Elster Reports 2012 Second Quarter and Half-Year Results

ESSEN, Germany, Aug. 3, 2012 /PRNewswire/ -- Elster Group SE ELT today announced results for the second quarter and six months ended June 30, 2012. Second quarter 2012 highlights include:

• Second quarter revenues $463.4 million, down 4.8 percent year-over-year (up 2.2 percent on a constant currency basis¹)
• Second quarter adjusted EBITDA² $62.2 million, adjusted EBITDA margin² 13.4 percent
• Second quarter Non-GAAP earnings per ADS $0.24³
• Cash flows from operating activities $59.0 million, free cash flow⁴ $33.5 million
• Order backlog $576.5 million, up 9.4 percent year-over-year

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Second quarter 2012

Elster's second quarter 2012 (2Q 2012) revenues were $463.4 million, down $23.3 million, or 4.8 percent, over the second quarter 2011 (2Q 2011). The decrease was driven by currency translation as revenues increased 2.2 percent on a constant currency basis. The driver of second quarter operational growth was solid North America growth in both the electricity and gas segments. This operational growth was offset by weaker operational results in the water segment.

Elster recorded adjusted EBITDA of $62.2 million in 2Q 2012, down 11.1 percent compared to 2Q 2011. On a constant currency basis, adjusted EBITDA decreased by 5.1 percent. Adjusted EBITDA margin decreased to 13.4 percent in 2Q 2012 from prior year results of 14.4 percent. 2Q 2012 non-GAAP net income attributable to Elster Group SE³ was $27.3 million, or $0.24 per ADS compared to $29.9 million, or $0.27 per ADS, in 2Q 2011.

2Q 2012 gross margin, net of charges of $0.4 million related to the reinvestment program (see Operational Excellence Program Update below for details), was 30.9 percent compared to 32.6 percent in 2Q 2011. The decrease was attributable to unfavorable product and customer mix, especially in the gas segment.

Total operating expenses, net of charges of $0.3 million related to the reinvestment program and charges of $4.5 million related to the potential Melrose acquisition and other management adjustments, decreased by $10.0 million, or 8.9 percent, to $102.0 million in 2Q 2012, down from $112.0 million in 2Q 2011. The decrease was driven by a reduction in research and development spending, lower general and administrative expenses and currency translation.

Elster's order backlog accounted for $576.5 million at the end of 2Q 2012, up by $49.3 million, or 9.4 percent, from $527.2 million in 2Q 2011. Contracted future revenues⁵ of $1.03 billion at the end of 2Q 2012 were down by 4.0 percent compared to the end of 2Q 2011.

On July 9, 2012, an indirect wholly-owned subsidiary of Melrose PLC made a tender offer to acquire all of Elster's outstanding common shares (the "Tender Offer"). For a description of the Tender Offer, please see Elster's Schedule 14D-9 filed with the Securities and Exchange Commission together with all amendments thereto and documents incorporated by reference therein (the "14D-9").

Half-year 2012

In the first half of 2012 (1H 2012), Elster's revenues totaled $910.1 million, down $20.5 million, or 2.2 percent, compared to the first half of 2011 (1H 2011), and up 2.8 percent on a constant currency basis.

Elster recorded adjusted EBITDA of $125.3 million in 1H 2012, a 5.2 percent decrease from $132.2 million in 1H 2011. On a constant currency basis, adjusted EBITDA slightly decreased by 1.1 percent. 1H 2012 non-GAAP net income attributable to Elster Group SE was $54.4 million, or $0.48 per ADS, down 7.6 percent from $58.9 million, or $0.52 per ADS, in 1H 2011.

Gross margin, net of charges of $14.0 million related to the reinvestment program, was 31.6 percent in 1H 2012 compared to 32.8 percent in 1H 2011. The decrease was attributable to unfavorable product and customer mix, especially in the gas segment.

Total operating expenses, net of charges of $6.5 million related to the reinvestment program and charges of $5.4 million related to the potential Melrose acquisition and other management adjustments, decreased by $13.0 million, or 6.0 percent, to $204.7 million in 1H 2012, down from $217.7 million in 1H 2011. The decrease was driven by a reduction in research and development spending, lower general and administrative expenses and currency translation

Elster Segment Results

Gas

Gas revenues in 2Q 2012 of $256.3 million reflect a 6.8 percent decrease versus 2Q 2011. On a constant currency basis, revenues increased by 0.3 percent. Gas segment profit of $58.1 million was 9.8 percent lower compared to 2Q 2011, and gas segment profit margin⁶ decreased to 22.7 percent from 23.4 percent last year.

