Photon Energy NV

WSE:PEN

Earnings Call Transcript

[Georg Hotar, executive]

Good morning, ladies and gentlemen. I have the pleasure of welcoming you to our Q4 2024 earnings call. Today in a slightly new setup as David Forth, our Group CFO, who will be making the presentation and myself are not sitting in the same room as usually. I'm today participating from literally the other end of the world from New Zealand, where I have been visiting the construction site of what today is our -- to-date is our largest EPC project, where we're building a 20-megawatt power plant in Pukenui for an external investor. So this is why today we have a slightly new format. However, on the proceedings, this will not have an impact. So again, welcome to you.

And we will today go through the business results, which I will be presenting. David will guide you through the financial results. And we will then also compare the actual reported results for the full year against the previously provided guidance. And as usual, at the end, we will have time for answering your questions, which please kindly -- which you can submit in writing and please kindly do so.

So going through the various segments, starting with electricity generation, which we also referred to as investments. Here we had in the fourth quarter, 2 major events. One was the sale of our 2 operating power plants in Australia with a total installed capacity of 14.5 megawatt peak. And these were sold in a transaction together with a project that was still in development, but very close to ready to build to an Australian investor, a company called CleanPeak. This transaction was completed at the end of October 2024, which means that until that date, the revenues but also count our produced electricity, the numbers until the end of October are included for those 2 operating power plants.

Also, in the fourth quarter, we completed and commissioned our to-date last power plant in Romania, which is a 3.2 megawatt peak power plant in Sarulesti. And at this point in time, we are in the process of completing the construction and very soon we'll start the commissioning of 3 new power plants with a total installed capacity of 5.1 megawatt peak in Hungary. And for the time being, it appears that these will be the last power plants from our development efforts in the Hungarian market. Given that going forward, it's relatively complicated to obtain grid connection capacity in this market.

Looking at the energy generation in the fourth quarter of 2024, we generated 23.4-gigawatt hours of electricity, which represent a decline of 6.6%. And that is mainly driven by the disposal of those 2 operating power plants in Australia, which given that they were based in -- still based in the Southern Hemisphere, had the highest generation during the European winter and the Australian summer. So those 2 months of November and December of generation that we were not recording anymore outweighed the growth from the added capacity in Romania between the fourth quarter '23 and fourth quarter '24.

Looking at 2024 as a whole, we increased the generation by 18.4% to a total of 165.5% -- sorry, gigawatt hours, apologies against the nearly 140 gigawatt hours the year before. Looking at the specific yield, here, we also had a decline from 200 kilowatt hour per kilo peak recorded in the fourth quarter of 2023 to 173 kilowatt hour per kilo peak in the fourth quarter of 2024, again, mostly driven by the disposal of the Australian assets because logically during summer with their very high specific production, they were contributing to this number very significantly.

Looking at the average realized electricity prices, here, we have seen between the third quarter of 2024 and the last quarter, a decline from EUR 173 per megawatt hour to EUR 136. And the main driver of this decline was the regulatory changes in Romania, where the power plants that we are still operating under the offtake agreement with Transelectrica became subject to new regulations as of September 1. And of course, the full impact during the fourth quarter, where we are compensated for every megawatt hour with a maximum of EUR 80 per megawatt hour even if the market price is above that level. If the market price is below EUR 80, we get that price per megawatt hour. That means we are capped at EUR 80.

And unfortunately, in addition, we are also not compensated on weekends and public holidays in Romania. And last but not least, we also hit the negative prices if they occur. So this has had a significant drag on our revenue generation from our Romanian portfolio, of course, with the exception of those power plants that have already exited this mechanism by obtaining a license and selling into the market in Romania.

And as mentioned previously, we are working very hard on moving our portfolio out of that Transelectrica arrangement till the license and start heading into the electricity market. And the good news there is that in the fourth quarter, but also in the first quarter of 2025 to date, we are realizing significantly higher prices than EUR 80 as market prices have been consistently above EUR 100. We generated around EUR 150 per megawatt hour.

The next area that we have been discussing and informing you about, where planned regulatory changes in the Czech Republic. Before they went to the final reading and approval in Czech Parliament, the most drastic parts were removed then, they moved to the Senate. And the Senate actually sent the law back to the Czech Parliament for rework. The last remaining unpleasant part of this new regulation, this new law is a recalculation of the IRR of these power plants that were connected under the original feed-in-tariff regime until 2010.

And based on a significant administrative burden that power plant owners irrespective of the size of installation. It not only hit the owners of utility scale power plants like ourselves, but it would also hit the owners of relatively small installations as the minimum size was kept at 30 kilowatt peak. And many of these owners of farmers, sometimes schools. And this was viewed very negatively by the Senate, leading to the law to be rejected and sent back for rework. And we will know in the next couple of days how Czech Parliament will react to this. We, of course, hope that they will remove these last remaining problematic parts of the law and improve it without them.

So in general, looking back 3 months ago, we're definitely in a much better position. We have, at the end of the year, as you know, we're also tracking and publishing the ratio between power plants that benefit from a feed-in-tariff regime or a similar support scheme and which part of the portfolio is merchant. Here, we have seen a rebalancing. The share of merchant has been reduced due to the disposal of the Australian assets.

