Overall, we made very good progress in the 2018 financial year underpinned by our strong market position.
Landis+Gyr delivered the strategic, operational and financial requirements during FY 2018 to be a stronger, nimbler and increasingly profitable industry leader. The results for financial year 2018 represent progress towards the delivery of the targets we have committed to for our shareholders. The company grew in sales, Adjusted EBITDA and Free Cash Flow (excluding M&A activity). Importantly, we also saw the two previously loss-making regions, EMEA and Asia Pacific, deliver profitable results for the year.
FY 2018 Results
Landis+Gyr delivered improved financial results for the year. Through our leading-edge products and solutions, future revenue opportunities in all three regions were up meaningfully year-over-year. For the Group order entry reached USD 2,079.0 million equal to a book-to-bill ratio of 1.18. In addition, committed backlog was up 9% year-over-year, or 12.5% in constant currency, ending at USD 2,603.1 million. Again, each region notched increases compared to the prior year.
Andreas Umbach Chairman
Richard Mora Chief Executive OfficerCEO
Net revenues grew 3.1% year-over-year in constant currency, to USD 1,765.2 million, with growth experienced in all three regions. Adjusted EBITDA rose more significantly, growing 14.3% year-over-year, coming in at USD 237.9 million, a margin of 13.5%, compared to 12.0% in FY 2017. Driving this margin expansion was sales growth combined with lower cost product introductions and general cost reductions. All regions were above break even, meaning our two previously loss-making regions managed to return to profitability. This accomplishment is the concrete first step on our roadmap to reaching our midterm targets. Finally, turning to Free Cash Flow (excluding M&A activity), it was up to USD 123.5 million, an increase of 41.2% year-over-year.
The Board of Directors will propose to the 2019 AGM to distribute a dividend, to be paid out of capital reserves, of CHF 3.15 per share, which at year-end exchange rates equates to approximately USD 93 million, about 75% of the year’s Free Cash Flow (excluding M&A activity). Landis+Gyr is returning cash to shareholders in two ways, via the dividend as well as the CHF 100 million share buyback program currently underway.
In short, during FY 2018 Landis+Gyr showed top-line growth – driven by structural market expansion, with improved profitability delivered by improved operating performance and cost control, all of which resulted in strong free cash flow.
Operational Excellence and Technology/Innovation
There are several items we would like to touch on in the area of operational performance and our relentless pursuit of improvements. A key pillar of our strategy is to constantly drive productivity and cost reductions. On this metric we are pleased to report the successful completion of our Project Phoenix restructuring program, which was targeted primarily at SG&A costs in Europe. It has now delivered USD 21.7 million in annual run rate savings, exceeding the USD 20 million target. In parallel, we have had localized cost initiatives in the other regions which have also yielded positive results in the financial year. Project Lightfoot is aimed at bundling and partially outsourcing manufacturing activities to enhance production efficiencies, lower supply chain costs and further reduce capital intensity. Lightfoot delivered USD 5 million in incremental savings during FY 2018, in addition to USD 5 million in prior periods. A further USD 15 million savings will be delivered over the next two years, for a total annualized impact of USD 25 million by the end of FY 2020. During the year we also experienced supply chain constraints in certain passive components, which increased our costs, particularly in H1, but also in H2. While the worst of these impacts appear to be behind us, some challenges remain and will continue to affect us into FY 2019.
Investments in R&D remain a key focus. During FY 2018 we spent USD 151.9 million, or 8.6% of the Company’s annual sales, in Adjusted R&D expenses to further our capabilities and market offering. While temporarily down USD 6.1 million year-over-year, this change is largely due to the timing of some development projects as well as productivity improvements. Staying on the leading edge of the technologies necessary for intelligent endpoints, flexible communications and application enablement is essential to remaining the leader in our industry. To do this, we have nearly 1,400 engineering professionals that keep Landis+Gyr’s offerings meeting the top industry trends and requirements. Software, both discrete and embedded, is an essential element in our offering and was the largest area of R&D spending, accounting for 74% of the total.
