Alfen Nv

Hello and welcome to the Elfin Half Year 2021 results call. My name is Rosie and I'll be your coordinator for today's event. Please note this call is being recorded and for the duration your lines will be on listen only. However, you will have the opportunity to ask questions at the end. This can be done by pressing star 1 on your telephone keypad to register your question at any time. If you require assistance, please press star zero and you'll be connected to an operator. I will now hand you over to Jeroen van Russen, CFO, to begin today's conference. Thank you.

Thank you, Rosie. Good morning to you all and welcome to this webcast regarding the first half year 2021 results of Alphen. We are pleased that Michelle Lesch, our new CCO who started as per the 1st of July, is joining us in this webcast. Michelle has a long history in working for GE, and she is an experienced global commercial leader with breadth and expertise regarding the markets in which we operate. Unfortunately, Marco Rudeveld, our CEO, got ill, so he cannot join today. So this webcast and the questions that may come forward are handled by Michelle Lesch, CCO, and myself, Jeroen Verrossen, CFO. It is with pride that we look back on the results in the first half year of 2021. we see again a revenue growth in combination with a strong increase of our profitability. And in the long term, we continue to see positive market developments for all of our business lines. With respect to COVID, we continue to be vigilant about new variants that may arise, and therefore we continue to enforce strict safety measures. Furthermore, COVID has an impact on the worldwide supply chain, which we will address later on in this presentation. We will skip the disclaimer, and continue with slide number three with the key highlights of the first half year of 2021. And let me start with the revenue. The revenues in the first half year of 2021 was 115.3 million euros, which is a growth of 28% compared to the same period last year. This growth is predominantly driven by strong growth of EV charging and energy storage. We also see a strong increase in profitability. Our adjusted EBITDA increased 69% to 16.9 million euros, being 14.7% of revenues, compared with 10 million being 11.1% of revenues in the first half year of 2020. Our adjusted net profit was 9.3 million euros, 77% compared to the same period last year. And as we grow our business, we are also able to further diversify our client base. due to new important projects and client wins. Finally, we reconfirm our 2021 full-year revenue outlook in the range of 225 to 250 million. On the next slide, we will give you some more detail on the revenue developments per business line. If we look at the graphs on the left-hand side of the slide, you can see that there is growth in all of our business lines. But let me start with our smart bridge business line. We are pleased that after a relatively flat growth of this business line in the first quarter of the year, the revenues in the second quarter increased with 15% compared to the same period last year. We see a continuation of expansion and reinforcement of the grid for the energy transition by the grid operators. And additionally, the momentum in the microgrids business has further recovered. We benefited through our existing framework agreements, as well as through new and repeat clients. If we look at EV charging, we see a growth driven by increasing volumes under our existing framework agreements, but also by new client wins and further internationalization. The market continued to grow favorably on the back of the strongly growing EV adoption predominantly in the Western European countries. To enable this growth, we further strengthened our organization, our marketing efforts, and we also added various new EV charging solutions to our broad international portfolio and will keep on doing so. As we are pursuing our internationalization strategy, as a result, we see that more than 60% of our revenues in the first half year of 2021 was generated outside of the Netherlands. Then we go to energy storage, where we see that the momentum continued to develop favorably, which is mostly driven by the growth of renewables and the need to balance the offset between the energy demand and the supply. We benefited from earlier secured contracts and framework agreements, and under these framework agreements, we will be delivering our first two energy storage systems later in this year. With our deep expertise and proven track record, we are well positioned to further benefit from this growing momentum. The revenue growth is also accompanied by an increase in profitability, as we can see on the next slide. The adjusted EBITDA increased from 10 million, being 11.1% in the first half year of 2020, to 16.9 million, being 14.7% in the first half year of 2021. This increase in the adjusted EBITDA is a combination of strong revenue growth, higher growth margins, and the operational average strategy. Going forward, we will continue to pursue our strategy of profitable growth. On the next slide, slide six, you can see that we continue to drive our internationalization strategy. Our international revenue increased from 26.3 million in the first half year of 2020 to 43.3 million in the first half year of 2021, a CAGR of 65% and thus a faster growth than our overall top-line growth. Percentage-wise, as percentage of group revenues, the international revenues increased from 29% in the first half year of 2020 to 38% in the first half year of 2021. And I will now hand over to Michelle to continue with our commercial successes.

