Good day, welcome to the Analyst Investor Presentation Financial Report Full Year 2018 conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Dr. Jürgen Reinert, Chief Executive Officer. Please go ahead, sir.
Thank you, welcome for joining us on today's conference call for the full year 2018. Today, we will present detailed results for 2018, as well as our outlook for fiscal year 2019. In addition, we will provide you with sales and earnings guidance for the first quarter 2019. On the call today, I will start off with the strategic and financial highlights during the reporting period and give you an update on market development, strategic highlights, and our product portfolio. Afterwards, I will hand over to SMA's CFO, Ulrich Hadding, who's also in charge of investor relations for an update on our restructuring initiative to reduce fixed costs, the financial discussions, and the outlook for 2019. After our presentation, we are happy to answer your questions. The presentation of this analyst call is also available on our website at ir.sma.de.
This conference call is scheduled for 90 minutes and will be recorded. The replay will be available for seven working days. We refer to the disclaimer on page two of our presentation. After this call, we will hold our annual press conference. Following along on page four, we have summarized our strategic and financial highlights for the fiscal year 2018. SMA generated sales of EUR 761 million, 15% below the same period last year. The sales decline is mainly due to accelerated price pressure as a result of the market decline in China. Ulrich will comment on the sales distribution by regions and segments in the financial discussion. EBITDA 2018 was minus EUR 69 million, was negatively impacted by net extraordinary effects of minus EUR 86 million. In addition, 2018, EBIT is affected by extraordinary impairments of R&D intangible assets of minus EUR 30 million.
SMA is on track with the implementation of our restructuring program. For 2019, we expect sales of EUR 800 million-EUR 880 million and an EBITDA of EUR 20 million-EUR 50 million. In quarter one 2019, we expect sales of EUR 160 million-EUR 170 million and EBITDA of minus EUR 5 million to EUR 0 million. For your convenience, we have summarized the key financial figures on slide five of this presentation. Please turn to page seven and let me talk about our market outlook for the next coming year. Our market outlook until 2021 remains unchanged since first published on our capital markets day end of January this year. SMA's core market, the PV inverter business, is expected to grow in gigawatts by 6% to 109 gigawatts in 2019. We expect the growth to continue in the next coming years in all regions except China.
China remains the largest market, but with a rather flattish volume development. Europe, Middle East, and Africa is the most promising region, with annual growth of more than 20%. This growth is 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 and Residential segments. Please turn to page eight. After a drop from 2017 to 2018 by approximately 10%, we expect global demand in euro terms to develop flattish until 2021. We expect price pressure to continue to largely erode volume growth. Overall, we expect a stabilization of prices towards 2021. 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/or the international expansion to grow faster.
Last year, the unexpected dramatic FIT cuts in China impacted the global market, resulting in rapid falling solar module prices. With solar modules accounting for 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. The good news is that with this price drop, 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 the rates of deployment. The energy transition can then gain traction, which will also be supported by other technologies such as electric vehicles and batteries. Please turn to page nine.
The mega trends for solar industry, which we described in detail during our capital markets day, are creating new markets for energy services and storage, which are rapidly evolving. On one hand, decentralized energy networks create demand for new solutions that manage flexibility and complexity. On the other hand, countless access with these new energy networks generate an abundance of data, which can be used to tailor new solutions. The market addressable by a service provider such as SMA is expected to be only a fraction of the overall energy service market. We estimate the addressable market for us to increase from EUR 800 million in 2019 to EUR 1.8 billion 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 growth to market approach. Price reductions is the most important growth driver for battery storage in nano and microgrids. Battery storage systems are gaining importance in European markets, especially in Germany, the U.K., and Italy, and in North America. We expect the market of up to EUR 0.8 billion by 2021. Approximately half of the demand comes from utility scale battery projects. Since each utility application is different, significant customization is required each time. This offers a huge growth opportunity for battery inverters experts such as SMA. 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 both analytics and qualified PV inverter technicians. SMA estimates the global O&M market value between EUR 1.1 billion and EUR 1.2 billion per year until 2021. Overall, we expect the entire addressable market for SMA to grow by roughly 8% per annum, from EUR 6.3 billion in 2018 to EUR 8 billion in 2021. As explained earlier, we expect that smaller inverter manufacturers are not going to be able to benefit from the described growth rate. Therefore, we expect the market consolidation of inverter manufacturers to accelerate. Before I turn to our products in more detail, I will provide you with a quick overview of our main business segments on slide 11. SMA has a relatively balanced revenue distribution across its main segments.
