SMA Solar Technology AG

Ladies and gentlemen, welcome to the analyst and investor presentation quarterly statement January to September 2025. I am Sandra, the course co-operator. I would like to remind you that all participants have been listened only mode and the conference has been recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Ravi Raul, CFO. Please go ahead, sir.

Thank you, operator, and welcome, everyone. I very much appreciate that you are taking the time for this investor and analyst call on our nine-month 2025 results. This conference call is scheduled for up to 60 minutes and will be recorded. After my management presentation, I will be happy to answer your questions. Today's presentation is available on our investor relations website. The replay will also be available on this website shortly. Our agenda for today. First, I will give a review of our nine months and our presence in the home segment in the U.S. is currently being evaluated. Excellent service will be our USP in the future, enabled by cost-efficient operations via our multi-shared services and both. In general, it means that we will use our global footprint even stronger going forward while strategically focusing more on our core market, on our core home market in Europe. In total, the program will mean a reduction of about 300 FTEs in Germany and another 50 in non-core markets, while building up about 200 FTEs, mainly in Poland and India. Now let's talk about large scale. Our large scale and project solutions continues to operate in a highly dynamic global market that is driven by a growing demand for grid stability solutions. SMA is a recognized expert and leader in this field, which puts us in an excellent position to seize this momentum. One example for the successful inauguration of the first utility-scale battery energy storage system with grid-forming technology in continental Europe, in Föhren, near Trier, Germany. We are proud to have delivered seven medium-voltage power stations with our sunny central storage up-battery inverters and the SMA power plant manager. Altenso also continues to grow and realize challenging projects, as you can see in our second example here. In September, Altenso commissioned a hydrogen plant conversion unit, HydrogenDU, a pioneering green hydrogen plant located on the coast of Namibia. The special feature here, this plant is the first ever to operate 100% off the grid and an intelligent energy management system coordinates the optimal time for hydrogen production. large scale has delivered the first sunny central flex and the power plant manager in the us at the end of july manifesting our position as a global player in this field the sunny central flex is an innovative modular power plant solution that was just last year recognized by tv magazine with top innovation award the award recognizes the ability of the sunny central flex to facilitate the integration of PV, battery and hydrogen applications into large-scale projects, making it possible to design, build and adapt for new and exciting power plant use cases. Now let's turn to the last page, our guidance for 2025. As said several times, the market environment for HBS is still very difficult due to macroeconomic deterioration and the declining expansion rates in the residential and commercial sectors in most key markets. Thus, 2025 sales are expected to be well below the previous year's level for this division. The large-scale and project solutions division is planning sales slightly above the high level of the previous year. Group EBITDA and EBIT will be negatively impacted by lower sales and the resulting lower fixed cost regression in HBS, as well as one of described earlier. Due to the significant further deterioration in Q3 of the anticipated sales performance for 2025 and the following years in HBS, we had to lower our guidance range on September 1st to 1.45 to 1.5 billion euros for sales and minus 80 to minus 30 million euros of EBITDA. Of the expected total one-offs of about 250 to 265 million euros, 45 million euros were recognized in Q2 and 159 million euros in Q3. Please note that further provisions for restructuring measures will be added in Q4. Last but not least, a note on our upcoming events. Full year 2025 financial results will be published on March 26th Next year, combined with an analyst and investor call. With this, I conclude the presentation, and of course, I'm happy to take your questions.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the telephone. You will hear a tone to confirm that you have entered a queue. If you wish to remove yourself from the question queue, you may press star and two. Questionnaires on the phone are requested to disable the loudspeaker mode while asking a question. Anyone who has a question may press star and 1 at this time. Our first question comes from Lasse Stuben from Burenburg. Please go ahead.

