In the recent earnings call, SMA CEO Juergen Reinert presented a strong financial report for the full year 2023. The company achieved a significant increase in group sales, with a 79% growth to €1.9 billion. SMA's EBITDA soared, reaching €311 million, a substantial rise from the previous year.
The revenue growth was notable across all segments, with the Large Scale segment nearly doubling its revenue. The company's EBITDA margin impressively climbed to 16%, demonstrating increased profitability. Reinert outlined SMA's strategic focus on innovation, with new product launches and expansion plans, particularly emphasizing their commitment to sustainability and cybersecurity.
Key Takeaways
- SMA's group sales rose by 79% to €1.9 billion in 2023.
- EBITDA increased to €311 million, more than four times the previous year's figure.
- Significant revenue growth was seen across all segments: Home Solutions (33%), C&I (65%), and Large Scale (nearly doubled).
- The EBITDA margin improved to 16%, up from 7% in 2022.
- SMA has a strong commitment to innovation, planning to launch new products and expand its platform strategy.
- The company is investing in new innovations, such as the global expansion of the new inverter series in the US.
- SMA's net working capital ratio was within the target range of 19% to 23%.
- SMA plans to establish production facilities in the US and is expanding production capacity in Poland.
- The company has a high order backlog and expects continued demand in the end market.
Company Outlook
- SMA anticipates group sales to increase in 2024, with strong growth in the Large Scale segment.
- The company provided guidance for 2024 with an EBITDA between €220 million and €290 million and a double-digit EBIT margin.
- First-quarter results are set to be published on May 8, with an Investor Relations event planned for June.
Bearish Highlights
- There is a temporary decline in demand for Home Solutions and C&I segments.
- Some cancellations in the C&I business were noted due to overbooked capacities and high stock levels.
Bullish Highlights
- The Large Scale segment continues to have satisfactory order intake.
- SMA is nearly booked out for 2024 in the Large Scale segment and has projects booked for 2025.
- The company's differentiation through solution offering and project sales in the C&I space is expected to mitigate price pressure.
Misses
- The company declined to provide specific pricing expectations for the Home and C&I segments due to compliance issues.
Q&A Highlights
- SMA is considering in-house production or contract manufacturing for its US factory.
- The US production capacity will focus on Home and C&I products.
- SMA anticipates a smooth transition with the order backlog, expecting orders by the end of the second quarter.
SMA's robust performance in 2023 sets a positive tone for its future endeavors. The company's strategic focus on innovation, sustainability, and expansion, particularly in the US market, underscores its commitment to maintaining a competitive edge. While facing some challenges in the Home Solutions and C&I segments, SMA's strong order backlog and growth in the Large Scale segment provide a solid foundation for continued success. Investors and stakeholders can look forward to the company's upcoming first-quarter results and further insights at the Investor Relations event in June.
Full transcript - None (SMTGF) Q4 2023:
Barbara Gregor: Welcome, everyone. 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, Juergen Reinert, joins to provide us insights into the most important current business development. Welcome to the call, Juergen. This conference call is a schedule 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, Juergen will walk you through the current developments on innovations, the latest solutions, our platform strategy as well as fiber strategy, sustainability and investment projects going forward. After that, we will have a look on order 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 2. So let's move to page 4, financial highlights for the full year 2023. Summary of key financial 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, 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 after €70 million in 2022. All three segments could significantly improve our 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 and order backlog remains at a high level with €1.7 billion despite the high revenue volume. Let's go to page 5, 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 cells derived from the Home Solutions segment followed by C&I and large-scale. Revenue share in Americas increased slightly from 24% to 25%, mainly driven by the large-scale segments. The region showed a very good development in the course of the year with Q4 the strongest quarter. More than 80% of the Americas sales are in the large-scale segment. In our APAC 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 US and Italy Now let me walk you through the sales by segment on the right side of the slide. In our home segment, revenues grew by 33% from €335 million last year to €580 million 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 was an 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 backlog as well as high demand in EMEA.. C&I achieved €479 million compared to €290 million last year, a plus of 65%. Back 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 the segment -- 31%, sorry. Large Scale revenue nearly doubled from €441 million to €845 million in 2023 with Americas, again, the strongest region, making up nearly half of the segment sales. Especially in Q4, the project pipeline for all regions could be perceived as planned, and we saved no major setbacks or customer pushouts, which can occur in the project business Now let me provide you with more information on the full year 2023 profitability. Slide number 6, profitability of the group. Profitability for the group has grown substantially, reaching €311 million of EBITDA after €70 million 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 degression in production as well as the continued high margin product mix. Thus, EBITDA margin came in at 16% compared to 7% in 2022. The Large Scale segment posted outstanding earnings 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 from a customer cancellation fee in the first quarter and €23 million from the sale of property in Q3 2022. EBITDA in 2023 also include positive one-time other income of €6 million from customer cancellation fees. With about €42 million, depreciation was slightly above last year's level of €38 million. Gross margin for the group improved significantly to 29% after 21% in 2022. The improvement was preliminarily 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 segments in detail. Home Solutions, again, the most profitable segment substantially grew its EBIT to €148 million versus €54 million 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. C&I 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. The 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 digression. 