SMA Solar Technology AG (S92) Earnings Call Transcript & Summary

Sunny, welcome, everyone. We very much appreciate that you are taking the time for this investor and analyst call on our first half year 2026 results. This conference call is scheduled for up to 60 minutes and will be recorded. After the management presentation, we will be happy to answer your questions. Today's presentation is available on our Investor Relations website. The replay will also be available there shortly. I'm glad to welcome our CEO, Jurgen Reinert, to this call. He joins me today to provide you with the H1 update. First, I will walk you through our first half figures. And then Juergen will provide you with an update on our transformation program as well as updates on our business, including new solutions to our portfolio, current regulatory developments and how we strengthen customer value with our large-scale solutions. Finally, we will wrap up with the updated guidance for the 2026 financial year and take time for your questions. I expect the presentation part to last about 30 minutes. Let's start. I refer to our disclaimer on Page 2. Let's move to Page 4, financial highlights for the first half 2026. Well, before we deep dive into the various financial KPIs, let me first say that we are very happy with the results of H1. It clearly shows that SMA is gaining momentum again and that many efforts taken by the whole team are actually paying off. In addition, all key figures are affected by the tariff refunds we could collect from the U.S. Treasury. Without going into too many details, we can say that we use the mirror accounting principle to book the impact. It means minus EUR 22 million is shown as a sales reduction from reversing the revenues we had in the past from passing on tariffs to large-scale customers and EUR 41 million of costs have been reversed in our COGS. As such, the net impact was around EUR 19 million of EBIT improvement and cash improved by EUR 42 million as we also received interest on the refunds. We do not consider the tariff refund effects as true one-off effects since we also did not and do not report the tariff costs as one-offs. We are being consistent here, but the tariff refund obviously did have a meaningful impact on the Q2 figures. We do provide transparency on the related effects, just not in terms of adjusting our operating figures. Also, we have collected the vast majority of the IEPA refunds and do not expect any material impact going forward. Group sales with EUR 687 million were on last year's level of EUR 685 million. This shows that we could keep the high level of H1 last year. Please note that this is impacted by the U.S. tariff refunds, which reduced sales as refunds of tariffs previously passed on to customers are recognized as a reduction of sales. If we would exclude this effect, our sales were approximately 4% above H1 last year. This is also the main reason for the sales development in the Large Scale & Project Solutions division, which decreased by 5% to EUR 542 million after EUR 569 million the year before. Sales in the Home and Business Solutions division increased by about 25% to EUR 145 million due to elevated demand in Q2. Operating group EBITDA before one-off earning effects increased to EUR 66 million after EUR 50 million in the first half 2025. This includes the mentioned EUR 90 million U.S. tariff refunds recognized in earnings. Taking into account the total positive one-off earnings effect of EUR 22 million in Home & Business Solutions, group EBITDA increased to EUR 88 million in the reporting period versus EUR 9 million last year. I will provide more insights on this and the individual divisions in a moment. Free cash flow increased to EUR 72 million in the first half of 2026 compared with EUR 66 million in the prior year period. Total order backlog benefited from a record order intake of EUR 567 million for our large-scale business in Q2 and increased to EUR 1.75 billion at the end of June compared to EUR 1.16 billion at the end of June 2025. Main markets in Q2 this year were the U.S. and Germany. Now let's go to Page 5, sales by region and by division. On the left-hand side, we can see that Americas revenue share increased slightly to 35% with consistently strong large-scale sales in the U.S. and good uptake of our Home and Business Solutions revenues compared to H1 last year. EMEA revenue share was slightly down to 47% after 49% in the first half 2025 as large-scale sales slightly declined as a result of timing of key projects in the region, for which we actually expect a stronger H2 this year. This