SFC Energy AG
XETRA:F3C

Watchlist Manager
SFC Energy AG Logo
SFC Energy AG
XETRA:F3C
Watchlist
Price: 16.36 EUR -0.12% Market Closed
Market Cap: 284.1m EUR
Have any thoughts about
SFC Energy AG?
Write Note

Earnings Call Analysis

Q3-2024 Analysis
SFC Energy AG

Strong growth and profitability for Clean Energy in third quarter results.

In the first nine months of the year, the company achieved EUR 105 million in revenue, a 20% increase, while gross profit surged to EUR 43.9 million, marking a 32% rise. The adjusted EBITDA margin reached 17.3%, up 3.8 percentage points, bolstered by strong operating performance and cost discipline. The Clean Energy segment displayed a robust gross margin improvement of 4.1 points, thanks to a favorable product mix and stable input costs. Looking ahead, management projects revenue of EUR 142 million to EUR 145 million for the year, anticipating 20% to 22.6% growth, while EBITDA margins are guided to be between 20% and 21.5%.

Robust Growth in Financial Performance

The company has demonstrated strong financial performance in the first nine months of the year, with total revenues reaching EUR 105 million, reflecting a significant year-over-year growth of 20%. This growth has been accompanied by improvements in profitability metrics, specifically an adjusted EBITDA margin that has expanded by 3.8 percentage points to 17.3%. Additionally, the EBIT margin saw a substantial increase of 4.4 percentage points to reach 13%. These figures indicate not only a successful revenue generation strategy but also effective cost management.

Gross Margin Expansion: A Historical High

The gross profit for the nine-month period increased to EUR 43.9 million, marking a 32% rise compared to the previous year. This increase led to a gross margin of 42%, which is significantly higher than both the previous year’s margin of 38% and the last full year margin of 40%. The expansion is attributed to higher revenue generation, operational efficiencies, and a favorable product mix. This performance represents the highest gross margin in the company's history, showcasing operational excellence and pricing strategies.

Positive Trends in Key Product Segments

The company reported substantial growth in its Clean Energy segment, which alone achieved a 24.6% growth rate. The Clean Power Management segment also showed positive performance, growing by about 9%. This aligns with the company's strategy to enhance its offerings in high-demand markets such as public safety and defense, which now account for up to 15% of total sales. The focus on industrial applications and renewable energy significantly contributes to the company's strong growth trajectory.

Guidance and Future Outlook

Looking forward, the company has provided updated revenue guidance, anticipating total revenues to fall in the range of EUR 142 million to EUR 145 million for the year, translating into a growth estimate of 20% to 22.6%. Importantly, the adjusted EBITDA is expected to be between 20% and 21.5%, while the EBIT margin is forecasted to improve between 13.8% and 15.1%. This updated guidance reflects the company’s strategic positioning and optimism for sustained growth.

Strategic Investments and Capacity Expansion

The company has reinforced its commitment to growth through substantial investments in facility expansions across multiple regions, including new factories in the U.K. and Romania. The production capacity for membrane electrode assemblies (MEAs) is expected to reach approximately 20,000 units next year. Such expansions not only enhance production capabilities but are also critical in meeting increasing market demands for clean energy technologies.

Operational Efficiency and Cost Management

The operational strategy has focused on maintaining cost discipline, with sales and marketing expenses decreasing as a percentage of revenue from 13.7% in 2023 to 11.4% in the current period. Overall, adjusted G&A expenses increased at a manageable rate relative to revenue, indicating strong operational leverage and consistent management oversight. This attention to expense management has positioned the company well in an increasingly competitive market.

Risks and Challenges Ahead

While the company has showcased impressive growth, it has also acknowledged potential risks related to geopolitical factors and the supply chain constraints that had previously impacted operations. Moreover, ongoing national policies and tariffs may introduce uncertainties, particularly in the U.S. market. Thus, while optimistic, the company remains vigilant regarding external factors that could influence performance.

Summary and Investment Consideration

In summary, the company is on a solid path with a strong financial performance, growing margins, and an optimistic outlook backed by strategic investments and operational efficiencies. Investor sentiment should favorably view the company's growth prospects, especially in clean energy sectors. Nonetheless, it’s crucial for potential investors to consider both the prevailing risks and the management's proactive strategies to navigate these challenges.

Earnings Call Transcript

Earnings Call Transcript
2024-Q3

from 0
P
Peter Podesser
executive

Thank you very much, Gist, for the introduction. Good morning, ladies and gentlemen, and thank you all for taking the time and staying with us to look at our 9-month and third quarter results here of the year. Daniel and myself are happy to lead you through the existing numbers, but also give you a proper outlook to the business. Following this, we will be more than happy to also naturally answer your questions.

If I look at it, I think we are looking at an interesting and good combination of significant growth. We're looking at -- and I think we can say this an unprecedented level of profitability in this industry, which I think is also to be seen in, let's say, regards to peer performance here. But we're also looking at, I would say, positive and justified optimistic outlook here of the business.

If we look into where we are, I think we have naturally, and everybody sees this, we have an economic environment that is as it is. It is challenging in significant parts, and we also have significant changes here on the geopolitical side. And still, I think we can look at a continued organic growth trajectory with significantly increased profitability.

