Landis+Gyr Group AG

Ladies and gentlemen, welcome to the Analysts and Investors Calls full year 2024 conference call and live webcast. I am the course call operator. I would like to remind you that all participants will be listening on remote and the conference has been recorded. The presentation will be followed by Q&A session. You can register for questions at any time by pressing star N1 on your telephone. For operator assistance, please press star N0. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Christian Valti, Head of Investor Relations. Please go ahead.

Thank you, Yousef. And good afternoon, good morning, everyone. As you know, Earlier today, Lens & Gear issued its results ad-hoc release and related presentation for financial year 2024, which are available on our website. Before we get started, please note that some of the information discussed today contains forward-looking statements and we want to explicitly emphasize that there are numerous risks, uncertainties and other factors, many of which are beyond Lens&Gear's control, that could cause Lens&Gear's actual actions or performance to differ materially from the forward-looking information and statements made in this conference call or in this presentation. Consequently, Lens&Gear can give no assurance that those expectations will be achieved. You can find further details on slide 2 of the presentation and in the press release. This session will follow the structure of the earnings presentation, so we encourage you to follow along. We will conclude with Q&A, where Yousef will provide further instructions and where you will be able to ask questions. Of this short introduction, I'd like to hand over to our Chief Executive Officer, Peter Mainz. Thank you, Christian.