Thanks, Arun. I'd like to discuss some of the commercial success we've seen. In the first half of 2021, we saw continued execution of our strategy across all segments, supporting our install-based customers, as well as acquiring new customers across all segments. I'd like to talk through some of the highlights of how each segment is enabling the energy transition. For smart grids, we continue to support renewable growth with our smart grid solutions for solar and wind projects. Specifically, the Amkraft and Power Forza switching stations to support onshore wind projects in Sweden. In EV charging, we formed new relationships with international distributors and businesses, supporting growth across Europe and enabling our internationalization as discussed in a prior slide. First, we have a three-year framework agreement with Mitsui, which further supports our growth in Ireland, and our relationship with ESTG further expands our reach in Europe. In energy storage, we started to see our first projects released from previously signed framework agreements with ENBW and Semper Power. In addition, we were able to secure a contract to supply three energy storage systems to Vital Energy which will be deployed at three different hospital locations in the UK. If we move to the next slide, in addition to the projects previously mentioned, we also wanted to highlight an integrated customer story where we were able to bring our solutions together to support multiple facets of a project. These projects span two of our business units, Smart Grid Solutions and Battery Storage. In this example, we have developed and supplied an energy storage plaza where up to 22 mobile energy systems from Greener can be connected to provide grid stability services. In addition, these mobile stations are integrated with a solar PV park where they can be charged using renewable energy. Allison also provided the microgrid and grid connection for this site. In addition, these are the same mobile storage systems that our customer Greener deploys to their customers. As we move to the next slide, I'd like to talk about some of the continued product development we are pursuing. In smart grids, we have supported our customers in the development of a new and innovative substation that meets the latest standards and requirements in a smaller footprint and also meets sustainability criteria such as recyclability. In EV charging, we added to our solutions for our international portfolio. reinforcing our domestic offering with higher charging speeds and functionality, as well as supporting the latest OCCP and ENCS grid security standards. And in energy storage, we have engineered a new scalable storage solution that allows Alphen to deliver projects for utility scale applications. Across the portfolio, we continue to invest for growth and position ourselves to support our markets and customers. And now I'll hand it back.

