Ladies and gentlemen, welcome to the SFC Energy AG Publication of the Preliminary Figures 2025 Conference Call. I'm Moritz, your Chorus Cl operator. I would like to remind you that all participants will be in a listen-only mode, and the conference is being recorded. The presentation will be followed by a question-and-answer session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. 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, sir.
Thank you very much, Moritz, for the kind introduction. Good morning, ladies and gentlemen. Thank you very much to all of you for taking the time here for the first time in this calendar year to join us for our presentation, for the preliminary numbers, and at the same time, also the publication and the presentation of the guidance and outlook for 2026. Together with my colleague, Daniel, we will present you the key elements of the preliminary unaudited numbers so far, and naturally, also look forward to our question-and-answer session after this. Let me start off with, let's say, a critical and quick look back. I think we're looking back at 2025 as a year, definitely of challenges, but also a year of consolidation.
At the same time also, I think we have made good use of this period here for a further strategic alignment and focusing ahead of a starting era of growth again. Back to growth, I think, is also what we see here with our last quarter of the year 2025. The fourth quarter was about EUR 40 million of revenue, also recording the strongest quarter during this year, also with decent profitability. At the end of the day, if we look at the growth drivers here in the closeout of the year, we are looking again at our industrial fuel cell business here with, let's say, the known end markets, and we're also looking at the European Power Management business.
Besides, let's say, consolidation, I think it was a clear focus and we, I'd say, allocated the right resources to further implement it, implement the long-term strategy during 2025, looking at two elements from today's point of view. The one is really expanding our international footprint further, the international presence, the customer proximity. At the same time, I think, again, investing into our competitive advantage, our competitive strength through technological leadership, through new attractive products introduced into the markets. Let me look into the international element first. Expanding our footprint by establishing a more significant site in Orem, Salt Lake City, establishing and preparing also for the local production in the U.S.
Driven by the need for customer proximity, the expectations of our U.S. customer base, but at the same time, naturally, also shielding us as relatively well then against, I'd say, tariff and other trade hurdle implications over time with the local supply chain to be built up. Looking at, let's say, the assets that we, some time ago, also purchased here in Denmark, in the hydrogen fuel cell business, I think we have turned this into an operating and profitable hydrogen fuel cell business with a customer base in critical infrastructure from telecom to data network operators.
The third one, yeah, the, the planned strategic investment here into our partner, Oneberry Technologies, in Singapore, where we expect to close, I'd say, in the near future, creating a regional hub for the further expansion in Asia, also giving us and allowing us access to a fast-growing Security-as-a-Service business here with government customers. On the technology end, I think apart from, let's say, the, the existing product suite, I think especially in defense and security, we have two new offerings that are already contributing, that already have contributed to the business here in the low single-digit million format.
The one maybe new for some of you, a defense power supply platform developed together with a French OEM here out of our Power Management business in Denmark for laser applications, portable and land or vehicle-based lasers. One of the key applications, drone defense. We are showing this since yesterday as one of the news here, also at the Enforce Tac in Nuremberg, and have quite some positive feedback also from, let's say, not just the existing users, the existing customers, but also from potential new OEMs.
The second one, in Canada, we have invested a good two years of collaboration here with a customer developing what we call the EFOY Pro Shelter, an Arctic power and energy solution, shelter-based for extreme climate and temperature exposure below minus 40 degrees Celsius, with extremely long autonomy, between 12 and 36 months of autonomy. The first systems are already deployed in the northern part of Canada, the northern border also of Canada. Totally, we expect here from both product lines, a scaling effect already, I'd say, in the running year with the existing customers, but definitely also new customers. If we look into the Arctic energy supply, naturally, there are other regions in the world where we see already explicit demand.
There is, with all of this, a structural shift in our business towards defense as well as the public and civilian security application. If we look at all of this, in 2025, this all added up to almost 50% of the total group revenue. With existing product scaling, but also new products now contributing to further growth, we see significant momentum in this field of the business, naturally, also against the known geopolitical situation. As per today, we are, I'd say, unfortunately, seeing the fourth year of war ongoing here in Ukraine. What do we expect here? Significant preparation for OEM programs in the defense sector, mostly auxiliary power systems, either for vehicle or dismounted applications.