Hi. Good afternoon. Just a question on guidance for this year. In terms of revenues, it looks pretty conservative for the fourth quarter. So I'm just wondering, you know, how do we square that performance, particularly in large scale, in what's usually, you know, a stronger Q4 than Q3? So I'm just wondering what the effects are there. And then the second question would be, you're profitable on EBIT in C&I in Q3. Is that something we should expect going forward as well, or is there more one-offs that we should be expecting in Q4 and also maybe in 2026? Thank you.

Thank you for the question, Lasse. Let's start with the Q4 revenues. So you're right, in the last two years, Q4 was always the strongest quarter in terms of revenues. This year, we don't expect that, to be honest. I think Q3 was very, very good, and hence Q4 will be a bit lower. And that's why we were confident with the range that we kind of laid out to answer that question. And it's depending on when the projects are commissioned. You always have the topic that if a large project at the end of December is commissioned end of December, then it's in-year, and if it floats to the next year, it can be a change of, let's say, 20, 30, 40 million euros. That's why it's always a bit tricky to land, let's say, the large-scale revenues exactly. But in general terms, Q4 will be a bit lower than Q3, and the numbers will add up. First question. Second question, I'm not sure I got it. I think you mentioned that CNI has a positive EBIT. I'm not so sure about that, even excluding one-offs. EBIT is negative of that division. So not sure if I got your question right or if I've answered it.

Yeah, I mean, if I look into the Q3 report this year and I go into EBIT, sort of in operating profit terms at least, you had, I think, 10 million positive, unless I'm reading it wrong.

Yeah, let's double check. So we had, I mean, as shown on page six of the presentation, we had a minus 322. There are 200 million one-offs and the other minus 112 along the nine months. So... Even operationally, they were not making, so maybe you have to check the report, how you read it, but no, they were not operationally profitable. Okay, thanks. Thanks.

Good? The next question comes from Konstantin Hesse from Referees. Please go ahead.

Thank you. Hi, Kaveh. All right. Just on my side, I'd like to start with order intake because clearly, you know, low out quarter in Q4 in terms of large scale. I do apologize if you commented on it because I was on a separate call because I have two results at the same time. So I would like to just understand in terms of the momentum that you saw in large scale in Q3, how much of that was related to delays that you saw in Q2, and how should we think about this going forward? I mean, is this something that you think is sustainable, or how should we think about the Q4 level of orders and into next year? Thanks.

Thanks, Konstantin, and glad you made it to the right call. On the Q3 order intakes, they were higher than what we expect in Q4, to start with that. We had a really good Q3. We had one spike in EMEA, but this will not – it's a huge project. This will not come again in Q4. As I mentioned, U.S. is getting back to normal levels. I think that's important. The rest will be good, so we think the order intake will be – Yeah, something at least more than 300 million up to 400, depending, again, on timing of the project. So, hence, it will be lower than Q3, but it will be on a good level in Q4.

Is that group or is that large-scale only?

Basically, that's the same these days, right? So, that's because if you see at our order backlog, of HPS is pretty much stable because what comes in, we basically convert to revenue. So, how you want to read it, but this is mostly large scale.

Okay, interesting. So, going into 26, this U.S. momentum, you expect that to continue, yeah? I mean, just trying to figure out what's the key driver here because if I look at the current outlook for U.S., it looks relatively, I mean, it looks obviously less positive around permitting. There are some issues around In Europe, you clearly have a lot more competition. So what's driving this in both regions?

I think the market is there. Let's start with that. As you know, we are operating in batteries and in MPV markets, right? It's really 50-50 in the regions. And we see that the market is there. We have the right products. We have a good market positioning. We have good sales. So I think we are not planning to gain market shares or strongly outperform competition. It's more around keeping the momentum. And with all the USPs we have, which is the grid forming capabilities, the large number of products, the quality that we have out there, I think we can be proud of what the team is doing there. So this is giving us confidence going forward.

You said something interesting, I think. You said storage versus solar, it's 50-50 now. So is that the level of storage that you're getting in, in terms of order intake?

Yeah, roughly.

