Annual Report 2017 | Landis+Gyr

Annual
Report
2017

Portrait –
Smart Partner
of Utilities

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Portrait – Smart Partner of Utilities

The growing population and pressure on urban areas create a significant challenge in how to build and operate cities and improve the quality of life for billions of people worldwide. Smart City planners are currently rapidly exploring the technological options available. These include data analytics and IoT, to meet the new requirements in this fast-changing and dynamic environment. Technology is being viewed as an enabler to improve city transport links, energy usage, waste and water management and a range of other services that are integrated with urban living.

AMI Technology

Today’s energy infrastructure must operate within a dynamic and fast-changing environment. The growth of distributed energy resources and the emergence of new consumer behavioral patterns have contributed to a shift from one-directional grid infrastructure to bi-directional flows combining multi energy and commodity sources as well as new consumer preferences.

Advanced Analytics

The number of Smart Meters and sensors deployed and the data they collect continues to grow worldwide. Ever more, utilities become data centric companies. Data can be collected, analyzed and used to improve grid stability, manage assets and plan investments more sustainably, engage with consumers, improve reliability and security, and create new services and offerings.

Utility IoT

The IoT unlocks huge potential in the way consumers employ technology and data, connecting Smart Cities, buildings and devices while open markets and new power sources will stimulate demand for resiliency and more tailored services.

Customized Services

As AMI becomes an integrated part of utility operations, the volume of data is exploding, offering new opportunities for customized and complementary services to a utility. To help its customers keep their focus, Landis+Gyr has enlarged its services offerings, allowing a high level of customization tailored to utilities specific needs.

Letter to Shareholders

Richard Mora, CEO - Andreas Umbach, Chairman

Dear Shareholders,
Landis+Gyr’s mission to manage energy better is underlined by our core values of customer focus, trusted partner, innovative spirit and committed to quality. To achieve our mission, driving growth and strengthening market leadership are essential. These traits are accomplished through relentless execution, pioneering technologies and the introduction of new products, all of which bring shareholder value.

Successful Initial Public Offering

The highlight of the year was the initial public offering (IPO), which took place in July 2017 on the SIX Swiss Exchange. The Company was welcomed back to the Swiss public markets after a 20-year absence, thus adding an important, new chapter to Landis+Gyr’s rich 122-year history. The 100% share sales by Toshiba (former 60% owner) and INCJ (Innovation Network Corporation of Japan, former 40% owner) created tremendous interest in Switzerland and internationally, and the IPO was oversubscribed multiple times.

Since the Spring of 2017, the management team has been led by Richard Mora, who has spent 18 years at Landis+Gyr and previously held management positions at Siemens and GE Capital. The Board of Directors is chaired by Andreas Umbach, who has been with the Company for 18 years and was Richard Mora’s predecessor as CEO. Landis+Gyr has assembled a Board consisting of five independent Board members with the requisite sector, financial and board experience. The Board of Directors strives to further enhance its industry and market insights for the Americas market and will therefore propose an enlargement to the Annual General Meeting of June 28, 2018, under the agenda item elections.

IPO Guidance Met or Exceeded

In the fiscal year 2017 (FY 2017; April 1, 2017 to March 31, 2018), Landis+Gyr made significant progress on many fronts and strengthened its market leadership.

FY 2017 net revenues grew 4.7% (2.6% in constant currency), meeting guidance provided at the time of the IPO, to reach USD 1’737.8 million, despite facing some supply chain challenges towards the end of the year. Adjusted EBITDA remained flat with the previous year level at USD 212.0 million, as guided, with the Company experiencing some margin compression despite a reduction in Adjusted Operating Expenses of USD 22.9 million. Free cash flow grew strongly to USD 87.5 million, above guidance, as a result of tight balance sheet control. The Board of Directors proposes for FY 2017 to distribute a dividend, to be paid out of capital reserves, of CHF 2.30 per share which equates to approximately USD 71 million, at the year-end exchange rate. For more discussion of the Company’s financial performance in FY 2017 see the Group's Financial Report.