We are also looking at, let's say, the general hybrid energy solutions as a need for resilient and dependable power. It's, at the end, a combination of our fuel cells with batteries and wherever possible, also with solar capabilities. We also expect a regional growth in this sector. I think important also for all of us who have, or for all of you who have witnessed with us also these delays in programs in India. In the last recent discussions over the last couple of weeks here in India, we see a, let's say, a resumption of some of those programs happening also near time, at least during the course of the year. The expectation here for this part of the business to increase to approximately 15%-20% of the revenue seems realistic.
Also, if we add the, the civilian security part, all the Security-as-a-Service business, I think we also see 60% as a mark here, to be reached within this year of the total group's revenue as realistic sales with products and solutions with attractive margins, and Daniel will go into this in a second. Apart from this, we also expect our industrial business to contribute and deliver, let's say, organic growth here across the fuel cell, as well as the Power Management business. If we also look at the order intake, there we also see a return to growth, with the fourth quarter, recording about EUR 40 million of order intake, which was the highest intake of all quarters of last year.
We've seen also a dynamic development in the recent, I'd say, two months, or also the first part of 2026, we see several major projects out for decision within the foreseeable future. Based on all of this, we expect a very strong first half of 2026 in terms of overall visibility. If we now look into the sales and earnings of 2025 in a more concrete way, yes, we are seeing sales of EUR 143.3 million at almost the same level of 2024, 1% down. This is slightly below the lower end of the target corridor we had published also by November. I think also a conscious decision from our side not to overstretch, let's say, revenues and push projects here in the last weeks of the year simply at the cost of impacted margins.
We also see this in the profitability of the fourth quarter, and naturally also, we see the overall factors leading to this EUR 143 million not reaching the original plan for last year. If we look at the major deviations, I mentioned it already, we had to digest delays in defense projects in India, impacting our Asian business. The overall uncertainty, also macroeconomic uncertainty, also delaying decision-making, processes, hurt us in the new business development in the U.S. Finally, I think we delivered still an organic growth of around 20%, which per se is nothing bad, but still behind the historical growth numbers in the U.S., but also below, I'd say, our own expectations as well.
The third element, currencies, functional currencies going against the euro here had also an impact naturally on our euro-based group's revenue. With this, I think, I would hand over to Daniel to lead you through the earnings part of the preliminary numbers.
Good morning, everybody. Thank you for joining the call. Neither want to repeat the last quarter's discussions or preempting discussion that we will have. I think the major drivers when it comes to earnings this year were characterized by high losses from exchange rate translation and high costs for the implementation of our ERP system on a group level, as well as investment in IT security. I think this is the overall topic that we've discussed in the last quarters. I think this is also the topic that we're looking at in the first quarter, with some slight changes, and what seems to be a light at the end of the tunnel.
You've seen our EBITDA, Adjusted EBITDA, which is EUR 16.7 million, translating into a margin of EUR 11.6 million, and our Adjusted EBIT, which amounts to EUR 8.9 million, translating into a margin of EUR 6.2 million. Both of these key financial indicators are slightly above the higher end of our latest forecast, which we published in November. One of the reasons for the better performance in the first quarter than we anticipated, I think one of the reasons is the product mix in the first quarter, which was quite favorable. The second one is a good price implementation that we had, especially in SFC Netherlands as well as SFC Canada, but also SFC Germany. We had some, to a small extent, one-time effects.
All of this leading to a higher, slightly higher gross margin than we anticipated in the worst case in our last forecast in November. What we saw in the first quarter is that for the first time in 2025, we had a balanced result from exchange rate losses, i.e., the losses were very low in the first quarter, which also helped. There was not a significant negative impact from other operating expenses. All over, keeping costs at a decent level also helped in generating the slightly above EBITDA and EBIT. We see that the margins are, and that is not a big surprise, below what we have seen in 2024.
