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

Investors, dear analysts, ladies and gentlemen. Welcome to Meyer Burger's Half Year Results 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. But 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 and the first 6 months, worked intensively on growing our manufacturing output. We have achieved a volume of around 300 megawatts, 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 380 megawatts 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 efficiencies substantially, and that shows also affect, of course, in the power distribution of our solar modules. So in essence, we are well set for future growth now also starting to put more focus on the United States, and 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. And I would like to walk you through the history of the market development in the last 8 months or maybe 10 months. So what happened in a summary is that volume that was primarily also bound for the U.S., but could not enter the market anymore because of the restrictions that the United States have imposed on the industry policy side, to name one [indiscernible] Xinyang labor ban has forced Chinese manufacturers to reroute their ships if we may say so, and all this product has landed now in Europe already end of last year, a total of estimated 85 gigawatts was shipped to Europe when we put the market size as a reference of 2022, the entire European Union has installed about 41.4 gigawatts. 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 U.S. anymore. And that has led to an oversupply of 45 gigawatt in EU warehouses. This has caused a price drop, a quite substantial price drop and modules are being sold for prices as low as $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. And also, there is a notion that the imports into the European Union may even increase. And the 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, but 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. But it's important for us to mention that we are witnessing currently, especially in the European Union, very unfair market conditions, which are forcing us to focus our expansion, our business more in the U.S. And because the U.S. 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 first quarter of 2023 at the level of 2022. So 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. And 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. And into [indiscernible] is what is behind us up until July and the blue dots, what we expect to happen. And you can see that we have seen a continuous increase in here showing gross profit margin referred to a P&L by function without appreciation. And we have then in the second quarter, 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 ASPs. And this has also led to an effect that we see as a 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. And the total of this impairment and stock production is amounting minus 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 the plan for us to stay at that price level for the remainder of the year. And 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 higher volumes, but we keep the option to also adjust our volumes to be produced according to the market development. So in essence, technically speaking, we have learned our lessons in the last year. We have implemented now our lines, which are running more stable than ever. But because of the market, we are keeping the option to adjust production if needed. So what I can also say and what you see in that graph is that for the next third quarter and the fourth quarter, 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 low input costs. In terms of the sales regions, we have in this graph, the split. So the vast majority of the product is sold in Europe with Germany and Switzerland, dominating the markets and then the U.S. and rest of the world, so 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 302 megawatt 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. And 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 CHF 0.45 per watt peak consists not only of residential, but primarily of residential, but there are also some C&I projects included. And 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 2.5 years since we have started selling on the last 2 years is that we have been able via our installers to install about 30,000 installations of routes that now have Meyer Burger as the energy-generating solar module that makes us very proud. And this has been installed by more than 4,000 installers. Meyer Burger receives these data also very transparently from our distributor partners, and we know what region is strong and what is not strong, and so we can also orient our CS team to put more focus in one or the other region. And out of these more than 4,000 installers globally, we have 1,400 as registered installers with Meyer Burger, and 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 2 more utility orders in the U.S. from [indiscernible], which basically makes the available or which basically sells out the entire available utility volume for our U.S. factory. And this is what we believe is a super important aspect that until 2029, our facility in the United States is sold out in essence. And we have also started sales of our MBS product at small scale still, but we have done many installations already, and we are increasing the volume as we speak 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 hand. 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 3-channel distribution model is the way to go or if we should better adjust and the answer is after a very deep dive and thorough analysis that we continue to believe in the 3 channels approach, Meyer Burger selling residential products via distributors, and they are selling it to installers and to the end customer. But we have been looking into how can we strengthen our access to the end markets. And one issue that we are seeing or one challenge is whenever we convinced via campaigns about the Meyer Burger product and all the criteria, how does it reach the end customer? And we have already 2 years ago, implemented a system in our website a so-called solar calculator that generates leads and 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 tested 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 the installation is happening via our partners. And we believe that we can leverage the best of the best. We are very happy and thankful to our distribution partners because they do a great job in putting packages together for our installers. And if a solar system is being planned and calculated on our website and we do a direct referral to the performance putters, we believe that this can be