Welcome to the Energy Save Q4 2024 Report Presentation. For the first part of the conference call, the participants will be in listen-only mode. During the Q&A session, participants are able to ask questions by dialing pound key five on their telephone keypad. Now I will hand the conference over to the speakers: CEO Fredrik Sävenstrand and CFO Helena Wachtmeister. Please go ahead.
Thank you very much, and welcome to this first Q&A presentation for Energy Save.
Good morning.
I will start things off by just reminding you a bit about the special circumstances surrounding this quarter. Due to a decision made at our annual assembly in August, we decided that we would change our fiscal year to calendar year, leaving our former fiscal year period from May to April. This year that we are presenting here today in the year-end report is a short eight-month year. 2025 will be the first full fiscal year following the calendar year, and this year we have issued three interim reports: the first one from May to July, the second from August to October, and the third one, the one presented this morning and in this presentation, from October to December. As you probably noticed, October, of course, is part in both the previous report and in the report from this morning.
Any comparisons that we have in the report to the comparison quarter are comparisons with the recalculated quarter of October to December 2023. As a service, we have issued a report with historical comparison quarters for the period January 2023 to September 2024. This is available on our website. Now that you know that, we can.
Plan it. Totally clear.
Start off with the interesting stuff.
Sure. To sum up the year overall, what we accomplished, we can say we reached high turnover, but it was in a slow EU market. The EU market declined by 23% in the total year of 2024, but our sales increased, our net sales increased by 37% in the period. However, high turnover, but also high investment level, which has affected the EBIT result. If we take a closer look on what investments, important strategic investments we have done during the year, we have very successfully business-developed new OEM partnerships in addition to ES brand. Aira is, of course, the most important one. We have invested in digitalization and a control platform, which is a key investment, both in strengthening our IP, but also strengthening our position in the value chain, and a key success factor in order to secure such a partner as Aira.
We are using the same tech stack platform for both OEM and ES customers, ES brand, which makes our platform much more scalable going forward. We are currently introducing the residential assortment on the propane assortment in the market, and our commercial units, light commercial units, are under development and will be ready to launch in the fall of 2025. Strengthening the platform both on residential and commercial. We have succeeded with some key certifications, both on company management processes with ISO and also on the product side, ensuring that we are entitled to gain subsidies in different markets. Not least, we have succeeded in gaining 10 plus new strong distributors in focus markets that we have identified. These are the markets that are expected to grow the most, maybe represent up to 50% of the EU growth until 2030.
This is a quite big achievement as well. In these markets, of course, it's the propane assortment that is the key to our success going forward. Yes.
Yes. Thank you, Fredrik, for the summary. A bit more close-up on the numbers for the quarter and for the fiscal year. Like Fredrik said, we have increased our turnover by 30, our net sales by 37% in the full 2024 period. For the quarter, total revenue increased by 42%, and the largest increase can be seen on the fiscal year period, where turnover increased by 97% in May to December 2024, from May to December 2023, and net sales almost just as much, 95%. This is due to the increase in sales via direct deliveries, which is the common way for sales to go in the OEM segment of sales. That is a large part of that. The fact that we have a lot of direct deliveries in this year and in this quarter is also the reason that we see a drop in gross margin in the period.
Comparing fiscal quarter to the same period last year, a drop from 26%, 26.1%- 24.1%, and in the quarter from 29.1%- 25.2%. We usually say, as a rule, 25% is an acceptable level for gross margin on direct deliveries. The reason for that is, of course, that direct deliveries hold a lot, a much higher potential for volume in sales and therefore can affect EBIT a lot more on the positive side.
And quicker.
Quicker, also. Yes. The EBIT for the quarter, as well as the EBIT for the period of May to December, is still in the negative, but improved, margin improved from the comparison quarters. This is positively affected by turnover, of course, negatively affected a bit by gross margin being lower, but also affected by our higher cost level due to the investments made during the year, like Fredrik explained in the beginning. On the cost side, other external costs have increased by 31% this quarter compared to the October-December quarter of 2023. Looking at the whole fiscal year, we can see an increase of 25% from May to December 2024 to the 2023 period. This is mainly due to the high levels of product development.
