SFC Energy AG (F3C) Earnings Call Transcript & Summary

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

Thank you very much for the introduction. Good morning to all of you, ladies and gentlemen. Very happy to have you in our call here listening to our presentation on the consolidated audited financial figures for the year '21 and naturally also an ongoing update on the business assessment on the outlook for 2022. We look back at a good -- at a very good year. I think we can call it, a record year. And we are confirming, first of all, naturally, the preliminary numbers, which we published approximately a month ago. With a solid growth here on the revenue side of approximately 21%, with an improvement on the underlying profitability in a significant order, but then I think even more important than with an unchanged dynamic demand in the market resulting into a tripling of the order backlog at year-end and even higher incoming order level here in the first 10 weeks of the year in an approximate amount of about EUR 34 million since January 1. So overall, we feel ourselves are well positioned for what is ahead of us. And we confirm also, the planning and the guidance for this year, although when looking at this optimistic view, naturally, we should not forget too, I would say, unprecedented factors that are still there for all of us, one being a 2-year pandemic situation and the other one, and please don't take this as a political statement, but more maybe a humanitarian aspect an unjustified war in the eastern part of Europe. And naturally, for us, the question is what effects do we see out of, I'd say, the COVID situation and it's, let's say, related factors on business-related limitations on business. And what effects naturally do we see out of the Ukraine war and crisis to the business. So let me start with the COVID side. Yes, we have reported this. We told you already when looking at the Q4 performance that naturally, we are also facing some limitations on the supply chain. There are delays in shipments of especially electronic components happening in our supply chain, too. And we have some elevated cost level on the logistics side. This is what we still expect for Q1 and Q2 with the visibility we have right now. But I think we have well planned and well already now executed countermeasures in place. We've changed pricing for all our products with the effect from 1st of January. Naturally, with the favorable backlog here, we are looking at old pricing still in shipments now in Q1 and part of Q2, but the impact of the new pricing we will see throughout the year. Well, and the second thing, in terms of capacity limitations due to supply chain which are there right now, where we have continued to increase our efforts here, maybe some -- we look at it as some old-fashioned measures. But at the end, pretty helpful, pretty effective. Purchasing more material, and this is what we do right now, it naturally results in higher stock level, but the good thing is the orders are here and as long as we get the material in time, we will be able to execute. And so overall, we see ourselves now under what we call [indiscernible]. So unchanged condition from today's point of view, we see ourselves well situated and positioned to do a catch-up over the year, as indicated also in our last call, I think, around summertime, yes, this year, we will not see a seasonal dip. I think we will have our handful to do and then hopefully get a full catch-up here in terms of shipment and capacity. Ukraine and Russia, what impact does it have on to our business? We are fortunate to say, an insignificant impact business wise. We've suspended all activities in Russia immediately, I think, from a long-term relationship perspective with our partners there, an unfortunate situation, and we are not happy to do this from a personal perspective, but I think it's the right reaction. We're talking about a handful of projects, so in terms of business, non-material. Supply chain side, yes, also here, we only have one single supplier in the Ukraine for the time being, and we have a very solid alternative stores for the same component, so also here, no impact. But still, yes, for the business side, we have reported our readiness to ship products to the German MOD already last week for immediate shipment to Ukraine. And we naturally also have reported, as requested by the MOD, our midterm capabilities to contribute to the EUR 100 billion program here, published also just recently for the modernization of the Bundeswehr where we see, let's say, potential volume of up to EUR 50 million per annum, what we could supply. But naturally, it's up to the MOD to react to this. At the same time, we've -- through existing business relations, we have started to ship some EFOY batteries through Ukrainian business partner as a donation to the Ukraine. As far as we know, those products are now helping people in the area of Kharkiv to have off-grid energy in silos, in underground situations in shelters, where there is no power available to charge their phones to have some light. So hopefully, this can help them and we are ready here for further support. So I think that summarizes, where we say, in terms of business impact immaterial and whatever we can do to help here through official lines through the MOD, we are ready to do so and direct support, same here. Looking back now to 2021, I think we delivered on the financial targets revenue-wise, also gross margin profitability but we also surpassed and achieved major milestones in our midterm plan. On the technology side, launching our next generation of hydrogen products, improving our IoT and cloud capabilities here for the EFOY methanol platform and also on the regional side, I think the next steps -- or the steps we took in Asia with Toyota, with industrial partners like Jenoptik, but also in India where major steps here on our midterm planning. And -- yes, although we are really happy to look back on to this year as the best year in our company's history. Well, nothing is as old as the numbers of last year or last quarter. 