Logo
Log in Sign up


← Back to Stock Analysis

Earnings Transcript for ABHBY - Q1 Fiscal Year 2024

Operator: Hello, and welcome to the Alfen 2024 Q1 Trading Update Call. My name is Laura, and I will be your coordinator for today's event. [Operator Instructions] Today, we have Marco Roeleveld, the CEO; joined by Michelle Lesh, CCO as our presenters. I will now hand you over to your host, Marco Roeleveld, to begin today's conference. Thank you.
Marco Roeleveld: Good morning, and welcome to this webcast regarding the 2024 first quarter trading update of Alfen. We appreciate the fact you have taken the effort to participate. As indicated by the moderator this webcast user may come forward handled by the [indiscernible] of Alfen being Michelle Lesh CCO; and Marco Roeleveld, CEO. In this webcast, we will start with the highlights of the first quarter of this year, followed by a short review about business line. Next, we will go in more detail regarding the financials and outlook. We continue with Slide 3 with the highlights of the first quarter of 2024. In this quarter, we realized EUR 116.8 million in revenue. This represents a growth of 3% compared to the same period last year. This growth was driven by a growth of 32% of Smart Grid Solutions. The 60% lower EV charging revenue was mainly related due to the fact that in the first quarter of '23, we benefited from huge order backlog from orders in 2022. Energy Storage revenue was 8% lower due to a timing aspect of a single project in project execution. The overall gross margin was stable at 32% compared to 32.1% in the same quarter last year. This gross margin excludes the one-off of EUR 5 million costs related to the Liander Pacto substations moisture issue, and these one of course, are also excluded from the adjusted EBITDA. As a percentage of revenue, the adjusted EBTIDA declined from 12.7% in the first quarter of last year to 8.2% in the same quarter this year as a result of the time shift in revenue recognition in energy storage. In 2024, the revenue will be backloaded to about the second half of '24, driven by a ramp-up of substations where we are confident that due to the new building that's now finished and where the moving of production will start coming weekend and will be finished at the end of Q2 that in the second half of the year, we'll be able to further production of Smart Grid Solutions. Second reason to revenue to be backloaded is the demand for AFIR-compliant EV chargers and of course, the timing of Energy Storage projects towards the second half of the year. Two, organizational aspects are relevant. The first one is that we have appointed an interim CFO in the person of Onno Krap. Onno joined Alfen as per today. Furthermore, we have sent in our management structure base standing our ExCom with Bart Kempen a, COO; and Anne van Nood a CHRO for -- CHRO. And regarding the outlook, we reconfirm our 2024 full year revenue guidance and our EBITDA margin, and we also are sure that we will have a positive free cash flow at the end of the year. We also reaffirm our growth ambition for Smart Grid Solutions and EV Storage -- EV charging. For Energy Storage there will be likely be less than 40% revenue growth due to the rapid decline in battery prices. I will go in more detail on the financials later on in this presentation. Our CCO, Michelle Lesh will now continue this webcast.
Michelle Lesh: Thanks, Marco. Now we'll talk through each of our product lines, starting with EV Charging. In EV Charging, we saw revenues of $39.3 million, which is down 16% year-on-year. Q1 2023 is challenging to compare with as we had significant backlog carried over from 2022. And Q1 2024 does show modest quarter-on-quarter growth compared to Q4 2023. We had 66% of our revenue generated outside the Netherlands, and we still expect to grow EV Charging approximately 15% into 2024. This is really driven by new AFIR requirements and recent tender wins where we're already seeing order intake for our new Twin 5 Plus AFIR-compliant product. As we move to Smart Grid Solutions, we achieved EUR 54.9 million revenue for Q1 2024, which is a year-on-year increase of 32%. This is primarily driven by the increased grid operator volume. This increase is as expected and as previously communicated, we continue to see the long-term growth trend for Smart Grids. Just to note for Liander, we do expect a one-off revenue impact in Q2. But to be clear, there was no revenue impact in Q1 for Liander. The $5 million cost Q1 impact was just for the Liander Pacto stations and was a one-off in SGS. It's also important to note that the production stop was adjust for Liander. Our other SCS business was not impacted and continued and will continue into Q2. Finally, in Energy Storage Systems, Q1 saw revenues of $22.6 million, which is down 8% year-on-year. The volatility in Q1, as Marco explained, was driven by a single large project milestone tied to a site delay which was out of our control. We will see a recovery in Q2 and further acceleration of revenue in the second half. In addition, we do see that the battery prices will have a larger impact on future 2024 revenue as prices have fallen faster than we had forecasted at the end of 2023. Just for reference, Bloomberg Neff estimated about 7% decline in December for battery system -- energy system costs, and now that's in excess of 19%. We had planned on a forecasted decrease. However, with the incremental change, we now expect energy storage revenues to be less than 40% growth year-on-year. We do expect this rapid decline in battery prices to be temporary and that over time, the rate of decline will slow. And due to our agreement with suppliers, we have back-to-back pricing. So, the impact is only on revenue and should not affect gross margin. On the positive of the lower battery prices is that we are seeing increased interest in projects and have more qualified projects in our pipeline. I'll now hand it back to Marco to go through the financials.