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 sets 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 net working capital on the next slide. Net working 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 net working capital developed in the period under review. Inventories end of 2023 were at €515 million and increased compared to the year-end 2022 by €309 million 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 noncurrent 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 line with the higher level of sales. Our abilities grew to €431 million, 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 10x higher than the year before, driven by the strong positive results in 2023. Given our positive gross cash flow and a solid net working capital ratio, cash flow from 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. Juergen talk about this in more detail later. Considering all these effects, our free cash flow significantly increased from €5 million in 2022 to €57 million in 2023. This is for the moment from my side. I would like to hand over to Juergen Reinert for the current developments.
Juergen Reinert: 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 Solutions segment, SMA delivers innovative solutions. Positive results in 2023 highlight SMA's strong market position globally, avoiding over 70 million tonnes of Tier 2, with 1,600 patients and 4,300 employees in 20 countries, SMI 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, we were the 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 US, which we plan to expand globally. SMS continues to be innovating in products, digital business models and services. Innovation is a key pillar of SMA's 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 Solutions 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 standards 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 the 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 (KS:005930) 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 & Industrial Solutions segment. In 2024, we will launch an off-grid inverter, the Sunny Island X and the SMA data manager for future-proof communications as well as a brand new large commercial inverter to round off our portfolio. In the Large Scale & Project Solutions segment, 2024 will see the introduction of the new platform that offers turnkey solutions for all power plant applications. The pre-launch of the comprehensive system in the US has shown that this Innovatus 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 the Sacramento just a few weeks ago. These forward-looking 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 good forming. SMA leads the field of sustainability, cybersecurity and quality, giving our customers our true resilient solutions across all three segments. Our sustainability performance received positive ratings from independent experts and our participation in international ratings and rankings provide stakeholders with transparent assessment, 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 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 restored. When it comes to quality, our products stand out for the durability. A testament to our innovative development work consistently acknowledged by satisfied customers. SMA solutions in large storage projects ensure risk 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 Werne here in Germany, playing a crucial role in risk stability utilizing 47 Sunny Central storage units for optimal battery integration and charging/discharging, as well as the Blackhillock 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 Hilmar. Additionally, SMA is gearing up for the 150 megawatts, 300 megawatt hour project in South Australia, featuring best and solar PV systems. This project aims for grid connected operation, revenue generation to energy arbitrage and participation in the FCAS 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 round off my part of the presentation today, SMA continues to invest in the future viability and aims to continue growing in 2024 and beyond. In 2024, SMA is making significant investment in its operations, plans 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. And moreover, the company is set to establish production facilities in the US by 2025, aiming to bolster additional cells and supported 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.
Barbara Gregor: 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, which is well-above the level before the supply crisis secured. 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. 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 and Home Solutions was €177 million. 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 the ability to deliver, they have placed multiple orders with revised customers in the first half of 2023 in Holmen C&I. Also for 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 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 sales to increase to between €1.95 billion to €2.22 billion 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 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 group's 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 8, and we will host an Investor Relations 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 Niestetal. With this, I conclude the presentation, and we are happy to take your questions.
Operator: And our first question today comes from Lasse Stueben from Berenberg.
