Meyer Burger Technology AG (MBTN) Earnings Call Transcript & Summary

Dear investors, dear analysts, dear media representatives, ladies and gentlemen. Welcome to Meyer Burger's Annual Media Conference for the fiscal year 2022. My name is Gunter Erfurt. I'm the CEO of the company. And with me today are my esteemed management colleagues, Markus Nikles, Chief Financial Officer; and Moritz Borgmann, Chief Commercial Officer. I would like to start off with business revenue about a few selected topics. We continue with the presentation of the financial figures. I will explain the situation in sales and marketing and provide you also with an outlook. I would like to start giving you an update on the global solar industry, where we are standing. Solar energy has been crowned the new king of electrical energy generation, already 2 years ago by the International Energy Agency for the reason that solar energy is easy, deployable, easily deployable, it is very affordable and can help tremendously to decarbonize our energy generation, of course, also the consumption. This is a trend that has been understood by 1 country, in particular, that is China, already 15 years ago. And industry policies have been put in place in order to help the industry grow into the size that we are seeing today. This has resulted in a situation where solar energy production, the infrastructure for these solar modules, solar cells, wafers and polysilicon is almost entirely located today in China with levels exceeding up to 98% in the case of wafer production. And Meyer Burger has 3 years ago, made a very bold decision and a brave decision to change a business model that we did for more than 20 years in solar energy, developing technology, building equipment and providing the industry with state-of-the-art and leading production technology, which has to a large extent, enabled that growth also in the industry. And yes, many of our customers in the past have been in China. We have decided 2 years ago that we will stop this but we will use the results of our ongoing R&D efforts for own production because of also brave investors and convinced investors, we were able to secure the funding for our initial growth. We implemented first gigawatt capacities in our cell and module line and are now tackling the next milestones. We could do this because of a technology leadership situation. And also because of our combined business model where we integrate leading R&D development into developing and building our manufacturing equipment that is captively used in our own manufacturing. We believe that Meyer Burger is perfectly positioned to benefit from the currently established new geopolitical reality, which means that what has been understood in China already more than 10 years ago is now growingly being understood also in other regions of the world. For instance, in the United States but also in Europe. It is understood that solar energy is a matter of national security, of energy sovereignty and that the nations of the world have to set new regulations in place in order to make sure that at least to a critical amount, this important infrastructure for the future is being produced in the respective regions. And we believe Meyer Burger is perfectly set up to benefit from that growth and to helping to regain some sovereignty also when it comes to the production of solar modules and solar cells. Back to Meyer Burger. We are still a small player in the field but we have shown a tremendous growth from small numbers to slightly bigger numbers, and we are on our way to grow to more gigawatt volumes in the near future. If we look into 2022, we have achieved the lower limit of the production guidance we had provided. We had a communication published to reach minimum 320 megawatts. We achieved this in a very challenging time because as much as the supply chains for direct materials, i.e., wafers, glass, frames and other components we need for the manufacturing of our products are stable. We see still some instabilities in the supply chains for industrial electronics, for instance, that hit us hard last year and we also had to correct our production guidance for this year, also primarily due to this reason. We are hoping and doing our utmost to improve the situation and we are in very intensive talks with our suppliers. And we are hopeful that we can resolve these issues in our future expansion projects. So we have -- but we've achieved the lower limit of our production guidance. And for this year, we are strongly convinced and optimistic that we can reach the 800 -- approximately 800 megawatt of production volume in our factories. As of today, we have produced about 120 megawatt already and I can also report that the ongoing expansion for the solar cell 1.4 gigawatt, which ends our Phase 1 expansion is well on track. And what's lagging behind due to the reasons I mentioned already is the module factory only. But with the data we have available from our suppliers as of today, we are optimistic that we can keep the 800-megawatt production target for this year. And we have Phase 2 expansion kicked off already. Equipments were ordered and closely tracked by our project management team in order to reach the approximately 3 gigawatts capacity towards the end of next year. And with the information we could provide to you today, with the additional 2 offtake agreements in the U.S., we have immediately kicked off the project that we call Phase 2+, which provides us another 400 megawatts of capacity, both for sale and module. Many questions are being asked and there's a lot of curiosity of course, with regards to Meyer Burger's profitability. And what we would like to present to you is an indication for where we stand in our COGS