Earnings Call: Q1 2021

May 12, 2021

Good day, and welcome to the SMA Solar Analyst Investor Presentation Financial Results Quarter 1, 2021. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Ulrik Hadding. Please go ahead, sir. Thank you, Molly, and welcome, everyone. We very much appreciate that you are taking the time for this investor and analyst call on the Q1 'twenty one results. You can find today's presentation on our Investor Relations website. Conference call is scheduled for 30 minutes and will be recorded. The replay will be available for 7 working days. After the presentation, I'll be happy to answer any questions you might have. I will start with a review of the Q1 financials, then give you some information on current developments, leading to an update on our expectations for the full year 2021. I expect my presentation to last less than 15 minutes. I refer to our disclaimer on Page 2. And here on Slide 4, we have provided for you more detail a summary of our key financials. And we will provide you with more details on our Sales, profitability, balance sheet and cash flow in the next slide. I will only focus on the quarterly development in the table in the bottom right corner of As you can see, our Q1 2021 sales were slightly lower than in Q4 2020, but Our profitability was in a good level in the quarter, which I will explain to you in more depth. 1st, Let's please turn to the next slide and then I will provide you with insights regarding our sales performance. As you may recall, in Q1 last Here SMA completed a major project in our large scale segment, which resulted in an extraordinarily high sales in that quarter. As such, The fact that our net sales for the Q1 of 2021 declined compared to Q1 2020 does not surprise and was to be With net sales of €240,000,000 SMA sales in Q1 2021 were just slightly lower than the last two quarters, which for seasonality reasons is quite usual for the Q1 in our business. Looking at the regions, EMEA is and remains our largest region in terms of revenues in Q1 2021 was €127,000,000 which represents 52% of SMA's global sales. In the region, Our Home Solutions and Large Scale and Project Solutions segment achieved low single digit growth, while our Business Solutions segment slightly declined compared to Q1 last year. Revenues in SMA's Americas region declined in Q1 21 due to the major large scale project completed in the U. S. During the Q1 of last year, which I alluded to earlier. With €88,000,000 of revenues, the Americas region represents 36% of our Q1 2021 sales. Our Asia Pacific region represented only 12% or €31,000,000 of SMAs sales in the Q1 and declined in sales compared to Q1 2020 due to COVID-nineteen related effects as well as quality issues in our Large Scale and Business Solutions segments. Now let me briefly walk you through the sales per segment On the right side of the slide. Our Home Solutions segment, which continues to perform well for over 2 years now, Grew revenues in the Q1 of 2021 by 6%, reaching €76,000,000 For this segment, Germany, Benelux And the U. S. Delivered the highest revenues, and Germany and Benelux grew their revenues compared to Q1 2020. Our Business Solutions segment declined by 21% in Q1 compared to the Q1 of last year as a result of COVID-nineteen effects in several key markets. Germany and the U. S. Remained the top markets. And in Italy, we more than doubled our sales compared to Q1 last Finally, our Large Scale and Project Solutions segment shows a decline compared to Q1 2020 due to the significant revenues from the major project completed in Q1 of last year as mentioned before and Due to project postponements, which are caused by several factors, among them, the current increase Prices for sale for solar modules. The U. S. Remained our biggest single market for our large scale business, Chile and Australia also contributed significant sales in Q1 and those countries more than doubled their Q1 2020 sales. Now let me explain to you how our profitability developed in the Q1 of this year. In Q1, SMA generated an EBITDA of €20,000,000 which translates to an EBITDA margin of 8%. Profitability was positively impacted by exchange rate effects of approximately €2,000,000 For the remainder This year, we expect profitability to continue to increase driven by higher sales volumes with a similar product mix to Q1. Our depreciation remained on the same level as in the last quarters, and there were no unplanned depreciations in Q1. Now let's have a look at the segments in detail. Home Solutions. EBIT in the Home Solutions segment has continuously improved over the quarters and with €40,000,000 in Q1, profitability nearly tripled compared to Q1 last year. This is mainly driven by the strong Q1 sales, The positive development of our product portfolio and stable prices. In the Business Solutions segment, EBIT was due to the lower sales as a result of COVID-nineteen triggered sluggish demand in several key markets. We expect sales Pickup in this segment in the second half of this year and profitability to improve accordingly. The Large Scale and Project Solutions segment also had a negative result The Q1, but despite much lower sales, profitability was slightly better than Q1 last year, driven by improved product mix. As I will explain to you later in the presentation, this segment has a strong product order backlog and sales are back loaded in the second half Now I will move on to the balance sheet and net working capital on the next slide. At the end of 2020, our net working capital balance was €211,000,000 which represented a net working capital ratio of 21%. At the end of Q1 2021, our net working capital increased to €239,000,000 or a ratio of 