SMA Solar Technology AG

We very much appreciate that you are taking the time for this investor and analyst call on our H1 2023 results. You can find today's presentation in our investor relations website. Also, please be informed that the analyst consensus is available on our investor relations website under share consensus as well. 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 your questions. Our agenda for today. First, I will start with an overview with some key financial highlights. After that, I will walk you through the figures for H1 2023, as well as for the outlook. I expect my presentation to last about 45 minutes. After the presentation, I'm happy to answer your questions. I refer to our disclaimer on page two. So let's move to page four, financial highlights for H1 2023. After a strong Q1, we successfully continued our growth course in Q2 2023. Group sales in H1 2023 increased by 65% to 779 million euros and were thus at the upper end of the sales range published on June 23rd. All three segments contributed to this very positive development. I'll come back to the individual segments later. EBITDA also increased significantly from 6 million euro in the first half to 125 million euro this year. Free cash flow was also very strong again with 81 million euro after end-order backlog is still on a very high level of about 2.5 million euro. Now let's go to page five, Health by Region and by Segment. On the left-hand side, you can see that EMEA, our biggest region again, increased from 57% to 75% end of H1 2023. Revenue share in Americas decreased from 27% to 27 due to the much stronger growth in the EMEA region. But revenues in America grew by 22%. In our APEC region, we continue to face challenging Asian competition and postponement of large-scale projects to next quarters. As such, the share of this region decreased from 16 to 5%. Now let me walk you through the sales per segment on the right side of the slide. As already said, all three segments contributed to this very positive revenue development. In our home segment, revenues grew exceptionally from €136 million last year to €327 million in the first six months 2023, with EMEA as the strongest region again. Reasons for this extraordinary revenue growth were better availability of components, helping us to process the order backlog more quickly than expected, and ongoing very high demand in EMEA. CNI achieved 194 million euros compared to 118 million euros last year, a plus of 64% after a very strong Q2, where the supply situation significantly improved. EMEA was the strongest region for this segment as well. Large-scale revenues increased by about 18%, from €218 million to €257 million in H1 2023, with Americas again the strongest region. Now let me provide you with some more information on H1 2023 profitability. Profitability for the group has grown substantially in the first six months from €16 million last year to €125 million in the first half of 2023. The positive development was driven by both the increase in revenues as a result of improved material supply and the associated fixed cost regression in production as well as a continued high margin product mix. Thus, EBITDA margin came in at 16% compared to 3% in the first half last year. All segments posted outstanding earning developments and significantly improved their profitability in the period under review. Similar to H1 2022, we received approximately 5 million euros of other income from customers cancellation fees as one-offs. With 90 million euros, depreciation was on last year's level. Now let's have a look at the segments in detail. Home solution. Our home solution segment, which has been, again, the most profitable segment, substantially grew its EBIT to 93 million euros, where the 17 million euros in H1 2022. This was mainly driven by sales growth, higher productivity, and fixed cost regression. This led to an EBIT margin of 28% compared to 13% last year. We are very happy about the earlier than planned EBIT improvement for CNI and large scale. Both segments are back in black and on call to deliver solid positive results for this year. CNI increased its EBIT from minus 11 million euros last year to positive 7 million euros this year, which is a positive earnings swing of 18 million euros. Main drivers were higher revenue and increased production utilization. EBIT margin therefore came in at about 3% compared to minus 9% last year. EBIT in the large-scale segment also improved significantly to positive 9 million euros after minus 6 million euros in the first half 2022, an improvement of 15 million euros. The increase in sales as well as slight recoveries of price levels compared to last year contributed to this. Thus, EBIT margin amounted to 3% compared to minus 3% in the first half of 2022. Now I will move on to the balance sheet and the network and capital development on the next slide. Network and capital, which is shown on the top of the left page, reached 251 million euros and is slightly above the year-end figure of 239 million euros. This resulted in a ratio of 18%, which is slightly below the management target corridor of 20% to 23%. Let me explain the networking capital development in detail. Inventories of H1 2023 were at 469 million euros and increased compared to end of 2022 with 309 million euros because of the high customer demand and the build-up of inventories to support our strong sales growth. Trade receivables. which increased due to the high sales in the first half, were offset by an increase in trade payables and an increase in advance payments received from our customers, driven by our strong large-scale project pipeline. Net cash position increased again by 39% from €220 at the end to 309 million euros, driven by significantly improved profitability compared to last year. In addition, we successfully concluded a new revolving credit facility line of 380 million euros, which with an expanded group of banks in June. This expansion of the revolving credit facility line clearly shows the confidence of our banks in SMA's business model and in our future prospects. With this credit line, we support the cause for further profitable growth. The credit line has a term of five years, with an extension option and replaces the previous syndicated credit line of 100 million euro. Currently, there is no need to draw this new credit facility, but it will give us the support for further profitable growth when needed. Now, let's have a look on the group balance sheet on the right side of the page. Our non-current assets increased to €415 million, mainly reflecting investments into our product pipeline in the form of capitalized R&D project