SMA Solar Technology AG

XETRA:S92

Q1-2025 Earnings Call

[Operator]

Ladies and gentlemen, welcome to the SMA publication of Q1 Results 2024 Conference. I'm Serge, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions]

At this time, it's my pleasure to hand over to Kaveh Rouhi, CFO. Please go ahead.

[Kaveh Rouhi, executive]

Thank you, operator, and welcome, everyone. We very much appreciate that you are taking the time for this investor and analyst call on our first quarter 2025 results. Today in this call is my colleague and SMA CEO, Jurgen Reinert. Welcome to the call, Jurgen.

[Jürgen Reinert, executive]

Thank you very much, Kaveh.

[Kaveh Rouhi, executive]

This conference call is scheduled for up to 60 minutes and will be recorded. After the management presentation, we will be happy to answer your questions. Today's presentation is available on our Investor Relations website. The replay will also be available on the IR website shortly.

Our agenda for today. First, I will give a review of our first quarter figures, followed by an update of the restructuring and transformation program. Last but not least, we'll have a look at order backlog as well as our outlook for the financial year 2025. I expect the presentation part to last about 30 minutes. After the presentation, we are happy to answer your questions.

Well, as this is my first earnings call as the CFO of SMA, let me just briefly introduce myself. My name is Kaveh Rouhi, and I'm 46 years old. I joined SMA in July 2024. Prior to SMA, I was working in the international finance and services industry, including a leading strategy consultancy. My focus areas were strategy development, business planning and controlling as well as M&A. Let me say, I'm very excited about that, and I'm very much looking forward to working with you in the future.

I refer to our disclaimer on Page 2. So let's move to Page 4, financial highlights for the first quarter 2025. Group sales reached EUR 328 million and were below last year with EUR 362 million in Q1 2024. Large Scale continued to perform strongly, while Home and C&I revenues were still affected by the continuing market weakness and customer stock levels.

Group EBITDA came in at EUR 25 million after reaching EUR 50 million in 2024. This was due, among other reasons, to low sales and the resulting lower fixed cost digression in the Home and C&I segments.

I will provide more insights on the individual segments in a moment. Free cash flow reached EUR 96 million, mainly resulting from ongoing measures to reduce net working capital, which achieved good results in the first quarter. Total order backlog stood at EUR 1.3 billion at the end of March.

Now let's go to Page 5, sales by region and by segment. On the left-hand side, you can see that EMEA is still our biggest region, but came down to 48% from 68% in 2024 due to the soft sales development in Home and C&I, which have the majority of their sales in this region.

Americas revenue share increased from 25% to 40%, mainly driven by the Large Scale segment. The Large Scale segment remains the strongest in this region with more than 90%. The APAC region share decreased from 14% to 12%. Here, Australia again showed a very strong development, but other APAC markets were weak for SMA in Q1. Top 3 markets for the SMA Group in the first quarter were the United States, the United Kingdom and Italy.

Now let me walk you through the sales per segment on the right-hand side of the slide. Sales development in Home and C&I was driven by a slowly increasing, but still soft order intake and a sustained overcapacity in the market. Additionally, lower electricity prices, high interest rates and increased uncertainty due to the current trade policy environment, particularly the considerable uncertainties resulting from U.S. tariff policy and the countermeasures of other governments led to postponements of investments.

Against this backdrop, revenues in the Home segment decreased by 65% from EUR 63 million in Q1 2024 to EUR 22 million in the first quarter of this year. The segment's share of total sales thus came down to 7% compared to 17% in Q1 '24. EMEA remained our biggest region for the segment.

C&I achieved EUR 26 million compared to EUR 70 million in Q1 '24. EMEA remained the strongest region for this segment with 74% share of total revenues. Large Scale again showed a very strong revenue development from EUR 229 million in Q1 '24 to EUR 280 million in Q1 '25. All regions recorded double-digit growth. Americas remained the strongest region with 39% of the segment sales.

Now let me provide you more information on 2025 profitability. EBITDA came in with EUR 25 million compared to EUR 50 million in Q1 '24 due to low sales and the resulting lower fixed cost digression in Home and C&I.

