Ladies and gentlemen, welcome to the SFC Energy publication of the Quarterly Report Q1 2025 conference call. I am Valentina, the conference call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing Star and 1 on your telephone. For operator assistance, please press Star and 0. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Dr. Peter Podesser, CEO. Please go ahead.
Thank you very much, Valentina, for the introduction. Good morning, ladies and gentlemen. Welcome to our first quarter earnings call, and thank you very much for taking the time. As usual, Daniel and I will be guiding you through the key elements of business and the financials, and thereafter looking forward to a lively Q&A session. We are looking at our second-best starting quarter of the year, and still we have to state, I would say, as expected, against an extraordinarily strong first quarter 2024 that revenues and earnings are down compared to last year's Q1. I think we have to put this also into perspective, not just because we had a, let's say, a significant project in India here in our defense business of approximately EUR 10 million revenue last year in the first quarter.
I think we also have to see that the first quarter this year is also above the average quarter in 2024 in regards to, I'd say, revenues and earnings when we look, let's say, at the overall, and I would say also normalized development. Looking at the structure of the business and looking at the start of the year, we see it as a very solid and satisfying kickoff, and this gives us also the confidence here to, I'd say, still be fully convinced that we are on track to reach our full year targets. We will get into this later. If we look at the structure of the business in the first quarter of the year, I think we are replacing a significant dependence on a single element of business against a good spread of the business regionally, but also in terms of end markets.
We are seeing significant growth here in Europe with about 34% continued good development of our industrial business as well as the clean power management side. We are seeing a very strong growth in the U.S. with 61% and overall in North America 42%. I think we also have to acknowledge that especially the U.S. figures are including some pulling effects as a precaution to avoid potential tariffs. Before we go into the usual sequence here, let us look into a potential effect here of tariffs, especially between the U.S. and the EU for a moment.
I think we have taken very early and immediate measures back at the beginning of these discussions, and in a very simple way and simple format, we worked on pulling off orders here and higher shipments to our customers, as mentioned above, which I think bridges here or builds a bridge here for both parties, our customers and ourselves. We have our fuel cartridges supply chain out of Canada also running at full steam here since the beginning of the year, and we did some more stocking, let's say, with us, but also with our logistics partners, in this case, Kuehne+Nagel already early on. On both ends, on our cartridge supply as well as the fuel cell part, we are working also on the localizing.
Local filling is expected to happen within, let's say, autumn time, and also our setup of manufacturing and assembly in the U.S. has been part of our plan since setting up our own presence in the U.S. last June. The CapEx, therefore, is within our plan, and let's say potential tariffs on components we might not be able to fully absorb. I think we will have to work here with our customer to see what kind of split we can find here. Overall, a 5%-6% pricing impact, I think, is what we have to look at, but we cross the bridge when we are there together with our customers. In a summary, besides, I'd say, these elements, we also work on cost down for components here to, at the end of the day, have the residual impact on the margin as minimal as possible.
For completeness' sake, I think if we stay within those expectations and boundary conditions, this is also built in our assumptions also for our year-end figures. Now, looking at the sales and the sales development, as said, we are looking at a negative deviation here of 3.6% year -on -year, resulting in sales of EUR 38.6 million compared to approximately EUR 40 million in last year's Q1. If we look at, let's say, the distribution I mentioned already, the regional growth, if we look into the segmental part, we can see that naturally the clean energy part shows a decline here of 7.8%, mentioned already the defense business here in India. At the same time, we still see the industrial part of the business here showing a continuous growth here of approximately 15% within the clean energy segment.
With the decline of the, or the relative decline to the clean power management business, the total part of the clean energy sales came out at 73.5% compared to 76.9% last year. On the other hand, the clean power side, a solid growth here of 10.7% to above EUR 10 million of revenue in the reporting quarter. I think here the distribution of business here, again, across the end markets there, existing customer business, but also new customer business contributing to the result, to the positive result here for the clean power side. If we now look at the order intake, yeah, we are looking at the backlog that is at EUR 84.6 million against the EUR 104 million we entered the year. Also here, I think we have to remind ourselves that we had almost EUR 60 million of order intake here in Q4 of last year.
If we look at our project pipeline, we are confident also to turn this ratio around, I'd say, going further into the year. Overall, looking at the development also of margins and earnings, Daniel will give you a good view. I think as you look at it, you can see the investments we have done here in further structure, in further expansion, naturally is also reflected in our overall cost structure. With this, I would like to hand over to Daniel to lead you through the earnings.