more than offset a solid sales growth in the Home and Business Solutions division in EMEA. The APAC region share decreased to 18% after 19% in H1 2025 as large-scale revenues in Australia were below the extraordinary high level of H1 last year. The main markets for the SMA Group in H1 2026 were Germany, the United States, United Kingdom and Australia. Now let me walk you through the sales performance by division, as shown on the right side of the slide. Given the pickup of demand compared to previous year, sales in the Home and Business division increased by 25% to EUR 145 million after EUR 116 million in H1 2025. The division's share of total sales has increased to 21% compared to 17% in H1 last year. Within our transformation program, EMEA continues to be the key focus region for Home & Business Solutions. So as expected, EMEA remained the division's largest division region in the first 6 months. Obviously, this growth is partly driven by the rising energy prices as a result of the military conflict in the Middle East. Large scale showed a revenue decrease of about 5% in the first 6 months, reaching EUR 542 million after EUR 569 million last year. The main reason for this was the previously mentioned U.S. tariff refunds, which reduced revenue as refund of tariffs previously passed on to customers are recognized as a reduction of revenue. Regarding sales dynamics, we expect a higher level of project execution than in the first half, particularly in the EMEA region, supported by a stronger project pipeline. Americas was the strongest region with 41% followed by EMEA with 38% and APAC with 21%. Now let me provide you with more information on profitability. EBITDA, excluding special items, which are primarily attributable to the Home & Business Solutions division amounted to EUR 66 million after EUR 50 million last year. Positive earnings effect of EUR 22 million resulted from the sale of previously written down inventories in Home and Business Solutions. Contrary to the original expectations, we were able to identify buyers for these inventories as part of the targeted sales initiatives. In addition, EBITDA benefited from the release of personnel provisions of EUR 3 million related to the restructuring program. These positive effects were partly offset by EUR 3 million in expenses for external sales commissions incurred in connection with the successful sales initiative. Taking into account the positive earnings effect of EUR 22 million from the Home & Business Solutions, one-off EBITDA increased to EUR 88 million in the reporting period with an EBITDA margin of 13%. Comparable EBITDA in 2025 was EUR 9 million with an EBITDA margin of 1%. Depreciation was slightly below last year with EUR 26 million. Looking at the results by division. EBIT for Home and Business Solutions improved significantly, reaching minus EUR 22 million compared to a minus EUR 129 million in H1 2025, driven by the restructuring and transformation measures as well as positive earnings effect of EUR 22 million resulted from the sale of previously impaired inventories. EBIT in our Large Scale division reached EUR 78 million, which was below the level of H1 2025 with EUR 111 million. This was driven by 3 effects: first, higher scheduled depreciation and amortization on capitalized development projects after completion of the main product development phase of Sunny Central Flex; second, a less favorable U.S. dollar rate compared to H1 last year; and third, less capitalization of R&D costs. The overall reported EBIT margin for the SMA Group was solid with 9%. Now I will move on to the balance sheet and net working capital on the next slide. Net working capital, which is shown on the top left of the page, decreased to EUR 178 million compared to the 2025 year-end figure of EUR 213 million. This leads to a net working capital ratio of 12%, which is slightly below the ratio at the end of last year. Let me walk you through the net working capital positions. Inventories, including advanced payments to suppliers on inventories not yet received, were at EUR 370 million at the end of June compared to EUR 357 million at year-end 2025. Trade receivables at the end of June increased to EUR 192 million due to higher revenues at the end of the reporting period. These are expected to be converted to cash in Q3. Trade payables increased by EUR 53 million, mainly related to timing of supplier payments. Advanced payments received from our customers slightly increased compared to end of 2025 and are expected to increase in Q3 based on the recently high level of order intake for the