for the module production. And we show a comparison of the just closed months of February 2023 and where we, where we have set the target to reach for December 2023. And we show a split here for direct materials for the cell and module production, i.e., the most dominant part in it is, of course, the wafer because polysilicon is by far the most expensive material used in solar energy or solar module production supply chain and also direct labor and other OpEx, including ramp-up costs and also depreciation. And what we can clearly say is that it is super important that we achieve a fully loaded manufacturing as this brings us onto the path of sustained profitability also for the year 2023. The February costs that we show here has an indication of still burdened by the ongoing ramp-up costs. And that is the situation which we very likely see continuing with all the upcoming expansions we have in the works and more to come as communicated today. And these additional costs from the ramp-up, they contain under-absorption effects in manufacturing, production variances and also costs in many occasions, one, of course, also attributed to the commissioning of the third line in Germany, which we plan to take into operations in the second quarter of this year, so within the next weeks and months. And of course, also the ongoing buildup of the U.S. facility in Goodyear, Arizona. And the main drivers that we are working on in order to achieve the target costs and with the target costs, of course, also the way to profitability is the production volume, as I already elaborated. So the fully loading of the factory as quick as possible, completing the ramp-ups as quick as possible is key. And I already mentioned it, the most expensive item in our bill of materials and cost structure is clearly the silicon. So module production costs really depend on the wafer price, whereas we are also able to take volatile wafer prices and translate it also into our sales prices. But it's super important also to keeping close eye on the wafer prices, in the future. The polysilicon markets have seen some ups and downs, not easily foreseeable, also not for us foreseeable, after a hike in 2022, towards the end of the year, around Christmas, we saw a very sharp drop in polysilicon prices. And within the next couple of weeks, polysilicon prices went up again, even though the conditions for the drop in polysilicon prices has not necessarily changed. So we are very carefully observing the situation and we are expecting that polysilicon prices will come down throughout this year but also to be seen if that's happening as expected. And clearly, that list that I show here might be an order of -- or shows the order of the items. Yield is also something that engineers and production -- our production team continues improving day by day and that will continue also in the future. And we also see, of course, steps to be taken there but are already pretty happy with the yields achieved. And another element in our cost structure that I explicitly put into that presentation in order to also maybe clean up some wrong narratives is the effect of direct labor. We are hearing arguments sometimes that the production that we do is not cost-effective and can't be done in a country like Germany because of high labor cost. As you can see in that indication here, that's not the case. Our direct labor costs in our COGS is way below 10% and will further go down as the lines are being fully loaded in the future. So what I also can explain here is the fact when is -- or what's the impact also for the EBITDA achievement for 2023. We had communicated last year that with the achievement of the production guidance, we would be EBITDA positive around year-end. That was what we communicated. And we hit the lower part of the guidance. So we were not exactly where we wanted to be and lower than expected. And that also had an impact on achieving the EBITDA on a run rate basis as we communicated. So with a slightly higher volume achieved we would have met it. So it's nothing that we believe is super critical. It's coming with a slight delay, but I simply wanted to say that it is a function of the volume and we are doing our utmost to bring the volumes up as soon as we can. Also, of course, together with the [indiscernible] line that is being ramped up in the second quarter of this year. And then we remain confident that achieving EBITDA positive for the entire year 2023 is absolutely achievable. And the last slide elaborating a bit on where we stand in our technology developments as this has maybe not so much been in the focus in our communication in the last year. We do a lot of work in the background. We continue investing heavily in R&D. We are growing our team. We have continued our long-standing relationships with leading European R&D institutes. We have started new collaborations. And what you see on that photo is an example of the module that we are going to build and sell as effective mid-2024 in the U.S., that's our utility module, which we are selling and supplying tapestry but also to the other 2 parties, which we have communicated today. This is in the works, and we believe that because of the captive business model and the closed loop development of technology and equipment we can keep the competitive edge here. And we also -- as one highlight, I would like to mention our IBC development, we could show in our joint collaboration with Switzerland-based CSEM institute that the new technology shows almost no degradation anymore. And now we are doing our level best to take that into manufacturing as soon as possible. And with this, I would like to hand over to Markus to give us the insights on the key financial figures of 2022.