We're looking, as I mentioned before, at an EBITDA margin of 11.6%, still a double-digit one, but apparently, away from the 15.2% that we saw in 2024, and also slightly lower of what we anticipated for the given reasons that we have discussed in the first nine months already of the last year. I think to make a summary, and we'll discuss the results much more in detail once we publish our final numbers. It is a, I wouldn't say necessarily super happy result for 2024, 2025, apologies, but still we've seen in the fourth quarter some factors really driving our profits up again, and most of it being apparently the gross margin, which goes straight into the EBITDA margin.
Very short and brief from me this time, and I'll pass it back, to Peter.
Also from my side. Now, looking into, I think, the, the guidance and the, the outlook for the year, we, I think, can give a confident outlook based on facts for 2026. After I say the, the challenges I think we have to address, last year, as mentioned just before. At the end, we see still a consistent increase of energy demand for dependable, resilient, and sustainable energy, decentralized applications driving, let's say, our customers' needs. At the same time, I mentioned this before, we have the structural shift in our business to the public and civilian security business with the existing customers, existing products, but also new and scaling applications and some significant decisions still pending in this area.
Regionally, we expect larger emphasis coming from the European and Asian, especially Southeast Asia, but also a rebound in India, bringing a significant growth impulse. We are not neglecting the risk. I think we are still operating under a challenging overall macroeconomic environment. Geopolitics drives to a certain extent, actually, our customers' needs. We still see tariff risks and trade policy and trade hurdles being a factor to be, let's say, also assessed. At the same time, we have, I think, also experienced a certain shielding in some of our core businesses, and by localizing, especially in the U.S., and having already localized in India, we also see a shielding out of this. Overall, we expect a healthy growth.
The corridor we see, let's say, between EUR 150 million and EUR 160 million of revenue for 2026, with the Clean Energy segment growing slightly faster, as also historically seen. At the same time, we also see an overproportional impact on margins and improvement of margins. Daniel has mentioned also the effect already in Q4. We are consistently also expecting a proper implementation here, but also an operational leverage by growth. At the same time, we are not neglecting the risk here of precious metal prices development and also currency risk.
The range we are seeing as a target range is an EBITDA Adjusted between EUR 20 million and EUR 24 million for 2026. On the EBIT adjusted level here on groups results, we expect the range between EUR 11 million and EUR 15 million as the realistic and range from today's point of view. After a year of consolidation, you see us here with, I would say, a sensible planning, a realistic view for risks and opportunities. At the same time, we see ourselves back at the growth trajectory needed and doable. I think we are also, I'd say, as mentioned, seeing a number of initiatives that are, I'd say, that have been worked on for quite some time, also during the last year, coming to a decision-making stage.
With this, I would like to conclude here and hand back to Moritz to open the floor for the Q&A session. Thank you very much.
Ladies and gentlemen, we will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touch-tone 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. One moment for the first question, please. The first question comes from Karsten von Blumenthal from First Berlin Equity Research. Please go ahead.
Good morning, Peter, and good morning, Daniel. Happy to hear that, especially regarding margins, EBITDA margins, even margin, you are back on track. It's better than I expected in Q4, and Daniel mentioned the reasons for this. My first question is regarding the U.S. business. Peter, you said that overall in 2025, you grew roughly 20%. As far as I remember, in the first nine months, the U.S. growth was roughly 29%. This is an indication that Q4 in the U.S. was relatively subdued. Is that right?
Good morning, Karsten. Peter here. I think what we see here is some shifts between quarters. I think it is not something that we see a slowdown here. I think what we saw in the third quarter was, let's say, the softest demand in the fourth quarter, coming back again and also, let's say, a much broader customer base. Well, getting in or starting the year with a significant dependence from our largest customer, I think we now have started to, let's say, see the distribution of the customer base becoming broader and broader. At the end, what you also see, naturally, if we look at the 20% growth, and this might be also some differential, we will look into this offline.
This is naturally after currency effect, we are seeing, let's say, 19%-20% growth.
All right, that helps, happy to hear that, your customer base has broadened. Could you give us a bit more details regarding the state of the art of your U.S. production site? What has happened in the last few months? Where are you exactly? Could you shed some light on that?