2022 is a new game, and the goal for the current year now is to exceed this. So we want to sit here in a year from now and look back again at a record year. So the bar is simply higher up. And I think, well, we feel we are well positioned to, I'd say, take this next step. If we look at the market side, the demand also -- coming out of '21, the demand for product unchanged on a regional level as well as across all our customer segments. And therefore, yes, if we look at the backlog, not only at the end of the year, but then at the end of February and now going into March, we are talking about a level of between EUR 56 million and EUR 59 million of backlog here in our books. Yes, we see this as a solid basis here, now going into the year and achieving what we have out there as plans. But I think with the situation in Ukraine and some of the political reactions too we have, even a new situation, that offers significant opportunities. We see a massive political wish to accelerate the energy transition to reduce dependency on fossil fuels more. Naturally, in Germany gas is one of the major topics, natural gas from Russia, developing independence here. The Ministry of Finance -- the Minister of Finance has published a EUR 200 billion program until 2026, yes. And this definitely is driving the demand for alternative emission-free technologies like our fuel cell technologies. And if I look at our LOI, we have just published and -- we have concluded and published together with Wacker here on the production of renewable methanol, I think this fits into this overall picture very well. Talking about public security, strict investments on the defense side of the business. We're also there. We do see, naturally, opportunities for us as we cannot imagine that the transition and modernization of this sector takes place without renewable energy sources. So looking at all of this, I think our immediate reaction and what is, let's say, the plan of action right now is we are working on significant expansion of our production capacity. We have not only plans, we are already in execution mode here on doubling the production capacity in our German location here, south of Munich, within this year. And at the same time, we have also kicked off the setup of an assembly line for fuel cells in our location in Cluj, in Romania. If we look into, I'd say, the international part of the business, yes, I think driving -- or taking the next steps, especially in India is of utmost importance here. You all know that we have to cope with, I'd say, a protection system there -- or we have to respect the protection system there which is called, make in India. And so I think that the potential in the market is there. We have been working with our partners for 7 years now, very, very closely and we understand we need to take the next steps, and we are firmly committed to do so. Further rollout in Asia. Yes, we resumed travel right now. We were not able to travel nor were our Japanese partners. And still, just recently, we did our first project, for example, in the Philippines, despite all those limitations. Here, acceleration is on the agenda. Well, and I would say the region that -- well, contributed more than originally expected, already last year, to the business definitely is the U.S. We have a fast scaling customer there in our, I'd say, surveillance and security business, and we see pretty significant opportunities there, and we have started again, traveling, seeing customers, seeing potential partners, and we will be in the U.S. with a significant part of our management team throughout the next week to look at different opportunities here. I think the development of the sales in details we presented already when we set out the preliminary numbers. But yes, we can see that the Clean Energy segment was growing and was the significant growth factor last year with more than 30% of growth. Clean Power, yes, we had to acknowledge some limitations, supply chain side, but also not being able to visit customers, not being able to conduct technical discussions, slowed down some of the investment decisions. Looking into, I'd say, the upcoming year with the largest order ever we got in this segment here from our leading customer, Thermo Fisher Scientific, well, I think we have all the justification to expect growth between 15% and 20% in the current year also in clean power management. And at the same time, we see, I'd say, the delayed projects coming back on to the agenda, our teams visiting customers here on an international level. So also there, the expectation is set for growth. If we just do a quick look into the structure of the growth in the fuel cell business in '21, absolute highest growth contribution from the industrial business, again, replacement of generators, investment into partnerships over years and across different regions, I think, gave us a strong growth base and resilience here. And as said, it's continuing. Our public security business were also the defense as well as the, let's say, police and other government customer business is segmented in, showed a rebound. We had a very difficult year in 2020, especially due to COVID but with significant shipments to Switzerland and India. We show more than 90% growth in this segment. And on the private end consumer business, double-digit growth here at 17%. The year started more dynamic. We had some, I'd say, slowing down here towards the end of the year, but still 17.4% growth, I think, is a solid growth number also for this end market. Overall, the dynamic in the market, again, continues into the year and at the end, this together with our investment into the existing partnerships, but also new partnerships and worthwhile to mention, absolutely here, what we published this week, this new partnership here with Wolftank out of Austria and Italy, well, we expect to bear fruit in the foreseeable future. Order intake, I mentioned this already. The overall order intake in the last year grew from EUR 49 million in 2020 to EUR 89 million in 2021, resulting in a backlog of EUR 30.6 million end of the year. And again, as I said, tripling compared to the year before and the good news is, in the first 10 weeks of the year, we collected even more orders than we had at the beginning of the year. With this, I would like to hand over to Daniel to lead you through the earnings development and then conclude our presentation with some outlook.

