Yeah, thank you, operator, and welcome everyone. We very much appreciate that you are taking the time for this investor and analyst call on the nine-month 2022 results. You can find today's presentation on our investor relations website, ir.sma.de. This conference call is scheduled for 60 minutes and will be recorded. The replay will be available on our website for seven working days. First, I will start with a review of the financials for the first nine months this year, followed by an update on current developments and on our expectations for the full year. The presentation will last approximately 20 minutes. After the presentation, I will be happy to answer your questions. Let me start with a summary of the key financials. As already stated in our H1 call in August, we see gradual improvements in the supply situation in our segments, Home Solutions and C&I Solutions.
Our total revenues were only a bit below last year's level due to shifts in our large-scale project pipeline. Profitability was in line with the first three quarters of last year, but benefited from a positive one-time effect, which I will explain later in more detail. As you can see in the table below, right of this slide, our Q3 sales remain on Q2 level, but with Home Solutions and C&I Solutions clearly above Q1 and Q2. This is mainly driven by improvements in the supply situation starting last quarter. Now, let's please turn to the next slide, and I will provide you with insights regarding our sales performance. As explained, the slight sales decline year-over-year was due to further project shifts in our large-scale pipeline related to delays in projects on the customer side.
Here, we are in close interaction with our customers and are confident that these revenues will be realized soon. Looking at the regions, EMEA continues to be our largest region in terms of revenues with EUR 455 million after nine months, which represents 61% of SMA's global sales. In EMEA, all segments achieved double-digit growth compared to the first nine months of this last year. Revenues in Americas region declined in the first nine months of 2022, mainly because of large project shifts in the US due to uncertainties on the module supply situation after the Biden administration announced anti-dumping investigations early in the year. After the anti-dumping duties were suspended for a two-year period in June, our large-scale project pipeline in the US has gained strong traction and will be realized in revenues over the next quarters.
With EUR 192 million of revenues, the Americas region represents 25% of our year-to-date sales. Our Large Scale segment continues to make up the majority of our sales in this region, with nearly 80% of total revenues in this year. With EUR 102 million of revenues, the Asia Pacific region represented 14% of our sales in the first nine months of this year. Now let me briefly walk you through the sales per segment on the right side of this slide. Our Home Solutions segment continues to be impacted by material shortages. However, revenues in the first nine months increased by 8% up to EUR 229 million compared to last year with EUR 214 million of sales.
Boosted by the launch of our new product, the Sunny Tripower Smart Energy, at the beginning of this year, order intake for this segment has been approximately three times higher than our average sales in the first three quarters of this year and puts us in a position to achieve strong growth as the supply situation gradually improves. So far, EMEA has been the major contributor for revenues and incoming orders for Home Solutions this year. Our Commercial & Industrial Solutions segment also continues to be affected by material shortages, but the situation started to improve, which helped to achieve 9% revenue growth to an amount of EUR 191 million compared to the first three quarters of last year with EUR 176 million.
In addition, incoming orders remained very strong in Q3, which puts us in a position for strong sales growth over the next quarters also for this segment. Similar to Home Solutions, the EMEA region is by far the largest in terms of revenues and order intake for our C&I business this year. Finally, revenues in our Large Scale and Project Solutions segment declined compared to the first three quarters of last year due to projects shifted back mainly in the U.S., as already explained. The sales in this segment amounted to EUR 304 million and declined by 15% compared to the first nine months of last year. As mentioned, order intake in the U.S., which is the biggest market for our large-scale business, picked up significantly in Q3 and remains high in Q4 as we speak.
Now let me explain to you how our profitability developed in the first three quarters of this year. In the first nine months, SMA generated an EBITDA of EUR 50 million, which translates to an EBITDA margin of 7%. EBITDA was slightly below last year's level, mainly because of the lower level of sales and effects from the underutilization of our production capacities in H1. Profitability was positively affected by one-off effects, including 23, excuse me, million euros of other income in our corporate segment from the sale of two office buildings in Q3 and EUR 5 million in Q1 in our Large S cale segment related to a significant compensation for a late customer cancellation, as already explained in previous calls. Profitability also includes mid single-digit million EUR investments since Q2 into future business in the form of a reorganization to further implement our Corporate Strategy 2024.
These costs are allocated to each of our segments. Our depreciation was slightly lower than last year's level, a result of the lower level of investments in fixed assets over the last years. Now let's have a look at the segments in detail. EBIT on the Home Solutions segment is on a similar strong level compared to last year, despite some headwinds from underutilization effects in H1. With an EBIT of EUR 35 million, the segment delivered a solid return on sales of 15% EBIT margin. Profitability in the Commercial and Industrial Solutions segment continued to fall short of break even as a result of lower than planned sales volumes and effects from the underutilization of production capacities.
Our Large Scale & Project Solutions segment also has a negative result for the first nine months, mainly related to the declined level of sales and underutilization in H1 due to lower order intake. As explained, we expect a strong uptake in revenues for the next quarters, and with that, significant improvements in the profitability of all segments, which will also bring C&I Solutions and Large Scale out of the red. Now I will move on to the balance sheet and net working capital on the next slide. Although our net working capital decreased in the Q3, it remains above the level from end of last year in both absolute and percentage terms. The increase since the end of 2021 is mainly due to the ongoing build-up of inventories to mitigate effects from the supply constraints as much as possible.
