Earnings Transcript for ABHBY - Q3 Fiscal Year 2024

Operator: Hello. And welcome to the Alfen Q3 2024 Results Call. My name is Saskia, and I will be your coordinator for today’s event. Please note this call is being recorded. For the duration of the call your lines will be on listen-only. However, you will have the opportunity to ask questions at the end. [Operator Instructions] I will now hand you over to CEO, Marco Roeleveld, to begin today’s conference. Please go ahead.

Marco Roeleveld: Good morning. And welcome to this webcast regarding the third quarter of 2024 results of Alfen. We appreciate the fact that you’ve taken effort to participate. And as indicated by the moderator, Saskia, this webcast and the questions that may come forward are handled by the management board of Alfen being Michelle Lesh, CCO; Onno Krap, CFO; and myself, Marco Roeleveld, CEO. And as said, firstly we will start with the highlights of the first of these three quarters, followed by short review provisions line. Next, we will go in more detail regarding our financials and outlook. We continue with Slide 3 with the highlights of the third quarter of 2024. In line with the updated guidance, in the third quarter of 2024, revenue decreased by 22% towards €106.2 million, which was mainly driven by lower Energy Storage revenue. Due to a positive one-off timing effect in margin recognition in Energy Storage, the gross margin was more than 3% higher than in the same period last year. As a percentage of revenue, the adjusted EBITDA declined from 12.7% in the third quarter of last year to 6.8% in the same period this year. The outcome of organized -- organizational rightsizing project and cost saving program will improve adjusted EBITDA in 2025. We reached an agreement with the bank on a new financing arrangement. The bank overdraft facility and the bank warranty facility will remain intact. With regard to the full year outlook, we will confirm our June 2024 updated outlook being, first, a revenue outlook from €485 million to €520 million, however, at the lower end of the bandwidth mainly driven by increased EV market softness; secondly, a mid-single-digit adjusted EBITDA margin outlook; and thirdly, we expect that the free cash flow will be negative, but with an improvement compared to the minus €27.2 million in 2023. But more, the one-off restructuring provisions will be taken in Q4 2024. Later on in this presentation, Onno will go in more detail on the financials and I will hand over to Michelle, who will continue with the segmental review.

Michelle Lesh: Thanks, Marco. Now we’ll talk through each of our product lines, starting with Smart Grid Solutions. In Smart Grid Solutions, we achieved €50.3 million of revenue for Q3 2024 which is the year-on-year increase of 1%. This is primarily driven by our grid operator segment and the successful ramp up of our station production, which went according to plan from 32 stations in the first week of July to 81 stations in the last week of September. We’re also seeing differentiated growth rates in our Smart Grid segments, and in the next page, I’ll talk more about the ramp up and market conditions we currently see. Overall, given the faster than expected ramp up for Smart Grids, we do expect an increase in growth closer to 10% for 2024 versus the previously communicated 5%. As we move to Slide 5, we have some additional market intelligence to support the current situation. First, let’s talk more about the ramp up of our substation production. Please note the substation production ramp up is just for our Netherlands production facility and does not represent some of our other production outside of the Netherlands. As you know and can see, we saw declining station production in Q2 hitting a low of 32 stations a week. By week 40 or the end of September, we’d achieved 81 stations a week and just last week, we were able to achieve 100 stations a week, which is earlier than anticipated and a really proud moment for our team that has been working really hard to achieve this goal and that’s fundamentally what’s driving our increase from 5% to 10% for 2024. Now as we look to the differentiated growth rates as we look to the future, our grid operators are still optimistic about their long-term investment plans. However, they have to realize those investment plans and get everything installed, and what we are seeing in our private network business is flat to declining growth rates in solar. And we’re also seeing in some of our other segments like fast charging connections where grid delays, permits are not moving as fast as we would like them to move. So we do see some softness in our private network business. Now as we move to Slide 6, we can walk through EV Charging. In Q3, we saw revenues of €32.9 million, which is down 6% year-on-year. We have continued to see softness in the EV car market and we do see increased competition in the home segment. As we head into Q4, we expect the slowdown to continue due to the recent car registration data where 10% fewer vehicles were registered in Q3 and on a year-to-date basis, we see a 3% decline. As we previously communicated, this business line has limited visibility. So we will continue to monitor order intake and convertibility to achieve our 2024 guidance. However, we are not expecting a strong uptick in Q4 revenue or in Q1 of next year. And given this current softness, we now see up to a 5% decline year-on-year for the full year 2024. We do expect EV sales to come back in 2025 due to the continued desire to phase out ICE vehicles and the increased CO2 requirements, but expect those impacts to occur further into 2025 than Q1. On Slide 7, we can see these market challenges specific country by country. And you can see one of our largest markets, Germany, is down significantly in the first nine months. Bloomberg is forecasting 23% growth in first half 2025. So we do see that, and that could definitely have a positive impact mid-to-end of 2025. However, with all growth projections, we need to carefully monitor ambition versus execution and the EV market is not yet a fully mature market. Now as we move to Energy Storage on Page 8, we see a Q3 revenue decrease year-on-year of 55%, achieving €23.1 million. In 2023, we did have a more backloaded year, inclusive of Q3, and then this year, we also had delayed first half deals that could have potentially contributed to Q3. As we look ahead to Q4, we do have backlog coverage for the remainder of our outlook. However, there will remain some execution risk that we’ll manage, and as previously communicated, we still expect full year revenue to be down 20% for 2024. As we look ahead to 2025 in order intake trends, we do see that the rate of battery price decline has stabilized, but we do still see extended deal cycles with our customers as they derisk their projects, whether it’s ensuring grid connections are ready or sites are available. Our intent is still to have substantial backlog coverage heading into 2025 and we’re currently working on closing key deals before the end of the year. But as with many deals in 2024, the deal cycle is more extended than anticipated, and obviously, what we get closed will be reflected in our end of the year backlog number. So as we head to Page 9, you can see some additional details on backlog. Our Q3 ending backlog was €83.6 million and our Q2 ending backlog was €72.4 million, and just for context, our current 2025 backlog is €47.5 million. And just another point of reference, our current backlog does not necessarily reflect all of our closed deals. So we only book things into backlog when we have all of the conditions met and we do have a couple of deals, one significant deal that is still pending financial close, so it’s not been fully booked. And overall, as we look to the Energy Storage market dynamics, we continue to see an oversupply of batteries, which drives prices down. This is primarily due to the lack of EV demand, which has previously been communicated. And fortunately, that does stimulate project demand and helps ensure the business cases are more favorable for our customers, but they also need to manage their permits and site readiness and other factors beyond just the battery prices. We also continue to see technology developments, which should further improve project viability. So long-term, we’re still optimistic about this market, but in the short-term, we need to manage deal timing. And now, I’ll hand it over to Onno to walk through the financials.

