Risk
Seasonal variations
Energy Save’s activities and market are impacted by seasonal variations. The first quarter of the business year is generally weaker than the rest of the nine-month period, and the second quarter is generally strongest.
Risk and uncertainty
Energy Save’s operations are impacted by a number of risks, and the effects of these on the company’s performance and financial position can be controlled to varying degrees. That is why it is important to take these risk factors into account when assessing the future performance of the company. The risk factors specified below are limited to risks that Energy Save deems to be material and specific to the company and its securities, and that Energy Save deems to be essential.
The assessment of the materiality of the risk factors specified has been graded on a qualitative scale (low, medium or high) and has been based on the Company’s assessment of the likelihood of their occurrence and the scope of their impact in the event that they materialise.
The risk factors are set out in a limited number of categories, specifying the most significant risk factors (in the company’s opinion) first within each category. This is why the risk factors set out below are not an exhaustive list of all the risks that may impact any investment decision in the company.
Risks related to operations and the sector
Commercial risks
There is a risk of delay to ES Energy Save’s strategic investments made in line with the sustainable energy transition in Europe. The energy transition itself may also be delayed, which could delay the company’s commercialisation and expansion going forward. There is also a risk that the strategic investments made by the company will fail to help increase sales and continue commercialisation if the sustainable energy transition is delayed or comes to a standstill. The growth of ES Heat Pumps in the European market is reliant on government subsidies for heat pumps, as the current alternative cost of heat pumps is higher than for other heating solutions.
There is a risk that investing in heat pump installation will not be economically viable if the opportunity cost of heat pumps remains high and no government subsidies are awarded. Any impairment of sales, delayed commercialisation or commercialisation that comes to a standstill could have an adverse impact on the company’s operations, financial position and performance.
The construction sector is relatively conservative, which may result in a slow transition to green electricity and the use of heat pumps. That is why there is a risk of delay to the company’s commercialisation on account of this conservative approach.
The Company is of the opinion that the level of risk indicated above is medium.
Production
Energy Save outsources its production to Zhongshan Amitime Electric Co., Ltd., its Chinese partner. Production in China involves a risk of production quality, volume and delivery times failing to fulfil the requirements of the company or the market. The company may incur higher costs if production quality fails to fulfil the requirements of the company and the market, and there is a risk of impact on the company’s reputation. There is also a risk that failure to fulfil requirements in respect of volumes and delivery times or failure to deliver may result in deferred or cancelled sales. This is why delayed deliveries or failure to deliver could have an adverse impact on the company’s operations, financial position and performance.
The Company is of the opinion that the level of risk indicated above is medium.
Development risk
The Company’s sector is constantly evolving at a rapid pace. There is a risk of the company’s products failing to be developed as effectively as its competitors’ products. There is also a risk of new technology superseding the company’s technology, or a risk of ES Energy Save being unable to develop its own products as new technology is introduced.
The development rate for Energy Save has outstripped the pace indicated in its business plan, which also involves a risk of other risks and difficulties arising that have not been anticipated by the Company Development at a pace faster than that set out in the Company’s business plan also involves a risk of the Company not having enough time in which to recruit personnel and develop production at a corresponding pace. The risks set out above could have an adverse impact on the company’s operations, financial position and performance.
The Company is of the opinion that the level of risk indicated above is medium.
Limited resources
ES Energy Save is a small company, and its resources in respect of management and capital are limited. It is vital for resources to be allocated optimally for the company so that the company’s strategy can be implemented. The Company is at risk of having insufficient resources, and of suffering financial problems in addition to problems related to operations if the company is unable to obtain further resources. These risks are examined in the section entitled “Future capital requirements”. The company may also be at risk of having insufficient resources to deal with unanticipated expenses or incidents, which may result in the company having to deviate from its strategy.
Limited resources also involve a risk of the company being unable to respond to changes in market demand and requirements for the company’s products. The company’s limited resources may also make it harder for the company to set itself apart from its competitors. These risks are examined in the section entitled “Competitors”. The above could have an adverse impact on the company’s operations, future growth, performance and financial position.
The company is of the opinion that the level of risk indicated above is medium/low.
Macroeconomic conditions
The economic climate in Sweden, as well as other markets, may be impacted by extreme and rapid downturns over time, resulting in greater instability and negative expectations in respect of future economic developments. Inflation in Sweden and other markets in which ES Energy Save is active may adversely impact the company’s operations, financial position and operating profit. Reduced investment, an unstable capital market and reduced profitability are examples of such factors. There is a risk that inflation will result in fewer people being able to afford to invest in heat pump installation.
