Alfen N.V. (ALFEN) Earnings Call Transcript & Summary

Hello, and welcome to the Alfen 2024 Full Year Results. My name is Laura, and I will be your coordinator for today's event. [Operator Instructions] Today, we have Marco Roeleveld, CEO; Onno Krap, CFO; and Michelle Lesh, CCO, as our presenters. I will now hand you over to your host, Marco Roeleveld, to begin today's conference. Thank you.

Thank you, Laura. Good morning, and welcome to this Alfen webcast. We appreciate the fact that you've taken the effort to participate. And this webcast and the questions that may come forward are handled by the Management Board of Alfen, as indicated by the moderator being Michelle Lesh, CCO; Onno Krap, CFO; and myself, Marco Roeleveld, CEO. In this webcast, we will start with the highlights of 2024, followed by a short review by business line. Next, we will go in more detail regarding our financials of 2024. And lastly, a significant part of this presentation will handle the strategy update, our outlook for 2025 in the context of our medium-term ambition. We could continue with Slide 4 with the highlights of 2024. In line with the updated guidance during the Q3 results, the revenue for the full year of 2024 ended up at the lower end of our revenue bandwidth and amounted up to EUR 487.6 million. The adjusted EBITDA of 5.8% was in line with the updated guidance. Our results in 2024 were impacted by headwinds across all 3 of our business lines. Lower EV subsidies resulted in a lower demand for charging stations and a significant price decline of batteries resulted in a long decision cycle and low revenues, and moisture issue at Smart Grid Solutions caused a big financial impact. Free cash flow in 2024 was EUR 21.4 million positive compared to a negative cash flow in 2023 of EUR 27.2 million. This positive cash flow exceeded our updated guidance, primarily driven by a reduction in inventory and timing of energy storage projects. We've updated our strategy in the second half of 2024 and have decided to enhance our focus on our core markets and to further optimize our product market approach. With the restructuring in the fourth quarter, we adjusted our cost base, adapting it to the new market conditions and for 2025, EUR 13.1 million net cost base improvement was realized compared to 2024. Driven by strategic repositioning in which we sharpened our market focus and the current limited market visibility, we concluded for the year 2025 a revenue outlook of EUR 445 million to EUR 505 million and a single-digit adjusted EBITDA margin combined with a CapEx below 4% of revenue. Due to the current market volatility and macroeconomic uncertainty, our updated medium-term ambition for '26 to '27 is a revenue growth of 5% to 10%, a year-on-year improvement of adjusted EBITDA margin towards low double digits and a CapEx below 4% of revenue. On the next slide, we will continue with our progress on our sustainability program. With regard to our sustainability program, we would like to highlight 3 aspects. First, that 99.5% of our revenue in 2024 has been aligned with the EU taxonomy. Secondly, the SBTi has validated our science-based greenhouse gas emission reduction targets. With these targets, we comply with the SBTi corporate net zero standard. And thirdly, in the sustainability section of our 2024 annual report, we have closed more than 30 pages of qualitative and quantitative information on our ESG activities. In our sustainability approach, we defined 15 material topics and we have reported on. It's been a top job to bring all data points together and create a comprehensive storyline. We are convinced that the overall result is well balanced. Please look at our annual report on our website for further information. Michelle will now continue this webcast with a segmental review.

Thanks, Marco. Now we'll talk through each of our business lines, starting with Smart Grid Solutions. In Smart Grid Solutions, we achieved $210.6 million of revenue for full year 2024, which is a year-on-year increase of 11.8%. This is primarily driven by our grid operator segment, which contributed to 66% of our revenue. And while grid congestion drives our grid operator demand, we do see it hamper our private domain segment. Gross margin was 15.5%, driven by a $15.4 million warranty provision for the moisture issue. But our adjusted gross margin was 22.8%. Commercially, we continue to win projects in our greenhouse segment and provided a new innovative approach to the transport distribution stations for our customer Enexis. Alfen's innovative approach to the station and as the end-to-end contractor significantly reduces their time to install, connecting more capacity in a shorter amount of time, which further eases grid congestion in the Netherlands. On the next slide, we'll talk through EV charging. In full year 2024, we saw revenues of $153.3 million, which is flat to 2023 and slightly above our guidance from the Q3 trading update, which was up to a negative 5% growth year-on-year. Due to a one-off inventory adjustment, gross margin was 31.5% versus 38.3% in 2023, driven by a general warranty provision of $4 million and on an adjusted basis was $36.1 million. We continue to win and innovate this space with multiple wins in the public segment. For example, in the city of Groningen and launching the first AFIR-compliant Twin 5 Plus station with dynamic QR codes. On the next slide, we provide some additional context on Alfen's revenue relative to other players in the marketplace. Here, we can see Alfen's revenue development is in line with our peers based on the information currently available. And while we all have slightly different end segments that we serve, overall we see that 2024 was a challenging year. Even with these challenges, we still see Alfen well positioned. Overall, we had stable revenue. And as we look at our market share position in each country across our key markets, Netherlands, Belgium, Germany, and France, in aggregate we gained share. And if we look across all of those other countries outside of our top 4 markets, we slightly lost share. This reinforces our direction of increased strategic focus on our core markets as we will discuss later in the webcast. Overall and across Europe in aggregate, our market share has remained flat. We do expect EV registrations to come back in 2025, as previously shared. However, we still don't expect that uptick in Q1 and expect any market growth that might materialize to contribute in the second half of 2025. Now as we move to energy storage, on the next slide, we see revenue of $123.7 million, down 24% year-on-year. As previously communicated, we had longer deal cycles, which impacted our 2024 revenue. Our gross margin was 27.6% compared to 22.4% in 2023, driven by an impairment of older batteries. Our adjusted gross margin was 29.1%. In Q4, we were able to finalize key deals and are excited about FlevoBESS, 126-megawatt hour system, the largest for Alfen and one of the largest for the Netherlands. This project is expected to contribute to our 2025 revenue. We also continue to deliver innovation to the market, utilizing the latest containerized solution for our customers, which ensures our competitiveness in this space. As we move to the next page, we can see our backlog development, which includes other key deals from Q4. We've seen steady backlog growth from $72 million in June of 2024 to $100 million in December of 2024, with $86.5 million of that currently contributing to our 2025 revenue outlook. As you compare our backlog to our outlook, we have approximately 78% coverage of our midpoint and expect our current first half pipeline of deals and total year mobile system opportunities to support the remainder of the gap and contribute to backlog in 2025. And now, I'll hand it to Onno to walk through the financials.

