SMA Solar Technology AG

Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the SMA Solo Technology AG Analyst and Investor Presentation quarterly statement January to September 2023. Throughout today's recorded call, all participants will be in a listen-only mode. The presentation will be followed by a question and answer session. If you would like to ask a question, you may press star followed by one on your touchtone telephone. Please press the star key followed by zero for operator assistance. I would now like to turn the conference over to Barbara Gregor. CFO, please go ahead.

Thank you very much, operator, and welcome, everyone. We very much appreciate that you are taking the time for this investor and analyst call on our nine-month results. You can find our today's presentation on our investor relation website. 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 of the first nine months, as well as our full year outlook 2023. I expect my presentation to last about 30 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 first nine months 2023. Summary of key financials. After a strong first half year, we successfully continued our growth course in Q3 2023. Group sales in the first nine months increased by 85% to 1.3 billion euros. Especially the segments, large scale and project solutions, showed a very positive development. I will come back to the individual segments later. OBITDA also increased significantly after nine months and was more than four times higher than last year, reaching 231 million Euro after 50 million Euro in the first three quarters of 2022. Free cash flow was also very strong again, with about 79 million euros, and order backlog is still on a very high level of about 2 billion euros, despite the high revenue volume. So, let's go to page five, sales by regions and segments. by regions and sales by segment. On the left hand side, you can see that EMEA, our biggest region again, increased from 60 to 72% end of Q3 2023. 50% of the EMEA sales derived from the home solution segments. Revenue share in America decreased from 22% to 22% due to the much stronger growth in the EMEA region. However, America is still the second strongest region and increased revenues by 60% compared to the first nine months of 2022. The region showed a good development. especially over the last three months. More than 80% of the America cells are in large-scale segments. In our APEC region, we continue to face challenging Asian competition. As such, the share of this region decreased from 13 to 6%. Now, let me walk you through the sales per segment on the right side of the slide. In our home segment, revenues more than doubled from 2029 million euros last year to 486 million euros in the first nine months of 2023. With EMEA as the strongest region again, The segment's share of total sales was 36% compared to 32% last financial year. Reasons for this extraordinary revenue growth are the normalization of the supply chain, which helped us to further process the order backlog as well as an ongoing high demand in EMEA. EMI. achieved 334 million euros compared to 191 million euros last year, a plus of 74% and already a very strong Q2. Like in the home segment, reasons are the normalization of the supply chain, which helped us to further process the order backlog, the order backlog. EMEA was the strongest region with 81% for this segment too. Large scale revenues also increased strongly by 71% from 304 million Euros to 517 million Euros after nine months. And with Americas again the strongest region making up roughly half of the segment's sales. Especially in Q3, the project pipeline could be perceived as planned, and we face no considerable postponements. Now, let me provide you with more information on the nine-month profitability. Profitability for the group has grown substantially and reaching 106 million euros of EBITDA in the third quarter alone. Thus, we achieved a group EBITDA of 231 million after the first nine months of the year, compared to 50 million euros in the previous year. This positive development was driven by both the increase in revenue as a result of the improved material supply and the associated fixed cost regression in production as well as in continued high margin product mix. Thus EBITDA margin came in at 17% compared to 7% in the first nine months of 2022. The large scale segment posted outstanding earning developments in the third quarter and significantly contributed to this improved profitability in the period under review. And as already explained in our H1 call, we did receive approximately 5 million euros of other income from customer cancellation fees in the first half of this year. In comparison, our EBITDA for the first nine months of 2022 included positive one-time effects of 28 million euros from the sale of property as well as customer cancellation fees. With 30 million euros, depreciation was slightly above last year's level. Growth margin for the group improved significantly to 30% after 21% last year. This improvement was preliminary driven by strong sales growth in all three segments positive capacity utilization effect from production, and improved fixed cost coverage across all functions. Now let's have a look at the segments in detail. Home solution again, the most profitable segment also in Q3. This substantially grew, it's a bit to 137 million euros after nine months. That's 35 million euros in 2022. This was mainly driven by triple digit sales growth, higher productivity and fixed cost regression. This led to an EBIT margin of 28% compared to 15% last year. And we are very happy that both segments, C&I and large-scale, continued their dynamic sales and earning growth also in the third quarter as expected by us. In the nine-month period, C&I increased its EBIT from minus 17 million euros last year to positive 16 million euros this year. which is a positive earnings swing of 33 million euros. Main drivers were higher revenues and increased production utilization. EBIT margin therefore came in at about 5% compared to minus 9% last year. Our large scale segment also improved significantly after nine months. reaching 47 million euros compared to minus 15 million euros in 2022. An improvement of plus 62 million euros. The significant sales increase led to improved production utilization with fixed cost regression. And therefore EBIT margin amounted to 9% compared to minus 5% in 2022. So all three segments are clearly in black as expected. Now I will move on to the balance sheet and the networking capital development on the next slide. Networking capital cash and balance sheet. Our networking capital, which is shown on the top left of the page, reached €353 million and is well above the year-end figure of €239 million. This resulted in a ratio of 21%, and this is still in the middle of the management target corridor for this year of 19% to 23%. So let me explain how networking capital developed in the period under review. Inventories end of September 2023 were at 528 million euros and increased compared to year end 2022 with 309 million euros necessary in order to ensure the forecasted dynamic revenue growth. We consistently invest into higher stocks on critical components to ensure delivery capability and to better steer our supply chain. Trade receivables, which increased due to the high sales in the first nine months, were offset by an increase in trade payables, which