So the 14.5 megawatts that we disposed of, we mentioned. The 3.2 megawatts that we built are also planned to be merchant. So that reduced that impact of the disposal. But net effect is that we currently 51.5% in support schemes with generation capacity and corresponding 48.5% on merchant assets. But essentially, we are hovering around the 50-50 mark in terms of the balancing our portfolio.

For 2025, we have again switched out our Czech portfolio from a fixed feed-in-tariff system into the so-called green bonus system. So just to explain, once a year, we can decide latest by the 30th of November, whether in the upcoming year, we want to be paid a fixed feed-in-tariff or go into the green bonus, which is a lower amount. And the difference is determined by the future electricity prices, it was rather a complex formula. That difference for 2025 end up being around EUR 42. And it has been our belief and looking at the futures prices in the pricing curve for '25 and beyond, we came to the conclusion that we will be able to generate more than EUR 42 in the day-ahead market selling with electricity.

So we made this decision to switch. And we have structured it within the group in such a way that between the various SPVs that own our power plants and our energy trading arm for energy trading. We have set a fixed PPA price that is slightly above those, EUR 42. And the price risk or the risk of the bet that we have taken that energy prices in the market will be higher is borne by our energy trading arm.

But of course, from a group point of view, we have taken the market price risk. And we believe that this was the right decision, again, looking at prices that we have been realizing since the beginning of the year, which on average were well above EUR 100, but also looking now at the monthly futures prices for 2025. We believe that we will end up quite materially above those, EUR 42 on average.

Last but definitely not least, we have had, I would say, our first unpleasant surprise in terms of the regulatory regime in Hungary, which to date has been a market that has very stable in this respect. On the last day of January when the Hungarian regulator should have announced the indexation of the feed-in-tariff for the year 2025, which is based on a formula that is the average consumer price index in Hungary for the previous year.

In this case, 2024, it's actually an average of the monthly numbers, minus 1%, which would have end up being 2.7%. On that they should officially announce it for 2025. The announcement was actually that indexation for projects, which in our case affects 33.6 megawatt peak of our portfolio of slightly above 50 megawatts in Hungary are affected by this indexation is frozen for the next 5 years unless inflation exceeds 6% in a given year.

So this is something that is surprising. It's quite unpleasant. It comes on the back of indexation of 16.6% for the year 2024. It means after the very high inflation in Hungary in the year 2023, we have seen a significant increase of the feed-in-tariff, significantly higher above what we had in our business plan when we're building the plant 6, 7 years ago. So it put us on a significantly higher trajectory. And from that point of view, it's also quite surprising that this change or this freeze happened now 1 year later, but it is what it is. And we're still generating even without indexation around EUR 115 per megawatt hour from these assets.

So it's a price that we still maintain. It's just very good economics of the projects. But clearly, this kind of instability is something that came as a surprise again. To date, we have actually experienced Hungary to be the most stable country in the region from a regulatory point of view. So we do hope that it's a one-off and there will be more of these surprises.

The impact is reasonably modest in terms of our annual revenue generation. However, it has had an impact on the value of our portfolio, which has gone up in our valuation models. But it could have been revalued by another more than EUR 2 million without this change in indexation. So there's been a value impact for sure. It's not dramatic, but it has happened.

Looking at other business segments, we have engineering and what we're seeing here, are our external revenues. So you can see that we have seen a growth compared to the previous year. So in the Q4 '24, we generated EUR 5.5 million against EUR 2.4 million in the corresponding quarter. But already the second and the third quarter of 2024 showed higher revenues than in the previous year, even if you don't see it in this chart. And this is mainly driven by growing C&I business in Australia, growing C&I business in the Czech Republic. And of course, the revenues generated from the construction of the 20-megawatt power plant in New Zealand.

In New Energy, as you can see, we have had as predicted. And I think we have communicated and explained that in detail throughout 2024. We have had a strong fourth quarter after a very strong Q1 and weaker Q2, Q3. This is simply due to the fact that the prices for PSR services contracted with PSE in the auctions that led to our contracting were the highest in Q1 and in Q4 and lower in Q2 and Q3. So the fact that Q4 would be stronger than the previous 2 quarters was expected. And it was nearly on par with it. But it was lower than the first quarter due to some regulatory changes in the capacity market, which are too complex to explain in detail now that has had an impact. But as you can see, the impact was compared to Q1 around 9% of revenues.

But as you'll be able to see later, new energy was a very positive contributor to our consolidated results. Then we have O&M revenues, where, again, here, we're showing revenues coming from external business means from external customers. As you are aware, we are taking care of our own power plants. But this growth curve that you see here corresponds also with the growing number of contracts.

What we do see, however, is a certain delay between contract signing and when we take over our power plants under our management. And this explains why we have signed over 1 gigawatt, but only around 750 megawatts are on active management, under active O&M and generating revenues for us. However the dynamics of signing up new contracts also then with a certain delay taking to the power plants is accelerating, so continued positive growth is expected in the next couple of quarters.