Thank you, Michelle. Let me start by commenting on revenue. Full year 2024 revenue ended up at EUR 487.6 million, which is at the lower end of our updated guidance of EUR 485 million to EUR 520 million. As we already indicated during our Q3 earnings release, the reason that we ended up at the lower end of the guidance was due to the weaker-than-anticipated traction that we experienced in our EV charging business during Q3 and Q4. On a positive note, we were able to ramp up our substation production numbers significantly, and we reached an output of 100 stations per week in November and December. We now move on to gross margin and adjusted gross margin. Our gross margin this year was 23.7%, which is significantly lower than the gross margin of last year of 29.9%. We have made several adjustments to the gross margin, resulting in an adjusted gross margin of EUR 28.6 million (sic) [ 28.6% ]. I will first explain what impacted the 2024 gross margin, and then I will provide more detail to the adjustment we made to arrive at the adjusted gross margin. Our gross margin percentage was impacted by 4 factors. First, for Smart Grid Solutions, we experienced a number of inefficiencies due to the resolution of the moisture issue and some start-up inefficiencies as a result of the move to our new state-of-the-art production facilities. Within Smart Grid Solutions, we have seen a revenue share shift from our higher-margin private domain segment towards grid operators at lower margins. This trend is expected to impact our margins also for the longer run. The gross margins are further affected due to a catch up in the recognition of a warranty provision for our EV charging business. Under IFRS, we have to recognize this provision as soon as sufficient data is available and the reliable estimate can be made. We therefore booked this catch-up provision for an amount of EUR 4 million. The fourth factor is the gross margin for our battery business were positively impacted due to the timing effect of the realization of certain larger projects. Towards the end of 2023, we realized a number of ownership transfers for batteries without shipping these batteries to the customer sites. Under IFRS, we can recognize the revenue at the moment of ownership transfer, but at 0 margin. The margin can then be realized at the moment of shipment or installation. Especially Q3 and Q4 margins in 2024 were positively influenced by this effect. If we then move from gross margin to adjusted gross margins, we have made a total of 4 significant adjustments. First, we booked a EUR 15.4 million provision for substation moisture issue, which is somewhat higher than the EUR 12.5 million we booked in the first half year numbers of 2024. This is due to a larger on-stock population of substations that needed to be repaired. In total, we used EUR 2.6 million of this provision to cover the actual repair cost, and we have not started any repairs of units that are installed out in the field. Second adjustment, we also booked a total of EUR 6.5 million of obsolete inventory provision for EV charging inventory. As noted before, we are overstocked on certain EV charging components as a result of component stock buildup during 2022 and 2023, which we are in the process of consuming in the coming years. We carefully monitor the consumption of these components based on the anticipated demand for charging poles. Fluctuations in the anticipated demand influenced the valuation of this inventory and might also impact the valuation in the future. We estimate that based on normal stock turnover, we have around EUR 27 million of too high EV charging inventory and stock downpayments on the total EV charging inventory of about EUR 48 million. Third adjustment, we also took a EUR 1.6 million charge for all the batteries that we did have on stock, but cannot be sold anymore within margin. And fourth, we charged EUR 0.5 million inventory write-down on the remaining component stock that we still had for our DC chargers. And then moving on to personnel costs. Personnel costs increased by 27.1% in 2024. Alfen has gone through a period of significant growth over the past few years, and we expected continued growth as we moved into 2024. In anticipation of this growth, the organization was strengthened with additional resources. As soon as we realize that these market conditions became less favorable, we stopped hiring and started a restructuring program on which we have informed you. The restructuring provision has been taken of EUR 5 million. Of this EUR 5 million, EUR 3.7 million related to the rightsizing and EUR 1.3 million related to other personnel-related events during the year. The full effect of the rightsizing savings will be visible as of Q1 2025. In operating expenses, other operating expenses increased by 22.8% and include EUR 3 million of onetime charges. Among others, the cost of our strategic rightsizing project have been recorded in this line. Lastly, adjusted EBITDA. Adjusted EBITDA amounted to EUR 28.5 million, which is EUR 28.6 million lower than the 2023 adjusted EBITDA of EUR 57.1 million. EUR 7 million of this difference is due to the lower adjusted gross margin and the remaining decrease due to the increased adjusted personnel costs and adjusted operating expenses as the organization has been built for growth in the beginning of 2024. For 2025, we have taken significant measures as part of our restructuring program to reduce costs. Next slide, balance sheet. For a deeper understanding of the movement in the balance sheet, I also would like to refer to our financial statements in the annual report. The summarized overview on the webcast does not always do justice to some of the complexities and movements. But first, on the noncurrent assets. Noncurrent assets increased by almost EUR 30 million due to the commissioning of our new facilities here in Almere in 2024. PPA increased by about EUR 31 million due to this reason. Current assets. Current assets increased by EUR 63 million, which was driven for a large part by a reduction of inventory of EUR 49.3 million and an inventory-related reduction of trade and other receivables. I will come back on that on the page on working capital. In addition, the current assets also decreased by EUR 25.7 million as a loan that we provided to the construction company for our new facilities was repaid during 2024. Finally, current assets increased to EUR 4 million current tax receivable and EUR 70 million cash that we had on bank by the end of 2024. The EUR 4 million tax receivable is mainly related to a carryback of compensation for our realized loss in full year 2024. And then to continue the noncurrent assets. Noncurrent -- sorry, noncurrent liabilities. Noncurrent liabilities increased by EUR 34.8 million caused by an increase of lease liabilities as we are financing a significant part of our facilities through a financial lease. An increase in provisions of EUR 50 million is a result of the moisture provision and the new warranty provision for EV charging, and is also recorded in this line. Finally, the deferred tax liability decreased by EUR 6.3 million, partly as a result of the write-down of the capitalized R&D due to the strategic review. And lastly, current liabilities. Current liabilities decreased by EUR 40.1 million, mainly due to a reduction in bank overdrafts of EUR 6.4 million and the repayment of a loan facility that we had on our books and that offsets the loan that we provided to the constructor of our facilities that I just mentioned to explain the movements in the current assets. Our net debt position improved, reducing from EUR 55.1 million at the end of 2023 to EUR 32.7 million at the end of 2024, and that includes the lease liabilities. Free cash flow. Our free cash flow has improved. In 2024, our free cash flow was EUR 21.4 million positive compared to a negative cash flow of EUR 27.2 million in 2023. This is more than in line with our 2024 guidance provided in 2023, in which we indicated to improve our cash flow position compared to 2023 -- we indicated that we would improve our cash flow position versus 2023. Next slide, please. Net working capital reduced by EUR 42.6 million, primarily driven by movements in inventory. Inventory on the face of the balance sheet came down by EUR 49.3 million, but actually came down by EUR 60.4 million. And let me explain. First, a reduction of EUR 29.1 million in inventory for batteries, of which EUR 19.6 million was due to the effect of battery inventory that we could not ship at the end of 2023 and went out in 2024. Second, we were able to realize a EUR 20.2 million reduction of inventory and stock downpayments for charging pole components as part of our effort to consume the excess components we bought in 2022 and 2023. A part of this EUR 22.2 million reduction in EV charging components is represented in the reduction of trade and other receivables. That has to do with the fact that we have done so-called strategic stock downpayments to some of our suppliers to guarantee the supply of components in the period 2022, 2023. These strategic stock downpayments are now being reduced, but are recorded as prepayments under trade and other receivables. But actually, they are a kind of inventory. In addition, I would like to draw attention to the inventory levels for substations that were elevated during the year of 2024, but are now back at a level of EUR 24.3 million, which is slightly lower than by the end of 2023. EUR 10.8 million of inventory write-down is due to various reasons, but mainly driven by the inventory obsolescence reserve for EV charging and a net realizable value write-down for batteries and an inventory write-down of components for DC chargers. I move to trade and other receivables. Trade and other receivables came down by EUR 7 million, of which EUR 5.8 million was due to a reduction of contracts that were in a net receivable position. Contracts in a net receivable position are contracts for which we have performed work more than we have been able to bill to our customer. We have also a tax receivable of EUR 4 million as we have realized a loss of 2024, for which we are unable to claim a tax refund. Lastly, trade and other payables. Trade and other payables were reduced by EUR 6.3 million, with amounts to customers increased -- due to customers increased by EUR 3.6 million. This EUR 3.6 million working capital improvement was due to an increase in contracts that were in a net payable position. Contracts in a net payable positions are contracts for which we have received more prepayments from customers than the work we have performed. Next slide, please. As announced in our Q3 update, we have been working on a cost savings program. This cost savings program consisted of organizational restructuring as well as an organization-wide spend reduction program. The total net savings as a result of our restructuring efforts is EUR 13.1 million. The EUR 13.1 million is a net effect. Gross savings are estimated to be up to EUR 20.3 million as we would face a EUR 7.2 million cost increase if we hadn't taken any measures. This increase would come from salary increases as stipulated by the collective labor agreement and rollover effects from employees having started throughout 2024. Of this EUR 13.1 million, EUR 7.5 million is related to external labor costs and will improve the gross margin. The remaining EUR 5.6 million is related to OpEx and will reduce OpEx by this amount for 2025. This includes the 2024 financials. I will now hand over to Marco for the strategy update.