Thank you very much. Thank you, everybody. Good morning. Thank you for joining the call. As Peter already mentioned, you know, it's hard to beat the comparable Q1 2024 on a quarterly basis. Nevertheless, you know, when we look at the Q1 in terms of revenue, but also in terms of key financial KPIs, we believe it's a very solid quarter that we've delivered. Peter already mentioned the revenues, even though they decreased by 3.6% quarter -on -quarter. Putting it in overall perspective, it was revenues in the quarter on the higher side. If you look at the EBITDA adjusted margin, we achieved 16.4%. That is an expansion. If we look on last year's full EBITDA margin, which was 15.2%, we're looking at an expansion of 1.2%, even though compared to the first quarter 2024, obviously it's a contraction.
If we look at the EBITDA adjusted margin, we reached 11.7%, that is also an expansion. If we look to 2024 full year margin by one percentage point, we generated cash flow from operating activity of a solid EUR 7.1 million. I would like to go through a couple of key KPIs right now in a little bit more detail. Starting with the gross profit, the gross profit margin reached 44.3%. We were almost on the level of Q1 2024 when it comes to the gross profit margin, which was in 2024, as we mentioned before, a record margin. The gross profit itself declined by 4.3%, which of course is also a function of lower revenues. Overall, we continued to establish a sustainable and healthy gross margin level, which is a key driver for our profitability.
We're still, you know, looking at our growth and expansion paths and drive this and also make sure that the gross margin in light of this growth path remains stable. What are the key impacts on the gross margin in Q1? If we look at the segment clean energy, we are obviously profiting from a more favorable average U.S. dollar to EUR exchange rate, which on average was 3% stronger than in Q4 2024. That of course benefited our gross profit in combination with roughly 60% higher US revenues compared to Q1. On the negative side, in the segment clean energy, we're looking at a weaker average exchange rate for the EUR against the CAD, roughly 2.1% weaker compared to Q1 2024, with, you know, a decent portion of Canadian revenues from Canada that increased by 6%.
On the positive side, if you look at the segment clean power management, the gross margin expansion was mostly driven by SFC Canada and the clean energy, sorry, clean power management products sold by SFC Canada. What we see is that the gross margin in both segments, I mentioned that before, but let me repeat it, are on a healthy level with the segment clean energy showing a contraction compared to Q1 2024. However, the margin itself is well above the full year levels of 2024. Margin in Q1 was 49.1%. That compares to the 49.7% in Q1 2024. However, 46.6% for the full year 2024. Sorry. Drivers specifically one more time in that area is of course we are lacking the strong margin revenue from the defense sector, which we had in Q1 2024.
That was, however, compensated partially, as I mentioned before, by U.S. revenue, which have favorable margins. Also, we increased the share of revenues from the industrial sector, which tend to be stronger margin or higher margin also by 15%. Looking at the gross margin of the segment clean power management, we realized a gross margin of 31.2%, which is definitely on the higher side of the gross margins we realized in that segment. Remember in Q1 2024, we were looking at 28.1%, and in fiscal year 2024, we had 28.2%. It is really showing the continuous and gradual margin improvement in that segment. We pretty much had stable margins across all product families with, and I mentioned that before, the clean power management product in SFC Canada having a margin increase. What does it mean for our midterm or long-term gross margin?
You know, when we say increased it, that our clean energy margin needs to be above 45%. Yeah, you know, we are well on track. And the clean power management margin needs to be well above 32%. So also there we are on track, obviously with a little bit of a way still to go. Going into the EBITDA, the EBITDA adjusted came up to EUR 6.3 million, which compares to the EUR 9 million in Q1 2024. On a margin side, that means an EBITDA margin, adjusted EBITDA margin of 16.4% comparing to 22.5% the first quarter 2024. Said that it was an extremely high EBITDA margin, which I already mentioned that last year, you know, will be challenging to achieve on the short term. But if you look at the full year margin of 2024, which was at 15.2%, the first quarter was on the stronger side.
The adjusted EBITDA excludes, as always, the non-recurring expenses and income, which are related to the provisions and additions to the capital reserve for the LTI programs and some transaction-related expenses. Pretty much analog to what we've been doing in the previous quarter. The reported EBITDA was negatively impacted by these non-recurring expenses with an amount of EUR 1.6 million, which is higher than the impact that we've seen in 2024 in the first quarter, which was EUR 357,000. The largest portion of that are the provisions made for the LTI programs, which are the Zara's Stock Options and the PSP. They amounted to EUR 1.6 million in that quarter, much higher than what we've seen in the previous quarter, first quarter. It has also to do with the fact that a number of new programs have been awarded to the first management level and certain people of SFC Group.
