Good afternoon, ladies and gentlemen, and I think for the first time in quite some years, I'm deviating here from the usual introduction, and we'd like to start here with a thanks to all of you for your understanding. I also extend our apologies for the inconvenience caused because of delay we faced today in our publication. We had some technical logistical challenges to overcome, and shortly before midnight last night we decided that we would not be able to have, let's say, a full and thorough set of documents resolved on an presentable state in the morning as usual. We have now, hopefully, all of you looking at or having had an opportunity to look at our published corporate news, and as we speak and in parallel, we are uploading the German and English version versions of our formal documents, i.e., the annual reports.
Again, thanks for this, and, I think despite this and despite the hiccup here, I think we, we operate or, or I suggest we operate under the motto "What is worth waiting for?" means, we can present, I would say, a proper, solid, and, a good set of financial results and operational results to you, and so therefore, thanks for waiting for them. The first statement here is yes, we, we confirm and we fully confirm here with our audited numbers, the preliminary numbers presented on February 22nd, and the second one, I think we will try not to be fully repetitive here in, in all the details that were published already during the presentation of the preliminaries. So let me look at some of the, the highlights here. I think what you see is, again, a set of record figures in all our KPIs.
We are pleased and happy to present this and see this also as a clear obligation to go forward with the same spirit here and steering, let's say, for another record year and keep the focus on another record year going forward now in 2024 where we are concluding the first quarter, in those days here. And I think we are well on track, but then, again, looking back, what you see is a combination of a significant growth and at the same time an improvement of profitability.
I think that the genuine reason here is that we are able with our technologies and products to offer our customers a combination of a good or attractive price performance, but then also with products that help them to, not only perform the functionality that is expected but also help them to support their efforts to reach long-term ESG and sustainability targets. So overall, this is also a pairing in the sector that is not a given. I think this is really the differentiation we would like to also draw your attention to if you look at, let's say, the overall, sector performance, combining, again, growth and profitability. For us, this is a pairing we do not intend to divide.
Looking at where we are today, I think we can say also the first few months of the current fiscal year, they are still continuing to be dynamic in terms of market activities, in terms of order intake. We were particularly happy yesterday to put out a record order here for our Clean Power segment from a high-tech equipment long-term customer and partner here, and, well, some other orders worthwhile to mention. We had, again, a repeat order from our partner in Singapore here for energy supplies, for border security, and, which we also published, and quite some more. So I think looking at the order intake, also for, let's say, the first three months of the year, this fits into our growth trajectory. Expect to see some really solid numbers on this, not only, let's say, the EUR 27.8 million published yesterday.
Again, our ambitions for this year and going forward, they remain unchanged. We have three clear focus areas in our strategy of growth, which is A, an increased market penetration and a wider and larger international footprint of our activities. The second one is really continue to strengthen and build out our technology leadership, and wherever it makes sense, we look at acquisitive opportunities here that either are complementary from a technology perspective or help us to penetrate markets in a faster way. If we look at the international part, yeah, we are building out our footprint as we speak: North America, Europe, Asia. If we look at the technology side, we have launched the development program here for the higher power systems, 50 kW, modular, up to 200 kW.
I think what is a differentiation factor also in the market is the capabilities that we have developed here for our product suite in terms of cloud capabilities and IIoT functionality. And this combined with, let's say, guaranteed longer operating times makes it then a solid value proposition. Looking into the international footprint, yeah, you all know we have set up our production facility in India within the last 12 months.
This has been completed, and within the last couple of weeks, we have shipped first larger volumes of orders here in India, and this is going forward a solid foundation naturally for this market with, let's say, the most populous or which is the most populous country in the world, but then also should serve us as a basis for supply chain, for access to a large qualified labor market, and also for other sales activities in Asia. In the U.S., we are experiencing fast growth. The last year, the business there approximately doubled. We have set up the initial stage here, sales service and logistics hub in Salt Lake City, and we are expanding it as we speak. We are in active hiring.