Thank you, Michelle. Let's continue with the supply chain. There is pressure on the supply chain throughout the world as a result of a high demand for components, especially the electrical ones. We also experienced supply chain challenges, which we have been able to mitigate up to this point. And in this mitigation process, we want to highlight two key actions. First of all, we established an integrated team consisting out of people from R&D, purchasing operations and under the direct supervision of the management board. And that team monitors and engages the supply chain and takes purchasing decisions on a daily basis in order to secure our supplies. Furthermore, we put down strategic down payments for batteries and electrical components in order to safeguard and enhance resilience in our global supply chain. We do, however, anticipate some adverse impact in the second half of the year. And as we expect incremental supply chain pressure to continue well into 2022, we also will continue to be on top of this situation. We will now provide some more details on the financials, starting with the income statement on slide number 11. And let me start with the revenue and other income. Our revenue and other income increased from 19.3 million in the first half year of 2020 to 115.3 million in the first half year of 2021. a growth supported by growth in all of our business lines. The growth margin increased from 35.5% last year to 36.4% this year. And despite the challenges in the global supply chain, up to this point, we have been able to further leverage our growing skill on top of our strong market position. Personnel cost increased from 17.1 million last year to 19.6 million this year, an increase of 15% showing further operational leverage. The full-time equivalents increased from 563 at 30 June 2020 to 621 at 30 June 2021. Other operating costs increased from 5.3 million last year to 5.8 million this year, showing operational average. As a result, our EBITDA increased from 9.7 million last year to 16.6 million this year. And if we exclude one-off costs and special items, we arrive at our adjusted EBITDA, That increased from $10 million, being 11.1% of revenues last year, to $16.9 million, being 14.7% of revenues this year. This growth is a result of higher growth margins as well as our operational leverage strategy. Finally, our adjusted net profit increased from $5.3 million last year to $9.3 million this year. From the income statement, we now go to the balance sheet on the next slide. Let me start with the non-current assets. They increased from 37.8 million at year end 2020 to 39.7 million at 30 June 2021. The capital expenditures amounted to 5.4 million, which was 4.6% of revenues, compared with 4.9 million, which was 5.4% of revenues in the first half year of 2020. These capital expenditures includes investments in our IT infrastructure and data security, R&D test facilities, new malls for our smart grids business line, as well as production and warehousing related improvements. And as you know, additionally, we capitalized 3.3 million of development costs, which demonstrates our continued efforts to invest in innovations for the future. We are very relevant today, but we definitely want to be relevant tomorrow and the day after. So we'll keep on investing there. From a working capital perspective, that increased from 2.5 million at year end 2020 to 12.4 million at 30 June 2021, which is driven by strategic stock down payments for batteries and electrical components of 5.5 million in order to safeguard and enhance the resilience in our global supply chain. Furthermore, the contract balances increased as a result of a timing effect and a triggering of payment milestones. Finally, we go to the outlook on slide number 13. We expect that our markets will continue to grow throughout 2021 while they are being less and less affected by COVID-19 as the vaccination schemes progress further and as restrictions can increasingly be lifted across Europe. From a supply chain perspective, a high demand for components, especially the electrical ones, is putting pressure on the supply chain throughout the world. We also experience supply chain challenges, which we have been able to mitigate up to this point. As addressed earlier on in the presentation, we have an integrated team that monitors and engages the supply chain and takes these purchasing decisions on a daily basis in order to secure our supplies. Still, we anticipate some adverse impact in the second half of the year. And we will continue to be on top of the situation as we expect incremental supply chain pressure to continue well into 2022. However, more long-term, we continue to anticipate positive market developments for all of our business lines. This is underpinned by the agreed climate law and the launch of the Fit for 55 package under the European Green Deal, which is expected to further accelerate growth in our end markets in the years to come. As such, we will continue to further invest in our organization, innovations and production facilities. Finally, based on the first half year performance and the current revenue visibility, we reconfirm our full year 2021 revenue outlook in the range of 225 million to 250 million. We are now at the end of the presentation, where I will hand over to the moderator for any questions. Moderator, could you please take over?

Of course, thank you. So as a reminder, if you would like to ask a question, please press star one on your telephone keypad. Should you wish to draw your question, you can press star two. you will be advised when to go ahead. And the first question comes from the line of Peter Olofsson from Kepler Chivri. Please go ahead.

Yes, good morning, Michelle and Jeroen. I have four questions. Maybe do them one by one. The first is on the cross margin. I noticed as a percentage of sales, it was stable in Q2 compared with Q1. Could you shed some light on what you saw in Q2 in terms of raw material cost inflation and to the extent you were able to offset that with pricing and to what extent there was an exceptional mix or was it a pretty common mix in the quarter?

You want me to address that one first?

Yeah, I can do the other ones if you want.

