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

Good afternoon, ladies and gentlemen. Welcome to the Meyer Burger Technology AG Conference Call 2. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to your host, CEO, Gunter Erfurt.

Thank you, operator. Ladies and gentlemen, great pleasure to guide you to our announcement that we have published this morning with our key preliminary financial hiccups of 2023 and also the ongoing strategic decisions we have to take in accordance to our European manufacturing presence as well as also our continued growth plan in the U.S. So let me run you first through the key figures and what we have achieved and are currently working on in our operations. So we have, in the last year, completed our installation and ramp-up of our 1.4 gigawatt cell and module capacity in Germany. We have successfully ramped both lines in Thalheim and Freiberg that completes our project Phase 1. And we have also tackled yields topics and higher wattages with our solar panels. So in essence, we are on a good trajectory from operations point of view. We have continued the construction of our 2-gigawatt U.S. cell and module facility. We are expecting to start our production of modules first in Goodyear, Arizona, in the second quarter of this year, selling directly into our offtake agreement with the share renewable investment. And given the current very unfair market distortions in Europe, which is, for the time being, our main market, we have not been able to meet our targets in this year, even realizing the lower net sales for this year comparing the previous period. Our EBITDA figures are also absolutely away from our expectations of this year with a loss of CHF 126 million, primarily related to the fact that our 1.4-gigawatt operations is due to the market distortions and the very different market environment in Europe, not fully loaded, which ends in a situation where our fixed cost base cannot be diluted as planned and not all costs are fully absorbed. Second, we had to impair or have to impair -- numbers are preliminary. Again, we are still working on the final ones. We have to impair inventory levels in Europe, so finished goods, but also some materials to produce. The cash position of around CHF 150 million as of end 2023. We have other financial or funding options in the making, I will speak about in a minute. So what is absolutely clear and key is that the business year fiscal year 2023 has -- is even more demonstrating that we have urgent requirement for stronger policies, industry policies to protect the European solar manufacture in order to run a good business here, which is not possible without it. And this is also why we are clearly saying that if these are not coming and creating a level playing field, and Europe is definitely not the place to produce solar modules. So what has happened in 2023? And again, to -- regarding our initial planning for the year, it came as an unexpected development, especially the pace in which these distortions took place. This is unprecedented. Basically, overcapacities in China and the combination of more tough trade restrictions in India and in the U.S. where not all products from China is allowed to enter the countries have finally ended up in a massive oversupply into the European solar markets. There has been a new study published yesterday by Bank of America, suggesting that between 60 and 80 gigawatts of modules are still in warehouses in Europe comparing to CHF 60 million to CHF 80 million to approximately 55 gigawatt of end installed capacity in this year shows the order of magnitude and the problem that the European solar manufacturers are facing, not only Meyer Burger. It's the same for everyone who is doing this business from Europe. And the result of the oversupply has ended in a real price war with prices as low as below -- way below CHF 0.10 to watt peak comparing about CHF 0.20 per watt peak to make a product. In China, even without any margin included. So this is only possible due to the massive industry policies in China and also subsequent subsidies, the companies they are received to withstand such a situation and Europe has not yet made their homework in protecting it. So the only way out is not that our company can apply any measures to further reduce costs or things like this. This is impossible if other parties are selling way below their own manufacturing cost. So this is an unfair play, and it can only be resolved by protective policy measures, which are being debated and discussed and now are finally required to be established. So only possible to execute a successful strategy in this year and under this premise. And without -- and that takes me to the next slide, we have luckily enough already 2 years ago, decided to move to the U.S. by securing our Goodyear facility building in December 2021. And this is and so far remarkable as that the decision was made prior to the implementation of the Inflation Reduction Act. So we have, from day 1, been strong believers in the U.S. market, also in U.S. manufacturing for various reasons. And this has proven correct. When finally, the IRA kicked in, we were already there with our offtake agreement, the first of the agreement with D. E. Shaw. And as I said, now with the upcoming ramp-up of our capacities in Goodyear, this is the first customer to be served. What's very interesting in the U.S. and also gives us more fueling the Meyer Burger case in our future in the U.S. is that