Sma Solar Technology Ag

Welcome, everyone. We very much appreciate that you are taking the time for this investor and analyst call on the H1 2022 results. You can find today's presentation on our investor relations website, ir.sma.de. This conference call is scheduled for 60 minutes and will be recorded. The replay will be available for seven working days. After the presentation, I will be happy to answer any questions you might have. Before we dive into the figures of the first half of this year, I would like to start with a personal introduction. This is the first conference call that I run as CFO of SMA. I was appointed to this role on June the 1st and will remain in it until our new CFO, Barbara Greger, steps in on December the 1st. You might think that this is a difficult time to step into the role of entering CFO at SMA, but I have a slightly different view. Bear with me while I briefly explain why. I will be honest with you. The figures could, of course, look better, and you will see what I mean in a minute. But if we take a closer look, the picture changes, in my view. Yes, the material supply shortages remain the challenge, and there are disruptions in the supply chain and other factors that continue to have a negative impact on the business. But we see an unprecedented political support for renewable energies in all our markets. The war in Ukraine But the global pandemic has shed the spotlight on the vulnerability of our supply chain and the huge dependency of the solar industry on components from China and Taiwan. The most recent developments in Taiwan have further accelerated the sense of urgency. In addition to the political climate, we see a continuous rise in orders. Solar power is not only a political choice, but also a choice that many customers make every day for their homes, their business, and their large-scale projects. It feels like the perfect storm and now we need to set sail. And we did. We adapted our business strategy to increase our focus on our customers and markets. We are continuously implementing measures to improve our operational excellence. And we are working relentlessly to secure the materials needed for our business. Given this and the strong commitment of the entire organization, I strongly believe we will come out of this storm even better. And now back to the H1 figures. I will start with a review of the financials of the first half year of 2022, then give you an update on current developments and on our expectations for the full year. I expect my presentation to last approximately 20 minutes. So as announced at our Capital Markets Day in May, the first half of 2022 and Q2 did not develop as well as last year, as our ability to convert the high level of market demand and customer orders to revenues was significantly impacted by global supply constraints. Our total revenues were a bit below last year's level and profitability declined due to underutilization effects, which also resulted from the supply shortages. These effects explain also the lower gross margins in H1 of this year. I will provide you with more details on our H1 financials in the next slides, so let me now point your attention to the table in the bottom right corner of the slide. As you can see, our Q2 sales were more than 10% higher than Q1, with all three segments above Q1. This is mainly driven by the strong uptake in demand and slight improvements in the supply situation last quarter. As already mentioned, our profitability in the second quarter suffered heavily from the underutilization effects and a higher portion of trading goods sold. Now let's please turn to the next slide, and I will provide you with insights regarding our sales performance. As explained, the year-on-year decline in sales was primarily due to the strained supply situation for electronic components, mainly semiconductors, which has been affecting our business since the middle of last year. All segments were affected by this, and as such, our total net sales slightly declined by 3% compared to H1 last year. Looking at the regions, EMEA continues to be our largest region in terms of revenues in H1, with 278 million euros, which represents 57% of SMA's global sales. In EMEA, our large-scale and project solution segment achieved strong double-digit growth Our CNI segment had low double-digit growth, and our home solutions sales declined compared to H1 last year. Revenues in Americas declined in H1, mainly as a result of project shifts in the US due to uncertainties, and the module supply situation after the Biden administration announced anti-dumping investigations early in the year. The anti-dumping duties were then suspended for a two-year period in June, and since then, our large-scale project pipeline in the US has gained strong traction. However, given the longer lead times in this business, only a very small part will be converted to sales within this year. With 130 million euros of revenues, the Americas region represents 27 of our H1 sales. Our large-scale segment makes up the majority of our sales in this region, with nearly 80% of total revenues in H1 this year. With 79 million euros of revenues, the APEC region represented 16% of our sales in the first half year. In this region, our large-scale business achieved strong double-digit growth compared to H1 last year. Now