Sfc Energy Ag

Ladies and gentlemen, welcome to the SFC Energy publication of the quarterly report Q3 2025 conference call. I am Valentina, the Coral School 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 Podesa, CEO. Please go ahead.

Thank you very much, Valentina, for the introduction. Good morning, ladies and gentlemen, and thank you for joining us in this call, presenting our Q3 and nine-month figures, as well as an overview of the business right now. Together with Daniel, we will lead you through all the key figures, but also key facts relevant to the nine-month period right now, but also naturally onto the outlook. And thereafter, we will be happy to answer all your questions. No question. We are looking back to a soft quarter. We're looking back also to a challenging period here in the business. We have to say, as also anticipated, as this was one of the key reasons why we saw ourselves obliged, to bring down the guidance back in Q3 at the end of July. But Nathalie, starting with this point, I think we want to give you, let's say, a solid and concrete analysis on this. If we look at the development here in the first nine months, we see a slower growth than originally planned in core parts of the business. And if we look into the main reasons of deviations, I think we have to start off with the biggest impact on the defense business in India. We saw a postponement of the follow-on programs here for our Emily and Jenny deployment, Emily and Jenny fuel cell deployment. to the Indian Army based on a decision that was basically a repurposing of funds during this current fiscal year. We have spent quite some time in various meetings on site in India, and I think within the last three months, we see a, I think, We see solid signs and we see a basis also for a rebound within, let's say, the next fiscal year here for the business in India. Maybe not back to immediately the levels of the 2024 business, but definitely higher levels than we see it in 2025. Two additional elements here, we have signed service and repair contracts, comprehensive maintenance contracts now for all the deployments with the Indian Army, which going forward as of Q4, and we have signed them last Friday. So going forward, this is basically also covering more or less local costs and also yield a proper capacity loading here for our operation. In India, we have also started last weekend local methanol filling here, as we do it in other parts of the world, North America and Asia as well. So we are also able now to provide local methanol, address also cost concerns from customers there, And also, see this as a basis also for the rebound. So India, the first element here of deviation this year, definitely, I'd say volume-wise, the biggest impact. if we look at our organic growth we also see a growing we still see a growing business in the us overall in the first nine months we see about 28 growth but we have to say especially With new customers, we were expecting, also based on historical growth rates, a significantly higher growth. The overall economic uncertainties have an impact on decision-making of our customers there, and therefore, we have missed out on the original plan to see growth above 40%. As said, 28% organic in the first nine months, And a corridor that we also expect until the end of the year is per se a solid growth number, but definitely not what we had planned for and what we expected. The third element, and Daniel will dive into this. Yeah, we've seen three functional currencies, I'd say, devaluating significantly against the Euro, US dollar, Canadian dollar, as well as the Indian rupee with an impact on sales and earnings. Getting into this in a bit. If we look now into, let's say, the reaction on these developments, I think we are seeing first fruits out of, let's say, cost alignment and cost measures that we have implemented right immediately in third quarter. We are seeing, let's say, a normalized fix, especially on IT and ERP spending, and I think also functional costs you will hear from Daniel, is I think an alignment on what we implemented. As also mentioned before, we are not talking about here now a significant headcount reduction at all. I think we are in a selective hiring mode here in those areas where we see growth, and we are reallocating also resources to those areas where we see growth, and we are taking capacity out in those areas where we don't see growth. If we now look into the third quarter, we are seeing a significant increase, especially on the order intake side, which also is the basis for us expecting a strong fourth quarter. We are overall seeing an increase to a book-to-bill ratio of 1.2 compared to about 0.76 in the first half of the year, and combined with, let's say, a product mix also impacted and positively impacted by a higher defense sales ratio in the fourth quarter, we see a positive impact also in the fourth quarter. If we now look also into, let's say, the next steps of implementing our strategy, I think the acquisition of a 15% stake in OneBerry Technologies in Singapore is a key element On the one hand, for the regional expansion of the business, we are seeing Singapore as the regional hub for the expansion in Southeast Asia. The closing process is in a final phase, and besides the regional expansion, I