even post-IRA, where many observers had doubted that -- or had that doubt that maybe the IRA could slow down the energy transition in the U.S. or even the growth of the sector, it's proven incorrect as you can see. And on the left side, in this analysis by the Solar Energy Industry Association in the U.S., SEIA, which also shows the remarkable growth in the utility sector. And given Meyer Burger's product, we are of the strong opinion and conviction that we can approach all 3 segments in the U.S. with the rest of the smaller residential systems up to the larger utility installations with growth sector clearly in the utility, i.e., the 3 offtake agreements we have signed do very much derisk the case in the U.S. because different to Europe, we have firm take-or-pay offtake agreements in place, which gives us the better opportunity to plan accordingly. And also once we have more proof in what we are doing, we also believe that can be even increased and more of these type of agreements can be signed and potential growth in the U.S. is possible. When last year in summer, on the one hand, Europe has not moved on the opportunity to implement industry policies according to creating a level playing field for European module makers. And the opposite happened in the U.S., the Department of Treasury had enhanced the ITC Tax Credit scheme by imposing another ITC Tax Credit opportunity towards installers, i.e., our customers in the U.S. if they can prove that the product they are using is not only made in America, but also the solar cells are made in America. So what the U.S. government is trying to achieve is that not only module making is moving to the U.S., which wouldn't resolve the strong dependence on China for all the upstream components such as solar cells and solar wafers and has added the solar cell into this ITC scheme. And there are even voices suggesting that we might see something similar also for the wafer and the polysilicon in order to make sure that the entire supply chain is established in the U.S. So if you pick us under facilities, the 2 gigawatt for the module factory, as I said, it's in the making. It's going to produce those products from Q2, 500 employees, about 10,000 solar modules per day. Our solar cell facility was announced later and also started later when we moved the project from Germany to the U.S. in the absence of any industry policy measures in Germany. And hence, it's not running behind, but lagging behind because we have also started late. So the expectation currently is that we are going to start with first cells to be produced around year end and into 2025 then doing the ramp-up with 350 employees max and 1.4 million solar cells per day. The employees won't be hired in 1 shot, but we would do this in stages according to how we bring our equipment online and start the ramp-up. We have, today, in the Ad hoc release said that in the absence of any resilience measures or other instruments, which create this level playing field, we have to downsize and restructure our German operations, unfortunately. The plan contains a closure of our Freiberg module facility. The assets could be sold. The building could be sold. The manufacturing equipment assets could, for instance, be reused in a potential growth -- for potential growth in the U.S. The Bitterfeld-Wolfen, a solar facility, is continued for the time being and the foreseeable future as we need the solar cells to support the U.S. ramp-up. So this is happening right now. The Bitterfeld facility is already making solar sales for the U.S. We have converted the line even to run the improved product for the U.S. so-called M10 wafer, larger solar cells with more power for the utility product. The third item in the downsizing plan would deal with anything that still needs to be repaid, which are subsidies that we have received for the Freiberg side, which would then have an immediate effect very likely is some CHF 3.5 million only, I would say, and we are currently investigating how much of it is going to be repaid and if at all. We have another local syndicated loan debt facility to be repaid around CHF 70 million. And we have some severance to be paid to our workforce. And the main takeaway here from this slide for you is that we expect that the downsizing costs will be self-funded and how? Because we have, in the last year, piled up inventory with finished goods. And this has a value, and we expect to sell this off in the coming months, and this is a value of about CHF 100 million, which is capable of funding the downsizing costs for this effort in Germany. If we have to -- if resilience is coming, we can continue with our excellent factories there. If not, we have to execute on that plan. We have furthermore today, contemplated a potential transition into what we call a hybrid capital business model. You know that Meyer Burger has 4 years ago decided to enter into a captive model by continuing to develop technologies, equipment but use the results only for own manufacturing. That means we are selling equipment only to ourselves in order to prevent IP from leaking and to keep the value inside Meyer Burger. What we are currently assessing together with a globally renowned investment bank is a potential transitioning into what we call the hybrid model, which is a potential partnership with industrial partners, primarily in the U.S. for the time being, but no restriction to also do this in different regions of the world where we would, for