Moreover, the Company’s sales and operations are impacted by current energy prices such gas and electricity prices. There is a risk of a decline in the Company’s sales as gas prices fall There is also a risk of the company being incapable of adapting to fluctuating macroeconomic conditions, or of the company failing to judge the development of the economic climate in the markets correctly. All these risks could have an adverse impact on the company’s financial position and operations.
The company is of the opinion that the level of risk indicated above is medium/low.
Dependence on key individuals and workers
The company’s success is based on the expertise, creativity and experience provided by a small number of individuals, and is reliant on being able to find qualified workers going forward. The Company’s ability to go on identifying and developing business opportunities going forward is reliant on the expertise and experience of the Company’s workers and key personnel. ES Energy Save is to be regarded as a small organisation in terms of its number of workers. There may be an adverse impact on the company’s operations, financial position and performance if the company were to lose key senior personnel or fail to recruit competent personnel.
ES Energy Save needs to be able to attract and retain qualified workers with relevant training and experience. The industry in which the company operates is characterised by relatively strong competition for experienced workers with the right training, and this may impact the company’s ability to retain and recruit qualified and experienced workers. Unanticipated losses of key personnel may result in cost increases in the short term, and the success and evolution of the company may be impaired, at least in the short term.
The Company is of the opinion that the level of risk indicated above is low.
Distributors
The company uses distributors to sell and supply its products to its end-clients. ES Energy Save works actively with distributors all over the world, and the Company is reliant on its distributors’ networks and sales development. Hence the company is reliant on maintaining partnerships with distributors. The majority of the company’s distributors operate under relatively short distribution contracts with one-year terms: these are renewed each year if distributors deliver in accordance with defined goals. This is why contracts with distributors are not extended automatically, and any amendment to the current distribution contracts may have an adverse impact on the company’s operations, financial position and performance.
There is a risk that successful distributors may decide not to renew their contracts with ES Energy Save and choose instead to work with one of the company’s competitors, which could harm the company’s position in the market. There is also a risk of distributors failing to operate as set out in with the contract when distributing the company’s products to clients, for instance. Failure of the company’s distributors to perform and operate in line with expectations pursuant to their contracts may have an adverse impact on the company’s operations, financial position and performance.
The Company is of the opinion that the level of risk indicated above is low.
Competition
There are many stakeholders engaged in similar operations in the company’s market at present. A number of these competitors are regarded as having more opportunities to adapt to changes in client demand as they have greater financial resources. As a result, competing stakeholders may have the opportunity to allocate more resources to marketing and product development, for instance. Given this fact, there are no guarantees that ES Energy Save will be as successful from a competitive standpoint going forward. It is not possible to guarantee that ES Energy Save will be capable of improving its current market position.
Greater competition may result in pressure on the pricing of the company’s products and services and a reduction in market share, which could have an adverse impact on the company’s operations, future growth, performance and financial position. The company is also at risk of being unable to compete with stakeholders that benefit from economies of scale if prices are squeezed. There is also a risk that the market may select heat pump suppliers offering broader product ranges than ES Energy Save, which would impact the company’s performance and financial position.
The Company is of the opinion that the level of risk indicated above is low.
Regulations and policy decisions
ES Energy Save operates in Sweden and the rest of Europe and sells products both nationally and internationally. The Company is exposed to risks on account of amendments to laws, regulations, taxes and customs duties. The company is also impacted by external circumstances that are beyond the company’s control, such as public, economic, fiscal, monetary and other political uncertainties in countries in which the company is active.
ES Energy Save’s operations and sales in Sweden and elsewhere are conducted in accordance with applicable tax legislation for sales taking place both in Sweden and elsewhere, as far as the company is aware. There is a risk of legislation being amended or the company’s interpretations of tax regulations in Sweden or abroad being incorrect. ES Energy Save’s present or previous decisions may therefore be subject to change on account of decisions made by Swedish and foreign tax authorities. The above may have an adverse impact on the company’s operations, financial position and performance.
The Company is of the opinion that the level of risk indicated above is low.
Financial risks
Risk of failure to pay dividends
ES Energy Save is undergoing a phase of evolution and expansion, and so reinvestment in operations of profits generated is prioritised. Historically, the company has paid no dividends to its shareholders, and there are no plans to pay dividends in the next few years. Future dividends may only be paid in such amounts that full coverage for the company’s restricted equity is available after the dividend has been paid, and only if this seems to be justifiable given (i) the demands made by the nature, scope and risks of operations on the size of the equity, and (ii) the company’s need for consolidation, liquidity and position in general (known as the precautionary principle). The main rule is that the general meeting of shareholders may not make decisions on dividends of amounts greater than those proposed or approved by the Board of Directors.