These results demonstrate Landis+Gyr’s ability to deliver top line growth and solid cash flow. Nevertheless our sales were impacted by supply chain limitations which dampened second half results. Adjusted EBITDA performance for FY 2017 was driven by strong execution in the Americas region, offsetting below target performance in the other two regions. More work is required in 2018 to improve performance in both EMEA and AP.

Technology and Innovation

To secure growth and innovation in the years to come, investments into Research and Development (R&D) remain a key focus. In FY 2017, spending reached USD 163.8 million, equivalent to 9.4% of the Company’s annual sales. While essentially flat in absolute dollars spent year over year, Landis+Gyr’s ability to improve productivity means that the Company will continue to further strengthen our state-of-the-art offering aimed at supplying customers with game-winning solutions for today’s and future business challenges. The current focus is on identifying and developing solutions aimed at increasing Internet of Things (IoT) enablement and leveraging the use of big data and advanced data analytics to improve forecasting, network modelling, resource management strategies and system reliability. Consequently, almost 75% of our R&D investments are software related and reflect the strategic importance of software and firmware in our offering.

Thanks to our strong R&D capabilities, we have introduced new products and technologies in our key markets. As an example: in October, we announced the introduction of the next generation of smart meters for electricity and gas in the UK. Building on our longstanding presence in the UK metering market, Landis+Gyr has worked with British Gas to launch the first of a new standard in smart metering technology.

We employ more than 1’400 software and hardware engineers and research professionals located in four major global development centers, coupled with an additional 18 local engineering sites dedicated to regional customizations and assisting our customers with whom we have long-standing, trusted local relationships. We believe this represents not only one of the industry's largest research and development teams, but also an operational structure uniquely tailored for success in our diverse multinational markets.

Performance and Relentless Execution

Cost reductions and constantly driving productivity are pillars of our strategy, and we currently have two major cost reduction programs underway in EMEA. In Project Phoenix, we are reducing our cost base by unifying various back office functions and improving productivity in all functions. We expect to realize savings of approximately USD 20.0 million per annum from Project Phoenix, with full savings expected to be achieved by March 31, 2019. Overall, Project Phoenix delivered savings in FY 2017 of USD 15.8 million, at constant currency ahead of the targeted amount of USD 13.0 million. Project Lightfoot – another strategic initiative – is aimed at bundling manufacturing activities to enhance production efficiencies, lower supply chain costs, and further reduce capital intensity. We expect to realize savings of approximately USD 25 million per annum from Project Lightfoot, with full savings expected to be achieved by March 31, 2021.

Solving Complex Utility Needs around the Globe

To help utilities, consumers and society manage energy better we must continuously innovate as well as drive and apply technologies that solve complex utility problems around the globe. This requires a breadth of offering, from the most advanced open standards based, multi-technology network solution in the industry – being deployed in the TEPCO project in Japan today – to leading hardware, services and software capabilities, that allow Landis+Gyr to execute its proven strategy. This capability and flexibility in providing critical ecosystem ingredients, from IoT networks to connected intelligent devices and related managed services, is part of what makes Landis+Gyr unique, and we think best positioned to capture the coming growth in utility infrastructure upgrade programs.

The markets Landis+Gyr participates in developed positively in FY 2017. Driven by continued deployment of Smart Grid projects internationally, with associated increases in Smart Metering content, the Company continued to experience growth. This trend towards increased utility infrastructure spending was global in nature and reflects the importance of Landis+Gyr’s products, solutions and services to utilities.

Here are a few examples from FY 2017 as evidence for Landis+Gyr’s strong positioning across the globe:

In April 2017, Seattle City Light (USA) expanded its relationship with Landis+Gyr by deploying our Advanced Grid Analytics (AGA) platform in support of their grid modernization program.
In July 2017 Landis+Gyr signed a contract to provide Metering as a Service to Caruna Oy, Finland’s largest distribution system operator (DSO), under which the Company will be responsible for operating 650’000 smart metering points starting in Autumn 2018.
In September 2017, Tata Power Delhi Distribution Ltd (Tata Power-DDL) selected Landis+Gyr to supply 200’000 Smart Meters for the first tranche of their project, following earlier selection of Landis+Gyr’s Radio Frequency (RF) network for 500’000 endpoints.
Early 2018, Landis+Gyr signed an agreement with Wisconsin Public Service Company (USA) to provide a multi-purpose AMI network platform for smart metering and grid modernization.
In May 2018, Landis+Gyr and Pacific Equity Partners (PEP) announced an agreement to form a joint venture in Australia for the acquisition of Acumen from Origin Energy Limited.

