SMA cuts sales and profit forecast, announces layoffs

Share

The managing board of leading inverter manufacturer SMA Solar Technology AG has lowered its sales and profit forecast for 2014 and announced plans to lay off some 600 employees worldwide by the end of 2015.

The company said on Wednesday that it expected sales of between €850 million and €950 million, down from the previously forecast €1 billion to €1.3 billion.

"The managing board can no longer rule out the possibility of a loss in the current fiscal year," the company said Wednesday in a statement, adding that the board expected SMA "to break even at best."

At the lower end of the sales forecast, the board now expects a loss of approximately €45 million, down from the previously estimated operating profit of €20 million.

As a result of the looming loss, SMA announced the layoff of some 600 employees worldwide by the end of 2015. The company added that temporary contracts that expire and natural employee turnover were part of the downsizing plan.

"After intensive conversations with customers at the key trade fairs in China, Europe and North America as well as our own market analysis, we expect to see a stagnation in the worldwide demand for PV systems for 2014 as a whole," said SMA CEO Pierre-Pascal Urbon.

Urbon added that demand had collapsed even further than expected, particularly in SMA’s core European markets, due to further cuts in subsidies.

"The SMA managing board believes that developments over the next few months will be far more dynamic than in the first half of 2014. In 2014, the most important foreign markets include North America, Japan and China. Together, these markets are expected to account for 60% of the global market. The cut-throat competition is keeping pricing pressure high in the industry," Urbon said.

The chief exec added that SMA would further optimize its product portfolio and take advantage of the synergies resulting from the strategic alliance with Danfoss in order to return to sustained profitability.

SMA will launch the first products of a new generation of inverters in the first quarter of 2015, Urbon said, outlining a number of measures the company plans to take to lower costs and improve efficiency: By the end of next year, the company will seek to focus on "important strategic development projects" while reducing its development budget to approximately €90 million a year. In addition, it will step up efforts to lower production costs for its existing product portfolio. SMA will also take greater advantage of the development and purchasing capabilities of Chinese subsidiary Zeversolar.

In an effort to adapt to the regional shift in demand, SMA is also planning to bundle sales regions and downsize its service, operations and administration divisions by 400 employees.

"The additional measures are necessary because the profitability of our product portfolio has been adversely affected by the shift in demand to countries outside Europe," Urbon said. "In order to generate sustainable earnings, SMA will therefore need to do even more than previously planned to reduce costs. We very much regret that further job cuts in Germany and abroad are unavoidable due to the changes in the market."

Urbon nevertheless expressed optimism about the planned measures, adding that SMA’s planned product offensive and structural adjustments would "create the conditions required to generate attractive margins even in a challenging market environment."

The company is also anticipating a slight increase in its market share for 2014 to more than 15% worldwide, he added. Urbon is also expecting SMA’s service business and PV-diesel hybrid business to generate greater sales for the group in the future.

"With net liquidity of €250 million and an equity ratio of almost 60%, SMA will be able to implement this strategy under its own steam," Urbon said.