Interesting. Okay. Going into, Kavi, so one thing I'm going to ask again, same question that I asked in Q2, around the building blocks, or should I rather say, how should we think about the development of off the bottom line for HBS into next year? Because I think it's been relatively tough to get a clear-cut view. I mean, if I add back, you know, the one-offs this year and I assume no growth, I'm assuming a loss of about $100 million. But then you obviously have some savings initiatives in place. You said $150 to $200 million into the end of 26th. So if I look at a potential break-even level for HBS, would that be below 250 or below 300? How should we think about this potential new break-even level?

Yeah. Yeah, that's a good one. I think we have – We have lots of things in movement, right? And I talked about the value chain and all the adaptations that we make. And I think the break-even that we need depends a bit, obviously, on the product mix and the margins of the product. So 300... 300 sales can be very, very profitable. It can also be with the same profitability of, let's say, 350 or 360 million revenues, right? So depending on what you assume there in terms of product mix and profitability, the breakeven will never be below 300 million. We would at least need a 300 million. to get to break even and also even higher, depending on how much price situation and pressure remains in the market. So I would say currently looking, and it's a wide range, I know that, forgive me for this, but it's between 300 and 400 million next year.

Okay, 300 and 400 in order to, okay, fine, to get to break even.

And we will not be break even next year, obviously, because there's still much going on. Okay.

Yeah, fair enough. And fine. So and if I look at the profitability for large scale, you're probably going to close this year above 20%. Is that a level that you'd expect going forward? Or, you know, do you anticipate to start investing a bit more in R&D or whatever? And could there any potentially be any headwinds on profitability there? Thanks on the margin, right?

Yeah, I think there will be two trends that will impact the profitability going forward. The one trend is, as you just mentioned, we will need to invest a bit more into this business. We've been a bit prudent last year and also, let's say, until Q2 this year to basically keep the money together and to help with all the other topics. We will now... Spend more next year for large scale to increase our competitiveness, right? So this will impact profitability to a certain extent. And the other thing, and I know it's always a bit tricky, but it's the CFX rates. So we see that expectations next year for the U.S. dollar and euro rates that they will impact our profitability as well. As we produce in Germany mostly and export it to the U.S., we will get a hit. And then we will say, well, why don't you produce there? So if you do that there, we'll have the tariffs on everything coming in. And then things are, again, more expensive, and then you pass it on, so you have a similar effect. So we have done different scenarios. And overall, we will not be able to keep the 20%.

Okay, understood. So we should be thinking about something right around high double digits, high teens. Yes.

Yeah, I mean, we're not talking about the EBIT margin for next year right now, right? I think we will keep the guidance for next year. It will be lower than 20, but the group will be positive, so all good.

Okay, fine. And then just lastly, just wondering if Florian said anything around large scale in the U.S. I mean, I think it's interesting to see, you know, what could potentially – be a very bullish market for you, right? Because if we assume that fiat comes out in a rather stringent way, that would, of course, potentially limit SunGrow's business in the U.S. So, you know, are you seeing any increased interest, I guess, from U.S. developers for SMA? And then I'm not sure if you've seen that NextTracker or not now they're called NextPower, They just launched a utility inverter as well. So just wondering if you had some feedback on that yet. Thanks.

Yeah, the last one just came in this morning. To be honest, I didn't have time to build an opinion myself, so I will not comment on that one. Sorry for that. When it comes to upsides due to the FAO regulations in the U.S., I think it's fair to say that if you are in this regulated markets, you can have huge swings built on new incentives, tariffs in, tariffs out, protection here, new rules there. And then when you, let's say... build your business around that, you're very prone to be dependent on what actually happens in the end. And you can never be sure that the next guy or even the same guy changes their relation again. And hence, we are kind of ignoring that. As long as it's not harming us, we're not planning with any upsides. But of course, we will welcome every customer that that decides not to go ahead with Chinese and wants a European and a premium German inventor, producer, and we will, of course, serve them right. But for our planning, we are not considering that as a realistic case. It could be an upside, but that's not what we will be putting in our budget.