And I think it's important also to see this against the background of the significant limitations we have been suffering until recently with the in-sourcing of the membrane technology. Consciously, we were taking into account some temporary shortfalls in the availability of membranes for our fuel cells, especially, in the later part of Q2 and now also until the mid of Q3. These limitations have been fully eliminated, and our facility in the U.K. in Swindon is up and running at target capacity. Further catch-ups, we had maybe anticipated. I do not foresee that much of it, but we are running at, I'd say, targeted capacity.

On the growth side here, organically, we are looking at 20% organic growth that is shown until year-to-date. But then if we look into the profitability, and Daniel will go into the reasons here in a minute, we are looking at 52.8% increase in adjusted EBITDA at even more than 81% increase on EBIT level. And this also in conjunction with a solid cash generation. Again, we feel that is a significant differentiation factor if you look at the fuel cell industry.

If we look at also the investments, the improvement in profitability have to be seen also in conjunction with our significant expansion program. In the last 15 months, we have opened facilities in India. I mentioned the U.K. We just opened our largest factory in Romania, and we did open the facility in the U.S., Denmark, after the acquisition is in the works. So capacity going forward with the mentioned opening, especially of the Cluj facility in Q3 is prepared for growth. We are looking at, let's say, an installed capacity on MEAs for the next year of, say, around 20,000 units, 17,000 to 20,000 to be precise, and this is also concurring with what we now can do in Brunnthal and ramping up in Cluj on the fuel cell side.

If we look at our growth strategy, we, I think, have taken also a next step here. We had those -- or we have been working on those 3 pillars, organic growth, new product development, but then also M&A where it fits. The acquisition of the Ballard assets here for the small stationary business in Denmark, I think, is a good example for it. Below 50 kilowatts, I think we are expanding our technology leadership.

And at the end of the day, it's a broadening of our product portfolio, helping us also to reduce some of the spend we had planned for new platforms here internally, access to the market, especially a fast or an early adopting market in Northern Europe on telecom, cable networks, and we also think about data centers in this regard. Daniel will talk about, let's say, the financial position that is needed to further take steps in the market consolidation, which is a clear part of our plan.

Looking at the overall environment, we really see opportunities here just by the structure that we have established now. Being established in the U.S., in Canada and India gives us good positioning in growth regions. And especially in the U.S., we just spent coincidentally the week of the elections in the U.S. seeing our biggest customers coming back with significant optimism also not just on our customers' end, but also with us seeing, let's say, and understanding their plans. I will go into this when we talk about the outlook.

Looking at now the near term, next couple of weeks, yes, what do we expect? We expect really a strong year-end performance both in sales, but as well in the order intake to have a solid foundation here also to continue our path of profitable growth here throughout the next year.

Let me lead you through the 9-month figures here from a market perspective in terms of order and sales. We see an increasing order intake here over the 9 months of EUR 98.7 million compared to EUR 89.67 million. So, the trend is right, but we also have to see that right now, with the order book is being down compared to the beginning of the year, this is a major area of emphasis here for us and the team because it's the only KPI we are slightly down. And if we do an analysis here, we see a timing effect that some projects got delayed also, especially government business. We saw some of it moving in India, but we also saw, let's say, a calibration of volumes here with our largest customer in the U.S.

Looking into the next couple of weeks, I'm extremely confident to show significant projects being brought home and being brought into the order book. So clear intention is also to revise this KPI to a positive again by end of the year. Growth of about 20%, 19.5% overall. I think here, naturally, if you look at it, we end up at EUR 105 million revenue compared to EUR 88 million last year. Major driver, Clean Energy, but still Clean Power also contributing with an average growth rate that is, again, double-digit, I'd say, after some catch-up still, let's say, in the earlier part of the year after curing some supply chain -- long-term supply chain topics there. I think we are back to 10% -- 11% growth, solid and substantial.

If we now look into the regional perspective, yes, we have some impacting factors here quarter-on-quarter. We saw Asia in a 9-month review being the strongest growth area still. But then still in the third quarter, we see a shortfall year-on-year. I mentioned some of the shifts in projects in India. Well, in the U.S., largest overall contributor to sales in absolute numbers, but then also compared to last year, a slight decrease. Currency effects as well as, let's say, some shipment delays on our end make it look this way here in the 9-month review. We are significantly catching up in the last quarter of the year here. And I think I can only say we are shipping at capacity level also to the U.S. Clean Energy, 24.6% growth rate. And as said, on the Clean Power side, a good 9%.

If we look now into the structure of the business, we are still benefiting from a significant demand here in our industrial applications. We are talking about customer groups here in the public safety area, CCTV and civilian surveillance, a strong element, but then also government, especially defense, being a strong element. We are running up to a level of 14% to 15% of sales in defense as well as public security applications. And we see, let's say, the industrial part of the business accounting for about 50% of the growth.

In all our year-end discussions with customers, I have the pleasure to meet our biggest partner in the wind industry here in Germany yesterday night. Also there, they are providing LiDAR wind measurement systems to wind customers, not just on a German level, but also on an international and global scale. Good news here is, they are also running at capacity and also see a continuation of growth here. This wide range of applications, including natural oil and gas, I will get to this also in the outlook, is again giving us this resilience here, and I think it's also the basis here for continued growth.

Clean Power Management, again, existing customer base continuing to grow. We have, let's say, our largest customers like Thermo Fisher continuing to, let's say, be in this 9%, 10%, 11% growth rate and also in the upstream oil and gas part where we also provide some power products, investment is ongoing.

