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SFC Energy AG Plans Capital Increase of Approx. EUR 25 Million to Fund further Growth and Increase Strategic Flexibility

By June 7, 2019 10   min read  (1937 words)

June 7, 2019 |

SFC Energy Defense Products 1

Brunnthal/Munich, Germany — SFC Energy AG (“SFC”), a leading supplier of direct-methanol-fuel-cells (“DMFCs”), intends to increase its share capital through the issuance of new shares to be issued against cash contributions from its authorized capital with subscription rights of existing shareholders and full dividend entitlements from 1 January 2019 and expects gross proceeds of approx. EUR 25 million.

  • SFC Energy AG (“SFC”) is a leading provider of stationary and portable hybrid power generating / energy solutions based on the direct methanol fuel cell (“DMFC”) technology.
  • To date SFC has sold over 40,000 fuel cells in its four core vertical markets and has successfully established a global methanol distribution network.
  • The global market for fuel cells is expected to grow with a CAGR of 20% between 2017 and 2024e[1] and provides ample attractive growth opportunities for SFC.
  • SFC intends to increase its share capital and achieve gross proceeds from the issue of approx. EUR 25 million, which it would use to accelerate organic growth in its current core vertical markets, roll out newly developed hydrogen fuel cell solutions, and finance potential strategic inorganic growth opportunities.
  • As part of the capital increase transaction, three of SFC’s largest shareholders HPE PRO Institutional Fund B.V. (HPE), Havensight Capital Ltd. (Havensight) and Conduit Ventures IIA LP (Conduit Ventures), which together hold approx. 41.7% in the SFC’s share capital, have agreed that they will waive their subscription rights and have subjected themselves, at customary conditions, to a lock-up of 180 days, consisting of (i) a so-called hard lock-up agreement for a period of 90 days, which shall not be waived by the Joint Global Coordinators; and (ii) a so-called soft lock-up agreement for a further period of 90 days which may be waived by the Joint Global Coordinators.
  • The capital increase is intended to strengthen the equity base of SFC and to increase the free float of its shares.
  • The shares will be offered for sale to qualified investors in a pre-placement process via an accelerated bookbuilding prior to the commencement of the subscription period.
  • The pre-placement and the subscription offer are currently expected to commence end of June 2019 following approval by the German Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht) of a prospectus for the subscription offer and the listing of the new shares. The exact amount of shares to be placed, the issue price, and the issue proceeds will be announced once the book building process will have been completed.

SFC combines a proven track-record with profitability and substantial growth potential
With over 40,000 fuel cells sold since its foundation, SFC is a German-based global player of DMFCs with a proven commercial track-record. Today SFC is referred to be the “clear fuel cell industry champion” for military applications and portable DMFCs.[2] This is underlined by a growing and increasingly international customer base. The Group focusses on the development and production of fuel-cell based energy solutions for customers with applications in remote regions or where off-grid power is required. In 2017, SFC reached profitability on EBITDA level and continued the positive trend from previous years. The Group markets its product portfolio to global customer base through its four business segments: Clean Energy & Mobility, Defense & Security, Oil & Gas, and Industry, and has a strong presence in Europe and Canada.

Key financials 2018 and Q1 2019 
In fiscal year 2018, SFC generated the highest consolidated sales in the company’s history with EUR 61.70 million, an increase of around 14% over the previous year’s figure of EUR 54.29 million. EBITDA underlying more than doubled in the reporting period to EUR 3.71 million (2017: EUR 1.45 million). EBIT underlying in 2018 increased to EUR 2.55 million compared to EUR 0.18 million in the previous year. This solid performance is supported by growth in all core markets. Available cash and cash equivalents amounted to EUR 7.52 million (31 December 2017: EUR 4.41 million) and the equity ratio increased to 43.3% as of 31 December 2018 (31 December 2017: 40.2%).

For the first quarter of 2019, consolidated sales amounted to EUR 16.46 million (Q1 2018: 16.76 million) with an EBITDA underlying of 1.55 million (Q1 2018: 1.82 million). Especially the Clean Energy & Mobility segment as well as the Industry segment showed robust growth and the Oil & Gas segment got off to a stronger start than expected in fiscal 2019. The Defense & Security segment has successfully broadened its customer base in the first quarter of 2019, however it did not match the high level seen in the first quarter of the prior year, which was impacted by the delivery of a major order by German Bundeswehr.

Forecast 2019 and mid-term outlook
For the current fiscal year 2019 management expects further significant sales growth with consolidated sales reaching between EUR 67 to 74 million. At the same time a further significant increase in profitability is expected for 2019 with the EBITDA underlying in the range of EUR 4.5 to 7 million and the EBIT underlying of EUR 3.5 to 6 million. The forecast has been prepared excluding the effects of the application of IFRS 16.

The Management Board expects the current growth to continue in the medium term. SFC targets to realize over EUR 100 million in sales and a continued sales growth at more than 10% annually over the next three to four years. At the same time, SFC targets to further improve profitability disproportionally and achieve an EBITDA margin underlying clearly above 10%.

