SFC Energy AG

XETRA:F3C

Earnings Call Transcript 2020-Q3

[Operator]

Dear ladies and gentlemen, welcome to the publication of the Q3 report 2020 of SFC Energy AG. At our customer's 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.

[Peter Podesser, Chairman of Management Board & CEO]

Thank you very much, Angela. Good morning, ladies and gentlemen. Welcome to the presentation of our 9-month results here as well as the Q3 figures separately. Together with Daniel Saxena, it's a pleasure for us here to give you a detailed overview of the last 9 months and the last 3 months in particular. And after this, we will be very happy to go into the usual question-and-answer session.Before we start with the numbers, simply let me give you a practical description of how we coped with this environment here characterized by the pandemic situation in light of the deterioration, especially of the situation in the last couple of weeks, as a company, as an organization and as people behind this organization. In a very simple format, what we have done early in autumn time as early as late September, we have reintroduced the measures from springtime measures that helped us to get through, let's say, the first wave of the COVID-19 impact here. Literally isolating manufacturing in all locations as much as possible, the same for our laboratories. And well, working from home or implementing, let's say, distance and mobile working as much as possible for everybody who is not physically necessary here on site in our different locations.So far, yes, we also have seen -- first, we have seen a handful of COVID cases here with our teams in Germany and in the Netherlands. All of them are well and back to work. And we have come through this situation so far, knock on wood, here without a single day of interruption and with no major interruption also on the supply chain. So going forward, we try to be, again, cautious -- continue to be cautious and stringent in adhering to the implemented rules.From a personal note here, well, for the first time, I think, in whatever, 15 years almost, I'm doing this presentation from home office. And this because I'm now for a week in quarantine here. One of my family members tested positive. All the others are negative. And still, this whole thing is working here. And so I think if there is only one good thing out of this difficult situation, it is this leap forward in digitalization. A year ago, I think we could not have imagined to do a lot of our task and perform a lot of our tasks out of home. So I hope the technical system here supports us well throughout the day, as we start also the equity forum, and we can do this here in a digital way.Now getting back to the key topic, 9-month figures, quarter 3 figures. Overall, I think we see a business development above our own expectations, especially after revising our plans in March of this year. We see a 2-sided heterogeneous business. We have high crisis-resilient in our civilian business here with hydrogen and methanol fuel cells, but we also have a significant impact in segments like Defense & Security, Oil & Gas and our industrial electronic business. This all leads to consolidated sales here on the 30th of September of EUR 39.2 million compared to EUR 43.8 million, so approximately 10% below last year. A pretty stable underlying profitability development, good impact here of cost reduction, but also product mix as well as some subsidy effects, especially in Holland and in Canada.We observed very active order activity, including the Oil & Gas business as well as our industrial electronics business here since summertime, which leads to a significant increase in backlog of about 26% compared to last year's numbers. And that's why I think also our optimism here for a rebound to growth in Q4 is based on solid ground. Overall, midterm development and assessment of the macro environment, well, there is a big, big momentum here in all hydrogen activities, which is, I would say, unprecedented. And we see ourselves really benefiting as one of the early movers here with available products. And I will go into this in more details here during our presentation.Now looking into the sales and revenue development in more details and then to the segments. Yes, as said, we see plus and minus. We see a heterogenous picture here. And the momentum in our civilian fuel cell business translates into a growth rate of 84.6%. Significant momentum throughout, I'd say, the year with even an acceleration here in Q3. But at the same time, we also saw Defense & Security down by 69.7%; industrial electronics impacted with a minus 29%; and the Oil & Gas with a little more than 19%. Overall, the good momentum in our methanol and hydrogen fuel cell business outside Defense & Security and Oil & Gas almost compensated here for the COVID impact.What are the main reasons here for those impacts for -- in the 3 segments affected? Well, we saw some of our customers shutting down plants temporarily. Some of our sales and distribution networks, especially here in Europe, have also experienced some temporary shutdowns. Very practically, we were not able to see our customers in our traditional approach here of doing sales. The restrictions on travel and gatherings impeded this. And overall, we can summarize this as delays. We have not seen orders lost so far, but we also have to say that the biggest impact when in a naturally severe lockdown situation in some of our end-user countries here for our defense business were simply no movement for 6 months delayed some of our key projects there.On the other hand, the momentum here for the professional -- in the professional applications of our fuel cell business here for the traditional EFOY fuel cells, methanol EFOY Pro fuel cells for methanol, the drivers here were the wind industry, surveillance and security technology, and this across all regions, Europe, Asia as well as North America, predominantly Canada.And on the hydrogen