Well, and then on the technology side, I think the update here is that we are in the process of preparing for the production ramp-up for membranes in the U.K.. We have taken over, as you might recall from our long-term partner, Johnson Matthey, the proprietary membrane technology. This is an effort. This is naturally something we have factored in in terms of investment, but also in terms of some limitation on capacity in the later part now of Q1, but also in Q2. But we are firmly convinced that this is mid-term, one of the biggest competitive advantages we can, let's say, generate here in terms of product performance, but then also over time, naturally, material cost reduction.
So all in all, yeah, we are putting, let's say, these the pearls here on the string, and we try to complete here step by step, and naturally this goes into the 2024 year, going forward. If we now look into the sales, yeah, we have reported on the segments last time already. You see a growth here looking at 2023 in both segments, 37% in Clean Energy and even stronger growth in Clean Power, 41.7%. We had some catch-up effects there besides a good loading here in terms of orders with a supply chain solidifying again or getting back to normal throughout the year in the Clean Power side.
What we have not presented last time is a more detailed regional split, and there, I think that the key message is we have been or we were growing in 2023, but then also in the first couple of months here this year in all key regions. Europe, let's say, the region with the highest market penetration, still overall above 20% on average, North America becoming our largest sales region, taking about 46% of the overall revenue with a growth of 43% of which naturally the U.S. was the faster growing part as Canada is already one of our home markets, but still also with a high double-digit growth. And then Asia, now being about 11% of the business last year with also 93% growth here, driven predominantly by India, but also good development again in Singapore, Japan.
So overall, a growth across all regions. So there's not a single dependency on one geography. If we look at the segments, we also see growth in both segments. So we also, I think, have balanced out this, let's say, slight imbalance or this impact here of the post-COVID supply chain issues, especially on our Clean Power Management business. I think, when we look at what is driving the business there in the different regions, we see, I think, different fundamental drivers, naming a few of them, yes, geopolitical, the unfortunate development of the geopolitical environment is driving investments into public security business. We are seeing, let's say, a recovery in some of our European markets. We are seeing a strong impact here naturally by our Indian activities.
If we look at North America, still also the energy sector is contributing significantly with stable oil and gas prices. We saw both product groups, the Clean Energy and also the Clean Power side, growing significantly. I think the only area where we had to realize that consumer spend was going back, interest rates and inflation had an impact is the end consumer segment here of the Clean Energy side, which finally, naturally is not from a relative point of view, not that important anymore, but we are still naturally laying emphasis on understanding where this goes and adjust our spend in this field. Overall, again, I mentioned some of the orders coming in. If we look at last year, this is the only area where we saw a slight decrease over the year.
The order intake in 2023 was down by, let's say, approximately 2-2.5% compared to 2022. We could have made this look different by some last-minute deals also in December, but we consciously opted against it as this usually tends to have an impact on pricing and rebates. Some of those orders are in our books right now, but definitely at a different pricing level, which again leads back to our conviction it's about growth, but also profitability. And with this, I would hand over to Daniel to look into the financial results and the development of the earnings. Thank you, Peter, and good afternoon, everybody. Thank you for joining our call this year again. Peter mentioned a key word here is profitability. We've come a long way in the last couple of years.
If you followed up, you've seen that we are expanding margins, from year to year, pretty much implementing the strategy on our margins, that we have communicated, in the last few years. Also in the last year, we were able, to expand our margins again, and make a, you know, what we consider a really notable step forward, in margin expansion. If we look at our gross profit and, our gross margin, and it's one of the key, obviously, key first, profitability, indicators, the gross, gross profit, was about, EUR 46.8 million, which is 49% higher, on what we had in the previous year, but we're looking at, EUR 34.1 million. With the growth of gross profit then also outpacing the growth of, revenues, it's sort of a simple math, that our gross margin, expanded.
We're looking at a gross margin of 39.6% on group level, that compares to 30.6% of the previous years. So we made quite a step forward in it. What is the reason, or the key drivers, of the increase, of the gross margin? To one extent, it's really the consequent pricing strategy that we have, which goes hand in hand with the product mix, which is becoming more and more favorable. If you've been listening to us in the previous quarters, we always pointed out that, you know, the share of industrial business is growing at a much faster pace than the consumer business. The industrial business is characterized by, you know, higher energy solution, which also tend to have a higher price and also a higher add because there's a certain level of complexity, or higher complexity, compared to the consumer solution.