let me briefly walk you through the sales per segment on the right side of this slide. Our whole solution segment continues to be impacted by material shortages. As a result of this, revenues in the first half of 2022 declined by 8% compared to H1 last year, with 136 million euros of sales. However, boosted by the launch of our new product, the SDP Smart Energy, at the beginning of this year, order intake has been approximately three times higher than our average sales in H1, and puts us in a position to achieve strong growth, but the supply situation gradually improves. EMEA has been the major contributor for revenues and incoming orders for whole solutions in the first half year. Our commercial and industrial solution segment also continues to be affected by material shortages, and despite very strong demand for our products, confirmed by incoming orders, which were twice as high as revenues in age one, Revenues only slightly grew by 2% in H1 to €118 million of sales. Similar to home solutions, the EMEA region is by far the largest in terms of revenues and order intake for our CNR business. Finally, our large-scale and project solution segments slightly declined compared to H1 last year due to projects shifted back in the US, as already explained. The sales in this segment amount to 280 million euros and declined slightly by 3% compared to H1 last year. As mentioned, revenues and order intake in the US, which is the biggest market for our large-scale business, was weak in H1 this year, but our project pipeline is quickly gaining momentum over the last few weeks, and this will position the segment for strong revenues later this year and in 2023. The H1 sales decline in the Americas region was partially offset by double-digit sales growth in our large-scale business in APEC and EMEA. Now let me explain to you how our profitability developed in the first half of this year. In H1, SMA generated an EBITDA of €60 million, which translates to an EBITDA margin of 3%. The EBITDA was significantly down compared to H1 last year, mainly because of the lower level of sales and effects from the underutilization of our production capacities. H1 2022 profitability included the positive one-off effect in our large-scale segment of approximately 5 million euros in Q1, which was explained in the last analyst call and was related to a compensation for a late customer cancellation. Our depreciation was slightly lower than in H1 last year as a result of the lower level of investments in fixed assets over the last years. Now let's have a look at the segment in detail. Home solutions. So mainly due to the decline in sales, the underutilization effect as well as the less favorable product mix, EBIT in home solutions fell below the strong result in H1 last year. However, with an EBIT of 70 million euros, the segment still delivered a solid return on sales of 13% EBIT margin. The CNI solution segment continued to fall short of break-even as a result of lower than planned sales volumes and defects from the underutilization of production capacities. After achieving a slightly positive result in our large-scale and project solution segment in Q1, which benefited from the one-time income from a project cancellation as already explained, Q2 profitability was negative. The poor Q2 result for the segment was due to low utilization and production and low single-digit million negative effect from the adjustment of warranty provisions in June as a result of the regular half-yearly re-evaluation of warranty provisions for products already sold. Now I will move on to the balance sheet and networking capital on the next slide. At the end of H1, our networking capital balance increased to 278 million euros, which represented a high networking capital ratio of 29%. The increase compared to end of 2021 is mainly due to the ongoing buildup of inventories to mitigate effects from the supply constraints as much as possible. As a result, we increased our inventories by 60 million euros in the first half of this year. In H1, our trade receivables slightly increased to a balance of 145 million euros, which represents a slightly higher DSO ratio than we targeted, but this can be explained by the high amount of sales achieved at the end of June. Trade payables of 128 million Euros at the end of H1 decreased by 6 million euros since the end of last year. Advanced payments from our customers, which are reflected in our balance sheet and the other liabilities, increased from 24 million euros at the end of 2021 to 28 million euros per end of H1 and are related to our pipeline of large-scale projects. The increase in net working capital was just explained in combination with a payment related to the early exit of our onerous O&M contract, and our negative results in the second quarter led to a decrease of our net cash position to 176 million euros at the end of H1. Let's now turn to our cash profile on the next slide. In H1, SMA generated a negative gross cash flow resulting from our negative operating results in the first half of this year. In addition, we invested liquidity into building up raw material stocks, as explained earlier, and as such, our cash flow from operating activities, as well as our adjusted free cash flow, were negative in H1. Improving the free cash flow is our highest priority in the