SFC Energy AG (F3C) Earnings Call Transcript & Summary

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

Thank you very much, Orelia. Good morning, ladies and gentlemen. Thanks for joining us on this Valentine's day morning to our presentation of the preliminary unaudited results of the fiscal year 2021 as well as the presentation of the guidance for 2022. Daniel Saxena and myself will present key facts, and we'll be pleased to enter into a Q&A session, as always, after that. Let me now come to some of the key highlights when looking at our fiscal year 2021. I think we are particularly pleased to present the results of a really good year with solid improvements on various levels of the performance of the company. Actually, these are the numbers of the best year in our company's history. If we look at, I'd say, the main elements, I think we have 3 pillars here that helped us to, let's say, reach these milestones. One is, yes, within SFC, we have been always focusing on highest product standards, highest product quality and innovation-driven spirit here to improve ease of use, functionality and, therefore, I'd say, acceptance on the customer level. The second element and I would say, most important, so the market environment, despite a pandemic situation over the last 22, 23 months, essentially over the last 2 years. We are seeing a steadily, consistently growing demand here for highly efficient emission-free power generation, but then also of state-of-the-art efficient power management products. And the third element, yes, we have been focusing on market access, on building partnerships here across different regions across various end user groups and industries over the last 15 years. And I think this gives us a head start and, I guess, is a reflection or the orders we receive from our customers are a result of this. What do we do? We help our different customer groups to move to climate neutrality in their energy demands. Some key facts. I think it's important to see on the numbers side. The dynamic is demonstrated, I think, impressively with an order backlog that despite, let's say, the sales revenues recorded here for 2021, went up to EUR 64.32 million, approximately 21%, 20.9% growth. And still, the order backlog compared to the previous year is 3x higher, going beyond EUR 30 million. And I think even more so, we can look at a continued dynamic here in the first weeks of the year, we have today, as mentioned on 14th of February, Valentine's Day, and we were able to record and collect orders in the amount of approximately EUR 32 million since the beginning of the year, which leaves us with, let's say, for our company, an unprecedented level of order backlog here already in February. And this goes across both segments. We reported last year at EUR 20.9 million order from our largest customer in the Clean Power segment, a 3-year contract with firm orders that at the end of the day, it gives both parties a win-win situation. Our customers need stable supply, they need foreseeable cost and at the same time, we need a planning horizon that helps us to cope with the current challenges on this pricing. And after a couple of months of good discussions, I think we reached a really good results here. But then getting into the order activity on the clean energy segment on the mere fuel cell business, I think a couple of numbers also help us to see the dynamics in the market to see really the momentum that has been building up here over the last 12 months and especially also in the last couple of months looking at the Q4 numbers. Fuel cell systems, sold orders collected in 2021 went up from 3,530 in 2020 to almost 6,500 or 6,467 to be accurate. So it's an 83% growth here in unit numbers. And if we compare quarter-on-quarter here, Q4 '20 to Q4 '21, those numbers roughly tripled. So 1,000 units orders received in the last quarter of the precedent of the previous fiscal year compared to 3,000 in the Q4 of '21. Overall, with this, yes, we have now more than 55,000 systems in the market and, I think, could solidify our leading market position here even further. We have, overall, and I think that's on the market, on the demand side, the key message, even against the background of the pandemic situation and naturally some disruptive situations on the supply chain, we see a broad and strong momentum here in the order activity. And this is across our different regions, this is across our different customer groups. So we are not depending on one region, not particularly depending on one customer group nor a single customer as we have this maybe in earlier parts of the history of the company. At the end, again, we provide an efficient 0 emission power generation technology and highly efficient power conversion technology, and this actually also leads into the efforts of our customers to make their energy infrastructure efficient and eventually climate neutral. With all this positive look on to the momentum and the market side and the demand side we definitely do not neglect some of the challenges and also some of the threats that have been exposed to us over the fiscal year 2021 and continue to do so also in '22. We have seen also challenges, and especially in the fourth quarter, challenges on the supply of components. We have seen some higher cost deriving from this. We also have seen some delays in component shipments. And we also have detected a higher activity in terms of cyber threats, cyber security threats. In fact, we detected some cyber attacks and one of them we would call really serious one, from a foreign attacker. With the help of professional forensic specialists, I think we could detect it. We could detain it. And I think we have implemented the right measures to be able to cope, I'd say, with the higher requirements in terms of IT and cybersecurity. But looking naturally at the logistics part, looking at the extraordinary cost here for those activities. Overall, we had spent EUR 1.2 million in the fourth quarter here for such extraordinary efforts, which definitely will help us going forward, but naturally, also limited the profitability here in our Q4 results, where we saw a solid growth of 27% in terms of revenue, that naturally, with this kind of extraordinary impact this was going against the profitability. If we look at the profitability, I think it's also important to say, and I mentioned this also when we discussed this large order here for the Clean Power Management segment. We have implemented price increases across all product lines, across every single product line here as of 1st of January. We have, on an average, here ranges between 7% and up to 15% of price increases implemented naturally in order to cope with the different, I'd say, or the higher cost base. Worthwhile to mention actually that a big part of the backlog that we are coming into the year does not yet benefit from the higher prices because it was naturally not yet valid at that point in time. If we now look into the momentum we have right now. Overall, I think we are having an optimistic view not only on the current fiscal year, but also on our medium-term plans that are published since last year. We feel ourselves well on track to achieve this EUR 350 million to EUR 400 million revenue and a respective EBITDA operational level of more than 15% by 2025. Why so? Because we have defined clear measures, and I think we have already achieved and, I'd say, delivered on some of the cornerstones. On the product side, we have the new generation of EFOYs in the market with a tremendous -- or being a tremendous success here with all the orders, which has received recently higher efficiency, again, better IoT and cloud functionalities. The same we are now applying to our hydrogen product offering, also combining it with our higher power and performance. The second pillar, internationalization of the business. We have entered the partnerships in Asia with Toyota Tshusho and working on the business development now outside of Japan with them despite limitations of travel due to the pandemic situation. We have -- we are on a good track to expand the partnership and the work here in India with the 2 partners we have named already last year. And especially in the U.S., we have made big steps forward with significant project wins. One of it was published end of last year with a partner LiveView at the end -- data transmission, civil security technology, camera systems that are set out here on parking spaces of Walmart stores and other chains, a customer that within 1 year ordered approximately 1,000 EFOY units. So also in the U.S., despite the limitations still or the limitations that were valid for most of the year in terms of travel, we made big steps forward. What is now important, yes, we have launched an investment scheme here that is higher than what we did in the past, also what we could afford in the past. We are doubling the production in Germany here in a project that is going to be finalized within the next couple of months for the output of fuel cells. In order to limit also the risk and address further expansion, we have also started to build up the production line and plan for a fuel cell production line in Cluj, in Romania. And besides this, still, we are looking at further partnerships regionally, and actually, the U.S. is a big target market here, and we're also assessing M&A options. Overall, yes, still, there are significant steps to go, but I think, a good basis is installed. A solid foundation is laid here for not only the growth in 2022, but also on a midterm perspective. And with this, I would like to hand over to Daniel to lead you through the sales and earnings performance.

