deveLop-Ment oF the SMA group
The following statements on the future development of the SMA Group are based on the estimates drawn up by the Managing Board of SMA and the expectations concerning the development of global photovoltaics markets set out above.
Last year, the Managing Board adjusted its strategy to the quickly and unexpectedly changing market and competitive conditions. The target for 2015 is to extend our innovation leadership, reduce costs consistently and continue pressing ahead with internationalization.
In the current fiscal year, SMA is concentrating on imple-menting the strategic measures it has defined, such as the development of completely new product platforms for all power classes. The first products are to be launched from 2014. Our top development goal is to significantly reduce production costs by using new technologies and a higher proportion of carryover parts. In addition, we will upgrade our technological solutions for energy management. These center on the Sunny Boy Smart Energy. In new projects in 2013, we will demonstrate our technical expertise in the design of hybrid systems as well our many years of experience in large-scale PV power plants. The focal points of research and development are accordingly the further reduction of system costs, our extensive work on grid integra-tion and the continued development of innovative energy management solutions. To achieve our goals, we shall invest more than €120 million in research and development in 2013 and purposefully expand our network of strategic research and development partnerships.
84 SMA Solar Technology AG Annual Report 2012
By establishing and expanding our purchasing offices in Germany, Poland, the USA and China, we have laid the foundation for establishing new procurement channels, cer-tifying new suppliers and systematically reducing material costs. Further measures for lowering costs are Company-wide projects to increase productivity and the adjustment of administrative functions to the changed level of sales.
In 2013, we will cut the jobs of at least 500 temporary and permanent employees at home and abroad and take additional short-term personnel measures.
Because the major growth impulses will come from foreign markets in future, in 2013 we are focusing on the expansion of market access in Asia, particularly in China, and on the North and South America and South Africa regions.
Our activities in Europe will be adapted to the changing, declining markets. In the years to come, we will continue with our tried and tested strategy of being among the first PV inverter manufacturers to be represented in developing markets, while focusing primarily on the Arab countries.
With its wide range of products, high product quality, extraordinary flexibility, presence in 21 countries and fast service structure, SMA is uniquely positioned in the photovoltaics market. Measured by the 7.2 GW of inverter output sold in 2012 (2011: 7.6 GW), SMA is the global market leader and has successfully defended its high market share in the established photovoltaics markets in a difficult market and competitive environment. Through consistent internationalization, the SMA Managing Board has laid the foundations for increasing the global market share slightly in 2013. An important step in this context was the acquisi-tion of a 72.5% stake in Zeversolar, by which the SMA Managing Board set the course for access to the Chinese photovoltaics market.
The sales and earnings forecast for 2013 was published for the first time on October 18, 2012 and is based on assumptions regarding expected market development in various photovoltaics markets. All scenarios assume that the fall in specific selling prices will continue in 2013. The upper end of the sales forecast, €1.3 billion, is based on only a slight global decline in prices. In this scenario, the established foreign photovoltaics markets compensate for the expected decline in demand in Europe, particularly
in Germany and Italy. In addition, the Managing Board assumes that young photovoltaics markets are growing more quickly due to the current price level for PV plants. The lower end of the sales forecast, €0.9 billion, anticipates a stronger price slump and a worldwide fall in overall demand for PV plants. With regard to the operating result, the SMA Managing Board expects to break even, at best, but cannot rule out making a loss.
The trend to larger PV systems will also be reflected in the distribution of sales. According to estimates by the SMA Managing Board, the Medium Power Solutions (MPS) divi-sion will generate approximately 50% to 60% of sales in 2013. In particular, the share of three-phase inverters in MPS sales will increase to up to 60% in 2013. The predictions are that in 2013 approximately 40% of the division’s sales will be generated by PV inverters in the Sunny Boy product family, which is principally deployed in PV plants with an output of up to 10 kW.
Large-scale PV power plants with an output of over 500 kW are expected to make up between approximately 30% and 40% of sales in 2013. Above all, a decisive contribution to sales in the Power Plant Solutions (PPS) division in 2013 will be made by international business in North America, India and South Africa. The Sunny Central Compact Power will probably be one of the central inverters that generate the greatest sales in this segment in 2013. This product family is characterized by its especially low system costs, extensive grid integration functions and easy installation at the site.
An additional positive contribution is expected from the new medium-voltage technology.
Our service business will continue to benefit in 2013 from the high level of commissioning in the Power Plant Solu-tions division. In addition, new long-running service and maintenance contracts with larger volumes are expected to be signed in the Service division in 2013, which will lay the foundation for long-term success in service business. An additional driver for operating service business is known as the 50.2 Hz conversion. Because modernizations to existing systems are required on the basis of the System Stability Regulation, we assume that service business in Germany will pick up strongly in the years to come.
85 2 To Our Shareholders
24 The SMA Group:
Business, Objectives and Strategies 67 Supplementary Report 69 Risks and Opportunities Report 82 Forecast Report
94 Notes 142 Other Information
Consolidated 86 Financial Statements Consolidated
20 Management report
Moreover, SMA will expand the range of services offered for inverters and medium-voltage components for selected markets such as North America comprehensively. In future, the range will also include complete plant service with op-eration and maintenance modules for large-scale PV plants.
The advantage for the customer is that by taking on all services relating to the PV power station, the performance of the whole system will be optimized.
Among the Complementary Divisions, we expect a slight growth in sales to result from increasing activities relating to solar diesel hybrid systems. Earnings will probably be at the same level as in the previous year.
Due to foreseeable changes in different incentive programs and the generally high dynamism of global photovoltaics markets, exact forecasts of future sales performance are not possible. The Managing Board expects a similar sales level, but cannot currently rule out a further decline.
According to estimates by the SMA Managing Board, the shift in the product mix toward larger PV plants is causing considerable pressure on the gross margin. By systematically analyzing product costs, SMA has identified savings and an increased productivity potential for reducing production costs at an early stage in order to counteract this trend effectively.
SMA will continue with its successful strategy of produc-ing primarily on the basis of orders received, especially as the Managing Board believes the annual production capacity of approximately 15 GW (including Zeversolar) is sufficient to meet global demand. Before the consolidation of Zeversolar, the net working capital ratio will be between 19% and 22%. After completion of the construction work in 2012, the acquisition of machinery and equipment and the increasing value of capitalized development projects will result in a stable investment volume of approximately
€100 million in 2013. In the medium-term, SMA is aiming for total annual investments to comprise up to 10% of sales.
The pursuit of our internationalization strategy and our focus on the development of innovative products for solar applica-tions and intelligent energy management soluapplica-tions will lead to higher fixed costs. We will be unable entirely to offset the decrease in sales and the high pricing pressure with new products, lower cost prices and adjusted organizational structures. The SMA Managing Board therefore expects a sharply declining EBIT margin and to break even, at best.
However, a loss cannot be ruled out at this time.
In addition, SMA generated a positive free cash flow be-fore the dividend payment, even in the challenging market environ ment of last year. Because of this, our high cash reserves of almost half a billion euros at the end of 2012 and our high equity ratio of over 60%, SMA considers itself well equipped financially to benefit from the growth of global photovoltaics markets.
Niestetal, February 22, 2013 SMA Solar Technology AG The Managing Board