Marco Roeleveld: Thank you, Michelle. On Sheet 7, you can see the quarterly revenue overall gross margin and adjusted EBITDA development. The revenue development has just been explained by Michelle. The overall gross margin of 32% was in line with the gross margin in the first quarter of last year. I've to note that the gross margin excludes the one-off cost EUR 5 million related to Liander Pacto substations moisture issue. As a result, this is also excluded from the adjusted EBITDA. The adjusted EBITDA declined from EUR 12.7 million, being 11.2% of the revenue in Q1 2023 to EUR 9.6 million being 8.2% of revenue. This results - this is a result of lower than planned revenue in Energy Storage, causing temporary operational deleverage. As in the past years, with the Q1 and Q3 trading update, we do not give working capital and cash flow statements. However, we can say that the working capital and cash flow is developing as planned. For example, the inventory for ACE is going down as planned, where we indicated last year that we had an overstock of EUR 30 million to EUR 40 million. We are progressing on this, say, on or evenly basis over the year to bring this down to at the end of this year to the expected number. On Sheet 8, we decided to fill the CFO position on a temporary basis. This gave us time to carefully manage the selection process for a permanent CFO going forward. And we intend to announce a permanent CFO early 2025. I'm pleased to announce that Onno Krap joined Alfen as Interim CFO as per the 21st of May being today. Onno brings more than 25 years of broad financial and leadership experience to Alfen and has worked in a variety of financial roles in a wide range of industries across multiple public, private and private equity-owned companies. We are convinced that Onno has a balanced mix of experience as both a strategic adviser as well as a hands-on operational leader with expertise building processes, teams and capabilities in international manufacturing setting. Our company will continue to grow, and we decided to extend the Executive Committee as per January this year with Bart Kempen in the role of COO and Anne van Nood in the role of CHRO. This extended executive team allows for more dedicated attention on key areas of the business such as operations and our employees, while it leads to more focus for the existing Board members. On the last sheet of the presentation, we would like to elaborate on the outlook for 2024. Across Europe, the transition to carbon-free energy system that is not dependent on fossil fuels is without debate. And therefore, we foresee a long-term positive market development for all of our business lines. To facilitate our growth, we continue to invest in our organization, production lines, and innovation for the future. And we reconfirm our full year revenue outlook of EUR 590 million to EUR 660 million as we also reconfirm our guidance regarding the adjusted EBITDA of a minimal 11.3% of revenue and a fact that we expect a positive free cash flow. We're now at the end of the webcast. Laura, can you take over again and open the line for questions?
Operator: [Operator Instructions] We will now take our first question from David Kerstens of Jefferies.
David Kerstens: I've got two, please. First of all, can you talk a little bit about the gross margin development in the first quarter, which was better than expected and given a rough indication of the development by segment? Is it correct to assume that the gross margins in EV Charging sequentially improved after they weakened towards the end of last year? That's the first question.
Marco Roeleveld: It's up a little bit, say, maneuvering now into answer is that we say historically like with working capital and cash flow statements are not supplying the gross margin statements in the first and the third quarter of the year. But I think in overall, you're more or less right in the assumption that on the development of our gross margin in the individual business line. We didn't deal them out, say, this quarter fully. But say we are, say, happy with the overall gross margin development, and they are well within the bandwidth as which we indicated previously.
David Kerstens: And what would drive the sequential improvement in gross margins and EV Charging versus the second half of last year and into Q1? Is that the mix effect from -- the mix effect [indiscernible] the home segment coming back?
