Good day, welcome to the analyst investor presentation financial report Q3 2019. Today's conference is being recorded. At this time, I would like to turn the conference over to CFO Ulrich Hadding. Please go ahead, sir.
Thank you, Christian, and welcome everyone. I very much appreciate you are taking this time for this investor and analyst call on the first nine months of 2019. You can find today's presentation on our investor relations website, ir.sma.de. This conference call is scheduled for 60 minutes. The replay will be available for seven working days. After the presentation, I will be happy to answer any questions you might have. As usual, the presentation will, after an executive summary, give an update on the market development and SMA's positioning, followed by the financials for January through September 2019. At the end, I will give an outlook on the full year 2019. I refer to our disclaimer on page two. On page four, we have summarized our strategic and financial highlights for Q1 through Q3 2019.
As per our expectations, sales increased substantially in the third quarter, so that revenues for the first nine months grew by nearly 10% compared to the same period last year. Order intake remained strong in the third quarter, building a strong base for Q4 2019 and the start of next year. Furthermore, we continued to benefit from our planned cost-saving measures and also new products, sales, and customer initiatives that have been started. SMA sold PV inverters with accumulated output of 7.5 gigawatts until the end of Q3. With a strong performance in the third quarter, output sold increased by 21% over the same period last year. Revenues of EUR 631 million were EUR 56 million or, as mentioned, 10% higher than in the same period last year. Our Home Solutions segment continued to deliver strong sales growth, now with 28% higher revenues compared to the first three quarters of 2018.
Sales in the Business Solutions segment were below last year's level due to price erosion. The Large Scale and Project Solutions segment had a very strong third quarter, so that year-to-date revenues are now 13% above revenues during the same period last year. Profitability improved significantly in the third quarter, with an EBITDA of EUR 17 million in Q3, so that year-to-date EBITDA at the end of September reached EUR 26 million. This was driven by the strong sales performance and by savings delivered by our cost reduction measures. Order intake remained on a good level in the third quarter so that the managing board is confident to achieve the fiscal year 2019 guidance with sales at the upper end of the range of EUR 800 million-EUR 880 million and EBITDA in the upper half of our range of EUR 20 million-EUR 50 million.
Besides introducing new products in order to increase sales and tap into new fields of business, we have also started several strategic initiatives in the first 9 months. Our partner loyalty program, SMA PowerUP for Installers, has been successfully launched in key markets such as Australia and the U.S., and we will be rolling out and developing it in other countries over the coming months. We have started to sell complete system packages for residential and commercial applications in selected markets within Europe. We have also introduced SMA Repowering packages featuring customized solutions for modernizing PV power plants worldwide. The packages include state-of-the-art hardware and software, along with enhanced servicing and maintenance programs. Operators and investors stand to benefit from higher yields, cutting-edge technologies, additional operational capabilities, and SMA warranties. The first 3 quarters of the year were in line with our expectations.
After a strong third quarter, sales are above last year's level, and EBITDA increased to €26 million, already above the lower end of our full year's profitability guidance. Order intake remained on a good level, and measures to save costs and increase sales remain well on plan. Based on this and our strong product order backlog, we expect to reach the upper end of our full year sales guidance and the upper half of our profitability guidance. On page five, we summarize the key financials for the first nine months of 2019, with the same period of 2018 shown for comparison. There is also a quarter-by-quarter overview of the last four quarters on the bottom right of this page. I will walk you through the financials later in this call. Let's now turn to the market discussion.
We have revised our market outlook until 2021 because of the subdued development in China in 2019. SMA is not doing any business in China. SMA's core market, the PV inverter business, is expected to decline slightly by 1% to 100 gigawatts in 2019. The expected decrease is exclusively caused by China, where the newly installed PV base until the end of September amounted to only 16 gigawatts. In all regions outside of China, however, our view is unchanged, and we anticipate a market increase of 23% for the global market excluding China in 2019. We expect the growth to continue in the coming years. Europe, Middle East and Africa is the most promising region, with annual growth of more than 20%. That growth is also driven by increased photovoltaic demand in the countries in the Middle East and Africa.
