Landis+Gyr Announces First Half FY 2018 Financial Results

ZUG, Switzerland, Oct. 26, 2018 /PRNewswire/ -- Landis+Gyr (SWISS: LAND.SW) today announced financial results for the first half of fiscal year 2018 (April 1 - September 30, 2018). Key highlights included:

• Order intake increased 10.3% in constant currency year over year, reaching USD 910.0 million in H1 FY 2018 with committed backlog in EMEA increasing by 9.6% in constant currency to USD 760.2 million
• As supply chain constraints continued, net revenue decreased 1.9% in constant currency to USD 852.9 million compared to the first half of FY 2017
• Adjusted EBITDA was USD 106.8 million compared to USD 106.5 million* in the first half of FY 2017
• Reported EBITDA was USD 114.9 million compared to USD 40.8 million* in the first half of FY 2017
• EMEA Adjusted EBITDA essentially breakeven as Adjusted Gross Profit margins increased by 290 basis points
• Reported net income was USD 59.2 million including a non-cash gain of USD 15.5 million related to the sale of intelliHUB in Australia. EPS of USD 2.01
• Free cash flow (excluding M&A activities) was USD 14.1 million
  ^* Following the adoption by the Company of ASU 2017-07 relating to defined benefit pension scheme costs, H1 FY 2017 EBITDA has been revised down by USD 2.3 million as all pension income and expenses other than service costs are now reported under "Other income (expense)"; net income is unchanged.

"Landis+Gyr's results for the first half of FY 2018 show the resilience of our Americas business while our strong efforts to drive operational improvements in EMEA are becoming visible. Americas net revenues excluding Japan were up 14% and Adjusted EBITDA margin remained over 20%. EMEA's Adjusted EBITDA was essentially breakeven as the benefits from new product introductions and our restructuring programs showed through. However, our results were impacted by ongoing supply chain constraints as we incurred higher costs to keep the supply chain flowing and even then we could not fulfill all orders on hand," said Richard Mora, Landis+Gyr's CEO.

"The company is poised for further improvement in H2 FY 2018. Given the continued challenges in the supply chain, we have made minor adjustments to our full year guidance," Mora concluded. 

Net Revenue, Order Intake and Order Backlog
Order intake for the first half of FY 2018 was USD 910.0 million, up USD 84.9 million or 10.3% (both in constant currency terms) over the same period in FY 2017. The increase was driven by EMEA where committed backlog rose 9.6% in constant currency terms to USD 760.2 million. For the Group as a whole, committed backlog was USD 2.348 million at the end of H1 FY 2018.

In H1 FY 2018, net revenue for the group reached USD 852.9 million compared to USD 865.6 million in H1 FY 2017, a decrease of 1.5% (or 1.9% in constant currency terms). Revenue was negatively impacted by industry-wide supply chain constraints, as the company experienced shortages of certain electronic components. As a result, Landis+Gyr deferred shipment of about USD 20 million worth of customer orders on hand.    

Net revenue per segment was as follows (in USD millions, except where indicated):

In the Americas region, strong H1 FY 2018 sales growth in North America offset a significant reduction in Japan's year over year revenues. EMEA experienced lower net revenues compared to last year. In addition to supply chain constraint impacts, the region experienced lower demand in some AMI markets, including a temporary slowdown in the UK as the market prepares for the transition to a new generation of meters, SMETS2, which will start in December 2018, and in Spain, as a project rolled off.

Adjusted Gross Profit
Adjusted Gross Profit for the reporting period was USD 291.9 million, a decrease of USD 12.5 million from USD 304.4 million in the first half of FY 2017. In total, during H1 FY 2018, Landis+Gyr booked USD 12.1 million (approximately 140 basis points of gross profit impact) in incremental costs associated with supply chain constraints. A reconciliation between Gross Profit and Adjusted Gross Profit can be found in the Supplemental Reconciliations and Definitions section of the Half Year Report 2018.