Good morning and good afternoon, everyone. I'm here with Davinda, our new Chief Financial Officer, who started in his new role on April 1st. We are pleased to present our full year 2024 financial results. That said, let's now start with a review of the highlights from our performance in financial year 24. FY24 was marked by strong commercial momentum. We are pleased to report a very strong order intake of $2.6 billion, resulting in a book-to-bill of 1.5. This success was driven by our teams delivering key wins in the Americas and Asia-Pacific, alongside notably solid performance in EMEA. Many of the wins were centered around our leading grid-edge technology solutions, including supporting software applications. Our backlog reached a new record high of $4.6 billion and provides a strong financial foundation and visibility for our long-term growth. Revenue declined year over year, primarily due to the exceptional pent-up demand release in FY23 and temporary tariff-related shipment delays in March, right at the end of our financial year. Our EBITDA margin came in at 9.9%, in line with our updated guidance and included previously disclosed one-off items. Including all one-off items, our EBITDA margin was 10.4%, which is a solid result given the lower top line. We prudently passed the Progressive Dividend Policy to preserve balance sheet strength and maximize flexibility. The Board therefore proposes a distribution from capital reserves of Swiss franc 1.15 to our shareholders. We intend to continue our Progressive Dividend Policy in FY25. Since the announcement of our strategic transformation in October of 24, the team has been working full steam, pushing the different initiatives forward and we'll talk about it in a minute. We also made significant progress on our sustainability commitments and are proud to report on our global achievements. But prior to that, let's turn to slide 4 and look at the update on our strategic initiatives. Back in October 24, we announced the sharpening of our strategic focus to drive value creation for stakeholders by ensuring we position each part of the business for the greatest possible success. Let me provide you with an update on the three initiatives. In the Americas, Performance continues to be strong and the region offers the greatest opportunity with higher value software and services solutions as part of our differentiated edge to enterprise offering. The Americas is our largest and most profitable segment and offers the highest return on capital of around 40%. In December, Prasanna took over the leadership of the region. Prasanna is as close to an industry icon one can be and we are delighted to have him back at the helm. In January, we announced that Audrey Sibelmann, currently Vice Chair of our Board of Directors, will take over the chair position at our upcoming AGM in June. Audrey has extensive leadership and industry experience in the international power sector, having served in both utility executive roles as well as on the regulatory side of the industry. With Davinda joining us this month, Our management team is now fully assembled and exceptionally well equipped with talent and experience to lead us forward. CEO, CFO and Chair are all now US-based, showcasing our continuous focus on the Americas region. We have mandated an investment bank for the best value creation from the EMEA business, including a potential sale. This review process is ongoing and we will provide an update as soon as a decision has been taken. In March, and as a result of the strategic review, we have taken the decision to exit from our EV charging business, which we had entered in 2021 through the acquisition of Etrell. With KD Group, we found an ideal buyer that secures the path forward for employees, customers and partners. Now that EV charging is no longer being part of EMEA, the business is very much focused on its strongest capabilities. A leading provider of smart metering devices and solutions across EMEA with long-standing and intimate customer relationships. We are the number one independent provider of residential AMI solutions and the number one player in electricity ICG in EMEA. The robust order intake in EMEA reflects our leading position in the region and underscores the team's dedicated focus. At FY24, the Americas business accounted for 56% and the majority of our profitability. The US listing will allow us to be closer to the capital market in our largest region and give us access to large pools of capital. The entire process is complex and requires time. Everything goes according to plan. We are targeting a listing in 26 and intend to be dual listed for a transitional period to offer an exit option for investors which cannot hold US stocks. Let's move on to slide 5 and an update on sustainability. At Landes in Gier, sustainability is deeply integrated into our long-term strategy and operations and remains central to our mission. In FY24, we made significant strides toward our ambitious science-based targets, validated just last year. I'm proud to announce we've reached 96% renewable electricity use across the group and reduced our scope one and two emissions by over 60% since 21. Furthermore, through effective collaboration with our supply chain partners, we improved efficiency, cutting scope three emissions by 12% per 100 US dollars of revenue. The impact of our deployed technology is also substantial. Our installed smart meter base enabled the avoidance of 9 million tons of CO2 last year alone. To put that in perspective, that's eight times the emissions from our own operations and comparable to annual emissions of a city like Vienna or Tucson. Our ESG leadership continues to earn external recognition, including an ISS ESG prime rating, an MSCI AA rating, and the prestigious Ecovadis platinum medal. Our core purpose remains clear, partnering with our stakeholders to manage energy better and accelerate our collective journey towards decarbonization. Let's have a look now at our winning technology on slide six. Grid instability, as demonstrated by recent blackouts in Southern Europe, demands enhanced grid edge intelligence. Our connected grid edge solutions are specifically designed to provide this critical insight for utilities. Across all regions, we have expanded our grid edge solutions, demonstrating the strength and scalability of our technology. Let me share how we're leading the way with scalable connected grid edge solutions. Through our strategic collaboration with OATI, we launched Landis and Gear DERMS, powered by OATI, an integrated single pane of glass platform that enables utilities to seamlessly manage distributed energy resources like EVs, solar, and battery storage across all customer segments. We are also expanding intelligence behind the meter through our expanded partnership with SPAN and the introduction of SPAN Edge, a first-of-its-kind intelligence service point that unlocks electrification and transforms homes into dynamic grid assets. FanEdge delivers real-time visibility, precise control and flexible load shaping benefits beyond traditional non-wire alternatives. Empowering utilities to better manage load growth, avoid costly service upgrades and unlock unprecedented orchestration at the grid edge. With grid edge intelligence as a foundation, We're unlocking new value for utilities through edge and cloud-based application, expanding our software and services portfolio and accelerating recurring revenue growth. In 24, we saw a major surge in adoption of our Revelo grid sensing platform, a key enabler of real-time visibility and decision-making at the edge. With over 10 million units contracted and 2 million delivered, this next generation grid sensor is a major driver of our very strong order intake, which we will talk about on the next slide. On the other hand, the fast adoption of the Revelo platform by customers has triggered an inventory obsolescence of $20 million and FY24. Before going more in depth into our consolidated financials, let's now look at our order intake and backlog, which provide an additional perspective on business momentum. Our strong order intake of 2.6 billion resulted in a book-to-bill ratio of 1.5 for the company with a book-to-bill ratio above one across all regions in line with our strategic aim and sustaining a book-to-bill ratio of one over the long term. Order entry was particularly strong in the Americas region with key wins in North America as well as Japan. In APAC, our team has secured its largest deal to date, marking a significant milestone in our regional growth strategy. Landes & Gier recorded a record backlog of $4.6 billion, representing a 22.9% year-over-year increase. Notably, growth in the Americas was particularly strong, with the regional backlog expanding by 26.2%. Although regional dynamics vary, the trend towards higher software content is evident, accounting for approximately 35% of the recorded backlog. Approximately $1.2 billion is expected to be executed in the next 12 months, while a significant share is aligned to long-term programs with execution extending into 26 and beyond, particularly software-rich projects. And now I will give the floor to Davinder, our CFO, and he will run us through the financials in much more detail.