Thank you, Gunter. Hello, everyone, and good afternoon. [Foreign Language]. Let me give you a quick synopsis, an overview about the key financials of 2022. If we have a look here at the P&L, the key figures what we have achieved last year, you see on the left-hand side, the net sales, obviously, we could almost quadruple from CHF 40 million in 2021 to CHF 147 million in 2022. And obviously, the most of importance is we could increase the module sales from CHF 9 million in 2021 and CHF 125 million last year. So obviously, there's a big increase that equaled to about 250 megawatt or almost 700,000 of modules, which we have sold to our valuable customers. Then if you go to the right on the EBITDA there, we could cut that almost in half with minus CHF 35 million for 2022. Then after deducting the depreciation and the amortization, we see the EBIT with about CHF 54 million. And then if we still deduct the interest and the taxes, we ended up at about CHF 70 million for last year as a net result. If we have a look here at the key metrics for this year, for 2022, we have on the FTEs, we had overall -- we have almost hired more than 400 new employees and we had a headcount by end of 2022 of more than 1,000 colleagues. And then next, what we see, the cash and the cash equivalent. And there by end of 2022, we had a cash position of almost CHF 300 million. And next, we see also the sharp increase of our sales with -- in the inventories as well, where we could triple -- where we have tripled our inventory value from almost CHF 40 million to about CHF 120 million for 2022. Then obviously, we manufacture our own equipment. And our -- with the ramp-up of our own lines, we have significantly increased also our fixed assets where we could increase there the value from about CHF 124 million in 2021 to CHF 211 million in 2022. And ultimately, on the right-hand side, we see the equity, which is shown there. And thanks to the capital raise, which we have successfully realized in November 2022, we could increase there the equity ratio to almost 60% by end of last year or an equivalent of almost CHF 430 million. This is, in a nutshell, the key financials for 2022. And I would like to hand over to my colleague, Moritz Borgmann, Chief Commercial Officer. Thank you.

