Good morning, and thank you for joining us on today's conference call to discuss SMA's third quarter 2018 results. First of all, let me shortly introduce myself as this is my first analyst call as the new CEO of SMA. Some of you may already know me from the Capital Markets Day. I've been with SMA since 2011 and was appointed to the management board in 2014, with responsibility at that time for technology and operations. I will now also lead sales and service. I must say I'm both excited and honored to take over as CEO of SMA. 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 planned restructuring initiatives to reduce fixed costs.
Afterwards, I will hand over to SMA's CFO, Ulrich Hadding, who's also in charge of investor relations for the financial discussion and the outlook for 2018. After our presentation, we are happy to answer your questions. The presentation of this analyst call is also available on the 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. Now please turn to page three of the executive summary. From January to September 2018, we increased inverter shipments by 6% to over six gigawatts and generated sales of EUR 575 million, slightly 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. On profitability, SMA generated an EBITDA of EUR 51 million in quarter one to quarter three 2018. The figures do not include restructuring provisions because the measures are currently being discussed with the workers' council and no decisions have been made yet. We adjusted our market outlook mainly due to the higher installation in China. The FIT cuts in China caused accelerated price pressure in international markets and many project delays. As a result of that, order intake lagged significantly behind expectations. We adjusted our guidance for the current fiscal year end of September and announced structural adjustments to lower the fixed cost base. We now expect sales between EUR 800 million and EUR 850 million and break even to slightly negative EBITDA after one-off effects from restructuring. For 2019, we anticipate sales growth and positive EBITDA.
Our key strategic highlights in quarter three is the expansion of our global storage partnership with BYD to jointly address additional markets with a high growth potential, such as the USA and African markets. With this partnership, we will jointly develop end market technical solutions and improve availability of battery systems for residential and commercial customers. For your convenience, we have summarized the financial figures on slide four of this presentation. Please turn to page six and let me talk about our PV inverter market outlook for the coming years. We adjusted our market outlook 2018 mainly because of higher than expected installations in China. The National Energy Administration of China, NEA, announced new PV installations of 35 gigawatts until September 2018.
Installations in June and July were higher than initially anticipated because the NEA allowed a grace period for projects under construction as of May 31st, the day the drastic FIT reductions were announced. When the FIT cuts became fully effective in August and September, new installations declined dramatically to less than two gigawatts per month. Accordingly, we increased our market outlook 2018 for China from 25 to 39 gigawatts. The unexpected dramatic FIT cuts in China impacted the global market as well. Solar module prices started to decline rapidly at the end of August only. With solar modules accounting for roughly 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 rates of deployment. The energy transition can gain traction, which will also be supported by other technologies such as electric vehicles and of course, batteries. At the beginning of November, the NEA indicated to still support solar. It is planned to increase solar targets of the 13th Five-Year Plan to probably 250 to 270 gigawatts. Accordingly, we adjusted also our guidelines for 2019 and 2020 estimates for China. On page seven, you see our updated outlook on global demand for solar inverters in EUR terms.
The FIT cuts in China also impacted pricing of PV inverters in the international market. To accelerate their internationalization, the Chinese inverter manufacturers reduced the average selling price. Please note that this strategy is not a guarantee to win market share, since the solar inverter market is a technology and relationship-driven market. Nevertheless, the new situation led to a faster price decline than expected earlier this year. Until 2020, we expect a rather stable market volume reaching EUR 4.3 billion. Please keep in mind that we calculated cautiously and did not factor in any assumptions on accelerated growth due to improved cost competitiveness for solar. We maintain our view on strong decline of average selling prices for ground-mounted PV projects due to the tender processes, the low PPA prices, and the probable continuing internationalization of Chinese inverter suppliers. We also expect the stabilization of prices towards 2020.
Until then, the market consolidation is likely to accelerate. Inverter players with sales below approximately EUR 200 million will probably have difficulties to invest in new technologies to drive down product costs and/or to finance international expansion in order to serve the more fragmented markets. Smaller inverter manufacturers are also more likely to experience interruptions in production due to the allocation of electronic components such as semiconductors or mechanical components. The solar business of larger conglomerates will come under pressure as well, because the solar business requires really high level of flexibility. On top, many larger conglomerates strive to break up the different business segments in order to improve performance. In many larger conglomerates, the solar business has not the critical mass and is therefore likely to be discontinued in a tougher market environment. We have seen this development many times with European and American electrical conglomerates.