The Utility segment again made the largest contribution to sales in 2018, accounting for 35% of gross sales. The Commercial segment generated more than 30%, and the Residential segment almost 25% of SMA's group sales. At the beginning of the year, storage was integrated into the former Utility, Residential, and Commercial segments. In 2018, it generated almost 10% of SMA's group sales. Starting 2019, the reporting structure will compromise the Home Solutions, Business Solutions, and Large-Scale and Project Solutions segments. Service, repowering, and storage will be integrated into these segments to structurally reflect SMA's strategy to become a provider of systems and solutions in an optimal manner. Please turn to slide 12. SMA is the only inverter manufacturer with a portfolio which covers every stage of the energy integration, from energy monitoring to energy market integration with SMA's direct marketing solution, SMA SPOT.
ennexOS is SMA's new energy management platform. With ennexOS, we are expanding to energy optimization, energy management, and finally to solutions that allow integration of different actors such as prosumers and consumers. We thus gradually put our vision of a holistic cross-sectoral energy management into practice. Please turn to our product pipeline for 2019 on slide 13. In product development, we are pursuing a platform strategy aimed at systematically reducing product costs. All our new products enter the market with an improved cost point. As explained earlier, many inverter players cannot afford the investment in new technologies needed to drive down product costs year-on-year. SMA continues with a high rate of innovation in all segments in 2019. In residential, we will launch the new Sunny Boy generation early in 2019. The product, and it's actually launched already.
The product will be available in Europe, U.S., and Japan, and uses a communication platform that allows us to integrate module-level power electronics seamlessly. SMA also expands its strategic global storage partnership with BYD to address international growth markets such as the U.S. and African markets. Our technical solution increases the availability of batteries for our customers in the U.S. since January 2019. In commercial, we already launched an important all new inverter platform, Sunny Highpower PEAK3 in quarter one 2019. This next generation for ground-mounted PV projects comes with up to 150 kilowatt power and is available for 1,000 volts and 1,500 volt technology. It implements silicon carbide semiconductors to reduce costs and weight. In utility, the upgraded Medium Voltage Power Station comes with a Sunny Central inverter now with up to 4.6 megawatt power and will be available in Q3 this year.
The SMA global sales force already quotes this turnkey solution for utility scale projects that will be built in the second half of 2019 or later. The feedback they receive from our customers is indeed very positive. On slide 14 of this presentation, you see a picture of one of SMA's system packages that proves that SMA can already offer more than just inverters. SMA can provide installers and end customers with a modular hardware, software, and service system tailored to their needs and from a single source. We do not only tell our customers that the inverter works together with a battery, but deliver the hardware, PV, and storage inverters plus battery together with energy management software. These customized intelligence systems are one aspect that differentiates SMA from its competitors.
With this news, I will now hand over to Ulrich Hadding for an update on our restructuring measures as well as the financial discussion.
Thank you, Jürgen. Ladies and gentlemen, in the following, I will walk you through our financial figures for the full year 2018, and will then turn to our outlook for the first quarter of 2019, as well as our guidance for the entire fiscal year. As you know, 2018 was a terrible year for SMA, although we were able to tie last year's record in deliveries with 8.5 gigawatts of nominal inverter capacity being sold. This turned into revenues of only EUR 761 million, which is a minus of 15% year-over-year, and gives you an indication of how serious the overall price decline was in 2018, affecting all segments.