Great. Thank you so much.

The next question comes from Gido Hauemann from Metzler. Please go ahead.

Yeah, good afternoon. Three or four questions, and maybe we can go through them one by one. The first one would be, again, on a large scale. Am I right, or maybe is that a reasonable assumption? the deadline for switching from the 5% safe harbor rule to the so-called physical work test. I think that was the 2nd of September. So that triggered a lot of pre-buying there. So did you observe, you know, particularly high orders before that, early September, and how did the order development change? And, yeah, develop it over the rest of the quarter in the US. Do you think that, you know, that given that there are other deadlines like July 26, you know, for those projects which pass the physical work test and then year end 27 for those projects which did not meet any deadlines, you know, so do you expect all these deadlines to continue to trigger high demand in the US until then in your large-scale business? That would be the first one.

Okay, let's do this one first. Hi, Guido. So the safe harbor rules. So, no, we don't see an impact, to be honest, in our business. Neither has there been an increase or a decrease. As mentioned, our order intake was good. A little bit of catch-up because Q2 was very low. And we have lots of discussions with customers, and the question is, how do they safe harbor? And they don't have to safe harbor buying inverters. They can also, as I said, do the safe harboring by the start of physical work. And hence, many of them are doing that, and we don't see a drop in our pipeline at a certain point going forward because they have now safe harbored, and then there's nothing else after that. Plus, what's also important, let's not forget, these rules apply only for PV only, not for batteries, which is, again, half of the U.S. business. So it's basically a half of a half of our business that's impacted by those rules anyway. And hence, I think we are pretty prudent here with how we plan going forward.

The second one would be on your status to increase the local content in the US and to avoid or to reduce US tariffs. Can you maybe give me a brief update on the status there?

Sure. I think the short answer is we're on track. The longer answer would be that, as you know, the VPS stations, which have the transformers included, They are going to be produced in the U.S. by end of this year, and the integration will start in January. And the whole integration and the ramp-up of the MVPS stations is scheduled for the second half. We do those two things with our partners, and they report they're well on track.

Okay. Then maybe also two quick ones. The restructuring costs you're planning for Q4, did you quantify them, or can you do that, please?

Yeah, sure. I think the biggest chunk of the still to be booked one-offs for Q4 is the amount of severance payments that we will need to put aside for the for the labor topics, and we estimate something between 30 and 40 million, and that is roughly what we had put into the guidance.

The last one, again on HBS, obviously becoming now a relatively small player, it is a highly price-sensitive segment. So do you see it to be viable or maybe to... to get an exit for this question, do you want to focus on specific needs? You know, EV charger could be something else, or do you still want to address, or do you just want to, let's say, focus you in a geographical perspective, but not in the range of products you're selling?

Yeah, I think... I think we do focus, but it doesn't mean that we will just sell one product. And I think I tried to lay it out, but let me recap a bit. So we will reduce the global footprint. And as I've learned the time since I'm with SMA, that an inverter is not the same product depending on the countries it is operated due to, you know, grid regulations and all these kind of things cable with and whatnot. So the variety of our products will be lower because we will have less countries to serve. So here we will reduce the amount of complexity, right? That's one topic. The second topic is that also the, let's say the product variety in terms of how many different PV-onlys we have or hybrid inverters will also be reduced. But, and this is very important, for the core markets that we will target, we will make sure that we will deliver the full solution. And the full solution these days is a hybrid inverter together with batteries, together with energy management, together with the right software. And an EV charger, of course, if you have a car. So what we make sure for the home market is we can give to these core markets a complete portfolio but not having varieties of it in many regions, which will then help you to serve. If that's kind of making sense.

Yeah, it does. All right, very helpful. Thank you.

The next question comes from Jeff Osborne from TV Cowan. Please go ahead.