large-scale business. As a result, net cash increased by almost EUR 70 million, reaching EUR 245 million at the end of June, following the decrease of net working capital, the positive earnings and the tariff refunds received. Now let's have a look at the group balance sheet on the right side of this page. And as I've already explained the changes in the net working capital position, I will focus on the major changes on the other balance sheet positions. Let's start with the changes in total cash and financial liabilities. As we have been able to bring our cash position to a very strong level again through our ongoing liquidity improvement measures, we fully repaid our revolving credit facility in the first quarter and have not needed to utilize the cash credit line since then. You see the corresponding reduction of financial liabilities in our balance sheet on the right side of the page. Our total cash is EUR 245 million at the end of H1, which is a strong increase compared to the end of last year, driven by operational performance in both our results and net working capital management as well as the tariff refund. Regarding the other balance sheet items, noncurrent assets have increased since the end of 2025, driven by an increase of our deferred tax assets, which increased by over EUR 30 million as a result of moving the 3-year valuation basis forward to the end of H1 2029. Other assets are higher than at the end of last year with EUR 70 million with the increase primarily from contract assets related to work done and investments into our EPC projects, which when ready will be sold. Shareholder equity increased by 21% to EUR 441 million per end of June, leading to an equity ratio of about 32%. The positive development is driven by the good H1 results and the positive effect from the updated valuation of our deferred tax assets as explained. Provisions slightly decreased to EUR 220 million at the end of June, mainly from the partial consumption of provisions for restructuring efforts in H1 as planned. And other liabilities increased to EUR 580 million, mainly from increases in income tax and VAT liabilities. That concludes my explanation of the balance sheet. Let's have a look at our summary of cash flows on the next slide. Starting with our net income. And if we then add back the noncash P&L items such as depreciation and amortization and changes in provisions, you can see that we had a strong positive cash flow from our operating profitability in H1. The non-P&L cash effects are mainly from payments related to our restructuring program, payments for prepaid assets such as annual IT license fees, which are realized as expenses throughout the full year as well as income taxes paid. Net working capital continued to be optimized. As explained, we successfully sold off some written down inventories in the Home and Business Solutions while increasing inventories for large-scale projects, which will be realized in the second half of this year. For these inventories, we also have higher trade payables at the end of H1, resulting in an overall decrease of net working capital. Net CapEx amounted to EUR 10 million, which is well below the level of H1 2025 as we keep managing our cash position very closely, including reduced R&D capitalization. Considering our cash flows from operating and investing activities in total, our free cash flow was on a good level with plus EUR 72 million. Comparing the free cash flows between 2025 and 2026, you can see a big difference. While in 2025, free cash flow was strongly supported by net working capital optimization, the 2026 free cash flow is heavily influenced by the significantly improved net income. Let's move to the next page, order backlog. Looking at the left side of the slide, you see that our order backlog increased significantly to EUR 1.75 billion at the end of June compared to EUR 1.35 billion at the end of December 2025 and product order backlog increased to EUR 1.42 billion. On the right side of the page, you can see that our large-scale product order backlog remains strong with EUR 1.3 billion, and Home & Business Solutions more than doubled its product and order backlog to EUR 100 million compared to EUR 43 million at the end of December 2025, driven by the launch of our new product portfolio in June. For the group in total, Q2 was a record order intake for large-scale showing EUR 567 million. Home & Business Solutions came in with EUR 137 million. Now let's turn to the next page, and I will hand over to Jurgen with an update on our business activities and our ongoing transformation program.