Thank you very much, Peter, and also from my side, welcome, and thank you for joining our call. Let me start, as usual, with the regional sales distribution of our revenues. It hasn't changed significantly from the last year. It is always remember, as I mentioned in previous calls, depending on the large purchase orders we will get mostly from industrial, but also, to some extent, of the defense customers. And depending where these customers are located, it does kind of impact our regional sales distribution. Still the trend, as mentioned, has not changed. We do have a very strong established sales presence in Europe and North America. And consequently, those 2 regions accounted for 83% of our revenue, largest regions or single region is still Europe, including Germany, which accounts for more than 50% of our revenue. And this is across all the applications of our product. i.e., industrial application, the consumer application and also what we call government applications. If we look at our gross profit, we had a significant higher gross profit in 2022 compared to 2021. Gross profit increased to EUR 22.6 million, which is EUR 4.7 million higher than the previous years. If you want to split up this effect in revenue growth and also gross margin expansion and the impact on the revenue gross on the gross profit is EUR 3.7 million, and the gross margin expansion impact was about EUR 1 million. The total gross margin is 35%, that's an increase from 34% in the previous year. In spite of supply chain issues and to some extent, higher logistic costs, especially in the fourth quarter, we were able to expand our gross margin. Two impacts that we have for the impacts of the pension is really, on the one hand side, we have a more attractive product mix, a very disciplined pricing implementation for our great products. And we will also work on further expanding it even in those challenging environment. And the drivers are still the same. It's price stability. In this case, we did increase our prices at the beginning of the year. It is optimizing the bill of our material and always looking at sensible opportunities to grow in certain application and segments. However, we do face short-term supply challenges. As mentioned, especially, we saw some impact on the -- in the first quarter, mostly on the logistical cost, I'm getting material here, faster and quicker, and, obviously, also higher amounts of stocking. I will get back to this later. If you look at the gross margin of the 2 segments, the Clean Energy segment had a gross margin of 40%, compared to 38% in the last year. As mentioned, this is mostly due to a more favorable product mix, especially the industrial applications for our fuel cell have grown much, much faster than the private and the consumer applications. And this is a very attractive segment or end market for us. If you look at the clean power management, also in this segment, the gross margin has increased from 24% to 26%. The higher margin is due mostly to our North American and Canadian business that was heavily impacted in 2020 by the pandemic. But also this segment has the highest impact of higher logistic costs and getting material in. So the gross margin, we were not able to expand it as much as we intended to do. If we then look at the reported EBITDA touching base, it's negative. It's minus EUR 800,000 negative, less negative than last year. But as always, in the previous call I mentioned, we do have the expenses for the long-term incentive programs, stock option programs and SARs into that. That amount was, for the last year, EUR 6.7 million, compared to [ EUR 3 million ] in 2020. It has to do with the increase of the stock price. We had a stock price of EUR 16 at the end of 2020 and EUR 28 at the end of 2021, but also has to do that we did introduce additional stock option programs for key employees in 2021. So the amount of stock options [indiscernible] outstanding has increased because we think it's important also to make sure that the key talent that we have in our company to participate in the success of the company. We have transaction-related expenses of EUR 321,000. All this goes into then the adjusted EBITDA, so adjusted the EBITDA for the expenses of the LTI program and the transaction-related expenses results in a positive adjusted EBITDA of EUR 6.2 million, which translates a 10% adjusted EBITDA margin, compared to EUR 3 million in 2020 and a 6% EBITDA margin. The adjustments, in total, are EUR 7 million. That's for the extraordinary expenses mentioned above. The expenses for the LTI program are allocated, as in the previous year, to sales and marketing expenses, to R&D and to G&A. The increase really of our EBITDA -- the adjusted EBITDA is, obviously, a result of the increase in our gross margin and gross profit. However, also relatively lower adjusted sales and marketing costs in another -- in a higher operating income. If we go to the depreciation to get to our EBITDA, total depreciation of EUR 4.3 million. The largest part of it is really depreciation of our capitalized R&D expenses of EUR 2.5 million. It's about EUR 800,000 higher than in 2020. It really has to do with the depreciation of the new products that we rolled out already in 2020, the EFOY 3.0, but additional new products that we rolled out in 2021, which once they are being rolled out in the market that we start depreciating. So that's basically the reason for the higher