Thank you, Peter. Good morning, everybody, and thank you for joining us in our announcement of the preliminary unaudited financials. As Peter mentioned, it has been in terms of revenues, a record year. We had a 21% year-on-year growth, reaching EUR 64.3 million in revenues. And that was in spite of, sometimes, demanding market environment. As Peter mentioned, the pandemic is still around, but still we're able to really leverage all the work we've done as well as the regional expansion and the technology expansion. If you look at the adjusted EBITDA, we also more than doubled the adjusted EBITDA, reaching EUR 6.2 million. This is basically a reason of, first of all, a product mix, more attractive products with higher margins that we were able to bring to the market. Secondly, we also do see, given the higher level of revenues, to some extent, scaling, economy of scale effect. And also, what we see, and we mentioned that in the calls before, our price implementation is really working. So we do not compromise on our prices. And last but not least, also to some extent, but minor, is also the improvement of product cost. Looking at the 2 reporting segments, and starting with Clean Energy. Clean Energy reached revenues of EUR 42.5 million. The revenue contribution to the group revenues increased to 2/3 of the group revenues. So we further expanded that business. We saw a strong demand in all target industry, in all target markets and also what really helped us is the contribution from the U.S. market, so we do see that there's also demand for our product. I mean the U.S. market will be able to tap that potential. If you look at the segment, Clean Power Management reached about EUR 22 million, representing 1/3 of our revenue -- of group revenue. What we've seen in that segment and it's also something we mentioned in the previous quarterly calls is that we do see a recovery demand in all target segments, in all target industries of this segment, including part of the oil and gas business. We do see also increasing demand for our power management products for a variety of applications, which really helped us also to grow revenues in this segment with 5.3%, however, lower than the demand in our Clean Energy segment. Last but not least, the preliminary number, our EBIT adjusted. Once again, we also increased that significantly to approximately EUR 2 million. The effects are pretty much the same, as I mentioned, for the EBITDA adjusted. So all over, looking at our margin profile, we'll have about a 10% adjusted EBITDA margin, which we were happy to have. But obviously, as Peter also mentioned, there's some room in the long term to get it further. And we'll be looking forward to delivering also this gross and margin profitability this year. With this, I will turn it back to Peter.