Thank you, Kaveh, and good day to everybody. Our key restructuring and transformation activities have been successfully implemented or are ongoing and are on track to achieve the saving targets. In cases where individual savings measures are behind plan, the teams are working on either achieving savings and other measures or introduce additional measures to compensate. From an organizational standpoint, our transformation efforts to establish the multi-shared service center in Poland and a global competence center in India have progressed especially well. In India, more than 30 of the planned 50 FTEs have already been onboarded with hiring progressing on track. Together, these initiatives not only support our cost reduction targets, but also strengthen our global organization with additional capabilities and a more scalable operating model. Operationally, we continue to simplify our setup and optimize warehouse capacity across the group. This includes the closure of warehouse sites in Brazil and Singapore, reducing complexity and supporting a more efficient cost structure. At the same time, our market performance is continuously improving. This is an important point because financial performance is not solely determined by cost measures. The combination of disciplined execution of the restructuring program and stronger commercial momentum is supporting our ability to achieve and in some cases, even exceed our financial plans. Looking ahead, our focus remains clear. We will complete the remaining measures, continue to improve operational efficiency and further advance the transformation of our Home and Business Solutions business. As part of this transformation, we have streamlined the portfolio and addressed key customer needs with targeted solutions. A major milestone was the market launch of the Sunny Tripower Hybrid X, which enables us to address a broader range of customer applications. From a larger residential system with battery storage and a focus on energy independence to multifamily buildings and small commercial applications. At the same time, we will continue to optimize our development and supply chain setup, expand partnerships and sharpen our focus on the most attractive markets. Overall, we are moving from restructuring towards a more competitive and scalable operating model. The remaining actions to achieve overall savings of EUR 250 million are clearly defined, Implementation is well underway, and we are confident that the program will provide a solid foundation for sustainable profitability beyond 2027. In our Home and Business Solutions segment, we launched new integrated energy solutions, including the Sunny Tripower Hydroid X, SMA Storage M, the SMA backup solution and our next-generation energy management software, Energy Planner and Energy Maximizer. Together, these solutions enable customers to generate, store, intelligently optimize solar energy within one integrated system, reducing energy costs, increasing energy independence and providing reliable backup power. At the same time, the integrated hardware and software ecosystem simplifies system planning, installation and commissioning for our partners. This marks an important strategic step for Home and Business Solutions, furthering evolving SMA from a product supplier to a provider of integrated customer solutions. The new portfolio received very positive customer feedback at Intersolar and was subsequently met with strong media coverage, confirming market interest in our integrated offering. The rollout across Europe will begin in the second half of 2026 and further strengthening our competitive position in the home and business market. In largescale, we launched, as announced in one of our last analyst calls, a new stability enhanced deeply covered hybrid solution that combines PV, battery storage and grid forming capabilities in one fully integrated architecture. The solution addresses the growing demand for bankable hybrid power plants with high efficiency, improved grid stability and stronger project economics. By integrating power conversion, plant control and engineering expertise, it further reinforces SNA's technology leadership in the utility scale market. The solution has been commercially available since Intersolar and has been very well received by our customers. Together, these launches underlie SMA's strategic development from a component supplier towards an integrated energy solution provider. They strengthen our differentiation in software and system solutions, increased value creation across customer segments and support our long-term growth and profitability potential. The regulatory environment is increasingly becoming a strategic factor for the energy industry. Across both Europe and the United States, we are seeing a growing focus on the resilience of critical energy infrastructure, cybersecurity and secure supply chains. Energy infrastructure is no longer assessed solely by performance and cost, but increasingly also by its ability to withstand cyber threats, geopolitical risks and supply chain disruptions. In Europe, the implementation of the Net Zero Industry Act is now beginning to translate into concrete procurement activities. The first tenders in Italy, Spain and France, with Germany expected to follow, indicate that sustainability, supply chain transparency and resilience are gaining importance alongside traditional commercial criteria. This development is broadly supportive of companies like SMA with an established European manufacturing base and transparent supply chains. A similar trend is emerging in the United States. At the end of July, U.S. Federal Communications Commission, FCC, expanded its covered list framework to include certain foreign produced power and hybrid inverters. Importantly, the vast majority of SMA products currently on the U.S. market already hold SEC authorization and are therefore not directly affected. The new framework primarily affects future product approvals for the U.S. market. More broadly, the decision reflects the growing importance of trusted technologies, cybersecurity and resilient supply chains in critical energy infrastructure. While it is still too early to assess the commercial impact in detail, we believe this direction is strategically supportive for our Large Scale and Project Solutions business, where these capabilities are becoming increasingly important procurement criteria. German Business Solutions, we currently expect a more limited impact. Overall, we see regulatory developments creating a supportive environment for trusted technology providers. This reinforces the long-term importance of resilience, cybersecurity and secure supply chains in the energy transition. The market for large-scale solutions is also evolving beyond individual components. Today, customers increasingly expect integrated solutions that improve project execution, strengthen resilience and reduce operational complexity. A good example is the new U.S. integration facility in Arkansas, which we opened together with our long-standing partner, CEP. Local integration enables shorter delivery times, strengthen supply chain resilience and allows us to respond more effectively to customer requirements in one of our most important strategic markets. In addition, our partnership with Beta strengthens local transformer sourcing, further increasing supply chain resilience, reducing dependencies and supporting the growth -- the growing demand for domestically integrated solutions in the U.S. market. Another area we are actively targeting is the growing data center market. Rising investment in AI and digital infrastructure is increasing demand for reliable, scalable and efficiently managed power supply. SMA can address these requirements by combining photovoltaics, battery storage and intelligent energy management in an integrated solution. This enables operators to manage peak loads, strengthen operational reliability and improve energy cost predictability. We are gaining more and more traction and visibility in this attractive market segment and have built up capabilities of offerings accordingly. The first project in the United States is already underway. We are also advancing with the VDEFNN certification for the short-term overload capability of our central inverter. This capability is based on the SMA design reserve built into our products and allows the system to provide additional power for a limited period when required. We expect the first product certification by the end of August. And once certified, it is expected to enable additional grid support functions, create opportunities for grid service revenues and reduce systems costs by lowering the need for oversizing. Overall, these examples illustrate how we translate technology leadership into tangible customer value and through faster project execution, more resilient energy infrastructure and greater operational flexibility. I will now hand over back to Kaveh for the outlook and the guidance.