Mainly related to our strong project pipeline, we increased our inventories in Q3. Compared to end of last year, stocks are now EUR 49 million higher. In the first three quarters, our trade receivables slightly increased to a balance of EUR 150 million, which represents a slightly higher DSO ratio than we target, but this can be explained by the high quarter-over-quarter revenue growth. Trade payables of EUR 159 million at the end of Q3 increased by EUR 25 million since the end of last year, mainly driven by the increased purchase volume of inventory.
Advanced payments from our customers, which are reflected on our balance sheet under other liabilities, doubled from EUR 24 million at the end of last year to EUR 48 million at the end of Q3 and are driven by the strong order intake of our large-scale business, as mentioned earlier. Driven by the cash proceeds from the sale of properties in Q3 in the amount of EUR 38 million, net cash increased by EUR 48 million in Q3 and reached EUR 224 million after nine months, compared to EUR 222 million at the end of last year. Excluding this one-time positive cash flow effect, our net cash still increased in Q3, mainly from the improved level of net working capital. Let's now turn to our cash flow profile on the next slide.
In the first three quarters, SMA generated a positive gross cash flow resulting from our business operations. However, this was not yet sufficient to fully offset our investments in our R&D pipeline and fixed assets. Cash flow from operating activities improved significantly from negative 14 million EUR in H1 to positive 10 million EUR after nine months and reflects a positive development in Q3, driven by our net working capital optimization measures. We also generated a positive cash flow of EUR 38 million with the sale of properties. Improving our free cash flow remains SMA's management top priority in the next quarters. Now let me summarize on the next slide what we have seen so far. The demand for our products and solutions remains very high. In August, we even had the highest order intake ever in the history of SMA.
This makes us very proud and again underlines our market standing, as well as the appreciation of our products and solutions in an increasingly competitive environment. Also, there were no significant customer order cancellations until now, confirming that our high order backlog is robust. Like the whole industry, we are still facing a shortage of electronic components, and this causes longer lead times for order fulfillment and sales achievement. But we are confident to be able to fulfill the high order backlog within the next quarters. First signs of improved delivery capabilities were seen in Q3, resulting in an increase of sales in Home Solutions and C&I Solutions. The Large Scale segment is still below expectations due to project postponements in H1. Those orders are now coming in and will be converted into revenues over the next quarters.
Group profitability, which improved significantly compared to Q2, was driven by an enhanced supply situation and increased productivity in production. Liquidity also increased, driven by the improved profitability from operations as well as the one-off proceeds from the sale of property. Finally, our equity ratio remains robust on a high level of over 38%. With this, I will conclude the detailed review of our three quarters 2022 financials. Let me now briefly provide you with some insights on the current developments. As said, we saw gradual improvements in our supply chain started in Q3, even though the shortage of semiconductors and electronic components is still an issue worldwide. On top, the countermeasures which we implemented in H1 started to take effect. As a recap, we initiated several measures to increase our ability to deliver.
We tightened the collaboration with key component suppliers further and secured components at the spot market. We launched new products and solutions to gain market shares and drive profitability. Of course, we permanently keep a very close track of cutting operational expenditures to improve liquidity and profitability. Continuing high demand confirmed by our order intake on a record level and a robust order backlog, we are well prepared for next year. Regarding our new products, we have already received very positive feedback on our new product, the Sunny Boy Smart Energy, at the RE+ exhibition. This new hybrid inverter offers a turnkey solution for the US market in the Home Solutions segment. Start of delivery will be in the second half of next year. Another important topic for our positioning on the US market is the Inflation Reduction Act.
This initiative from the government is a game changer for the whole industry and will unlock huge potential for SMA. At the moment, we explore the advantages and which approach is best for us. Sustainability is another topic where we also have developed strongly in the last nine months. Why? Well, first, we are operating in an industry that is key for decarbonization. Second, we are doing business in a sustainable manner and pursue a holistic sustainability approach as part of our corporate strategy. This is also mirrored in our excellent ESG scores. SMA received the highest MSCI ESG rating, triple A, in October. Only one other company out of 50 from the electrical equipment sector within the MSCI universe holds a triple A rate. In August, we have already been awarded the gold medal for successful sustainability management by rating agency EcoVadis.
This puts SMA among the top 5% of companies evaluated by EcoVadis worldwide. Both rankings or ratings confirm that we are on a very good path to fully implementing our sustainability strategy by 2024. Let's have a look at the order backlog on the next slide. Our order backlog for products increased significantly to EUR 1.3 billion at the end of Q3. The product order backlog for our Home Solutions and C&I segments has even increased by triple- digits in the first three quarters of this year. Given the revenues after nine months in our strong order backlog for products, SMA's management is confident to achieve the upper end of the sales guidance for this year, as communicated in our ad hoc announcement from October 27.