No, it's fine. I'll answer this one. That's okay. Well, if you look at the gross margin, you know we don't give any guidance on the gross margins. We give a guidance on the revenue outlook. That's what we do. But we do see that we have been able to increase the gross margins from 35.5% in the first half year last year to 36.4% this year. We said it before, there's a couple of elements which is influencing that mix. So it's about the leverage that we have. So the increasing scale, which is an offsetting element, of course, due to also some raw material price increases that you do see happening. So it's very difficult to precisely say what the impact is. And of course, product mix can also, to some extent, have some influence on that gross margin. Having said that, I think what you do see is that there's not an automatic relationship that a raw material price increase is directly handed over to customers. So it's a combination of elements. Of course, we are always looking at our pricing. We have pricing strategy policies in place with direct involvement of the board where we look at pricing and pricing policies. But there are some elements which might give rise to a bit higher pricing, not always directly related to, for example, the cost price of the component itself. But sometimes in this worldwide supply chain situation, we sometimes also take decisions that we say, well, to shorten lead times, we have the components getting to us by plane instead of, for example, by boat. Well, you can imagine that, well, although boat costs are increasing as well, you can imagine that normally with a plane, it's a bit higher on freight costs than by boat. So we take those kind of decisions. Having said that, there's also to some extent, of course, offsetting effects due to our market position and due to the fact that our purchasing programs, which are in place and still are in place, are increasing with power because we grow ourselves as well. So it's a kind of a mixture there. And we say, well, of course, you know we do our utmost to optimize our margins as much as possible. We keep focusing on that. Having said that, also in the past, we said that the majority of the contribution of the EBITDA growth will come from operational leverage. And I think that's still the situation today.

Okay, that's clear. There may be a second question on revenues. If I look back at the last couple of years, what we typically saw was that revenues grew during the year, so quarter on quarter, and that typically H2 was better than H1. Could that be different this time because of the supply chain challenges, or how big could the adverse impact potentially be on your top line?

Well, I think it's a fair question. And historically, traditionally, you could see that trend. Of course, what we do is we look at the whole situation. So we look at the first half year, the growth that we achieved there. We expect the markets to grow further and also that we are able to grow our revenues further. But there's also a macroeconomic element including here with respect to the supply chain. Of course, we do our utmost to mitigate all the challenges and up to this point, we have been able to mitigate them. But yeah, if there's a harbor closed down in China, it also affects logistical change. So there are elements which are more on the macroeconomic level and which we cannot influence directly. So we take that all into account. And I think the best thing I can say is that we reconvene revenue outlook in the range of 225 to 250 million. So we're still confident that we can reach those levels.

Okay, but I understand that in your outlook, you assume some adverse effects from the supply chain in H2. Is that then in a particular segment, or is it all three of them?

Well, the supply chain is more or less an overall worldwide situation, and it's not only channeled to just one sector, I would say. So to some extent, it's everywhere. Of course, it's fair to say that the most impact is in the electrical components at the moment.

Yeah, which you use in all three segments, so it's not... It's not directly, just one. Okay. Then a quick question on EV charging. I recall from the Q1 call that in Q1, most of the growth was from outside the Netherlands. Did you see some pickup in growth in the Netherlands in Q2 or how did the growth in Q2 break down between the Netherlands and international markets?

I'll have to speak in our annual report there. But what you see is that I think we always look at the growth overall and we put internationalization there because it's one of the growth pillars that we have. So that's what you definitely see. And we're very pleased with the fact that we have been able to grow that revenue internationally. So that's where we look at. But we see growth in different areas, also in the Netherlands. So it's definitely an overall focus that we have. So that's what you actually see. So we see growth in all areas, but we are very pleased with the growth that we see internationally. Also, if you look at the numbers you see in the semi-annual report in Node 6, it's included. There you see that we grew the revenues in the Netherlands from 64 million in the first half of 2020 to 72 million in the first half of 2021. So also here we see growth.

Yeah, but that's for the overall business.

Yes.

Yeah, okay, okay. But it's fair to say that for EV charging specifically, after maybe very little growth in Q1, it picked up in Q2 also reflecting a pickup in EV sales in the Netherlands.

