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Dear ladies and gentlemen, welcome to the conference call of SFC Energy AG. At our customers' request, this conference will be recorded. [Operator Instructions] May I now hand you over to Dr. Peter Podesser, CEO, who will lead you through this conference. Please go ahead.
Thank you very much, Laurent, for the introduction. Good morning, ladies and gentlemen, and thanks for joining us this morning to our presentation of the first quarter results and also for a look into the market and technology developments in the first couple of months of this year. Together with Daniel Saxena, our CFO, we will be happy to give you an accurate and good picture of the business results as such, but also naturally on the outlook. If we start off with -- I think, with a summary on where we are, I think it is absolutely fair to say that there is dynamic and consistent demand throughout the first couple of months and not only throughout the first quarter of this year, that is the continuous driver here on our growth path. Looking into some of the numbers, I think we will see it, especially when we look at the development of the order book. But also on the sales revenue side in the first quarter, although with 5.4%, we show a decent growth, but naturally not contented with this level of growth, but we also have to say that there was more shipment to be done based on the order backlog. But some of the delays in the supply chain and some of the constraints there, left us with an approximate 10% of potential additional revenues not being shipped, but therefore shipment now in the upcoming months. We have some factors also weighing and laying on our profitability and burdening our profitability, which are, I think, not a specific situation here for SFC. We see higher prices for intermediate goods, and we see significant increase in expenses here for transfer them logistics and therefore, we see a decrease in the EBITDA margin. I think that the good news here is pretty early on, we have started to implement countermeasures which we will elaborate on in more details to give you a good understanding. And all this, I think with those risk factors mentioned, but also with still the uncertainties are potentially driven by COVID impacts regionally on a global level, but also with the potential impact of the terrible happenings here in Ukraine. Overall, we still remain very confident looking at our full year plan in terms of growth, but in terms also of profitability. Going into more details on this will be the last part of our presentation. Let me start off now with the market and the demand. Well, we have been seeing a consistent change in the macro environment and a big craze for sustainable, efficient, environmentally friendly energy solutions now over the last more or less 2 years. And we see this not only from a single region -- we don't see it from a single market and application and not so from single customers. We see this really consistently broad here on a very international basis. And based on this, it is one of the pillars here of our growth to see -- or to look at a record order book, which we -- with which we entered into the year. At that time, it was EUR 30.5 million. And within the first 3 months, we could increase this up to EUR 57.1 million. So this is reflecting, I think, the overall demand, but also reflecting that we are well positioned with a focus on industrially mature, industrially performing products over the last 15 years, but at the same time, also developing market channels here on a worldwide level. We are -- and I mentioned our reference to this, I think experiencing now another macro factor that might change the picture even more and, in this case really also, in favor of technologies like ours. It is not only important to achieve long-term climate goals and replace fossil fuels out of this perspective, which I think is already, I would say, consensus in most of the world, not only developed societies. But with the unfortunate war and that aggression here from Russia to Ukraine, we also see a need to accelerate this process and to be independent faster from fossil sources here. And naturally, this is what we expect to be another macro driver, further propelling the business going forward. At the same time, I think we don't neglect that we don't forget the limiting factors. As mentioned before, we have a strain on supply chains. We have been seeing this now over the last -- almost 3 years. We see the logistics situation and increasing prices here, precursors, raw materials, transportation costs. With the temporary effect on our results, we are naturally not happy. We see that as a temporary situation because we have been putting measures in place early on. And most of you will recall, we started to do a very simplistic exercise, just lifting up our stock levels, we just rent more space here in the vicinity of our headquarters in Munich to do this further and further increase, maybe not helping our working capital, as you can see. But at the same time, it keeps us here or it guarantees the availability of products of components and therefore, our ability to ship product on a continuous basis. We didn't have any single disruption on our supply of products to our customers so far. At the same time, yes, we started this also back in 2020, near shoring, replacing some of our Asian suppliers here by European suppliers and