Enstar Group Limited Price & Performance (ESGR)

Good morning.

I will start things off. By just reminding you a bit about the special circumstances surrounding this [indiscernible] due to a decision made at our Annual Assembly in August we decided that we change our fiscal year to calendar year, leaving our former fiscal year period from May till April. So 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. First one from May to July, second August to October, and the third one, the one presented this morning and in this presentation, October to December. So 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 comparison quarter is comparisons with the REIT calculated quarter of October to December 23. As a service, we have issued a report with historical comparison quarters. For the period January 23, to September 24. This is available on our [indiscernible] Now that you know that Sweden Found it. Totally clear.

Sort of with the interesting Sure. So to sum up the year, overall, what we accomplished We can say we reached high turnover, but it was in a [indiscernible] EU market. 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. And 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 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's as Era. We're using the same Textech platform for both OEM and ES customers ES brand, which makes our platform much scalable 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 twenty twenty five.

So strengthening the platform both on residential and commercial. And we have succeeded with some key certifications, both on company management processes with ISO and also on product side. Ensuring that we are entitled to gain subsidies in different markets. And not the least, we have succeeded in gaining 10 plus new strong distributors in focused 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 02/1930. So this is a quite big achievement as well. And in these markets, of course, it's the propane assortment that is the key to our success going forward. [indiscernible] Yes.

Yes. Thank you, Friedrich, for the summary. A bit more close-up on the numbers. For the quarter and for the fiscal year. Like Friedrich 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 till December 2024 from May till December 2023. And net sales almost just as much 90%, 95%. This is due to the increase in sales via direct deliveries which is the common way sales to go in the OEM segment of sales. So that's 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 2626.1% to 24.1% and in the quarter from 29.1% to 25.2%. We usually say as [indiscernible] rule, 25% is acceptable level for gross margin on direct deliveries. And 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.

And quicker.

Yes. The EBIT for the quarter as well as EBIT for the period of April, still in the negative [indiscernible] 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 that, investments made during the year, like Friedrich explained in the beginning. On the cost side, other external costs have increased by 31%. This quarter compared to the October December quarter of twenty twenty three, Looking at the whole fiscal year, we can see an increase of 25% from April 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 one 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 period 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 €1,000,000 in the full period May till December. '24.

Give some more flavor just to investments in product development is the same core, the same platform that we have invested in during the era project that we are now also, of course, transferring into our own brand, and this is generating some continuous investments. And 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. Okay.

Yes. And we will also see this when we break down net sales into business areas. It's 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's an increase on residential side by almost 70% in the quarter and on the full fiscal year, 160 You also see a decline of 63% on 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 is the same thing, our propane machines on commercial property not being ready yet. But as Riel said before, will be during the fall 'twenty five. And this has been absolutely necessary prior to Era. And of course, now putting efforts working with the continuous development of commercial assortment gaining adding the propane platform will generate great possibilities going forward. When we expand the light commercial business, because we need to remember that so far, we have mainly been focused 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 UK.

And now we are focusing in the next step on rest of the year, Martin.

That's right. Yep. That's correct. And that also shows a lot in the geographic 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 in the very successful years of 2022. And a bit into 2023, but mainly 2022. And now we have 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 till December 2024 compared to the same period 2023. And this of course is the a lot of the OEM segments sales where Era is driving customer bill.

Even though we have SUCH customers OEM customers. Okay. So what do we see going forward or moving forward into 2025? Of course, we see remaining uncertainty in the short perspective. I think this is totally clear to anyone that is following the industry. We're moving into 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. And of course, we have geopolitical concerns clearly raising several new issues every day at the moment. So this is what we have On hand. At the moment. But we are expecting improvements in the coming high season. Because we have some positive trends. We have lower interest rates and inflation We have 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. So this is clearly a trend. And 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 [indiscernible] [indiscernible] EU Parliament.

And not at least our own investments with improved business model and an improved offer towards both the OEM segment And [indiscernible] [indiscernible] where we are succeeding to enter into very that are expected to grow the most. We're succeeding with this with the propane units and our efforts will also generate a positive result for sure in the coming high seas. So I think that much sums it up.

