SFC Energy AG

XETRA:F3C

Earnings Call Transcript 2020-Q1

[Operator]

Dear ladies and gentlemen, welcome to the publication of the Q1 Report 2020 of SFC Energy AG. At our customers' request, this conference will be recorded. [Operator Instructions] May I now hand you over to Dr. Peter Podesser, CEO, who will lead you through this conference. Please go ahead, sir.

[Peter Podesser, Chairman of Management Board & CEO]

Thank you, Kai, for the introduction. Good morning, ladies and gentlemen. Thank you for joining us today. In these days, we are all spending a good part of our time in conference calls, video conferences, be it Zoom, Team, other systems, therefore, we appreciated a lot that you take the time to start the week here with us. Also, the unprecedented situation here of the pandemic situation leads us to naturally a change in adoption in our agenda here. Besides the clear and detailed update of the Q1 results and our business development here in the first few months of the year, we naturally will give you -- and happy to give you an assessment of the situation of how COVID-19 risks impact our company here and with which measures we have been managing and mitigating risks so far and are intending to do this further on. So with this, let me start with this topic here. Although in the last weeks of the first quarter and actually also with us have been impacted here by COVID-19 or COVID-19-related topics. I think we are seeing a relatively strong first quarter almost on par -- almost at the same level of revenue here with last year with a hit to region development in the different segments. Let me now get to our COVID-19 action plan and measure package here within SFC. It is very clear that, let's say, health and safety of our employees, the families of ourselves as well as customers and suppliers have been here the utmost priority for taking the decisions in all our considerations and also measures implemented since the beginning of March here to cope with this situation. First package here, and we also have, as everybody else, we were naturally happy and have to adapt to changing and fast-changing regulatory and legal environment in all our locations in the different countries as well as regions. But just to summarize the generic actions here, very clear checking on the health status here of all our employees, very happy to report that we did not have a single case of COVID-19 illness so far in none of our locations. Also very happy to report that all our locations have been operational throughout the time and are still operational. So there were no shutdowns necessary. Employees did not have to come to work and were not allowed to come to work if there was a case of COVID-19 in families or in their, let's say, inner circle. We immediately also adopted all possibilities of what we call smart working predominantly home offices. Everybody except people in the core areas of production, material handling, shipping and receiving and outside of our laboratories, everybody has been working from home. Wherever there was a need to upgrade IT infrastructure, we were happy or we were fortunately able to do this immediately. All business trips, well, by itself were stopped anyhow. And naturally, we also have to learn what it means to adopt or to have, let's say, social and physical distancing in place. We are all wearing masks where we cannot ensure the proper distance here and in production areas, this is also compulsory. As of last week we're changing regulatory and easening regulatory environment. We also have started to populate the offices more and more. We are working on alternate presence models here to make sure offices are not densely populated. So overall, we have to say full operation. And I think long term, takeaway here is that we will see a change in our modus operandi in the way of working be it in terms of business travel, be it in terms of using modern infrastructure. But we also have seen that people are appreciating the fact that sometimes coming to work is a good thing because it's also a question of social exchange and necessary network. So saying all this, I think very clear, we kept the impact, and I think financial impact on SFC here still also in the center of our thinking. And fortunately enough, we didn't have to go to, I'd say, drastic measures so far. As I said, capacity utilization order intake is still high. We are, I'd say, getting orders. We are getting materials. We are producing product, and we are shipping product, which is, I think, good news. What we intentionally did, we opted against a reduction of working hours, especially here in Germany. Instead of this, we, together with our teams, we adopted a number of 80-plus measures to, I'd say, make sure we improve our organization here and make ourselves fit for the time after the crisis hit for the future was the same we adopted here. And those measures range from massive online campaigns here in all areas of our business, webinar to keep close contact to customers and do training. But then at least as important, the acceleration and the finalization of core R&D programs, especially for new products, we want to be ready with 2 new series of products after the crisis to kick off quickly. I think that's maybe something we all experienced in our private environment, having more time with no travel, the tendency is high that you start to clean up things at home that have been, I'd say, not at risk for a certain period of time. I think similar approach here in the company, organizational changes, improvement of systems, ERP system, customer relationship management system. Simply cleaning up topics. Apart from this, keeping the financial viability as high as possible, made us naturally to look at all our expenditure here with caution and prudence. And apart from forward-looking expenses like what I mentioned here before, especially on the R&D side for new products, we implemented cost reduction measures immediately. We had to renounce for any wage -- standard wage increase here throughout the company. We have implemented hiring freeze and only go for, I'd say, exceptions here in individual cases. In our Canadian operation, we also have to adjust the level of workforce because we expect the oil and gas industry being impacted even more drastic than other parts of our business. So keeping an eye on the cost with, I'd say, the third part of the measures. Summarizing all of this, I think it was also important to state that it is not a time to simply sit back and wait. I think it is the time to take an active, agile approach here to address the issues. And I think that's what we have been doing now. We're also preparing different business scenarios here until the year-end. Our overall financial stability naturally helps us to, let's say, address these topics without any immediate threat to the business. At the business level, I think as said, we saw 2 different phases here of the business. We are still very happy and delighted with the dynamic