3W Power/AEG Power Solutions Reports Results for Q1 2013

3W Power/ AEG Power Solutions (FWB:3W9):

3W Power SA (Prime Standard, ISIN GG00B39QCR01, 3W9), the holding company of AEG Power Solutions B.V., a leading global provider of power electronic systems and solutions for industrial power supplies and renewable energies, today announced results for Q1 2013. Order intake in Q1 2013 was €57.9 million, down 34.2% year-on-year (Q1 2012: €87.9 million) and down 47.9% compared to the prior quarter (Q4 2012: €111.0 million). Order backlog in Q1 2013 was €90.9 million, down 43.5% year-on-year (Q1 2012: €160.9 million) and down 28.4% compared to the prior quarter (Q4 2012: €126.9 million). The drop in orders is the result of the ongoing weakness in POC and delays in large Solar project orders.

Revenue in Q1 2013 was €91.9 million, up 15.1% compared to Q1 2012 (€79.9 million), primarily driven by Solar revenue but down 18.9% compared to the prior quarter (Q4 2012: €113.4 million) due to a seasonally strong Q4 2012. Normalized EBITDA in Q1 2013 was €8.5 million, which excludes one-time expenses of €0.1 million. This corresponds to Normalized EBITDA of €0.0 million in Q1 2012 and €7.4 million in Q4 2012. The increase in EBITDA was due to strong Solar EBITDA as large Solar orders were fulfilled and a reduction of €1.1 million (including one-time restructuring expenses of €0.1 million) in shared costs.

At the end of Q1 2013, the cash position of the Company was €33.1 million, down €9.8 million from €42.9 million at the end of Q4 2012. This was mainly due to operating cash outflow of €6.9 million which relates in essence to first quarter EBITDA offset by a reduction in advance customer payments (deferred income) and paid provisions. In addition, there was a €3.8 million cash outflow as a result of income taxes paid. The Company’s major Solar customer, with whom the Company experienced payment delays exacerbated by the banking situation in Cyprus, in April re-started their payment cycle and initiated large payments to the Company. At the end of April, 2013 the Company’s cash balance increased to €43.3 million and its gross accounts receivable balance with the customer was down to €37.8 million. Furthermore, the customer is fully current on outstanding amounts owed.

Renewable Energy Solutions – Solar

Solar orders were €11.8 million in Q1 2013, down 45.1% year-on-year (Q1 2012: €21.5 million) and down 82.3% compared to the prior quarter (Q4 2012: €66.7 million), mainly due to delays in large Solar project orders and strong order intake in Q4 2012. Solar order backlog was €13.6 million in Q1 2013, down 28.4% year-on-year (Q1 2012: €19.0 million) and down 68.2% compared to the prior quarter (Q4 2012: €42.7 million).

Solar revenue was €40.6 million in Q1 2013, an increase of 250.6% year-on-year (Q1 2012: €11.6 million), driven by a large contract for 240 MW of photovoltaic utility scale equipment and services, for which the Company provided complete electrical systems for nine photovoltaic power plants in Eastern Europe. Solar revenue was down 21.1% compared to the prior quarter (Q4 2012: €51.5 million) due to a seasonally strong Q4 2012. Solar EBITDA was €9.1 million in Q1 2013, up both from a negative EBITDA a year ago (Q1 2012: -€2.4 million) and from the prior quarter (Q4 2012: €3.4 million). EBITDA has improved due to an exceptionally strong Q4 that spilled over into Q1 2013 as large Solar orders were fulfilled.

Renewable Energy Solutions – POC

Orders in POC were €6.6 million in Q1 2013, down 72.4% year-on-year (Q1 2012: €24.0 million) due to the weakness in POC and up 69.2% compared to the prior quarter (Q4 2012: €3.9 million). POC order backlog was €6.0 million in Q1 2013, down 91.1% year-on-year (Q1 2012: €67.6 million) and down 58.4% compared to the prior quarter (Q4 2012: €14.4 million).

POC revenue was €15.0 million in Q1 2013, down 29.7% year-on-year (Q1 2012 €21.4 million) driven by the weakness in POC but up 20.0% compared to the prior quarter (Q4 2012: €12.5 million). POC EBITDA was €3.5 million in Q1 2013, down 28.8% year-on-year (Q1 2012: €4.9 million) and down 32.7% from the prior quarter (Q4 2012: €5.2 million). POC is in the midst of a major investment trough in the capex cycle for the expansion of polysilicon production capacity and the oversupply situation for polysilicon is expected to continue for the foreseeable future. Orders and revenues of non polysilicon systems and emerging smart grid applications continue to present future opportunity but at present are not sufficient to offset the lack of polysilicon business.

Energy Efficiency Solutions – EES

Order intake in EES was €39.5 million in Q1 2013, down 7.0% year-on-year (Q1 2012: €42.4 million). Compared to the prior quarter, EES orders were down 2.5 % (Q4 2012: €40.5 million) due to postponed orders and generally weak demand. The order backlog stood at €71.3 million in Q1 2013, down 4.1 % year-on-year (Q1 2012: €74.3 million) but up 2.1% compared to the prior quarter (Q4 2012: €69.8 million).

Revenue was €36.3 million in Q1 2013, down 22.6% compared to the prior year (Q1 2012: €46.9 million) and down 26.5% compared to the prior quarter (Q4 2012: €49.4 million) as both industrial and commercial UPS were impacted by the weak demand as the businesses suffered from project delays and investment cutbacks from customers. Normalized EBITDA for EES in Q1 2013 was -€1.9 million. This compares to €1.2 million in Q1 2012 and €1.7 million in Q4 2012. The decline in Normalized EES EBITDA is primarily due to lower DC Telecom volumes.