Marco Roeleveld: There's fundamentally a mix effect, but say, partly what also Michelle was already said, we expect for the second half of the year or that's said, the AFIR element where we more or less the transparency on payment, it will -- is related to, say, the public and semi-public segment. Therefore, we think that also that segment will have the capability to show an upward in revenue and therefore, also it will be translated into our results also.
Michelle Lesh: And in Q1, sometimes we do see a positive mix effect. If we've got more -- if the home segment comes back, even if we've got more business and public chargers pre AFIR, that would also help support a positive mix effect in Q1.
David Kerstens: Okay. Understood. And maybe moving to the next question on the impact from the moisture issue in Smart Grids. How should we -- how will that impact revenue and operational leverage in the second quarter? Will there still be operational deleverage again in Smart Grids next quarter?
Marco Roeleveld: So fundamentally, what will happen in the -- what's happening in the second quarter that we had, say, in April a temporary stop down of production. That means that to say, at this moment, we have resumed production of our Liander Pacto substations, but we have kept reducing the number of substations of the remaining customers. Therefore, there will be a slight impact on revenue in the second quarter, but also indicated due to the fact that we are now fundamentally -- we have resolved the elements of that stopping from production in April, we will be able to compensate those numbers in the second half year. And all the costs are incorporated in the EUR 5 million that are the costs that we have incurred more or less up to now, but also the cost that we expected to occur in the remaining part of the year related to the [indiscernible] we still have some repairs to be done, but they are all incorporated in the EUR 5 million. So the deleverage is in -- if you talk about those terms in our operating gross margin, we will not be fundamentally there. There will be a slight impact on our revenue in the second quarter, but that will be compensated by revenue in the third and the fourth quarter.
Operator: And we'll now move on to the next question from Jeremy Kincaid of Van Lanschot Kempen.
Jeremy Kincaid: My first question is just on the Energy Storage business. Obviously, you called out there was a timing effect impacting the revenue there. But obviously, it seems to be quite large. Does that suggest that you're working on more large-scale projects this year rather than lots of smaller ones?
Michelle Lesh: Yes, it does. I think what we've seen is the project sizes have continued to increase over time. And I think we've shared previously, for example, Ellevio was one customer where we had started with 10-megawatt hour projects and moved up to 20-plus megawatt hour projects. So yes, over time, we are seeing larger projects in our pipeline, larger projects that we're executing, which makes the milestones larger.
Jeremy Kincaid: And so would it then be fair to assume that the margins could be lower compared to last year since you're working on larger projects?
Michelle Lesh: So we do have larger projects, but we still have the smaller projects where you don't have the same dilutive effect from the battery pull-through. So, I don't think it's fair to say that you'll see a decline because we still do have a mix. As we grow, we have more larger but also more of the small- and medium-sized projects.
Jeremy Kincaid: Second question, just on the cost side of things. There was a sequential increase up to around $28 million on the OpEx line for the quarter, up from around 24 million last quarter. Could you talk to what some of the moving parts were there?
Marco Roeleveld: If you talk to our operational costs, they are more say fundamentally related to personnel and, say, housing. So those are more or less linear type of costs where we try to play in a secure as possible, and they are also quite close to the number we planned for. And say the fundamental impact on this quarter is more or related to the relevance -- the percentage-wise towards revenue. If say, the timing of this single project had been as planned, then we would have been able to recognize revenue. And that percentage-wise, the cost would have been also more in line with what everybody was expecting because in absolute number, the costs are there. But as a percentage, of course, they are related to the revenue we can accommodate. And we cannot more or less delay the recognition of course, in the same way we can relate more or less the revenue. So we have to present costs as they are and revenue is more or less related to the fundamental milestones of the projects that are related to.
Jeremy Kincaid: And then one final question. Could you help me understand the interim CFO decision and why the decision to hire Onno is only on a temporary basis or interim basis, and then you're looking to hire someone in 2025? Is that because you're looking to find someone else or more that Onno is on a trial period?
