Earnings Call: H1 2021

Oct 12, 2020

Ladies and gentlemen, welcome to the Analyst And Investor Call First Half 2020 Conference Call and Light Webcast I am Sandra, the Chorus Call operator. The conference must not be recorded for publication or broadcast. It's my pleasure to hand over to Ms. Eva Boroff, the Head of Communication And Investor Relations. Please go ahead, madam. Thank you, Sandra, and good morning, everyone. As you know, earlier today, Landerson here issued our first half financial year twenty twenty results press release and accompanying presentation. 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, we refer to Page 2 of the presentation and our press release issued today. Today's conference call will follow the presentation. So we suggest that you have it on your screen or otherwise available, just 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 Chief Executive Officer, Werner Liberham. Thank you, Efan. Good morning, everyone. And welcome to our half year 2020 financial results. I'm here with Jonathan Elmer, our CFO, and we are very pleased you have all been able to join this morning, especially given the sharp notice. As you might have seen this morning's press release, We have a significantly lower result report, and we wanted to get this information out as soon as it was available. Thank you for making the time. Look, before we start with the presentation, I would like to give you a brief overview of the key messages of today's call. First, the situation and current environment are difficult. However, we are getting the house in order. 2nd, despite almost 30% revenue decline, we were able to produce a solid free cash flow of $45,900,000 and trade profitably with an 8% adjusted EBITDA margin. 3rd, I am convinced that we have the right strategic focus to drive leading edge technology and transform the company. So let's talk about what's been happening over the last 6 months and move on to Slide 3. The COVID-nineteen pandemic has affected all aspects of our lives in unprecedented waste. This has also had a significant impact on our customers and our company and is reflecting our financial results and forecasts. We are glad to say, thanks to the proactive measures we have taken, our teams around the globe have managed the crisis well and shown an incredible amount of resilience and dedication. That said, The safety head and well-being for our employees, customers and partners remains our top priority. Following local rules and regulations, we continue to utilize home office policies and enforce strict adherence to safety measures. Our efforts have paid off with very few cases amongst our employees, and this has not impacted the business negatively. Also, we have not experienced any supply chain issues and remain dedicated to meeting the commitments we have made to our customers. Even though we have not experienced any major project cancellations, we have seen the impact of revenues in markets where installations have slowed down or been temporarily suspended. Let's have a look at some of our key metrics. Starting with the order intake, Our book to bill ratio was 0.73, which is unsatisfactory. It is largely a result of delayed project approvals in the U. S. Due to COVID-nineteen and the fact that customers, regulators are widely working from home. This is slowing down approval processes even further. So getting the ratio back up remains my top priority. Our committed backlog fell by 17% to roughly $2,100,000,000. Americas and EMEA both contributed to the decrease while Asia Pacific held up pretty well. Net revenues came in at $623,000,000, a decrease of 27% in constant currency. While both Americas and EMEA were seriously impacted by the crisis associated lockdowns, our business in Asia Pacific largely managed to maintain its revenues. Adjusted EBITDA for the 1st 6 months came in at $50,100,000 with an EBITDA margin of 8%. We see a significantly lower top line and reduced operating leverage despite adjusted OpEx being lower by 32,200,000. Free cash flow, excluding M and A, remained positive with $45,300,000, up from H1 of last year and demonstrating again the cash generating power of our company. One of our great strengths has always been our balance sheet. This remains very solid and in the first time financial year with a net cash position of 12,100,000. Additional revolving credit facilities of 200,000,000 Swiss francs were established during H1 and these facilities remain undrawn. In May, we postponed the decision on last year's dividend as a precautionary measure given the global economic uncertainty. I'm very pleased to tell you that our one of directors has decided to propose a distribution from capital reserves of CHF 2 per share based on a prudent approach given the current environment. This distribution is free of Swiss withholding tax and will go to work at the Exxon And Air General Meeting on November 24th next month. Let's talk about what we have achieved in the last half year on Slide 4. During the full year results presentation, I shared a list of my key priorities. I'm happy to tell you that to a large degree, we have delivered on these commitments in my 1st 6 months at Landerson Care. First of all, I promised that we would manage for cash. We have delivered a free cash flow of $45,300,000, excluding M and A, while still maintaining a high level of R and D investments. This is higher cash flow than the first half of last year despite the COVID impact on our top line. 2nd, converting opportunities into top line roles. We did win some customer projects, but delays in the US due to regulatory approach approvals continue and this has been worsened by COVID-nineteen. Of course, there's still a lot of work to do, but we are laser focused and this remains my top priority. 