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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 day, and welcome to the SFC Energy AG Publication of the Half Year Report 2022 Conference Call. Today's conference is being recorded.
At this time, I would like to turn the conference over to Dr. Peter Podesser. Please go ahead.
Thank you very much, Marian, for the introduction. Good morning, ladies and gentlemen, and thanks for taking the time at this earliest starting point and joining us in our half year report call here for SFC Energy. Daniel and I will lead you through the main areas of our half year results here together. But at the same time, I think as we published preliminary figures just a couple of weeks ago, we shall make sure we are not too repetitive and focus on the areas on where we had not figures published so far.
If we look at it from an overall perspective, I think summarizing it here, first and most important, yes, the financial statements of the half year confirm the preliminary figures that were published on August 24. And if we look at the main developments, I think we can show accelerated growth. We show improved profitability compared to, let's say, previous quarters. And at the same time, we see a dynamic and consistent demand here for our products. And based on all those 3 elements, we are fully able to confirm our 2022 forecast here again today.
If we now look into, I'd say, the overall environment, yes, you can see an optimistic view on the business. You can see a positive view on the business, but we are not neglecting the challenges here. And still, we are facing challenges in our supply chain. We still have an elevated cost base. And despite all of this, I think we still see an acceleration of growth and also an improvement of profitability.
And looking at the second quarter, I think it's particularly worthwhile mentioning, 43% increase in sales compared to last year's Q2 simply confirms the high demand here for our fuel cells as an efficient and clean and sustainable alternative to conventional power generators. So the trend is continuing. The trend is not only continuing but also accelerating. And I think that's also expressed, if you look at our order intake for the first half year, we are looking at EUR 72.5 million compared to EUR 38.3 million in the respective period of last year, so roughly almost a doubling.
Looking at the macro environment, very -- I think in a nutshell, what we are doing today, what we are able to do today, we are already able to deliver what customers need in terms of clean and efficient energy generation. And with this, we are already today able to contribute to midterm climate targets, helping our customers to reduce their carbon footprint, to reduce their CO2 footprint with the handprint and the positive handprint of our products.
But we also see naturally an impact of the change in the geopolitical situation. So the demand gets more immediate. We are not talking here about targets to be achieved in 2030, 2045, 2060, respectively. We are talking about immediate replacement needs here for conventional fossil fuel-powered technologies, and we are seeing this really on a daily basis with a soaring and an increasing number of requests here from customers. And we are talking about replacement of diesel and gas-powered generators.
Events like we had at end of the month -- end of last month in Canada where we were honored and happy to join the delegation here, the German delegation to Canada led by Chancellor Scholz and Vice Chancellor Habeck can only help us to, I think, improve the overall positioning of our company here. We all know it's -- participating in such an event is naturally not immediately materializing in business. But it's helping to, let's say, establish and, in our case, also intensify relationships.
We have been doing business with our fuel cells, with our energy -- Clean Energy products and our Clean Power products in Canada for more than 10 years. And I think it is justified and it's logical to expect now to benefit from an improved framework and materialize -- this means, yes, we are looking at subsidy programs established now in both countries. And being, I'd say, in the midst of the core area of those measures, I think we should be able to get a decent share of what is supposed to help the industry here to accelerate here between the 2 countries.
But more on an overall landscape and our overall view, I think the work ahead of us is also clear, further expanding regionally. We are consistently making our inroads into India, as most of you will know, and internationalizing it further beyond India with, I'd say, all the activities we have initiated in the U.S., we have done with our partner, Toyota Tsusho, now after their COVID limitations in Southeast Asia. All this naturally can be accelerated now also based on naturally the successful capital increase completed a couple of weeks ago, which is naturally the basis of financing this.
But still, not neglecting the environment out there, I think, is our daily work, is our daily duty. On the supply chain side, yes, we have shortened supply chains. We have near-shored some of the supply, and we have significantly increased our amount of material we simply have on stock here with an impact naturally on the working capital, but still with the effect that we have no disruption in supply chain so far. So we were able to deliver or to complete orders, maybe not everything fully on time. We also are pushing out consistently about 10% of the revenue quarter-by-quarter because of some of the delays. But overall, I think some of those measures helped us.
And looking into the unfortunate war situation in Ukraine, I think we are lucky not to be impacted here in a direct way, neither on the supply chain nor on the customer front. But naturally, we have to watch this and make sure any potential impact can be, I'd say, compensated.