consistently going forward to this. I think long term, this is a regionalization of supply chains, which will be not a specific exercise for SFC, but I think this is a general trend that's pretty healthy. And at the same time, yes, the cost side. We cannot digest all the cost increases that there are, and we communicated this very openly and in a fair way with our customers. We increased the prices across the whole offering on the fuel cell side for all the product here, even placed the first time on January 1, 8% the second time now on May 5, another 8.75%. And with this, we expect a visible improvement here in the next couple of quarters and Daniel will go into this here on the margin side. So besides this, I think we must also not forget that we are here on a long-term plan. We are here on a strategic and midterm plan, and we have achieved our best some key milestones again in the past couple of months. Regional expansion of the business is one of our key undertakings, is one of the key elements here of the further growth. We just recently strengthened our presence in India. We signed the term sheet here for a make in India agreement with our partner, FC TecNrgy and also including actually Bharat Electronics here on the sales side. We expect with this, simply a broader and better access to a fast-growing market. We launched our hydrogen product there before Easter. And as of today, we can say we have the first RFQs in also from local telecom companies for hydrogen products. So there is a momentum there. We did a similar thing in Singapore just a week ago. I have the pleasure together with our team to present our hydrogen offering here to the Minister of Telecommunications and Science. And together with our partner Oneberry, yes, I think we can expect some direct and indirect support here also by significant government spending in the works. So on the regional side, I think complementing this also with the first visit in 2 years to meet our partners from -- our partners here, Toyota Tsusho here in Japan last week, together with our team, which just came back over the weekend, important to get together again in 2 main topics: further regional expansion of the business here to Southeast Asia out of Japan, where we have to acknowledge within the last 2 years, we saw some delays and not all the milestones have been met due to travel restrictions here through COVID. But if I quote our partners there, well, at the end, no change in plan as we have to accelerate now and our teams are, as we speak here, already in Southeast Asia here, driving the business development. Second topic with our partners in Japan, higher power fuel cells, hydrogen solutions where we were allowed and able to visit the largest stack manufacturing plant worldwide here for fuel cell stacks here from Toyota used in their vehicles. And naturally, it is a logical thought process here to test and see whether we can use some of those components also for our higher-power products than going beyond the 100 kilowatts over time, where we intend to have the first prototypes and pilots available by end of the year. So the regional size, I think, real strong momentum, and it helps to be able to travel again. As much as we all appreciate the efficiency of digital and virtual formats of meeting, I think, for the implementation, decision-making, especially for also technical products like ours, it is then, again, good to sit across the table, put the hands on the product and get decisions done. Further, steps and further partnerships with Wolftank out of Austria, we implemented in a very fast way, the first pilot product here for one of the largest European mobile carriers for Tim in Italy. The pilot product is -- the pilot station is running. And for the time being, I think we have, let's say, a very smooth project implementation. So this is naturally again, a significant project here contributing to our hydrogen product development road map and opening up the telecom sector beyond the government part that we have successfully entered here in Germany over the last 2 years. And last but not least, we launched a green hydrogen generator, trailer-based vehicle pull system, one-to-one replacement for diesel generators together with 2 partners, test folks from Austria and auto AG from Switzerland. The first pilots are on a -- not a virtual but a physical road show right now, shown to interested customers from construction sites to airports, to events. We are working on putting them into some significant sport events here over summertime. Same idea, consistent replace the diesel genset in all those areas. And I think we are one of the first ones, if not the first one to put such a green generator out there. And to be able then to supply the demand that we are seeing not only in our books, but also foreseeing here we have kicked off the largest investment plan here in our history so far, doubling the production here in Munich, setting up the production line for fuel cells in Romania, including our facility ending up with a 3x production capacity beginning of next year compared to last year. Those projects are well on their way. We are, as we speak, implementing this. Other areas of investment and Daniel will go into this, and I alluded to it is naturally the product side, consistently now further developing the next generation of the existing hydrogen offering here with IoT and cloud functionalities, higher power systems beyond 