The modest increase in gas segment constant currency revenues in 2Q 2012 was driven by strong demand for our gas products in North America and a solid performance of our gas utilization product portfolio. This was largely offset by less favorable market conditions in certain European markets, which resulted in weaker demand across most of metering products. The segment profit decrease was driven primarily by unfavorable currency effects, particularly in Europe, and by a less favorable product and customer mix.

Gas segment revenues in 1H 2012 of $514.7 million reflect a 3.0 percent year-over-year decrease versus the first half of 2011. On a constant currency basis, revenues increased by 2.1 percent. Segment profit of $121.3 million decreased by 6.1 percent compared to the first half of 2011, and segment profit margin in the first half of 2012 decreased to 23.6 percent from 24.3 percent in the first half of 2011.

Continued strong performance of our gas utilization product portfolio and increased revenues in most North America product lines were key drivers to 1H 2012 gas segment revenue growth on a constant currency basis. This was partly offset by the less favorable market conditions in certain European markets, in particular in the second quarter of 2012. The segment profit decrease was driven primarily by unfavorable currency effects, particularly in Europe, and by a less favorable product and customer mix.

Electricity

2Q 2012 electricity revenues were $121.2 million, an increase of 3.3 percent versus 2Q 2011. On a constant currency basis, revenues increased by $10.7 million, or 9.1 percent. Electricity segment profit of $11.8 million declined 5.6 percent compared to 2Q 2011 and electricity segment profit margin declined to 9.7 percent from 10.7 percent last year.

The increase in electricity revenues in 2Q 2012 was driven by the ongoing execution of several small- and mid-sized projects in North America. The strong North American performance in the quarter was offset by unfavorable currency effects, particularly in Europe. Electricity segment profit was impacted by product mix and higher personnel expenses.

Electricity revenues in 1H 2012 of $217.1 million reflect a 0.2 percent year-over-year increase versus 1H 2011. On a constant currency basis, revenues increased by 4.3 percent. Segment profit of $14.1 million declined by 13.0 percent compared to 1H 2011, and segment profit margin declined to 6.5 percent from 7.5 percent in the prior-year period.

Strong execution on several small- and mid-sized projects in North America was a key driver of 1H 2012 electricity segment revenue growth. 1H 2012 electricity segment growth was complemented by steady performance in Latin America and Eastern Europe, which was offset somewhat by unfavorable currency effects, particularly in Europe, and softness in some markets in Western Europe and Oceania. Despite strong cost controls in 1H 2012, electricity segment profit was impacted negatively by product mix and higher personnel expenses on a year-over-year basis.

Water

Water revenues in 2Q 2012 of $91.4 million reflect a 10.7 percent decrease versus 2Q 2011. On a constant currency basis, water revenues decreased by 2.6 percent. Water segment profit of $4.7 million decreased by 4.1 percent compared to 2Q 2011 while water segment profit margin increased to 5.1 percent from 4.8 percent last year.

The decrease in water segment revenues was attributable to continued weakness in specific Western European markets, as utility investments for residential products continue to progress at a slower pace than in 2Q 2011. Revenues were also impacted by currency translation in 2Q 2012. This was offset partly by higher revenues in the Middle East and North Africa, Africa and Oceania. The slight decrease in segment profit was driven by lower volume and currency translation, mostly offset by less raw material price pressure and continued cost controls.

Water segment revenues in 1H 2012 of $189.1 million reflect a 4.9 percent year-over-year decrease versus 1H 2011. On a constant currency basis, revenues increased by 0.7 percent. Water segment profit of $13.1 million increased by 8.3 percent compared to the first half of 2011, and water segment profit margin increased to 6.9 percent from 6.1 percent in the prior-year period.

Operational water segment revenue growth in 1H 2012 compared to the first half of 2011 was driven largely by higher revenues in the Middle East and North Africa, Oceania and, to a lesser extent, North America. This was offset by weakness in specific Western European markets, as utility investments for residential products progress at a slower pace than in 1H 2011. The increase in segment profit was driven by less raw material price pressure and continued cost controls.