growth of our civilian fuel cell business in the Clean Energy & Mobility segment. We are seeing a heavy impact here in Oil & Gas with a drop in demand after, let's say, the impact also of the pandemic combined with the OPEC+ dispute earlier in the year. Still, if we look at the revenue, and let me look at this now segment per segment. We recorded 16.1 -- approximately EUR 16.1 million overall revenue here from January to March 2000. So compared to the previous year, we are within our own expectation with a slight decline of 2.1%. And we have, let's say, initial impact here especially in the second half of March in 2 segments in Oil & Gas and the Industrial business leading us to this revenue. Let me start with the development in the Oil & Gas segment. We ended last year with an improvement of the overall environment. In 2019, we were suffering in Canada from missing release of new pipeline capacity throughout the year as a structural limitation here to the business, leading to lower investment here from our customers. This was cured by major decisions taken end of the year 2019 and led immediately to an increase here of activity also on our end. We started the year with a solid increased backlog in Oil & Gas. And therefore, also, looking at the revenue and the business activity in Q1, we started the year significantly better than we ended last year.Unfortunately, now seeing the impact here of naturally the substrate oil price development after what I mentioned before, this combination of a dispute between the producers and then also a fall in demand after COVID-19 hit big parts of the world, we did not only see a negative oil price for the first time in history on a certain date now in April, what we are naturally seeing is a reduction in activity. Currently, our customers are predicting 25% to 30% cuts in their capital expenditure budgets for the year. Seeing the good first quarter, we are having right now, well, we see a 20% to 25% negative impact really on our business going forward. Still important and worthwhile to mention is the activity here in our EFOY, in our fuel cell business. Again, growing. And besides, I'd say the cost reduction measures mentioned before, the diversification of the business here also outside Oil & Gas in our civilian fuel cell business is gaining momentum. For the first time, we are also reporting part of the business outside Oil & Gas. Gerhard will go into this with more details. Also, all the activities here of regional expansion of the business here into the U.S. are naturally now impacted by, I'd say, the limitation and the restrictions here of COVID-19 measures in the U.S., but the overall plan to roll out the business to the U.S. and there also not only to oil and gas, but also outside oil and gas is one of the core initiatives here within the year. Let me now go to the Industrial part of the business in the first quarter of 2020, although we saw our supply chain, especially in the early part of March being impacted here with a magnitude of EUR 0.5 million to EUR 1 million. We still feel that this EUR 4 million revenue with a sales decline or sales revenue decline of 5.8% against this background is okay. It's not good, but it is, let's say, okay and explainable. Good news here is slight improvement of margins.Going forward, we expect an impact, especially now in Q2 and Q3 here, not losing but simply experiencing delays from our industrial customer base. We have already received forecast from our large customers, which lead us to, I'd say, an assessment that we expect a range of 10% to 20% here of revenue decline in this segment. At the same time, the activity here is still ongoing. We just received the 3 million order from one of our major customers also for the shipment within this year. And therefore, I think our expectation that we see a recovery here latest in Q4 is not only based on hope, it's based on fact. Defense & Security. Here, overall, the first quarter has not been of any surprise to us. We had a very strong first quarter in 2019 here with 2 major projects from India and customers in Israel, which we knew that we would not be able to repeat this in this first quarter. But at the same time, what we are seeing right now is that the declaration of state of emergency as well as lockdowns in some of our core markets like India, also business development areas like Indonesia, but also the situation in Germany automatically leads to delays in decision-making in the process here of working with the customer and therefore, we expect the business to recover in this segment here, not before after the summer.So kind of a profile, we know anyhow being a year-end -- or the defense business being a year-end business. The pipeline here is pretty broad. Internationally, we have, let's say, subsequent projects here in the pipeline in all those countries we have been active so far, but we are also seeing new activities here be it in France or in Switzerland. We are also seeing the upcoming activity here in the U.S. But as said, we do not expect this to happen before the summer simply by impacted here by delays. Clean Energy & Mobility. As said before, our civilian fuel cell business, we are seeing a continuation of the growth here we have shown and demonstrated last year. The growth even accelerated here. Key projects, we were able to execute our projects in Singapore, where in addition to our standard business, we were able, together with our partner, Oneberry Technology to provide here off-grid energy solutions based on our EFOY fuel cells also for COVID-19 measures implemented by the Singaporean government powering temperature sensitive cameras here for their pandemic fight they are implementing there. This can be a business that we also might be able to spread out to other regions. But at the same time, even without projects like this or also the initiation of the shipment of our hydrogen fuel cells here to German customers together with our partner, adKor here for the digital radio program that is being rolled out, even without those project-related revenues, we would see a consistent growth in the business throughout, let's say, the different regions. Overall, an increase of impressive here, more than 72% to above 5 million -- EUR 5.1 million in the quarter. Looking into the subsegments. We have to see that as of March, the demand in the consumer-related business was going down because simply dealerships were closed here throughout Europe. So therefore, shipments impacted here, we saw a slight decline of 5.8%. Putting this into the relation of the growth of the segment, we see an even more impressive growth here of the Industrial business of more than 120% year-on-year. So consistent growth on this side. Now summarizing where we are, I think we are expecting a difficult second quarter. We are expecting also a challenging third quarter. And we are expecting a rebound here to the year-end. And with this, I would like to hand over to Gerhard to lead you through the financials.