If we then, let's say, summarize this here, yes, we have 70% of the business now in -- approximately 70% in the Clean Energy part and 30% in the clean power part. I think that's again also following our strategy and also reflecting the different, let's say, growth path of those segments. But naturally, this higher pace growth with the higher profitability on Clean Energy is 1 of the elements that we will also see reflected in the earnings.

And with this, I would like to hand over to Daniel to lead you through the financial results in more details.

D
Daniel Saxena
executive

Hi, everybody. Thank you for joining the call. Thank you, Peter. Let me give you quickly a summary of the key KPIs. We've seen and Peter already mentioned that the growth and earnings momentum in the first 9 months not only remains strong with regard to revenues, but also earnings and margins reflect the strong operating performance, including with a group-wide cost discipline. And this is reflected in what we consider to be strong 9 months KPI across the board, which is revenue, Peter mentioned it, EUR 105 million, up 20% an EBITDA adjusted margin of 17.3%, which is 3.8 percentage points expansion compared to the 9 months in 2023. The EBIT adjusted margin of 13%, which is a 4.4 percentage point expansion compared to the same numbers in the last year.

And cash flow from operating activities, which amounted to EUR 14.1 million, which is also up from last year. If we look at the gross profit, we see that we -- after a strong first half year, we also delivered a strong third quarter with a positive price volume development, a continuously attractive product mix and operational efficiency, all of which make a positive contribution to the gross margin and the earnings development.

Consequently, we have made continuous progress on our gross margin expansion, which is one of the key driver for the overall profitability. And at the same time, we were following our expansion and growth path. The gross profit, and you may have seen that already in the report, reached EUR 43.9 million, exceeded last year's 9 months profit significantly by EUR 10.6 million or 32%. And with the gross profit growth outpacing revenue growth, this translates into a gross margin of 42%, which is not only significantly above the level of the previous year's 9-month gross margin, which was 38% and notably above the level of the last full year's annual gross margin, which was 40%, but it's also the highest gross margin in the company history.

We have managed to keep an excellent balance between price stability and volume growth in the last 9 months. And the drivers between the gross margin increase and the gross margin level are pretty much unchanged of what we've reported in the first quarter and the second quarter. It is, first of all, higher revenues, which are leading to relatively lower production overhead per unit. It is a consequent pricing strategy in both segments. It is an attractive product mix in both segments. And also, we're looking at normalized cost of raw materials. We didn't have any material impairment on inventory, and we already took the higher cost of the MEA in account.

What we see is that the gross margin in both segments has improved with the segment Clean Energy, and that is consistent with the previous quarters showing a higher gross margin expansion. So for the entire 9 months 2024, the gross margin in the segment Clean Energy improved by 4.1 percentage points, driven by a significant expansion in the first quarter '24. We then had a virtually stable gross margin in the second quarter 2024 and then again, an expansion in the third quarter.

The key driver is still the same. It's a bit of a product mix, larger orders for EFOY high-power platforms, which tend to have a higher margin. And also -- and I mentioned that in the half year financial already that the industrial application, which account for more than 50%, 66% of the segment revenue tend to have higher margins. But also in the Clean Power Management segment, we increased the gross margin continuously and gradually. We have slightly stronger margin in that segment across most of the product families, in combination with lower unit costs as the segment revenues increased 10%. So it's a solid quarter in terms of revenue for high value-add units, lower unit cost and a slightly better product mix.

If we then go into our EBITDA from reported EBITDA to adjusted EBITDA, so you see that the reported EBITDA was EUR 16 million for the first 9 months compared to EUR 11.6 million in the first 9 months of 2023. On reported EBITDA, we had a margin expansion to 15.3% compared to 30.1%. But remember, reported EBITDA is not our key KPI, it is adjusted EBITDA, how we get to adjusted EBITDA. Those of you who have been following us know the adjustment. Again, nothing changed here, but let me repeat them real quickly one more time.

So, the reported EBITDA includes nonrecurring expenses and income. These are related to provisions, additions to the capital reserve for the LTI programs and it's related to transaction expenses for acquisitions and strategic opportunities. The adjustments have been made analog with the previous 9 months adjustments to provide you with an across the years comparable and more objective indicator for operating performance. So the reported EBITDA was in the first 9 months negatively impacted with EUR 2.1 million by those nonrecurring expenses. The negative impact in the first 9 months of 2023 were much lower with only EUR 370,000.

The expense for the LTI program, which are SARs, Stock Option Programs, and of this year PSP, Performance Share Programs, amounted to EUR 2.4 million in the first 9 months. This is significantly higher for what we've seen in the last year 9 months, where it was EUR 326,000. This is not only but also to a number of new programs that we granted and introduced for a number of senior managers in SFC Group this year.

The income from the LTI program due to reversals of the provisions amounted to EUR 638,000 compared to EUR 397,000 in 2023. Transaction-related expenses pretty much on the level of what we've seen in the first 9 months 2023 with EUR 450,000 compared to EUR 437,000. And this amount always is a good indicator of our level of engagement when it comes to potential acquisitions and M&A.

