S.A.G. Solarstrom goes abroad to drive profit


The Germany-based provider of photovoltaic plants has managed to compensate for the weak German market and regulatory changes across the continent through its development of projects in France, Spain and a particularly profitable venture in Northern Italy. It has elevated the international portion of its sales to 90.4 percent, up markedly from the 28.7 percent in the same quarter last year, due mainly to the large-scale project near Venice.

With most companies posting more conservative outlooks, this refocusing has seen S.A.G. Solarstrom achieve sales of €78.9 million in the first three months of 2011 (Q1 2010: €31.3 million) and an earnings before interest and taxes (EBIT) of €5.1 million (Q1 2010: €1.6 million). These figures have led the company to confirm a sales outlook of between €260 million and €280 million, and an EBIT of between €16 million and €18 million for the full year 2011.

The distinct improvement in the margin demonstrates the success of strict project controlling and cost management in the implementation of large-scale projects, according to the first quarter report the company released today.

The business area Plant Operation and Services was able to almost double its income, and grew its sales by 21 percent to €4.1 million (Q1 2010: €3.4 million). The earnings potential of the segment was particularly evident in the EBIT margin, which rose from 13 percent in the previous year’s period to 19.7 percent in Q1 of 2011.

A very restrained first quarter in 2011 in Germany, where a large number of the company’s partners are located, was responsible for a decline in earnings in Partner Sales. The EBIT dropped from €926,000 in Q1 of 2010 to €212,000 and overall sales went from €16.4 million last year to €4.7 million in the year to date.

In the first three months of 2011, the expansion of the Group’s own power plant portfolio to 25.1 megawatts peak (MWp) has also been fruitful. Sales rose from €511,000 in the same period last year to €1.1 million this year, while the EBIT rose from €13,000 to €190,000.

Decisions to go abroad help drive growth

The company was able to achieve significant growth in sales and earnings by looking further afield, and growing its project planning and plant construction enterprises, with the prime example being its 48 MWp photovoltaics project in Northern Italy.

In the first three months, this area of the company achieved sales of €68.9 million (Q1 2010: €10.9). It thus increased six-fold compared with the previous year and contributed to 87.3 percent of the total sales.

S.A.G. Solarstrom was able to secure a feed-in tariff on the work of €0.297 per kilowatt hour for the 12 MW already installed after it accelerated work on the project due to the market uncertainty in Italy, which helped to drive its earnings. This strict project controlling and cost management in the implementation of large-scale projects was able to provide the company with "significant improvement in the margin". Based on the sufficient substantiation of sales, earnings proportional to the construction progress have already been realized.

This aspect of its business meant €3.9 million (Q1 2010: €255,000) toward the overall EBIT, making it the highest contribution to earnings. Company CEO Karl Kuhlmann said that its decision to concentrate on this aspect of the business has proved wise.

"We pressed ahead very early on with our internationalization. This paid off particularly in the first quarter of 2011, which was characterized by a very weak German market," he says. "Today, we have a strong starting position vis-à-vis both the European and the international competition, which we want to use."

Moving forward

Overall, the consolidated total assets of S.A.G. Solarstrom were reduced to €216.9 million as of March 31, 2011, down from December 31, 2010 when they sat at €249.1 million. The company cited a drop in working capital as the main reason for the fall.

But looking ahead, Kuhlmann believes that despite lower tariffs and a decrease in governmental assistance, companies are now factoring this in to their ventures and it should see a return to greater surety.

"The general regulatory conditions for 2011 are now fixed in most European countries, so that we have increased planning security," he says. "In addition, we are seeing a considerable reduction in component prices on the market, so that, despite cutbacks in the feed-in tariffs, we are still reckoning with a positive international market environment in which we can continue our dynamic growth."

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