SFC Energy AG
XETRA:F3C
SFC Energy AG
XETRA:F3C
Price:
18.62 EUR
0.54%
Market Closed
Updated:
Apr 29, 2024
Section:
Earnings Call Analysis
Summary
Q3-2023
Q3-2023
Company Raises Full-Year Guidance
The company reported an operating cash flow of EUR 12.2 million, up from EUR 7.5 million year-over-year. Net working capital increased by EUR 12.8 million, primarily due to higher inventory and account receivables. The firm saw stable days of sales outstanding and has a solid net cash position. Growth is supported by existing customers and new ventures in India and the U.S., despite higher operational costs and exchange rate risks. The company raised its revenue guidance from EUR 107-111 million to EUR 115-117 million and narrowed its adjusted EBITDA and EBIT forecast to the upper end, citing a strong order book and ongoing strategic initiatives.
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Good morning to all of you, ladies and gentlemen, and welcome to our 9 months and Q3 earnings call. And naturally, thank you for taking the time. Daniel and myself will give you a thorough overview on the business and financial development of the company in the recent months and naturally also go deeply into the outlook here for the upcoming time, and we're also looking forward to an active Q&A session. I think if we are looking back at really good 9 months, but also not to forget, we are looking at the best quarter in the company's history as such in terms of revenue development as well as profitability. Overall, yes, we are grateful for this and we are proud to give this overview at the same time. I think it's also good to have some positive news out of the sector here after challenging news recently. Well, on our side, looking at the pairing here, we are looking at the constant pairing of growth as well as improving and striving for improved profitability based on, I'd say, consistent margin improvement. We are looking at 38% growth year-on-year in revenue. We have accordingly also improved our key profitability metrics here. And Daniel will go into this in naturally all the detail necessary. I think I would focus more on some of the other points here in terms of overall business structure. I think apart from the look back, we are looking at a very strong order book, incoming orders up at almost EUR 19 million here compared to last year, slightly up. And we are still looking at a very strong project pipeline and expect some bigger things to be concluded -- some bigger contracts to be concluded in the upcoming weeks. So -- and I think the structure of the growth, if you look into it from a regional angle, but also then from an end market angle, we are seeing a broad distribution here where we are growing in both business segments, we are growing across all the regions. And this, I think, gives us the resilience also against the background of difficult economic environment. And by growing here, we also can show and yield some operating leverage out of top line growth actually associated also with a good development here on the product mix. Based on all of this, yes, I think we see ourselves well positioned here to lift our sales revenue guidance above the previous guidance. And we're also specifying our earnings forecast here at the upper end of the previous target lines. Let us now look again into, let's say, the business more detailed. I think overall we show, again, a consistent and reliable development. And as said before, by distribution of the business across the various end markets, naturally, our industrial being -- our industrial business being the constant growth driver, but also public security really standing out in the recent quarters here. We take, I'd say, organic growth steps as anticipated. And I think combining this growth here with the associated and planned improvement of margins, respectively, then profitability is the clear differentiation we are showing here to a big part of the sector. And we will and aim to continue to keep this pairing here as, I'd say -- or in equal measure as part of our path forward. Looking into the regions, North America contributes, in absolute terms, the most to the growth overall here across the U.S. and Canada, 47%. Canada with a consistent 30% growth here and the U.S. with, I would say, an outstanding 175% growth here on the top line. In relative terms, in terms of regions, we see Asia and driven here with our market entry and penetration in India, with about 80% growth year-on-year, a really substantial step forward in our regional expansion strategy, which is 1 