100 kilowatts, as said. And not to forget and important to mention, our activities here combining fuel cells and electrolyzers. So we are really consistently working on those 3 lines. We realized that our capacity on R&D is limited. We realized that -- well, although hiring is going on and we have been hiring of almost 30 people since 1st of January, which is about a 10% increase in workforce, still what we did is we contracted some long-term players, pioneers in the fuel cell space here on the R&D side to simply help us to accelerate our product development, especially on the hydrogen side. So at the end, as you can see, we are taking a very active role here not only on the market side, but also on the technology front. And I think we are taking the right and cautious measures on profitability as well as cost development in order to make sure with all the constraints we're seeing out there, we are keeping on track here for hitting our targets this year. Looking into the development of the segment and the overall business, I think, yes, we see the momentum here in -- the order book, I mentioned this already. So it's maybe another fact that is important. We almost tripled the order intake in the first quarter here compared to last year. And we can say as of, I would say, yesterday, we are seeing our backlog consistently soaring and we are well beyond EUR 60 million backlog as we look at it today. Revenue side, I mentioned this already. Our targets are definitely higher than a 5% growth. We also show it in our guidance. We want to grow between 17% and 29% overall. If we look at the growth in the first quarter, we are fully on track in the Clean Energy segment with a 22% increase, and we are lagging behind on the Clean Power Management side. Overall, I think we had 10% additional potential revenue and, so to speak, orders that could not be shipped simply due to delays in the supply chain. And if we look into the Clean Power Management side, yes, we see there a decrease in sales. And this is not driven because of missing order. This is really the supply chain play that we are addressing, as explained before. Just for reference a number here, if we look at the roughly -- or if we look at the order book today, roughly half of it is coming out and maybe even a little bit more from the clean power segment. So there is no difficulty and there is no issue on the demand side. There is a strong demand there and I think we are doing the right thing with stocking the materials here to catch up over the next couple of quarters and get into a significant growth mode here again. Clean Energy side, if we look into, I'd say, the end market, as said before, there's not a single one that is, I'd say, the overall driver here for the development. Still and more so than before, the industrial part of the business is the largest part of the business. We saw a significant rebound here from government customers, public security, defense business, but also we have to say that last year's referring numbers were unusually low, and we still see a consistent demand on the end consumer business here from our recreational vehicle as well as marine customers. Regionally, nice start here in Asia, Singapore contributing heavily but also Japan kicking off very well. And a consistent performance here in North America. The fuel cell business growing more than 100% year-on-year and one major driver also our successful customer partnership here with LiveView, significant orders last year, but also in Q1. And we are looking at, let's say, a continuation here with a significant contracts still coming our way in the upcoming days. Overall, with the, I would say, weak point in execution and revenue or shipments here on the Clean Power Management side, of which we are fully aware. We are extremely well on track to hit our targets here, end of the year. And with this, I would like to hand over to Daniel to look into the development of the earnings side and the financial results.
Thank you, Peter. Good morning, everybody, and thank you for joining our call. Let me start with the gross margin and the gross profit. As Peter already mentioned, our gross profit or gross margin went down in the first quarter. Unfortunately, we're looking at a gross profit of about EUR 5.6 million, which is EUR 600,000 lower than in the previous year's first quarter in spite of the sales increase. That translates into a gross margin of about 31.3%, which is also a decrease from the very strong gross margin we had in the first quarter of 2021. It was 36.5%, but also a decrease from the gross margin for the full year of 2021 was about 35%. So what's been really driving that decline in the gross margin, and Peter already mentioned it in part. First of all, it's really the supply chain challenges and the higher logistic and transportation costs for incoming goods mainly. We always observed that in the last quarter in 2021, it has continued, especially cost of logistic and transport for all the incoming goods has increased. We got rush orders for material. We need to get in for our production. In this context, logistic costs are -- tend to be higher. Obviously, the Ukraine war has not helped with the global supply chain and logistic change. Also, we saw an increase initially when the war broke out in transportation cost. It has leveled out a bit. But overall, we can say that the impact of these expenses have increased in the first quarter. As