Quickly digging into the development and what is impacting the adjusted EBITDA, we can see that, and I mentioned that we increased the margin from 16.4% to 15.2%. We are always looking and maintaining a good balance between growth investments that we are doing, which includes investment in capacity expansion, in technology, in IT infrastructure, and at the same time looking, sorry, at the return of capital employed. One of the key impacts, the key drivers behind the EBITDA and the EBITDA margin in the first quarter, I discussed the gross margin before, so I will not go into that. If you look at the other operating expenses, the adjusted sales and marketing expenses increased overproportionally with respect to revenue when we compared to Q1 2024, making up for 11.1% of the revenues.
However, the key drivers behind there was additional headcount that was added in the course of 2024, including higher marketing and travel expenses in connection with our corporate development. If we look at our R&D expenses, R&D expenses adjusted increased to EUR 2.1 million, which is 32.6% more. If you followed us in the previous quarters, you know that we look at R&D spend. R&D spend is defined as the R&D expenses in the P&L, plus the R&D that we capitalize, which is shown in the CapEx and the subsidies. If we add up those three numbers, we come to an R&D spend of EUR 2.9 million in the first quarter that compares to EUR 2.5 million in the first quarter 2024. That is a decent 15.2% up. What are the drivers behind that?
It is mostly personnel expenses, and personnel expenses is a combination of headcount as well as wage increases, which we had at the beginning, sorry, at the end of the quarter last year. It shows the full impact of the first quarter of this year. We are looking at an R&D spend to revenue ratio of 7.5%, a bit higher from what we saw in the Q1. Also has to do with the intensified MEA development that we are doing in the long term. Nothing has changed with our goals of having 6%-7% of our revenues in R&D spend. Looking at the G&A expenses, the G&A expenses increased to EUR 5.3 million compared to the EUR 4.5 million, sorry, adjusted G&A expenses. What are the drivers behind it? Pretty much the same drivers as we had at the end of last year.
It's increased IT and software expenses for digitization, as we mentioned before. We are going, moving towards a new ERP system on a group level. These are heavy investment and expenses. Not everything of that is capitalized, but also directly expense. That is one of the, honestly, the key driver if you compared to the previous quarters. Quick look at the balance sheet and the CapEx. Total CapEx, excluding CapEx for IFRS 16 accounting, was EUR 1 million. That compares to EUR 1.8 million in Q1 2024. You see that on a lower level again. The total split between intangible assets and PP&E was two-thirds roughly for intangible assets, one-third for PP&E. After last year's comprehensive investments in the MEA production and the capacity expansion, we are first of all seeing a bit of a normalized CapEx pattern back to EUR 1 million in the quarter.
At the same time, we see also the normalized pattern in terms of intangible assets and specifically driven by capitalized R&D exceeding the investment in PP&E, which we mentioned before sort of shows that we have an asset-light or lower asset business model. Cash and net debt, the cash freely available pretty much remained on the level of the year end with EUR 60.5 million. The financial debt increased marginally to EUR 4.3 million from EUR 4.1 million, same thing as we had in the previous year working capitalized for SFC Netherlands and SFC Canada. Nothing really has changed there. Our net cash is then stable or net debt, which is net cash, EUR 56.2 million as a very healthy level. Equity increased by EUR 2 million due to the positive earnings that we made in the first quarter.
Net profit was EUR 2.3 million, solid equity ratio of 72%, also pretty much unchanged to the year's end equity ratio. Cash flow, operating cash flow before change in net working capital, EUR 7.1 million, below what we've seen, the EUR 9.1 million in Q1 2024, still at a very, very solid level and healthy level. Change in net working capital, so net working capital increased by EUR 4.6 million, where last year we saw a decline. The ratio of net working capital to last 12 months net sales increased to 27% from 25% as of the end of last year. What has been driving that change in the net working capital? Biggest position is accounts receivables, which went up by EUR 3.4 million at the end of the first quarter. That translates into days of sales outstanding, 12-month trailing, to 98 days.