That brings us to the adjusted EBITDA. The adjusted EBITDA amounted to EUR 18.2 million, which is 53% and well above the level of the 9 months in 2023, where the adjusted EBITDA amounted to EUR 11.9 million. So we are particularly happy that we've managed to further expand our adjusted EBITDA margin in the first 9 months of the year, which came up to 17.3%. This represents, if we do the math, an increase of the margin of 3.8 percentage points in comparison to 9 months 2023 and means that we are very well within our midterm target range with what we consider still to see in the midterm is some upside potential. The excellent overall figure is attributable to significant gross margin gains and good operating leverage. I already discussed the gross margin gains. So let me dig into this one more time to review the key drivers behind this absolute EBITDA increase and also bring forward some of the functional cost discussion, which I'll touch later on also.

First of all, gross margin expansion. With regard to the gross margin expansion, it's not a single factor that drive it. It is a fixed cost and production overhead cost progression resulting from higher revenues in combination with the product mix and a positive pricing effect, and by and large stable input prices. So that, and I discussed this earlier, led to a gross margin expansion. of 3.9 percentage points. And secondly, the impact of the increase in adjusted EBITDA is the operational leverage or scaling. We need to reiterate that we are really committed to delivering profitable growth and staying disciplined in our cost.

But also on operating leverage and scaling, it's not the one factor. It's not the one functional cost. A lot of various factors are coming together. So even all of the adjusted functional costs other than the sales and marketing expenses for the specific reason, increased absolutely. Sales and marketing and R&D increased under proportionally with respect to revenues and GMN increased slightly. GMN, general management costs increased slightly above revenue. It is, at the same time, mostly driven by personnel expenses as well as corporate development activities.

So if you look at the adjusted sales and marketing expenses, which account 40% of the total functional cost, they remain on an absolute stable level. This is, however, due mainly to the utilization of certain accruals in Q3 2024, which is more of a seasonal effect. I will touch on this later on. Adjusted sales and marketing expenses came up to 11.4% of revenues versus 13.7% in the first 9 months in the previous year. This is what we believe a notable 2.3 percentage points relatively less. And the relative contribution of the relative lower sales and marketing expenses to the increased adjusted EBITDA is approximately EUR 2.5 million.

Adjusted R&D expense hardly surprising, giving sort of the short and midterm fixed cost correct of R&D expenses increased marginally slower than sales, resulting in a cost revenue relationship of 4.6% versus 4.7% in the first 9 months 2023, which is 0.1 percentage point lower. The relative contribution to the absolute EBITDA increase is EUR 178,000.

And then last but not least, in relation to revenues, the adjusted G&A expenses grew slightly faster, resulting in a G&A expense to revenue ratio of 12.5% compared to 12.2% in the first 9 months of 2023, and that's a relative negative contribution to the increased adjusted EBITDA of EUR 334,000. Depreciation and amortization, total amortization and depreciation were EUR 4.5 million versus EUR 4.4 million in 2023. You know and you've seen that, that almost 40% of our depreciation is related to IFRS 16 accounting, which is EUR 1.8 million. This is notably above last year figures. It has to do with the new sites with the new buildings that we rented in Romania and U.K., which obviously also drive the IFRS 16 depreciation.

So the depreciation without the IFRS 16 impact comes up to EUR 2.7 million. And for a large part, those depreciations are resulting from the depreciation of capitalized R&D expenses, which was EUR 1.4 million compared to EUR 2 million in the last year's first 9 months. Other tangible and intangible assets make up for the rest of the depreciation, EUR 1.3 million. That brings us to the adjusted EBIT, which amounted to EUR 13.7 million. This is a 13% adjusted EBIT margin. And the key reason for the drivers for the margin expansion with the EBIT are basically the same as in the EBITDA.

Let me quickly dig into the operating expenses. You may have realized that the 9 months '23 numbers do not compare exactly with the numbers published last year. This results from discussions we have with our new auditors and the fact that the income from the reversal of the LTI provisions are no longer shown in other operating income, but directly in the functional cost and that impairment losses of gain on financial assets, basically IFRS 9 is presented in the -- no longer presented in the sales and marketing expenses, but a separate line item in the P&L.

Remember that when looking at the Q3 numbers of 2023. Sales and marketing expenses seen, and I discussed it already briefly, they remained almost stable compared with the previous years, amounting to EUR 12 million adjusted, adjusted for the LTI income and expenses. compared to EUR 12.1 million in the previous year, 11.4% of the revenues compared to 13.7% in the first 9 months 2023. We had a onetime -- not onetime, but sort of a seasonal effect resulting in the decline of sales and marketing expenses in the third quarter of 2024 compared to the previous third quarter, which were the utilization of certain personnel expense accrual across the group, which had an impact on the personnel expenses. R&D expenses and R&D spend. So R&D spend, and I will discuss how this is calculated in the first 9 months were EUR 7.5 million. That compares to EUR 6.5 million in the first 9 months 2023 and is a solid 15.5% up.

How are these costs made up? It is, first of all, the R&D expense in the P&L adjusted for the impact of the LTI programs, which amounted to EUR 4.8 million in the first 9 months 2024 comparing to EUR 4.1 million in the first 9 months 2023. So this is 15.7% up. Then we add the R&D expense that were capitalized. That amount was EUR 2.2 million in the first 9 months. And then we also look at the subsidies, which were EUR 506,000 in the first 9 months, 80% or 76% more than we had in 2023. And if you add up those numbers, you get to what we have in the R&D spend. R&D spend is about 7.2% of revenues, slightly or marginally below what we've seen in the last year, 7.4%, but you see that the absolute amount has increased. And in long-term, we're looking unchanged at around 7% of revenues for R&D.

