SMA Solar Technology AG

We very much appreciate that you are taking the time for our investor and analyst call for our full year 2023 results. Today, my colleague and SMA CEO, Jürgen Reinhardt, joins to provide us insights into the most important current business developments. Welcome to the call, Jürgen. This conference call is scheduled for up to 60 minutes and will be recorded. the replay will be available for seven working days. After the presentation, we will be happy to answer your questions. Today's presentation is available on our investor relations website. Our agenda for today. First, I will give you an overview of our full year 2023 figures. After that, Jürgen will walk you through the current developments on innovations, the latest solutions, our platform strategy, as well as cyber strategy, sustainability, and the investment projects going forward. After that, we will have a look on all the backlog as well as our outlook for fiscal year 2024. I expect the presentation part of the call to last about 30 minutes. And after the presentation, we are happy to answer your questions. I refer to our disclaimer on page two. So let's move to page four, financial highlights for the full year 2023. Summary of key financials 2023. 2023 was a very successful year for SMA and one of the best years since its foundation in 1981. We managed to increase group sales by 79% to 1.9 billion euro thanks to the continuing high demand for SMA products, high utilization, and the normalized delivery situation since the beginning of 2023. EBITDA also increased significantly and was more than four times higher, reaching 311 million euros after 70 million euros in 2022. All three segments could significantly improve their sales and earnings in 2023 and contributed to the positive results. I will come back to the individual segments later. Free cash flow was strong again with about 57 million euros and all the backlog remains at a high level with 1.7 billion euros despite the high revenue volume. Let's go to page five, sales by region and by segments. On the left-hand side, you can see that EMEA, our biggest region again, increased from 33 to 38% in 2023. More than 50% of the EMEA sales derived from the home solution segments followed by CNI and large scale. Revenue share in America increased slightly from 24% to 25%, mainly driven by the large-scale segment. The region showed a very good development in the course of the year, with Q4 the strongest quarter. More than 80% of the Ameritas cells are in the large-scale segment. In our APIC region, we continued to face challenging Asian competition. As such, the share of this region decreased from 13% to 7%. The top three markets for SMA Group in 2023 were Germany, the U.S., and Italy. Now let me walk you through the sales per segment on the right side of the slide. In our home segment, revenues grew by 33% from 335 million euros last year to 580 million euros end of 2023, with EMEA as the strongest region again. The segment's share of total sales of about 30% was thus on the same level as last financial year. Reasons for this extraordinary revenue growth were the early normalization of the supply chain with improved availability of electronic components starting at the beginning of 2023, which helped us to further process the order backlogs as well as high demand in EMEA. C&I achieved 479 million euros compared to 290 million euros last year, a plus of 65%. Like in the home segment, reasons are the normalization of the supply chain, which helped us to further process the order backlog. EMEA was the strongest region with 38% for this segment. 31%, sorry. Large-scale revenues nearly doubled from $441 million to $845 million in 2023, with America, again, the strongest region, making up early half of the segment sales. Especially in Q4, the project pipeline for all regions could be perceived as planned and we faced no major setbacks or customer push-outs which can occur in the project business. Now let me provide you with more information on the fourth year 2023 profitability. Slide number six, profitability of the group. Profitability for the group has grown substantially reaching 311 million euros of EBITDA after 70 million euros the previous year. 