one answer to also strengthen sales and 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 testing compared to direct sales peers like companies like [indiscernible] and others. And we are focusing on this and have an expectation that we can be successful with this approach or more successful. The second thing comes 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 800 watts. Meyer Burger's modules perfectly fit into it. Other modules do not because they have different formats, 2 modules of Meyer Burger make the balcony solar system. And also the difference between us and competitors is that you might have heard that recently 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. And what's different here to the 3 channel approach is that this product, in particular, we will sell direct. So this will be our first experience to be started with direct sales via our website. So the webshop is currently being programmed and implemented, and we are also starting preordering 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. So what you see on that photo is a real product. It's an [indiscernible] solar roof tile product that includes IBC solar cells. So this is not the current technology generation, but what we are planning to implement pretty shortly. But 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 then more mid long-term peroxide tandem, profit heterojunction. So 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 most formation because this can have an impact on lower energy yield, and we believe this is a small but an interesting feature for solar installations. Glass platform, we have already communicated recently, but we are implementing this as a new standard for Meyer Burger and we will also do an upgrade to so-called M10 wafers. It's a large wafer format that Meyer Burger is bringing to the market in 2024. So 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, and again, this is what you see in the photo is our process development for the IBC technology. And 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. And 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 and beginning of 2025. So 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, so 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 20 milligrams of silver that we are printing before we substitute it completely. Also something that I mentioned in the previous call is that we are seeing a negligible degradation, very low, and 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, and it is compatible with our SmartWire technology and also patented and proprietary technology. And it gives us enough headroom to bridge between today's technology and the moment whenever we have the tendon technology peroxide on heterojunction available. And also there, I can report 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 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 sale factor 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, on the net sales, we were able to increase net sales from CHF 57 million last year to CHF 97 million this year, so a growth of about 70%, though the automobile side, we can see we could increase, we could more than double the volume from CHF 42 million to about CHF 93 million net sales for the first half this year. So this was on the net sales side. So 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 the first half year. 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 the first half year due to price pressure from the Chinese oversupply here, especially here in the European market. And if we look a little bit more into details how this CHF 43 million consists of we have there 2 portions. The first portion is the operative business with about CHF 20 million, where we achieved a negative EBITDA and about CHF 23 million were so-called one-offs. And what do these one-offs consist of? On one side, we heard it before, we had to decrease the prices. Therefore, we also had to consider we had to review our inventory. So we have to adjust our inventory in form of inventory value adjustments. And 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. And there, we had a total stock protection combined with inventory value adjustment of about minus CHF 13 million. And the gap to the CHF 23 million one-offs were then another CHF 10 million in form of, on one side, a ramp-up costs where we still have work to ramp to finalize the ramp-up of line 1A and 1B, but we also had front-loaded costs for the third line, which where we are in the ramp-up process right now and of course, also front-loaded costs for our Phase I, Phase II, our 2 additional gigawatts in the U.S. So this explains there the EBITDA. If we go to the next pillar there, we come to the EBIT and between the EBITDA and the EBIT there from CHF 43 million minus to CHF 56 million minus this CHF 13 million obviously represent appropriate depreciations and amortizations on our property on our plants and on our equipment and intangible assets. So there, we had about minus CHF 13 million compared to about CHF 8 million the year before. Then 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 plus and the minus CHF 8 million consisted obviously of interest which we had to pay on the convertible bond of about CHF 6.6 million. 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 minus 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 CHF 3 million 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 minus CHF 65 million for the first half year. So these were the key figures for the P&L. Now 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 and 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. But this explains the increase of about 200 FTEs. Then 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 continue to invest with our expansion. We had investment activities of about minus CHF 84 million. And last but not least, we could thanks to the issuance of the convertible bond of CHF 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 equivalents in the first half year of about CHF 78 million. Then in the middle, we see there 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. But also, of course, due to the market situation, we also had to increase our finished goods in stocks so this explains the addition of a total from CHF 19 million to CHF 146 million in the form of overall CHF 27 million inventory increase in the first half year. Then 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 their overall our property, our plants and equipment by a net amount of about CHF 73 million. And 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, but 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. So in a nutshell, these were the key metrics for the first half year. Thank you.