Solving Complex Utility Challenges
Helping the world manage energy better means we must continuously innovate as well as drive and apply technologies that solve complex utility problems around the globe. The evolving requirements around communications protocols, grid edge intelligence technologies and the need to integrate into a smart infrastructure model requires a breadth of an offering such as Gridstream Connect®. From the most advanced open standards based, multi-technology solution in the industry, to providing leading hardware, services and software capabilities – Gridstream Connect® – allows customers to deliver on their business cases. Our demonstrated capability in developing and delivering these critical utility ingredients, is part of what makes your Company unique, and we think the best positioned to capture the coming growth in utility infrastructure upgrade programs.
The trend towards increased utility infrastructure spending is global in nature, and the ongoing selection of Landis+Gyr’s products, solutions and services by utilities speaks to our strong and enviable value proposition. We point to these important examples from FY 2018 as fresh evidence of Landis+Gyr’s strong positioning across the globe:
In March 2019, it was announced that We Energies signed a contract with Landis+Gyr to extend its advanced metering deployment to approximately 508,000 electricity customers, while adding Gridstream® Connect network components to support the expansion. The Managed Service contract was extended beyond 2030.
On April 1, 2019, it was announced that Ameren Missouri will deploy Landis+Gyr’s Gridstream® Connect solution, including 1.27 million advanced electricity meters and 130,000 gas meters. The contract also includes an extension of Landis+Gyr’s Managed Services, meter data management system (MDMS) and Command Center head-end system.
In March 2019, CLP Power signed an agreement with Landis+Gyr to continue deploying a Gridstream® solution in their Hong Kong service territory. The agreement includes the supply of smart meters, communications modules and associated software pplications.
In the UK, the transition to the next generation smart meters (SMETS2) is now underway in scale since December 2018 with > 1,000,000 SMETS2 meters on the network. As the UK market leader, Landis+Gyr added new contracts and orders to committed backlog and now has more than 20 million meters deployed or under contract.
Strategy
The energy industry we serve is undergoing significant disruption from the “3D” drivers: Decarbonization of the generation mix; the widespread adoption of Decentralization and intermittent renewable energy resources; and the continued push for Digitalization of grid operations. These drivers translate into specific utility challenges, in the management of grid-resilience, grid-flexibility and grid-security.
Landis+Gyr is the leading smart metering solutions provider worldwide, serving over 3,500 utilities and energy retailers globally. Over the next decade many more utilities will deploy Smart Metering, Grid-Edge Intelligence, and Smart Infrastructure products and solutions to address these change drivers. It is our ambition to maintain and grow our market leading position over the mid to long term, while building on our three strategic platforms for growth: Smart Metering, Grid-Edge Intelligence, and Smart Infrastructure.
We believe smart metering plays a fundamental and essential role at the heart of the evolving grid, and that our market leadership and proven track record put us in the pole position to deliver on our three strategic platforms for growth.
Mid-Term and FY 2019 Guidance
As announced at our Capital Markets Day on 29th January 2019, our new mid-term (by year end FY 2021) guidance is: net revenues are expected to grow annually on average by a mid-single digit percentage (relative to FY 2017), Adjusted EBITDA margin to be in the range between 13.5% and 14.5%, Free Cash Flow (excluding M&A) to be above USD 150 million per year and a dividend each financial year of at least 75% of Free Cash Flow (excluding M&A activity).
Landis+Gyr expects FY 2019 net revenue growth of approximately 2–5%, at constant currencies. Group Adjusted EBITDA is expected to be between USD 240 and USD 255 million. Free Cash Flow (excluding M&A) is expected to be between USD 120 million and USD 135 million, with a dividend payout of at least 75% of Free Cash Flow (excl. M&A). Due to project timing in some key markets, Landis+Gyr expects the first half of FY 2019 to be significantly weaker than the second half.
Positioned for Sustainable Growth
Each day the 5,600 Landis+Gyr employees, as well as key business partners, work incredibly hard to deliver value to our customers and to our shareholders. As a company we seek to be active and engaged corporate citizens of the communities in which we operate. We promote a long-term vision and contribute constructively, through the products and services we provide, to a reduced CO2 footprint, both internally as well as for society at large.