Peter mentioned, we have also increased our prices and the effect of the price increase on the gross margin will most likely show towards the end of the second quarter. And then in the third and the first quarter, we do have a certain time lag in this transfer mechanism of higher prices setting off the higher material cost. We still take a great offer in really increasing our gross margin. It's the same measures we have taken in the last years and the last quarters. It's really ensuring price stability and price stability in this context means, I mean, some increase in it. We're still looking at optimizing our bill of material, looking how we may or can replace certain components, which may be shortage in the market with other components, but all these measures takes time. And once again, we are looking at the markets we are targeting, making sure that we target and go into those markets where we can realize decent margins. So all in all, we're still looking at our mid- and long-term targets for the gross margin which for the group is about 40%. The energy, around 44-plus percent. The power management tends to be a bit lower. I'm looking at 32%. We also believe that the challenges that we're having with the supply chain and the transport costs are going on for the next quarters, but eventually, will also disappear. If we look at the gross margin on segment level, the gross margin for the Clean Energy segment was 34.3%, which is significantly down from the 40.7% we had in the first quarter 2021, which once again was a very strong quarter in terms of gross margin. It's a mix of various factors. One of them, of course, being the COGS, as I mentioned before, the other one, obviously, our product mix. We have a slightly higher contribution of consumer application. We love to sell to our consumer customers, but the margins in that segment tends to be slightly lower than for industrial application as well as public sector applications. If you look at the Clean Power Management, we took a hit in the gross margin going down to 25% or EUR 1.4 million. The impact of material expenses in the Clean Power Management sector is a bit higher than in the Clean Energy sector, simply because we're using much more electronic components in the segment and also the logistical expenses were -- or increase in those expenses were much higher than in the Clean Power Energy segment. What does it mean for group EBITDA? The group reported EBITDA was EUR 161,000, so 1% margin compared, however, to the negative margin of the first quarter in 2021, which was minus 14.5%. As always, the reported EBITDA has limited informative value because we got those adjustments, especially provisions for LTI programs in it. So let me just get you over to the group adjusted EBITDA. So the adjusted EBITDA, and we're looking at the expenses for the SARs program, which were EUR 223,000 in the first quarter compared to EUR 4.8 million in the first quarter 2021. So the group adjusted EBITDA was EUR 800,000, translating into adjusted EBITDA margin of 4.5%. That compares to an adjusted EBITDA of EUR 2.3 million in 2021 and a very strong margin of 14%. The group adjusted EBITDA margin for the full year in 2021 was about 9.8%. The lower margins were the result from, first of all, obviously, as I discussed, the lower gross margin. But then again, we have relatively higher adjusted G&A expenses. Part of it was planned. There were some items in there that were on plan. I will discuss them later. Remember, we also said in our last call that G&A costs tend to go up, and I'll touch on these things later. Depreciation, EUR 1.3 million. Major part as always, is R&D related, about EUR 436,000, 36%. Nothing much has changed from the previous quarter. And then again, IFRS 16 related expenses in the D&A is about EUR 506,000. So taking the D&A away and looking at the group adjusted EBIT, we're looking at a negative number of EUR 418,000 compared to EUR 1.4 million in the first quarter of 2021. Let me quickly touch on our functional expenses and the development in the first quarter. Looking at the sales and marketing expenses, and let me also dig into the adjusted sales and marketing expenses, adjusted. It's the same adjustments that we have at the EBITDA. We'll take the provision expenses for the long-term incentive programs out, and then we're looking at a 7% increase of our adjusted sales and marketing expenses year-to-year, going to EUR 2.7 million versus EUR 2.5 million in the previous year. That corresponds to 50% of our revenues, a bit lower in the ratio than in the last year, given the revenue growth that we have. Our medium-term target range for sales and marketing expenses as a percentage of revenues is still 12% to 13%. The increase is mainly due to personnel expense. We have higher -- we are increasing our sales and marketing staff for a lot of business development activities and taking advantage of the ample opportunities that the market is offering. Also, what we have seen in the first quarter is that travel ForEx expenses are increasing. We are going back visiting customer, and it's good. We need to go back. We need to see them, Peter just mentioned, visiting our friends in Singapore as well as in Japan is important. So this is another reason why sales and marketing expenses have increased. R&D expenses, R&D is basically the basis for our future revenue. What are we looking at? We're looking at new product development, but