SMA Solar Technology AG

We very much appreciate that you are taking the time for this investor and analyst call on our Q1 2024 results. 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 start with an overview with some key financial highlights. After that, I will walk you through the figures of the first three months as well as our full year outlook 2024. 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 the first quarter 2024. SMA starts its financial year 2024 as planned. The group sells of 362 million euros remained at about the same level of the prior year with 30, 367 million. Large scale had a strong start to the year in the first quarter, which sets the tone for a big year for the segment. Home and I cells are affected by the high stock levels as distributors and the normalized delivery situation as we expected since the slowed down of incoming orders already in H2 last year. I will provide more insights on the individual segments in a moment. EBITDA also came in as expected, reaching 50 million euros after 60 million euros in Q1 2023. And free cash flow reached minus 46 million euros resulting from an increase of networking capital and order backlog stood at 1.5 billion euros per end of Q1. Now let's go to page 5, cells by region and by segments. On the left-hand side, you can see that EMEA, our biggest region again, decreased from 73 to 56% in Q1 2024. This is due to the high level of stocks at customers in home and C&I in EMEA region, which led to a sharp decrease in sales for those segments in Q1. The large-scale and product solution business had an outstanding first quarter in EMEA with more than double the revenues in Q1 compared to last year. America's revenue share increased from 22% to 30%, mainly driven by the large scale segment, with strong double digit growth in the first quarter. More than 80% of the America sales are in the large scale segment, but we expect HOME and C&I to increase their revenues in the region over the next quarters. The APEC region share of SMA sales increased from 5% to 14%, also from strong growth of large-scale business in the region, especially in Australia and South Korea. The top three markets. for SMA Group in Q1 2024 were Germany, the US, and Australia. Now let me walk you through the sales per segment on the right side of the slide. Due to the normalized supply chain situation combined with high inventory level at distributor stock, revenues in home segment decreased by 62% from €163 million last year to €63 million at the end of Q1, as expected. EMEA remained the biggest region for the segment, and the segment's share of total sales thus came down from 17 compared to nearly 44% in Q1 2023. C&I achieved 71 million euros compared to 80 million euros in Q1 last year, a decline of 11%. Like in the home segment, reasons are the normalized supply situation combined with high inventories at distributors. EMEA remained the strongest region for this segment with 81% share of total revenues. Large scale again showed a robust revenue development with a plus of 85% from 124 million euros in Q1 2023 to 229 million euros end of March this year. All regions recorded double digit growth with Americas again the strongest region making up 43% of the segment sales. As expected, The strong project pipeline built up since H2 of last year is now being realized in our revenues. Now let me provide you with some more information on Q1 profitability. Profitability of the group was affected mainly by product mix, as well as increased cost factors, including effects from inflation, and came down to 50 million euros compared to 60 million euros in Q1 2023. EBITDA in Q1 2024 includes positive one-time other income from the sale of SMA's Alexon stake in the amount of 19 million euros and a customer consolation fee of 3 million euros. EBITDA margin reached 40% compared to 16% in Q1 2023, where last year's first quarter was strongly influenced by a positive product mix. With about 12 million euros, depreciation was slightly above last year's level of 10 million euros. Now let's have a look at the segments in detail. Home Solutions EBIT was slightly negative in Q1 2024 due to the low level of sales resulting from the high level of customers' inventories. This led to an EBIT margin of minus 6% compared to a positive margin of 31% last year. As already explained, this was expected and is only a temporary effect. C&I Solutions EBIT declined from minus 1 million euros in Q1 2023 to minus 18 million euros in Q1 2024, also due to the lower sales related to the high customer stock level, as well as lower fixed cost regression. EBIT margin therefore came in at about minus 26% compared to minus 2% last year. Like in our home solution segment, This is only a temporary situation and we expect increased revenues later this year, which will also stabilize earnings. Our large-scale segment showed the biggest earning improvements in Q1 2024, reaching €41 million compared to €2 million in Q1 2023. The increase in sales and the associated fixed cost regression combined with the profitable product mix contributed to this very positive margin development. Thus, EBIT margin increased to 18% compared to 2% in Q1 2023. The overall EBIT margin of SMA Group amounted to 11% compared to 14% in Q1 2023. Now I will move to the balance sheet and the networking capital on the next slide. Networking capital, which is shown on the top left of the page, reached 464 million euros and is above the year end figure of 392 million euros. This resulted in a ratio of 24%, which is slightly above the upper end 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 in the first quarter to 686 million euros necessary in order to ensure the forecasted revenue growth in the second half of 2024. We still continue to invest into higher stocks on critical components to ensure delivery capabilities and to better steer our supply chain. And as you know from the past, the market dynamics change quickly in our industry and SMA is positioning itself to be prepared for a quick turnaround in home and C&I segments. Bet receivable decreased in line with the lower revenues. Paid payables also decreased as usual in the first quarter, as several invoices received during the holiday period at the end of the year and are proceed and paid in Q1 at the following year. Furthermore, advanced payments received from our customers increased significantly, driven by our strong large-scale project pipelines. Net cash came down from 283 million end of 2023 to 243 million euros as a result of the build up of networking capital in the first quarter. 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 change in networking capital positions, I will now focus on the significant changes in the other balance sheet positions. Our non-current assets increased to 438 million euros, mainly reflecting investments into our product pipeline in the form of capitalized R&D project costs. Shareholders' equity increased from 686 to 715 million euros as per our net profit in the quarter. Provisions slightly increased from 201 to 208 million euros, mainly as a result of increased warranty provisions related to changes in our product mix sold. Other liabilities slightly increased to 443 million euros mainly from the stock uptake of advanced customer payments, which are considered in the networking capital. That concludes my explanation of the balance sheet. Let's now have a look at our summary of cash flow on the next slide. In the reporting period, gross cash flow came in at 51 million euros compared to 76 million euros in Q1 2023, as our operating result was below the extraordinary level of Q1 last year. Given the lower gross cash flow and the increase of networking capital, cash flow from operating activities amounted to minus 44 million euros compared to plus 65 million euros in Q1 2023 as explained. We continue to invest in securing our ability to supply and with the expected uptake of revenues for home and C&I in the second half of this year and further strong quarters for our large-scale segment, we also expect our current investments into inventories will convert to positive cash flows by the end of this financial year. The group invested 20 million euros in net capex in the first quarter, which mainly composed 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 stage of development, with one of our new home solution platforms launched already in the US in Q1, and further launches planned for the next year. To support our new platforms, we are also expanding our production capabilities and capacities, especially for the highly successful large-scale segment. Considerating all these effects, our free cash flow decreased from 50 million euros in Q1 to minus 46 million euros in Q1 2024.

