SMA Solar Technology AG

We also decreased the trade receivables from 145 to 120 million euros. These working capital improvements could not fully compensate for the decrease in trade payables from a high level of 175 million euros at the end of 2019 to 144 million euros at the end of 2020. The decrease in trade payables was a result of a downgrade of our credit rating early last year, which had been triggered by concerns related to the COVID-19 pandemic. After our strong 2020 results, we expect our rating to improve in 2021, which would drive up our APs and increase our cash balance again. In the balance sheet, the most noteworthy changes in 2020 are related to the development of the networking capital positions, which I just explained, including the decrease in advanced customer payments, which is booked under other liabilities. In addition, the non-current assets increased by €30 million, mainly from finance lease assets. Total cash decreased from €18 million at the end of 2019 to €237 million at the end of 2020. The decreased balance of total cash is mainly a result of the increase in networking capital. But we're coming to the cash flow in a moment. Shareholder's equity increased from 417 million euros at the end of 2019 to 439 million euros, thereby having an increase of the equity ratio to very solid 42%. Now let's walk on to cash flow. You can see the strong positive gross cash flow, which doubled compared to 2019. Nonetheless, due to the significant increase in net working capital, the cash flow from operating activities and the adjusted free cash flow were negative. That concludes my review of the 2020 financials. Now let me briefly summarize that. First, in 2020 SMA grew its revenues again by double digits and sales exceeded 1 billion euros driven by sales growth in our home and large scale segments. EBITDA significantly increased compared to 2019, reaching 72 million euros, mainly driven by our increased revenues, as well as a net effect of approximately 50 million euros from one-timers. Without this positive effect from one-timers, SMA results were still positive, also on EBIT and net result level, and much higher than in 2019. Third, our balance sheet structure remained solid with an equity ratio of 42%, a net cash balance of 226 million euros, and a credit facility of 100 million euros. SMA's debt-to-equity ratio of 1.39 also confirms our solid financial position. I now turn to the market and competition part of the presentation, starting with a look on the global PVV installations in gigawatt. Despite the Corona crisis, the global PV market grew by 23% to 137 gigawatts in 2020. This was mainly due to strong growth in China, the US and also Vietnam, which was rather unexpected. China alone grew by more than 50%. China's carbon neutrality target by 2060 will further drive growth in the coming years. We also see a good two-digit growth for the EMEA region in the years to come, mostly driven by France, Germany, Italy, and Eastern Europe, as well as for the Americas region with some main drivers U.S., Brazil, and Chile. Australia, Japan, and India will drive further growth in the APEC region after a small dip in 2021. Overall, this will lead to an average annual growth rate of 9% for the global PV market for the mid-term. We look on the same picture in euro terms. It's a little bit different. Due to the continuing price decrease, we will see a rather flattish development here. Because of the very low prices, China has a by far lower market share in euros than in gigawatts. The region with the highest growth potential in euros over the next years is EMEA, growing from 1.4 billion euros in 2020 to 1.6 billion euros in 2023. Whereas we expect further moderate price decrease for the commercial and residential segments, the comparatively higher price pressure is expected to continue in the utility segment due to competitive tenders. As mentioned, this graph refers to the PV inverter market only. On the next slide, we see the whole market addressable by SMA. This comprises of our core business, PV inverters, the battery inverter market, and digital energy and operations and maintenance services, both in selected countries addressable by SMA. As the transition to a decentralized energy supply based on renewable energies proceeds globally, storage and digital energy services become ever more important and show the largest growth potential. SMA is very well positioned in these segments and will be able to profit from the expected growth. We estimate the annual growth rate in Euro terms for the whole market addressable by SMA until 2023 at 9%. On the next slide, we have gathered our long-term market outlook, which we have revised due to the current political developments. If we look on the period of the next 10 years, we expect the annual growth of global PV market of up to 14%. Main drivers here are digitalization and electrification of additional sectors such as heating and mobility, as well as green hydrogen. Electricity will become the main energy source in a world with growing energy consumption, and PV will become the main electricity source. It is not only cost-efficient and produced close to consumption, but also sustainable and climate-friendly. These aspects will even gain more importance over the coming years as the majority of our society around the world sees the urgent need to implement effective measures against climate change. So you see here that we have been for a very long time stick to the same long term picture, but now have concluded that this doesn't hold water any longer and that we have been very conservative and now having increased it by a large portion. In addition to the expected long-term PV market growth that I've explained, and that can still be called conservative, You can see here on this slide the global growth market for three special fields. E-vehicles on the right side, starting from very low numbers, e-vehicles will continue to replace conventionally powered vehicles over the coming years. The annual global market is expected to grow approximately tenfold. Accordingly, the market for EV charging solutions, in which SMA is active, should see an average year-on-year growth of more than 30%. In the middle, you'll see the expected growth for battery storage and hydrogen, which comes with the developments shown to the left and right. The transition to highly decentralized and renewable