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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, ladies and gentlemen. Thanks for joining us today, and welcome to our Earnings Call on the Q1 results 2023. Daniel and myself will lead you through the business as well as financial facts. And afterwards, naturally, we will be happy to go into the usual question and answers session.
I think overall, yes, it is actually good to look back to a successful start of the year. We had a very good start in Q1, and I think we are still appreciating the same dynamics mid of Q2, which I think is the second element that is, I think, worthwhile and positive to mention.
Looking at the Q1, we were able to increase the growth pace compared to last year, again, significantly raising it up from a good 30%, 32% now to about 53% in the first quarter. But at the same time, I think it's the profitability increase, that is key element of our approach quadrupling, I'd say, our operational EBITDA and naturally with this also the EBIT and the net profit is a good pairing here, growth and profitability.
If we look into, let's say, the order book still the dynamic in the market has been very good in the first 3 months and continues to do so right now, we ended the first quarter with a positive book-to-bill ratio, increasing the order book to EUR 81.6 million compared to EUR 74 million at the beginning of the year.
But let me look into the nature of growth and the nature, I'd say, of the business development here. The growth on the one hand side reflects the continuous demand for sustainable, Clean Energy solutions of what we do here on the Clean Energy part of the business but also on the Clean Power Management side where we are providing high-end, highly efficient power electronic solutions to our customers. So the overall demand is fully intact.
But at the same time, we were able to increase market penetration in the existing market, and start to open up new markets in terms of regions, but also in terms of customers. The combination of ambitious growth and constant and stable improvement of profitability, I think it's also a differentiator, it is what we think the right path here going forward, and it might be still, I'd say, a differentiating point to the peers in the industry. But long term, we think it's a most sustainable way, and we will continue to follow this path.
Besides consistent and intact demand and improved penetration of the market, we also see the effect here of our pricing policy, after pricing adjustments implemented in the first half year of 2022, helping us to absorb cost soarings and at the same time, a conscious cost management helped us to keep the profitability or to increase the profitability to the levels we have. We also see an easening on the supply chain, loosening up of some of the bottlenecks and stabilization on the pricing and Daniel will go into this in more detail.
If we now look into, I'd say, the development of the business, the implementation of our growth strategy. I think we have taken further milestones that are worthwhile to mention here, both on the technological side as well as on the regional expansion of the business. We are happy to see the growth in North America here being beyond 86% overall, especially in the U.S., exceeding 100% of growth year-on-year, following, let's say, a strategy we are looking into setting up our own presence. We need to get nearer to the customer throughout this year. So first step we are looking at is a greenfield activity here on sales and service to be, I'd say, implemented later in the year.
If we look into the European business still, I'd say, beyond 30% growth and differentiating between Germany and the other regions in Europe, yes, we see some different growth patterns, but we also have to draw their attention to the fact that those are sometimes also project related and therefore, then are quarterly differentials that maybe don't show the full traction of the growth.
We are not happy with the development in Japan right now in terms of revenue development. We still see some post-COVID, some post-pandemic effects, slower pickup of the business, some delays in projects, especially projects where we didn't have the opportunity to see our customers, neither ourselves nor our partners from Toyota Tsusho. We're able to travel the region or travel into the region for almost 2 years. Nevertheless, we see a pickup here. We see a catching number of momentum.
And yes, naturally the order intake and the bookings we have seen in India will be anyhow ensuring also a significant growth also in our Asian business throughout the year. Talking about India, we are establishing our not only own presence here in terms of being nearer to the customer, we're setting up our SME and production side, we feel we are on track here. And we will reach the next milestones here by end of June.
And as mentioned before, we saw already a significant order intake there together with our Indian partner, FC TecNrgy, to secure the largest fuel cell order that was ever awarded by the Indian army here for our portable fuel cell solutions, including the Power Management.
Talking about the expansion production capabilities, production capacity here in Brunnthal, Germany. We are completing the expansion project here, and we see ourselves on track. But we are still experiencing some delays in setting up the production line in our Romanian site in Cluj mostly some outstanding permits and construction activity is lagging behind. Not particularly happy with this situation, but we feel we are, I'd say, with the expansion here in Germany, fully able to cope with the capacity needed. And at the same time, within the next couple of months, we expect completion also in Romania.