Overall, on the cost side, I mentioned this already. Yes, cost base soaring, Daniel will go into this. We implemented price increases here 2 times this year, and we are seeing now in the third quarter the real first solid impact of those price adjustments. And we expect to benefit from this further throughout the year.
So overall, the confidence we are -- the fact we are basing our confidence on also for the remaining part of the year is naturally consistent need for our product, consistent demand on the customer end. The impact of, say, the improvement measures here on the profitability is that we also established market access with long-term partnership and the increased market penetration. And as mentioned already, the capital increase we were able to successfully place here in summer -- earlier this summer in a volatile environment gives us a very solid financial base now to, let's say, just accelerate on what was on the plan.
Looking into the revenues, and I'll make this short because it's part of what you know already. I think overall, an increase of 22.6% in the first 6 months compared to last year on top line and then 43% quarter-on-quarter in Q2 is a solid start into the year or is reflecting a solid first 6 months and a positive environment. But we also have to look into the 2 segments.
And if we look into the 2 segments, we see that the main contribution here comes from our Clean Energy segment with almost 70% of the revenue deriving from this segment and with a growth pace of more than 37%. Main driver, industrial applications but also very good activities in the end consumer market. We just started the new season here with the Caravan Salon in Düsseldorf with a very positive consumer sentiment in this segment continuing. And there also, we are continuously benefiting from this as an established player for clean energy sources and the only fuel cell player in this segment.
Looking into the Clean Power Management, I think we have to be more critical here and look at this. Yes, we have a slight decrease here in revenue by 2.3% compared to last year. Here, we really see the effect of the challenges on the supply chain. It's the procurement environment, I'd say, first and foremost, most predominantly for electronic components. It is not that we are lacking orders here. Also there, if we look at our EUR 65 million of order backlog at the end of June, about half of it is deriving from the Clean Power Management business. So the orders are there. We now need to make sure we can execute properly.
So we are, I'd say, not seeing or not looking at the demand issue on the market. On the customer side, we are just -- it is our responsibility to execute here on supply chain and manufacturing appropriately. And we are seeing a slight de-tensioning in Q3 already as we speak.
And with this, I would like to hand over to Daniel talking about the financial results and the earnings development.
Thank you, Peter. Thank you, everybody, for joining us on this call. Let me quickly dig into the regional sales distribution in the first half year of 2022. As always, sales distribution with regards to regional is always impacted by the order patterns of our larger customers who tend to order in batches. But nevertheless, there is no big change in the regional distribution with the strong and established sales presence that we have in Europe and North America. These markets remain the largest sales region, accounting together for approximately 92% of our revenues. There, Europe, including Germany, accounting 51%. Obviously, the 41% then goes to North America. We still see strong demand for our products not only in the oil and gas sector but really across all the applications that we're having. We saw that Asia picked up. We had 8% regional revenue contribution of Asia. Again, we're gaining momentum.
Going into the gross profit and the gross margin and the development, we saw this second quarter as well as the first half year. You saw that our -- there's a heterogeneous development of the gross margin across the segment. However, there is a positive trend that the measures that we implemented beginning of the first quarter but also then in the second quarter really impacts our gross margin on a positive side. Overall gross profit was about EUR 13.5 million, which is about EUR 2.3 million higher than in the previous year. We saw that the gross margin in the Clean Energy segment is stable, whilst the gross margin in the Clean Power Management segment had a slight contraction.
We see that the first impact of price increases, not entirely yet, but the first impacts are showing. We also saw a stabilization on the logistics and transportation costs for incoming goods and the intercompany logistics. The revenue growth for the company in combination with the increased revenue contribution of the Clean Energy segment, which tends to have a higher gross margin than the Clean Power Management segment, really has impacted our gross margin profile on the group level. And that is one of the key reasons for the gross profit growth.
EUR 13.5 million gross profit translates into a gross margin of 35.3%. It's slightly below the gross margin of the first half year in 2021, which was at 35.9%. But it's pretty much on the level of the full year of 2021. Already mentioned, especially cost for logistics and transportation has stabilized on a high level. Overall, they have come down. Of course, the exchange rate with the dollar is then counteracted again as those costs -- as most of these costs are dollar-linked. And well, we also saw that the rush deliveries and rush supplies that we saw in the first quarter, and that resulted in quite high logistic costs, have reduced significantly. Still, as already Peter mentioned, there remains risk in the global supply chains with China, COVID and, of course, also the Ukrainian war, try to look at this very, very carefully and try to counteract as we can.