Yeah, we have, let's say, continued with the hiring, the training of people. We had them over here, we had them in Romania. The classical preparation work, all systems are in place, ERP system is up and running. Pilot production can, let's say, start any day. At this point in time, I think we feel well prepared here for delivering, and this will be a major shift, products for the U.S. now out of our Orem facility as of this quarter.
Perfect, in this quarter. I'm happy to hear that. I remember that, last time, we talked about your relatively high working capital. That is nothing, we have now discussed with the preliminaries, but have you perhaps a qualitative update on your working capital? Were you able to improve your position there?
Hi, Karsten. We've not been able to improve our position significantly in the fourth quarter. Overall, I think, you know, from our call, which we had in mid of November, working capital is still at a, you know, decently high level. Most of the components, if you look at the inventory, there's nothing old in there. I mentioned it already in November. A lot of stuff that we have in there is and was in anticipation of an increased business, which we've seen in the fourth quarter. Also with a strong quarter in the fourth quarter, you'll know that accounts receivables tend to increase as of the 31st of December.
The message is, the two drivers, inventory and accounts receivable, are expected to be at a rather relatively high level. We expect it now, as the business increases and goes up again, that at least inventory will go back to decent levels. Accounts receivable will probably be what it is with a growing business.
That means we should rather look into, well, H1 figures to see you coming back to the levels you had, say, at the beginning of 2025?
I think H1 is the right to look at. Remember, some of the components, especially platinum, has increased in pricing significantly, that also has an impact on the working capital, i.e., the inventory. I'm not saying that it is driving the inventory. We are managing inventory, we still want to make sure that we got sufficient components in our on our stock. The second driver, as a general driver with increased inventory, is of course, as we open up new manufacturing sites, you know, inventory will go up as we start ramping up certain sites, inventory will go up because at the beginning, and that's very similar to what we've seen in the last years, with India, and with the U.K.
You have a higher level of, or a double level of inventory in the German site, as well as, in the new manufacturing or assembly sites.
All right. Thanks for that update regarding working capital. Perhaps one question to your surprisingly, for me, surprisingly high EBITDA guidance for 2026 and the margin. I assume better product mix and the costs, the one-off costs in 2025 will not will no longer burden you in 2026. Say, IT cost, ERP, software, security, all this seems to be through and, yeah, you, you go back to a decent margin level in 2026. Is that right?
For, in part, it is right. If you look at the expenses, in a bit of a differentiated way, when it comes to the gross margin range, we will see a bit of a wider than normal range, with the gross margin development, which could reach on gross margin remaining stable to gross margin improvement. I think what we're dealing with, and I mentioned that about when I was discussing the inventories, of course, you've seen that platinum prices have increased significantly, in the last six months. That has a result, on our bill of material. We, of course, intend to pass on those costs, also to customers. Let's see, how the platinum prices will develop, that will have...
Let's see how we can pass them on to our customers. That will have an impact on the range of the gross margin. You've seen the whole custom discussion having reopened just in the recent days, so that also remains a factor that could have an impact on the gross margin, one or the other way. Still, exchange rates tend to be volatile, so also an impact on the gross margin. When it comes to the cost basis and the margin, the EBIT margin, gross margin has a direct impact. The range of the gross margin is a little bit wider. When it comes to sales and marketing, as I think we'll see by the CEO slide, increase of those expenses, nothing significant.
Mostly driven by the regional expansion and tapping new markets. Where we would expect lower expenses in 2026 is the R&D expenses. That is R&D expenses expense over the P&L. The R&D spending, which is the expenses, plus what we capitalize, will increase, or we expect it to increase slightly. What we also expect this year, again, is that the capitalization rate, as we're doing new products, investing in new products, will be higher than what we've seen in 2025, which will then lead to a lower portion of our R&D expenses hitting the P&L. G&A, we will still see high investments in the IT and ERP. I will not say that those costs will go significantly below what we've seen in 2025.
They're probably remain at a very similar level over the entire year. What we do not expect, or it's very difficult to forecast, but I think this is one of the drivers in the margin, is remember, we have losses from exchange rate conversion reaching almost EUR 4 million. Of course, in our forecast, we do not consider losses at this high level, which has a huge impact on the EBITDA. Apparently, if the U.S. dollar and the Canadian dollar and/or the Indian rupee start depreciating at the same speed or the same amount as we've seen in 2025, that would have a negative impact on our EBITDA and our EBIT.