The fourth quarter of last year was very important from the point of view of our technology division, which is our distribution arm for modules, inverters and batteries. And as you can see after, and I think we have already discussed it in previous calls. After a record year 2022, we have had a very tough '23 and even tougher 2024.

There's a lot of consolidation happening in the distribution market in Europe. And we have brought in a new team at the beginning of the fourth quarter, which has hit the ground running. And I think the best evidence is the very significant increase of revenues from this business segment in the fourth quarter.

So if you compare to the second quarter, we grew from EUR 2.2 million to EUR 5.2 million despite the fact that we had the Christmas season and typically the last 2 weeks of the year, there's nothing going on. And of course, October was very much a period where there was in the run-out phase.

We do see a lot of potential for PE technology to yet again become a significant contributor both to our top line but also EBITDA this year and beyond. So we have really made, I think, in terms of cyclicality, a well-timed move to strengthen activities in this field, while a lot of the other players are retrenching and in some cases, increasing number of cases being disappeared from the market.

Comparing the revenue mix between the years '23 and '24, you can see that new energy in both years was the most significant contributor in terms of revenues followed by our energy generation. Engineering managed to increase its share. Technology that means components distribution has retrenched its share in 2024, which, again, just coming back to what I said before, we expect to grow again in 2025.

And we believe that we're working very hard in all these business segments. We can show a positive development. As you are aware, in various business lines, we have different gross profit and EBITDA margins. Clearly, the most significant contributor is our energy generation with an EBITDA margin of close to 83% and followed by New Energy, which had an EBITDA margin of around 14%.

And in the other business lines because these are consolidated numbers, group internal revenues play a significant role. And this is why these negative numbers need to be taken we have presented here. That means where intragroup revenues are stripped out, it was a certain interest.

So in the case of O&M where you see a very significantly negative EBITDA margin, it's important to bear in mind that for 2024, the non-consolidated revenues of the business line were more than twice as last year means that the group internal revenues were more than 50% of the revenues of this business line. So in this presentation, we took out the revenues, however, not the costs, but the fixed costs, which are a significant part of feature of this business line.

So in this case, the numbers look significantly worse than in reality they are. So essentially, this number of EUR 1.8 million minus is the cost of operating our own power plants. And the same applies to engineering, where, of course, we're also building for our own power plants and technology, which also acts as a procurement arm for the construction for our own portfolio, but also for third-party EPC. And of course, these activities also generate a margin, which is stripped out in this presentation.

Good. And with this, I would like to hand over to David to guide you through our financial results.

[David Forth, executive]

Thank you, Georg. Good morning, everybody. So we move to the next slide. So we start out with the profit results, a very good quarter revenues more than doubling. And this has come through very well from, as Georg said, we've got a higher electricity generation, which comes in very well. And other revenues also sharply increased. This is coming from several areas, new energy being one of them and also this new team in technology. Now at the moment, they've been clearing some stock. But they've also managed to write some very good contracts. And we do expect this to be a stronger and importantly, a profitable contributor during the rest of the year.

When we get down to the EBITDA level, the result is still negative. We were hoping that we would have a positive EBITDA in the fourth quarter. Some things didn't go our way. We had to reverse the profit -- the gain that we booked on this Polish project. We do expect the reason for reversing it was because we had to postpone the completion of the contract. We still do expect that contract to complete. But obviously, we had to reverse gain that we've taken earlier in the year. We have balanced that to some extent with the sale of another development project in the past where some milestones were achieved and this produced some income for us.

We also had some unexpected one-off costs during the quarter, which meant that we ended up with this negative EBITDA, pretty much in line with the result of the previous period. Getting to the EBIT level, we did make a loss. We made a book loss on the sale of our Australian projects. So of course, these projects generated EUR 6 million of cash and also took us out of the least profitable part of our generation portfolio because Australian prices are much lower than the European prices.

And to the cost side, raw material costs obviously increasing. This is actually quite important, because in the engineering activity, we have spent money bringing things in for third-party customers with them. But in some cases because there are contractual payments, we're not managed to take sale yet, but we have got the costs.

Also our other expenses have increased. This is partly the way we account for these things. Inside other costs the cost of contractors working on engineering projects in our -- when we build for ourselves, it ends up in our balance sheet. When we build for a third-party customer, the cost goes through this line of other costs. So this is not a story entirely about increases in overheads and other expenses. It also carries costs which are, in fact, direct costs to our business.

Going forward, we might choose to show this analysis in a better way, because as our third-party EPC business grows, it will mean that we'll have increasing direct costs, which related to the increasing revenues.

In terms of the technology, as we've said, I'm very excited actually after 4 quarters of poor performance in technology. We've now hired a different team. We've widened the markets that they go into. We've increased the volume significantly although the results were not profitable in the fourth quarter. They joined halfway through the quarter. They've cleared overhang, which was a problem in our balance sheet. And they've got some -- I think we're going to see some really exciting results from that new team going forward.

And to the rest of it, I think we have revalued some of our portfolio, which helps with the total comprehensive income, but the quarter not quite as successful as we hoped. We hoped that we make a positive EBITDA, but with the strong revenues really a promising result.

