Our forecasts are based on discussions with ROTH2’s management, particularly with regard to the company’s new business areas (hydrogen, natural gas, trading). As regards the historical activities (accumulator shells and diving cylinders), the assumptions are based on a rebound in activity from 2022 onwards after the air gap caused by the COVID-19 pandemic, and lead to more moderate growth in volumes, as these are by definition more mature activities. It should be noted that the Group’s main historical customer (Parker Hannifin) will see its contribution to the total business diluted (from c. 37% in 2020 to less than 5% in 2025), thus reducing the risk for ROTH2.
These forecasts run from 2022 to 2025, because of the lower visibility beyond this date, and because the company will have reached “cruising speed” on its new activities. Given the growth of the markets in which the company is and will be present, as well as its relatively modest size, this does not mean that it will not be able to achieve significant growth rates beyond this horizon, which we have nevertheless chosen to limit for reasons of caution. In the end, under these assumptions, the company would market around 74,000 cylinders by 2025, a figure in line with the maximum capacity of 60,000 currently possible and the investments to be made between now and then (see “Activities and trends”).
Indeed, the ramp-up of ROTH2’s activities will be based on significant investments in the period 2022-25 aimed at renovating, developing and calibrating the industrial tool for new production and continued growth in the historical businesses. Around €5m will be invested in 2022 and 2023 alone (for the renovation of the factory, shot blasting, forging, machining, etc.), then approximately €1.5m annually over the projection period.
As far as margins are concerned, we have chosen to remain cautious, considering that the company will maintain its current levels of gross margin per product, and that the margin rates for the new activities will be close to those achieved in the historical businesses (except for the trading activity, which is “by definition” lower margin). Thus, gross margin rates will be between 20% (trading) and 55% (traditional shell business).
External expenses will increase according to the fixed/variable breakdown observed in 2020/21, the variable part being of course correlated to the level of activity of the company and therefore experiencing a substantial increase over the projection period (representing approximately 6% of turnover). Personnel costs will also increase sharply (by around 50% annually), even though the company is already calibrated to ensure a production level well above the current one, bearing in mind that recruitment (sales, design office, etc.) is planned. The company’s objective is to be able to provide short-term solutions for integrators, including customised racks, to create innovative projects (e.g. mobile charging stations for drones), to develop transportable solutions for gas logistics (type II cylinders, containerised racks, etc.), to calculate and optimise the performance of storage solutions, etc.
The financing needs of the current activity, i.e. the need for working capital, is considered to be proportional to the activity, which is certainly a prudent view since it can be considered that ROTH2’s bargaining power with its customers and suppliers should increase as the activity develops.
In the end, our forecasts lead to the marketing, by 2025, of c.75,000 cylinders, all categories combined, for which the company should achieve an average gross margin of 43%, leading to a net profit of €16.4m.
Risk Factors
With regard to new markets for ROTH2, a certain number of risks seem to us to need to be highlighted, and this in a non-exhaustive manner:
- The markets in which the company proposes to operate are emerging markets, for which there is no indisputable proof that they will grow as quickly or as strongly as expected. In particular, the “time constraint” could shift the company’s objectives.
- The company is relatively new (and not yet significantly active) in the hydrogen markets, only partially benefitting from its reputation in its historical markets.
- The company is currently only present in type I tanks, which are a priori the most suitable for storage in stations (ground storage), but its offer is, in fact, limited for the moment.
- A significant and lasting drop in the price of fossil fuels could reduce the pace of development of the “hydrogen ecosystem”.
- Risks related to the evolution of public policies concerning the development of hydrogen use may weigh on the future growth of ROTH2.
- The company’s ability to retain the qualified personnel essential to the continuation and development of its activities is difficult to assess.
- The group could encounter difficulties in managing the strong growth expected in its activities, particularly from a financial, industrial, technological or human point of view.
- Competing solutions that are more efficient and/or more profitable than hydrogen storage cylinders could appear.
- Risks concerning the safety of ROTH2 storage solutions and related regulations could affect the business.
- Risks related to the evolution of the competitive environment, for a company that is still small and will remain so in the short term, cannot be disregarded.
- Risks related to the company’s supplies. These risks remain limited given the nature of ROTH2’s external purchases but cannot be ignored.
- Risks related to the financing of the business. If one or more of the risks described here were to materialise, the company could be forced to call on external financing, the obtaining of which is not guaranteed.