G&A expenses, and I already mentioned it, the adjusted G&A expenses increased significantly, solidly to EUR 13.1 million compared to EUR 10.7 million. The drivers behind it, and we already discussed it in the first half here is on the first hand, mostly personnel expenses, higher headcount also with the expansion for production facilities, where we now have also administration staff hired, especially in the third quarter. Then we have significantly higher IT expenses in there with the introduction of SAP and implementation all over the group. That is also a driver. And to some extent, we had also higher travel expenses in connection with the corporate development exercises we are doing. That corresponds to 12.5% of revenue, slightly on the ratio slightly higher to what we've seen in the first 9 months in 2023, where we had 12.2%.

Quick look at the balance sheet, fixed asset and CapEx. The total CapEx, the gross CapEx, excluding right-of-use and IFRS 16 accounting impacts amounted to EUR 7.4 million. So that is EUR 2.6 million up from what we've seen in the first 9 months 2023. The main drivers in that was the investment in the EMEA production, in the U.K. and in our production site in Romania. You'll see also that the CapEx split between intangible assets and PP&E has reversed in this year. It's about 31% for intangible assets and 69% for PP&E. Normally, you would see that, that ratio is reversed where we have higher investments in intangible assets than P&E. But it was, as I mentioned, driven by our expansions.

Looking at our cash position and cash equivalents, the cash really available is EUR 65.7 million. So we are very well positioned for our corporate development exercises as well as for our growth. The financial debt was 3.9%. Nothing has changed there in the type of that. It's working capital facilities with SSC Netherlands and SSC Canada. So that brings us to a net debt or, in this case, a net cash position of EUR 61.5 million. Equity increased by EUR 10 million with a positive income that we had. The equity ratio remained pretty much on the level of the year-end, 72.3% and the net profit solidly EUR 8.7 million.

Cash flow, strong, good, well prepared for our growth. The operating cash flow before the change in net working capital was EUR 80 million, so up almost EUR 6 million compared to the first 9 months in 2023. The net working capital increased in the first 9 months. Remember, we already discussed it in the first half year and that we would see an increase in our net working capital. It increased by EUR 2.5 million, modest increase, what I would consider drivers behind it, is basically the inventory after the destocking that we had at the end of the first half year increased cash impacting by EUR 3 million.

If we look at the days of inventory on a 12-month trailing basis, we're looking at 165 days. So that is up from the 128 days that we had at the year-end. Again, there was destocking also at the year-end and in the first half year. So we really pulled in again some inventory for the further production and growth. The account receivable slightly went up compared to year-end level, resulting in a decrease of cash of EUR 1.5 million. If we look at the days of sales outstanding on a 12-month trailing basis, we are still with 81 days below the 88 days that we've seen at the end of last year. Remember also days of sales outstanding or the accounts receivables always been a little bit impacted at the business that we have at the end of the quarter or at the end of the year. So not a big change, it's more or less stable. And then we look at the other short-term receivables, which are prepayment and taxes mostly, which increased cash impacting by EUR 372,000.

And I look with the inventories, the accounts payables increased cash impacting by EUR 2.6 million. If you look at the days of payable outstanding, we're looking at 97 days versus 66 days at the year-end, just to give you an indication on that. After tax payment, this results in a positive cash flow from operating activities of solid EUR 14.1 million, much higher from what we've seen in the first 9 months last year. I already mentioned the cash flow from investing activities was negative with EUR 6.4 million, higher than in the 9 months in the previous year. And the cash flow from financing activities amounted to negative EUR 2.2 million. Remember, there is also the IFRS 16 impacts in there. And that results to a change in cash of EUR 5.5 million for the first 9 months, which is a nice and good thing to have.

With that, I'll turn it back to Peter.

P
Peter Podesser
executive

Thank you very much, Daniel. And now let's maybe just complement it, also on teams level, we were at the end of the quarter, a number of 451 permanent employees, so a 12%, 13% increase in total headcount. Again, one of our focus areas also operationally hiring and retention and continues to be. So now what does it all mean now for the immediate future? You have already -- most of you have seen now, I'd say, our confirmation and specification of the guidance, but maybe also 2, 3 thoughts going beyond this. Based on the first 9 months, also on the backlog and the momentum we see, we are seeing a growth of 20% to 22.6%, resulting in a range of EUR 142 million to EUR 145 million of revenue for this year, one can naturally see this as the lower half of the guidance. I think at the same time, it is, let's say, by far the best year in the history of the company. And at the same time, I think I mentioned, well, some of the limitations we had here on the capacity supply, but also some quarter-on-quarter shifts of projects. So that's, I think, where we are on a realistic level.

If we look at EBITDA and EBIT, yes, we are moving this up, let's say, within the range that we had specified that the EBITDA adjusted to a range between 20% and 21.5%. So it's definitely the upper half here. Well, give us a couple of weeks here, and then we drive this up as far as possible. So, on the EBIT side, I think even slightly better, what we see here is a range of 13.8% to 15.1%. Again, the previous numbers we had out in the market, 9.8% to 14.7%. So we lift up the upper end depending naturally on revenue development and cost development here.