Thank you, Peter. Good morning and good afternoon everyone, and thanks for joining us. I'm excited to be speaking with you today in my new role as a Group CFO of Landis & Gere. It's been a great first month getting up to speed and I'm truly impressed by the strength of the leadership team, the clarity of our strategy, and the opportunities ahead of us at such a pivotal time for the company. As I step into this role, my focus is on financial stewardship, transparency, and supporting the company's ongoing strategic transformation. I look forward to working with the team to deliver on our goals and drive long-term value for shareholders. With that, let's turn to the financial results for fiscal year 2024, which ended on March 31, 2025. Please note the results of both FY23 and FY24 have been restated to exclude discontinued operations related to the divestment of our EV charging business. Let's start with slide eight. Net revenue declined by 10.5% in constant currency, mainly driven by the non-reoccurrence of pent-up demand realization in FY23, as well as shipment delays in March of this year related to tariffs. In addition, softer revenue performance in EMEA during the first half of FY25 also contributed to the overall decline. Adjusted EBITDA came in at 9.9%, reflecting lower operating leverage and the one-time adjustment for inventory obsolescence. These headwinds were partially offset by disciplined cost management and operational efficiencies, as well as a one-time gain from a real estate transaction in India. Turning to slide 9, net revenue for the year was $1,729.3 million, representing a year-over-year decrease of 10.5% in constant currency. Overall, the decline was primarily driven by the Americas and EMEA regions. In the Americas, the decline was mainly driven by the non-reoccurrence of pent-up demand realization of approximately $120 million in FY23 and tariff-related temporary delays of shipments in March prior to the April 2 tariff announcement, which led to approximately $30 million of revenue shifting into FY25. EMEA showed a stronger second half, particularly with growth in our thermal solutions business in Belgium and Germany. However, this stronger performance was more than offset by softness in the first half of FY24, driven by project delays and weaker performance in the UK and Turkey. APAC saw a slight revenue decline, mostly due to project timing. Moving on to slide 10. Adjusted EBITDA for FY24 was $170.9 million. translating into an adjusted EBITDA margin of 9.9%, which represents a year-over-year decline of 190 basis points. The decline was largely due to revenue shortfalls across all geographies, partially offset by a favorable revenue mix in each of EMEA and APAC. We also recorded a one-time inventory obsolescence adjustment of $20 million, as previously communicated in February. That write-down was partially offset by an $11 million gain from a real estate transaction in India. Lastly, adjusted operating expenses declined by $20.3 million, supported by strong cost discipline and lower compensation-related costs, including headcount reductions. Slide 11 shows the reconciliation from reported to adjusted EBITDA and includes four items. restructuring charges of $8.1 million related to efficiency initiatives in the Americas and EMEA, a warranty normalization adjustment of $4.3 million to update provisions relative to the three-year average of actual costs, which continue to trend down due to fewer claims, FX hedge timing differences to exclude unrealized mark-to-market gains of $0.1 million, and finally, a new category this year for business transformation expenses of $18.3 million, These costs are related to our strategic transformation in the Americas as well as review of the EMEA business and preparation for U.S. lifting as announced last October. Turning to slide 12, we ended FY24 with net debt of $182.9 million. Key movements included $78.9 million in cash generated from operations, $72.5 million in dividend payments made in July 2024, $11.1 million in net outflows related to divestments, $25.2 million in capital expenditures, and $21.7 million primarily related to the purchase of treasury shares, FX impacts, and finance lease obligations. We close the year with a net debt to adjusted EBITDA leverage ratio of 1.07x, providing a strong platform for future growth. Now let's move on to regional performance, starting with the Americas on slide 13. Revenue in the Americas was $964.6 million, down 13.9% in constant currency. As mentioned, this reflects the non-reoccurrence of pent-up demand realization in the prior year and the impact of shipment delays in March 2025 related to tariffs, accounting for approximately $120 million and $30 million, respectively. Excluding these two items, underlying revenue was broadly flat year over year. Adjusted EBITDA margin declined 320 basis points to 13.2%, mainly due to reduced operating leverage and the inventory adjustment. Excluding the inventory charge, the adjusted EBITDA margin was 14.9%. Moving on to slide 14. EMEA revenue declined 6.5% in constant currency to $606.6 million. While the second half showed encouraging growth, especially in Belgium and Germany, the project delays and software performance in the UK and Turkey during the first half more than offset the strong performance. Adjusted EBITDA was $16.1 million, or 2.7% of revenue, with margin pressure from lower operating leverage partially offset by mixed cost discipline and the flow-through benefit of restructuring. Moving on to slide 15. Revenue in APAC declined slightly by 2.9% in constant currency to $158.1 million due to project timing. That said, our Indian joint venture Easiasoft showed strong momentum. Adjusted EBITDA margin improved to 23.8%, largely driven by the real estate gain. Excluding that, adjusted EBITDA margin was 16.9%, reflecting solid underlying performance despite the top-line pressure. That concludes my prepared remarks. Thanks again for joining us today and for your continued interest in Landis & Gere. I look forward to connecting with many of you in the months ahead and sharing our continued progress. With that, I'll hand back to Peter to walk through our fiscal 2025 guidance.