Since we are doing this both for the OEM platform, OEM offer, and also for our own propane heat pumps for residential buildings, this is the main driving reason for increase in costs here. We also see an increase in personnel costs, 12% in the quarter, 21% in the fiscal year compared to the same period last year. This is due to the investments that have been made in the organization, also for the same purpose, to be able to carry the organization's OEM offer and ES brand development of own products. In this quarter, we have had a positive operative cash flow, but even if you look to the full fiscal year, you see a pretty stable cash flow given the EBIT result, minus about SEK 1 million in the full period May to December 2024.
To give some more flavor, just to investments in product development, it's the same core, the same platform that we have invested in during the Aira project that we are now also, of course, transferring into our own brand, and this is generating some continuous investments. Of course, also broaden it from being only residential to also include the light commercial units, where we see great potential in the European market going forward.
Absolutely.
Okay.
Yeah. We will also see this when we break down net sales into business areas. It is very obvious that the focus for our development, for our business and our sales has been residential property for this year and for this quarter. There is an increase on the residential side by almost 70% in the quarter, and on the full fiscal year, 166%. You also see a decline of 63% of commercial property in the quarter and of 50% in the fiscal year. This is partially due to our focus being on the residential side, but also, which is in a way the same thing, our propane machines on commercial property not being ready yet, but as Fredrik said before, will be during the fall 2025.
This has been an absolutely necessary prioritization, actually, due to the project commitment to Aira. Of course, now putting efforts, working with the continued development of commercial assortment, gaining, adding the propane platform will generate great possibilities going forward. When we expand the light commercial business, we need to remember that so far we have mainly been focusing on a few markets with the light commercial segment. We have not yet started to push it into the Central European countries where we see the biggest potential in the future. So far, the focus has been on Norway and Sweden a little bit, but mainly on Denmark and the U.K. Now we are focusing in the next step on the rest of the EU market.
That's right.
Yep.
That's correct. That also shows a lot in the geographical split, where the decline on the market in Scandinavia, 48% in the quarter and 68% in the fiscal year, is mainly due to setback in the market in Denmark. Denmark was a very large market for us in the very successful years of 2022 and a bit into 2023, but mainly 2022. Now we have since seen a decline, especially on the Danish market. On the other hand, we see instead this increase on the rest of Europe, a 48% increase in the quarter and over 300% increase of turnover in the period of May to December 2024 compared to the same period 2023. This, of course, is a lot of the OEM segment sales, where Aira is the driving customer, really.
Even though we have more such customers, OEM customers. Okay, what do we see going forward or moving forward into 2025? Of course, we see remaining uncertainty in a short perspective. I think this is totally clear to anyone that is following the industry. We are moving into a low season if we look at domestic or residential segments in the coming two quarters. We have political uncertainty on the commitment on pushing towards the goals of the EU politics. Of course, we have geopolitical concerns clearly raising several new issues every day at the moment. This is what we have on hand at the moment. We are expecting improvements in the coming high season because we have some positive trends. We have lower interest rates and inflation. We have an improved balance between the pricing of electricity and natural gas.
The gas price has continued to rise, I would say, in the last eight, nine months. This is clearly a trend. This is a very, very, the primary energy cost is extremely important for the competitiveness of heat pumps if you exclude subsidies and bans. We see signs of political initiatives after the new commission is established in the EU Parliament. Not at least our own investments with improved business model and an improved offer towards both the OEM segment and the ES customers, where we are succeeding to enter into very important European markets, the regions that are expected to grow the most. We are succeeding with this, with the propane units, and our efforts will also generate a positive result for sure in the coming high season. I think that pretty much sums it up.
Yeah, that's correct. Now we would like to thank you for listening and open up for any questions.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Karl Bokvist from ABG Sundal Collier. Please go ahead.
Thank you and good morning. First one being a bit on the shorter-term perspective, what you mentioned about the cost initiatives. What kind of benefits should we see, or are there kind of any cost level that we should compare them to as we go forward here?
