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

Good morning, ladies and gentlemen, and welcome to the Meyer Burger Technology AG Conference Call. [Operator Instructions]. Let me now turn the floor over to your host, Gunter Erfurt.

Thank you, operator, for the introduction, and good morning, everyone. Thank you for your interest in Meyer Burger and participation in today's webcast. We would like to give you -- I would like to give you more information around the ad hoc press release that we have sent out this morning on the background of the investment case in Meyer Burger, our current activities and of course, also any other question that you have, I will try to do my level best to answer this. So let me guide you through some information first. We have today announced that we will shortly invite to an EGM taking place on March 18 and the Board of Directors is asking shareholders to approve a capital measure to target CHF 200 million minimum, maximum CHF 250 million. On the offer structure subscription price and ratio will be announced shortly before the EGM on the 18th of March. It will be an offering with subscription rights. The rights will trade on the SIX and it's a public offering only outside the U.S. and no offerings in Japan, Australia and Canada. So the expected time line that goes along with it is the publication of our audited fiscal year results 2023. As already communicated on March 14 the extraordinary general meeting, as already said on the 18th of March and then the following subscription periods between the 20th and the 28th of March. We did achieve already an investment commitment, Meyer Burger's largest shareholder Sentis Capital with approximately 10% shareholding intends to invest up to CHF 50 million. So beyond they are -- rights execution in this -- and participate in this capital measure by exercising all their subscription rights and purchasing shares for which subscription rights had not been exercised, and the members of the company's Board of Directors and the executive management do also intend to participate and strongly, of course, standing behind this measure. The use of proceeds, of course, primarily to finance our completion of the U.S. Solar Cell and module manufacturing as this is the underlying business case that I will speak to in a second. We see a strong potential for Meyer Burger in the United States and have also with today's decision or communicated decision that we have now started to end the bleeding finally in Europe under the current situation without any industry policy measures in place yet. And in that context, of course, also focus even stronger on our very profitable U.S. business. Just to reiterate, our key figures of 2023. So we communicated this already and also the reasoning behind the very disappointing results of last year caused by these massive market distortions in Europe that we are now responding to by initiating the closure of the Freiberg solar module plant and we are very consequently implementing our plan that we had communicated on January 17. So the construction of our 2 gigawatt U.S. cell and module factory is, of course, subject to the financing. But until so far, as we have already started it, as you know, we are progressing very well with our module facility and are expecting to be able to start up the line as communicated. Our cash position at year-end stood at CHF 150 million. Of course, CapEx spending is the major cash outflow for the time being. And therefore, we have communicated already on the 17th that we have this funding gap that we are now planning to close with the measures announced. Just to remind everyone of the business case that is in place. Unlike Europe, the U.S. has done very straightforward measures or implemented them from an industry policy point of view in order to not only protect the U.S. market from behaviors of other market participants, which are unfair by imposing tariffs, by imposing measures against forced labor and of course, above and beyond the inflation reduction act but also local incentive schemes that Meyer Burger can greatly benefit from in the areas we are producing or planning to produce modules unlike foreseen by some criticizing people on the IRA, the IRA does great in the solar sector. So we see post IRA implementation, as you can see on the left side here, an expected massive growth of the solar market in the U.S. and primarily in the utility scale business. And utility scale, as you know, is something that we had in the focus from day 1 in the U.S. and I think this has been a very, very important strategic decision that the company took early on to enter these long-term commitments with our currently 3 customers and others are being in talks with us on similar concepts for the offtake. And what makes Meyer Burger so unique, of course, is on the one hand, the technology and the product. On the other hand, of course, also the fact that we are a trustful and reliable partner to our customers. And of course, you can also rest assured that we are in talks with these customers, they also understand the challenging situation of Meyer Burger, and we are receiving their full support in order to implement everything as planned as they see the long-term potential with us in the agreed-upon partnerships. So the expectation of Meyer Burger is on the one hand, speaking a bit about the political setup, it's unlikely that under a new government the situation will change. Things like that the IRA might be reversed, is deemed unlikely from all the talks we are having in the U.S. even