Thank you very much, Markus. I would like to spend a few minutes and give you an update on our sales and marketing activities. So let us start with the market environment. On this slide, you see the -- our view on the market growth in our key target markets, i.e., Europe on the left side and the U.S. on the bright side. Both markets overall and our expectation and this is universal consensus, will continue to grow rapidly, with the European market being approximately twice as large as the U.S. market overall. Within these markets, of course, our current focus is on the residential and also to some extent, small C&I markets. And here within Europe, we still see very strong growth also in the residential sector. Of course, especially here in Europe, the growth has been driven and continues to be driven by the European energy crisis and high electricity tariffs for end customers. And so this is why the EU or European residential market continues to grow strongly. In the U.S., we also have a very strong residential market -- but this year, we expect a rather flat development in terms of market size. And overall, of course, we allocate our volumes in line with the overall market sizes. So let us go to the next slide and look specifically at our positioning in the residential market. So first of all, as I said, the primary driver for end customers these days is the desire to replace expensive electricity from the grid and solar is a very attractive option for doing that. And in result, we see it and in particular here in Europe, driven by the very, very high energy prices, a high willingness to pay on the part of the end customers for solar solutions. And we at Meyer Burger have introduced a product into the market that has a very strong differentiation from mainstream products. We have a strong top of the market performance, which means that our customers generate more electricity than with the competition. This in itself justifies -- basically it generates higher economic value for our customers and in itself justifies the price premium. But on top of that, we also deliver a superior product in terms of quality, longevity, sustainability and our customers do appreciate the fact that we make the product locally. And so in result, we have managed to establish ourselves from the beginning at the top end of the market as a premium player. And accordingly, we also have realized and continue to realize premium pricing. And to the extent that we have suffered from higher input costs, we have been able so far to effectively pass through those additional costs. What has also happened since we entered the market is that some of our key competitors in the premium segments have left the market. This includes foremost LG Electronics and Panasonic and currently, we primarily see SunPower and REC as our main competitors in this segment. And Meyer Burger's role is becoming increasingly to actually define this very segment. And this is, of course, it comes with a certain responsibility but also means that in a very short amount of time, we have managed to build a very high credibility in the market. In terms of overall pricing environment, we see that there is some price pressure in the market, in the mainstream segment. But so far, Meyer Burger has been able to insulate itself from this pricing pressure. We expect, however and we plan in the course of this year to also moderately lower our prices to stay within the overall market pricing environment. So going to the next slide. I would like to talk specifically about some of the achievements that we've reached last year and the outlook for next year. So we have achieved very broad geographical coverage. It was even too broad last year when we didn't even have the product to satisfy all the customer demand. Overall, we managed to sell about 250 megawatts of solar modules and to put this into perspective, this means that we sold approximately 700,000 modules already in our second year in the market. There is, of course, somewhat of a difference to the 321 megawatts that we produced. And this is primarily due to the relatively large amount of product that at any point in time, is being shipped to the U.S., where we have quite a long shipment delay and also a seasonal increase of inventories around the Christmas holidays. We have also very successfully launched our partner program for our effective indirect customers, the installers. And we believe that this is a key instrument to further cement the loyalty of our customers and to strategically grow the attachment to the Meyer Burger brand going forward. What you see here is the launch event that we had earlier this year, it was perceived very well. And we believe that we can really tie installers into the Meyer Burger brand. We have also successfully entered the U.S., which of course, given that we had very limited volume last year was lagging behind in terms of market's buildup compared to Europe. The outlook for this year is and I'm very happy to report that -- since last year we were heavily constrained by product availability and we had to also disappoint many customers because we didn't give them the products that they wanted -- we're now getting out of the weeds or having -- have gotten out of the weeds and are very happy that Meyer Burger modules are now broadly available. So our customers have stock and this means that we can now also scale out the take-up of Meyer Burger module installations in the broader market. And our sales team is working with installers to broaden the installer base. We are currently working on agreeing on the volumes for the second half of this year. And even though now, of course, the product is broadly available, we still want to work on a long-term basis with our customers to create mutual security about availability and offtake of product. Next slide. An announcement that we made a couple of weeks ago is very important in terms of our products lineup for the future. So as you know, currently, we have essentially 2 different products in our lineup. One is a glass backsheet product, which has a polymer film on the back and we have a glass/glass product, which has glass on both sides of the module. We have decided to unify our product approach and to build all products going forward with the glass/glass architecture, i.e., glass on the back sheet. However, we will maintain the differentiation between a white product, a black product and a bifacial transparent product, which means that we will basically need to color back glass. And so that's the module then is either uniformly black or has the white grid between the cells as we have it today. This new products' platform has very significant advantages for our customers. One, of course, the glass/glass architecture delivers the best longevity and lowest degradation possible since glass is effectively indestructible and impermeable. We have unified product dimensions going forward, which we currently don't have. And we've also delivered an approximately equivalent weight compared to the current product. It also brings very significant advantages for ourselves. So first of all, what we've also learned in the past years is that product variations are very cumbersome. And so by reducing the different product variation, we will simplify all of our processes, spanning from production to procurement, to logistics and also engineering and product management. We will be able to also increase our overall throughput and overall, we will have a more coherent strategic positioning as a quality leader with the unified glass/glass product platform. And last but not least, I want to talk about a major development in the U.S. So last year, we announced that we had secured a major offtaker for about 2/3 of our capacity coming from the future Goodyear module facility. We have now effectively managed to increase the output from the Goodyear facility with absolutely minimal additional CapEx effectively a -- it will be debottlenecking, so that we will only need to moderately increase our cell capacity by adding a bit of additional equipment to effectively squeeze out about 400 megawatts of additional annual capacity from the U.S. facility. And for this additional volume, which will be -- we will build utility scale modules. We have managed to secure 2 new major offtakers and have agreed on long-term offtakes. This offtake model closely follows the proven DESRI model, with the addition now that these new customers are also making a significant earlier prepayment that effectively allows us to finance the incremental CapEx to a large extent. We, of course, also managed to realize further economies of scale, again driving down -- continuing to drive down our cost base, we realized additional IRA tax credits. And overall, of course, we strengthened the Meyer Burger footprint in the U.S., where we see a very conducive political support environment. And at this point, we can also say that discussions continue with a number of keen offtakers, additional offtake going forward. But here, in particular in Europe, of course, it depends on the overall political support environment. With this, I would like to conclude and hand back to Gunter.

