Investors, dear analysts, ladies and gentlemen, welcome to Meyer Burger's half year result 2023 webcast. I'm Gunter Erfurt, the CEO of the company. I have the pleasure to have Markus Nikles, our Group CFO, today with me, and we will guide you both through the results of H1. Before we do this, I would like to give you an update on the market and on our business.
We have, in the first half year, in the first six months, worked intensively on growing our manufacturing output. We have achieved a volume of around 300MW, which is almost as much as what we have produced in the entire year, 2022, and a substantial increase comparing the previous period.
Up to date, so this is last night, midnight, we have produced almost 380MW in our production in Germany. Last year, we have reported that we were still facing many operational issues, starting from supply chain problems and issues in the ramp-up of the line.
We have left this behind us. We have gained a lot of experience in our manufacturing, which is a pretty important achievement when we also think about future growth of Meyer Burger, including our U.S. business. The expansions in Germany are on track. The expansion in the U.S. is on track. We have gone through the production learning curve and achieved more operational excellence, which, as I already said, will help us when we are replicating manufacturing sites and increase our volumes in the future.
We continue to increase our throughput even further with upgrades in the line, including or implementing the learnings of our engineers to make our manufacturing more effective and more cost-optimized. Of course, also, our products output is going up. We have increased our solar cell efficiency substantially, that shows also effect, of course, in the power distribution of our solar modules.
In essence, we are well set for future growth, now also starting to put more focus on the United States, we believe that we can also expedite projects and shorten timelines in the future. This positive takeaway from the first half of the year is unfortunately influenced by the current market setup, primarily in the European Union.
I would like to walk you through the history of the market development in the last 8 months or maybe 10 months. What happened, in a summary is that volume that was primarily also bound for the US, but could not enter the market anymore because of the restrictions that the United States have imposed on the in- industry policy side.
To name one example, the Xinjiang labor ban has forced Chinese manufacturers to reroute their ships, if we, if we may say so, and all this product has landed now in Europe. Already end of last year, a total of estimated 85GW was shipped to Europe. When we put the market size, in, in, as a reference of 2022, entire European Union has installed about 41.4 gigawatt, so we have twice as much material in warehouses in Europe.
Also, the imports into the European Union from China have substantially increased for the same reason, because product cannot enter the US anymore, and that has led to an oversupply of 45GW in EU warehouses. This has caused a price drop, a quite substantial price drop, and modules are being sold for prices as low as EUR 0.15, and just yesterday, we also received some information that some Chinese supplier go even below that.
These products, also in China, are produced for much, much higher module costs, and of course, this creates a substantial problem for European manufacturers, not only Meyer Burger. Also there is a notion that the imports into the European Union may even increase.
A main reason why this is happening, I mentioned this at the beginning, is that the European Union, until so far, has announced many industry policy measures to be taken in order to not only protect the inner market, but also to make sure that the European solar industry can grow according to the strategic targets of the European Union, that 40% of product installed in Europe by 2030, has to be produced in the European Union.
We have not yet been able to benefit from tangible measures, and we are expecting those to be implemented in the near future, and I will speak about it in a second. It's important for us to mention that we have that we are witnessing currently, especially in the European Union, very unfair market conditions, which are forcing us to focus our, our expansion, our business, more on the US.
Because the US has done a good job already on implementing measures which are helping companies to run a sustained business. Nevertheless, we have, despite the harsh market environment, been able to keep our module prices in the Q1 of 2023 at the level of 2022. We have not reacted to these price drops, because we are convinced that Meyer Burger is selling at value and not at the cheapest price, and we will also continue to do so.
As you can see in that graph, we are trying to illustrate what has happened and what we believe is happening for the remainder of the year. You see in the dotted line, our ASP, in two colors, gray is what is behind us up until July, and the blue dots, what we expect to happen.
You can see that we have seen a continuous increase in here shown gross profit margin, referred to a P&L by function, without depreciation. We have then in the Q2, we had to react to the price drops in the market. Of course, not again, selling at the same super cheap prices than what Chinese do, but we had to lower our, our ASPs.
This has also led to an effect that we that we see as in one-off for the first half year, and Markus will explain that in more detail. Because Meyer Burger is providing its customers stock protections, on the one hand, limited stock protections for a limited period, retrospectively, and of course, also, we had to impair our inventories of modules at Meyer Burger.
The total of this of this impairment and stock protection is -CHF 13 million in the P&L. We are planning to remain at the price level that we have achieved now. We have lowered prices beginning of July, and this is, this is the plan for us to stay at that price level for the remainder of the year.
What we are also reserving as an option, we have increased the volume of our lines. We have our third line ready to run at high volumes, but we keep the option to also adjust our volumes to be produced according to the market development.
In, in essence, technically speaking, we have learned our lessons in the last year. We have implemented now our lines, which are running more stably than ever, more stable than ever, but because of the market, we are keeping the option to adjust production if needed.
What I can also say, and what you see in that graph, is that for the, the next or the Q3 and the Q4, we are expecting to see positive effect from lower input costs, primarily wafer costs are going down, also for Meyer Burger, and we expect that we can see positive effects also in the P&L from these lowered input costs. In terms of the sales regions, we have on, in this graph, the split.
The, the, the vast majority of the product is sold in Europe, with Germany and Switzerland dominating the markets, and then the US and rest of the world. Rest of the world, of course, includes many European countries, but also smaller volumes that we are selling in other world regions already and try to grow also the markets there.
Out of the 302MW of modules that we have produced in the first half-year, we have sales recognized 207, to be very precise, and that gives a revenue of CHF 93 million for modules, CHF 0.45 per watt-peak as an average selling price, which we believe in the current market circumstances is quite an achievement that we were able and also shows that we were able to defend our value pricing.
Again, we are trying our utmost to also keep these price levels at a value price level as much as we can. The focus of all the, the, the, the $0.45 per watt peak consists not only of residential, but primarily of residential, but there are also some C&I projects included. The C&I sector, which is a middle segment between residential and utility, we are also growing, and we are engaged in more and more projects there.
To give you a few statistics of what we have also achieved in the last two and a half years, since we have started selling on the last two years, is that we have been able, via our installers, to install about 30,000 installations of roofs that now have Meyer Burger as the energy-generating solar module.