Going -- looking at the gross margins of the segments. Clean Energy realized a gross profit of EUR 10.7 million, which translates in a gross margin of 40.1%. This is pretty much in terms of gross margin on the level of the previous year. The product mix is certainly healthier. Peter mentioned it earlier, the segment growth was driven by fuel cell solutions for the industrial applications. These products are higher power but also higher margin. So that really helped in getting the gross margin up. Also, the higher revenues resulted in a relatively lower production overhead, i.e., the production overhead is allocated to a higher number of products. That also helps in stabilizing and getting the gross margin up.
Clean Power Management had a gross profit of EUR 2.8 million, which then translates in a gross margin of 24.1%. That's significantly lower from what we've seen in the last year, where we were at 28.9%. It's still the impact of the material prices and electronic components, a much higher content of electronic components in this segment, also, to some extent, a larger backlog with fixed prices. So the price increase that we introduced has not entirely yet impacted our revenues. It takes a bit longer in translation than in the segment Clean Energy.
EBITDA, EBIT. The group reported EBITDA was EUR 3.1 million, 8% of EBITDA margin compared to a negative EUR 1.9 million in the previous year and also then a negative margin in the previous year. Reported EBITDA is always -- was and is impacted by nonrecurring expenses, respectively, expenses that are driven by SFC's share price development. The net impact of these expenses in the first half year were EUR 52,000 versus EUR 5.3 million in the first half year in 2021. Key driver -- key impact is always the long-term incentive program, share-based long-term incentive program for management and the stock option program. The net expenses in the functional cost amounted to EUR 241,000 in the first half year compared to EUR 5.6 million in the previous year.
The LTI program, just to repeat every quarter, are quarterly valued. It's a present value calculation. We use an option price model. And of course, as most of you are aware, this option price model is based on the share price development. Whereas in the first quarter 2021, we had a huge jump in the share price. The share price in the first half year 2022 had a slight depreciation, which then also impact the stock option price. We also had a positive income, which is shown in other operating income, from the LTI programs of EUR 1.2 million, which results from the reversals of provisions for paid-out program. The transaction-related expenses that are included in the nonrecurring expenses were about EUR 1 million, and that relatively high number is associated with the capital increase that we made then in July.
So going into group adjusted EBITDA. We're looking at an adjusted EBITDA of EUR 3.1 million, which translates into a margin of 8.2% compared to EUR 3.4 million in 2021 and a margin of 11.1%. Adjusted EBITDA is one of our key KPIs. As always, we're just adjusting the EBITDA for the effects that I mentioned earlier, provisions, payout of LTI programs as well as transaction-related expenses. Total impact, and as mentioned earlier, EUR 50,000 -- EUR 52,000 in the first half year compared to EUR 4.5 million. The adjusted EBITDA margin in the first half year, still a bit lower than what we saw in 2021. The effects are pretty much clear and straightforward. Obviously, the slightly lower gross margin that we still have on group level. We had relatively higher adjusted G&A expenses, which is in line with our planning. As we mentioned earlier this year, we expect higher G&A expenses as we grow. We also had slightly higher R&D expenses in the first half year also as we put all our effort in developing new product. And partially, these higher expenses were set up by an also higher operating result.
Depreciation and amortization, EUR 2.4 million compared to EUR 2 million. A major portion of our depreciation is IFRS 16-related, approximately EUR 1 million, then followed by the amortization of the capitalized R&D expenses, about EUR 860,000. And then really the tangible assets, the depreciation is 42.1% -- EUR 421,000, sorry about that. That then results in a group adjusted EBIT of EUR 709,000, which is a margin of 1.9%. That compares to EUR 1.4 million and a margin of 4.5% in the last half year. I mentioned above what the effect is, the higher functional cost but also the lower gross margins.
A quick look at the operating expenses. Total marketing expenses unadjusted, higher than the last year, but let me go straightforward to the adjusted sales and marketing expenses, i.e., adjusting the sales and marketing expenses for the provisions of the LTI program, which is allocated to these costs. So there, we see -- if we take those nonrecurring expenses out, then we see a 23.7% increase of the marketing expenses compared to last year, amounting in EUR 6.3 million. It corresponds, if you look at sales and marketing in relation to revenue, a pretty stable ratio, 16.4% of the revenues compared to 16.3% in the first half year 2022. Our medium-term target range is 12% to 13%, so nothing has changed.