From a geographical point of view, EMEA was once more the strongest region with 48% of SMA's total sales, which is equal to revenues of EUR 375 million for sales deductions, which met our expectation and especially the residential and commercial segments were performing quite well in EMEA. Within this region, Germany, Israel, and the Benelux countries contributed the biggest revenues for SMA. Germany was once more our worldwide largest market in 2018. The Asia Pacific region was able to generate 33% or EUR 259 million of SMA's total sales, and that was our second-largest region. Within the APAC region, Australia was in 2018 the largest market for SMA before Japan and South Korea. Coming now to Americas. Americas generated 19% or EUR 150 million of SMA's total sales and fell back short of the expectations we had by the beginning of 2018.
Among the reasons for this result were the general uncertainty about regulatory changes and ongoing discussions about possible import tariffs in the U.S., the expectation of an improved SMA inverter for Residential applications in the first quarter 2019, as well as a postponement of projects in anticipation of further price declines. This hurt all our segments in the Americas. In a nutshell, EMEA was performing well and contributed most of our sales, but APAC and especially Americas fell short. Before we are going to look on the different segments, let me remind you of some changes in our financial statements, which I explained already in detail in the last analyst calls. We no longer have a segment Service, but the activities of this segment have been allocated to the segments Residential, Commercial, and Utility.
Also, due to a revision of the International Financial Reporting Standard number 15, in our financial statements, we now show the total sales volume being split into revenues with products and revenues with services. Services in that sense should not be mixed up with the revenues generated within our after-sales business, which we used to refer to as Service. In the sense of IFRS, we understand services to include our service or operations and maintenance contracts, warranty extensions, commissioning, digital energy services, and operational management and monitoring. Products, on the other hand, encompasses inverters, storage systems, communication products, accessories, and spare parts. Let's now have a look on the sales per segments on the right side of the slide.
As you can see, the revenues of all our segments decreased compared to 2017, especially Residential has fallen by 22% on a year-by-year basis to about EUR 182 million. This decline is mainly due to the shortage of electronic components, such as semiconductors for Sunny Boy inverters, comparatively high inventories held by our customers, and increased price pressure in the APAC and EMEA regions. Commercial segment has been heavily affected by shortages of some key components in the first half of 2018 and a declining market in the U.S. and Japan. Nevertheless, especially Germany was performing very well and is now our largest market in this segment before Japan and the U.S. The Utility segment continues to remain our largest segment, with EUR 266 million of sales for 2018.
Nevertheless, the Utility segment decreased in sales in comparison to the previous year by 8%, as a result of the significant decline in prices and, as already mentioned, postponement of projects. The APAC region accounted for 43% of the segment sales, and Australia is now our largest market for the Utility segment in 2018, even before the U.S., Israel, and Germany. Storage. In 2018, external sales in the Storage segment decreased by 37% to EUR 61 million. Major reason for this decline is the lack of large-scale projects in 2018, different than in 2017 and also different than in 2019, again, where we see many of those large-scale projects combining central inverters with batteries. This happened in part due to the limited availability of batteries. Those bottlenecks with the battery manufacturers have now been successfully countered with SMA entering into strategic partnerships with battery manufacturers like, for example, BYD.
As I already mentioned in our last calls, the digital energy segment did not generate noteworthy sales in 2018. Let's now take a look on our profitability. In 2018, SMA generated an EBITDA of EUR -69 million and an EBITDA margin of -9%. The EBITDA is heavily impacted by negative extraordinary effects of EUR 86 million, which I would like to comment in more detail. Cost-saving measures. As you know, we started to set up a program to lower our fixed costs in Q3 2018 already. I will come back to this later in my presentation. In consequence of that, we had to build accruals in the amount of EUR 34 million to cover related measures, including accruals for severance payments. Depreciations.