That makes us very proud, this has been installed by more than 4,000 installers. Meyer Burger receives these data also very transparently from our distributor partners, we know what region is strong and what is not strong, we can also orient our sales team to put more focus in one or the other region.
Out of these more than 4,000 installers globally, we have 1,400 as registered installers with Meyer Burger. That's also a very solid basis of installers that we can also integrate in our loyalty programs, and make sure that more and more installers are converted, if you will, to sell Meyer Burger product primarily.
What we had communicated also is that we could back two more utility orders in the US from BayWa and from Ingka/IKEA, which basically makes the available or which basically sells out the entire available utility volume for our US factory. This is what we believe is a super important aspect, that until 2029, our facility in the United States is, is, is sold out, in essence.
We have also started sales of our MB Tiles product. It's small scale still, but we have done many installations already, and we are increasing the volume as we speak in the, in the second half of this year. I did start off this presentation explaining the situation in the market and how it is being distorted by unfair practices of China.
Nevertheless, I don't want to leave you with the impression that Meyer Burger is now just putting the destiny of the company into politicians' hands. Definitely, we are not doing this, but we are creative to find new ways of selling the product.
There have been many questions, of course, externally, with investors, analysts, but also, of course, internally, whether or not the three-channel distribution model is the way to go, or if we should better adjust. The answer is, after, after a very deep dive and thorough analysis, that we, that we continue to believe in the three-channel sales approach.
Meyer Burger is selling residential products via distributors, and they are selling it to installers and installers then to the end customer. We have been looking into how can we strengthen our access to the end market. One issue that we are, that we are seeing, or one challenge, is whenever we convince via campaigns about the Meyer Burger product and all the criteria, how does it reach the end customer?
We have already, 2 years ago, implemented a system in our website, a so-called solar calculator, that generates leads, end customer leads, but until so far, we have not really actively been using those, and this is now going to be changed. We have started a pilot in a region where we are very strong in terms of sales, but also in terms of our performance partner loyalty program, so installers which are preferably installing Meyer Burger.
And we will expand it to the Netherlands, also, test it there, and if it's successful, then we will roll it out in all relevant markets, which takes the lead that is generated on Meyer Burger's website and is. Basically, Meyer Burger is controlling that the lead is also being worked out and that the installation is happening via our partners.
We believe that we can leverage the best of the best. We, we are very happy and thankful to our distribution partners because they do a great job in putting packages together for our installers. If a solar system is being planned and calculated on our website, and we do a direct referral to the Performance Partners, we believe that this can be one answer to also strengthen sales.
With this campaign, we can also report that in terms of the digital sales KPIs, we've been more successful with this in the first testings compared to direct sales peers, like companies like Enpal and others. We are focusing on this and have an expectation that we can be successful with this approach or more successful.
A second, a second thing comes perfect perfectly today as an announcement, because just yesterday, the German government has done an amendment to the existing Renewable Energy Act, which supports the installation of so-called balcony solar systems. Very simple to install them without any bureaucracy.
You buy the system, and you plug it into just a household connector, and then you can generate electricity very easily up to 800W. Meyer Burger's modules perfectly fit into it. Other modules do not, because they have different formats. Two modules of Meyer Burger make the balcony a solar system.
Also, the difference between us and competitors is that you might have heard that recently there have been issues with Chinese micro inverters, which were not safe and did not meet CE criteria, and we will come up with a fully made in Germany system and to be launched in September. What's, what's different here to the three-channel approach is that this product, in particular, we will sell direct.
This will be our first experience to be started with direct sales via our website. The webshop is currently being programmed and implemented, and we are also starting pre-ordering of this product soon. In my capacity as not only the CEO of the company, but also the CTO, I'm in particular proud to also report a few achievements on the R&D side.
What you see on that photo is a real product. It's an MB Tiles, our solar roof tile product that includes IBC solar cells, this is not the current technology generation, but what we are planning to implement pretty shortly.
Going through the phases, we have always differentiated between phase I, which is the current technology, phase II, which is the upcoming next generation heterojunction IBC, and phase III, which is more mid- and long-term perovskite tandem, perovskite on heterojunction. For phase I, as I already mentioned, we've been able to increase continuously our efficiencies, both for sales and modules.
We are now bringing another solution to the market, which we call Smart Corner, a patented system that avoids soiling and moss formation, because this can have an impact on lowered energy yield, and we believe this is a small but an interesting feature for solar installations.
Glass-glass platform, we have already communicated recently that we are implementing this as a new standard for Meyer Burger. We will also do an upgrade to so-called M10 wafers. It's a larger wafer format that Meyer Burger is bringing to the market in 2024. This is all ongoing. This is what we call continuous improvement in R&D, primarily done by our engineering team in the cell and module manufacturing.
phase II, again, this is what, what you see on the photo, is our process development for the IBC technology. We've been working on this for a long time, and we have successfully tackled the last bigger issue in R&D, which is an equipment-related challenge that our team mastered quite nicely in the first half-year of 2023.
Now, we are working on the industrialization of this new technology and are very hopeful to implement this as soon as possible. Expectation from today's perspective is that we might see first product of this towards the end of next year/then beginning of 2025. This is where we are putting our efforts into. The technology, to quickly summarize the features, comes with an indium-free approach.
No indium anymore in it, it lowers costs. We will soon have a solution also that is silver-free. Until it's silver-free, it's massively reduced compared to today's usage of silver. We will be able to get into regions of only 20mg per of silver, we are printing before we substitute it completely. Also, something that I mentioned in a previous call is that we are seeing a negligible degradation, very low, that's also super important for lowering the levelized cost of electricity for our customers.
Of course, the product looks even better than the product we are selling today. It's a very aesthetic product because it has no front-side grid, it is compatible with our SmartWire technology, and also patented and a proprietary technology.
It gives us enough headroom to bridge between today's technology and the moment whenever we have the tandem technology, perovskite, on heterojunction available. Also, there I can report ongoing, ongoing work that we successfully do in our new setup with institutes, and we have been able to achieve a solar cell efficiency, not on a, on a small size solar cell, but on a larger wafer format of almost 30%. With this update, I would like to hand over to Markus to walk us through the financials.