Looking through the activity that has surrounded Landis+Gyr for the year, we are certain that we have the right strategy, technology, products, and people to continue to be the global leader in this exciting industry. Very few firms retain leadership when industries transition from the analog to the digital world, but Landis+Gyr has done just that, and now offers our customers the most advanced networking and IoT solutions in the industry. Proving that Landis+Gyr has been structured not just to weather global and industrial cycles, but to help drive them.

2018 Outlook

For FY 2018, we expect Landis+Gyr’s sales growth to be approximately 3% – 6%, Group Adjusted EBITDA to be between USD 222 million and USD 232 million and free cash flow¹ between USD 95 million and USD 105 million. Given some of the supply chain challenges currently being experienced in the industry and the timing of product cost reductions in EMEA, Landis+Gyr expects the first half of FY 2018 to be weaker than the second half.

Well Positioned

Keeping pace with an evolving industry is key to innovation, identifying new revenue streams, and providing exceptional customer service. Working each day to fulfil this promise, and deliver value for our shareholders, are 6’000 dedicated employees as well as key business partners, and we thank both groups for their hard work and contributions. We seek to be active and engaged corporate citizens in the communities in which we operate. We promote a long-term vision and contribute constructively through the products and services we provide. The changes in our industry over the last few years have reminded all of us at Landis+Gyr that we must be agile and able to adjust our focus when needed. That flexibility, while also staying anchored to our core principles, is critical to our success.

We distinguish ourselves across the energy management value chain, assisting utilities in tackling the various and complex challenges they face, from billing and revenue assurance to distributed energy resource management and demand response.

We thank you, our shareholders, for the support and ownership of Landis+Gyr.

Yours sincerely,

Andreas Umbach
Chairman

Richard Mora
CEO

¹ Excluding merger and acquisiton activities

ADJUSTED EBITDA IN MILLION USD

2017

2016

NET REVENUE

in million USD

2’000 1’500 1’000 500

2014

2015

2016

2017

GROSS PROFIT

in million USD

600 500 400 300 200 100

2014

2015

2016

2017

Key Figures

Charts
Tables

FREE CASH FLOW IN MILLION USD

2017

2016

OPERATING EXPENSES

in million USD

600 500 400 300 200 100

2014

2015

2016

2017

Operating expenses includes goodwill impairments of USD 34 million in FY 2015 and USD 60 million in FY 2016.

ADJUSTED EBITDA

in million USD

250 200 150 100 50

2014

2015

2016

2017

Key Figures

Charts
Tables

EPS IN USD

2017

2016

FREE CASH FLOW

in million USD

100 80 60 40 20

2014

2015

2016

2017

EMPLOYEES

Number of full-time employees

8’000 7’000 6’000 5’000 4’000 3’000 2’000 1’000

2014

2015

2016

2017

Key Figures

Charts
Tables

(in million USD,
unless otherwise indicated)

2018

2017

USD

Constant
Currency

Order Intake

1’574.4

1’325.5

18.8%

16.0%

Committed Backlog

2’389.0

2’491.4

(4.1%)

(7.1%)

Net revenue

1’737.8

1’659.2

4.7%

2.6%

Adjusted Gross Profit

597.3

620.2

(3.6%)

(5.0%)

Adjusted EBITDA

212.0

0.0%

(0.6%)

As % of net revenue

12.2%

12.8%

—

Net income (loss) attributable to Landis+Gyr Group AG Shareholders

46.4

(62.6)

—

Basic and diluted earnings per share (USD)

1.57

(2.12)

—

Net cash provided by (used in) operating activities

124.7

95.1

31.1%

Free Cash Flow¹

87.5

53.1

64.7%

67.2%

Net Debt

40.5

126.8

(68.1%)

(68.9%)

¹ In addition to the committed backlog shown above, contingent backlog represents an amount of USD 395 million as of March 31, 2018, versus an amount of USD 530 million as of March 31, 2017.