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 7% in 2022. The large-scale segment posted outstanding earning developments in the fourth quarter, and significantly contributed to the improved profitability in the period under review. As you might recall, EBITDA in 2022 included positive one-time other income of approximately 5 million euros from a customer cancellation fee in the first quarter and 23 million euros from the sale of property in Q3 2022. EBITDA in 2023 also include positive one-time other income of 6 million Euro from customer cancellation fees. With about 42 million Euros, depreciation was slightly above last year's level of 38 million Euros. Growth margin for the group improved significantly to 29% after 21% in 2022. The improvement was preliminary driven by strong sales growth in all segments. Positive capacity utilization effects from production and improved fixed cost coverage across all functions. Now let's have a look at the segment in detail. Home Solution, again, the most profitable segment, substantially grew its EBIT to 148 million euros versus 54 million euros in 2022. This was mainly driven by the increase in sales. due to the improved delivery situation and the high margin product mix. This led to an EBIT margin of 26 compared to 16% last year. We are very happy that both segments, C&I and large-scale, continued their dynamic sales and earnings growth in the course of 2023 as expected. CNI increased its EBIT from €26 million in 2022 to positive €23 million in 2023, which is a positive earnings swing of €49 million. Main drivers were higher revenues and increased production utilization. EBIT margin therefore came in at about 5% compared to minus 9% in 2022. Biggest earnings improvement in 2023 showed our large-scale segment, reaching €104 million compared to minus €14 million in 2022, a plus of €118 million within one year. The significant increase in sales led to improved production capacity utilization with associated fixed cost regression. In addition, we received compensation payments in the mid-single-digit million range as a result of customer contract cancellations. Thus, overall EBIT margin for SMA Group amounted to 14% compared to 3% in 2022. We are very happy with the outstanding sales and earnings developments last year, especially as all of our three segments were clearly back in black, as expected. Now, I will move to the balance sheet and networking capital on the next slide. Networking capital, which is shown on the top left of the page, reached €392 million and is well above the year-end figures of €239 million. This resulted in a ratio of 21%, which is in the middle of the management target corridor of 19% to 23%. Let me explain how networking capital developed in the period under review. Inventories end of 2023 were at 559 million euros and increased compared to the year end 2022 by 309 million euros. necessary in order to ensure the forecasted dynamic revenue growth. We consciously invest into higher stocks on critical components to ensure delivery capabilities and to better steer our supply chain. Trade receivables, which increased due to the high sales, were offset by increase in trade payables, which is related to the higher inventories purchased. Furthermore, advanced payments received from our customers also increased significantly, driven by our large-scale segment project pipeline. Net cash increased by 29% from €220 million end of 2022 to €283 million, driven by significantly improved profitability compared to the previous year. Now let's have a look on the group balance sheet on the right side of the page. And as I have already explained, the changes in net working capital positions, I will now focus on the significant changes in the other balance sheet positions. Our non-current assets increased to €428 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 €686 million, supported by the positive full-year result. Provisions increased to €201 million, mainly as a result of increased warranty provisions in the line with the higher level of sales. Our liabilities grew to 431 million euros, mainly from the strong uptake of advanced customer payments, which are considered in the net working capital. That concludes my explanation of the balance sheet. Let's now have a look at our summary of cash flows on the next slide. In the reporting period, gross cash flow came in at €333 million, which was 10 times higher than the year before, driven by the strong positive result in 2023. Given our positive gross cash flow and a solid networking capital ratio, cash flow fund operating activities were almost five times higher than 2022, reaching €141 million end of 2023. SMA Group invested €84 million in net capex in the year under review, which mainly composed of investments in our product portfolio, including capitalized R&D project costs and investments in fixed assets. The increased level of investment spending was mainly related to our new platforms in home solutions and large-scale project solutions. These new platforms are in the late stages of development, and in preparation of upcoming solution launches, we are also expanding our production capacities and capabilities. Jürgen will talk about this in more detail later. Considering all these effects, our free cash flow significantly increased from 5 million Euro in 2022 to 57 million Euro in 2023. This is for the moment from my side. I would like to hand over to Jürgen Reinhardt for the current developments.