Then also it's, you know, relatively lower production overhead that contributes to a higher margin simply because of revenue growth, higher use of existing capacity. If we look at the gross margins of the segment, first looking at the segment Clean Energy, where all our fuel cell activities are bundled, we're looking at a gross profit of EUR 36.3 million, which is a growth of 48% compared to last year. So quite what we consider significant. And there is a gross margin of 46%. We always said that our long-term gross margin in this segment needs to be well above 44%. So pretty much, you know, with that 46%, we are there. It's above. It may not be well above, but it's above 44%. And we're really getting to the point where we think we are realizing the targets we set us a couple of years ago.
It is pretty much what I said before. It's a product mix that is kicking in, which is favorable, and mostly also the fact that we have been able to optimize our production overhead. If we then look at the segment Clean Power Management, which, you know, as the name says, bundles all our power management products, we're looking at a gross profit of EUR 10.5 million, which is, you know, 52% more what we did in the previous year. We had a slight gross margin expansion, but we did have a gross margin expansion. We came from 24.9% in 2022 to 26.7% in the previous year, in 2023. It is also because of the strong revenue performance that we had, again, a better product mix, and also a good pricing strategy in this segment.
I mentioned before, you know, long-term, we're looking at a gross margin or gross margin target for the segment Clean Energy well above 44%. Like I mentioned before, we are, you know, we're almost there, but there's still some work to do for us. And we'll also strive to further expand the gross margin in that segment. And if we look at the Clean Power Management segment, our long-term target is a gross margin of 32%. So with the 26.7% that we have, you know, there's a way to go, but we're working on that and we're very confident that we're able to achieve that. If we look at the group reported EBITDA, reported EBITDA was EUR 14.6 million in 2023, compared to EUR 8.6 million in 2022. That translates into an EBITDA margin of 12.4% versus 10.1% in 2022.
So a decent 2.3 percentage points higher than what we've seen in 2022 reported EBITDA, and those of you who have been following us for a while, we adjusted for certain non-recurring expenses or non-recurring income, depends. These income and expenses relate to the stock-based long-term incentive program from senior management. And then also we adjusted for transaction expenses that we have in context with M&A and/or JVs that we're pursuing. So the impact of these, let's call it extraordinary or non-recurring expenses in 2023, was negative EUR 1.5 million versus a positive impact in 2022 of EUR 0.4 million. So what we do is to get to our adjusted EBITDA, we add EUR 0.5 million, whereas for the adjusted EBITDA in 2022, we'll deduct EUR 400,000.
That leads us to a group adjusted EBITDA of EUR 15.2 million, translating into a margin of 12.8%, and for comparing to 2020 in for 2022, at EUR 8.1 million and a margin of 9.6%. So, the margin, the adjusted EBITDA margin is well above the level that we've seen in 2022. There's a number of reasons for it. Obviously, as I mentioned before, the gross margin expansion with 3.4 percentage points contributes highly to the EBITDA adjusted margin, but also the functional cost, and what I mentioned at the beginning, sort of an operational leverage that's kicked in contributed to a margin expansion. The adjusted sales and marketing expenses, adjusted again for the non-recurring expenses that we have, we're accounting for 13% of the revenues, which compares to 16% in 2022. So a decent 3 percentage points less.
If you look at the adjusted or the expenses, they also increase slower than sales, accounting for 4.5% of revenues compared to 5.2% in 2022. The only expense or functional cost that was absolutely and relatively higher in 2023 were the G&A expenses, where we are looking at a number of 1.4 percentage points higher than what we had in the previous year. I'm looking at EUR 14.6 million in adjusted G&A expenses versus EUR 9.8 million in 2022. The 9.8% are about 11.6% of sales, the 14.6% in 2023 12.4% of sales. So that's the functional cost that has increased relatively to sales. There are certain reasons to it on which I will touch in a minute. Depreciation amortization, not a huge change. It was 5.4 million in 2023 compared to 4.9 million in 2022.