Furthermore, our strong order backlog for all three segments gives us confidence to achieve revenue growth next year in line with current top-line consensus. Still, sales development, especially for our Home Solutions and C&I segments, will be very much dependent on further developments in the supply chain. As just mentioned, we refined our top-line guidance to EUR 975 million-EUR 1,050 million for 2022, which is the upper end of the original guidance. This is based on the positive development in the supply situation over the last month. In addition, we raised our EBITDA guidance to EUR 60 million-EUR 75 million, thanks to the improved supply situation and revenue development, as well as the one-off effect in other income Q3, as explained earlier.
With regards to 2023, we currently do expect further gradual improvements of the supply constraints, which should enable us to convert the high order backlog, high current product order backlog and potential new orders and revenues next year. A detailed guidance will be provided in early 2023. Now I'm happy to take your questions.
Ladies and gentlemen, at this time, we will begin the Q&A session. Anyone who wishes to ask a question may press star followed by one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. In the interest of time, please limit yourself to two questions only. If you're using speaker equipment today, please lift the handset before making a selection. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. First question comes from Sebastian Growe from BNP Paribas Exane. Please go ahead, sir.
Everybody, two questions, obviously. I would start then on LSPS at SMA. You mentioned the product delays in the US. Would it be possible to single out by how much those delays really impacted the revenues and EBITDA in Q3 ? I'm curious to hear what sort of the underlying or clean gross margin in the quarter was, and if you could help me there, that would be much appreciated. Related to that, can you just help us understand how we should think about then the EBITDA trajectory? You said you are in close discussions with the customers. Should we then expect an above proportionate pickup in EBITDA, or is sort of the profit that you couldn't book then because of those delays kind of lost? That would be just interesting to hear.
Then on the free cash flow guidance, I'm a bit, let's say, irritated. You had a net cash position now of EUR 224 million. You guide to EUR 190 million, so implying a cash burn of more than EUR 34 million in Q4 . I just cannot understand, quite frankly, in the wake of the improving profitability, like the inventory flush out in the December quarter, where this very cash burn should come from. Yeah, that is the two questions, and maybe you will allow me then also one follow-up.
Okay. Yeah, thank you very much for the questions. Actually four questions maybe packed in two, but, let me try to answer that. First of all, regarding the project postponements which you are referring to. Maybe also that might be a little bit misleading. What we're talking about is, when we look on our large-scale revenues in H2, or respectively also in the Q3, so it is below our expectation because of lower than expected order intake in H1, mainly in the U.S., which is our biggest market.
This is also a kind of project push out or project postponement because EPCs at that time, they hesitated to place the purchase orders as modules were expensive and also other materials and components were expensive. This potentially has unlocked starting after this announcement that the tariff has been paused. This is the one category of pushbacks. The second one is what we have every month, and this is quite usual in the project business, that you have your project deliveries and the construction site or the customer site is not finished, it's not ready, then it's pushed into the next period.
This is what we see and what we have more or less every month. This is quite normal. This is nothing where anybody should be concerned because we have the prepayments already in our books. There is also the commitment and the contractual obligation that the finished goods are taken from the customer. We have just to deliver. It's only a question of time, right? In short time. Of course, we have to be careful that this effect is not too high.
When it comes to, therefore, your concrete question, what the impact is or was respectively is going to be for H2 in total, then I would estimate this is a mid two-digit million EUR amount in revenues. Yeah.
Okay. Understood. Helpful. On the free cash flow guidance then?
Yeah. For Q4, the cash burn which you indicated. Well, I wouldn't say that that's really a cash burn, because what we of course have to do is now start it in Q3 already with that high order backlog, what we see, especially in Large Scale. We have to buy all the components, transformers and other components. Therefore, this is where we have also planned a strong build-up of inventories, to of course to deliver as much as possible, on that strong order backlog in early 2023, especially for Large Scale.
This is therefore just a reaction to the strong order intake what we see in order to serve the customers and to turn that into revenues. Therefore, of course it's an estimation, but yeah, to that extent, EUR 30 million of course could be a number where we expect also that net working capital can increase. Which also is not just explained by the uptake in inventories, but also due to the higher revenues we expect for Q4 also in the accounts receivables in the others.
Okay. I said, I think, well, if it was EUR 30 million, then that would still suggest an underlying free cash flow, which is just zero, which looks a bit on the very, very soft side, I think, again, what you have been alluding to in terms of the profitability improvement. Yeah, I see the volatility in that one. If you allow me that very follow-up, I think it links it quite nicely then to what you said around the necessary inventory build-up, not least to fulfill then the LSPS order backlog. How fast can really that EUR 1.3 billion product order backlog convert into revenues? I would also be curious to hear where do you stand in terms of production shifts. My understanding, it's you're running on two shifts only.
To just get a better understanding, how much sort of upside opportunity simply there is in terms of converting the backlog into sales.
