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ENergy-efficient CONTROL with INternet-of-Things connected home solUtiOn

Periodic Reporting for period 1 - enControl-Intuo (ENergy-efficient CONTROL with INternet-of-Things connected home solUtiOn)

Reporting period: 2015-01-01 to 2015-06-30

Sensing & Control Systems S.L. is an Internet Of Things company specialized in Home and Building Automation with an exceptional focus on high levels of technical and customer support based in Barcelona, Spain. It is managed by its two founding directors and has an annual turnover of just under 600.000 € with a net profit ranging from 18%-35% during 2010-2014. The company currently serves through pilots a small number of users in Utilities and Telcos across Europe, driven by a team of 16 professionals covering a wide range of skills. Company revenue is growing slightly faster than the industry average and its operations exceed industry best practice KPIs. The company is a Certified Partner of most relevant communication and sensor manufacturers from the sector.
With the SME Instrument, we address the topic: “Reducing energy consumption and carbon footprint by smart and sustainable use (including energy-efficient products and services as well as ‘Smart Cities and Communities’)”. Our technology addresses the needs of our European utility partners and their residential users as they transition to a more sustainable energy model:
1) New energy services to reduce consumption and carbon footprint in homes. By leveraging our utility sales channel partners, enControl™ Intuo is designed to reduce energy-related carbon emissions across millions of households. New energy services, including variable prices and demand response, can reduce energy use by 8,3%, and carbon emissions by 6-7% (based on the Project Intelliekon “Internal research from Smart Metering”. Fraunhofer-ISE, 2011). Our solution takes into account these new energy services and adjusts climate systems to minimize energy costs, creating additional savings both for the utility and their users.
2) Smart energy usage. Efforts needed to reach a clean and democratized European energy system require smart technologies; however the main challenge is to create smart people. Our innovation goes beyond existing Smart Home climate control solutions by delivering plug-and-play features and personalized user feedback that drives added savings.
3) Accelerate adoption of sustainable energy. Our technology enables homes to adapt their climate systems to the most sustainable source of energy available – with the flexibility to integrate future distributed energy systems such as rooftop solar.
With this project we plan to reach the mass European residential market with our enhanced Internet-of-Things (IoT) home energy management solution which we have specially designed to help households reduce the energy used by their climate systems while preserving comfort. Main objectives:
1) Deliver the World´s first truly sustainable climate control system – an autonomous cloud Smart Virtual Thermostat that manages temperature according to desired comfort levels and source of energy.
2) Confirm market opportunity and our business expectations by conducting a feasibility analysis and Proof-of-Concept demonstration to our sales channel partners: energy utilities Tauron (Poland), EnergiMit (Denmark) and Energo (Croatia).
3) Set the bases to secure yearly recurrent revenues (around 50 M€ by 2020).
The activities performed during Phase I mainly focused on ensuring the practical, technical and economic feasibility of our solution to achieve our business objectives, specifically:
1.-Refine and enhance business plan;
We have challenged the underlying assumptions of our initial business plan with the aim of delivering a more accurate and convincing value proposition to potential customers, partners and investors. Strengths, weaknesses, opportunities and threats have been refined. The features of our innovation have been benchmarked against competing solutions. Key milestones for the next 5 years have been reviewed and refined and strategies implemented to reach them. We purchases professional market reports and hired an independent agency to carry out focus groups in order to gain reliable insights into the markets where our target utility partners are located – Poland, Denmark and Croatia. Relevant market aspects have been refined including: target customer household segments, customer expectations, desired services and features and their willingness to pay for our solution. Moreover, we carried out thorough research regarding competing solutions currently available or expected to be launched, market share of each player, estimated rate of adoption for energy management solutions, service costs, support costs, distribution costs, marketing costs, among other variables. We have adjusted our revenue and expense forecast along with our strategies for pricing, funding and geographical expansion. These activities have been reinforced and validated through our coaching sessions provided by the European commission during Phase 1 of the SME Instrument.

2.-Develop plan for multi-channel marketing strategy;
In order to reach a large number of potential clients and investors, a consistent, multi-channel brand and marketing strategy is fundamental. In order to build these relationships in a time and cost-effective manner, we have implemented a professional Customer Resource Management (CRM) tool that we are now using to speed up our international expansion efforts. As an SME with limited resources, activities in this area have been scarce with relatively low impact. We realized that even with an attractive solution, we would not be able to reach our sales goals without investing more in marketing and brand awareness. At the beginning of 2015, we hired an experienced Brand Manager, Érika Piña, who has done an excellent job of boosting our corporate image and visibility through various campaigns leveraging different platforms, many of which have already generated notable results including:
a) An intensive social media strategy.
b) International trade fairs: We presented the Intuo prototype at our stands at Cebit and Mobile World Congress.
c) Articles and press releases.
d) European Business Awards participation.
e) Website refresh.
f) Customer Resource Management (CRM).