At the end of last year, it was 90 days, so it is a little bit higher. Nothing that we are too much concerned about. As always, it is a snapshot at the end of the quarter, but we are pretty much within our target values. Obviously, we are attempting to bring the days of sales outstanding down. We see that inventory increased slightly with a negative cash impact of EUR 1.2 million. That was mostly driven by stocking components for the MEA production in SFC UK. The days of inventories on a 12-month trailing was 135 days at the end of March. That compares to 131 days at the end of December. That is not a huge increase. We look at the accounts payables.
They decreased by EUR 812, and that translates into days payable outstanding of 63 days compared to 66 days at the end of the year. You see that the ratios in the working capital all have gone down a little bit. Again, nothing that is unusual from our side. After the change in net working capital and after tax payments, the cash flow from operating activities was EUR 2.1 million. Of course, last year we saw a much higher number with EUR 9.6 million, which also results from last year's reduction of net working capital and the big destocking that we had at the end of the first quarter. Cash flow from investing activities, I mentioned before, was EUR 1 million in the first quarter. Cash flow from financing activities was EUR 900,000. That is mostly IFRS 16 related interest expenses.
That brings us to a change in cash of EUR 145,000. Cash remained more or less stable in the first quarter with, as I mentioned, happy investments in CapEx in the networking capital. With that, I will return it back to Peter. Thanks very much, Daniel. A last remark here in terms of the operative side of the business before I go into the outlook. If we look at human resources, you see the company at the end of March at 488 permanent employees again and an increase also to the end of last year. What we can report here and what we see is a more favorable labor market environment that also helps us to fill, let's say, open position that we still have in order to, let's say, stem the growth here.
Overall, I think it's not, let's say, now an easygoing labor market, but we definitely see it, let's say, detensed compared to last year against the overall economic situation in the various countries we are hiring. Going to the outlook, I think you see us with justified confidence and optimism to stay in line for our year-end targets. What we really expect is a significant impetus here for the first time from our acquired business in Denmark on the hydrogen side. We are within the plan for the setup and the ramp-up. It may all be a little more modest than it used to be when we took it over, but I think with this, we will also show that at least the targeted black zero of this business is a realistic assumption. We expect the contribution in the mid-single-digit million revenue level.
Acquisition on track. Defense and public security here. After being together with our Indian partners last week for a couple of days, I think we see the pipeline there. The follow-on programs are materializing, and that is definitely an impacting factor also here going through the year. We expect this, let's say, to materialize as of Q3 and Q4. NATO countries. You might have seen our announcement here with Polaris at the largest Special Forces Convention and Meeting two weeks ago in Tampa, Florida. Apart from this, we are seeing momentum here in the U.K. We are seeing momentum in the home market here in Germany. Together with India, this at the end of the day, we'll see our defense and public security business back, let's say, at levels compared at least to last year. Asia apart, India, Singapore.
We were in Singapore a couple of weeks ago. SG, 60 years of Singapore state being existing. There is a lot of activity, and this translates into a good business environment for security and surveillance. Expect us to show good traction there. North America also here. Our defense and public security business shows again, let's say, traction and projects expected here also in the second half of the year. This all comes, and I think this is what we have to remind ourselves also on top of the ongoing growing business here of the industrial fuel cell business as well as the power management side. Apart from the new Danish subsidiary, also the ramp-up in the US is within plan. We have done most of the capacity investments and ramp-up from MEAs in the UK to production capacity in Cluj, as Daniel has mentioned before.
are well prepared here for further growth. This leads us with a confirmation on the existing guidance: revenue between EUR 160.6-180.9 million, adjusted EBITDA from EUR 24.7 million-28.2 million, and adjusted EBIT from EUR 17.5 million-20.6 million, each of it counted in million euros. With this, we would like to conclude our presentation. Thank you very much and look forward to your questions and comments.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchstone 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. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and one at this time.
The first question comes from Usama Tariq from ABN Amro-ODDO BHF. Please go ahead.
Hi, good morning, team. I hope I'm audible.
Yes. Yes. Can hear you. Hi. Yes.
Thank you for the opportunity. I just have a small set of questions. Number one being on OPEX. So we have seen a rise in OPEX. Do you have any visibility going forward into next three quarters? Do you see them stabilizing, or do you see them growing at the same rate? My second question would be with regards to the order book. The Polaris agreement, when do you see that coming into the order book? Thank you.
Good morning, Usama. This is Daniel. Thank you. With regard to the OPEX, we see them stabilizing.