Lasse Stueben: Hi. Good afternoon. I would have two, if possible, please. On the 2024 guidance, you mentioned that you don't expect a recovery in Home Solutions and C&I in late Q2, not have imply that given the usual duration of some large scale backlog that you're expecting quite a rapid recovery or a steep recovery in the second half of the year to reach guidance. So I'm just wondering what sort of visibility do you have on that recovery in demand. Thank you.
Barbara Gregor: Thank you very much, Mr. Stueben for your first question. As I explained during the last months in the year 2022 and 2023, which we have been characterized by long delivery times due to supply chain prices and increased demand, order intake has been extraordinary high. This was shown and seen by everybody. This has especially been the case for the residential and commercial market segments. And as we already said, we do not expect an increase in order intake, thus, meaningful revenues for Home and C&I before late Q2 due to the high stock level distributors, and this is not structural but a temporary decline in demand. But what we do see is that at our Large Scale segment order intake continue to be very satisfactory. And please keep in mind that we have already our projects in 2025 and our -- a lot of projects for 2025 in our books, and for 2024, we are nearly booked out for Large Scale, and this gives us more resilience and a very good visibility into the year and beyond. And as you've seen earlier in the presentation, our order backlog end of last year remains on a high level of about €1.7 billion, which is the same level as at the beginning of this year. Product and order backlog is also on a very high level of €1.3 billion, what was still above the normal level before 2022.
Lasse Stueben: Okay. Thank you for that. And the second question is just on your CapEx guidance. For this year, you're guiding for around €200 million. I'm guessing a large portion of that is earmarked for the US. So can you provide some -- and so if that's correct? And second, could you provide some more details around what you're thinking about the US? I guess you must have pretty concrete plans. If you plan to launch this in 2025, and if you would potentially be in line for any grant in the US, that would also be interesting? Thank you.
Barbara Gregor: First of all, our investments for the year 2024 with around about €200 million, have different aspects. One of them is still that we are investing in our production capacities. And on the other hand, our R&D investments are also significantly due to our increasing product platform utilization. From this €200 million currently, we see that €50 million to €60 million are leasing under IFRS 16, as you know, that for the investment of our new gigawatt factory, we sold the property and now lease it back. So there are some extraordinary effects out of this long-term agreement is a gigawatt factory. This leads to the fact that investments will be around about €200 million compared to €85 million, €84 million we had in financial year 2023. And this explains this huge increase is mainly driven by the leasing effect under IFRS 16.
Juergen Reinert: And back to the US…
Barbara Gregor: And coming to the second part of your question concerning the US investment, we are still investigating what is the right thing to do in the US investment in the US. I mean we are searching and exploring opportunities for US manufacturing in all of its products and market segments. And on the other hand, we are investigating. Is it more an in-house production? Or do we go as a contract manufacturer concept. We will find a final answer within the next weeks. And the manufacturing expansion in the US will be at around about 3.5 gigawatts of capacity per year, preliminary targets the manufacturing of string inverters and this will be all financed out of our internal cash flow. So currently, no external finance necessarities are taking into consideration. And depending on the final solution for in-house production or contract manufacturing, the CapEx will have a slight variance, but this is all -- but we will be all able to finance this out of our internal cash flow.
Operator: Then we'll go to our next question, which comes from Guido Hoymann from Metzler. Please go ahead with your question.
Guido Hoymann: Yeah. Good afternoon, and thank you for taking my questions. The first one would be I think one could argue and say that additional capacity at this moment in time could be counterproductive given the current weakness in demand. Of course, I have understood that this should recover. But still, are you planning any sort of slowdown of your expansion works in Kassel? Do you try to expand the finalization of all that simply for the sake of yes, not sitting on too much capacity, maybe half a year too early or so. That would be the first question. So a slowdown of your expansion investments? And the second one is on the average selling prices. Obviously, I would say, of course, they fell in Q4, but this is also, obviously, and of course, due to the fact that you mainly or solely actually got in orders in the Large Scale segments. So, so far, so good. Nevertheless, what can you say about the average selling price development? How would they look like if we compare apples with apples. So if we look at the selling prices for Large Scale inverters last year versus in 2022 versus 2023. So is there any sort of price pressure at the moment? Yes. What can you tell us about that? Thank you
Juergen Reinert: Yes. Hello, Mr. Hoymann. Juergen Reinert, here.
Q – Guido Hoymann: Hello.