Onno Krap: Thank you, Michelle. Q2 revenue decreased 22% versus prior year to €106.2 million, partly driven by 6% lower EV Charging revenue as we experienced reduced demand on lower EV car sales. Energy Storage revenue decreased by 52 -- 55.2% due to the weak order intake in H1 of 2024 and lower regaining backlog at the beginning of 2024. Order intake on Energy Storage continues to be slow in Q3, while at the same time, we are working on a number of substantial deals to build towards our ending backlog for 2024. Smart Grid Solution revenues came on €50.3 million, an increase of 0.8% versus prior year. Despite the more issues and the ramp-up in our new production facilities, we were able to increase production significantly versus Q2, which was €38.6 million and continue to do so in Q4. Overall margins increased to 32.7%, mainly due to Energy Storage margins, which were substantially better than normal as we were able to complete a number of projects on which we could recognize revenue with a lower share of cost. Margins for the other product lines were in line with previous quarters. Labor expenses and other operating expenses were slightly lower than previous quarters as we put a hold on several spending categories. However, no savings as a result of our restructuring efforts have materialized yet. That will mainly come into effect in Q1 2025. Adjusted EBITDA in Q3 was €6.4 million and the adjusted EBITDA margin was 6.8%, significantly lower than prior year as our cost base has grown out of sync with our revenue and our restructuring plans. Free cash flow for the quarter was positive €1.6 million versus June 30, 2024. Depending on the exact timing of order intake for our battery projects, project cash flow position we took -- our cash flow position will further improve during Q4. On the next page, I would like to talk about our discussions with the bank. We reached agreement with our bank on an amended financing facility. The agreement continues with the same €100 million revolving credit facility in addition to our approximately €50.8 million of longer term financing facilities. We agreed with the bank to exclude the 2024 one-time items and the ones that were booked in H1 2024, as well as the ones we most likely will book towards the end of this year, for example, the restructuring provision for our current reorganization. For the years 2025 and onwards, we agreed on a more lenient EBITDA calculation for our covenant, which includes a bucket for one-time items and an improved formula for our R&D capitalization. We are happy and thankful to our bank for the constructive discussions leading to this positive result. For the final pages, I would like to turn over to Marco.