In terms of the overall result, we're talking quarter here, of course, revenues up 26%. Electricity generation 15% even with the setbacks that we've seen in Romania and so on and a very pleasing result in the other side, 31% up on previous year. So that's the profit and loss side.

We go now to the balance sheet. Fixed assets decreased, because we disposed some of the Australian assets. Current assets stable. This is mostly because we cleared out these inventories. We managed to clear nearly EUR 8 billion of inventories. But obviously, our trade and other receivables increased. This is partly because obviously, we've got a larger business now, especially in the trading side. And we do have to wait here paid for those equity were down due to the negative results of the operations.

The adjusted equity ratio, which is very important to us and to our investors, goes down to 25.7%. But as Georg has said, these changes in Hungary which were regulatory changes do contribute quite considerably to that. Why they contribute something -- why they contribute to the results in 2024 to something that happens in 2025 is because we've had to take down out of the carrying value of our Hungarian power plants to reflect the lower future income, which they're likely to receive.

The impact on equity of this was EUR 2.3 million. If we apply that to the calculation, our equity ratio would have been 26.5%. This is important because the bond prospectus, the arrangements which the bonds are issued under allow a carve-out for changes in our valuations caused by government interventions and regulatory changes. Of course, we don't stop reporting the adjusted equity ratio, but I think it is an important difference. If government does something that affects our equity and it affects our ratio mainly.

In terms of our long-term liabilities, we, of course, made our normal repayments and so on. And we, by disposing of those Australian assets, we reduced our debt by EUR 4.7 million. In terms of current liabilities, we increased trade payables by EUR 7.5 million. Quite a lot of this comes from the third-party EPC business where there's a lag between when work is done for us and when we pay for it because we agree for it when our client pays for it. And then the other thing in there is we've reclassified one of our loans from long term to current liabilities.

Moving on to the cash situation. Our operating cash flow in the quarter was positive. We improved our investment cash flow because we sold the Australian assets and in terms of financial reduction of this debt. In terms of the full year because obviously, we're looking at balance sheet, cash has increased from EUR 5.8 million EUR 8.4 million.

At the end of the discussion about the results, but of course, we do need to talk about guidance. We guided at the start of our actual results of EUR 89.2 million for the year. We had guided between EUR 90 million and EUR 100 million. So we're quite close to achieving that.

In terms of the EBITDA, our EBITDA preliminary unaudited EBITDA is EUR 8.7 million. This is 12.7% lower than the guidance that we've given of EUR 10 million. At the time we gave that guidance, we did expect to be able to maintain the fourth quarter in a breakeven situation for our EBITDA. In fact, we lost EUR 1.1 million. That's partly because of having to reverse the gain that we've taken earlier on our Polish project that we're selling and partly because we had some restructuring and severance costs coming out of the business in particular out of the restructuring of the technology business.

And then we took the opportunity to go through some of the old balance sheet positions and that produced a further write-off. I'll give guidance for 2025 when we publish the first quarter '25 results. I think it's important to say in the guidance that when we went in to '24, we were expecting to land more third-party EPC contracts. We, in fact, managed to – this does not mean that we've left this business. In fact, we are quite close to closing some negotiations in that, because third-party EPC remains an important part of our plans and that would be the end of the guidance.

Which takes us to the end of the presentation and questions has come and back to you, Georg. Thanks.

[Georg Hotar, executive]

Yes. Well, thank you, David. So we have received a fair amount of questions, which I've been going through and some refer to the same topics. But I'll try to go through them as they came in. So the first question relates to the strategy for 2021 to '24 that we published back in 2021, where we set ourselves a couple of goals. And the one that is being highlighted here is we had a goal of building 600 megawatts for our own portfolio until the end of 2024. And yes, we stand on '29. I am a little optimistic.

So -- and the question is how we did on other metrics. So while one metric we have hit is the 1 gigawatt in O&M at least we have signed. So that's a metric we hit on power plants being built. Of course, we even close to -- and I mean there are multiple explanations. I mean one is clearly that developing the projects. And I mean our model has always been to develop either full in-house or in cooperation with others.

Back in 2021, some of the roadblocks like Hungary that from a certain point onwards, no new capacity was available or in the auctions that were conducted quick connection times were 28 and 30. For example, just to pick one market, but also in other markets, development projects became a lot more complicated. So that clearly extended the time lines that didn't help.

After the boom in prices in 2022, as you are actually aware, there was a very significant retrenchment in energy prices in '23. So pretty much wiping out the economics. And I mean, after a lot of interest by the lenders and various parties in this industry, the exact opposite happened. In parallel, we have seen the emergence of duck curve, which has even turned into canyon curve, meaning that during prices of high solar generation, particularly during the summer and on weekends, in spring and autumn, we see extended periods of negative hours'. It means that the output of the solar plants has very low and in some cases, a zero value for the better economics of power plants.

So these are clearly all factors that have come together that in this form were not foreseeable in 2021 when we published this plan. And as a result, deploying significant amounts of capital into PV-only projects has become a very complicated exercise based on multiple factors. And of course, for us, in building our IPP portfolio, access to project financing on attractive terms, and both in terms of interest rates, which by the way, this period also went up significantly and interest in leverage ratios is paramount. And based on those other factors I mentioned, that has become raising project debt for PV only, so without storage, and this is something that is only now starting to happen, definitely has become a lot harder.

