3W Power S.A. / AEG Power Solutions: 3W Power/AEG Power Solutions reports results for first half year and Q2 2017

 

• Protective Shield proceedings for the largest entity in Belecke, Germany successfully closed in May with over EUR8 million reduction in fixed operating costs and elimination of EUR23 million in long-term liabilities
• Negative impact on the ability to execute business as normal during Protective Shield proceedings in Germany affected orders, sales and results
• Subsequently, orders were down 10,8% yoy and revenue down 15,9% yoy; negative normalized EBITDA
• Improving operational outlook as material benefits are coming through in H2 including a high backlog of EUR99.2 million, new product releases, process improvements, reduced cost base and continuing customer loyalty
• Preparations in process to reduce debt and improve working capital facilities to fund the business; non-binding Memorandum of Understanding with key lenders in place  

Luxembourg / Zwanenburg, The Netherlands - September 29, 2017. 3W Power S.A. (ISIN LU1072910919, 3W9K), the holding company of AEG Power Solutions Group, a global provider of UPS systems and power electronic solutions for industrial, commercial, renewable and distributed energy markets, today announced its results for first half year (H1) and Q2 2017. The figures include full consolidation of AEG PS GmbH for 2017.  

Group results*

(in Euro million)	H1 2017	H1 2016	Δ in %	Q2 2017	Q2 2016	Δ in %
Order backlog	99.2	95.3	4.1	99.2	95.3	4.1
Orders	84.5	94.7	-10.8	38.2	43.1	-11.5
Revenue	67.0	79.7	-15.9	33.5	42.6	-21.4
Book to Bill	1.26	1.19	6.1	1.14	1.01	12.5
EBITDA	18.8	1.1		24.9	0.7
EBITDA margin	28.0%	1.3%		74.3%	1.6%
Normalized EBITDA	(6.6)	(3.7)	-77.0	(3.9)	(0.1)
Normalized EBITDA margin	-9.8%	-4.7%		-11.5%	-0.2%

* H1 and Q2 2017 figures include full consolidation of AEG PS GmbH

AEG Power Solutions finished H1 with EUR 84.5 million orders down 10.8% yoy (2016: EUR94.7 million). Order intake in Q2 was EUR38.2 million down 11.5% yoy (2016: EUR 43.1 million). However, the order backlog was EUR99.2 up 4.1% yoy (2016: EUR95.3). Book to bill ratio increased from 1.19 in H1 2016 to 1.26 in H1 2017. The backlog is diversified across market verticals and geographies which will support increased revenue recognition in the second half of 2017.  

The drop in H1 2017 in orders and sales compared to H1 2016 is predominantly due to the negative impact of the protective shield proceedings in the group's largest entity, AEG PS GmbH in Germany, which supplies to markets and customers worldwide. The disruptions caused by this extraordinary step could not be fully anticipated but presented many short term challenges especially to grow the order book and convert existing orders to revenue.  

Revenue in H1 2017 was EUR67 million down 15.9% yoy (2016: EUR79.7 million). Q2 2017 revenue was EUR33.5 million down 21.4% yoy (2016: EUR42.6 million). Revenues in H1 reflect the weaker order intake from Q2 and Q3 of 2016. In addition, EUR6.0 million in revenue was delayed due to operational challenges caused by the protective shield. Critical efficiency measures, changes in organizational structure and processes are successfully implemented and will support improved productivity in H2 2017.  

Group EDITDA of EUR18.8 million for H1 2017 was positive compared to EBITDA of EUR1.1 million in the same period of the prior year. H1 2017 normalized EBITDA, which is EBITDA adjusted for one-time transactions was EUR-6.6 million (2016: EUR -3.7 million). Normalized EBITDA was EUR-3.9 million in Q2 (2016: EUR-0.1 million). The deterioration in profitability shows the full negative impact of the protective shield proceedings that impacted revenue recognition and reflected high one-time restructuring costs. The impact of lower fixed costs do not materially show in operating results until H2 2017. Industrial Products and Services (IPS)*

(in Euro million)	H1 2017	H1 2016	Δ in %	Q2 2017 2017	Q2 2016	Δ in %
Order backlog	99.2	95.3	4.1%	99.2	95.3	4.1%
Orders	84.5	94.7	-10.8%	38.2	43.1	-11.5%
Revenue	67.0	79.7	-15.9%	33.5	42.6	-21.4%
Book to Bill	1.26	1.19	6.1%	1.14	1.01	12.5%
EBITDA	20.9	3.0		26.1	5.9
EBITDA margin	31.2%	3.7%		77.9%	13.8%
Normalized EBITDA	(4.3)	(1.6)		(2.8)	1.0
Normalized EBITDA margin	-6.5%	-2.1%		-8.5%	2.3%

* H1 and Q2 2017 figures include full consolidation of AEG PS GmbH

The EBITDA for IPS was EUR20.9 million (Normalized EBITDA was EUR-4.3 million), compared to EBITDA of EUR3.0 million (Normalized EBITDA EUR-1.6 million) for H1 2016. The full negative impacts of the disruptions to business operations through the protective shield proceedings are the same as for the group.  