Please note that this year's EBITDA includes a positive onetime effect from a claim settlement of around EUR 10 million, while last year's results included a positive onetime effect from the sale of SMA's elexon stake of EUR 19 million. EBITDA margin reached thus about 8% compared to 14% in Q1 '24. With about EUR 30 million, depreciation was nearly at the same level of Q1 last year with EUR 11 million.

Now let's have a look at the segments in detail. EBIT for the Home segment amounted to minus EUR 20 million compared to minus EUR 4 million in Q1 2024 due to the price and volume-related sales decline. C&I came in at minus EUR 26 million versus minus EUR 18 million in Q1 '24, also due to the decline in sales, reduced utilization and corresponding lack of fixed cost digression.

Our Large Scale segment again showed an earnings improvement in Q1 '25, reaching EUR 50 million compared to EUR 41 million in Q1 '24. Reasons were the high level of sales and fixed cost digression, increase in sales, the profitability product mix and the high profitability of the Altenso business contributed to this. The overall EBIT margin for SMAs Group amounted to 4% compared to 11% in Q1 last year.

Now I will move on 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, decreased to EUR 364 million compared to the 2024 year-end figure of EUR 473 million. This leads to a net working capital ratio of 24%, which is significantly improved compared to the ratio at the end of last year.

Let me explain the net working capital. Inventories at the end of Q1 were at EUR 583 million compared to EUR 564 million at the end of '24. On the first glance, you are probably wondering why we build up more stocks in the first quarter, but this can be explained by the different situations in our segments.

Given the low level of revenues in the Home and C&I segments, we have several measures in place to decrease inventories here, which we did by over EUR 20 million in Q4. Meanwhile, we need to deliver on our strong project pipeline in the Large Scale segment as in order to do this, we needed to increase stocks in this segment in Q1, which is the reason for the total increase of inventories in the quarter for the group.

Trade receivables decreased as a result of lower revenues compared to Q4 '24 as well as ongoing measures to ensure timely customer payments and reduce of overdue payments. Trade payables increased in the first quarter as we purchased stocks for our Large Scale business and are also working to extend DPOs to help improve our cash conversion cycle. Advanced payments received from our customers also increased since the end of 2024, driven by our strong Large Scale project pipeline.

Net cash increased by over EUR 90 million to EUR 177 million at the end of Q1, mainly driven by the net working capital improvements I just explained. Since the end of Q3 '24, we have been able to recover our cash position by more than EUR 130 million, and our liquidity protection measures remain ongoing.

Now let's have a look on the group's balance sheet on the right-hand side of this page. And as I've already explained the changes in the net working capital positions, I will now focus on the major changes in the other balance sheet positions.

As I just explained the net -- the change in net cash, I will start with the changes in total cash and financial liabilities. As we need to ensure that we have sufficient cash for our business operations, we need to use our revolving credit facility with a utilization of EUR 120 million from March 31, 2025. You find this under financial liabilities in our balance sheet, which also includes accumulated interest due to approximately EUR 1 million. Our total cash is hence EUR 298 million per the end of Q1.

Regarding the other balance sheet items, noncurrent assets increased to EUR 535 million, mainly as a result of ongoing investments in our new Large Scale product platform, including approximately EUR 50 million additional leasing assets related to the total value of the leasing contract for the new production building.

Shareholders' equity remained stable with a balance of EUR 557 million per March. Provisions also remained stable with EUR 230 million at the end of Q1. Other liabilities increased to EUR 536 million, mainly related to additional leasing liabilities for the new production facility. This is the corresponding liability to the IFRS 16 asset I explained before.

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 EUR 21 million compared to EUR 51 million in Q1 '24, as our operating result was below the level of Q1 last year.

However, with a significant decrease of net working capital in Q1 this year, we were able to generate a positive cash flow from operating activities of EUR 110 million, whereas an increase of net working capital in Q1 of last year had led to a negative cash flow from operating activities.

Net CapEx amounted to EUR 40 million in Q1, below the level of Q1 '24 as we are managing our cash spending very closely and currently focusing investments largely on our new Large Scale platform.

Considering our cash flows from operating and investing activities in total, our free cash flow was positive with EUR 96 million in Q1 and much better compared to Q1 last year with a minus EUR 46 million. Please note that we had no significant cash outflows from the restructuring program in Q1, and these will occur mainly in Q2 and Q3.

