SFC Energy AG — Earnings Release 2013

Jul 31, 2013

SFC Energy AG

Recommendation: BUY(BUY)

Risk: HIGH (HIGH) Price Target: EUR 7.50 (7.50)

Guidance confirmed in spite of weak 2Q

• Massive project delays in the Defense & Security and Industry sectors spoiled SFC's performance in 1H 2013. Group sales reached only EUR 6.2m in 2Q, representing a YOY decline of 15.9% in 2Q and 9.2% in 1H 2013, respectively. The lack of economies of scale due to lower sales and a change in the product mix both resulted in a gross margin of only 35.6% in 2Q (PY: 41.6%) as well as deteriorated EBITDA and EBIT figures (see page 2 for detailed quarterly and segment figures).
• Sales in the Industry segment showed a YOY decline of 18.0% in 2Q. The sales contribution of SFC (excluding PBF) to the Industry segment dropped by 47% in 2Q, reaching EUR 1.0m compared to EUR 1.8m in 2Q 2012. Unlike in the previous year, there was not another large traffic management project for SFC in 1H 2013. Due to lower order volumes from two major customers, PBF's sales contribution to the Industry segment also decreased by 2.8% YOY to EUR 3.4m in 2Q 2013, while total sales of PBF showed a smaller decline of 0.6% to EUR 3.5m. Sales in the Defense & Security segment collapsed by 26.1% in 2Q and even 43.2% in 1H 2013, respectively. This was mainly due to delays in contract awards due to the budget cuts (sequester) required by law in the U.S. and postponements in connection with reforms in Germany. JDA sales accounted for 42% of sales in 1H 2013 compared to only 11.7% in 2Q 2012. The Consumer segment developed at a relatively stable level and thus according to SFC's original forecast, with sales growth of 1.8% in 2Q and -3.5% in 1H 2013. In view of partially significant declines in the market for caravaning and marine accessories, this is a very positive result.
• From today's view, the management expects budget decisions from defense organisations in 2H 2013, and particularly by year end, which should make up for part of the above mentioned delays. The guidance was confirmed. On the back of sales between EUR 38m and EUR 43m, underlying EBITDA are expected to improve in line with sales growth in FY 2013. On basis of an underlying EBITDA margin of 2.7% in 2012, this would result in underlying EBITDA of EUR 1.0m to 1.1m in FY 2013. We nevertheless stick to our estimate of EUR 0.4m for the time being, and also leave all other estimates unchanged until SFC's earnings guidance will be updated after the closing of the Simark acquisition and the purchase price allocation. We maintain a price target of EUR 7.50 and our BUY recommendation.

Y/E 31 Dec, EURm	2011	2012	2013E	2014E	2015E
Sales revenues	15.4	31.3	39.5	58.7	64.7
Underlying EBITDA	-2.7	0.8	0.4	4.8	6.1
EBITDA	-4.6	0.7	-1.5	3.5	4.9
EBIT	-6.6	-0.5	-3.5	1.0	2.6
Net income/loss	-6.2	-0.4	-3.9	0.4	1.9
EPS	-0.87	-0.06	-0.50	0.05	0.24
Underl. EBITDA margin	-17.4%	2.7%	1.1%	8.1%	9.4%
EBITDA margin	-30.1%	2.3%	-3.7%	6.0%	7.5%
EBIT margin	-42.9%	-1.7%	-9.0%	1.6%	4.0%
EV/EBITDA*	neg.	20.7	neg.	10.6	7.4
EV/EBIT*	neg.	neg.	neg.	38.9	7.7
Source: SFC Energy AG; CBS Research AG		*EV 2013E-2015E: after capital increase

30 July 2013

Source: CBS Research AG, Bloomberg, SFC Energy AG

Change	2013E		2014E		2015E
	new	old	new	old	new	old
Sales	-	39.5	-	58.7	-	64.7
EBITDA	-	-1.5	-	3.5	-	4.9
EPS		- -0.50	-	0.05	-	0.24
Internet: www.sfc.com WKN: 756857 Reuters: F3CG.DE					Sector: Alternative energy ISIN: DE0007568578 Bloomberg: F3C GY

Short company profile:

SFC Energy AG is a market leader for off grid and stationary power generation and distribution. The Company has established fully commercialized fuel cells in the Consumer, Industry, and Defense & Security sectors and furthermore develops, produces and globally distributes higher level power management components. The products increasingly are delivered as customised power supply system solutions.