Juergen Reinert: To come back to your first question, first. So, whether we are going to slow down on expansion. No, we're not going to do that. The simple reason is there that we -- the factory we are building here is actually in the main course for the Large Scale. And as Barbara Gregor said, we are seeing not only a very, very good growth, of course, in last year with over 80%, but also a strong growth in this year and the next year. So we are now, as Barbara also said, maybe fully booked already for the year and of course, also booking for next year. So therefore, we are not slowing that down. And it shall, of course, fit to the timing of the project itself -- so for our launch next year. And this is really what we are focusing on. The same is actually true for the other two you mentioned mainly that we do increase our investment here on PCBA production as well as on the magnetic components in Poland and Kraków. We continue this the same way. And this -- the simple reason is that we believe in the underlying growth, which is there from the second half of this year, but also for the next years. And this is why it does definitely makes sense to continue and not make sure to ease the -- how do you say, the investment that we are having here. And we really believe in the market, and that's why that makes sense. So that was the first part of the question. When it comes to the second part, of course, we will see some pressure on the price. That's clear, I think, because of the fact that there's an overcapacity right now in the market, and then we will have the situation that everybody can deliver on short notice, and then there will be a price pressure. But on the other hand, we have done a good way in turning from a component supplier to a system supplier. And the examples, I guess, because you also went in on Large Scale for the big projects on storage and arbitrage and triads and other grid stability projects. We really see now the possibility to get a much better margin out of these because we are standing out of the risk when it comes to functionality of giving grid stability of having black start capability and everything you need in such a big penetration of solar and storage And this is true also for the smaller segments for Home Solutions and C&I solutions. We will see some pressure. We've also anticipated some pressure in our budget, but we will make sure that we are well positioned to not fight on price, and we think we are in a very good position there in the -- in all three segments.
Guido Hoymann: Yes. Okay. Thank you. And maybe a follow-up on the pricing. When you look at the modules, there's obviously an incredible price war going on. And I understand that your products are much smarter solutions, even smaller. But still, is that the explanation why this should and could be different with inverters?
Juergen Reinert: Yes. I mean, there is also, of course, one more part is that we have in our sales that we have, of course, a dependency on our product mix. That is over the segment, that is over the regions, and that is even within a segment and a region over the different products. So of course, that is one part that is that I forgot to mention a little bit earlier. But yes, it's true, Hoymann, we cannot be compared really to other batteries or to modules, which are seeing very high price reductions, not anymore, but definitely over the last year being more than 100% on modules and also more than 50% on batteries. But that is because there's a huge overcapacity from different suppliers to do the same thing and which we really regard as a commodity. And this was exactly what we did in the strategy definition some years ago that we said we need to come out of that trap if it comes to inverters at a point in time. And it's not so big for inverters. But of course, if we would only focus on inverters, that would be the same. But we're seeing just as an example, also when we go out now to doing much more project sales in C&I space, then we do go to our customers even directly, and we offer the complete solution out of charging, out of PV and storage and, of course, the energy management. And then normally, we are not really in such a big price discussion. I was meeting today again with distributors for a few hours, and we did not speak about price. So once again, the same I said at the beginning, they said pressure will increase. Yes, we anticipate that, but we don't see it that we need to go into that fight fully on the one hand because of our differentiation through the solution offering. And we also see that it will be far from that much even if we would only focus on inverters as for the modules and battery business.
Guido Hoymann: Okay. All right. Sounds good and thank you for taking my questions.
Juergen Reinert: Yes. Thank you.
Operator: Our next question is from Sebastian Growe from BNP. Please go ahead with your question.
Sebastian Growe: Hi. Good afternoon everybody. Hi, Mrs. Gregor and Mr. Reinert. The question would be around the strategy and the capacity. Can you hear me well?
Juergen Reinert: Yes.
Sebastian Growe: Okay. Good stuff. So on the strategy and the capacity planning, you labeled the point around the positive effects from capacity utilization around the profitability development in fiscal 2023. So with the earned inverter output at around 20.5 gigs, the nameplate capacity, you still have put at 21 gigawatts, which has been constant for many, many years. The question that I'm having is if you could illustrate and help us better understand how product launches with the same product you achieved better sort of nameplate capacities in the meantime, you have higher automation and production. You are adding capacity in Niestetal, the U.S. and Poland, how that would ultimately then sort of change the 21 gigawatt nameplate capacity? And can you also remind us of how many shifts you are currently running at? And what's the planning really for 2024?