depreciation. So taking this away, we'll get into a group adjusted EBIT of EUR 1.9 million. That translates a 3% EBIT margin, compared to negative EUR 600,000 in 2020 and a negative 1.1%, obviously, in EBIT-adjusted margin. Sales and marketing cost unadjusted, we had EUR 15 million sales and marketing expenses compared to EUR 12 million. The portion of adjustments for LTI, stock option costs in the sales and marketing costs are EUR 4.3 million, compared to EUR 2 million in the previous year. So if you adjust the sales and marketing costs for these LTI expenses in them, we have EUR 10.8 million sales and marketing expenses, which compared to EUR 10.1 million in the previous year, that's about a 6% increase of our sales and marketing expenses, so they're not growing as fast as our revenue, which we always say, we do have certain positive effects in sales and marketing and some scaling effects in there. Corresponds to 17% of revenues, compared to 19% in the full year 2020. It is in line with our expectation. And also, as we mentioned, in long term, we're looking at 12% to 13% sales and making cost as a percent of revenues. The increase is mostly due to personnel expenses, but also some traveling expenses and fair expenses that happened in the last year. R&D adjusted cost total is EUR 6.9 million. The total cost is basically some of the R&D expenses, which we explained in our P&L, plus the R&D expense, which we capitalized, plus, to a very minor effect, expense that we have in connection with joint development agreement. So capitalized was EUR 2.5 million, which is a bit lower than in the previous year, where we had EUR 3.1 million, and R&D expense in the P&L was EUR 3.2 million, a bit higher than in the previous year. The reason why total adjusted R&D cost is slightly lower, or 9% lower than the previous year is that we really have high expenses with the development and rolling out of our EFOY 3.0 as well as higher cost with developing the software. Peter mentioned the IT functionality, the cross functionality, which we're putting in our product, that's a big development effort that we had in 2020. R&D forecast in percent of revenues 10%, compared to 12% in the previous year. Long term, we are still looking at 7% -- 6%, 7%, 8% of revenues in total R&D costs. G&A expenses, unadjusted EUR 10.3 million, versus EUR 7.1 million in the previous year. If we adjust it for the LTI and acquisition related expenses, which is EUR 3 million and EUR 1.7 million, we come to adjusted G&A expenses of EUR 7.3 million, compared to EUR 4.5 million in the previous year. It's a decent 11% of our revenues and also an increase to the previous year. It is really a result of, to some extent, higher personnel expenses, but also higher legal and advisory expenses. And last but not least, really higher expenses with IT-related issues. We are hardening our systems. We are investing in really getting our -- the security level of our IT system even higher, and there are some costs related to that. Fixed assets, let me move to the balance sheet and also to a CapEx number. Our fixed assets are still -- we are asset like company, as how they say. Our PPE CapEx, last year, was EUR 1 million, pretty much on the same level as we had in the previous year. The biggest CapEx item that you will see is in intangible assets, but that's capitalized R&D, EUR 2.7 million versus EUR 3.3 million in the previous year, as mentioned before. Cash freely available, was EUR 24.6 million at the end of last year. We had EUR 31 million in the previous year. Financial debt, significantly decreased to EUR 2.7 million, compared to EUR 4.5 million at the end 2020. Financial debt is mostly short term or only short-term debt, mostly working capital lines, which are used in the Netherlands and in Canada. So that results then in a net cash position of EUR 22 million, compared to a net cash position of EUR 27 million in 2020. Equity ratio is 47% -- 57%, excuse me, please, and then going quickly into our cash flow statement. So the cash -- the operating cash flow before changes in net working capital amounted to EUR 5.9 million, significantly up from the previous year where we had EUR 3.4 million. Where does our cash go. We did increase our inventory by EUR 1.4 million. So we keep on stockpiling, making sure that we have enough material in this challenging environment. Also, accounts receivable increased by EUR 5 million. But please remind, we did ship quite a bit at the end of the year. So it has an effect really with the timing of shipments and getting our product out. That's one of the major reasons why the account receivable increased, and at the same time, also our account payables increased by EUR 2.6 million. After taxes, this results in a positive cash flow from operating activities of EUR 1.1 million. We're looking away -- we're taking away our CapEx from investing activities, I mentioned before, EUR 3.9 million versus EUR 4.3 million in the previous years. Remember, quite a large portion of that is capitalized R&D. The cash flow from financing activities was minus EUR 4 million. I also mentioned we did pay back quite a significant amount of debt. The rest of this -- the financing cash flow is IFRS 16 related expenses, so it's pretty much 50-50, EUR 2 million reduction of the financial debt and EUR 2 million of lease-related costs. So the total change in cash was then EUR 6.8 million. With this, I'll turn it back to Peter.