You're talking about the cost level of continued finalizing the assortment in the ES brand this quarter?
Yeah, in general, I mean, you also talk about the reduction in consultants, but then I understand you also invest in the organization and so on. Just a kind of overall view on what you're doing on the cost side in terms of volume being one thing, but just the cost, please.
Of course. Yes, we have really, like Fredrik mentioned, a bit about the product development. That is also the cost side that has been the largest part in driving the cost levels on other costs for us. We will continue to have investments in product development since we are completing the commercial propane heat pumps during the year. We are finalizing development on the residential also. We do have a couple of initiatives now to reduce cost levels that will be visible from the start of this, from January 2025, really. Since the start of this year, we have reduced costs on the travel side, on IT investments that are not necessary, and really overall in the company where costs are not directly business-critical or sales-critical. Also, we have reduced our consultant level to a minimum.
The reason that we haven't reduced it completely is that there are the same reason, really, for the travels that we continue to have costs for. If it's business-critical or critical for sales, we need to maintain it. Also for the product development, of course, which is the.
We will maintain it at a lower level and focus on the business development side. Otherwise, it's focus on cost control. We are also consolidating our.
Facilities.
Facilities at the moment that will also bring down the total cost.
That's correct.
Yeah. So basically fulfilling what we said in the previous, not this report, but the one before Q2, that we will have a close eye on cost control and a clear focus on cost control going forward.
Understood. Yeah. The next question is just on now you did highlight the work you're doing on the propane side in commercial too, but just overall, when we look at, do you hear anything from customers, be it increased tender activity, inquiries, or whatever kind of signals you might pick up on how things are developing here?
Yes, we can see an increased interest for commercial modular scalable solutions in the EU market. I would say the market is picking, from my perspective, seems to be picking up gradually, pace pushed by energy efficiency regulation, green funding, taxonomy. We see more and more large real estate owners or operators that are looking for scalable, cost-efficient solutions. We have the digital processes, the digital sales process, the digital design process. Everything is finished. We launched that in Nürnberg, but we see in order to really succeed, we need to set up a solid product support and business development support to our distributors to succeed with such large customers. This is extremely important. I forgot the second thing. What else we need to do?
No, no, that was clear. Just a follow-up. Yeah, okay. I mean, you've done a lot of work on the product offering and within commercial towards also the Swedish market, but if I remember correctly here, before you highlighted a very good momentum in Eastern Europe. My question is, if or when the commercial activity improves, do you think it will mainly be from the kind of Eastern European sides or that you are also making good headway in Scandinavia, for example?
I'm not expecting such a great improvement in Scandinavia. I'm expecting a great improvement in Central Europe, Germany, our focus markets, Italy, Benelux countries, Switzerland, etc. The one thing I forgot in the previous answer was that we really need, in order to succeed in these gas markets, high-demanding markets, Central European markets are propane units. We expect these markets to grow the most, maybe. Of course, we're challenged.
We need to set up the business development support in a proper way to support our new distributors. We will see recovery. We will see, and we see more and more things going on also in Eastern Europe on the commercial side. However, these markets have been affected quite much by the recent decline. I think this will happen gradually. In these markets, the propane focus is not so extremely important. These markets grew fast in 2022, 2023, and are still working to a quite large extent with our R32 units that are the main volume that we have in stock as well. Was that?
Yes, on that.
No, sir.
Yeah. Epic being the inventory on hand. It was one last quarter, i.e Q 3 2024 calendar-wise, you had a bit of a working capital release. You had a very good release this quarter. Even though we go into a lower season, should we expect or can we expect that you can continue to lower the working capital?
You can expect that we will continue to sell the goods we have on inventory. At the same time, the inventory that we have currently is mainly our R32 units, and we will need to restock the inventory on propane units. We will continue to release, giving it a cash flow effect, but we will also need to fill up stock on.
Yeah, because we're currently introducing the propane units in the market in parallel. It will be a slight shift over time. Yes, it will release volumes.
Understood. I have a couple of more questions, but I'll get back in with Q first. Thank you.