While utility remains the largest segment globally, we expect the highest growth rates in the commercial segment. Now please turn to page eight. Because price pressure will continue to largely erode volume growth and because of the weaker Chinese market, we expect global demand in EUR terms to decrease slightly by 1% until 2021. Again, SMA is not doing any business in China. From 2021 onwards, we expect a stabilization of prices. Until then, the market consolidation is likely to accelerate. Many inverter players cannot afford the investment in new technologies to drive down product costs and expand internationally to grow faster. By the way, SMA has no plans to acquire smaller players due to our already good positioning in all key markets and segments. Last year, the unexpected dramatic feed-in tariff cuts in China impacted the global market, resulting in rapidly falling solar module prices.
With solar modules accounting to 50%-60% of the total investment in a PV system, project developers and investors postponed their projects, waiting for prices to come down even further. This year, we expect the utility market to grow in volume as well as in revenue terms in all regions except China, where we anticipate a decline. With the continuing price decline, solar will soon hit the critical inflection point where it will be cost competitive without subsidies in many more markets. In a market environment without subsidies, governments will lose the ability to control rates of deployment. The energy transition can then gain more traction, which also will be supported by other technologies such as electric vehicles and batteries. Please turn to page nine. On this slide, we have compiled our market expectations for the global market addressable by SMA.
This includes the global PV inverter, battery storage, and O&M services markets in all regions except China, and the Digital Energy market in a limited number of countries where SMA Digital Energy solutions are available. The megatrends for the solar industry are creating new markets for storage and also energy services, which are rapidly evolving. First of all, storage. In order to integrate a battery into the PV system, you need additional hardware. This is where SMA comes into play as provider of storage system technology, especially with storage inverters. Battery storage systems are gaining importance in European markets such as Germany, the U.K. and Italy, as well as in North America, Australia and Japan. Price reduction and the rapid growth of renewable energies are the most important growth drivers. We expect a market of up to EUR 800 million for storage system technology by 2021.
Approximately half of the demand comes from the utility-scale battery projects. Since each utility application is different, significant customization is required. This offers a huge growth opportunity for battery inverter experts such as SMA. Digital Energy Solutions. Decentralized energy networks create demand for new solutions that manage flexibility and complexity. Countless actors within these new energy networks generate an abundance of data which can be used. The market addressable by a service provider such as SMA is expected to be only a fraction of the overall energy services market. We recently revised our estimate of the addressable market potential, which you see here on the left-hand side in red color.
Though we lowered the expectation and decided to focus on particular countries, we still expect the addressable market to double from EUR 300 million in 2019 to EUR 600 million in 2021. To capture this value pool, the necessary technical solutions need to be developed and rolled out throughout different markets. SMA has a clear understanding of the requirements for the Digital Energy market and can scale its go-to-market approach. The O&M market is gaining importance considering declining PV equipment prices. In mature markets such as the U.S. and Europe, O&M is a business on its own. Independent service providers such as SMA are selected separately by the EPC to ensure data integration and provide robust analytics and qualified PV inverter technicians. SMA estimates a global O&M market value of EUR 1.1 billion-EUR 1.2 billion per year until 2021.
Overall, we expect the entire addressable market for SMA to grow by 6% per annum from EUR 5 billion in 2018 to EUR 5.9 billion in 2021. As explained earlier, we expect that smaller inverter manufacturers are not going to be able to benefit from the described growth rates. Therefore, we expect the market consolidation of inverter manufacturers to accelerate and SMA gaining additional market share. Now I would like to explain about SMA's positioning in the market just described. SMA is the inverter manufacturer with the longest experience in the market. We have developed groundbreaking technologies that have helped paving the way for PV to become a mass market technology that can compete with conventional power sources. We are now entering the next stage by developing systems and solutions for the future energy supply.
Our technology is used in PV systems in more than 190 countries on all continents, with accumulated power output that equals 70 nuclear power plants. With more than one gigawatt of installed battery inverter power, SMA is by far the global leader in battery system technology. Our global sales and service infrastructure gives us access to all customer groups. Please turn to slide 12. Here you can see our global reach by regions. With 18 gigawatts of installed power, five owned sales and service companies throughout the continent, with a market share of 12% in gigawatt, SMA is among the top players in the Americas. In EMEA, the region with the strongest growth potential over the coming years, SMA has a market share of 21%, making us the market leader in this region. In APAC, SMA is the only non-Chinese inverter supplier that is among the top five.