Thank you, Onno. I will continue with the strategy update, the 2025 outlook, and our medium-term ambition. On Sheet 18, we have summarized the most relevant aspects regarding the changing market conditions at the end of the first half year of 2024 and our reaction in the second half of '24 by conducting a strategy review and execution on the organizational rightsizing project. First, I will highlight the changing market circumstances we observed in the first half of '24. Rapidly decreasing battery prices made energy storage customers postpone closing of deals. And the lowering prices of battery was -- the lowering of battery price was indicated by an overcapacity of battery production due to the lower production of battery equipped vehicles. Lowered EV subsidies resulted in a tempered growth of battery equipped vehicles in Europe and as a consequence, also a lower demand for charging stations. Within SGS, we faced a moisture issue in our Pacto substations with Liander and Enexis. The combination of these 3 elements forced us to issue a revenue and profit warning in June 2024, and we took immediate action as indicated by initiating strategy review followed by organizational rightsizing project. In the strategy review, we reassessed our competitive position. And based on that, we reassessed our product market combination approach based upon, first, the market attractiveness, then our competitive position, combined with our activity and margin levels, and lastly, the fit with our capabilities. The outcome of these steps have resulted in a strong focus in our ambition market segments. In the organizational rightsizing project, we realigned our organization to the new level of market growth, targeting a high single-digit adjusted EBITDA margin for 2025 and making the organization more effective. As explained by Onno, the rightsizing program resulted in a net cost down of EUR 13.1 million in 2025. On the next slide, we will present our updated strategy and the 2025 outlook and medium-term ambition. With regard to our strategic update, I want to share with you the main points in this update before we walk you through in more detail. Supported by an external consultant, we started the strategy review process by reviewing each of our markets and our positions in these markets. The findings supported the uniqueness of our business model with 3 business lines that complement each other commercially and operationally. Although each business line has its own specific characteristics, we see in our business lines that the reason why customers buy from Alfen is linked to our deep grid expertise, our ability to deliver turnkey solutions, including consultative selling, project execution and service, and because we are close to our customer. In my more than 25 years with Alfen, we have step-by-step built up to these capabilities, and I'm proud of where we stand today. After the strategy validation process, we also reconfirmed the long-term growth trend [indiscernible] growth drivers in each of our markets in which we operate. Sometimes emphasis is too much on an annual growth or temporary headwinds, and therefore, it's good to look at the trends on a longer term perspective. If the long-term growth is positive, you could question why did we need to change our strategy in our organizational size. But we have seen that in our markets, there is a rapid technology as well as regulatory developments. This requires focus on a select couple of product-market combinations to be able to truly deliver on these technological and regulatory changes. We also see that the market growth rates have been tempered, which requires a smaller organization to maintain our ambition profitability level. The outcome of our strategy review is that we will focus on the markets where we are best positioned in the long run, which are all in Northwestern Europe. We will keep our geographical focus within SGS as it is. For EV charging, we fully focus on AC charging and discontinue our DC charging project. In DC charging, we see too limited market demand yet, and we don't have the development resources to develop a broader DC charging portfolio that's needed to win in this market segments. In terms of organizational rightsizing, we've done much more than simply reducing the number of FTEs in our company. We have leveraged the synergies of some departments with similar capabilities, for instance between Smart Grids and energy storage on the service elements. And furthermore, we have simplified our research and development organization and interface to the rest of the organization. Bringing it all together into an outlook for 2025, we expect the revenue to be in the range of EUR 445 million to EUR 505 million with a high single-digit adjusted EBITDA margin and CapEx below 4% of revenue. Onno will give you more details later on in this presentation. For 2026 and 2027, we see that we are setting our objectives mid-market volatility and macroeconomic uncertainty. Therefore, we will see a revenue growth in the range of 5% to 10% for those 2 years while improving our adjusted EBITDA margin further towards low double digits. And we expect CapEx to remain below the 4% of revenue in 2026 and 2027. If market would grow faster than expected now, we can quickly scale [indiscernible] production capacity available. In the first quarter of '25, we are focused on truly activating the updated strategy in all the teams of Alfen, after which we will focus on execution from Q2 onwards. We will, of course, monitor market developments and our positioning in the markets. Due to the positive long-term underlying growth trend, we are convinced that from 2027 onwards, market expansion becomes possible again. On Sheet 20, we have tried to make a comprehensive overview of our unique business model. As you can see in our mission and vision, we are truly positioned in the heart of the energy transition. We are dedicated to deliver innovative energy solutions across our business line. The needs as a core differentiating capability, we are able to translate our knowledge of how the grid works into solutions that are valuable for our customers. A nice example of our capabilities demonstrated with Enexis. In the coming years, we will be executing a fair amount of contracting work with Enexis. Levering our project execution capabilities, we are able to help one of the Dutch grid operators to speed up the expansion of the grid and to cope with energy transition. Within our Smart Grid Solutions and battery projects, we are not delivering part of the solution, but really from start to finish, meaning that we help our customers with setting the right requirements to design and develop a solution for them, assemble it, and also service and maintain it once it is operational. And lastly, our sales force is well connected to our research and development department, which is how we can tailor our solutions to the customer needs. Nice example is how we can see or show with a wide range of solutions we offer to support large EV partners. I now continue on Sheet 21 with the interaction of our 3 business lines. We have concluded we have a strong right to play in each of the markets and that the business lines reinforce each other. Of course, each business line has its own merits. Smart Grid Solutions is a source of our grid experience in the knowledge based on how we differentiate in the market. It's also the fundament of long-term growth and revenue. EV charging has the highest gross margin and creates a basis for digital expertise and energy storage brings the highest market growth potential as well as big synergies with Smart Grid Solutions, for example in our project and service organization. The synergies between the different production lines goes far beyond these examples. On the right-hand side of the slide, you can see an extensive list of how we benefit from having 3 interconnected business lines. I will hand you over to Michelle, who will elaborate on the growing markets in more detail.