the opposite is true with all the currently discussed measures to make sure that precious American taxpayer's money is not going to China. There are discussions underway to exclude Chinese companies more from accessing these incentives, and this gives Meyer Burger another spin in our opinion, another positive spin to become one of the leaders in the U.S. business when it comes to the local manufacturing with a highly performing product. And that being said, what we are expecting is that the company is going to produce once up and running in our Goodyear facility, about 10,000 modules per day, exceeding the Freiberg capacities, the current Freiberg capacities by far and also for the cell line with more than 1 million, 1.4 million solar cells per day. We believe we are one of the strongest solar manufacturers in the United States. And again, I want to reemphasize what makes us so unique. If you look around in the U.S. and try to find companies that are also intending to bring solar cell manufacturing to the country, then you will not find that many companies. In fact, currently, one project underway, which is Hanwha, Hanwha's integrated factory. And it's Meyer Burger, other projects have been announced, but we'll see if they will be executed under the currently discussed policy terms with a potential exclusion of Chinese companies holding more than 10% shareholding -- of the shareholding in the company from accessing IRA money. So the U.S. long story short seems to be -- or is very, very strict on making sure that the success story under the IRA continues in order to give the country the energy sovereignty it needs along the anticipated growth of the solar sector. So we are very, very confident that Meyer Burger can also mid and long-term benefit from this setup in the U.S. That being said, expectation for us midterm, that means, of course, funding in place and that factories ramped up, we expect an EBITDA in the U.S. of around CHF 250 million per annum. We believe that's achievable. Why do we believe it's achievable because if you would have talked with us 4 years ago when Meyer Burger was just communicating a story and convincing the market, we had no factories. We had, of course, had experience from being a pioneer in solar and decades of experience, but we did not have the knowledge from setting up factories for our own purposes. So now we have achieved it. We have highly performing factories up and running in Germany. It's -- yes, it's a pity but at this point in time when things are up and running greatly that we are now in this process to preparing the closedown of the module factory. But if we look ahead, and look into what's most promising for us and most attractive, then, of course, the knowledge and the know-how achieved remains available in the company and is existing, and we are already in the process to transfer this to the U.S. such that the ramp-up of the line can go very smoothly and giving us the ability to supply our customers with a product they have ordered. Also, what I want to mention, the business case in the U.S. is also attractive for us without the IRA given the fact that the entire market in the U.S. is much, much more healthy and also in terms of competitive environment, it's accessible. It's a fair competition, and we believe Meyer Burger, has no problem in competing in a -- under fair market conditions and they are given in the U.S. Also look a few words about what we had discussed in January that Meyer Burger is in talks with other parties on a model that we would call a partnership business model, including ideas like collaborations in the market with industrial partners. So these discussions are ongoing. They have not stopped. And we are continuing them very intensively, so what it can result in is, on the one hand, that ongoing funding -- anticipated funding of funds in small capacities also including capacities can be eased by joining forces here. Second, also, the partnership model could include licensing income that close to Meyer Burger. And what is absolutely a prerequisite for us is we are not stopping our strategic approach of a captive business model. So we continue to be convinced that our -- one of the unique -- what we also define the uniqueness of the company is our intellectual property. It's our technology ability also for upcoming generations of solar cells. And this would retain in Meyer Burger's ownership. On the details of how do we want to close our financing gap. So we did elaborate on this already in January, where we very, very transparently explained what the gap is. And again, to explain the gap a bit from a historical point of view, when Meyer Burger decided very wisely in our opinion, to shift the solar cell expansion from Germany to the U.S., we did say that this project would require some funding that needs to be achieved. So we did, at the time, already talk about the DOE loan. We also mentioned that we have the option for a part monetization of the 45x advanced manufacturing tax credit, so to remind you again about the number, it's a total of USD 1.4 billion that Meyer Burger is eligible to achieve via the NMTCs and the idea here is to take a portion of it. I will speak about it in a second and use it upfront for the funding. So the in addition to the CHF 200 million up to CHF 250 million rights issue we are pursuing now the debt financing via the U.S. Department of Energy is in the range of CHF 200 million to CHF 250 million. And the 45X monetization. We are in discussions with a larger bank in the U.S. We have received a