Thank you, Daniel. Now one program that we are in the midst of the rollout is a comprehensive investment program that we have agreed upon here end of last year, and we launched here since the last couple of -- have been launching it since the last couple of months, an investment program of about EUR 8.5 million, which is significant for a company of our size. And mainly, we are addressing 3 areas here. The one is growth here. I talked about the capacity expansion in Germany and Romania being underway, expanding naturally also our organization and teams. The second one is R&D. The next step of our hydrogen product offering on the way, including also cloud and IoT capabilities along those lines. And at the same time, besides the growth, we have to invest into stability as a company in a strong growth phase. And this means investing into systems, we were exposed to some cybersecurity threats and attacks during last year. We did some investments already. We need to keep our systems and processes here up to date. We're investing to naturally further present here and IT capabilities in all our locations. And seeing all of this, yes, this nature plays into our outlook. We published our guidance on 14th of February. From today's point of view, we are firmly convinced and very optimistic despite all those limiting factors we are seeing right now in the environment that we will generate growth here between 17% and 29%, maybe a more balanced situation than a couple of weeks ago in terms of growth in the segments with clean power management catching up here in terms of growth speed. On the profitability side, yes, we have been giving a cautious outlook on the lower end of the revenue guidance because of the mentioned investments and needed investments here. At the same time, I think it's long term and -- or it's mid and long term, the right path to go. So from today's point of view also on the underlying profitability side, no change of assessment. We expect the EBITDA underlying for '22 to be in the range between EUR 6 million and EUR 9 million, and respectively, the EBIT between EUR 1.6 million and EUR 2.9 million. March 17, 2022, a real good start into the year. There are challenging factors. But I think from today's point of view, we are well on track to perform the next step and deliver on the next step of our growth plan here as promised to all of you. With this, I would like to hand back to our operator and then open the floor for questions. Thank you very much.