Yeah. First of all, the question regarding this high order backlog of EUR 1.3 billion, of course, heavily depends on the situation in the supply chain. I mean, that is crucial. As I said, we see the improvements right now. We see that also for the next quarters, but we are still not there where we should be, right? I mean, there are still volatility in the market. There are still also some uncertainty if we talk about the supply of electronic components as well as on the logistics and freight carriers. Therefore, my guess would be in the next quarters, respectively in the next full year, till end of next year. This is the first one.
The second one, when you mentioned about production utilization, in fact also here what we have noticed was an improvement in Q3 and we see the trend also for the next quarters. Just to give you a flavor of that, if we talk about we are still running on two shifts in the production. The production completely in Germany was utilized, let's say in the first three quarters, roughly in the magnitude of 50%. For Q4, we already expect an improvement up to a level of 80% roughly. Therefore you see there is also still headroom to fully utilize our production, using also a third shift, et cetera.
That sounds encouraging. Sorry, I have to ask it, I cannot stop myself. You said that should be executed until the next years and the order backlog. Provided that the order intake is not falling off the cliff in quarter four, we would then talk around EUR 1.4 billion revenues on that metrics, EUR 1.3 billion from the products, plus EUR 100 million or so on the service side. That is in the greater schemes of things the right understanding, correct?
That could be. That could be the right understanding.
Okay. Thank you very much.
The next question comes from Constantin Hesse from Jefferies. Please go ahead.
Yeah, thanks. My question's actually already been asked now. Look, I'm curious a little bit 'cause you mentioned it, you did a comment on consensus next year. You said that you were relatively satisfied, and consensus currently sits at EUR 1.25 billion for next year or EUR 1.24 billion. From previous colleague now, the previous question, you know, talking about EUR 1.4 billion, EUR 1.5 billion. So that was a little bit confusing in terms of the expectations. I mean, I'm, I was rather thinking that, you know, EUR 1.4 billion would be realistic given the current order backlog, but then your comment on the EUR 1.24 billion on consensus kind of drove it down a little bit in terms of the expectations.
I'm just trying to really figure out, you know, you guys have a very large backlog now ongoing. You said that the chip supply had improved in Q3. Fine. I mean, revenue wasn't as good because of Large Scale, but clearly home and C&I is showing some improvement. If you can maybe share a little bit of light in terms of the conversations that you're having with your current suppliers and, you know, should we actually start seeing bigger shipments coming in in Q4? You know, you mentioned utilization of 80% now, which, you know, lies above the 70%, which, SMA always refer to as, you know, this is basically when it starts becoming interesting in terms of profitability. Yeah, any comments you can share that would be great. Thanks.
Sure. Yeah, Constantin Hesse, let me start with the most interesting one or secondly the expectation for revenue for next year. I can just repeat myself. I said exactly in the first introduction that we see us and we can confirm the consensus also for next. If it's EUR 1.5, if it's EUR 1.23, of course, again, this is there is some uncertainty. The potential would be there, yes, also based on our order backlog. The potential would be there, but as we said, it's volatile. Of course, something could happen when it comes to our supply situation. Therefore, we are very careful in that regard.
I would like to stick to that we see ourselves in the magnitude of the consensus, but of course, potential and the possibility would be also for more. Thanks regarding the future. Yeah?
Yeah, no. Perfect. Yeah, thanks.
Yeah, okay. Okay. Yeah, this was regarding the first question. The second question, yeah, it was about the situation regarding our supply chain. Well, as we said, I mean, we have increased the intensity in order to talk to our suppliers. This was really done and really a focus in the last quarter. In the result, what we have already seen, and this is also what we expected, is that we will see higher volumes in terms of chips, in terms of IGBT modules, et cetera. Yeah? This is what started. There was also the commitment.
We received the material in Q3, and we even have the commitment also for more quantities for Q4, and therefore this is also the main premise for the change in our guidance. Yes, we do expect. As I said, on the one hand we see the improvements in IGBTs and chips, et cetera, but when it comes to other components, microcontrollers, FET switches, et cetera, it's still volatile and it even partially leads to line downs what we have to resolve and to manage. As I said, we're careful.
Would it be fair to say that the 80% utilization that you're achieving now in Q4 is kind of like, putting it into like a new level? From Q1 next year you actually expect nothing below 80% or only higher?
I would say it's similar. It was rather similar in Q1 at level of Q4. We expect the uptick in the next quarters next year.
Thank you very much.
Thank you .
The next question comes from Lasse Stüben from Berenberg. Please go ahead.
Thanks a lot. That has also been answered. Maybe a follow-up on, maybe just if we can talk about pricing a little bit. Are you seeing any change in, you know, the willingness of people to accept higher prices or maybe taking a step back, what are the price increases you're putting through at the moment, and how is that being taken on by the market in the different segments?
Yeah. Well, first of all, I mean, also, what I explained in August is that we have increased the prices in home and C&I mainly a couple of times, beginning of the year, middle of the year, and then also in Q3 again. Then also in Q3, we increased the prices for the central inverters significantly. As a consequence, what we see, we don't see any negative impacts on the orders from the customers. Of course, I wouldn't say it's well-received, but it's understood because everything is becoming more and more expensive. Of course, also our material costs, labor costs. Therefore, it's accepted and somehow also anticipated.
