SMA earnings to Q3 grow strongly despite global inverter price pressures

In increasing its international share of inverter sales to 90%, Germany’s SMA has seemingly ridden the global prices pressures currently cascading through the inverter industry to post another strong set of financials.

Its latest report looks at the year to date up to the end of the third quarter (Q3), and reveals that group sales have increased 3.2% compared to the same period in 2015, hitting €708.8 million ($775 million) – up slightly from €686.9 million between Q1-Q3 last year.

However, given the demand throughout the sector to lower prices, this sales increase does not tell the whole story. SMA’s operating earnings (EBIT) grew considerably on last year, ending Q3 at €59.4 million ($65 million), which is a sizable improvement on 2015’s €9.9 million EBIT at the same stage of the year.

SMA’s fixed cost reduction, allied to its increased sales volumes (which hit 5.7 GW of cumulative capacity for the year at the end of September) drove a solid EBITDA increase, rising to €107.9 million compared to €64.6 million in the Q1-Q3 2015 period. This result includes one-time items from the consolidation of SMA’s worldwide production sites.

These measures saw the German firm increase its net cash flow in the first nine months of 2016 to €123.6 million, against €70.4 million at the same stage last year. This ensures a comfortable equity capital base as the inverter company heads into the fourth and final quarter of the year with confidence.

That confidence is clipped somewhat by current world events, SMA CEO Pierre-Pascal Urbon said, not least the uncertainty bestowed upon the industry by the election this week of Donald Trump as U.S. President, and the increasingly desperate cost-cutting measures some Chinese inverter suppliers are taking in order to remain afloat and competitive.

"In a market environment characterized by increasing price pressure, SMA has shown its strengths in the first nine months of 2016 and considerably increased its net cash flow," said Urbon. "Thanks to our strong product portfolio for large-scale PV power plants and medium-sized PV systems and our service business, we compensated for the market-driven decline in small PV systems and successfully defended our global market leadership.

"In the coming months, the policy of Donald Trump will be an important issue for the industry," the CEO continued. "While the introduction of import duties on Chinese goods in the U.S. as it is planned by Trump could be advantageous for us, he has never made a secret of the fact that he doesn’t think much of renewable energy."

Urbon went on to say how last year’s ITC extension was reached via bipartisan agreement, which spreads hope that both Democrats and Republicans in congress can continue to see the value of supporting the solar industry.

The CEO was less sanguine about the threat posed by increasingly low cost and low quality inverters from China, however. "Chinese competitors, who are fighting for survival, are trying to offset the disadvantages in the functionality and quality of their products and the lack of service infrastructure with an aggressive pricing policy.”

Urbon called it "alarming" that many Chinese solar inverters do not come up to legal standards, and contrasted this corner-cutting with SMA’s own due diligence when it comes to quality, compliance, reliability and a global sales and service network.

"Our internationalization strategy and consolidation of our production locations are absolutely right on course," Urbon concluded. "Our goal is to at least absorb the market fluctuations while also keeping costs as low as possible."

In late October SMA adjusted its earnings forecast for 2016 on the back of the current industry realities, with anticipated sales now projected between €900 million to €950 million, but a significant increase in EBIT year-on-year to between €60 million to €70 million.