To summarize, the regulatory changes in China had an impact on global demand and value for mainly 2018. The mega trends for the solar industry climate targets, sector convergence, and distributed generation, they remain unchanged. On page eight, you will find that our market outlook for O&M services, storage inverters, and digital solutions remain unchanged. The O&M market is gaining importance in light of declining PV equipment prices, and in markets such as 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 a global O&M market value between EUR 1.0 billion and EUR 1.3 billion per year until 2020. Battery storage price reductions is the most important growth driver for nano and microgrids. We expect a market of up to EUR 1 billion by 2020.
Approximately half of the demand comes from utility-scale battery projects. Since each utility application is different, significant customization is always required. This offers a huge growth opportunity for battery inverter experts such as SMA. The mega trends for the solar industry, which we described in detail during our Capital Markets Day and SMA's AGM, are creating new markets for energy services, 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 actors with these new energy networks generate an abundance of data, which can be used to tailor new solutions. The market addressable by service providers such as SMA is expected to be only a fraction of the overall energy service market. We estimate addressable market for us to increase from EUR 400 million in 2018 to EUR 1.5 billion in 2020.
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 of the digital energy market and is able to scale its go-to-market approach. Overall, we expect the entire addressable market for SMA to grow by 7% per annum, from EUR 6.2 billion in 2017 to EUR 7.6 billion in 2020. As explained earlier, we expect that smaller inverter manufacturers are not going to be able to benefit from the described growth rates. We expect the market consolidation of inverter manufacturers to accelerate. In order to gain market share, it's paramount to have a global sales and service infrastructure, as well as to offer customers a cost-competitive product portfolio. Let's move on to page 10 to discuss SMA's product roadmap.
During the first nine months, we have had a strong focus on the continuous advancement of our offerings across all segments. The impact of our innovations is only partly reflected in the financials presented today, because some of the products were launched late in first half year or are currently in the ramp-up phase. In Q3, we launched our all-new Sunny Tripower that allows the seamless integration of MLPE technology. The new product is significantly lighter than the predecessor, uses components from other SMA inverter platforms, and thus comes with a bill of material cost improved by more than 25%. The product is perfectly suited for residential and smaller commercial rooftop applications. The new Sunny Tripower works perfectly together with the new Sunny Boy Storage, which is available since Q3 as well.
Since the size of the battery is normally different to the size of the PV system in commercial applications, SMA's AC coupled design concept is the most economical and also flexible solution for commercial customers. With the new planning software, Sunny Design Pro, installers are for the first time able to optimize and really design for their customers' whole energy system across all sectors according to the customer's specific needs. In addition, we are in the process to launch an update of our Sunny Tripower CORE1, which will be the first inverter in the U.S.A. that meets the rapid shutdown requirements under NEC 2017 for commercial applications. Due to the six Maximum Power Point trackers in the CORE1, it does not make economic sense to use optimizers for PV plants to increase the energy harvest even further for these commercial applications using the CORE1.
This gives SMA quite a competitive advantage compared to other players who only sell inverters with module-level power electronics. The Sunny Tripower CORE1 works perfectly together with the new Sunny Tripower Storage for commercial applications, which is also launched in Q3 2018. Together with SMA's energy management platform, ennexOS, customers can monitor power generators and electrical appliances, as well as battery storage systems, resulting in substantial savings on energy costs. In Germany, customers can additionally buy the SMA SPOT solution for direct marketing of electricity at any given point in time. To offer our customers the best system solutions regarding both technology and economic efficiency in all market segments and regions, we selectively calibrate with strong partners. As part of this, it is our strategy to integrate the most attractive and available batteries into SMA's storage solutions. In the first nine months of 2018, battery demand was higher than supply.
Our customers were not able to purchase enough batteries to match their order intake. In this perspective, I'm very glad to announce that SMA expands the strategic global storage partnership with BYD to address international growth markets such as the U.S.A. and also African markets. We are developing technical solutions as well as driving joint marketing for these solutions to increase the availability of batteries for our customers. The solutions are aimed at the residential and commercial energy storage market and will be available in the U.S.A. in January 2019. BYD is one of the leading lithium-ion battery manufacturers and storage solution suppliers worldwide, and they stand out for superior technology and ease of installation. Let me point out that this strategic partnership is not exclusive. Our strategy to partner with all leading battery manufacturers remains unchanged. Our high rate of product innovations in all segments will continue in 2019.