Thank you very much, Markus. So that brings me to the last section of the presentation, which is the outlook. What you see on the photo is not only a nice landscape with nice mountains, but it's our solar cell facility in Colorado Springs that we will equip next year already with equipment and then provide the solar cells directly from this factory to our factory in Goodyear, Arizona. And even though we are currently facing challenges in the European market because of the non-regulation here and then 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 U.S., 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. And I would like to walk you through 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 re-show a substantial solar industry by providing the financial incentives via the IRA plus also some other measures which we had reported when we communicated the decision on the Colorado Springs facility with an industry electricity tariff and other helpful support. But moreover, the United States have put measures in place to protect the [indiscernible] market and already since many, many years. And we also expect that these measures might be even more strengthened. And 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, the United States Department of Treasury on the ITC adult for locally produced solar cells included in the product that gives our customers even another benefit when they are using a locally made product. And we believe that these measures in the U.S. will be sustained and as I said, even more strengthened. So we strongly believe that the U.S. market gives us the ability to grow with our potential contribution of being a technology leader that is able to bring solar 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. There would be an 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. And the TCDF that's the abbreviation allows a so-called matching class to be used by member state governments to match up with an investment project elsewhere. And of course, what is meant here is, in particular, the United States. And 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 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. And 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. And the Net Zero Industry Act is proposed to provide the market protection via several instruments, including a segmentation of the market into a European market. And the other one and the European product 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 this information is that Meyer Burger has all these options and we believe Europe has not, Europe has to get together in order to support the critical industry. If the European Union would not do it, then we have the U.S. option but we are strongly believing that Europe is going to provide the support. And as soon as we have also a fair level playing field in Europe, Meyer Burger definitely continue the expansions here. But until then, we are pausing it. A little bit more details on the European Union. As I said, 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. And as soon as we see endorsement of 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 European Innovation Fund. And we are eligible to receive up to CHF 200 million for a project that is supposed to bring another 3.5 gigawatt of integrated solar cell and module manufacturing to Europe primarily to Germany, but also we have to include also a second European country. And 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. And 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. And then we would have resolved the funding part because the intent is to match up with other regions on the planet for the support. And on the market protection measures, which we believe are absolutely required to support the renaissance of the industry in Europe. The German solar energy association, Bundesverband Solarwirtschaft has submitted a response to the amendment of the Renewable Energy Act in Germany that includes so-called resilience bonuses. And this law is now 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 1 in 2024. That's something that we are very happy about. Now also the industry associations are supporting this at the European level, there is also a lot of support for this as this problem does not only affect Meyer Burger. It affects the entire European industry in solar. And I think that we have already achieved that the 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 blade here, and it doesn't work without support from industry policymakers. But that's about options in Europe. As I said, we are pausing this. And we are also preserving the option to adjusting our initiatives in Europe even further if nothing is happening and focus very strongly on the U.S. The building we were able to secure was very much fought over, I would say, in the process of committing the [indiscernible]. 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 superfast implementation of the solar cell facility. And 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 [indiscernible] as 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 the local city government, not only financially, but also in terms of the permitting that goes fast and is being fast-tracked also. And we strongly believe that in the fourth quarter of 2024, we can start manufacturing in Colorado Springs of solar cells. The module factories already, as I mentioned, starting production around midyear 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, and we are absolutely convinced that this is one of the main elements of interest to you. What we should take into consideration when talking about the U.S. is, first of all, as I mentioned already that Meyer Burger has gained in the meantime, so much experience in setting up manufacturing, but 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. But on the business side, the firm guaranteed multi-gigawatt offtake agreements that we were able to sign of accumulated 5.4 gigawatt until 2029 or 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 $0.04 per watt peak, a total of, if I'm not mistaken, $75 million per annum. And 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. But important also to mention to give all the details, this is only applicable to the offtake agreements in utility. So any product that we are selling into residential, the IRA incentive for the module is planned to remain with Meyer Burger. Also important for you to understand is in the business case and 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 past-due item. It does not affect our own P&L. And 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 presented 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, the sales price is fixed, but the cost structure behind that we have locked in is taken from our proven Germany facility. So this is not an artificial number that we believe we can meet. It is what we already see that we can meet. And this was plugged into our business models for the U.S. business. And with all of this on a holding level, including also functional costs for the U.S., so R&D, sales and 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. And on that basis, 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. And that may contain even residential projects, not only to utility. We believe we could even have the ability to increase the volume and go for another factory in the U.S. and 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, so we are very happy and thankful to our partners in the U.S. that they are helping us with growing our business. And 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.

