In financial year 2022, we continued to drive our strategic transformation forward and saw an unprecedented demand for our energy efficiency solutions. Due to geopolitical tensions, energy prices rose, while the safety and security of critical infrastructure became more prevalent. As a result, the demand for energy efficiency solutions reached new heights, reflected in our record backlog of nearly USD 3.8 billion.
The recent developments validate our strategic vision, which continues to be driven by innovation delivering energy efficiency solutions and unrivaled customer service, built on trust, partnership and delivering on our commitments. Offering innovative solutions is vital to embrace change in an ever-evolving environment and, thus, Landis+Gyr continued to reinvent itself, providing leading technology to customers, stability to our employees, and sustainable returns to our shareholders.
Innovating the Future of Energy
In January, we held our Capital Markets Day at the Google campus in Zürich, Switzerland. Presenting our vision for the future of energy management, we pride ourselves in offering the most comprehensive portfolio of solutions in the industry.
Historically, our industry has been tackling foundational aspects like customer affordability of energy and the reliability of the grid that distributes energy to customers. Landis+Gyr has partnered with utilities for more than a century to solve these challenges in the past and will continue to do so in the future.
Over the course of the last few years, and specifically growing in the post pandemic era, new trends have emerged. Utilities are faced with a new energy supply and demand equation due to consumer engagement expectations at unprecedented levels, energy transition towards more renewable and distributed generation and a huge demand due to transportation electrification at scale, investments in grid modernization with regulatory and government support, and increased need for data and digital technologies to manage these developments.
Solving these challenges requires new thinking, skillsets, and digital solutions that provide actionable insights. The main byproduct of this energy evolution is data, and the data is being created at an unprecedented pace, as new assets are introduced into the grid, and at a frequency never seen before. The challenge for utilities lies in leveraging new digital solutions to secure, process, and manage this data, and extract true value from it.
As a result, our core competencies and current portfolio of AMI (advanced metering infrastructure), Distribution Automation, Meter Data Management, EV (electric vehicle), and Load Management position us well to partner with our utility customers to optimize their grid operations as DER (distributed energy resources) integrations happen at scale.
In addition, we also see a significant shift in how utilities consume these solutions. Cloud-based SaaS (Software as a Service) delivery models are more prevalent and our expertise in providing software solutions, globally in Cloud and SaaS delivery models at scale, positions us well to grow and provide tangible benefits to our customers and end consumers. Our first customers in the Cloud are already benefitting from real-time data analytics, industry-leading cyber security features, and capabilities that allow utilities to run their grid infrastructure in the most efficient way and, thus, decarbonize the grid.
We have understood that these digital solutions and technologies will need to be innovative, operate at-scale and be secure, serve customers globally with delivery locally, and support multiple regulatory standards.
We have made significant investments to transform our portfolio to a fully integrated “Edge to Cloud” ecosystem that provides flexibility and choice to our customers from intelligent devices they want to manage at the edge, through various connectivity options based on the market needs, integrated into digital solutions enabled by the best-in-class Google Cloud platform.
This has enabled us to build out new products and expand into higher growth adjacencies like EV and Demand Flexibility solutions, which strengthens our competitiveness and allows us to grow our higher value software and services business.
All of these efforts offer our customers a holistic solutions portfolio to drive their energy efficiency targets, enable the energy transition, and create a greener tomorrow together.
While Smart Metering remains the core of our business, we are increasingly driving innovation and enabling investments in Grid Edge Intelligence and Smart Infrastructure. We have temporarily increased our investments in R&D from 9% of revenue to 11% to drive our strategic transformation.
Smart Metering and Grid Edge Intelligence sensors are the foundation needed to modernize grid infrastructure globally, and the key enabler to offer true intelligence at the edge. Integrating EV solutions into the ecosystem and applying powerful AI (artificial intelligence) and ML (machine learning) analytics to the vast amounts of data our large installed base of intelligent connected devices generates, empowers not only utilities around the globe to drive energy efficiency, but also end consumers as part of our Smart Infrastructure offering.
We are bringing all of these solutions together, offering an end-to-end solutions portfolio to support customers with leading innovation and as a trusted partner, ready to solve any challenge together for a greener tomorrow.
Being able to balance power consumption and generation through flexibility management is a key advantage that we can offer our customers. Our large installed base of connected intelligent devices, paired with a rising number of EV chargers, gives us and our customers insights into consumption in real-time. We apply powerful analytics from head-end-systems to charge point operator software, to consumer apps, that, in combination, allow utilities to gain an aggregated view of consumption on community, city, and service territory level, while end consumers are provided with a granular view of their own consumption, which they are now able to control and reduce through unprecedented consumer insights at their fingertips.
A pioneer in energy efficiency solutions, that is leading the way towards a brighter energy future today and tomorrow, and with a successful track record that spans more than 127 years, Landis+Gyr continues to reinvent itself and scores at the top of the leaderboard. The Company is highly recognized in all countries it serves and has been pioneering breakthrough technologies across the globe for energy, gas, and water utilities for more than a century. Leveraging the newest technologies like data analytics, EV, and Flexibility solutions, we remain a true innovator.
Consequently, Landis+Gyr will continue to build a profitable, successful business, partnering with our customers and providing attractive returns for our shareholders – by managing energy better – together.
Financial Year 2022 Results
As a leading provider of energy efficiency solutions, we are very pleased with our revenue growth of over 20%, and especially our record backlog of almost USD 3.8 billion, which highlights the trust our customers have in our longstanding partnerships and technological leadership. In light of the ongoing supply chain challenges, we were able to deliver a solid margin, while cash was temporarily impacted due to strategic investments in inventory to convert our record backlog.