Marco Roeleveld: Maybe to put it a little bit in perspective, we did a thorough process -- or we tried to do a thorough process in the second half of last year when we knew that Jeroen would be stepping down -- from his role as CFO and to have a candidate with a nice overlapping period to transfer knowledge about, say, the company in a row. And say at the end of the first quarter, we more or less together with Boudewijn Tans where we had envisioned to be the next CFO. We came to conclusion from both sides that the fit was not fully there. And then you can debate what to do and that time, both Boudewijn and we concluded that it was better to stop the cooperation. But say, because of the timing of that decision, it was not anticipated by us and not anticipated by Boudewijn that we would come into that situation. And after more or less this being executed, we set together with the Supervisory Board, what to do next. And we concluded that was in our company's benefit to have to not start up a fundamental new process to finding a CFO, because that would say normally, such a process would take something like six months. And we said we need a quicker solution and we said, okay, if we want a quicker solution, then although we have done a thorough process, we did not want to run the risk to have a final nomination and a final decision and then come to the conclusion that on timing, we had other discussions again. So we concluded that we would start this process with the basic starting point that we would have an interim solution. And if the interim solution works are fine, maybe we could consider to have that also as a final solution. But fundamentally, we've done our best to find an optimal candidate but also do it in such a way that we have some maneuvering room to -- for both in this situation Onno but also for Alfen as a company to have some maneuvering room to be able to come to the best solution.
Operator: And we'll now take our next question from Ruben Devos of Kepler Cheuvreux.
Ruben Devos: I had a question on Energy Storage. I think you mentioned that there was a single Energy Storage project that has caused sort of the miss versus expectations. I'm assuming if you look at the numbers, sort of the miss was about EUR 24 million. I'm assuming that single storage project does not entirely bridge the EUR 24 million. So, could you just help us thinking about maybe other causes of what is potentially or what was a bit softer in Q1, thinking about market volatility, lower battery prices and then the single Energy Storage project you referenced?
Michelle Lesh: Yes, you're correct in that the single project was not the full miss. I think Q1 was really driven by project timing. So, whether it was other smaller milestone side the projects or the large project, Q1 was really around project timing. For the future, you will see the battery prices come more into play as we execute and finalize those projects, but Q1 was really driven by project milestone misses with the largest portion being a single project that just -- the site wasn't ready, and we can't deliver sites to components to site if the site is not ready and that was out of our control.
Ruben Devos: And then we don't have a balance sheet or a cash flow statement for Q1. But could you discuss maybe inventory levels, especially for Energy Storage with 20% lower battery prices roughly? Is there somewhat of a pricing risk? Or is it mitigated by your contract structures and purchase agreements basically?
Michelle Lesh: Yes. It's essentially mitigated by contract structure and purchase agreements. So, all the batteries we have are tied to projects that have been closed. So the pricing is locked. And then what we do for new projects is that is tied to new purchase orders, new pricing and everything is back-to-back. So, there is no inventory risk from Energy Storage because all of the batteries we have are allocated to projects that have been signed.
Ruben Devos: And the lead times, there's still about 12 months these days? Or have they come down?
Michelle Lesh: Well, so for overall projects from when we first start working at the final close, it can be approximately 12-plus months. But we've got a lot of projects at various points in time. And then we've got our agreement with our suppliers that allow us to get the batteries we need to support those projects in a much shorter time frame.
Ruben Devos: And then just a final question on EV Charging. Regarding the Twin 5 Plus, your new public EV charger compliant with AFIR regulations. You expect that to drive demand in the second half. Could you maybe explain why this is expected to drive incremental demand? I mean, obviously, your clients want to be compliant with regulation, but I can imagine that your competitors will also need to launch such compliant charges. So what is maybe somewhat of an incremental driver here?
Michelle Lesh: So for us, we've got two products that really tie to AFIR. One is our Eve Double, which has a screen. And then the Twin 5 Plus with our old Twin where we had to add a screen. Most of our customers, if you've got the Eve Double, it's backward compatible, you upgrade the software. In Twin 5 Plus new screen that started shipping in April. So we've got the order intake in Q1, but the revenue will start happening in Q2, Q3, Q4. And what makes our solution unique comparable to some of the others out there is dynamic QR code. So on the screen, what we do is that QR code that is displayed is dynamic. And the reason that's important is there's been certain reasons, some customers, not necessarily of ours but are using other stations are simply putting a QR sticker on the charger. And the problem with that is that anyone can go put a QR sticker on the charger. And that QR code can lead you to a site that is not the one that is for the CPO. So, from a cybersecurity perspective, from a just fraud perspective, static QR codes are not the preferable solution. So, our ability to serve up dynamic QR codes on the screen is a value-add for our customers that want to protect their customers who are initiating charging sessions from fraud. So that is one reason we feel we've got a solid solution Q2, Q3, Q4 with our AFIR-compliant Twin as well as with the Eve Double that is software. It's on the screen. It's dynamic. It will protect against fraud and not all of our competitors are offering the same AFIR-compliant solution.