With sales and service companies in Mumbai, Shanghai, Tokyo and Sydney, we can cover the entire APAC market excluding China, where we only serve project developers and investors that realize PV projects outside of China. Please turn to slide 13. SMA is the only inverter manufacturer with a portfolio that covers all segments and all stages of energy integration, starting from online energy monitoring and ranging to energy market integration with our direct selling solution, SMA SPOT. Based on our state-of-the-art solar and battery inverters and on our energy management platform, ennexOS, we develop solutions that include energy optimization, energy management, and the integration of different actors into the energy market. We thus drive the development of SMA to become a provider of systems and solutions.
In the following section of the presentation, I will walk you through our figures through the third quarter of 2019 and inform you on our expectations for finishing the fiscal year. Before I start with the figures, I would like to explain some features of our financial statements to you. As of the beginning of this year, we have realigned our segments. Last year, you may recall that we introduced a new segment, Digital Energy, in order to provide transparency on our business of energy management and energy data. However, this sometimes led to the misunderstanding that SMA would turn from a hardware supplier into a service provider. Also, as we decided to organize our segments no longer with respect to products or technology, but to emphasize our willingness to put the customer and its needs into the center of our thinking, we, as of 2019, only have three segments.
Home, Business, and Large Scale and Project Solutions. Those three segments do roughly translate the market segments residential, commercial, and utility, but they include our storage and off-grid business as well as the services that we offer. Starting with the after sales business, operations and maintenance, and also the energy management and data business. With these three segments, we now combine all the offerings of our portfolio for the specific customer groups with the inverter still being the core product as part of our system and solution offering, including monitoring and steering technologies and software, as well as diverse services. The prior years' figures for the segments business have been adapted to our new three-segment structure in order to ensure comparability.
Another point, due to a revision of the International Financial Reporting Standard 16, as of beginning of 2019, leased assets which were previously reported as operating expenses are now considered in our balance sheet as financial leased assets and liabilities. Let's have a look on our revenue figures. SMA recorded sales of EUR 631 million during the first nine months of the year, with 7.5 gigawatts of output sold. This is 21% more output than in the same period in 2018, driven by strong growth of our Home Solutions business, sustained throughout the year and, as expected, a strong increase of revenues in the third quarter for our Large Scale and Project Solutions segments, as we converted part of the substantial order backlog from the first half of the year.
Looking at the geographical distribution, we continue to see strong revenue growth in Europe, Middle East and Africa of 22%. With EUR 349 million in the first nine months of 2019 as compared to EUR 287 million in the same period of 2018. Segments Home Solutions and Large Scale and Project Solutions delivered significant revenue growth in the EMEA region, while Business Solutions remained on prior year level. In the Americas, revenues have grown by 23%, from EUR 105 million in the first nine months of 2018 to EUR 129 million in the same period of this year. Revenues grew in all segments in the region, thanks to a strong performance in the third quarter of this year.
Sales in the Asia-Pacific region declined in the first nine months of 2019, with EUR 166 million of revenues in the first nine months of this year as compared to EUR 197 million in the same period last year. All segments fell below their prior year revenues in the APAC region. In summary, in EMEA, we continued to increase revenue share through sustained sales growth. Revenues in Americas have also increased compared to the same period last year. The revenue share decreased in the APAC region, mainly due to slower uptake in the Large Scale and Project Solutions so far this year. Looking at the different segments, we see double-digit revenue growth in our Home Solutions and Large Scale and Project Solutions segments, while our Business Solutions segment declined by 5% compared to the first nine months of 2018. Let me briefly elaborate on that.
The Home Solutions continues to deliver strong revenue growth with EUR 175 million as compared to EUR 136 million in the same period of last year. That is a growth rate of 28%. Both the EMEA and Americas regions achieved strong sales increases so far this year, which more than compensated for lower sales in the APAC region. The Business Solutions achieved revenues of EUR 209 million in the first nine months, falling short of last year's sales level after three quarters of EUR 221 million as a result of price decline. Revenues in the Americas grew in the middle single-digit range, while sales in EMEA were flat and revenues in the APAC region fell short of the level achieved in the first 10 months of last year.