And closing out, I think, with some observations, some impressions I gathered over the last couple of weeks here in terms of going beyond the year-end and looking in 2025. Together with Hans Pol, our colleague, we have been seeing and we are seeing our top customers over the last couple of weeks and in the remaining weeks of the year. We see consistent optimism here. We see, let's say, investment plans that are coinciding with our own growth plans. We look into the growth drivers, yes, the key element are our methanol fuel cells here in the Clean Energy part. This is where we have built up a customer based business where we do not sell our products on subsidies. Our customers are not depending on, let's say, government spend. It is a total cost of ownership model, and it pays off and has, in addition, a positive ESG impact.

The power product, I mentioned already, I think significant consistently growing accounts here with a double-digit 10%, 11% growth is what we see. And then, if I look into the U.S., coincidentally, we were there exactly in the week of the elections. I think what we saw is customers being optimistic. Some of them really excited. Well, naturally, that's also then depending, let's say, also on their individual political views, and I'm not here to comment on this. But what we also see is that some of our customer industries, be it oil and gas, the defense and also the public safety area as well as mining are expecting, let's say, from the focus of the incoming administration, a significant impetus and having optimistic customer base is, I think, a good place to be.

And looking at potential tariffs, yes, we have shown to transfer part of our value chain to India within a short period of time. And you all know, we are looking at different options in the U.S. So we are also not afraid of this. So a real good and positive outlook here also in regards to what we expect here from our overall customer base and especially the U.S.

And with this, yes, I would like to hand back to our operator and open the floor for your questions. Thank you very much.

Operator

[Operator Instructions] The first question comes from the line of Karsten Von Blumenthal from First Berlin Equity Research.

K
Karsten Von Blumenthal
analyst

My first question is regarding the U.S. You mentioned the customer optimism. I'm happy to hear that for your business. My fear is that you might be hit by tariffs the U.S. might impose on products from the EU. So perhaps you could comment on that. And then a question of practice. We start with the question I can...

P
Peter Podesser
executive

As mentioned here in the closing remarks here of my presentation, yes, we are taking this into account into our planning, and we are able to transfer parts of our value chain as you have seen it also with -- as we have demonstrated here in India. And we are not talking about years. We are talking here about a period of 6 to 9 months. So -- and we are, I'd say, besides the greenfield operation now in Utah, we are qualifying potential acquisition targets, which could even accelerate this process. So we are actively preparing for this. But still being in industries, being with customers that are, let's say, optimistic and being there as, let's say, a product that is at the end, unique in its way of replacing incumbent technologies is still a good combination. It doesn't relieve us from the obligation to perform. And that's, I think, what we have to demonstrate. And yes, some of the capacity limitations in the second half of this year didn't help here. We cured this, and we prepare for the next steps.

K
Karsten Von Blumenthal
analyst

All right. That sounds promising. One question regarding your gross margin that was pretty impressive in the 9-month basis. How do you see that for next year? Do you see it further increase possible? Do you think you will stay at that level? That would be interesting to know.

D
Daniel Saxena
executive

So first of all, the question, of course, I would see that it stays at the level that it is because the drivers behind it don't really change. For the time being, we don't really see any increase in the inputs. So we would also -- and then it comes with the operational leverage, potentially see also an increase depending a little bit on the product mix that we're going to have going forward. But if you look at the drivers, if you look at what has driven the gross margin expansion so far, I would see a stable one with the potential, obviously, to increase it.

K
Karsten Von Blumenthal
analyst

Right. Last question from my side. When I look into your earnings per share diluted and undiluted -- especially diluted, that is weaker than the growth, weaker than your net result. What is the reason for this?

D
Daniel Saxena
executive

Sorry, can you repeat. I did not exactly understood the question, so apologies.

K
Karsten Von Blumenthal
analyst

So if I look into your earnings per share, the growth is weaker than the growth in the net income. So what is the reason for that?

D
Daniel Saxena
executive

In the earnings per share or in the diluted earnings per share?

K
Karsten Von Blumenthal
analyst

Diluted.

D
Daniel Saxena
executive

Yes. Because obviously, dilution is based on the PSP and stock option programs. As I mentioned, we introduced some new stock option programs, equity settled also for senior management, so not for the Management Board this year, and that results then in fully dilution based on these programs. That is the key driver behind it.

Operator

The next question comes from the line of Usama Tariq from ABN AMRO ODDO BHF.

U
Usama Tariq
analyst

Congratulations on the great results. I hope I'm audible.

P
Peter Podesser
executive

Absolutely.

U
Usama Tariq
analyst

I have a few set of questions. Number one is just housekeeping. When is the Ballard acquisition expected to close? And do you already include it in sales guidance or not?

P
Peter Podesser
executive

We expect the Ballard acquisition to close this year, ideally at the end of this month. And yes, the impact of that is reflected in the sales guidance. Remember, I mean, pretty much at the end of the year. So you could imagine that the impact may not be significant in 1 month, right?

D
Daniel Saxena
executive

You will more see it in the profitability guidance than in the top line guidance. We do not expect any significant shipments to happen on our accounts.

U
Usama Tariq
analyst

Okay. Okay. Very, very grateful. Now I have another set of questions with regards to trimming of the top end of the sales guidance. Could you maybe give a little bit more color on that on which segment would it be more due to? Is it due to Clean Power, Clean Energy? Just a little bit more color on that what are the underlying reasons behind it, if I may ask?