we're also looking at next-generation development, next-generation more features in our product. Peter also mentioned looking at electrolysis capabilities and combining with our fuel cells. So really R&D is something that we want to spend and we will keep on spending. The total R&D spend and total R&D spend is a combination of the R&D expense, you will see in our profit and loss account plus the R&D expense that we capitalized plus to a very minor part on R&D expenses for our joint development agreements. So total R&D spend was EUR 1.8 million, about EUR 200 million -- sorry, EUR 200,000 up from last year. The R&D capitalized at pretty much the same level, EUR 600 - EUR 4,000 and the R&D expense a bit higher, EUR 1.1 million compared to the first quarter end of last year. That corresponds to about 10% of our revenues and is in line with our planning. In the long term, as we grow in revenues, nothing has changed. We're looking at 6% to 7% of R&D spend in percentage of revenue. Most of the expenses are really project-driven. G&A expenses, I've mentioned that earlier, the G&A expenses have increased. What are the main drivers of our G&A expenses, first of it's really corporate development. We are moving into new regions. We are moving into new markets. Peter already mentioned that. That really increases also our G&A expenses, not only in head count, but for various services we need in this context. The other thing that really keeps on increasing G&A expenses is the regulatory environment that increases. We're looking at ESG reports, we're looking at compliance issue where we really want and need to make a step up, and we're doing that. And last but not least, also audit and financial review services. Mentioning here is an example, the remuneration report that we published or had published for the first time this year. All this is connected with some more expenses. To make a long story short, total G&A expenses, adjusted once again for the LTI expenses, went up by EUR 1 million, EUR 2.5 million to EUR 1.5 million the previous year. We have planned an increase in those expenses. And really, the cost with the annual reporting, the cost also with the NGA is already reflected in there, but also a large part, corporate development and building up the future for our company. We also have some higher IT expenses. We mentioned that during -- and you're recall, we are upgrading our entire IT landscape, preparing ourselves for the growth that, to some extent, has already happened. But of course, most of the growth that we still expect to happen. So overall, it compares to 40% of revenue. The medium-term target, G&A expenses in percentage of revenue is still about 12% to 30% as our revenues are growing. Some ratios on our balance sheet real quick. Fixed assets, our PP&E CapEx was about -- sorry, intangible asset went up by EUR 2.7 million. Most of this is really, as I mentioned, capitalized R&D. Cash, fully available cash at the end of the quarter were EUR 20 million compared to EUR 25 million at the end of the year. Our financial debt increased slightly to EUR 3.1 million compared to EUR 2.7 million at the end of the year. Our financial debt is all short term as at the end of the year, is working capital lines which we have in -- with our companies, SFC Canada and SFC Netherlands/Romania. So that leads to a net cash position that went down to EUR 70 million compared to EUR 22 million at the end of the year. Equity ratio hasn't changed. It's at 47%. Cash flow, where is our money going? The operating cash flow before change in net working capital amounted to EUR 213,000, lower than in the previous year, given the development of the gross profit as well as the functional cost. We had a change in net working capital change. We have an inventory increase, cash impacted of about [ EUR 900,000 ]. We're just getting goods in as we can. We are -- we keep on increasing our stock level to make sure that we can produce on the demand side, as Peter mentioned, sales. We are well positioned excellently. We just need to make sure that we can deliver our products. That's why we keep on increasing our inventory. Accounts receivable decreased in cash, [ EUR 109,000 ] and accounts payable also decreased cash impacting by [ 2008 ]. And then a big portion has a mirror effect, other short-term receivables, which increased by EUR 1.5 million. That's a substantial number. We're looking at prepayment for certain suppliers getting certain goods in, but also there's an increased taxes where we had to make certain accruals and payments. After taxes, results in a negative cash flow from operating activities EUR 3.4 million. Cash flow from investing activities is about EUR 1 million. Larger product, as mentioned, [ EUR 600,000 or EUR 400,000 ] is capitalized R&D. In terms of software and PP&E, we're looking at EUR 400,000. As Peter mentioned, also before, we're building up here our PP&E. We don't -- we are still an asset-light company. So let me expand our production line. It doesn't mean that we've got a whole bunch of machinery, but we need tools and certain devices to ramp up production. Cash flow from financing activities, negative EUR 261,000. Basically, this is driven by IFRS 16-related lease cost. This included with EUR 460,000 in the financial cash flow. So total change in cash then results into EUR 4.6 million for the first quarter. I think that's it for the timing from my side. I'll pass it back to Peter.