of the 3 pillars here of our overall growth plan. But we should not neglect and need to mention also that Europe is, in relative terms, I'd say, at a different growth pace right now, but still in Germany, we are looking at 23% -- approximately 23% growth. And in Europe, we have a consistent 50% growth. And we should not forget that naturally, there are projects in there that are then differing from quarter-to-quarter. So also in and throughout Europe, we are expecting further consistent, call it, solid double-digit growth here between 20% and 30%. And altogether, naturally, the regional expansion remains also going forward into the next year core element of our growth. Looking into the past 3 months, some strategic steps and elements to our growth strategy are, I think, worthwhile to mention. At our first Capital Markets Day a couple of weeks ago, we were able to present the first system, the first prototype of our HPP platform, our high-power platform, which is a modular 50-kilowatt hydrogen fuel cell that in this range is planned to go up to 20 to 200 kilowatts. We are targeting our existing market segments here, especially on industrial, but also in some of the public security side market. So market penetration in existing markets, but we are also looking at new markets here. And there, it's conventional industrial backup power. It is, call it, events and hospitality market. But naturally, we are looking also specifically at the data center segment here. The second milestone in terms of reading it in the third quarter, yes, our establishment in India, we have an opening here with solid political support here from Germany, which again helps to raise naturally the profile of the company in a market like India. In July, we are ramping up, and we consistently will be ramping up throughout the year to be able to fulfill Make in India ratios here as of the beginning of next year by contributing value-add steps in India for our products. And I think we are, I'd say, well on track with this project as naturally the basis here for the expansion in India, but then also being a platform for some further regional expansion out of India into the Asian region. And then as a third one, looking also at, let's say, our overall growth plan, expanding our technological capabilities. We are making considerable progress here in taking over and taking over membrane expertise here from our long-term supplier and partner and we are building up our own competencies here. At the end, long term, we expect out of this further competitive advantages as well as long term, and I think that's also material cost advantages here and margin stability out of an own membrane supply. Overall, yes, striving to meet customer expectations here is naturally the base theme. Looking into the segments. I mentioned this already before, we see growth in both segments. So looking into clean energy. First, the largest segment, which still accounts for about 2/3 of the business. We are looking at 34% growth, almost up to EUR 44 million and here, as mentioned before, the industrial part of our fuel cell business is a key driver. In terms of industries, yes, we are looking again at, I'd say, surveillance security applications. It's a digitization process that we are supporting with our fuel cells here. We're looking at very good demand out of the energy sector. And so therefore, clean energy is, I'd say, continuing to grow. And I mentioned naturally, the public sector business being driven by a big push here from India, we are showing, I'd say, an almost tripling or approximately a tripling of the revenues compared to last year. Clean Power Management, even stronger growth now compared to the Clean Energy part, which I think is naturally attributable to a difficult situation a year before, especially from supply chain perspective. The situation overall in supply chain has improved. Are we fully through it? I think we are still, let's say, aiming for -- we will still take a little bit of time to get to, let's say, call it, normal or pre-COVID situation, but very much improved and, therefore, simply a better ability to ship on existing orders. And the other one is also there a good level and continued level of orders coming in from the analytical semiconductor as well as the energy end markets. And with this growth of 46-point or almost 47%, the Clean Power segment is now worth about 1/3 of the overall -- or is reflecting 1/3 of the overall business. With this, I would like to hand over to Daniel to look into the development of earnings and profitability.