space, very positive development here. In our home market in Germany, the hydrogen fuel cell business already accounts for a significant part of the growth here, especially also in Q3. Main application or key applications so far, telecom backup. Our products are used here in the government, digital radio programs, which is called BOSNet, and shipments are taking place on a monthly basis.In addition, we had already published at midyear that we wanted to really make use of this time. We implemented a program we called or we named Fit For The Future, including measures like acceleration and more focus on some of our R&D projects. We expedited the launch of the new EFOY platform. This, we were able to do even physically end of August, beginning of September at one of the trade shows here for consumers in the caravanning industry. We also started and kicked off the second-generation development here for hydrogen fuel cells. I think, again, coming back to positive impact, digitalization, yes, we started a major transformation of our sales and marketing activities here to digital format. A number of webinars in all our segments being held over the last 6 and now 7, 8 months even. And we also invested in stabilization of the supply chain to make sure we get through this overall situation in a proper format.If we now look into the individual segments, I mentioned already in Clean Energy & Mobility, an 80-plus percent growth. The detailed numbers, yes, in the 9-month comparison, we increased sales in Clean Energy & Mobility from EUR 8 million to EUR 14.8 million here in a year's time frame. The substantial drive here for the organic growth asset comes out of, I'd say, various regions -- or all the regions we are active in Europe, Asia as well as North America.Looking into the third quarter, 116% growth here to almost EUR 5.4 million from EUR 2.48 million last year. One can say, almost half of this growth is driven already by sales here through our shipments of our JUPITER platform. And the good news here is high crisis-resilient, strong stability and ongoing dynamic also in the fourth quarter as we speak.Looking to Oil & Gas. Here, we expected a severe impact simply due to the fact that the demand for oil went down here within this pandemic and in the aftermath of the original start of the pandemic situation. We see a sales decrease of 19.6% to EUR 13.3 million in the first 9 months. And we see, I'd say, a severe, also scale back of revenue here to EUR 2.97 million in the third quarter, which, to a certain extent, what we expected. But what we saw as a positive development and is definitely above our original expectation is a rebound in order activity during the summer months and also in the early part of the fourth quarter, stronger and consistent. And so therefore, we also expect here a proper rebound here in Q4. Whether this is then, let's say, again impacted from the second wave of COVID, fact is, I think we cannot anticipate that in the long run, but especially here for the fourth quarter, we are expecting a significant rebound.What we did here for the first time also this year, I think this is known to most of you. Fuel cell sales outside the Oil & Gas industry were allocated for the first time in Clean Energy & Mobility, about EUR 1.3 million. So if we would exclude this effect, Oil & Gas still would see a decrease but a decrease of EUR 11.7 million, which is also against the background of the situation, an important fact here and a positive fact. The other way around Clean Energy & Mobility would still show, let's say, around 70% growth here.And if we look into the products, I think the overall strategy, implementing or establishing fuel cells as a clean and low-emission product in the Oil & Gas industry is still progressing. The percentage of EFOY sales in our entire sales here of Simark as a subsidiary grew up to 17.2% from 12% comparable number last year.Moving to industrial electronics. I think we saw here what we expected in the first quarter. We had, I'd say, expected a lower activity in Q3 and Q2. Main factor -- main impacting factors are lower cost and postponed investment decisions, whereas we see not such a big change in the long-term projects, but initial product decisions have a tendency to be postponed. Same hurdles we mentioned in general here. Normal sales work meetings not being possible, some of the investment decisions simply pushed out due to uncertainty. But overall, while the sales are declining here by 29%, overall, we were able to keep the gross margin same as in the comparable period of last year, so around 29%. And we also see what we anticipated that call of orders are increasing. Investment decisions were already happening, so a significant increase here based on backlog here for the year-end is happening as we speak in Q4.Defense & Security. Here, we definitely saw the biggest impact in all the segments. And in a very simplistic view, it is simple postponement. Shutdown measures, as I mentioned, also lockdown here, Israel and especially in India, experienced the most stringent restrictions, and this simply led to a delay of 6 months here in decision-making. The good news still here is we do not see a single project being awarded to anybody else, but it is also, at the same time, not to be expected that we can catch up, let's say, for everything here until year-end. What we see is that activity is coming back, even last week in India. And based on current activity, we expect also here an upturn now in Q4. As mentioned, not catching up, let's say, for 6 months delay, but significant increase in any event here for the year-end. Having us seeing a year-end figure that is, I'd say, not 69% below last year, but I think rather 40% to 50% deviation to last year is what I would say as a realistic number.With this overview of the segments, I conclude here at this point in time and would like to hand over to Daniel here for the earnings development and the financial analysis.