If you look at the end of this quarter, you'll see when it comes to the most OPEX position, they are comparable to what we've seen in the previous last quarters. We will, of course, have planned to add some headcount over the year, but we do not see a big jump for the time being that we've seen last year with the expansion of capacity that we did, including the expansion of our technology capability, which was really driving a large part of our headcount that we added last year, notably SFC UK, also SFC Romania, where we increased the capacity. Also, the whole admin staff that we have, whoever sees our key publication, risk management, all those things. Most of those structures are really in place right now, and we don't see any huge jump in the OPEX for the next couple of quarters.
We may increase here and there, but no big jumps. At the same time, of the gross margin, you know our long-term or short-term gross margin targets. Also there, if you do not see any significant negative impacts from exchange rates and/or customs, we would not expect any big impact or negative impact on these margins.
Good morning, Usama. Peter, in regards to the collaboration with Polaris, we see first tenders out there in different NATO states here for this specific program. We see potential initial piloting still happening in 2025, but the impact in terms of revenue to a great extent really starting 2026 and then going into 2027, which is the usual, let's say, cycling from a piloting to really then fleet operating. The bigger impact starting 2026 to 2027. Thank you.
That would be all. Thank you so very much.
Thank you.
The next question comes from Karsten von Blumenthal from First Berlin Equity Research. Please go ahead.
Good morning, Peter.
Good morning, Daniel. And thanks for taking my questions. First question is regarding order backlog and order entry. It looked a bit weak, the order entry. Could you give us a bit of flavor what happened in April and in May so far? Obviously, as Peter mentioned, you see a stronger H2 because a lot of programs will obviously start in H2, especially in the defense business. Is that the right way of seeing the year?
Good morning, Karsten. Thank you very much for being with us. First of all, naturally, we saw a spillover here at the beginning of the year from a very good order intake here in Q4, which made it, let's say, a soft start.
Not surprisingly, a soft start here for us at the beginning of the year, picking up again in March timeframe. Overall, activity and project pipeline is, let's say, activity is good and project pipeline very solid, which gives us still, I'd say, the confidence to bring this ratio back up, but also reminding onto, let's say, the historical pattern. We have those, let's say, waves and a certain cyclicality in there that is at the end coming, I'd say, from a junkie power business and a project-based defense and public security business. The continuous inflow of orders here on the industrial side is then topped up by those two elements. That's why, as always, not happy with, let's say, lower numbers compared to previous numbers, but not concerned in a way.
Perfect. That helps. Could you elaborate on Trump tariffs?
I mean, my feeling is that you acted quickly, that you have done it right by shipping a lot before the tariffs materialized, and you have started the local production, or at least you built up the local production. What do you now after this very strong Q1 figures in the U.S. with 61% growth? What is now your impression regarding orders from the U.S.? I mean, now I think you have to pay, please correct me when I'm wrong, 10% tariffs when you ship to the U.S. Yeah, perhaps you could elaborate on how you see the situation now. I mean, it's not as bad as at the beginnings, but still, someone has to pay the tariffs, and that will not help demand in the U.S. Perhaps you could explain the situation in detail.
If we differentiate here, as also you summarized it, yeah, we've taken some measures, some of it pretty simple ones by simply shipping more in accordance and with the support here of our key customers to their locations already. In addition, we did some additional stocking here with us in the U.S. and also with our logistics partners, especially in regards to fuel cartridges. We are fully covered here throughout the mid-year into August timeframe. Therefore, yeah, we will see an impact here in Q2, which I think is then explainable and expected. At the same time, we had started to prepare for local production and, let's say, basically copying what we had done two years ago in India also to overcome a, let's say, protectionist system there by simply localizing our assembly first and then naturally looking into the supply chain.
All of this has started before the tariffs discussion has started. We are, I think, on a good way here within the next 150 days to get our own systems built there. The residual impact is on component level. Therefore, part of the cost at the end is already in our planning. Part of it is then at the end a shift of margins here from Germany to our U.S. subsidiary. The third part is the discussion we have to conduct with our customers to look at, let's say, our final pricing. As said, that is a range of 5%-6%, and we feel part of it is digestible. Part of it, we simply have to compensate by cost reduction here on component level, which I think part of it is already done.
