Earnings Call: H2 2021

May 5, 2021

Ladies and gentlemen, welcome to the Analyst and Investor Call FY 2020 Conference Call and Live Webcast. I am Paolo, the Chorus Call operator. I would like to The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Eva Borowski, SVP, IR and Corporate Communications. Please go ahead, madam. Thank you, and good morning, everyone. As you know, earlier today, Landers and Geer issued our full year financial year 2020 results press release and accompanying presentation. Remind you that you can find these documents on our website. Before we get started, we want to emphasize that some of the information discussed today contains forward looking statements. And for more information, remind you that the presentation is not included in the press release issued today. Today's conference call will follow the presentation. So please, we suggest remind you that you have it on your screen or otherwise available to follow along with our comments during the first part of the presentation. With that short introduction, I'd like to turn over the call to our remind you, Eva. Thank you, Eva. Good morning, everyone, and welcome to our full year 2020 financial results. Remind you that I'm here with Elodisingari, our CFO, and we are very pleased to have all been able to join us this morning. Look, remind you that the presentation, I would like to give you a brief overview of the key messages of today's call. First, this has been a challenging year. Remind you that our transformation to expand Gradient Intelligence and Smart Infrastructure is well underway. 2nd, remind you that the company is now ready to take a look at the results. Despite 20.8 percent revenue decline, we were able to achieve a 10.3% adjusted EBITDA margin and produced a solid free cash flow remind you that we have the right strategic focus to drive leading edge technology remind you that we are very pleased with the progress we made in the quarter. So let's talk about what's been happening over the last year and move on to Slide 3. Remind you that the COVID-nineteen pandemic has affected all aspects of our lives in unprecedented ways. This also had an impact on our customers and our remind you that the summary of our company is reflected in our financial results and forecasts. Just this past week, we have taken the decision to temporarily close our Yokka facility to protect our employees from the rising case numbers in India. Whenever possible, employees continue to work from home. And also we have not experienced any major project cancellations. We have seen the impact on revenues in markets where installations have slowed down remind you that the company has been temporarily suspended. That said, installation rates have picked up a great deal over the course of H2, which is a positive sign for recovery. Remind you that we have a look at some of our key metrics. Starting with the order intake, our book to bill ratio was 0.96, remind you that the Q1 of 2019 is an improvement from 0.81 in FY 2019. Improving the ratio going forward remains my top priority. Remind you that our committed backlog fell by 2.6 percent to roughly $2,200,000,000 Americas and EMEA both contributed to the decrease, remind you that the Asia Pacific was able to increase its backlog by 8.4%. Net revenues came in at 1357,400,000 remind you that the Q1 of 2019 was a decrease of 20.8% in constant currency. While both Americas and EMEA were seriously impacted by the crisis and associated lockdowns, remind our business in Asia Pacific managed to improve its revenue by 0.4% in constant currency. And we saw good recovery in H2, remind you that the EBITDA margin of 10.3 percent, a decline of 370 basis points only despite 20.8 Percent lower net revenue. Free cash flow excluding M and A remained positive with $97,600,000 down 18.9 remind you that we have a very strong year over year, demonstrating again the cash generating power of our business. One of our greatest strengths has always been our balance sheet. Remind you that the net debt to adjusted EBITDA of CHF 0.05. Unbrawn credit facilities at the end of FY remind you that the company were CHF 270 1,000,000 or $460,600,000 in total, remind you that we repaid a total of $204,300,000 I am pleased to say that our Board of Directors will propose a distribution from capital reserves remind you that the contribution is free of Swiss withholding tax and will go to vote at the extraordinary general meeting on June 24. Remind you that we have achieved when it comes to sustainable impact on Slide 4. We are proud to say that we are reporting according remind you that the U. N. Global Compact. We see our efforts recognized by the recent global EcoVadis Gold Medal, remind you that we are also in the top 5% of sustainable companies. In addition, we continue to maintain high ratings with ISS, remind you that we have set ourselves remind you that we are confident that we will be able to achieve our target to be carbon neutral by 2,030 the latest with focus on Scope 1 and 2. Our portfolio of products and services enables us in a unique way to have a direct sustainable impact on social and environmental aspects. Remind you that the future sustainability is embedded in our DNA as we help manage energy better. Turning to Slide 5. In addition for 2020, we have introduced a sustainability component in our short term incentive for all eligible employees with a rate of 10%. Remind you that we will increase this number to 20%. We have developed a comprehensive set of goals to empower our employees to have a direct remind you that the impact on environmental and social topics. Hereby the overarching categories of climate, resource, remind you that our strategy is to further improve our sustainable impact. Let's move on to slide 6 and take a look at the recent awards we have won. We are proud of the strong partnerships we have with our customers around the globe. Remind you that the U. S. We have been awarded contracts by Puget Sound in Washington, a pulp burnout in Wisconsin and Evergreen, Kansas. Remind you that we have signed agreements with Smart Choice Metering and EDF for example. We are excited about this project remind others of course and continue to be committed to delivering leading edge technology to our customers and value to our shareholders. Let's turn to Slide 7 to review the past year briefly. When I look at this time line, I'm proud that we have picked up the pace quite a bit over the course of the year. Remind you that the next few highlights. Next to some additional wins listed here, remind you that I'm personally very excited about our 7 year strategic partnership with Google and I will provide an update