Good morning, everybody. Thank you for joining our call, and let's dig into the wonderful world of financials and earnings in the first 9 months, in the third quarter. Starting with the gross margin, you've seen that our gross profit reached EUR 33.3 million, significantly higher from what we did in the last years in the first 9 months. That translates into a gross margin of 37.9%. That is slightly above what we did in the last year first 9 months and is as well slightly above the full year's gross margin from last year where we were looking at 36.8%. What is the reason for the increase in the gross margin, which is the cost and also in the previous quarterly calls, the effects are pretty much the same. I think one of the key things is Peter mentioned, the favorable development of revenue in North America and partially Asia, which tend to be a little bit higher margin than what we see in the rest of the world. It also has to do with the product mix and the products we deliver down there. Industrial application product, higher power product, which again seems to be -- or tend to be a little bit healthier in the gross margin. Secondly, of course, our pricing strategy that really helped to maintain and increase the gross margin a little bit. And last but not least, of course, it's also the increased revenue and production overhead that is allocated to a higher number of products that really helps in increasing the gross margin. If we look at the gross margin of the segments, gross margin in the Energy segment, 4.1%, also an expansion from what we've seen in the last year. If we look at the gross margin of the Clean Power Management, always below what we see in Clean Energy, as you're well aware of, but still an increase compared to what we did last year. So we're looking at 25.2%. Again, the effects are pretty much the same in those segments as on group level. It is really a mixture of product mix as well as higher revenues. And as I mentioned, also favorable revenue in attractive regions. So when it comes to our mid- and long-term targets of the gross margin, again, nothing has really changed in what we've discussed in the previous quarters and/or years. We're looking at long-term gross margin in Clean Energy well above 44%. So we are there. We need to maintain that. We will discuss that later. And we're looking at a gross margin in Clean Power Management above 32%. We are not there yet. There's still some work we have to do, but we're also well underway. Looking at the EBITDA. EBITDA reported EUR 11.6 million, translating into a margin of 13.1%. We always look at the adjusted EBITDA. So let me not spend too much time on the reported EBITDA, just giving you the data, how to get to the adjusted EBITDA. We are looking at nonrecurring expenses or adjusted -- or expenses that we adjusted EBITDA for the first 9 months of minus EUR 400,000. That compares to a positive impact of EUR 2.4 million in the previous years. What are the expenses? It's the LTI program, the long-term incentive program, stock option program for management. There, we had an additional cost of EUR 326,000. In the first 9 months, we had transaction-related expenses of EUR 437,000 and then we also had some LTI provision that we had to reverse in the first 9 months. So that all leads to the total effect of EUR 400,000 in the first 9 months. So then we're getting to the adjusted EBITDA. We are looking at EUR 11.9 million, which translates into a margin of 13.6% comparing to EUR 7.4 million in the first 9 months last year and a margin of 11.5%, so we see a nice margin expansion. The adjusted EBITDA margin also is really well above what we've seen in the last full year. We had an adjusted EBITDA margin of 9.6%. So trying to put this a little bit in perspective, where does that margin expansion come from. And I'm sure you all did the math already. But if we really look at it, first of all, yes, it's the expansion of the gross margin I mentioned before. We had a 1.2 -- the gross margin has expanded by 1.2 percentage points. So that's significant contribution to our EBITDA. But then if you look at the functional cost and we'll get into this also later. But if you look at it, sales and marketing expenses, biggest portion of the functional cost in the P&L accounting for well about 50% of our operational costs or expenses. So they increased relatively lower than sales. And they account for 13.1% of revenues versus 15% of what we had in the last year's first 9 months. So that's a 1.9 percentage points lower. And if we look at it, the marketing -- sales and marketing expense are relatively EUR 1.7 million roughly lower if we took the same ratio from last year. That then really goes all the way down also in R&D expenses and G&A. R&D expenses, if we look at the ratio of last year, these expenses this year are relatively lower of EUR 840,000. G&A is relatively higher, and then also the adjusted operating will result is a little bit lower from what we've seen in the last year's first 9 months. So the key impacts are really increased gross margin and operating leverage, so to speak, on the sales and marketing side. Depreciation, EUR 4.4 million versus EUR 3.6 million in the first 9 months last year. So a little bit higher. Remember -- and we, obviously, already mentioned that in the last quarterly call, we have written off some cap R&D, which is in depreciation, roughly EUR 614,000. That is really the impact -- or one of the key impact of the increased depreciation. Operating expenses, let me run through quick sales and marketing. I already mentioned that. We're looking at an increase of sales and marketing expenses, absolutely -- roughly 20%. Looking at EUR 11.5 million compared to EUR 9.6 million, but still they increased lower -- the lower rate than sales, which then translate