[Gerhard Inninger]

Thank you, Peter, and good morning from my side. Let me give you a quick update on our margin and earnings situation. The figures which we announced today for quarter 1 2020 make a quick comparison to quarter 1 2019. The gross profit in the first quarter of 2020 was in total EUR 5.25 million or 32.5% compared to revenue. Looking at last year, we've been a little bit higher. We stood at EUR 5.72 million, around about EUR 500,000 more or 34.7% of sales. Why lower margin, the reason is the lower defense revenue. Let me start with this. On defense, we ended up with a margin of 31.6%. The margin in the year before was 43.3%. So this is a missing margin of around about 12%. And of course, this is a result of the lack of sales. As Peter mentioned before we had 2 significant projects in 2019 quarter 1, we couldn't follow up on this. On Oil & Gas, we achieved a margin of 24.3%. The last year's figure was 29.3%. We really took a close look into this, and it's based on change in the product mix, which means we sold more of the not so high-margin products. And of course, what we did first time was this proper allocation of EFOY sales in the non-Oil & Gas segment to the segment Clean Energy & Mobility.Means we split the revenue into Oil & Gas on the one side. We put this into the segment, Oil & Gas. And the rest, this was around about EUR 350,000, we took to Clean Energy & Mobility. We haven't done this the year before because it was not so significant, but now it's a significant number. So we had to make this change. But to point this out, it's not a change in the segmentation. The segmentation is the same as before. On Industry, means the Dutch business and the Romanian business, there was a slight improvement of the segment margin from 30.2% compared to 30.6% in this year. So it shows us that we were not selling on margin with lower prices, and that's a good sign. And of course, the focus and they are the #1 in a group on this, continues to be on improving margins on both sides. Means on purchasing or an asset during these times. And of course, on the sales side, with effect from scaling. Clean Energy & Mobility, very perfect. I have to say this was a 44.1% margin. The last year, it was 44% exactly. So we could keep this level and this even with a much higher revenue. So at least this is, let's say, the store in quarter 1, that is 44.1% in margin. Let me give you, in total, not to forget this year I said before, we lost 2% -- around about 2% on the margin from 34.7% to 32.5%. But looking on the Defense segment, I'm still okay with this margin with 32.5%. Let me give you now an overview on EBIT and EBITDA. The EBITDA for the group decreased to EUR 375,000 in the first quarter compared to EUR 778,000 in the year before. The EBITDA adjusted for nonrecurring effects, mainly our stock option depreciation rates was positive with EUR 820,000.The year before we had EUR 1.5 million around about. The EBIT decreased to minus EUR 432,000 in the first quarter of 2020. The year before, it was minus EUR 19,000 due to the lack of high margin earnings contributions in Defense and declining margin in the Oil & Gas segment. This can be explained. This is the reason why and taking into account the nonrecurring effects, adjusted EBIT in the reporting quarter amounted to EUR 13,000, so at least it was positive. And the year before, it was around about EUR 750,000. In total, the result was around EUR 700,000 on the prior year's quarter. The reason was mainly the lower revenue, around about EUR 350,000 and the lower margins, which I explained before. What was in the underlying positions this year, quarter-on-quarter comparison it was expenses for the SOS program. This year, we had EUR 282,000 expenses, last year this was EUR 775,000. And furthermore, we had expenses for acquisition or, let's better say, cooperation-related costs from around about EUR 160,000 this year, this was 0 last year. The consolidated loss means the last figure in the P&L for the first quarter of 2020 was minus EUR 630,000. The year before, it was minus EUR 320,000. And accordingly, the earnings per share was minus EUR 0.05 this year, and minus EUR 0.03 last year. Let me quickly give you an impact on IFRS 16. And I think this is the last thing I will say about this because it's included in both figures, means in 2020 and in 2019. So it's nothing new anymore. The effects on EBITDA was around about EUR 570,000, and the last year, it was EUR 560,000. So almost the same run rate. Impact on EBIT was minor EUR 39,000 compared to EUR 37,000 the year before. I think Peter mentioned already positive was the order backlog, which amounted to 15.9 million end of March 2020. This was an increase of 16% on a year-on-year basis the number before, and the year before was 13.6 million. The equity ratio almost was stable with 54.7%. The year before, I think we had 55.3%, and at least helpful was the capital increase we had in the first quarter was EUR 750,000 resulting from this Harbert loan we once had. So these warrants have been drawn from Harbert. Available cash at the end of March 2020 was EUR 18.5 million compared to EUR 20.9 million end of the year. And in total, we had 283 permanent employees compared to 280 a year before or 282, 3 months before. So the number was stable on this. Well, with this, let me hand back to Peter, who will give you an update on our outlook for the rest of the financial year and for the midterm. Thank you.