on our strategic initiative here in a moment. Remind you that the transformation of our company, we have acquired Rebo and EV companies Accrual and Strue Energy. Remind you that this opens up new markets and revenue streams for us. So you see, we are investing heavily in new technologies, remind you that we are very pleased with our progress on our strategy. We are very pleased with our progress on our strategy. Remind But in 2020, we also focus on driving efficiencies. I'm pleased to announce that our global streamlining and restructuring initiative Hermes Has concluded as of March 31st. Let's turn to slide 8 and have a look at the developments in each region. Remind you that the Focused administration and regulatory approvals in New York and New Jersey signal momentum. I am personally in close contact with our customers and we are active remind you that the regulatory project approvals have been granted late last year. I'd expect news flow towards Q2 of FY 2021. Please keep in mind, from the time we sign a contract until it translates into meaningful revenues, it takes approximately another 18 to 24 months. Remind you that we are talking financial years 2022, 2023. I would also like to highlight that our products and services are considered to be part of critical infrastructure in the U. S. Remind you that we are leveraging our partnership with Tugel Drive, our edge to enterprise vision, enabling the digital transformation for utilities remind you that our R and D investments also remain a high priority. South America continues to be growing markets for us demonstrated by multiple wins. Remind you that the project with TEPCO is rapidly advancing to the next stage, including foundational elements for the next generation of technology deployments planned for commencement in VET 20 5. Overall, we see solid tailwinds for continuous recovery, especially with the planned U. S. Energy infrastructure investments remind you that we will be conducting a review of our financial results. Let's move to Slide 9 and take a closer look at EMEA like BYSU SAN. Deployment programs in several European countries are put on hold due to the pandemic, especially in the first half of the year. Remind you that we saw some recovery in the second half of FY 2020. Due to the COVID, the smart metering program in the U. K. Has been extended until remind you that we have a strong start to work with government and industry bodies in the U. K. To scope the potential of the SMET's infrastructure remind you that the Nordics remain a key region for us with more than 1,000,000 smart meters contracted remind you that the 2nd wave rollouts in the region are expected to provide an additional opportunity of approximately 8,000,000 meters. Remind you that the rollout is in full swing with more than 31,000,000 Linky smart meters already installed and a further 11,000,000 to be deployed until 26 to Uniti, remind you that we have a very strong team of directors in the Netherlands. In the Netherlands, we confirmed our leading position and extended our relationship and contract It's major great operator, Stedina and Allianto. In Qatar, they have been selected as a supplier to deliver smart meters as well. Remind you that the increase in installation rates in H2 of approximately 80% of pre COVID levels in the U. K. And roughly 100% in France, we see positive momentum in EMEA. Remind you that we are very pleased with the APAC led by Steve on Slide 10. Asia Pacific is a bright spot in our result. It's the region last impacted by COVID and managed to grow its revenue and adjusted EBITDA year over year. Remind you that the growth in the region was largely due to continued execution of AMI project in Hong Kong, which delivered higher revenues in FY 2020 together with the resilience of the business across remind you that in Australia, the energy sector is considered critical infrastructure and installations largely continued. Remind you that we have extended our supply contract with our partner in telehealth until 2026, ensuring smart meter supply continues across Australia and New Zealand. Our smart meter programs with CLP and Hong Kong Electric in Hong Kong continued and we are proud to say that CLP will soon install its 1,000,000 remind you that business in India was particularly impacted by the pandemic in the first half of FY 2020. Remind you that the Q1 of 2019 is expected to be a result of the year. Overall, we are very pleased with the resilient performance of our Asia remind you that our core smart metering remains important, we are increasingly investing in grid edge intelligence and smart infrastructure to drive our strategic transformation. Remind you that we have taken decision to invest in development of Smart Wallet and Smart Case to propel organic growth in Smart Metering as you can see on the left for example. Remind you that we are proud to have strong partnerships. Vodafone is enabling meter and sensor communication through cellular technology and as such elevating our smart metering remind you that the 7 year strategic partnership with Google is a big part of our transformational journey as it allows us remind you that we are going to be able to share some exciting news most recently. Remind you that the acquisition of Rebo in January, which expands our cybersecurity offering, we are proud to welcome True Energy and soon also These two additions will allow us to strengthen our position in the EV Infrastructure Technology market. Let me dive a little deeper into this on the next few slides. Starting with our organic strategic initiatives, We are making good progress with the development of our ultrasonic global smart water meter. Ingress continues to grow in smart water metering solutions with remind you that we have a strong quarter of the year. We expect the market introduction of deliveries into selected markets in EMEA starting in 2023. Good developments also for our ultrasonic global smart gas meter. We see strong customer engagement on product requirements and anticipate remind you that the new products and services will drive future organic growth and we are on the right path to drive these initiatives forward. Let's move on to Slide 17, so I can provide a brief update about our partnership with Kugel. Remind you that the partnership with Google opens up new markets and it enables us to offer our customers more insights into the vast amounts of data our smart meters and credit intelligence sensors remind you that we will continue to work closely together with dedicated teams on both sides and push forward numerous applications remind that we will start offering via multiple channels, including Google Marketplace and