Thank you very much, Gunter, and hello, everyone, here from the cell factory here in Thalheim. Good afternoon. Let's have a look here at the key figures which we have achieved in the first half year. When it comes to the profit and loss statement, we see on the left-hand side the net sales.
On the net sales, we were able to to increase net sales from CHF 57 million last year to CHF 97 million this year, so a growth of about 70%. On the module side, we can see we could increase, we could more than double the volume from from CHF 42 million to about CHF 93 million net sales for the first half this year. This was on the net sales side.
If we go to the next key performance indicator with the EBITDA, with the earnings before interest and taxes and depreciation and amortization, there we achieved a negative EBITDA of CHF 43 million in H1. We have heard it before from Gunter Erfurt.
Obviously, Gunter elaborated there already that we really faced a significant negative impact on the business performance in H1 due to price pressure from the Chinese oversupply here, especially here in the European market. If we look a little bit more into details, how this CHF 43 million consists of, we have there two portions. The first portion is the operative business with about CHF 20 million.
where we achieved a negative EBITDA. About CHF 23 million were so-called one-offs. What do these one-offs consist of? On one side, we had there, we heard it before, we had to decrease the prices, therefore, we also had to review our inventory, so we had to adjust our inventory in form of inventory value adjustments.
We also had to provide, due to the stock protection clauses, which we have in place with our major distributors, we had there to provide credit notes. There we had a total stock protection combined with inventory value adjustment of about -CHF 13 million.
The gap to the CHF 23 million one-offs were another CHF 10 million in front, in form of, on one side, a ramp-up costs, where we still had work to finalize the ramp-up of line 1-A and 1-B. We also had front-loaded costs for the third line. They will now, where we are in the ramp-up process right now, and of course, also, front-loaded costs for our phase II. Phase number two are our two additional GW in the US. This explains there, the EBITDA. If we go to the next pillar there, we come to the EBIT.
Between the EBITDA and the EBIT, there from CHF -43 million to CHF -56 million, this CHF 13 million obviously represent appropriate depreciations and amortizations on our property, on our plants, and on our equipment and intangible assets.
There we had about CHF -13 million, compared to about CHF 8 million the year before. If we go to the right-hand side, to the net result, from CHF 56 million EBITDA to CHF 65 million net result, obviously there, that, we have there the financial result, and we have the taxes there. The financial result was minus CHF 8 million, and the minus CHF 8 million consisted obviously of, of interest, which we had to pay on the convertible bond, of about CHF 6.6 million.
We also, there was also an amount, interest, which we had to pay for the credit facility in the amount of about CHF 2.5 million, plus other financial expenses, in the amount of about CHF 1.4 million for federal and state guarantees for the syndicated loan facility, plus some foreign exchange effects of about -CHF 0.6 million. Also in the financial result, we can also report that we had a positive interest on the cash and equivalents of about close to CHF 3 million Swiss francs, where we achieved an interest income.
Again, after the financial result and the taxes, in form of deferred taxes, we ended up on the right-hand side at a net result of -65 million Swiss francs for the first half year. These were the key figures for the P&L.
Now let's, let's have a look on some additional key metrics after the first half year. If we start on the left-hand side, with our full-time equivalents, our employees there, we had an increase of about 200 FTEs, from about 1,034 to 1,234. Mainly there, we could hire new colleagues in the operations, mainly in the operations, and in R&D, a little bit in facility, of course, also in sales and quality, and some miscellaneous positions. This explains the increase of about 200 FTEs.
If we come to the next key metric, to the cash and the cash equivalents, we started out the year at CHF 294 million of cash, and we ended up at CHF 371 million. Obviously, for those of you who have already looked at the cash flow statement, on the cash flow from operating activities, we were minus with about CHF 35 million.
We continued to invest with our expansion. We had investment activities of about minus CHF 84 million. Last but not least, we could, thanks to the issuance of the convertible bond of EUR 216 million back in May, we could increase the cash flow from financing activities to about CHF 198 million.
This gave us overall an increase in cash and cash equivalents in the first half year of about CHF 78 million. In the middle, we see there the inventories. On the inventory side, due to the additional ramp up of additional lines, on one side, we increased there the inventories for our cell and module production.
Also, of course, due to the market situation, we also had to increase our finished goods in stocks. This explains the addition of a total from CHF 190 million to CHF 146 million, in the form of overall CHF 27 million inventory increase in the first half year.
On the right-hand side, with the property, plant, and equipment, due to the additional investments, obviously, that KPI has further increased from 29% to 32%, or we increased there, overall, our property, our plants and equipment, net, by a net amount of about CHF 73 million. Last but not least, on the right-hand side, we see the equity ratio and the equity.
Overall, the equity ratio was at about 46% or at CHF 411 million. Again, obviously influenced due to the net result, the negative net result, which we achieved in the first half-year. We also had there a little bit of an increase due to the equity portion, which we have realized with the convertible bond issuance back in May.
In a nutshell, these were the key metrics for the first half year. Thank you.
Thank you very much, Markus. That brings me to the, the last section of the presentation, which is the outlook. What you see on the photo is not only a nice landscape with, with nice mountains, but it's our solar cell facility in Colorado Springs, that we will equip next year already with equipment, then provide the solar cells directly from this factory to our factory in Goodyear, Arizona.
Even though we are currently facing challenges in the European market because of the non-regulations here, that so far, there have been no actions, no tangible actions taken to be very fair, because some elements have been implemented already.
We have a strong focus on the growth in the United States, because we have favorable and fair market conditions in the US, which we also believe will be sustained for the coming years, and that gives us a good motivation to move into this market faster than we had originally anticipated. I would like to walk you through the the decision-making also in regards to what might happen in Europe, and how European policymaking can support the European solar industry.
As I said, the U.S. have done everything that is required to grow a substantial, or to reshore a substantial, solar industry by providing the financial incentives via the IRA, plus also some, some other measures which we had reported when we, when we communicated the decision on the Colorado Springs facility with an industry electricity tariff and and and other helpful support. Moreover, the United States have put measures in place to protect the inner market, and already since many, many years. We also expect that these measures might be even more strengthened.