into sales and marketing to revenue percentage of 13.3% compared to 15.3% in the previous years. Our long-term goal, you may remember, is anything between 12% and 30% of revenues. So we are also always there. Key reasons really why sales and marketing costs increase is head count and personnel expenses. We're looking at 95% head count in the sales and marketing department compared to 84 people or employees in the previous year. And then also travel inferred expenses have increased. R&D expenses -- let me split this up. Total adjusted R&D spend was EUR 6.5 million in the first 9 months this year compared to EUR 5.5 million in the previous year's 9 months. How is it being composed? We got the R&D expense -- adjusted R&D expense from the P&L, which is EUR 4.2 million compared to EUR 3.6 million. The increase in these expenses is really the capitalized -- the depreciation of the capitalized R&D expense. What we see is that the capitalized R&D has increased from EUR 1.6 million to EUR 2.1 million. So the real increase in R&D expenses, you'll see in the position and capitalized R&D. And then we got subsidies of EUR 290,000 comparing to EUR 311,000 in the previous year's 9 months. So this all then adds up in the total R&D spend, so not what you only see in the P&L, but what we really spend on R&D which is EUR 6.5 million compared to EUR 5.5 million in the previous year. The increase in R&D costs mainly also driven by head count. We've increased the head count in the department significantly. If we look at the R&D spend to revenues, that is 7.4% of revenue comparing to 8.7% in the previous year. G&A expenses, quickly running through that one. You see the highest increase in the G&A expenses. Adjusted G&A expenses amount to EUR 10.7 million from EUR 7.3 million in the previous year. What is it? It is really the 46% increase, which is solid, is really personnel and head count. We're looking at 57 people in G&A comparing to 53 in the previous year. And also, it's not only head count, but really we hire highly qualified and experienced specialists for various reasons, for various topics. These tend to be a little bit higher in salary. And the other position that we're driving G&A expenses is advisory and legal services. Here, we're looking really at IT costs. We are -- you know that we do it in our IT landscape, improving it, making it better, faster. Also recruitment expenses have increased. So these are like the larger positions. That then corresponds to 12.2% of revenues compared to 11.5% last year. So G&A is really the position that has increased. Balance sheet really quick, very solid CapEx. Total CapEx, EUR 4.9 million in the first 9 months, that excludes the right of use and the IFRS 16 accounting. Where did we spend the money? Where did we invest the money? Roughly 70% is intangible assets, 30% is PP&E. If we look at intangible assets, we are really looking at the investment also of -- into the assets for Johnson Matthey. We mentioned that in the previous quarter. And then the other big portion is capitalized R&D. PP&E CapEx, so really machinery equipment. We invested about EUR 1.5 million. Cash fully available, EUR 56.8 million compared to EUR 64.8 million at the end of the year. Our financial debt decreased. We are looking at EUR 3.9 million versus EUR 4.1 million, to a very low level. As you know, this is all -- and I keep on mentioning that it is really short-term working capital facilities in the Netherlands and in Canada. So that results then in a net cash position of EUR 52.9 million comparing to EUR 60.7 million at the year-end. Equity increased, well, also simple math. We had a nice positive net income. This year, equity ratio remains at 70%. Looking at cash flow and cash flow is really that what drives -- I wouldn't say that drives up of what we really looking at. Cash is king at the end of the day. Operating cash flow was EUR 12.2 million versus EUR 7.5 million in the previous year's 9 months operating cash flow, that is before the change in net working capital. Net working capital increased by EUR 12.8 million. What are the big positions there? Our inventory increased by EUR 2.4 million. So that's at a much lower rate, what you've seen in the last year and that is really kicking in that we are, I would not say necessarily destocking, but returning to a more normal level when it comes to inventory. The -- if I look at the days of inventories and that is sort of a key ratio, we're at 175 days right now compared to 226 in the previous years. Second big position or the biggest position where we had the increase in the net working capital is account receivables. Account receivables increase by EUR 10.8 million. So that is a big jump. Remember, but this also always have to do with the quarter end. The higher and the faster we grow and the more we deliberate in the quarter end, about 50% of our revenue is always done in the last month. It has to do with the customer structure and then call-offs. So if you look at the days of sales outstanding, we are looking at 98% compared to 95% in the previous year. So not a big change, pretty much stable. Then we have the third largest position is the other short-term receivables, which increased by EUR 3.6 million. That is mostly prepayment and taxes -- prepayment of taxes if you make money, you also have to pay taxes and that's really in this EUR 3.6 million. So these are the big positions in the working capital-wise increasing. Then if you look at the cash flow from investment activities, I mentioned roughly EUR 4.4 million and cash flow from financing activities amounted to EUR 2 million, which then leaves us with a total change in cash of EUR 8 million for the current year and leaves us with a solid net cash position on our balance sheet. With that, I will return it to Peter.