our own Google independent software vendor program within the year. In addition, we are in process of expanding our relations with Google Gov, Google Energy and several other auto based companies. Also, we are partnering with a government solutions provider supporting federal, state and local government agencies on GSA and other schedules remind you that the GCP provider. As a result, we will be able to offer new software applications and expect to see around $3,000,000 in revenues this year. Our head end system modernization is well underway as we prepare for North American and APAC delivery and sales tenants this year. A global rollout is following in 2022. Intel, we are migrating all IT and OT systems to the Google Cloud Platform according to plan. In addition, of course, all our recent and future M and A activities will be Google Cloud Platform Native going forward. Remind you that our global partnership drives customer benefits, additional revenue opportunities, cost optimization and efficiencies, and we expect realization to start this fiscal year through FY 'twenty three and beyond. With that, we are moving on to Slide 14 to provide an update on the acquisition of Fravo, remind you that we have reached our Capital Market Day in January of this year. Array was perfectly positioned to cater The increasing demand for cybersecurity at the grid edge. It allows us to participate in double digit growth for cybersecurity monitoring and to achieve scalability with the Google technology and our existing remind you that our just recently added acquisitions in the EV charging Smart Infrastructure Technology business. After the recent announcement of the acquisition of Sterenergy, the addition of a trend further strengthened Lenders and Kia's position in the EV market. Remind you that the EBIT charges in residential homes and public places will require management of additional large unplanned load on the grid, which is our expertise. Remind you that we are well positioned to participate in double digit growth for residential EV charging, which are driven by strong market incentives. Let's talk about Accruent and Renogy and what they bring to the table a little bit more on Slide 16. Admiral is a recognized player in the EV infrastructure market with expected profitable double digit million sale in FY 2021, offer a complete range of smart charging stations for home and public. In addition, Edron's portfolio includes a comprehensive suite remind you that the company is not in the market. Apple's charging stations cater to any home or business, providing intelligent remind user interaction, advanced power management and flexibility, while offering users a seamless transition between charging locations remind you that the integration of the integration of the technology and the integration of the technology. Operating and managing charging stations opens new possibilities for remind you that our services to monetize EV charging infrastructure and connected applications. TruEnergy's technology enables sustainable electricity on the go, Automated EV energy use for times of the day when electricity is most cost efficient and most climate friendly. Remind you that we are already involved in pilots in the U. K. Such as the SmartStep project, which brings smart EV charging to residential urban streets remind you that the company is a very strong contributor to the company. Therefore, both remind you that our sustainable mindset and will enable us to drive our initiatives related to EV charger infrastructure technology. Now remind you that we are now ready to take a look at our consolidated results. First, let me point out that despite 20.8% revenue decline, we were remind you that we are able to achieve a 10.3% adjusted EBITDA margin and solid free cash flow of $97,600,000 was a bright spot. Remind you that the order intake of U. S. Dollar $128,700,000 down 6.2% in constant currency with an order intake and revenue conversion mostly impacted remind you that our U. S. Regulatory project approval delays and COVID-nineteen related installations, suspensions and slowdowns. As announced during the Capital Market Day, we recognized a legacy Toshiba goodwill impairment of $396,000,000 We were also able to maintain a low net debt adjusted EBITDA remind you that the impact of the Q1 of 2019, despite a challenging environment. Overall, despite lower trading results mainly impacted by COVID remind you that in 2019, we were able to maintain a strong cash generation, Brazilian margin and solid balance sheet. Let me now hand over the call to Elodie to give you a more detailed review of our remind you that the financials. Afterwards, I will walk you through the guidance for fiscal year 2021 before we open up the call for questions. Elodie, please? Thank you, Werner. Good morning, everyone. I would now like to walk you through the financial details for the fiscal year 2020. Our net revenue results for the fiscal year 2020 was 1.357 This is a decline of 20.8% in constant currency versus prior fiscal year. Remind you that the Q1 earnings call, this is primarily due to COVID-nineteen impacting our markets by delaying planned deployments and new volumes. Remind you that the decline was attributed to the Americas region, where we saw slowdown of project installations and regulatory delays. Remind you that the lockdown in certain countries, particularly in the U. K, resulted in delayed deployments. Remind you that the APAC region was resilient overall during the year with the Hong Kong rollout acceleration offsetting some of the impact of India's lockdown. All in all, we are seeing an upward trend from H1 to H2. While H1 revenue was 27% down versus prior year, H2 was down 12% versus H2 'nineteen. Remind you that I will now move on to the EBITDA bridge, Page 19. Our adjusted EBITDA for the fiscal year 2020 remind you that the results are not included in the quarter. This is a decline from €237,000,000 to €139,600,000 year over year. This translated into an adjusted EBITDA margin remind you that the Q1 results are down from 14% to 10.3% year over year. In particular, our gross profit declined for two reasons. Remind you that our volume decline impacted the gross profit by €123,000,000 driven by Americas and EMEA. Our margin decline accounted for EUR 19,000,000 impact due to reduced operating leverage as we could not adjust our costs remind you that the company is not in line with the expectations of the company. Lastly, our adjusted operating expenses Significantly reduced year over year. Much of this was driven by proactive cost control measures and the initial impact of Project remind you that the Q1 results are in the Q1. Now moving on to the reported EBITDA to adjusted EBITDA bridge on Page 20. Here, there are 3 items as shown on the page. 1st, restructuring charges. These relate mainly to Project Hermes, the global streamlining and rightsizing initiative that has been completed in FY 2020. 