instance, jointly run operations, we still have scheme in the game. It lowers the CapEx needs for us, and we may be able to generate licenses from Meyer Burger technology and generate a second income stream, which is asset-light and pretty attractive in our opinion. So discussions in that direction are underway. No firm result yet to be communicated, but we expect this effort to continue in the next coming weeks. And hopefully, we can communicate further on this shortly. In such a hybrid model, Meyer Burger would retain ownership of all our IP. So it does no change compared to the, let's call it, initial captive model. And as I said, it would be very helpful also in the sense of -- in terms of the funding of production facilities, which would also probably come to us via a potential partner. The midterm EBITDA, we believe we can achieve from the day the factory is fully loaded, which is expected to happen for an entire year in 2026. We expect an EBITDA of CHF 250 million. And this assumption includes the downsizing of Europe. So there would be no European business any longer to contribute other than R&D, which continues to take place in Europe. Key takeaways, again. Number one, our revenue expectations have not been met. We have generated more losses in 2023 than originally expected due to these very severe and unprecedented market distortions, which are very, very critical and the price was associated with it, which has now led to this very clear decision path either it's coming, and we continue, or it's not coming and we are closing. And not coming means by mid February or by the second half of February, to be fully precise. On that note, what is at least interesting coincidence while we were publishing this launch, this ad hoc news, the Parliament calendar of the German Parliament has been published. And it says that the so-called Solar Package 1, which is the law that we deal with, the resilience concept for Germany is expected to be -- to pass Parliament on February 21. So we'll see what the outcome is. We'll definitely share information as soon as we have it and publish the final decision clearly. So in light of these results and the criticality of the European market, we have, of course, to protect the viability of our business and also to make sure that we capture the growth opportunities, which for the time being, R&D U.S. The U.S. plan that I have shown is a highly attractive investment. And in our opinion, for existing investors and, of course, also new strategic partners, the U.S. growth in return also would finance the R&D activities in Europe. So this is, in our opinion, a no-brainer that, that definitely works. The downsizing of Europe is a difficult decision, very clearly, but we will be ready to take this decision with immediate effect as soon as we have more knowledge, which cannot be waiting longer than by the second half of February. And more detailed number on the fiscal report or the fiscal numbers will be shared in March when we finally present the 2023 numbers. On the funding, I would also like to explain what we are anticipating on the additional funding. So we are in the need of about CHF 450 million to complete our factory setup in the U.S. And we are working. This is not a secret, and we have communicated this also in the past. We are working on 3 different funding options, all 3 are debt-based. Number one is a export financing for the equipment that moves to the U.S. for the Goodyear facility via export financing covered by [indiscernible]. And the second option is partly monetization of our 45x advanced manufacturing tax credits in the U.S., which we are working on and are currently also in very detailed discussions. And the third, same status, very advanced, and we have submitted our documents and are now in thorough exchange with the U.S. Department of Energy. We are working on a DOE loan, which comes also with very preferred terms and interest rates of between 4% and 5% in the U.S., which is very competitive. And these 3 options we expect to complete within this year. We have, in addition, the CHF 150 million cash end year. But the company is also considering additional equity financing rights issue or private placement in the near-term future. And the reason behind is clearly also that whereas the funding options we are having, it's about the export financing is about CHF 100 million. The tax credit monetization could be around CHF 100 million as well. The Department of Energy loan is about CHF 200 million, maybe EUR 220 million and cash in the bank, plus also options on additional down payments from our offtake customers, which we have partly received already. We believe that a rights issue on equity instrument is also needed here in order to make sure that we are meeting all time line requirements as we are currently putting a lot of equipment in the ground and in the U.S. and that meets the funding, and we have the most funding needs for CapEx in 2024 and 2025. And the second necessity also for such a stacked funding concept would be that in case of teaming up with a partner, we believe there is strong growth potential in the United States for additional capacity which we would be able then to finance also together with the partner ideally. And in order to be ready for this, we believe a private -- excuse me, an equity measure is important as well. With this, I would like to close my remarks on the press release this morning and on the numbers, and I'm happy to take your questions.