Share data: Share price (EUR, last closing price): Shares outstanding (m): Market capitalisation (EUR m): Enterprise value (EUR m): Ø daily trading volume (6 m., no. of shares):		4.978 7.5 37.3 19.9 4,777
Performance data: High 52 weeks (EUR): Low 52 weeks (EUR): Absolute performance (12 months): Relative performance vs. CDAX: 1 month 3 months 6 months 12 months		6.95 4.30 -28.4% -5.1% -9.5% -26.5% -42.0%
Shareholders: HPE Conduit Ventures Havensight Previous owners of PBF (lock-up agreement) Management and Supervisory Board DWS Other free float		25.70% 10.15% 10.22% 4.66% 2.14% 4.92% 42.21%
Financial calendar: 3Q 2013 report:		6 November 2013
Author: Close Brothers Seydler Research AG Phone: Email:	Martin Decot (Analyst) +49 (0) 69-977 84 56 0 research@cbseydlerresearch.ag www.cbseydlerresearch.ag

Please notice the information on the preparation of this document, the disclaimer, the advice regarding possible conflicts of interests, and the mandatory information required by § 34b WpHG (Securities Trading Law) at the end of this document. This financial analysis in accordance with § 34b WpHG is exclusively intended for distribution to individuals that buy or sell financial instruments at their own account or at the account of others in connection with their trading activities, occupation, or employment.

Appendix

Key figures with YOY comparison

IFRS EURm		2Q 2013 2Q 2012	Change	1H 2013	1H 2012	Change
Total sales YOY grow th	6.24 -15.9%	7.41 82.8%	-15.9%	13.58 -9.2%	14.97 92.5%	-9.2%
Industry as % of total sales	4.39 70.3%	5.35 72.2%	-18.0%	9.39 69.1%	9.66 64.5%	-2.8%
Defense & Security as % of total sales	0.66 10.6%	0.90 12.1%	-26.1%	1.33 9.8%	2.34 15.6%	-43.2%
Consumer as % of total sales	1.19 19.0%	1.17 15.7%	1.8%	2.86 21.1%	2.97 19.8%	-3.5%
Gross profit as % of sales	2.22 35.6%	3.08 41.6%	-28.0%	5.10 37.5%	6.15 41.1%	-17.0%
Gross profit - Industry as % of segment sales	1.54 35.1%	2.16 40.4%	-28.9%	3.50 37.2%	3.74 38.7%	-6.6%
Gross profit - Defense & Security as % of segment sales	0.28 41.9%	0.52 57.7%	-46.3%	0.58 43.6%	1.29 54.9%	-55.0%
Gross profit - Consumer as % of segment sales	0.40 34.0%	0.40 34.5%	0.5%	1.03 35.8%	1.12 37.7%	-8.4%
EBITDA as % of sales	-1.07 -17.1%	0.29 3.9%	-464.0%	-0.77 -5.7%	0.48 3.2%	-261.3%
EBITDA - Industry as % of segment sales	-0.54 -12.4%	0.52 9.6%	-205.3%	-0.16 -1.7%	0.48 5.0%	-133.8%
EBITDA - Defense & Security as % of segment sales	-0.49 -74.0%	-0.14 -15.7%	n/m	-0.77 -57.9%	-0.13 -5.7%	n/m
EBITDA - Consumer as % of segment sales	-0.03 -2.7%	-0.08 -7.0%	n/m	0.16 5.6%	0.13 4.4%	21.9%
Adjusted EBITDA as % of sales	-0.81 -12.9%	0.32 4.4%	-349.7%	-0.69 -5.1%	0.51 3.4%	-236.0%
EBIT as % of sales	-1.54 -24.7%	-0.15 -2.1%	n/m	-1.73 -12.7%	0.16 1.1%	-11.57
Adjusted EBIT as % of sales	-1.28 -20.6%	-0.12 -1.7%	n/m	-1.65 -12.1%	-0.34 -2.3%	n/m
Net income after minorities as % of sales	-1.55 -24.9%	-0.15 -2.0%	n/m	-1.76 -13.0%	0.19 1.3%	-1031%
Basic earnings per share (EUR)	-0.21	-0.02	n/m	-0.23	0.03	-1031%
Cash flow from operating activities	-1.25	-1.58	n/m	-4.69	-2.18	n/m
Free cash flow (incl. interest received)	-1.65	-1.70	n/m	-5.07	-2.44	n/m

Source: SFC Energy AG, CBS Research AG

Order situation:

Order intake fell from EUR 18.9m in 1H 2012 to EUR 9.7m, and the Book-to-Bill ratio dropped from 1.3 in 1H 2012 to 0.7 in 1H 2013. This was due to the fact that the previous year's order intake included the major order by the German Bundeswehr for SFC energy networks in the amount of almost EUR 5m. The order backlog at 30 June 2013 amounted to EUR 5.6m (30 June 2012: EUR 11.0m).