2nd, the warranty normalization. It represents the amount of provision remind you that the average actual warranty utilization for the last 3 years. Remind you that the average utilization is trending downwards, and you can see that the actual amount of provision is down remind you that the full year average utilization. And thirdly, timing differences on FX derivatives. Remind you that our biggest FX exposure is in the U. K. Where we contract revenues in pounds and on cost supply chain costs largely in other currencies. Remind you that the British pound up to 24 months ahead given the uncertainty around Brexit. The adjustments exclude unrealized gain losses of €23,800,000 related to mark to market differences. Now moving on to Page 21 and looking at our dynamics in the second half of twenty twenty compared to the first half. As mentioned, we are seeing a positive trend on the top line in H2, reducing the gap to prior year from minus 27.7 percent in H1 remind you that we are committed to the growth of our business. We took early action to preserve cash and tighten cost controls across all levels of the organization. Remind you that the combination of structural changes like Project Hermes, short term cost actions and COVID related cost benefits, remind you that we are able to deliver significant OpEx savings in 2020. In the second half, we saw some of the short term effects related to COVID remind you that we're temporary in nature move for €21,000,000 in the second half compared to the first half. Remind you that we expect to see this trend continuing in 2021 as our OpEx level will come back to a more normalized level remind you that the short term impact of COVID related measures. At the same time, our structural changes linked to Project Helmer's savings are fully implemented remind you that the program is delivering the savings as planned. As a result of the combination of operating leverage remind you that the increased volume and lower OpEx costs, our adjusted EBITDA margin increased to 12.2% in the second half, remind you that the Q1 results are 4.2 points above the first half. If I now look at net income and free cash flow, moving on to Page 22. Looking at net income first. As indicated in our Capital Markets Day early January, remind you that we performed and concluded on an assessment of the fair value of our intangible assets and have reviewed all associated parameters. Remind you that the non cash impairment charge of $396,000,000 related to the legacy Toshiba goodwill remind you that the Americas business. In 2020, we recorded a net loss of remind you that the company is $392,200,000 or negative $13,600,000 EPS including the goodwill charge. Looking at cash flow and as noted in the financial report 2019, the company has received the sales tax remind you that the state of Washington Department of Revenue, Wardle. We strongly disagree with the assessment and believe that this will be overturned on appeal. Remind you that the court, one must first make payments of the tax assessment. We have therefore paid €20,000,000 in Q3 2020 and are filed in November 2020. We do not expect this case to be resolved before FY Throughout 2020, we delivered a strong cash flow performance, remind you that we are very pleased with the progress we made in the quarter. We are very pleased with the progress we made in the quarter. We are very pleased with the progress we made in the quarter. If I turn to the details on the cash flow page, Page 23, you see that in 2020, we generated free cash flow, Excluding M and A of $97,600,000 This was approximately $22,800,000 lower than last year, remind you that the lower volume and the one off water charge of €20,000,000 mentioned earlier, working capital continued to be a net generator of remind you that the cash was $51,700,000 through strong inventory controls, in particular in the second half in our Americas and APAC operation. Remind you that the Q1 of 2019 was $1,300,000 down from $45,200,000 in remind you that the Q4 of 2019 was $1,000,000,000 as payments for Americas legacy components issues were lower, and we completed the EMA based litigation settlement remind you that our CapEx remains low at €26,600,000 as we continue to benefit from the shift remind you that the Asset Life business model. Tax payments were €26,100,000 due to lower profitability remind you that the Q1 results are not included in the Q1 results. Remind you that the cash out of €11,700,000 predominantly related to our Rebo acquisition announced in January 21. If I move to Page 24, looking at net debt. As of 31st March 2020, remind you that we had a net debt position of €6,900,000 This represents a net debt reduction of €25,700,000 compared to end of March in the prior year. Remind you that our strong free cash flow generation supported this reduction and as well allowed us for $63,300,000 dividend payments remind you that the cash flow in November 2020. The $11,700,000 M and A cash out relates primarily to our cybersecurity acquisition remind you that the share buyback remains suspended. And during the fiscal year, remind you that we have repaid over $200,000,000 of debt. And at the end of the fiscal year, we have undrawn facilities of remember €400,000,000 available in addition to our cash position of €140,000,000 As a result, remind you that the net debt position translates into a net debt to adjusted EBITDA ratio of 0.05. If I now turn to the regions and look at the respective performance starting with Americas on Page 25. In the Americas, regulatory delays and COVID-nineteen impacted order intake and revenue recognition. Remind you that the order intake grew 2% year over year, whilst revenue fell 21.9% in constant currency. Remind you that the contract phase outs not being replaced remind you that the current market environment and weak order intake of convertibles within the year. Adjusted EBITDA was at 15.1% compared to 18% in previous year. This is largely due to reduced operating leverage remind you that the impact of restructuring initiatives and restructuring cost savings. Expenses were well controlled, remind you that the impact of restructuring initiatives and other cost control measures. Remind you that the EMEA region, in the EMEA region, COVID-nineteen impacted order intake negatively as we saw worsening delays. Remind you that the revenue fell 24.6% in constant currency, predominantly in our largest EMEA market