24%. The reason for that being the increase in our inventories. Going more into detail, you see that finished Goods inventories increased by €35,000,000 in the Q1. The buildup of inventories is mainly related to the strong order pipeline For our Large Scale and Project Solutions business and an increase of safety stocks to ensure our ability to supply during the COVID-nineteen crisis. Our raw material stocks also increased in the Q1 as a result of our measures to mitigate supply Trade receivables remained rather stable with a balance of €190,000,000 at the end of Q1, Great payables of €153,000,000 at the end of Q1 increased by €9,000,000 in the Q1. Advanced payments The end of 2020 to €27,000,000 per end of Q1. Now let's have a look on the group balance sheet on the right side of this page. The balance sheet, the most significant changes since the beginning of this year are related to the development of the net working capital Other assets decreased from €108,000,000 at the end of 2020 to €89,000,000 at End of Q1, 2021. This decrease was mainly related to an income tax reimbursement payment in the U. S, which we received in the Q1. This positive cash flow helped offset for cash outflows related to our increase in net working capital. As such, total cash remained on the same level as per end of last year with a balance of EUR 237,000,000 Our equity ratio of 42% at the end of the first quarter also remained on a similar level compared to end of 20 20. Let's now turn to our cash flow profile on the next slide. In Q1 2020 SMA generated a positive gross cash flow, which nearly doubled compared to Q1 last year. This is mainly driven by our net result in the Q1 adjusted for non cash effects such as depreciation and amortization. We also slightly benefited from the mentioned tax reimbursement in March Both our Q1 cash flow from operating activities and our adjusted free cash flow are positive, which reinforces that our business is producing positive cash flows even with the increased investments into building up inventories. So in summary, SMA delivered a strong Q1 for 2021 was an increased level of profitability and a positive adjusted free cash flow. Our revenues were in line with our expectations, but below Q1 2020, mainly due to the extraordinary project completed in the U. S. Market at the beginning of last year. SMA's balance sheet structure is solid and our equity ratio of 42 percent and net cash balance of €227,000,000 remain on the good level from end of 2020. In addition, SMA continues to have a syndicate loan for €100,000,000 available, which was recently renewed at improved conditions for another 3 years. This concludes the detailed review of our Q1 twenty 21 Financials. Usually, at this point in our quarterly calls, we lay out our view on the PD market. We decided to skip this topic as it is only 6 weeks that we shared our comprehensive market view with you when presenting our 2020 results. And in the meantime, there has been only a minor change to the market model. We have raised our global PV market forecast for 2021 Our gross expectations of 9% per annum until 2023 remain unchanged. We will provide a detailed market outlook again in the H1 results presentation in August this year. Now let me please provide you with an update on current developments. As I've already mentioned in the financials part, The global coronavirus crisis has taken its toll on demand in the Q1 of this year. This is especially true for the business segment, where sales declined because companies facing financial uncertainties were reluctant to invest in commercial PV systems. However, we expect demand to accelerate in All segments over the next month as more and more people get vaccinated and economic uncertainties decline. Another challenge is the current Shortage of electronic components. So far, we have been able to prevent any major disturbance of our supply chain and production We are, of course, monitoring the further developments. But at this point in time, we are optimistic that repercussions of said shortage will affect Our long term prospects important Are the current political developments, which are very promising for the future of solar PV. Around the world, governments have understood that they need to take action to counter the climate crisis quickly. The European Union has confirmed its commitment to reduce its carbon emissions by 55% until 2030. The German government last week also announced that it will tighten its climate protection law and raise its renewables expansion targets, which SMA has, by the way, already called for a couple of months ago. In the U. S, the Biden administration has also started to live up to its promise of focusing on the climate crisis. Nationally, it was a $2,000,000,000 climate and infrastructure program And internationally, it was a climate summit that sent positive signals for the UN Climate Summit in Glasgow in November. Thus, Our long term perspectives become even brighter. This brings me to our guidance and expected future development. Looking at the right side of this slide, you can see that our order backlog remained on a high level of over €800,000,000 at the end of the Q1 of 'twenty one. Our strong product order backlog of €355,000,000 at the end of the 1st quarter includes key projects for our Large Scale and Project Solutions business, which will be completed and realized in our revenues this year. Our service order backlog continued to grow in Q1 as our O and M business continued to acquire key The left side of the page, you can see that our Large Scale and Product Solutions order pipeline remains on a high level, And our product order backlog is distributed evenly across our 3 regions. Our