Marco Roeleveld: Thank you, Onno. On Sheet 12, we continue with an update on our strategy validation and organizational rightsizing project. We’re in the final stage of this process and we can share that the cost reduction program comprises of; one, a cost price saving program; two, a saving program on other operating costs; and thirdly, a 15% reduction in our jobs. Our strategy validation will result in more focus on core markets and products within our portfolio. Combined with simplifying our organization, it will reposition us for renewed profitable growth in the coming years. We will provide more detail on our strategy validation rightsizing program and 2024 financial one-offs and renewed medium-term objectives at our 2024 full year results in February 2025. We’ll now continue on Sheet 13 with our full year outlook and indications for 2025. In August, we reconfirmed our update for the full year of 2024 and guidance. We still expect the full year revenue to be in the range of the €485 million to €520 million, however, at the low end of the bandwidth mainly driven by increased EV market softness. The adjusted EBITDA margin for 2024 is still expected to be mid-single-digit. We expect the full year cash flow to be negative, but improved compared to the minus €27 million at the end of last year and the one-off restructuring provision will be taken in Q4 of this year. The long-term market developments of all our business lines are positive and we will continue to anticipate on further growth of our three businesses. We plan to further invest in a balanced manner in our people, production and innovations. For 2025, we expect limited revenue growth. While the revenue at grid operators will continue to grow, the private domain has a relatively flat outlook due to lower investment in solar fields and fast charging infrastructure in the Netherlands. In EV Charging and Energy Storage, we continue to foresee constrained market growth in 2025 and expect limited revenue growth as partly due to our strategic choice to put more focus on core markets and products within our portfolio. We are now at the end of the webcast. Moderator, can you take over and open the line for questions?

Operator: Thank you. [Operator Instructions] And first, we have Nikita Lal from Deutsche Bank. Please go ahead.

Nikita Lal: Yeah. Good morning and thank you for taking my questions. I have actually three. The first one is on your Charging segment. Could you talk about the competition you are facing in the Charging segment? Where are these competitors coming from and are you seeing pressure on the pricing already?

Michelle Lesh: Yeah. I think what we’re seeing right now is, it’s the competitors we’ve always faced. What we see is many of them continue to internationalize. So as they come into some of our core markets like the Netherlands where we’ve been active for a very long time, our chargers were sold into all elements of the home segment and some of our competition is well positioned in the home segment. And so especially in places like the Netherlands, we just see them being successful in that, I’d say, midrange home where it’s not necessarily a focus of ours, but our chargers do get sold into that segment just because of our history in this market and that’s really where we’re seeing most of the increased competition. But it is the names that we know who are further internationalizing.

Nikita Lal: Okay. Thank you very much. My second question is on your covenant. It’s great to see that you agreed here with bank. Could you explain if there are any additional costs related to the adjustment? So are there any increases in interest rates or stuff like that?

Onno Krap: Yes. We did agree relatively modest fee with the bank on the modification, and from an interest perspective, we went through a system where, depending on the relation between EBITDA and net debt, there is somewhat of a bracket system where if that relationship is higher, then we pay a little bit more interest. If it’s lower, we pay a little bit less interest. But it is within -- yeah, within the margins that is not affecting our financials significantly.

Nikita Lal: Okay. Thank you. And my third question is regarding your OpEx currently, which are quite elevate. Could you give us details or examples for measures you’re currently taking to manage your cost until your restructuring program will be implemented?

Onno Krap: Like indicated, say, in the -- already in the elements of the webcast, there are three areas where we have taken action. There’s on the cost price elements where we renegotiated some contracts. It’s in OpEx and that is in personnel costs. All three of them, of course, although we have, I think, made some steps will only materialize into 2025, because all of them we need -- they need -- there is a time lag between more or less finite conclusion and also, therefore, be implemented and it’s for us now quite hard to substantiate the numbers. I think overall, it will play out, let’s say, for us, the ambition is that the in 2025, our EBITDA level will be, say, on the higher end of the single-digit area.

Nikita Lal: Thank you very much for the answers.

Operator: Thank you. And our next question now comes from David Kerstens from Jefferies. Please go ahead.

David Kerstens: Hi. Good morning, everybody. Thank you for taking my questions. Also first question for Onno on the covenant. So can you now confirm that you are compliant with the banking covenants based on the new definition? That is the first question.

Onno Krap: Okay.

David Kerstens: So less than 2 times EBITDA, is that correct?

Onno Krap: Simple, yes. Yeah.

David Kerstens: Yes. Okay. That’s good to hear. Very good. Congratulations. Then secondly, your comments on the EV market. You’re saying you’re seeing increased weakness, but we did see EV registrations pick up in September and also the most recent data for October show a further recovery. Is that -- maybe comes down back to the question we always had the delay in registrations versus your sales in EV Charging, but we see it picking up, right? So why do you see it further deteriorating?

Michelle Lesh: So I think part of it is that lag. So right now, what we’re seeing with our current customers and their order intake for Q4 is still kind of the result of what we started to see later Q2, early Q3 where registrations were down. So we want to be optimistic with the recent data in September, October, but realistically, we see that playing out Q2, Q3 of next year. And then what we also know is that that really more impacts that home segment, especially the private home segment. The project buildout in the business and public segment is sometimes disconnected and that sometimes takes a little bit longer to catch up because they don’t invest in the projects and the parking lots and the infrastructure until the cars are actually on the road. So we are optimistic in the long-term trend. We like that the registrations are improving, but the short-term impact, we’re still not seeing that pick up yet.