What we've seen and what has propelled our decision to build the solar cell factory is the decision of the Internal Revenue Service, IRS, United States Department of the Treasury on the ITC adder for locally produced solar cells included in the product that gives our customers even another benefit when they are using a locally made product.
We believe that these measures in the U.S. will be sustained and, as I said, even more strengthened. We strongly believe that the U.S. market gives us gives us the ability to grow with our potential contribution of being a technology leader that is able to bring solar cell manufacturing to the U.S., because we believe that's a pretty unique position.
The majority of investments in the U.S. that were announced are only dealing with the module, and would still rely on imported solar cells from China, and this is what makes Meyer Burger different comparing our competitors. Europe, as I said, to be very fair, it's not that nothing has happened. That would be a entirely false statement, but it requires more ambition.
What has been done by the European Commission is that they have adjusted the so-called Temporary Crisis and Transition Framework, which is an instrument that was put in place during the COVID pandemic. The TCTF, that's the appropriation, allows a so-called matching aid to be used by member state governments to match up with an investment project elsewhere.
Of course, what is, is meant here is, in, in particular, the United States. We are hopeful and optimistic that, in particular, the German government will provide solutions here. I come to that in a second, what it exactly would mean. Nevertheless, what is still required and still an, an open item for the European Union and Commission and the Parliament, and then, of course, the member states to put in place, is market protections.
It is already anticipated via the proposed Net-Zero Industry Act , which exactly does support the target of the European Commission to produce 40% of the infrastructure and clean tech that is expected to be installed until 2030 or by 2030, to also be produced in Europe.
The Net-Zero Industry Act is proposed to provide the market protection via several instruments, including a segmentation of the market into a European-made market and the other one. The European products may receive different tender criteria, for instance, for utility projects, but also for residential.
There are plans to endorse and support the renaissance of the European solar industry. In essence, what I want you to take away from, from this information is that Meyer Burger has all these options, and we believe Europe has not. Europe has to, has to get to act together in order to support that critical industry.
If the European Union would not do it, then we have the US option. We are strongly believing that Europe is gonna do or is gonna provide the support. As, as soon as we have also a fair level playing field in Europe, Meyer Burger will definitely continue the expansions here. Until then, we are pausing it. A little bit more details on the European Union.
As I said, we, we strongly believe that the EU will finally tackle its ambitious targets by bringing tangible solutions to the entire industry, of course, not only to Meyer Burger. The Net Zero Industry Act, I already spoke about.
As soon as we see endorsement of, or rewards for resilience criteria for human rights, Xinjiang, forced labor, low carbon footprints, we've been recently doing another analysis via a third party, showing that Meyer Burger products have only 50% of the carbon footprint of Chinese products. As soon as all of this is given a value, we believe that the European industry can grow very strongly.
In order to be well prepared, we have already communicated that Meyer Burger was awarded or selected with this project by the European Commission within the Innovation Fund, and we are eligible to receive up to EUR 200 million for a project that is supposed to bring another 3.5 gigawatt of integrated solar cell and module manufacturing to Europe, primarily, primarily to, to Germany, but also we have to include also a second European country.
In addition, we have 2 days back, in due time, submitted another project proposal within the so-called expression of interest tender of the German government for a 5 gigawatt integrated project, with a lot of support also from downstream providers of polysilicon, for instance, but also from European wafer makers, from European glass makers.
According to the timeline that was communicated to us, a selection of these projects will be done within the next weeks, potentially already in September. Then we would have resolved the funding part, because the intent is to match up with other regions on the planet for the support.
On the market protection measures, which we believe are absolutely required to support the renaissance of the industry in Europe. The German Solar Association, Bundesverband Solarwirtschaft, has submitted a response to the amendment of the Renewable Energy Sources Act in Germany that includes so-called resilience bonuses.
This law is now in the in the in the processing and to be passed, if things go fast and well, in September, maybe in October, by the German Parliament, and could come into force as early as January 1st in 2024. That's something that we are very happy about, that now also the industry associations are supporting this. At the European level, there's also a lot of support for this, as this problem does not only affect Meyer Burger, it affects the entire European industry in solar.
I think that we have already achieved that politicians are alerted and also have an understanding about the situation and that they need to respond to it, that it is a political game that's being played here, and it doesn't work without support from industry policymakers.
That's about options in Europe. As I said, we are pausing this, and we are also reserving the option to adjusting our initiatives in Europe even further if nothing is happening, and focus very strongly on the US. The building we were able to secure was very much thought over, I would say, in the, in the process of convincing the owner of many other competitors in solar have been trying to get access to it, because we believe it's among the very, very few in the entire United States that would work or does work as a brownfield building for a super fast implementation of a solar cell facility.
It gives us the ability to shorten time to market and almost achieve a similar timeline compared to what we had initially planned with the same project to be installed in Germany, next door to where Markus and I are currently sitting in Thalheim. We will move all the equipment, which is in the making, to Colorado Springs, including also facility utility systems, in order to be very fast.
We get a lot of support from, from the local city government, not only financially, but also in terms of the permitting that goes fast and is being fast-tracked also. We strongly believe that in the Q4 of 2024, we can start manufacturing in Colorado Springs of solar cells.
The module factory is already, as I mentioned, starting production around mid-year 2024, and until Colorado Springs is up and running, we will ship solar cells for a limited period from our facility in Europe. Important now for the business case to explain that a bit more in detail. We are absolutely convinced that this is one of the main, the main elements of interest to you.
What we should take into consideration when talking about the US is, first of all, as I mentioned already, that Meyer Burger has gained, in the meantime, so much experience in setting up manufacturing, that we believe that the remaining execution risk is manageable.
We've been also successfully hiring personnel for the Colorado Springs facility in such a short period since the announcement, and are also convinced that we can do a very successful and fast staffing with professionals, with the right project structure and organization that we need.
On the business side, the firm guaranteed multi-gigawatt offtake agreements that we were able to sign, of accumulated 5.4 gigawatt until 2029, are, if we will, the backbone of the business. Because we are not building a factory and then try to sell it, it is already sold off and sold out. The IRA incentive for the cell comes on top of it. This is 4 cent per watt peak, a total of, if I'm not mistaken, $75 million per annum.
The $75 million remains fully with Meyer Burger. We are not sharing it with the customers, as we do, partly according to the contracts, for the module incentive. Important also to mention for, to give all the details, this is only applicable to the offtake agreements in utility.