Well, thank you very much, Daniel. And having now a brief look into, I'd say, what is to come, I think [indiscernible] is up and later on then we'll head on to our Q&A session. [indiscernible]?
Yes, we are expecting further continuous demand here for our products. I think what we have there is a proven and apparently also attractive product range that helps our customers not only to pay in, let's say, for their ESG targets for CO2 footprint reduction, helps also naturally to serve the overall trends of energy transitions, but very practically, help them perform their services and duties in a better way and in a more efficient way replacing, I'd say, or helping their total cost of ownership ratio. So at the end helps them to do their business in a better way. And the good news here is that the growth we are looking at is coming from established customers, established partners, but also new partners looking especially also into India and the U.S. So that is definitely the driver here for a very positive outlook. At the same time, I think we are experienced enough and you can expect this from us that we do not neglect some of the risks and challenges. We are exposed more and more naturally to exchange rate risks. But at the same time, and I think that is what we have and especially also Daniel has laid out over the last couple of quarters. We are and we have to build up a broader structure and this results in higher cost. We are talking here about, let's say, the regional activities in India. We are talking about the preparation now in the U.S., but also in the U.K. So we have to expect impact naturally here on the cost structure, nothing on, let's say, unforeseen. We are, I think, proceeding according to plan, but we cannot neglect this. And with all of this, I think us getting into, let's say, the numbers, yes. We have the performance in the first 9 months. We have a solid -- or a very good backlog order book here. And we are confident that we can go beyond the original targets here in terms of top line development. We are lifting the range here from the original, I'd say, from the previous specifying here in a range of EUR 107 million to EUR 111 million revenues up to EUR 115 million to EUR 117 million, so are going beyond the previous guidance. On EBITDA adjusted as well as EBIT adjusted, we are specifying it at the upper end. So for the adjusted EBITDA, we had a range out there after our last concretization here from EUR 10.5 million to EUR 14.1 million. Instead of this, now we see it really ending up between EUR 13 million and EUR 14.1 million on the EBITDA adjusted and on the EBIT. We are moving this up here from the previous range here between EUR 5 million and EUR 8.6 million to a narrow bandwidth here from EUR 7.5 million to EUR 8.6 million. What else can you expect from us? Not just in the next couple of weeks until we -- I'd say, most of us stand in front of the Christmas tree or we celebrate New Year's Eve, but then also going beyond this. Order pipeline is solid. We expect a couple of bigger projects really to be concluded now within the upcoming weeks. We are preparing and able to start setting up our presence in the U.S. within the upcoming weeks. We continue to focus on hiring. Daniel mentioned this, yes, we have taken on more than 100 people in the last 12 months overall. We are still, let's say, striving here to get the right talent, but not only to get the right talent, but also retain the existing talent. We are improving our structures, preparing now for a group-wide ERP project here transitioning to a uniform SAP-based platform. And then we are still looking at opportunities to add on technological capabilities to expand our product and technology offering. This is still continuous and ongoing work. And more so, I think we are looking -- and I mentioned this before that naturally we also hear some challenging news out of the sector and the industry. We also feel that this will lead into a consolidation process. We see this as a big opportunity. We want and we have the clear determination to do this. To play an active part here and make sure, I'd say we can, let's say, improve our positioning here in our markets also long term by being active on the consolidation front. Last but not least, yes, we have now set out our numbers for the 9 months. We are in the finalization of our budgeting and midterm planning process, naturally, therefore, you can expect from us to come out with a statement on the midterm plan within the foreseeable time frame. With this, we thank you very much for, let's say, the attention so far. Hand it over to Sandra and look forward to an active Q&A session.