is related to the higher inventories purchased. Furthermore, advance payments received from our customers also increased significantly driven by our strong large-scale product pipeline. Net cash increased by 38% from 220 million at the end of last year to 303 million euros driven by significantly improved profitability compared to last year. Now let's have a look on the group's balance sheet on the right side of the page. And as I have already explained, the changes in networking capital positions, I will now focus on the significant changes in the other balance sheet positions. Our non-current assets increased to 426 million euros, 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. equity increased to 642 million euros, supported by the positive result of the first nine months. Provision increased to 187 million euros, mainly as a result of increased warranty provisions in the line with a higher level of sales. And other liabilities grew to 464 million euros, mainly from the strong uptake of advanced customer payments, which are considered in the networking capital. That concludes my explanation of the balance sheet. And let me now have a look at our summary of cash flows on the next slide. In the reporting period, SMO generated the gross cash flow of 253 million euros compared to 21 million the year before. Driven by the strong positive result in the first nine months of this year. Given our positive gross cash flow and a solid networking capital ratio, cash flow from operating activities were 13 times higher than last year, reaching 130 million euros end of September 2023. The group invested 51 million euros in net capex in the first nine months, which mainly composed of investments in our product portfolio, including capitalized R&D project costs, and investments in fixed assets, such as the extension of our production capacity. Considering all these effects, our free cash flow for the first nine months, 2023, significantly increased from minus 32 million last year to plus 79 million euros this year. On the next slide. I would like to show you the quarterly operating development per segment for sales and EBIT for Q3 and 1 to Q3 2023. As you can see, we continued our growth path on both top and bottom line for all segments since Q4 2022. as expected and communicated. As you all remember, we have emphasized since the beginning of this year that we will foresee a change in our product mix over the year 2023. As such, we will expect more normalized growth rates in homes and higher revenue and earning contributions from CNI and large scale over the next quarter. This is shown on the cells and EBIT chart of this slide. And we expect this trend also to continue in Q4 as communicated in our last course. This will result in a change of our product mix towards CNI and large scale, but both segments will continue to strengthen their margin profile driven by higher cell volume. That brings me to our order backlog and the outlook for the full year 2023. Looking at the right side of the slide, you see that order backlog end of September remains on a very high level of about 2 billion euros, which is the same level at the beginning of this financial year. Product order backlog is also on a high level of 1.6 billion euros. On the left side of the page, you can see that our large-scale segment product order backlog remains very strong with more than 930 million euros, followed by CNI with about 400 million and home solution with 320 million euros. The stable order backlog for the group after nine months shows that the high order intake as of today, combined with the existing order backlog, offset the high revenue volume in the period under review. Thus, even with currently lower order intake compared to H1 2023, our existing order backlog is robust to cover revenues also in the upcoming months. This means for home about six months and about seven months for CNI and large scale at about 14 months of revenue coverage. Let me say some words to order intake as this was intensively discussed the last couple of months. Since last year, we faced an extraordinary situation with incoming orders on a far higher level than normal. Additionally, since Q1, we have communicated that order intake at SMR will decrease during the year, as we have asked our customers to place their orders for the full year 2023 already end of Q1. Now, since end of Q2, the market environment has changed and has become more challenging due to high inventory levels at distributors, which affected mainly the home and partly the C&I segment. However, we do not see this as a structural issue. It's far more an imbalance between supply and demand After two years of heavy supply constraints, the distributors were forced to build up their stock beyond normal level to be able to deliver. Depending on how fast the distributor's stock can be reduced, we expect new normal inventory level and restart of order intake for home and CNI Q2 of next year. With this, let's turn to the last page, our guidance for 2023. As communicated on October 4th, we once again raised our 2023 full year guidance for self-inhibited TA. This was the third guidance upgrade this year. The guidance increase is based on our strong Q3 performance due to a very positive revenue and earning development preliminary driven by large-scale NC&I. Against this backdrop, we published an adjusted 2023 guidance with sales of 1.8 to 1.9 billion euros and FHDA of 285 to 325 million euros, which we can confirm today. Let me summarize why we believe SMA is more resilient even in more challenging markets. SMA is a leading global specialist for photovoltaic and storage systems technology with more than 40 years of market experiences and a brand which is well known in all relevant markets. SMA has a broadly diverse product portfolio covering three key segments, home, C&I, and large scale. SMA has a global footprint and a strong customer base in both the distribution business and with EPCs, enabling us to cover all business dynamics. Today, SMA invertes. with a total output of more than 135 gigawatts, have been installed in more than 200 countries worldwide. SMR products stand for high quality, durability, and reliability. And with doubling of our manufacturing capacities beginning 2025, we enhance our flexibility and expand our offering in the coming years. SMA is financially well equipped with a healthy capital structure and a debt-free balance sheet. SMA is truly sustainable with a state-of-the-art CO2 neutral production in Germany and outstanding ESG ratings. And all this together is more important than ever to defend our value proposition particularly in uncertain economic times, as is currently the case. This is why we believe in SMA's resilience. Last but not least, a note on our upcoming event. Preliminary full-year figures for 2023 and the guidance for 2024 will be published at the end of February 2024. Our annual report will be published on March 27, 2024. And for your diaries, please be informed that our next Capital Market Day will be held in 2025. With this, I conclude my presentation and happy to take your questions.

Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. In the interest of time, please limit yourself to two questions only. If you are using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. Our first question comes from the line of Sebastian Grohe with BNP Paribas. Please go ahead.