates. And then locally, in Italy, for instance, the demand in C&I has been reduced from this growth to get stable because of the watch and wait effect due to the postponement of the Transition 5.0 decree, as I said before and, in general, all led to a contraction on -- of volumes in all the market segments. So reducing prices, contraction of volumes, overcapacity and high level of stocks, so necessary need for destocking, all that mix caused that the sector has been going through a very difficult year, a very negative year for everybody. Data for distribution, electrical distribution in Italy says that in the first semester, renewables did minus 50%. And into this storage has been doing minus 70% or even more. So this is the context, which is quite common all over Europe, except for some small spots where there is some marked induced for -- from particular needs or particular incentives. But most of incentives have been taken off because in having the priority to reduce inflection of the incentives has been removed all over Europe. So revenues has been EUR 19.1 million, minus 51% versus the EUR 39.3 million of last year, first semester. EBIT, minus EUR 3.2 million, so minus EUR 11.8 million versus EUR 8.5 million of last year. The backlog of the group instead is EUR 29.3 million, which is plus EUR 22.7 million versus the EUR 6.6 million last year. Here, if you add the revenues and the backlog, you see that the performance of the first semester could be seen that in the first semester of last year, which tells you the postponing also and the watch and wait that has been impacting on some segments. The NFP in terms of debt is EUR 8.3 million, instead of last year we have EUR 0.2 million of cash. Okay, these numbers in a glance. I will now let the stage to our CFO, Daniele Manfroi, to go through the rest, please.

Thank you, Davide. Now we drill down now to revenues breakdown, and we also have some other slides on the buildup of the cash and NFP. So regarding the revenues breakdown, we have 2 main signs, 2 main really facts to witness today, which are the growth in the export and rapid growth in the export. And this, of course, we believe, is a good result. We always wanted to achieve it. We've set the conditions since the last year, and we are now starting to have the results, which means that we have exported 45% of the revenues this first semester of 2024. And at the same time, regarding the second graph, we have been working hard on the extra large segment, where we classify the storage systems above the 50 kilowatts. And we had the possibility and the chance that we exploited to also channel these products on a certain, let's say, low level of power, also through the distribution channels that is a good sign for us, good return with feedback on the market because our product is really -- the concept of the product is really some part kind of this product can be easily plugged and played. And that was also appreciated by these distribution channels. So we moved from the 5% on the extra large to the 12% on the first semester. And the trend, we want to keep, of course, and expand. And then the third graph tells that we had a small movement into the revenues by channels -- into our channels, but not significant. We judge not significant. So it means that we are almost working by distributing our risk into different channels as we have done so far. Of course, we've been working also participating. And I think the first semester, yes, we have been working hard on exhibitions. And we -- especially Munich Intersolar, which is the most important exhibition on renewables and storage in Europe, we've been presenting for really our newest product in terms of extra large systems, commercial and industrial applications. Next one, please. The EBITDA negative was mainly -- result was mainly due to both a combination of downward in prices -- downward trend in prices. We've been basically moved. All the markets, all the segments, all the industry have been moved to this new level of prices. And we wanted to follow this, of course, not to be -- not to stay out from the flow, but also because we had -- and we still have today a target of destocking, so reducing the inventory. We have expected some promotional campaigns additionally to some, let's say, flat price on list price reductions. And of course, we also suffer from a volumes reduction general. So even though the margins have been reduced also by combining this with the reduction of volumes, then, we, of course, could not support fully the structural cost, the fixed cost. And then we have this final, say, negative EBITDA results, which we still believe is sustainable. And also we have been reaching -- we will see from the -- probably later on, even when if you look at the balance sheet, you will see a reduction in inventories being quite significant still in these quite tough conditions. The working capital shrink is mainly due -- of course, we have a reduction on credit, of course, because trade, sorry -- and on trade payables and -- but mainly, it's due to the inventory reduction, which are down from EUR 56 million on the first -- the 31st of December 2023 to the EUR 45 million of the June 30, 2024. And so we haven't really worked on this, and we are still -- this policy of stock reduction, inventory reduction is still going on. Next one, please. And regarding the composition of the debt, of course, we need to -- we have been working on -- we had a little small increase in long-term debt with 2 small operations due to a small, let's say, positions that we have increased, but not structurally, not substantial. And that also could allow us to sustain some investments. Of course, mainly that was the aim. We also faced a small decrease in the short-term debt. And then, of course, it's due to the reduction of use of short-term credit lines because of the reduction of volumes in business. And we, of course, have clearly a reduction in cash or cash equivalents because of this overall -- let's say, as a result of the overall situations. Then if you check the cash bridge analysis, you will see that the -- we have a quite significant use of cash for CapEx, and that is mainly for some investments. Of course, the most important point is still the ongoing Gigafactory construction that we are still -- where we are still in the building phase. And we need to reach a minimum, let's say, stabilization of our minimum level of building completion, at least. And we have also a reduction of cash due to the medium long-term debt. Of course, natural, let's say, repayments. And then small operating cash flow helping us and also short-term debts helping us in finding the final result on the cash in current period, which is EUR 11.7 million. And we are considering ourselves, even though we have a net cash flow minus EUR 7.2 million, that we are still in a good financial situation, in a stable and solid financial situation. Regarding the future outlook, I would let again Davide to...