Slightly higher, main reason is, we mentioned before we had an extraordinary depreciation of R&D, capitalized R&D cost, in connection with a product in the fuel cell, you know, fuel cell section, which we decided to stop developing. It was an accessory product. So it's not a fuel cell product. It's an accessory product for our fuel cell solutions. One third of our EBITDA, so roughly EUR 1.7 million, is related to IFRS 16 accounting. So this is actually real cash. Our IFRS 16 accounting is lease accounting. And then the capitalized R&D depreciation was EUR 2.5 million in 2023 compared to EUR 1.8 million in 2022. And the rest, basically 1.7%, the smaller part of the entire EBITDA, is associated with depreciation of tangible and intangible assets.
Group adjusted EBITDA was EUR 9.7 million, I'm translating into a margin of 8.2% and 3-point, comparing to EUR 3.2 million in 2022 and a margin of 3.7%. So you can see, quite significant step up in our adjusted EBIT margin. Let me quickly go into the functional cost, sales and marketing expenses already mentioned were relatively lower in relation to revenues and in the previous year, we had still a 40% increase of the adjusted sales and marketing cost. They're reaching EUR 15.4 million compared to EUR 13.5 million. What are the key drivers really? It's internationalization. Yes, we also had increases in salary and wages that contributed, but these are the two main drivers and obviously also headcount. R&D expenses, and let me run you quickly through the R&D spend that we have. So R&D spend is really what we invest in R&D.
It is first of all the expense you see in the P&L. It is plus the R&D that we capitalize and plus subsidies we have received. Those subsidies we, we set off or they are, against R&D expenses you'll see in the P&L. So the total R&D spend, in 2023 was EUR 8.6 million comparing to EUR 7.4 million in 2022. So it's a, you know, noticeable 16% more. We are investing in R&D. You know, it's the future, for our next, products. So you really see us putting resources into, into it. Out of this 8.6 million, we expensed 5.3 million in the, in the P&L compared to EUR 4.4 million in 2022. We capitalized EUR 2.9 million in 2023, compared to EUR 2.6 million in 2022. So it's 10% higher. And we received subsidies, of, EUR 440,000 comparing to EUR 360,000 in 2022. So also, higher.
Main reason for the increase in the R&D expenses is first of all material that is being used in the R&D process. The more we develop, the higher the cost for this material is. And then also we increased headcount in those departments to further accelerate our R&D effort. Adjusted G&A expenses were about EUR 10.7 million. No, sorry, apologies, EUR 14.6 million, comparing to EUR 9.8 million. I mentioned before in percentage of revenue it's 12.4% compared to 11.6%. What are the reason for the increase? It is, you know, headcount, but also increasing in high quality people for various functions, maybe in controlling, maybe in IT, maybe in risk management. So really building up all those functions, and putting them, getting also prepared for CSRD.
So, you know, we are really putting resources into it and also getting good people on board who will support us going forward. That brings me quickly to our balance sheet, and the biggest or an important thing is really the Capex, the gross Capex that we're having. So we invested, excluding IFRS 16 and accounting impacts, EUR 6.4 million in 2023. The split is between intangible assets and PP&E. Pretty much two-thirds is intangible assets, one-third is PP&E. So that's EUR 4.2 million compared to EUR 2.2 million. Again, let me repeat, that does not include right-of-use in IFRS 16 accounting. The larger part of the intangible assets was capitalized R&D, but we also, as you remember, acquired IP from Johnson Matthey in connection with the MEA production that we are ramping up. So that was also significant investment in IP in 2023.
CaPex, PP&E capex is mostly machinery, equipment, building out our sites. That was EUR 2.2 million in the last year. Quick look at cash and cash equivalents. Cash free available, around EUR 60 million at the end of the year. Very good, very strong position that we're having, prepared for future step and future growth. That compared to EUR 65 million in 2022. So you see that we, you know, didn't spend a lot of cash, given also the very positive development of our business. Financial debt, nothing has changed really compared to 2022. It's short term. It's working capital lines, which we have in Canada as well, in the Netherlands. There were EUR 3.8 million drawn down versus EUR 4.1 million at the end of 2022. So that leaves us with a net cash position.
