Elster Reports Third Quarter 2010 Results

ESSEN, Germany, Nov. 4, 2010 /PRNewswire-FirstCall/ --  Elster Group SE (NYSE: ELT) today announced results for the third quarter and nine months ended September 30, 2010. Elster third quarter 2010 (3Q 2010) revenues were $451.3 million, a 10.7 percent increase over the same period in 2009. 3Q 2010 net income attributable to Elster Group SE was $35.6 million.

Gross margin for 3Q 2010 was 31.2 percent, improving more than 100 basis points versus 3Q 2009. 3Q 2010 adjusted EBITDA(1) was $75.7 million, a 27.0 percent year-over-year improvement.

"Elster's strong performance in the third quarter highlights the breadth and success of our product portfolio across utility segments and around the world, including Elster's Smart Grid and metering solutions. Our customers trust the experience, innovation, accuracy and reliability that Elster stands for," said Simon Beresford-Wylie, chief executive officer of Elster.

"As a newly public company in the dynamic, global Smart Grid sector, we look forward to focusing on delivering value to our new shareholders," Beresford-Wylie added.

New order intake was $1,272.6 million for the nine months ended September 30, 2010 compared to $1,106.1 million in the prior-year period, an increase of 15.1 percent. New order intake of $383.6 million in 3Q 2010 decreased slightly from $389.6 million in 3Q 2009. Contracted future revenues(2) declined 3.1 percent sequentially in 3Q 2010 to $779.4 million. Order backlog at the end of September stood at $451.5 million, down 11.2 percent sequentially, but 10.9 percent higher on a year-over-year basis. Elster defines backlog strictly as the company's total open purchase orders.

ELSTER SEGMENT RESULTS

Gas

Gas revenues in 3Q 2010 of $236.8 million reflect a 7.4 percent increase versus 3Q 2009, and gas segment profit of $59.2 million grew 30.4 percent compared to 3Q 2009. 3Q 2010 gas segment profit margin(3) improved 440 basis points year-over-year to 25.0 percent. Drivers for 3Q 2010 gas segment performance included metering strength across major geographies, a favorable product mix and strong performance from the gas utilization product portfolio.

Electricity

Electricity revenues in 3Q 2010 of $117.7 million reflect a 15.5 percent increase versus 3Q 2009, and electricity segment profit of $16.9 million grew 15.8 percent compared to 3Q 2009. 3Q 2010 electricity segment profit margin improved 10 basis points year-over-year to 14.4 percent. Drivers for 3Q 2010 electricity segment performance were an expansion in Smart Offerings in Western Europe, which included the positive contribution of an acquisition completed in late 2009, and the early adoption of an accounting policy. In addition, increased sales in the U.S. and Oceania and a favorable product mix contributed to growth.

Water  

Water revenues in 3Q 2010 of $101.6 million reflect a 14.4 percent increase versus 3Q 2009, and water segment profit of $9.2 million grew 43.8 percent compared to 3Q 2009. 3Q 2010 water segment profit margin improved 190 basis points year-over-year to 9.0 percent. Drivers for 3Q 2010 water segment performance included recent product introductions, growth in key markets and a favorable product mix.

Cash Flow

Cash flows from operating activities during the first nine months of 2010 were $82.3 million compared to $114.3 million for the nine months ended September 30, 2009. Free cash flow(4) in first nine months of 2010 was $53.7 million compared to $83.5 million for the nine months ended September 30, 2009.

The effects of Elster's IPO, which was completed on October 5, are not reflected in the financial statements for September 30, 2010.

Year-to-Date 2010 Results

Net income attributable to Elster Group SE for the nine months ended September 30, 2010 was $53.5 million compared with $29.8 million in the year-ago period, an increase of 79.5 percent. Revenues for the nine-month period totaled $1,282.6 million, an increase of 3.0 percent compared with $1,244.7 million for the first nine months of 2009. Elster's year-to-date gross margin in 2010 improved to 31.0 percent from 30.1 percent in the prior-year period. Adjusted EBITDA in the nine-month period increased 12.2 percent to $206.6 million from $184.1 million for the first nine months of 2009.   

Outlook

Elster plans to provide annual targets via its press release and related conference call to discuss fourth quarter and full-year performance. The company does not plan to provide targets on a quarterly basis. As this is Elster's first quarter as a public company, on a one-time basis, the company is providing targets for 4Q 2010. Elster currently expects revenue in 4Q 2010 to be between $465 million and $475 million, and adjusted EBITDA margin(5) in 4Q 2010 to be in a range of 15% to 17%.

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1. A reconciliation of Adjusted EBITDA, a non-GAAP measure, to net income is available at the end of this press release
2. Elster defines contracted future revenues as total order backlog plus additional contract revenues under awarded contracts with an initial value of $500,000 or more. Additional contract revenues represent contracted deliverables for which orders have not yet been placed. Elster cannot predict how many purchase orders will ultimately be placed under these awarded contracts.
3. Segment profit margin is segment profit as a percentage of segment revenues.
4. A reconciliation of free cash flow, a non-GAAP measure, to cash flows from operating activities is available at the end of this press release.
5. Adjusted EBITDA Margin is adjusted EBITDA as a percentage of revenues. Elster does not reconcile its Adjusted EBITDA Margin target, which is a non-GAAP financial measure, to net income margin, the closest ratio prepared in accordance with U.S. GAAP, due to uncertainties relating particularly to the non-cash and other adjustments in Elster's first full quarter as a public company.

Conference Call and Webcast

Company management will webcast a conference call at 8:00 a.m. ET on Thursday, November 4, 2010 on the company's website. To access the live webcast, please log on to the investor section of the company's website at http://investors.elster.com. Analysts and investors may participate in the conference call by dialing +1-612-332-0335 and using confirmation number 176037.

Webcast and telephone replays of the conference call will be available approximately two hours after the completion of the call through Thursday, November 18, 2010.  Domestic callers can access the replay by dialing +1-800-475-6701, and international callers can access the replay by dialing +1-320-365-3844 and using confirmation number 176037.

About Elster

Elster (NYSE: 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. We may also make written or oral forward-looking statements in our periodic reports to the Securities and Exchange Commission on Forms 20-F and 6-K, in our offering prospectuses, in press releases and other written materials and in oral statements made by our Administrative Board members, managing directors or employees to third parties. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements and include generally any information that relates to expectations for revenue or Adjusted EBITDA margin or other performance measures. These statements are based on current plans, estimates and projections, and therefore you should not place undue reliance on them. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly any of them in light of new information or future events.

Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Such statements are subject to risks and uncertainties, most of which are difficult to predict and are generally beyond our control, including those described in the sections "Special Note Regarding Forward-Looking Statements" and "Risk Factors" of our prospectus dated September 30, 2010 filed with the U.S. Securities and Exchange Commission. Relevant factors include, but are not limited to, negative worldwide economic conditions and ongoing instability and volatility in the worldwide financial markets; growth expectations for our industry; our ability to raise capital to refinance our indebtedness; the extent of the revenues we derive from sales to the utility industry and the timing and availability to our customers of government stimulus funding; the transition to more advanced technology in our industry, including increasing competition from industries we previously viewed as distinct from ours; our ability to develop new products and technologies and the extent of the revenues we derive from our smart offerings; possible changes in current and proposed legislation, regulations and governmental policies, including with respect to radio frequency licensing and certification requirements; volatility in the prices for, and availability of, components, raw materials and energy used in our business; our ability to manage our outsourcing arrangements; and fluctuations of our operating results due to the effect of exchange rates or other factors.

SOURCE Elster