The Adjusted Gross Profit by segment was as follows (in USD millions, except where indicated):

Adjusted Operating Expenses
Adjusted Operating Expenses for the reporting period were USD 185.2 million, a decrease of USD 12.6 million year over year due to further positive impacts of Project Phoenix in EMEA and expense control in other regions. In H1 FY 2018, adjusted research and development (R&D) spending was USD 76.4 million or 9.0% of revenue. A reconciliation between Operating Expenses and Adjusted Operating Expenses can be found in the Supplemental Reconciliations and Definitions section of the Half Year Report 2018.  

In H1 FY 2018, Landis+Gyr had two major cost reduction programs underway in EMEA. Project Phoenix aimed at reducing the cost base by closing certain offices, unifying various back office functions and improving productivity in all functions. Phoenix is now delivering USD 20 million of annualized savings and the program is complete, having reached its target. The second program, Project Lightfoot, is aimed at bundling and, in part, outsourcing manufacturing activities to enhance production efficiencies, lower supply chain costs and further reduce capital intensity. Lightfoot is on track, and, by the end of FY 2020, is expected to achieve USD 25 million of annual savings, versus USD 20 million as initially planned, relative to the cost base at the time of the IPO.

Adjusted and Reported EBITDA
First half FY 2018 Adjusted EBITDA was USD 106.8 million, compared to USD 106.5 million in the first half of FY 2017. Asia Pacific and EMEA saw improved results while Americas posted reduced Adjusted EBITDA results compared to the first half of FY 2017.

The Adjusted EBITDA by segment was as follows (in USD millions, except where indicated):

The adjustments made to bridge between EBITDA as reported in the Group's financial statements and Adjusted EBITDA are as follows (in USD millions):

H1 FY 2018 restructuring charges mainly relate to measures taken in Brazil. The normalized warranty expense adjustment for the first half of FY 2018 reflects that the level of warranty expense in the Interim Consolidated Statement of Operations was below the three-year average utilization by USD 11.3 million.

Landis+Gyr's first half FY 2018 Reported EBITDA was USD 114.9 million, compared to USD 40.8 million in the first half of FY 2017.

Net income and EPS
Net income for first half of FY 2018 was USD 59.2 million, or USD 2.01 per share. Net income included a non-cash gain of USD 15.5 million related to the sale of intelliHUB to the joint venture which was established together with Pacific Equity Partners in Australia in order to acquire Acumen. Net income increased by USD 54.1 million compared to the first half of FY 2017.

Capital Expenditure
In the first half of FY 2018, capital expenditure was USD 16.9 million, slightly below the first half of FY 2017 level.

Cash flow and net debt
Free Cash Flow, defined as cash flow provided by operating activities (including changes in net working capital) minus cash flow used in investing activities (capital expenditure on tangible and intangible assets) excluding merger and acquisition activities (M&A) was USD 14.1 million in the first half of FY 2018, a decrease of USD 6.5 million from the first half of FY 2017. The main driver for the decrease was higher legacy warranty cash-outs.

"Landis+Gyr has a strong record of cash generation with free cash flow excluding M&A activities over the four fiscal years FY 2014 to FY 2017 averaging around USD 84 million per year. It's also the case that our cash generation tends to be skewed to the second half, given the timing of certain cash-outs. We expect another strong cash flow year in FY 2018," added Jonathan Elmer, Landis+Gyr's Chief Financial Officer.

Net debt was USD 110.4 million and USD 107.3 million at September 30, 2018 and 2017, respectively, an increase of USD 3.1 million (net of the dividend payment of USD 68.4 million in July 2018, and the equity contribution of USD 18.9 million to the joint venture in Australia which acquired Acumen). The ratio of net debt to trailing twelve months Adjusted EBITDA was 0.5 at the end of September 2018.

FY 2018 Outlook
Landis+Gyr expects the second half of FY 2018 to be stronger than the first half; however, the supply chain situation remains challenging and leads to greater uncertainty than usual. Landis+Gyr's outlook for FY 2018 net revenues is 1-3% growth year over year. Adjusted EBITDA is expected to be in the range between USD 217 million and USD 237 million, as EMEA and Asia Pacific further improve their performance over the course of the second half and the Americas remains resilient. FY 2018 Free Cash Flow (excluding M&A activities) is expected to be between USD 90 million and USD 110 million. The FY 2018 dividend is expected to be the Swiss franc equivalent of at least 75% of Free Cash Flow (excluding M&A activities) and is expected to be not less than the FY 2017 dividend amount of CHF 2.30 per share.