Well, that continues to be the situation, of course, and it might slow down to some extent and then accelerate again. Having said that, you know that being one of the most developed EV charging markets in Europe, Still, there's a lot to do in the Netherlands as well, because by 2030, the government said, well, we need approximately 1.8 million charge points, and we're now only at 250,000 in one of the most developed EV charging markets. So also, there's still a lot of growth potential in the Netherlands, and we definitely want to be part of that.

Okay, then my final question is on Smart Grid. With the Q1 update, you gave an indication for the year-on-year growth in the backlog. I think it was up 27%. Could you give a similar number for the situation end of Q2 versus end of Q2 last year?

Yeah, we don't give that precise number. What we did is why we published that backlog. That is to show that although the revenue in the first quarter was relatively flat due to the elements that we expressed at that time, that still the market growth is there. And we thought it would be wise to give a kind of flavor on that by expressing the backlog. So it's not our aim to express that backlog continuously. What we can say is that the market is developing favorably. Okay, thank you. That's it.

The next question comes from the line of Emmanuel Calier from Kempen. Please go ahead.

Hi, good morning. Thanks for taking the questions. I will also do them one by one. The first one is on the sales guidance. So the guidance is still quite wide. I would be curious to hear what the assumptions are to reach the high end and the low end of that guidance.

Yeah, well, we always express that we are not in a business where we have 95% of our revenue of the year to come secured as per the 1st of January. We are in a business where we have constant order intake on a daily basis based on framework agreements and based on individual ordering, as well as that we are in a projects business where we have a situation where projects turn in and then we start executing those projects and thus generating revenue. So there is some time lag between generating an order, concluding the contract, and generating revenue by execution of those projects. That's how we look at it. And we look at our revenue visibility and we have a weighted average pipeline approach there. So we look at each and every individual project and we value them against a number of criteria. So it's not that we just simply put a 25 percent probability on a lead category and and that elite category is hey we heard something about a storage project somewhere in the world let's put it in that's not how it works within our company so we we try to to focus on the revenue visibility as much as possible taking into account what we see in the first half year taking into account what the markets are doing but also looking at the macro economic situation with respect to the supply chain And having said that, also within energy storage, for example, where projects are a bit higher, there might be a situation where you conclude a contract, but if the contract is signed a month later, then revenue is also a month later, which can to some extent have an impact. And for us, that's fine because ultimately the situation is we want to have that contract. But if you look from a quarter to quarter basis, that might have some effect there. So we take everything into account, positives, possible risks, macroeconomic situation. And by doing that, we, at this point in time, feel that the reconfirmation of the revenue outlook is the best outlook we can give.

Yeah, yeah, okay. Thank you. The second question is on profitability. How do you look at profitability levels in second half and next year? And will potential supply chain issues have an impact mainly on the top line or could it also play a role on profitability? And should we expect higher OPEX investments in the coming quarters to support the growth?

We don't give a precise outlook on profitability to start with that. Having said that, we always strive for profitable growth. So the bottom line is equally important for us as the top line. What we do see is we always said also at the IPO, we said it's not about aggressive pricing strategies. the ultimate growth of the adjusted EBITDA and the mid to high teens where we strive for, that is a combination of revenue growth, gradually increasing growth margins, which from time to time can differ a bit because also product mix has an effect there, and operational leverage. And the combination of that is giving them the rise and the increase of the adjusted EBITDA. Well, that's still the strategy today. I would like it to be a linear line from a profitability perspective. That would be the most easy one and also the most easy one to explain. But in reality, that's not the situation. So sometimes we invest a bit upfront. Give an example. In 2014, we already put people at the ground in the UK and in Germany for EV charging. Well, they didn't generate a revenue directly after that, of course, but that was to invest in that market, to establish the channels, to be ready that if the market picks up, we have the organization in place and we have the distribution channels in place. So that's how we look at that. So if you then look from a quarter to a quarter, there might be some impact. then also on the bottom line. But that is then investing in the organization to make sure that we capture the next growth wave. So that's how we are looking at that. So from a quarter to a quarter, there might be some difference in operational leverage or growth margins. And it's fair to say that also in the whole mitigation of the supply chain, we sometimes also take decisions to accept a slightly higher pricing on a specific component. But don't forget also that we also have some offsetting effects on the opposite, because we have purchasing programs in place, we are diversifying, and our power is growing, of course, by our increasing skill. So that's also what we see happening. So we try to balance all these elements as best as we can.