Large Scale and Project Solutions segment generated sales of EUR 247 million in the first nine months, which is 13% higher than the same period of last year, with sales of EUR 218 million. This segment profited from strong revenue growth in the Americas and EMEA regions in the first nine months of 2019, while sales in the APAC region declined, mainly due to slower uptake in Australia compared to last year. To summarize the sales situation, in total, sales grew by 10% in the first nine months of this year. Strong growth in EMEA and Americas that was more than enough to offset for revenue declines in the APAC region. Let me now explain on the profitability development. With an EBITDA of EUR 26 million in the first nine months of 2019, our profitability was lower compared to the same period of 2018, with EUR 51 million.
This is mainly a result of the price pressure effect on our gross margins. EBITDA in the first nine months of 2018 also benefited stronger than this year from positive one-off effects. Depreciation and amortizations are slightly lower than last year, a result of the R&D asset impairments booked in the fourth quarter of 2018, which I explained in our 2018 annual results call. Now coming to the different segments. Home Solutions. EBIT for the segment improved in the third quarter and is now positive after the first nine months with EUR 1 million. In the first three quarters of 2018, the Home Solutions segment had a positive EBIT of EUR 18 million, which, however, included a positive one-time effect from the adjustment of general warranty accruals. Business Solutions.
Profitability of our Business Solutions segment was weak in the third quarter, mainly due to price pressure, so that the segment is now at EBIT break-even after the first nine months. For the same period in 2018, the segment delivered an EBIT of EUR 24 million, which were also partially affected by the adjustment of our general warranty accruals last year. Large Scale. EBIT in the Large Scale and Project Solutions segment amounted to minus EUR 3 million in the first three quarters, compared to EUR 25 million in the first three quarters of 2018. In 2018, the segment had been negatively affected by warranty accruals. One more information with regard to our P&L. Below the EBIT line, you find a positive financial result of EUR 1 million and tax expenses of EUR 3 million related to tax obligations in our foreign subsidiaries. I now move on to the balance sheet.
In the balance sheet, the most noteworthy changes since the beginning of 2019 are related to the implementation of IFRS 16 and the development in net working capital positions. As I already mentioned, as of January 1st this year, we implemented the new International Financial Reporting Standard number 16 and are now showing the financial liabilities and assets related to our leasing obligations worldwide. This reporting change has led to an increase in both non-current assets and other liabilities of more than EUR 80 million. Net working capital increased in absolute figures by EUR 30 million since end of 2018. As a result, the net working capital ratio has increased from 23% at the end of 2018 to 25% at the end of Q3 2019.
The increase is driven by higher inventories and increased trade receivables related to the uptake of our sales in the last quarter, which were only partly offset by increased trade payables and higher advance payments from our customers. The increase of finished goods and raw material inventories is needed to continue to convert our product order backlog to sales over the next months. Our total cash position with a balance of EUR 275 million at the end of Q3 has decreased since the end of 2018, mainly as a result of the buildup of inventories, as just explained. Looking at our cash flow, we again compare the figures of the first three quarters of 2019 against the same period of 2018.
The operating loss of minus EUR 11 million and negative cash flow from operating activities led to a deterioration of our adjusted free cash flow in the first three quarters of 2019. However, we continue to generate a positive gross cash flow in the first three quarters. The negative cash flow from operating activities is largely related to the buildup of inventories during this year, which, as explained earlier, is necessary to continue fulfilling our strong order backlog. Our net CapEx of EUR 20 million is below last year's level and is nearly evenly split between investments into fixed assets and capitalized R&D expenses. The positive effect from net investments from securities and other financial assets represents movement of cash from fixed deposit accounts to cash and equivalents. I now turn to our order backlog development and outlook for the last quarter of 2019.
In our order backlog, we continue to distinguish between the product business and our after-sales business, which in the past years was reported separately in the segment service. The reason for this distinction lies in the different sales realization periods that we can attest for product orders to be weeks and months, and for service orders, which are between 5 and 10 years. Overall, the level of our order backlog is 38% higher than at the end of 2018, despite the strong sales in the third quarter. The product order backlog, which is especially important for revenues over the near term, grew by 144% in the first nine months of this year. All segments increased their product-related order backlog by roughly 100% or more in the first three quarters.