David Kerstens: Okay. Understood. And the impact from the AFIR regulations on the public segment, has that already fully played out or do you still expect to see tailwinds from that in the fourth quarter and 2025?

Michelle Lesh: Yeah. What we saw in Q2 is some fairly significant order intake and call off orders. So we actually have some backlog in the public segment for Q4 and for next year and the year after. So we think we realized some of those tender wins. We may still see an increased pick up in Germany that we have AFIR, which is now AFID compliant. So that could potentially be a pickup. But overall, the German market is down. So we still need to see that pickup heading into next year. But, yes, it could be a positive for us.

David Kerstens: Okay. That’s great. And maybe finally, if I may, on the Smart Grid Solutions, the ramp-up in the production to 100 stations, do you -- by the end of the year. Do you expect them to have fully recovered the lag you had in the first half of the year and how does it position you for 2025?

Marco Roeleveld: Basically, what you already see in the numbers now that we are a little bit ahead of our ramp-up scheme. And as Michelle has told that last week, we already realized the 100 substations here. That means we are now quickly more or less getting up to pace in order to fill the gap that we was -- more or less created in the second quarter and the third quarter and in order -- and we need more or less to catch up on the orders we already had and also give the grid operation opportunity to realize the projects that they have not been able to execute. But we will have to lower the numbers a little bit in the first half year of 2025, because we’re now recovering from more or less the lack of production and we will have to bring our production more in line with the actual installations on site in, say, the first quarter of next year.

David Kerstens: Yeah. Understood. Thank you very much.

Operator: Thank you. And from Kepler Cheuvreux we have Ruben Devos with our next question. Please go ahead.

Ruben Devos: Yes. Good morning. I just had a first question on basically your highlight to shift towards a more focused approach. Could you provide examples of which product lines or market segments you’re considering de-prioritizing and which ones are you prioritizing and how this might affect the future sales mix? That’s my first question.

Onno Krap: Yeah. I appreciate your question, but we are now in, say, the final discussion with the Works Council and also with our -- the unions to be able to close the conditions on which the restructuring program can be implemented and we won’t -- don’t like to disturb those elements. And that’s also why we indicated that we will bring all things together in communication at the year, when we also make the year results of 2024 clear in February 2025. And for us, it is important that we balance out more or less all the actions we have now into process and don’t disturb discussions we have, because it is in everybody’s benefit that we close the discussion as quickly as possible, because everybody would like to get rid of the unclearness and the unrest at this moment.

Ruben Devos: Okay. Okay. And then a second question regarding the one-off positive timing effect from recognizing margins on Energy Storage Systems and that shifted from Q3 to Q2. Could you just walk us through how this came about, including the sort of accounting treatment for the project and any mismatch between sales and costs that may have occurred?

Onno Krap: Yeah.

Ruben Devos: And of course, also…

Onno Krap: Yeah.

Ruben Devos: … if possible, could you quantify that, please?

Onno Krap: Yeah. Yeah. What we -- it’s actually from Q2 to Q3. But we see in some of our projects and not all, but some that, in some cases, we are transporting batteries to customer sites. We get payment for that. But because the project has not been completed yet, we are not able to take margin on those transfers. So we call it transfer of ownership. So in Q2, we had a couple of transfer of ownerships on which we recognize revenue, but at zero margin. Those projects were finalized in Q3. There we could take the remaining revenue and the corresponding cost was significantly lower. So then you can certainly see that you have a higher margin. If you want to get an understanding of our true margin, then it does make sense to take a look at the year-to-date margin percentage and to quantify this additional margin into Q3, it’s about €4 million.

Ruben Devos: Okay. And sort of the extreme scenario, how big could that lag be?

Marco Roeleveld: Yeah. That’s difficult to say. It really depends on the progress on the project, how big the project is, but a quarter, two quarters, I mean, is could be the case.

Ruben Devos: Okay. All right. And then just a final question on free cash flow generation. I think it was, yeah, €2 million in Q3 versus €14 million negative in H1. Yeah, how do you think about the initiatives that will further support free cash flow generation in the coming quarters? And yes, also for 2025, could you maybe walk us through sort of the moving parts and how you think that will look like?