Assisting utilities in tackling the various and complex challenges they face, from billing and revenue assurance to distributed energy resource management and demand response is what we are committed to do. We thank you, our shareholders, for the support and ownership of Landis+Gyr, and that you have joined us in helping to achieve our mission.
Yours sincerely,
Andreas Umbach Chairman
Richard Mora Chief Executive Officer
Key Figures
Net Revenuein million USD
1,765.2 + 3.1% 1
1 In constant currency
Adjusted EBITDAin million USD
237.9 + 14.3%
Free Cash Flow 2in million USD
123.5 + 41.2%
2 Net cash provided by operating activities, minus net cash used in investing activities, excluding merger & acquisition activities.
Committed Backlog in million USD
14
2482
15
2888
16
2491
17
2389
18
2603
Net Revenue in million USD
14
1529
15
1574
16
1659
17
1738
18
1765
Adjusted EBITDA in million USD
14
157.3
15
220.2
16
210.6
17
208.2
18
237.9
4 Following the adoption of ASU 2017-07, EBITDA has been revised.
Free Cash Flow 3excluding M&A in million USD
14
96.3
15
84.6
16
53.1
17
87.5
18
123.5
3 Net cash provided by operating activities, minus net cash used in investing activities, excluding merger & acquisition activities.
Earnings per Share (USD)
14
0.35
15
0.46
16
2.12
17
1.57
18
4.15
Dividend per Share (CHF)
14
0
15
0
16
0
17
2.30
18
3.15
Financial year ended March 31
(in million USD, unless otherwise indicated)
2019
2018
USD
Constant Currency
Order Intake
2’079.0
1’574.4
32.0%
34.0%
Committed Backlog
2’603.1
2’389.0
9.0%
12.5%
Net revenue
1’765.2
1’737.8
1.6%
3.1%
Reported EBITDA
251.1
141.32
77.7%
Adjusted EBITDA
237.9
208.22
14.3%
Adjusted EBITDA as % of Net Revenue
13.5%
12.0%
—
Earnings per Share – basic (USD)
4.15
1.57
164.3%
Free Cash Flow1
123.5
87.5
41.2%
Net Debt
17.2
40.5
(57.5%)
Dividend per Share (CHF)
3.15
2.30
37.0%
1 Net cash provided by operating activities, minus net cash used in investing activities, excluding merger & acquisition activities. 2 Following the adoption of ASU 2017-07, EBITDA for FY 2017 has been revised down by USD 3.8 million.
COMMITTED BACKLOG
Americas
1’754.9
1’679.0
4.5%
5.7%
EMEA
754.6
654.1
15.4%
23.8%
Asia Pacific
93.6
55.9
67.3%
77.1%
Group
2,603.1
2’389.0
9.0%
12.5%
NET REVENUE TO EXTERNAL CUSTOMERS
Americas
986.0
972.2
1.4%
2.5%
EMEA
632.5
627.2
0.8%
2.4%
Asia Pacific
146.7
138.4
6.0%
11.2%
Group
1’765.2
1,737.8
1.6%
3.1%
ADJUSTED EBITDA
Americas
193.7
198.7
(2.5%)
EMEA
19.7
(12.0)
—
Asia Pacific
1.5
(9.6)
—
Corporate (incl. eliminations)
23.0
31.1
—
Group
237.9
208.2
14.3%
ADJUSTED EBITDA AS % OF REVENUE
Americas
19.6%
20.4%
EMEA
3.1%
(1.9%)
Asia Pacific
1.0%
(6.9%)
Group
13.5%
12.0%
Comprehensive financial information can be found in the Financial Report 2018.
Landis+Gyr is rolling out a unique smart meter design in the Netherlands in support of the Fair Meter Initiative, originally launched by a consortium of Dutch utilities including Liander (Alliander Group), Stedin, Juva and Enduris. The pioneering design enables significant savings in material usage.
May
JEA Accelerates Advanced Metering Deployment
Florida’s largest energy supplier adds 250,000 meters to its existing Landis+Gyr network, to expand its Smart Grid program. The Company supports JEA’s advanced metering and network infrastructure, under a long-term managed services contract.