Key Investment Highlights 
SFC is a leading commercial provider of methanol-based fuel cell systems, with an established market position in the global market for portable, mobile and stationary fuel cell based off-grid power solutions. SFC has reached a breakthrough in its Defense & Security segment after a decade of actively developing this market. Being the only certified fuel cell supplier to NATO forces, SFC is equipping soldiers as well as light tactical vehicles with its various fuel cell solutions. SFC also supplies its portable methanol fuel cells to military special forces, departments for homeland security, in countries all over the world. SFC considers its Defense & Security segment to have the highest growth potential within the Group.

With the conclusion of a co-development and IP-licensing agreement for hydrogen fuel cells with the back-up and emergency-power specialist adKor GmbH in November 2018, SFC has expanded its technology portfolio for hydrogen fuel cells, thus expanding the power range of its product offering of up to 100kW by the end of this year. Based on this cooperation SFC is planning to enter gradually the hydrogen fuel cell market for critical infrastructure and back-up power applications and in the long-term for e-mobility applications.

SFC is planning to benefit from the increasing growth in global fuel cell demand and from trends towards clean and sustainable energy generation. The global fuel cell market is expected to grow with a CAGR of 20% between 2017 and 2024e and nearly 50% of that is dominated by hydrogen fuel cells with power outputs of up to 100kW. Key drivers are the surge for renewable energy to reduce the environmental carbon footprint, increasing requirements for security within changing geo-political situations and increasing digitization in core markets, putting SFC into an excellent position with a substantial growth potential in coming years.

SFC benefits from the unique features of its product offering of its fuel cell solution and its hybrid principle using fuel cells together with batteries, as well as its standardized platform approach. Key product advantages are energy density of the fuel, quiet operation, light weight, low environmental impact, availability, running time and reliability. Based on the two platforms EFOY and JENNY, SFC is able to develop customer specific applications within a fairly short time. In addition, most of SFC’s products consist of standardized core components, which is in particular true for fuel cells. This enables SFC to make use of economies of scope.

As an industry pioneer, SFC has been able to successfully build a global and well-diversified portfolio of reputable and loyal customers (including governmental clients). In addition to the longstanding successful track record of in-house product development and new innovations these established customer relationships form the basis for high market entry barriers for potential competitors. The direct methanol fuel cell technology, which currently is the technological basis of all of SFC’s fuel cell products, was developed and constantly further enhanced by SFC’s own research and development team. This team was first to bring fuel cell systems out of the prototype phase to a commercial product. Based on this experience, the R&D team is currently adding the hydrogen fuel cell technology to the existing platform of SFC Group.

SFC’s growth strategy going forward is based on three pillars: (i) Acceleration of growth through internationalization, especially to the USA and Asia, and through the development of a next EFOY generation extending operation time at lower costs; (ii) Roll-out of hydrogen fuel cell solutions for various applications and further development of the hydrogen fuel cell platform; (iii) Selective inorganic growth in order to gain access to new regions and markets as well as to expand the technological know-how and expand the current business model for new services.

Details on the capital increase 
To accelerate its growth strategy and increase its strategic flexibility, SFC aims to increase its share capital and expects gross proceeds of approx. EUR 25 million. As part of the capital increase transaction, three of SFC’s largest shareholders (HPE PRO Institutional Fund B.V. (HPE), Havensight Capital Ltd. (Havensight) and Conduit Ventures IIA LP (Conduit Ventures)), which together have a shareholding of approx. 41.7% in SFC’s share capital, agreed that they will waive their subscription rights and have subjected themselves, at customary conditions, to a lock-up of 180 days, consisting of (i) a so-called hard lock-up agreement for a period of 90 days, which shall not be waived by the Joint Global Coordinators; and (ii) a so-called soft lock-up agreement for a further period of 90 days which may be waived by the Joint Global Coordinators.

The new shares will be offered for sale in a private placement to qualified investors and will, to the extent not relating to waived subscription rights from the three large shareholders, be subject to a claw-back structure. The offer price per share for the private placement as well as the subscription price will be determined on the outcome of a pre-placement process by way of an accelerated bookbuilding. The offer price and the subscription price will be identical. The exact amount of shares to be placed as well as the offer and subscription price per share will not be determined before the outcome of the bookbuilding.

The private placement to qualified investors and the subscription period are expected to commence end of June 2019 following approval by the German Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht) of a prospectus for the subscription offer and the listing of the new shares. The new shares will be admitted to trading on the regulated market segment (regulierter Markt) of the Frankfurt Stock Exchange (Frankfurter Wertpapierbörse) with simultaneous admission to the sub-segment thereof with additional post-admission obligations (Prime Standard).

SFC intends to use the proceeds of the capital increase for (i) the acceleration of growth in the current core verticals (a new generation of fuel cells coupled with geographic expansion and expansion of business with existing clients); (ii) leveraging of the existing product platform to roll-out hydrogen fuel cell applications (recent acquisition of hydrogen fuel cell technology enables immediate roll-out of higher power products and opens up vast end markets); and (iii) realizing selective acquisitions and investments to expand technological / system capabilities and add new revenue models to the business (e.g. leasing).

ABN AMRO Bank N.V. and COMMERZBANK Aktiengesellschaft are acting as Joint Global Coordinators on the Offering, B. Metzler seel. Sohn & Co. KGaA is acting as selling agent.

Final decisions on the implementation of the capital increase have not yet been made. The implementation of the capital increase is subject to the pre-placement being completed successfully.

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