But does that mean that profitability might be a bit weaker in, let's say, the coming quarters? Because if you would invest upfront, you have already a view on that. And I appreciate that the return will come later. Just I think it's good for the market to know that in advance.

Well, I understand the question. It's the same question you asked before. I tried to answer it as good as I can, but I also said I will not give an outlook on profitability. We only give an outlook on revenue.

Yeah. All right. Understood. And then on the supply chain, you answered already the question, but if you would have to pick one segment, what is the segment that is most exposed to these potential issues? Is that EV charging? Or is that impossible to answer?

Well, it's difficult to answer because if something happens, for example, a closure of a packaging manufacturer somewhere for transformers, I don't know, then it might hamper transformers. And we don't see it happening now. So that's very difficult to answer. What I can say is that the electrical components, we see a lot of pressure there.

But we use...

So in all of our business lines.

Yeah. And do you believe often it's better positioned versus peers to cope with these supply chain issues? In other words, have you seen some, maybe some share gains driven by that? Although that is probably quite difficult to assess on a quarterly basis.

Well, the first thing is probably difficult to assess, but we tend to not say anything about our competitors. We look at ourselves, and what I can say about ourselves is that we are on top of this issue. We do our utmost to safeguard our supply chain, and we're very pleased with the fact that up until today, we have been able to overcome the challenges that are there.

Yeah, okay. And then on EV charging... the sales growth is not similar to the volume growth. Could you explain a little bit what is going on there? Is this price pressure or is it mainly mixed?

No, it's fair question. It's not price pressure. We don't see decreasing prices. It's purely mixed.

Yeah. Okay. And then the very last question for me. Um, so there have been many companies that, uh, got IPO in the recent quarters. Um, How do you believe that this will impact the market? Because it means that quite some companies have raised proceeds, which might get used to try to gain market share. So in other words, do you believe that post all these IPOs, the competitive landscape might accelerate in the coming years?

Well, we saw that in the past as well. And they gain money and they try to internationalize also. But it's not that easy to internationalize because it takes time. It takes effort. It takes time. knowledge of the market. Europe seems to be one market, but it's not. Looking from an EV charging perspective, for example, in France, you need a double lock mechanism for child safety. In Portugal, there's a prescribed back office by the Portuguese government to which you need to connect. In Germany, they have Eichrecht, which is completely different. So we do meet them and we see them. And for example, Schneider is a competitor in France, but we don't see them in Germany. So that's what you see. So we are one of the few, I would say, who is already internationalized and selling the charges, for example, in 30 European countries. So we do see it, it happened in the past as well. Yeah, and the only thing we can say is we are executing our strategy and that is what we will keep on doing so.

Thank you.

The next question comes from the line of Lotte Timmermans from ABM AMRO, OdoBHS. Please go ahead.

Good morning all. I had one more question on the supply chain issue. You also stated to see a supply chain issue in Q1, so you said it at that time as well. I do know that you say it's intensifying. Could you give some more color on what exactly has changed compared to in Q1?

Well, I think it's a worldwide issue, so to say, because you do see that where COVID is still in place, for example, in Asia, you see that some semi products are under pressure. In the chip sector, for example, but you also see close down of a harbor, make sure that that logistical chain is more difficult, or what we have with the ship in the Suez Canal, where you definitely saw an impact on the logistical chain so yeah you do see more and more elements of that happening and and that's that's what you see and we also you see in the automotive for example you see a lot of announcements have for production stops or decreasing of production due to to this situation so I think that the whole sector is working very hard to increase capacity and make sure that the supply chain is intact. But it remains a macroeconomic risk that is hanging there. And yeah, it's very difficult to precisely predict when we will be back in the normal situation. So the only thing you can do is look at yourself, prepare yourself, do your utmost, and make sure you take the actions that are necessary to safeguard our supply chain. And that's what we are doing.