Partnership with PEP to Expand Smart Metering and Related Services in Australia
Landis+Gyr and Pacific Equity Partners (PEP) signed an agreement to form a joint venture, called intelliHUB Holdings Pty, for the acquisition of Acumen Metering from Australia’s largest energy retailer, Origin Energy Limited. The Acumen business includes managing and servicing 170,000 meters that have already been deployed and a material, long-term contract with Origin Energy for the rollout of additional Smart Meters across Australia.
Landis+Gyr entered into a framework agreement with Sinfra, a central procurement organization for the Swedish energy sector. This is a major growth opportunity for the Company in Sweden, where the entire Smart Meter infrastructure universe is set to be renewed by 2024. Landis+Gyr’s offering includes its full Smart Metering solution portfolio, deployment and support services.
June
Signing of Smart Grid Deployment Contract with High Plains Power
Landis+Gyr reached an agreement with High Plains Power, based in Riverton, Wyoming, US, to provide advanced metering and network technology for the utility’s Smart Grid deployment. The utility selected Landis+Gyr’s Gridstream® AMI solution and plans to add distribution automation in the future.
July
Release of New Street Light Controller
Operating as part of its Gridstream® Connect IoT platform, Landis+Gyr announced commercial availability of its newest street light controller that supports advanced monitoring and management of lighting, to improve energy and operational efficiency.
Frost & Sullivan Award for Fourth Time
Landis+Gyr accepted the Frost & Sullivan Global AMI Company of the Year Award. This is the fourth consecutive year in which the Company has received the prestigious Excellence in Business accolade.
Landis+Gyr signed an agreement with Kissimmee Utility Authority (KUA), based in Florida, US, to supply advanced metering infrastructure and a meter data management system to modernize the utility’s grid network.
New Contract with Enedis in France for Next Tranche of Linky Program
Landis+Gyr will supply approximately 20% of the next 13 million Linky meters as a part of the utility’s planned 2023 rollout. The Company has been a trusted partner of Enedis on the project since 2007, helping upgrade all 35 million French residential meters to Smart Meters.
September
Contract Win with ESPH for Grid Modernization
Landis+Gyr was selected to provide Smart Grid automation technology and data services to Costa Rican utility ESPH, as part of a comprehensive grid modernization project. In addition to technology, the Company will provide data hosting services and project management support.
Groundbreaking Managed Services Contract in EMEA Region
Landis+Gyr took over Caruna Oy’s AMI operations in Finland, in the region’s largest Managed Services contract to date. The service includes full operative responsibility for 660,000 smart metering points over the next six years, and an optional extension for an additional three years.
October
SSVEC selects Landis+Gyr for Smart Grid Deployment
Sulphur Springs Valley Electric Cooperative signed a contract for an advanced metering technology upgrade to better manage peak demand and member services, including advanced meters and load control devices for nearly 2,000 irrigation pumps.
December
KCP&L and Westar expand Smart Meter Coverage
Landis+Gyr announced a series of project and managed services contract updates, including advanced metering deployments at Evergy Inc. subsidiaries Kansas City Power & Light Company and Westar Energy Inc.
New Contract from Jones-Onslow EMC
Jones-Onslow EMC selected Landis+Gyr to supply advanced metering and intelligent grid network technology. The grid modernization program includes the Company’s Gridstream® AMI solution, along with 80,000 advanced meters.
January
Partnership with Sense to Add Next Generation Energy Management Solution
Landis+Gyr invested in and entered into a partnership to make Sense technology available within the Gridstream® Connect IoT platform, enabling utilities to provide a wide range of home energy management services to consumers.
February
PSEG Long Island Partners with Landis+Gyr
PSEG Long Island, New York, US, announced the roll-out of Smart Meters to some 250,000 homes in 2019. It is the utility’s plan that all 1.1 million electricity customers will be equipped with advanced meters by the end of 2022.
March
We Energies expands AMI Deployment and extends Services Contact
We Energies, a subsidiary of the WEC Energy Group, Wisconsin, US, extended its advanced metering deployment to approximately 508,000 electricity customers, while adding Gridstream® Connect network components to support the expansion.