So cash available minus drawn down credit lines at roughly EUR 56 million, compared to EUR 61 million in 2022. Equity, you've seen, that the equity increased by EUR 24.7 million. And I think that's worth noticing. So we had an impact on net income this year. The net income this year was EUR 21 million. You may have seen it, a huge number. Why is that? Out of this EUR 21 million, about EUR 9.4 million is earnings. And then we have about EUR 11.8 million, which is a capitalized tax loss carry forward. So the reason why we had to do it this year, and those of you who are familiar with the deferred tax asset and also capitalizing of tax loss carry forward, is that SFC since 2022 basically is in the profit zone.
We are profitable, as far as we know, and we intend to stay profitable going forward. So now we are able to use the losses, the tax losses that we had in the past. We had to capitalize this year for the first time those tax losses, which leads to a huge tax income. We had to capitalize all of the tax losses that we have, given the profitability in 2022, 2023, and going forward. And that's really a huge impact on our net income and then subsequently also on our equity. Equity ratio was at 72.6%. Quick look at the cash flow. So the operating cash flow before change of net working capital almost doubled compared to 2022. We were looking at EUR 60 million in 2023 versus EUR 8.7 million in 2022. The net working capital increased by EUR 10 million.
So also a little bit slower than what we are looking at 2022. We already gave you the reasons in our quarterly call. In 2022, our net working capital increased by EUR 13.2 million. What are the key positions in our net working capital? Obviously, inventory. Inventory only increased slightly in 2023 by EUR 1.3 million. Or we had this big jump in 2022 with EUR 11 million. It has to do with that, so supply chain issues that we were facing and, you know, the stocking in 2022 have really relaxed. We are, you know, optimizing our inventory now to some extent, destocking, but also given the strong revenue that we have. Our inventory is going down and flowing out, which is a good thing. So that really explains the low increase in inventory.
Days of inventory, if you want to take this as a, you know, rough KPI, we're looking at 128 days versus 169 days in 2022. Accounts receivable on the other hand, yeah, naturally with growing revenues, increased by EUR 10.8 million, impacting the cash flow. The days of sales outstanding went up slightly to 88 days versus 75. That's a rough number, as you know. But that's where we are. And then other short-term receivables, which is mostly prepayment and tax prepayments, increased by EUR 3.4 million versus EUR 3 million. Accounts payable went down a little bit to EUR 4 million, whereas we have EUR 4.6 million in 2022. Altogether, like I said, net working capital increased by EUR 10.1 million. So, after tax payments and after the change in net working capital, we have an operating cash flow from operating activities of EUR 3.6 million.
Last year we had EUR 5.0 million, negative EUR 4.8 million. Also, the favorable development of the working capital helped there, but of course the earnings position, and the operating cash flow before change in working capital, was very high. Cash flow from investing activities, CapEx, I already gave you details on that one was EUR 5.5 million. So not a lot higher from what we've seen in 2022, where we were looking at EUR 5.2 million. And then, cash flow from financing activities was negative this year, EUR 2.7 million, versus positive number at EUR 48.8 million in 2022. Obviously in 2022, we had the proceeds from our capital increase. So it was highly positive. Mostly cash flow from financing activities is related to lease payments that we have to make under IFRS 16.
and that, as I mentioned before, resulted then, if you look at all those wonderful numbers, in a net cash position of EUR 56.1 million in 2022. Sorry, it was EUR 50 million. No, 56. Sorry, 50, net cash EUR 56.1 million. So yes, that's where we are. It was a good year. I think we had a good financial performance. We are strong in cash. We are ready to grow, and ready, prepared for the current year. And with that, I'll give it back to Peter.
Thanks, Daniel. And as the last one here, naturally, how do we look at the remaining three quarters of this year? I think we look with confidence onto the remaining nine months.
I think we are happy with the activity in regards to shipments as well as bookings in the first three months closing out on a good start into the year now in two working days here. Mentioned some of the real big orders. If we look at the biggest one, yeah, I think it's worthwhile mentioning that also there, if you look at the different product groups in this order of almost EUR 28 million, you see a span of between 5%-15% price increase depending on product group. So, this should also naturally help us, as Daniel mentioned, on the gross margin. So we are looking at 20%-30% growth here, organically, EUR 141.7 million-EUR 153.5 million. And, I think we have justified confidence because part of it is already reality.