Well, thanks, Daniel. Well, I'm summarizing it all and looking into 2022, I think we -- you can see that we are not neglecting the macroeconomic uncertainties here from supply chain and the soaring cost base, where I think we have some appropriate measures already put in place, and we continue to put further measures in place and also not neglecting the geopolitical uncertainties that naturally have worsened with the terrible situation here in Ukraine, where we can say from today's point of view, no significant direct impact on our business. We have a handful of projects in Russia, which we stopped early on when this started. And we unfortunately had to replace the single -- or the one single supplier we have in Ukraine at the point when the war started, whether there is a further impact if this situation should worsen which we all don't hope it will. I think we all cannot judge for the time being. But then in what I would call [Technical Difficulty] view on it, I think we are very confidently confirming our full year forecast here. And not only for the revenue where we have still the range of 75 -- from EUR 75 million to EUR 83 million there, main fluctuation factor here is definitely supply chain. It's not the order backlog. And then also on the profitability side, where we are firmly convinced that all the measures implemented and explained again today will make sure that we hit the range here of -- from EUR 6 million to EUR 9.1 million on underlying EBITDA, then from EUR 1.6 million to EUR 2.9 million on the respective underlying EBIT line. Overall, I would say, a very realistic view on where we are on cost and supply chain side and a very optimistic picture that is driven here on the market side by, a, the underlying change of the energy environment where the need for clean and sustainable solutions, hydrogen or methanol as hydrogen carriers converted into -- in an efficient way to clean energy, getting an acceleration now in terms of the need to replace some of the existing supplies for cell fuels. I think looking at the overall position, having products readily available and fully industrially functioning and at the same time, having spent the last 15 years in building up those trustful relationships for market access, this is definitely the competitive advantage we are seeing right now. Well, and we continue to work on to expand this. And with this, we would like to close the presentation and hand over to Laurent and look forward to your questions. Thank you very much.
[Operator Instructions] So we have the first question from Johannes von der Ohe from ABN AMRO BHF.
So my first question is on you reiterating your guidance for the year basically. And I have a question there on why you're confident that you can still reach, let's say, the revenue guidance and the profitability guidance. Because if you look at the revenue side, I understand you're on track with Clean Energy, but for Clean Power Management, that's related to the supply chain. And of course, the war in the Ukraine is still ongoing. China is still in lockdown. So yes, I would like to know why you think on the Clean Power Management side that you can deliver there and why that will change in the next few quarters? And then on the profitability side, you said that the price increases will only be visible at the end of Q2 or later during the year. So next quarter will probably be still weak in terms of profitability. So also there, why do you think that you can still make the guidance?
Johannes, thanks for the question. And well, on the revenue side, I think especially also on Clean Power Management, yes, we see some of -- well, we acknowledge those delays here in the first couple of months. As said, it's not the question of the order book. There is, let's say, approximately a EUR 30 million order book there with clear shipment schedules. But what really helps us is what we have been further doing here in terms of, again, onshoring, bringing supplies back to Europe, especially also from Asia and China. And the second one is this simplistic approach of not only ordering components, but purchasing them and getting them delivered. So we are very diligently here working with our supply base. And if I look where we stand today, it's the 17th of May, we are on a good catch up here. And the orders are in-house. So it's a question of, yes, getting the materials in and get them in-house. And in terms of price increases, yes, naturally, the downside of the big order book has now been that they were -- most of them were contracted under old pricing, yes. But this is the trade-off between, I would say, stability and then, again, price adjustments. But it's also just a question of the mathematics. We know that, let's say, what has been now contracted already on new pricing as of January 1. And what will be now contracted as of new pricing as of May 5, you can simply also calculate the price increase. And on the cost side, maybe Daniel wants -to complement here. So overall, yes, there is a gap to close. But with the aides in-house and the measures implemented, we feel really on a very realistic and practical part here of implementation.
Yes. And if we look also at the gross margin, as I mentioned, a larger part really of the COGS in the first quarter, the increase was really logistics and transportation costs. Also, to some extent, material, especially also in the Clean Energy segment, it was not so much the material and it has to do, of course, the Ukraine war and crisis caught quite a few by surprise, and we had a very extreme situation for a couple of weeks in terms of getting products from A to B or getting our goods from A to B. It also included, for example, getting our products from here to North America to SFC Canada. That also had an impact on really how you can make product planning. You need to be much more flexible, and you may have to switch and change a couple of times, including over hours. So all of these things are really what we saw in Q1. I'm not talking only about material expenses, but any other expenses allocated, associated with producing our products. We expect those at least to level out and ideally also to decrease in the second quarter, third and fourth quarter, mostly in the third and the fourth quarter, frankly speaking. So that will take away some of the pressure. Then if you look at the functional costs, as I mentioned, we are pretty much on track and ahead of track with our sales and marketing expenses. As I mentioned, we were looking at an increase compared to last year, but we're fully in line with what we have for ourselves. The same account for R&D expenses. As I mentioned, in G&A, all over, we are a bit higher than expected, but most of these expenses really were expense in the first quarter. I mentioned the audit, the financial expenses that we had, also legal advice or legal services in connections with not only the AGM, but also the wonderful remuneration report. All these expenses are really Q1 expenses, which will not move on in the second, third and fourth quarter. So that's basically the reason why on the expense side we are rather confident that we, first of all, can keep our expenses in line and secondly, seeing the positive effects from the price increases.