Q1 revenues and high level of order backlog for products secures more than 50% of our 2021 sales guidance. This brings me to our 2021 guidance on the next slide. SMA's sales and profitability were in line with our expectations for the first 2021. And also for the entire fiscal year, we uphold our sales and profitability guidance with revenues of €1,075,000,000 to €1,175,000,000 and EBITDA between €75,000,000,000 €95,000,000 But let me elaborate on that as, of course, we all know that there are several challenges to our industry these days. 1st, low market demand. Yes, can be seen, For example, in our business segment, due to COVID-nineteen caused uncertainties and liquidity constraints. But 2nd, supply constraints. As mentioned before, so far we have not lost any business and remain optimistic That the impact of electronics component shortages can be mitigated and the utilization of our infrastructure be continuously improved. 3rd, margin compression. Higher costs for certain components and logistics are felt throughout the industry. But so far, SMA could achieve higher ASPs than planned and seize the possibility to continue this way in order to compensate for higher COGS. In addition, SMA is used to keep functional costs at a low level, which will help in dealing with an eventuality later this year. So all in all, we see SMA on a good path to make 2021 another successful year. Let's turn to the last slide. To sum up why an investment in SMA is worthwhile. Real sustainability will become a significant topic for important stakeholder groups. At SMA, sustainability has been a core value since the company's inception. Part of the sustainability are also our financial stability and our focus on a sustainable energy supply based on PV. So Our comprehensive portfolio for all segments and applications and our global sales and service infrastructure, we can serve all customer groups around the world and thus profit from the whole potential of the global energy transition. Our Strategy 2025 forms the basis for our further development into a systems and solutions provider with perfectly fitting answers in all key areas 21. Followed by the number one on your touch tone phone to pose a question. We will take our first question from Jeff Osborne of Cowen and Company, please go ahead. Your line is open. Hey, good morning, Ulrich. Thanks for all the details on the call so far. A couple of questions on my end. Just being here in the U. S, we're certainly hearing more about For projects which you alluded to on the utility scale side, just given the tax credit is the same in 2022 as it is in 2021 And there's a discussion about actually raising that tax credit. What's the risk in your pipeline or backlog of those projects actually being pushed to next Good morning, Jeff. I think that the additional risk of these ITC ideas is To a very large degree overlapping with the situation that we already see at hand. There is not a bulk of projects in the pipeline. It is more or less dealt with already. And I think we have seen so much movement in the project business already I don't think that this will be a major issue. We will, of course, have the risk of projects Extending into the succeeding year, that hits us every year. Sometimes it's stronger, sometimes it is not. For now, we have already seen this movement, but I don't see that this will become a major Issue in Q4. The risk, however, exists. Yes. Got it. And then just 2 other quick ones. If I heard you right, the U. S. Residential business was up year over year. Can you just talk about what drove that Success, is it shape fix or did you have a product cycle there? Any details on that front would be helpful. And just a housekeeping question as well. If you could share what the storage percentage of question as well. If you could share what the storage percentage of revenue was as well as the trading revenue, that's helpful to know as well. Sure. With regard to resi in the U. S, we just When, let's say, with the market, I wouldn't call that a shape fix impact. That still needs to be due to come. It was, let's say, just normal business. So no major Impact still to be Got it. I think we were even we even fell a little bit short of our expectations because we had Some shortages in supply issues with rapid shutdown devices. So that's on a positive move Anyway, but let's say the big bang, which I'm still convinced is to come, Jeff, That's not it. That's coming. That's still to come. Okay. Good to hear. And with regard to your other I hope so. With regard to your other question with regards to the distribution of revenues, We had about 15% is trading goods, storage share is about 10%. Thank you. That's all I had. I appreciate it. Sorry, Jeff. One last one, Asia. I mistakenly gave you the 2020 figures. The storage share in Q1 2021 has been 14%. 14%. 14%. Sorry. Okay. 14%. 