Any product that we are selling into residential, the IRA incentive for the module is planned to remain with Meyer Burger. Also important for, for, for you to understand is in the business case, in the business planning for the U.S. business, you can assume, first of all, the offtake with the following elements to be firmly agreed upon. The wafer price risk, which we've seen, can be volatile. The wafer prices is fully borne by our customers. It's a pass-through item.
It does not affect our own P&L. It's not related, again, to a Chinese polysilicon database. It is related to the Meyer Burger price that we buy wafers for, and we do open book, present it to our offtake partners, and then do adjustments accordingly on a quarterly basis.
That's what the contract says. The sales price, i.e., conversion price plus a margin, including, of course, all other cost elements, is fixed. Excuse me, the sales price is fixed, but the cost structure behind that we have plugged in is taken from our proven Germany facilities. This is not an artificial number that we, that we believe we can meet. It is what we already see that we can meet. This was plugged into our business models for the US business.
With all of this, on a, on a, on a holding level, including also functional costs for the US, so R&D, sales, marketing, G&A, we expect for this business, EBITDA margins of more than 25% upon the completion of the ramp-up. Of course, also, we can assume positive EBITDA margins before that, but the reference here is the completion.
On that basis, of the basis of this bright outlook, with reduced risk on the contractual side, with reduced risk on the execution side, we are currently focusing heavily on signing further offtake agreements in the coming months, and we remain optimistic that we will be able to sign more contracts within this year. That may contain even residential projects, not only the utility.
We believe we could even have the ability to increase the volume and go for another factory in the US. The site selection process has already started, and our long list of potential sites has already started filling, with a lot of support from the government in the United States. We are, we are very happy and thankful to our partners in the US that they are helping us with growing our business. With this, I'm coming to the end, and would like to give to the operator for helping us with the Q&A. Thank you.
Thank you very much. Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one. If you wish to remove yourself from the question queue, you may press star followed by two. Anyone who has a question may press star followed by one at this time. Our first question today is from Sebastian Groh, from BNP. Please go ahead with your question.
Good afternoon. Thanks for taking my questions. I would like to start in, in Europe and the political situation, so that there is a strong need for action. I think that has become very much apparent. You made the earlier comment that you would expect tangible support in the coming weeks. You also said that there might be the resilience bonus as early as 1 January.
My question is: How would this very, very framework look like? i.e., is this local content to be ring-fenced? If so, what is the volume behind it, and how should we think of the various segments? What is the support level for residential as opposed to C&I or utility? The second part of the question, I would just like to better understand, how this respective support mechanism can work.
If I look at your undistorted EBITDA of the CHF 20 million loss in the first half of the year, then the implied production costs would come to around higher 30s on a, what, peak basis, sense that is. How much cover can be really expected, is sort of the US IRA, the 4 + 7 framework for cells and panel, the right proxy, or how should we think about that? If we could start there, please.
Thank you, Sebastian, for the questions. I would like to start with the second, maybe also on the capex, that you, that you have, derived from the data we provided. What we, what we have to bear in mind, that the first half year was still impacted by a very high wafer costs.
Even though Chinese poly suppliers did drop prices from one day to the other by more than 50% in December of last year, before Christmas, wafer prices have started declining already, only from May 2023. This was not an immediate effect that we could benefit from. The lower priced wafers are now coming in, and that also will help us further reducing our manufacturing costs.
The interesting thing is that with the new wafer prices, we are able, even at a small scale, compared to the Chinese rivals of, you know, a little bit above 1 gigawatt in nameplate installed, or 1.4 gigawatt, we are quite substantially able to lower our manufacturing costs also on that basis. That's one thing. On the political support, as I said, you know, unfortunately, it's not yet in place. I can only give you, you know, part of the knowledge we have.
Some stuff is also still in the making and, and hence confidential, but what's being discussed at the European level, but also in Germany, is that the only approach that makes sense, or one, one approach that could make most sense, let's put it this way, would be a segmentation of the market. That the European Union, both, also the member state, regulations, would segment the market into a European-made market and ring-fence it in some way, and do public tenders on it that would receive the resilience bonus according to the level of resilience achieved.
You know, a, a company that's only assembling modules in Europe, with Chinese components would receive less compared to Meyer Burger using Wacker silicon, cells made here, modules made here, equipment made here, and so on and so forth.
The, the volume anticipated in that ring-fenced European segment is according to what the European Commission has communicated also in the NZIA proposal, matching, if we will, the amount of production that is, that is part of the strategy of the renaissance. I.e., if, if I'm just making the example and picking a number. If we would say 10% of Europe's volume by 2024 has to be supplied from the European Union, then the market segment that would receive the resilience bonus is 10%. That's, that's how they would like to match up.
We are very optimistic that Germany might start first, because that would be, you know, a proactive approach already before the implementation of the Net-Zero Industry Act. That's, that's the answer that I can give. When negotiating between all the shareholders, I mean, low, super low, and regardless of how they are made cheap, module prices, of course, there are also parties, or stakeholders in the European solar business that really welcome this because it lowers their investment cost.
That's clear. In order to negotiate between all these stakeholders, of course, it would be an unwise approach to kill the market entirely and only focus on European products. That's why we, we believe that this segmentation of the market makes a lot of sense.
Comparing this with the U.S. activities, they had to correct a lot when they initially closed the market via the anti, so-called, mentioned duties in the U.S., then this had, this had to be exempted because it halted the entire business, because we need to have some time to grow the industry before we can close markets, if needed.
That's why the European approach seems to be smart. Maybe a last statement that also makes us very optimistic. Meyer Burger, as you know, has been the locomotive and the front runner in the last two years to alert politicians to make sure that it's being understood that the solar module is not a commodity anymore.
It is energy infrastructure that the regions have to take care of, and the U.S. is the best example of a government that has fully understood it and put the actions in place. By the way, also China is, because they do the same in their country as well. We've been walking to a large extent alone, and now we have a lot of support via the associations.
The associations, they represent the entire European industry, and as this issue that I elaborated on, is not at all affecting only Meyer Burger, but everyone producing modules in Europe, we believe, there's way more firepower now on the policy making.