Juergen Reinert: Yes. So, yes, you're fully right. We have talked about and this is our rough correct number also about 21 gigawatts that we have in the factory here in Kassel and that we can deliver. But as you can imagine, that's always a function of the mix you have in the product, so -- on some, you have more time for less kilowatts. And especially, as you know, we have had a stronger growth in large-scale inverters. So, that also pushes up that number. So, I would expect if we would not add the new gigawatt factory, we would slowly move up from roughly 20 gigawatts to 25 or even 26, 27 gigawatt by exactly as you said, mix but also the increase of productivity. So, just to give you that example, we are constantly working on all three segments with the output per shift of inverters and other products, and this is continuously happening. So, this number is not fixed, and it depends on the mix, and it is improved by improvements in our way we work and how we streamline the entire production. So, we see that the growth we have depicted in our guidance from €190 billion to €2 billion. That is doable definitely with the changes we are having in our production and in the setup of having higher utilization -- actually by efficiency gains in the production. And through the mix, as I said also earlier, and Barbara also said the part of the large scale will be growing. And that alone is a help in really getting out more out of the same -- sorry, out of the same factory. So, I don't see any problems with our capacity this year. And knowing that the market will not go like last year, of course, otherwise, that might have been a problem. But next year, we will add already early in the first half of the year, both the gigawatt factory as well as the U.S. factory. So, that's going to help us tremendously on both sides. Regarding the shift, as you can imagine, we are just about -- that's also depending again for the different products. But on the string inverters, we would typically be on a two-shift scenario and of course, on large scale, we are in a three-shift scenario.
Sebastian Growe: Okay. That's about -- thank you. Okay, great. Maybe we can link around LSPS then for a little longer. And I would like to pick a brain on the margin front first. So, on the price/mix, the profitability has obviously developed extremely favorably during 2023, if I look especially at the sequential development quarter-by-quarter. So, the first question that I have around this is then how should we think about the margin quality in the backlog? So, has there been any change? And asking the question in wake of the fact that we have seen power prices coming down quite significantly. So, has the discussion with utility customers simply change to more negative, greater scrutiny? Or how should we think about that?
Barbara Gregor: Yes. We have seen during the year 2023, this is for sure that the main portion of our sales came in at the beginning of the year from our Home segment. And it's no secret that we can gain there the best margin within our three segments. And during the year, there was a clear mix shift. And now currently, our large-scale business is the highest one in our overall sales expectation, also in our current estimation, which has from the neutral of the business and lower margin than our Home Solution business. But in general, also in large scale, we were able to increase margin and to book very, very positive orders also for 2024. So there is no depending on each project, we currently see that our margin in Large Scale are very stable or more or less increasing and there is no signal on price pressure on the project business. It's more a question of quality, reliability, sustainability, which we can offer to the market as we are the ones who have the highest order -- the highest track record over the last decade. And therefore, we see still stable price development in Large Scale compared to the different situation, which has Juergen Reinert explained in Home and in our C&I business. So therefore, for the next financial year, we also, given our guidance and EBITDA margin between 11% and 13%. And this is also driven by the fact that we do have to invest in our OpEx to increase our capabilities for the new gigawatt factory and also for our US investments. This gives also some reduction in our EBITDA margin, but it will be still two-digit positive, and this is much more better than we have seen in the past. And it's mainly driven by the large scale business and also taking into consideration this additional OpEx and investments, which we do have to be prepared for the upcoming growth, which we will see also from 2025 onwards.
Sebastian Growe: Okay. That's helpful. And I may ask a very last quick question around visibility. I think Ms. Gregor, you said before, I'm talking about the outlook that you already have visibility for 2025 and LSPS and then you added that you are almost sold out for 2024. So the question that I have is, how should we think about sort of frame contracts with utilities and I'm asking this question because it would be very, very odd for you to expand capacity to the extent you do without having the kind of greater, I think, visibility already? And if you could sort of help us quantify this in terms of volume. I think Mr. Reinert, you said before that you would not only expect 2024 to be an up year, a growth year, but also 2025. So if you could comment around those aspects.