In residential, we will launch the new Sunny Boy generation early in 2019. The product will be available in Europe, U.S.A., and Japan and uses a communication platform that allows us to integrate module-level power electronics seamlessly. In commercial, we will launch the equally important all-new inverter platform, Sunny Highpower PEAK3, with up to 150 kW power, the next generation for ground-mounted PV projects. It will be available with both 1,000 V and 1,500 V technology and implement silicon carbide semiconductors to reduce cost and weight of the inverter. In utility, the upgrade medium voltage power station comes with a Sunny Central inverter with up to 4.6 MW now and will be available in Q3 next 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.
With a new product portfolio, SMA will continue to drive down manufacturing costs and further improve its competitiveness. I met some of our major customers during the last weeks, and the feedback I received on our new products was indeed very positive. Please turn to page 11. In the market chapter, I explained that the impact of the FIT cuts in China and international markets were twofold. Firstly, accelerating price pressure due to Chinese inverter manufacturers trying to enter the international markets against the background of rapidly declining home market. And secondly, PV projects being postponed due to rapidly falling module prices caused by overcapacity from China. These spillover effects from the Chinese FIT cuts started to impact international markets in August, September.
We, the management board of SMA Solar, recognized at an early stage that our variable cost reduction with the new products would not be enough to protect SMA's profitability. Therefore, at the end of September, we announced that we will launch restructuring initiatives to drive down our fixed cost base as well. We are currently negotiating planned measures with the workers' council and expecting to be able to decide on final measures before the end of this year. The key restructuring areas are, number one, the reduction of complexity in R&D and production. SMA operates today sites in Germany, Poland and China, and going forward, SMA will consolidate its footprint to lower the fixed cost and complexity. Secondly, the adjustment of service concept. SMA operates field service teams and contact centers in all key regions, and going forward, we will outsource certain activities to improve efficiency.
Thirdly, the adjustment of our portfolio. We serve all segments and regions, and going forward, SMA will streamline the portfolio to reduce complexity. Restructuring of overhead is the fourth point, and SMA will adjust processes and work scope to increase efficiency across all functions. I want to stress that our unique positioning and our Strategy 2020 remains intact. We will continue to serve all regions and all segments. It is more the question whether we have to serve every segment everywhere. We will also continue to expand our service activities to capitalize on our installed base of more than 70 gigawatts, and will further invest in energy services and to benefit from the transition in the energy sector. With regard to our tight schedule, we, the managing board, will negotiate the restructuring measures with the workers' council until the end of 2018. The implementation is planned for 2019.
The EBIT effectiveness of the restructuring measures will take beyond 2019. Extraordinary expenses for key restructuring measures will amount to an upper double-digit million EUR figure. The level of extraordinary effects depend on the outcome of the negotiations with the workers' council, of course. Before I turn the presentation to Ulrich Hadding for the financial discussion, I want to emphasize that we will finalize the restructuring plans with a long-term perspective and a special focus on reducing fixed costs, while at the same time enhancing SMA's ability to seize opportunities wherever they arise. This will include closer integration of SMA sales and technology organizations to further increase our customer focus and gain market share in the future. I'm convinced that with our new strategy, we will profit from the positive perspective we see in the PV and digitalization.
Thank you, Jürgen. In the following, I will briefly walk you through our financial figures for the first three quarters of this year and then turn to the outlook for the last quarter. During the first nine months of the year, SMA shipped products with a nominal output of 6.2 GW, which is a 6% increase compared to the same period in 2017. Revenues amounted to EUR 575 million, -3% year-over-year. Looking on the geographical distribution of our sales, EMEA continued to be strongest region and accumulated revenues of EUR 292 million, which is about half of all sales year-to-date, prior to sales reductions. Within this region, the countries with the highest revenue figures were Germany, the Benelux states, and Israel. The Asia-Pacific region stands for 1/3 of SMA's total sales, thereby being our second-largest market, having generated sales of EUR 198 million.
Within APAC, China fell short on sales as expected due to the cut on public subsidies for solar plants. The Australian market developed nicely, and it's now the biggest market for SMA in APAC before Japan. In the Americas, the expected slowdown of the U.S. market, which results from a general uncertainty about regulatory changes and ongoing customs discussions, highlighted already in the last quarterly conference call, has continued. We therefore see, compared to the same period last year, a drop in the total sales, little by little, to the region of the Americas by 30% to EUR 105 million, representing about 18% of the overall sales volumes. In a nutshell, EMEA was performing above expectations. Americas and APAC fell short on sales.