The increase in sales and marketing costs or absolute increase is really to higher personnel expenses, a bit of a higher head count but also higher travel and fare expenses. We didn't see a lot of those in the first half year 2021 with the pandemic still being around much stronger than in the first half year of this year.
R&D expenses. The total R&D spend in the first half year were EUR 3.6 million compared to EUR 3.1 million in 2021. That's a decent 17% up. How does it split up? The R&D expense in our P&L were EUR 2.2 million, so significantly higher from what we had in 2021 when we had EUR 1.5 million. The R&D capitalized were lower than in 2021. We are looking at EUR 1 million compared to EUR 1.3 million in 2021. And then subsidies and joint development agreement, what we received from that side, was higher than in 2021. We are looking at EUR 420,000 compared to EUR 344,000.
So if we add up those 3 components, this results in our R&D spend as mentioned before, EUR 3.6 million. That corresponds into 9.5% of our revenue, in line with our planning pretty much. Long term, nothing has changed. We're looking at 6% to 7% of our revenue spending for R&D. Most of these costs are product-driven for our new product generation, higher power fuel cell, but also power plant for conversion in the electronic -- sorry, in the Clean Power Management segment.
G&A expenses, as already mentioned, I go straightforward to the adjusted G&A expenses, were EUR 4.9 million, so significantly up from EUR 3.4 million we had in the previous years, 43% to be precise. And the increase is mostly due to personnel expenses. We have a much higher head count in personnel, 48 head count in the first half year or the end of the first half year compared to 35%, building up those functions as we're really growing at a high speed. But also, as we mentioned -- as I mentioned in the first quarter, we had higher legal and advisory expenses and also IT advisory expenses. So the EUR 4.9 million relates to 13% of revenues compared to 11% in the last year. Medium-term target range for us is 12% to 13%. That's pretty much in line with our G&A expense-to-sales ratio now. Having a quick look at the balance sheet. Let me start really with the fixed assets/intangible assets and our total CapEx. In the first half year, total CapEx, excluding IFRS 16 effects, was about EUR 1.8 million. Thereof, EUR 1.2 million invested in intangibles and the larger part of it with EUR 1 million being capitalized R&D, as mentioned before. PP&E equipment was about EUR 600,000 spread around different sort of equipment, machinery but also to some of IT equipment that we acquired.
Cash and cash equivalents, net debt, we're looking at the 30th of June. Obviously, that position has changed following the capital increase that we closed in July. By end of June, we had cash freely available of EUR 14 million. That does not include, as I mentioned, the EUR 56 million gross proceeds of the capital increase, still lower than we had at the same time -- point of time in 2021. Our financial debt decreased to EUR 3.9 million, still pretty much the same financial facilities that we have in line, working capital lines in Netherlands and in Canada.
Our net debt then obviously, it was EUR 10 million -- or net cash, EUR 10 million at the end of the half year compared to EUR 22 million in the first half year in '21. Equity ratio fixed at 56.3%, really on year-end level. Net profit we saw as positive, really impacted by the lower SARs expenses that we have.
Let me loose 2, 3 words on the cash flow. Cash flow -- operating cash flow before change in net working capital was EUR 2.1 million compared to EUR 3.1 million in the last year, obviously a bit lower. Net working capital increased significantly over time by EUR 11 million. The largest part of it is really inventory. Inventory increased with a cash impact of EUR 7.5 million, still stocking electronic components, still stocking key components for our fuel cell. But also, as we very strongly grow in the future cell application, our net working capital is growing.
Accounts receivables increased by EUR 2.1 million, always a bit impacted by the higher revenues that we tend to have at the end of each quarter. Accounts payable also increased by EUR 1.8 million. Other short-term receivables, mostly these are prepayment taxes or prepaid taxes that we have, increased by EUR 3 million. So after taxes and after the net working capital change, the cash flow from operating activities amounted to minus EUR 8.9 million. Cash flow from investing activities, mentioned before, was about EUR 1.8 million. And cash flow from financing activities amounted to negative EUR 95,000. It is really the -- we had an impact of EUR 950,000 IFRS 16 expenses, which are included in the financial cash flow. Total change in cash was EUR 10 million at the end of the year.