Therefore, we don't see any hiccups on the customer side regarding the price increases. Yeah. Yeah, full stop. I don't know. Does that answer your question?
Yeah. That's perfect. Thanks.
Of course, in the future, if possible, and we will see the opportunity to do that, then also, of course, we will continue in order to absorb and compensate also the increase in our material costs in order to secure profitability. I mean, that's a matter of fact, as long as the market allows that also in the competitive environment. Yep. Okay.
Thanks.
The next question comes from Jean-Marc Müller from JMS Invest AG. Please go ahead.
Yes. Hi. Thank you for taking my questions. First a couple of technical ones. You alluded to the EUR 23.2 million, I believe, one-off gains in Q3 due to the divestment of the real estate asset. Where do I see the counter booking in the cash flow statement? I mean, typically, you know, you have a book gain, which obviously is not cash, and then in the cash flow statement, I see the negative charge. Maybe if you can help me there.
Yes, first of all, the number is right. Booking-wise, when you are referring to the cash flow statement, you see that as a cash inflow from divestments in the first three quarters in Q3.
I understand that you sold it. I mean, I understand that the cash in from the divestment, but the counter booking of the book gain should be a negative booking in the cash flow statement. Or is the number that you show the cash inflow from disposal of held for sale assets, the EUR 37.61 million, is this a net number?
That's correct. That's correct.
That is a net number. Okay. Good.
Yes.
My other technical question will be also cash flow related. You have a change in provision of -EUR 24 million, and overall your provision levels have come down quite a bit. Is this kind of a reversal of unused provision which artificially boosts our profitability but obviously is not something which is really recurring, or could you help me with that number, please?
First of all, no, it's not a boost to our profitability. What I can imagine to the changes in provisions to that extent were regarding our general and individual warranty accruals. This is, of course, what we are doing on a quarterly basis, that we are re-evaluating both the individual ones as well as the general warranty accruals. Therefore, we have that kind of movement also in our accruals. The second thing which could be is the accruals for our O&M business.
For this contract, what we have created so far by the end of last year, 2021, which was significantly, I think roughly, an amount of EUR 40 million, right? This is of course also something what we over the quarters have evaluated. Of course there are effects. Yeah.
Okay. These are positive P&L effects. I mean, these are all issues which also benefit the P&L, not just which are not booked directly against equity or so.
No, it's neutral. Because, you know, I mean.
Typically, the release of provisions has a positive P&L effect.
You're right. The provisions were made last year when we talked about that. The costs are now booked against the accrual.
Okay.
We are not.
No, no.
Consuming.
Absolutely.
Yeah.
I understand. My next is also a bit technical, Anthony, I mean, Forschung und Entwicklung R&D.
Yeah.
Obviously, you have started to, let's say, more aggressively capitalize R&D costs. I think you're right in the fact that you capitalized EUR 27.7 million in the first nine months. That compares to EUR 17.5 million in the first nine months of last year. What is the reasoning behind this? I mean, how is this continuing going into next year? Will this be kind of a run rate number, or do you think that this will increase even further?
Okay. Yes, that observation is right. The reason for that is that we are of course driving and focusing on our key projects. As I also indicated earlier, we are planning to launch our new platform for Home Solutions, not only in the US but of course on a global level. The same is also that we had this year a launch in C&I and a big project when it comes to the new platform for our central inverters, which will be launched then in 2024. Of course, only these three key projects are driving the capitalization of the costs. First of all, yes, we have the costs.
Therefore, also we are booking more on the projects, which are in key phases of our R&D process. When it comes to next year, we expect it to level off around this year.
Like this year, I mean, annualized this year, same next year, basically.
Yes.
Okay. That would also imply that once those projects become sales relevant, obviously the depreciation charge will go up.
Yes.
We should expect higher depreciation next year and probably also in 2024 compared to this year.
Yes. Very likely.
Yeah. Then a final question. I know you said two questions. I'm on my fourth one. Given the order backlog in the different divisions, I mean, obviously Home Solutions kind of is striking the increase of the order backlog. Looking into 2023, I mean, given the shift in the order backlog, should we expect Home Solutions or, I mean, Resi in that sense, to be the fastest growing segment of the business?
Well, I wouldn't see that so black or white, because, I mean, if you look at the order backlog, yes, Home Solutions has the majority and Large Scale and C&I, at least at that point in time, relatively equal. I mean, Home Solutions will definitely continue also to grow in that regard, so in terms of revenues and also in terms of profitability. We don't see the gap so high or so significantly towards the other two segments. For the next year, we also expect, honestly also that the other two segments, C&I and especially Large Scale, they will significantly improve.
Okay. Understood. Thank you very much. Yep. Oh, sorry.
No, I just wanted to repeat that we see the pickup.
No, of course. We expect growth in all of them. I was just wondering whether there is a bit of a mix shift towards Home Solutions because the order backlog is so big there.
Yeah. Yeah. Okay.
The next question comes from Guido Hoymann from Metzler. Please go ahead.