Let's move to the next page, order backlog. Looking at the left-side of the slide, you see that our order backlog remained on a level of about EUR 1.3 billion at the end of Q1 and product order backlog stood at approximately EUR 1 billion. On the right-hand side of the page, you can see that our Large Scale product order backlog remains strong with nearly EUR 960 million, followed by C&I with about EUR 33 million and Home with EUR 22 million.

For the group in total, order intake in Q1 showed positive signs for the Home and C&I segment, albeit on a relatively low level, while order intake for the Large Scale segment was lower than in the last quarters due to the uncertainty from the U.S. tariff situation.

Let me now briefly give you an update on our restructuring and transformation program and where we currently stand. As you know, we have defined an ambitious cost saving target with an EBIT improvement of EUR 150 million to EUR 200 million. Of the planned up to EUR 200 million, we aim to realize approximately 40% already this year.

The key measures for decreasing material costs and operational expenditures are on track. The savings for personnel costs, which is the biggest lever, are also well underway, and we know already today that we will overachieve our ambitious targets here.

Let's turn to our last page, our guidance for 2025. Even though we see signs of improvement for some products in our Home and C&I order intake, we remain cautious given the deterioration in the macroeconomic environment and increased uncertainty due to the volatile tariff policies and the resulting potential direct and indirect impacts on the global solar market as well as our business.

The Large Scale & Projects division had a strong start in Q1 and high order backlog helps to secure its full year sales and profitability targets. However, the Large Scale project pipeline has started to be impacted by the uncertainties from the U.S. tariff policy, making a reliable assessment of the order intake going forward very difficult.

But once the situation settles down, we expect a strong uptake again. Against this backdrop, we expect sales and EBITDA for '25 in the lower 1/3 of the guidance range of EUR 1,500 million to EUR 1,650 million and EUR 70 million to EUR 110 million EBITDA.

Last but not least, a note on our upcoming events. Today, at 2:00 p.m., we will host an IR event at Intersolar in Munich. For those who are there, please join us in Room B22, Hall B2. The first half of 2025 financial results will be published on August 7, combined with an analyst and investor call.

With this, I conclude the presentation, and now we're happy to take your questions.

[Operator]

[Operator Instructions] There are no questions at this time. I would now like to turn the conference back over to Kaveh Rouhi for any closing remarks.

[Kaveh Rouhi, executive]

Are we really sure there are no questions?

[Operator]

I don't see any question at the moment. And now we have a question coming now from Guido Hoymann from Metzler. [Operator Instructions] Okay. I would suggest that we take the next question coming Zgaya Anis from ODDO.

[Kaveh Rouhi, executive]

And does it have to be a technical issue now?

[Operator]

I opened the line and they did not ask the questions. Once I put them in the queue, they should ask the question. I'll wait Mr. Anis, joined again.

[Anis Zgaya, analyst]

Yes. I have 2 questions, if I may. So first one on order intakes and you say that visibility is decreasing for Large Scale in the U.S. So could you please give us your expectations on the trend expected for the coming quarters?

And my second question is on the restructuring plan. And you said that 40% are expected for '25. So you posted EUR 25 million EBITDA in Q1, but you are saying that you are expecting the low third of the range of the guidance. Could you please give us more granularity on the expected EBITDA for the coming quarters?

[Jürgen Reinert, executive]

Let me start, Jurgen Reinert here, on the order intake, and then my colleague, Kaveh will take over for the EBITDA and the restructuring. So it's good that we are at the Intersolar right now. And of course, we have a lot of discussions. And your question was predominantly going also into the segment of or the division of Large Scale.

So as Kaveh already has pointed out, we do see some reluctance in the American order intake as would be expected at this point in time due to the tariff policy. But actually, in the rest of the world, we do see a very good continuation of what we've seen before, strong markets, especially in the battery sector. And the order intake is continuing on a very good level, actually. We are very happy about that also the discussions we are having here right now with the customers.

Also, the U.S. actually remain very confident and the partners we are having there. But of course, as you can imagine, there are some uncertainties right now when it comes to really placing the order intake.