Well, thanks. And maybe if we look at the segment, just a few comments here, still, from my side. Yes, on the Clean Energy side, here, the fuel cell business, the industrial business definitely is the driver here across, again, different applications, data transmission, digitization of processes, ranging, I'd say, from conventional traffic to traffic management systems also to, again, our core customer group in the oil and gas industry. And civilian security technology, again, a data transmission that is ranging from construction sites to border surveillance, to, as I mentioned, applications where large customers build up now data models of their customers coming, to, for example, Walmart stores and our fuel cells are at the end, providing a dependable power source that is off-grid and replaces, especially also in all those cases, again, the conventional incumbent generators. So this replacement momentum, I think, is the key driver here behind the overall demand, as naturally, a more stringent regulatory environment is helping us. We are seeing a regulatory environment that is changing now, again, on the West Coast in the U.S., as in California regulations are becoming valid as of 2024, where, I'd say, generators are banned from a majority of applications. So I think -- this is the target line here. Worthwhile to mention also a real recovery here, a comeback of our public security business with a big win in Switzerland, almost doubling the numbers here on this customer segment. And on the Clean Power side, yes, 5% growth was not what we intended to achieve, and it's not because of missing orders. It is, at the end of the day, a combination of delays on some component shipments, classical supply chain topics we need to keep in mind also for the next couple of quarters. And at the same time, still also their decision-making in large projects when you can't meet people, there is still a hesitation there. And I think now with, let's say, the pandemic situation, gradually relieving and improving, we expect an improvement also throughout 2022 here. So order intake or the backlog, we discussed the rate order backlog we discussed, but also if you look at the order intake within the year, growing from EUR 49 million in 2020 to EUR 89 million in 2021 is a nice and solid development. And with this, I think the 2 elements that leave us looking into the 2022 development, in a very optimistic way, is the consistent demand out there for our products, high order activity, but naturally also a solid order book. And with this, we expect to grow between 17% and 30%, still the range is pretty wide. We know this, but we are at the beginning of the year, and there are some challenges out there, but we feel very confident and the target here is to deliver another record year in 2022, and we are fully aware that this is an obligation, what that we are creating here with this statement. On the earnings side, though, we are planning somewhat conservatively. We mentioned some of the impacting factors here in the last fiscal year here. We are planning to reach a range on EBITDA underlying here between EUR 6 million and EUR 9.1 million. And on the EBIT underlying respectively, between EUR 1.6 million to EUR 2.9 million. But this takes into account that we are in the midst of a growth phase, and we have to realize growth investments. I mentioned the production sites in Germany, Romania and potentially further steps internationally. Digitization of our processes, business process, including further measures on IT security and cybersecurity, yes, it's a growing environment. We have to improve and expand our ERP system, consolidate CRM systems together with it. And therefore, yes, this is an investment to realize the further growth to come. And well, investing into the organization, what does this mean? Yes, we are having 40 open positions here in Germany. We are having in the group about 60 open positions, means we are aggressively hiring people and looking for, I'd say, strengthening our organization with new talent, young and experienced. And therefore, yes, this does not go by itself. And still, yes, there are some uncertainties out there in regards to supply chain, which we have been able to manage properly well with a cost impact that will be neutralized here by our pricing increases over the year. So therefore, we are not too worried about this. Overall, yes, we are looking very optimistically into the year 2022, driven by a dynamic need for our products by our customers on a worldwide level. And this momentum is naturally, here and there, impacted by the environment. We are not neglecting the challenges there. But overall, the outlook is very positive from our perspective. With this, we would like to conclude the presentation, hand over back to Orelia, and then open the floor for your questions. Thank you very much.

[Operator Instructions] The first question is from Johannes von der Ohe, ABN AMRO-ODDO BHF.

First of all, congratulations, Peter and Daniel, on decent results for the full year 2021. I have a couple of questions. So the first question would relate to -- well, we've seen recently strong demand in, let's say, methanol fuel cells. But what can we expect in terms of hydrogen fuel cell orders in 2022? So a bit of color on that would be great. And then also a question on the large order that you received in Clean Power Management recently. So when can we expect that to contribute to revenues, in the second half of 2022?