Thank you, Jurgen. On July 16, we raised our sales and earnings guidance for 2026. The updated guidance now forecast revenue of EUR 1.625 million to EUR 1.725 million and EBITDA of EUR 180 million to EUR 230 million. The guidance increase reflects both the reduction of the significant risk that existed at the beginning of the fiscal year and the improved market conditions currently observed across both divisions. Drivers in the Large Scale & Project Solutions division are the stronger performance expected in the second half of the year and the current improved development of the U.S. dollar exchange rate. The original planning for the fiscal year 2026 was based on the assumption that the U.S. dollar would weaken against the euro. A further positive factor was while it was totally unclear what the Supreme Court ruling would mean, it turned out that refunds related to the IE EPA tariff were received almost in full in the second quarter. For the Large Scale & Project Solutions division, we expect a stronger operating performance in the second half of the year. Full year sales will be above the high level of the previous year as a result of the existing high order backlog and sustained demand. In the Home & Business Solutions division, we also anticipate improved sales development in the second half of 2026, supported by the higher order intake recorded in the second quarter. Group EBITDA will see a significant positive impact in 2026 due to reductions in costs and increases in efficiency as part of the restructuring and transformation program, the tariff refunds paid in Q2 and a strong operational performance on large-scale in the second half. Other expected positive drivers include stronger demand in Home and Business Solutions, continued favorable FX developments compared to our initial expectations and potential further reversal of inventory write-downs resulting from targeted sales measures in the second half of the year. Despite higher sales, we expect EBIT for large-scale to remain broadly in line with the prior year level as a result of higher costs necessary for operations and less capitalization of R&D costs. A significant part of the cost increase reflects investments in expanding our service operations to strengthen the service organization within Large scale. For Home & Business Solutions, the Management Board is once again expecting negative earnings in 2026, but with significant improvement over the previous year due to the ongoing transformation process and elevated demand. Looking ahead for the group, we anticipate further improvements in sales and operating EBITDA in the second half of the year compared with the first half. Based on our current planning, Q3 should improve sequentially versus Q2, followed by further acceleration in Q4, which is currently planned to be the strongest quarter of the year. This development is primarily driven by higher revenue recognition and continuous improvements in operating performance. So in summary, we are optimistic despite the different headwinds as management currently sees also some tailwinds, including higher-than-expected demand in HPS and the positive FX development in large scale. However, any new trade restrictions, tariffs or FX movements may require adjustments to our assumptions. Last but not least, a note on our upcoming events. 9 months results will be published on November 12, combined with an analyst and investor call. With this, I conclude the presentation, and we are happy to take your questions.

