EuroSite Power Achieves Four Pillars of Growth – Ready for Strong 2016

Last summer, EuroSite Power (EUSP – $0.73), which owns and operates clean, On-Site Utility systems that produce electricity, hot water, heat and cooling, introduced four goals which laid the foundation for the Company’s success in coming years.

Today, less than nine months later, those four “pillars of growth” have already been completed, and are starting to bear fruit. For example, in the fourth quarter of 2015, EuroSite Power’s adjusted gross margins reached 31.5%, versus 18.6% in the comparable period of 2014. Moreover, the Company is adding new on-site utility agreements that it probably wouldn’t have been able to close before due to lack of available capital.

In 2016, EuroSite Power is expected to take full advantage of these growth opportunities. It can meet the needs of many more potential customers and its margins are trending upwards. A very attractive combination.

On-Site Utility Operator

EuroSite Power is an on-site utility operator. It sells the energy produced from an on-site energy system, such as a Combined Heat & Power (CHP) unit, to an individual property as an alternative to the outright sale of energy equipment. In this scenario, EuroSite Power pays for the cogeneration system, its installation, the gas to run unit, and its maintenance.

In return, the customer pays for the generated electricity, heat and cooling by the cogeneration system over a set period of time – usually 15 years. In addition, the cost of the generated energy is guaranteed by EuroSite Power to be lower than the displaced energy from the grid.

Pillar 1 – Project Financing

EuroSite Power has recently closed project financing agreements with Macquarie Equipment Finance and Societe Generale Equipment Finance, two major financials groups.

This is a major accomplishment, because before these agreements were in place, the Company entirely self-funded the cost of the CHP and the installation of the unit, roughly between $200,000 and $300,000. In order to do so, it relied on equity financing, which limited the Company’s ability to grow.

Under the new structure, as soon as the cogeneration unit is up and running, the lender, either Macquarie or Societe Generale, will refund EuroSite Power all costs associated with the purchase and the installation of the unit. From then on, the project will pay off the loan in monthly installments, typically over 5 years. This is obviously a major advantage for the Company, as it now has an almost unlimited access to funds from the two major financial institutions for projects which meet the financing criteria.

In general, Macquarie will finance projects worth over US$1.45 (£1) million and Societe Generale will finance the smaller value ones. Thanks to these two agreements, the Company can handle much larger projects both in system size (kW) and in terms of the number of sites.

A couple of weeks ago, the first project win financed by Societe Generale, was announced. A 331kW CHP system will be installed in The Dome leisure center, in Doncaster, UK. The agreement, worth approximately US$4.83 (£3.02) million, would most likely have been too large for EuroSite Power to handle without the financing structure.

In addition, the Company’s management mentioned during the fourth quarter conference call that a term sheet was signed for a prospective 400kW solution and that good progress was being made with three other potential projects.

EuroSite Power has even hired additional sales personnel, as it’s confident that plenty more opportunities are now within its reach.

Pillar 2 – European Expansion

A couple of days ago, EuroSite Power signed a collaboration agreement with the Czech CHP manufacturer TEDOM, to promote the Company’s on-site utility solutions through more than thirty TEDOM dealers across the EU and Turkey.

The agreement will allow the dealers to offer an on-site utility solution to their customers as an alternative to buying a CHP system outright. With more than 3,500 CHP units sold and 25 years’ experience, TEDOM is one of the world’s leading CHP manufacturers.

TEDOM will introduce EuroSite to its 31 dealers and help promote the Company’s on-site utility services. When a dealer identifies a potential customer who is interested in CHP, but doesn’t have the financial means to install such a unit, an on-site utility agreement may be a good solution.

Initially, EuroSite Power will concentrate on the countries in which its services make most sense. The first thing to look for is the so-called Spark Spread. The Spark Spread stands for the ratio between the price charged for electricity and the price charged for the fuel used to generate that electricity, which in EuroSite Power’s case is natural gas. In countries where the Spark Spread is high, the commercial viability for Combined Heat and Power is compelling.

The second condition to look for when expanding into mainland Europe, is the amount of government support for CHP technologies. Countries with a high Spark Spread and an attractive incentive scheme are key targets for the Company’s expansion in Europe.

Of course, another important aspect of the agreement is customer service. If EuroSite Power were to have a customer in Poland, a couple in Germany, and one in Romania, logistics to maintain the machines soon would become a costly affair. Therefore, the deal with TEDOM, that already has an extensive dealer network in Europe, is very valuable for EuroSite Power in its European expansion plans as the TEDOM dealers will maintain and service the equipment long term.

Paul Hamblyn, Managing Director of EuroSite Power, commented, “The agreement works for all parties as the customer gets a solution without the upfront cost, the dealer gets a sale that may otherwise have been lost due to a lack of capital and also the contract to provide installation and maintenance services, TEDOM gets the order for the CHP unit, all paid for by EuroSite Power, which then delivers ongoing cheaper energy to the customer over 15 years via an On-Site Utility agreement.”

Pillar 3 – In-House Maintenance Service Team

As of December 1st, 2015, EuroSite has its own in-house UK maintenance team. Previously, maintenance of the installed cogeneration units was handled by third party companies, a costly arrangement that sometimes resulted in lower margins. Next to better control of the equipment on-site bringing maintenance operations in-house has also contributed to higher margins in the fourth quarter of 2015.