[Daniel D. Saxena, CFO & Member of Management Board]

Thank you, Peter. Good morning, everybody. As Peter already mentioned, you saw that the diversified end markets in terms of segment application makes some headline, but also to some extent, our bottom line, resilient to negative sector-specific or macroeconomic developments. And that really helped us also on the gross margin. So we see that the gross margin in spite of the decline in sales and revenue has stayed more or less stable compared to the 9 months of the previous year. We are looking at 32%, 33% for the first 9 months in 2020 versus 33% in the previous year's period.So what are the benefits or what is good is that gross profit is -- has been compensated -- or the missing Defense & Security sales that tend to have a strong margin have been overcompensated or compensated by Clean Energy & Mobility sales. As Peter already mentioned, those sales more than doubled in the first 9 months. So that leads us to a gross profit of EUR 13 million versus EUR 14.5 million in the previous year. Of course, we are missing some gross profit given the reduced sales, but that really helped us in terms of being diversified.If you look at the Clean Energy & Mobility segment, our gross margin in the first 9 months was about 42.6%. We had a significantly higher revenue contribution of 38% versus 18% of -- in 2019. As mentioned, very, very good increase in revenues. The gross margin has stayed stable compared to the 9 months of 2020. And also, if you look at the entire last year's gross margin, which was about 43.2%, we are 1 percentage point lower in the first 9 months.If we then look at Oil & Gas, we're looking at a gross margin of 25.7%, which is lower about 2.4 percentage points compared to the first 9 months in the previous years. That is mostly product mix. And -- but also, Peter mentioned that we have, for the first time in the current year, allocated the non-Oil & Gas fuel cell revenues of Simark into the segment and Clean Energy & Mobility. That, of course, is also a high-margin revenue. So looking at -- taking into consideration that reallocation of the revenue, the margin overall is not significantly lower from last year margins.The revenue -- the margin in the Industry segment has stayed stable, same level as the previous period. Also very close to the full year gross margin of last year. That has mainly to do with the framework contracts we have and also the customer relationship, which makes the margin really, really defensive in -- at that level.The biggest hit we took, not only in terms of revenue but also in terms of margin, is in the Defense & Security segment. We're looking at a gross margin of 28.1% for the first 9 months in 2020. Much lower than in the last year where we have about 42%. It is really the product mix in the second quarter that drove the margin down. If you look at the gross margin third quarter and compare to the third quarter of last year, we are a bit higher than in the third quarter of last year. We had 38% for the third quarter. So it's really the second quarter that drives the entire gross margin down for the first 9 months. And that has to do, as we mentioned in our half year call, that basically we had very, very little product sales in the second quarter. It was mostly some components and lower-margin replacement parts.Going to -- looking at the EBITDA for the group, I think the overall statement we can make is the missing gross profit has been compensated to some extent by reduced operating expenses, but not entirely, but very close to it. The reported EBITDA is negative with EUR 785,000 compared to EUR 19,000 (sic) [ EUR 195,000 ] in the period of the previous year. But if we're trying to compare apples with apples, and as you all know, we're always looking at the recurring EBITDA, recurring EBITDA is adjusted. We'll have -- we are looking at 1 adjustments: the one adjustment is the stock option program for the management and the cost of the stock option program, which is noncash; and the second adjustment is acquisition-related expenses or transaction-related expenses.The effect of the stock option program is the biggest one. It's about EUR 2.7 million year-to-date. The acquisition-related expenses are approximately EUR 300,000 year-to-date. So if you adjust -- if you look at that in total, that's about EUR 3 million. If we adjust our EBITDA for these expenses, we are looking at a recurring or adjusted EBITDA of EUR 2.2 million, which is at the level of last year's adjusted EBITDA, which was EUR 2.2 million also. But what we see is that our EBITDA margin, the adjusted EBITDA margin is even higher at 5.7% versus 5% from last year.So what really drove that? As I mentioned before, we've been able to compensate the lacking or the missing gross profit by reducing operating expenses. So if you're looking at our sales and marketing costs, once again, adjusted for SARs or extraordinary impacts in there, they're about 16% lower than in the period of the previous year. If we look at our R&D expenses, they are 15% lower. I'll get back to that in a minute. And the G&A expense was slightly higher, about 4.3%. So that really, in some, has been compensated for the gross profit. We are still looking at cost optimization all over the group and also in different departments.Looking at depreciation and amortization, totaled EUR 2.6 million. The large part of that, about EUR 1.6 million, is related to IFRS 16. And R&D depreciation was about EUR 460,000. The rest are smaller other items.That leads us to adjusted EBIT of negative EUR 430,000 versus EUR 230,000 in the last year. Once again, if you look at it, of