in the U. K. Remind you that the Q4 was impacted by remind you that the Americas, this was largely driven by operating leverage partially offset by favorable mix and cost out on the installed bearings. Adjusted OpEx were lower versus prior year driven by COVID-nineteen measures, restructuring and one off items. We are seeing early recovery in the U. K. In the second half and expect continuation throughout 2020 1. Moving to our APAC region on Page 27. APAC showed resiliency during the pandemic. Order intake was up due to India, while revenue was increased by 0.5% in constant currency. Growth in Hong Kong offset COVID-nineteen related weakness in India and Australia and New Zealand. Gross margin expanded by 2.90 basis points, remind you that the EBITDA margin improvement remind you that was up to 7% in FY 2020. And with that, I am handing the call back over to Doron. Thank you, Elodie. Turning to Slide 28, let's talk about the guidance for our financial year 2021. Remind you that we still see some level of uncertainty due to COVID-nineteen and the general business environment. In addition, a global shortage of electronic Components in plastic raisins as well as increased freight rates could pose challenges for cost and on time delivery performance. However, mitigation actions are in place. With increased vaccination efforts, we see increased levels of installation and anticipate recovery of previous project delays. Remind you that full year 2021 revenue will grow organically between 7% 11% CAGR, while inorganic revenues will come on top of that. Remind you that we have a very strong performance in the U. S. And the U. S. Market. We are also remind you that we have approximately 2% of net revenues. This will support our strategic initiatives and company transformation that we talked about just a moment ago. Remind you that our adjusted EBITDA margins, which we see then between 9% to 10.5% of net revenue. Free cash flow excluding M and A is expected to come in around $80,000,000 to $100,000,000 On June 24, the remind you that the Board's Directors will propose a distribution of CHF2.1 per share to the extraordinary general meeting. Remind you that the distribution will be paid out capital contribution reserves and is exempt from Swiss withholding tax. Remind you that the share buyback program remains suspended. Now we will open up the call for questions. The first question comes from Patrick Lager from Credit Suisse. Please go ahead. Good morning, GOL. Thank you for taking my questions. A couple of questions here. Regarding the potential successful outcome remind you that the ongoing negotiations with U. S. Utilities, which have now received approval remind you from the public regulator. You said you're expecting news flow in Q2. Do you mean Q2 of fiscal year 2021 or calendar remind you that the Q2. Yes, good morning, Patrick. No, what I mean is actually our Q2 that would meet remind you that in actually June, late July, we will hear more. We have 2 customers as part of this remind regulatory approval, which we are really in very advanced negotiations and really should be able to conclude June latest July. Okay. So there is a small delay here. Because initially, you said, I think, March to between March or remind you to the end, but we feel very good about it, how the discussions are going and these are sizable orders. So we are pretty remind you that you said you're planning to introduce smart water meters in EMEA in Q1 2023. Remind you that this is basically based on existing technology you are using for gas metering? And what about the U. S? I thought you would launch this type of water meters also in the U. S, right? Remind That's right. Now when we look at the water, water is very close to our Nuremberg facilities in terms of what we have the heat technology. Remind you that we have a very promising prospects in Australia, New Zealand, remind you, which is very interesting for us, Asia in general. And then absolutely right, I mean, we will also push remind you that there is always certain specifications which are changing. That's why we really would like to push add Asia fees first. And then the U. S, it's also something we see. We shouldn't forget in the U. S, we have actually We companies with Pecha, with Neptune and with Cylen who are very strong in monitoring and we feel with our technology we will be able to compete on equal footage, but we think that will take a bit longer to really entrench in that market. Okay, good. And my last question is regarding APAC. This region remains a relatively small revenue contributor As your business is, let's say, very much focused on Australia, Hong Kong and India, you said you're now starting the rollout of meters remind you that we have a very strong number of customers. In Malaysia, can you provide some numbers here around this introduction? And how about expanding into other markets Like Indonesia, I don't know, Vietnam, etcetera. Yes. As you said remind you that when we look into APAC, it's really our bright star. Yes, they are small, but when you look at the remind you that the segment didn't have any impact. They were even able to slightly grow during COVID, I think, 0.4% and also actually in 2021. Remind you that we have a healthy growth rate and we shouldn't forget Asia Pacific, it's a pretty competitive region. So they really do a good job in terms of cost conservation and also compete in a more commoditized environment. Remind you, I lived in Asia for a few years, and I feel particularly hot about Southeast Asia because I think these are good markets for us. You mentioned really Philippines, Indonesia, Thailand, Malaysia. These are good markets where I feel that we are underrepresented. Remind you that we were able to win there in Malaysia actually contract with TMB. And I would like to see actually now more remind you that we should be able to actually do more in that part of the world. Okay. Thank you very much, Ben. Thank you very much, Beatrix. Thank you. The next question comes from the line of Andreas Willey from JP remark. Please go ahead. Yeah, good morning everybody and thanks for taking my questions. My first one is On the kind of raw material cost inflation component situation, how do your contracts Generally work in that sense if you have supply contracts for a year or 2 out and then you have a meaningful change in your input costs. What What can be done in terms of price escalation clauses or adjustments in these contracts remind you, And kind of what you need to do yourself in order to basically offset the potential higher remind you that the cost for components or freight? Yes. Good morning, Andreas. The no, you're remind