If you look at the technology side, I think if you want to call it, let's say, the next pearl to the string is the deal here with our long-time partner Johnson Matthey, we are particularly happy about this. We have 2 elements there. Johnson Matthey opted to focus on their hydrogen product offering only within, let's say, with this decision, we were able to take over the membrane production technology for our direct methanol fuel cell business, that most valuable and expensive components to those products by taking over this and broadening our technology and know-how in the field for our methanol product offering. This helps us to secure further market leadership, but also technology leadership and actually stabilize the supply chain.
But then overall, naturally over time, we expect a significant cost advantage here, coming out of the integration of the fabrication of this component. And on the hydrogen product offering, we feel that Johnson Matthey is continuing to be an ideal partner here into the future to develop further cost effective and highly performing components of our hydrogen product offering. So it's a 20-year history, and we are continuing here in a new format.
We are setting up our own presence in the U.K. as we speak. We are intending to take over part of the key personnel here on the methanol side. Some people have already joined us and it will be a production and R&D location in the U.K. being operational within this year.
If we now look into the overall development tier segment by segment and on the sales side, yes, we have seen a continuous activity and dynamic demand here on the Clean Energy segment with a growth of 44%. But also on the Clean Power Management side, we see the demand continuing to be high and especially also the easening of the supply chain bottlenecks helped us to have, let's say, an outstanding growth here beyond 70% in the Clean Power Management segment.
I mentioned it already at the beginning, yes, the order intake in the first quarter of EUR 34.8 million helped us to increase the order book by the end of the quarter to above EUR 81 million. And looking into the regions, I think the development here with North America growing by 80%, also resulted in the North American business amounting for the first time, about 50% of the business. Over time, we expect Asia and also Europe to catch up on a relative basis, again, but still and actually overall market reception in the U.S. as well as in Canada. Canada continues to be positive and is driving this development.
With this, I conclude the market and product part of the presentation, and I would hand over to Daniel to lead you through the development of the earnings and the profitability part of the business as well as the outlook.
Thank you very much, Peter. Welcome, everybody. Thank you for coming in on our quarterly call. As Peter already mentioned, we are looking back to an exciting quarter that is [indiscernible] of growth and revenues, but at the same time, we're able to expand on our margin.
Our gross profit amounted to EUR 10.2 million in the fourth quarter, which is EUR 4.6 million or 82% higher in the previous year's first quarter, so remembering that gross profit, gross margin in the first quarter was low last year. This overall translate interim gross margin of 37.2%. This is significantly above the level of last year's gross margin, which amounted to 31.3%. And it's also slightly above last year's full gross margin, which was at 36.8%. So it's a good quarter also in terms of margin expansion and the increase of the gross margin at a level and it is a combination, first of all, that Peter mentioned it, the full effect of the price adjustments that we implemented last year in both segments.
Secondly, also the higher level of revenues and consequent lower production overhead per unit, which has an impact on the gross profit. And thirdly, last but not least, not all of the more expensive components that we stock last year have yet been used in the production, they will ever come over the next 2 quarters.
If you look at the segments, there was margin in the Clean Energy segment was 43.1%, almost double compared to last year, we had EUR 4.2 million in the first quarter. Gross margin, as I mentioned, 43.1%, I'm comparing to last year in that segment. This was 42.6%, which is a nice increase. It is in nature, as I mentioned before, of the price increases, but also the product mix in that segment is very attractive, industrial applications of fuel cells for industrial application account for 70% of the segment sales. Last year, we had on the full year 66%, so that portion has really gone up. These tend to be higher power products and higher power products also come with higher margins.
If you look at gross margins in the Power Management segment, we were looking at a gross profit of EUR 2.6 million that translates into a gross margin of 26.5%, also significantly up than in the last year quarter where we were looking at 24.9% and also absolutely up giving the revenue growth in the quarter. Pretty much the same reasons, it was a very strong quarter in that segment in terms of revenue, which then leads to relatively lower unit costs here in the production overhead, but also very strong pricing, especially also North America and the price increases in the first quarter.