second half of this year. Now let me summarize what we have seen so far. The demand for our products and solutions in the market is high. In the first half of this year, we have seen the highest order intake over the last 10 years. There were no significant customer order cancellations until now, confirming that our high order backlog is robust. Like the whole industry, we are facing an ongoing shortage of electronic components, and this causes longer lead times for order fulfillment and sales achievement. We are, however, confident to be able to fulfill the high order backlog within the next 12 months. Our profitability was impacted by the lower level of sales due to the above-mentioned ongoing supply constraints, as well as underutilization in production and increasing purchasing prices, which we could not fully pass on to our customers. Also, we do see substantial increases in material, labor, and logistic costs. Given the strong market and order situation, revenues and profitability will certainly improve as the supply situation gradually improves. Despite the decrease of net cash, we continue to have sufficient liquidity to finance our operations, and we are implementing measures to further improve our cash position. Finally, SMA's equity ratio remains robust and confirms our financial stability. This concludes the detailed review of our H1 2021 financials. Now let me briefly provide you with some insights on the current developments. We currently see that all manufacturers in Europe continue to be negatively affected by the global shortage of electronic components. Of course, SMA is no exception to this. In addition, the war in Ukraine and lockdowns like in China are strongly disrupting the global supply An end of the war in Ukraine, as well as the global pandemic, is currently not in sight. And finally, we have seen many larger projects being postponed in H1 because the market is facing limited availability of solar modules and high prices. At the same time, let's come back to the perfect storm I described in the introduction. Because the situation is not as gloomy as one might think, the demand for our products and solutions is higher than ever. One of the reasons for this is an additional political push regarding renewable energies, which we have seen as a result of the war in Ukraine. This is true for many countries, especially in Europe once, but most recently also in the US. To be able to meet this demand, we must secure the needed electronic components. And here we see that the tight supply situation should start to improve in the second half of this year. So what actions have we taken from our side to be ready to make use of the circumstances? Or in other words, what have we done to set sail in this storm? We have initiated several measures to increase our ability to deliver according to the high demand we see in the market. We are tightening the collaboration with key component suppliers further, which currently results in the realization of even more long-term supply agreements. Where we see additional needs, we secure components at the spot market. And we also have already started to redesign products to be able to substitute scarce components as much as possible. These measures are the main reason we are confident that the supply situation will start to improve in the second half of this year. In addition to this, we will continue to launch new products and solutions to gain market shares and improve profitability. And of course, We in the management team keep a very close track of cutting operational and capital expenditures even further in 2022 to protect liquidity and improve profitability. Let's have a look at the order backlog on the next slide. Our order backlog for products increased significantly to 861 million euros at the end of H1. This reflects the high demand for SMA's products, as I explained earlier. The product order backlog for our home solutions and C&I segments has even increased by triple digits in the first half of this year. SMA's order backlog more than secures the 2022 sales guidance, but due to the ongoing supply challenges, the management board expects that nearly half of the current product order backlog will only be realized as revenue in 2023. Nevertheless, we remain very confident that our top-line guidance for 2022 will be achieved. Okay, let's come to the guidance. So, the H1 sales and EBITDA are within our expectations, as we already also mentioned during our Capital Markets Day in May. The market and customer demand remains very strong, and our unconstrained sales potential for 2022 is above 1.5 However, the ongoing supply constraints continue to limit our ability to convert this high order backlog into revenue and we remain in a highly volatile environment. We do see a slight improvement in the supply chain in the second half of the year, which we believe will increase sales, profitability and improve liquidity. As I mentioned earlier, the whole organization is working together to manage the ongoing challenges and achieve the best possible result for this year. As such, we remain confident to achieve both the sales and EBTA guidance for this year. And again, I strongly believe that we have taken impactful measures that will make sure we weather the storm. And now I will be happy to take your questions.