term sheet here that indicates the terms with CHF 300 million -- up to CHF 300 million. And very important for us and also a strong signal. We have been able to achieve an export credit guarantee from the German government, Euler Hermes, for an export agency -- on export financing in the amount of up to USD 95 million. So this is now in the making to be finally concluded in loan agreement, but the terms are clear and this export credit guarantee is secured. This is a strong achievement and also a strong commitment. It goes without saying that this can also be seen as a government support from the German government. In that case, of course, also to help the company to stabilize its current situation and to make sure that we have enough funding in place. So you might ask now why all of this money. So we said it's CHF 450 million gap we have to close. So CHF 200 million up to CHF 250 million in equity, of course, achieving the debt financing also requires also a strong equity ratio and we also have very purposefully pursued these 3 options for the debt financing and we do not need the CHF 450 million in 1 shot. So that's also clear. So the CapEx spending is a process that goes way into 2025. So it does not need to be here immediately and it can come in step by step. But we also have the option to optimize the debt financing structure by focusing more on one instrument or lowering the volume in another instrument. So we have options. That's the very clear and strong message that I want to send with the CHF 95 million loan to be agreed upon in terms of the terms behind and now turning this into the definitive agreements and also for the U.S. Department of Energy project. We have successfully completed the Phase 1 application, and we were formally invited by the DOE to enter into the next phase, that will then finally decide and what I also can mention about the DOE loan is you can imagine under the Inflation Reduction Act the Department of Energy is receiving tons of applications for loans to be achieved via this instrument that is explicitly structured to help companies setting up activities and manufacturing under the IRA in the respective segments. And of course, the Department of Energy, of course, is also looking into what's most strategic among these projects. So there is a selection process taking place before you even enter it. And we have entered it. As I said, we have successfully completed Part 1. And with this very formal invitation into the next phase, which will then bring the final decision. That's a very strong signal from the U.S. government that they are supportive here. They want solar cell manufacturing, and I already mentioned it, this is a prerequisite in the U.S. in order to make sure the energy independence is created in these various segments, in our case, in solar. And it's not enough just to produce modules from Chinese components. The U.S. is pursuing a strategy -- the U.S. government is pursuing a strategy to bring in all the segments of the supply chain and I want to remind you that one of the major reasons why we decided last year on somewhat to move our solar expansion project to the U.S., but that the U.S. Department of Treasury has come forward with a new scheme that the investment tax credits that our customers receive do need to include the solar cell from a certain point in time. And there's even more development as we speak to bring in to the ITC more components, which have to be then locally made. Not immediately, there are transitional periods, of course, underlaid in order to make sure that the energy transition in the U.S. doesn't stop, but it's perfectly aligned with our plans to bring solar cell manufacturing into the States now. And that's why we are so much welcomed by the U.S. Department of Energy. So on the 45X very quickly, this is an instrument I think, it is also very attractive to us even though it's, of course, more expanded than subsidized loan from the Department of Energy. But here, we have a good reason to believe that such an instrument could be pulled in, in terms of the timing expected to achieve it. So that's why we're pushing this avenue at our-- and can very happily report that we are making good progress there. And again, that stack -- the potential debt financing stack is larger than what we actually need which gives us the ability to respond to any timing challenges and to make sure that we can complete the project in order to achieve the profitability in the U.S. on time. Last slide before I'm very happy to answer your questions. Just to summarize the investment case, we play as Meyer Burger, a very, very important role in this U.S. growth of domestic solar manufacturing under the IRA. I can only reemphasize how much Meyer Burger is welcomed in the U.S. by the DOE, by our customers, by potentially more customers which appreciate our initiatives and support us strongly, mid- and long-term and we want to play that role with the current situation in Europe. We also strongly believe that this focus on the U.S. is absolutely key. Management stands behind it very strongly. The team stands behind it very strongly and we want to make it a success. And despite the challenges we are facing, given the European market distortions, we are strongly convinced as management and, of course, also the Board of Directors that our very early decisions to enter these long-term contracts with our offtake partners plus making quick decisions when we saw that the European business is not yet secured given the slow move of politics when we decided let's