Therefore, overall, within our planning for the year, I think we have factored this in. In regards to price sensitivity of customers, naturally, there is always, let's say, a level of price sensitivity. Then going back to, let's say, the key part of the customer base, CapEx is, let's say, at the end, not the single deciding factor. It is the total cost of ownership part. If we can, by localizing the fuel supply, by reducing transportation costs there, overcompensate the, let's say, sticker price effect, that goes a long way. Therefore, again, you see me really confident in this part based on current knowledge with, let's say, the speed the administration in the US sometimes is changing some boundary conditions. We will have to assess this when we know it.
From today's point of view, I think steps are in place and we are executing on it.
Perfect. Sounds good. One last question regarding the dollar, which has been quite weak in recent weeks following the tariffs. That has an impact on your euro calculations and, of course, on your competitiveness. What is your view there? Are you on the further development of the dollar or on our competitiveness and our prices?
I mean, the weak dollar should have an impact on your competitiveness and on your balance sheet in euros. Like I said, you'll see that it has some benefits. It has some benefits on some level. Then again, it has some disadvantages. It does have an impact on it, not overly strong. Remember, the dollar is just one of the many currencies we trade into.
Looking at this isolated would not give you a proper entire picture. We have substantial, as you know, also CAD activities, also to some extent INR. It can be a benefit, but then we also purchase in USD. You cannot only look at it isolated on the competitiveness. That would not give you the right picture. At the end of the day, with other input factors, as Peter already mentioned, not only CapEx, but also total cost of ownership, it is just one component that has an impact, but I would not say it is super material.
Perfect, Daniel. Thanks for clarifying that, and thanks for taking my questions. Thank you.
The next question comes from Michael Kuhn from Deutsche Bank. Please go ahead.
Good morning. Thanks for taking my questions. Mostly follow-up questions and coming back to the gross margin once more.
Obviously, running against very tough comps in the first quarter with softening in the next few quarters. Let's say just focusing on that current level in between 44%-45% and having the various moving parts in mind, currency, input factors, tariffs from the second half onwards. Are you confident you can keep the current level of, let's say, between 44%-45% over the course of the year?
Good morning, Michael. Yes, we're confident that we can keep that level. It, of course, is always a function of a product mix and regional mix and also a function of key and target market risk. We do, as Peter mentioned, see that the portion of public security and defense revenue will increase over the year. That tends to be much higher margin revenue, which has a positive impact.
We still expect to have a very solid U.S. business, North American business, which also tends to be higher margin. There, of course, depends on a weaker dollar would also help. We will see what the tariffs will do, what impact the tariffs will have on how they can be set off. There, as we mentioned, there are various options that we are looking at and that we are ready to implement. Of course, higher revenues also set off the production overhead where we get some leverage. Very long answer to your short question. Straightforward, yes, we are confident when it comes to the segment clean energy with the various drivers. When it comes to the segment clean power management, also there, we are confident to keep margins at a high level. Will we hit exactly that gross margin of this quarter? To be seen.
Are we going to stay on that level? Yes, we are very confident, which has to do with longer-term contracts that we have in SFC Netherlands with an attractive customer base that are higher margin than what we have seen last year. It also has to do, and we will look at SFC Canada, where we are very confident to maintain that pricing level. All over, the input factors on the pricing level are positive, and we do not see our production costs and the cost of raw material increasing significantly.
Thanks for that. One more on, let's say, pipeline and business evolution. Obviously, you cannot talk about specific projects. Still, you mentioned U.S. defense, maybe a better idea on when that could materialize. On the industrial side, you mentioned 15% growth in the first quarter. Was that mostly surveillance or also backup power?
Maybe also a few more comments here on the remainder of the year where you expect the growth to be mainly stemming from.
Absolutely. Good morning, Michael, Peter. Pipeline and business evolution, as said, yeah, defense and security apart from North America, which includes projects also in Canada. I think we will see within the year either or or even both materializing here until the end of the year. Looking at, as mentioned, India, we will see this already earlier. Therefore, I think here, let's say, see a totally different development compared to now the beginning of the year where, as you mentioned, we have the tough comparison here to a big program in India being realized a year before. Industrial part of the fuel cell business here, I think what we see is a continuous and healthy broadly distributed growth.
The one part is naturally surveillance CCTV. Here we see, I'd say, an initial also start of a large key account in Canada coming on top of what we saw last year. We are seeing a broadening of acceptance in the U.S. apart from LifeU being our core customer. Most of it will here in the U.S. developed, as mentioned, with all the shipments we have done now in the second half of the year in Europe, broad across the regions. Apart from, let's say, CCTV and surveillance, still, let's say, wind energy and, let's say, industrial backup in a broad sense are the drivers here of the industrial business. What we have here is a new large customer developing after quite some, let's say, adoption time in traffic management and traffic security systems.