So if you look at our midterm and long-term targets for the gross margin, we always say, we want to be above 44% in Clean Energy and above 32% in Clean Power Management. We are really when it comes to the Clean Energy segment are well underway. But also when we look at the Clean Power Management segment, we are well underway and maybe a little bit a long way to go.
Looking at the group adjusted EBITDA. And as you know, EBITDA being one of our -- or adjusted EBITDA being one of our key KPIs, the adjustments are consistently with the adjustment that are made in the previous quarters, basically adjusting input costs ex-related expenses as well as the expenses and income from the long-term incentive programs, the stock option programs. We made this adjustment, just to remind you, to provide you with a comparable objective indicator across the quarters of our operating performance.
And the group adjusted EBIT amounts to EUR 3.3 million, which then translates into an EBITDA margin, adjusted EBITDA margin of 12.2%, which we believe is our least performance corporate to EUR 809,000 in the first quarter last year and a loss of 2.9%.
One of the key drivers and the key adjustment I mentioned is really the LTI program, the expense for LTI program. which were relatively low in the first quarter of the EUR 159,000. We also had a relief of LTI expenses amounting to EUR 285,000 which are posted in our operating income. Transactional expenses relatively low at EUR 1,000. So that to repeat myself, leads to an EBITDA -- adjusted EBITDA margin of 12.2% and looking and comparing it to last year's margin, full year margin for adjusted EBITDA, which was 9.6% were recently up.
The reason for the margin expansion is not a big surprise, of course, on the first hand, the gross margin expense that we have. Adjusted G&A expense, I'll touch on this later, increased but we're still in plan with our overall development. We had slightly lower adjusted sales and marketing expenses in the first quarter. The first quarter is always relatively low in sales and marketing especially activity and troubling at the very beginning of the year are a little bit lower than in the rest of the quarters, relatively lower R&D expenses. So this is really the mix for the gross margin expansion.
Depreciation, amortization is pretty much on the level of the last year with EUR 1.1 billion. If we have a quick look in our operating expenses, if we look at the sales and marketing expenses, there are EUR 3.6 million on adjusted versus and EUR 2.7 million in the first quarter of last year. Expenses for LTI growth are slightly higher than last year, but absolutely on a low level with EUR 55,000. Overall, the sales and marketing expenses when adjusted increased by 28% compared to the previous year, we're looking at EUR 3.5 million versus EUR 2.7 million in the previous year. However, when we look at the sales of funding cost as a percentage of sales, and that's why net impact they are relatively lower. It's 2.8% of our revenues compared to 50.3% of revenues in the first quarter of 2022. But this is pretty much in line with our long-term planning with our sales and marketing expenses will be anything between 12% and 12% of our revenues as operating leveraged starts to kick in and we see nicely that as for effect operating leverage is becoming a reality and kicking in.
The increase of the sales and marketing expenses absolutely is a little surprised, mostly personnel expenses wages that have up. And also even though travel and fare activity is lower compared to the other quarters, still the absolute level of general and for expense and also marketing expenses increased in the first quarter.
Looking at our R&D expenses, R&D, the basis really for our future and the strategic positioning of our products. the total adjusted R&D spend. So this is really the amount that we invested in R&D were EUR 2.1 million compared to EUR 1.8 million in the first quarter in '22. It is 21% up. How does it split up, In relation to up in the R&D expenses, the one you will find on the P&L that amounted to EUR 1.2 million compared to EUR 1.1 million in the first quarter of the previous year.
Capitalized R&D, slightly higher, looking at EUR 800,000 and then subsidies and joint development expenses, subsidy that we receive, expenses for the J&V that we already did were EUR 200,000 compared to EUR 100,000 in the previous years. So if we add up the expense R&D plus the capitalized R&D plus the subsidies we see, we'll end up at EUR 2.1 million in total R&D spend, which again corresponds to 7.8% of our revenues, also more or less in line with our long-term targets, but we're looking at 6% to 7% of our revenues.
The drivers for the R&D expenses have changed on the previous quarters. It's really the development of the new product generations where we focus on the one hand side, on higher power and on the other hand side, on the optimized functional review.