you that when we look into sorry, I apologize. No, there's an echo. We have somewhere in echo. Sorry, I thought Andreas you were Sorry, but it's an echo somewhere which now went away. So when we look into this global chart, we are not the only one. Remind you that I worked in automotive before and automotive alone will see around SEK 60,000,000,000 impact in 2021, so very significant. Remind you that we obviously are much smaller, don't have less muscle. So far, we are able to manage it pretty well, but these are daily meetings. These are remind you that we do some redesign on components actually that we can actually switch supplier and so on. I expect this remains remind you that the challenges are Andreas remind you that first of all, material availability, because if we don't have the material, we are not producing in the manufacturing plants. Remind you that the cost increase of materials and also freight costs increase, which are Not negligible, I mean, just to give you an example, we have freight increases from Asia to Europe times 3 and from remind you that the U. S. Times 2 is significant. What we are doing is obviously we manage that with our supply base remind you that we are very pleased with the progress we have in the past. As good as we can, which I think it's very important that we don't see cost creep, we also look into contracts in terms of remind you that the discussions with customers depending on the situation is something we clearly watch very carefully. Remind you that the 1 area when I look at into our guidance, I feel we have the right mitigations remind you that we are in place, but something which deserves very special attention to make sure that we are able to deliver these results. Maybe you could talk a little bit about the channel to market of these companies and what you can do to help them expect utilities themselves to be a customer group for some of these applications or do they sell more directly to users. So I I would like to understand basically a bit better the sales synergies and what you can do as a large company for these smaller acquisitions. Yes, yes. Exactly what you said. So when we, for example, look now in the UK remind you that the U. K. In particular, where we have very large market shares, we have 50% actually remind you that the U. K. And with our SMET technology, and that's a very strong market share. And now discussions are actually taking place, remind you that the how can actually this technology be leveraged into EV charging? These discussions are going on between remind you that the companies and the government authorities, and I think we can be very substantial remind you that in the U. K. To help actually Netrel in terms of market access, customers and so on, the utilities remind you that the company is not in the market. Clearly, they would actually expand their reach in terms also of EV charging. And that's why we think EV charging remind you that the segment in itself, but also in what we are actually doing as a company, I think it's a really good fit. Remind you the same we see in France also where we have proof of concept discussions. So I think that's very positive. And then of course remind you that you know already what Atrel is doing in their own market. I think that remains very interesting. So we feel really good. And Atrel, while remind you that the biggest company, but they did a really good job also in terms of managing costs. I mean, they are for us remind you that EBITDA neutral, which is pretty remarkable when you see some of the other companies what kind of cost structure they produce. So I think that's Really positive. So in summary, our customers clearly look for solutions to manage services around EV remind you that we can really do that together very, very effectively. And thank you. And my last question on working Capital, you have had a strong improvement in the last financial year. Looking at your cash flow guidance also implies that remind you that you keep probably a lower level of working capital to sales than you had before the crisis, given that you expect a revenue increase, but maybe not remind you the full year and what aspects of it were you able to structurally improve? Yes. Elodie, please? Yes, sure. Yes, as you right remind you that there was a significant reduction of working capital in FY 2020. And naturally, as we go in remind you that the growth in revenue, this will put some pressure on the working capital. We don't expect remind you that the working capital back to levels where it was in the past, we expect that what we were able to achieve remind you that the working capital remind you that the Q1 was decreased both on receivables section as well remind you that the inventory section and we expect structurally to be able to continue to operate in this way. We have a very focus on cash and cash generation throughout the organization and we'll continue to drive this. Yes. And I think it will be a very good remind you that we will see some increase. Keep in mind that actually we are growing revenues about 10%. So for that, we will see some inventories going up. And then secondly, I think we need to stay very street smart in terms of the global supply remind you that we have a very strong demand for the year. Okay. And then, I think, we have a very strong demand for the remind you that we can keep the production going in our production side. So that's a little bit of course. It's counterintuitive, so to speak, but exactly to Elodie's point, yes. Thank you very much for your time. Thank you, Andreas. Thank you. The next The next question comes from the line of Lucie Carrier from Morgan Stanley. Please go ahead. Hi, good morning and Thank you for taking my question. I guess the first question I had was around kind of the future path from an R and D and innovation standpoint. Remind you that you are stepping up kind of the investments into innovation this year. But I was just curious to understand remind you, which type of investment you cannot precisely working on, but also going forward, is it kind of What I would call a one off or are you actually looking for a sustained higher R and D sales in the future? Yes. Good morning, Lucy. When we actually look into R and D, we clearly remind you that we want to be seen as the technology leader. And so when we think about that, we think in 3 categories. Lucy, we have smart metering, we have grid edge and we have remind you that we have a very strong growth in the market. And when we think about smart metering, clearly, we talked about it, smart water, smart gas. And these are not small investments. It remind you that the right thing to do. But then we