Onno Krap: Yeah. When you think about working capital, especially if you take a look at our balance sheet, the first thing that comes to mind is inventory. We have elevated inventory in EV Charging, and I think as we discussed it in the past, that was due to 2021, 2022 relatively high growth prospects, and at the same time, component shortages, and that that combination led to the fact that we bought quite some components that are still in our inventory. So we expect that to come down over time when we start -- when we continue to use that inventory. We see somewhat elevated inventory levels in Smart Grid Solution and that was due to the fact that we had these production issues in the beginning of the year, but we had already quite some components that were coming in, but we were not able to install them in our substations, and therefore, our inventory increased artificially. That is expected to come down towards the end of the year to a certain extent and but I don’t expect that so much to continue in 2025. EV Charging will continue in 2025 from bringing down inventory. Batteries is a little bit of a different animal, because there over the life of the projects, we are trying to be as cash neutral, working capital neutral as possible. So when we get orders in from customers, we get a 20% to 30% down payment. And that basically in the beginning of the project, we have some negative working capital and then at certain moments, we have a little bit of positive and then negative and it really depends on payment versus work that we do. Overall, that is relatively constant and relatively neutral. It could be a little bit of a timing effect in there, but that’s not in a significant cash drain on the company. To be a little bit more specific for Q4, our current projections are that we are cash flow positive for Q4. But there is a caveat there that really depends on a number of relatively large battery orders that we have in our pipeline. If they come in on time, then they will contribute to our cash flow generation. If they will be delayed somewhat, then that will basically move into next year. So, that’s kind of -- that’s where we are at this moment, what I can tell you about that.

Ruben Devos: Okay. And you were expecting a tax benefit, right, for next year, and basically also on the CapEx, any color you could provide us there?

Onno Krap: Yeah. We -- as we are in a net loss situation at this moment in time, we could basically use some of the profits of last year and basically reach out the balance that with this year, and also we were doing some prepayments on tax for 2024 that are going to be returned to us. So, yes, we are expecting a positive cash inflow from taxes, mainly to be booked in Q3 and Q4.

Ruben Devos: Okay. And about CapEx, sorry, Onno, is there anything you could say on that?

Onno Krap: We continue to be very careful with CapEx expenditures. Of course, we had first half of this year -- partly last year, but first half of this year, higher than normal CapEx expense because of the fact that, as you know, we have moved to new buildings and part of the leasehold improvements investment, I mean, that increased our CapEx artificially. You basically see that coming down now quite significantly and you can trust us that we are going towards that very, very carefully also in the coming quarters.

Ruben Devos: Okay. Thank you very much.

Operator: Thank you. And we now take a question from Thijs Berkelder from ABN AMRO ODDO BHF. Please go ahead.

Thijs Berkelder: Yeah. Good morning, all. First question on your free cash flow being €1.6 million positive. I presume this includes the €4 million one-off timing effects from Energy Storage. What does it include in terms of working capital movement and in terms of tax return payments? That’s my first question.

Onno Krap: Sorry, I don’t fully understand your first question. Can you repeat it again?

Thijs Berkelder: Well, you reported a free cash flow in the third quarter of €1.6 million positive. Does this €1.6 million include that €4 million from Energy Storage, that one-off timing effect? And second question related to the working capital effect in the third quarter free cash flow. Has your working capital effect been positive because of inventories having come down, yes or no? And thirdly…

Onno Krap: Yeah.

Thijs Berkelder: … related to the free cash flow, did you already get tax prepayments back in the third quarter and how much?

Onno Krap: Yeah. On your first question, no, it doesn’t have a cash effect. Second question, we did -- the working capital did come down a little bit, not a whole lot, but a little bit, about €3 million to €4 million and that was mainly due to the fact that we did -- we had a tax receivable on our balance sheet in -- on June and that we got some payments, about €3 million, €4 million of payments we got it in during September. So that basically reduced our working capital.

Thijs Berkelder: Okay. Clear. Then second question is on inventory levels. So you’re indicating inventory levels have not come down from mid-2024. Is that right?

Onno Krap: No. They did come down a little bit, about €5 million.

Thijs Berkelder: Okay. Follow-on question. What I still I’m puzzling about is the Energy Storage backlog. Can you indicate what roughly the size has been of order intake in the third quarter and what kind of orders have been added? Is it primarily mobile storage systems or storage systems for fast charging stations and other smaller corporate customers or is it primarily larger best systems?

Michelle Lesh: Yeah. The Q3 order intake was primarily larger best systems. There were a few mobiles, but it was primarily the utility scale. It included some of the key deals we talked about at end of June that needed to close in order to realize revenue this year, as well as some revenue for 2025.

Thijs Berkelder: Yeah. And then related to Energy Storage, you signed a multiyear supply agreement with CATL at the start of 2024. Can you remind us, does it have minimum offtake volumes for Alfen or a minimum offtake volume agreed over the coming four years, five years or so?

Michelle Lesh: Yeah. It does have minimum agreements and that’s something that we’re in close partnership with CATL on to work through those contractual requirements to make sure that we can realize the growth and they get what they need from a contract perspective, but we’re in close collaboration with them. But yes, it does have minimums.

