EuroSite Power : Announces Second Quarter 2022 Financial and Operational Performance

Energy revenues and gross margin increase

EuroSite Power Inc. (OTCPK: EUSP, the "Company") an On-Site Utility solutions provider, offering clean electricity, heat, hot water and cooling solutions to healthcare, hospitality, housing and leisure centers in the United Kingdom (UK) and Europe, reported increased second quarter revenues of $1,312,692, up 16.8% from the $1,123,535 posted for the same quarter in 2021. Overall, the Companys revenues for the six months ending June 30 were $2,901,030, some 48.3% higher than for the first six months of last year. Gross margin also increased to 31.4% for the second quarter this year as compared to 30% for the same period in 2021, while gross profit increased 22.4% to $412,320 when compared to the $336,788 delivered in Q2 2021. Together this helped deliver a positive EBITDA of $159,970 for the second quarter although this was down compared to the positive $258,581 reported for Q2 last year. Importantly, however, the overall position for the first half of 2022 is that EBITDA has increased by 11.3% to $424,433 as compared to the $381,381 reported for the first six months last year.

The Company also reported that exceptional items impacted profitability in the second quarter 2022 with a net loss reported for the period of $37,216. This compares to a second quarter 2021 profit of $135,601, although the Company reminds investors that this figure included a UK government tax refund totalling $128,816 that did not apply this year. In addition, the Company opted to write-off costs associated with a specific sales opportunity after negotiations to conclude a new contract were unsuccessful. Finally, one-off costs linked to the Companys investment in Blue Grid Gas and Power further impacted second quarter costs.

Commenting on the Companys results Dr Elias Samaras, Chief Executive Officer said, It is disappointing that the profitability seen in the first quarter did not continue into the second quarter. The UK operation did maintain a profitable position, but exceptional items mean that our consolidated results have returned into the red. Shifts in the value of the Pound also didnt help. That said the underlying position remains strong and with rising energy prices now impacting nearly all our customers energy bills we expect to see revenues grow and profitability return.

The second quarter has presented some operational challenges, particularly in terms of maintaining fleet performance yet at the same time revenues have grown as higher energy prices have finally begun to filter through to customers said Paul Hamblyn, Chief Operating Officer and Managing Director of the UK operating company. Elsewhere we are seeing renewed interest in our CHP offer, particularly from those sectors in which we have been traditionally strong. The challenge ahead is therefore, to close some of these new sales opportunities while maximising the output of our existing fleet.

HEADLINES
Increased revenue, continued positive EBITDA and strong liquidity

• Total revenue increased 16.8% to $1,312,692 for the second quarter of 2022 compared to $1,123,535 for the same period in 2021. Much of this growth results from increases to the underlying energy prices on which the Companys own energy tariffs are based however, some of the increase also relates to the COVID lockdown measures that were in place during the earlier part of 2021 not being in place this year
• Q2 2022 net profits for the UK operating company were 42,880, down 71.9% from the net profit of 152,829 reported in the same period last year. This difference is largely due to the tax refund of 100,819 that applied in 2021 but was not available this year due to rule changes
• Overall gross profit including depreciation for Q2 2022 increased to $412,320 compared to $336,778 for Q1 2021, a rise of 22.4%
• Overall, second quarter gross margin including depreciation increased to 31.4% from 30.0%, while gross margin excluding depreciation and impairment reduced to 45.0% for Q2 2022 compared to 48.2% for Q2 2021
• Second quarter EBITDA decreased to $159,970, compared to $258,581 in the second quarter of 2021, a decrease of 38.1%
• Second quarter net loss was $37,216 in 2022 compared to a net profit of $135,601 in quarter two of 2021, a decline of 127.4%, however, much of this difference relates to the 2021 tax refund referred to above
• EBIT or the loss from operations for Q2 2022 was $10,931, a reduction of 126.9% from the gain of $40,571 achieved in Q2 2021. A large part of this swing results from a one-off $37,418 write down of costs associated with preparing a bid for an energy performance contract with the Northern Irish subsidiary of Coca-Cola HBC, a contract that the Company chose to decline following completion of a risk/benefit analysis. In addition, one off costs associated with legal and other due diligence surrounding the investment by Molgas Energy Holdings into Blue Grid Gas & Power also impacted earnings
• EBIT in the first six months of 2022 totalled a gain of 63,104, an increase of 275.0% as compared to the loss of $36,055 in the same period of 2021.
• Liquidity and cash position at June 30, 2022 remained strong at $2,163,685, up 3.3% on the cash held at June 30, 2021

Operational performance

• Total energy production decreased by 28.1% to 9,343,905 kWh for the quarter ending June 30, 2022, as compared 13,004,177 kWh for the same period in 2021. This was due to two factors (1) staff turnover amongst the Companys service team and (2) the impact of supply chain shortages, particularly for engines and components using semiconductors. Overall energy production for the six months ending June 30, 2022 is down 4.6% compared to the first six months of 2021 however, Management have now recruited an additional service technician boosting the team to four full-time operatives plus a Service Manager. In addition, Management have increased the stock levels of spares held locally and will continue to work with suppliers to minimise the impact of shortages
• Operational fleet capacity at June 30, 2022 was 46 systems at 43 sites totalling 5,810kWe compared to 48 systems at 45 sites totalling 6,012kWe at the end of June 2021. Two systems remain offline following agreements with relevant customers to allow a period for each host site to be refurbished
• The Company invested in a cloud-based field management service software platform aimed at improving the efficiency of its service operation, a system that is due to go live later this month
• Two On Site Utility agreements were novated to new parties following the sale of either the underlying business or property. In both cases contracts novated on the same terms although in the case of one of these contracts there was a delay in reaching agreement that resulted in the unit being switched off while negotiations were concluded