think we have... a unique opportunity here to learn and to step into a business model that is highly attractive and profitable where OneBerry is operating under a security as a service business model for their AI-based unmanned security solutions from border protection to drone defense applications and critical infrastructure protection. Overall, we have an option also to take majority ownership, and we are working actively on this as also a platform for further growth in Asia as of 2026. Furthermore, important to inform you about the U.S. operation. We are on track for the ability to do the local production, to ramp up the local production in our facility in Salt Lake City. Strengthening our local for local program here at the end helps us to reduce exposure to import tariffs, but over time naturally also makes us less vulnerable and depending on exchange rates and currency risks by establishing a local supply chain. Our team from the US right now is here in Europe for training. And therefore, we will be ready to have first pilot series produced still this quarter and ready for production early 2026. So overall, looking at the sales performance, we see a decline of 2.4% as said. not happy with this performance, the reasons for the deviation, the reasons for the decline, the main reasons mentioned here. If we look into, let's say, the order intake, I mentioned this, Seeing $34.6 million in the third quarter, we see a significant increase to the previous quarters. So the book-to-bill ratio now is up at 1.2% in this quarter, and this also actually gives us a solid basis here now for the final quarter. for the final weeks of the year. If we look at the overall backlog here being around 79 million, that is definitely significantly lower than at the beginning of the year, with 104 million reflecting the week order intake we had, especially in the first six months of the year. Yeah, I would like to also draw your attention to the fact that we naturally have a part of the business being highly transactional, which means it's kind of a rolling order book that is turned around within the quarter. And we are looking here at a ratio between, let's say, slightly below 40%, up to 50% of the revenue also turned around within a quarter. So we are looking at, let's say, This year, 14 to 15 million turnaround in the quarter. So, having this in mind also, you put in perspective that order backlog. If we look at the segments, The big impact here on the revenue and the significant impact here was mainly on the clean energy segment. The bigger segment, clean energy, still is accounting for about 69.7 percent, so almost stable. to the year before, but still here we see a drop in revenue of about, I'd say, 2.5%. I mentioned that the U.S. and the Indian defense business being the biggest impacting factors. Looking at the end markets there, we still have to see that the Industrial part of the fuel cell business is growing above 10%, 10.8%. And the security part in this, that is basically CCTV application, civil security business, is running above 15%. So there is an intact growth curve, I think, visible. Looking at the clean power management, around 30% of the business A decline of 2% strictly leading back to a single project missed in the Canadian oil and gas business of, I'd say, 2.8 million business here for power products. with one customer in Canada that was basically in our forecast but lost to competition. Looking at the clean energy business in Canada, we see also this part on a solid growth curve. With this, I will hand over to Daniel leading you through the financial results here of Q3 as well as the first nine months.

Good morning. Thank you for dialing in. Let me go into the margins a little bit as well as the cost basis. I think as a summary, what we could say is that those negative impacts that we have seen in the first half year have continued. To some extent, they have lowered, but there was still a negative impact. I believe from the cost base, if you've seen, we're running rather stable in the underlying because costs are rather optimized. But let me go into that. and highlight certain developments. So when it comes to the overall gross margin in the first nine months, we've seen the negative effects that we also have seen in the first half year, especially with regards to the segment clean energy, which is the less favorable product mix with the lower share of the defense revenue. We mentioned that before. That really played an essential role in the unfavorable gross margin development that we've seen since the beginning of the year. What we also have seen now is that the cost and duty that have been introduced slowly negatively impact our cross portion. Like I said, it will be unlikely that we'll be able to avoid the entire customs impact. So it is not that we will see a huge impact, obviously a slight impact from those custom duties. And then what we also see in the segment clean energy is the less favorable exchange rates with regards to the U.S. dollar and the CAND dollar. So if you compare the average exchange rates of those two major currencies, the U.S. dollar in average depreciated by 1%, the CAND dollar in average depreciated by 4%, which has an impact on the philosophy. So the overall gross margin is 40% in the first nine months, which