Barbara Gregor: As I said, for the order backlog, currently and as we have also shown in other presentation, is mainly dominated currently by the Large Scale segment. And this means that within the next two days or weeks, we expect that we will have 100% orders in our books already for 2024. So we have a very, very good visibility current with a coverage rate of 80%, 90%. So this gives us a lot of confidence and visibility for 2024. But as you already mentioned, and as I also said, for 2025, we have also already long-term contracts and orders in our books. What we do not currently -- what we do not currently have are orders for our new gigawatt factory because we are launching this new product currently, as Juergen Reinert said, we started the launch in the US, four weeks ago, and we will launch it also for the European market in the next weeks. And then we will be able and open also to gain additional order intake for this new Large Scale project and for this new Large-Scale platform. So this will also then give significantly increase in order intake when we start launching this. And therefore, we see that the underlying demand is still there for 2024 and also for 2025. But with this new platform, the new out of the gigawatt hour per currency project name, as you know, it's a per platform. This will also increase the order intake for '25 and will then give also visibility. We will not start with 100% utilization in the new factory. This is for sure, as we have always a ramp-up cost, and we are also gaining order intake also for the old products, but the new ones will also start gaining order intake in the next few weeks.
Juergen Reinert: Maybe also adding on your question on the FM contract, this really has been changed actually over the pandemic period that we were earlier not able to have longer-term FM contracts and which we are having now, and this is helping us a lot, of course, also with the ability that if the project should not be realized, then we get a part of the payment. So this is a substantial part of our business going forward, but0 we have much more security, as we said, and is fully correct.
Sebastian Growe: Okay. Thank you, so much.
Operator: And the next question is from Jeff Osborne from TD Cowen. Please go ahead.
Jeff Osborne: Thank you. Good afternoon. A couple of questions on my side. If I did the math right, it looks like there was about $75 million of the bookings for the C&I business. Can you just touch on that? Are there cancellations for the C&I business, if you just take the backlog quarter-over-quarter relative to the revenue?
Barbara Gregor: Due to the -- thank you very much for your question, first of all, the explanation is very easy due to the fact that a lot of our customers are the installers and also the large stockholders have overbooked their own capacities sitting on a very high stock. They are trying to negotiate cancellation for orders or postponements. What we do is we always try to postpone every order, which they are currently want to discuss and try to do our best to postpone it to a later delivery date. This is the first thing what everyone in the sales department has as overall guidance. Sometimes, if there's a strategic long-term development and long-term distributor relationships, we have also to accept that there are some cancellations, which occur currently due to the fact that they have still -- some of them have still some problems to get rid of the material. But we also see incoming orders, and this is why we currently see order intake net, maybe as a zero or negative ones, but there are also incoming orders. And I think -- as we still are convinced if this is the right balance and discussing with every of our big distributor independently, one, will they see that the overall stock event will be changed. We see that latest end of Q2, there will be a significant change in the situation. And therefore, we currently accept -- I have to accept sometimes cancellation, but mostly, we are accepting postponement of our order intake on the current stage.
Juergen Reinert: Maybe to add on that, I think your number is a little bit high. So it's not an attire for at least four '23, which are the numbers we are looking at now. We can honestly say also that we continue to see some cancellations. But also on the other hand, we do think that we are really touching the bottom now and that it should get much, much less or non-existing from quarter two onwards. So we are in a good mood that this trend is broken.
Jeff Osborne: Makes sense. And then there's been a lot of questions on pricing and understandably so, just with the shifting market dynamics. Could you share what is in your guidance expectations as it relates to pricing, Barbara for the Home and C&I segments, assuming that those orders rebound in late 2Q, as you touched on? Are you assuming similar to your Western listed company peers that pricing goes down sort of high single digits or something less than that, worse than that? Anything you could share in your perspective of the rebound in orders and what the pricing would be would be helpful.
Barbara Gregor: This is a very interesting question, but you should know that I cannot answer this under compliance issues. What we are expecting exactly on the price development. What we currently see is that, there is not a huge price pressure, but we assumed some price decrease also in our overall guidance. But it's a single-digit decrease which we have taken into consideration. We do not see that it's necessary to use currently, and this is also good because also our customer's, distributors sitting on high stock level, they don't want to negotiate currently price reduction. And therefore, we are more using other stimulation to the market than price reduction, and we currently do not see that it's really a pressure. And as Juergen already said, we had, for example, this lunch conversation with one of our biggest distributors, and they all see that the price pressure is not as high as maybe expected, and we currently see that this situation is still more or less stable.
