Research report: SMA Solar Technology AG (XETRA:S92)

We are short SMA Solar Technology AG (XETRA: S92) because, in our opinion, the company has been doctoring its financial statements for the past five years. SMA unjust capitalized EUR 146 million in expenses which ultimately boosted SMA’s profitability by the same amount. Furthermore, SMA Solar misstated its financials by ignoring basic IFRS standards, inventing its own IFRS standards, and removing millions of euros from line items. In our opinion, SMA Solar is not as profitable as it claims to be.

Next to boosting its profitability, the company’s intellectual property is threatened by several lawsuits from competitors and annulments of patents for SMA’s key technologies.

In our opinion,

  • SMA Solar falsely capitalized development costs and recorded them in a subaccount called ‘Intangible assets in progress,’ which is neither amortized nor tested annually for impairment. This is not in accordance with IFRS.
  • The subaccount grew by 1,100% in three and a half years and amounted to around EUR 71 million in mid-2023, which corresponds to around 20% of SMA’s non-current assets.
  • SMA Solar removed language on IAS 38 from its annual reports to disguise the fact that the subaccounts were not being amortized or tested for impairment. The financial statements are not in accordance with IFRS. 
  • The incorrect capitalization boosted SMA Solar’s profitability for years. The company is not as profitable as it is perceived by the public.
  • The company invented its own IFRS standards to make investors believe that its fabricated non-GAAP FCF measure was in line with IFRS. However, that FCF metric was changed after it no longer fit SMA’s narrative. For example, the company removed 38 million euros from FCF.
  • SMA Solar’s auditor didn’t notice anything, and despite the high carrying value of the ‘intangible asset in progress’ subaccount, it is not a key audit matter.
  • SMA Solar’s Audit Committee is no help either. Despite being the highest-paid board members, all four lack reportable experience in auditing and IFRS. For example, the chairwoman runs a horse breeding farm and a tax advisory as a side hustle.
  • SMA Solar is threatened by the most recent invalidation of its intellectual property and is further under pressure from competitor lawsuits – most recently by a patent lawsuit from its former investment Tigo Energy relating to RSD, a key component in any PV system.

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