So we clearly -- so we had a slow development in our pipeline, but of course, also these changed circumstances led us to significantly reduce the speed of our deployment. Having said that, we are still working on building some additional power plants in Romania. We are building 5 megawatts in Hungary. We are planning to add more in Romania over the next 18 months. But I would say the goals for PV only are definitely a lot smaller.

Going forward, there may be some additional investment into C&I projects based on the Power Purchase Agreement and was off to go as we piloted in Hungary last year with our 658-kilowatt peak pilot project [indiscernible] factory in Hungary. And we are working on the investment case of battery systems in both utility scale settings but also behind the [indiscernible]. So we will be directing our investments or CapEx into hardware or to hard assets, clearly more and more into other areas than there is a lot.

There is a question where related with another question relating to our Photon water and PFAS. I will try to answer them later, together and then also try to work through the questions relating to our energy activities and then finish off with Photon water. So the next question is we will switch to Green bonus and market price in 2025 for Czech portfolio. I think we have answered that. I can confirm this is the case.

The next question relates to the sale of our 20-megawatt project in Poland and the transaction with a large German-based investor, which we have published. The reason is simply that the development steps to get the project ready to build, which is the pre-condition for the closing of the transaction has now been achieved in 2024. So we are convinced that this will be the case in 2025. So this [indiscernible] has gone live, the conclusion has been postponed.

There are other questions relating to our bond, which I will also then aggregate and answer in one go. The next question is asking for a more detailed explanation about the situation in Romania where 2 of our power plants had to stop production due to problems with the TSO.

So these two power plants are affected by this -- decision by the TSO power plants with a grid connection capacity above 5-megawatt, which means that there are so-called dispatchable power plants where we had to install and have to use a special kind of system that is the TSO, direct access to this power plans and also to dispatch these power plant switch them off in case there's too much electricity in the grid, for example, saying in stress even. And both the power plants are still in the testing period.

So when we -- in the past, we referred to this arrangement with the TSO about the off tech and then we get the license. So basically what happens between the commissioning and the moment we get the license, we again in so call testing period. And which means that if the power plant is smaller than 5 megawatts, then testing [indiscernible] driven in the hands of the DSO, the regional distribution company. If it's above 5 megawatts, it's actually both the DSO and the TSO.

And what seems to happen in the case of these power plants, but as we found out, we find that the only ones in Romania, the communication between the DSO and the TSO over the last 2 years when PV power plants were commissioned and added to the grid has been not as efficient and streamlined as one would expect. And this has led to certain discrepancies with TSO at some point has woken up and [indiscernible] with DSO that they want to do additional test. And in the meantime, they are concluded, these power plants need to be switched off.

We're working very hard on reviving this but this is not a long-term problem in the sense that these power plants would not be allowed to operate going forward. But during this testing period, the TSO has decided to take this step. We -- on our team working and overdrive to resolve this. And our expectation is that in both power plants, this issue should be resolved within the next 2 months as information stands today.

The next question is whether we were unlucky as a company to invest in Hungary and Romania where negative changes impacted Photon revenues and or whether such negative changes happen in entire Europe? So if we talk about and where Europe is a good place for investments and whether Africa is different in this matter?

Well, I think we've been in this business now for a very long period of time. In year 3 of our operation, we were hit by the significant retractive changes in the Czech Republic back in 2010 through the introduction of a 26% levy on our revenues. This was a really earth-shattering experience for us. And since then, we have seen various types of changes of law or changes of regulations, sometimes tax changes, all aimed at reducing the revenues and the returns of solar investors in many countries.

So it's also not only linked to Central and Eastern Europe. Back in 2010, the Czech Republic was the first, but a week later, Spain also introduced very retroactive changes leading to lawsuits and arbitrations that are still ongoing as we speak. So -- and after that, we had Italy, we had changes in France and Belgium, but of course, also pretty much almost all countries in the CEE region that had introduced a support scheme.

So it was Slovakia, it was Bulgaria, it was Romania during the first wave 2013, '14, and we've seen those in some other countries. So the question is always how brutal and devastating these measures are. Similar things happened in countries outside Europe where incentive schemes were in place. So it's not only European problem.

In general, the hope and expectation is that if we sell into the market, that means we're not drawing any funds -- any public funds, whether that is through an investment subsidy or an operating subsidy in the form of a tariff or a contract for difference that interference by the state will not be so significant. But as we can see, this is also happening in some countries.

And for example, this change in Romania, where the TSO all of a sudden, obviously, after September 1 is paying us a cap price because the role of the TSO in this -- and this is also my understanding of the regulation on which this is based is providing a market access service. So essentially, they are instead of fulfilling the role of an energy trader. So once we have a license, we worked with energy traders that [ run ] our electricity in the market. And the TSO role is pretty much similar to that in this interim period.