There is a risk that the ES Energy Save Board of Directors will not propose or approve dividends over the next few years. There is also a risk that the company’s operations will fail to generate cash flows that will suffice to allow it to pay dividends. Any parties investing in ES Energy Save must therefore be aware that there is a risk of dividends failing to be paid at all.
The Company is of the opinion that the level of risk indicated above is medium.
Currency risk
ES Energy Save is a Swedish limited liability company, and its performance and financial position are reported in SEK (Swedish kronor). The Company’s transactions are mainly denominated in SEK, USD and EUR, which means that ES Energy Save’s purchases and sales are exposed to fluctuations in these currencies. Between 1 June 2022 and 31 May 2023, the exchange rate for USD one (1) totalled SEK 9.6968 at its lowest and SEK 11.4328 at its highest, while the exchange rate for EUR one (1) totalled SEK 10.3570 at its lowest and SEK 11.6698 at its highest.
Exchange rate fluctuations may result in exchange rate losses for ES Energy Save, thereby impacting the company’s operating profit and financial position. ES Energy Save will be impacted by exchange rate losses if the exchange rate development of foreign currencies in which the company has receivables develops negatively in relation to SEK. This could have an adverse impact on the company’s operating profit and financial position; and vice versa for the foreign currencies in which the company has liabilities.
ES Energy Save Energy Save is of the opinion that much of the future market for heat pumps is in other countries, and that most sales of this kind will be made in currencies other than SEK. An increase in sales in currencies other than SEK involves greater exposure for the company to exchange rate fluctuations, which may have an adverse impact on ES Energy Save’s financial position and performance.
The Company is of the opinion that the level of risk indicated above is medium.
Future capital requirements
ES Energy Save will be reliant on successful commercialisation and expansion going forward. There is a risk of the company failing to generate sufficient funds for shorter or longer periods that will allow it to fund future investments and/or continuation of its operations. Hence there is a risk of ES Energy Save having insufficient working capital to meet the company’s needs, and as a result the company may be forced to seek future external funding so as to be able to continue operating at the growth and development rate planned by the company. There are no guarantees that ES Energy Save will be capable of obtaining the funding required, or that any such funding will be available on terms that are favourable to the company and existing shareholders. There is a risk of ES Energy Save having to postpone, scale back or terminate projects or parts of its operations if it fails to obtain additional funding at specific times as required.
The Company is of the opinion that the level of risk indicated above is medium.
Risks related to the company’s shares
Share price performance, volatility and liquidity
Existing and prospective investors in ES Energy Save should note that there is risk inherent in investing in the company, and that predicting positive share price performance is impossible. Investors are at risk of losing some or all of the capital invested in ES Energy Save. Historically, the company’s share price has been volatile and may go on fluctuating going forward as a result of factors such as general economic conditions, general macroeconomic factors and changes in the stock market’s interest in the company and its shares. Hence ES Energy Save’s share price may be impacted by factors that are partly or entirely beyond the company’s control.
ES Energy Save’s class B shares had a minimum closing price of around SEK 28.4 and a maximum closing price of around SEK 238 during the twelve-month period ending on 31 May 2023. There is a risk of shares in the Company being impossible to sell at a price that would be acceptable to shareholders at the time. Moreover, in turn limited liquidity in shares may amplify fluctuations in the share price. The average turnover per trading day for Energy Save’s class B shares during the same period totalled SEK 4,614,690.90 per day. Shareholders may find it difficult to sell their shares at short notice and on acceptable terms, or, indeed, at all if liquidity is low.
The Company is of the opinion that the level of risk indicated above is high.
Dilution in future issues
Going forward, ES Energy Save may raise further capital by making a decision to issue new shares and/or other securities. New issues of shares and/or securities may have an adverse impact on the company’s share price. If new shares and/or securities are issued, this may also reduce proportional ownership and voting rights for holders of ES Energy Save shares (dilution).
Shareholders will have the option of defending themselves against dilution by subscribing for additional securities in the company if the new issue is conducted with preferential rights for existing shareholders. However, this will require additional investment in the company. However, a new issue can be made with a derogation from the preferential rights of existing shareholders, which means that shareholders have no opportunity to defend themselves against dilution. Hence there is a risk of existing shareholders’ holdings in the company being diluted if ES Energy Save conducts a new issue of securities.
The Company is of the opinion that the level of risk indicated above is medium.