14%. Yes. Welcome. Thank you. We will take our next question from Konstantin Hess of Jefferies. Please go ahead. Your line is now open. Thank you very much. Good afternoon, Orest. Three questions from my side. Number 1, so while we saw gross profit increase in Q1, can you maybe elaborate a little bit more On the current inflationary pressures you're seeing in the supply chain and how these will impact you throughout the year? And just on this point, are you actually passing through price increases as well? That's my first question. Price increases as well? That's my first question. So the okay, Q1 was certainly impacted By heavy weather conditions in the U. S. As well in Europe, and that made it difficult to install. That led to full warehouses in resi and commercial. That's, let's say, contributed to the Price pressure we see in the commercial sector and also To the fact that order intake was still low. That is probably even supported by the fact that module Prices are rising. The supply chain issues have, of course, No impact on the demand side. And as we didn't and as we, let's say, had made our homework, Q1 was not at all affected by supply chain issues so far. The only factor to be felt in Q1 were higher transportation costs, but these could be compensated with the ASPs in Our resi and utility segments being kept at a very high level. The Supply chain issues are, of course, of importance for the coming quarters, as I explained already. Still, we see ourselves here on a good track. The question whether we could give through the price increases To the sales price level, I think in the first step, we would just not lower prices. You know, lowering prices is a usual thing in our industry. And therefore, by not lowering prices, you already compensate for Quite something. And so far that has been happened. So we our price level in resi has actually increased in comparison to last year, certainly due to product mix, but also because we were able to not lower prices. And the price pressure in utility is not as severe as planned. Therefore, also we get some tailwinds here. Whether we will be able to increase prices in order to compensate for higher logistics And raw material costs needs to be seen. That is something that we will observe That opportunity we will of course observe and see what the market, let's say, allows. Okay. That's Great. Thanks. And just quickly on this point, what are some of the key parts? Logistics is definitely one. And when it comes to raw materials, what are kind of the main drivers or the main pressures And are you even able to take a hit from higher costs over the next few quarters without increasing prices? Well, with regard to raw materials like copper, for instance, they, of course, have an impact on Many components, but the things we are talking about the most The shortages in the electronic components market, which forces companies to source on the spot market and spot market prices have doubled even tripled in many cases. And therefore, the biggest impact with regard to COGS is probably deriving from Transportation Costs and Electronic Components. Of course, this faces or poses a risk to our profitability in the coming quarters. But as I explained earlier, so far it hasn't. And so far, our planning doesn't see a big impact of this supply shortages as well as with regard to the prices. The situation is complex Because we are not the only one who is affected by this phenomenon. It's the entire competition landscape. And in 1 month, we might just, let's say, suffer from higher prices. In another month, This may open up an opportunity for us because a customer cannot source from a competitor and then turns to us, And we might have then the opportunity to have additional volumes being sold. So It makes it more difficult to plan the entire year, but our belief is that the demand uptick We expect for the second half of the year and the joint efforts of everybody to deal with the shortage situation in the electronics business. And in addition to that, The advantage that SMA has as a company who has already for months ago ordered These components and has long standing relationships with electronic component manufacturers gives us the, let's say, optimism that we will get through this year affected, but only mildly affected by this situation. That's great. Thanks. Just a couple of last questions from my side. Number 1 is what is driving the significant profitability improvement in Home? And 2, if you can talk a little bit about the downgrade On to the guidance you did for the utility, I think it was at EBIT level for utility and sales in the commercial segment. And if you could add some color there what the key drivers are compared to the guidance you released at the full year 2020 results? Thank you. So first with regards to home and profitability there. It is just well, first of all, there has been this FX effect of €2,000,000 which I already mentioned. But That is attributable to all three segments. And in Home, you just see, let's say, the result of our long standing efforts To straighten out the product portfolio and bring down our infrastructure costs, our cost base. And with regard to Home, we have, let's say, just a good timing. We have high demand. We have mature products with Low failure rates, very well accepted in the market and improved margins Due to the product mix that we have worked on by sorting out all products with lower contribution margins. So that is just, let's say, the results of our homeworks we did for the last two and a half years. With regard to Business Solutions, you didn't ask, but let me elaborate on that very quickly. The situation is very heavily impacted by COVID. The Medium sized enterprises are hit the most by uncertainties and by liquidity constraints and therefore postpone investments, therefore Business Solutions is impacted. That will, let's say, go away when the COVID-nineteen pandemic goes away. Large scale, the situation is more complex. First of all, we see for the entire year Revenues as well as revenues increasing, profitability decreasing. That is Due to the one off effect that we had by the end of 2020 when we had this agreement with One of our suppliers, the one off effect that we had, this positive one off effect was allocated to the large scale segment, which produced an enormous positive result. In comparison to this distorted results for large scale, the full year result for large scale this year has to be lower, Which doesn't mean that it has to be negative. It is just lower in