Before we are going to look on the different segments, let me remind you of some changes in our quarterly statements, which I explained as well in detail on the last analyst call. We no longer have a segment called 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 quarterly 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 service 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 take a closer look at the sales of our different segments. The sales level in the residential segment is primarily characterized by the generation change for U.S. inverters in the first quarter. The shortage of semiconductors for Sunny Boy inverters and the comparatively high inventories held by distributors. Residential generated therefore in the first nine months of 2018, sales of not more than EUR 131 million, which is a decrease of around 23% compared with the same period in 2017. Our segment commercial has been heavily affected by problems with some key suppliers, but still managed to deliver a slight increase compared to the same period last year.
Especially the newly introduced Sunny Tripower CORE1 could significantly contribute to the consistent performance of this segment, totaling in EUR 192 million sales in the first nine months of 2018. The utility segment is still our biggest segment and generated EUR 206 million in the first nine months, which is an increase of 8.4% compared to the same period last year. This is primarily driven by continued strong demand in the APAC and the EMEA regions. In our storage segment, sales increased until the end of Q3 by about 4%, totaling in EUR 46 million. As the price pressure in this segment is very high, it is noteworthy that looking on the nominal inverter capacity we shipped year to date, the increase is much higher with almost 22%.
As I already mentioned in our last call, the digital energy segment will not generate noteworthy sales this year because it is still in the stage of development. Let's now have a look on profitability. During the first nine months of 2018, SMA generated an EBITDA of EUR 51 million and an EBITDA margin of 9%. Despite the continuing price pressure, our gross margin improved to more than 23% in the reporting period, which is an increase of two percentage points compared to the same period last year. This profitability reflects our sales success in a difficult market environment and the impact of our improved cost base, was also influenced by the adjustment of general and special warranty provisions and the devaluation of inventories done by the end of the second quarter and having a positive net effect of EUR 8 million, all included in the cost of goods sold.
If you compare the EBITDA of the first three quarters of 2018 with the first three quarters of 2017, please remember that the same period last year was positively affected by a high single-digit million euro book gain due to the sale of our railway division. The EBITDA of the first nine months 2018 is almost at the same level as the EBITDA of the same reporting period last year. Let us now have a look onto the different segments on the right side of this page. Residential. In the first nine months, the EBIT of the residential segment improved significantly year-on-year to almost 16% up from 0% compared to the same period last year. This 16% are equivalent to EUR 20 million and resulting from the launch of new products and the already mentioned positive one-time effect as a result of the recalculation of warranty provisions.
In contrast, the devaluation of inventories due to product changes had a negative impact. The commercial segment improved as well in the reporting period and achieved an EBIT margin of 11%. A few new products like our Intersolar award-winning Sunny Tripower CORE1 promoted the results, as well as a positive effect from the new estimate of general warranty risks in this segment. The utility business reached an EBIT margin of -11%. In addition to the ongoing price pressure, this is also due to the increased provisions for this segment. First, the recalculation of our general warranty provisions turned out to have a negative effect. Second, the increased provisions for individual warranties had a severe impact on the result. Storage. In this segment, the EBIT was also negatively impacted by the new calculation of our general warranty provisions. The EBIT was slightly negative with about -1% margin.
Let us now turn to the balance sheet. Before I explain the development of our net working capital and the balance sheet, let me highlight that our equity ratio increased to more than 53%. SMA has, like in the past, a strong equity base and a very solid balance sheet structure. Net working capital. Coming from EUR 168 million at the end of 2017, SMA's net working capital increased to EUR 206 million, which represents the net working capital ratio of almost 24%, and is ever slightly above our full year guidance of 19%-23%. If we go more into detail, we see that this is mainly due to an increase in inventories of more than 30% to EUR 217 million in comparison to the end of 2017.
As you may remember from our last calls and mentioned today as well, we had to deal with some supplier issues in recent months, which is why we were not focusing on an optimized net working capital, but on ensuring our ability to deliver to our customers. We therefore raised our stock on raw materials to EUR 83 million and finished goods to EUR 119 million. In addition, of course, we had very strong sales in November and December last year, which reduced our inventories at the end of 2017. The trade receivables reduced significantly from EUR 160 million to EUR 118 million and are now almost in balance with trade payables of EUR 112 million. Let's now have a view on the group balance sheet on the right-hand side of this page. Besides the decrease in provisions, which I already explained, you will notice a reduced cash position.