So overall, we are very positive there that it will continue in a good phase, though, of course, with the uncertainties we have in Large Scale with our biggest market, Large Scale, which is between 40% and 50% of our revenue, you see our cautiousness. But we don't see an underlying problem and are actually rather bullish that it will then continue once we get clarity into the tariff situation, as Kaveh Rouhi has pointed out already.

When it comes to Home & Business Solutions, it's, of course, now the much smaller division for the time being. And there, we do see a situation that we still have very low revenues, as we just explained. But we do see a slow uptake in order intake, though it's not on the level, of course, we would like it to be, but it's slowly but surely ticking up. And therefore, we do think that we will continue in the way that we've explained before here. Over to you, Kaveh.

[Kaveh Rouhi, executive]

Thanks, Jurgen. So let me talk a bit about the restructuring program. And as I said at the beginning, we hold our EBITDA guidance. As you know, as I pointed out, there is a EUR 10 million onetime effect in our Q1 results. So obviously, you can't just multiply Q1 by 4 and get to your full year forecast.

What I can share, though, is that the current run rate does not include yet part of the staff cost savings. And this will come in the course of the year, and this is improving our run rate. And for the other material costs and OpEx, we are already on a good track. So that's partly included. So maybe that's a good way of where we are with our run rate improvements in the EBITDA.

[Unknown Executive]

So we just received the question from Mr. Hoymann via e-mail. So the question is, in Germany, number of hours with negative power prices increases. We obviously need more storage. Do you see opportunities for you arising from these batteries or rather headwind from solar PV capacity additions?

[Jürgen Reinert, executive]

Yes. Thank you very much, Mr. Hoymann, and sorry for the technical problems. And you're fully right. So yesterday, we also here had very good discussions with customers focusing on Europe and Germany. And we do see a continued big shift from PV to storage. And we do see that customers mainly focusing on PV have a bit more, how do you say, lesser confidence for this year, while those ones focusing on batteries are actually very positive.

Now the biggest problem sometimes is to get the connection point and there is a congestion. But due to the fact that we have the ability and compared also to our competition to really show how we can stabilize the grid. We are now in a few very interesting projects where we take over the entire grid stability, and we will show such a project in about a month or 2, which is really interesting because we are taking over all the grid functionality from black start capability over the inertia maintain reserve everything that is needed in order to really stabilize the net.

And we are quite sure that we continue to show that capability and that we show those showcases of those projects, we will be successful in Germany with battery storage integration, because as you said, that is exactly what is needed in order to make sure that we don't only produce a lot of renewable power, but also can store it in the right way and make sure that it's available in the off time when no electricity is produced.

So yes, we are confident that to be actually playing out our strengths even more in the future as I don't think any company can reach our grid stabling functionality in the products as we have.

[Operator]

The next question comes Mengxian Sun from Deutsche Bank.

[Mengxian Sun, analyst]

So 2 questions from my side. So the first one is on the free cash flow development. And the second one is on the pricing. So you have achieved a very strong free cash flow generation in this quarter, but you also mentioned that the restructuring cash flow has not occurred and will happen in Q2 and Q3. So how should we think about the free cash flow generation for the remainder of the year? So this is the first question.

And the second question is on the pricing. So could you provide some comments on the recent pricing environment? Since you see the Home and C&I order intake is picking up slightly. So I would assume that you can see a little bit price development in these 2 segments as well. But can you also provide some comments on the Large Scale project segment as well?

[Kaveh Rouhi, executive]

Thank you for the questions. I would take the free cash flow topic and then Jurgen would refer to the pricing topics. I think what is fair is that we have very strongly stabilized our cash flow. And we still continue to optimize and are very, very strict on our payment terms and all these kind of topics. So we expect a positive development and a stable one.

On the other hand, we know that we have some outflows for the restructuring program, and we also know that there are, let's say, certain one-offs like tax payments and things like that, that will come in the next quarters. However, we think that we will end this year with a very strong cash position. So I think that's maybe what we can share here.

[Jürgen Reinert, executive]

Yes. And if I go over to the pricing and you did specifically ask both divisions. So HBS, so Home Business Solutions as we call the new division now, we don't actually have any change to what we said last time. So there is still, to some extent, surplus of products in the markets due to destocking at the distribution side. In some products, it has depleted, and we have been talking to those also yesterday that they are more and more ordering new ones now, which is, of course, a good sign for us.