We did very successful projects here last year, and we are getting into, let's say, routine supply situation, talking about, let's say, 50-60 integrated energy solutions initially. As this company is operating here throughout Europe and is also driving its expansion into the U.S., I'm pretty excited about this. We are seeing their headquarters, senior management, also early June to see how we can roll the business out internationally.
Thanks for that. On your comments on Canada, in the last call, you mentioned Garda World. I guess you're making progress with that customer as well.
Exactly. That's, let's say, where we are getting now into, I would say, what we would call serious volume, talking about, let's say, more than 100 units deployed and talking about now, let's say, how we can roll this out with them together.
That's good to hear.
Last question on your digital services. You talked about predictive maintenance and stuff like that a couple of times in the past. Are you making progress here as well? From when on should we think about that business as a, let's call it, significant or worth mentioning revenue contributor?
I think here, if you look at our cloud functionality, what we have now done and implemented over the last two, three quarters is really making sure we are getting, I'd say, as many new units shipped registered in the cloud. With this, overall, we adapted our strategy and offered, I'd say, an initial cloud access to existing units for free to make sure everybody can test this right now for 6, 12, some of them even 24 months. This might look as losing revenue.
I would say, yeah, on the short end, yes. The moment we see now our customers getting used to it and seeing really the impact and the material lever this gives them to improve their operating situation and bring, let's say, uptime up, bring operating costs down, and we are supporting them with the analysis, I think, is the right basis then of having continued and satisfied cloud users. Apart from, let's say, a quarter of a million of revenue that is already in there, I think for 2025, we do not see this as significant. As of 2026, we will have it picking up. We have right now, let's say, a five-digit number of eFOYs already registered in there.
We see an acceptance rate here of newly shipped eFOYs that is beyond 80%, which I think is a good and growing basis here of future business. Honestly, significant contribution to the top line. Do not expect this here before 2026.
Understood. A very last question on public infrastructure. Obviously, quite a lot of discussion going on on vulnerability of infrastructure currently and how to improve that. Do you expect or do you see new discussions coming up here in terms of surveillance, also of remote infrastructure across Europe, eastern border, but also in the country where we've seen repeated attacks and where we, let's say, seem to be in a state of hybrid warfare already? What could that be in terms of business opportunities?
I think if we look at the current situation, it's not so much, let's say, the infrastructure package that is being, let's say, implemented by the new government here in Germany that has now the direct impact here. It is more, I'd say, what has happened over the last three years by witnessing here, I'd say, the situation in Ukraine and see how vulnerable critical infrastructure is. If we look at our business, most of the higher power systems, including also our hydrogen systems, go into a backup for infrastructure. That is an ongoing process. If we look at it, yeah, I was in Scandinavia just recently, naturally in Denmark, talking to, let's say, or seeing, let's say, how the ramp-up there goes on.
We met partners from Scandinavia here, and we see naturally active project pipeline now evolving, talking about the borders here in Finland and also in, I'd say, in Latvia and other areas there. Is this already materialized? No. The activity is non-comparable to what it was before. In addition, also defense and security, just for completeness' sake, we have not done, I would say, any significant defense business in Denmark so far. The last three months, we were invited to present, let's say, the whole offering here three times to relevant decision-makers. The environment is fundamentally changed there. The one is really strict defense, and the other part is really resilience and border protection, resilience of infrastructure and border protection. For both, I think we have appropriate product offerings. This doesn't happen now within, let's say, a few weeks' time frame.
We know it is about piloting and going out. The overall environment also drives an increase in speed here for adoption and decision-making. That is, I think, what we are witnessing right now. Without having it today in the order book, but also not seeing too many competitive solutions out there. This helps us naturally.
Thanks for your answers.
Thank you very much.
The next question comes from Malte Schaumann from Warburg Research. Please go ahead.
Good morning, guys. First question is follow-up on the order backlog order entry. How much of your backlog is scheduled for delivery shipment in 2025?
Out of the EUR 84 million that you see there, a good EUR 20 million is scheduled for 2026, especially also on the power business here with a single big customer. What we usually see also with their growth, some pull-in.