Thanks, Marco. Now let's look at the market context and dynamics of each of our business lines. And before we look at the individual business lines, it's important to note that you will see deviations from the overall publicly available information. We see the data, we've read the reports, but we also have customer data points and on-the-ground experiences that show a more nuanced view. And in a positive light, we are very well positioned to take advantage of the market growth that may still materialize in all segments. As Marco mentioned, we have strong customer relationships and the manufacturing capacity to support a rapid ramp-up. And we've shown that previously, last year with the ramp-up of SGS and previous ramp-ups in energy storage and EV charging. We can and have executed in a fast-moving environment. The next pages will share the market view, balanced with the Alfen view, and provide nuance and hopefully insight to ensure we are all clear on the risks and opportunities we see in each of our business lines. As we move to the next slide, we'll focus on SGS to start. We've got 2 key areas: the grid operators and the private networks business. First, let's look at some of the underlying market trends where we see increasing electricity demand, ongoing renewables to be grid connected, capacity constrained and congested grid, and the support of the government for the Dutch DSOs. If we look specifically at the grid operators, which represent 66% of our volume, we see they've announced investment plans. They have an expected CAGR of 21% from '24 to '26. And we, of course, expect to capture some of that volume. However, we anticipate a positive yet constrained growth rate of 8%. Why is this? Why are we cautious and expect that slower pace than the investment plans? Because we see constraints in the overall value chain. There are permitting and site readiness issues. There are transmission capacity challenges, component challenges and installation capacity, which are all limiting factors to the realization of the investment plans. We will support the grid operators and will ramp when needed. But right now, we see tempered growth. In the private domain area, we see a couple of key drivers, the combination of which leads us to expect almost no growth in the private domain segment. We see the installations hampered by grid congestion and an overall reduction of renewables deployment in the Netherlands. Now on the next slide, let's look at what's happening in the EV charging market. First, the overall trends are similar to what we have shared previously, the disparity between ICE and EV vehicle prices, ongoing incentive challenges, changing regulatory environment complexity and divergence in some markets, and a continued desire for advanced capabilities such as ISO 15118. Overall, we do expect to profit from the mid- to long-term market growth while being less optimistic in the short term. Current market predictions for charging point installations expect a CAGR of 18% from '24 to '27, but when we look at our core markets and subsegments of those markets, we expect a 10% CAGR from '24 to '27. For 2025, this is based on not yet seeing the order intake to reflect the growth projections and conversations and projections from our customers. And while January looks to be a good month for EVs, we do expect a lag, especially in the business and public segments where we focus. We also see continuously changing regulatory environment that can impact the adoption speed positively and negatively. So on the next page. What does this mean for Alfen? In 2024, we saw markets develop differently across Europe in regard to electric vehicle registrations, which is another indicator we watch. Here, we can see that Belgium and the Netherlands were up last year, but France and Germany were down. Bloomberg is currently projecting 30% growth in EV registrations for Europe. But as with all growth projections, we have to carefully monitor ambition versus execution. And right now, we see uncertainty in the adoption of the EU CO2 regulations. We saw adjustments in the market information over 2024, and we've seen a delay between EV registrations and charge point sales. But in the mid- to long-term view, we still see positive signs and are particularly optimistic as the EV price parity with ICE is coming closer, which is currently expected in 2026 and 2027 for all car sizes. Next on Slide 26, let's review energy storage. Here, again, the market trends remain similar with storage continuing to play a key role in the energy transition, providing grid stability as renewables continue to be added and storage is reaching cost parity with fossil dispatchable sources and can play a very strong role in easing grid congestion. Now let's look at the installed capacity trends. Remember, this is on a gigawatt hour basis and large mega projects can influence these growth rates significantly. In aggregate, we do see strong double-digit volume growth for energy storage until the end of this decade. However, Alfen foresees 15% annual volume growth due to our focus area on mid-scale BESS systems, and the complexity of the deal cycles that come with these smaller to midsized projects with customers that are new to the energy storage space or slightly different than some of the larger players in the mega storage space. On Slide 27, let's really look specifically at some of the price trends that we anticipate. In 2024, we saw a sharp decline of 40%, which did impact our deal values. For 2025, we don't expect that same rate of downward pressure. And while the lower energy system prices impact overall deal values, they do incentivize and improve the project economics. Here, we're also sharing some high-level overviews of some historical benchmark system prices from multiple sources where we see for project sizes over 10 megawatt hours, 180,000 per megawatt hour to 260,000 per megawatt hour. But please note, these system prices are generic and can be affected by many factors, such as the size of the system, 1 hour, 2 hour, 4 hour, the installed versus usable capacity that's required, the specific technology, project scope, grid integration requirements, and overall risk of the project and location. This should give you a range, though, to understand how to project into the future. Now that we've looked at the market context in which we operate, let's discuss the case for change as we move to the next slide. Overall, we feel a more focused strategy in our core markets with the right products and organizational structure will allow us to excel. What we still see is attractive market growth in each of these segments, but we do feel that with all these growth opportunities, we need to be very focused on the right product market combinations to win. We also see rapidly changing technological and regulatory developments. So we have to stay agile and ready to adapt, which again means focus on the right combination of markets and products to improve our positioning and increase profitability and ultimately deliver for our customers. And we see consolidation of markets as they mature, and we need to ensure we have the right value proposition as those markets change, and have the right balance between product leadership, customer intimacy and operational excellence, which means we need to lean into our strengths of grid expertise and customer centricity. We have to focus. We can't be in every market with all products and expect to be in the top 3, which is our ambition. And we need an agile organization to execute and to ensure the right development capacity to meet the market needs. Now let's recap what this means for each business line. You'll see that the focus for smart grids remains relatively unchanged. We will continue to focus on the grid operators and private network clients in our core markets of Netherlands, Belgium, Finland and Sweden. And we'll look to expand with opportunities such as the transport stations with our end-to-end turnkey capabilities that we're doing with Enexis. In EV charging, we will be fully focused on AC charging and have stopped our DC charging efforts. Stopping DC is primarily due to the limited market demand and we also see that winning in this market requires a broader DC portfolio, and we need to focus and further develop our AC product portfolio. Our segments remain the same, public, business and mid-to-premium home, but with more emphasis and focus on our core countries, both with our country presence and our internal R&D development activities. For energy storage, the focus will truly be in the mid-scale segment where we can add value in providing customer-specific grid integrated storage solutions. As the overall storage market and project sizes get larger, the definition of mid-scale does increase as well. So FlevoBESS does fall within that core focus. Now let's walk through each business line in a little bit more detail just to recap what we offer. In Smart Grids, we have a wide range of products to serve our customers, multiple substation types, both walk-in and compact stations as well as other offerings that allow that end-to-end, such as the switchgear, the project execution, the grid automation, service and maintenance. What really sets us apart here is our ability to design and develop in-house solutions that meet specific needs of our customers, such as our greenhouse customers where we're able to balance their existing requirements and successfully deliver a fully engineered solution, or another customer that was looking to optimize their grid capacity relative to the industrial load of their plant contracted with Alfen to improve their medium voltage connection, install multiple new compact stations, and install a small stationary battery system, ensuring seamless integration across all the elements. And our large-scale manufacturing production capabilities and deep domain expertise make us a cost-effective trusted partner. In EV charging, we have a wide range of AC products that cover the mid-premium home, business and public segment needs. As mentioned before, we have decided to discontinue the DC charger. Here, you'll see our Eve Single S, which is primarily used in the home segment; our Single Pro, which is used in home and business; our Double Pro, which is primarily used in business; and our public offerings, the PG and the Twin 5 Plus. We differentiate in this market with the quality of our charger and feedback we get from customers. We have very high-quality reliability, which speaks to the robust and industrialized nature of our products. They are meant to last and support our customers' evolving business needs. And we ensure interoperability that allows our customers to realize their business cases with features such as smart charging, broad OCCP capabilities, and additional solutions tailored for business needs, including seamless payment integration. Now let's move to energy storage. In energy storage, we differentiate in how we advise and support our customers throughout the deal cycle to get to the right project solution for them. Our customers see us as a trusted adviser and value our grid expertise that comes from years of experience in our Smart Grid Solutions business. We work with the latest technologies and offer a modular design to make our solutions customizable for our customers. Next to the storage solution itself, we offer the long-term performance guarantee service and maintenance, which is really the end-to-end offering our customers expect. And in mobile, this is truly an all-in-one integrated package. You see other small stationary systems on the market, but our mobile solution is robust enough for construction site, festivals, and regular transport and movement from place to place to ensure high utilization. Now I'll hand over to Onno, who will discuss the organizational change in more detail.