Selected by CLP for Hong Kong AMI project
Following on the successful pilot project in Hong Kong, Landis+Gyr was awarded the contract to extend the smart metering platform to deliver 900,000 meters and communications modules to CLP over the next three years.
Three Strategic Platforms for Growth
Smart Metering
Smart Metering stands at the beginning of any undertaking to make the grid smart.
In an increasingly complex framework of intersecting regulatory, business and consumer demand, Smart Metering technology enables utilities to control and efficiently manage production, transmission, distribution and consumption of energy resources. This shift facilitates a transition from standalone meters to intelligent devices with two-way communications capabilities. Landis+Gyr’s Advanced Metering Infrastructure (AMI) solutions lay the foundations enabling utilities to adapt their business model to changing end-user needs. Landis+Gyr also offers utilities a broad range of customized services, including Managed Services contracts, that allow utilities to completely outsource AMI operations. In addition, comprehensive training, installation and software design support service are available.
Salt River Project (SRP) is the third-largest public power utility in the US, providing electric service to over one million customers in central Arizona. As SRP sought to introduce more time of use and residential demand rates, a solution was needed to help consumers better manage their energy consumption.
Landis+Gyr Solution
SRP selected Landis+Gyr for a territory-wide RF mesh AMI system, which included the deployment of over one million advanced electric meters. SRP utilizes the Gridstream® Connect platform and meter-based applications to enable residential customers to manage their individual peak demand. With Landis+Gyr’s Demand Manager grid edge application, consumers can autonomously manage power consumption.
Benefits for Utility and Consumers
SRP leverages Landis+Gyr’s prepayment solution to provide more flexibility to its customers.
SRP’s customers currently on solar demand rates have reduced energy consumption and lowered their energy bills, while increasing understanding of new rate structures.
SRP enables customers to compare the cost for current and previous months, helping them to use less energy and save money.
Puget Sound Energy (PSE) is the largest utility company in the US state of Washington and serves 1.150 million electric customers and 840,000 gas customers. When looking to transition from its existing AMR system to a two-way AMI system, PSE needed the ability to do so without interrupting existing billing operations.
Landis+Gyr Solution
Landis+Gyr is overlaying PSE’s current AMR network with a standard-based network design, which includes installation and retirement of the AMR network. Additionally, the project includes a refresh of all electric meters and gas modules, and the use of Command Center Head End System and Advanced Security functionality in Landis+Gyr’s hosted environment.
Benefits for Utility and Consumers
With Landis+Gyr’s experience and expertise, PSE is transitioning from a one-way AMR to a two-way RF Mesh AMI system without interrupting current operations.
PSE benefits from Landis+Gyr’s AMI capabilities and experience, enabling the utility to focus on its core lines of business and better serve its customers.
Gridstream® Connect provides a single-network and single head-end system AMI solution for PSE’s electric and gas customers.
Grid Edge Intelligence
The explosion of data requires intelligence at the edge of the distribution grid.
Grid efficiency and intelligence advances. With millions of data sets delivering valuable information about infrastructure performance, power quality and consumption patterns, Landis+Gyr’s utility customers are reaping additional benefits. Knowing more about what is happening at the edge of the network facilitates the implementation of analytics and other software applications to improve forecasting, demand response and renewable integration it also supports a variety of their business cases that aim to improve the quality of life for billions of people worldwide. Gridstream® Connect, a platform for utility IoT, supports the growing connectivity needs that integration with other devices, information communication technology and application development require.
Seamless Switching Between Energy Resources and Suppliers
UK Government and its energy regulator, Ofgem, are speeding up the roll-out of the country’s 2nd generation of Smart Meters (SMETS2).
SMETS2 meters communicate over the network, are fully interchangeable to allow energy suppliers and consumers to connect a wide range of smart energy accessories, and offer grid edge intelligence.
Landis+Gyr Solution
In the UK, Landis+Gyr currently has 20 million Smart Meters under contract and has delivered the bulk of SMETS2 meters installed to date. In Q4 of FY 2018 alone, Landis+Gyr’s shipments to its UK customers totalled 850,000 meters.