All right. Thank you very much.
Thank you very much.
As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. The next question comes from Karl Bokvist from ABG Sundal Collier. Please go ahead.
That's a short Q.
Thank you. Yeah. I'm used to it.
I'll come back.
No, thank you, thank you. Just on, I mean, you now talked for several quarters about the investments you made into your own platform, and the Aira partnership has been ramping up nicely. What can you say about other potential partnerships and how they are developing?
If we look at the ES side, we are gaining new partnerships in these focus markets. I think I mentioned exceeding the number of 10. On the OEM side, which I think you may be looking at in your question here, we cannot say anything specifically, but of course, we are working intensely with the business developing new customers within the OEM segment. The OEM segment for us contains two different types of businesses: ODM type of this development project that we did with Aira, but also private label customers where we provide, so to say, pre-designed versions of units where the customer can add their brand onto an existing series that does not go in conflict with the ES design or any other ODM customer design.
This is kind of why we are maintaining some of the consultants that have been deeply involved in the development phase, in the go-to-market phase in the Aira project, to secure our ability to onboard new additional customers. I think where we have the most value to deliver are with partners, potential OEM partners that want to build a strong, have a great ambition on building an own strong brand, are into the ecosystem with chargers, PV panels, batteries, but need the heat pump included in their offer in order to make most value to their customer in their business model. Many of them work with subscription models, etc.
Where we're working the most intensely are, I would say, with the new type of initiatives and ventures that have been entering into the market in the last four to five years, challenging the traditional distributors and OEM brands, I would say.
Understood.
Activities ongoing.
Okay. Switching to the Aira partnership, I mean, you previously highlighted the 200-400 million SEK revenue potential over the next two years compared to when you announced it back in 2023. Just kind of for us to get a bit of understanding if we relate them instead to these calendar year figures. If I understand you correctly, we've seen a kind of more notable revenue from Aira over the past two to three quarters. It might be five-six quarters left on this agreement. Is there any way you can kind of give a bit of flavor or guidance how much revenue you would say is left to be realized here?
Yeah. Also, they have an exponential growth model when they go into market. Clearly, this partnership is developing in a very good way according to the figures that we have communicated previously. I would say that just by looking at the figures, doing the summary that you just did, how many quarters has passed and what approximate volume have we delivered money-wise, I would say we're looking at coming in the upper segment of the communicated tier.
Okay. Understood. Just kind of an update. Yeah. Beyond that, what could the potential be of this partnership being extended or renegotiated so you actually have revenues also beyond these initial 2-400?
We see quite, we have nothing clear in that way, but we see potential continuation of our common business going forward, but we do not dare to put any figure on that. We communicated that we have a license agreement spanning over four years. Of course, we have ideas and we see possibilities how we can continue to develop new business going out of the first part, the first delivery part of the agreement. Exactly how that will look, we cannot say, but we clearly see potential in that. Yes.
Understood. That is all from my side. Thank you.
Thank you very much, Karl. Thank you.
There are no more phone questions at this time, so I hand the conference back to the speakers for any written questions and closing comments.
Thank you very much. We have a couple of written questions. The first one is regarding the stock. Maybe it has been answered a bit, but I will read it out anyway, and we will see if we can clarify it maybe a bit. In previous reports, you have mentioned your stock as current. Is that still the case? How do you motivate that in relation to the new platform? What markets for what products? The answer to that is really that we have had great success with our R32 units on our traditionally strong markets. These markets are currently not the markets growing the most and not in our focus markets that we mentioned being Germany, Benelux countries, Italy, and U.K. They will mainly be propane machines. That will be the preferred technique.
For us, we will continue, like we said earlier, to come. We will continue to release over stock what we have, and we will also try to release larger volumes if possible. We also can gain from waiting until these markets recover as much so that they can pick up the volume.
Yes, they are picking up, but they're picking up slower, and figures are expecting or market is expected to grow faster in the focus markets. That's kind of the balance.
Exactly.
Yes.