And with this, I will turn it back to Peter.
Thank you very much, Daniel. So summarizing all of this and looking at our outlook here, yes, I think with good reasons, we are confirming our outlook here in a very confident and positive manner. SFC is one of the few companies having ready-to-use, industrially proven fuel cell-based energy generators and cleaner energy solutions here, methanol and hydrogen meeting really the demand in the market right now. And at the same time, we've built up market access over the last 10 years, and we are internationalizing as we speak, just mentioned before.
We are not neglecting the risks still existing. And still, we expect further revenue increase. We expect an improvement of the margins, as explained by Daniel right now. And with the completion of the capital increase, I think this allows us now the acceleration of the deployment of the growth initiatives, growth in different regions but also accelerating the R&D plans here for our higher power platform here on the hydrogen fuel cell side.
So overall, yes, the range here in terms of revenue, we still keep it between EUR 75 million and EUR 83 million of targeted revenue, which would translate in a range of 17% to 29% growth here. On the EBITDA underlying, we also look at a EUR 6 million to EUR 9.1 million forecast here. And on the EBIT side, we are looking at EUR 1.6 million to EUR 2.9 million. This all is based on the assumption that we don't see any further major effects here financially and operationally from COVID as well as the war in Ukraine.
But I think looking now into the next couple of weeks, it is our ability here to look at the wide range of the corridor here. The main reason is simply the remaining risk on the supply chain. But give us a couple of weeks, and we are, I think, able to look at a potential narrowing of the corridor.
With this, I would like to hand back to Marian and then open the floor for questions. Thank you very much.
[Operator Instructions] We'll take the first question from Johannes von der Ohe from ABN AMRO.
The first question is on basically, if I compare the first quarter and the second quarter, it becomes visible that you had quite an improvement, let's say, both in terms of showing sales growth in Q2 year-over-year but also in margins coming up between Q1 and Q2 in both segments. And the question would be, let's say, what is the remaining risk of Q3 and Q4, again, having a weaker quarter such as Q1? And is that mostly, let's say, supply chain-related? And if it's supply chain-related, then is that related to COVID-19 lockdowns coming back or do you see any other risks?
Johannes, this is Peter. Thanks very much for joining and asking here the questions. Now let me look at the remaining risks. I think being now on the 13th of September today, we are, I think, fully clear with the backlog we are having at the end. The orders are in. It is now a question of execution. And again, there, we are looking not so much into, let's say, really COVID-related new measures, especially in China as we have observed it again a couple of days or last week and the weeks ago.
Overall, I think we are looking at a residual risk which is limited. And we want to give us another couple of weeks here to simply narrow down the risk and see where we are in our corridor. But looking at, let's say, the third quarter here, we are seeing unchanged dynamics. And we have been able to execute on, let's say, the existing orders as we have been doing in Q2. So from this side, limited.
And on the profitability side, I think there, Daniel mentioned this already, we only saw really marginal impact of the price increases in Q2 because simply, the original backlog still was in old pricing. And we expect a further impact here, positive impact here.
Yes. Like I said, we introduced all the mitigating actions that we've done in the first quarter and at the beginning of the first quarter. It should really help us. Obviously, we're still in a volatile environment with energy costs, which don't impact us so much, but also inflation, also logistics. Overall, right now, we think we have everything mitigated with those impacts. So it was stable. But yes, the environment these days is much more volatile than probably in last year.
All right. One more from my side. So basically, on the capital raise, so you said that you're going to use the proceeds for, yes, expansion in India. And then the question is, so are there any updates on when you will establish physical production there? And then also, maybe on the planned expansion in Romania, will the proceeds be used for that as well? And are there any updates on the time line there?
Well, to start with the latter one, in our original CapEx plan for this year being total -- being a total of EUR 8.5 million, 2 of the measures there, yes, establishing fuel cell production line in Cluj as well as doubling the capacity here, those 2 projects are well underway, and we expect Munich to be completed by the end of the year and Cluj being online within Q1. No change here, and this was already within our original investment plan. So really, if you want, irrelated of -- to the capital increase.
And then implementation of the regional expansion, yes, we were present in India again already in August. We expect our Indian partners over here next week, not just for, I'd say, the beer festival starting here in Munich but really for getting into the final stage of preparation. And also, their time line, unchanged. We want to be ready by end of the year to kick it off in Q1.