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

On the numbers. I've got 2 questions. I would like to start with order momentum. And I'd like to break it down basically 2 parts. One, in large scale, clearly, a very, very strong quarter. What I want to understand here is what's driving this? Do you have any exposure to data centers here that you know of? And is this sustainable into the second half? That's the first part of the question. Second part of the question is just on HBS. I'm assuming that the momentum we saw in Q2, and I think this is something that we discussed at Intersolar as well, we should expect a normalization of that in Q3.

Constantin, so on your first question and starting with large scale. So, we do have the situation that we see in the discussions with our utility customers that they tend to go over more and more to decentralized approaches using PV and, of course, storage instead of normal procurement of electricity over other suppliers, of course. And we do see a bigger trend towards PV. That's the one thing. So that's one part of the sustainable part that we see the whole time, and that is the same for U.S. and as from Europe. But what we also see is that we have gained momentum when it comes to Altenso. The project developments are going well and continue to go well. And therefore, as you said, we really had a record high Q2, mainly coming, of course, from large-scale order intake. And -- we also see this to be sustainable. Probably we will not have the same momentum or the same amount as in Q2 as it was a record quarter, but it should not drop too much due to the fact that we do see these factors that I just mentioned as sustainable. And in addition, as you also mentioned, the data centers are coming in. I did just say we also received the first order there, and we do expect further orders to come in there as we are very good positioned in the data center area with the grid forming capabilities with the technology we have and the reliability. So we do think this is sustainable both for large-scale and Athansa orders. When it comes to HPS, of course, we have had some tailwind when it comes to the crisis in the Middle East and the change in the feed-in tariff in Germany. But we also see the fact that the destocking has been completed now, and we are in a situation where the distributors fill up their stock again, and they are moving up to us because we do have also new products, which excite them. This is really visible from the Intersolar discussions we've had and the installer discussions we've had. We are in a good position to take some market share from others and that they come back to us on those hybrid products that we did not have in those power classes and because that we have addressed this also with the availability of storage and energy management and the energy planner and maximizer. So I think we have a good momentum there to pick up even beyond what the market is doing itself.

This is great. Second question is just on the U.S. Now I think it's -- I think we understood that it's clearly supportive towards SMA. -- as it seems to be something that banning rather Chinese products instead. What I want to understand is if we could have a bit more details on maybe what your customers are saying, what the dialogue has been? What kind of feedback have you been getting? As a result of that, are you potentially planning to expand capacity in the U.S. even further? I think Power Electronics was talking about doubling capacity in the U.S. So any color you could give us here for the U.S. going forward, that would be very helpful.

Yes. I would say this is rather a little bit too early. We would see something like more than a few months or a quarter or maybe even 2 that we see potential tangible differences there. What we do know, of course, as you also know, the Spanish or this is about all foreign produced inverters, but not, of course, those that already have an SEC certification. So we are good right now anyway. And we also do think, as you were suggesting, that we are quite well positioned for the future due to the fact that we can show that we have a resilient supply chain that we have a governance which is clearly identifiable and clear to our customers that we are in a situation that we can prove that our supply chain is not only resilient, but also mainly from European manufacturers or manufacturers outside China. And all of this will help us in getting the future certifications as well. So we are positively looking into that. And coming to your question regarding customers, they see it the same way. So we will have to wait how this exactly evolves, but we are quite positive that this should be helping us. When it comes to the manufacturing, as you know, we already have the transformers and the integration there. So that's roughly half of the sales price and half of the cost of the product. And we do currently not intend to build up any manufacturing for the inverters there, but that we can handle that very well even under FCC law in the way in the setup we have right now. That's for the time being.