That sounds encouraging. I'm not entirely sure if I get the relative backing, what the resilience bonus can really mean in money terms. I hear you on the, the wafer cost rollover, which should help you probably to take the production cost rather to CHF 0.30, pretty much on spot. That's at least what I would calculate, level. How would that then compare to a sales price that is eventually, whatever, then, CHF 0.35, to pick a random number?
Maybe, maybe first of all, again, the segmentation of the market, which is, which is in the discussion, would make sure that the segments would not interfere. There would be no Chinese product in a pure European tender. That would not happen. We have, we have, we have a pure European tender that's being supported, that does not necessarily compete with a Chinese tender. That's super important. On the money side, these numbers are not yet clear. If they would be clear, then we would have already the solution.
To give you a bit of the mechanics that could happen is, if we assume levelized cost of electricity to be the important metric also for developers, then we would say, the difference in a fully subsidized, artificially lower Chinese module price and the fairly produced price for European product, including a nice margin to manage R&D and also make shareholders happy, does result in an increase in levelized cost of electricity of maybe between EUR 0.005 and EUR 0.01 per kilowatt hour.
Exactly this amount is being provided to the developer in order to buy a more expensive product. That's one approach in the utility sector that's being discussed, just to give you an example. It's not that we would necessarily receive, similarly to the United States, a direct support for, for Meyer Burger, but it would enable the market to pay a bit more for European products in order to grow the industry.
This is, this is one aspect that's being discussed. At the European level, that has been communicated also, and we've, we've discussed this in the, I think in the full year webcast or the call in, in March. The European Union is proposing the Commission that tenders, tender proposals are evaluated in a different way than they are today, where only price matters. They would put in, like, a weighted approach of, let's say, 70% price and 30% resilience.
With the resilience bonus, the more you produce in Europe or use Wacker silicon and cells here in module, the more credits you get on the resilience part, then you win the tender. The delta in LCOE, again, is paid via a state aid support from the respective member state.
Okay, that's really, really helpful. Just a very, very simple yes, no question then. In case Europe would not move fast, Germany would not move fast, I hear you that you would at least expect the European business to kind of stop the bleeding, to turn to sort of a break even with, like, plus X, whatever then the X is, if anything like this would not come together. Did I hear you correctly when you were saying that you might rethink your setup in Europe, in interpreting this in a way that you might further shift production to the US?
I give you more than a yes or no. The answer is, we will definitely, as a management, not watch, you know, bad things happening because of failed politics, then we will take actions.
That's crystal clear. Then lastly, finishing off with the U.S. You mentioned the EBITDA margin goal of the minimum 25%. Can you just walk us through the related assumptions? I heard your comment around improving production costs in Germany, I think that's what we now have, have discussed at length, what that could mean.
I would be interested in also in hearing on if there is already then an IRA impact in there, which I would interpret as a higher single digit U.S. dollar cents on our peak business number. What is also, I think, equally important to understand is simply to what extent the ramp-up costs that you singled out at $10 million, roughly for the first half of the year, how much will this budget might be going into 2024?
Markus, please.
Thank you. Thank you, Sebastian, for the question. From a modeling perspective, Sebastian, obviously from, on the cost side, we know what we are doing, we can take there the cost structure, which we have applied so far.
We will also apply on the ramp-up cost side. We have factored that in also accordingly. Then, obviously, we have the upsides, which we have calculated in. Gunter has elaborated before on the CHF 0.04 for the cells, which are, which will be fully allocated to our pocket. On the module side, obviously, we have heard that also now numerous times, there is some kind of a split where this will go into both pockets.
One side into our pocket, but also into the pocket of our offtake partners. Maybe last but not least, what we are now also really, where we do a deep dive, is also if we can also fulfill the requirements when it comes to the apprenticeship program, where we obviously would get an additional benefit, which would also fully be allocated into our pocket. This is in a nutshell, how we have calculated the model for the U.S., and that's why we are also convinced, as of 2026, that we can achieve these EBITDA numbers of higher, north of 25%.
I would even say with completion of the ramp-up, and that might already kick in in 2025.
It is.
It is in the, in the, in the EBITDA projection, the IRA is included. That was, that was the other question, and also ramp-up costs anticipated. I mean, on the ramp-up cost side, as Markus has also explained, it's, if we, if we take the CHF 23 million one-offs, CHF 13 million we had communicated is the impairment and stock protection, and CHF 10 million is front-loaded and ramp up. We have now the numbers, we have the experience, and that, of course, is part of the, of the model, and of the business plan for the US.
Sorry, this is a really very quick one, but you are now ramping up one line, and you are going to ramp up much, much more, obviously, in the US. Can we kind of take this as a linear distribution? If I have a CHF 10 million ramp-up cost in H1 for what is just one production line in Germany, that this would then be taken times three, times two half years, and then we are rather talking a CHF 50 million-ish number? How should we think of that? I think that's a really, really important question that needs to be discussed.
Well, overall, it, it goes in, into direct, this direction, Sebastian. Yes, we, we can, we can confirm this overall for our assumption for 1 gigawatt. Overall, we, we factor in about CHF 30 million of ramp-up costs.
Hmm. Perfect. Thanks for the clarity, and speak tomorrow, Gunther, at least.
The next question comes from Constantin Hesse from Jefferies. Please go ahead with your question.
Thank you very much for taking my questions. I want to focus a little bit on the U.S. first. Hearing Sebastian already asked some questions on the cost side. From my side, I want to understand a little bit better if you could provide a bit more color on how conversations are currently ongoing with offtakers. At what level these conversations are?
Y ou said you're optimistic. Does that mean, you know, are you actually having some final conversations with some customers? What are the chances here that we might see, you know, a contract being really signed, towards the end of the year? Maybe just a quick word on the obvious, I guess, bottlenecks and execution risks that still exist for, for the U.S.
Thank you, Constantin, for the questions. I start with, with answering the first. The discussions, multiple discussions, I would say, are ongoing. Some might be closed pretty quickly, others might take a little longer. What has happened, in essence, is that with the, first, with the decision of the IRS to include the cell requirement into the additional 10% ITC tax adder, this has helped the discussions quite remarkably, of course. The segments we are discussing is utility and residential. Depending on what segment we speak about, one might come quicker than the other.