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

So first of all, a couple of questions on the situation in Russia and Ukraine. You talked about the fact that the German government will make significant investments in defense spending. Can you be a bit more specific on what you expect to be the outcome of this in terms of fuel cells that you can say to the -- sell to the German government and maybe also in terms of what impact we could expect from that this year already?

Honestly, it's too early to make an assessment here. What we have done is we have immediately reported readiness to ship here to get product to Ukraine. And at the same time, we were asked to give a midterm projection here starting in the second half of this year into the next years, what is, let's say, our capacity availability. And as said, we have reported a size of approximately EUR 50 million per annum capabilities. But without any, I'd say, feedback and reaction yet, I think it's simply too early. And well, for the Ukraine as said, we also did not wait now for a response here from any official party. We started to ship and transfer some products to people in need there. Therefore, bear with us here some more time. I think you saw some integrators here also, publishing their numbers in the same respect, just their capabilities. We all do not have feedback yet.

Okay. Then a question on basically, so you have your production or one production facility in Romania. Let's say, how do you monitor the situation in Ukraine because, well, there is a possibility that it spills over into neighboring countries and Cluj is not too far from the Ukrainian border. Are you at all concerned that this could spill over into Romania and affect the closure of your production in the worst case?

I think we are all concerned, naturally, about a regional expansion of this conflict, and I think, god forbid, this happening just from a humanitarian side, besides the, I'd say, economic effect. For the time being, I think, we only can all hope and support political and diplomatic efforts here to avoid this. For the time being, I'd say our teams, and we are traveling to Romania without any impact here. And so far, I think we can only say, assume the best here in terms of no further regional expansion of this conflict as for the time being.

Okay. Then one question on the partnership that you announced recently, with Wolftank Group. I read the press release, but could you please elaborate a bit more? So what exactly does the pilot project entail? And is this maybe also the first other hydrogen project that you have besides BOSNet in terms...

It's definitely a similar size project here with Wolftank being a specialist here in, I'd say, gas filling activities and they have just recently launched also the hydrogen gas station program. Well, they are servicing thousands of gas stations in, for example, in Italy. And naturally, over time, we expect the conversion also partially into hydrogen filling stations with the need of backup power. And with their access to critical infrastructure customers in Italy and Austria to oil and gas distribution companies and pipeline operators with a lot of critical infrastructure. Well, we have the first pilot system now in the works. We'll put it out in the next couple of weeks, and that's for a backup power system replacing diesel generators for a pipeline operator, gas pipeline operator in Italy. And overall, they are operating right now, I think, almost 1,100 locations here with conventional backup power. So that's more or less the potential here with this initial program we are addressing. And we are bringing a very solid and state of the art fuel cell in there Wolftank brings their capabilities in the hydrogen storage and also in the service part, in the market access part. So I think it's a very complementary situation, and both parties are committed to invest.

Okay. Then one last question from my end. Maybe it's a little repetitive but I have to ask it, so what about the Toyota Tshusho partnership? Are you close to signing a joint venture agreement? Or what's the status there? Any update?

As just mentioned before, even though we have, let's say, travel bans in most of Asia in place, we started to get, I'd say, throughout the last year. Now the first pilots outside Japan in the field. I mentioned, Philippines. We just recently had again our regular management update here with the executive team of Toyota. And the clear statement was no change in plan, which is from our Japanese partners. Well, obviously, we see not traveling, not going into the region has an impact in terms of timing, but the overall planning also from their end, there's no change. And so I think for the time being, I'm not in a position to give an exact date for, let's say, any formalization of this business development we are doing together, but we have -- both parties are, I'd say, fully in the project and committed to it. If you look at the time line, yes, I think we might -- there is a delay there just because of, I'd say, limited access to see customers over the last year. If you look at it from a regional perspective, I think with the acceleration of our activities in the U.S., we are, I'd say, on a general or on a group level, compensating for this delay in our assessment here with faster traction in the U.S. right now.

The next question is from [indiscernible].

I had a first question, which was mainly on the energy market. Obviously, we -- there might be some issue about power shortages in Germany, probably towards the end of this year. So are you seeing accelerated demand from clients just to secure the access to power, where I guess your systems could provide a boost. The second one is on product availability and pressure from rising costs. If you could give us some information. And the last question is about your forecast for this year. which seem relatively cautious given the boom you are seeing in the order intake. So are you taking a conservative stance assuming that order intake will slow in the second part of this year.