Thank you. Here, we listed some points which, combined together, gives you a sketch of the outlook that we had in the market. The commercial and industrial segment remains a focus for national and international growth of Energy because, as I said before, there are underlying needs and forces pushing for the C&I deployment of storage systems. AI integrated services and cloud-based solutions will provide additional sales opportunities. This is because, as I said before, energy storage systems will move from a single activity of maximizing the self-consumption of the PV production to a system that can provide services to the grid. And that can be done as a standalone system or grouped in multiple systems. We already have this experience to our aggregating systems in Benelux, which are controlled by cloud-to-cloud command from some utilities and AI for companies that 11 years of experience, 11 years of data of the stress induced on lithium cells, AI can help on providing new strategies in order to maximizing the profit. Engineering services that we can provide now to get closer to the needs of our customers will give additional grid to our initiatives. And ASFINAG is an example of that because in ASFINAG tender, as I said, was engineering support for the designing, for the management of the project and for the operations on site was requested in addition to the supply of the goods. Then regarding Italy, the capillary presence of the centers for technical assistance will deliver high -- higher value to customer, and we'll let our quality of the services perceived at the end user because there will be Energy people going to provide those services, while only going through intermediate players of the supply chain, like distributors or ATC. Sometimes, this connection between the entrepreneur, which want to invest in solar system and the manufacturer, which is Energy is lost. Still, we collaborate and we want to increase the close collaboration with distribution channel to push C&I. We are not bypassing them, having the cut, but the cut are in order to deliver high added value, but selling go through the distribution channel for C&I systems below the 400-kilowatt hour capacity. Because we have been designing and putting on the market system that are easy to install, plug and play, and they can be, therefore, introduced into the distribution channel, with which we work on the residential segment 6 years -- since 6 years. So we're going now to empower the collaboration with the distribution. Regarding the territories, DACH and Dutch areas continue to represent the target of expansion, not only in volumes, but also in services, as I said before, because those countries have the ruling framework most advanced in Europe. So being there let us having a view on the future of what will happen also in parts of Europe. The vertical integration of the business model that we have been carrying on during this year allowed to compete in international tenders as ASFINAG represents a case where, of course, competitors may have prices of the hardware lower than Energy's because, as I said before, Chinese players are very aggressive. There is a real price fight ongoing, and there is -- will be a real selection -- natural selection among the manufacturers in China. So Energy has now to compete on the price of the hardware, but a full package solution to be delivered. Of course, there will be a re-modulation of strategic investments to adapt to the scenario. As Daniele said, we are investing to the Gigafactory. We already have one line going on, but the deployment of the additional line will be modulated -- regulated accordingly with the market demand. And the "Made in" storage system, which is our target for all our initiative for building up battery assembly here in Italy, for developing software, for developing cloud-based services, the "Made in" is our main target, and it is going to be more and more strategic every day in Europe. So it's also because the Net-Zero Industry Act, but also because local governments or even local public authorities want to limit the assets to foreigners, non-European players on particular supply, especially when there are critical functions involved. Okay. So yes, this is the question time. Yes, we are perfectly in time, please. So you have the chance now to ask your questions.

Thank you, Davide. Thank you, Daniele. I think we can open the conversation if someone has questions. So Stefano Corneliani, please.

A couple of questions. The first one is about the price environment. During your speech, you mentioned specific actions taken to target your destocking activity, mentioning specifically promotional activities. So the question here is, to what extent you think lower battery prices are there to stay? So setting such level in the industry a big factor. And therefore, what would be your action going forward?

Hold on, Stefano. Your voice is quite scattered. So let me try to rephrase your question, and we try to answer to that. So summarizing, basically, you asked about the battery pricing, okay, if we expect it to stabilize or to further go down, right?

But actually, Davide, the question is you talked about promotional activities. We all know that when there are promotions, the price cut, if there are, to be canceled anytime in the future. It's probably not the case for battery, but just to ensure I got the right point. The question is the lower prices you experienced, this maintaining part of your inventory is there to stay in your opinion? And if yes, would you continue destocking as you did in the first semester of this year?

We will continue destocking, yes, of course. And the special offers, let's say, are on some configuration of our products hitting by kits and are meant to reach a double target, both to destock and to, how to say, fight for market shares. I think basing on the feedback that I have from our customers, which are mainly the distribution channel, that in this scenario, Energy has not only maintained its market share, but little by little, we are increasing it. So it's, how to say, selective offers that we do in order to -- in this price war to bleed less and to beat more competitors.

I've got also a follow-up question, hoping that my voice is better right now. It's about your statement in the press release. When you mentioned potential possible refocus of, I guess, your strategic guidelines. Could you elaborate a little bit on how flexible your capital commitments? How could they be rephased going forward if the current scenario will go on for the next semester or even more?

When you -- I try to transfer. When you say capital commitments, I think you referred to the buildings, right, buildings and manufacturing lines.

Yes, yes. Correct.

So staying on the fact that we are now straight to staying on the buildings and hardware, we have 1 line ready, okay, which is an assembly line, everybody knows. And that is going to be to stay there and to be used for sure because it will serve the company for the future needs of batteries, okay? So that one is not going to be changed, of course, because it's really -- it will really cover the needs of the company, the normal ones. When we switch to the new Gigafactory, the big one, when we say we are still in the building phase, in the construction building phase, we believe that this time and for the next semester as well, we will be still in this condition that is, how can I say, naturally flexible, okay? We can add one detail that we have designed the interiors, okay, the building in a flexible manner. Exactly to be also in the future, it can be -- the layout can be, say, defined according to the real needs of the use of building that finally we want to have. So we can really be flexible in that terms. Of course, we are still keeping it ongoing because we want to reach a minimum -- we want to reach, say, a solution. But we believe this -- we have keep it -- we have kept it in a flexible as much as possible condition.

Thank you, Stefano. I don't know if someone else has a question. I think no. Okay. Davide, Daniele, I think we can conclude here the conference call. Thank -- many thanks to everybody who has attended.

Okay.

Thank you.

Thank you. Have a nice day. Bye-bye.

Buh-bye.

Bye. Have a nice day to all.