3rd, R And D. We redesigned our R And D organization by empowering our local teams and centrally driving technology strategies and global platforms. We've already seen good results with respect to customer intimacy and speed to market. In addition, we have enhanced technology roadmaps with emphasis on digital transformation to ensure we develop and deliver leading edge innovation for our customers. 4th, driving efficiencies. To implement all of these changes, I put together a strong leadership team, and we are fully aligned to drive our strategic key initiatives. This is the first step in getting the house in order and our restructuring initiative, project helmets, is progressing swiftly and according to plan. Grammaris is also aimed at driving efficiencies, and we have made good progress on optimizing product cost and simplifying process across the organization. I will tell you more about this later. 5th, ensuring customer satisfaction and readiness for the future. The key to this is to push credential intelligence and smart infrastructure, We are actively pursuing strategic partnerships such as Vodafone and looking into viable and meaningful M and A options to drive growth and profitability. Additional information and strategic direction as well as possible update on mid term guidance and dividend policy will be given at the Capital Markets Day on January 27th. Turning to Slide 5. Since I arrived in April of this year, I've made several changes to our management team. We now have a highly motivated leadership team and unconvinced that we are well positioned to elevate the company to the next level. The regional hedges and PV and Steve remain unchanged and do a very solid job. New appointments include Eva in Investor Relations And Corporate Communication, who is with us here today. Check-in the technology office, shown in supply chain operations, and starting on November 1st, Holger's General Counsel. Boardham was internally promoted to lead the strategy function soon, will also be able to announce a new head of HR. Already in January of this year, we've announced Jonathan's retirement and Eladys Arrival as the new CFO. I'm pleased that she will join the team in the next few weeks on behalf of all of us at LendingTree. I would like to thank Jonathan for his unwavering support expertise and dedication over the years. I'm also glad to say that he has agreed to support us until next March to ensure a smooth transition welcome with LED and me. Let's move on to Slide 6 and like to talk more about Project Helmets. On August 5th, we announced Project Helmas, a global savings initiative aimed at further optimizing our cost structure and simplifying the organization. This will reduce our well cost by around 12% globally. In the past weeks, we have made significant progress in executing this initiative. Let me add a little bit more on that. When I took over as CEO in April, I did I conducted the thorough analysis of the business and identified several areas with room for opportunity. And by previous restructuring initiatives, this program targets the entire organization on a global level, including group overheads. Our teams are working hard on implementing the measures, but you will appreciate that every country has different timelines and implementation, given local laws and regulation. In North America, for example, we were able to implement measures swiftly, while in other jurisdictions, we are still in discussion with well councils and unions. We aim to have the program completed by the end of our financial year 2020, so by the end of March 21. We should see the full benefits of the program in fiscal year 2021. Once completed, we expect this initiative to result in annual run rate cost savings of approximately SEK 30,000,000. Of this, about SEK 14,000,000 relate to manufacturing and supply chain personnel. This will help to offset the lower revenue and support our gross profit margins. The remaining $16,000,000 relates to operating expenses, both R and D and SG and A. I would add one comment on how fully we will see these savings in our results next year. We see the need to increase investments in some key areas of our portfolio, plus this half has benefited from some one off effects in our costs, mainly due to COVID, as we have benefited from government schemes and low travel expenses. In terms of restructuring costs, we already booked 14,000,000 in H1, We expect around another 5,000,000, bringing the total restructuring costs to approximately 19,000,000. Before we move on to the regions, let's talk for a minute about the impact our technology has had on social and environmental factors. Over the past few months, we have seen the importance of smart meters for utilities in managing rates and loads. But also