And the pricing, we do expect, as we've said earlier also that once it's fully depleted, that there might be more pressure also due to the fact maybe that our Chinese competition is seeking more their way towards Europe. But we cannot say too much about that right now. And we have made some price reductions already in line with our budget not beyond that.

And we do think that we will be able to do it exactly in that way also that we can keep the price reductions in line with our budget. So not very high and thereby still be able to now generate slowly, as I said earlier, but surely more order intake as the products are depleted in the stock of the distribution.

Now to the bigger division, Large Scale, no big change actually either here. And we have very good discussions on master sales agreement as we had before, meaning long-term contracts with customers. And we are below the price reduction that we've actually anticipated for in the budget, and we are also confident that we keep it that way.

So no changes there actually. And as I said, the market is developing well, apart from uncertainty in the U.S.

[Operator]

The next question comes from [ Vidar from Kweli Energy ].

[Unknown Analyst]

Just one question to tariffs and the guidance. I assume when you're selling into the U.S. now, the importer pays 10% tariff until at least the 90-day pause. What have you baked into your guidance? Are you assuming that the 10% stay? Or have you baked in that we go back to the 20%, could you just elaborate on what your expectations is? I assume that you have lower prices on large scale in the U.S. to compensate for the 10% tariff.

[Jürgen Reinert, executive]

Yes. So as you can imagine, as probably every company is doing, we are having our scenarios on what is our real case estimation, what is our worst case estimation, et cetera. And we took into our guidance what we think will be the most likely scenario.

But I want to mention one fact which is important for us here in this regard. We are not so much worried at this point in time by the direct tariffs on the inverter side with us having, for example, mainly in the Large Scale segment, of course, as you know, the products inverters coming from Europe.

What we are much more concerned about right now when it concerns the tariffs is the indirect effect, meaning right now, we have very, very high tariffs on modules and batteries, especially also if they come from neighboring countries or other Asian countries, Malaysia, Thailand, et cetera, we have up to over 2,000% tariffs on the modules.

And that is actually the bigger problem, because it poses the effect that the project just doesn't pencil down. It does not make any economical sense. And therefore, that is the bigger problem we see right now. And we hope that, of course, there will be good discussions in the coming weeks or in the coming days in Switzerland so that we get to a clarified situation there.

So right now, we don't see any changes on the projects we are delivering in the next months, because there are the modules or the batteries are already available in the U.S. The little bit more difficult part is to judge is what will happen towards the end of the year if everything should stay like that.

And at the same time, we are localizing more and more also on our offering to the U.S. So for example, the transformer, we are localizing with a partner in the U.S.A., it's not our own production with the partner and even the integration we are discussing with a partner in the U.S.A.

And then we are quite sure that we are well prepared for what we see ahead of us. But as I said, the difficult situation to judge right now is the importance of the indirect proportion, meaning the tariffs on the modules and on the batteries because they are forming the much bigger part in the project and the inverter itself, which is normally at 5% of the total value. I hope that answers your question. It's not straightforward right now, as you can imagine.

[Unknown Analyst]

I understand. But are you -- so you haven't been needing to lower prices into the U.S. I mean the importer is paying 10%, I assume that's...

[Jürgen Reinert, executive]

Yes. We are -- of course, you can imagine, we are in discussion with the customers of how to split the cost if that should occur. And these are good discussions we are having right now. Everybody is open to make -- to see that we get through it in the best possible way.

So those are the discussions we are having. But these are different from project to project and customer to customer depending on what the situation is regarding the stocking of modules, batteries or even inverters on site or not. So these are individual discussions, but they are going very good, actually.

[Operator]

[Operator Instructions] There are no more questions at this time. I would now like to turn the conference back over to Kaveh Rouhi for any closing remarks.

[Kaveh Rouhi, executive]

Thank you very much. Thanks again for your interest, and please do not hesitate to contact us in case you have any further questions. Just a reminder, we will be on the Intersolar IR event this afternoon, Room B22, Hall B2. Really looking forward to meeting you in person. Until then, goodbye and [Foreign Language].

[Jürgen Reinert, executive]

Bye-bye.

[Operator]

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