First question is from the line of Jeff Osborne from Cowan and Company. Please go ahead.

Yeah, good morning. A couple questions on my end. I was wondering just with the semiconductor situation where it is now, if you can touch on the supply that you have for next year, would you envision 15 to 20% growth as possible or not?

Yeah, Jeff. Thanks for the question. So first of all, I would start with this year, the second half of this year. When it comes to semiconductors, and this is still the pain point in our supply chain situation is that we see the improvements. So if you would remember, Ulrich Haling also explained that there is a certain supplier, a chip supplier, who has canceled his commitments towards SMA. And this is where we have, of course, also stepped into discussions, et cetera. And we have received the commitments and also received prospectively the material in the second half of the year, already in June and July. And this is also what we see for the next coming month to get the commitments and also to get the materials. So therefore, first of all, we see the improvements in the second half of the year. So if this will continue also in the next year, 2023, of course, it's not easy to forecast because, as I also said in my introduction, the situation is very tight and is very volatile. Therefore, it is difficult. At that moment in time, however, and when it comes to the next year, we think that the situation in 2023 will also continue to improve after the second half of this year, to which extent it's, of course, difficult to judge. But if everything will go as planned, we think that we can also commit to that growth rate which you mentioned. Definitely.

Got it. That's great to hear. certainly the demand is there, but the supply side has been the challenge. One housekeeping question and then another question as well. On the housekeeping side, can you just touch on what the trading and storage revenue was? You mentioned trading revenue was elevated as a rationale for the lower gross margins. Could you break that out?

Yeah, of course. Just a second. You mean for H1 or is it for Q2? Whatever you have for QQ would be helpful. Okay. So first of all, for Q2, when it comes to the percentage of trading goods, so it were 13%. And in the first half year in total, 14%.

And on the storage side, do you have that budget?

Yeah, on the storage side for Q2, it was 11%. And year-to-date in H1, it was 9%.

Got it. My last question is just on your U.S. entrance on the residential side. Can you touch on your whole home backup solution and rapid shutdown developments? I think you have laid that out at your analyst day as a new product line that will see receiving strong orders in Europe and also intending to enter the U.S. So it would be great to get an update on that. both of those fronts, how you're seeing the whole home backup in Europe as well as your launch in the US.

Okay.

So when it comes to the American market, I mean, so we are, we will also launch our new home solutions platform, which is a completely new platform. This will also be introduced on the SBI in September this year. So we start with the first deliveries in Q1 next year and also to address the U.S. market when it comes to that. And this new platform will, of course, also consider all the functions that you would need when it comes to backup functionalities. On the one side, on the other side, also a shade fix in terms of optimizing the yield and the outcome of the assets. And, of course, we will also continue to use and to be compliant with the SunSpec certification specification regarding the rapid shutdown requirements in the U.S. This is where we already have the product, and it's also where we will have the new product then from beginning of next year in the market in the U.S.

Excellent. Great to hear. Thank you.

Thanks, Jeff.

Next question is from the line of Constantine Hesse from Jefferies. Please go ahead. Hi there.

Thank you very much for taking my questions. My first one, I just want to drill a little bit further into the semi-supply situation. I mean, 15% to 20% growth next year is, I mean, basically nothing if we assume that the order intake continues to run at this level in Q3, and even if we assume a small slowdown in Q4, You could end up the year with a billion, if not more, in order backlog in the product side to start 23 with, which, you know, could lead to 30 to 50% growth at the top end. So I'm really trying to get a feeling. What are you actually hearing from your semi suppliers into 23? Are they telling you that, you know, the situation is definitely going to be much better throughout 22? Just a little bit more color into what we could see into 2023. Thanks. My first question.

Okay. Well, it comes along with that what I also answered to Jeff. I mean, of course, what we expect is that this growth and in order intake, so the demand on customer side, is something that will also continue in the second half of the year and also beyond next year. So it will continue. This is a matter of fact, what you see. And therefore, what we are doing, as I said, is that we try really to conclude long-term contracts. So we try to really secure the material for the next year and also to safeguard the ability also to deliver. So the signals which come from the suppliers is that the improvements will go forward. This is also what we see from the market and from the supplier base. But of course, as I said, it's volatile. The situation changes weekly. Therefore, certain constraints will also continue to some extent in the next year. That's clear. We feel very confident and confident that next year the situation will improve and should improve, also in comparison to this year. If it's beginning of next year, mid or end of next year, it's difficult to judge. But as I said, we are getting signals from our supplier base that the improvements will go forward also next year.