for end customers helping them to manage energy consumption in a more informed and sustainable way. Looking at the U. S, This spring, we have seen a temporary drop in overall energy demand for many utility systems. This was largely driven by commercial industrial facilities shutting down during shelter in place orders. While this got reasonable attention, there's another trend in the data we find even more interesting. And that suggests a longer term change. Overall usage was offset by a notable rise in residential energy usage as people shifted from traditional office spaces to work from home. By June, the number went up to 42% in the U. S. And that's really a disruptive change for utilities and consumers. We actually overnight, energy had to be redirected suburbs and residences in a completely different usage pattern than ever before. Weekdays start to look like weekends with ACs and internet running all day. In many cases, this resulted in home energy spikes of about 20% more demand than usual. The shift of energy during this pandemic is just one example of the dynamic condition. Utilities must be prepared to manage while maintaining uninterrupted service to their customers. It requires technology and expertise provided by the Anderson Keyer to sell strictly manage energy so it can flow to the right place at the right time. And grid intelligence will continue to be a critical tool for utilities as they serve customers transitioning to this new normal Additionally, this technology will grow in importance to consumers as well, providing them with greater awareness and control to make flexible and sustainable energy choices. Working actively towards the Green of Future, sustainability is embedded in our DNA as we help manage energy better. On October 28, we will publish our sustainability report 20 nineteen-twenty and I encourage you to take a look. In addition, for 2020, we have introduced a sustainability component in our short term incentive for all eligible employees with a rate of 10%. We've also signed up to the UN Global Compact And Global Reporting Initiative. We are very proud of the progress we've made, but also acknowledged there's still room for improvement. Our portfolio of products and services offer unique opportunities regarding environmental and social benefits, and we strive to advance our efforts to support the positive impact for a more sustainable world and more empowered energy consumers. Let's turn to Slide 7 and then we have a look at the developments you need to reach. I'll start with the Americas led by PV. Even with the challenges of COVID 19, there's a negative sales pipeline. And we recently had some good wins. For example, in the Indianapolis, Power And Life, Sacramento, Municipal Utility District And Pittmont EMC. And over the last few weeks, we have seen increased movement in the regulatory decision making process, and I would also like to highlight that our products and services are considered to be part of critical infrastructure. Nevertheless, regarding our top line, we've had a tough 1st 6 months. Looking at North America, I'd like to point out a few things. First, COVID-nineteen slowed down installation of various projects. Secondly, the pandemic has extended decision making timeline regulatory approvals even further, I'm personally in close contact with our customers, and we support them wherever possible to speed up the process. I'd expect news flow towards the end of this year or in Q1 calendar year 2021. Please keep in mind, from the time we sign a contract until it translates into meaningful revenues, it takes approximately another 18 months. This means we are talking financially as 20 2, 23. And certainly, recent project roll offs are not replaced by new business and we see slower tendering activities. This creates pressure on our top line due to conversion cycle of our orders mentioned earlier. We remain committed to continued investments in our R and D programs, such as Revelog, Red Edge, Intelligence, and grid stream connect IoT platform. Customers have shared consistent and positive feedback on our technology road map. That's an important reinforcement of our vision and reputation we hold for innovation. Also recently, we have announced our partnership with Vodafone. This provides flexible communication options as part of the Great SIMConnect offering and expands our customers' access to a global base of cellular networks. Finally, we've taken a disciplined approach to our operating expenses with a priority on driving process efficiency and rightsizing our resource to ensure costs are streamlined. In South America, the situation remains challenging, driven by intense international competition and marked by uncertainty related to funding. Policy and economic stability. We have put in place sustained cost savings as a critical part of managing through this type of climate. If also shifts our strategic focus to ARRIS, they are well aligned to our core competency, namely high value metering and our IoT connectivity platform. These are designed to address the critical energy management challenges this region faces around revenue protection and grid operations. In Japan, Our technology has now enabled in excess of 26,000,000 grid sensors of the 29,000,000 contracts for