In comparison to the end of 2017, we have a reduction by 90%, although our total cash is still a very solid number with EUR 392 million at the end of Q3 2018. Let me highlight in addition that we only have EUR 80 million in financial liabilities. Our net cash totals therefore at EUR 373 million. The main reason for this drop being the increase in inventories. Another reason were higher advanced payments on corporate taxes demanded by tax authorities. As we see an increase in sales in the last quarter, thereby a reduction in inventories, we expect the net cash to be at almost EUR 400 million by the end of this year. Let's now turn to our cash flow profile on the next page. SMA generated a negative cash flow from operating activities in the first nine months of this fiscal year.
In addition to the fact that revenues in the first nine months were below expectations, SMA had to pay taxes of about EUR 25 million, largely related to prior tax periods, and we had to increase our inventories as already mentioned. This is, as you can see, reduced our cash flow from operating activities to EUR 39 million. I want to highlight that the gross cash flow, which does not consider the effects due to changes in net working capital, is positive and will remain positive in 2018. On the next page, we are talking about order backlog. On the right side of this page, you can see that our order backlog decreased in comparison to the same period last year by 26%, but remains strong with EUR 549 million.
EUR 29 million of this EUR 449 million come from our product business. Most of this product backlog will turn into sales shortly. There are various reasons for the change product order backlog. First, the uncertainty in the market as to what effect the U.S. import duties on imported solar cells and modules and the reduction of the feed-in tariff in China and the resulting Chinese overcapacities will have on price developments. Second, the delivery problems in our commercial segment in the first half-year. Furthermore, but not with the same importance, product changes are imminent in all core segments. Some of our customers are waiting for the announced new products and are therefore reluctant to place orders right now. All these issues are of a temporary nature, and for this reason, we expect the order backlog to increase again in the coming months.
Let's now have a look on the next slide, which brings us to the guidance. As you may recall, the SMA Management Board had put its last sales and earnings guidance under the premises that SMA is not hit again by supply shortages or project postponements due to the expected price reduction of solar modules. Unfortunately, this is exactly what happened in September this year and led to the revision of this guidance on September 27th. Beginning by end of August, module prices decreased rapidly. In consequence, most market participants relied on a wait-and-see position, which resulted in a steep decline of our sales and especially order intake. Though we expect the market to make up for this pause, we don't expect this to happen by the end of 2018. In consequence, we lowered the sales guidance to a sales corridor of between EUR 800 million and EUR 850 million.
Furthermore, we had to realize that the price drop, triggered by the overcapacity of Chinese competitors, now trying to shift volumes into overseas markets, couldn't be coped with by our regular and ongoing design improvements and cost out measures. Therefore, SMA also announced a restructuring of the company in order to bring down fixed costs and levy further structural potential. This restructuring will trigger one-off costs that will negatively affect SMA's earnings, thus lowering the earnings guidance to break even to slightly negative EBITDA for 2018. Based on our current order backlog and sales volumes, as well as the latest market intelligence, we expect to reach the revised sales guidance. However, we might not reach the upper end of said corridor. We confirm the earnings guidance and also our expectation of a sales increase and positive EBITDA in 2019. Depreciations will amount to approximately EUR 50 million.
Capital expenditure will also be at about EUR 45 million. Please keep in mind that those figures include costs for our new digital energy business of more than EUR 10 million. In summary, 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. Our financials are solid, and our shareholder structure is stable. SMA is an investment-grade company and a bankable partner. With the exceptional knowledge of our R&D team and about EUR 400 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's no way around SMA.
Now, Jürgen and I are happy to take your questions.
Ladies and gentlemen, if you wish to ask a question at this time, please signal by pressing star one on your telephone keypad. Please ensure the mute function on your telephone is switched off to allow your signal to reach our equipment. Again, please press star one to ask questions. As a reminder, star one to ask a question. We will pause for just a moment to allow people to queue for questions. There appears to be no telephone questions at this time.
Thank you very much. Yeah, almost next. It is okay. If there are no further questions.
Thank you very much for this call and goodbye.
Have a very great day. Thank you.
Thank you.
Bye-bye.
Bye-bye.