stop the solar cell manufacturing project in Europe and move it to the U.S. immediately. We believe this has been an ultrawide decision, and now we are suggesting to you the instruments that are needed to complete the success story for us. We are, as of today, the only Western supplier of high-tech solar cell, our heterojunction cell and module that is engaging aggressively in the U.S. We own the IP. We have more technologies in the making with our interdigitated back contact solar cell technology. We have completed all the work to prepare the product launch in the U.S. for our customers with DESRI starting the supplies first in this year. We have the buy-in from our offtakers in particular, the largest with DESRI. So this is more than just a customer relationship. It is an ultra-strong partnership and also DESRI understands, and those of course also from media and from talks, our situation, is super supportive and can't wait to receive the modules from us. It turns into something highly profitable, and I spoke about the ongoing policy support in the U.S. So we have -- despite the fact that a new government might review the situation under the IRA and may adjust here and there in order to make it more effective but we do not see a risk that the government -- new incoming government would reverse the IRA or move away from this policy support. It's way too successful in the U.S. and the strong will to grow a domestic solar industry that is giving the U.S. independence from China is so strong that we believe we can operate in this environment very successfully. We had this upside with the partnership discussions ongoing. We expect discussions to continue also in the upcoming weeks and months. And I'm also pretty excited about it. And we will see what we can communicate to the market on this. And I also do believe that with what we have already announced on the 17th and what we are presenting today that we not only have an attractive investor case here on the equity side, but that we can also provide the transparency and also the surety about our additional financing options. A few words on Europe before I'm closing here, as you know, we have been communicating on the 17th of January that if there's no decision made by the second half of February, the Meyer Burger is going to act also in favor of our investors, it's important that you understand our decisions and that you also have the surety and the strong commitment that the Meyer Burger management and the Board is very actively and aggressively stopping the bleeding in Europe and this is what we do. So we have in the absence of a political decision made today announced that we are initiating the closing process for Europe, and this means that we are ramping down our facility in Freiberg, not in Thalheim, solar cell manufacturing continues to supply the solar cells for the ramp-up in the U.S. But Freiberg is going to prepared to shut down. We will stop production within the first half in March. And there is a window of opportunity still for politics to act. As you may have followed the discussions. So this week, unfortunately, the coalition in Germany could not find common ground on a solution for the entire solar sector. Nevertheless, there are negotiations ongoing. There is a proposal on the table that is ready to be implemented. It would help the industry entirely, and it would, of course, also provide a business case for Europe. What I want to strongly emphasize and repeat is we are not in a situation anymore that we are waiting and then making a decision. We have made a decision, and it's now on politics to decide whether or not the stop of manufacturing of the Meyer Burger module facility is temporarily only or if it's forever. But I'm not saying and what we have not communicated today in the ad hoc is that we are now waiting for another feedback and then we decide. No, we have decided and it's now in politicians and on the coalition in Germany to decide whether or not this is their strategy to cement 100% dependence from China and go a different path than the United States. On a positive note, on the political environment, what has changed since we presented last time on the 17th of January or communicated last time is that the European Net Zero Industry Act has been agreed upon in terms of the content, a couple of weeks ago in one of the -- in the last trial, so-called trial out process between the EU Commission, the Parliament and the Council. The Net Zero Industry Act is on its way to be turned into a European law. In our expectation, it's going to happen in this quarter. So in March, we could have it. And this is quite an achievement as the entire resilience topic that is under debate in Germany has its roots in the Net Zero Industry Act. So it's nothing that Meyer Burger came up with necessarily. This is a proposal by the European Commission. And it was just shaped by the solar industry to work in the European market. And so long story short, there is still a window of opportunity, but it's not such that we have are delaying our decision to close the Freiberg site. It has been decided and it can only be stopped now if politicians move before, very important now before the EGM and at the date of our fiscal year presentation on March 14th. If we are not hearing anything from them, we will not revoke our decision and the factory will be shut down. People will be laid off, and we can stop the bleeding and protect the company from further damage. So here, I'm going to stop. And very happy to answer your questions. Thank you so much.