[Peter Podesser, Chairman of Management Board & CEO]

Thank you, Gerhard. As mentioned before, we are looking at different, I'd say, dynamics and different levels here of impact also to our different business segments. Overall, we still have to -- we still have to see that the uncertainty here and the lack of visibility resulting from the COVID-19 situation as well as the development of the oil price puts us in a position -- put us in a position that does not allow a stable and sufficiently reliable guidance here with bandwidth as we had it before. We are working on this and watching this here consistently. And as soon as we feel ourselves in a position to go for narrowing down those bandwidth here, we will naturally cure this situation. But at the same time, I think if we look at the development of price of the business as well as their business like us. I think the underlying assumption here that we see one part of the business consistently growing, and the other part here coming back, maybe except the oil and gas business, at least after the third quarter puts us in a position to say that for the long term, we do not see the demand here for this clean and efficient way of generating energy going away because the macro drivers behind this are unchanged. We are seeing a delay here. We are seeing an impact, but still we all know that on the way to a CO2-neutral energy generation to a climate neutral balance here, there is a need for this kind of technology, and we are one of the few players in this field. So therefore, we also keep our midterm planning and our midterm outlook here unchanged as published also this morning. And for the short term, as said before, we are taking a very active approach here in addressing that situation. We are from, let's say, the sales and marketing side to the R&D side, we are agile, active and well, we have been building this business by being innovative. And so therefore, it's not the time to sit back and wait until things are changing and going away. It is the time to make use of this time to clean up the house to be in a better and fitter position after the crisis. And fortunately, we are also in a financial situation that we can afford to do so. With this, we would like to conclude our presentation here, hand over back to Kai and open the lines here for questions.

[Operator]

[Operator Instructions] And the first question received is from Karsten Von Blumenthal of First Berlin Equity Research.

[Karsten Von Blumenthal, Senior Analyst of Cleantech]

This is Karsten from First Berlin. My first question is regarding your order backlog. That looks pretty good, given that this is end of Q1 when we already have seen the first impact of the pandemic. So could you tell us where exactly the increases come from, is that Clean Energy & Mobility or where does that come from?