Orders by geographical area (Quarterly comparison)*

(in Euro million)	H1 2017	H1 2016	Δ in %	Q2 2017	Q2 2016	Δ in %
Orders
Europe excl. Germany	39.1	45.8	-14.6	20.8	18.3	13.7
Germany	20.3	19.0	6.8	7.6	9.3	-18.3
Asia	12.5	17.1	-26.9	5.4	9.1	-40.6
Africa/Middle East	9.5	10.9	-12.8	3.1	5.9	-47.5
Rest of the world	3.1	1.9	63.2	1.3	0.6	116.7
Order total	84.5	94.7	-10.8	38.2	43.2	-34.7
Of which Products	53.6	65.1	-17.7	23.2	29.5	-21.4
Of which Services	30.9	29.6	4.4	15.0	13.7	9.5

* H1 and Q2 2017 figures include full consolidation of AEG PS GmbH

Revenue by geographical area (Quarterly comparison)*

(in Euro million)	H1 2017	H1 2016	Δ in %	Q2 2017	Q2 2016	Δ in %
Revenue Europe excl. Germany	30.7	31.2	-1.6	17.3	18.2	-4.9
Germany	14.5	17.2	-15.7	6.4	9.4	-31.9
Asia	10.3	17.5	-40.6	5.4	8.5	-36.5
Africa/Middle East	9.5	11.2	-14.3	4.2	5.7	-26.3
Rest of the world	2.0	2.6	-23.1	0.1	0.8	-87.5
Revenue total	67.0	79.7	-15.7	33.5	42.6	-21.4
Of which Products	43.9	56.4	-22.2	21.4	30.0	-28.7
Of which Services	23.1	23.3	-0.9	12.1	12.6	-4.0

 * H1 and Q2 2017 figures include full consolidation of AEG PS GmbH

Order intake reflects several developments within the markets and geographies the company competes. Partial weakness in Oil & Gas capital investment infrastructure (which is a moderate drop for back up power investment compared to general CAPEX), is largely compensated by increases in transportation infrastructure and natural gas power generation. Markets are generally buoyant albeit competitive but the order intake weakness reflects the Company's efforts to overcome its restructuring challenges more than any over arching negative external trend.  

Following internal challenges in H2 of 2016, the company undertook extraordinary measures to address these. On November 22, 2016, the German subsidiary AEG PS GmbH at Belecke/Warstein entered into a Protective Shield proceeding in self-administration to reorganize, streamline its operation, and restructure legacy liabilities. The company achieved most of its objectives including a reduction of EUR23 million long-term liabilities, fixed cost reduction of more than EUR8 million on an annualized basis and concluded the protective shield proceedings on May 2. By the end of H1 the operational situation materially improved and the Group's emphasis continues to be on improving its customer orientation with focus on timely delivery of products, services and systems.  

The company invested considerable time and energy into development of new products and services to fit with its strategic priorities to place UPS systems and services for infrastructure at the core of its business model. To enhance its commercial and strategic offering, the company recently launched next generation modular UPS systems Protect Plus M400 and M600. To strengthen its position in the light industrial marketplace, the company will shortly launch its new Protect Flex solution that will provide access to a broader range of market opportunities to grow.  

On September 5, 2017 the company issued an ad hoc announcing the intention of the parent company of AEG Power Solutions, 3W Power SA to take a final step in its financial restructuring by taking measures to deleverage, improve its ability to finance future growth and to recapitalize the business through a balance sheet restructuring. To achieve this, 3W Power S.A. and key stakeholders are in on-going discussions and have entered into a non-binding memorandum of understanding outlining key elements and next steps as well as pre-requisites to provide additional capital. To validate the group's business planning and required measures, a third-party expert will be promptly mandated to prepare a restructuring opinion for the group. The Board of 3W Power S.A. assumes that the required measures can be implemented, and will closely monitor and assess the likelihood of the balance sheet restructuring process going forward. The Group is nearly complete in its change in structure from a product driven model towards a business focused on markets, customers and the services they require. The company remains focused on sustainably profitable activities in critical infrastructure for both Industrial and Data & IT segments, and pursues promising activities in new emerging areas of energy storage and grid management. Very limited non core business activity persists within the group which will allow for improved efficiency and increased productivity moving forward. The company benefits from a broad installed base, loyal customers, good diversification both in terms of product offering and geographic reach which contributes to a certain stability.  

Outlook

The challenges in the first half of 2017 were largely foreseenalthough the impact of the protective shield proceedings ofour German subsidiary on the wider business environment was difficult to fully absorb. The operational challenges have been largely overcome. The company expects better execution and more productive performance in H2. With a lower fixed cost base and a greatly simplified business model, management expects to see improved profitability. Demand for AEG PS products and services continues and there is an ever growing need for the kind of power electronics the company is able to successfully produce.  

For further enquiries please contact: Christian Hillermann Hillermann Consulting Investor Relations for 3W Power/AEG Power Solutions Tel.: +49 40 320 279 10 Email: investors@aegps.com