[Operator Instructions] Our first question comes from Karsten Von Blumenthal, First Berlin Equity Research.
My first question would be, could you give us a more detailed update on your EMEA production unit in the U.K. you took over from Johnson Matthey? When do you think you will start production at the time tables still as they have been the last time? It would be great to get some details there.
Absolutely. Karsten. Thanks for joining us. I think we are proceeding according to plan. We were looking at the transition of the assets within Q4, which still is the plan. What has happened since summer time as that we also did, let's say, some additional work here to be able to replicate some of the process steps from the U.K. also replicating here in Munich. So in order to make sure we have, let's say, also a fallback position for any delay, we have built up capabilities here on, call it, a more manual level to replicate process steps here. Overall, ramp-up time somewhere until end of Q1 and then really as of Q2 next year being able to produce and ship from our own production. That's, I think, a core element. And as mentioned before, this is -- and that's on track. I think we have done an additional supporting -- or build up an additional supporting activity by simply replicating the process here in Germany, which I think long term also is the right thing for further development and then improvement overall of EMEA performance, having a long-term impact on the cost structure of our products and then also competitiveness.
Perfect. My second question would be what is the partly automation in Monte during -- did you advance there, too?
This is still, I'd say, our, let's say, largest project here on further expansion of production capacity. As you and some of you might recall, we are not talking about a full automization of the production line. We are talking about here of different islands and starting with the stack is the logical one. We are down at the selection of, let's say, the robot supplier looking at the lead times. I think we are looking at, let's say, a Q1 exercise more than a Q4 exercise, but that's more related to the lead time of the equipment than us taking the decision. So the plan is also very firm there.
All right. Do you have any leftover exposure because as we have seen and you indirectly mentioned it, the industry has some problems, and plug power massively disappointed market. So what is your exposure to any components of plug power?
We have 0 exposure here in terms of direct business. Being in the peer group, this is a logical exposure, which we all have seen over the last couple of days. And then naturally, plug is one of the few competitors out there on the stationary fuel cell site here below also 20 kilowatts. And naturally, we are looking at this here with -- not with concern, but naturally with the rate attentiveness seeing, I'd say, what is the impact here of the development there for us. What chances are raising maybe here in the one or the other project here with customers.
Okay. Good to know that there is no direct exposure. Last question from my side. Has your fuel cell production in Romania started?
We have already -- I'd say we are doing already core systems assembly there. Within this quarter, I think we will overall now for this year surpass the 1,000 units line. So this is an ongoing exercise. And then as of Q1 next year, we will also shift this into the new building by end of the quarter.
The next question comes from Thijs Berkelder from ABN AMRO.
Congrats again with a solid quarter. Key question from my side. What are you seeing in terms of impact from the, let's say, economic slowdown in Europe right now as well as maybe initial impact on orders coming from the Middle East related to the Gaza issue? Secondly, you more or less said, well, we are preparing new midterm targets or guidance. When can we expect you to communicate that this is full year results? Or can we expect it already in, let's say, December or so? And final question is on, most investors now start to look into 2024. Can we expect similar growth rates in North, well, U.S.A. next year as this year? And in India, are you still on track for your previous expectations?
Thanks very much. Peter again. Well, impact so far, I think if we look at, let's say, the segments we are in, we are fortunate to see that there is no, let's say, direct implication there with, let's say, the overall projects. We have seen 1 or 2 large industrial players here on the power management side starting to reduce stock levels. At the same time, we are looking into, I'd say, a new procurement agreements here for long-term supply with the same customers. There might be some shift, but not concerning. On the Clean Energy side, so far, we, I'd say, do not foresee, I'd say, a massive impact. The only subsegment where naturally, we also see, let's say, a certain slowdown as a subsegment of our surveillance business means where you look at construction site surveillance. But fortunately, this is really counterbalanced by other subsegments of the same application where, I'd say, for example, the business in North America is driven by replacing guides at parking lots, not related to construction. So, so far, really fortunate and pretty well hedged. Middle East, yes, we are in -- we are engaged in discussions on projects here, naturally on our defense business. We have been a long-term supplier here to IDF. So far, no decisions here. And then on the midterm, you can expect us to get out here within the next weeks. As said, we just wanted to complete now the 9 months and also our normal budgeting and planning process that is, let's say, in its finalization stage. And on the growth rates, I'd say we are expecting overall similar organic growth rates here across the businesses compared to 2023 for 2024. In absolute terms, I think the jump we have been making now in the U.S. as well as in India in, let's say, the absolute terms, will not be comparable because naturally, we are, let's say, now starting -- sorry, in relative terms because we are starting at a higher level of business there. But so far, yes, also confident in terms of outlook into 2024, especially on all the organic part of the business.