Profit and loss account

IFRS EURm	2010	2011	2012	2013E	2014E	2015E
Sales	13.33	15.43	31.26	39.48	58.67	64.69
YoY grow th	14.1%	15.7%	102.6%	26.3%	48.6%	10.3%
Cost of sales	-9.29	-10.06	-18.50	-23.90	-36.32	-39.69
as % of sales	-69.7%	-65.2%	-59.2%	-60.5%	-61.9%	-61.4%
Gross profit as % of sales	4.04 30.3%	5.37 34.8%	12.76 40.8%	15.59 39.5%	22.36 38.1%	25.00 38.6%
Research and development expenses as % of sales	-1.89 -14.2%	-2.54 -16.4%	-4.26 -13.6%	-4.97 -12.6%	-6.45 -11.0%	-6.66 -10.3%
Selling expenses	-4.75	-4.90	-5.86	-6.92	-8.98	-9.57
as % of sales	-35.6%	-31.7%	-18.8%	-17.5%	-15.3%	-14.8%
General and administrative expenses	-2.05	-2.68	-3.55	-4.30	-5.10	-5.34
as % of sales	-15.4%	-17.4%	-11.4%	-10.9%	-8.7%	-8.3%
Other operating income	0.23	0.20	0.75	0.67	0.90	1.01
as % of sales	1.7%	1.3%	2.4%	1.7%	1.5%	1.6%
Other operating expenses	-0.09	-2.07	-0.36	-3.60	-1.76	-1.83
as % of sales	-0.6%	-13.4%	-1.2%	-9.1%	-3.0%	-2.8%
EBIT	-4.51	-6.61	-0.52	-3.54	0.96	2.60
as % of sales	-33.8%	-42.9%	-1.7%	-9.0%	1.6%	4.0%
Net financial result	0.39	0.39	0.08	-0.07	-0.20	-0.22
EBT (Earnings before income taxes)	-4.12	-6.22	-0.44	-3.60	0.76	2.38
as % of sales	-30.9%	-40.4%	-1.4%	-9.1%	1.3%	3.7%
Income taxes	0.00	0.01	0.02	-0.26	-0.34	-0.45
as % of EBT	0.0%	-0.1%	-4.3%	7.2%	-44.0%	-18.9%
Income from continuing operations	-4.12	-6.22	-0.43	-3.86	0.43	1.93
Income from discontinued operations, net of taxes	0.00	0.00	0.00	0.00	0.00	0.00
Group net income including minorities	-4.12	-6.22	-0.43	-3.86	0.43	1.93
as % of sales	-30.9%	-40.3%	-1.4%	-9.8%	0.7%	3.0%
Minority interests	0.00	0.00	0.00	0.00	0.00	0.00
Net income attributable to shareholders	-4.12	-6.22	-0.43	-3.86	0.43	1.93
Shares outstanding (m)	7.15	7.16	7.50	7.68	8.02	8.02
Basic earnings per share (EUR)	-0.58	-0.87	-0.06	-0.50	0.05	0.24
EBITDA	-3.49	-4.64	0.73	-1.45	3.53	4.86
as % of sales	-26.2%	-30.1%	2.3%	-3.7%	6.0%	7.5%
EBITA	-3.89	-5.15	0.07	-2.15	2.70	3.93
as % of sales	-29.2%	-33.4%	0.2%	-5.4%	4.6%	6.1%