Thank you, Moritz. So we are coming to the outlook and before I start, I would like to draw your attention to the photo on that slide. This will be -- or is our new solar cell manufacturing in Thalheim, in the Solar Valley, where we are implementing the factory that Moritz was just speaking about the incremental additional 400 megawatts will exactly go into that building on top of the already under execution project 1.6 gigawatt for our Phase 2. So I like this slide, as many of you who know -- who follow us know because of the fact that the expected solar market growth on the right side continues changing to the better, increasing every time we present it. So this is a very recent update that we received actually within this week with additional growth expected in the U.S. and in Europe, and Moritz spoke about it also in the -- for the different segments. So solar continues booming. It's becoming more and more strategic. I spoke about it. The nations in the Western Hemisphere are waking up and -- we strongly believe that Meyer Burger is very, very well positioned within this potential renaissance of the solar industry in Europe and in the U.S. And it's -- it has hit front pages of newspapers very recently when China had announced a potential ban on the export of polysilicon crystal growing and wafer technology, essentially trying to hinder other nations from regrowing their industry to become a bit more sovereign in solar energy infrastructure production. For Meyer Burger, that's not affecting us because we have gained strategic independence in our segments in cell and module manufacturing because of our captive business model and because we drive technology also into next generations of products. So the overall market growth continues to look very, very sunny and with the right setup within that strong market growth, we feel very, very well positioned. And a super important topic and we also understand that this is currently creating a lot of questions of -- is, how does the European Union potentially respond to the Inflation Reduction Act in the U.S. And I have to admit that the overall scheme is not so easy to be understood as it consists of many different elements, which I'm trying to explain to you in brief. First of all, we have to differentiate between measures, which were -- which are in the -- at the sole discretion of the European Commission and other elements, which need to be decided by the European Parliament. I start with the ones which are solely controlled by the European Commission and are, in fact, already effective. This is the so-called TCTF, the Temporary Crisis and Transition Framework which is a tool allowing -- where the European Commission is allowing the member states to lift some of the very restrictive state aid restrictions in the member states in the single European market. So this is already effective. And it allows the member states under a so-called general block exemption rule to provide, for instance, CapEx subsidies, depending on reaching at or with amounts or support ratios of 20% up to 35%. So this is already possible as we speak. And what's also very interesting is that there has been under the revision of the TCTF, which was communicated early on March, there is a new clause in it, clause 86, which allows the European Union to support up to 100% of an investment. So what does it mean? You can apply under this matching clause that your specific project has been analyzed and considered for matching funding in order to match support you might receive in as the European Commission puts it in different regions of the world. Of course, what's meant is, of course, the United States. And this is a very important instrument. Of course, as I said, you have to apply for. It's not easy to be implemented. So you need to present your project and make sure that you can prove that in different regions, you would be able to access additional funding. And then you might become eligible for matching up. What's also in the strong interests of the European Commission is that by meeting a number of conditions, for instance, locations within the European Union, that not an imbalance between different regions and member states is created. So what does it mean? The industry has to make sure that if we are applying for projects, for instance, we, Meyer Burger -- in the Meyer Burger case, we would expand our existing solar cell factory in the Solar Valley. As we have secured the infrastructure already for further growth, there would have to be another factory in a different country or that would at least help the situation and the matching up would probably be easier. And the -- what's also important to understand, the money is not coming from the European Commission. It's coming from the member states. So that's a topic where the member states are now having the individual programs in their countries in the works. We know that from Germany, in particular, but also from other nations that currently the ministries are working on the detailed responses. And there are also time lines communicated by the European Commission by when the responses are expected to be back in process. And it would, of course, also -- since it is at the discretion of the European Commission, it needs to be approved and notified by the European Commission. But it is effectively applicable, that's important. And what's required now is the detailed programs provided. And at the end of the day, of course, also the financial amounts by the member states, which are supporting the renaissance of the solar industry. What has been announced last week is the so-called Net Zero Industry Act. And the difference between the TCTF and the GBER is that this has to be decided by the European parliament. So this is not yet in place. And it is expected that the approval by the European Parliament comes before the end of 2023 as the European Parliament is having another election next year and it has to be agreed and approved and decided way before. So this is and our expectation also coming within this year. And what it does, in addition to the TCTF is providing additional support to what I already explained. And there are elements suggested and put forward, which are called net zero resilience. Net Zero Resilience Premium, which would benefit European manufacturers with their products. So the idea here is that at the end of the day, all the programs that the European Commission is putting forward are, at the end of the day, not just a program to boost manufacturing elsewhere on the planet, but in Europe. That's the concept. And there are more elements in it that also for instance, offtakers of European solar modules could apply for additional premiums or something similar like under the TCTF, something like a matching clause. If you go into a public tendering for solar parks and there is a competitive bid from other regions' companies with their products and it doesn't match, in order to reach a target of the European Union that 30% of the solar modules deployed in the European Union in 2030, have to come from the European Union, that tool can also help to match up. What else did I forget here? So I think that's pretty much it. And what we've also learned is that OpEx support in European Union is thinkable. It's a new instrument that the European Union is not yet used to. So that's something that goes to, we would say, a bit of a transition in how this entire industry policy concept is being approached. But as I said, the member states are currently very, very active in the background, trying to provide concrete programs for the TCTF, the GBER and the European Commission has started consultations for a fast and quick decision of the Net Zero Industry Act by the European Parliament. So that brings me to the last slide. So what we see as a clear outlook for this year is the expansion project, which by -- as of today, we have increased from 3 gigawatts to 3.4 gigawatts to be achieved, at least nameplate capacity towards or around the end of 2024, makes us very happy, more to describe the concept and now on the back of 3 offtake agreements with binding offtakes of our modules that makes our business more plannable in various elements for production for supply chain and anything that is required. As of 2023 targets, as for the 2023 targets, we stick to the guidance approximately 800 megawatts of production. We stick to the positive EBITDA. I have tried to explain where we stand in our cost structure. I have tried to explain that our cost structure is, of course, burdened by the ongoing ramp-up. That's a different situation compared to what we had announced 3 years ago, where we represented the 1.4 gigawatt case for 2023 as pretty much a standalone case with no additional expansions ongoing. That's in terms of our operations, a completely different setup now and it has an impact, but we stick to the positive EBITDA, and we are on the path to profitability as a company. And as elaborated on this slide before, I would summarize this year's activities in the political arena as very decisive. Europe is or -- has to make a decision as to whether Europe wants to participate in the potential renaissance of the solar industry or if the business primarily or the industry moves to the United States. And Meyer Burger has now with the decision communicated today already presented a concept where we by -- as soon as we start the manufacturing Goodyear will produce more modules in the U.S. than in Germany. And that's something that also reflects a bit where the better political environment nowadays is, but we remain very hopeful and optimistic that the European Union will also come up with a very attractive industry policy schemes that help the industry regaining strength. In terms of production capacity, a nominal production capacity outlook. As I said, we are revising the target for around years and 2024. Expectation is now to achieve the 3.4 gigawatt as explained. And under the project, we have submitted for the European Union Innovation Fund as communicated also today. If in this scenario, the funding would be accessible and also the overall industry policy scheme would look favorable for an expansion in Europe then a potential growth could look like, as we've shown here, which also brings us faster to the expected 7 gigawatt, which we had announced already in 2020. With this, we are coming to the end of our presentation. Thank you very much for your kind attention. And we are sure there will be many questions, which we will be happy to take now.

