SMA: Back to profitability

After a lossmaking 2013, SMA is finally seeing light at the end of the tunnel. The world inverter market leader expects to close the year with an operating profit and a sales increase of up to 45%.

The wave of consolidation has not left SMA unscathed. Last year the company’s sales declined by €1.5 billion to about €900 million compared to 2012. Its operating result (EBIT) dropped from €102 million in 2012 to an estimated loss of €90 million in 2013.
Although SMA remains by far the world leader in inverters, its global market share decreased by 25% to some 15% the past year, according to the company. For the current year, however, SMA has a much brighter outlook, CEO Pierre-Pascal Urbon said at the company’s 6th Capital Markets Day, held Monday at its headquarters near Kassel. “We have paved the way back profitability this year,” Urbon said.
The company is expecting an operating profit of up to €20 million and an increase in sales of between 10% and 45% to €1 to €1.3 billion. It hopes to reach its targets through cost reductions, further internationalization and the introduction of new products and system solutions.
After already reducing costs last year by about €170 million, SMA will again save €120 to €140 million this year, Urbon said. The main savings will come from purchasing, more efficient use of materials and in personnel costs.
A voluntary program to reduce the workforce at SMA Germany by 680 employees that began in the spring of 2013 will end at the end of the year. The company eliminated more than 500 full-time positions last year without layoffs.
SMA is also looking to expand the worldwide sourcing of materials for its global locations in China, the U.S., Poland and Germany and create greater synergy among its divisions. The group already purchases about 50% of its components in China and Eastern Europe. SMA is currently analyzing and optimizing its entire process chain in an effort to use materials more efficiently and reduce logistics costs.
Restructuring measures at Chinese subsidiary Zeversolar are expected to be completed by the end of the second quarter, Urbon added. Urbon stressed that in view of shrinking markets in Europe and Germany, SMA would further internationalize operations. The company is aiming to make 75% of its sales overseas this year. In addition to technological leadership and strong service, the company is relying on its Zeversolar subsidiary for greater product differentiation in China and other low-end markets. In order to offer more competitive pricing, Zeversolar inverters will offer only limited service.
For improved access to the Chinese market, however, Urbon still sees a number of risks and hurdles. So far the industrial plant business remains very heavily dominated by the state-owned energy suppliers and tenders are rarely transparent. Foreign companies often lose out to local rivals, even when they operate a Chinese subsidiary, as is the case with SMA. Whether this will change with a growing market for smaller systems remains to be seen.
Urbon sees an important challenge in improving market penetration in Japan. SMA’s market share there at present, as in China, remains under 5%. SMA is eager to increase business in high-end markets such as Japan with new and improved products. This year SMA will introduce a Sunny Boy Smart Energy with an integrated LG battery, a new Sunny Central and a new online portal. In the medium term the company is working on a “completely new” generation of products equipped with new coils, Urbon said.
The SMA chief pointed out that the research and development division was not affected by the cost-cutting measures and would continue to expand. This year, the company intends to invest more than €130 million in R&D to strengthen its technological leadership.
Most of the investment bankers and analysts attending SMA’s 6th Capital Markets Day responded positively to the presentation of the company’s corporate strategy and the steps it had already taken to optimize its operations.
They were not the only ones impressed with SMA. A few days ago Deutsche Bank evaluated SMA shares positively, upgrading them from “hold” to “buy.”