3.-Protect intellectual property and minimize commercial risk
A third party agency (attorney) has been subcontracted to elaborate a complete intellectual property protection strategy, to ensure that our innovation and business model delivers a sustainable competitive advantage, thereby lowering risk for investors and increasing confidence among commercial partners. Various protection instruments have been evaluated and/or implemented including: patenting, freedom to operate, trademark registration, documentation of trade secrets and reserving product domain names. In addition we have started a patent application to be submitted to the European Patent Office. Additionally, our non-disclosure agreements and existing partnership contracts have been reviewed and amended to fully protect the company’s trade secrets. Finally, a preliminary analysis of service contracts, licensing agreements and regulatory issues, have been conducted to minimize our exposure to risk during the commercialization phase. Relevant standards and protocols for data security, data privacy, communication and safety have been investigated and a plan for compliance prepared for each target country.

The main technical objectives were devoted to continuously improve the design of our solution:
1.-Create graphical user interfaces for the integration of the Intuo Smart Virtual Thermostat in enControl™;
2.-Conduct customer focus groups to obtain feedback on the user interfaces and the overall user experience. Results: there is a robust demand for smart home energy management solutions in all three of our target countries and; potential users demonstrate a high willingness to pay for our solution, thereby validating that our business model is profitable and sustainable.
3.-Develop a detailed pilot plan for Phase 2.
The opportunity for Sensing & Control Systems S.L. lies in providing value-added services that truly deliver use reduction, increased efficiency and ensure scalability and flexibility for the service provider.
By 2020 Sensing & Control’s customer list will number over 450.000 users made up of a mix of small, medium and large Utilities and Telcos operating within Europe as well as internationally. Contracts will be split between 6 large and very profitable customers that will account for around 25% of sales, 18 medium and small customers that will account for the remaining 75% of sales.
By the end of 2020 we will reach revenues in excess of 48 M€ and at a run rate of over 80 M€– both of these figures far away from the 1,3 M€ expected by 2017. The product mix will be composed of both recurrent services and hardware sales, at the beginning of the period 2016 recurrent revenues will account for 5,1% however the strategic idea is to quickly increase it over the years, reaching over 15,4% of sales by 2020. This strategy provides two key benefits – one is that recurrence ensures financial stability compared to only selling hardware, and two, recurrent business models attract additional investment easily.
Regarding gross margins our business model clearly shows consistency. By keeping a flat structure and applying reselling tactics we will be able to reach a healthy 79,1% gross margin per account on the recurrent services by 2020. When considering hardware we will keep an aggressive pricing strategy by maintaining a lower that average 15% markup differentiating us from hardware-focused competitors. This lowers the entry barrier allowing a higher closing rate. These solid margins will contribute to reach 5,6 M€ in net income by the end of 2020.
Regarding distribution we plan to have a lean structure of 8 to 10 representatives attending local and international opportunities in over 15 countries. This team will be responsible for attending selected clients and for developing a network of specialized resellers that by the end of 2020 will be accountable for 85% of the sales or 388 thousand accounts.
Sensing & Control Systems S.L. has a product to compete with the best providers with a Plug and Play, User Friendly, Self-Learning solution capable of delivering the right command to make any climate system the most efficient and comfortable for the end user. In addition, Sensing & Control Systems S.L. already positions itself in the market as providing significant added value through its service levels. It provides a superior level of hand-holding and technical support that differentiates itself from other Smart Home solutions providers.
Sensing & Control Systems S.L. is well positioned to convert this opportunity into significant growth with its existing product range and high service levels but has identified a need to increase its market visibility. It has therefore created a plan to develop its sales and marketing structure which will capitalize on this opportunity and multiply its revenue over the next five years. Core to this plan is investment in target growth areas with low cost of sales that provide low risk and potential high return. This will increase its currently low visibility with its customers and in the market place, develop new sales channels and increase large customer sales.
Although participating in many different research projects for the EU has helped S&C come to today’s point, it will not be able to support its ambitious growth plans with its current borrowing and we anticipate a need for further resources through tools like the SME Instrument, soft loans or equity finance. We plan to increase subscribed capital by 350K€ in 2016 and 300K€ in 2017, this total will be composed by private funds (by owners and employees) and public funds by means of soft credits (ENISA) provided by the Spanish Government to investors of SMEs providing the same value of monetary credit as the funds in the form of subscribed capital. The total budget for additional resources expected for enControl™ Intuo in phase II is around 3,2 M€. This budget will be partially covered by the EC (70%) with a total of 2,24 M€ and we have considered 950K€ of additional subscribed capital and the earnings from current operations.
Additionally, we have run various scenarios considering the eventual participation of a triple “A” investor. Previous figures of a conservative scenario show that an investment of 10 M€ will allow S&C to expand to over 30 countries reaching at least 1,8 M€ accounts, revenues of 144 M€ by year 2020.