also think Lucy about a grid edge remind you that the customer is not in the market. And when I say this, then clearly, Google partnership, which we are doing where we develop new products remind you that the cost money, but also in the grid edge, where for example, Aravo is a very interesting acquisition what we are doing and I think we can also leverage that more and more in the energy sector. So these are the type of things. Remind you that we need to make this investment in 2021, also 2022. And then don't take it Wrong way, but we will actually we made a commitment to you in January about our 2023 mid term guidance. That's really a cast in stone. Remind you that we are actually able to achieve that. So I would I'm not saying this extra It's a good number. There's no question about that. But at the moment, we need this push to actually position us for mid- and long term success. Remind you. Understood. That's very helpful. My second question was around the revenue dynamic because you are providing remind you the organic growth guidance, 70% to 11%, but you're obviously talking about the M and A coming on top and this is true that you are remind you know kind of 3 acquisitions coming in the pipeline. So I was and also possibly the Google partnership, which I understand is going to be a couple of million of revenue already this year. Can you maybe help us understand how much contribution you expect from M and A? Because if I see some of your disclosure, One asset is you're talking about double digit million sales in 2021, ETRL, but double digit could be 10 to 90, I guess and you're not giving really information on the other assets from a sales standpoint? Yes, yes. No, I think that's a fair point. As when we think about these 7 days, you can imagine True Energy is very small, but I think very promising. Remind But for 2021, Preeti, we don't see anything, which will be material to talk here. In terms of Harel, there we see, we hope, around remind you that the company is very excited. It's 1% company growth. So to think In that terms, you know. And then, and then, Rebo, that's also smaller, it's startup also. Thank you. And then kind of maybe lastly, Just I wanted to clarify 2 things on the cost dynamic for 2021. First, how much savings you are because I appreciate this year there was also some government held and one off cost saving from COVID. So What do you see as the run rate in 2021? And just maybe to follow on the question from Andreas, remind you that the situation is not going to be affected by the supply chain constraint. So, currently, do you expect your mitigation to fully offset the supply chain constraint? Or do you have in your guidance some headwinds Yes. Maybe first question, Italy? Yes. So on the OPEC side, Lucie, as we As I mentioned during the presentation, we saw in H2 part of the temporary COVID Related shorter measures reverse for part. And we basically saw an uplift of $21,000,000 H2 to H1 over our OpEx. I expect this will carry on into 2021 as remind you that we have a very strong quarter. On the other side, remind you that we have implemented our project Hermes. This has been done fully in H2. We have started to see some of the benefit in H2, And we will see further benefits of that in the full year 2021. This is completely in line with what remind you that the impact on the investments that we remind you that we just discussed with Werner. So you have to take these three elements in combination when you look at our OpEx for 20 remind you all. Yes. And very good. And then maybe the second question, Lucy, in terms of guidance and remind you that our view is that we should be able to manage these parameters. Now as you can imagine, if there will be remind you that the sky falls to earth and that's a different thing. But I think given where we are right now, these are remind you that we have a very good question. Obviously, it's a daily optimization, reviews and mitigation actions, but I feel comfortable that we should be able to do that. Thank you very much for the help. Thank you very much, Lucy. Thank you. The next question comes from the line of remember Patrick Rafaella from UBS. Please go ahead. Good morning, everyone. Thank you for taking my three questions. I'll start with a follow-up on just the previous one on the supply constraints and freight costs. You mentioned a tripling of Asia freight to Europe, doubling to the U. S. Remind you that this looks quite significant. I'm still trying to better understand in your guidance range both on the top line organics remind you that the margins, is that already fully reflected or is that just remind you that the supply constraints continue, remind you that the freight costs remain high, then we are at the lower end. If things get easier, we are at the higher end or is this range independent remind you of the supply constraints. Yes. Good morning, Patrick. When we think about the current situations remind you that the supply chain and we are not the only company. We see it with competitors, as I spoke before, automotive, pretty much everybody remind you that the balance sheet is on a daily basis, but you have this component, suddenly then maybe Crystal is not available and so on. So This is what we are at the moment doing very detailed reviews on a daily basis. I expect it stays within the in a similar range. Remind you that the question is, I think, is the same as the same as the same as the same as the same. And as long as it stays in the similar range, Patrick, we really see ourselves in this guidance. But for me at the moment, I couldn't give you remind you that, I would like to remind you that, because it's really hard to say. My personal opinion is, Patrick, that remind We should have more visibility towards the mid of this calendar year 2021. So by the end of June, I think we should remind you that all of us, including automotive and so on, have better visibility, but that's how we feel. And that's why I think assuming that it stays with that type of range, we think we will be able to manage within second question also related to your organic growth guidance. Thinking about the range here, What are in your view the main building blocks for the upper end and the lower end? What are the variables here? I would say, Uprand, clearly, we now need to see this remind you that the revenue coming through in particular in Europe because obviously as you can imagine, U. K. Lockdown, France, we don't expect it anymore. At the moment in the U. K, we are not back to 100%, we are about 80%, but I think that situation will further improve. Our view is vaccination plus Higher temperature will actually help the overall COVID situation