is slightly below what we've seen in the nine months of 2024, while we have had a gross margin of 41.7%. And it's also moderately below the level of the previous four-year margin, which was 41%. Nevertheless, we consider the group's cost margin to be on a level with which we're not entirely satisfied. That's for a good reason. At the beginning of the year, we have higher goals and higher targets. We may not have anticipated entirely economic turmoil ahead of us at the beginning of the year. We may not have seen entirely the development of the exchange rate. but also the development in India, all of it has an impact on the gross margin, especially with regards to the segment clear energy. If you see heterogeneous development in the gross margin, you've seen that. We have a gross margin expansion in the segment clean power management. What we see is the gross margin going up to 29.7% from 26.9%. So that is something that we are happy and content with. The main reason for that increase is basically that in both main product lines in that segment, so the power management solution, We were able to implement a higher pricing, also because I mentioned that in the first call already, also due to our own products that we've been operating. But we've also been able to implement higher prices in the drive motor control products. So if we then look at the EBITDA margin and the key impact on those operating expenses, R&D and G&A, I think there's, again, those three major topics that we've seen in the first half year, which is the extraordinary cost for exchange rate losses, that is the IT spending, for the implementation of SAP as well as making our ITs overall landscape more robust. We've seen those costs or those expenses having come down in the first quarter, but there was still an extraordinary expense in there. And what we also see in the third quarter is a lower rate of capitalization of R&D, which is something we've had for six months, and which is also something that will unlikely change because that is pure accounting, and that has also impacted EBITDA negatively compared to the first nine months in the last year. So if we add up those three facts and look at the last year and make it light for light, comparison. Those three effects together have impacted EBITDA negatively with approximately 5.5 million euros, which really shows that our cost basis is solid. The earning power is still there. We take those three effects away. We know that they're there. But you'll see that we didn't do that bad. Let me take you to the exchange rate losses. First of all, so you've seen we had an income from exchange rate gains of 1.8 million euros in the first nine months. which were entirely offset by the exchange rate losses of 0.1 billion in the first nine months. So that comes to net impact of 3.3 million euros, which negatively impacted the EBITDA or 3.2% of revenues. So out of these exchange rate losses that we've seen, 4.4 million, or 85%, is unrealized losses, and out of which approximately 4 million are related to intercompany positions, i.e. shareholder loans, and intercompany receivables. I mentioned that already in the first half year, so that's why you would not see that in the cash flow statement. Yes, we'll book it, but it's unrealized losses for the exchange rate. But still, it does impact our EBITDA negatively with 3.2% rather highly. The next position is the extraordinary cost for IT in the G&A expenses. These are costs relating to the SAP implementation. So in the first nine months, the total cost has been 1.9 million euros. The spending has come down notably in the third quarter. But it still over the first nine months has placed into 1.8% negative impact of the revenues on the EBITDA. We also had costs for improving our IT system that amounted to approximately 1.4 million euros. in the first nine months, which again would then mean a 1.4% negative impact on the EBITDA. Together, if you see the amount that we really spend on IT, and yes, it's necessary, we need to make our system more robust. make a step forward in higher efficiency and automation in our system. So this is not something that we're just doing for doing it. It really means making the major steps in getting our system safer, more secure, more robust, increase efficiency, also increase effectiveness of our operations. What is the huge investment that we've seen? We'll see further investment in the force port. We also will see some of those investments still in the next year until we got the system entirely implemented. And then the third impact is the lower rate of capitalized R&D expenses. So the total R&D spending amounted to 8.7 million euros in the first nine months of 2035, compared to 7.5 million in the previous year's nine months. So you see a decent hike in our R&D spending. But what you will also see is that in the previous years, approximately 23% of these costs were capitalized. In the current year, we are capitalizing 13% of the cost. So on a line-to-line basis, this will also translate into a negative impact on the EBITDA on 600,000 euros. To go into this really briefly, so capitalizing on the expenses is not a choice or not an option, which we do. It is, as I mentioned at the beginning of the call, it is an accounting principle. So third projects can be