Johannes, this is Peter. On the last one here, well, this is with immediate effect. We have signed this over the last Thursday. And the next shipments are already covered here under this new frame agreement, under the new orders, means this is really contributing as of the second part now of Q1 in 2022. And then on the methanol and hydrogen side, yes, overall, naturally, we have been in the market here with our methanol products, naturally, for significantly longer. And so therefore, overall, what we see right now is industrial scale, commercial scale business is fully active on the EFOY methanol side and business development is fully active on the hydrogen side then. So still for this year, we are expecting a split of 90-10 in terms of different fuel types and for the 2 product groups. But at the same time, on the hydrogen side, we see a tremendous activity on the project pipeline, let's say, from telecommunication to utility companies, to applications that are mere, I'd say, backup power, again, direct replacement of diesel gensets. So therefore, I think it's the logical normal adoption cycle here for the new technology that you need a certain time to get into the market. And maybe one element also important here, we are now starting the qualification and certification processes here for the North American market, UL and CSA certification of the product so that we can roll this out then -- latest by mid of the year and address some of the upcoming demand there too. I mentioned California changing the rules, naturally, this is only in 2024, but the preparation starts really now.

And maybe one more question from my side. So if I look at the underlying EBITDA for the fourth quarter of 2021 it is relatively low. The underlying EBITDA margin, and you mentioned already that has to do with several one-off costs, for example, related to logistics and the supply chain. But then, let's say, what makes you confident that you can reach an underlying EBITDA margin of around 10% in 2022 because the supply chain issues are likely going to continue? Or what is your view on that?

Johannes, this is Daniel speaking. So if you look at the fourth quarter, really, the underlying EBITDA margin is sort of a mix. It's not only, I mean, some challenge in supply chain. But it also has to do with product mix. And you see it, if you look on a quarterly comparison also with fourth quarter of 2020, that it really depends on what the industry mix is in a specific quarter. And as I also mentioned in the previous quarters, we do have, luckily, some of those large customers, the larger orders that come in. And that always -- the margin of a specific quarter really depends on what large orders we do ship. So if you, for example, have huge orders in certain industry segments, with customers who take a large number, which we are happy that they do. And obviously, they have a bit more of a favorable pricing than maybe some smaller customers or smaller targets interest. So this is one aspect. It's really product mix in a specific quarter that gives, especially in the fourth quarter, results in a slightly lower margin there. And then the second point is, as Peter mentioned, we do have or we did have some extraordinary expenses. As mentioned, it is IT security. We really had significant expenses in the fourth quarter, also in improving our system. It has to do with certain investments in digitization, which are being expensed. Then last but not least, we did have some other specific cost in sales and marketing and in the personnel expenses. So it's really a mix of a couple of factors. It's not one specific factor. It tends to be the [ first ] quarter. It tends to be always a bit heavier in functional expenses. But there's no underlying or recurring effect in there. So what makes us confident, it's -- it makes us confident because the overall trend is still stable. And as mentioned, these are very specific effects that we had in the first quarter.

And maybe worthwhile also to mention, yes, price increase. This is -- has been done actually for a reason and with good reasons, there is a different cost base, and we will make sure we get this factored in here what we see on the logistics and supply chain. So this, naturally, with the backlog still being on old pricing, we will see an effect here, I would say, rather as of mid of the year and then for the remaining part of the year. We also see that, let's say, those EUR 60 million of order book right now. Naturally, not everything is now going out of the door in 2022, a good EUR 15 million to EUR 20 million are already for 2023.

The next question is from Karsten Von Blumenthal, First Berlin Equity Research.

I'm happy to hear that you will significantly increase your production capacity, both in Germany and in Romania, could you roughly tell us when these investments will be done? Is it all in 2022? And could you roughly share your idea about how high your investment budget in 2022 and perhaps 2023 could be?

Well, the program is really in implementation. We try to be, I'd say, ready to ship first units here from Brunnthal with expanded capacity in the late Q3. So fully operational than in Q4 and in Cluj, a quarter later at the end. So what we are doing is, yes, we are basically mirroring what we have been doing here in the production in Germany. So still, we are talking here about a 1-shift system with, I'd say, expanded headcount with some investment in test benches, some, I'd say, system supported testing, that is the biggest part of the CapEx here besides the normal furniture side. And so overall, we are looking to get this all implemented in this fiscal year as the demand is there, and we need to be quick here. Another element to it, naturally, we take again here, the facility in Brunnthal as also the role model for some of our international plans. At the moment we have to shift part of the value chain to countries where we need to reach a specific quota of product value, we will also simply mirror what we do here in Paris and then still ship core parts out of Germany. This is, for example, the clear idea for our market. Like in the India where they're making India requirements and eventually also for larger U.S. demand. So this is the first part, and well, the overall investment budget this year is as high as it never was before. We are planning total investments of about EUR 8.5 million, where, naturally, also all our R&D related investments are in India. And if we look into the mere production side, I think with EUR 1.5 million to EUR 2 million, we are well within the range of investment. As that it is, let's say, the automation is more on the testing side and production is still manual assembly for the time being. And in terms of midterm plans, yes, as of then late '23 and '24, we have first automation steps built in, in our investment and expansion schemes.