in a positive way. So I think That's, but I think that's important. On the lower end, clearly, global supply chain challenges. That's really how we think about it at this remind you that. Okay, helpful. Thank you for that. And my last question on the EV charging infrastructure Opportunities that you're seeing, can you share a bit of color on your mid to longer term Planning or business case here for this business. What are your revenue what kind of revenue potential do you see remind you that we have a question for you. So we actually remind you that I maybe need to be a little bit careful because we just actually signed the contracts, but we'll not get closed. You know what I mean? And with that, remind you that I'm a little bit hesitant to say too much. But what I would say, EV charging, when you look from a Market segment perspective, Patrick, and I hope you will be one of them who will also call us over time that you need a charging station, we are here. Remind you that you clearly see actually that there is the double digit growth and we do think remind you that we will be able actually to grow with the market. So that's how we think at the moment. But as soon as we close and I think during H1 results, we should be able to give further color to that. Okay, great. Thank you. Thank you very much, Patrick. The next question comes from the line of Urs Remminger from Research Partners. Please go ahead. Good morning, everybody. Good morning, Ross. Thank you. And thank you for taking my questions. I have Several add on questions. First, you said you spend roughly 2% In addition of sales, is that all in R and D or in other areas too? Good morning, Urs. That's really a mix. It's when we think about this additional investment, it's really remind the Google partnership between Maest and then Weibo a little bit and then gas and water. But this is actually where we make investments, some goes directly into R and D Engineering, some goes in other cost Okay. Then I saw the reduction in sales and marketing. Was it mainly traveling? And I was remind you that the general and administration didn't go. The cost didn't come down faster. Perhaps my mistake, but perhaps you can say a word or two about those two items. Sure, yes. Emily? Yes. I think part of that is linked to the short term related COVID measures where we saw, remind you that the impact linked to the top line and this is one element. And obviously, remind you that the other element is the global restructuring that we've done with our project Helms. So these are the 2. You have more short term and more structural Items in both cases. Exactly. Yes. Yes. Good. And you said you had, I think, 2, 3 other follow ups. Nevertheless, I have a question or 2 about those. Did the provisions, in summary, increase or decrease? Remind you that the next question is from the normalized tax percentage remind you that we are not going to be yet. Okay. In terms of Yes, we'll focus on warranty because that's always the big topic. As I said, remind you that we are seeing basically warranty expenses going down versus the 3 year average. This is what we saw in 2020. And in terms of the provisioning on warranty, you will not see any remind you that the pricing effect, I would say. There was the normal provisioning effect as we are shipping new products and some small readjustments, but Nothing that will surprise in the financial report. In terms of tax rates, We are running with what I explained, a EUR 26,000,000 Tax, and we expect about 25%. Yes. And Urs, you will see the full report, annual report on the 20th May. That's when we actually publish it. Yes. I know, but I'm Yes, I know, but I have to comment anyway. And I was I don't know which you the next question comes from the line of Daniel Koenig from Mirabeau Securities. Please go ahead. The next question comes from the line of Jeff Osborne from Cowen and Company. Please go ahead. Hey, good morning guys. Two quick ones here. One is, can you characterize the level of quoting activity in the U. S? Remind you that the first question is, you referenced in the prepared remarks, President Biden's infrastructure plan. I was just curious how you thought that would impact your business? Yes. Hey, good morning, Jeff. Sorry, the first question, I kind of missed it. Can you repeat it again? Yes. I was curious on the level of quoting activity remind you that the new projects you referenced the ones that have already received regulatory approval. I was curious if you could characterize the pace of business that has not yet received regulatory approval? Yes, sorry. No, I think Coating definitely improved. I think we had a good level in the U. S. Remind you that the Q1 of 2019 is also Europe improved, APAC improved. So that's positive for us. You have heard in my prepared remarks, Jeff, remind you that our priority number 1 is clearly book to bill. There's no question. And that's also my priority, Which needs to improve, we will improve that, but I think from a quoting perspective, clearly improved, which is positive, positive momentum. Remind you the SEK 100,000,000,000 at the moment we cannot earmark and say, well, actually remind you that the remind you that we have a great Infrastructure Advisory Council in the U. S, which is really good to be closer to actually these discussions. And my view is, Jeff, it definitely has a favorable impact. And not everything will just come through in 2022 and 2023, but I'm absolutely convinced This has a very favorable impact also for us as a company. That's great to hear. That's all I had. Thank you. Yes. I thank you very much, Jaaf. Ladies and gentlemen, that was the last question. Good. Then from my side, I just would like to say, I'll just Look for my paper here. So first of all, thank you for your questions. Remind you that I'm going to close the call in a moment, but before that I would like to leave you with this slide as a reminder of the key takeaways of today's call. 1st, it has been a challenging year on our transformation to expand gridedge and thermostat smart infrastructure is well underway. Remind you that the 2nd, despite 20.8 percent revenue decline, we were able to achieve a 10.3% adjusted EBITDA margin and produced a solid free remind you that the cash flow of $97,600,000 And third, and I think most important is I'm deeply convinced that we have the right strategic focus to drive leading edge technology And transform the business. With that said, thank you for joining us today. Thank you for your great We hope that we can actually see you soon face to face again. That would be really cool. And remind you that the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Goodbye.