course, we would be happy if it were better. But if you look at it, given the overall circumstances, we are not far away from what we had in the last year.So what helped us on the operating expenses? Yes, to some extent, we received wage subsidies in Canada and the Netherlands in context with corona State aid. These wage subsidies amounted to EUR 830,000, but also a big impact was, as Peter already mentioned, lower travel and marketing expenses and last but not least, the cost optimization that we implemented in various departments and all over the group.So if you look at the marketing cost on the first glance, they look 10% lower than in the previous years with EUR 8.8 million versus EUR 9.8 million in 2019. Once again, we adjust the marketing expenses for the SARs, the stock option expenses included in this position. We are even 16% lower, as mentioned before. So we're looking at EUR 7.2 million versus EUR 8.6 million in the previous year. Most saving is travel and trade for expenses that were reduced given the pandemic; also, personnel expenses were reduced, resulting mostly from government aid but also adjustment we made; and last but not least, cost optimization in this department.If we look at the R&D expenses, the R&D cost expensed over the P&L was EUR 2.1 million versus EUR 2.5 million in the previous years. So if you look at this number on a first glance, it seems our R&D expense went down by 15%. But of course, if you look at it in detail, the capitalized R&D was EUR 2.6 million versus EUR 1.5 million in the previous year. So the capitalized R&D increased by 67%.And now if you look at our total R&D, and we calculate that by the R&D expense on the P&L as well as the R&D capitalized, then we're looking at an R&D cost of EUR 4.7 million versus EUR 4 million in the previous year, and that would be an increase of 16%. It is approximately -- total R&D cost approximately 12% of our revenue, a bit higher than in the previous year, where we were at 9%. That has, of course, also to do with the reduced revenue.Our R&D, and then Peter mentioned that also already, is developing the new product generation, also hydrogen fuel cell. In the long term, nothing has changed. We're looking at R&D expenses around 7%, 8% of our revenues.G&A expenses were EUR 4.3 million versus EUR 4.6 million unadjusted. So about 16.5% higher than the previous year. If we adjust it for the SARs as well as for the EUR 300,000 acquisition-related expenses, we are looking at EUR 4 million versus EUR 3.8 million in the previous years, and that's about 4.3% higher. So not hugely higher than in the previous year.Obviously, personnel expenses account for the largest portion in these expenses, but also in the current year, we had higher legal fees and consulting fees. I think that's noteworthy. A lot to do also with the pandemic, introducing different measures, looking into different -- the State aid programs, et cetera, et cetera, where we simply had a bit more need for legal advice.May I jump quickly in the -- in our long-term fixed asset, intangible asset. As also always mentioning, we are really an asset-light company with very limited CapEx other than our capitalized R&D expense. So if we look at the intangible assets total, we're about EUR 24 million versus EUR 23.8 million in the previous year. That's a very minor increase. The larger position in our intangible assets is obviously goodwill as well as capitalized R&D. Capitalized R&D amounts to EUR 7.8 million. Tangible assets, EUR 8.6 million. About 77% of that is really the right of use, capitalized lease and rent in context with IFRS 16.Total CapEx, EUR 3.6 million. Biggest portion, as mentioned before, is the capitalized R&D of EUR 2.6 million, which is really 72% of our CapEx.Looking at our cash and cash equivalents. Cash freely available worth EUR 12.5 million, lower than at year-end, where we had EUR 20.9 million. Our financial debt amounted to EUR 3.6 million, also lower than at year-end where we had EUR 6.5 million. Short term of that EUR 3.6 million is EUR 3.2 million. These are, in large part, booked in capital lines sitting with PBF and Simark. And the long-term portion is a mere EUR 360,000 that's sitting with Simark.Our net cash position was EUR 8.9 million versus EUR 14.4 million at the end of the last year.Equity ratio has gone -- increased a bit, 46%. And going into our cash flow, our operating cash flow for change in net working capital was EUR 1.2 million, lower than in the last year's period where we had EUR 2.6 million. What happened to our net working capital, we -- the entire net working capital increased by EUR 2.5 million.Peter already mentioned also that we did increase our inventory to make sure that we can supply our customers and are not impacted from potential whatever supply chain interruption. So inventory increased by EUR 1.4 million. Our account receivable decreased by EUR 1.9 million, always compared to the end of last year. But also made a big impact, our accounts payable decreased by EUR 4 million. So that's where the significant part went.So with taxes and the negative cash flow from the net working capital, we are looking at the cash flow from operating activity of negative EUR 1.4 million. Cash flow from investing activities, EUR 3.2 million. So that's what we spend in CapEx. And as I mentioned before, about EUR 2.6 million of this is capitalized R&D. Cash flow from financing activities, negative EUR 3.8 million. We did pay back some financial debt. And also, a large part of that is leasing in context with IFRS 16. So the total change in cash was about EUR 8.4 million.So with this having said, let me turn it back to Peter.