Okay. This is great. And lastly, just on the innovation point. I think during the Intersolar conference, we -- there, I think, one absolutely key component that everyone was talking about was solid-state transformers. I mean, clearly, we're still a few years away from it, but we have been seeing quite a few announcements already of product launches, prototypes being put in place. And I think during Intersolar, you basically said that this is a market that you looked at in the past and then you stopped looking at it and now you're basically retaking some actions in there. What's the plan here in order to make sure that SMA doesn't stay behind?

Yes. I would like to start with the last sentence. I think we have shown over the last years that we have really been able to be very innovative. If you look at our market share against competition in large scale that you talk about, My, when it comes to SSD, for example, we did take market share, especially based on revenues over the last 3 years, and we even would see this year the same tendency. And that is because we have really performed very well in making our solutions very good when it comes to grid stability, grid forming and all that goes into that apart from, of course, quality and features we already always had and are known for. So I think this is something where we have always anticipated it very well. When it comes to SST in specific, I think the market is actually still split because of the fact that -- on the one hand, of course, there's obvious reasons for SSD, especially in data center applications. On the other hand, there's also arguments against it because you need to have a very, very high reliability of 99.5 x 9% and 5%. And normally, a transformer itself is always the most reliable part compared to transformer and price power electronics. And the other part would also be the cost, which is probably also rather comparable. So we have been looking into that, as you said, we are looking into that, but we will only make a clear statement to the outside once we have decided to do it or not. And right now, we are investigating into that. And as you know, we are good in power electronics, probably much better than some of the competitors that many do small powers, and we have an own manufacturing of transformers with a very high knowledge even on high-frequency transformers. So we are well positioned for that. We are looking into that, and we will then, in due time, come back whether we see this as a real game changer or not.

That's great. If I can just throw in just the last one, just on the regulatory environment in Europe. I think if we think about it historically over the last few years, Europe has famously been more of a barking than biting. And I mean, clearly, we've seen about 1.5 months ago, a couple of months ago, the announcement of a funding ban from the European Investment Bank. But what do you actually see on the ground in the market? Like are things really moving in the direction that we will probably see a potential ban on anything that's grid connected? Or is that something that you think is rather not really realistic?

I think it's very difficult to say. As you said, Europe tends to be a little bit more conservative, if I put it like that, towards U.S. or even Japan or Australia as we see it right now. And the move towards banning the -- some countries on inverters for publicly funded projects was already a big step for the EU. And we would not typically probably expect very concise and hard measures in the coming years. But of course, we would be surprised if that happened and would look at that. But we would not expect that to happen rather quickly. On the other hand, what has happened already with the ban of inverters for publicly funded inverters out of some countries, we do see a lot of discussion around it with our customers. So customers are asking us of how we can replace, how we could -- how they could move over to our technology, et cetera. It's also too early to put that into figures, but we are definitely in discussions, especially also in solar and after that. And this is what I can say for the time being, I would not expect Europe to become too bold, but what is happening is actually in our direction.

[Operator Instructions] The next question comes from Guido Hoymann from Metzler.

I have actually 4 questions, 3 on HPS and on large scale. I think we can do it one by one. So the first one would be, how are the margins on your order intake in HPS at the moment? Are they better than precrisis? And if so, I hope so. Is that due to the optimized cost structure? Or is it about less interest -- customer interest for Chinese products as we have just discussed. So is there a stronger interest in, say, European or your products? That's the first one, margins.