Benefits for Utility and Consumers
SMETS2 meters secure the highest standard of security for consumer data.
The new Smart Meter generation in the UK is able to record data for a range of different events, including consumption, cost and power quality data, as well as theft detection and security issues.
SMETS2 smart meters possess grid edge intelligence capability, which is key to their integration as a Smart Infrastructure device. This allows future support of applications that enable the seamless management of distributed, renewable energy resources, energy storage facilities, EVs and smart buildings.
Ameren Corporation serves 2.5 million electric and 930,000 gas customers through its Ameren Missouri, US, and Ameren Illinois, US, regulated utility subsidiaries. Ameren needed a technology partner with the expertise to migrate to the latest evolution of AMI technologies and best operate its system.
Landis+Gyr Solution
In addition to AMI components and software, Landis+Gyr provides the Meter Data Management System (MDMS), project management services, network installation services, electric meter installation services, and gas module installation services. To leverage the interoperability and connectivity of advancing communication technologies, Ameren Illinois selected Landis+Gyr to guide its migration to the two-way AMI IPv6 connectivity of Landis+Gyr’s Gridstream® Connect platform.
Benefits for Utility and Consumers
Gridstream® Connect provides a single-network, and single head- end system for Ameren’s electric and gas customers.
The flexibility of Landis+Gyr’s MDMS enabled Ameren to integrate with existing billing and customer information systems without the need for costly customization.
Ameren and Landis+Gyr have strengthened their partnership across multiple generations of advanced metering technologies.
Smart Infrastructure
Managing public and private infrastructure more intelligently.
It is Landis+Gyr’s ambition to build on its position as an industry leader in AMI and to create an ecosystem of Connected Intelligent Devices as the IoT foundation for value-added process automation and Smart Grid business applications, including a wide range of home energy management services to consumers. Landis+Gyr’s Gridstream® Connect platform integrates new communication technologies as needed – which means utilities achieve connectivity to every mile of their network. The system offers a comprehensive and accurate view of the energy network featuring real-time data. It provides utilities with greater options to deploy layered intelligence with connected computing power at the grid edge, at the community level and across the entire distribution system. Furthermore, it enables integration of complementary services and smart infrastructure management.
Tokyo Electric Power Company (TEPCO) is the largest electric utility in Japan and provides electric service to 45 million people. As a result of new policies and in preparation for hosting the 2022 Summer Olympics, TEPCO initiated its grid modernization project and selected Landis+Gyr as a partner in 2012.
Landis+Gyr Solution
At completion, Landis+Gyr will have deployed its standards-based Gridstream® Connect platform to connect 30 million meters from nine advanced meter vendors. To manage the data from these devices, TEPCO has also used Landis+Gyr’s Meter Data Management system, which will process over 1.3 billion reads per day on completion.
Benefits for Utility and Consumers
The project supports multiple communications on one network including RF Mesh, Cellular and Power Line Communications, ensuring reliable connectivity across TEPCO’s diverse ecosystem.
Beyond in-home devices, TEPCO leverages connectivity for improved safety through the communication with high voltage power line tower lights.
The project is one of the fastest AMI deployments in history with 500,000 advanced meters installed each month and read success rates exceeding 99.95%.
CLP Power Hong Kong Limited operates a vertically integrated power supply business in Hong Kong, providing a highly reliable supply of electricity and customer services for 2.6 million customers.covering electricity generation, transmission and distribution, and marketing and customer services.
Landis+Gyr Solution
Landis+Gyr’s AMI technology designed for scale represents a key milestone in the utility service offering evolution. Over time, this project will provide both the platform and the customer engagement tools that are key enabling technologies for the development of Hong Kong into a smarter city.
Benefits for Utility and Consumers
The Landis+Gyr AMI platform enables timely access to electricity consumption information via smart meters.
It also creates an opportunity for the utility’s customers to save energy. This, in turn, enables customers to adopt smarter and greener lifestyles through the informed energy choices they are now able to make.
In addition, the platform facilitates monitoring of power supply conditions and further enhances supply reliability, safety and operational efficiency.