I would say slightly below 20 resides there for 2026. Okay. That leaves you with, let's say, EUR 70 million in orders required to reach the midpoint of your guidance until maybe early October or so, October. This is what you see in the pipeline. I mean, you expressed pretty high incidence. Exactly. I think at the end, what you look at is if you see, let's say, what we do is the first quarter, also our view on the second quarter, doubling it, as said, with an underlying growth here on the industrial and also on the power business. Then we know we will have some additional impetus and impact here, as mentioned, regionally, Asia and North America, but also on defense and public security with the projects in the pipeline. It's definitely a timing. Yeah.
Would I prefer to have it already in the books? Yes. Still, knowing this business and also seeing the decision-making process right now and the probability that is attributed to the single programs, again, justified confidence here, at least from our perspective or from my personal perspective.
Okay. Good. On India, I mean, recently, there have been news about rising tensions in the region. Does that impact your discussions regarding timing of projects, volume of projects?
Yes, definitely. As said, we were together with our Indian partners here for a couple of days last week. Part of it is the usual business and the planning where we had to see that the adoption takes also slightly more time than anticipated. That is why we are looking at the situation as it is in terms of Q1 comparables.
At the same time, we are looking at accelerated procurement projects in the pipeline where we also have to confirm here short delivery dates. As we speak, we are doing this. Decision-making, honestly, not even our partners could tell us. What we see right now, I think that is within the summer month. Otherwise, we would not be able to ship it anyhow until the end of our fiscal year, which is the calendar year. There is activity and procurement requests out there on short notice.
Okay. Good. On Polaris, maybe can you elaborate a bit on the potential business volume you might expect for 2026, 2027 coming out of now?
At the end, we know naturally the numbers of, let's say, that are out there in the tenders in the different NATO states.
As we are the only fuel cell specified here with, let's say, those requirements, the probability is naturally correlated also to, let's say, the execution of the tenders. Yeah. Overall, a tender volume is, let's say, beyond 1,000 vehicles in each of those tenders. I would not expect every single one then to carry an Emily. If we have, let's say, a 25%-33%, so every third vehicle here equipped, this would leave us with a significant impact here from 2026 and 2027 on. Again, knowing the defense world, with all, let's say, their attempts to accelerate the bureaucratic—and this might now sound negative, although I'm really excited about it—the bureaucracy has not changed. The acceleration attempts, I would say, in some countries, I would say yes. In other countries, I do not see, let's say, an acceleration in process.
Therefore, allow us to, let's say, specify this really at the point where, let's say, we have this visibility then. Still, the fact alone that this is specified and the fact alone that those tenders are out there is naturally the initial step of not only our collaboration, but then also future procurements. We keep a realistic view on it. It is not just Polaris we are talking to on the OEM level. It is within Germany. It is within the other countries we are active, including India. It is a clear strategy to have our fuel cell as a standard off-grid or on-vehicle APU, auxiliary power unit, in order to also multiply our market access. We started this OEM program, yeah, way back. It is good to see this movement.
Naturally, it was the right audience there in Tampa with all the special forces of the world gathering, except naturally some countries. Still, we keep a realistic view.
Okay. Many thanks. Sounds good.
The next question comes from Nicole Winkler from Berenberg. Please go ahead.
Thank you for taking my question. I only have one question left regarding Q1 2024, actually. In your press release, you stated that the impact of this major order in India on revenue was more than EUR 10 million. Can you also quantify the impact on EBITDA last year?
Hi, Nicole. This is Daniel. Let me give you an idea on the gross margin, right, and all the way down to the EBITDA. It is difficult and challenging a little bit to track it on order by order, giving also the ramp-up that we did in SS India.
We know that those margins there tend to be gross margins tend to be above 50% in the defense sector, to some extent, even a little bit higher. Again, we do not discuss margins on a single customer basis. We also do not discuss margins, and we do not want to discuss margins for single customers. India would be a single customer. You may understand that this is something we would refrain from disclosing, but it is very attractive.
Okay. Understood. Thank you.
Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Dr. Peter Podesser for any closing remarks.
Again, thanks very much to all of you for staying in. We are available here for bilateral discussions and questions and any follow-up clarification. Daniel, Susan, myself, as usual.
Yeah, you see us here going further into the year with the right level of dynamics in the market and, I would say, a healthy optimism with, let's say, the realistic view of timing and execution. Thank you very much.
Ladies and gentlemen, the conference is now over. Thank you for choosing Clarus School, and thank you for participating in the conference. You may now disconnect your lines. Good.