All right. And then one last question. Are you looking potentially at any M&A to expand in North America?
Absolutely. As I said and I also communicated during the road show also for the capital increase, this is one of also the areas of use of proceeds. I would say it's a dual track. Some greenfield activities in the U.S., I think, are mandatory for us to send some sales and service people there end of the year, beginning of next year. Our colleague, Hans, was just over there with the team looking at the different options.
And at the same time, we have a long list of potential candidates that could help us simply accelerate market penetration and getting accelerated market access. Like we did it in Canada some years ago, taking a system integrator already acting in the power field, in the power product field and converting this into a fuel cell company, piggybacking on what they do right now. Don't think that we will see a result on the latter one here within the remaining months of the year, but it's naturally something that is on the agenda for '23 and preparation in '22.
We will now take the next question from Karsten Blumenthal from First Berlin Equity Research.
My first question would be regarding the energy supply of your production sites. Is there any risk for you that you will not have enough energy during the winter?
Karsten, thanks for addressing also naturally something that we have to look into. The first thing is our production is extremely energy-light. So there is no thermal processes, let's say, needed in a massive way. So that at the end, we are talking about, let's say, the heating and the lighting here. And for the time being, based on, let's say, predominantly electricity, we expect to be, let's say, properly covered with, let's say, a residual risk of a total blackout, which I think we are all facing. But overall, our energy consumption is not something that is used or that is vital for the added value in the product.
All right. You sell both hydrogen fuel cells and direct methanol fuel cells. Could you tell us something about the sales share of your hydrogen fuel cells in total fuel cell sales?
Yes. As also mentioned in previous quarters, overall, the number of units is still a predominant share here on methanol fuel cells because of established market channels also because of, let's say, longer acceptance here and established use cases. So we would still look at a 90-10 share here in terms of overall separation between methanol and hydrogen.
What is -- what I think is important naturally is the ASP. We are talking here naturally at a totally different ASP level, whereas, let's say, one of our methanol EFOY product on an industrial -- standard average industrial application is EUR 5,000 to EUR 7,000 or dollar value. And if you look into, let's say, the standard EFOY hydrogen here of, let's say, 5 to 7.5 kilowatts, we are talking about a tenfold larger number. So therefore, naturally, over time, we expect exactly the effect that we are also planning here. So hydrogen is simply catching up in terms of overall revenue share.
All right. I think roughly 1 year ago, you announced a partnership with Nel. And you -- I think you wanted to introduce first products into the market in H2 2022. How has this been developing?
This is very, let's say, a good and precise memory you're having here. And we are, as we speak, planning now for the management meeting here in the first days of October in Munich to review the program. I think with what we see right now and also, I would say, some of the COVID and supply chain impact, we are looking at a slight delay here. But without, let's say, going through the assessment here from both parties, within 2 weeks' time from today, I think it would be not a serious assessment, let's say, what the actual time line now looks like. So we are getting together in the first days of October here to do a thorough review here from both sides.
At the same time, on the electrolyzer side, besides the power levels that we are addressing here with Nel, our R&D team, and this was also a topic during the preparation of the capital increase as well as the road show related there, we also mentioned that we are looking at, I'd say, developments in this area in different power levels that we are driving on our own.
All right. One last question. You mentioned that you are increasingly relying on European suppliers. Could you give us an idea how large the change from non-European suppliers to European suppliers is? Do we talk about 1 million, 5 million?
Well, I think it is small, let's say, if you look at it from a modularity of the product. I think we have to be all cognizant of the fact that on electronic components, a full independence of, for example, China, at this point in time is simply impossible or at least very difficult to manage. But on the electronic systems integration, we pulled basically the full assembly stages here for our electronics boards back to Europe with the main focus here in Romania and some backup solutions here in Germany.
So components are coming from Asia. But I'd say with the measure of buying the components, not only ordering them but putting them on stock and then having them available for our systems suppliers, so far, I think we could mitigate some heavier impacts of delays. But it does not protect us 100%. I think we are really, I think, realistic here and cognizant of the fact that full independence of COVID impact in China to name it as the most prominent region is impossible. But I think mitigation in place helps us not too bad.
We will now take the next question from Malte Schaumann from Warburg Research.