The global trend is very clear indeed, but has your position changed in any case compared to in Q1?

Well, I think overall macroeconomic, the pressure is increasing from a supply chain perspective. So that's what we see. And we keep on doing the same as we did in the Q1.

Okay, thanks. And then one question on other OPECs. This is relatively low compared to what consensus and I also had in my model. I can imagine that you haven't traveled the past half year and saw any trade fairs, etc. Could you estimate what the impact would have been if you could have been able to go to those kind of trade fairs and travel? And do you expect this to return in the second half and basically an increase in OPECs in the second half?

Yeah, I could give that number. That number is not in the millions, Lotte, so it's relatively limited. At the same time, it's difficult to precisely predict because we go to a new normal. which we don't really know yet how that will be. In the past, the investor community really wanted to see us with the roadshows and now they seem to be quite okay with having these teams meetings and do it online. Will we then next year be traveling again after each quarter to all the investors, or will we stay in Almere, et cetera, and don't have to use the train, or when we can't do it otherwise, the plane? So that remains to be seen. So to some extent, there is some effect, but it's not the majority of the cost. It's not.

Okay, thanks. And then a final question on capacity and EV charging. You seem to have ramped up significantly in production. Could you give an update on where capacity is right now, and is it possible that you have to increase capacity in the near term? I know that CapEx-wise it's not a big thing, but there might be some investment needed.

We don't give a precise number, but be assured that we can increase our production capacity if needed. We're not on full capacity yet, so you know that we entered into the new building where we have the possibility to further increase. And I think also good to point out that we are also, we signed a new contract for a new building that will be the largest building that we have, that we will get up until now. So also there you see that with the lookout for further growth, we are already further investing in the organization, but also in production facilities So we make sure that the production capacity is not a bottleneck.

Great. Thanks a lot.

Before we continue with the next question, please be reminded that you can press star 1 on your keypad if you would like to ask a question. So our next question comes from the line of Jan-Richard from Berenberg. Please go ahead.

Yes. Good morning. Good morning, everyone. Thank you for taking my questions. I would like to spend a bit of time first on the strategic stock down payments you've made in each one, 5.5 million euros. Could you please tell us a bit more about what exactly these 5 million euros refer to? Is it you agreeing on a certain quantity and price for your components with your suppliers and then cashing out today, let's say, 10% or 20% of the total? a price or just to have an idea on this would be useful.

Well, it's actually precisely that Jan. So what we do is we safeguard our supply chain also sometimes by putting commitments in and having some down payments to make sure that we get the commitment and that we get the quantities. and pay something upfront before actual delivery. So that's what we see happening there. But sometimes it's also that, for example, we already safeguard a component on the PCB but that we safeguard that component directly with the manufacturer so then already the quantity is safeguarded and paid for upfront before it delivered to the ems who is putting it on the pcb so you know we do a tier one tier two and a tier three monitoring of our supply chain and i think yeah that helps that makes sense okay the question is the question because i was comparing the five and a half million

with your annual cost of goods sold. And I was trying to figure out, okay, how many weeks of production do those products which you have secured give you? I mean, yeah, how much visibility do you have in terms of weeks? Can you tell us this?

That's very difficult, Jan, because there are relays who cost a cent per relay, but there are also, of course, elements which are more expensive. So it's a complete mixture of different things. So I cannot say precisely what the number of quantities safeguarded is then. Okay.

Do you expect similar down payments in H2O?