And the timing of the communication of the new targets?
As I said, give us a couple of weeks, and we will be out with it, and we will be happy after having it out to get into an active communication and exchange review on it.
[Operator Instructions] The next question comes from Malte Schaumann from Warburg Research.
First one is on fourth quarter profitability. I mean, obviously, you raised the sales guidance for the full year, but only -- that was only profitability guidance at the high end of previous range. So do you see worsening mix, product mix? Even fourth quarter with a potential decline in gross margins. Are you a bit more conservative on OpEx development? So what is actually behind the slight dilution at profitability level in comparison to the former guidance?
Malte, this is Daniel. So you may not be surprised and I'm not surprised that this question is coming. Obviously, the answer to that one is there are different factors. One of them is, of course, also the product mix in the fourth quarter. Let's see how this is going to develop. We've got a pretty good feeling. But it's really -- we have to look at how this is going to roll out, especially in December. As I mentioned over the last couple of weeks of the year is the busiest or the last couple of years in the quarter is the busiest. Then secondly, let's have a look also at our sort of functional cost, see how they developed. And then it also depends a little bit on the revenue level that we're going to have. So all in all, these are the points of the volatility that we're looking at. And then the third is, and I think that is a significant or decent impact is with the regional expansion that we mentioned. One of the key points is that right now in the third -- in the fourth quarter, we are adding, I would not say daily, but weekly people in India and really ramping it up, whereas in the last -- in the third quarter, we had like 1.5 people will be there since the last couple of weeks. This is really ramping up. The operations are ramping up also with operating expenses now occurring there on a higher level. And then the second thing is, and we have this really is the EMEA facility in production also in U.K. Also as we speak, the costs are really now ramping up there on various levels. So these are really the factors that the cost that will come -- the difference between the last quarter and this quarter.
Yes. Okay. I think that's fair. Maybe with [ EUR 1.3 million ], it's about the other operating income and third quarter had been a bit higher. I think it was net plus EUR 1 million. That included the reversal of the loans, I think, but that only explains 0.3% to 0.4%, I guess. So maybe can add some color...
That's mostly also currency gains/when we look at other operating expenses, losses that we have in here, Canadian dollar-U.S. dollar mainly and that is the impact. Remember in the first quarter, we really had to take a big hit on that -- on the ForEx that we have and that has leveled out a little bit. That is really driving operating income/expense.
Okay. Good. And then on India, what is the revenue number so far reached with the Indian business? And what's the expectation for the full year?
Well, overall, as said, Malte, we are, let's say, looking at, let's say, an overall tripling of numbers compared to last year. We are right now, let's say, at a level of a good EUR 7.5 million and we are looking at, I'd say, some residual shipments in the last quarter. But then also beginning of the year, a big part of those projects, let's say, that are on order are going to be executed. And as Daniel said, this is now the first part where we have local value add, means core components now coming here from Germany. We are shipping them, let's say, in the next couple of weeks out and then final completion here in our Gurgaon facility. So fortunately or a luxury topic to have. The orders are in. It's now on us to be able to execute also on this, let's say, distribution of past and fulfilling those Make in India requirements.
Yes. So those EUR 7.5 million is the 9-month revenue number or the expected full year sales contribution?