Thanks, Michelle. We have made our organization future-proof for growing profitability in coming years. Alfen has grown significantly over the past 5 years. When you grow at the speed that Alfen has grown, you do not always have time to pause, think and revisit. In 2024, we were faced with a slowdown in the markets in which we operate, and we decided to use the opportunity to rethink the way we are doing things. We realize we have become overly complex and especially when you want to take out cost, it is important to make changes that will make the organization more effective, instead of just adding additional workload on less people. With the help of our external consultants, we prioritized the markets in which we are operating and made choices that allow to concentrate our resources in the markets where we are winning. So doing less by creating more focus. We redesigned the organization to allow for fewer duplications. We integrated our supply chain organization with the rest of the operational organization, and we merged together the service department for substations and battery systems as they required some more [indiscernible] activities, just a few examples from a large list of operational improvements. In certain areas, we rethought the way we are working. I'm personally quite enthusiastic about the steps that we are taking in the R&D organization and the way we are streamlining the R&D organization with sales, product management and operations. We are reorganizing the former functional R&D organization into multidisciplinary agile teams for product, which are working autonomously on making the most successful product for the market in which they operate. We have also taken steps to optimize the span of control in various parts of the organization and at the same time, making sure that we are making our direct workforce more flexible and aligned with production volumes. Here, we also see the advantage of operating in 3 different business lines, which allows us to move people throughout the organization. In particular, we see quite some common capability requirements between our substation business and the battery systems. Next slide, please. I'd like to talk about our ambition for 2025 and beyond. Overall vision for 2025 is revenue target between EUR 445 million and EUR 505 million. We're aiming for a high single-digit adjusted EBITDA margin and CapEx less than 4%. For the midterm, after 2025, we do foresee a growth profit between 5% and 10% on an annual basis, improving adjusted EBITDA margin to low double digits and CapEx remains less than 4%. Next slide, please. For 2024, I would like to take one step deeper. We foresee a revenue outlook between EUR 445 million and EUR 505 million. For substations, we expect a modest growth percentage of mid-single digits as the project business is expected to be approximately flat, compensating part of the growth that we foresee with grid operators. For EV charging, we currently foresee a slight decline as current run rate numbers are not showing any signs for accelerated growth. For battery systems, we rely on the backlog numbers that we have in our books. At this moment, we still have some bookings to go in the next 4 months. And there is, of course, always some project execution on projects that we do have in backlog. In addition, we foresee gross margin decline versus 2024 as 2024 included some onetime gross margin windfalls as I explained. As a result of our restructuring efforts and continued cost control, we believe that we can realize a high single-digit adjusted EBITDA margin for 2025 and CapEx will remain under 4% of revenues. We foresee a further reduction of inventory and believe that we will be cash flow positive for 2025. Next slide, please, on the years after 2025. For the years after 2025, we are confident in the longer term perspective of the energy transition. There will be continued strong demand for our substations, and we will continue to increase our added value for our customers by offering additional services and state-of-the-art market-leading products. We also believe that we can increase our ASP as the size of our substations tend to increase. As the market growth is very dependent upon many different electricity grid bottlenecks, we foresee a mid-single-digit growth. However, if market growth exceeds our expectations, we are able to quickly expand capacity as we have proven to our 2024 Q4 production ramp-up. We believe that EV car sales will increase as soon as lower-priced vehicles will be introduced in the market. At this moment, the initial cash outlay for electrical cars is still an important criteria for the current consumer purchasing decision. However, various studies already indicate that the total lifetime cost of electrical vehicles is lower or at par with gasoline vehicles. Our leading position in this market continues to be strong, and we believe that we are well positioned as soon as overall demand will bounce back as we have established customer relationship and short production lead times in our factory in Almere. For the battery market, most analysts report we see a continued growth for this market. However, this is highly dependent upon the various segments in the battery market. We are optimistic on Alfen's position and we see many different use cases for our products, but we're also cautious to firmly predict the longer term trends in this market. Overall, we believe that the 15% growth rate should be attainable. We will continue to work on a scalable organization that will grow at a lower rate than revenue, and therefore, we will continue to improve our adjusted EBITDA margin towards low double-digit numbers. CapEx will remain under the 4% of revenue, and we, therefore, will be cash positive. I will now hand over to Marco, who will continue with the phases of growth.