Yeah. That's correct. Now we would like to thank you for listening and open up for any questions 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 benefit 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 continued finalizing the assortment in the ES brand Yes, in Energy, I mean, you also talked about reduction in consultants, but then I understand you also invest in the organization and funds. So like just a kind of overall view on what you're doing on the cost side in terms of Yes. We're mentioning this one. Only one thing, but just Of course. Yes, we have really like Fronik mentioned a bit, product development, that is also the cost side that has been the largest part in driving the cost levels and other costs for us. This will we will continue to do 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. But we do have couple of initiatives now to reduce cost levels that will be visible from the start of this from January 25, really. So since the since the start of this year, we have reduced cost on travel side, on IT investments that is not necessary And really, overall, in the company where costs are not direct business critical or sales critical. Also, we have reduced our consultant level to a minimum And the reason that we don't We haven't reduced it completely is that there are the same reason really for travels that we continue to have costs for, if it's business critical or critical for sales, we need to maintain it.

And also for the product development of course, which is We maintain it at a lower level and focus on the business development side. Otherwise, it's focused on cost control. And we're also consolidating our [indiscernible] That will also bring down the total cost.

That's correct.

Yes. So basically, fulfilling what we said in the previous not this report, but the the one before Q2 that we will have a close eye on cost control and a clear focus on cost control. Going forward. Understood. Yes, the next question is just on now you you did highlight the work you're doing on the propane side in Commercial too. But just overall, when we look at it, do you hear anything from customers be it increased tender activity in inquiries or whatever kind of signals you might pick up on how things are developing here?

Yes. We can see increased interest for commercial modular scalable [indiscernible] 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. And we have the digital processes, the digital sales process, the digital design process, everything is finished. We launched that in Minnberg. But we see in order to really succeed, we need to set up a solid product support business development support to our distributors to succeed with such a large customer. This is This is extremely important. I forgot the second thing. What else we need? No. No. That that was clear. And then just a follow-up.

Yes, okay. But there's 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. So 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. Expecting a great improvement in Central Europe, Germany, our focus markets Italy.

Benelux countries, Switzerland, etcetera. That's the one thing I've forgotten 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. So we expect these markets to grow the most maybe. But of course, we need 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 we see more and more things going on also in the Eastern Europe on commercial side. However, these markets have been affected quite much by the recent decline So I think this will happen gradually. And in these markets, the propane focus is not so extremely important. These markets grew fast in 2022, 2023 and are still working to quite large extent with the our 32 units that are the ones the main volume that we have in stock. As well.

Was that Yes. On that yes, I think being the inventory on hand. So it was one last quarter IAQ three point two four calendar wise. You had a bit of a working capital release. You had a very good release this quarter. So even though we go into a lower season, should we expect or can we expect that you can continue to lower the work working capital Well, you can expect that we will continue to sell the goods we have on inventory. But at the same time, the inventory that we have currently is mainly our 32 units. And we will need to restock the inventory on propane units. So we will continue to raise giving it cash flow effect but we will also need to fill up Stockholm. Yeah, because we're currently introducing the propane units. In the market in parallel. So it will be slightly shift over time. Yes, it will release volumes. Understood. I have a couple of more questions, but I'll get back in the queue first.

Thank you.

All right. Thank you very much. Thank you very much.

The next question comes from Karl Bockvis from ABG Sundal Collier. Please go ahead.

Thank you. Yes. So I'm used to it. But no, thank you, thank you. So just on I mean, you now talked for several quarters about the investment AERA partnership has been ramping up nicely. But what can you say about other potential partnerships and how they are developing? Well, if we look at the ES side, we are gaining new partnerships in these focused 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 development new customers within OEM segment. OEM segment for us contains two different types of businesses. ODM type of this development project that we did with Era, 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 [indiscernible] or any other [indiscernible] So this is kind of why we are maintaining some of the consultants that have has been deeply involved in the development phase, in the go to market phase, in the era project.

Is to secure our ability to onboard new additional [indiscernible] And I think where we are the most where we have the most value to deliver, or with partners potential OEM partners that wants to build a strong have a great ambition on building an own strong brand. Are into the ecosystem with chargers, PV panels, batteries, that need the heat pump included in their offering in order to make most value to their customer in their business model Many of them work with subscription models, etcetera. So where we're working the most intensely are I would say, with the new type of initiatives and ventures that has been entering into the market in the last four to five years, challenging the traditional distributors OEM Brands, I would say. [indiscernible] [indiscernible] Okay. But then switching to the AERA partnership, I mean, you previously highlighted the €200,000,000 to €400,000,000 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 with seen a kind of more notable revenue from Era over the past two to three quarters.