And essentially overnight changing the rules that a significant part of the production is not compensated at all and the rest is a cap. So even if the market price is EUR 200, we only get EUR 80. The whole -- our revenue model is not based on any kind of public support. It's, of course, very damaging, in my view, also unlawful. And maybe at some point in the future, we will also take action against that is not a very good moment for that as we still want to connect more power plants in Romania.

But after 17 years in this industry, I think we've seen a lot of these things happening and they are unpleasant. Whether Africa is different, it's really hard to tell. I mean our experience is limited. Our focus now is on South Africa. And given that the market is in significant need of electricity, I believe that the risk of the development and construction of generation capacity in South Africa is relatively low at this point in time. But of course, nothing can basically.

Okay. I'll move to a question about technology, what margins we expect from selling components in 2025?

Well, in general, the gross profit margin on components distribution is somewhere in the region between 7% and 10%, depending on -- and it also changes during the year, where inverters are more on the lower end of this range, maybe closer to 5%. So I would say the whole -- and it was 5% to 10%. So some items closer to 5% and on batteries and modules are probably closer to 10%.

And that is the gross profit margin from which, of course, we have to deduct our operating costs. So it is in comparison to other business lines, a low-margin business. But on the other hand, if things go well, volumes can be significant. So the bottom-line contribution would still be very material.

The next question is how O&M services differ from assets under management?

Because in the quarterly report, we introduced an additional -- we are splitting it up in the past between O&M and Cardio, which is our subsidiary that takes care of service essential inverters. And we added the third category, which is assets under management, and that is linked to a new service, which is asset management for PV power plant [indiscernible], which is a service that we have actually started based on demand from customers who have approached us, for example, in Hungary, where we have 2 such contracts.

The latest signing -- you could read in our press release, I think, 2 weeks ago that we signed an asset management contract for 100 megawatts with EDPR. So they are essentially reacted to the demand of our customers from, we are providing also on them. And essentially the fact that we do the asset -- not only O&M, but also the asset management for our own power plant in that country, clearly signals to our customers that we know how to do it, and we were asked an approach to do so.

And it is as opposed to O&M where our technicians have to go and work in the field. And of course, there's also some work related asset management is largely administrative work, and this includes many tasks of regulatory nature, making sure that the power plants are insured. So essentially, we do all the work that's necessary for the power plant owners in that given country just as we are doing it for ourselves and for our own power plants.

And from that point of view, the contribution margin because we have very little in terms of third-party costs is quite significant. The revenues per megawatt are not too far behind the revenues for O&M. So it is a very nice and profitable addition to our service mix. We have been holding back with offering this as a service because in some countries, most notably Poland, a lot of the tenders for O&M service providers are conducted by the asset managers of power plan owners.

So we did not want to be seen to be competing with essentially people running tenders for O&M services. This still remains a concern of ours in relation to the Polish market, but in Hungary and potentially also Romania where we believe that we have above average knowledge in navigating the regulatory situation and understand what needs to be done for asset management, we are open to take these assignments as well and they are a very important and stabilizing element for our O&M activities.

So -- and it's a bit -- it's more profitable than the O&M itself. So if we had to decide between 100 megawatts of asset management, 100 megawatts of O&M would most likely decide for the assets management.

Next question relates to our margin -- O&M in Hungary that it is the most profitable market and that we are still working on improving the profitability in the other markets. So yes, the situation has not changed. Actually, Hungary has a really -- Hungarian operations had a really good year with an EBITDA margin of over 30%, which is really an amazing number. Based on the contracts that we have signed that we still sign, I believe '25 will be again, significantly better.

We are in different stages of the development curve because Hungary we started about 8 years ago, Romania in earnest really only 2 years ago. And Poland is also still at the beginning of its development, having started O&M there about 3 years ago, and this is very important as opposed to all the other markets in the region where we do for our own power plants. We don't own any power plants in Poland. So we really started from scratch.

Prices, Poland is a very competitive market. So the prices we can charge for O&M are quite significantly lower than in the other countries. It means also that the breakeven point required is a much higher megawatt number than in the other countries. So the Czech Republic is growing steadily every year. We're adding a few more megawatts. We'll also be adding in Slovakia now. But what we're waiting for there is for a new home in particular utility scale power plants to restart.

We believe that at least in the Czech market, that will be the case finally in 2025, which means by end of '25, early next year, we'll be able to start growing the megawatts in the Czech Republic again as well. But the Czech Republic is nicely profitable. In Romania and Poland, we are working hard on achieving the EBITDA breakeven this year. And as we continue growing our business, the picture will of course improved.

Question about the guidance on 2025 CapEx is -- we have never given a guidance on capital expenditure. But clearly, we have finance resources and then we will definitely be directing them to the most profitable uses. We will see when we -- as David mentioned, after as part of the Q1 result publication, we will be providing guidance on revenues and EBITDA as we did in previous years that will also improve the guidance of CapEx that will take it up as a point to consider.