Operator: And we'll now take our next question from Nikita Lal of Deutsche Bank.
Nikita Lal: I have just one question left regarding the inventory level. I understood that you don't give any numbers on Q1, but regarding your Liander issue, will we see any negative impact on inventories in H1 and then which will weigh on cash generation?
Marco Roeleveld: The -- is what we've seen now is that there will be no inventory impact on the figures based on the Liander aspect because we stopped production, but also we start production at our suppliers. So, the incoming of our goods will more or less have directly related to the question as we have planned. Maybe into the gate also maybe what is said in the webcast, where we said in inventory, we see the decline of inventory of EV Charging components, that's under process. And it's not that it will not have a depletion of the -- our supply stock in the first quarter or in the first half year. It will be step by step over the whole year that we will more or step-by-step ramp down our EBIT charging revenue number based to a normalized level. And as indicated last year that we'll be having a positive effect on our overall 2024 inventory level between some -- between EUR 30 million and EUR 40 million.
Operator: We will now move on to our next question from Thijs Berkelder of ABN AMRO ODDO BHF.
Thijs Berkelder: First question on your outlook on revenues. Why do you think you still can make the high end of your guidance range given that you really lowered the guidance for Energy Storage revenues? And maybe partly related to that, is it possible to give a bit more flavor on Q2? You're indicating you will see a strong recovery in Energy Storage normally in Q2 versus Q1, you will have slightly lower revenues. On the substation business, I heard you say so on EV Charging. Can we expect a decent growth in Q2 versus Q1?
Michelle Lesh: I think Thijs what you mentioned is, yes, we will see a Q2 recovery for Energy Storage. SGS will have some impact. And then what we had talked about last year is some small sequential growth quarter-on-quarter for EV Charging. We're still expecting that. So, we said AFIR will come into play. Some of that will happen in Q2, some of that will happen in Q3, Q4. So that's what we're expecting as we head into the rest of the year. And then in terms of the overall guidance range, what we see is Energy Storage, especially with the larger projects can have large impact in both directions. We are working on some large projects where we've got verbal agreements. And if those get closed, then we'll see milestones that will support revenue recognition that are significant. If they don't get closed, then that will also have equal downside. So we are still within our bandwidth, but Energy Storage is really the primary driver of whether we're up or down against the midpoint.
Thijs Berkelder: That's up or down from the midpoint so. And more or less Energy Storage by itself has, let's say, a delta of something like EUR 70 million in terms of revenues for this year still.
Michelle Lesh: That's probably a bit on the high side, but it does have the largest impact on our ability to hit the high end.
Thijs Berkelder: Then another question on EV Charging and AFIR regulation, you're saying your -- let's say new public charger has a screen and this can show the dynamic QR codes. But in terms of installed base of your public charges, most of them do not have a screen. What do you see there? Or what are you expecting there to happen in that installed base you already see, let's say, customers may be accelerating the move from old public chargers to newer public chargers?
Michelle Lesh: Well, for example, when we won the City of Amsterdam tender last year, that is an example. Those chargers have been installed for 10-plus years. So we're already into that replacement cycle. For units that are younger than that, we've not seen an acceleration yet. And fortunately, for our customers, AFIR only applies to newly installed chargers after mid-April. So the older public chargers do not have to be compliant. But depending on how dynamic QR codes are utilized and the fraud risk potential, it is possible that, that could accelerate some refurbishment of installed base units, but we'll have to see how that plays out. We're not seeing that trend yet. I said other than what we saw with City of Amsterdam, where they are in a replacement cycle, and we won those tenders.
Thijs Berkelder: But it's [indiscernible] that these fraud speakers also can be placed on your chargers, of course.
Michelle Lesh: One -- older one, yes [indiscernible] So that could Sorry -- I said so that could drive faster replacement, but we haven't seen that happen yet.