Thijs Berkelder: Yeah. And I presume that, let’s say, battery prices in that agreement, yeah, more or less market prices, saw flexibility there. So the minimum agreement is then on the volume.

Michelle Lesh: Yes. On the volume, and yes, the pricing is market.

Thijs Berkelder: Yeah. Okay. Yeah. For now my questions have been answered.

Operator: Thank you. And we move on to Thibault Leneeuw from KBC Securities. Please go ahead.

Thibault Leneeuw: Good morning. With respect to the Smart Grid Solution, so for next year, it looks like you’ll be guiding pretty cautiously. If we look at the current run rate at the end of September of 80 odd systems, if we would go lower towards 70 systems in the beginning of next year and ramp that up to 80 systems, we get to 75 substations over 50 weeks. That’s basically a 10%, 11% increase compared to this year. Would that be a fair assumption?

Marco Roeleveld: I think in this situation, we are trying to maneuver a little bit and say that on the one hand, that we see that at the end, there will say the grid operators have to grow. On the other hand, it’s not clear how this will work out in the full year of 2025. That’s why we are now guiding more or less to the 70 number, 75 number. But in the second half year, during 20 -- the first half year of 2025, we have to see how the overall value chain can ramp up in the same pace as we can ramp up.

Thibault Leneeuw: So with the current conversations with the grid operators, how many systems do you think that they can install on a weekly basis in the first half of 2025?

Marco Roeleveld: I think it will be around the 70 that’s now more or less indicated.

Thibault Leneeuw: Yeah. Okay. That’s clear. And then with respect to the private Smart Grid Solutions, how -- can you give us roughly a split of how much is linked to DC charging, how much is linked to solar and how much is linked to other projects?

Michelle Lesh: We don’t have that breakdown, but the private networks is about one-third of our business overall. We’ve got steady customers in greenhouse, solar was a big segment and then we had seen fast charging for the DC as a growing segment, but we don’t have the breakdown within that one-third. But two…

Thibault Leneeuw: The solar…

Michelle Lesh: … of the three segments are lower.

Thibault Leneeuw: Okay. That’s clear. Thank you. That’s all for me.

Operator: Thank you. And we move on now to a question from Jeremy Kincaid from Van Lanschot Kempen. Please go ahead.

Jeremy Kincaid: Good morning, all. I have a question -- I have three questions, one for each of your divisions. I’ll start with EV Charging. Could you please tell us what you think your market share was in the third quarter and whether or not you think ongoing market share declines are likely given the…

Michelle Lesh: Jeremy, you cut out. Can you start your question over again? The line cut out.

Jeremy Kincaid: Is this clear?

Michelle Lesh: We heard something about market share. But, yeah, that’s better.

Jeremy Kincaid: Okay. Sorry about that.

Michelle Lesh: Yeah.

Jeremy Kincaid: Could you just tell us what you think your market share was in the third quarter and whether or not you think ongoing market share declines is likely given the increase in competition? And maybe if you could provide a brief comment on any initiatives you’re looking to implement to try and regain market share or stop market share losses?

Michelle Lesh: Yeah. So I think we are really focused on the business and public segments and we don’t feel that we’ve lost any share in those two segments. But if we look at the home market where you have everything from private home to leased car home, especially in a market like the Netherlands where we were one of the first providers, so our units do serve all of those segments even if private home is maybe not our highest priority and focus. That’s really where we’ve seen some of our competition who’s really focused more on that almost B2B2C. They’re really close to the consumer end of the home market and that’s where we don’t think we have maintained the same share. It’s also not a focus for us. But if we think about some of the campaigns and programs is how do we drive dynamic QR code adoption. So the new AFIR requirements for payment transparency, there are issues with static QR codes from a fraud perspective. So really trying to incentivize and ensure customers are adopting that dynamic QR code solution for AFIR in the business and public segment. Making sure that we can better support our leased car home customers with the right applications for their customers to make sure they can utilize the rooftop solar that we’ve got the right ease of installation. So those are some of the things we’re focused on, but it’s really on that business and public segment and further driving AFIR adoption and those types of things.

Jeremy Kincaid: Sure. And do you know or do you have a view on what you think your market share is?

Michelle Lesh: No. That’s hard to calculate, because we’ve talked before. We have our Eve Singles. We have our Eve Doubles. We have our Twins. But some of those products are used interchangeably between markets. So we can look at, at a country level and we know we have lost some in the home segment. But on an aggregate basis, I don’t have that number for you. But we do know we’ve lost some in the home segment.

Jeremy Kincaid: Sure. Moving to Energy Storage, I’m struggling to get my head around why your customers are delaying a decision to buy more Energy Storage Systems. It looks like the lithium price has been low and relatively stable now for maybe nine months to 12 months and it feels like a perfect time to buy an Energy Storage System. But I suppose on the other hand, wholesale electricity price volatility has reduced and so maybe the IRRs on buying an Energy Storage System are not attractive for that reason. I was just wondering if you could provide a comment and just around that and whether or not the IRR on buying an Energy Storage System is now better or worse than 12 months ago?