costs, as well as an increase of our deferred tax assets. Shareholders' equity increased to €566 million, supported by the positive result of the first six months. Provisions increased to 171 million euros, mainly as a result of increased warranty provisions in line with the higher level of sales. Our liabilities grow to 467 million euros mainly from the strong uptake of advanced customer payments, which are considered in the networking capital. That concludes my explanations of the balance sheet. Let's now have a look at our summary of cash flow on the next slide. In H1 2023, SMA generated a growth cash flow of 143 million euros compared to minus 3 million the year before, driven by strong positive results in the first six months. Given our positive growth cash flow and a solid networking capital, cash flow from operating activities were also positive compared to last year reaching 113 million euros end of June 2023. The group invested 32 million euros in net capex in H1, which mainly composed of investments in our product portfolio, including capitalized R&D project costs and investments in fixed assets. Considering all these, our free cash flow for the first six months, 2023, significantly increased from minus 42 million last year to plus 81 million euros in the first half of this year. Let me summarize the first six months of 2023. SMA group sales increased significantly by 65% to 779 million euros with all segments achieving strong growth. Growth margin for H1 for the group achieved 30% after 20% in H1 2022. The improvement was preliminary driven by the higher sales growth in all segments and the improved utilization of our production capacities. C&I and large scale managed double digit sales growth and returned to profitability faster than planned. This once again underlines the market potential of both segments. EBITDA increased significantly to 125 million euros from 16 million euros in H1 2022 due to high demand, better utilization and productivity as well as improvements in our supply chain. As a consequence, net income increased also very positively to 104 million euros after minus 11 million euros last year as a result of the very good operating performance. The high level of profitability also contributed to a very positive free cash flow of 81 million euros for H1 2023. As you can see in our quarterly overview on the right side of the page, We continued on a growth path on both top and bottom line as expected. C&I and Large Scale also manage double digit sales growth, which underlines the market potential of both segments. That wraps up my summary of H1 Key Financials. Now let's take a look into the outlook and the guidance for 2023. Looking at the right side of the slide, you can see that our order backlog still remains on an extraordinary high level of up to 2.5 billion euros at the end of June. Product and order backlog is also stable on a high level of 2.1 billion euros at the end of H1. When you have a look at the left side of the page, you can see that our large-scale product order backlog is very strong with more than 1 billion euros, followed by CNI with 531 and Home Solutions with 500 million euros. In-home and CNI, our ability to deliver has caught up the strong demand. As such, we start to see a normalization of product order backlog as expected since the supply chain is getting closer to the market demand. With this, let's turn to our last page our guidance for 2023. As communicated on June 23rd, we once again raised our 2023 full year guidance for sales and EBITDA. This is based on our strong Q1 performance and a significant increase in delivery capabilities due to faster improvement in the supply situation and an improved earnings contribution from all three segments. Against this backdrop, we published an adjusted 2023 guidance with sales of 1.7 to 1.85 billion euros and ebitda of 230 to 270 million euros which we can confirm today for the second half of the year further sales growth will offset for higher costs related to build up of our organization for future growth and for changes in the product mix As such, we are convinced to deliver on the high profitability margin in our guidance. SMA is truly sustainable and a solid finance company. Resilience in a volatile market is the key. And we believe in our resilience. Why? First of all, financially. SMA is equipped with both a healthy capital structure and a credit facility of 380 million euros, which we have access to if needed. Second, the brand. of SMA is well known in all relevant markets. We have a solid positioning in the largest global developed markets like US and Europe. We have a strong presence in all three key segments. This brings us to third. This broader solution portfolio in all segments is an advantage compared to those with significantly narrow portfolio offerings, as it has become evident to the market recently. Our products stand for high quality, durability, and reliability. With our strategy of doubling our manufacturing capacities by 2025, we enhance our flexibility and expand our offering in the coming years. And in addition, we are able to cover all business dynamics given to our strong global customer base in both the distribution business and with EPC. And with the view to all SMA segments now contributing positive bottom lines, This will play out strongly for SMA. The drivers for demand have evolved and the biggest push now comes mainly from the society and it's more independent from political agenda than it was in the past. And at last, but not at least, SMA is truly sustainable company. which is reflected in our outstanding ESG ratings. Sustainability has been in our corporate mission since SMA has been founded. Our state-of-the-art production in Germany is already CO2 neutral, and we are a major contributor in the energy transformation. All this together is more important than ever to defend our value proposition, particularly in uncertain economic times, as it is currently the case. This is why we believe in SMA's resilience. With this, I conclude my presentation, and I'm happy to take your questions.

Our first question comes from . Please go ahead.

Yeah. Good morning. Here we go. Two questions then from my side. The first one would be on the order intake. Obviously, it has been down in comparing it with the previous three or four quarters. So how do you see this development? Is it a new trend? Do you see a slowdown in demand? So any explanation on that would be welcome. And the second question. is on the U.S. market. So where are your thoughts on the U.S. market and the IRA requirements and local content? Are there any conclusions you would like to share with us on that market?