So you start from, let's say, an interest by a customer to hope going through the funnel and then you come back to confidence and then you end up in bookings and that's the reality. So, also looking at the bookings where we are, as said, I think in the first quarter it was naturally going beyond this one big order and expect us to show a, let's say, solid number there also for the first three months. And on EBITDA and EBIT, adjusted, I think at the end what we have there as a range for the EBITDA is either call it a stable to a slight increase in margins. Well, if you look at our expansion, if you look at what we are doing here, all in all, yeah, we are bringing the organization to next levels.
We had at the end of the year 400 people on our payrolls here in all the different entities. We started last year with four legal entities. We ended the year with eight legal entities. We need to improve the organization, not only expand, but also improve. We need to look at people. We need to look at processes and we need to look at systems. This year, the biggest single investment is the rollout of a unified ERP system that is not just counting for 2024, but also 2025 and ongoing. And also we are in a digital transformation of our workplaces from the IT and cybersecurity side. And therefore, naturally we are encountering necessary investments here. And that's why I think a further expansion here of the margin, well, is doable. I think key driver here naturally is product mix and pricing.
But I think that's something we need to follow closely like we did it last year throughout the year. And if we feel ourselves in a position to again, let's say, narrow down a span that we have there, trust us, we will do so. And on EBIT side, I think also there we do those investments. We mentioned also ramping up the factory now in the U.K., a major factor here. Mid-term, this is a no-brainer for us. And you will also witness this, that this is, let's say, a competitive edge here also, not only mid-term, but also long term. But naturally this has an impact here on our spending, on, let's say, the investment side, but also the expense side. And we have to watch this closely.
I think this is what you can expect from us. So all in all, we are looking again with good confidence after also a dynamic start into the year for the first three months here onto the remaining part of the year. With this, we would like to hand over to George and open the lines here for your questions and comments. Thanks very much.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchscreen on the telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Anyone who has a question may press star and one at this time. Our first question comes from Usama Tariq with ODDO . Please go ahead.
Hi, good afternoon, Dean. Thank you for the opportunity. I had a small question with regards to your M&A strategy going forward. Could you elaborate on what you're looking into, if you could provide some guidance with regards to the region or the kind of business you're looking at? Thank you.
Yes. Thank you very much. Yeah, so Tindy, so we're looking at, let's say, different and organic acquisitive potentials here as touched upon right at the beginning. We are specifically looking at, again, complementary technologies like we did this in the past here with our now owned hydrogen PEM fuel cell technology like we now did it with the membrane technology. We are seeing the difficult situation part of the sector is in as a definite opportunity here for market consolidation and we are seeking an active role in this. And the other part is really market access. We mentioned this before in some of our and also published documentation in the U.S.. We do a dual track apart from setting up our own sales service, our own sales and service activities here.
We are looking at potential acquisitions here to increase or accelerate our market access system integrator companies like we did it in Canada, for example.
It's pretty much in line with what Peter mentioned, right? We are pretty consistent, what we started two years ago, and will not deviate from the strategy.
If I may, if I may just ask an add-on question on it. So the guidance for 22% sales increase, could you give a color how much would be M&A in that, going forward?
Very easy. Zero.
Oh, thank you.
It's all organic. Okay.
Yes.
Thank you.
Thank you.
Thank you.
Our next question comes from Malte Schaumann with Warburg Research. Please go ahead.
Yeah. Good afternoon, guys. My first question is on the order announced yesterday for the power supplies. The order volume of EUR 28 million seems to be quite favorable. Is that upside to the previous order? Is that just replacing the order you had in previous years?
Well, good afternoon, Malte. At the end, it's just a subsequent order to it. Nominally, we have, let's say, a period usually between two and three years to, let's say, use this up. If we take, let's say, historical experience or anecdotal evidence, one would say usually it takes this customer about two years to work through this.
Yeah. Okay. Good. And that will start later this year?