Meanwhile, the service order backlog declined by EUR 35 million since end of 2018, mainly resulting from scope reduction or during service contract extensions, which in some cases have been replaced by orders for new products to replace the customer's older SMA inverters. This brings me to our sales and profitability guidance for 2019. Our revenues after three quarters, combined with the confirmed product and order backlog for 2019, give us full confidence that we will be able to reach the upper end of our sales guidance and have revenues at year-end of EUR 860 million-EUR 880 million. The substantial increase in sales in comparison to 2018, despite continuous price pressure, will result from maintaining our strong momentum in EMEA and strengthening our share in the large-scale business by continuing to convert our strong product order backlog into sales in the fourth quarter of this year.
In terms of profitability, we expect to finish the year in the upper half of our original EBITDA guidance of EUR 20 million-EUR 50 million. To sum up, SMA is uniquely positioned to further benefit from the growth to come in all segments of the solar industry. Not only do we have a complete portfolio for all segments, but we also have a truly global presence to serve all important PV markets. With the exceptional knowledge of our R&D team, our reduced cost base, the strongest brand in the industry, and our profitability, we will be able to answer to all demands of the market and our customers. This is why, if you trust solar, there's no way around SMA. Now, operator, I'm happy to take any questions.
Thank you, Mr. Hadding. Ladies and gentlemen, if you wish to ask a question at this time, please press star one on your telephone keypad. Please ensure that your mute function is switched off to allow your signal to reach our equipment. If you find that your question has already been answered and you don't want to ask any further questions, you may remove yourself from the queue by pressing star two. Once again, it's star one if you wish to ask a question. We will pause for just a moment to allow everyone to signal. Our first question comes from Mark Webber from Clarewood. Please go ahead. Your line is open.
Yes. Good morning. Thanks for taking the question. You've presented the nine-month figures, in fact, within the nine months, one gets the impression that there's a very different two parts, i.e., the first half and Q3. Can you help us understand by giving some figures for Q3 for sales growth, order growth, the EBIT and net profit? Thank you.
Yes, sure, Mark. I only referred to the turmoil in the market last year when prices were coming down tremendously in September, October of 2018 due to the cutting in feed-in tariffs in China. This effectively brought the market for large-scale investments to a halt, and this halt was to be felt in the Q1 and Q2. Our string inverter business in the first half was actually quite well-performing. It was only missing the addition of large-scale business. That now kicks in in Q3. That's the reason why we have, as you said, a fair but not so exciting first half, and now a Q3, which is performing as expected. It's very well. It was just the large-scale business kicking in in Q3 only.
Can you give us the figures, please, of growth in Q3, order book expansion in Q3, EBIT and net profit, please?
Order book expansion. I will have to get back to you, Mark, with the exact figures related to Q3 only. If you compare that to our H1 web, you will see that the order book was actually going down in Q3. We accumulated everything in H1. You see that also in part on our charts in the presentation. With regard to the exact EBIT of Q3, you find that also in, just a second, in our quarterly report on page 20. You find it broken down for the Q3 segment, which was EUR 121 for Large Scale in Q3, EUR 74 for Business, and EUR 73 for Home Solutions.
Okay. Thank you very much. We'll look at that. Second question, if I may. You've mentioned in the commentaries about consolidation. Can you just help us understand a bit more what you mean by that in consolidation and how you see SMA Solar's participation in consolidation of the players in the market?
Yes. As you certainly know, we have had several players dropping out of the market over the last years. Very prominently this year, ABB selling its activities to Italian competitor, FIMER. We also noted by the end of last year the partial retreat of Schneider Electric, which is no longer going to produce central inverters. We have seen also the dropout of smaller competitors over the last months and years. We see that as a natural consequence of the high price pressure that has been imminent in this industry for the last 10 years. At one point in time, you just can't cope with this price pressure anymore if you don't have the necessary R&D capacity. We see this trend continuing, especially in the utility segment, where you effectively have only three to four big players left.