Michelle Lesh: I think you were heading in the right direction. That was a comment that I got from a customer really recently, right, is their current business case is not necessarily holding due to some of the market volatility, as you just explained. And I think if you think about where we really focus our energy for Energy Storage, it’s on customers that are maybe newer to this market. They don’t have a portfolio of 50 projects where they have guaranteed results that they can count on. So you’ve got uncertainty from financers. You’ve got uncertainty from project developers, because this might be the first or second project they’re doing and you’ve got the market volatility that they have to take a risk on. And that is some of the -- some of what we’re seeing with our customers is they’re still new to this market, and they have to take a very capital-intensive risk and if they aren’t certain of the market they’re going to be operating in, they have to evaluate that. So even battery prices are coming down, it helps. But yes, if on the opposite side, they’re not able to capture the revenue they want, then it does impact their business case. And that’s really market specific, but that is a comment that I heard from a customer recently. And that’s what we have to help work through, but obviously in a way that still is profitable for Alfen.

Jeremy Kincaid: Okay. Got it. That’s clear. And then finally, on Smart Grids, obviously, you talked to the private sector is slowing because they can’t get access to the grid and then the grid is maybe not decongesting as fast as hoped because the public customers need to expand their installation capacity. Could you just talk to maybe what that means, and obviously, you talked to the supply chain, but could you be a bit more specific and say is it certain parts of the supply chain like maybe cables or something else which we can look at in order to assess how quickly the improvement in installation capacity is for the public DSOs?

Marco Roeleveld: Fundamentally, I think it is maybe better not to talk about supply chain, but more the value chain. It is not that there is a lack of materials to be able to perform. But in this -- in the overall value chain, everybody needs to step up. And for cable, to fundamentally improve the grid in the range between, what we call it, the countrywide operator the standard and they have to improve their connection to the, say, grid operators that are one level lower in the grid and those interconnections, there is now a 10-year plan to further strengthen the grids by having more connections to the high-voltage countrywide net and that will take a 10-year cycle and in that 10 years, step-by-step they are able to ramp up also more or less the restriction to solve the restrictions in the lower part of the grid. It’s not about, say, putting more substations in. But they have to also to make more connections to the high-voltage grids to be able to distribute the power or to accept the power from the lower distribution levels. And so there is more to it than only people. It’s also planning processes where normally for a high-voltage line tenant was thinking about, say, in 15 years’ time cycles. Now they have to fundamentally speed up. And in the same time, we have then also to ramp up the amount of people working in the sector and that’s a balanced approach. It’s not one simple restriction. It is a set of restrictions that have to come together in order to be able to step-by-step resolve all the different elements. That’s also why the time line is quite long in which those improvements will be accomplished.

Jeremy Kincaid: Understood. Great. Those were my questions. Thank you very much.

Operator: Thank you. And from Berenberg, we now have James Carmichael with our next question. Please go ahead.

James Carmichael: Hi. Good morning, guys. A couple for me. Slightly late on to the call, so apologies if this had been addressed. But just sort of looking at the Energy Storage segment and I guess, specifically sort of the backlog for through 2025 that you referenced, €47.5 million. Are you able to sort of maybe say what the equivalent number would have been this time last year? And then sort of linked to that, how substantial are the sort of orders you’re working on in the near-term and what’s your level of confidence of closing them, because I guess, based on that number, am I sort of right in worrying a little bit about the revenue outlook there for next year?

Michelle Lesh: Yes. I can’t easily give you a number of where we were a year ago. I think what we’ve previously communicated is we did not come into 2024 with substantial backlog coverage. Right now, if I look at the deals we’re working on for the remainder of the year, we’ve got two that are very large and so those getting done through financial close would be a significant change to the €47.5 million. But then we have a number of much smaller deals that I would say small- to medium-sized up to that 20-megawatt hour range that we know some of them will proceed, some of them will delay. But really, the biggest driver is these two larger deals. One of which we already have the order for, but are waiting to actually book until the customer closes one more item on their side. The other one, we’re still in final negotiations, but its moving in the right direction. So anything we’re counting on for the end of the year, we are in final discussions. But what we are seeing is there are still -- the customer doesn’t have their grid connection or they’re not confident in their permit or we had a customer waiting on final results of capacity auctions, right? All of those things, they’re really trying to derisk all of that before they make a commitment for a capital outlay, because it comes with a pretty significant down payment, because we’ve got to go then order material. So everyone is being really certain that everything is going to go smoothly before the order intake comes in and that’s -- and I just commented. And we have a lot of customers that they’re not doing this for the 20th or 30th time. They’re still in their first five projects. So they’re still navigating through the process on their side as well.

