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Energy efficiency company Sabien Technology (LON:SNT) is to remove a major impediment to clients trying out its M2G boiler optimisation units.
The real-time M2G monitors are retrofitted and allow units to function more effectively, leading to savings of 15-25% per heating season (which runs from October to April).
The company had previously charged companies during pilot schemes, but based on its experience of a high conversion rate from trial to estate-wide roll-out, Sabien has decided to fund the cost of such trials, with the money clawed back should the client sign on the dotted line.
The change in policy is expected to reduce the sales cycle by up to 24 weeks.
“Since 2004, we have converted 87% of M2G pilots to our sales pipeline and 69% of pilots have led to an estate-wide roll-out. A number of pilots which ran during the 2014/2015 heating season and which concluded in April 2015 are not yet reflected in the pipeline as we are in the process of finalising the business case with the clients,” revealed chief executive Alan O'Brien in a trading statement.
The change in strategy seems to have been inspired by delays in a few substantial orders in the pipeline that will cause results for the current year to fall below expectations.
As a result of the delays, revenue for the year to the end of June 2015 is expected to be in the region of £1.9mln, versus a market forecast of £3.03mln, while the loss for the year is expected to be as much as £0.6mln; analysts following the stock had pencilled in £280,000 for profit before tax.
On the plus side, the company has kept a tight control of administrative expenses, which are expected to be at the same level as the previous financial year, so the company has a satisfactory net cash position of £1.1mln.
The sales pipeline currently stands at £6.2mln, which compares with £6.9mln at the time of the interim results in February and £5.8mln as at 30 June 2014.
Commenting on trading and the change in piloting strategy, Alan O'Brien said:
"Although we are disappointed to see some of the substantial orders we expected slip beyond June 2015 we are encouraged by the robustness of the sales pipeline and have prepared a five-year growth strategy focusing on improving the size and speed of conversion of sales prospects. This step change involving the provision of 'free' pilots is expected to reduce our sales cycle by up to 24 weeks by removing a significant barrier to clients agreeing pilot programmes.”
The company, which has a strong reputation in the market place for boiler optimisation controls, has a high conversion rate from pilot schemes to orders and so receiving impediments to clients agreeing to pilot schemes should pay off in the longer run.
O'Brien said the new pilot scheme strategy does away with private sector clients having to raise a purchase order for the full value of the pilot before it commences.
“This process can take weeks if not months before an order is placed on us,” O'Brien said.
Public sector clients, meanwhile, frequently have to run a public tender for a pilot , which also causes delays in receiving a pilot order.
“We are scaling up the number of M2G pilots we will run in any one heating season as we believe this will give management better visibility and predictability of contract award and start dates,” O'Brien told investors.
“We have already started the process of recruiting the relevant personnel needed to scale our business to include data analysts, business development managers, engineers and project managers.”
“While it is disappointing that some substantial orders have been delayed, it has led Sabien to adopt a more pro-active growth strategy,” said Robert Sanders, at Sabien's house broker, Westhouse Securities.
“This will involve it providing a significantly larger number of 'free' pilots to potential clients than the 10 it ran in the 2014/15 heating season. With an historic 87% conversion of pilot clients into the sales pipeline the new strategy should lead to an increase in the number, size and speed of conversion of sales prospects,” Sanders suggested.
After the profit warning, Sabien's shares were among the worst performers, shedding 2.5p at 7.50p, but Westhouse is sticking with its discounted cash flow-derived price target of 50p for the stock.