Thank you, Barbara. A warm welcome also from my side. Dear ladies and gentlemen, I'm pleased to now give you an overview of the current developments at SMA. Over 40 years of experience in the renewable energy market and a sustainable approach have made SMA unique in the global industry. The expansion of renewable energies is pivotal against climate change. SMA aims for economic success alongside with environmental and social responsibility. We are well positioned in the current market environment as a solution provider, with a diversified portfolio across three segments and with international footprint. With a focus on the home, the commercial and industrial, and the large-scale and project solution segment, SMA delivers innovative solutions. Positive results in 2023 highlight SMA's strong market position globally, avoiding over 70 million tons of CO2. With 1,600 patents and 4,300 employees in 20 countries, SMA emphasizes innovation. At the same time, we are clearly the most sustainable company in our industry. This was again shown when we just a few weeks ago were voted 10th most sustainable company in the world in the top 100 rating of corporate nights. And this year, we're introducing a segment-specific platform strategy to seize promising market opportunities. We're making significant investments to fuel future growth, enabling us to further develop groundbreaking innovations such as the new inverter series in the U.S., which we plan to expand globally. SMA is continuously innovating its products, digital business models, and services. Innovation is a key pillar of SMA strategy, underpinning our excellent market position and paving the way for future growth in all three segments. Our commitment to innovation is reflected in a number of successful developments. In the home solution segment, we are soon starting to launch the SMA e-charger for e-mobility at home, which fits seamlessly into the ISO 15,118 communication standard for vehicles. We also saw the start of the production of our new series with the Sunny Boy Smart Energy in the first quarter of this year, which offers a versatile and adaptable platform for different applications. The successful market launch of a new home storage solution with a flexible and expandable hybrid inverter took place in 2023, And in the US, a new battery solution will be launched in the second half of 2024. But last, but definitely not least, we started a new collaboration with Samsung to integrate heating and mobility into the Samsung SmartThings ecosystem. In 2023, SMA launched a cost-effective one-stop shop energy storage solution, also for commercial applications. That makes energy, again, plannable for businesses and companies in our commercial and industrial solution segment. In 2024, we will launch an off-grid inverter, the Sunny Island X, and the SMA Data Manager M for future-proof communications, as well as a brand-new large commercial inverter to round off our portfolio. In the large-scale and project solution segment, 2024 will see the introduction of a new platform that offers turnkey solutions for all power plant applications. The pre-launch of the comprehensive system in the U.S. has shown that this innovative solution from SMA has met with great interest from project developers and power plant operators. In the picture on the right hand, you see me during the unveiling event in Sacramento just a few weeks ago. These forward-looking innovations underline our ambition to become a comprehensive solution provider that fulfills the dynamic needs of our customers with innovative solutions. Turning to the next page, we'll focus on cybersecurity sustainability and grid forming. SMA leads the field of sustainability, cybersecurity, and quality, giving our customers our true resilient solutions across all three segments. Our sustainability performance receives positive ratings from independent experts And our participation in international ratings and rankings provides stakeholders with transparent assessments, particularly in human rights and risk management. We are well positioned and recognized. In terms of cybersecurity, data security is becoming a selling point for many customers being part of critical infrastructure. And we take responsibility also in participating actively in industry committees and ensuring independence from nation-state influence. Service and data are located in Germany, Europe, and are hosted in accordance with the European General Data Protection Regulation, and not only where personal data is stored. When it comes to quality, our products stand out for their durability, a testament to our innovative development work consistently acknowledged by satisfied customers. SMA solutions in large storage projects ensure grid stability worldwide. Due to the increasing decentralization of power generation, the importance of grid integration is growing. SMA is recognized as an expert in grid forming. Notable projects include the RWE megabattery in Lingen and Werner, here in Germany, playing a crucial role in grid stability, utilizing 47 Sunny Central storage units for optimal battery integration and charging-discharging. as well as the Black Hillock battery storage power plant in Scotland, employing SMA's large-scale grid-forming solution for grid stability with the next project already in planning in Kilmarnock. Additionally, SMA is gearing up for the 150 megawatt, 300 megawatt hour project in South Australia featuring BESS and solar PV systems. This project aims for grid-connected operation, revenue generation through energy arbitrage and participation participation in the FCIS market. However, the recent opening of the SMA Grid Modeling Competence Center in Bangalore, India, signals SMA's commitment to offering grid services and support, assisting grid operators worldwide and grid modeling endeavors. Let me run off my part of the presentation today. SMA continues to invest in the future viability and aims continue growing in 2024 and beyond. In 2024, SMA is making significant investment in its operations. Plants include doubling the production capacity by adding the SMA gigawatt factory by 2025 to our footprint and a 12 million investment in PCBA production lines also here in Germany to cater for the increasing demand. Additionally, SMA is expanding its magnetics division in Poland with the construction of a new production building. Moreover, the company is set to establish production facilities in the U.S. by 2025, aiming to bolster additional sales and support anticipated growth and will create new job opportunities. Despite the ongoing global dynamics, the urgency of the climate crisis highlights the imperative of switching the energy system to renewable energy, with solar power leading the charge. And we at SMA stand ready to confront this challenge head on. Now, I would like to hand back to Barbara for some words on order backlog and the outlook for 2024.