Then a question about the measurable benefits of becoming the first energy aggregator in Poland. So this is a very important point. The market for system services refer to as ancillary services means short term -- definitely shorter-term flexibility than what we have contracted with the Polish TSO through the capacity market by providing DSR, the response times in several hours services source is a matter of minutes. This market only started in earnest in Poland in mid-June 2024 in a summer of the peculiar way where flexible assets from partially or fully state-owned Polish energy companies were included and nobody else was given access and only then at some point, kind of the gates were open for others to apply and start the process of becoming an aggregator, get connected to the systems of PSE for the provision of these services.

And this is a relatively long process. One of them was recognized by the Polish regulator as an energy aggregator according to the energy law. Here, we're the first. Today, we [indiscernible] the only ones anymore but the real test is starting operations in terms of providing ancillary services. And here, this form, I don't want to not publicly yet commenting on when we expect to start the services. What I can say is that we have credible information that other companies that are working on the same are behind us. So -- and as it appears not just by a few days or weeks, but it looks like a few months.

So our assumption at the moment is that we will be the first aggregator for flexible assets to provide ancillary services to the Polish TSO outside the universe of assets owned by fully and partially state-owned energy companies in Poland. And this is really important because there is a lot of flexible assets already. Of course, as battery projects are being developed and realized the number and volume will grow. And so the way we see it is that we will have a window of opportunity as the only -- first and only for a while only aggregator of flexibility for ancillary services.

It is pretty much -- at this point in time, it's pretty much top priority within our group to make maximum use of this hold position or head start, if you wish. And from that point of view, it is a very important driver for our business in Poland, the Polish energy market, but also for our business line, new energy. We are -- and I think we have mentioned that we are also working on starting ancillary services in Hungary and the Czech Republic. In both markets, it will happen after Poland.

And the situation is different because in both these other markets, there are already existing players active. That means we are, as we were late comers, I think we have a very clear idea where we will have financial over those existing players. But in Poland, we simply will be the first in a completely new market. I think this is obvious looking at the Polish energy sector that more and more flexibility will be needed. This is also evidenced by an additional option that the Polish TSO has announced recently for additional capacity for this year.

And as the energy mix is changing and [ baseload ] generation will be disappearing from the grid flexibility will be important and the volume of flexibility that the TSOs will be contracting across the region, across the markets where we operate will continue growing. So being first, capturing that window of opportunity and establishing if I may say so, contracting as much of the flexible assets -- as many of the flexible assets as much as the capacity that is available in the market ahead of our competition, that means putting us on the trajectory of market leadership hopefully for a long time into the future is invaluable. And as I mentioned before, the #1 priority for us at this point.

So on that basis, I will bring it back to some questions that relate to our bond where one question I ask starts with the question or the statement that we repurchased EUR 465,000 of nominal value for our green bond in the fourth quarter. This is evident from the numbers, and so I can confirm that. And clearly, given that still are trading at a significant discount to normal value. This is a value-creating move for us. But of course, it is driven by our free liquidity to do so.

So I mean, against the total volume of the green bond, these are small amounts. And we have done it. We reported it, we may do so in the future. But I think the more important question is the several questions relating to the refinancing of our bond or how we want to deal with the repayment of the due date of our bond, which is in November 2027. That means by now in less than 3 years. I think specific steps will definitely start in 2026 and the basis for that have to be significantly improved results in 2025.

So our focus at this point is to materially improve our financial results in '25, have a solid outlook [ and a solid ] basis for strong numbers in 2026 and that will set the framework for our actions and the path we will choose to come to successful refinancing repayment or a combination of our green bond. So it's clear in our mind. It's not like we [ have left this ] but the betters our numbers, the wider our option and this is why a slight improvement in our financial performance at '25 is now our focus and this is definitely the key to having multiple options open to deal with this refinancing need at the end of 2027.

There was also a question on our ability to pay some in [indiscernible] that this is something we cannot comment, but I would refer to over 10 years of history of us as a bond issuer.

And this will lead you the questions related to our water division, in particular PFAS and one of those questions related to PFAS and water also refer to Australia. So start with that part, the sale of our Australian power plants in the fourth quarter clearly represented a reduction of our capital employed in Australia. But we still have our engineering business in Australia. We're still involved in the development of projects. And of course, we are in the process of growing our -- developing and growing our water and remediation business here.

And particularly, so this is something we still have. There are, of course, some strategic considerations in relation to how we want to develop our activities in Australia and by default also New Zealand, where we are in the process of commissioning the 20-megawatt plant for our customer during the second quarter of this year. There are multiple options available to us, but specifically in relation to our water remediation business and the particular focus on PFAS, Australia remains a prime market for these activities.

And there was a question about the Department of Defense. So I think the best way of putting it is Australian Department of Defense is a little bit slow moving organization, which we also experienced during the pilot project itself. We are -- there is definitely the need to clean up a lot of sites. We are still involved in discussions about certain technical and scientific aspects and after the conclusions of our test where Department of Defense is extremely diligent and working with a wide group of external experts.

This is a process that I'm also sometimes amazed why certain things take so long, but it is what it is. But what I can say at this point is that we have very good traction with other parties in Australia that have more or less the same problem with the PFAS contaminated sites. And that goes across civil airports that goes across firefighting organizations, but also industrial companies that have been using PFAS chemicals or have been involved in the production. And last but not least, also waste management because the legislation in relation to cleaning leach water runoff from wastewater treatment -- waste dumps has become very strict and will become even stricter now in the next couple of weeks in Australia. So that water also needs to be cleaned.