James Carmichael: Understood. And I guess the dynamic is the same next year as this year. You sort of need orders to be signed by the end of Q2 for them to contribute to revenue next year. Is that sort of fair?

Michelle Lesh: Yes. And ideally, our goal is to get them done earlier than that, because there’s too much uncertainty with grid connections and permits. And customer ambition can be positive, but if the details aren’t there to execute, then they’re not going to give us the order and make the down payment because there’s too much uncertainty on their side. So we’re really trying to target getting everything done this year with maybe something in Q1, but we’ll be clear about communicating that. And then the only piece that is less tied to that Q2 deadline is our mobile business. But that’s not going to significantly outweigh the revenue from the utility scale systems. That’s a smaller portion of the revenue. But those orders we can take all year round.

James Carmichael: Understood. And sorry, just one last one on ESS if I can. How do you sort of characterize a very large contract? Is that -- what sort of range of value do you sort of put on that?

Michelle Lesh: Larger than the largest project we’ve done so far.

James Carmichael: Okay. And what…

Michelle Lesh: And that was the project we announced last year for Semper. So larger than those.

James Carmichael: Okay. Okay. And sorry, just one quick housekeeping one on EV Charging. Can you just remind us the split or the contribution of home segment to sales?

Michelle Lesh: We don’t have that split. Our Eve Singles are used in both home, as well as business applications. So it’s really our best guess based on kind of channel and their end markets. But we don’t have that information to be able to give you a consistent accurate view.

James Carmichael: Okay. Thanks so much.

Operator: Thank you. And up next, we have Maarten Verbeek from The Idea. Please go ahead.

Maarten Verbeek: Good morning. It’s Maarten Verbeek from Idea. Most of my questions have been asked, still I have two left. Firstly, you renewed your bank covenants. Rabobank is still your only bank relationship. So also this one has been renewed with Rabobank. Is that correct?

Marco Roeleveld: Yeah. That’s correct.

Maarten Verbeek: Okay. And then, secondly, you have set aside €12.5 million most provision. You already used a little bit in H1. How much have you used in the third quarter and how much do you expect to use in the full second half of this year?

Marco Roeleveld: Another €1 million during Q3 and probably another €1 million in Q4.

Maarten Verbeek: Okay. Thanks very much.

Marco Roeleveld: And then…

Operator: Thank you. And we now take a follow-up question from Thijs Berkelder from ABN AMRO ODDO BHF.

Thijs Berkelder: Yeah. Thank you for bring back. A follow-on question on the strategy first in EV Charging. Your comments so far in this call were very more or less, let’s say, hostile towards home charging, especially always already low end, but now also a middle range. Is it logical to assume that you will stop selling the Single Eve without screen for low price and will only focus on the more expensive eve chargers going forward, including screens so that you will basically exit the low-end home charging market? Second question, which still is not clear to me, can you explain what your minimum return requirements are for taking on large new Energy Storage projects? Is it, yeah, 10% return, a 20% return or simply breakeven plus? What are the minimum return requirements?

Michelle Lesh: So for the first question on the Single Eves, we actually see the Single Eves being sold into that higher end, especially if you think about leased car providers. So there are no plans to stop the Single Eves without a screen. Many of our, I would say, borderline business home customers do like that product for their applications in certain countries. So it’s really more where you don’t need a back-office connection, those types of applications. But that is more the application in the end market where we’ve previously talked about not being as competitive, but no plans to stop the single eves.

Marco Roeleveld: Okay.

Marco Roeleveld: And with regards to, say, the minimum return on, say, bigger projects, I think, we more or less approach it in a little bit different way. We’ve indicated that, say, our gross margin contribution on the different projects is a little bit depending on the amount of batteries included in the projects because we try to approach the projects that we earn the money most with the part where we can differentiate ourselves and that the batteries is partly maybe passed through, but that’s also the reason why we have more that approach integrated in our pricing policy. If you look at our, say, overall revenue for this year, we have, like Onno explained, said the average gross margin is in line with we more or less have now in the year-to-date overview and that’s also more or less ambition we have looking forward as the level of contribution from, say, the Energy Storage division.

Thijs Berkelder: Okay. Clear. Thanks.

Operator: Thank you. And with that, I would like to hand the call back over to you, Mr. Roeleveld, for any additional or closing remarks.

Marco Roeleveld: I would like to thank everybody in the participation and look forward more or less to speak or hear you again in the full year results. I hope that we then can be more specific on all elements that are now playing and we would like to highlight and so on. And then wish you, say, proper months, say, in the remaining part of this year. Thank you all.

Onno Krap: Thanks.

Operator: Thank you for joining today’s call. Ladies and gentlemen, you may now disconnect.