[Peter Podesser, Chairman of Management Board & CEO]

Well, thank you very much, Daniel. Summarizing the situation over here, I think we see ourselves here on track here for the mid- and long term. But naturally, we cannot exclude ourselves here from COVID impact. And although we -- especially given the impact of the deteriorating situation of the last couple of weeks, we do not see ourselves in a solid objective position to give a detailed guidance for the remaining part of the year, even though it's already November 16 today. We -- well, we expect a significant growth in Q4 here compared to the previous quarters, but at the same time, we expect sales revenues and profitability for the year-end to be lower than in the previous year.When we now look at the macro environment and the overall midterm and long-term target, we fully adhere to this. And what are the main reasons for this? A, while we see on a daily basis, news about new hydrogen strategies on national levels being published, we have now more than 20 nations include -- and in addition, to EU, that has selected hydrogen as the element of choice here to finalize the energy transition. Well, and at the end of this whole process here, when we transform renewable electrical energy out of wind and solar into hydrogen, somebody has to convert it back to electrical energy.And in a big part of the applications for decentralized users, this is, again, the fuel cell. So we find ourselves now in the midst of a change here for all of us as a society. And why do we think we are benefiting pretty early from this process? Because we have been focusing on product availability and product quality from the beginning, I'd say, of our activities here as a company. We have adopted our know-how out of methanol fuel cells to hydrogen fuel cells. And as mentioned before, we are one of the first ones producing industrial-grade product also for hydrogen. So we are beyond the mere laboratory stage here for our existing shipments.And what we do now with this program here in Germany, telecom backup for the government digital radio program is an initial program and demonstrates this, I think, in a clear and objective way. At the same time, from next year on, there is -- there are significant opportunities out there in public funding for R&D, but also for, I'd say, market opening and market development activities, market activation programs. And so we also see a good chance to benefit from this.And at the same time, we expect our overall business here for the EFOY-based business and for our business in Oil & Gas as well as the industrial electronics part to come back to, I'd say, a normal situation and suffer less from COVID impact.But -- and the third one is we are one of the first ones to have established market access for our traditional EFOY-based business. And we are, as we speak, using this to accelerate our market introduction also for our hydrogen product. And we just recently announced a partnership here, solidifying a long-term work here, for example, with Toyota Tsusho in Japan. The interest there is not only in methanol fuel cells. The interest for reaching their targets as a low-carbon society is also including our hydrogen product.So we see, I'd say, midterm growth and midterm targets, even, I'd say, more impacted by the hydrogen part of the business than we previously accounted for, where we were just at the beginning of the introduction of our hydrogen product. So overall, we see significant rebound in Q4, still ending the year below last year in terms of revenue and profitability due to COVID impact and significant acceleration here in our midterm plan through hydrogen product, but also capitalizing on a more dynamic environment and new partnerships for our existing business.With this, I would like to hand back to Angela and open the floor for your questions and comments. Thank you very much.

[Operator]

[Operator Instructions] And we've received the first question. It is from Karsten Von Blumenthal from First Equity Research.

[Karsten Von Blumenthal, Senior Analyst of Cleantech]

Thanks for the presentation. Your Clean Energy & Mobility business is really growing spectacularly. You said you have 116% growth in Q3, and I'm only looking in Q3, because that is the new information. And you said half of the growth is hydrogen. If I calculate that right, that is roughly almost EUR 1.5 million in hydrogen fuel cell sales. So this is really picking up quickly. My question is regarding Q4, do you see that despite the now, again, stronger lockdown measures, you will continue with this growth in this segment?