G&A expenses, unadjusted EUR 3.2 million versus EUR 3.3 million, so pretty much on the level of the previous years. The expenses for the LTI program called [indiscernible] G&A expenses, of course, of EUR 70,000 in the first quarter, significantly lower from what we had last year, where we're looking at EUR 800,000. So adjusting it and also for the relatively low transactional expenses then we're looking at G&A expenses of EUR 3.1 million, comparing to EUR 2.5 million in previous years.
We also saw that G&A expenses have been increasing in the last years, in quarter 3 and 4. And it is basically the same reason. It is, personnel expenses was increased. It's also hire expenses for the team that we are having and bringing up our system having some services and advisory service in really improving our infrastructure becoming more efficient and effective at the same time.
So adjusted G&A correspond to 11.4% of revenues, lower than the 13.9% we had in the first quarter of last year. We're looking at 11.6% on last year. So it's pretty much in line with the relative spending comparative revenue in the last year in the long-term or medium-term range, our target remains at 12% to 13% of our revenues.
A quick look at the balance sheet, maybe highlight a little bit on the CapEx that we have, the investment, total CapEx in the first quarter was slowly driven by the acquisition of certain assets from Johnson Matthey for the MEA production, which cater our engagement. So total CapEx were EUR 2.5 million, excluding IFRS 16 accounting impacts. So up EUR 1.5 million on the first quarter of 2022, main drivers that we mentioned was the investment in the MEA production that mostly intangible assets that we acquired from Johnson Matthey.
CapEx 12:34 AM intangible assets and tangible assets, i.e., PP&E, pretty much the same relates to a little bit higher on the intangible side in the first quarter, about 70% intangible, 30% tangible assets, not an exchange to the patterns that we have. And PP&E CapEx, touching base on that has to do the expansion of our production and our capacity of about EUR 870,000. Cash and cash equivalents, debt, cash fully available EUR 59.8 million comparing to EUR 64.8 million at the end of year. So you saw that because to some of the cash, I'll touch base on this briefly and in a minute. The financial debt went up to EUR 5.1 million. So that's an increase of EUR 1.1 million at the previous quarters is only short term is the working capital facilities that we have in the Netherlands and in Canada.
Net debt, in this case, net cash amounts to EUR 54.6 million compared to EUR 60.7 million. Equity ratio stable at 70% Basically, we had a nice net income driven by the good operating performance in combination with the lower spend foreign expenses for the LTI programs. Cash flow, looking at it, we had an operating cash flow before the change in net working capital of EUR 3.4 million, so significantly better than what we had in the first quarter '22, look at whether the cash sort of go.
Net working capital increased by EUR 5.7 million compared to EUR 3.5 million in the first quarter of the previous year. It's not so much of a surprise, frankly speaking, what's been driving the net working capital is the accounts receivable, that increased by EUR 6.5 million in the first quarter. This is really looking at the way our business goes and looking at in the last months, March, and the last months, revenue is going out. So it's not a big surprise that cash receivable at that moment kind of increases significantly given the revenue development.
Inventory increased more slightly, cash impacted by EUR 850,000. There's another big new state. And also, we like the business development house payables increased by EUR 3.1 million as we keep on sourcing our product. Other sort of receivables had also a big cash impact, it increased slightly by EUR 1.4 million. So the cash pay -- cash flow from operating activities after the networking expansion and taxes was negative EUR 3 million. Main reason is really the net working capital development. Cash flow from investing activities included CapEx was EUR 2.5 million, I mentioned the driver before and then the cash flow from financing activities amounted by EUR 500,000. So total change in cash flows was EUR 5 million, resulting in a net cash position at the end of the quarter of EUR 55 million.
So when it comes -- this is the balance sheet that if we look at the outlook and our guidance for the rest of the year. Peter mentioned it, we have a very well traction in our business. We have a decent order backlog. You know that the environment, the growth is still, I'd say, shaky. Nothing has as far as we can see changed significantly, needed to the worst nor to the better in the region and North America, and Europe. Asia seems to run a little bit later on the outlook in Asia seems to be a little bit better when it comes to growth especially as the Chinese COVID restrictions, have fallen again this year.