Okay, that's great. Thanks. And then... Maybe on profitability quickly, should we change off Q2 as kind of the bottom? If you could just walk us through, you know, the improvement curve and margins and the key drivers that you expect into next year or even into 24. You know, I mean, the question I usually ask was the 10% EBITDA margin ambition you had was something that you were thinking about 2025. But obviously, with this kind of order intake, Could this be achieved much sooner now? Consent is currently expecting EBITDA margins of 7.5% for 2023. So maybe just, you know, if you're comfortable with that, just a little bit of color into, you know, the margin improvement that you're expecting there. Thanks.

Yes. So when it comes in the long term, we still stick to the plan and to our targets that you mentioned in terms of, 8% to 10% EBIT margin, to 25%, and also the steps in between to 25%. So therefore, we see the improvement in margins definitely, which will be driven by two factors. On the one side, again, the order intake that we see for our new products. So the new SEP Smart Energy, as we see, is driving our order intake. We have our new CNI product. which has been launched in Q2 and now will be delivered starting from August. As I mentioned before, in Home Solutions, a new platform starting to be delivered into the US market in Q2 and then for the rest of the world, of course, also to address the high demand in Europe. And then we will continue with a new central inverter platform from end of 23, beginning of 24. And all these products that I mentioned, these new innovations, they are, of course, characterized by a good margin, a good price point, a good cost effectiveness, a good margin. And this is where we see that together, the inverters, the new inverters, the new solution platforms to be sold as systems, bundled with EV charges, bundled with storage, and so on, And our energy management as such is something where we see that with the systems and solutions, we will increase significantly our margins from the next year onwards and, of course, also in the mid-term.

Maybe if I can ask it a little bit differently. In terms, I mean, the home you're like now already in double digits, low to mid-teens. In CNI, could we expect to see, with this new product, could we see margins also going in that direction, low teens to mid-teens? Or it could also go in that direction next year?

Yes. Next year would be maybe a little bit difficult, but the year after, definitely, and then you will see the uptake and the rise in the margins and also in CNI. But of course, the potential here, we see the same as we do also for home solutions.

And just to confirm, the 8% to 10%, that's EBIT margins, right? Not EBITDA?

It's EBIT margin. EBIT margin.

And lastly, just very quickly on the Tygo lawsuit in the U.S., because you're obviously launching this new product now in the U.S., and Tygo apparently filed a patent lawsuit against with regards to the rapid shutdown units? Any color there? Thanks.

Well, we have acknowledged that Tiger has filed this lawsuit against our U.S. entity, but it is our policy to really not comment publicly on the details of such an act of litigation. So therefore, I would like to ask for your understanding that I cannot comment on that at that point in time.

But this is not going to delay any launches or anything like that?

No, it's going to not delay any launches, no.

Okay.

Thank you. As a reminder, if you'd like to ask a question, please press star followed by one on your touchtone telephone. The next question comes from the line of Guido Heumann from Metzler. Please go ahead.

Yeah, hello. Yeah, two questions from our side. Hello. First on the order backlog and services that came down quite notably in Q2. Does that have to do anything with the settlement case on this unfavorable contract? Or is it a reflection of an overall more cautious approach now in this business after these experiences? Or is it just the usual volatility? And the second one is on the average selling prices. They have obviously risen quite sharply. And I'm just wondering if this is really reflecting better pricing or any other technical effects, given the fact that you have already mentioned that the volume of trading goods has been pretty high. This actually means that since they are normally diluting your sales, that means that the ASPs actually have developed potentially even a bit better underlying. So maybe a few words from your side on the pricing of your products.