Perfect. That's very helpful. Could you share roughly what it means, double your capacity in Germany? Could you express this in megawatt or in units, is there roughly a figure you can give out?

Well, we are -- for good reasons, we are usually talking here about units and expanding here in Germany, doubling means between 12,000 and 13,000 systems depending on the mix and 1 shift line in Romania adds another 6,000 to 7,000. So we are reaching a 20000-unit mark, again, depending -- but that's a good number to get the size. This might differ still, and there is a certain variation in there depending on the mix.

Yes. But that is very helpful to get a feeling. And in principle, when you say you have a 1 shift production in Romania. So in principle, you could introduce a double shift there, too.

And this is exactly the next step. Why do we go this way? Also here in Germany, we stick to the 1 shift and mirror the production line because it is important to, I'd say, train the team to make sure that, let's say, quality comes first because this is -- it is a high tech, but also still a high-cost product, and our customers expect that they get defectless supply of product. And so therefore, we go this sequence. First, we expand the first shift, and then we can go into -- we double the first shift, and then we can go into the second.

Yes, makes sense. Further question regarding your guidance. If I see your underlying EBITDA and EBIT, I can, of course, calculate depreciation and amortization. And that is quite some range, from EUR 4.4 million to EUR 6.2 million in D&A. Could you elaborate on why this such a high range between the low and the high end in depreciation?

Yes, Karsten. As we already mentioned, it kind of depends on the investments that we're going to make and at what time we're going to make them. Spread around the quarter. We also mentioned already, as Peter said, we are looking at investments in improving our digitization and those processes. So with all of this, we're all looking at a broader program of CapEx. And then last but not least, there could also be some impact there from the IFRS 16 accounting and the depreciation. And that has to do, obviously, also with the expansion in production lines and facilities.

All right. Well understood. Regarding the current Omicron wave, do you have any problems in your production sites because you have many people being ill or can you so far go on as planned?

Well, we are still extremely cautious here with very little visitors being allowed to enter the different buildings. We have production and laboratories almost, call it, isolated now for months, not even ourselves, we go in there. So this helps us to contain this and we are doing a daily check, as always, and continue our testing routines right now. Yes, we have days where we lose about 5% in capacity because of people either being now exposed to quarantine or ill with COVID. So I think that's what we are now expecting for the next couple of weeks. We have no disruption in production so far. But yes, 5% yes, at the end, what is it, you're building up again over time. And you can get over this, but naturally, this should not be a situation to continue for the entire year, which we do not expect.

Yes. And 5% production loss to me seems manageable. So...

Yes. Absolutely. It is still within -- yes. We have, let's say, traditionally a little higher rate in Romania, correlating also to the differences in the regional situation, less so in Canada right now. So overall, yes, it is still -- it's part of our daily routine. We are looking at this and the moment, I think, it would change, we would immediately, again, react.

Yes, makes sense. You already mentioned your supply chain issues. Do you already see that this is getting better, do you have a feeling how long they will last. Could you give a bit more insight into your supply chain management?

Absolutely. Well, a very conventional way. And again, maybe not the most modern way of approaching is, we're simply buying, again, more material. We have, at the end, the orders out with our core suppliers for the entire year, which we will naturally see in our working capital needs here, but we think it's, let's say, well spent. We are working on a daily basis with our core supplier. We have built up our own task force and so have the suppliers here. At the end, I think, what you can see is that on both ends here, component suppliers and electronic suppliers are, as well as us, as customers, we have naturally now gathered a certain routine here to deal with this situation. And still, I think looking at the overall economy and expectations, yes, we do not expect this to go away now in the upcoming months. But that's a fact you have to deal with. And on the cost side, we have taken the necessary measures here, and they are also accepted here by our customer base.

Yes. Yes. That's very helpful. One last question from my side. Could you roughly say something about the growth rates in your 2 segments, Clean Energy and Clean Power? Where do you see stronger growth? Is that already something you have an idea about? Could you elaborate on this topic?