For the time being, and also based on the access to resources that we have, we don't see this amount, but again, that remains a risk. Does it help?
Oh, many, much, very much. Thank you very much, Daniel. Yeah, that was very detailed. Thank you for that. Yeah, thanks for answering my question, Peter and Daniel.
Thank you.
The next question comes from Usama Tariq, from ODDO BHF. Please go ahead.
Hi, good morning, team. Thank you for the opportunity, congratulations on the great results. I have a set of questions, two, to be precise. Firstly, on the FX going forward. There was a lot of expectation for negative FX impact this year, and of course, that has been realized. Going into 2025, could you? You already indicated that the higher Adjusted EBIT guidance will somehow be affected from a relatively better FX. Are you going to actively get involved in hedging FX in 2026? My second question would be a little bit more general in nature. That would be, I see a lot of fuel cell peers in the last six months have had a really good run, Bloom Energy and Ceres.
They are primarily focusing the data center market. I understand that the power generation for the units for SFC is not as strong as required for data center, but is that also a market you are looking at, or is that just totally not something that you target? Thank you.
Hey, Usama. nice, nice having you on the call. When it comes to FX, what I mentioned just to Karsten, is that, of course, we are more conservative with our FX assumption for 2026. Based on what we see or what we saw as a consensus in the market from various FX research houses. A little bit difficult to really say where we're going to end up within a year, but we would expect a slight stabilization. We do not see any gains from FX development. When it comes to hedging, of course, we're looking here and there into some hedging of FX. We may enter into some hedgings.
I cannot exactly tell you yet, because hedging has become very expensive, if you look at it, it has two impacts, right? Of course, the hedging will, if FX decreases or depreciated, improve your EBITDA, but it will decrease your cash flow. Hedging those positions have become very expensive, given the volatility of the exchange rate and also the exchange rate that we are dealing with. You will see, on the one hand side, and, and you know this much better than I do, a positive effect on the EBITDA and a negative effect on the cash flow.
That's why if you look at the cash flow, also the nine-month cash flow, you don't see a huge impact from the FX expenses, because most of them are not cash, but long-term fine intercompany financing. Let us, let me look at it on a really, on a basis on what the cost of hedging is and what the benefits of it means to us. Actually, also in terms of what is the cash impact, and the cash impact will not be low. Remember also, we're looking at IFRS 18 being introduced and mandatory from 2027.
Also there, going into details, from 2027, with the IFRS 18, you'll see the presentation of [audio distortion] results differently from what we see it right now. I'll, you know, comment on that maybe a little bit later.
I come back to the data center question with Soma. Good morning. Well, just recently, we had a very, and I personally also was there with the team, a very interesting meeting with the largest data center provider in the UAE. When the CEO there showed me the 32 diesel gen sets here in the backyard as the backup power, it was obvious they are looking for a more sustainable solution there, just replacing the conventional backup power. We are looking at data center projects also in India, as India wants to become a hub here also on a global scale, it's one of the initiatives. Well, I would be really negatively surprised if we could not secure our first project.
Although, recognizing that there are power levels for the, let's say, largest, site, data centers that are beyond also fuel cell capabilities, even of other players. I think there is a good starting point here at mid-sized, data centers, and we are working as we speak on.
Very grateful. If I understand correctly, please correct me if I'm wrong. Data center as a general opportunity is for you, and you are actively working in that, and you wouldn't be surprised if you get some order in 2026 this year from the data center end market.
Well, we are making all efforts and focusing naturally on the higher power range on our hydrogen-based product range here, on this as one of the upcoming markets. I can confirm what you reiterated.
All right. Very, very positive news. Thank you so very much. I will fall back in in the queue.
Thank you.
The next question comes from Robert-Jan van der Horst from Berenberg. Please go ahead.