All right. Then just one more question from my end. So a different topic. Make in India agreement that you signed, yes, I read that you signed it, of course, but you've been collaborating, let's say, with these Indian partners for some time and have had the orders in India before. What exactly changed? And what -- so what does it mean that you signed this agreement and what's the, let's say, the longer-term strategy behind it? Because I don't really understand what changed by you signing the agreement now?
I think the key element here is the protection, regulatory system that is in place. And for larger, especially government related, you are to expect it. And the pre-requisite is to have about 50% local content depending -- well, still different from contract to contract. So it means we have to have local value add up to 50% to get the access to those larger contracts. And as hydrogen and fuel cells are put on the government agenda here and spending is specified also what they call their hydrogen mission, we expect simply a much larger market access here that we could not serve with just exporting the entire value add from Europe. So a continuation of the partnership, trustful, very well established, but local assembly being established. Our team is heading to Delhi tomorrow for the next couple of days to put the next steps in place. And I think we expect in Q3 to get really into full execution.
All right. So that means that you will basically have a local assembly then together with your Indian partners in India?
Exactly.
So we have another question from Karsten Von Blumenthal from First Berlin Equity Research.
Peter, Daniel, you have a very high order backlog, very impressing. My question is, do you plan to convert this EUR 57 million into sales completely this year?
Karsten, this is Peter. No, part of it reaches into also the upcoming year. If we look at the Clean Power Management side, we did this large contract here with our largest customer, Thermo Fisher. This goes far into also next year. We have some other customers here on the fuel cell side, but I would say, let's say, the vast majority goes into 2022 simply based on business cycle. And as I mentioned before, the order intake fortunately not stop on the 1st of April, even -- well, since then, we see same activity in the market. So it is storing -- it is increasing constantly further on, which is, I think, the underlying assumption here, too.
Could you roughly quantify vast majority of this EUR 57 million?
If you look into this, I think you take out between, let's say, EUR 12 million and maybe EUR 14 million that goes then into 2023. That's, I would say, a fair assumption. But even with this, we see with some of our customers that they're planning to execute on some of the delivery schedules is shortening, means the demand is higher than the original planning. So we would expect this to be the maximum that shifts into next year.
Okay. And regarding, as mentioned, supply chain restrictions in Q1, how has it so far developed in Q2? Do you still have supply chain restrictions that will restrict your shipment of product in Q2?
Well, there is an ongoing challenge out there. I think it would be unrealistic now to assume that this goes away within the running quarter. Again, 2 measures that definitely help us and therefore, easing the situation to a certain extent is this mentioned onshoring, but also simply the higher stock level. It doesn't go away, but I think we are addressing it the right way.
Okay. At the end of the day, this means that if you have more inventory, at some point, you will ship much more in Q3 and Q4. Do you have the personal resources and technical resources to do that in the second half of the year?
Yes. I think that's exactly the mechanics that comes in. So we expect to do a significantly higher shipments already in Q2 to be -- to start with the first one and naturally the same applies for Q3 and Q4 based on the backlog we have. And as mentioned, production capacity increase here in Brunnthal, but at the same time, in Cluj. This is a program we are really executing on as we speak. And if we talk about personnel, I think with the end of this month, we should have almost everybody on board on the manufacturing side that was planned here for this increase. We are already in the training schedules. We have people from Romania here being trained. We are hiring additional people in Romania as well as in Germany. And we also expect to have an initial capability of assembly, as mentioned before, in regards to India, also end of the year.
All right. That sounds pretty promising. You mentioned the onshoring of your supply chain. Could you give us a rough idea of how much of your supply so far has come from Asia?
Well, here, again, mostly on the components side. And if you then go into, let's say, the individual and single components then to the microcontrollers, still naturally there's a major supply base out of Asia. But then having this and doing then the module-based assembly here for our electronics for the products, be it on power management and also on the fuel cell side, the second step is the one that we did the onshoring with. So there is still a dependency naturally on the overall supply here on the individual single component here on electronics and also semiconductors. And here, what we do and what we have been doing is purchase those single components and put them on stock and do, let's say, a lot of the assembly here then in Europe. And at the same time, I think this is naturally against some of our R&D programs. We are using our technical and our hired software teams to qualify alternative components on an ongoing basis to, a, ensure availability, but also over time also, again, reduce cost, means replacement of CaaS modules is ongoing. This might delay some of our development programs here, here and there, but helps us, A, a bit on the availability side, but B, also over time on the cost side. It's a very practical approach.