comparison to the previous year. In fact, We are still optimistic that we might turn large scale segment into the black Regarding profitability this year and with regard to revenues, we see this Segment still increasing. The reasons for that is we are just going, let's say, We see overall market increase. And as you know, within the Utility segment, there are only very few competitors left. And on the midterm to long term, we think that our quality will convince Customers more and more, especially when batteries and storage solutions kick in That SMA will be able to extend its market share. That's And then just on the downgrade of the guidance. So basically in commercial, you're saying that the demand pickup in the second half won't really offset the sales And then in the utility, you were guiding to higher EBIT margins relative to last year, but now at this time around, You're not. Are you seeing any is that because you're seeing more pricing pressure or? No. Again, with regard to Home Solutions, revenues as well as profitability will increase. With regards to the Business Solutions, revenues will be, let's say, on the same level. Profitability will increase. We are now facing some problems regarding due to COVID, which we think will be compensated by higher sales In the second half, with regard to large scale, higher revenues, lower profitability due to this one off effect in 2020. I think that the challenges to this assumption, to this prognosis are multifold. With regards to home, I see the least. With regard to business, well, the uptick might not come. But as I explained, we are optimistic about that. And with regard to large scale, as Jeff already mentioned, there might be further project postponements, which then leads to a project postponement in the succeeding year. We have seen that already to quite some extent. Therefore, I think that we have already, let's say, seen that phenomenon. But there might be there might be more. And then the revenue level for large scale might be even, but at this point in time, we still see it increasing, Therefore contributing to achieving the guidance. What I know that You would like me to qualify the guidance to some extent and I have thought about it. But based on the data points we have assembled Until yesterday, I cannot do so because I still see a big potential in this year 2021 despite all the challenges we have already discussed. Thank you. Welcome. Thank you. We will take our next question from Lasse Steuben of Berenberg. Please go ahead. Your line is open. Hi, good afternoon. Sorry, I just wanted to follow-up on that, the final point again. Just you mentioned The positive one off effect was mainly booked in the large scale segment in Q4 of last year. Could you just remind us, I'm not sure if you mentioned this with the 2020 results, what the underlying profitability was on the EBIT level for the divisions. I can simplify it in my notes. I'm sorry if I missed that. And then that would be the first question. I would have one more after that. Yes. Well, we with Regards to the full year 2020 results, you could, as a rule of thumb, Say that they were about the same as we see them right now If you deduct this one off effect, this one off effect was compensating for losses that we had Assembled in 2019 2020 and also is to compensate for further costs that we will assemble in 2021 2022. And therefore, it is really difficult To make that to make an apple by apple comparison, I think if we would say that without this one off effect, Home would have been positive as it has been. Business would have been negative as it has been. And large scale would have been about breakeven. For this year, the same the situation will be about the same as The, let's say, the operational strength that we have in Q1 is just continuing the trend that we have seen in Q3 and Q4 last year And which we expect for the coming quarters. We will see good results in Home. We will see slightly negative results in business and we will see breakeven to positive results In large scale, the reasons for that being an increased and improved gross margin, which is, let's say, Supported by higher utilization and by less Pressure on the price front. And therefore, it's a stable ASPs, slightly decreasing ASPs. Great. That's really useful. Maybe just one final one in terms of working capital. How do we think about that for the remainder of the year? Do you see sort of the payables potentially coming back down and so we should have A bit more efficient working capital or just have a rough idea of what that should look like as we move through the quarters? That would be helpful. Thank you. Yes. We will see an increase in raw materials as we are just, let's say, preparing For shortages and just get what we and assemble what we get. With regards To trade payables, We assume that they will go up step by step throughout the year As we will be able to negotiate better payment terms and delivery terms with our suppliers. That should help the net working capital ratio to fall again. How that exactly plays out has very much to do with how this shortage in electronic components It's going to play out. But in general, I think that the that our Stocks will remain on that high level, whereas the AR and AP The portions will be optimized later this year, which means that Liquidity wise, it will go up and down throughout the year. We will see lower figures in some months, and we will see higher figures In some other months, by the end of the year, we will approach 250,000,000 Great. Thank you very much. And just maybe one final one. I know you've mentioned that you should expect So I guess revenues to increase as we go through the year. I guess