My first question is regarding the environment. I mean, the decarbonization of your customers' supply chains has been one of the demand drivers in the past quarters. Probably, did that trend accelerate due to the energy crisis during the past month? And if so, did that already turn into an accelerated order intake? Or do you expect that then to happen during the coming weeks and months?
Malte, overall, I think the major change we are experiencing here is that there is a more immediate, I think, pressure out there. I would -- and some people would even call it a threat in terms of simply availability of fossil fuels and naturally here in Germany, mostly gas. And so people are looking into immediate replacement here. And there, at this point in time, we see a significant increase in RFQs. But it is not, let's say, translated into the order intake.
And we also have to see that a big part of also requests coming in are coming in even, let's say, from private house owners, residential applications. And well, as you know and as many of you know, we have never focused on the residential part and on this area of the market. Seeing the activity there, yes, we have started to simply assess whether our industrial products would be, I'd say, suitable for -- well, technically, they are suitable, but it's just a question of pricing. The price sensitivity used to be very high in this segment. Tendency now is that sensitivity goes down. And still, we are -- we have not decided whether this is really an area of action here for SFC as we see the industrial demand soaring also consistently and dynamically.
But over time, I think the driver here remains fully intact. And it is not, let's say, this 10-, 15-year horizon here to achieve midterm climate targets, which always gives everybody an excuse to put, let's say, the decision for a new technology into the midterm plan into next year's investment budget. It is more immediate, and I think this helps all the players in the industry. And us being able to simply offer a product that is ready to go in the respective power levels and have established market access with partners in many parts of the world gives us a good starting point.
And do you also see new customers turning to SFC? Or is the higher demand or higher requests coming already more from the established ones?
No. No. Also, let's say, relating back to Karsten's questions on the hydrogen and methanol distribution, what we really see is, for example, a lot of requests now coming from utility companies for emergency backup power. Well, telecom, we know. But also there, the acceleration takes place. But it's also industrial players. Municipalities are now rethinking their energy supply. And therefore, also for us, it's so vital and instrumental to accelerate the development here of our higher power platform because also there, we see that a major part of the market is happening then above 100 kilowatts. And this is naturally something we need to be also ready to go within, I'd say, the shortest period of time. And therefore, yes, this program is well financed now and in full execution.
But EFOY methanol as well as hydrogen, we look into the industrial part of the business, a distribution between established and new customers, yes, I would say it's a 70-30 range, where we are already looking at 30% new customers here.
Okay. What's the typical time frame it takes for these new customers to evaluate your products for this specific application?
I think one good example is what we did in the U.S. here with one partner there -- with one customer there. So within a period of 12 months, we started to replace generators on their trailers here for the camera systems out there in front of the department stores or football stadiums. We now already shipped more than 1,200 units there, and it's a consistent demand ongoing.
So decision-making was, let's say, less than 2 quarters. And since then, we are in full execution mode, which is, I would say, also regionally maybe a different approach, faster decision-making in the U.S., in North America. In Europe, we would have looked at, I would say, a year of probation and then decision-making.
Okay. So you -- on the one hand side, you've seen more immediate increase in demand. But these underlying trends from new customers, et cetera, should then point to something, acceleration then from, don't know, 2024 onwards or so?
Maybe this sounds a little too cautious now from my side. But we are -- and actually, I'd say, also aware of the fact that we cannot satisfy all those requests now coming in because some of them are really, let's say, far out of what we have been focusing so far. And we need to sort this out and set the right priorities because at the end of the day, we can also not afford to be too much distracted. The main part of our business, this industrial backup business, has such a strong dynamic right now. And we would disappoint, let's say, the customer base there if we are not able simply to ramp up and be able to deliver, which would disrupt, I would say, the good development here. But at the same time, yes, now we have to be also quick in decision-making, what, let's say, other segments do we really address and where it is worthwhile to put, let's say, our resources in. So a luxury issue, a; luxury problem, I would say.
Yes. Indeed. Any news from your famous German client, government-related? Or is that really important? I mean, it's not really important currently with some. Any news on that front?
Our business there is running. And as I said, my assessment and my judgment has not changed. So we would not expect a significant impact in the running year. But our team actually is, today and tomorrow, in Bonn with our new, I'd say, also defense product here, which we have also developed based on joint development money here from the Bundeswehr.
Naturally, there is more activity. But also, the EUR 100 billion that were, I'd say, published or that were announced a good half year ago, the execution is still in preparation, I would say. So our expectation remains cautious for the running year out of this. But fortunately, it does not impact our forecast. But over time, yes, they will spend more money on the energy side, too, no doubt. And we are so far the only one qualified.