At the end of 2015, the Company had 29 machines in operation, of which it maintained 17. Nine TEDOM units come with a two year warranty. In order to retain their warranty, they must be maintained by TEDOM’s UK dealer. However, the first unit will come to the end of that two year warranty period in July 2016. Consequently, EuroSite Power expects to extend its in-house maintenance program to include servicing those units as well. This should help to increase margins further.

Pillar 4 – Natural Gas Purchase Agreement

EuroSite Power recently reached an arrangement with Corona Energy, a leading independent energy supplier in the UK, to buy natural gas at very favorable prices on a site by site basis. Because the Company has 29 operating units, the combined amount of gas that these machines consume was large enough to negotiate a much lower tariff with a single gas supplier.

Currently each customer buys gas from a gas supplier at a regular (retail) price, and EuroSite Power pays the exact same amount to the customer for the gas consumed by the Combined Heat & Power (CHP) unit. Thanks to this new agreement, EuroSite Power will shortly begin signing up customers to buy its gas at lower rates. This includes the gas consumed by EuroSite Power’s CHP units, but also the gas that customers use to run their own boilers, or for catering etc.

This new arrangement is a win-win for both EuroSite Power and its customers. The agreement allows EuroSite Power to substantially reduce the price paid to purchase gas consumed by its installed machinery and allows the customers to purchase gas at a discount for their other applications. This deal will considerably improve the Company’s margins and provide additional revenue in the form of gas sales.

Fiscal Year 2015 Financials

EuroSite Power generated revenues of $2,198,721 in fiscal year 2015, ended December 31, 2015, an increase of 39% compared with revenues of $1,577,873 in fiscal year 2014.

The strong rise in revenues was mainly due to a higher number of machines in operation compared with a year ago. Eight new installations were commissioned in 2015, bringing total operational systems at year end to 29 with a total installed capacity of 2,878 kW and long term total contract value of operational systems of approximately $81 million.

Fiscal Year Ended
December 31
Net Sales
Cost of Goods Sold
Operating Expenses
Income (Loss) From Operations
Other Income (Expense)
Pre-Tax Income
Income Tax Expense (benefit)
Net Income (Loss)
Earnings (Loss) Per Share
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Most important income statement data for the fiscal years ending December 31, 2015 and December 31, 2014. Source: Company Press Release

A direct result of the higher number of operational units is the sharp increase in total energy production. For the full year 2015, that number came in at just under 29 million kWh, a 59% improvement over 2014. During the fourth quarter of 2015, energy production almost doubled versus the comparable quarter in 2014, thanks both to more operational units and improved reliability of the fleet.

Gross margins excluding depreciation and site impairments improved to 24.4% for full year 2015 compared with 18.9% in 2014. These margin improvements reflect the benefits from adding the in-house maintenance team, lower gas prices, and other cost saving initiatives.

Speaking about the full year results, EuroSite Power Chief Executive Officer Dr. Elias Samaras noted, “Not only have we delivered compelling financial results for the period, we have achieved a number of key milestones that have laid the foundation for strong future growth.”

Continued Focus on Margin Growth

EuroSite Power’s gross margin target is 35%. Although that number hasn’t been achieved yet, the 31.5% reached in the fourth quarter of 2015 came pretty close. Moreover, the four pillars of growth will all help increase margins further.

The Company, for example, continues to work hard to increase the availability and efficiency of its operational fleet, as it also helps to drive up margins.

A CHP unit’s availability, or up-time, can never reach 100%. Sometimes the equipment fails, it needs maintenance, or it might even be temporarily shut down because the electricity tariff from the grid is too low at certain times of the day, or year, to make sufficient margins. Overall fleet availability in 2015 was 85%, the highest fleet availability achieved to date.

Efficiency, on the other hand, measures how much of a unit’s input fuel is converted to energy which can then be sold to the customer. In 2015, efficiency for the entire fleet combined was 78%, up from 76% in 2014.

In order to improve margins even further, the Company will work on selling new projects with higher margins and it will also focus more on the build cost of the projects. All these small wins will help the Company become cash flow positive and ultimately profitable.


2015 further established EuroSite Power as a leading on-site utility solutions provider. The Company saw a solid rise in revenues and energy production, delivering improvement in all Key Performance Indicators.

The project financing agreements recently announced with Societe Generale and Macquarie set the stage for more rapid roll out of the Company’s solutions across the UK and Europe. Thanks to these financing options, an initial agreement for a 331 kW unit, worth approximately $4.8 million over the full life of the contract, was signed. More deals are in the pipeline.

Similarly, the arrangement with Corona Energy for the purchase of natural gas at long term discounted rates ensures more predictable margins on the installed fleet going forward. Moreover, margins already improved significantly thanks to the in-house maintenance team. This trend is expected to continue in 2016.

Finally, we expect EuroSite to close its first on-site utility agreements outside the UK in 2016 with the help of the well-known equipment manufacturer TEDOM. Buy Recommendation. Advice: BuyPrice Target: $2.75Latest Company Report (pdf)
For important disclosures, please read our disclaimer.

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