that also holds for Q2, especially you've spoken a lot about the second half, Just more near term, do you see sort of increased demand in Q2 relative to Q1? Yes. I will refrain from, let's say, qualifying Q2 as a quarter only. I will just Talk about what we see right now for the coming months. And that is In order intake rising in not Only the home segment, which wouldn't be much of a surprise, but also in our business segment, which is Different than it has been the last month. The last month, we had always very good home results and we had very Large scale results, but the business in commercial was Fluggish. Now we see an uptick also in order intake for commercial, which Might be, let's say, the first hint of the entire situation become normalizing again. What fits To our overall perception of the COVID-nineteen pandemic, especially in the U. S, but that is still a thesis To be rechecked. Still, what I can say is that We expect higher sales in Q2 than we did for Q1. Right. That's helpful. Thank you very much. You're welcome. And we will take our next question today from Sean Mark Mueller of JMS Invest. Please go ahead. Yes. Thank you for taking my questions. Similar questions as have already been asked, but maybe phrased slightly differently. You're still guiding for inward output sold of 17 to 18 gigawatt. If I take mid range, 17.5, I subtract Q1, that leaves me with Something a little bit more than 14 gigawatt for the remaining three quarters. That's roughly what you sold in 2020 for the full year. So again based on that, I mean, You mentioned that Q2 sales will be higher than Q1, but should we also expect basically kind of a linear progression? I mean, Just because the number is so big, I mean, Q3 should then be higher than Q2 and Q4 potentially should be then the strongest quarter. Is this how we have to look at it? Yes. Well, we didn't say anything about the gigawatts sold. But I think that No. To move guidance for 2021. That has been the guidance at the beginning of the year. What we see right now is that we have higher ASPs than expected. So we're getting some tailwind with regard to We see difficulties in and postponement of projects. So by the end of the year, We might end up just with, let's say, 17 rather than 18 gigawatts. So that might be On the somewhat lower level of that range in the guidance. Still, we will be able to hit midpoint of our sales guidance due to the higher ASPs. But otherwise, it is as linear as you said. There is Not a singular quarter to be picked as being the bulky one or something like that. Q3 will certainly be better Q3 is normally better than Q4 due to the year end. Exactly. This is why I'm asking. There's usually in December, it's just the months of lower revenue That we have every year. It was just everybody stops at midmonth. But that is, Let's say something that we have seen every year. But there is not to be, let's say, an explosion in the market or something like that. I would think it's rather linear to be calculated. Okay. But just in terms of gigawatts and if you say average selling price More or less stable, it's just like big numbers that have to come through now in Q2, Q3 and in Q4, Given the rather weak start of the year. Okay. And also, I mean, much has been said now about the segment guidance, sales up, EBITDA and etcetera. I kind of get it, but still it's kind of a change to what you said at year end. So but then you keep the quantitative guidance, you keep Stable. So I would assume that if you say business might be only constant in terms of sales and not up, That is kind of compensated then by maybe from the perspective from today at least stronger sales in home and Maybe a large scale project. Or does it mean that we have to look maybe more at the lower end of the sales guidance? No, Sorry. I think that the full potential of the sales guidance is valid. Okay. And the reason for that is not that we are convinced that we are able to, let's say, See the business different than all other participants, but because there are so many uncertainties still, which do not only pose risks, But they also pose opportunities. SM A has a well oiled production machine and we have a global The footprint means that we will be able to react to certain situations better than our competitors. And we might just pick up some business that others have to just drop because they just have to stop production, We know from at least one competitor who has not been able to continue producing his major contribution bringer. And it's just a matter of time until we are going to get approached by certain customers in order to jump in for that eventuality. And therefore and with the COVID-nineteen pandemic, let's say, being on the retreat and Certainly, a huge market demand being out there, liquidity the same. We will see whether there is still potential. I think that we will be able to revise Our market estimates by the mid of the year when we meet again in August, then we will see whether The supply shortage have an impact on the overall market assessment. But up to now, we do not see We see it's a difficult situation right now, and it might hit some market participants very badly. We think that SMA will not be among those. And therefore, 2021 will be perhaps not as wonderful as I have dreamt in the beginning of the year, but still be a successful year. And I'm not able, not only not willing, but I'm not able to really qualify the guidance because I still see It being possible to live up to the upper or lower end, whatever the pandemic and the Price situation and the supply situation will bring within the next 6 to 8 weeks. I think those will be decisive. Okay. And my final question on Home Solutions