Especially in the U.S., we will see that become a very interesting battlefield in the next year. With regard to the positioning of SMA, we are regaining market share in the utility segment. We have lost market share in the residential area, and we have sustained or even improved our market share in the commercial arena.
Great. Thank you very much.
You're welcome, Mark.
Thank you. As a reminder, ladies and gentlemen, it's star one if you wish to ask a question. Our next question comes from Guido Hoymann from Metzler. Please go ahead. Your line is open.
Hello. Good morning. Actually, one question regarding the average selling prices, the ASPs. I remember you mentioned that the good development we have seen in H1 would not continue. That is what we have seen now in Q3, high pressure on selling prices again, I think some 19%. I understand that the main reason is the higher share of project, large-scale project business. Is that what we should also expect then for Q4 and also for the whatever coming quarters now? Because your order backlog is mainly filled by these large-scale businesses. Is this actually, this 19%, indicating that the price pressure has even accelerated? Because this is really a magnitude which I don't really recall have ever seen before.
Yeah. We have to distinguish between the two segments. With regard to the Large Scale and Project business, the price pressure has been as big as we have expected it. By the end of this year, we expect that the price decrease in the Large Scale business will be 25%. The average for the entire business.
25%. We have now reached the point where we are taking in orders, which actually are at this point in time. For the Q4, we will indeed see low profitability with regards to this high order and backlog volume for large-scale. With regards to the string inverter business, meaning Home and Business, the situation is different. Pricing is not the most important differentiator anymore. Whereas in the large-scale business, the EPCs ask for pricing first, in the string inverter business, the customers more and more tend to also take service, quality, brand recognition, and other factors into account. We see a slight easing of the price pressure. Not to be misunderstood, there's still price decline, but it is not as severe as it has been last year. We expect the price decline by the end of the year to reach about 10%, perhaps, in these two segments.
For the future, we however see the price decline softening anyway. Not only as a consequence of the consolidation I just described in response to Mark's question, but also as we see that the innovation cycle time becomes longer and longer. The PV industry has been having very many innovations, as being a very young industry. That becomes more and more difficult. The ability to cope with the price pressure becomes more and more difficult. We see the price decline softening in 2021 the latest. Probably we already see the beginning of that development here in the home segment, especially. Does that help you?
Yeah. Definitely. May I ask this?
Sure
Stupid question. If the pressure is so high in the large-scale business and you're making losses, wouldn't it be reasonable not to take in parts of the orders?
Yeah
to refuse this business? Yeah.
Well, I'll give you one more information that is necessary to understand the entire picture. We are different than a few years ago. SMA is not only selling inverters, but a lot of trading goods, like for instance, batteries, transformers, medium voltage gear, or other accessories. Those accessories come, of course, with a lower margin than our original core business, the inverter. However, if we would not offer these packages, we would probably not be able to compete in the market at all. Therefore, two things. First of all, our profitability goes down, our break even rises. You see, we now have much more turnover than in the years prior to 2018, still lacking profitability. That is due to the fact that we have a higher take of trading goods in our sales volume.
We may be having difficulties with this situation in the Large Scale and Project Solutions segment this year, but this is due to the fact that more or less all business that we are doing in Q4 is not only inverter, but is a medium voltage package, a full station. That is quite unusual. Therefore, the negative outlook on the utility segment is just for the time being. It is not a long-term perspective. Especially due to the new product we have now launched in late 2019, our Sunny Central UP in the central inverter business. We will be able to compete also price-wise in the future. That is also what is driving our order intake these days. We see a positive outlook for the Large Scale and Project Solutions segment in the future.
All right. Okay. Thank you.
Thanks.
Thank you. Mr. Hadding, we have no further questions on the phone at this time. I would like to turn the call back over to you for any additional or closing remarks.
Ladies and gentlemen, thank you very much for dialing in this morning and being interested in SMA. We have been very silent over the last months, and we will continue to not make much fuss about our figures. They are, let's say, the expression of what we did communicate throughout the year. SMA is back to normal. We do not have very good surprises. We do not have any bad surprises. We are just back in business and we are performing, and I hope I could deliver that message to you. Thank you very much and have a great day.
Ladies and gentlemen, this concludes today's conference. Thank you all for your participation. You may now disconnect.