Hello, Mr. Pixa. Then two from my side. The first one is regarding the euro dollar. Obviously the dollar is very strong. Do you agree that it helps both in your sales and also in your profitability? Can you give some quantification there if possible? The dollar effect. The second question is, do you actually have a margin target or a margin ambition? Not related necessarily to this year or next year, but rather, as I said, an idea where the margin should be, where it should go. I'm having the history reaching back to 2010 and right in front of me.
There we have seen everything between -7% and +28% EBITDA margin. Is there any sort of long-term ambition?
Yeah. First of all, regarding the FX impact. Does it help us? Well, yes and no. It helps, of course, on the sales side and also on contribution margin or margins, as such. That's a matter of fact that we have also, of course, hedges which we are using and which offsets this in our earnings. Therefore it's balanced. The effects year- to- date are, well, from the net perspective in the mid-single digit euro range regarding that FX impact. The second question is something I need to think a little bit about, because if you ask about, well, a long-term margin ambition, right? This was the long-term margin-
Right. Right.
Well, first of all, as high as possible and as good as possible. Yeah, but and of course, it varies by segment. Therefore, we are right now in the hot phase of our strategic planning and our midterm planning.
Mm-hmm.
Honestly, we have quite good transparency on that. I would be a little bit careful with the communication. If you remember, when I mentioned that, EBIT-wise, we have the ambition to reach 8%-10% by the end of 2025, this is what I said in August. I think I will stick to that again. Just to give you a very, very rough estimates of such.
Mm.
Of course, what we also aim for is that we want to drive the performance in all our three segments. Yeah. What we want to, of course, avoid is that what we see right now in the past, that we have one strong or two strong segments and we want to balance that. This is also our plan. This is also our ambition that we, as soon as possible, have three strong segments, three profitable segments. Yeah, depending on the segment, it depends if we are talking about a single-digit margin or a two-digit margin. That's what I said at the beginning, is still what I would stick to.
Okay. Thank you.
The next question comes from Jeffrey Osborne from Cowen & Company. Please go ahead.
Yeah, good afternoon. A couple questions on my side. I think years ago, in 2010 to 2016, you had a factory in Colorado Springs, Colorado. I was just curious with the IRA bill if that's something you would entertain in having a factory in America to get the manufacturing credit?
Yeah. First of all, you are right. I remember that, so that we had the production. Right now, of course, I mean, I know that's years ago. This IRA, which has been announced, is of course, something which is really great. It provides a certain security for the whole industry. It is definitely a high potential, what we see. For us, it's too early to say, what our decision would be in terms of a local setup.
Because we have, first of all, and this is what we are doing right now to evaluate what we need so in order to fulfill the requirements really for the business in the U.S., also to apply for that incentive schemes and to get the adders for the ITC, et cetera. What would be, in terms of cost-benefit ratio, also the best local setup. That is what we are currently doing. We haven't decided that so far. It's too early from our side.
Got it. Can you just remind us on the U.S. side, it sounds like bookings are accelerating quite nicely here in the third and Q4. What are your lead times today? Remind us of what your historical market share was for the U.S. utility market.
Well, the lead times, first of all. Sorry, could you repeat that maybe one more time?
Yeah.
The first part.
I was just curious if I'm a develop-
Yeah.
Absolutely. If I'm a developer and I wanted your inverters and I placed an order today, is that typically for like the Q3 of next year? Are people providing you half years of visibility? Or what's the expectation of placing orders today on when that would be delivered? That was first part of the question.
Yeah.
The second part of the question is, I was interested in what your perspective was on your market share of the U.S. utility-scale market. I thought it was close to 40%. Given that high market share, I would assume many of your customers would want a Made in America product and then have the ITC for themselves go to 40% as well.
Okay. The first question regarding the lead times, of course, that depends on the product. With Home Solutions and C&I Solutions products, we are still in allocation when it comes to utilization in the market, in the U.S. market. That's unchanged as in the past. The range is between six to nine months, right? In terms of a lead time for project business with EPCs. For H1 next year, that's slowly getting locked in. When it comes to the market share, and your question is, I think we talk about 15% of last year, but these are old figures.
We do continue to have a solid market share in the US. This is what we see also as a continuation from last year, despite the fact that we have lost some business or respectively the orders are not, we haven't received that because it's more a shift, right? It's a push out. It's not really-
Sure.
That we would judge that, based on the low order intake in H1, that we are losing market shares. This is not the case. From our perspective, as I said, we continue to have that solid market share in the US, in Large Scale. It's just a question of time. The orders, as I said, we've seen that with the beginning of Q3. They came in, and this is also, as we speak, we observe that we have a great opportunity funnel with a very good price quality and also good terms and conditions in terms of payment terms, et cetera, which is quite good.
That's great to hear. Just two other ones on my side. Very quickly, I usually ask every quarter, the trading and storage revenue. Is that something you can share?
Yes, I can, as always.
Thank you.
Yeah, give me a second. Just a second. Okay. You're asking for the share regarding trading goods, right?
Trading and for the storage, stationary storage. Yes. Thank you.
Okay. Year-to-date or for the quarter only?