Well, we continue to safeguard our supply chain, so it's very difficult to predict that precisely. You can expect us to do what is necessary to safeguard that supply chain. And if it's necessary to put a bit down payments in or having commitments in, then we are in the financial position that we can do that. And that is giving support to our mitigation process on the challenges in the supply chain. So, yeah, I'm very happy with that, to be honest.

So in terms of who takes the initiative, it's rather you talking to your suppliers rather than your suppliers telling you, okay, if you want this, you have to pay us now. Am I correct in this?

No, it's a mutual cooperation. We're in many occasions in the long partnerships with our suppliers, so they are also supporting. And we are in a constant dialogue. It's a daily conversation. monitoring that we have with direct board involvement as well. So we are really every day talking to our suppliers and making decisions on our own, mutual decisions. So yeah, we do our utmost to safeguard the supply chain.

Okay, and very last question on supply chain. I've read recently that U.S. manufacturers of battery system, I think it was POEN, securing multi-gigawatt hours supply deals of cells out of China. I mean, could you please update us on the latest discussions you're having with, so that's specifically for storage, the latest discussions you're having with your existing suppliers or future suppliers? How much visibility do you have to, you know, in terms of supply chain, of supply of cells? I remember you said in H, at the Q1 trading update, that you had enough batteries secured for this year. Yeah, how much more visibility do you have going into next year as of today?

Well, I can reconfirm that statement and be sure that we are in this constant dialogue with the supply chain also on batteries.

Okay. And two very last ones on my side. You introduced a new large-scale battery storage solution. Could you please give us a bit more details in terms of which use cases is this for? Is it more front of the meter? How many megawatt hours? Because I think that could be actually a very, you know, I mean, that's a very interesting development. So any more comment on this would be also appreciated.

Yeah, thanks for the question. You know, I think the battery storage market is still nascent, and I think what we're looking at doing is making sure that we've got the opportunity to support all of the different use cases in the market, and that's the investment we made and the solution we now have is to support all aspects of the market.

Okay, but is it – I mean, because you say large-scale, so large-scale, does it refer to simply the capacity, or is it also with the software with different use cases?

I mean... No, it's completely scalable to support utility applications. We previously have done smaller solutions for mobile, but all the way up to large-scale utility projects.

Okay. And last one. you talked about these two in the storage segment about these two framework agreements where you started delivering um solutions so i think you mentioned e and bw and centric power how should we think in terms of the ramp up in in the number of batteries you delivered to them in h2 i mean in the coming months is really um yeah

Well, we see the momentum getting back in that market. We also said that COVID had an impact on the energy storage market also because you saw that the decision-making process processes took longer time financial closing processes took longer time sometimes also due to trivial things like the banks working from home and it difficult to uh to make sure that the investment team is coming together so you have to encounter all these these elements we are pleased to see that the momentum is getting back in the market that doesn't mean necessarily of course that you conclude all these contracts uh directly after and it kicks in uh revenue directly after so um I think what we expressed there is that these framework agreements is a different situation compared to the past. When the market was in a very nascent stage and you saw that companies were still in the piloting phase or doing their first energy storage project. And that's what we expressed in the annual report. We said, well, we are very pleased to see that there is a new situation in the market where we see that parties are entering into framework agreements. with a clear view, not a view for the next half year, but a clear view for the years to come on what they want to do with energy storage. So, of course, then it's still depending a bit on the situation, the market circumstances, the closing processes, when it will actually kick in. But I think long term, it's a good signal that those customers enter into those framework agreements, because it also shows that they have a more longer view on this market.

Okay, that makes sense. Thank you.

We have no further questions coming through, so I will now hand back to Jeroen for any closing remarks.

Yeah, thank you, Rosie. Well, I would like to thank everyone for joining us in this webcast. I hope we can give you a bit more explanation on the numbers and the story behind that. So once again, many thanks for joining, and we look forward to speak to you again in the next webcast on the Q3 trading results. Enjoy the day and thanks.

Thank you everyone for joining today's conference. You may now disconnect your lines. Thank you.