[Operator Instructions] Our first question today is from Sebastian Growe from BNP, please go ahead with your question.

Thanks for taking my questions, I would like to start 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 1st of January. So 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? So what is the import level for residential as opposed to C&I or utility? And the second part of the question, I would just like to better understand how this respective support mechanism can work. So 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 what peak basis sense that is. So how much cover can be really expected is the U.S. IRA, the 4+7 framework for sales and panel the right proxy? Or how should we think about that if we could start there, please?

So thank you, Sebastian, for the questions. I would like to start with the second. Maybe also on the COGS that you have derived from the data we provided. So what we have to bear in mind that the first half year was still impacted by a very high wafer cost. So 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. So 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. And the interesting thing is that with the new wafer prices, we are able even at a small scale compared to the Chinese rivals of a little bit above 1 gigawatt a nameplate installed or 1.4 gigawatt, we are quite substantially be able to lower our manufacturing costs also on that basis. That's one thing. On the political support, as I said, unfortunately, it's not yet in place. I can only give you part of the knowledge we have some stuff is also still in the making 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 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 [indiscernible] 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. So a company that's only assembling modules in Europe with Chinese components would receive less compared to Meyer Burger using Wacker Silicon, sales made here, modules made here, equipment made here and so on and so forth. The volume anticipated in that ring-fenced European segment is according to what the European Commission has communicated also in the NCIA proposal, matching, if we will, the amount of production that is part of the strategy of the Renaissance. So i.e., 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%. So that's how they would like to match up. We are very optimistic that Germany might start first because there would be a proactive approach already before the implementation of the Net Zero Industry Act. So that's the answer that I can give, when negotiating between all the shareholders. I mean super low and regardless of how they all 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. So that's why we believe that the 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 [indiscernible] duties in the U.S. and then it had to be exempted because it altered the entire business because we need to have some time to grow the industry before we can close markets if needed. So that's why the European approach seems to be smart. And maybe a last statement that also makes us very optimistic, [indiscernible] as you know, has been the locomotive and the front runner in the last 2 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. And by the way, also China is because they do the same in their country as well. But we've been working to a large extent alone. And now we have a lot of support via the associations. And 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, does way more firepower now on the policymaking.

That's encouraging. I'm not entirely sure if I get the relative backing, what the resilience bonus can really mean in money terms. So I hear you on the wafer cost rollover, which should help you probably to take the production cost rather to a $0.30 pretty much on spot. That's at least what I would calculate level. But how would that then compare to a sales price that is eventually whatever, the 35 to pick on number?