Absolutely. I think we -- again, we expect a stronger growth as it is traditionally a more dynamic environment in the Clean Energy side. And then this range is, let's say, from the lower to the upper end of the guidance, between 20% and 30%, so -- and maybe in some areas can even go beyond this, but also an improvement of growth rate here on the Clean Power side with -- not only with this big win here last week with our largest customers, but also some midsized orders coming in over the last couple of weeks here in this segment that they also there -- we'd rather see, I'd say, a 10% growth rate than the 5% we delivered this year -- we delivered in '21, sorry.

The next question is from Anne Margaret Crow, Edison Group.

Congratulations on a great set of results for 2021.

Thank you for this. And as we know, nothing is as old as the numbers of the previous quarter and the previous year. So focus is already on to 2022 with a good start.

Absolutely. So I have 2 questions. One is, can you quantify the impact on working capital of the steps you have taken to make sure that you have the components required to fulfill your order book? That's the first question. And the second question is looking at the -- so it's looking more at the landscape that you're operating in. And you said that the EFOY systems, the new EFOY systems are higher efficiency than the previous generation ones. But how does the efficiency compared with a conventional diesel generator?

Yes. Yes. So yes, we can quantify the impact on our working capital, specifically the inventory. And what you would see, and it's very similar to what you have seen in last year, we will see peaks in our inventory going up. And when we talk about peaks, we're talking anything about EUR 500,000 to EUR 1 million. And that pretty much depends as components come in. Our inventory, and that's something -- I know I keep repeating this in every quarterly call. Since the outbreak of the pandemic had already increased significantly as we were sourcing a lot of components and put it on inventory just to ensure that we can deliver our product. And initially, we really did this at the beginning because we know that certain countries or certain countries where our suppliers were shutting down or the operations were shut down. So it was not so much to do with the current situation, and that's why we really started increasing. And you can see the increase in our inventory in 2022 and then also in 2021. We are still, what we consider, at high levels of inventory as we have been in the last 18 to 24 months. what we most likely would see is -- and further increase with peaks as we buy components in bulks and some higher number of critical components. But the impact will be not that huge.

That's very helpful.

And then on the overall competitive landscape, Anne Margaret, yes, well, yes, -- the key element naturally here is that, for example, our latest generation of products, we guarantee higher operating hours. So the cost per hour goes down for the customer. If we talk about, let's say, the mere efficiency of the power generation, actually, a diesel genset is still higher in efficiency. At the end, it's the highest energy density you can have of all fuels. So diesel, therefore, in terms of energy density is still a superior approach. But if we look at the entire cost change here, where we then win is not only because of -- naturally we are clean and emission-free. But then you can operate such a system for 3, 6 -- 4, 5, 6 months without manual intervention. You look at your app on to the cloud and see the EFOY operating with, let's say, the fuel being there, which is impossible with the generator where you have to send people out on a regular basis to interfere with the system. And naturally then it's overall, and there you gain the overall competitiveness. And I think the fact that we have been selling EFOY fuel cells to critical industrial applications now for a significant number of years is not only based on the fact that this is a clean technology, but that the overall total cost of ownership is superior because people still decide on financial parameters. The green element, the green aspect absolutely helps. And in some areas, it is now moving up in the decision-making sequence of the customers where one of the first questions then is, well, is this an emission-free technology? Which was not the case a couple of years back, but still final total cost of ownership is still decisive. And there, yes, we have, again, improved significantly here with the new generation. But yes, a diesel engine is an efficient engine from a technical point of view, there's no doubt about this. And usually, it's also reliable. But it needs more intervention. It needs more attention from operators, and this is where we can win besides the emission question.

And the next question is from Malte Schaumann, Warburg Research.

The first question is on the order backlog. It's fair to assume that the price increase from January onwards lead to some kind of [ rush ] orders then in December?

Well, if we look at what we have there is -- or what we brought in now, until the end of last year, we have an old pricing. We have the other part now partially on new pricing. And we have 15 -- no, we have in total more than EUR 15 million ranging into 2023. But it is, I would say, a clear -- we will see, I would say, depending also on how fast we can ramp up the production, we will not see a summer this year. This would be my prediction.

But is it fair to assume that customers pulled in some orders into December to fetch the old price scheme?

Yes. Naturally, there's some pulling -- pull-in effect, very clear. And it was also intended because, naturally, this is why we went out there to, a, establish a new price level, but also give them the chance to be able to secure part of their needs, also, to help us managing then, again, component deliveries.

Okay. And from EUR 15 million to EUR 20 million of your current backlog of this is already for the next year, how much of that relates to the fuel cells?