Thanks for the question. I think the first one, yes, the impact here of, let's say, the situation in Russia is very recent. But I think it's obvious that we will see further acceleration here and immediate link now to an initial order, I think, would be too far reaching, but I would see two angles right now. If you look at Mr. Lindner's program here of the EUR 200 billion, yes, what we expect is, naturally, faster access also to further subsidy plans. I mentioned already our program here also with Wacker, a substantial investment that is executed by this partner, but naturally some further government aid will be needed to get this fully launched. I think the probabilities are raising, I would say, on a daily basis. And at the same time, now looking at, let's say, the overall replacement of conventional technology, the replacement of, let's say, diesel-powered combustion engine-powered power systems, I think, is now simply exposed to an overall acceleration by just limited fuel availability. So yes, for us, naturally, this is a positive effect on the business, whereas we are, naturally, not happy about the immediate reason for it, which is, I think, also obvious. Product availability, yes, we are putting tremendous effort on a daily basis into, let's say, securing the supply chain. We are even using our technical teams here on a daily basis to help replace components that are in scarce supply and just replace them by others. So I'd say we are in a very, I'd say, tactical operational moat here. At the same time, we have simply also increased the quantities purchased. And I'm specifically saying purchase, not ordered. We are buying the stuff and getting it here, getting it into our facilities to simply have it available because the favorable situation is we have the orders here. So it is naturally a financing burden for a couple of weeks or a couple of months. But still, today, the physical availability counts and this is what we base it on it. So yes, we will be on a higher working capital level. But at the end, we will be shipping and we expect really to catch up into Q3 here with some of the capacity limitations we see right now for Q1 and Q2. Forecast, number 3, looking at the market dynamics, I think it is still a cautious assessment. We take into account that we are investing heavily. We take into account that there are some macro factors like COVID and naturally the crisis in Ukraine out there. So give us here 1, 2 months more into the year to reassess this. Right now, we have, let's say, besides, naturally, some pull-in effect here at the beginning of the year because of our increase of pricing, definitely, we got some orders earlier to secure old pricing. But that's not, let's say, an overwhelming effect. So it's not that we expect significant drop in order intake for the time being. There are no signs out there. But yes, bear with us another 1, 2 months to look at the situation and then reassess how cautious or how aggressive we can be.

Impact -- let me just add one more time, impact on cost of the product of our supply chain challenges. As Peter just mentioned, we did increase the prices for our products. First of all, because they are good products. Secondly, also to account for the increased pricing that we have. Some of the components that prices have go up. And some of them, we are on the same level and it's more the issue of getting them into the house. As Peter said, no more frame contracts, but get the things physically in here to have them available. So we do see a bit of a higher cost here and there. But we strongly believe that this will level out towards the end of the year, and we account for catching or compensating for some of the higher costs by the increased prices.

And maybe the last thought here to this, we, naturally, did assess also higher energy prices now that, naturally, now are a reality. Besides, I'd say, normal increase on the travel costs, the favorable situation for us is we have a low -- it's not an energy-intense production process. We have to look at it as an assembly process that is pretty, I'd say, low in energy consumption besides except some of the infrastructure costs. But that's well taken care of, let's say, with the pricing part over time.

The next question is from Malte Schaumann of Warburg Research.

First question is for the applications that you may be can provide some more color on -- especially in the industry that you [indiscernible] side, how that fits into specific applications like surveillance, backup power, et cetera.

Yes, here, definitely, I'd say, key drivers, three elements. The one is the surveillance and data transmission part across end markets here starting from the construction to -- construction sites, to Walmart parking sites to, still border protection and naturally also data transmission in our oil and gas customer base. Second one, yes, wind industry, no question, continuous demand and further -- or, let's say, internationalization of it through our collaboration here with existing partners and OEMs. And then back up for telecom comes up, let's say, in a much broader way than before, well, BOSNet, yes, there we saw some delays with, let's say, the rollout of the program in parts of Germany. But at the same time, if you look at the requirements, we get in here, I think that, I'd say, the next impact here and traffic management and it's not strict speed control, but traffic management and smart city. I mentioned Jenoptik before, but also what we do here in India is, I would say, the fourth stream to look at.

Okay. And from a revenue share perspective, surveillance probably is the largest one, how much of demand is there today?