deployment. This project continues to be a global showcase of the largest utility IoT platform in the world. And it's not just the size that is impressive, but the performance of the which is exceeding very stringent SLA requirements. Our end to end scaling capability is the best in the industry's all one 300,000,000 reached per day with 99.99 percent accuracy. Also, numerical, By law, MeadZ River replaced every 10 years and the next nationwide replacement cycle is due to start around 24. We also anticipate an acceleration of gas smart metering and adoption of smart metering for auto. Our track record of providing future proof technologies will enable us to maintain our leadership position. Let's move Under normal circumstances, the UK is our largest and most important market. Having contributed approximately 40% to EMEA revenues in financial year 2019. Due to the pandemic, non essential smart metering installation stopped in the UK mid margin result or neutral line, so at a slow pace. Currently, we are back at around 60% pre COVID installation levels. As I have mentioned before, there have been no cancellations so far, but the revenue stream will now be extended over a period of 2 to 3 years. On a positive note, we have signed a contract extension with common capital for an additional 2,000,000 electricity and gas meters mainly focusing on independent energy suppliers. We have already delivered our secured contracts of approximately 23,000,000 smart meters Of the entire rollout of approximately 50,000,000 electricity and gas meters, about 40% has already been completed. The implementation targets set by the UK government have now been extended to June 25. At this time, we see installation peaking around 22 with an additional potential of approximately 15,000,000 meters to be awarded. In France, Link installation were also suspended, but we rebounded to pre crisis level other than the UK. The French market has shaped up favorable for us, but we are now 1 of 3 remaining suppliers. We are well positioned as a strategic partner to a needy and currently in conversations regarding follow-up projects for around 8,000,000 additional Meters, Faboxylinq rollouts. Other important masks like the Netherlands and Nordic Countries of Switzerland, the negative impact by COVID-nineteen, but installations came back fairly quickly. Or 1,000,000 meters were contracted in Sweden and Denmark. We have an excellent momentum in the Nordics, winning the N1 and Boris L net in Denmark and C4 in Sweden. Our E360 has become the most popular next generation energy meter in the Nordics backed up in our narrowband IoT communication solution. We also have strengthened our position to manage services by extending several customer contracts in Finland. In the Nordics, the 2nd wave rollout is still expected to provide additional opportunities of around 10,000,000 meters. A COVID-nineteen led to a slowdown of business. We implemented cost saving measures partially mitigating the negative impact Goldman to EMEA remain committed to their smart meter rollouts. In addition, we believe the large installed base of our technology solid foundation to leverage service opportunities. Let's take a look at APAC, like by Steve on Slide 9. Asia Pacific is a bright spot in our results. Adjusted EBITDA margin were the highest since our IPO despite a very challenging environment. Asia Pacific is to reach least impacted by COVID-nineteen. In Australia, the energy sector is considered critical infrastructure and installations largely continued. Also, our entirely up joint ventures performing as expected. Hong Kong, we have 2 major rollouts with CLP Group and Hong Kong Electric for our WIS SIM solution as the key technology provider. The programs are continuing and scheduled and contributing to revenue growth in the half year. The mark in India was impacted the most due to prolonged lost overall, it is mission critical that we win projects and execute in a challenging environment. Let me now hand over the call to Jonathan to give you a more detailed review of the financials. Afterwards, I will walk you through some thoughts about financial year 2020 before opening up the call for questions. Jonathan, please. Thanks, Werner. So let's turn to slide 10 to get an overview of our consolidated results for the first half of financial year twenty twenty. As we said when we released full year 2019 results in May, we've been seriously impacted by COVID and our revenues are well down. And notice that our profitability is taken ahead. That says we've seen a significant reduction in our cost base already with more to come from project Hermes. Also, we've increased our cash generation compared to H1 last year, and both of these positives position us well to recover from the COVID crisis. Just walking through the key numbers on the slide, order intake was $456,900,000, down 43.7% in constant currency. And all regions were down year over year as customers and regulators delayed making decisions due to COVID. Net revenue was down 27.1% from constant currency, mainly due to COVID impacts, and I'll unpack the details later. The reported EBITDA fell to $31,800,000 and adjusted EBITDA was down by 59.9 percent to $50,100,000 as COVID hit sales and margins. This meant that overall, we