Hi, good morning, everyone. Thanks for taking my question. I have two questions. The first one is, could you just give me maybe a quick update on what you, or maybe just a little bit more color on what you expect from the Indian defense program? When I understood correctly, it was in part delayed, and in part, funds were repurposed for, for drones. Do you expect it to, to come back significantly this year? Will it stretch out more, or will the volume overall decline? Just an idea where we are at now. The other question is regarding the one-offs for the IT and ERP projects. Could you give me a rough estimate how high the effect was in 2025? That was my two questions. Thanks.
Good morning, Robert- Jan. This is Peter. Talking about the Indian defense programs, as said, we just recently returned from India, having our, a yearly kickoff there and also the review of the forecast. We are expecting, let's say, some of those programs now again, resuming and restarting. I think we also got a good data point in the discussion with also a major defense player there in India, in the defense vehicle business. They had to suffer from the same fact that funds were repurposed, and it was literally was said basically, "Well, for nine months, we didn't get an order, and now it starts again." I think we were not the only ones suffering from it, which for us was a validating point to, as they say, to clearly state, "Yeah, the business is intact, the business case is intact.
At the moment the programs resume, I think we will see a rebound here. Also, in conjunction with this, we did a very conservative planning, or call it a sensible planning, in our Indian defense business, that I think we have all the reasons to believe that we will, I say, have a good chance to come in above the current planning.
Hey, good morning, Robert. When it comes to ERP and IT, one-offs in 2025, I'd say that we're probably looking at anything between EUR 3.6 million and EUR 3 million in one-offs. That does not reflect the entire investment that we have in the IT and ERP system. A certain portion of that will recurrent, especially stuff like licenses, especially spots like maintenance, which will be higher going forward on a recurring level. I think one-off, really, mostly in consulting, mostly in implementation of certain software components, is, like I said, anything around EUR 2.5 million - EUR 3 million.
Perfect. That was very helpful. Thanks.
Thank you.
The next question comes from Michael Kuhn from Deutsche Bank. Please go ahead.
Good morning. Thanks for taking my questions. I'll start with, let's say, the visibility. You mentioned good visibility, especially into the first half. Should we make out of that, that, let's say, the guidance as we look at it today is front-end loaded, and also in that context, on backlog conversion, I think backlog around 80 at year? How quickly will that translate into sales? Let's say, what major project you're working on, where you would foresee entering it into the backlog over, let's say, the next six months, with the realization of the project in the same year?
Good morning, Michael. Well, I think, if we look at the planning as we have it right now, I think we see it as again, repeating myself, as sensible and I think realistic. Also taking and learning also off the experience of last year. If you look into the order intake over the last couple of quarters here, you see a consistent increase here over the last four quarters here, culminating in Q4 with over EUR 40 million, but still naturally, I'd say the backlog alone, I think, is not the decisive part here. As you rightly said, it's about the conversion.
We have also significant parts of the business, especially on the clean energy fuel cell side, industrial fuel cell business, where you usually have, let's say, an in-quarter conversion. Therefore, I think it's always the combination as also as you rightly concluded, it's the backlog, but it's also the project pipeline. As mentioned before, we are seeing some significant decisions here being worked on to be expected and pending really for the foreseeable future. Talking about some cases, weeks, some cases, maybe, let's say, something in the next quarter. On the defense side, it's about, let's say, OEM decisions, but also regional programs. The rebound also, we discussed it in the Indian programs.
Their fiscal year starts on 1st of April. That's something expected, let's say, for the second half of the year in the summer. Also on the civilian part of the business, as said, it's a combination. It's, again, a solid and robust growth in the civilian part of the business, but it's, let's say, a more dynamic view and a more dynamic situation in defense and public security. If you give us a couple of weeks and we watch out for, let's say, or we, we together watch out for what we, we can, let's say, execute here, I think we get, let's say, even more visibility beyond, let's say, the 1st half of the year.
Thank you. On the U.S., with the production about to ramp and first products to be delivered soon, will that, do you think, influence the behavior of your U.S. customers by, let's say, removing tariff uncertainties and delivering a U.S.-built product? Should we expect a, let's say, more dynamic buying behavior in the U.S.?