[Peter Podesser, Chairman of Management Board & CEO]

Karsten, thank you for your question. This is Peter. Yes, we expect further, I'd say, continuation of the momentum. I think whether we end up, I'd say, at 70% or 80% or even higher percent of growth really depends on how fast, let's say, winter starts here in the southern part of Germany with deploying of systems here for the digital radio network. In the other areas, as mentioned, wind and surveillance, security, EFOY Pro business, there is no impact now expected here from COVID, neither from the weather. So overall, strong growth. Same growth rate as in Q3 is unlikely because naturally, there is some slower installation activity at the year-end, not so much impacted by COVID, more by the weather.

[Karsten Von Blumenthal, Senior Analyst of Cleantech]

All right. Regarding your production capacity and your supply chain, especially in the hydrogen business, I mean, this is a spectacular growth. Do you have enough production capacity to further grow your business there?

[Peter Podesser, Chairman of Management Board & CEO]

Well, part of this Fit for the Future program was also to make sure, a, supply chain is stable enough, including some very simplistic measures as ordering more, which, again, you can read in our cash flow metric, having the stock area full at this point in time. But at the same time, on the production side, we implemented a fully new production line here in Brunnthal for the JUPITER fuel cell, which is -- fuel cells, which is up and running since the early summertime. And therefore, we feel well equipped here for a continuation of growth, no doubt.

[Karsten Von Blumenthal, Senior Analyst of Cleantech]

All right. If I only look at Q3, I think you had a spectacularly high gross margin. So you were able to compensate the very low gross margin in the Defense & Security business with a significantly higher margin in the Clean Energy & Mobility business. So despite the recession, and I don't really see that you have any kind of pressure from the gross margin side, if I take the company as a whole. Do you agree?

[Daniel D. Saxena, CFO & Member of Management Board]

That's correct. If you look at the company as a whole, as I mentioned, we don't have -- we don't see a lot of pressure on our gross margin. And of course, if we look at the Clean Energy & Mobility segment, the gross margin is pretty much at the level or is at the level of last year. So that's really good.And then as I mentioned, given the higher revenue contribution of the segment, Clean Energy & Mobility, that overcompensated, on the other hand, the decline of the Defense & Security segment. That also tends to have high gross margin but specifically only the second quarter of this year, the margin in that segment was lower, simply because of the product mix.

[Operator]

The next question is from Anne Margaret Crow of Edison.

[Anne Margaret Crow, Director]

I've got 3 fairly high-level questions. I'm currently working on a review of the hydrogen economy, and I'm going to be profiling SFC Energy in that. So my first question is if you're using methanol for fueling your fuel cells, are you needing to use additional equipment such as a reformer to preprocess the methanol before it goes into the fuel cell stack itself? And does that add a material proportion of additional weight and cost?

[Peter Podesser, Chairman of Management Board & CEO]

Well, if I may answer this one immediately, no. The answer is we have our proprietary technology of direct methanol fuel cells, enables us to convert the liquid fuel as the carrier here of the H in a direct format, no reformer, no additional weight and cost impact.

[Anne Margaret Crow, Director]

That's very helpful. And my second question is, is all of the revenue attributable to fuel cells now included in the Clean Energy & Mobility revenues? So that could be taken as an equivalent for the percentage revenues attributable to fuel cells for the whole company.

[Peter Podesser, Chairman of Management Board & CEO]

What is reflecting fuel cell revenue here within our overall revenue is, a, Clean Energy & Mobility; b, Defense & Security; and then, as mentioned, this growing part here in Oil & Gas. This year, so far, 17% of the revenue there is all attributable to fuel cells.

[Anne Margaret Crow, Director]

Right. That's very helpful. And then my final question. When your clients are opting to use fuel cells as a power supply for surveillance of pipelines, why are they opting for a fuel cell rather than perhaps wind and solar combined with battery energy storage?

[Peter Podesser, Chairman of Management Board & CEO]

Well, this goes back to the real, I'd say, product strategy. And I think it's also one of the basis here for our commercialization success. We have always, from the beginning, adopted the hybrid product strategy. Battery, solar combination -- wind, battery, solar combinations are climate-dependent or weather-dependent. And if you add or combine a fuel cell with a battery and add a solar component, so to speak, independent of any climate situation throughout the year. So if you want dependable off-grid power and backup power, the fuel cell is at the end of your insurance policy and covers out for the times, let's say, from November to February in the Northern Hemisphere when solar and battery combinations are not reliable. Just generically answered.