[Gerhard Inninger]

This is Gerhard speaking. Let me give you a quick update where we are with our order backlog on a year-on-year basis. Looking on clean energy, we have Clean Energy & Mobility, we have an order backlog of around about EUR 3.4 million. Looking on Defense, and this is also in the company, SFC, it's around about EUR 400,000.Industry means the PBS comes up with an order backlog of EUR 7.2 million. And in Oil & Gas business, we have EUR 4.7 million to EUR 4.8 million. So this totals to this EUR 15.8 million to EUR 15.9 million we mentioned before. And the most impact was we are better on Oil & Gas. This is around about EUR 2 million, EUR 2 million more. We are a little bit short on industry, and of course, we are much better on clean energy because we really have some price there.

[Karsten Von Blumenthal, Senior Analyst of Cleantech]

All right. You mentioned in your defense business that your gross margin is down due to lack of sales. You had EUR 0.8 million in sales and still I do not completely understand why the gross margin is down there so much because even with smaller units sold, this is a very strong decrease in the gross margin. Could you again explain that to me?

[Gerhard Inninger]

Karsten, Gerhard again. There I said before, there are 2 main reasons or 2 reasons. One is that we allocated around about $500,000 or EUR 350,000 from segment Oil & Gas to the segment, Clean Energy & Mobility. And this is a 40% margin business. So this was missing in the oil and gas business. And the second is a pure product mix, means that -- and we check this on business by business that more of the lower-margin projects or products have been sold, and this has this impact on Oil & Gas.

[Karsten Von Blumenthal, Senior Analyst of Cleantech]

And do you think that there's a one-off or is that -- which we will see also in the future?

[Gerhard Inninger]

That's always the question, what kind of business we will do in the future, and we will have a very tough look on this, what makes sense and what does not make sense. But that's the situation at the moment.

[Peter Podesser, Chairman of Management Board & CEO]

And maybe to complement here, Karsten, this is Peter. On the Defense side, yes, low revenue, one fact and the other part is really here a mix issue. We have, let's say, hardly any national business in there. We are traditionally lower in international business as there is a further stage of sales in there.So overall, it's really a combination and looking at, let's say, the expectations on the Defense side going forward, I think it's a solid recovery on margins simply by looking at the product -- as the projects we have in the pipeline. So now whatever change in pricing, no change in product cost, which would be an alarming or which both would be alarming factors, no change there.

[Karsten Von Blumenthal, Senior Analyst of Cleantech]

Perfect. That is good to know. If we look into a presence, we now have half of the first -- of the second quarter through the first half. Could you give us an idea of how business has been so far in the last 6 weeks? So have you seen this steep decline in demand in oil and gas and in industry? And are you still quite well on clean energy? Is that what has happened in the first 6 weeks of the second quarter?

[Peter Podesser, Chairman of Management Board & CEO]

Well, I think, as said before, it's not only the expectations that we have until the, I'd say, end of this quarter or the following quarter is also the experience we are seeing right now in the first weeks here. The oil and gas part, fortunately, we started strong, still a solid backlog, so far I'd say, a minimal number of cancellations, some delays. But as I said, I think we are seeing here a 25% to 35% reduction on the CapEx side of our customers combined, let's say, with the first quarter. Overall, we are still in, say, an okay shape, but there is definitely the steepest decline in day-to-day activity on industrial business with again, a good backlog. We are seeing now delays from major industrial customers, core timing here is Q2 and Q3 with a recovery in Q4, as I said, we also received orders. So there's a constant inflow on orders. And Clean Energy & Mobility almost unchanged situation with consumer naturally being affected here, but also here after the opening of the dealerships in Germany, we received orders in the last 2, 3 weeks again. So our order activity up, still no activity in France as there is still a different environment. And the Industrial part of the Clean Energy & Mobility business is unchanged activity here. And so if you ask me, my expectation here for Q2, definitely, 25% down to Q1 in terms of revenue is, I think, a good estimation, which does not, let's say, now maybe includes all eventualities, but I think that's about what we are looking at. And that's, I think, where we are right now, and that's what we are seeing in the business.

[Operator]

The next question received is from Mr. Lotte Timmermans of ABN AMRO.