Well, I think definitely it has an impact because it's one of the concerns voiced to us by customers. At the end, having a key component coming, let's say, from Europe, be it from Germany or Romania, as we have it right now, it seems widely as a risk per se in the supply chain. We are removing this, and naturally, they can also, let's say, reuse, let's say, their cycle time, be it an advantage for us or not, but at the end, for the customer, it's a good thing. We are able to, let's say, satisfy their demands also on shorter notice, without, let's say, longer planning, including logistics times. Overall, definitely, does it eliminate all impact of uncertainty?
Looking at the last couple of days, I do not think we can take this general conclusion here, but long term, it's the right path. They want us to be there. They want it made in the U.S., and I think that's what we have to deliver, apart from not ignoring, but apart from, let's say, the uncertainties out of the trade policy of this, of this administration.
Yeah. No, fair point. One more on business mix. You mentioned 15%-20% defense, and then, did I get that rightly, another 60% on top from security/surveillance?
this is, the additive, so, the 60%.
Right.
including also the military part of the business.
Okay, understood. Last question on this product you mentioned being deployed in Canada with the very long working times and temperature resistance. Is that also something thinkable for, let's say, Eastern European or Scandinavian border protection, where there's a lot of talk going on, obviously? Could that be a, let's say, significant use case going forward?
That is definitely our expectation here. As said, we have a clear path of scaling here with our existing customer. And that's, let's say, at the end of the day, a NATO force, and we have naturally made use also of the presence of many of our customers and decision-makers here during the Munich Security Conference to get this out and show it as a solution here for all the other NATO and non-NATO forces. What is the application? It is uninterrupted, dependable power here with low to no temperature and noise signature, and at the end, it's for sensing, surveillance, and data transmission, and operating periods between 12 and 36 months in really remote locations.
Right now, yeah, along, let's say, a new, marine, I say, logistics course in the northern part here of the Arctic, based out of Canada. Naturally, there are, let's say, all other locations also, suitable, and Scandinavia and I'd say Northern European and Northeastern European locations, too. Scaling this year with the existing program, but deployment in other regions is exactly the plan.
Very clear. Thank you very much.
Thank you.
The next question comes from Malte Schaumann from Warburg Research. Please go ahead.
Yes, good morning. This question is a follow-up on the defense part. Could you remind me what the defense revenue share was in 2025?
Good morning, Malte. Around, 10% due to the drop also in India, expectation this year is there's a healthy chance to at least double this. Yeah.
Okay.
The conservative part is at the 15%.
Okay. What do you expect to be the main drivers beside the recovery expected to happen in India? Again, maybe some more color on.
Yeah.
What are the major building blocks for the increase?
Absolutely. Yeah, we are expecting some, let's say, OEM decisions, we are also expecting some, let's say, decisions out of regions where we have had, let's say, a lot of business development and a lot of project-based business. New projects are up for decision, it's OEM and regional expansion. We have developed those two new products there. We talked about Canada a minute ago, also on our power supply offering. We have this product out there in a fast-scaling laser platform, portable, land-based, vehicle-based, main application, drone defense, it is, let's say, the scaling with this OEM. By the way, we have approximately, let's say, 400 of those units already out there in the field.
Naturally, also, other, OEM users here in terms of laser technology on the defense side. It's a combination. It's not the one big project that makes it all. We also think this is, let's say, taking risk out. Well, as said, in India, I think as of April, we expect, let's say, to come back to, to, let's say, a growth curve.
Okay, good. Defense alone, the growth you expect in defense alone is broadly covering the full revenue range you expect for 2026, which would then imply you expect basically no growth in all the other areas. Maybe you can add some more. Yeah, what do you think about that thought? Don't you see any opportunities in security applications, industry applications, et cetera? It's a strong growth in defense, the guidance does not look very ambitious regarding all the other businesses.
Well, I think, I think naturally, there is also an element of learning in there out of last year's experience, where at the end, let's say, an add up of, of multifactors led us to miss the original, and I would say, justified ambitious plan. I think we have, let's say, taken as a reaction to this, a more conservative, but still, let's say, ambitious growth plan, not neglecting that still, let's say, risks are out there. We know how fast delays in defense projects occur, and half a year, let's say, goes by without a decision is not something unheard of. At the end, I think the truth is somewhere in between.