[Operator Instructions] The first question comes from Constantin Hesse.

So first question, Gunter to you. Just with regards to these projects, you've applied at the European Innovation Fund, clearly, we're talking about a triple-digit million figure here so quite substantial amount and I guess you kind of answered the question with your latest comments on the future capacity expansion here. But if you could maybe discuss a little bit potentially on the magnitude of the projects that were applied at the innovation funds and if these -- let's assume this gets approved and these projects come through, will these be covered by offtake agreements? That's the first question.

So the project application was submitted in February. The call is now closed. No further applications anymore possible. The overall third call of the European Union Innovation Fund has a budget of more than CHF 3 billion. And we are expecting a decision to be awarded or not awarded around summer. So that being said, of course, until we have a firm decision, it's all speculation. But what I can say is that the project approach consists of multiple European factories, which are not all -- which would not all be located in Germany, which maybe answers a bit also -- shows a bit of what I explained already under the slide of potential European Union state aid support by the European Union tries to make sure that we don't create an imbalance within the European Union and make sure that if the industry comes back, then we have a chance that it grows everywhere. So that's one element. Together with the application, we were required to also submit, let's say, potential industry uptake or interest, and we were able to secure letters of intent of close to 5 gigawatts, which are -- per annum which, of course, are nonbinding because the project is not yet awarded, and they are also not yet commercial agreements behind. But we are happy to report that because the LOI companies are entirely European, which also shows that there's a strong interest from the offtaker base. Of course, since the state-aid schemes are way more favorable in the U.S., the U.S. has a head start in all of this, as we could prove also with another two offtake agreements. But yes, strong support. We also have endorsement levels from official or from politicians, of course, which also want to have the industry back. And maybe another important element if being awarded, then there is very likely, as I explained, possibility to also combine the innovation funds award with other state-aid schemes, which does help the Meyer Burger business case in the sense that we are becoming less CapEx heavy in what we have to provide in terms of cash for further investments. If that answers your question, Constantin.

It does. And that's extremely interesting. Second question over to you, Gunter. U.S. production, I mean, we've gone through a couple of downgrades now because of supply chain issues. How comfortable are you with your U.S. schedule now in terms of the production ramp up there. Have you given yourself a bit of a [ custom ] for potential delays, is there a risk of delay. Could it be -- could something like that happen in the U.S.? Or are you rather comfortable with the timing there when you say mid-'24?

Yes. Very important question. And we know that we have a very high responsibility here to make sure and do our level best that we don't see delays in this project. I would say the difference between the U.S. project and the projects in Germany is that the overall project duration is longer. So we kicked it off already a couple of months ago, and we have pretty much like 18, 20 months until we will -- are starting production. So that's the overall project duration, which is a bit more -- there's a bit more custom in it compared to the project in Europe. And also let me maybe comment on what we unfortunately had to communicate on March 2, which we know has disappointed many investors for good reasons. The delay, the primary cause for the reduction of the volume and the delay behind the industrial electronics. What we mean by industrial electronics are hundreds, if not thousands of components, which we are primarily buying from a few companies only in large corporations in Europe, which are also trying to make sure that Meyer Burger gets the best conditions in the market that we get the supplies first before others, and still, they cannot meet our requirements, even though the volumes we procured were all order confirmed. So there is nothing where we forgot to order elements or products and then had to send additional orders. So a very unfortunate situation, as we have explained in 2022 when we had to announce something similar in 2021, excuse me. It's unlike for direct material for wafers and glass, if we only would have 80% of the wafer volume, we would produce 80% of the modules. If we are not having all the components frequency, inverters drives standard components for electrical cabinets then you simply don't switch on the line. And that's the challenge that we need to tackle. And unfortunately, enough these supply chain constraints are not yet over, but we are doing our level best to make sure that we secure these critical items. And we see light at the end of the tunnel that the situation is easing within this year and very -- hopefully, for the upcoming projects and maybe an even steeper growth, we don't have these problems.