Operational Excellence Program Update

In the first quarter of 2012 Elster's Administrative Board authorized a reinvestment program with planned actions that include consolidating operations and sites mainly in North America and in Europe, relocating certain product lines to other existing Elster businesses and increasing Elster's mix of production in low-cost countries. The planned consolidation of operations includes the closure of four major facilities and the reduction in the number of Elster's small and mid-sized facilities. In addition, the program includes the consolidation of administration structures in particular across Elster's finance, procurement and human resources functions. Program activities started in the first quarter of 2012 and are expected to continue through 2014. Elster estimates the total cost for the program to be in the range of $40 million to $60 million. The majority of the estimated cost is for involuntary employee terminations in the water and gas segments. In addition, the program will involve accelerated depreciation and amortization of property, plant and equipment that will not be relocated to a different site.

A summary of the reinvestment program cost by segment for the three and six months ended June 30, 2012 is as follows:

The charges for the reinvestment program are recognized in the following captions of the statement of operations for the three and six months ended June 30, 2012:

Outlook

Elster reaffirms the FY 2012 outlook it provided in February 2012.

Figures presented in this press release in tabular format may not add up to the total or percentages presented due to rounding.

About Elster

Elster ELT is one of the world's largest electricity, gas and water measurement and control providers. Its offerings include distribution monitoring and control, advanced smart metering, demand response, networking and software solutions, and numerous related communications and services - key components for enabling consumer choice, operational efficiency and conservation. Its products and solutions are widely used by utilities in the traditional and emerging Smart Grid markets.

Elster has one of the most extensive installed revenue measurement bases in the world, with more than 200 million metering devices deployed over the course of the last 10 years. It sells its products and services in more than 130 countries across electricity, gas, water and multi-utility applications for residential, commercial and industrial, and transmission and distribution applications. For more information about Elster, please visit www.elster.com.

 

 

 

 

 

 

 

 

 

 

This press release contains forward-looking statements. Elster may also make written or oral forward-looking statements in its reports filed with or furnished to the Securities and Exchange Commission on Forms 20-F and 6-K, in its offering prospectuses, in press releases and other written materials and in oral statements made by Administrative Board members, managing directors or employees to third parties. Statements that are not historical facts, including statements about Elster's beliefs and expectations, are forward-looking statements and include generally any information that relates to expectations for revenue or earnings per ADS or other performance measures. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "intends," "plans," "anticipates," "believes," "thinks," "estimates," "seeks," "predicts," "views," "potential" and similar expressions. These statements are based on current plans, estimates, assumptions and projections. Forward-looking statements speak only as of the date they are made, and Elster undertakes no obligation to publicly update any of them in light of new information or future events.

Forward-looking statements involve inherent risks and uncertainties, and therefore readers should not place undue reliance on them. Elster cautions you that a number of important factors could cause actual results to differ materially from those expressed in any forward-looking statement. Such statements are subject to risks and uncertainties, most of which are difficult to predict and are generally beyond Elster's control, including those described in the sections "Special Note Regarding Forward-Looking Statements" and "Risk Factors" of Elster's Annual Report on Form 20-F dated March 2, 2012 filed with the U.S. Securities and Exchange Commission. Important factors that could cause actual results to differ materially from those in the forward-looking statements include: the result of the Tender Offer and the ability of Melrose PLC to complete the acquisition; the impact of the acquisition on Elster's financial condition, results of operations and prospects; negative worldwide economic conditions and ongoing instability and volatility in the worldwide financial markets, including the effects on Elster's utility customers and prospective customers, which may move more deliberately, delaying or postponing projects, as well as the effects on Elster's ability to raise capital to refinance its indebtedness; growth expectations for Elster's industry; the extent of the revenues Elster derives from sales to the utility industry; the transition to more advanced technology in the industry, including increasing competition from industries Elster previously viewed as distinct from Elster's; Elster's ability to develop new products and technologies and the extent of the revenues Elster derives from Smart Grid technology; possible changes in current and proposed legislation, regulations and governmental policies, including with respect to radio frequency licensing and certification requirements; success in implementing Elster's reinvestment program; the fluctuations of Elster's operating results due to the effect of exchange rates; volatility in the prices for, and availability of, components, raw materials and energy used in Elster's businesses, including as a result of disruptions to the supply chain resulting from the flooding in Thailand in fall 2011; Elster's ability to manage its outsourcing arrangements; strategic actions, including acquisitions, joint ventures and dispositions; or other factors.

SOURCE Elster