So basically, we confirm our sales outlook at the lower end of EUR 103 million and the upper end of EUR 111 million when it comes to adjusted EBITDA, I'm still looking at EUR 8.9 million to EUR 14.1 million on the upper end, and also with the adjusted EBIT, 3.4 million and 8.6 million this is the range, we feel very confident with this outlook.
So thank you very much for your time. And with this, I'll turn it back to Peter.
Thanks very much. And I think with this, we can open the Q&A and Maria, can you open the floor?
[Operator Instructions] The first question is from the line of Malte Schaumann with Warburg Research.
The first question is on the growth in the first quarter. I mean, that was primarily driven by the U.S. market. You can provide a split. You had EUR 6.4 million -- EUR 6.5 million sales more than last -- first quarter last year, quite a split how that splits into more fuel cell business, probably LiveView and maybe also some -- what has been driven by the nonfuel cell plant?
This is Peter. If we look into, let's say, the North American part and then also, I'd say the U.S. part, if we single out the U.S. part, we can look at about depending on, I'd say, exchange rate, but it's about, I'd say, around EUR 5 million revenue slightly below in the U.S., and this is all fuel cell business. And the primary driver naturally is the successful business development here together with LiveView, but we have to be expanding it also to a broader customer base and have also seen initial shipments now to other premise.
But yes, the adoption is significantly faster than we all planned for, including, let's say, the partner LiveView here. We are, I'd say, using up our 2-year contract. We have been agreeing on in November. I think we are using up at almost double the pace we anticipated. But it's on our fuel cell business that we can see there in the U.S. So that's the main driver.
And if we look at that at the growth pace in Canada, also there, I'd say, the Clean Energy part is driven by a good demand here on the energy side means our traditional oil and gas companies but also on the mining side as well as say, again, surveillance, digitization, data transmission projects here in the general industry. And if we go to the clean power part, the biggest driver there is definitely that traditional business, which we do here for ABB in the energy and mining space.
Okay. And for the U.S., this EUR 5 million in the first quarter, so I mean what's the expectation for the U.S. contribution in the full year?
Well, we have -- if you look at it, we are between 17%, 18% here, which is above what we had anticipated and also for the year-end we looked at the 10% to be done in the U.S., we are apparently ahead here. And so far, also, if we look at it now in Q2, we are operating on a similar pace. And as said before, we started to, let's say, set up the team there. We go out to, let's say, specific shows here, telecom, security, and we are also intending to set up our own sales and service subsidiary there I would say later in the summer, early fall, so that we really get -- or we are in a position to maintain the pace here.
Do we -- I'd say, can we already ensure that it's remaining at the same pace? Well, probably not, but I would say it will be definitely, I'd say, above the 10% level. whether we continue to be between 17% and 18% there, I think we are still lacking a visibility to the year-end. But significantly faster and a solid basis also to decide on the -- or to take an investment decision for the presence there. And we are not excluding, I'd say, the next step there going forward. And actually, we always talk about, let's say, we are also evaluating potential acquisitive steps, M&A steps. But with the pace on the operational side, we clearly see the greenfield set up first and then the evaluation of potential M&A targets here for the further market penetration.
Right. And that U.S. unit might be then become operational, maybe late Q3, early Q4, something around there?
Yes, Q4. Operational then really in Q4 but we are already, let's say, sending up the team, the people are traveling in the country on a very active basis. And expanding our traction, I say beside that naturally successful collaboration with LiveView as a core customer and actually as from corporational base here in terms of business development.
And then do you already have significant leads with other customers? Or do you expect this only to happen when you have established your own sales organization, support organization and then that you can then be in a better position to explore market opportunities? Or are you already seeing something more significant besides LiveView in the funnel?
Yes. We already see some really affirmative development here outside our partnership here with LiveView and size naturally not yet comparable, but it's not, let's say, the order size of 1 or 2 EFOYs, we are talking here about 30, 50, 100. This is, let's say, for the kind of business development we are using or we are used to a real fast pace. So adoption is definitely faster. Also, I would say, this successful partnership and collaboration with LiveView than we anticipated.