That's great. A couple of questions very quickly to Markus. Markus, if you could maybe elaborate a little bit or talk a little bit about the bankability of the company today? And also just a very quick comment on capitalized goods and services. I was -- it was a bit low in the second half. I was expecting a higher number. Can we expect that number to be higher in 2023?

Okay. Well, with the capitalization of goods and services, There, we have, as you could read in the annual report, we had a number of about CHF 41 million. And what -- with our P&L by nature, all what we did is due to -- since we do not want to hand out our intellectual property, and we want to manufacture our own equipment basically, we have in the P&L than the costs, the material costs, where we purchase all the goods from the outside from third-party vendors. And then we have our great team in Hohenstein. We have there a group of people who are responsible for the assembly of our machines of our key equipment -- and there also, obviously, some personnel costs occur. So from a P&L by -- P&L by nature perspective, all what happens is we purchased the material. We have the costs from our people who are assembling the machines. And then once we capitalize the equipment. Obviously, we make the correction for the costs, which we had in the P&L. And for the capitalization, then we have the correction entry and once we also capitalize the -- our equipment ultimately, we just kind of capitalize it. We also -- we let it review by our auditors. And then ultimately, we can finish here the process. And what was the other question again, Constantin?

Just on bankability.

Bankability, yes. From the bankability side, yes, again, we are as U.S. [indiscernible] reader also of the prospectus, we are, of course, in view of our growth mode, which we are following. We are exploring all kinds of financial options and how we can fund our business and from a bankability perspective, obviously, we are working very -- we're collaborating very closely with our bank partners, and we have there numerous tools which we are assessing right now to make the first step in order to be bankable in the midterm run.

And the last 2 questions, and over to Moritz. Moritz, if you could comment a little bit on the partner program. Quite interested to hear on what kind of benefit this is giving installers basically? And how does this give you any kind of competitive advantage over your competitors? And then lastly, just if you can just give us a quick update on the allocation, what kind of visibility do you currently have for the year?

Yes. Thanks, Constantin. So what is -- so what I talked about before is that there is a -- there is a high willingness to pay for solar in the market. And so what is really crucial for us is that we communicate the value of our product to the end customers and also to the installer. And we have an absolutely unique products currently in the market. And we also think that for years to come, we will remain unchallenged in many dimensions. And so for us, it remains a -- basically a key communication challenge that this message is being transported to installers and end customers. And this is why we have established this partner program by which we will, for one, make sure that basically, we create a brand experience and we communicate the advantages and the USPs of our brand well, but also -- and this is going to be a key strategic focus starting this year that we listen more to our installers and help them to address their pain points. The installer is currently more or less the bottleneck in the industry. And what we want to do going forward is that we want to work with the currently still very fragmented installer base and enable them to remain viable and competitive in a changing market environment. And we want to work collaboratively with them and help them as of course much bigger players, help these typically relatively small businesses to thrive and to improve their processes to address all kinds of concerns and pain points that they have. And essentially, the partner program is going to be the platform for those efforts. And so that's really a cornerstone in our strategic approach to sales going forward. And your second question, I believe, was around the sort of sales planning for the second half. And as I said, our -- so first of all, of course, what we're very happy about is that there's no broad availability of Meyer Burger product in the market. So it's no longer kind of [indiscernible] that we need to run here and Meyer Burger product is available. Yet, we want to work and we want to establish a more long-term approach to procurement. And that's also why we are already being in discussions with our partners now about deliveries going all the way to the end of '23. And with that, I believe that both parties to the relationship will have the advantage of increased security and visibility, which is going to be highly beneficial in this dynamic industry.

The next question comes from Sebastian Growe from BNP Paribas.

I promise to just take it to 3 or so. On the margin side, if I may start there, Dr. Erfurt you stressed that production volume is key to reach target costs. Obviously, you're ahead of a very, very strong capacity ramp-up over time and with that also much higher production volumes. Already you had a gross profit margin of 50% in the last year despite the ramp-up costs, et cetera. So the question then is, can you share with us what you regard as a realistic gross profit margin over time? And as a follow-up to the prior question, how should we think of the R&D capitalization going forward? If you could put a number behind it, that would be very helpful.

If I may, Sebastian and luckily enough, I have a CFO sitting next to me, I would like to give the answer to Markus Nikles.

Sebastian, can you -- I apologize, can you just in short, again, repeat the question? I did not understand 100% from a technical perspective.