We are still having some residual shipments. Honestly, we would have to give you, let's say, the residual numbers that are for shipment. There might be some changes in whether we get it or out before Christmas or whether something goes into January. But bear with us, we provide you with the details here for -- as soon as we are clear on the final shipments here.
Yes. Okay. Good. And then can you provide an update regarding your strengthening of the operations in the U.S., where you're currently standing? And maybe also elaborate on potential M&A targets. I think that might be the part of -- what pillar of the strategy going forward. Is there something in the pipeline?
Well, on the U.S., as said, I think there, we are in the final stages. Now we are -- I'd say, we have done our selection process for, let's say, the one track, which is the organic track. This is setting up sales and service there, trying to complete this now also or I think we will complete it. It's not about trying, it's about completing it before Christmas. And having our own presence there for, let's say, the further support of existing customers, but then also for, I'd say, supporting new customers, sales and service there, first warehousing, nationwide distribution of fuel, et cetera. And then in parallel, we have been kicking off the process of qualifying, as also mentioned before, I discussed also with you qualifying potential targets here for a faster market entry. The role model here is Canada, where we years back acquired, I'd say, a company, a product integration, a system integration company familiar with power products and converted into a fuel cell supplier there. This is the process that is, I'd say, just kicked off. We do not intend to do this in a rush because this usually has a negative impact on pricing expectations with targets. And we are, I'd say, looking at, let's say, the first 6 months of next year to really have a good view whether we see one of the targets there being suitable. And the plan we are working on for the U.S. and also the growth rates mentioned before, this is the strict organic growth plan.
Okay. Good. Then on plug as well. Are there many projects around where they have been competing with you where you now would expect customers to potentially take the less risky road and go with you? Yes, you can elaborate on that a bit.
Yes. Again, this is in our EFOY hydrogen range here, stationary power backup, power here mostly 2.5 to 10 kilowatts. There were tenders and projects out there, also individual projects that are plug secured for them. Naturally, we are going to follow up here. And I think it is also something where the respective customers show or will show a reaction here. It is not now, let's say, main strategic focus for us, but it's a logical thing to happen and naturally a logical thing for us to pursue. And apart from this, I think overall with the development in the sector, as mentioned before, we expect, let's say, some consolidation to -- and this is not now in conjunction to plug exclusively, but I think it's a natural development that we are going to see and, therefore, assessing, again, complementary technology, products and product concepts that fit into our offering. We have been doing this now for quite some time, but I think that's now getting a totally different momentum.
Okay. Then you mentioned in your introductory -- introduction, you mentioned data center potential applications. Maybe you can remind me where you are in that application. Do you already have kind of lead projects, new customers and what might be the sales opportunities in the next 2, 3 years?
Well, on the, let's say, market penetration there, at the end, we are looking at, let's say, higher power demands in our, let's say, industrial backup power side, but also looking into, let's say, some rural power projects and defense projects in India. At the end, what is the ideal scenario, securing a launching customer within the next 6 months for -- and now you have the number out. So this is our target, to secure a launching customer for this. So not just doing the development here in-house with all our talented engineers, but then having already a customer included. And that's why we naturally start in our existing segments. And then if you look into, let's say, all what we have done now on the hospitality event side, our H2 gen set with the 10 and 20 kilowatts. This is a very good showcase. This can cover part of the power demand there. But if we look at what we have done, for example, in summer here in Wacken and other techno festivals. Yes, we are looking at 100 large diesel generators. So if you want to replace them, you need more power. And this is exactly where we are seeing the big, immediate chance here for this product platform. And as published and also laid out in the capital market -- or during the Capital Markets Day, piloting with customers really throughout '24 and then being ready here with this product really end of 2024.
Gentlemen, so far there are no more questions on the phone. I hand back to Dr. Peter Podesser for closing comments.
Thank you very much, Sandra. Again, thanks to all of you for taking the time and your interest in the developing of our business and the company. As always, we are naturally there at your disposal for the bilateral discussions, Susan, Daniel and myself. Thank you very much, and have a great day.
Thank you, everybody.
Thank you.