Also, in terms of how we are focusing, as you know, we have the total of, you know, about 65%-70% of the line being utility, and the rest is the other third, or 30% is residential, and we have a focus also on selling off the residential volume. What we have to take into account also, if it goes beyond the current capacity, we have to build another factory, and that takes, of course, a bit more time. You know, I don't give you or can't give you a straight answer when we are closing the deals. That would be a bit too much of information, but we are in pretty advanced discussions here.
Also that makes us, or has made us starting the site selection process quite early in order to respond quickly once we have signed more agreements. The window of opportunity in the US, I shouldn't say is closing, but that now is the time. Now is the time to sign these deals and make sure that we have another good projection into the future.
Can I just ask what's holding, is there anything holding back the conversations, Gunter? Is it the building that you aren't finding? Is it more of a price discussion?
No, no, no. The, the, the, the building, the building, I would say, is, is not a problem. It's just negotiations. I mean, good negotiations take time. Don't do it in a rush, but we do it very thoroughly and focused. I believe there are, there are a lot of trade shows coming up, and for us to meet customers, and we will push that as, as, as quickly as possible, and ideally, you know, signing additional deals within this year.
Understood.
On the.
Remain.
On the execution risk, so I, I spoke about the technical risks and, and, you know, now retrospectively looking into the last two years of Meyer Burger gaining operational excellence experience, before you haven't done it, you, you don't know certain things. Now we have, we have gone through quite a, quite a learning, in, in some areas, even a painful learning.
This is all well documented, and we have also a strong push from our board of directors to enable a copy-exact approach as a management, and that's what we are doing, not only technically speaking, but also in terms of, you know, the organizational structures. This is what we are trying now to, to implement.
I would say the remaining execution risk in the U.S., also with my experience from having built factories in the U.S. already, is finding the right personnel and to also train up the personnel. Luckily enough, we have a lot of experience also in the management.
Markus has lived 8 years in the U.S. and done it, brings a great network of people that we have already hired in our HR organization. An interesting part is also what I don't know if this was fully understood, but Markus just mentioned that as part of the IRA even, there is there's a program that makes companies eligible to receive even more support if you educate people.
We are now doing a combination of, you know, using this IRA option support, additional support option, and doing the right thing for to train up our personnel. You know, if we manage this good enough, then I strongly believe, we can be very successful in the US. Buildings is, I would say, not a big deal. The country is big, sites are available.
Support is absolutely great and happening at a speed that we do not see in Europe, to be very honest. Meyer Burger has been able to schedule meetings even at the White House level within a couple of days, and meetings at the governor levels. Whenever we have a problem, I can call the mayor of Colorado Springs, and they help us.
It's, it's a strong support from, from the government, and they really want it, and they, they want it in a sustained fashion. That's why I'm saying, it's, all eyes on the US in MB for the time being. Then we, we are on standby, but whatever happens in Europe, and we'll definitely also, remain available and, stand ready to also continue growing here.
That's great. Thanks. Just a quick one on cash and CapEx. In Germany today, I'm assuming the ramp-up is done. The CHF 80 million you spent in the first half CapEx, my question is, I guess, is there any CapEx remaining in Germany, or is all the CapEx starting in the second half now all primarily for the US?
Taking all these assumptions under consideration, the fact that you expect prices to remain stable, you know, the tailwind, the cost tailwind, you're seeing all the CapEx that you're going to spend. Maybe, Markus, if you could also share a word on this. You know, how, how are you sleeping at night regarding your cash position?
Yes, thank you for the question, Consti. On, well, the obviously, the key question, which everyone once in a while is wondering whether we still have enough cash and funds to finalize the phase number 1 here in Germany, with a nameplate capacity of 1.4 gigawatt, and also, obviously, phase number 2 in the US, with the nameplate capacity of 2 gigawatt.
We can really answer this very strongly and very firmly with a firm yes, that we have after we, we always do, of course, liquidity plans, but we really apply a very conservative liquidity approach. Maybe to underline that, first of all, we, we can, we, we can start, we have seen that before, we start with a cash balance by end of June.
We started out with CHF 370 million. Secondly, now to your question, Consti, we overall, we still foresee total investments of about CHF 550 million to finalize phase number one here in Germany. Of course, that's just a small portion of that total amount, and obviously, the phase number two in the US, with the cell and the manufacturing plant in Goodyear, Arizona and in Colorado Springs.
These significant investments of about CHF 550 million, there we will finance these investments on one side with significant down payments, again, from the three offtake partners, especially since now with the local content regulation and also our our capability to also produce the cell.
We, we found there a very close collaboration and a very strong support that we get there, appropriate down payments from the 3 off-takers. Last but not least, Gunter has elaborated before, we have really a very strong connection also there to the local authorities, to the local government, where we will also heavily rely on a loan from the Department of Energy. There, we have already started out with the application process with the Department of Energy. We also work very closely with a, a consultant there to really also bring it there over the finish line. We expect overall a period of about 9 months to go through that application process.
We started immediately, and we are hopeful after all the conversations we also had at the White House, that we get there the appropriate support which we need. One thing also, Constantin, which we can confirm here is also, we talked the last time also in the conversation back in March, we also talked about the monetization of the 45X manufacturing credits. We conducted a very conservative liquidity plan, and this one we still can use as a choker in our pocket. We have not factored that in into our liquidity plan.
In a nutshell, to your question, from a management point of view, Consti, we, we still, we see is there that we don't see any significant uncertainties that will question our ability to continue as a going concern. We can also here confirm now after a very thorough deep dive by Meyer Burger's auditor, by PricewaterhouseCoopers, that they also confirmed our going concern accordingly. Again, to your point, is there a risk? Of course, there are always risks in life.
Again, we rely on a really conservative liquidity plan, and we are very, again, we are convinced that we have enough liquidity to realize this key phase number 2, with the additional 2 gigawatts also in the US. That's what we can report to this.
That's great. Thank you, Markus. Maybe one last one very quickly, just on this opportunity of the balcony solar system, Gunter. I think this is actually quite interesting because it might slightly overcome the entire inventory situation in, in Europe. Is there, is there anything, material that we could expect here from Q4?