This is starting now and on April 2nd.
Yeah. Okay. Good.
It took us a little longer to do the negotiation.
Yeah. Okay. That business areas, I mean, are there opportunity? I mean, this is a pretty large customer for you. So are there opportunities to find similarly large customers or almost?
As I think there, it's a sequence here. We changed overall product strategy some time ago. It's a pretty long cycle business. We went from this, let's say, customized development here for one customer to a platform strategy. And we now have, let's say, from this, we have the first, let's say, customer with EUR 3-4 million revenue already here in the semiconductor field. We are working again on other opportunities, also in semiconductors, means equipment manufacturers there. We have already, let's say, a good repeat business here of, yeah, low single million revenue here, EUR 1-2 million, for example, also with ASML. And naturally this is the ambition here to drive this forward.
Yeah. Okay. General business conditions, has anything changed during the past couple of weeks or since the beginning of the year? Was everything running more or less as expected?
We are really. It's still fast-paced. Naturally, if you look at, let's say, some of the political decisions here in our home country in Germany, what helps us here that our customers are not basing their decisions for fuel cells here on subsidies. So it's not a subsidy-based program. But I think what it doesn't help, what you see in the environment right now when from one to another day, subsidies go away and customers have no let's say, basis for decision-making. This might not be our let's say, direct business, but naturally it hits and is hitting the sector. One could see this in some of the electrolyzer businesses. And this sentiment then again hits us in terms of being a listed company and being part of the sector. Business-wise, I think we are still well off.
Okay. Good to hear. Good. Thanks.
Thank you very much.
Our next question comes from Karsten von Blumenthal with First Berlin Equity Research. Please go ahead.
Hi Peter. Hi Daniel. I had a small interruption, but I think I didn't miss much. My first question is regarding the large contract you got. How does this split, this year, next year, perhaps, 2026?
Well, good afternoon, Karsten. How can you tell you did that you didn't miss much? No, but, sorry, but maybe quiz it.
Because it was basically your main last remarks.
No, but we are here for any bilateral discussion afterwards if there are things missing. But if we look at this, as said, on a nominal basis, the contract is valid for 3 years. So if you would simply split it by 33 or by three, you then have, let's say, a good EUR 9+ million per year. We expect it to be a little front-loaded here, due to some of the duration of the closing of it. And then as said, we have seen a similar pattern here in this partnership, and their business seems to be very active, at least what we can see and what we see in their forecasts. So this is between, let's say, a 40-40-20 split here across the calendar years to a 50-51.
All right. Great. That, that helps. Second question is, I think last time you said that you expect a pretty strong Q1. Now Q1 is almost through. Has that more or less materialized as far as you can say, from today's point of view? It's a bit early. But yeah, have you seen this strong demand in Q1?
I have to ask for your understanding that, let's say, we might not be able or in a position to fully quantify it, but yeah. I think it's at least at our expectations, and not only from the shipment side, but also from the booking side. And this goes naturally beyond this large order published here, yesterday.
Great. Good to hear. One question regarding your gross margin in your Clean Energy business. I mean, 46% gross margin is, from, from my point of view, really a high gross margin. And, and I would think, if one sees this gross margin, you should attract more competition because, such a high gross margin, gross margin, it is attractive to, to join this business. You, you said that your long-term margin target is 44%, also pretty large. What makes you confident that you can stick to such high gross margins, at least, say, in the medium term?
Hi Karsten.
Daniel, hey.
Good to have you on the call. Yes, we'll say that we're looking at a gross margin north of 44% in the long term. And what makes us confident, I think there are two reasons. The gross margin is a function, really, partly, of our product mix and the way we move out there, right? As I mentioned, addressing more and more industrial markets, with more and more higher power requirement. At the same time, I'm not saying super sophisticated, but also increasing integration level here, as we move forward. And then we mentioned, also moving backwards in our value chain, i.e., manufacturing the MEA itself, that will also have an impact on it. So the value add of the products is increasing.