So maybe, first of all, again, the segmentation of the market, which is in the discussion, would make sure that the segments would not interfere. So there would be no Chinese product in a pure European tender, that would not happen. So we have a pure European tender that's being supported that does not necessarily compete with the Chinese tender. That's super important. And on the money side, these numbers are not yet clear. If they would be clear, then we would have already the solution. But 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 a 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 $0.005 and $0.01 per kilowatt hour. And 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. So it's not that we would necessarily receive similarly to the United States, a direct support for Meyer Burger, but it would enable the market to pay a bit more for European products in order to grow the industry. So this is one aspect that's being discussed. And at the European level, that has been communicated also, and we've discussed this in, I think, in the full-year webcast on the call in March. The European Union is proposing the commission that tenders proposals are evaluated in a different way than they are today, were only price matters. And they would put in like a weighted approach of, let's say, 70% price and 30% resilience. And with the resilience bonus, the more you produce in Europe or [indiscernible] silicon and cells here and module, the more credit to get on the resilience pulp than [ you win ] a tender. And the delta in SEE, again, is paid by a state support from the respective members.

Okay. That's really, really helpful. That's 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 stop the bleeding to turn to a breakeven at plus X, but other than the Xs. 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 U.S.?

I give you more than a yes or no. The answer is we will definitely, as a management, not watch bad things happening because of failed politics, then we will take actions.

That's cost to clear. And then lastly, finishing off with the U.S. You mentioned the EBITDA margin goal of the minimum 25%. So can you just walk us through the related assumptions I heard your comment around improving production cost in Germany? I think that's what we now have discussed at length, what that could mean. I would be interested in also in hearing on if there is already IRA impact in there, which I would interpret as a higher single-digit U.S. [indiscernible] on our peak business number? And what is also, I think, equally important to understand is simply to what extent the ramp-up costs that you semi auto CHF 10 million roughly for the first half of the year, how much this budget might be going into '24?

Thank you, Sebastian, for the question. So from a modeling perspective, Sebastian, obviously, on the cost side, we know what we are doing. So 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. And then obviously, we have the upside, which we have calculated in. Gunter has elaborated before on the $0.04 for the sales, which will be fully allocated to our pocket. And on the module side, obviously, we have heard that also now numerous times, there is some a split where this will go into both pockets on one side into our pocket but also into the pocket of our offtake partners and then last on this, but 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. So 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 in the EBITDA projection, the IRA is included. That was the other question and also ramp-up costs anticipated. I mean on the ramp-up cost side, as Markus has also explained if you take the CHF 23 million one-offs, CHF 13 million we had communicated is the impairment in stock protection and 10 is front-loaded and ramp-up. So we have now the numbers. We have the experience and that, of course, is part of the model and of the business plan for the U.S.

This is really a very quick one that you are now ramping up one line and you're going to ramp up much, much more in the U.S. So can you take this as a linear distribution? So if I have a CHF 10 million ramp-up cost in H1 for what is just one production line in Germany, this would then be taken times 3 x 2.5 years. And then we are rather talking CHF 150 million-ish number? Or how should we think of that? I think that's a really, really important question that needs to be discussed.

Well, overall, it goes into this direction Sebastian. Yes, we can confirm this overall for our assumption for 1 gigawatt overall, we factor in about CHF 30 million of ramp-up costs.

The next question comes from Constantin Hesse from Jefferies, please go ahead with your question.

Thank you very much for taking my question. So I want to focus a little bit on the U.S. first. And hearing what Sebastian already asked some questions on the cost side. So from my side, I wanted to understand a little bit better if you could provide a bit more color on how conversations are currently ongoing with off-takers. So at what level these conversations are? I mean you said you're optimistic, does that mean are you actually having some final conversations with some customers? What are the chances here that we might see a contract being really signed towards the end of the year? And then maybe just a quick word on the obvious, I guess, bottlenecks and execution risks that still exist for the U.S?

Thank you, Constantin, for the questions. So I'll start with answering the first. So the multiple discussions, I would say, are ongoing. Some might be closed pretty quickly. Others might take a little longer. So what has happened, in essence, is with the first with 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. And the segments we are discussing is utility and residential and 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 about 65%, 70% of the line being utility and the rest is the other 1/3 or 30% is residential, and we have a focus also on selling of the residential volume. And 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. So I 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. And also that 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 U.S., 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 project projection into the future.

Is there anything holding back the conversation, Gunter? Is it the building that you aren't finding? Is it more of a price discussion?