capitalized, third projects cannot be capitalized. and that's a little bit depending on your R&D focus, but also what you have in the pipeline. Remember, any capitalization going forward means also depreciation, additional costs. So it's not that you're optimizing your costs, you're just pushing those expenses into the future. In any event, it is what it is, but you'll see that our R&D spending, even though it has increased, it has not the huge jump that you see in the P&L And the earning power, that's why I said at the beginning, is still at an even level. So what does it mean for the adjusted EBITDA? For the adjusted EBITDA, it means that we reached 10.8 million euros, which of course is significantly, 56% below what we've seen in the previous year's nine months. It is, of course, a factor of revenue growth, of gross margin growth. and those negative effects in the other operating costs that I just mentioned. Depreciation amortization, you don't see a big change in there. Depreciation 5.8 million euros versus 4.5 million euros, 40% of the depreciation is IFRS 16 related, so you will not see a huge change in that position going forward either. That brings us to the adjusted EBIT, which came up to $5 million. That represents an adjusted EBIT margin of 4.9%. That's significantly lower from what we've seen in the first nine years in 2024. Again, we're not entirely happy with that, as you can imagine. Let me finalize with a cash flow and our cash position. cash freely available at the end of the first nine months were 40.8 million euros, compared to 60.5 million euros which we had at the end of 2024. So it's 20 million euros lower from what we have seen. The financial debt on the other side also decreased by approximately 1 million to 3.1 million euros, which gives us a net debt, sorry, net cash position of 37.6 million euros, pretty much 20 million below what we've seen at the year end. Our equity decreased by 1.5 million euros. That is due to the negative earning, but remember the negative earning also does not require The operating cash flow before the change in net working capital was 10.5 million euros. That compares to 18 million euros in the first nine months of the previous years. So what we see is it is significantly lower but it's still at a good level with 10.5 million euros. So it is 40% and what we see now is the networking capital development. The net working capital increased by 21.5 million euros. That compares to 2.5 million euros in the last nine months. So the working capital ratio to last month net sales went up to 40% as of September compared to 25% what we see at the year end. So we're really trying hard to manage that working capital. It is really the inventory that we need to look at. It's really looking at the accounts receivable. The largest impact is really the increase in the inventory, which has gone up by 10.3 million euros. That has changed the date of inventory to 237 compared to 131. at the end of the year, that is an extreme high value. We are fully aware of that. That is something that we need to manage more actively and bring it out. We are fully aware of that. We have a lot of materials sitting in there. It is mostly fuel cell components and materials. which we intend to bring down in the next six months. So it's nothing that is going to go bad or will become obsolete. It is really material that has been acquired and has been brought down. You also see a large impact on the increase of the accounts receivables. They increased by 8.1 million euros. compared to year end. That translates into a 12-month daily base of sales outstanding of 114 compared to 90, which we had at the end of the last year. So we see an increase in the sales outstanding. We don't see any bad receivables out there, but this is something also that we are managing actively and intend to bring that number down again towards the 90 days. Then what you also see is that the accounts payables have gone down. They have gone down to 2.8 million. That brings the payables down outstanding down to 52 days from 66 days. So then with the tax payments of 1.4 million, you'll see that the operating cash flow after networking capital tax is becoming very negative. With very negative, it means minus 12.4 million, all driven by the networking capital developments. Cash flow from investor activity is much, much lower from what we've seen in the last year. We're looking at 2.6 million compared to 6.4 million in the last year. So all those large investments that we have made last year are done and completed. So 2.6 million is at a decent level. It includes, of course, the capitalized RMD. Then you see the cash flow from financing activities of 2.8 million euros. A large portion of that is related to leases. And if you add those numbers up, you'll see a change in the cash position. of $70.9 billion, and then we'll still have to add the exchange rate impact on our cash in foreign currency. So overall, cash has reduced. Like I said, in summary, mostly with the nitrogen capital. We've seen the March decline. Still, I think we are at a good level, but not a level which we are happy or satisfied with and we are fully aware that we need to keep on working on implementing measures and structures to optimize especially our tax consumption. With that, I'll return it to Peter.