Business and strategic development

• During the quarter the Company and its fellow shareholders in FCN Energy Logistics reached agreement with Molgas Energy Holdings, owned by French private equity firm InfraVia Capital Partners to provide significant additional investment into FCN Energy Logistics and ultimately to its Greek subsidiary Blue Grid Gas & Power. As a result of this investment the Companys holding was diluted to 11.42%. Following Molgas investment, Blue Grid will now focus on accelerating growth in LNG and bioLNG supply in the broader region of SE Europe and the Eastern Mediterranean
• The Company signed a master receivables agreement with Attika Holdings Limited, a subsidiary of Aquilla Energy Efficiency Trust to provide funding for future On Site Utility projects. To facilitate this the Company formed a new Special Purpose Vehicle (SPV) company called EuroSite Power Projects Limited. This company is a 100% owned subsidiary of EuroSite Power Limited
• Following agreement of the new funding agreement with Attika Holdings Limited the Companys agreement for the International Convention Centre Wales project was novated to the new SPV and funding of 164,696 was drawn down from the new funder. This successfully refinances one of the two projects completed during COVID without a funder in place
• The Company extended its term sheet with Edwardian Hotels Group for the 355kW CHP solution for the Radisson Edwardian Blu Hotel at Heathrow Airport, and after the quarter ended it also signed a new term sheet for a 70kW CHP solution with St Helens Hotel Limited for the Mercure St Helens Hotel
• The Company also continues to negotiate terms with Roko Health Clubs and Portsmouth Community Football Club for the replacement of their existing CHP solutions at a total of five sites
• The Companys decision to refocus its new business activities to new sectors has now created a sales pipeline of MW scale CHP opportunities in the industrial sector. This includes projects for international groups involved in the automotive, aerospace and pharmaceutical sectors together with UK companies in both food and drink manufacturing

Outlook and risks

• As previously reported, the Company reports that the supply of some spares for its fleet of CHP units are currently subject to extended lead times and delays. This has already resulted in extended downtimes for some units and Management believe that similar problems are likely to occur for the foreseeable future
• Extreme temperatures resulting from the recent European heat wave have impacted fleet operations during the third quarter. This is because ambient conditions exceeded design conditions for many units and Management believe that further operational issues are possible if such high temperatures return this summer
• Staff turnover and labour shortages, particularly amongst third party contractors also have the potential to impact fleet performance. Management have already responded by recruiting an additional in-house service technician and have also reached agreement with a third-party contractor to provide additional resource where needed
• The Company continues to believe that revenues will increase alongside its gross profits as the underlying energy price rises start to impact its customers however, with European energy shortages also a possibility this winter Management are cautious about the prospects for Q4 and into next year
• The risk of customer failure as a result of the broader macro-economic backdrop e.g. rising energy prices, price inflation and falling consumer demand is now considered higher than normal. While the credit risk of the Companys third party funded projects rests with funders the Company is exposed to risk from its self-funded portfolio
• Other risks remain in the form of the availability of project credit, rising interest rates, the impact of reducing grid electricity carbon emissions on new business development and a possible shift in government energy policy or unexpected equipment failures

Future News Releases

News provided all financial results and news are only published on the Companys website (http://investors.eurositepower.co.uk/news-releases).

Anyone wishing to receive notice of a news release should subscribe to the email alerts service provided within the Companys investors pages (http://investors.eurositepower.co.uk/email-alerts).

Alternative Reporting Standard

The Company now files its financial statements under the Alternative Reporting Standard (ARS). Financial reports, which are prepared in accordance with US GAAP, are generally provided within 45 days of period end (90 days for fiscal year end results) and are reported to maintain at least the OTC Pink Limited Information tier.

Following corporate reorganisation and de-registration of the Companys common stock, with effect from January 1, 2017 foreign exchange gains/losses are reported in the cumulative translation adjustment (CTA) account on the Companys balance sheet.

Fiscal year-end financial reports for the operating company, EuroSite Power Limited are audited by a PCAOB registered firm and the Company provides current information for the purposes of SEC Rules 144(c)(2) and 10b-5 using the OTC Disclosure & News Service. Financial statements for EuroSite Power Limited are prepared in accordance with UK GAAP, and consequently differences in accounting treatment and presentation may arise.

On-Site Utility

EuroSite Power sells the energy produced from an onsite energy system to an individual property as an alternative to the outright sale of energy equipment. On-Site Utility solution customers only pay for the energy produced by the system and receive a guaranteed discount rate on the price of the energy. All system capital, installation, operating expenses and support are paid by EuroSite Power.

About EuroSite Power

The Company provides institutional, commercial and small industrial facilities with clean, reliable power, cooling, heat and hot water at lower costs than charged by conventional energy suppliers without any capital or start-up costs to the energy user. More information can be found at www.eurositepower.co.uk.

FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements under the Private Securities Litigation Reform Act of 1995 that involve a number of risks and uncertainties. Important factors could cause actual results to differ materially from those indicated by such forward-looking statements, as disclosed on the Companys website and in financial statements held by OTC markets for the fiscal year ended December 31, 2021. This press release does not constitute an offer to buy or sell securities by the Company, its subsidiaries or any associated party and is meant purely for informational purposes. The statements in this press release are made as of the date of this press release, even if subsequently made available by the Company on its website or otherwise. The Company does not assume any obligation to update the forward-looking statements provided to reflect events that occur or circumstances that exist after the date on which they were made.

Investor contact:
Dr. Elias Samaras - CEO
e: elias.samaras@eurositepower.co.uk
t: +44 800 028 8001