Yeah. Okay. Thanks for the question. So let me start with the first question. First of all, the dip or the reduction in the service of the network that you have recognized is exactly the reason that we are terminating the portfolios, which is in relation to this onerous O&M contract, which we have already also discussed and presented to you in the Q1 call. So here we are, of course, pushing the progress. We are on track here when it comes to exit out of this contract of the portfolios and to execute the termination agreements and therefore as a consequence out of that stepwise we are also cancelling the orders related to that contract. So what you have seen was in fact in Q2 a cancellation of 42 million euros in our service order backlog because we have we have terminated some of these assets and portfolios. So when it comes to your second question regarding our ASP increases in each segment in H1. So first of all, what I can report is that we have, in fact, increased our prices starting in Q1, beginning of this year, mainly in home and CNI solutions. So in the magnitude of 4 to 5% in the average. And this is, of course, also an impact what you can see in our revenues or in our P&L respectively in our sales in H1 also. So here we have also a positive and beneficial price impact already in our books. The second price increase we conducted was Now, beginning from July onwards, also in the magnitude of 5 to 7%, also in home and CNI. And the next one is planned from October in the range of 4 to 6%, also in home and CNI. And by the way, we have also increased the pricing on our central inverters in the magnitude of 10 to 20%. from the next weeks. So here you can see that we try really to pass on the costs that we see in our COGS on the one side. On the other side, we also see that the demand is still there. So in terms of the flexibility of the demand, we don't see that we have a reduction in volume, although the prices are rising.

Yeah, which makes sense, you know, given the development of the electricity prices. It should be affordable indeed. Yeah. All right. All right. Yeah, thank you then. Very helpful. Thank you.

Yeah, you're welcome. Thanks for the question. Next question is from the line of Lasse Steuben from Barenburg. Please go ahead.

Hi, just two follow-ups from me. I just want to turn back to the U.S. briefly, particularly in the large-scale market. You know, we've seen the frictions there with the DOC regulatory issues and, as you said, sort of module prices. How do you see the outlook there in the second half of the year, given that it tends to be sort of more of an H2-weighted business? But I guess given the issues we're seeing, maybe that won't be the case this year, or just happy to hear your thoughts here. And then one sort of, I guess, more technical question. I just noticed in your other operating expenses were up significantly in H1. I was wondering if you could shed some light on what's going on there, if there's anything sort of one-off to take into account. Thanks.

Okay, so starting with our outlook regarding our project business in America, so the U.S. specifically. In fact, what we have seen is that the situation in the large scale is different to home and CNI, right? So we have the material constraints mainly in the string inverter business. And to a certain extent, just in the large scale, when it comes to our higher density, higher voltage string inverters, but not for the central inverters specifically. So that means the problem here in H1 was definitely, well, less order intake, right? Less order intake or pushbacks of projects that we have seen. And this had a couple of reasons. I mean, we have the module, the PV module supply, and the quantity availability was less. And then, of course, as a consequence of the high prices. On top of that, with this anti-circumvention investigation, so we have seen that there were even more uncertainties in the market and investors and developers they have pushed back the projects. Therefore, as I explained earlier, we have seen once this decision has been suspended for two years right now, we have seen an uptick in getting purchase orders on a large scale, two significant ones even within the last one and a half weeks. therefore we think that this is not just a one-off we believe that the pipeline now will increase and that we will also get more and more orders all the intake and in h2 this year in large scale of the us and and therefore but also because the other regions of australia for example and therefore we think that this is then also the revenue but rather more for 2023 because the window to convert that order intake into revenues is going to be closed, right? I mean, we are too late in the year. So therefore, getting the order intakes in August means almost the cases that we have the revenue next year. But it is definitely an improvement what we see so far for the second half and also beyond in the next year when it comes to large scale. So the second question was regarding, maybe you can repeat that again, sorry for that, regarding the other operating expenditures.

Yes, exactly. Specifically in Q2, it just looks like quite a substantial increase year on year. I understand other operating income is up as well, but it's quite a big delta. So I'm just wondering if there's anything sort of one-off going on there or if there's nothing really to mention here.