energy supply structures and the electrification of additional sectors. Now, let's come to the next slide. We will now give you, let's say, a few insights into what we deem to be, let's say, super interesting or important for our positioning and our short-term as well as mid-term prospects. And I would like to start with green hydrogen or power to gas. Meanwhile, it is common sense that hydrogen will play a role in decarbonizing the industry. What is not so known is that SMA started developing solutions for the power conversion into hydrogen application already five years ago. We can therefore already today leverage our technology as hardware is very much the same as in our utility scale PV applications. We can also profit from our high system knowledge and our grid integration competencies because they are needed to optimize the performance and functionality of the electrolyzer and thereby increase the economic feasibility of green hydrogen production. We have just started to tap into this new business field. Several projects with SMA solutions have already gone into operation around the world. Additional projects are currently being built. So that is not fantasy, that is already reality. What I want to show you with the following slide is how much SMA is favored by current tailwinds. Of course, you know all about the current regulatory initiatives, about the UE climate target, about the plans of the new US administration. These developments are driving the market growth that I have already described before, PV and battery market growth, as well as a start of e-mobility and green hydrogen. And the thing is that SMA has anticipated these trends and developments already a couple of years ago and has then started to position itself in all key areas from PV and storage systems, grid integration and auxiliary services to energy management and digital energy solutions. EV charging, and as just shown on the last slide, also with regard to hydrogen applications. All this together will place SMA as a major player in key areas of the global energy transition. So now let's talk about 2021, starting with current order backlog. You'll see that on the right side of the next slide. A strong order backlog, which has increased by 12% since beginning of the year. And our order backlog for products remains on a good level, with 386 million euros at the end of 2020. As per March 24th, our backlog has decreased a little bit, but we have significant orders currently in the pipeline, and we will see an increase again over the next months. As you can see on the left side of this page, our large-scale and project solutions order backlog remains very strong, and the Americas and EMEA regions continue to make up nearly 80% of our product order backlog. Putting this into context of our 2021 guidance, our current sales and product order backlog cover approximately 50% of our guided sales figures for this year, which is a good level for this early stage. This brings me to our 2021 sales and earnings guidance. For the first quarter of 21, our top line will not be on the same level as in Q1 2020. But you might recall that last year we had the largest ever project in SMA's history in our books in Q1, a significant U.S. North American large-scale project. So therefore, the comparison to the previous year is somewhat misleading. Because different than last year, this Q1, we will be profitable. The board expects Q1 21 sales in a range between 235 and 245 million euros and the EBITDA between 14 and 17 million euros. Given our strong product order backlog, especially for our large-scale segment, we expect sales and profitability to be higher in the second quarter and then again in the second half of this year. At this point in time, we see neither the COVID pandemic nor the increase of costs for raw materials as a hindrance for further growth. Therefore, the SMA Managing Board confirms its sales and profitability guidance for the whole year 21 As announced in early February, we expect revenues between €1.75 billion and €1.175 billion and an EBITDA between €75 and €95 million. Given that our business has only mildly been affected by the COVID-19 pandemic, the market continues to grow in all segments, and that we maintain a strong order backlog, we are confident to achieve our guidance again this year. profitability improvement will continue to be driven by sales growth, productivity gains, and the optimization of our product portfolio. Regarding segments, management sees profitability for 2021 rising in all three segments. That ends my presentation. Let me deviate from my script and add some more comments to Q1. because I think that this has been misinterpreted by the market, our Q1 outlook. We actually see that this is a typical Q1 quarter. The Q1 quarter is, for seasonality reasons, always a little bit lower than the other quarters of the year. And in our core market for string inverters, meaning Central Europe, We had a very strong winter in January, February, where you could actually have two to three weeks where no installations were possible. That has filled up inventory in the distributors, which now leads to lower sales in March, so that the overall expectation is a little bit above what could have happened. But that's something that happens from time to time. It has actually increased. no weight in the assessment of our full year capability. So Q1 is fair and okay and profitable. And as we expect the following quarters to become even better, our overall prospect in 2021 is really positive. That ends my presentation, my comments, and I'm now happy to answer any questions you might have.

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. Please ensure the mute function on your telephone is switched off to allow your signal to reach our equipment. If you find your question has been answered, you may remove yourself from the queue by pressing star 2. Again, please press star 1 to ask a question. We'll take our first question from Jeff Osborne from Cohen Company. Please go ahead.

Yeah, good morning, Ulrich. A couple questions on my end. Just to clarify on the Q1 and seasonality, are you seeing any slowdown in projects just due to module price inflation? It seems like everything in the value chain for solar is going up as well as interest rates. And so I was just curious if you're seeing any pushouts or if it's just seasonality as you referenced.