P
Peter Podesser
executive

I think the proportional impact here on the remaining part of the year will not significantly change. We expect now, in Clean Energy, again, a bigger portion here of defense and public security as well as North American sales and sales to India in the year-end business. So what you see there on the upper end, I think, is a bigger impact from the Clean Energy part.

U
Usama Tariq
analyst

Okay. And on that, adding up a question with regards to India. You mentioned that there have been some sort of delays or project delays. Is that only limited to India, if I understand correctly?

P
Peter Podesser
executive

Well, at the end, yes, we are experienced nothing, let's say, unexpected here. It's still a government business, and we see this not just, let's say, as a specific fact in India, but it had, let's say, the biggest impact, let's say, in our Q3 because we are having the biggest volumes here of defense shipments right now to India.

U
Usama Tariq
analyst

Okay. Now, very clear. On M&A, you've already indicated that U.S. would be the potential geography you're looking in?

P
Peter Podesser
executive

Yes. I think here, at the end, it is, let's say, the existing setup and the diversification of our customer base. And for the remaining part of the year, I think we are as such shipping at capacity levels. But I think going forward, it is a positive environment, having, let's say, a government -- or having, let's say, some of the industries really in the focus of the incoming government and therefore, having, let's say, the right level of optimism that usually leads also to the right spending levels and investment levels. So it's an upcycle. And being already an established partner there makes you naturally also benefit in a natural way from it.

U
Usama Tariq
analyst

And maybe one last question. You've been very generous with time. Would you be more looking towards a technological acquisition or more like an aggregator? Any color on that in U.S.?

P
Peter Podesser
executive

At the end, honestly, we are looking at both of it because the Ballard acquisition is adding a solid product platform that needs to be integrated now, but also a good customer base. And if I look at the U.S. right now, yes, I think we still stay on track here to look for faster market access, system integration into one of the verticals or one or more of the verticals we are in, be it oil and gas, be it defense and public security. And well, on the technology side, I do expect some consolidation opportunities coming up seeing, let's say, the situation in the industry.

Operator

The next question comes from the line of Thomas Deser from Union Investment.

T
Thomas Deser
analyst

Two brief questions, if I may. What is the book value per share at the moment? Bloomberg doesn't provide that. And second question is, the figures are strong and the share price is weak and you talk to investors. So what is your take? Why is the selling pressure there?

P
Peter Podesser
executive

If I may start, Thomas, with the second one. Our primary focus naturally is to deliver an operational result, which usually is, let's say, the basis also for the development of the performance of the share. If we are looking into especially now the European small-cap sector, it has been a challenging environment, I would say, throughout the entire year. And if we also look into the sector performance here, hydrogen and fuel cells, not a favorable environment too. So yes, we are trying to differentiate as much as possible, and we are out there on road show. But naturally, we cannot revise some of those macro elements. But at the end, my conviction and, let's say, our experience tells us we deliver on the operational side. And long-term, this is the basis where you convince somebody putting money into your company. But the macro environment is not, I'd say, what we can influence here.

D
Daniel Saxena
executive

Yes. And book value of share, I'll quickly tell you, this is not a number that I have in my head right away. But I will quickly tell you, I think it's EUR 8. But I was happy to look at this and send it to you, send an e-mail to Investor Relations, and then we'll calculate that ratio.

Operator

The next question comes from the line of Malte Schaumann from Warburg Research.

M
Malte Schaumann
analyst

The first one is on the sales guidance for the full year. Is it just India that is responsible for the kind of slight shortfall in comparison to your earlier expectations? Or are there other areas which are developing slightly weaker than assumed?

P
Peter Podesser
executive

Well, I think what we are looking at, and it is either the lower half or the upper half. I think what we are targeting is definitely on the upper end of what we are seeing right now to the midpoint of the original guidance. We also have to say, and we mentioned this in our, I'd say, North American results, we have a negative currency effect that also takes some percentage points away, but that's fact. So, the combination of really, let's say, the capacity limitations we suffered from -- for part of the year where we are now at, let's say, capacity levels we need, but a further catch-up seeing where we are in the year definitely is just, let's say, partial here is one thing. And the other thing is really some shifts quarter-on-quarter, which is definitely not unusual from our perspective. But it's this combination, including some currency effect here.

M
Malte Schaumann
analyst

Okay. And these shifts are only India or other material customers as well?

P
Peter Podesser
executive

No. As I said before, I think shifts there in India, but also, I'd say, some volume calibration also in Q3 here in the U.S. with a major customer there made us being, let's say, more cautious here. Looking at the latest discussions, especially with seeing our Indian partners last week being in the U.S. the week before, I think we have justified optimism going beyond now Christmas and going beyond year-end, but it's really a shift between quarters here.

M
Malte Schaumann
analyst

Yes. Okay. Then on Q4 profitability, I mean, if I take your guidance for the full year, then you're targeting for an EBITDA margin of only 6%, 7% maybe in the fourth quarter of the year. So maybe you can provide more color why that is or why would that be? And probably there are some one-off effects included. Maybe you can talk about these, maybe Ballard, so we can give some more background on the weak profitability that is baked into your full year guidance in the fourth quarter.

D
Daniel Saxena
executive

Malte, so you touched base on it, yes, it's weak or the fourth quarter always have some sort of cost flowing into it. And again, it's not every quarter is exactly the same, but you touched on it. One of the reasons, obviously, is the Ballard acquisition. We're getting Denmark up and up and running, right? It's going to be an SFC site up there, where we're now taking over not only assets, but also certain employees from Ballard. There's always some cost associated to it.