[Operator]

The next question is from Malte Schaumann of Warburg Research.

[Malte Schaumann, Equity Analyst]

The first one is for the JUPITER fuel cell. I mean as Karsten pointed out, you had more than EUR 1 million revenue contribution in the third quarter. Is -- what is the visibility on the coming quarters? So what does the pipeline look like? I mean it's quite lumpy, because the deployments are taking place at different speeds, et cetera, different lots. It's very early stage. But could you -- can you kind of share a reasonable run rate for the fourth quarter and then going into 2021?

[Peter Podesser, Chairman of Management Board & CEO]

Well, I think -- Malte, it's Peter here. If we look now into the year-end, we have some uncertainties because of simply weather and installation timing. And then going forward, Q1, Q2, a, there's still, let's say, enough backlog out of our frame contract, together with our partner adKor to remain a similar run rate. And at the same time, we see our new tenders coming out for new provinces here of this program in Germany, which, in this case, specifically, is Saxonia. I think they are expecting a decision to take in December. And well, we have now opened up in Q3 and, well, more in Q4, our own market -- established market channels in the different segments now for the hydrogen product. So we are accelerating the direct sales activity outside this BOSNet program as we speak. So I would say the expectation here is realistically driving it at the beginning at the same level here based on BOSNet shipments.Well -- and then with a delay of 6 to 12 months additional sales out of our sales network worldwide, including parties like Toyota, what we published last week, here for Japan, where we are doing also first project outside of Japan. Our partners in Singapore, deployment of first products in Oil & Gas are more for communication applications there. So this is now building up the momentum also for the coming year.

[Malte Schaumann, Equity Analyst]

Okay. Sounds good. When are you about to introduce the next product generation?

[Peter Podesser, Chairman of Management Board & CEO]

Well, yes, we have, let's say, a 2-stage program. First of all, we are working on the electronics part of it. I think there, we will see a good solution until, let's say, the end of next year, which also should result in a cost reduction. And then on the core hydrogen part, we have 1.5- to 2-year program ongoing, which we kicked off here in Q3 of this year. So it's about mid- of 2022.

[Malte Schaumann, Equity Analyst]

Okay. Okay. Yes. Okay. And what's the backlog like in the methanol fuel cell business? I mean you had a pretty strong 9-month unit sales rates. So what are your expectations then for the upcoming quarters for the methanol fuel cell business?

[Peter Podesser, Chairman of Management Board & CEO]

This is, let's say, an -- we have not experienced this environment before. I mean you want to call it unprecedented, yes, but I think it's just reflecting our business development work over a number of years here. Europe, Asia, North America, especially Canada, where this is not based on a single project. We are seeing continuous demand here out of the various applications as well as regions. So a very healthy development. So for the time being, we have no indication to assume, I'd say, a significant slowdown here.

[Malte Schaumann, Equity Analyst]

Okay. And do you like to highlight maybe some applications, maybe some new applications, which you did not see maybe 1 or 2 years before? So I would think that could add some flavor.

[Peter Podesser, Chairman of Management Board & CEO]

No. Well, at the end, the drivers are really, I'd say, those applications where we have established credibility with the customers where we have established market access. And at the end, starting again from wind to surveillance and security, a lot of it now goes into communication equipment, also for, I'd say, private networks that are used in, let's say, large industrial -- with large industrial customers. So overall, the seed that we have brought out now starts to really grow, and this is an initial part of the harvest here.So this is not, I'd say, a short-term surprise. I think it's the logical consequence of consistent business development. And examples here in Europe from construction surveillance here with partners, especially in Germany and in Benelux, to a lot of CCTV application in Scandinavia as well as in the U.K., too; again, Singapore, both where we have, I'd say, surveillance and communication programs. And traffic is maybe the one that is now contributing more than -- traffic surveillance equipment is more contributing than before, although it's maybe not a new application, but it simply took longer, and some of the partnerships are starting to develop here nicely.And if you look into what we do here in Asia and especially Japan with Toyota, it's -- I would say, you can split it: half of it is wind industry; half of it is traffic information. And in a very simplistic picture, we are replacing diesel gen sets, conventional power generators that are simply not used anymore.