We're getting more and more value add of the value chain in-house, which, again, without getting too down to the nitty-gritty or too granular. Secondly, it is also a function of growth. Overhead expenses in production, in manufacturing do have an impact on the material expenses—sorry, on the manufacturing expenses, obviously, that also kicks in there. So, you know, expanding the gross margin is a function of, you know, decent management growth and higher value add. And while we're convinced that, you know, it we will well, eventually you always know there's competition out there, right? And eventually we are not naive in saying that we are, you know, for forever, the only ones in the market. But for the time being, this is the case when it comes to a DMFC product.
We're still, as far as we can judge, from management point of view, have a head start in terms of technology and market penetration, which is, you know, a couple of years, whether it's, you know, 2 years or, or 1.5 years or 2.5 years, to be discussed. But it, it is, it is very decent. And for the time being, we don't really see any, you know, direct massive competitor getting into this. So as you rightly say, it's a decently attractive margin, even though I think it's, you know, it's, it's a good margin for a tech company. It will attract, most likely eventually, competitors. But for the time being, we have really have from our DM penetration a, a big head start, Peter.
Well, maybe just to complement this, naturally it's, it's not just again, we are seeing competitive products out there at a different level of maturity. We do not underestimate this. Our customers and partners naturally test it. They show it to us. I think, as mentioned at the beginning, we are offering, I would say, a, an attractive value proposition. We are increasing operating times, durability of the products. We are bringing functionality, cloud, IoT to it. So we make the customer used to a level of performance that is, let's say, currently not matched. Is this a 2, 3, or 3+ year head start? Well, we, we continue to strive for, for further performance. And that's why at the end, yeah, it's not just the, the price of the product that what they have to the CapEx, right? It's then just, divided by operating hours.
And there you get, let's say, the attractiveness for our customers. So, will this stay forever? Well, we have to see. But we at least will fight for the leading position going forward by, again, keeping up the attractiveness of our offer.
Yeah. I wish you all the best for this. Thanks for taking my questions.
Thank you, Karsten.
Our last question comes from Thomas Junghanns with Berenberg. Please go ahead.
Yeah. Good afternoon, gentlemen. I have two quick questions. The first question is respective to your M&A strategy. What is the timeline here for an M&A transaction? Do you expect that rather in 2024 or in 2025?
Yeah. Hi, Thomas, Peter.
Hey.
I think we have good chances to look at something already within this fiscal year. As said, we are looking at different opportunities right now. We need to also, I think, just judge the market dynamics here that usually have then an impact on timelines, but also on pricing. And therefore, no promise, but I think we have good chances for 2024. And I think we definitely will do something in the timeframe to 2025.
Perfect. Thanks, understood. The second question is with respect to the geopolitical situation currently, are you expecting further major orders in particular from the military industry over the upcoming months?
Well, I think what we see here is including, I'd say, well, we had a good start now with all the business we generated together with our partners here in India geographically. But we are seeing really, again, momentum back here in Europe. We see some OEM programs now being in a decision-making state. Well, those of you and you have been with us also for a couple of years have seen me always confident on, yeah, decision-making to happen. I think, with the learning curve we have here, especially also for our home market, Germany, we'll report on it when it's here. I will not make a bet. I think it's not really worth to make a bet on it whether this happens still within this year. Some others, yeah, Middle East, we are seeing an increase.
We will see increased shipments here, especially in Q3. That's something I would say, yes, confirmed. And so overall, yeah, naturally we see higher spending. We see the willingness to upgrade. We see also, let's say, investment in resilience. And this is, I think, the combination: higher budgets, but then also an actual combat situation happening or actual combat situations happening in more than one place, place on the planet, which is unfortunately, but is a driver here.
Perfect. Thanks.
Thanks, Thomas.
Ladies and gentlemen, this was our last question.
Well, with this, we thank you very much. And again, bear with us for the delay here. You should have the completed documents available, I'd say, shortly, if they are not there yet. As during our presentation, maybe they were uploaded. We'll check. As always, get back to us if we missed out on something. If you have specific questions to address, Susan, Daniel, myself, we are at your disposal and look forward to an exchange here. And again, we will conclude this quarter here within two or three more working days to make it a good quarter. And then after this, we wish you all Happy Easter. Thank you very much.
Thank you, everybody.