Okay. Good. Then some questions on the financials. First question is on the gross profit margin. You had a pretty weak gross profit margin in the first quarter but then saw a pretty strong gross margin in the second quarter despite the -- I mean, you said -- you mentioned that positive pricing effects were not that strong in the quarter because of timing effects. So what's that -- what, in the end, then drove the strong gross margin in the second quarter? And what are the expectations for Q3 and Q4 as you should have then a larger impact from price hikes?
Other than -- as I mentioned in the first quarter, really, the largest impact we had in terms of cost was really transportation and logistic costs in the first quarter, also impact of material, obviously. And I mentioned, those logistic costs outgoing -- incoming in the company, right, that really has reduced. Also, those rush orders and getting inventory in has reduced. So for the time being, they had a huge impact.
Secondly, don't underestimate, right, the impact of production overhead that obviously, with much higher revenue, it does have an impact on the gross margin. And thirdly, the positive impact is really the much higher industrial -- or contribution of industrial application in the fuel cell sector, right? These products tend to have, first of all, not only higher prices but also higher margin, higher level of integration, a lot more components to it compared to consumer product, for example. So that really has been driving it strongly, the gross margin, all 3 effects, logistics, product mix as well as level of revenue.
What does it mean for the next 2 quarters? We know logistic prices, as mentioned before, have stabilized, unless we don't have any rush out orders, which we don't see right now. But that's normal business. That should not really impact our gross margin. Secondly, on the materials side, we are good. We have most of the critical components stocked or in stock in a decent amount. It does not mean, once again, if even China impacts us indirectly, if one of our suppliers, for whatever reason, cannot get a component from China, which right now, we may not have a complete overview of what little components they all use, that could be an impact. For the time being, we don't see it. But it's a volatile environment, as mentioned. And you saw the order backlog and our revenue forecast. So from revenue levels and also overhead allocation, it should be okay. So a long answer to your question. In a complex environment, everything has been put in place to mitigate this risk, but risk always remains in this environment.
Yes. Sure. Okay. Okay. Then on the selling expenses, this seems to have increased in the second quarter in comparison to Q1. Do you expect these -- at an adjusted level, do you expect these to remain at that level? Or was that kind of, I don't know, a temporary tick or somewhat?
We have quite a few and really a lot of traveling as well as fares that really have picked up. You will be amazed at how much -- or you know this, how much fares are taking place. Also here, the cost of those events have increased. So that our head count has increased slightly and the costs there. So I would not expect that sales and marketing expenses will decrease relatively over the next 2 quarters.
Yes. Okay. Then last question on the CapEx side. I mean, you intend to accelerate certain developments of your product platform. So should we then expect kind of further rise in CapEx than in 2023? Or do you expect them to be -- remain largely flat? So what's the trend?
Yes. So the trend would be that you should expect higher CapEx to our PP&E in connection with expansion of the production in connection with starting ramp-up in Romania as well as India, some of them happening this year, some of them happening in the first quarter next year. So yes, you should expect to have higher CapEx for equipment as well as including also IT, not to forget. This stuff is also expensive.
We will now take the next question from Thomas Junghanns from Berenberg.
I have a question probably more for Daniel. I would like to ask you, is this possible to quantify it, in which extent better-than-expected currency effect has helped the company?
Well, yes, it is able to quantify this or at least give a decent trend. So we did have a better-than-expected exchange -- put it this way, exchange rate in euro, Canadian dollar. We were selling into Canadian dollars. We get receivables and have certain Canadian dollars on our balance sheet from our company in Canada. I'd say the net effect, net effect, right, if I then also -- the expense we have for the currency is something between roughly EUR 400,000, that's the net effect. I would not necessarily say it's better than expected, but it's definitely in the other operating income an effect that we have. And in terms of -- yes. Does it help?
Yes. It has helped.
As there are no further questions, I would like to hand the call back over to your hosts for any additional or closing remarks.
Well, thanks very much. As said, we are looking optimistically here into the remaining part of the year, and we will keep you updated also on our view on the guidance, I would say, in a couple of weeks from now.
With this, thanks all for your time, your interest and continued trust in us. And whenever you have questions, don't hesitate to reach out to Susan, Daniel and myself. Thanks very much.
Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.