Thank you. Good afternoon. Just a couple questions on my side. I was wondering if you could articulate what the pricing changes were, either sequentially or year on year. I think you had alluded to immense pricing pressure in your statement for the restructuring a few weeks ago.

Yeah, I think that's a tough one, right, because it depends product by product. I know that's an easy answer. I think if you just look at, and we did the analysis just recently, when you look, What happened H124 between this point of time and H125 in the home market especially? I think we see price declines between 5% to 15% on average. And then, of course, this hits your profitability if you can't be flexible with your production. So that's what we call immense in one year.

And I'm just curious, after the Chinese policy change June 30th, if things got worse in the third quarter as it relates to home and small commercial?

Not really, no.

Okay. Good to hear. And then I just wanted to understand the factory realignment with HBS. It sounds like the majority of the design work will be done in India and manufactured in Poland, if I heard you right. What was the tradeoff of, you know, possibly using contract manufacturing in Eastern Europe or other locations relative to leveraging your own facility, which I think historically, you know, made sub-assemblies and equipment for the utility scale product, if I'm not mistaken?

I think for us it's important that we own the product, that we own the development and that the software where the heart of the product is compared to maybe 20 years ago where the hardware was the key differentiator. So we want to make sure that this is owned by us and owned by our own development. We go to India where we already have established a hub with very good developers and strong access to the the local to the local market local universities um so that's i think um the key driver here for the software part and when it comes to assembly obviously um there is um yeah there's labor arbitrage is one topic the flexibility is the second topic and we have experience there so i think uh overall um the Polish entity is used to do manufacturing, and hence we will leverage that. Otherwise, it would be a waste of capabilities and good people.

Got it. Maybe just my last question is, if I heard you right, you're reevaluating the U.S. and Australia home market, but you have a sizable presence in the U.S. commercial market historically. I know you're working with Create Energy on the utility scale side, but what's your plans in defending market share as it relates to the commercial segment? It would seem you're poised to lose share given that Chintz is likely booted out given FIAC. I think they're the market leader year number two historically. Sure. most of the commercial folks are going to want a U.S. manufactured product. So do you have plans for manufacturing commercial inverters in America, or are you willing to cede that market share?

I mean, currently the setup is, as you said, we are for the commercial part, right? We produce in SMA in Kassel, and we ship it over there. And we have no indications that this is going to deteriorate. When I talked about Removing ourselves from potentially U.S. and Australia, that's more the home part, not exactly the commercial.

Got it. Thank you.

So, yeah, no concrete plans now to do a localization of that, but could come later. Sure.

The next question comes from . Please go ahead.

Hi. Thanks for taking the questions. I was wondering, on the large-scale side, could you just give a sense as to whether the value-added margin is particularly different between battery and PV, whether you see a particular difference in value-add margin? I'll go one at a time.

I mean, I'm not a technical guy, but to be honest, my understanding is in terms of production costs are pretty similar. And so I don't recall a big difference in the margins.

Okay, so margin mix isn't the factor. Okay, fine. Okay, good. And then on the Chinese side in terms of competition, you said there had not been any particular difference in pricing at this stage, I guess in the HBS part. Would you have any particular concerns about pricing in Europe, in particular from the changes in Chinese markets? Chinese market situation becoming exported going forward, or are you not seeing that?

No, I think when we were at InterSolar, I heard a person from SunGrow saying that all the low-tier Chinese players are ruining the market with their pricing, right? And this was referring to China itself. which was for me an astonishing statement, to be honest, coming from SunGrow. So overall, I think the price pressure will mostly hit the Chinese market because it's big and they're cannibalizing themselves a lot. And I don't see an additional pressure on Europe due to that at this stage.

Great. Okay. And you gave a number between $300 million and $400 million for break-even on the HBS business revenue. Is that for 2026 or post-order restructuring?

No, that's post-restructuring. That's post-restructuring. So, as I said, we will not be break-even next year.