Due to the difficult market environment and therefore SMA failing to achieve its sales targets, and also due to some bad luck in form of insolvency for customers, we had to depreciate working capital, that is inventories and account receivables, in the total amount of EUR 42 million. Warranty provisions. As I already explained in our last calls of 2018, SMA reviewed its calculation of general warranty obligations and, as a result, could in total release accruals of EUR 33 million in Q2 2018. On the other hand, SMA had to build additional accruals for individual warranty claims of EUR 32 million. In addition, there were further extraordinary effects of EUR 11 million, mainly related to the depreciation of tax reimbursement claims with authorities in Italy and Romania. Let's turn now to the segments in detail. Residential.
EBIT in the residential segment turned negative to almost EUR -17 million, primarily due to a decline in sales, but also affected by negative one-offs from the depreciation of inventories and extraordinary impairment losses on capitalized development costs. In part, those extraordinary effects were offset by the change in estimates and recalculation of general warranty obligations, which I have reported already to you in our last call. EBIT in the commercial segment decreased to EUR -12 million, mainly due to high price pressure. Also here, the results include negative one-offs from the depreciation of inventories due to product ranges and extraordinary impairment losses on capitalized development costs and were only in part offset by positive effects from the change in estimates and recalculation of general warranty obligations.
EBIT in the utility segment deteriorated to almost EUR -64 million as a result of poor price quality in individual markets and as well one-off items. Those included provisions for individual warranty claims and impairment losses on capitalized development costs. In contrast to the commercial and residential segments, utility had no positive one-off effect from the change in estimates and recalculation of warranty obligations. EBIT in the storage segment amounted to EUR -5.6 million and was as well affected by a new calculation of general warranty provisions and extraordinary impairment losses on capitalized development costs. Let's now turn to the balance sheet and net working capital. Coming from EUR 168 million at the end of 2017, SMA's net working capital increased by about EUR 9 million to EUR 177 million. This represents a net working capital ratio of about 23.3%, which is slightly above our full year guidance of 19%-23%.
If we go more into detail, we see that this is due to an increase in inventories of about EUR 29 million, mainly attributable to high stocks of finished goods built up during the year to shorten lead times for key residential and commercial products. You may remember from our last call and mentioned today as well, we had to deal with some supplier issues in recent months, which is why we were not focusing so much on an optimized net working capital, but on ensuring our ability to serve our customers. Nevertheless, the risk from producing finished goods in advance partly led to depreciations at the year-end. For 2019, the SMA management team will therefore put a strong emphasis on optimizing net working capital. The trade receivables reduced significantly from EUR 160 million to EUR 108 million and were thus even below the amount of trade payables of the EUR 111 million.
Let's have a look on the group balance sheet on the right side of this page. Non-current assets went down year-over-year by 21% and ended up at EUR 283 million. This is mainly driven by the impairment of R&D intangible assets, partly a result of the decision to optimize our product portfolio, one of the measures of our cost-cutting program. In addition, deferred tax assets recognized for loss carryforwards of SMA Solar Technology were also depreciated, amounting to EUR 13.2 million. Total cash decreased from 2017 to 2018 by EUR 146 million to a level of now EUR 324 million. Consequence of the weak annual results, increased inventories and one-off cash flow effects, including tax payments for prior years. Shareholders' equity decreased by 31% from EUR 612 million to EUR 424 million due to the negative net earnings in 2018.
As a result, equity ratio decreased from 50% at the end of 2017 to 43% at end of 2018. Let's now turn to our cash flow profile on the next page. In 2018, SMA generated a negative cash flow from operating activities of minus EUR 54 million. In addition to the fact that revenues were below our expectations, SMA increased, as already mentioned, its inventories to serve our customers. SMA had to pay taxes related to prior years of more than EUR 10 million. The cash level in 2019 will not be affected by dividend payments as the management and the supervisory board agreed to suggest to the annual general assembly not to pay any dividend for 2018.