Then secondly, what you also see in the fourth quarter is that some of the expenses increase in context with some advisory activities, also audit activities that we're having that are the key drivers in there. And then we also see that at the year-end, sometimes there are, remember, certain bonus payments for all employees. So all of this is factored in. So I would not necessarily say it's that weak quarter. Yes, it may be a weaker quarter, and you know I'm a bit cautious, factored all of those things in, to some extent, seasonal expense, but also, as I mentioned, acquisition. Yes, that's it.

M
Malte Schaumann
analyst

Okay. Well, let's see. I mean it would be the weakest quarterly profitability since 2022. So it's not that strong, but maybe it's prudent to take a cautious approach.

P
Peter Podesser
executive

I agree. But as I said, we do have quite a bit of corporate activities out.

M
Malte Schaumann
analyst

Yes, fully understood. Okay. Then on maybe next year, I mean, I'm not asking for guidance, but seeing that -- I mean, we are seeing an order intake growth about 10% maybe after 9 months, maybe it will also be 10% growth in the full year '24 in comparison to '23. Organically, you're growing kind of 20% this year. So what are your thoughts? I mean you're targeting growth CAGRs of more closely to 30% and then seeing the 10% growth in the order levels, seeing the current economic environment. So maybe you can kind of give us a broad overview on what you're seeing in the pipeline and your thoughts about '25.

D
Daniel Saxena
executive

Absolutely. I think order levels right now, yes, give us time until Christmas, and we will look again at the different situation being really, really confident here, knowing where we stand, let's say, with some of the major closings we have still before the year-end. So trying to -- or being confident to move this up above, let's say, the current levels. And then I think we should not forget, and this is an ever-growing element to it. We have a larger installed base out there. We have a replacement and refurbishment program now being implemented with our largest customers. And we know end-of-lifeimes and we have, let's say, a recurring sales revenue line that is, let's say, consistently and I would almost say, significantly growing.

And let's say, the combination out of this with, let's say, some larger projects also on the defense part of the business is, let's say, what I think are the 3 pillars that are -- that we are basing our growth assumptions on it. And yes, if we look at this year and if you look at the original guidance, yes, again, a range between 20% and 30%. We talked about some of the limitations. We, let's say, target to end up at potentially the midpoint, which definitely would then also have an impact still on the earnings side, having a conservative view on it at this point in time, still, I think, is our good tradition. And then we look at it whether -- at what point we end and whether we can still generate some positive surprises there.

M
Malte Schaumann
analyst

Okay. On the recurring part, maybe you can share a number how the trajectory was, how much recurring sales in '23? What's the expectation for '24? And then maybe a rough guidance for growth in '25 on the recurring portion?

D
Daniel Saxena
executive

I think if you look into this and if you see, let's say, our industrial business there on the fuel cell side, with all the historical installations and depending then on application fields, you see different lifetimes of products. And we are following this up and now with our cloud being operational and having systems in there, we also see the performance of the products. So if you look into, let's say, the industrial part of the sales, we know that between 20% and 25% is already, let's say, a recurring part. And it's just a question of lifetime there. But I think we can also look into this in more details from a model perspective here offline because with now, let's say, thousands of systems already being in our cloud in there, we get more sophisticated on this end, and this gives us naturally a good database also for projections.

M
Malte Schaumann
analyst

Yes. Okay. Yes, makes sense. Then on -- last question, final question on Asia, Toyota Tsusho, et cetera, maybe you can provide an update on where you stand with your plan to broaden your base and business in the Eastern Asian region?

P
Peter Podesser
executive

Well, there also, we -- amongst the partners we have seen in the last couple of weeks, also Toyota [ Tshusho ] is part of it. We are happy with the pace we are seeing in Japan, but we also have, let's say, a limited part of the original exclusivity and have revised it and have opened up in parts of Southeast Asia because we feel we need more channels to market and implementation program that I think will unfold its impact on the business just not this year, but going into 2025.

It is, I think, a good basis. We have established here with our long-term partner, but we all have recognized it needs more channel to market and also a multichannel access in Southeast Asia, including the Philippines, including Taiwan, and that's in implementation right now. If you look at it, original expectations were higher, very clear. Happy in Japan needs revision outside Japan.

M
Malte Schaumann
analyst

Okay. So when we talk in the year, maybe so by the end of next year, you should have probably much better setup, so to speak.

P
Peter Podesser
executive

I would not even wait that long. We are, let's say, implementing as we speak, and we cannot wait naturally. Now we need to have feet on the ground in 2025 already apart from the Toyota team, and we are also sending own people to Asia. And we are also not hesitating to look at, let's say, potential smaller acquisitions there for market access.

Operator

There are no more questions at this time. I would now like to turn the conference back over to Dr. Peter Podesser, CEO, for any closing remarks.

P
Peter Podesser
executive

Well, again, thanks very much to all of you for the time. As always, come back to us, relate back to us to Susan, Daniel and/or myself. And yes, you see us here in a good and optimistic year-end closing exercise, and this will be exciting times here through Thanksgiving and the Christmas time for us until we close our books on the 31st of December. Thank you very much.

D
Daniel Saxena
executive

Thank you.

All Transcripts

Back to Top