Jeff Osborne: Perfect. And then just very quickly, the US factory, you've been talking about for two to three quarters now. Are you delaying that? The decision seems slower relative to some other inverter companies that have decided to manufacture in the US. And so -- are you waiting for clarity maybe post the election? Or does the election not have anything to do with it, and it really is a decision about build it yourself or use a contract manufacturer?
Juergen Reinert: No, there's nothing changed there, Jeff. In fact, we might sometimes look a little bit slower, but we are taking decisions well grounded on where we want to be. We're looking a lot into sustainability issues, of course. As I said, I think we are much more sustainable than our competitors. And we are looking in all of these sectors when it comes to other, looking for a contract manufacturing partner and/or our own brownfield application. We will make that decision very soon in the coming weeks. And then it will be less than a year or a year about for us to be in production. That's why I said first half of next year, we will be able to do that. And we think, yes, it might have been good to be half a year earlier. On the other hand, if you do such a decision and then you find out later on that you did not the right decisions in terms of sustainability or labor availability, et cetera, then you're not helped by that either. So we think we are not definitely delaying it, I said a bit earlier, and we are quite good on course to keep our own timing, which is first half of next year.
Jeff Osborne: Perfect. That's all I had. Thank you.
Barbara Gregor: One organizational remark from my side, we will extend now for 10 additional minutes to give everybody the chance to ask the last question.
Operator: And the next question comes from Mengxian Sun from Deutsche Bank (ETR:DBKGn). Please go ahead.
Mengxian Sun: Hi. Thank you very much for taking my question. So the first one is a follow-up on the U.S. production capacity as well. With this production capacity mainly focused on the large-scale products? Or what is your expectation for the product mix, if possible, if you can share? And the second question is on the profitability in the large scale. So just to confirm whether I understand that correctly, so you said the profitability of the new orders are remaining at a very good level. So should we continue to expect the 14% to 17% EBIT margin for the large scale segment if we exclude the extra ramp-up cost? And the last question is on the CapEx, so you said there is certain extraordinary items in the CapEx of the €200 million plan for 2024, which is related to the IFRS 16 this year. But what will be the normalized CapEx in the mid-term, let's say, for 2025 and 2026? Thank you.
Juergen Reinert: Yeah. I think I will start with the number one question and then Barbara can take over for the other two. So, no, the 3.5 gigawatts that we pronounced for the production in America, that is definitely focused on Home and C&I. And there's also where the bigger advantages in the IRA scenario with the PTC (NASDAQ:PTC) that we are following. So we will do the production there for Home and C&I products. And that is what is calculated in. When it comes to large scale, we are localizing part of that, but not the normal inverter because that will come here from the new gigawatt factory.
Barbara Gregor: Concerning your question -- concerning CapEx, as I already said, we are currently planning to invest €200 million for next financial year, thereof, €50 million to €60 million part of the leasing under IFRS 16, and these are parts, which we have to take into consideration for the new gigawatt factory, where we sold the building and also the landed now lease debt at under IFRS 16, we have to show this as leasing CapEx. So without this, our CapEx rate would have been between €120 million and €115 million. And the question about the profitability of the large scale, large scale EBIT margin, we expect large scale to maintain a similar profitability margin like in 2023. And overall, EBIT is increasing due to the increased volume, which we are estimating for large scale. And, therefore, we had already taken into our guidance at large scale will be the one driver of our overall business development and of our growth path in 2024. And for the group, in total, our guidance as we're expecting EBIT margin to be a little lower than 2023, as I have already explained. It's still extraordinary strong.
Mengxian Sun: Thank you very much. That’s very clear.
Barbara Gregor: You're welcome.
Operator: Ladies and gentlemen, due to the time, we kindly ask you to limit yourself to one question so everybody can ask a question. Thank you for your understanding. And our next question comes from [indiscernible]. Please go ahead.