Thijs Berkelder: Then last week, you I think, officially opened your order book for your DC chargers. Is there already some kind of an expectation on the traction there?
Michelle Lesh: So we do already have orders. So we had been working with some of our Netherlands and Belgium customers to make sure that things were as expected. We publicly opened our order book. We do have orders. We've always communicated that, that is not going to be a material contributor to revenue growth. So, we're not expecting it to drive things up or down this year, but we are starting to see traction and are happy that we're able to get the DC charger out into the market publicly.
Thijs Berkelder: Then there was also a client question on your number of search stations produced already in Q1, while not having opened a new factory yet. Can you maybe explain how you produce such a high number of search stations already and what kind of production levels you could reach post opening of the factory?
Marco Roeleveld: In our factory, we have been more or less squeezing all the square meters that we could in order to be able to support the ramp up of production. As indicated also last year that we bought the building at [indiscernible] to accommodate the growth of batteries storage. In order to facilitate the growth of Smart Grids, we decided to first more or less ramp up our production and use the existing facility at the [indiscernible] to more or less already pre-ramp up before the new building was ready, so that we more or less used the square meters we have bought extra to prioritize the growth of Smart Grid solutions. And we now have started moving equipment towards a new building. The offices are now, say, for 90% taking into users. We started moving office personnel at mid-April to now. And I think the offices we're now fully equipped. And we have started more or less the first production elements in the new buildings to make sure that all production lines and all, say, data communication, all transporting facilities are operational. And from coming weekend on, we will start moving warehouse equipment. So that's we step-by-step will move production to the new building. And at the end of this quarter, we will have moved all our smart risk solutions production towards the new building that we will not have that -- that we directly can translate that to higher output. It will be step by step because it's not only about, say, square meters, but also step having experienced personnel. And we think that during the third and fourth quarter, every week, we will step by step increase our production in order to accommodate more or less the requirements of our grid operators to be able to execute on their orders.
Operator: And we will now take our next question from Tijs Hollestelle of ING.
Tijs Hollestelle: Are you having, let's say, internal discussions to improve the overall disclosure sort of improved reporting, for instance, that you do provide a net debt or trade working capital position as the first and the third quarter, maybe gross margins per division. Is that something that is being internally debated?
Marco Roeleveld: To this moment, we have more or less included figures on, say, the full year and the half year to have a full set of figures, including gross margins and including also cash flow and those types of elements. Starting last year, we have more or less said that we will do that on a half year basis and not in the, say, the quarterly updates. The quarterly dates are more oriented in the first and the third quarter on revenue and on EBITDA level. So it's -- at this moment, we are trying to, on one hand, try to extend our set of information that we supply to the market, but also in a [preponed] manner so that we can also follow that ourselves in relation to our financial structure and our financial departments. If there would be fundamental deviations for what we have seen, then we would have indicated. So at this moment, whether this gross margin or working capital or inventory or cash flow development, we don't see fundamental deviations from what we have set as guidance and as communicated earlier, we more or less used the half year and year figures to have a full financial set of information to reflect on our performance.
Tijs Hollestelle: And I mean I also noted from the questions from the other brokers that, let's say, there's a big ask for, let's say, kind of a directional heads up per division because the shares are down this 18% now because there's a big disappointment compared to the expectations, an overall disappointment on the stock market. So, I think that with your kind of production kind of divisions like Smart Grids and EV Charging, it's mid-May now, you have a pretty good overview of what's going to happen. So, I'm not asking for, let's say, specific numbers for thing but the kind of a directional heads-up is quite common, and I think it would help reducing share price volatility. But that's -- maybe that's not something that you're having discussions about within Alfen.
Michelle Lesh: No, I think we do regularly have discussions around what is the appropriate amount of disclosure within the parameters that Marco just explained. So it certainly is a discussion. How do we consistently provide information that helps support the direction that the company is headed. And I think what we did share is in Energy Storage, we expect Q2 to have a recovery -- the milestone miss from Q1 will carry over to Q2. So, we'll see that convert. So Q2 will be stronger. Overall, it will be back half loaded, but Q2 will be stronger. In SGS, we'll have minor revenue impact in Q2, but we expect a full recovery for the second half. And in EV Charging, we still expect sequential quarter-on-quarter growth. It will be modest, but we do still expect sequential growth especially compared to last year where Q2 was not our strongest quarter in 2023 for EV Charging. We'll see some of that recover as well. So I think that gives some flavor. And then the overall percentages as we shared, approximately 15% for EV Charging, approximately 20% for SGS and then below the 40% for Energy Storage is what we have right now.