Okay. And then back to Europe. I mean, during the past quarters, I mean there have been some projects in the pipeline, telecom Italian backup power. Maybe can you provide an update how these made unfold during the remainder of the year, or if this has been pushed back? So what's your view on these?
Well, if we start here with it to be still, I think we can repeat that -- we have the facts there. We had a very successful pilot system out there that was evaluated. And what we can see right now is that this evaluation is still ongoing. At the same time, we have, I'd say, first pilot systems there also with German telecom operators where we see, let's say, initial successful piloting.
What we see overall, if we look at our project large here, especially for our hydrogen products, one serious topic is local permits to operate products to operate hydrogen systems. This is a factor that takes more time than I think everybody anticipated and during the Hanover Fair, I think the opportunity also to see our federal chance by getting in a round table. As I mentioned this as one of the key factors that needs to be eliminated here by politics is to reuse the bureaucratic burden here for people who are willing to change to hydrogen, and this is definitely an element that needs acceleration here. We use bureaucratic hurdles, speed of decision-making on local regulatory level to make sure that those products can be fielded appropriately. We see an improvement there.
But still, I think this was underestimated, especially on when you talk about, let's say, regional and local levels with the level of let's say, actually experience but knowledge. We sometimes call it the [ hunting bird ] hurdle. So you have to overcome this people need to understand that you can operate this safely and in a proper way in a day-to-day environment.
And do you expect that these hurdles will be overcome during this year? Or will it take a bit longer?
Well, I think there's no way and if we see the overall, let's say, also dynamic in the market, we go for, I'd say, replacement of conventional technology. We see, I'd say, we just answered, I would say, in the last couple of weeks, we answered painters from Scandinavia, from Switzerland, from other European countries here were per se, it was already clear that this is needs to be a zero emission-hydrogen product here as a backup solution for telecom. This momentum is building further up and the overall trend is nonreversible.
Then on Asia, maybe you can provide us an update with regards how to pan the cooperation with Japan will evolve during the coming quarters? And then maybe a word on Singapore. I think Oneberry was one of your larger customers in past years. I think that name hasn't been mentioned recently. So are they going to place some low orders?
We met with our Japanese partners here on May 1, 2 and 3 here in Munich with the management team here of TTC. Apparently, we are actually not happy with, let's say, the overall delay in this program, which at the end is not attributable to our partners, not to us because it's simply the fact that COVID did not allow us to travel and see customers. The mutual program is in execution. We are seeing each other next time here in July again to do the next management assessment on it. Investments are released, people are sent to the regions. They have their expect rates there.
We are training them. We have traveling to the region, but still actually it will take some time to I'd say, develop project, as we have seen it in Europe as we now see in a very fast pace in North America. But then overall, if we look at the region, naturally now that this breakthrough order here in India will help us to, actually show significant growth in India on a year-on-year basis for the full year.
And then coming to Singapore, also there, we saw delays in the after pandemic situation here. decision-making on some government programs here together with Oneberry not taken yet. But the pipeline is solid and further building up and also there, I think you can expect us to talk about Oneberry in the near future here again because some of those projects will materialize. But the delay is, well, it's visible, but it was also inevitable. Now we need to simply implement what we have agreed upon as a program.
And with respect to Japan, do you see -- have you scaled back your expectations for the potential future business you can do there? Do you think that your partner has the right approach towards their customers?
Well, I think there, honestly, with the network, the partner has with the approach they have also in terms of, let's say, this kind of technology, I would say you could not find a better partner in terms of commitment to hydrogen and fuel cells. At the end, this is a very large organization, a very large corporation.
This is on their road map, and they are executing on funds allocated. People are recruited. The team is expanded. But the adoption on the user side, yes, you can only accelerate so much. Therefore, yes, we have this -- we have, I'd say, this delay out of COVID, yes, we have to face this effect.
So basically, it's just a delay, so to speak, but no change in the overall expectation regarding the potential of the corporation itself?
No, from both sides here full commitment and SF, they were here with the CEO, [indiscernible] being present at the beginning of May helping us to set up the maple here. And we will be there again in July. So it's really a very active partnership and we'll start that depending on every customer or one big market, as you've seen right now in the last quarters, much more and everything is moving.