Source: CBS Research AG, SFC Energy AG

Balance sheet

IFRS EURm	2010	2011	2012	2013E	2014E	2015E
Assets
Current assets as % of total assets	40.17 86.7%	33.93 68.5%	33.60 70.6%	29.17 53.4%	31.88 56.9%	35.90 61.0%
Inventories and prepayments	1.94	4.91	5.81	6.06	9.92	10.87
Trade accounts receivable	2.71	4.47	3.70	8.53	11.25	12.41
Other assets incl. tax and PoC receivables	1.39	1.82	1.18	3.33	4.37	4.93
Cash and cash equivalents	33.56	22.44	22.63	11.15	6.24	7.60
Cash and cash equival. with limitation on disposal	0.57	0.29	0.29	0.10	0.10	0.10
Noncurrent assets as % of total assets	6.15 13.3%	15.61 31.5%	14.02 29.4%	25.49 46.6%	24.17 43.1%	22.95 39.0%
Intangible assets excl. goodwill	2.95	4.89	4.86	9.02	8.04	7.46
Goodwill	0.00	6.14	6.14	11.97	11.97	11.97
Property, plant and equipment	2.34	2.75	2.40	3.73	3.37	2.91
Other non-current assets	0.07	0.05	0.00	0.14	0.16	0.19
Deferred taxes	0.80	1.77	0.62	0.62	0.62	0.42
Total assets	46.31	49.54	47.62	54.66	56.05	58.85
Shareholders´ equity and liabilities
Current liabilities as % of total equity and liabilities	3.18 6.9%	7.49 15.1%	7.66 16.1%	8.28 15.1%	12.73 22.7%	13.57 23.1%
Provisions	0.55	1.58	1.00	1.22	1.82	1.94
Advance payments received	0.00	0.20	0.01	0.25	0.25	0.28
Trade accounts payable	1.38	3.17	3.03	2.57	5.81	6.35
Financial debt	0.00	0.56	0.37	0.73	0.73	0.73
Other liabilities	1.24	1.98	3.24	3.50	4.12	4.27
Noncurrent liabilities	1.41	5.26	3.56	11.06	7.56	7.60
as % of total equity and liabilities	3.1%	10.6%	7.5%	20.2%	13.5%	12.9%
Other noncurrent provisions	0.50	1.41	1.39	1.53	1.59	1.60
Financial debt	0.00	0.20	0.00	3.06	3.06	3.06
Other noncurrent liabilities	0.12	1.46	1.04	5.34	1.78	1.81
Deferred tax liabilities	0.80	2.19	1.13	1.13	1.13	1.13
Shareholders´ equity as % of total equity and liabilities	41.72 90.1%	36.79 74.3%	36.39 76.4%	35.32 64.6%	35.75 63.8%	37.68 64.0%
Subscribed capital	7.15	7.50	7.50	8.02	8.02	8.02
Capital reserve	66.88	67.88	67.88	70.15	70.15	70.15
Other changes in equity not effecting profit or loss	0.00	-0.07	-0.04	-0.04	-0.04	-0.04
Accumulated loss brought forward	-28.18	-32.31	-38.53	-38.95	-42.81	-42.38
Net result of the year	-4.12	-6.22	-0.43	-3.86	0.43	1.93
Total equity and liabilities	46.31	49.54	47.62	54.66	56.05	58.85

Source: CBS Research AG, SFC Energy AG

Cash flow statement

IFRS EURm	2010	2011	2012	2013E	2014E	2015E
Income/loss before interest and taxes	-4.51	-6.61	-0.52	-3.54	0.96	2.60
Amortisation of intangible assets incl. assets from PPA	0.62	1.46	0.59	1.39	1.74	1.33
Depreciation of PP&E	0.40	0.51	0.66	0.70	0.83	0.93
Other expenses / income with no effect on liquidity	-0.11	0.25	0.45	-0.34	-0.45	-0.50
Increase/decrease in inventories, trade receivables, and other assets	-1.01	-0.99	0.45	1.80	-7.19	-2.19
Increase/decrease in trade accounts payable and other liabilities	-0.13	1.10	-0.37	-1.75	2.83	2.10
Cash taxes paid	0.11	-0.03	-0.01	-0.26	-0.34	-0.25
Cash flow from operating activities	-4.64	-4.32	1.26	-2.00	-1.61	4.02
Net cash outflows from the purchase and
retirement of noncurrent assets	-2.22	-1.13	-0.88	-0.98	-1.22	-1.22
Bank balances released/pledged	-0.52	0.29	0.00	0.19	0.00	0.00
Interests received	0.39	0.43	0.22	0.10	0.10	0.09
Purchase of consolidated companies	0.00	-6.00	0.00	-12.03	-1.87	-1.23
Cash flow from investing activities	-2.35	-6.42	-0.66	-12.72	-2.99	-2.37
Net cash inflow from capital stock increases
deducting expenses	0.00	-0.05	0.00	0.00	0.00	0.00
Net cash flow from financial debt incl. leasing	0.00	-0.35	-0.39	3.41	0.00	0.00
Interests paid	0.00	0.00	-0.03	-0.17	-0.30	-0.30
Cash flow from financing activities	0.00	-0.40	-0.42	3.25	-0.30	-0.30
Total change in cash and cash equivalents	-6.98	-11.14	0.18	-11.48	-4.90	1.35
Currency effects on cash and cash equivalents	0.00	0.01	0.00	0.00	0.00	0.00
Cash and cash equiv. at the start of the period	40.54	33.56	22.44	22.63	11.15	6.24
Cash and cash equiv. at the end of the period	33.56	22.44	22.63	11.15	6.24	7.60