Regional Leadership
Susanne Seitz will join Landis+Gyr as the new Executive Vice President for EMEA on November 19, 2018. In Asia Pacific, Steve Jeston has been named as the Interim Head of the region. The Company has set January 29, 2019 as the date for Landis+Gyr's first Capital Markets Day and the opportunity to meet the extended Executive Team.

Sustainability Report
Landis+Gyr's FY 2017 Sustainability Report was issued today. In FY 2017: water consumption within the Group decreased by 10.0%; total use of chemicals decreased by 2.4%; total waste produced increased by 5.3%, primarily due to the transfer of manufacturing capacities internally and to external partners; and total CO2 emissions fell by 11.1%. Since measurement began of Landis+Gyr's carbon footprint in 2007, CO2 emissions have been reduced on a per-turnover basis by 31%.

Recent Corporate Developments

• In North America, Public Power customers across the US signed new Landis+Gyr technology solution agreements, totaling over 270,000 additional AMI endpoints planned for deployment along with a refresh of software and technology. Key customer names include Kissimmee Utility Authority, South Plains and Sulphur Springs.
  
  
• In the UK, the transition to the next generation of smart meters (SMETS2) is now confirmed by the government for December 2018. As the UK market leader, Landis+Gyr added orders to committed backlog of GBP 161 million with 18 million meters now deployed or under contract.
  
  
• In France, Enedis awarded Landis+Gyr a contract to supply approx. 20% of their future volumes (with potential for further expansion) in the planned rollout of the next thirteen million Linky meters by 2023, in line with the previous tenders and contracts to supply Linky meters and data concentrators.
  
  
• Landis+Gyr launched a comprehensive managed services solution to operate all of Caruna Oy's 660,000 smart metering points in Finland with more than 17 million validated metering values provided to Caruna and its customers every day. The service includes full smart metering operations responsibility for a duration of six years and an optional extension for an additional three years.
  
  
• Landis+Gyr and Pacific Equity Partners (PEP) established a joint venture which acquired Acumen from Origin Energy Limited, Australia's largest energy retailer. The Acumen business includes the existing management of an already deployed 170,000 smart meters and a material long-term contract with Origin for the deployment and management of additional smart meters across Australia.

Landis+Gyr Group's Half Year Report 2018, the Sustainability Report 2017/2018 and the Half Year 2018 investor presentation were published today and can be downloaded at www.landisgyr.com/investors.

Investor/Analyst Audio Webcast and Telephone Conference
The management of Landis+Gyr will host an investor/analyst call to discuss the company's results.

Please dial in 10–15 minutes before the start of the presentation and ask for "Landis+Gyr's half year 2018 results".

About Landis+Gyr
Landis+Gyr is the leading global provider of integrated energy management solutions for the utility sector. Offering one of the broadest portfolios of products and services to address complex industry challenges, the company delivers comprehensive solutions for the foundation of a smarter grid, including smart metering, distribution network sensing and automation tools, load control and analytics. Landis+Gyr operates in over 30 countries across five continents. With sales of approximately USD 1.7 billion, the company employs c. 6,000 people with the sole mission of helping the world manage energy better. More information is available at www.landisgyr.com.

Disclaimer
This publication may contain specific forward-looking statements, e.g., statements including terms like "believe", "assume", "expect", "forecast", "project", "may", "could", "might", "will" or similar expressions. Such forward-looking statements are subject to known and unknown risks, uncertainties and other factors which may result in a substantial divergence between the actual results, financial situation, development or performance of Landis+Gyr Group AG and those explicitly or implicitly presumed in these statements. Against the background of these uncertainties, readers should not rely on forward-looking statements. Landis+Gyr Group AG assumes no responsibility to update forward-looking statements or to adapt them to future events or developments.

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