Yes. Let me take this one. I think we have to distinguish a little bit when it comes to order intake, whether we look at the PV-only products, the existing product base or if you look at the new solutions that we're offering in the month. I think what is fair to say is that the new product line has much better margins and the order intake for that is really good. So I think that's a good trend. What we've seen, obviously, for the older products, and that's mainly the products that we had written off in the inventory that we benefit now from the write-downs, but those would not have good margins if we hadn't written them down yet. So I think that's a twofold question. Going forward, obviously, the old base will dry out and then the new base will kick in and then the margin level definitely...

Okay. The second one would be, I think you indicated that the breakeven cost base in HPS would be EUR 300 million to EUR 400 million -- sorry, the sales you need to breakeven EUR 300 million to EUR 400 million in HPS. Given the scope of the order intake in Q2 and I think the short -- relatively short lead times here, can we expect HPS to breakeven in Q3 or in Q4?

I think it's too early to say. I think we see a good development in order intake, also profitability improves, as you can read in the numbers. But we don't -- we have too little actuals to say that. So I would not commit to a very early breakeven in Q3 or Q4. I think our plan is to be breakeven next year. That's what we're targeting. And we will definitely have 1 or 2 months maybe this year where we will be breakeven, but then depending on the sales amplitude, so to say, especially in the outer months of the year when it's winter time, we'll probably be not that positive again. So this would be a little bit of fluctuation. But I think that the trend is definitely there that we improve month-over-month. But if you're already breakeven in Q3 or Q4, I wouldn't commit to it now.

And given these 2 trends, you cut down your costs and maybe also capacities in a way, at the same time, a strong increase in demand. So do you actually have sufficient capacities now to handle all that, assuming that the demand stays high? In other words, do you have already -- or do you recognize already longer lead times? Is there already, say, some sort of excess demand? Or in short, can -- do you have sufficient capacities actually to handle a stronger demand in the future?

Yes, let me take that. I think the capacity when it comes to production site lines and people is not a problem at all on both divisions, so both HPS and large scale. When it comes to large scale, which is, as you know, roughly 80% of the revenues, then I would also say we do not have any problems. Why? Because normally, of course, we have 6 to 10 months in lead time between order and then delivery. And thereby, we can much more anticipate that with the supply chain. And also, if you would look at processes, for example, so chips with intelligence integrated, then we would have only one or a few in a whole central inverters and the same for one small inverter. So of course, we would prioritize the big inverters. So there, we would also not have a problem. Where it could be and where we do see the tendency that you mentioned is longer lead times and even price increases, for example, on copper, aluminum and steel, but also on naked PC boards, and that is the same in the whole industry or even other industries, where we do see some trends, and they would then, in this case, come in mainly on HPS and only if the demand really is much different to what we anticipate anyway. So there is a tendency towards higher lead times and higher prices on those that I mentioned and a few other components, which we are trying to adapt, of course, to in the best possible way. But to put that into perspective, once again, it's not on the production side. It's not on large scale, it's mainly on HPS and then only a portion of that and especially if it would change volumes quite considerably, then we would be in a situation where we need to have longer lead times. But all in all, it's still a comfortable situation.

Okay. And the last one is on large scale. If we adjust the Q2 EBIT for the tariff refunds, I understand that you consider that to be operational. But anyway, then the margin would be -- would have been, I think, some 8% or 9% only. So I would say, rather weak also compared to previous quarters. So what is the reason for that actually?

Yes, I can take that one. I think it's fair to say that the revenue level is a bit lower as well. So of course, you have this effect of the fixed cost that you have to carry. So when I do the math, I come to around 10%, which is lower, so I give you that. So that's one point. The other point is if you compare it to last year, for example, of course, the FX development has been negative. We improved versus our guidance because we expected it to be worse. But if you compare it to last year, the FX effect also has a big impact. And the third thing, obviously, is we also mentioned is we don't capitalize R&D expenses in the same amount, right? So this is putting the margin lower compared to last year, while we still have the same cash flow. So I think those would be the 3 main effects.

The next question comes from Jeff Osborne from TD Cowen.