[Lotte Timmermans, Analyst]

First two questions on the Oneberry contract. First on the nature of the contract, if there's a large one-off contract in the first quarter of 2020? Or is it a framework agreement? Is it still in your order book? What's going to expect for the second quarter and the rest of the year?

[Peter Podesser, Chairman of Management Board & CEO]

Peter, for Singapore, we operate here with our partner Oneberry usually with frame here for the year. What we have to say this year that he, I'd say, took all products that we thought he would use throughout the year already in Q1 and even some more because of simply this additional projects here for what they call a contactless situation awareness, technology, cameras, on robot cameras for fever detection to, I'd say, help them fight COVID-19. Expectation here, whether we see shipments, then in the second half of the year, I think, right now, they are working through their ongoing projects we have to see. But at the end, he pulled the frame contract for the full year already in first quarter, which is good and bad at the same time, but I'd rather have the things out the door and part of the money already in, which is the case in Singapore, than the other way around. So well -- and overall, on the backlog, as I said, we saw it again increasing in Q1, which is really good news. And as Gerhard said before, even in oil and gas, we are still looking at a higher backlog compared to last year. In Clean Energy & Mobility, we are seeing constant inflow of business. And on the Industrial side, we should secure a bigger order here for shipments in Q4. So this is why we are also, I'd say, fully operational in all locations with naturally different variations from Canada to Holland and Romania as well as Germany. But overall, I think that's the framework we are operating under right now.

[Lotte Timmermans, Analyst]

Okay. Clear. Can you give a rough estimate of how much the contract was in percentage of sales of Clean Energy & Mobility?

[Peter Podesser, Chairman of Management Board & CEO]

For the Singaporean project we shipped, if I'm not mistaken here, 400 to 500 units that we can supply you with some details on this, definitely, separately. So as we said -- I think it's important, and maybe I was not clear enough on this. If we net out, let's say, this one-off effect here in Singapore besides its ongoing business, still, we are seeing a good growth. And also, I'd say the JUPITER shipments here for the German digital radio program that we did, again, here in first quarter, this is not the only reason for the growth. What we are seeing is really throughout the different regions from Scandinavia to the U.K., Germany, Benelux, Japan, very positive development. We can see consistent growth in this business. So this is not just here JUPITER to the digital radio program in Germany and EFOY to Singapore, which is, I think, the good news, and that's also the basis for our optimism throughout the year and further.

[Lotte Timmermans, Analyst]

Okay. Very clear. Could you remind me at the base of the transfer of sales from Oil & Gas fuel sales to Clean Energy & Mobility. I don't remember exactly what it was based on, is it based on the client? Or why would you transfer?

[Gerhard Inninger]

Hello, this is Gerhard speaking. The number was in EUR 350,000 exactly. And this was based on individual deals, which we walked through with the team or the team worked through, and then decided is this oil and gas or non-oil and gas, fuel based.

[Lotte Timmermans, Analyst]

Okay. So if you expand to the U.S. to non-oil and gas clients, it will be booked in Clean Energy & Mobility?

[Peter Podesser, Chairman of Management Board & CEO]

Yes. And if we look into our pipeline and the current projects in the U.S., there's a significant difference here to the Canadian. I'd say, distribution in Canada we have, let's say, 80% still oil and gas, already 20% now outside oil and gas, if we look into those active projects. In the U.S., this is rather a 50-50 ratio, which again leads back to our initiative here of diversification, reduce dependency on, let's say, one regional market means Canada, but also reduce the dependency on the oil and gas vertical.

[Lotte Timmermans, Analyst]

Okay. Clear. And another question on the Oil & Gas. I think if I understand correctly, basically you have about 20 to 35 cut in CapEx of your clients. But 20% to 25% could earn your revenue? Or was there some number...

[Peter Podesser, Chairman of Management Board & CEO]

What we are seeing is what big oil and gas players reported since I'd say, mid-March here, is cutbacks between 25% and 35%, at least in our customer base, the majors that we have in the reduction of CapEx here for the year going forward. And what we see now with a strong or still, I'd say, strong performance in Q1, at least until mid-March, we expect that the decline here to be within 20% and 25% is, I'd say, there is no recovery at the year-end. And so far, oil and gas is the only segment where we do not count on a recovery in this calendar year, seeing the environment.

[Lotte Timmermans, Analyst]

So overall, you don't expect a recovery in Q4, this is 20 to 25 percentage on Q2. Do you expect a net generation in Q3?