Thank you, Onno. We're now at the last slide of this webcast. And in this slide, we have tried to summarize part of the phase of growth that we already elaborated on earlier in this presentation. In the first half of 2025, we will focus on implementing the new way of working and making sure that all our teams contribute to a more effective organization. For the remainder of 2025, '26, it is fundamentally a matter of executing the planned changes, which sounds simple, but as we all know, requires a lot of commitment from everyone. At the right moment, we will switch our focus toward profitable market expansion again. For now, we expect it to be around 2027 or shortly after that. If momentum in the market would pick up earlier, we have proven in the past years that we are well equipped to capture such an opportunity. We've now come to the end of the presentation. And although we have tried to bring things forward in a balanced way, we are happy to provide further clarification in the Q&A part of this webcast. Moderator, can you please take over and open the line for questions.

[Operator Instructions] We will take our first question from Nikita Lal of Deutsche Bank.

I would have a couple of questions for you, if I may. The first one is on Q1 2025. So in your press release, you stated that the revenues in Q1 should be lower than in Q2. But how should we think about this in terms of margins? Should we expect a weak start and the cost reduction mainly realized in H2? Or is it equally distributed over the course of the year?

We put a lot of efforts in the restructuring program to be completed before year-end and also to be able to book the financial effects of the restructuring program in 2024. All people that are affected by the restructuring program have been notified end of November, beginning of December, and are not employed anymore. I mean, there's still -- some of them are still on the payroll, but they're not part of our cost base anymore as of January 1, 2025. So, it's very evenly distributed over the year. Does that answer your question?

Yes, sure. And then my second question is on free cash flow. You did not give any guidance for 2025. I understood that you will have this cash outflow from restructuring costs from Q4 now in Q1, but could you give us more flavor here?

If you carefully listened, I mentioned that we are going to be cash flow positive in 2025. But I realize it was not specifically stated in one of the written statements, but I mentioned it in my wording.

Yes, but more around the magnitude. So you had more than EUR 20 million in '24.

Yes. It's time to be a little bit careful...

Should it improve [indiscernible] level? Sorry.

Yes. I think we -- I want to stay at positive. As you know, cash flow in itself can be somewhat lumpy, partly because of the fact that we get quite some prepayments from customers on battery projects. So I want to be careful to be too bullish. At the same time, I can give you some idea. If you take a look at the projected EBITDA for 2025, that in itself is enough to be cash flow positive. And on top of that, we do expect some inventory reduction over the year that will also add to the cash flow. So it gives you some kind of idea of what we're thinking about.

And my last question is regarding the improvement of the margin over the next years. Could you elaborate what are the key levers here? Is it just cost reduction and then cost discipline? Or do you expect to see higher operational leverage, for example, in the next years?