The results of the 2022 financial year reflect the challenging supply chain situation with an easing of the component availability in the second half of the year. The continued strong order intake of USD 1,925.8 million, corresponding to a book-to-bill ratio of 1.15, was driven by major contract wins in the Americas and EMEA regions. This resulted in a 10.6% higher committed backlog, which reached a new record level of USD 3,748.6 million.
In FY 2022, net revenue rose by 20.8% in constant currency to USD 1,681.4 million from reported USD 1,464.0 million in FY 2021. The second half of the financial year was the strongest half year in the Company’s history with USD 952.7 million in net revenues as the availability of components improved.
Overall, the Adjusted EBITDA in FY 2022 was USD 139.9 million (down 4.8%) and the Adjusted EBITDA margin was 8.3%, compared to 10.0% in FY 2021. Adjusted EBITDA decreased due to significantly higher supply chain costs of approximately USD 56 million year-over-year and higher adjusted operating expenses, partially mitigated by stronger volumes.
Considering the shortage of critical components, we made strategic inventory investments to be able to fulfill customer orders of recently won large contracts and support its growth trajectory. The inventory build-up, in large part temporary, of USD 139 million led to a significantly higher operating working capital, which in turn had a negative impact on Cash Flow. Free Cash Flow (excl. M&A) was USD (22.0) million compared to USD 89.0 million in FY 2021, mainly as a result of significantly higher operating working capital. When including the net proceeds from the Intellihub divestment, Free Cash Flow was USD 160.0 million in FY 2022.
As of March 31, 2023, the ratio of net debt to Adjusted EBITDA was 0.47 times, with net debt of USD 65.6 million after the divestment of the Intellihub minority stake and the dividend payment in June 2022.
Net income attributable to Landis+Gyr Group shareholders for the FY 2022 was USD 207.9 million compared to USD 79.4 million in the prior year. Diluted earnings per share (EPS) amounted to USD 7.32 compared to USD 2.59 in FY 2021. Net income includes a gain on the sale of the minority stake in Intellihub of USD 229.7 million pre-tax and USD 160.6 million after current and deferred taxes.
For FY 2022, a progressive dividend of CHF 2.20 per share paid entirely from statutory capital reserves will be proposed to the Annual General Meeting in June 2023, after a dividend of CHF 2.15 had been paid for FY 2021.
Outlook for Financial Year 2023
As already communicated at our Capital Markets Day in January 2023, we expect a continuation of the strong net revenue trend in FY 2023, resulting in a low double-digit growth compared to FY 2022. With an anticipated gradual improvement of the supply chain cost situation, an Adjusted EBITDA margin in the range between 9% and 11% is expected for FY 2023. We forecast Free Cash Flow (excl. M&A) to be between USD 60 million to USD 90 million as the elevated inventory situation is expected to partially normalize but will remain above historical averages to fulfill customer orders of large contracts won.
Our new mid-term targets through FY 2025, with net revenue growth of mid to high single digit CAGR relative to FY 2021, and Adjusted EBITDA margin between 12.0% and 14.0% of net revenues, and a strong focus on cash conversion, are confirmed. Regarding the distributions to shareholders, we will continue our progressive dividend policy approach.
Decarbonizing the Grid
With leading energy efficiency solutions, Landis+Gyr is enabling the energy transition and actively contributes to global sustainable development, not just through technologies empowering utilities and consumers, but also by actively driving green initiatives in our own operations. Ingrained in the Company's DNA, sustainability is a key driver and motivator for our employees, manifested in 20% of short-term incentives for all bonus eligible employees being tied to ESG targets.
In FY 2022, Landis+Gyr signed up to the Science Based Target initiative (SBTi), committing to achieve carbon neutrality by 2030 and carbon net zero by 2050 for scope 1, 2 and 3. Through our state-of-the-art solutions, we were able to help avoid more than 9.5 million tons of CO2 in 2022 through our installed base of smart devices, and strive to further increase our positive impact on the environment through consistently high investments in innovative technologies and solutions.
Changes to the Board of Directors
For the upcoming Annual General Meeting of Shareholders, there will be two changes to the Board of Directors. Søren Thorup Sørensen, representative of the Company's largest shareholder KIRKBI, has informed the Board of Directors that he will not stand for re-election after serving on the Board for four years. As the new representative of KIRKBI, the Board of Directors proposes the election of Peter Christopher V. Bason as new director. Peter Bason has been Head of Long-Term Equity at KIRKBI since 2020 with prior experience at Altor Equity Partners and at McKinsey & Company.
In addition, the Board of Directors proposes the election of Audrey Zibelman as a new independent director. Audrey Zibelman brings a wealth of experience in grid operations, power markets, and public service to the Board. During her long career she most recently served at Alphabet's moonshot factory X, was CEO of the Australian Energy Market Operator, and CEO of the New York Public Services Commission.
Passion and Commitment
Our teams around the world continue to drive leading-edge innovation, the strategic transformation of our portfolio, and the expansion of our offering in integrated energy management solutions.
Especially in light of a continued challenging supply chain situation, our employees have demonstrated a high level of resilience and shown an amount of dedication towards customers and each other that deserves recognition. Therefore, we would like to thank our 7,800 employees around the globe for their continued dedication, passion, and entrepreneurial spirit to solidify our leading position and ensure continuous leading-edge innovation, customer satisfaction, and speed to market.
Our customers’ ambitious goals to serve communities around the globe with safe and reliable energy and to decarbonize the grid inspire us every day and we would like to thank our customers and partners for their continued trust and partnership.
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