So The only thing what I can imagine regarding the other operational expenditures is really foreign exchange fluctuations, so euro against US dollar, because in Q2 we had no one-offs, no one-offs also not in the other operating income or expenses, so therefore it is just really FX effects which also negatively affected our EBIT in Q2.

Okay, understood. Thanks very much.

Okay. Next question is from the line of Gunter Greiner from WIWIN. Please go ahead.

Yes, hi. This is Gunter Greiner from WIWIN. Thanks for taking my question. I have two questions, one in regards of microinverters. So given the recent success of your competition, do you have a new strategy there? And if so, would those be produced in Germany or would those be sourced from a cheap Asian supplier? And secondly, I still have big problems to grasp the magnitude of your supply problems, given that the competition doesn't seem to have those to such extent. So what makes you looking positive or looking forward that you can manage those problems in the next 12 months. Thank you.

Okay. So let me start with a second question regarding our situation, also in comparison to our competitors. First of all, I mean, it's not really comparing Apple with Apple. If you would compare our situation and the performance of other competitors like SolarEdge and Enphase, we also have announced their Q2 figures recently. It's a different situation. I mean, first of all, if you look on SMA, we have our supply chain is mainly based in Europe and the same province that we see also our European competitors in the same situation. What we see looking on Enphase, looking at SolarEdge, SunGrow or Huawei, for example, So they have their production capacities and their production facilities in the U.S. or even mainly in Asia. So they are sourcing in Asia. And I don't want to speculate, but to our understanding, the chip manufacturers who are based in Asia, like China and Taiwan and other countries, I mean, the companies, the competitors here, they get a higher portion of semiconductors, of material. So they have a benefit of being close to the chips manufacturers in this region. And that's difficult if you, the European company, are more or less in the middle and having no production facilities in one of the other regions. On the one side. On the other side, I think also important to know If you look at other competitors, like, for instance, Enphase, I mean, it's also a matter of fact that they use different components and they use also less components with a less complex engineering design and architecture of the product and modules. So this is what we don't have. So, therefore, with less complexity and less components, it would be easier to source. The third point is what I would like to also, well, it's an assumption from our side, is that the big Asian competitors, I mean, they are sourcing components in China, in Asia with a lower quality. And so from our quality standards, these are components which we wouldn't use in our products. In the short term, of course, these competitors have an advantage because they can source. They can also turn that order intake into revenues and with appropriate margins and costs. But the question is then in the midterm, from the quality perspective, they will then suffer from the contrary effect with higher quality and warranties. And this is actually what we would like to prevent from that. So these are three premises that we think that our competitors are in a better position and perform better as we do in terms of overcoming the supply constraints. So this is regarding the comparison with our competitors. What we are doing right now to overcome these problems As I said in the introduction, is that we have definitely intensified our communication with our suppliers. We have long-term agreements. We had that also before, but we try to intensify even more to give long-term commitments to the suppliers upfront and therefore also to secure the materials. We are also together with suppliers working on design and redesign and qualification of the product. So in a nutshell, we have intensified the communication here and the collaboration even more in order to be closer to the suppliers and also to get more of the components with a certain certainty and the ability also to plan our production Therefore, Sue, we are confident that this situation will improve, and we will also then even get more of the quantities in the next quarters from now, as we also, as I said, see the first signals now in Q-proof.

Thank you. And in regards to the microinverter strategy?

Yeah, sorry, there was the other question regarding the microinverters. Well, first of all, when it comes to our strategy on that, it is still the case that we do not see really a sustainable competitive advantage of cycle inverters. And therefore, this is also not part of our strategy.

Okay. Thank you very much.

We have a follow-up question from the line of Konstantin Hesse from Jefferies. Please go ahead.

Thanks. Just a very quick one. And I mean, given the, obviously the order book is going significantly and you continue to have trouble with regards to supplying, is there any risk of order cancellations?