Yes. It's a little bit -- it depends on what you compare the margin to. 2024 has been a strange and difficult years with a lot of adjustments. So it's difficult to basically make a 100% comparison with 2024. But, for example, if you go back to 2023, then you see that what we -- that our margins are more or less staying at a similar level as 2023, with one exception, and that's in substations and Smart Grid Solutions. There, we do see a trend towards grid operators and grid operator margin is somewhat lower than what we see in the private domain. So that's somewhat of a more structural trend, I mean, when we're talking about a few percentage points. But overall, in the other areas, I don't see a major reduction in margins if you compare to 2023.

And we will now move on to our next question from Thijs Berkelder of ABN AMRO ODDO BHF.

First question on your cautious outlook for 2025. So you, more or less, give a very cautious outlook for Q1. So that reach a still mid-single-digit margin for Q1 and you guide high single digits for the full year. So should we then expect roughly you to be back at the 10% level in the remainder of 2025?

No. I don't want to give too much guidance on EBITDA margins per quarter, to be honest. I think for the whole year, we feel comfortable that we are in the high single digits. How it exactly works out per quarter, we haven't given too much guidance on that one. So I would like to leave it at that.

Maybe to that, we have also seen in the past years that especially with project realization and be able to record revenue margin on the project, it's extremely difficult to balance it out over each individual quarter. That's also why like Onno was stressing, that the average gross margin is the one we are steering on. And there are -- due to the lumpiness of some of our business elements, it can differ per quarter, but the fundamental trend is that we will start this year with, say, high single digit and that we will be able to -- when we partly we grow our revenue, we'll also be able to translate into a higher EBITDA level in the years after that.

A follow-on question on your gross margin outlook for Smart Grid Solutions. At the high end of the range, I can understand. But what needs to happen for you to end up the whole year at the low end of the range with only 20% gross margin there? What is the reason to have the low end so low?

I think there's always [indiscernible] supplying a gross margin range. It's always complicated to say, do we aim for the low end? Of course, not. And what we have seen is that due to the effect with grid operators, we have a little bit lower margin that brings the gross margin a little bit down. So it is not that we think that we will drive down to the lower end of the range, but it's more or less to give an indication that all the different orders will be in the price range, in the range of the gross margin we have supplied. We don't expect to run into the lower end of the gross margin range.

Then my final question for now is on your restructuring exercise. It, to me, seems to have primarily impacted your EV charging business. And a question there. Are you now no longer selling in the U.K., and/or are your reseller clients also no longer allowed to sell in the U.K.? How should I interpret it?

Yes. So we did affect our geographical footprint for resources, which did impact the U.K. And what we're focusing on internally is really the R&D focus for our core markets. We've always had charging that can end up in multiple countries so as long as we meet the market need is compliant. But in terms of where we put our resources and our R&D investment, it will be focused on our core markets.

But clients such as Blink selling your chargers in the U.K., are they still allowed to do that? Or how does that work?

Yes. We're working with each individual customer to determine the right path forward for that customer.

And we will now take our next question from James Carmichael of Berenberg.

Just 2 for me really, just on the second half guidance in terms of revenue specifically. You talked in there about it being sort of second half weighted and a little bit contingent on the run rate on orders in EV charging. And I suppose there're sort of familiar themes from last year when guidance was coming down ultimately. So I guess just sort of wondering on your level of confidence going into 2025. I appreciate it's always a bit difficult this early in the year. And then just secondly on the DC charging piece, that was a focus in that segment for quite a while, getting that up and running. It seems like that your mind has changed quite significantly on that and you've killed it. So what's changed from sort of really focusing on getting that rolled out to killing it completely?

Yes. Let's start with the DC charging question. So, yes, that was a product that was asked for by some of our customers to expand their portfolio to serve the business. It was always primarily focused on kind of business applications, parking garages. The ratio of DC to AC was 1 DC for every 10 AC. The price point of a DC is significantly higher. And what we started to see is, one, the demand wasn't there fast enough, and two, we had to continue to invest in the portfolio with options and capabilities, and we had to make a trade-off between serving our installed base of AC customers and their needs, and continuing to pursue DC. And so we made the hard choice to stop DC. And in terms of the EV guidance for the year, right now, we're leaning into the reality of what we see with our customers, the conversations we're having. I think everyone is ambitious and optimistic about the EV market for this year. But when we look at the reality of the run rates and the forecast from our customers, it's not materializing yet. And so if it comes, we're ready to ramp. We have the manufacturing capability. We've got the supply chain ready to go. So if things move in the right direction, we're ready to support it. But based on what we see today, the reality of the situation is slightly tempered growth.

And we will now move on to our next question from Paul de Froment of Bryan Garnier & Co.

I have 2 topics. So the first regarding EV charging. How do you see your gross margin evolve over the next quarters? And more precisely, what's your pricing strategy regarding commoditization? So that's the first topic. And the second one is regarding storage. You mentioned forthcoming utility scale projects. Do we have to expect a negative impact on gross margin?

Yes. So I think for EV charging, from a gross margin perspective, for '25 to '27, we're still projecting the 35% to 45%, which is in line with what we had communicated at our Capital Markets Day. From a pricing perspective, it's one of the reasons we focus on the business and public segment is where we see more commoditization and price pressure is in the home segment, low-midrange home, where you don't necessarily have the same back office interoperability requirements. You don't have the same connected requirements, whether it's utilizing solar charging. So in that segment, we've made a choice not to necessarily follow that pricing trend down. And if you see, I think our ASP has improved, which then represents the higher mix of the public and business in the overall mix. And then energy storage. We do see that the gross margin from '25 to '27, we're expecting the range to be 15% to 25%. As the project sizes get larger, there's a higher percentage of batteries, which does impact the overall gross margin percentage.

[Operator Instructions] And we will now move on to our next question from Jeremy Kincaid of Van Lanschot Kempen.

Three questions from me. The first 2, just on EV charging. Firstly, would you mind sharing how much investments you made into developing the DC product? Second question is just on the U.K. market. I thought that was a top 3 or 4 markets, but I might have misunderstood. I was just wondering if that is a top 3 or 4 market, or if maybe that was just the case during the inventory stocking period? And then on Smart Grid Solutions, you obviously talked about issues across the supply chain, which are limiting growth of -- and you expect 8% per annum between '24 to '27. Does that imply that after '27, you expect a lot of these supply chain issues to be resolved? And if so, could you help provide some context around that, please?