It's probably a bit too early, but what I wanted to show with these two examples is that Meyer Burger is not sitting here, and as I said, putting the company's destiny in the German government's lap or hands, but we are very actively, as entrepreneurs, looking into other options to sell our product. We have other projects in the works, also larger ones that we are hopeful to be awarded in this, in the second half of the year. you know, these are two examples only. The message I want to send is, you know, we are not waiting for anyone.
We are, we are, we are doing our job as best as we can to deal with the current situation and sell our product, and not at price, but at value.
Understood. Thank you.
The next question comes from Laura Bucher, from Octavian AG. Please go ahead with your question.
Hi, good afternoon. Thank you for taking my questions. Also a couple of questions from my side. First, can you give us an idea of what was your ASP in the US and how it developed in H1? Also regarding this inventory protection clause with the distributors, you mentioned that it's for a limited period of time. How long is that? Have you booked everything in H1, or is there more to come in H2? Then I'll take the questions one by one after that.
The, the ASP split by region, we, we are not providing, but what I can say is that the US price levels in general are a bit higher than in Europe. We see the same trend than in Europe, but not by far and not to that extent. Because of also the lower input costs. The, the, the, the cheaper wafers get, of course, also the cheaper modules on, on average, become, but an exact split, Meyer Burger was not providing. The second question, I lost it.
On the inventory protection.
On the inventory protection. What we mean by limited stock protection. Stock protections, by the way, is something very, very regular, at least, if you have a trusted partner that deals with you or sells you the modules. What we mean by limited, it is only retrospectively applicable for a period of two months.
A company that has inventory, or a distributor that has inventory from Meyer Burger, for instance, that was shipped in March, cannot use stock protection. If it's, you know, from August perspective, until exactly two months ago, they can use it. That's meant by limited. Two.
Okay.
Whenever you have, let's say you have sold a module at $0.50, and they still have, 1,000 modules in the warehouse, then you give them, the, the 1,000 modules, times the, the wattage, times, the price gap for the next price adjustment. That's how it works.
Mm-hmm. Okay. How much will it cost you to ship all of the cell equipment to the US and also to adapt the Colorado facility? How much you're gonna pay already this year?
I did expect this one. You know, we can just guess, and we have looked into it. Or it's related to the-- It's related to the phase, phase 2 equipment. For this one, we know it exactly. I was, I was having something else in mind, what it would cost if we would ship the installed systems to the US. Markus, please.
Yeah, all what we can see-
You can give me that number as well.
Again, Laura, thank you for the question. That one, we have factored in accordingly into our conservative liquidity plan, but please understand that we cannot provide here now the detailed number, but we can here confirm that we have factored in a conservative number for the transfer of the machines here from Europe to the U.S.
Okay. Just 2 more questions from my side. You mentioned that you can adjust your manufacturing to the market conditions. I mean, how much of your cost base would you say is flexible? I mean, how would that really look?
What we, what we have initiated immediately when we, when we saw that, you know, there would be, there would be some challenges ahead of us, in coming, coming in or kicking in the Q2, we have immediately started a cost down project also in the functional cost side, which Markus and team are managing and pushing through.
We, we are on that fixed cost, if we will, functional costs, we are, we are working to also limit them or lower them for, for the year with quite a substantial target that we have in mind, without harming Meyer Burger's ability to execute on all projects that we have communicated. On the, on the, on the variable cost side, it depends a bit on what the measure would be that we are taking.
Of course, if you're not producing, you're not, you're not consuming, the level of electricity and chemicals and all of it. So this, this can be adjusted, but detailed figures, the breakdown we cannot provide at this point of time, because it depends on what we are, what we are finally doing.
Okay. Now just a final one, just to make sure I understood correctly. This matching aid from the, the European legislation, it does not mean that you can get the same amount of nominal subsidies as you, as you're eligible in the U.S. Is that what you're saying?
That's correct. What it, what it, what it, what it does is it-- the TCTF focuses on CapEx only. If we, if we, to give, to give you one example, the, a project for, you know, 5 gigawatts, in, in, to be executed in Germany, just to pick these numbers, it would make us eligible, if we would do the same in the US for, you know, close to $2 billion in, in support from, from, from the IRA, assuming that the project would be installed sometime in 2025, maybe 2026.
If we now use the matching aid for the CapEx support, it would, of course, mean that because the CapEx is lower than the $2 billion we would receive in the US, we would receive 100% payment of our CapEx. That's what it says.
The, let's say, the gap between U.S. support and European support would be managed via the NCIA measures. Indirectly, though, because the higher tender prices would be received by the distributors, but they would then be able to afford a slightly higher module price compared to the Chinese. That's how it would work. CapEx for Europe, if the TCTF clause kicks in, we would not have to assume any funds for the CapEx of these expansions, which is great.
Okay. And regarding the Integrated projects, if it does not come with any market protection clauses, you will not proceed with the projects regardless of the subsidies?
Correct. Of course.
Okay. Thank you.
Of course not.
Thank you very much.
Thank you very much.
Thank you, Laura.
Thank you all for your participation. I hand back to Gunter Erfurt for closing comments.
We, we hope that we could provide you as much insight as needed to understand the business in general, the markets, and of course, in particular, Meyer Burger's. I can only say I'm doing photovoltaics my entire professional life long, 2 decades now, and I, I often see that it's perceived a very simple industry and very simple technology and whatsoever.
I can guarantee you, it's more exciting than any thriller, what's going on here. It's also super complex with all the different industry policies and also We can even call it a war that has been declared on that business by China in order to make sure, from their perspective, that other, other regions do not grow their own industry.
We can only use the U.S. as this great example. The U.S. has implemented a pretty much ideal setup now that gives us exactly the environment that we need. This is basically the blueprint also for what has to happen in Europe.
The good thing also for us pushing this through and alerting and raising our voices is that the issues we have communicated today on the market side do affect the entire European solar industry. This is not specific to Meyer Burger, not at all. That it's not a good situation, to be honest, but we believe the pressure is so much increasing that finally European leaders on the political front do finally also take the right decisions.
If not, we have the US as our option, and we'll make Meyer Burger successful. Thank you very much for, for the attention and for, for patiently listening in, and also very much appreciated the questions asked by the, by the, by the analysts. Thank you so much.