This ends my comment on 2018, a year in which SMA was affected not only by the continuous price pressure of our industry, but also by unforeseeable market trends and various self-inflicted negative effects, which made it impossible to stay in the black. In consequence of that, we launched comprehensive countermeasures to return to profitability as quick as possible. Allow me to comment on the content and progress of this program before we come to the outlook on 2019. With our cost-saving program, SMA will reduce its fixed costs by EUR 40 million per annum while maintaining the ability to seize upcoming future opportunities. We thereby rely once more on our strength to adapt rapidly to external market conditions. Managed reduction of fixed costs will, to the most part, come from a consolidation of our production and R&D sites.
As already announced, SMA is selling its Chinese subsidiaries via a management buyout and will make optimal use of its capacity at headquarters in Germany and its facility in Poland. This will lead to a headcount reduction of around 425 full-time equivalents, thereof around 300 in China. SMA will furthermore focus on its core competencies and continue its outsourcing and automating activities. This will trigger the further reduction of our product platforms and as well the streamlining of SMA's product portfolio to create momentum and simplify our processes. Along with the sale of the Chinese company, SMA will exit the Chinese market. The consolidation and focusing activities will bring us the necessary room for internal and external optimization. That means more customer centricity and market focus to bring value from closer, consistent collaboration between sales, service, and our business units.
Automation of administrative processes and the downsizing of overhead will bring further reduction of complexity. Also, we will increasingly press ahead to drive future topics to develop the company into a systems and solutions provider and will continue to invest in the future-oriented areas of energy management, storage integration, repowering, and digital business models. All these activities mentioned here are well on track, made to secure SMA success in the long and short term and supporting our overall strategy. Now turning to the outlook on 2019. Q1 of 2019 showed so far an increase for the residential business in comparison to last year. Commercial and utility are slightly behind our budget. We therefore expect sales in a range between EUR 160 million and EUR 170 million for the first quarter of 2019. The expected EBITDA will be slightly negative up to balanced.
If you have a look on the right side of this slide, you will see a promising product order backlog development for Q1 2019 across all segments. If we compare today's order backlog to our figures per the end of 2018, we see a slightly decreased backlog for our long-term after-sales business, but have an increase of nearly 40% in the product order backlog. This portion of our backlog will be converted into sales within this year. Let me highlight therefore that about 50% of our guided sales figures for 2019 are already covered by our year-to-date revenues and the current 2019 product order backlog. Which brings me to the full year guidance. For 2019, the SMA Managing Board confirms its sales and profitability guidance for 2019 announced by end of January this year.
We expect revenues in between EUR 800 million and EUR 880 million and an EBITDA between EUR 20 million and EUR 50 million. As explained during our capital markets day in January, the growth in sales will be reached by striving to increase market share by taking advantage of strategic partnerships and introducing cost-improved products, as well offering system packages which ease the job of installers. To sum up, SMA is uniquely positioned to further benefit from the growth to come in all segments of the solar industry. SMA can offer a complete portfolio and has a great team on the ground. The digital transformation of the energy sector offers huge opportunities for technology-driven companies such as SMA. SMA's financials are still solid and our shareholder structure is stable. SMA is an investment-grade company and a bankable partner.
The exceptional knowledge of our R&D team and about EUR 300 million of total cash, we will be able to rapidly enter the higher margin business with digital solutions and applications for storage. This is why if you trust in solar, there is no way around SMA. Now, Jürgen and I are happy to take your questions.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press star one to ask a telephone question. We'll pause now for just a moment to allow every opportunity to signal. As a reminder, it's star one to ask a telephone question. There appears to be no telephone questions at this time.
Thank you very much. Have a nice day and a great week.
Thank you. Bye-bye from Ulrich and Jürgen.
Thank you. Bye-bye.
Bye-bye.
This concludes today's call. Thank you for your participation, ladies and gentlemen. You may now disconnect.