The quarter would be more helpful. Thank you.
Okay. For the Q3 this year, regarding trading goods, the share was 9%, and year- to- date is 12%. The second one you asked was storage, right? This was for Q3, 12%, and year- to- date, it's 11%.
Excellent. My last question is just, it sounds like on all three divisions, resi, commercial, and utility scale, you have new products being introduced next year. You've got lower shipping costs, and you have higher utilization that Constantin was talking about. I'm trying to get a sense of, is Q4's EBITDA margin trajectory that you're guiding to, is that a good, you know, expectation for next year? Because I would assume as utility scale becomes a much bigger portion of the revenue in the second half, your profitability would go down relative to the first half. I'm just trying to get a sense of all the moving pieces between lower input costs, lower shipping, new products, but a mix shift in revenue.
Mm-hmm.
If we're to think about the linearity of profitability, would you maybe be more profitable in the first half versus the second half as utility scale in America catches up after one year of abysmal growth?
Mm-hmm. Well, do you mean for 2022 or for 2023?
I was thinking for next year.
Oh, for next-
There's a lot of moving pieces, right? Yeah.
Yeah. Let me just think a second. Well, that's it. I would repeat myself actually what I told also before. I mean, it's mainly related to the supply situation, right? Also, the sales uptake for all four key segments. Therefore, I would be a little bit careful regarding that. Yeah.
Okay. It just seemed like in the past when you had strong quarters for utility scale market, your gross margins would be under pressure by 300-500 basis points versus quarters when you didn't have it. That's why I asked the question. When you look at your high teens gross margin performance versus, you know, 20% or higher, it seems to be all related to mix. Maybe I'm mistaken.
No, I mean, of course, the mix is driving here. Is a key driver. As I said, I mean, we are currently expecting a quarter-over-quarter uptick of sales in all three segments.
Got it.
Large Scale prices, as I said also, I mean, they have been increased and we have a good price quality, a good price point, and also development of US dollar is favorable for us. It's a combination. I would say we see the right signs. We see the right signs also to continue with that improvement and also to continue with, well, margin level of Q4.
Great.
That is something which is, as I said, heavily depending on volatility and the uncertainties in the market and in the supply chains.
Great. I appreciate it. Thanks for taking my five questions. It should have been two. I appreciate it.
It's okay. You're welcome.
The next question comes from Firmino Morgado from Man GLG. Please go ahead.
Yeah.
Thanks for the time to ask a question. I mean, what I wanted to understand is on the residential segment, what has been your market share evolution in the US? And also, you know, more a general question, when I look at the, your margin targets for the different segments, I mean, they're still well below your competitors. I just wanted to understand, you know, why is that and to what extent you have a, I mean, a higher- cost base that doesn't allow you to catch up with them.
Yeah. I'm just thinking about you. You are specifically focusing on Home Solutions business in the U.S., right?
Yes. I mean, you know, feel free to actually give your view for the other segments, not just in the U.S., but also in Europe.
Yeah. For residential Home Solutions.
The other segments also.
Let me start maybe with Home Solutions.
Yeah, yeah.
I mean, yes, it is a matter of fact that, looking back, we did lose market share in Home Solutions over the last, well, I don't know, five to 10 years. This was something of course where we have right now a very low or a lower market share when it comes to Home Solutions. Also, when it comes to C&I. Only in Large Scale we have a significant market share, a dominant market share in Large Scale business. That is what we have observed and seen in the last years. When I mentioned that right now, I mean, of course, the IRA helps. This is also, of course, an enabler for more potential.
We have already started also before the announcement of the IRA to start our development of our new hybrid and solution platform for Home Solutions with all the functions which we would need in the U.S. to get back the market share. This is what I said, the feedback was great on the RE+, so the customer base is really asking for that. This is the observation and therefore we think that after we will start production and delivery in the U.S., we will get back the market share here and also increase that considerably. That's regarding Home Solutions in Americas. When it comes to EMEA, this is for us a strong market.
I mean, it's our home market in Germany, also EMEA, as I said before. You see that when it comes to order intake and also revenues, Germany and the other European markets, they are driving the growth of Home Solutions right now so far. Of course, knowing that we have also SolarEdge, Huawei, we have Enphase here as players in Europe, we think that we will lose a certain market share. Once we can improve our delivery ability, that we are very confident that we will get back as soon as possible. When it comes to Large Scale or when it comes to APAC with regards to Home Solutions.
The market share was quite low and is still quite low. This is also where we think that it is a level which has been stabilized on the current level over the last years, and this is also what we expect for the next years. Does that answer your question regarding Home Solutions and
Yes.
The regional space.
In the second part, I mean, in terms of your cost base, is there something structural about your cost base other than, I mean, you know, of course, scale or, you know, anything else that can give you a cost disadvantage in U.S. but also in EMEA?
Cost advantages in EMEA or in the U.S.? Well,
Advantage or disadvantage.