felt a net loss of $2,000,000. Free cash flow, SG And A was a bright spot of $45,300,000 for the half, an increase of $12,200,000 compared to the first half of last year as we managed cash tightly. First turn to Slide 11, and I'll briefly walk you through the constant currency revenue bridge. The Americas revenue by 137,200,000 dollars, 29.2 percent decline in constant currency. EMEA was down $93,200,000 or 30.4 percent constant currency. And Asia Pacific was down by 1.7000000,2.2percent in constant currency compared to last year. A very significant fall in revenue for the group, driven mainly by COVID, and I'll give more details when we get to the regional slides. Moving to Slide 12, the adjusted EBITDA bridge. If you look at the first two red rocks, you can see that adjusted gross profit profit decline for 2 reasons. First, because of the significant fall in revenue, which in constant currency terms accounted for $81,600,000 of the decline in adjusted gross profit. And secondly, because of lower adjusted gross profit margins, which in constant currency terms account $24,500,000 of the decline. And this was largely due to reduced operating leverage as we could not adjust the fixed cost base in our manufacturing supply chain and services business, quickly enough to offset the fall in revenues. Of $33,000,000 in constant currency. This represents a 19% reduction between H1 last year and H1 this year. Much the reduction comes from cost control measures introduced prior to project term use, but some of the reduction is attributable to lower costs for variable compensation and some is also due to lower costs associated with COVID such as much lower travel expenses and the benefit of government support schemes. And as Werner mentioned, COVID related expense deductions will be a headwind for us to unwind over the next period. As a result, Adjusted EBITDA was down over last year, coming in at $50,100,000, a margin of 8%. Moving to Slide 13, you see our adjustments to EBITDA. I'll focus on 3 items in the table, restructuring charges for the first half, were $15,400,000 and of this amount, 14,000,000 relates to project economies. On the warranty normalization line, negative amount of GBP 6,700,000 represents the amount of provisions made in the half relative to the average 6 months warranty utilization over the last 3 years. We've not had any major changes to our warranty provisions this half. Specifically, we've not re sized the provision in respect of the legacy component issue in the Americas. Where failure rates continue to track in line with our expectations. Finally, timing differences on FX derivatives, Our biggest FX exposure is used to just revenue, which we generate in the UK, our single most important European market. And with sales in British pounds and supply chain costs, largely in other currencies, we've hedged part of our exposure, roughly approximately 24 months ahead. So this adjustment excludes the unrealized losses of $9,700,000 in respect of mark to market differences on our FX hedges to the extent that the underlying hedge transaction had not taken place by the end of the half. Turning to Slide 14 on cash flow. In H1, we generated free cash flow, executing M and A, of $45,300,000, an increase of $12,200,000 compared to the first half of last year, notwithstanding the much lower profitability. Looking at some of the details. Working capital was a net generator of cash in the first half, contributing $32,100,000, And even though overall working capital declined, inventory actually increased slightly by $1,500,000 compared to the start of the year, as we couldn't turn off the tap on our supply chain quickly enough. So there's an opportunity to reduce inventory in H2 so that it's more in line with our revenues. Warranty and warranty settlement cash outs were $7,200,000, down from last year by 16,200,000 This was due to lower cash outs both in EMEA and the Americas with respect to the legacy issues in both regions. Finally, on tax claims, claiming to sales from $16,700,000 to $8,900,000 in the first half. This is partly due to low profitability, and partly due to various government COVID related tax payment deferral schemes. So there will be some headwinds on tax payments as these schemes go on. Turning to Slide 15 to look at our net cash position. We had net cash at the end of September of 12,100,000 an improvement of $111,000,000 compared to our net debt at the end of September 2019 and an improvement of $45,000,000 compared to the end of March 2020. This reflects our ability to generate cash even in the downturn. We didn't pay a dividend in H1, But assuming the EGM approves the board's proposal to pay 2 francs per share in November, this will result in a cash out in H2 of approximately $63,000,000, And we will have a couple of headwinds on cash flow in these 2. Firstly, as discussed, of about $18,000,000 of cash out in respect to Permian's restructuring. And secondly, as we disclosed in our 2019 results, We have received a sales tax assessment in Washington States in the U. S. Of approximately $22,000,000. We strongly disagree with assessment and believe that we overturned on appeal However, in order to file in the field of the state courts in Washington, we must first pay the assessment. So