Operator: And we'll now take our next question from Paul de Froment of Bryan Garnier & Co.
Paul de Froment: Two questions for me. The first regarding EV Charging. Could you give us an update on the grid connection delays for [CPOs] in Europe right now?
Michelle Lesh: So some of the grid connection delays tend to be tied to fast charging infrastructure. And I know we've communicated in the past with SGS that sometimes those grid connection delays could impact the SGS stations to support fast charging connections. Right now, we're not seeing any grid connection delays in regard to our EV Charging business as we're primarily destination charging. So charging plazas at businesses, the home segment, the public segment so less impacted by grid connection delays.
Paul de Froment: And what about fast charging? Do you have any inputs because, of course, it could impact your SGS segment as well?
Michelle Lesh: No. So we're still seeing that business with strong growth. So that's from an SGS perspective, our projects business primarily supports that fast charging infrastructure business.
Paul de Froment: And my second question is at the group level. Do you have any exposure to copper prices regarding batteries or EV charging substation transformer?
Marco Roeleveld: We have seen copper prices going up, say, but related to, say, those price developments, you have to bear in mind that say we can fairly well predict, say, our required volume in copper for a whole year. That's also the reason within our [purchasing] department we are having price programs that we would not only have secure of supply, but also secure of say stable pricing. Our [indiscernible] to bear in mind that say a copper has been going up and done already in the past years, that's say, for a lot of, say, elements that can be used -- can be designed in copper. You see also that there are alternatives in aluminum. And for example, in transformer, we have seen already that for some years, the winnings of -- that are within the transformers are not related to copper, but are mainly related to aluminum to have less dependence on, say, the pricing of copper. So yes, there is, of course, a relationship to some components in our products, but the majority of our components are not directly related to copper pricing, and there is a very low percentage of copper in our products and overall related to our revenue.
Operator: And we'll take our next question from Joren Van Aken of Degroof Petercam.
Joren Van Aken: Still a couple of questions from my side on the Energy Storage business -- because first, you basically say that the 40% revenue growth will no longer be reached. But could you basically give us any hint where it then should go instead? Are we looking at 20% growth, 30% growth? Any direction, I think, would be very helpful for us. And then you mentioned larger projects or larger contracts there in the business. Could you give us an idea how long it typically takes between signing and finalizing those projects or getting milestones for those projects? And then finally, if I look at peers who are more involved in those larger projects in Energy Storage, I see that their profitability is quite weak, I would say. So, if your move to larger projects would be structural going forward, would this then also impact your long-term EBITDA margin targets for the whole group?
Michelle Lesh: So let me just talk to the larger contracts from the timing from a signing and milestone. So fortunately, and I think we shared a visual in our Capital Markets Day last year. We set the projects up to be cash flow neutral. So, at point of signing, we usually have a down payment milestone. And then we have other major milestones when we order materials and sometimes that can be within weeks or months after signing, depending on the actual execution time line, getting components to site is another major milestone. Again, that can happen fairly rapidly if we've already been planning and have ordered the materials to support a project. Sometimes we anticipate and give a heads up to suppliers. We don't place the order until we actually have assigned contract with our customer. But for example, there was a project last summer we shared previously, where from signing to execution was less than six months. So it is possible for us to realize revenues on medium-sized projects fairly rapidly. And while we do see the market trending towards larger projects, I think if we think about where Alfen has a lot of value add for Energy Storage is with the, I'd say, the medium-sized projects, where we're working with independent developers and those that maybe don't have the in-house capability to do the engineered equipment package. We really are able to serve our customers best with those projects and those customers. And so while we will do larger projects and the market is moving in that direction, I think many of our competitors are very focused on only doing the large projects, whereas we've got a healthy mix in our pipeline and in our execution backlog of projects that are both small and medium and what we would consider mega projects that we're looking to do.