[Peter Podesser, Chairman of Management Board & CEO]

Well, also, I think throughout the year, we have to be realistic here in Oil & Gas. Seeing how this balance here impacts the -- this balance between supply and demand, even now production cuts being implemented by OPEC+ here after this chaos in April, all what we are seeing and reading here of experts in the market is that it will take until the end of the year to see a balance and then potentially a recovery in price. So therefore, we expect a tough environment throughout the whole year. That's what our -- and we did our cost measures based on this assumption.

[Lotte Timmermans, Analyst]

Okay. And then a final question on M&A. You say you still have a considerable war chest, could you give an update on that? Are you looking at targets or preserving cash for...

[Peter Podesser, Chairman of Management Board & CEO]

As I also mentioned before, if we talk about being fit for the future, this is part of the activity. Still, we know we need to, I'd say, grow in major economies like in Asia, but also in the U.S. And so therefore, the work here definitely is not stopped, but just practically is impacted and there is a certain delay in there because last couple of weeks, everybody was really, I'd say, focused and busy on simply getting everything ready for weathering through this storm here. And now we are getting back to, I'd say, the normal addressing of those projects. So this is not off the table, but naturally, it has not been the priority in the last couple of weeks. But still key projects we have in this area. We are continuing to work on it. Whether we are going to finalize here, one of them I would not expect this before the summer time, but definitely, I think we are trying to get the one or the other deal closed within this year.

[Operator]

[Operator Instructions] And the next question is of Malte Schaumann of Warburg Research.

[Malte Schaumann, Equity Analyst]

A follow-up on Simark. What is your expectation for the fuel-related business of Simark in January in 2020. I mean initially, that was expected to grow significantly in comparison to the prior year. So how do you see that evolving?

[Peter Podesser, Chairman of Management Board & CEO]

So far also here, we have not seen a major slowdown in this part of the business. And therefore, for this product line here within the oil and gas business, including then all the diversification we are doing, we expect here a growth of the business.

[Malte Schaumann, Equity Analyst]

Okay. Could you put a number on that? Is it 3 million, 4 million, 5 million?

[Peter Podesser, Chairman of Management Board & CEO]

I think we -- if we really are able to keep on growing here on, I'd say, low double-digit numbers, I think that's a good achievement.

[Malte Schaumann, Equity Analyst]

Yes, fair enough. And then the gross margin was a bit weak in the quarter. Maybe it's a mix effect, a short comment on that one.

[Gerhard Inninger]

Yes, it is Gerhard. Yes, you're right. Gross margin was not outstanding. But as I said before, we had -- we were missing this Defense revenue which always has the best margin even if Clean Energy & Mobility is very strong now with this 44% level. So I'm sure as soon as some defense deals are in, we are getting back from where we came from.

[Malte Schaumann, Equity Analyst]

Simark, what is the product mix? I think it was down to before something...

[Peter Podesser, Chairman of Management Board & CEO]

Yes. I think there, we can relate this back to some deals here for power products end of last year where, I'd say, we were compromising also on the pricing side that I'd say, sacrificing part of the margin to making sure the overall, I'd say, cost coverage and, I'd say, your customers served. But they are -- naturally the overall impact of the EFOY business continues to grow, and that helps us also to say, apart from normal scaling, that helps us naturally to improve again.

[Malte Schaumann, Equity Analyst]

Yes, sure. In the Clean Energy & Mobility business, could you -- how much of that was related to JUPITER? And how does the current environment potentially affect the plans of your customers to roll out the installations later in the year?

[Peter Podesser, Chairman of Management Board & CEO]

Well, we have, let's say, the next shipment here of JUPITER sales are done in March, which is, I'd say, according to the original plan here for the rollout of this program. We also expect -- and this was, let's say, not more than EUR 200,000 to EUR 0.25 million in revenue. So this is not the big changing factor in there. But according to all parties in this project and working in this project together with our partner, of course, what we expect now is a delay in April and May. But what we see because of simply missing installation capacity out there, having those backup power systems simply set up in the field. But they are now with the easing of the restrictions here in Germany and in the concerned provinces, we expect continuation now according to plan and maybe even above plan as of June, and that's why we also stated that we at least we'll be able to ship what we planned for this year. So in the first quarter, the biggest impact naturally here from Singapore here with let's say, ongoing business and the project. But overall, as said, a very consistent growth pattern here. Our partner in Scandinavia growing faster even than last year. U.K., Benelux strong development. In Germany, where we have, if you recall, we have a client, our partner, udomi, just recently, and we are doing this business now directly with ongoing growth and slightly higher margins because of doing it directly. And also Japan, Toyota, very active in the business development here and a consistent demand. And the good news is, this is not stopping since mid of March or has not stopped since mid of March. We are seeing ongoing order intake here until last week. So -- and the forecast in Clean Energy & Mobility is still up.