Unidentified Analyst: Hello. My question in regards to the order backlog actually. I'd like to get a better idea on that. So if I look at the order backlog of end of 2021 and compared to the revenue, it's around 90%. If I look at the order backlog currently and the revenue from 2023 it's also around 90%. So where should I assume that a normal order backlog would stand? And if it goes down further now for the second quarter, and I assume it goes down another €300 million, and we are standing at €1.4 billion then. Would that mean that this order backlog would then be below the normal to be estimated trend? Thank you.
Juergen Reinert: I expect that we are not talking about large scale because we have touched that sufficiently with the order backlog for this year and the beginning of next year. The Home and C&I is, of course, as shown by Barbara Gregor for the end of last year. Quite okay still. It's going down, of course, as you can imagine now in the first quarter as we still have some cancellations, as already said. And we expect orders to come in by the end of quarter two again. So we think we will have a smooth transition in this regard from when the distributors see the upticking, and they roughly see the market as Barbara already said on the same level even in Europe and Germany as the last year. So we see we continue on a high level. And then we expect that they will, of course, order much later due to the fact that we are able to deliver on rather short notice. And then a normal backlog would cover two to three or four months on the smaller products that would be our traditionally backlog that we are having there. So this should be coming after the transition which we believe will fully be completed within quarter two on the cancellations and end of quarter two new orders coming in and then going into the new normal.
Unidentified Analyst: Okay. Thank you.
Operator: And the next question comes from Richard Alderman from BTIG. Please go ahead.
Richard Alderman: Hi. Can you hear me?
Juergen Reinert: Yes.
Richard Alderman: Thank you for taking my question. I just wanted to check on the comments you made around the meetings you had recently with distributors and your confidence that de-stocking ends at the end of June. I assume that in some cases, some of those distributors will not have placed meaningful orders with you for the best part of nine months, maybe more, because of the unusual nature of the crowding of your order flow into Q1 last year. And in the case of C&I, since then obviously power prices have fallen, interest rates are higher, GDP is lower. So what confidence do you have when you are having these conversations with distributors that they will buy your products as opposed to other cheaper products which have come down in price in the last nine months? And within that conversation, maybe also just include a comment on Home on the same basis. I think you just said you basically think you have visibility for two to three months in normalized order book over home and C&I. Do you have that visibility now or is it you are assuming you are going to get it back in June as the order flow starts to come back in?
Juergen Reinert: Yeah. Maybe to start on the last one, we have that visibility still now. And we think, though, that it will over quarter two first get lower, of course, as you can imagine. As we said, we see orders coming in from end of quarter two, and then we will be going into the normalized situation. But we are not thinking that we will run dry, if that is your question. That's the one hand. On the other hand is also whether the customers of us would not go to other ones. And this -- coming then back to what I said earlier, that we think we have been able to position ourselves differently towards the typical cheaper competitors, which are more, of course, as you can imagine them coming out of Far East. And we are also positioning ourselves very good in regard to all the other competitors, meaning, here from Europe or wherever they might produce in the western world. So we think we are on a good level. Some price pressure will occur, as I said earlier. But that we also will not then be in a situation that all of a sudden, they just want to buy cheaper, because we've made a successful transition to being able to sell on system knowledge and solutions for the customers. So this is what we anticipate in the second half of the year once we should be in normalized conditions.
Richard Alderman: Sorry, one last question. The price differential then between your sort of best products, best selling products and those Asian competitors in C&I, at the moment would be still more than 20%?
Juergen Reiner: Once again, you're looking at products, we're looking at solutions. So this is how we differentiate us. We can give a solution including service, including everything that our customers want. And we sometimes have different customer base than the typical one that is only selling on price. So this has not changed.
Richard Alderman: Okay. Thank you very much.
Operator: And that was our last question for today. And I hand back to Barbara Gregor, for closing comments.
Barbara Gregor: Yeah. Thank you very much for this interesting Q&A round. We hope that we were able to answer all your questions. I think we have some closing remarks, which are very important for you to take also with you. One is SMA is still on a growth path and large scale will be the main driver in 2024. We do not expect an increase in order intake and thus meaningful revenues for Home and C&I before late Q2 to the high stock level of our distributors. This is not the structural, but we see as clear as a temporary decline in demand. And as Juergen already explained in detail, the system approach and our diversified product portfolio makes us more resilient. Thank you very much again for your interest. And please do not hesitate to contact us, in case of any further questions. Thank you. Goodbye, and have a pleasant day.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.