and Business Solutions. I remember from previous talks that we had, I think when I if I remember correctly, you said that kind of material costs are actually quite similar, No percentage of sales for those divisions. Yet when I look at the profitability, Obviously, business lags quite strongly behind Home Solutions Despite roughly the same sales level, actually, business is even a touch larger than Home Solutions in terms of sales. Can you explain that to me? I mean, has this to do with like other, I mean, functional costs, etcetera, that you book against the divisions? Or What is the reason for the low profitability in business if, let's say, the COGS are somewhat similar to Home Solutions? Well, there are several reasons to that. First of all, is margins in business are per se lower than they are in home? 2nd, the storage business, which comes with higher margins Happens in its entirety in home and not in business. When we are selling storage inverters, This is all in residential. Nothing is happening in commercial. I understand a lot of things are happening in utility, but we're not talking about Central inverters, we're now talking about string inverters and meaning that meaning home and business only. And here the entire storage business happened in home and residential. So that also contributes to higher margin Home. Last but not least, we have, let's say, our portfolio is undergoing certain life cycles. And in Home, we now have, let's say, have a perfect match. There are the entire portfolio of product is pure, is doesn't have many And still has some time to go. Commercial is our business segment is undergoing, let's say, The downturn of the cycle, and therefore, has also more difficulties with regard to margin and quality costs. Okay. But it is That was the time when this is the other way around. But it is correct. The material costs are roughly are similar to in both segments, Just the material cost for the inverter basically? Yes. Okay. Thank you. But home is benefiting from the product mix. From the storage. Yes, better mix. Storage and product mix as such. Thank you. You're welcome. Our next question will come from Guido Heumann of Metzler. Please go ahead. Your line is open. Yes. Hello, Nakassel. Actually, most of my questions have been Hello. Hello. Most questions have been asked. Maybe one left and rather a strategic one. RWE just mentioned the big utility, The huge chance of Stacy to arise from the potentially once again accelerated Coal exit here in Germany. They mentioned there talks to German politicians of all parties. So the point is that obviously, the politicians have understood that if they want to accelerate that, Then they need more renewables, obviously. And of course, that's what it is about. And they seem to be willing to facilitate Construction and approval processes, I think, which is desperately needed here in Germany. So my question is actually twofold. First, how big is the German market in your sales, so the Germany share Of sales. So is it still a relevant market? I know you are a global player, so does it play a notable role? And would it make a difference if this business would be booming here in Germany? And in connection to that, Are you also planning maybe some additional sales efforts or activities here in the German market if this happens? Because we're talking about, I think, yes, 8, 9 years window to open and Yes, huge growth potential, I think. That's my question. Yes. Thank you. Yes. Actually, the renewal of the German Energy Statute is being negotiated By the German politicians as we speak, and it's about to be released from the Parliament today. The impact on the German market for this year still needs to be seen. We certainly See an uptake of the German market potential for the entire duration until 2,030. That's for sure. So the market estimate of the German market will increase and we will participate from that as our market share in Germany in Residential, for instance, is still very high. We are certainly the market leader in Germany. And the German market is Still very, very important, our share of all revenues going into Germany is about 20%. So the tailwinds we get from German politics We'll certainly be benefiting SMA. Whether this already happens in 2021 needs to be seen from the red tape that is to be expected in the coming weeks. But if that happens, We will certainly be not only prepared, but also willing to tackle that market very Openly and aggressively. All right. Very clear. Thank you. Thank you. We will take our next question, a follow-up from Constantine Hess of Jefferies. Please go ahead. Thank you. Just a couple of follow ups very quickly. Number 1 is really how Sustainable are these margins in home. Even if I adjust for the effects, I mean, the margins were really good there. So and clearly, you had the mix effect of Storage, which was 14% of sales, which I think is one of the highest levels you ever had. So I'm just wondering how sustainable these margins are there? That's the first one. If I would just be able to Every outer effect that we have that we were talking about the last half an hour, I would say it is Not only sustainable, it's going to be improved. Our gross margin now is at 22%. If everything works out and nothing happens, it will further increase. And therefore, The business model as such is very sustainable. And we haven't talked about ShadeFix yet. Now we haven't talked about us Regaining market share in the U. S. Market, which I think will happen next year due to several reasons. So that's Very sustainable. With regard to the project business and our central inverter, our large scale business, Yes. I think the midterm perspective is also