All right. One last question from my side. What I think is very interesting is that despite the global supply chain issues, if I look into your regional development, you were plus 22% in the U.S., you were plus 300% in Asia. So obviously, you as SFC, very well capable of sending your product into Asia and the U.S. And on the other hand, Europe and Germany were much weaker. So is my interpretation right that it is simply a problem of your Clean Power Management business that is probably much more in Europe than elsewhere?
This is only to a partial extent, right, yes. There is naturally an absolute impact of Clean Power being, I'd say, lower than last year in terms of the product shipments. But at the same time, we simply have a very dynamic development, especially in the U.S. but also in Canada. And yes, Singapore and Japan coming back online, where we have quite a relatively weak second half of last year. So -- and with this, it is maybe more extreme, the picture that we show 31st of March. And it's not, I'd say -- the courses are multiple. So it's not the single course with the absolute decrease of shipments in the one segment.
I think, as I always mention, yes, if you look at the quality retail distribution, it always depends a bit on those larger customers we have in the industrial, but also public sector who tend to order in batches. So that -- and depending on where this order is coming from, that has an impact on the regional distribution. So it's not really, you can say, Clean Power Management. It is more in Europe and Germany. It really has to do -- if you look just isolated on the quarter, which customer orders, so you get a better view if you look at 2 or 3 quarters on the regional distribution.
All right. But that means that you were very well capable of sending your product to Asia and the U.S. despite logistic challenges?
Absolutely. But at the same time, also at incurring here and there, higher costs. We had no disruption of shipment, no single disruption, which I think is important also for a novel product like ours. At the end, if you then -- if the customer decides for it, they also want to get it, and we were able to satisfy this need.
So there are no further questions, gentlemen.
We'll wait for half a minute, and then we look at it, we have some further last-minute questions coming in.
[Operator Instructions] So we have another question, but introduce yourself and ask your question.
This is [ Sabres from Nektar ]. I had 1 or 2. First question is, do you think will be -- are we seeing a change in the overall environment due to the strong pressures we are seeing because of Ukraine, Russia, so some incentive towards the faster adoption of clean technologies? Are you starting to measure that? And do you think you could also help to reduce the risk of power shortages in the coming winter, notably in Germany and in some countries where there might be some issues?
[ Sabres ], this is Peter. I think if we look at the German perspective, one would immediately be tempted to jump to the conclusion, yes, there's more spending on the German army, on the Bundeswehr, so this is the immediate change in procurement. We do expect naturally a positive impact here in this specific part of the business, but this is going over time, as we all know, there is a process behind it that takes its time. And as of the moment, the parliament finally signed off on it, which has not happened yet, no. So there's no clearance yet from the parliament on those additional EUR 100 billion here for the next 10 years. Yes, there's more funds available and there is also a need to sustainable and clean energy sources. So -- and overall, what we experienced is simply the number of requests that are coming in and those are coming in from utility companies, from telecom, from waterworks. So a lot of, let's say, municipal services where people are looking for generate replacements that are, at the end, they're not using fossil fuels. So overall, yes. Is this already leading now to a significant business until, let's say, the end of the year and the next winter time? Here, we really have to be also realistic. We look at, let's say, the decision-making schedule and then naturally, we look at our delivery schedules. The overall trend, yes, absolutely in our favor. Well, hitting our guidance, I think, does not depend from those 2 developments but the macro environment for us is even better than it was before because it's an acceleration. People want to change faster. And we are one of the first ones having a product available. So we have customers coming in and saying, do you have this right now? Can you ship it? So not the first question being what is the price? The first question is, do you have something? So that's the major change, I would say.
So we have no more questions, gentlemen.
Well, then with this, we can conclude for today. We thank you very much for your time, your interest and your attention to what we are doing. And as always, there's the offer to all of you to contact us in a direct way. Daniel, myself and Susan are happy to set up a conversation to address your questions. Thanks very much for your time today and looking forward to catching up over the next couple of quarters. Thanks.
Thank you.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may now disconnect.