it's likely that we'll file in the field with courts in H2 and that will make payment to be assessed in the second half. Now turning to Slide 16 for the Americas. The Americas backlog declined by 18.5 percent to $1,330,000,000 as order entry was weak given continuing record periods of delays and COVID impacts. Revenue fell sharply with the biggest effect being in North America due to COVID and weak order intake, but also we had a tough combination of last year. We also saw falls across the region, including in Japan, and the Tesco project nears it stands, Adjusted gross profit margin fell by 490 basis points largely due to reduced operating leverage and could not adjust our cost base quickly enough with our level of sales. Expenses are well controlled and declined by $17,300,000. This decline is attributable to expense reduction measures which we took, which we took at the end of last year as before profit permits, but there's also a benefit from lower variable compensation costs, total effects, a couple of one offs. Given the reduced operating leverage, adjusted EBITDA fell to 12.2% but outside the 80% to 21% range we targeted. Turning to Slide 17 for EMEA. In EMEA, committed backlog fell $663,200,000 as we continue to execute against the backlog, which we built up in the UK, Netherlands and France. On the order intake side, we've had some nice wins in the Nordics, as Werner mentioned, with new opportunities emerging in that part of the year. Revenues fell by 30.4% in constant currency terms. This fall was mostly due to declines in the UK as meter installations slowed dramatically during the COVID lockdown. Adjusted gross profit margin fell by 3.50 basis points. And as with the Americas, this has vastly due to reduced operational leverage on lower sales, and some next effects. Adjusted operating expenses were also lower by $9,200,000, again, mainly due to lower variable compensation some COVID related effects and generally high cost control. So based on lower sales and low margins, MEA's health and negative adjusted EBITDA of minus $4,300,000 margin of minus 2.0 percent. Turning to Slide 18 for Asia Pacific. Asia Pacific is holding up recently well during the pandemic. Net revenue declined by 2.2 percent in constant currency terms as growth in Hong Kong offset declines in Australia and India where both markets are quite affected by COVID, Gross margins ticked up 160 basis points in adjusted operating expenses remained broadly flat. Based on this top line performance and reasonable margin development, adjusted EBITDA was $5,700,000 or 7.4 percent of sales, the highest margin we have seen edge Pacific since the IPO owned. So I'll stop there and turn the call back over to Werner. Some closing comments and a discussion of our outlook. Thank you, Jonathan. Turning to Slide 19, let's talk about the dividend and second half of our financial year twenty twenty. After announcing to defend the decision on financial year's 2019 dividend during last year's results presentation in May, The Board of Directors will propose a distribution of CHF 2 per share to the extraordinary general meeting on the 24th next month. This is equivalent to approximately 50% payout of financial year 2019 free cash flow, excluding M and A. The distribution will be paid out of capital contribution reserves in this exempt from Swiss withholding tax. The share buyback program remains suspended. Turning to our future trading. We still see a great deal of uncertainty due to COVID-nineteen and the general business environment. The resurgence of the virus in Europe and continued high levels in the U. S. Make it very difficult to be confident about our top line for the second half. That said, we have seen a bit more stability in schedules from our customers recently. So we are providing an indication of where we think we will land for the full year. Specifically, we expect that full year 20 revenues will be between $1,300,000,000 $1,400,000,000. If we achieve this revenue level, that implies some recovery in the top line from H1, and we should see some benefits in our EBITDA margin, given the improved operates leverage. Now we will open the call up for questions. The first question comes from Andrea Ridley from JP Morgan. Please go ahead. Yeah. Good morning, everybody, and thank you for your time. I have two questions for now, one on the U S and 1 in the U. K. In the U S, in terms of your recovery potentially when if orders materialize, what kind of revenue level will we need to see in the U. S. To go back into the margin range the 18% plus, assuming also the cost savings that you will now get from this program. And the second question on Europe and the UK, what have you assumed within your H2 outlook for revenues in terms of what could happen in the UK now with potential new lockdowns and, and what's the access likely going to be like to to properties? What have you assumed there? Maybe a third one, if I can, on the 33,000,000 cost savings in H1, what part of that is purely short term that goes away again? And what part of that is something that stays in terms of the the base for next year? Thank you. Yes. Thanks, Andreas. I'm answering the question. First one, U. S. You know, in the U. S. Actually to, have a margin corridor of about 18% to 21%, which