Exactly. Good. Next question. The plug-in modules illustrated in the report and on the other places, will they be available with R290 by the end of the year?
I don't dare to comment on when they will be entered, but surely we see a great potential of strengthening the plug-in concept with the propane, the commercial propane units. This is kind of a key success factor in order to take the plug-in module from we are currently delivering to the construction site heating in our fixed solution that is tailored for construction site heating. In order to generate or approach the volume market, industrializing and speeding up in line with the increased interest from the large real estate owners and operators in the EU that are looking for scalable solutions. There's a nice fit with the plug-in module, but it needs to be with the propane technology inside.
The propane technology inside, why it's so vital for these gas markets is because the, I don't know if I mentioned that previously today, but it's because we can generate higher water temperatures with same or good efficiency. This makes it much easier to just replace a large gas boiler with, for example, a plug-in module without making huge investments in the infrastructure in the building. That's why we have such a nice fit with the propane assortment in these Central European countries. That's why we need it also in the plug-in module going forward. As I said, we will introduce the commercial propane units in this year, but exactly when we have them in the plug-in modules, I cannot say fixed date.
Good. Thank you. Next question we have received is, can we expect less capitalized work on own account, that is, capitalized development in the income statement in 2025 compared to 2024? The answer to that is really that it's not going to be a lot less. It's not going to be a lot lower since we have the product developments finalizing for the propane residential units. We also have the planned commercial development for propane. Also, if there are, it might be added to this, are commercial projects and commercial partnerships that may allow us to product develop for customers. I expect that level to remain basically the same, not to go down so much, actually. Great. Okay.
Service and here we have one question. When will service and after-sales turnover increase considerably? This is kind of why our digitalization and investment in control platform, strengthening our position in value chain, strengthening our offer to customers demanding high flexibility on the control side, investing in connectivity, cloud, and app solutions. Now we have this all in our own hands, which makes it possible to business develop much more on service side, creating new revenue streams, new values going forward, especially on the ES side where we supply the full stack. On the OEM, ODM side, sometimes the customer's docs into our tech stack at a lower level, then we do not have that possibility. On the ES product portfolio, both on residential and commercial, our possibilities are heavily increased going forward by the investments that we have done in the technology platform during this year.
That kind of business development we will come back to and see more of in the future as everything is connected in our own cloud. Okay.
Very good. Next question. Also, some of these have partly been answered, but maybe can give some more flavor answering from a different perspective. The question is, what significance does the development of propane-based heat pump have for you to succeed in the focus markets?
It has a major impact on our opportunities. I think I pretty much mentioned it. It's the key technology in order to succeed in the Central European gas markets. It is also a key factor to gain new OEM customers in markets that are pushing to go from gas to green electrification. Key success factor, I would say.
Thank you. Next question is, what do the investments you have made in digitalization and IP platform mean for you?
It means everything. It's the cornerstone in the new tech stack, enabling us to move much more flexible, faster, and more scalable towards both ES markets and potential new OEM clients with a modular, very flexible technology platform. Where, as I mentioned several times now, the control using the heat pump as a flexible resource to generate value in a larger business model is a key component. Control and connectivity and digitalization is a key.
Thank you. Thank you. Okay. Yeah, I'm thinking maybe there's one more question regarding the decline on our historical markets. Did we mention it before? The question is.
We mentioned it a little bit. We mentioned that there are parts of the market that have been historically important for us that are currently struggling, where we have had setbacks in the volumes already in 2023 and continue to decline in 2024. In opposite of focus markets, these markets continued to grow in 2023, but had a setback in the first half of 2024, but are expected to come back faster. They look different. Of course, this means that our long-term partners in some markets are struggling a bit, unclear regulation or subsidy schemes, policies, etc. What we try to do is to be agile in our support to support them in any best way we can so that as soon as markets are moving, they can regain volumes as quickly as possible.
We're working intensely in supporting them in parallel, generating new distributors in new key markets.
Thank you very much. That is the end of the questions and the end of this Q&A. We would like to thank you very much for participating and listening in today and hope to see you next quarterly report.
Thank you very much and have a nice Friday.