[Operator Instructions] And the first question comes from Constantin Hesse of Jefferies.

Once again, after this morning's call, I think there's been a bit of a confusion since this morning around timing and funding. And now regarding the equity raise as well, Gunter. So when you say the word funding in the press release, so that's related to the CHF 550 million that you mentioned last year. So that's basically -- you've already spent CHF 100 million. There's CHF 450 million missing to finish CapEx, to finish the U.S. construction. Is that correct?

Correct.

Okay. Fine. So with the CHF 450 million, what -- so included in that, so you have the CHF 150 million cash in the bank. That's one thing. Then you have the export financing at CHF 100 million, so that's CHF 250 million. You said the 45x credits would only be used as a later -- as a last resort, more kind of so the DOE loan would be CHF 200 million, which puts us at CHF 450 million already in cash. And you have prepayments from your offtakers over the summer. So that would take you north of CHF 450 million. However, one thing that -- so first of all, is that correct what I'm saying?

This is the right math. Yes.

So you wouldn't necessarily need to monetize the 45x credits, assuming that all of these debt facilities come to play?

Well, I mean what we also should not forget about is that we have still a business in Germany, even though we are considering to downsize it according to the announcement, but it's still there. So there's also cash needs for this.

Okay. So -- and then the question is this morning, it was -- the way that I understood the equity raise was that the equity raise was going to be completely associated to the signing of a potential partnership with some partner to drive growth via this new business model. However, now you're saying that the rights issue is needed in order to meet the time line requirements of the U.S. CapEx. So is the private placement to fund future growth with this partner? Or is this rights issue needed to fund or basically as an emergency to fund this CapEx, the 2 gigawatts?

So we have, again, to look into the timing here. So we have these funding needs spreads over the next couple of months, primarily with most of the needs in H2 2024 and H1 2025. So kind of fade in, fade out. And we are -- we have the funding requirements for -- in order to complete the entire build-out to be secured, it would theoretically be possible to go with [indiscernible] only, but in order to make sure that we are not having any issue here in terms of the completion of these [indiscernible], an equity funding would definitely secure the plans. Let me put it this way. But of course, since we are on talks with strategic partners or industrial partners, the likelihood that this goes along with additional growth is also there because what we are trying to do here is that we turn the model into the business model into more of, in the future, an asset-light model, where funding of additional CapEx is also coming directly from these partners. And so therefore, it's for both, I would say, for securing the current plan, but also to be ready for any additional opportunity in the U.S.

Okay. Understood. So in terms of timing then you said that the export financing, you're in very final conversations, so we could see that coming at some point Q1, Q2. Rights issue would be next. You said it would be relatively -- I think in the last call, you said a few weeks then the DOE loan is expected in the second half, right?

Correct. And the monetization, the 45x, that's also in the making, again, if we need it, it's expensive, but it's definitely possible. The better way of using the tax credit is once the product has been produced and then you sell the tax credit, for instance, then you can achieve what First Solar recently communicated to get CHF 0.96 for the dollar, which is definitely -- would be the better deal. But we keep that option available for us.

Okay. And then just lastly, just to be totally sure that I understand this, CHF 450 million for the U.S., so the need -- why you need so much cash is USD 450 million. You have to pay back the loan in Germany, CHF 70 million. You said that closing Germany would be another CHF 50 million to CHF 70 million. So that's another...

No. So the closing of Germany is not CHF 50 million to CHF 70 million. The CHF 50 million to CHF 70 million, what I said relates to a potential transfer of the equipment to the U.S. The closing of Germany is less. It's about -- if we have to fully repay the subsidies we received, it would be in the range of CHF 30 million plus.

Okay. So that plus basically the losses that you still have to cover for continued operations in Germany, if the decision from the Germany come -- if the decision comes, do you still go ahead with the private placement?

I would probably think so, yes.

The next question comes from Tobias Schulte, UBS.

A few understanding of the short-term cash position. You had around CHF 200 million cash burn over the half -- second half year '23, if I just made a simple calculation, I got that around CHF 350 million net cash in first half and CHF 150 million end of second half. I assume that the cash burn will not change dramatically now in the first half of 2024. So by that, yes, you're running out of cash quite fastly, I would say. Do you know the time lines of when the credit really can come? That's a bit worrying me because I'm not so sure if it's still some governments which are giving you money how fast. How fast this can be grabbed on? That's the first question. And the second question, are you going to do a placement or are you going to do an ABB placement of the shares? And do you need to go give out? And do you need to ask shareholders for it? Or you have [indiscernible] for doing that?