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

Gunter, a quick one. So I've got a few questions, but let's go one by one. One of them is -- so with regards to Germany, so the greens, the SPD, they're fine, the SPD is of course, the party that is pushing back. What exactly do they want? What are the concessions that they are asking for? Is there any clarity on that?

First of all Meyer Burger doesn't sit at the table, as you can imagine. So this is a discussion which is held between the coalition parties. So I can only quote from what is in the media and what we are -- where we have some information. So there is -- according to our information, there is, in general, an understanding that the industry -- the solar industry is of strategic interest. I think there is only very few people that would tell you, well, we don't need it, and it's not a problem to be fully depending on China. So what's obviously happening is, unfortunately, of course, now for a very long time, since this is under debate for a couple of months and it's also disrespectful, I would say in regards to the responses the industry needs because it's not a Meyer Burger problem. It affects everyone producing in Europe, certainly note. So what is obviously happening in the background is to find a consensus on how is this going to be financed? How is this working long term. And what we are sensing is that there is willingness to resolve it. They have not been able to do this week. But I think this is pretty much it. So how does it affect the government's budget. The answer here is there are attempts to make it wash so that it's not costing anything. There are these approaches and signals that we are receiving from all parties, still sound optimistic. But again, we, as a company, we cannot use hope as a strategy. That's why we have decided and communicated it today. And if a compromise is being found within the next, let's say, 2.5 weeks, there is still a chance for the government to make a temporary closing -- to make a permanent closing a temporary closing.

Yes. Okay. That's understood. Then the other one is quickly on the German loan on the export credit facility. So you said that Germany approved it, but it still has to go through a process at a commercial bank level. But I would assume that's only bureaucracy and there is no further challenge.

Exactly. The discussions with this provider have not started yesterday, but since a couple of months, we are in good discussions with this provider. It's also an agreement on the terms and also approvals provided in a way that we have now go through the formal process of agreeing on the definitive contract and then we are ready to go.

Okay. So this is coming 100%?

Well, it's coming 100% when it's signed, but I do not see real obstacles in the way here.

Okay. Then a quick question on one of the paragraphs of the press release where you say that you're going to limit CapEx investments in your cell facility until uncertainty around funding is gone. So just to understand this a little bit of what could potentially be a scenario. I'm just wondering like if assuming that at the EGM, if you get no approval from shareholders, you get the export credit agency, you do get the 45X credits and the DOE loan that simply means that the CapEx is simply going to be postponed for the cell facility for a little bit longer?

Well, I mean, it's very clear and not a secret that this funding gap needs to be closed. So I think this is very obvious. We have, in our strong opinion and conviction, a pretty attractive case presented. And we have prepared the closing of the additional gap by this step financing facilities that I've mentioned, and we are convinced that we can get this all in place quickly such that a potential delay and we talk about the cell line primarily can be reduced to a minimum and such that it is not materially affecting our time line. So this is our goal. Nevertheless, it's also a fact that the initial supplies of modules primarily to DESRI. DESRI signed first comes first. And remember, we signed the agreement in August 2022 when nobody spoke about the cell line. And it's also absolutely clear in the process that the cell relocation was done after the fact in terms of signing the supply contract. And that, of course, the solar cell has not been part of the initial contracts at all because it wasn't there. So the solar cells, as I said, make us very attractive, and it of course is defining the uniqueness of Meyer Burger and so also very, very much in the interest of our customers to be supplied. So what I'm saying by this the initial module shipments in 2024 to the offtakers and primarily the DESRI do not need the cell to be included. So that's why we from day 1 said cells will be supplied by our solar cell manufacturing in Germany, and this is in the making. So we are shipping already cells to the U.S. to prepare to ramp up and our target as a management, of course, is to either eliminate totally a potential gap in the time line or keep it at a minimum such that it doesn't really materially affect any shipments to the customers. And also what's worth mentioning the solar cell project is underway. I mean we have placed the orders for the solar cell equipment that's in the making. That's pretty much on time. The facility project is also underway, and we also anticipate from an operational point of view, and implementation of the equipment like we also did in Europe from the back end to the front end. And what that means is we do have the ability here also from a project management point of view to start or to organize our ramp up such that we include process steps, step by step from back end to the front end, but start supplying solar cells from the U.S. early enough. So this is -- we have this flexibility in the project management plan. We have flexibility in our supply contracts to DESRI which is the one that needs to be absorbed first. And we will do our level best to minimize any delays in completion of the solar cell line caused by a funding that's not fully closed. So this is the strategy, and I hope I could make that clear to you.

Yes. That's great. I'll ask the other ones very quickly as there are quick answers. So how much of the 45X credits do you expect of the CHF 300 million to run in Q2. Then very quickly, in combination to that, you say that you won't -- the funding gap will be closed by the rights issue, the export credit agency and either the DOE loan or the 45X credits. So I'm assuming that if the DOE loan comes out, you'll pay the 45X credits back. The last question is, if everything happens the way it is at the moment, you close Germany, can you use the inventory today and sell all of that in the U.S.?