Thank you very much, Juergen. Now, looking at the order backlog development and the further 2024 development, look at the right side of the slide. You can see that order backlog end of 2023 remains on a very high level of about 1.7 billion euros, which is well above the level before the supply crisis occurred. On the other hand, this order backlog is, as expected, below the order backlog at the end of 2022, which was positively affected by the supply chain crisis. Incoming orders declined as anticipated and forecasted in the second half of the year compared to the first two quarters of 2023, as the majority of orders in home and C&I segments had already been placed by the end of the first quarter. Thanks to the improved delivery capacities, and high production volumes and utilization, the order backlog was continuously reduced in the second half of the year. Product order backlog remains, however, on a level of 1.3 billion euros. On the left side of the page, you can see that our large-scale product order backlog remains very strong, with 914 million followed by C&I with 238 million euros and home solution with 177 million euros. As already said in our press release end of February, we do not expect an increase in order intake for home and C&I before late Q2 due to the high stock level at distributors. Incoming orders have slowed down in particular in the fourth quarter 2023 due to this situation. Let me say something about the dynamics of the order income and order backlog in general. As you all know, 2022 and H1 last year were extraordinary with high incoming orders on a far greater level than normal. Why? After two years of heavy supply chain constraints where distributors were forced to build up their stock beyond normal levels to ensure their ability to deliver, they have placed multiple orders with their various customers in the first half of 2023 in home and C&I. Also for a better planning reliability at SMA, we have asked our customers to place their orders for the full year 2023 already at the end of Q1 last year. Therefore, an extraordinary high order backlog has been built up with a lead time of partially more than 18 months, which was never seen before in the industry or at SMA. Against this backdrop and expected further growth in all of our addressable markets, we don't see this currently as a structural decrease in demand. We recognize this as serious, but a temporary development where we need to prepare ourselves for more volatility this year, especially in home and C&I. Nevertheless, the rise indicators, for example, the official forecast numbers of installations for 2024 in our key markets show that the underlying demand in the end market remains strong and consistent. With this, I will turn to the last page, our guidance for 2024. As communicated on February 29, we expect group cells to increase to between 1.95 to 2.22 billion euros in 2024. The planning is based on the assumption that sales in large scale will continue to grow strongly as a result of existing high order backlog, which nearly covers our full year sales expectations. And sustained increasing demand. Due to the continued high inventory level on the customer side and the currently more volatile market situation, we are anticipating a slight increase in sales in C&I and a decline in sales and in home. Given this normalized terms of delivery and thus shorter lead times, as well as increased investments in new products and strategic business fields, we expect Groups EBITDA to reach between 220 million and 290 million with a double-digit EBIT margin. On segment level, we are anticipating further earnings growth in large scale, a slight decline in C&I and a sharp decline in home compared to 2023. For SMA, 2024 will be a transition year coming from an extraordinary situation with an enormous order backlog as a result from the high demand combined with delivery constraints now transforming to a normalized level regarding order intake and order backlog. Last but not least, a note on our upcoming events. First quarter results will be published on May 8th and we will host an investor relation event in June at the InterSolar in Munich. The exact date will be provided as soon as possible. Our next Capital Market Day will be held in 2025, where we will also offer a guided tour in our new gigawatt factory in Nistetal. With this, I include the presentation, and we are happy to take your questions.