Now let's move to the outlook for 2024.

Looking at the right side of the slide, you can see that our order backlog end of Q1 2024 remains on a solid level of about 1.5 billion euros, which is well above the level before the supply crisis started during the year 2022. This order backlog is, as expected, well below the order backlog at the end of Q1 2023. Please remember, incoming orders declined as anticipated and as forecasted in the second half of 2023 compared to the first two quarters of 2023. As the majority of orders in the home and C&I segments had already been placed by the end of the first quarter last year. Product order backlog remains, however, on a solid level of 1.1 billion euros. On the left side of the page, you can see that our large scale product order backlog remains very strong with 880 million euros followed by CNI with 118 million euros and Home Solution with 104 million euros. As already said a few times, we do not expect a significant increase in order intake for Home and CNI not before end of Q2 due to the high stock level at distributors and installers. This means that 2024 will be a back-end loaded for revenues, results and cash flow with a much more stronger second half of the year compared to the first six months. And why do we believe in the second half of the financial year 2024? The high stocks at distributors and installers need some time to be released. This is completely normal. But despite that, we see from Germany, which is our biggest market for home and CNI segments, that the registrations in SMA solutions in our Sunny Portal remain on a very high level. To give you an idea, from January to March this year, home ENSI and I saw increased registration in our Sunny Portal compared to last year. Additionally, we have established various measures targeting the installers in order to generate more pull from the installer market. Furthermore, we believe that the Solar Package 1, which has recently been passed from the German government will increase the attractiveness of investing in solar energy solutions, especially for customers in home and C&I segments. So let's turn to the last page, our guidance for 2024. As communicated on February 29, we continue to expect group sales to increase between 1.95 and 2.22 billion euros in 2024. Our planning is based on the assumption that sales in large scale will continue to grow strongly as a result of the existing high order backlog, which nearly covers our full year sales expectations. and expected H2 recovery for home and C&I revenues after customer high inventory level comes down to normal levels. Given the expectation for revenue growth and taking into account changes in product mix and cost factors including investments in our new products and business areas, we expect Groups EBITDA to reach between €220 million and €290 million with a double-digit EBITDA margin. For SMA, 2024 will be a transition year. We are coming from an extraordinary situation in 2023, with an enormous order backlog as a result from high demand combined with delivery constraints in the first month of the year. The supply chain are now returning to be normalized on a normalized level, especially for residential and commercial segments. And this has affected order intake and order backlog. Last but not least, a note on our upcoming events. We will host an investor relations event with a tour around our booth on June 20 from 10 a.m. to 1 p.m. at the Intersolar in Munich. A save the date will be sent out via email shortly. And please mark in your calendar August 8th for the half year figures press release and analyst call. Our next capital market day will be held in 2025, where we will also offer a guided tour in our new gigawatt factory in Istetal. With this, I conclude the presentation and I'm happy to take your questions.