Yeah. I was just wondering whether that sales level is after all the savings or midway. Okay. And then the last thing is just with the write-offs that have happened in various different levels, both in projects, depreciation, also inventory. When you think about the impact of that on the 2026 profit, i.e., lower depreciation, lower amortization, and maybe what happens to the written-off inventory, is there any sense on how that changes the profit base just from the impact of all the write-offs? I don't mean by having no write-offs. I mean the run rate.

So, no, it should not impact the run rate because the rules are we can only write off things that we're not going to use next year. So I can't plan now that we will have better margins because I'm going to use them again. So the write-offs are real write-offs. Obviously, we have still the material. We don't plan in the next year, so to say, to use it. However, we need to come up with a plan in terms of how to deal with this amount of materials, and then it might be that at one point we find good solutions for that, and this could be an uplift, but it would be a one-time uplift and not a run-rave.

Okay, so you'd highlight that related to the inventory, but I guess you have lower depreciation, lower amortization because of the write-offs next year.

Yeah, but it's not material in that sense.

Okay, very good. Thanks for the answers.

Thank you.

The next question comes from Konstantin Hesse from Jefferies. Please go ahead.

A quick follow-up. Just on cash, I mean, your balance sheet is looking quite good again. And I'm just wondering, is there any M&A potential here that you could be keen or focused on, be it a segment M&A, be it a regional M&A, anything interesting, or is this even a focus potentially, or will you just continue to focus on making sure that you continue building up the balance sheet?

No, I think even if we had an M&A plan, we would not talk about it here, right, to be honest.

Okay, so you – okay, bye. All right, enough. Sorry.

As a reminder, if you wish to register for a question, please press star followed by one. We have a follow-up question from Peter Tester from One Investments. Please go ahead.

Hi. Thanks again. Just on the large-scale side, could you talk a bit about two things on the backlog and the pipeline? On the backlog, if you look at phasing in terms of how that phases in time, the $900 million, $902 million, how does that phase out in time by either quarter or years, just to give a sense? I'll ask about the pipeline.

Sure. So it depends a bit where you have your backlog. So if you have projects in Europe, usually they materialize up to six months, around six months, I would say, six to nine months, depending a bit. And if you have projects in the U.S., they can take up to 12 months because you have to produce here, bring it to Italy, ship it over, bring it then from the coast to the – so it's usually the, let's say, transport times, and it's the time that you need to – that you need for supply for the MVPS station itself, the medium voltage part. So these are basically the two things that are hindering the faster turnaround. And hence you have something within six to 12 months depending on the project.

Okay. And I guess in Australia it would be more like U.S., yeah?

Exactly.

Yeah, okay. And then on the pipeline, can you give a sense, please, in terms of what you're seeing in project behavior, tendering behavior, i.e., speed at which decisions are made, the speed at which permitting is granted, and just so we can kind of understand what you think about pipeline flow and what it means, therefore, for orders coming to delivery, arriving and booking revenue.

I think in Q2, if you had asked me this, we were very cautiously looking at that because we saw that the turnaround times were a bit slower. I would say we've gone to normal levels. So when I remember our business discussions with the teams, nothing specific, to be honest. So it looks normal.

Okay. And the scale of the pipeline in any different geographic message?

No, all good. As I said, I think we will end the year with a similar backlog as last year. That's at least what we expect now to happen in the next month. And we will go with a good backlog into next year, and the pipeline itself is on a similar level. So we are actually – I'm cautious here given the recent quarters, but I'm actually quite optimistic. So that looks good from our side.

That's great. Super. Thanks for the answers.

Sure.

Once again, to ask a question, please press star followed by one. Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Tavira Ruiz for his closing remarks.

Yeah. Thank you, everyone, again for your interest. And, of course, please do not hesitate to contact us in case you have any further questions. So goodbye and have a great day.

Ladies and gentlemen, the conference is now over. Thank you for choosing Coral School and thank you for participating in the conference. You may now disconnect your lines. Goodbye.