very positive. However, it will not be that linear. There may be up and downs. The market is very quickly Moving into the combination of regular PV installations with stationary storage devices. So here the market is really rattling. And we certainly have huge chances here because technology wise, we are Technology leader. However, we are still in comparison to the other companies that Also provide storage as one of the smaller players. And therefore, it needs to be seen. All in all, I would say that on the mid to long term also the project business, large scale business is we'll see growing margins, not only stable margins, but growing margins. That's great. Thanks. And then just the second one, and I'm really sorry to be a pain. I'm just trying to really figure out What changed between the segmental guidance in the full year 2020 report and this year? So in business specifically, the downgrade was Revenues up to revenues stable. So here you're basically assuming that because of COVID, your sales are now expected slightly lower than you were anticipating in the full year 2020 results in business. Okay. So okay. What happened in the meanwhile is your question. What happened between the end of March and now for you to downgrade this guidance from up To constant in business and what happens between March and now to downgrade the EBIT guidance in Utility from up to down. Okay. Sorry for not getting you earlier in that regard. The fact that we have guided Business Solutions revenue wise increasing 3 months ago or 6 weeks ago and are now talking about, let's say, a constant development is That we are shy of saying that the uptick in H2 will totally compensate for the situation we have found here in Q1 and currently. We were a few weeks a few months ago, more optimistic about business picking up quicker And now have to see that this had had an impact, which was more severe than planned. We still see this uptick in H2, But whether it's going to make up for the underperformance here in Q1 and also in April, We think probably it won't. And therefore, we have corrected or very I would say, amended this guidance, prognosis. Perfect. Thanks. And then in Utility EBIT? With regard to Utility EBIT, All right. I think that this is just, let's say, the correction of the of an assessment that Put the same on an adjusted basis. Prognosis we have given for large scale is if you look on that From an operational level, it is increasing. But if you look on year Again, sorry. The prognosis we have given in our full year report, let's say, didn't really reflect The fact that we had this one time effect, which made the results for profitability in the Large scale segments are phenomenal. So in comparison to that, we won't be able to rise the profitability. But If you look on that on an adjusted basis, the it is still true. But as we have to report not on adjusted basis, but on, let's say, on a formal basis, we had to acknowledge That this was misleading and therefore corrected that into, let's say, decreasing rather than increasing. Because we have this one off by the end of 2020. That's great. Thank you very much. Very clear. Thank you. Our last question today is a follow-up from Jean Marc Muleaux of JMS Invest. Please go ahead. I also have to apologize. I also have a pain in the ass question. When I look at the operating profit, the Segmental split. Obviously, we spoke about the great margin Home Solutions. We bought about Business Solutions, Autoclave Project. Then there's also the reconciliation line, which improved from minus €300,000 to plus €3,000,000 Were there any one offs in Q1 we should know about which were booked in this reconciliation line? I mean, we spoke about FX, but FX is booked in the division. So that should not affect the reconciliation line. If you could maybe also elaborate on that one. First of all, the FX effect is in the reconciliation line. Okay. It's not allocated. And then there are others, let's say, effects, which you wouldn't call a one off effect. There is some accruals that were made could have could be released And some other smaller effects, which are of operative nature and happen all the time, But cannot be allocated to 1 of the segments. I understand, but And in the preceding period, we also had some negative effects, which were, let's say, more unusual. Usual in the reconciliation line, you have some small positive Exactly. I mean this line can swing about quite a bit, right? So I mean But obviously having it on a plus level is kind of unusual. Typically it's more like slightly negative, I guess. Yes, typical it is slightly positive because we have, for instance, something like rental incomes. We have let off some buildings here and also we are selling energy and that also goes into this Okay, understood. Thank you. You're welcome. This will conclude today's question and answer session. I would like to hand the conference back to your host for any additional or closing remarks. Thanks to all of you for spending so much time with me today. I apologize for not being, let's say, very talkative and quick And very decisive in my answering today. I'm somewhat exhausted as probably most of you are These days, I would like to reiterate one more time. There are difficulties, there are threats. We see them, of course, like everybody else. The point is that we also see the opportunities lying before us and our ability to cope with all these challenges. And therefore, We are that optimistic as I tried to express. Thank you very much for I'm looking forward to see and meet you again anytime soon. Please stay healthy. This will conclude today's conference call. Thank you all for your participation. You may now disconnect.