Well, you can break this down to, I'd say, about a good EUR 10 million still deriving from this big order we got last week here on the Clean Power Management, and the remainder is fuel cells.

Okay. Good. Then on your international corporations Toyota, India. If you can shed some more light on the planned ramp-up. What is the current discussion about potential order levels, yes, maybe this year, when do you expect that to really see a meaningful pickup?

You were breaking up a little bit. If I can reconfirm, you were asking for the sequence and the steps in the collaboration here with Toyota Tshusho, no?

Yes, exactly in India as well.

Okay. Well [Technical Difficulty]

I think we have a technical issue. We will just briefly go into pause, and we will resume the question-and-answer session in a minute. One moment, please. Ladies and gentlemen, thank you for your patience. We will now resume the conference call.

So I hope you can hear us again properly.

No, it's fine.

And I can promise I didn't touch anything here. So we were down for a minute. Yes, Toyota, it is -- can you hear us?

Yes.

Well, so Toyota is what they call it in, we have a biweekly operational meeting with them. We have a bimonthly management meeting with them. And the message here is, no change in planned implementation. I think what we obviously have to acknowledge is that there was not enough sales support due to travel restrictions in the last 6 to 9 months. But at the same time, I think the commitment there, definitely no change. And so this is -- this means, for 2022, full business development focus here, first project down in Southeast Asia and also in China. Different speed in India. We have been working very actively also over the last couple of weeks with our partner there, we see the implementation of this regulatory environment also being accelerated, but at the same time, the government has announced also a program to replace diesel generators by clean novel technologies and hydrogen is mentioned there and fuel cells are mentioned there. So here, at the end, I think if you ask me what do we see as the sequence here in terms of significant impact to our top line in 2022, yes, India should definitely contribute here at an earlier stage because the need is there and the environment is set up in a way that we have to cope with this and set up, I'd say, the local activities as soon as possible. We have our next visit planned here for the 10th to the 14th of March to take next steps in India.

Okay. And can you quantify the potential sales contributions out of Toyota and India this year?

Well, I think if we look at Toyota, this is, let's say, a low single-digit million and India, as also this is let's say, still single-digit million potential contribution. Apart from the business we are doing anyhow with our, I'd say, surprise here from Germany. And this is the business development cycle you have in this kind of business. And therefore, I think it was the right approach to take, let's say, last year, a 5-year perspective into horizon to make sure we can, I'd say, lay the foundations, do the business development and then go into scaling.

Okay. Good. Next question is on gross margin development. In light of the higher supply chain cost potentially, but then also in light of the price increases and most of the growth comes from fuel cell products. Do you -- what's your thought about general gross margin development in 2022? Will it remain stable or increase?

So nothing really has changed on our view with regards to the gross margin expansion. And of course, as you rightly mentioned, we do see here and there, as anybody else, constraint in supply chain. We may see here and there prices increasing on certain components, not at all across the entire component and modules that we use, but one of the mitigations or counteracting factors as you already mentioned, is, of course, the price increase. Secondly, with regards to our strategy in terms of margin expansion, i.e., also reducing the total cost of the product, and that's more on the side of a product architecture and for the development and nothing really has changed. Secondly, as you also rightly mentioned, as our product mix or the contribution of certain higher-margin products will increase also in 2022. That's at least for the time being, our expectation. We also expect to have a positive impact from that side. And last but not least, also as we increase our value add on certain products, i.e., higher level of integration, for example, we also would expect some positive impacts on the gross margin. So overall, a long answer to short question, in terms of our margin expansion strategy, nothing has changed. We do not see any impact on that. However, we are watching carefully the price of components that may have a short-term impact in 1 or 2 quarters. But of course, we don't see a sustainable impact from that, also, as we improve and further optimize our procurement strategies.

Okay. Good. Then on the EBITDA margin, EBITDA range. If I exclude the one-offs, you mentioned just above EUR 1 million in one-offs, I mean your starting point would be just above EUR 7 million in adjusted EBITDA. And at the low end of your sales guidance, you're guiding for EUR 6 million EBITDA. That does mean a decrease despite a quite significant increase in sales. So what does that imply then for your cost level? Is it a certain amount of caution you have factored in there? Is it OpEx, operational costs really increasing that much, that's the low end of the sales guidance would, in fact, lead to a reduction in adjusted EBITDA numbers, excluding the one-offs?