COMMITTED BACKLOG

Americas

1’679.0

1’768.9

(5.1%)

(4.5%)

EMEA

654.1

681.8

(4.1%)

(15.3%)

Asia Pacific

55.9

40.7

37.3%

36.3%

Total

2’389.0

2’491.4

(4.1%)

(7.1%)

In addition to the committed backlog shown above, contingent backlog represents an amount of USD 395 million as of March 31, 2018, versus an amount of USD 530 million as of March 31, 2017.

NET REVENUE TO EXTERNAL CUSTOMERS

Americas

972.2

931.2

4.4%

4.1%

EMEA

627.2

587.8

6.7%

1.7%

Asia Pacific

138.4

140.2

(1.3%)

(3.4%)

Total

1’737.8

1’659.2

4.7%

2.6%

ADJUSTED GROSS PROFIT

Americas

409.2

414.0

(1.2%)

EMEA

155.9

174.0

(10.4%)

(14.1%)

Asia Pacific

28.3

31.9

(11.3%)

(13.2%)

Intersegment eliminations

3.9

0.3

—

Total

597.3

620.2

(3.7%)

(5.0%)

ADJUSTED EBITDA

Americas

199.4

195.0

2.3%

EMEA

(8.8)

1.0

—

Asia Pacific

(9.6)

(2.6)

(269.2%)

(231.0%)

Corporate unallocated

31.0

18.6

—

Total

212.0

0.0%

(0.6%)

ADJUSTED EBITDA % OF NET REVENUE TO EXTERNAL CUSTOMERS

Americas

20.5%

20.9%

EMEA

(1.4%)

0.2%

Asia Pacific

(6.9%)

(1.9%)

Group

12.2%

12.8%

Comprehensive financial information can be found in the Financial Report 2017.

Highlights 2017

JULY 21, 2017

Listing on the SIX Swiss Exchange

Key Data of the IPO Transactions

Listing

SIX Swiss Exchange (International Reporting Standard)

Ticker Symbol

LAND

Swiss security number

37115349

ISIN

CH0371153492

Offer price

CHF 78

First trading day

July 21, 2017

Offer size

29,428,055 million registered shares with a nominal value of CHF 10.00 offered by the selling shareholders: Toshiba Corporation (owning 60% of Landis+Gyr’s share capital) and INCJ (owning the remaining 40%)

On July 21, 2017, Landis+Gyr was welcomed back to the Swiss public markets after a 20-year hiatus, thus adding an important, new chapter to Landis+Gyr’s rich 122-year history. The listing further enhances the positioning of Landis+Gyr as the global leader in transforming how energy is managed and delivered.

Landis+Gyr Group AG is again a listed company after the initial public offering (IPO) and listing on the SIX Swiss Stock Exchange. The offering consisted of 29.4 million existing shares of Landis+Gyr, representing 100% of the combined holdings of the selling shareholders Toshiba Corporation (owning 60% of Landis+Gyr’s share capital) and INCJ (owning the remaining 40%).

Longstanding Tradition as Listed Company
Landis+Gyr has a long history in which the Company has shown its ability to adapt to new market trends and realities. It is great to open this new chapter of Landis+Gyr as a public company – once again, after a long absence from the stock market. The Board of Directors and the Management sincerely thank the new shareholders for the trust they put in Landis+Gyr and look forward to continuing the Group’s success story with a broad shareholder base supporting the Company.

April

NEXT GENERATION PREPAY SOLUTION

The new edge intelligence solution enables consumers to manage energy usage and account balances with real-time information. Clients can quickly react to energy costs and pay on their own terms.

CONTRACT WITH SEATTLE CITY LIGHT

The US public power electric utility selects Landis+Gyr’s Advanced Grid Analytics (AGA) suite for its grid modernization program to be completed by the summer 2018. The operational efficiencies, reliability improvement and improved capacity planning offered by the AGA platform were key for the selection.