[Malte Schaumann, Equity Analyst]

Yes. Yes. Makes sense. What's the visibility on the sales funnel? So how early do you see projects coming up in the pipeline? And then what's the typical time period it takes until these projects then turn into actual sales? So how strong is your visibility then going forward and then future upcoming growth in that area?

[Peter Podesser, Chairman of Management Board & CEO]

This is a 2-stage sales activity here. We have our partners out there generating the projects, say, with the exception of Germany where we are now going direct after the acquisition of our partner in Germany earlier this year. So usually, it's a 6-month period where you see, I'd say, the project developing, then decision-making and then, I'd say, an execution phase. So a 6-month -- 5- to 6-month average is a good number here. And what helps us is that there is ongoing also replacement business now starting with the installed base of EFOY Pro fuel cells with all of our partners. So we see a recurring part of the revenue that is where -- this is where we know that this part of the business is coming anyhow.

[Malte Schaumann, Equity Analyst]

Yes. Okay. And based on the current sales funnel, I mean, you had very strong growth in methanol area this year. Would you say, okay, kind of stable going into 2021 or do you expect kind of remarkable growth next year again?

[Peter Podesser, Chairman of Management Board & CEO]

Well, I think what we see is that the growth funnel here of maybe the first 9 months, if you, let's say, adjusted by this change in segmentation with -- between 60% and 70% is a good growth rate that, I'd say, is what we need to see also for the upcoming years, so what we expect to see there.

[Malte Schaumann, Equity Analyst]

Okay. Based on clean energy in total, including everything broadly.

[Peter Podesser, Chairman of Management Board & CEO]

Yes, it's not the 116% of the first quarter, and I think also the change in segmentation needs to be taken into account to really see the underlying business, no?

[Malte Schaumann, Equity Analyst]

Yes. Sure. That was EUR 2 million in sales -- about EUR 2 million?

[Peter Podesser, Chairman of Management Board & CEO]

Significant growth, no?

[Malte Schaumann, Equity Analyst]

Yes. The classification was EUR 2 billion -- about EUR 2 million in 9 months?

[Peter Podesser, Chairman of Management Board & CEO]

No, it was EUR 1.319 million.

[Malte Schaumann, Equity Analyst]

EUR 1.3 million. Okay. Got that one. And then finally, on the Toyota Corporation, I think this is, yes, pretty important. It shows how the look-forward looks like. And so can you elaborate a bit more about what do you see or higher [ targets ] in respect for other regions, other markets in that area? And how -- and if there's some numbers you can share from a 3- to 5-year time perspective, what's the potential you see in these markets? And in this specific case, is Toyota already committing to the numbers? And yes.

[Peter Podesser, Chairman of Management Board & CEO]

Well, I think I'm afraid I need to stay more on the qualitative part of it as we naturally have some nondisclosure agreements in place. But overall, we have been working here together for 5 years with our partners in a very trustful way. From, let's say, testing our products in the harshest way you can imagine. I think, finally, they came to the conclusion that this is, let's say, the most reliable product that they could find on a worldwide basis. They are now particularly happy with us expanding our offering here to hydrogen products and in perspective are up to, let's say, the space between 10 and 100 kilowatts, as the original collaboration now covers the area up to 10 kilowatts.Japan now is really a solid ongoing business. They have demonstrated to be able to make use of our products to fulfill their own corporate target. Well, and now it's the natural thing. We have started some projects outside of Japan, already testing some products, and there are regions in Southeast Asia, where naturally, Toyota Tsusho is a $60 billion conglomerate. They are present in every single country. So using such an infrastructure and such a market access for us is significant. It's -- well, without, let's say, having any published numbers here, I think to make sure this is significant to an organization of this size, long term, I think we should not stay, I'd say, below maybe a number of EUR 50 million of revenue together with this party. Otherwise, I think this organization will not take notice of this.

[Malte Schaumann, Equity Analyst]

No. I mean that's the number you would expect given the size. Okay. Sounds very good.

[Operator]

There are no further questions at this time. So I would like to hand back to you, Peter.

[Peter Podesser, Chairman of Management Board & CEO]

Well, thank you, everybody, on the call. As usual, we are happy to follow up in individual conversations here, Daniel, myself or Susan. Don't hesitate to reach out to us.With this, I would like to wish you all a fantastic day. And well, stay cautious and stay healthy. Thank you very much. Goodbye.

[Operator]

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