Yeah. Thanks for that question. As I also here said, and this is of course always what we are discussing with our sales team. We believe that our order backlog is robust, so It is still of value, and we don't see, as I said, any cancellations so far. No significant cancellations. If there are cancellations, they are just reordering in even higher quantities the new products. And so, again, no cancellations so far. And this is also not a big surprise, because if I remember the feedback from our InterSolar in Munich, After we have launched the new product, beginning of the CN Home Solutions, the new hybrid inverter, and also when it comes to the launch now with our new CNI product, as I said, they are all very well received. So we have the functions here. We have also the products on the Intersolar. And if you speak to customers and installers, the functions are well perceived, and therefore we think they really want to have these products and not other products.

Yeah, perfect. Thank you very much.

As a reminder, if you'd like to ask any further questions, please press star followed by one on your touchtone telephone. Next question is from Anas Zagaya from Odo BHF. Please go ahead.

Yes, hello, good afternoon, and thank you for taking my questions. I have two questions. First one, what are the main measures that you are considering to improve cash flow, as you said in the beginning of the presentation, that you are considering some measure to improve cash flow? And the second one, what is the expected increase in CapEx related to the new facility in Kassel. Thank you. Yeah.

Thanks. With regards to cash improvement and profitability improvement, I know I'm repeating myself, but it's, again, the highest leverage is, of course, if we achieve to improve our ability to deliver. So, again, here also, it's still the plan. We are in the negotiation of long-term supply agreements We are making progress to secure higher volumes going forward, and this will help us to take advantage of the huge demand we are seeing. When it comes to cash, then beside of that, of the ability to deliver is, of course, improving our networking capital. I mean, we did that also in the past, but it's still also to focus more on improvements in networking capital, such as driving down our overdue receiving rules. which we have achieved. So if I look on the July numbers compared to June numbers, we have 12 million euros reduction of ARs, to a certain extent revenue driven, but to a big part a result of our efforts to reduce the overuse. When it comes to networking capital, of course, also APs and also inventories. Inventories is What we can observe is that we have improved it so far that we could stop the increase of raw materials and turn that into finished goods, and we are sold out. And therefore, the finished goods will flow out in the next weeks when it comes to our stream inverter business. But of course, we see that with a higher order backlog and also the ramp up of our product in CNI and also when the product No solutions from beginning from Q1. And we expect to a certain extent an uptake, of course, also on inventories, on raw materials. But it is for the order. We will produce it. And once it is produced, it will flow out immediately. Beside of networking capital, it is that we review all our capital expenditures. So whatever is possible, we try to to push back into the next year. The same applies for our operational expenditures. So we are managing down the OPEX in all functions. We are still. As we speak, we are with our functional spending. OPEX-wise, we are below our budgets, and this is also what we want to continue. So to stay below our budgets in all functional areas when it comes to personal as well as non-personal OPEX. The second question, maybe you can repeat it again regarding the CAPEX spending, right?

Yeah, thank you. It's regarding the expected CAPEX related to the new facility, the expected increase in CAPEX with the new facility in Kassel.

Yeah.

Okay, so exactly, we have announced that new production. When it comes to CAPEX, this is not that big issue because this new production facility will be built and realized by a project developer. So real estate project developer and a construction company which will build the facility starting from end of this year and then to be ready end of next year. and what we will do is that we will conclude a step step into a long-term lease agreement so it's going to be a 15 or 20 years lease agreement so we will just say the leasing rate so the rental and which is which is pure opex when it comes to the real capex expecting for this year there is there is nothing planned with regards to that production facility He has only planned for next year, 2023, a cap expanding from our side for, well, technical equipment, which is roughly in the magnitude of a low two-digit million euro amount.

Okay, thank you. Thank you very much.

There are no further questions at this time, and I would like to hand back to Thomas Pixer for closing comments. Please go ahead.

Yeah, thank you for your questions and also for participating in today's analyst call. So if there are any further questions, of course, I'm always at your disposal. And otherwise, I wish you all the best. Stay healthy, and we will hear you again for the Q3 call. Goodbye.