No problem and I'll try to slow it. So here's a very simple narrow question on capitalization would just be if you could provide a guidance on how much we should and could probably assume in terms of absolute R&D capitalization over the coming especially in light of the further capacity build out. So that would be -- then the question to you, Markus. And to Gunter probably the other part of the question is, from the operational point of view, the gross profit margin was already pretty strong. I think at 50%. Yes, some [indiscernible] from R&D capitalization. But can you just kind of give us a sense of where that gross profit margin should sit over time? I do remember that you once said 40% plus. So any indication in that regard would be much appreciated.

Okay. So from R&D capitalization perspective, I mean the number really what we are capitalizing is predominantly our -- is our own equipment, and which we manufacture. So the R&D part, which we capitalize is, of course, the smaller fraction. The biggest part, which we are capitalizing is obviously are the third-party goods, which we are purchasing from the outside. And with these goods, obviously, we are assembling our key components and our key machines together. So to your point, from an R&D perspective, the -- not too many R&D costs are capitalized.

Okay. So on the ...

Let me ask a question then probably the other way around, can you just say that CHF 40 million is sort of a maximum of R&D capitalization, what you would currently think is a realistic yardstick for the outer years? Or should that rather come down? Maybe we keep it that simple.

Well, from -- in overall most of the amount which we are capitalizing are the material costs and so in the future, it, of course, depends all of how much we are in additional lines we are ramping up. And as we have heard with our expansion plan. Of course, we're going to pursue this path since we are not handing out our intellectual property, and we're going to continue to manufacture our own equipment and our own processes. So in the future, we will also have own capitalized goods also in the years to come. So on the margin question on the gross profit margin question. So first of all, we are not providing a gross profit margin guidance. But the way I could indicate here is we have seen from more [indiscernible] is how strong we could set our pricing in the market because of the performance of the product because of all the other unique selling points, Meyer Burger is bringing to the table. That's one element on the pricing side, where we feel very, very strong and confident that we also can sustain in the next period in the coming years. For the cost side of things, what I can explain is for the direct materials, as we have also indicated here, what we are doing is we buy wafers in -- just in the market like everyone else. And it's -- there's no such thing that a company like Meyer Burger necessarily pays a super premium on wafers compared to rivals in Asia. Of course, we have shipment costs, they don't, but they have shipment costs on the module itself, which is more, by the way. So we have some additional elements in our bond, which can be attributed to higher quality. So we buy materials, which are a bit more costly in order to enable the high performance of the product. That's also important, and we do that on purpose. So that being said, the challenges we are having do not lie necessarily in the direct labor cost in these items, which does not mean that we are not continuously improving and also evaluating new materials in order to source them more cheaply, but they have to be -- they have to meet our quality criteria. There will be no compromise on quality. So that's one aspect. So our cost structure is primarily burdened, if we will, by ongoing ramp-ups by not yet fully loaded lines. And this is the way to go for us to make sure we reach these levels of full loading. And once we are there, I believe we have -- we can have a very, very strong position also in terms of the achievable margin, which we then will report in terms of EBITDA result and of course, below level.

Okay. That's good. And if I may move on to mix and following the launch of the glass-glass platform concept and the apparent unlocking of potential in regards to the nameplate capacity the 2 gigawatts compared to the 1.6 that you [indiscernible] had marked before. How should we think of mix going forward? So does the uplift in output and prepayment overcompensate eventually the lower ASP. So simply put with the margins that you are striving for in the utility panel segment, would that be at least as good as for the resin products.

Yes, that's a very good question. So we have, of course, a trade-off between the 2 segments. The ASP and utility is lower. That's clear. We have a larger products. So COGS is also slightly lower, but the end result still remains that the gross margin in the utility sector is going to be quite a bit lower than in the residential sector. That's just the nature of things. On the other hand, the trade-off is that in the utility sector, we have managed and are confident that we will continue to manage to gain these -- to achieve these very high prepayments, which of course, means that our working capital position is effectively much, much better in the utility segment. And from a cash perspective, that's of course very beneficial for the company. And the way we see it overall is that our strategic imperative is to grow and to achieve economies of scale. And of course, the market is not 100% resi with these very high margins. So we always need to run for a blend in what effectively happens is that the utility scale segments gives us the scale at a not super high margin but still an attractive margin. And in resi, of course, we have smaller volume, but we make very, very attractive margins. But at the end of the day, the utility segment is more scalable because it's larger. And it also comes, as I said, with the huge advantage that the working capital position is so attractive through the prepayments.

Fair enough. And just a very quick follow-up on to that one. For the planned build-out across Europe, would that all be then more leaning towards utility if I interpret your prior statements correctly? Or is there still a chance for having sort of whatever a 50-50 mix or so between resi and utility?