Peter? Thank you, Davinda. Turning to slide 16, let's talk about our outlook and guidance for FY25. Looking ahead and after a transitory year, we expect the net revenue growth of between 5% and 8% in FY25 compared to FY24, with all three regions contributing to the growth development. With a higher top line and the efficiency measures taken in FY24, we expect an adjusted EBITDA margin between 10.5% and 12% of net revenue. We will also continue advancing our strategic transformation forward and we will provide updates on the process and development as they become available. And now, we'll open the call for questions.

Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to disable the loudspeaker mode and eventually turn off the volume from the webcast. Anyone who has a question may press star and one at this time. Our first question comes from Gupta Akash with JP Morgan. Please go ahead.

Yes, hi, good morning, good afternoon, everyone, and thanks for your time. I have two questions, please. The first one I have is on the guidance. Will you say that its guidance is subject to external factors, including tariffs, I mean, you are guiding at a time when we already have some tariffs in place, which is a different situation than other companies which gave guidance before tariffs came in. So maybe first question is on if you can talk about what sort of tariff headwinds you have incorporated already in the guidance and what is the incremental downside upside from here and a follow up to that question is if you can talk about what sort of closes do you have in your existing orders and backlog and when we think about any future extra cost, do you have flexibility to pass it on to customers or is this something that you need to absorb on your own? Thank you.

Thank you, Akash. Let me take Let me take your questions. The first one was on the guidance. First, we are in a unique position that with our fiscal year ending March that our guidance actually already includes how we understand tariffs at present, which is quite unique as we are able to give guidance. So the specific reference then is what is included in our revenue guidance and our EBITDA guidance. It's really as we understand tariffs as of today that is included in our guidance. Specifically, the second question was around flexibility that we have on any potential costs that come in. How can we pass them on? And here, really, we take the benefit of what we learned from the beginning of COVID to the supply chain issues. that the majority of our contracts now reflect mechanisms that we can more swiftly than ever pass on those cost increases, be it tariff or any other cost increase, to our customer base. So we feel much more protected than three years ago, and we believe we're in a good position. And again, the position we believe we are in is reflected in our guidance as it relates to passing on cost in prices to our customers.

Thank you. And my second question is for Devinder, which is on restructuring and other one-time costs that we should expect in FY 2025. And also, if you can comment on financial costs and tax rates compared to what we saw in 2024.

Thank you. Hi, Dr. Devinder. I'm not sure I got all of the questions. There's a bit of noise in the back there.

Sorry, I'll try again. So the question I had was that if you can provide some guidance on what shall we expect on restructuring and other one-time transformation expense in FY25, and also if you can comment on financial expenses and tax rate that we should expect in FY25. Thank you.

Yeah, thanks. I got it that time. So for FY25 on the restructuring, There's really not anything that should be in there. That was related to some very specific actions and activities that we completed last year. We've actually got the benefit of that already coming through. So that should not be coming through at this point going forward.

Might also elaborate if your question included the strategic initiatives as well that we had recorded the first time this year as it relates to the two main projects.

Yeah, so we'll understand this, right? So there's two categories of expenses. So the restructuring activity would be broken up separately. That was an FY24 phenomena, as I said, will not reoccur in 25th. The new category for 2025 was, as Peter just mentioned, the strategic initiatives. That's related, again, just to reiterate, it's kind of basically our EMEA review or review of that business together with preparing for a listing in the U.S. for the most part. I think from a run rate perspective, you might kind of see the same in 2025. We kind of lead up to that potential listing in 2026.

Thank you. Thank you for the question. Appreciate it. As a reminder, if you wish to register for a question, you may press star and 1. Our next question comes from Osborne Jeffrey with . Please go ahead.

Thank you. Just a couple questions on my side. I was curious if you could just share with us, Peter, what happened with the $20 million inventory write-down. My understanding is National Grid was the primary Ravello customer, and then you articulated that someone that wasn't using the edge-enabled meters wanted to move that direction, which is a great long-term opportunity for you. But could you share with us who that customer is or what happened there? It's a bit unusual for a metering company to have $20 million worth of meters that don't get used?

Well, it's, first, good morning, Jeff. I cannot disclose a customer, and it's not 20 million meters, it's $20 million of components that were related to the product line that has been obsoleted by the success of the Revello. And it's not a single customer, it's a multitude of customers. And we have seen the adoption of our Revelo platform across all customer segments, not just the large investor-owned utilities, but across the municipal and the co-op segment as well. And as we go back, some of those inventory commitments had to be made still at the peak of the supply chain challenges. And it was probably one of the final lags and the results that we saw on the supply chain issues that we have seen. But it's not a specific customer, it's really accelerated transition to our Ravello offering across the board.