June

COMPLETION OF 10 MW ENERGY STORAGE PROJECT

The Iron Horse Energy Storage & Solar Project supports Tucson Electric Power in its goal of reliably integrating additional renewable energy onto its electric distribution system.

CLP’S AMI PLATFORM IN HONG KONG GOES LIVE

The advanced metering infrastructure (AMI) platform enables timely access to electricity consumption information via smart meters and over time will provide key enabling technologies for the development of Hong Kong as a smart city.

SIGNING OF MAJOR AMI SERVICE-CONTRACT WITH CARUNA OY

Starting in Autumn 2018, Landis+Gyr will operate 650’000 smart metering points for Caruna Oy, Finland’s largest DSO. The contract underpins Landis+Gyr’s strategy to expand its presence in Managed Services further.

2017 GRID EDGE AWARD WINNER FOR DEMAND MANAGER PROJECT

Landis+Gyr’s business for the Americas is selected as a winner for an innovative project to better control energy usage based on both the needs of home owners and the local electricity grid.

July

LANDIS+GYR LISTS ITS SHARES ON THE SIX SWISS EXCHANGE

As of July 21, 2017 Landis+Gyr is a listed company (ticker symbol: LAND). The IPO, with a market capitalization of CHF 2.3 billion, was marked by a strong demand from both Swiss and international investors.

PARTNERSHIP WITH MUELLER SYSTEMS TO DEVELOP WATER AMI MODULE

The aim is to integrate Landis+Gyr’s latest RF Mesh IP communications technology in Mueller Systems advanced water AMI module. As a result, utilities using Landis+Gyr’s Gridstream AMI solution will be provided with a new choice for advanced water metering.

August

JOINT PROGRAM WITH TRUST POWER TO DEPLOY AMI IN NEW ZEALAND

intelliHUB, Landis+Gyr’s fully operational and independent subsidiary offering metering services in Australia & New Zealand, will conduct a pilot enabling Trustpower to integrate, over time, multiple technology solutions by leveraging a shared communications and data management platform.

SEPTEMBER

LANDIS+GYR & TATA POWER-DDL PARTNER TO DEPLOY SMART METERING INFRASTRUCTURE IN DELHI

Encompassing 200’000 single phase and three phase smart meters, the project is a follow up to the contract for India’s first AMI with radio frequency canopy. The deployment will be an important foundation for building a truly smart grid in India’s capital city.

AGREEMENT WITH TOKYO ELECTRIC POWER COMPANY TO LEVERAGE IOT NETWORK

Landis+Gyr and TEPCO will jointly explore the full IoT potential to develop other ways to monetize technology investments and open new revenue streams.

LANDIS+GYR PART OF THE CONSORTIUM WINNING WIENER NETZE’S SMART METERING ROLLOUT

The contract for the modernization of the Vienna electricity grid started in August 2017 and will be completed by 2020. Landis+Gyr will provide about one third of the 1.2 million measuring points.

October

NEW MANAGED SERVICES OFFERING FOR EUROPEAN CUSTOMERS

During the European Utility Week in Amsterdam, Landis+Gyr showcases its new Managed Services. The offering is a response to the expectation that utilities will increase their smart grid investments in services and software applications in the coming years.

FIRST ‘NEXT GENERATION’ UK SMART METER-INSTALLATION

Landis+Gyr and British Gas launch the first of a new standard in smart technology that complies with SMETS2. The national roll-out of the meters started in 2018 and will enable seamless switching between suppliers.

November

FROST & SULLIVAN’S COMPANY OF THE YEAR 2017 AWARD

For the fourth time, Landis+Gyr is awarded the prize for its ground-breaking technologies that bring distributed intelligence and connectivity to all points on the distribution grid.

JANUARY

RELEASE OF COMMAND CENTER 7.2

The latest version of the operating platform supporting Landis+Gyr’s AMI offerings lays the groundwork for the next generation of IoT connectivity on the grid and also enables enhanced integration with other utility software products.

LAUNCH OF GRIDSTREAM CONNECT DURING DISTRIBUTECH 2018

The next-generation IoT platform supports the growing connectivity needs of utilities and smart cities. A diverse sensor ecosystem, flexible communication options and an application community lay the foundation for changing utility distribution strategies and growth.