Yeah, just a second. I mean, of course, what is driver for our margin is definitely if we manage to scale. Scale is absolutely key. That is scale volume. That is what also something what we have seen over the last quarters. Underutilization, as I reported also for the H1 figures, underutilization has had a big impact on our profitability. Therefore, we need volume, we need order intake and in order to utilize our production facility here. This is also what we expect in the next quarters and in the next year. This is the main key.
And, uh-
For us.
What I was trying to understand is that in U.S. in particular, because I mean, it seems to me that you're going through a duopoly market in the home segment, you know, to what extent, you know, your lack of scale can be a structural disadvantage?
Sorry, I don't know if I didn't get you right. I mean, what kind of disadvantage you are referring to?
Because of your lower scale in U.S. versus your competitors, it could be, I mean, you know, you'd have a cost disadvantage or not. That's what I was trying to understand.
Well, not really, but I mean, if you look, I mean, we have, of course, competitors who have low- cost or local productions, of course. And then.
Mm.
They also have a different structure in terms of the costs. I mean, we have a different setup in terms of our production. We have, well, just to manage one production facility and therefore again, higher volume, higher utilization is something which is driving our profitability of course, when it comes to that kind of costs. Yeah. Logistics costs, they are increasing, but this is not that point. When it comes to, for instance, other infrastructure costs, I mean, we have a very lean sales organization, and therefore there are not really any cost disadvantages what we might have in the U.S. if you refer to that. Therefore I don't see the point, right?
We have still very strong volumes in the EMEA region also for our string business right now already. Therefore, this is the key for us, scalability based on volume.
Thank you.
If that didn't answer your question, so of course what we can also arrange maybe is a call afterwards or a short meeting in order to understand your question and maybe to have a short deep dive on that comparison if you like.
Thank you, Thomas.
Yeah. You're welcome.
Ladies and gentlemen, as a reminder, if you would like to ask a question, you may press star followed by one. We have a follow-up question from Constantin Hesse from Jefferies. Please go ahead.
Hi, Thomas. A couple more questions.
Yeah.
I'll keep it very simply put. I think on the revenue side of things, I think you made it already pretty clear in terms of your expectations. On the margin side, very simply put, Q4, Q1, Q2, Q3, Q4, as we go sequentially, you're expecting production to improve, utilization to improve, and as a result, you expect a gradual margin improvement from Q4 and then continue to improve in Q1, Q2 and so forth. Is that kind of a fair assumption?
That's a fair assumption.
Okay, great.
Yeah.
That is relatively clear. The other one is on market share.
Yeah.
As you look at market share today in Europe in some of your key markets, I mean, clearly you lost quite a bit of share this year. You know, if I look at what SolarEdge and Enphase are doing in Europe and even the Chinese, they're growing quite significantly there. In Q3, you grew revenues in the home segment by 40%. Do you see that you're starting to stabilize that loss, or do you still expect to continue losing some share into the next year?
Yeah. No, I would say the first one. I think that we think to stabilize that at least is the main motivation. That's the point. We don't think to lose more.
You expect to stabilize. Then just quickly on the margin side again, in 2023, is it fair to say that none of the segments will be loss-making? All of them will be in the black?
I would kindly ask you to await the guidance then for next year. Yeah. This is where I said we are still in our hot phase of our planning for next year also.
Just referring to the.
Yes, please.
Just referring to the comments you made then before with regards to the new product launches, you do expect these.
Yeah.
New product launches to bring you back to the black?
Yes, of course. I mean, this is our ambition, as I said. Our ambition is to have three positive segments in terms of profitability as soon as possible.
Yeah. Okay. Great. Thanks.
You're welcome. Great. Okay.
We have one more question from Anis Zgaya from ODDO BHF. Please go ahead.
Yes, hello. Thank you for taking my question. I have one question. You affirmed your confidence to reach the high point of consensus at top-line level. What about EBITDA level? Consensus is at EUR 100 in 2023. What do you think about it? Thanks.
Just to make that clear. You are asking about our expectations regarding consensus to reach the consensus in terms of EBITDA, right?
Yes. I don't know if you heard.
Let me just echo what I said also before when it comes to revenue on the one side, but also profitability, is that we feel comfortable with the consensus for next year. I would kindly ask for your patience that we will provide more details on our guidance for next year and also early next year. Just to echo that, we feel comfortable with the guidance with the consensus for next year. Is that okay?
Mr. Zgaya, your line is open. I am not sure. Maybe we lost him.
Okay.
We're gonna now go on ahead. There are no further questions at this time, and I hand back to Thomas Pixa for closing comments.
Yes. Thank you very much. Before I close today's call, I would like to thank you very much for your trust and commitment in the last two analyst and investor calls I recently made in my current role as interim CFO. The presentation of the Q4 and full year financial results for this year, as well as the presentation of the guidance for next year, will then be taken over by SMA's new CFO, Barbara Gregor, who will start on December 1. At this point, I would also like to announce that we will host our Capital Markets Day again in Q1 next year in presence here in Kassel, as we are currently still planning, but the invitations will follow soon.
Therefore, I would like to invite all of you to this event, and I'm looking forward to welcoming you here in Kassel and meeting you in person again. Okay, take care of you, stay healthy, and see you next year. Goodbye.