And what I'd like to say in the context of this is that while, of course, for us, our proprietary technology for in C2 groundwater remediation is important and something that sets us ahead and apart from our potential competition, we are not approaching the market and customers as a single trip pony when we say this is our technology. This is what you have to use whatever the circumstances, even if something else would work better.

So we have also developed filtration units to be applied for pump and treat when we talk about cleaning groundwater, but it can, of course, also be applied to cleaning industrial water that is -- that contains PFAS. And on that front, we have had our first very important marketable success where in Q4, we've delivered one such unit to an industrial company in the CEE region that had elevated PFAS levels and that plant is already the filtration unit that fill PFAS out of process water, which then gets reused in the industrial process that is already up and running and performing as expected.

And so we are setting ourselves up as a company that can tackle a PFAS contamination problem with the most sensible technical approach and we are increasing the options that we have available ourselves. Crown jewel is definitely the groundwater remediation.

Here, I would also like to add that we are working on an approach to cleaning soil, remediating PFAS in cooperation with the University of New South Wales in Australia, also in cooperation with the Australian Department of Defense. So that scientific dialogue we are having with them also extends to a corporation relation [indiscernible] which is probably as a topic even more important and bigger globally than ground remediation. So we are working on the solution there as well. And most likely, that will also be tested either defense or one other organization in Australia.

Moving to Europe. Over the last 18 to 24 months, maybe now that you've been following us and here with us talking about PFAS, maybe you have also been able to see that media coverage about PFAS and PFAS contamination has increased significantly and the level of awareness across the European countries is growing almost exponentially. So it started with a very, very extensive piece by the [ Moroccans ] who taught us how to -- and other media about 2 years ago, including an interactive map of confirm suspected PFAS contaminated sites across Europe.

And now we see that the EU Commission has put fighting against the dangers of PFAS by -- PFAS chemicals by prioritizing their production and their use, but also encouraging the cleanup. Maybe in the not-distant future, there may be some subsidies in this area. So it's a high priority, the new limit set by the World Health Organization. So the pressure is increasing, the awareness is increasing and this we believe will also lead to more business for us.

So we're still in the process of -- this is really new, and it's not like there's hundreds and thousands of remediation jobs that have been awarded. It is really new. There's a lot of effort going into finding workable solutions. And I think that we are in a very good place to benefit from what is now happening, which still leaves us with the U.S. as a market, which is by far the largest.

And there, what I can say is that we are looking for the right entry point for a company of our size into that market, looking at opportunities in the public sector, but potentially also the private sector. But clearly, the focus is now on Australia and Europe to win larger commercial deals prove to ourselves, but also to our investors that we can generate revenues from activities related to PFAS remediation.

I do believe and hope that we have been able to answer all questions. Unless David, you received one that I have to rethink and if you want to tackle.

[David Forth, executive]

And I think we covered most of them except to the Africa.

[Georg Hotar, executive]

Yes, let me also answer that one. So as you have seen from our release, we are developing among other besides other projects, large project based on the region technology in South Africa. The status there is that we have secured the land. We have started the process of preparing an environmental impact assessment study, which is mandatory for a project of that size. And we have essentially been granted grid capacity.

What it means is that if we complete the steps that are prescribed in the process, we can secure 250 megawatts of grid capacity for this raging project. And this starts with paying certain fees, providing technical data and also securing offtake at least in the form of letters of intent, which will then lead to design works being commenced by Eskom, the grid operator and ultimately will lead to 250-megawatt of capacity. So it is in our control from this point onwards.

We believe that by year-end '26 based on all the information we have, we will be able to get the project to the ready-to-build phase, which means it will be fully permitted. But of course, this is only part of the story. What is also important is to find [ offtakers for ] electricity to find project finances to sort out engineering questions in cooperation with RayGen SLB, which is a major shareholder and the technology partner for RayGen. We need to [indiscernible] as equity investors and this is just as important and this is a process that we have now started to commence, and [indiscernible] happen to get to [indiscernible].

So our goal is to work towards a financial close situation at the end of 2026, but we should not forget we're talking about still new technology in the market. However, our project is attracting a lot of attention from what I would call the right organization and the right people. So this will be a very important project for us.

But let me also add that we are also working on other developing other types of projects in the South African market. Some of it is C&I projects, but also PV utility scale where we have a 12-megawatt project in the city of Cape Town. And with this project, we are participating in an RFQ for a 20-year Power Purchase Agreement in the city of Cape Town, has again been delayed not due to our fault, [indiscernible] and the most important one is definitely our project, but we also, I would say, quite successfully developing traditional PV projects and creating value for the company with positive cash flow. So the South African market for us is working well.

So if there are no more questions, I would like to thank you for your attention and also for your participation in the Q&A session. And we're looking forward to welcoming you to our next earnings call, which will be after the publication of our Q1 results. And this is also the moment where we will be providing new guidance for the financial year 2025. So thank you very much for your attention, and we wish you a good day.

[David Forth, executive]

Thank you.