We see still the organic growth in the industrial business, fuel cells, and power supplies impact. We had an impact in Canada on the power business last year, with a single project being not decided, but overall, also there we saw a very stable environment with which is also the underlying assumption here. Yeah, if everything adds up in a positive way, we will be all happy to look at this and think about the guidance again.
Yep, good. On the gross margin again, you mentioned several factors, Daniel, but if I got you right, in the end, you expect a flat to slightly, potentially slightly increasing gross margin. Is that right?
Yeah. Looking, at, from, comparing to 2025, which is hard right now to know the gross margin, but it's not bad. I would expect, a flattish, gross margin, on the lower end, but I would still, look, on the upper end, a gross margin, which increases. As always, remember that the rough guidance, we're giving is, you know, gross margin can go up, on an annual basis, anything between 1 and 1.5 percentage points, so we will not see any jumps on the upper side, which is, beyond that.
Yep. Okay, many thanks.
Thank you very much.
We have one follow-up question from Usama Tariq from ODDO BHF. Please go ahead.
Hi, team. Thank you for the opportunity. Just one follow-up question for 2026. How do you see the balance sheet going into 2026? Do you still expect it to be net cash? Do you think you will take some debt financing? Any pointers there would be really nice. Thank you.
When it comes to the balance sheet, yes, I would see you still net cash. I would still see us to be cash-generating. Doesn't need super complicated math. You look at the nine months, if you see the results of the fourth quarter from a purely operating cash flow, we are positive on the operating cash flow 1. The key liquidity driver or consumption is really working capital, that's where the cash is getting consumed. If you look at CapEx, we do not expect any huge CapEx programs in 2026, similar as we've seen it in 2025. To get the point is, yes, still net cash positive.
When it comes to leverage and financing, let us see. We do have certain credit lines in place. Let's see how we can maybe draw them down, but given the current liquidity that we have, we may not use them excessively. Of course, we still have the variable list. We are still looking, and that is not a surprise, at the potential acquisition and/or investments into strategic partners. As always, those processes are something where you can say could happen, could not happen. There's a lot of variables out there. Of course, we're confident we would not go into the exercise, maybe we didn't believe that there would be a positive result or outcome of such a transaction.
Depending on where and how we do a transaction, we could look into leveraging the purchase price of such a transaction.
If I may just add on it, on the acquisition part, what geography would you be targeting? Would you still be looking towards an aggregator, or is it still, or something on the technology side? Is there something in the pipeline, or do you really are just looking currently? Any pointers there would be great. Thank you.
Well, it hasn't really changed the strategic focus of what we have done in the past, and we've been looking for is, first of all, yes, it's a retail expansion and getting deeper into certain retail markets. Of course, North America remains on our radar screen. Let's see how the overall environment develops. Of course, Southeast Asia remains on our radar screen. The same thing here, regional penetration, getting a quick get into the market and/or into certain sectors. We're also looking or maybe looking at some opportunities in Europe. Then from a technology point of view, also, yes, we are looking at potential higher power opportunities on the technology side, where the technology complements our DMFC and PEM portfolio.
You know, there are assets out there which we would consider to be attractive. Yes, we are looking, but we're looking purposefully. When we're looking, we are also engaging into discussion. It being understood, you know, that we invest prudently and looking at opportunities very cautiously. Yes, the opportunities are out there, discussions, and you see that if you look at our transaction expenses, which are a good indicator. The level of the transaction expenses is a good level indicator of the level of engagement.
All right. Thank you. Very clear. Thank you. That will be all from my side.
Ladies and gentlemen, this was the last question. I would now like to turn the conference back over to Dr. Peter Podesser for any closing remarks.
Well, yeah, again, thanks, everybody, for your time, your interest. As always, I'd say, Susan, Daniel, myself, we are available for any direct interaction and follow-up. Yeah, you see us here, I'd say, confident for 2026, optimistic based on facts. At the same time, I think you also see us inspired and motivated with the dynamic environment, by the dynamic environment we are experiencing here in the first part of this year. We will be happy to report on further milestones as soon as we have them. Thank you very much.
Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.