So maybe to start on the U.K. market. For us, it was not in our top 3. And I think what we're seeing in the U.K., especially in the regulatory environment, is divergence relative to what the EU is doing. And so you see each and every country and market has their own requirements. And if the EU is moving in a different direction with smart charging requirements and other elements, and it's not necessarily a market where we feel we can be the top 3, then that's why we've deprioritized it.

And the investments, we had about EUR 4 million of capitalized R&D on the balance sheet, which we wrote off as part of this effort.

And maybe to add, the last element of the limited growth with the grid operators. We have seen, of course, in the past 2 years that the grid operators published quite, I call it, extensive investment plans and also indicated number of substations they want to be installing in the coming years. But on the practical side, we have seen also that in the whole value chain, it is not only one element, but the value chain, including the contractors that need to be able to connect all the cabling to have all the permitting done for new cable runways and also for substations. We've seen that although the ambition is there to have a quicker ramp-up than what we now see happening, that we are more or less a little bit careful in just taking over the growth numbers that are published by some of our Dutch grid operators. And we more or less link it to the practical realization in growth that we see happening at the moment. Whether there is in 3 years' time still a ramp-up to be expected, it's too early for us now to state. I think if we look at the overall investment plan in the coming 10 years, the grid operators need to expand year-on-year their investments to be able to cope with the energy transition. How that line of percentage, of course, will be evolving? I think already the 8% is average growth what we show now is already quite an extensive interest ramp-up for the grid operators. So we think this is more closely to be expected for the average growth rates in the coming years in this market environment.

And we will now move on to our next question from Thibault Leneeuw of KBC Securities.

My question is basically on the adjusted EBITDA margin for 2025 and how confident you are to achieve the high single-digit target. Because if I basically look at it and I use the midpoint of the revenue guidance, midpoint of the gross profit margins and if you look at the cost savings starting from the adjusted OpEx levels and include the external costs in the gross profit margins, which are included in the guidance, then it seems that you will have to be at the higher end of either revenues or gross profit margins in order to achieve the high single-digit margin. Do I read that correctly? Or am I missing something?

You're adding a lot of variables together. And we did, of course, add the same variables together. And we are quite confident that we are able to get into the high single-digit EBITDA margins.

At the midpoint of all the guidances? Is if you take the midpoint of the revenue and the midpoint of the gross profit margin combined with the communication on the OpEx?

Yes, but you cannot only -- you really have to take a look at the mix also. I mean our EV charging business had higher margins than the battery business. So we did a number of analysis and a number of stress test analysis to see where we would end up, and we feel rather confident that we should be able to end up there.

And we will now take a follow-up question from Thijs Berkelder of ABN AMRO.

A follow-on question on your balance sheet. You're reporting net debt of EUR 32 billion, but excluding leases, I think you're back to net cash. So that looks solid and sound again. In that sense, can you again confirm that you do not see any reason for a capital raise? And maybe give a bit more explanation on your balance sheet strategy towards 2027 when you seem to be open for M&A again.

So the first question is, do we see a reason for capital raise? No, we don't see a reason for a capital raise, but we continue to be careful with our cash consumption. We continue to be careful and making sure that we stay within the covenants. So that is one area that we're continuously monitoring. But in line with kind of what we said being cash positive, making sure that we have the right EBITDA, you have to realize that EBITDA has been calculated on the last 12 months. So we are still carrying some quarters with us out of 2024 that were less than brilliant. But I think we're positive that we are not going to run into a covenant issue, and therefore, we're positive that we're not going to do a capital raise.

Yes. Going forward, if the trend continues, we will continue to be cash positive. So we will be building up cash. Is that something that we can use for M&A? Yes, at a certain moment, that potentially could be. It's not our focus at this moment in time. I think our focus at this moment in time is to kind of stabilize, build and make sure that we realize what we're promising. But I don't exclude the possibility that we will have an eye on potential extensions of kind of the business that we're in.

And we will now take another follow-up from Nikita Lal of Deutsche Bank.

Maybe 2 questions on Smart Grids from me. The first question, you mentioned that you had a production run rate of 100 substations per week end of 2024. How should we think about this in 2025 and going forward? And also your utilization rate with your new production plant? And the second question, maybe on the time line to repair the substations out there. Do you have any new indications for this?

If you look at, say, our run rate in, say, 2 months in 2024, we have shown that we can quickly build up our production volume in Smart Grid Solutions, and we ended up, say, over 100 substations a week. Due to the demand at this moment, we will be somewhere between 60 and 70 substations a week. And we just give that indication because between September and October, we'll be able to ramp from 35 stations a week up to the 100. And the 100 is not the limit of this facility. So that means that we have quite a lot of leeway if the market demand is really stepping up in the coming time, whether it is next year or the year after or the year after, that we will be able to execute on that opportunity within a given facility. Whether the limit is 100 or 150 stations a week at this moment is not -- we don't see there any problem in our facility. Your question on the repair. I understand that you would like to know when are those, of course, going to happen. That's something where we are not -- can decide for ourselves because we now have open more or less the substations on site. We have had a preliminary inspection in June last year that led to the provision that we have now in our books. And we are starting -- we're now in the process of having a discussion with, say, the 2 main grid operators that are being affected, that being Liander and Enexis, how to process this step by step. And you have to bear in mind that's the fundamental impact of the substation is not such that there is any safety issue. That's also that at this moment, priority one for the grid operators is to get their installation program of new substations first up and running, and then in parallel, try to do step by step, but it's not that they are in an urgent need to do that step-by-step improvement of the installations on site. That's also why it can take some years for us to step-by-step remedy this and also use then the provision we now have to accommodate for those costs.

That was our last question. I will now hand it back to Marco Roeleveld for closing remarks. Thank you.

Okay. Thank you, Laura. I would like to thank everybody for participating in this webcast and also as I think there are some relevant questions on revenue development and gross margin, and maybe we're sticking a little bit on the question of Thibault in relation to where are we ending up in our mid-single digit and why it is. I remind also, Thibault, that on [indiscernible], we're giving a little bit of explanation why we think the gross margin development is as incorporated in our outlook. And if you have further questions on that, you can also do bring this forward in a later moment. I would now more or less ask the moderator to close down this call and that we can go back to business again. Thank you all.

Thank you. This concludes today's call. Thank you for your participation. You may now disconnect.