[Malte Schaumann, Equity Analyst]

Yes. Very good. Then in the Defense business. How does the current environment affected customers, you have public customers, but even they are potentially thinking about a cut in defense budgets. So what's your take specifically maybe on your large German customer? And then with regards to product with all the others, due to see performance downsizing projects, I mean that's not the big chunk, it usually gets comparison to overall, but anyway.

[Peter Podesser, Chairman of Management Board & CEO]

I think overall, what we see right now, if we start in Germany, naturally, there is an impact now on activity. Counterparts are sitting in home offices, maybe not always equipped with the proper IT infrastructure makes communication difficult, some of it simply areas like where you have a lockdown like in India, and naturally, we are talking to our partner there. But government authorities are closed and shutdown. They are just starting to reopen. So there's no doubt that we see here a delay of 2, 3, 4 months, no question about that. Why are we still confident to see a recovery here? Because overall, now the need here for this technology and even in applications like we have served it now in Singapore, in some areas, they might adopt this here also for government authorities here in fever detection. The budget -- we don't see a major budget cut. I think it could be also a potential stimulus package here when some of those budgets are then released targeted here for technologies like ours and especially in Germany here, we have discussions ongoing on the local -- the very end level, but also on national level. Release of -- or cuts of budgets that are already released now for the ongoing year, if this is done in a broader sense, we don't think that programs of our size will be primary targets of budget cuts. You can spare a lot more if you don't order a tank or a fighter plane or even a ship of a different size.

[Malte Schaumann, Equity Analyst]

Yes, makes sense. So basically, some push out projects are more or less...

[Peter Podesser, Chairman of Management Board & CEO]

Current estimation is that we at least will be at last year's level. And the upside is very clear. It is either national or international business here. And as I said, on the international side, pretty encouraging activities, not only in our current customer base, but then also, we have started a program together with a French integrator. We see really decent activity in areas like Switzerland. And well, Israel unchanged. Now the government is in place. So we expect decisions being taken pretty independent of COVID-19. While in India at the moment the government authorities come into normal order of work, again, which we expect in summer. We also expect programs to be released.

[Operator]

So we received a further question is from [indiscernible] of Commerzbank.

[Unknown Analyst]

Sorry, it's Frederick Wilkinson actually from Commerzbank. Well, just a couple of questions from me. And my apologies if you've touched on this already. Firstly, Clean Energy & Mobility posted a strong Q1, so you expect positive growth for the remaining quarters of 2020 as well? And secondly, in the industry, was I right in hearing possibly 20% decline in revenues or I mixed up with the CapEx figure?

[Peter Podesser, Chairman of Management Board & CEO]

Well, Frederick. So Clean Energy & Mobility, maybe we will not see same level of, let's say, growth that we are now seeing with 71% in Q1 because, as said, there were, apart from the ongoing growth of the broad business here regionally, there were impact here of one-off projects like in Singapore. But consistently here over the year, we think we stay in our growth corridor of about 30%, which I think is a reasonable growth corridor. On the industrial part of the business, yes, we see that simply forecasts are pulled down by our large industrial customers here. And knowing this business, you do not catch up throughout the year. There is a 6- to 7-month cycle here, and that's why we see Q2 and Q3 being down with a stronger recovery at the year-end, which will, I'd say, result in a decrease in sales in this segment by end of the year. And this is what we see between 10% and 20%.

[Operator]

As there are no further questions, I hand back to Dr. Podesser.

[Peter Podesser, Chairman of Management Board & CEO]

Well, thank you very much. And with this, we would like to conclude it here and to all of you, make sure you're taking care here and stay healthy. And thank you very much for the interest today. And whenever you have question here -- questions here on a bilateral level, don't hesitate to reach out to either Susan, Gerhard or myself. Thank you very much. Goodbye.

[Operator]

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.