The next question is from the line of Daniel Delodder with ABN Emerald.
This is Daniel Delodder for ABN AMRO and ODDO BHF, and congrats to the SFC strong first quarter results. With regarding to supply chain constraint easing, how do you see that affecting the profitability over the rest of the year?
Well, If I may start, yes, I think overall, we have seen 2 effects. It's just MEA availability, very good place. So also, if you look into the shipments in Q1 and then also Q2, naturally, there is less risk in there. And then I'd say on the cost side, we naturally see some of the cost normalizing here. There might be one or the other material still on stock that we have to buy at higher pricing but we also have to keep in mind that we did price adjustments also later in the year that will also kick in only later in the year this year. But then on the cost side, maybe Daniel, you can comment on this one.
I think we mentioned already the key points right on the one hand side, we do see prices at the spot market returning to a normalized level. And normalized level means above and higher from what we have seen pre-COVID times, so to speak. So that will have a positive impact going forward. On the other side, we do have certain components, of the electronic opponents that we spoke last year at a higher price to ensure capability to deliver and some of those higher components will come into production.
I mentioned that in the current quarter, but also in Q3 until they've been used. So there will be an impact on the gross margin in the second quarter and in the third quarter before we expect fourth quarter that it would be normalized again. Once again, we don't see any dramatic things in there. But of course, we will do most likely, we'll see that impact on our gross margin.
Secondly, we already discussed the North American outlook with the main focus on the U.S. But what -- combined with the announcement on the hydro fuel cells competence centers in Canada. What driver are you expecting in Canada? And what will be the main catalyst? Will it be government incentive schemes for the near future?
I think there, we look at it in a similar way to the U.S. as well as to Canada. We have to move closer to our customers anyhow. So we will move to the U.S. here with our sales and service team. We will also further increase our presence in Canada as the demand is there. And even better if there is then an incentive team that helps us to, say, carry part of the financial burden, so for us, it's not the question, well as IRA or the Canadian hydrogen program now make us invest there.
It is, I think, an accelerator for us to a decision that we have already taken because we need to go closer to our customers. And talking about Canada, we just opened up our Hydrogen last year in Calgary, in our headquarters, and we also opened up a new location in the Greater Toronto area for the further exploitation of, I'd say, the market potential there. And overall, naturally, the sheer size of the market based on, let's say, the size of the economy is bigger in the U.S. But Canada still is a home market for us, and we have a first mover advantage there.
Last question. How come you're already counting on such a strong first quarter as you don't change your guidance upwards, which you provided as full year results?
Well, maybe I'll take this one on. Well, you're right, an actually, we had a really good starting to the -- we're appreciating a positive market environment. Overall, still, we feel really early in the year on the 15 of -- to change some of the fundamentals but rest assured, we are looking at this naturally also with all our, let's say, optimism, but also with the experience of, let's say, unforeseen things that can happen. And that's why I think we now focus on delivering an excellent second quarter and the topic then will be on the agenda again. So for the time being, we feel it is simply too early to change some of the fundamentals.
The next question is from the line of Thomas Junghanns with Berenberg.
Also from my side, a short question with regard to the delays you are currently experiencing with the capacity expansion in Romania versus has a significant impact on operational development and versus effect also the planning? And when do you expect the capacity expansions in Romania to be completed?
So will it have an impact on capacity and , no. As been already mentioned also earlier, easy to catch it up here in Brunnthal and when we talk about delay, in our time and delay of 4 or 5 quarters already late in the view of 1 or 2 quarters, which was again not very dramatic and easy to really compensate here in Brunnthal.
So it is -- it will happen this year. It will come up and running later in the fourth quarter, but do not expect any impact on our operational business or operational performance.
There are no further questions at this time. I will now hand back over to Peter Podesser for any closing comments. Thank you.
Well, once again, thanks, everybody, for taking the time and the interest in what we do here. As always, please do not hesitate to reach out to us in the usual format, happy to discuss details and give backgrounds here. With this, we wish you all a successful and nice day. Thank you very much.