Marco Roeleveld: And maybe in relationship to say the element of gross margin this is the reason why we, last year, with the Capital Market day decided to start sharing more or less gross margin per business line in order to have also not a discussion that what is the impact of, say, revenue of Smart Grids compared to EV-charging, compared to battery storage so that we can most value the three business lines and also their contribution to the overall gross margin. And also what we explained, let's say, in levering our fixed cost base with a battery storage. We are also quite well capable of levering our fixed cost base when we are growing the revenue.
Operator: And we'll now take a follow-up question from Thijs Berkelder of ABN AMRO.
Thijs Berkelder: Looking at your guidance for Energy Storage, less than 40%. So that more or less hints at something like EUR 220 million, EUR 225 million revenues for the full year versus only what was it, EUR 22 million in Q1? Can you roughly indicate what is already in the backlog for the full year of the EUR 225 million you guide for the full year? Are we already at EUR 150 million, EUR 170 million? Or just to get some grip on your feasibility for that full year guidance? I had some lots of questions I get from customers there. Then maybe you've appointed a new COO and a new CHRO. Can you maybe explain what their focus will be? What will they focus upon in terms of improvement points and related to that, that gives a you Marco extra time for something maybe for M&A? And finally, maybe a short update on Finland?
Michelle Lesh: So let me start with the Energy Storage. So, we did give backlog last year because what we saw was we had such a fundamental shift in growth with Energy Storage last year that we needed to provide that information. We're not currently sharing it. But something to remember with Energy Storage is we do have the two businesses. We have our mobile business and our utility scale business. And in the mobile business, that one doesn't run with backlog. So, there is a portion of our Energy Storage revenues that will be tied to incoming orders for the rest of this year, primarily with mobile. And then there is a portion for projects that are verbally awarded but are not in our backlog yet. So, we've gotten the verbal indication. We're finalizing terms and conditions. But until that project is signed, it won't go into our backlog. So, we do have visibility on that, but it's not shown in a backlog number. And then fortunately, we do have a healthy mix of pipeline, small, medium, large projects where those small and medium projects, especially with customers that we've worked with previously, we already have terms and conditions. We already know how to work with them. So we're able to close those projects and execute especially through some of the first milestones in a fairly short amount of time. So while we do have strong backlog for the year, there is still a portion that will be tied to mobile. There's a portion that will be tied to verbally awarded projects that are not in backlog yet and then some other smaller medium-sized projects with existing customers that we'll be able to convert and recognize revenue on in the second half of this year. So, it's a mix. So not everything is in backlog today, but we do have line of sight to what we need to close to achieve the targets that we've put out.
Marco Roeleveld: And in relation to your organization elements, of course, for the COO in growing the company. We see also that we are growing our production facilities, not only physically but also in the processes, how to control and steer our production. And for example, what we're now doing also to the charging station, we created department on, say, production engineering. We're now leveraging those capabilities also to our different production facilities for Energy Storage and for Smart Grid Solutions. So, we are now step-by-step trying to professionalize, say, all the different elements within our production and [indiscernible] area. And related to CHRO, it is clear let's say in our overall approach, the human being is also the more or less the most capital worthwhile element within our overall company to emphasize that we in growing our company, we also need to be able to improve our processes to grow our people. And in reluctance to me, it's not intention for me to do nothing to sit in the sun, but that will be -- there are still a lot of elements where say my own attention will go to, as indicated on say growth, it will be mainly driven by organic growth.We not exclude M&A, but I think that's not our primary focus and that there will still say, be a lot of focus on, say, development and new development of products in order to be able to benefit from, say, the growing mass area with elements in our products where we can differentiate ourselves to the competitive landscape.
Thijs Berkelder: And Finland?
Marco Roeleveld: And Finland I forgot this one sorry, Thijs. Finland is progressing. What we do, I mean with that is that say some time ago, we said, okay, we are not only -- we're not interfering the type of products they have, but we are more or less helping them also to steer towards say the renewable market area, whether it's related to solar or wind, but also to fast charging equipment. We have now -- we have there a stable organization with a focus on, say, the same type of business as on Smart Grid solutions that we have here in the Netherlands. And we are also, of course, levering the capabilities in order to secure, say, the project execution on battery storage in both Finland and Sweden.
Operator: There are no further questions in queue. I will now hand it back to Marco Roeleveld for closing remarks.
Marco Roeleveld: I would like to thank everybody for participating in this webcast and hope we'll speak to get it in a short time. Thank you.
Operator: Thank you all. This concludes today's call. Thank you for your participation.