Rough, I would say half of what we do right now is definitely this, let's say, call it, surveillance digitization data transmission on the industrial fuel cell business. But we can provide you a more detailed split, but looking at it just in a very rough assessment, it's about half of it is really driven here by this application.

Okay. Good. Do you expect kind of material shift in this year? So are there other applications arising or accelerating? Or will it probably remain the same?

Well, I think with the backup power also for communications, telecom and what I mentioned before, so the projects we are now addressing here with partners like Wolftank and critical infrastructure with naturally higher unit prices because we are talking about 5 to 10 kilowatts up to 22-kilowatt systems. That's definitely a shift to be expected.

Good. And then on the Wolftank follow-up, the Wolftank corporation unit wise, I mean, what's the potential short -- or the rather mid-term potential of that collaboration?

I think as having an industrial customer base here and getting a pilot system out in the upcoming weeks, this is a piloting exercise for this year. It's also not part of our original budget planning. But as said, I'd say there's a single customer out there looking at more than 1,000 locations to replace conventional backup power systems. And naturally, that's then the starting point and looking at their gas filling station business, I think that's also, naturally, not something that now translates into the hundreds of systems now tomorrow, but naturally over time with their access and also their joint venture here with their Kuwaiti partner on the gas filling stations. The significance here, I'd say, midterm is we are talking about, I'd say, definitely hundreds and hopefully later thousands of locations to replace diesel gensets or lead acid batteries.

Okay. And do you expect -- do you have similar customers in your pipeline you're talking to? And do you -- what do you expect to kind of similar corporations to arise [indiscernible]?

Yes. There is a similar need in, let's say, all the geographies being active. And I think it's now -- again, this impact of acceleration of replacement of the conventional technologies, I think, is here the triggering factor and what is it? How did we get together? At the end, they all need a well-working product. They don't need an R&D exercise in the field. They want something that is proven, that runs, that is installed and can be monitored. And there are not so many people out there being able to supply this. So that's definitely product availability and product readiness and the state-of-the-art technology, that's our big competitive advantage here.

Sounds good. Last question is on famous German Bundeswehr. I mean you had quite significant opportunities with that customer for years. We're seeing a ramp-up in budget and shift towards green technologies. But still, you sound pretty cautious. So it doesn't really sound that you get too many positive signals out of that customer. So what's the bottleneck here, is it a lack of openness to really introduce new technologies? Is it still too expensive from the cost side? Is it -- so what's the hesitation probably on your customer side to really execute on the projects you have discussed for many years already.

I'm not so sure whether this is a specific issue here for SFC. I'd rather see, I'd say, the overall process here being the limiting factor. And if I also listen to the political discussions here, it's not only about, let's say, the budget or the [indiscernible], this extraordinary budget being available, the concern is, is this organization fast enough or is this organization able to execute fast enough. And I think that is the big question that we all, as an industry, cannot answer here. That's why based on 15 years of experience, we'd rather keep it cautious for the time being. We are immediately able and ready to execute and ship and collaborate, but naturally, it's up to the MOD to take the decision. But still, over time, also with the target the government has in terms of sustainability and climate targets, also a defense organization cannot neglect the use of emission-free and renewable energy sources. So -- and in a very simplistic view, it's always better to have a rising budget than a decreasing budget for this year. Overall, we were assuming a decreasing defense budget, which now has fundamentally changed. And so there is funds or there are funds available. And naturally, we will do the utmost to get part of it. But for the time being to put a number into our own budget plan. This is too early, but we are immediately -- or we have immediately started to work with them, very clear.

Okay. So if anything comes around then this would come clearly on top of your current budget?

Absolutely. Absolutely. And over time, I think they cannot do a modernization of this whole public security structure without new energy generation technologies, difficult to imagine.

As there are no further questions, I hand it back to the speakers.

Well, thank you very much. Thank you very much to all of you for taking the time for your attention here and your interest in our company. As always, Daniel, Susan and myself, we are available for direct conversation at your discretion. We all wish you a nice day and look forward to continue our ongoing dialog. Thank you for your support and trust in us. Thanks.

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