During Q3 2012, the Company decided to divest the loss-generating telecom converter and LED business in Lannion, France within EES classifying the business as a discontinued operation. For Q1 2013, the Company’s loss from discontinued operations was €1.8 million. The decision is consistent with the Company’s ongoing effort to minimize complexity within the Group and to reduce its exposure to telecommunications activities.

Outlook

"Looking at 2013, the Company is fortunate to have such well-diversified businesses – both geographically and across industries and markets. When combined with our talented people and sound strategic direction, we are positioning ourselves to seize the opportunities of the future”, states Bruce A. Brock, CEO of 3W Power and AEG Power Solutions. "Nonetheless, 2013 will be a challenging year.”

Aside from the continued global macroeconomic issues, the most significant challenge in the business in the past year was the lack of investment in new polysilicon capacity in the market. In the past, the Company’s participation in polysilicon systems through POC was a leading contributor to positive free cash flow for the Company. For the foreseeable future the Company does not anticipate a return of this lucrative business. Despite this market volatility, the POC business remains profitable on the basis of other systems and applications, though at much lower revenue levels. In the meantime, POC will continue to be a center of innovation and technological strength. The Company continues to focus on developing promising new systems and applications such as advanced industrial applications and power control systems for energy storage and Smart Grid. These activities should contribute meaningful growth and profitability in the medium-term.

AEG Power Solutions’ Solar business is less exposed to the challenging Western European markets than many of its competitors. The Solar business has a strong footprint in growth regions around the world. The Company continues to drive growth in key Solar end-markets of Asia, Africa, the U.S., South America and Eastern Europe. While the Solar business has continued to grow and the Company has maintained healthy margins, the growth has also required a sizeable investment in working capital. Much of this working capital is tied to large projects in Eastern Europe.

AEG Power Solutions’ industrial business provides a solid and resilient base that helps to insulate the Company from the more volatile and cyclical POC and Solar business segments. AEG Power Solutions continues to focus on improving the profitability within its industrial business of EES whilst supporting the growth and development of Solar. The Company expects EES to grow moderately and with incremental margin improvements resulting from the business improvement initiatives introduced in 2012. Profitability in the telecommunications sector will remain challenging and the Company is seeking ways to reduce exposure to this market.

For the Group, replacing the cash flows and profitability of polysilicon systems business will be a challenge. The Company has aggressively adapted to the changing dynamics by actively managing its capital spend and redirecting efforts to capitalize on market opportunities around the world. For 2013 AEG Power Solutions still expects to achieve overall sales volumes near 2012 levels and Normalized EBITDA comparable to 2012 performance. On a segment level for 2013, AEG Power Solutions currently anticipates the following:

• EES, excluding the telecom converter business (CVT/LED), will achieve modest year-on-year revenue growth and some profitability improvement given ongoing cost improvement initiatives;
• Solar orders and revenue are extremely difficult to predict in the current environment; however, there is a possibility that Solar will grow profitably year-on-year;
• POC orders and revenue will fall short of 2012 levels on continued weakness in the polysilicon market; however, POC will remain profitable even at substantially lower volumes.
• Due to the recent organizational changes including the appointment of a new CEO as well as President and General Manager, the central costs will increase to a run rate of over €10.0 million per annum. The Company is considering measures to reduce this level.

"The Company must find ways in the near term to balance the growing demands of the Solar business including its working capital requirements with initiatives necessary to improve cash flows”, emphasizes Bruce A. Brock. "Doing so will require careful planning and working capital management. While the difficult economic environment poses challenges, we are confident that the strength of our robust products and market diversity allow us to position ourselves for expected growth and value creation.”

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About 3W Power/AEG Power Solutions:

3W Power S.A. (WKN A0Q5SX / ISIN GG00B39QCR01), based in Luxembourg, is the holding company of AEG Power Solutions Group. The Group is headquartered in Zwanenburg in the Netherlands. The shares of 3W Power are admitted to trading on Frankfurt Stock Exchange (ticker symbol: 3W9).

AEG Power Solutions (AEG PS) Group is a global provider of power electronics systems and solutions for all industrial power requirements offering one of the most comprehensive product and service portfolios in the area of power conversion and power control. Two complementary operating business segments, Renewable Energy Solutions (RES) and Energy Efficiency Solutions (EES) serve customers worldwide. The RES product and service portfolio consists of systems and solutions for solar power plants, such as solar inverters, monitoring and control systems as well as power controllers for a wide range of industrial applications such as polysilicon, energy storage, sapphire and glass. The EES product and service portfolio includes high-performance uninterruptable power supplies (UPSs), industrial chargers, and DC systems.

Thanks to its distinctive expertise bridging both AC and DC power technologies and spanning the worlds of both conventional and renewable energy, the company creates innovative solutions for smart grids.

AEG PS’ global footprint includes 22 subsidiaries, offices and competence centers around the world with 1,600 employees.

For more information, visit www.aegps.com

This communication does not constitute an offer or the solicitation of an offer to buy, sell or exchange any securities of 3W Power. This communication contains forward-looking statements which include, inter alia, statements expressing our expectations, intentions, projections, estimates, and assumptions. These forward-looking statements are based on the reasonable evaluation and opinion of the management but are subject to risks and uncertainties which are beyond the control of 3W Power and, as a general rule, difficult to predict. The management and the company cannot and do not, under any circumstances, guarantee future results or performance of 3W Power and the actual results of 3W Power may materially differ from the information expressed or implied in the forward-looking statements. As a result, investors are cautioned against relying on the forward-looking statements contained herein as a basis for their investment decisions regarding 3W Power.

3W Power undertakes no obligation to update or revise any forward-looking statement contained herein.