Got it. And then whoever those customers are, are they part of the $10 million backlog, or are those still in contract negotiations to migrate to Ravello?

I think it's all of the above. Some of them are shipped, some of them are in the $10 million, and some of them we are in discussion as we speak. So it's a mixture of all of the above.

Got it. And then maybe just two quick ones on the tariff side. I'm confused on why there was delays in March if the tariff started on Liberation Day in early April. Was that just concerns about getting to the border and having to pay a tariff and uncertainty on shipping timing or what price you were going to charge them?

So you have to go back. The first announcement was actually at the beginning of March and with specific announcements and there were tariffs in place with specific announcement set for April 2nd. And that really hit us in the time when we had our year end. So there was no certainty what the tariffs would be on April 3rd. That's really what's triggered it. That made the discussion for us specifically particularly challenging what to do with products. Should we ship them on April 3rd? Will the customer take them on before? So that's really triggered that. So that is a exclusively timing related and we articulated 30 million dollars and on April 2nd then there was a reality created that at least allowed everyone to deal with that new reality that we had. We should not forget there was an announcement in the beginning of March which really coincided for us with the last couple of weeks of our fiscal year and maybe that's why it hit us harsher than some other companies in that period.

Makes sense. And then lastly, just can you share with us what the guidance implies as it relates to a tariff headwind in terms of dollar value? And then, you know, what percentage of your production in Mexico is USMCA qualified that would not be exposed to the tariff versus what is exposed to the tariff? Is that something you could share?

Again, as I said, we're kind of in a unique position that we created our guidance with basically those cost parameters already in place, which is somewhat beneficial for us. And as we understand it, both on the revenue side and on the cost side, that's reflected in the 10.5% to 12%. And you referred to the USMCA with our Mexican facility from the point early March, as we understood that this is a new framework that we have to operate in. All the products that were not compliant at that time, you know, we've swiftly worked on changing supplier base that those are transitioning as we speak to be 100% compliance.

And you think that lastly, that'll be something you accomplish this year, calendar year or no?

I don't know, much shorter, much shorter.

OK, perfect. That's all I have. Thank you.

Once again, if you wish to register for a question, you may press star and 1. We have another registration from Rolf Renters with AMG. Please go ahead. Mr. Renders, your line is open.

Sorry for that. Do you hear me now?

Yeah, we can hear you now.

Okay, great. Yes, good afternoon. Can you elaborate a bit on the big order jump in Americas? And just to understand, I would expect it to be marginally creative, and I cannot really follow why then the margin guidance for 25 is lower than I would have anticipated. Thank you.

First, on the large order intake, we're quite excited that our customers validated us as being a leader in the space by placing a substantial orders with us, the largest order intake that we've seen in the history. So we look at that as a validation and there's been substantial substantial work has been required to achieve those contracts. As you can imagine, those are long-term contracts with complexity where the team worked on for an extended period of time. So we're excited that the customer decided to put the signature underneath and award us the contract. On the revenue guidance, we believe the EBITDA guidance of 10.5% to 12% is very much in line with the revenue growth that we see and moving from the 10% EBITDA margin that we've seen up in next year with the guidance. So we see that as a solid revenue growth driven by operational leverage that we gain with the revenue growth that we are experiencing again at substantial rate. okay thank you for that and you mentioned a few numbers on the software part of it would you mind reminding that or explaining that once more so i think if i recall the numbers we have given in the 4.6 billion dollars of backlog overall 35 of that backlog is related to software uh if you break that out for the For the segment Americas, that is the one with the highest software content, that percentage moves up to close to 50%.

All right. Thank you for that.

Thank you, Ross.

At the moment so far, there are no more registrations.

Good. Then thank you for your question. We're going to close the call in a moment, but leave you with this slide as a reminder of a couple of takeaways from today's call. Landis & Gier, we enter fiscal 25 with very strong momentum, and that's really manifested in our record backlog of almost $4.6 billion. Second, the global shift towards more intelligent and resilient power grids is accelerating, and Landis & Gier is uniquely positioned Third, we expect net revenue growth of between 5% and 8% in FY25 and resulting in an EBITDA margin of 10.5% to 12%. And fourth, we remain confident in our ability to manage tariff-related costs. And at present, we expect minimal impact on our performance in 25. And finally, we stay true to our roots as a passionate sustainability-centric industry leader. Thank you again for joining us today. Appreciate your time and interest in Landes in Gear and look forward to meeting all of you soon, virtually or in person. Goodbye. Have a great one. Thank you.

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