Well, it's -- first of all, obviously, it's a function of the revenue level, right, and what revenue we will hit lower or upper end. And obviously, we're aiming for the upper end and looking into this. Secondly, we are kind of conservative also for the current year. We know that in the short term, the entire economic environment is a bit more volatile than we all wished it was. So we factored that in. Secondly, as we already mentioned, we are investing into growth, into really accommodating our structure, our processes as well as the entire organization for the next growth step. I know we had a significant growth in the last year. We will be making sure that we adapt those processes and organizational structure also for the next step. So with that -- to that extent, we are looking at some increase in functional costs, specifically also in G&A costs. At the end of the day, it really is a question on how fast we can implement one or the other measure over the year. And then the regional expansion that we're looking at is also something that we're working very diligently on. And as Peter already mentioned, some things may happen sooner or later. But also, these things are connected with initial investment and initially -- potentially initially a bit more higher contribution to the G&A expense. So this is -- these are really the impacts on the range and on the EBITDA margin. It's really implementing our growth strategy and getting our organizational structure to the next level. And for that aspect, we have been on the lower end and a bit more conservative.

Okay. Good. Fair enough. My last question is regarding the CapEx. You mentioned, if I got you right, a number of EUR 8.5 million for this year, is that right?

Yes, that was the entire number or the full number, including actually all the R&D activities and the production expansion as well as, let's say, the ongoing sustaining CapEx, which is not significant with us as you traditionally know.

Okay. And could you maybe elaborate a bit on the building blocks. I mean this is more -- or more than double, I think, I mean, probably that compares with 4-point-something last -- in 2020, 3-point-something probably in 2021. So the jump appears to be quite big. So maybe you can shed some more light on the building blocks on that?

There are basically 3 building blocks or 3 key building blocks we are looking at. The first one is, of course, capitalized R&D, nothing's really significantly going to change in the capitalization of the R&D. It may go up a bit. The second big impact is also in investment, in expansion of our manufacturing capabilities, as Peter mentioned earlier, where we're really looking into PP&E and automization to some extent. So that's part of it. One of the building blocks going back also to R&D is really that in our North American business, we are also looking in a higher level of development of the product. It has to do with customizing certain components or certain fuel cells to the North American market. Really getting them ready also for the energy, let's call it, infrastructure in North America. It also is in connection with, and I mentioned that also before, a higher level of integration. So this is really the whole R&D thing. Then the next CapEx level that we're looking at is really the digitization of our company, of our group. We are moving forward in not only IT security, but also IT utility, investing heavily into making sure that our IT landscape is getting on the next level. Remember, in the past, we didn't have financial or scarce financial resources. So this is sort of the third building stone. So it's really R&D, second level is really expansion of manufacturing capabilities/semi automation to some extent, as Peter mentioned. And third, but not least, is really digitalization of the company processes.

Okay. It sounds like some bigger ticket items affecting this year. So what should we expect to model? Should we expect then from '23 onwards, may be if you can share CapEx level?

Well, what we see in our plans is still in -- as mentioned before, in '23 on the production side, we have on a similar level. Those are the 2 years with the highest expenditure here with the highest investment here, some semi optimization of the production line here in Germany as well as in Romania is planned for the later part of that year. And then it goes back to, again, a comparable level like we had it in the past. And on the systems side, yes, we just initiated a project here across all functional parts of the company to, I'd say, renew also the systems infrastructure for the ERP system and then do a stronger integration also with the CRM system, and that then goes from Germany across all locations afterwards. And I would say these are, for us, necessary steps to cope with the ongoing growth and the intended growth. And yes, it has an impact naturally on this next year in terms of what we spent for it. And on the overall cost level, maybe 1 more element or 2 thoughts here. The one is, fortunately, we do not have too much of a price sensitivity for our products in the market yet because competition is, I'd say, still low. We have -- this will change over time. And naturally, we have to get, I'd say, again, the product cost down, the next generation of products, again, having a lower bill of material, at least. And at the same time, naturally, our overall cost here also functionally, if you think about, let's say, 40 open postings here, 20 in the remainder -- in the remaining part of the group, yes. We know not everybody will be on board within the intended time frame. We will see some shifts. But naturally, we are increasing here heavily on this side. And so on the lower end of the guidance, yes, one might just find conservative, but I think for the starting point here into the year with some of the uncertainties we feel, as I said before, we feel good with a conservative approach here on the results side, and we are very optimistic to be aggressive on the market side.

And there are currently no further questions. I hand back to the speakers for closing remarks.

Well, thank you. Thank you, everybody, for your time and interest. And as always, do not hesitate to reach out to us directly for a bilateral discussion of remaining questions or clarifying remaining points. With this, I wish you a good start into the new week, and yes, stay with us. Thank you. Goodbye.

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