So 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 say is left to be [indiscernible] Yes. And also they have an exponential growth or model when they go into market. So clearly, this partnership is is developing in a very good way according to the figures we have communicated previously. I would would say that just by looking at the figures, doing the summary that you did just did, how many quarters has passed and what approx volume have we delivered money wise, I would say we will we're looking at coming in the upper segment of the communicated tier.

Okay. Understood. And then just to kind of an update Yes. And beyond that, what's could the potential be of this partnership being extended or renegotiated? So actually have revenues also beyond this initial €200,000,000 to €400,000,000 We see quite we have nothing clear in that way, but we see continuation of our common business going forward, but we do not dare to put any figure on that. You know, we communicated that we have a license agreement spanning over four years. And 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 see we clearly see potentially that. Yes.

Understood. That is all from my side. Thank you. Thank you very much, Lars.

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. And maybe it has been answered a bit, but I will read it out anyway. We will see if we can clarify it maybe a bit. So in previous reports, you have mentioned your stock as current. Is that still the case? And how do you motivate that in relation to the new platform, what markets for what? [indiscernible] So the answer to that is really that we we have had a great success with the R32 unit on our traditionally strong markets. These markets are currently not the one the markets growing the most. And not in our focus mark. Markets that we mentioned being Germany, Benelux countries, Italy and U. K, there will mainly be propane machines That will be the preferred technique. So for us, We will We will continue, like we said earlier to Kong, we will continue to release overstock this what we have, but we and we will also try to release larger volumes if possible. But we also can gain from from waiting until these markets recover as much so that they can pick up the volume.

Yes. And they are picking up, but it's they're picking up slower and figures are or market is expected to grow faster in the focused markets. So that's that's kind of the balance. [indiscernible] 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 great potential of strengthening the plug in concept with the propane the commercial propane units. This is kind of a key key success factor in order to take the plug in module from We are currently delivering to the construction site heating, you know, a fixed solution that is tailored for construction site heating. But in order to generate or approach the volume market, Industrializing is speeding up. In line with the increased interest from the large real estate [indiscernible] and operators in 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 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 nice fit with the propane assortment in these Central European countries.

And that's why we need it also in the plug in module going forward. And as 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 there can we expect less capitalized work on own account that is capitalized development in the income statement in '25 compared to 2024? And 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. And 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 that may allow us product develop for customers. So I expect that level to remain basically 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?

Well, this is kind of why All right. Digitalization and investment in controlled plant 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 and new values going forward, especially on the ES side where we supply the full stack. On the OEMODM side, sometimes the customers docks into our tech stack at a lower level than we not have that possibility.

But on the ES product portfolio, both on residential and commercial, our possibilities are heavily increased going forward by the investments we have done in the technology platform during this year. So that kind of business development we will come back to and see more in the future. As everything is [indiscernible] Very good.

Next question, also some of these have partly been answered, but maybe can give some more flavor answering from a different perspective. So the question is, what significance does the development of propane based heat have for you 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. But it's also a key factor to gain new OEM customers in markets that are pushing to go from gas to green electrification. [indiscernible] key success factor, I would say.

Thank you. Next question is [indiscernible] What do the investments you have made in digitalization and IP 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 the as I mentioned several times now, the controlled using the heat pump as a flexible resource to generate value in a larger business model. Is a key component. So control and connectivity and digitalization is a key.

Thank you. Thank you. Okay. So [indiscernible] 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 has been historically important for us that are currently struggling where we have had set backs in the volumes already in 2023 and continue to decline in 2024. Opposite of focused markets where we're these markets continued to grow in 2023, but had a set in the first half of twenty twenty four, but are expected to come back faster. So they look different. And of course, this means that our long term partners in some markets are struggling a bit. You know, unclear regulation or subsidy schemes, policies, etcetera. 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. So 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 question and hope to see you next Thank you very much, and have a nice Friday.