Source: CBS Research AG, SFC Energy AG

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Recommendation System:

Close Brothers Seydler Research AG uses a 3-level absolute share rating system. The ratings pertain to a time horizon of up to 12 months:

BUY: The expected performance of the share price is above +10%. HOLD: The expected performance of the share price is between 0% and +10%. SELL: The expected performance of the share price is below 0%.

Recommendation history over the last 12 months for the company analysed in this report:

Date	Recommendation	Price at change date	Price Target
30 July 2013	BUY	EUR 4.978	EUR 7.50
9 July 2013	BUY	EUR 4.421	EUR 7.50
6 May 2013	BUY	EUR 5.05	EUR 7.50
26 March 2013	BUY	EUR 5.45	EUR 7.50
29 January 2013	BUY	EUR 6.05	EUR 7.50
31 October 2012	BUY	EUR 6.163	EUR 7.50
1 August 2012	BUY	EUR 6.78	EUR 7.50

Risk-scaling System:

Close Brothers Seydler Research AG uses a 3-level risk-scaling system. The ratings pertain to a time horizon of up to 12 months:

LOW: The volatility is expected to be lower than the volatility of the benchmark MEDIUM: The volatility is expected to be equal to the volatility of the benchmark HIGH: The volatility is expected to be higher than the volatility of the benchmark

The following valuation methods are used when valuing companies: Multiplier models (price/earnings, price/cash flow, price/book value, EV/Sales, EV/EBIT, EV/EBITA, EV/EBITDA), peer group comparisons, historical valuation approaches, discounting models (DCF, DDM), break-up value approaches or asset valuation approaches. The valuation models are dependent upon macroeconomic measures such as interest, currencies, raw materials and assumptions concerning the economy. In addition, market moods influence the valuation of companies. The figures taken from the income statement, the cash flow statement and the balance sheet upon which the evaluation of companies is based are estimates referring to given dates and therefore subject to risks. These may change at any time without prior notice.

The opinions and forecasts contained in this report are those of the author alone. Material sources of information for preparing this report are publications in domestic and foreign media such as information services (including but not limited to Reuters, VWD, Bloomberg, DPA-AFX), business press (including but not limited to Börsenzeitung, Handelsblatt, Frankfurter Allgemeine Zeitung, Financial Times), professional publications, published statistics, rating agencies as well as publications of the analysed issuers. Furthermore, discussions were held with the management for the purpose of preparing the analysis. Potentially parts of the analysis have been provided to the issuer prior to going to press; no significant changes were made afterwards, however. Any information in this report is based on data considered to be reliable, but no representations or guarantees are made by the author with regard to the accuracy or completeness of the data. The opinions and estimates contained herein constitute our best judgment at this date and time, and are subject to change without notice. Possible errors or incompleteness of the information do not constitute grounds for liability, neither with regard to indirect nor to direct or consequential damages. The views presented on the covered company accurately reflect the personal views of the author. All employees of the author's company who are involved with the preparation and/or the offering of financial analyzes are subject to internal compliance regulations.

The report is for information purposes, it is not intended to be and should not be construed as a recommendation, offer or solicitation to acquire, or dispose of, any of the securities mentioned in this report. Any reference to past performance should not be taken as indication of future performance. The author does not accept any liability whatsoever for any direct or consequential loss arising from any use of material contained in this report. The report is confidential and it is submitted to selected recipients only. The report is prepared for professional investors only and it is not intended for private investors. Consequently, it should not be distributed to any such persons. Also, the report may be communicated electronically before physical copies are available. It may not be reproduced (in whole or in part) to any other investment firm or any other individual person without the prior written approval from the author. The author is not registered in the United Kingdom nor with any U.S. regulatory body.

It has not been determined in advance whether and in what intervals this report will be updated. Unless otherwise stated current prices refer to the closing price of the previous trading day. Any reference to past performance should not be taken as indication of future performance. The author maintains the right to change his opinions without notice, i.e. the opinions given reflect the author's judgment on the date of this report.

This analysis is intended to provide information to assist institutional investors in making their own investment decisions, not to provide investment advice to any specific investor.

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