is a historical level. We will need about $900,000,000. And as I said at the moment, we see it's really predicated by that. And issues we are having at the moment is definitely COVID, as you can imagine, short term. But then also, we see these regulatory approvals to actually give additional pressure on the top line. In terms second question, the UK, in terms of going forward. We assume 60% will come back, obviously, to higher levels in H2. And then you can assume roughly about, you know, same percentage for EMEA actually going forward. In the last place, the $33,000,000 that you, as you rightly said, there's $40,000,000, which we really actually see in terms of lower end revenues, which will not flow to the margin. And then $16,000,000, which flow to the margin. However, as I mentioned, during my talk. We have about, we have initiatives which we want to do portfolio. And then I think, that's where we want to make further investments. So that's something we are still working out. What do we see actually will be sustainable in going forward and what's not. And that sounds we want to give them further insights about the $60,000,000 at the Capital Markets Day. Yes. And just to add a bit more color on the $32,000,000 savings we saw in H1. I think around about half of that, we would expect sort of, to to to to stay. And as we, as I commented, when I was speaking, we also got benefit from from COVID related cost avoidance. And also just some some effects around lower variable compensation. So the COVID aspects is probably around about about 10,000,000 and at some point that will probably go away that's lower tuning and some of the government dollars things. Yep. Exactly. The next question comes from Patrick Raisai from UBS. Please go ahead. Good morning, everybody. Thank you for taking my questions. The first would be, on your working capital assumption for the second half of the year. Jonathan, you talked about inventories that could still be reduced, but then I assume other components would likely rise given increased activity levels. So how should we think about the working capital in the second half of the year? The second question would be around the order intake, and the run rates you've seen here, especially in August September, if you, if you can, if you can add some color on that. And then, and the last question will be around the buyback. How should we think about the likelihood of this being resumed and how should we think about potential timing, around this? Thank you. Yes. Thank you, Patrick. Jonathan, why don't you answer the first question about working capital. Yeah. Very good. So on the working capital, as you rightly pointed out that the inventory sort of basically stayed flat over the half. I think, you know, we would expect it to tick down in H2, triple 0 revenues and we could predict grounding the plan to make sure that we deliver that. On the other hand, as you rightly point out, we're sort of indicating for higher sales in the second half. And therefore, there'll be some offset to that from, on the receivables and, and that balance between those 2. I think we certainly do recognize that our inventories much higher than it, so it should be, and we should see some quite significant reductions in, in in H2. But as you correctly point out, they weren't fully flowed through because there'll be a partial offset in the TSR. Yes. And maybe just to add to that, as Jonathan said, we are not able to turn off the tap fast enough on the inventories, but we do feel pretty confident that, we will see a pretty different number. Actually, given the lower revenues, you know, this has to follow. In terms of the second question, order intake, Patrick, we do see some increased activities. We see that in Europe, which is positive. Having said this, don't get me wrong, you know, the books to bills are disappointing. And we need to go very, very hard on that. There's no question in my mind. As same goes for the U. S. We do see in terms of, you know, especially this regulatory approval, we see increased level, which are really read as a positive sign that regulators are looking at this stuff again. But having said this, the proof of the the pudding will be, you know, and we see actually when, the commissioners meeting actually, there will be these projects on the agenda. And so far, we have not seen that, but they will meet every month and we watch that very carefully. But that's what I think is important. So we see increased increased activity, which also led to some, some good wins. But overall, the book to bill is unsatisfactory and the regulatory approval is still outstanding. I think that's really important. You know? The last point, a book to bill Sorry, the last point, share buyback, apologize that it sounds to be put on hold, and that's a bought decision, I will be slide, if there were changes in the near term, but that's definitely the broad, which we'll take a decision on that. Okay. Thank you very much. Thank you. The next question comes from Patrick Largo from Credit Suisse. Please go ahead. Yes. Good morning. Gentlemen, two questions from my side. First on Americas specifically the U. S, it looks like that, Lundis and VIA has lost significant market shares in the U. S. To itron, your biggest competitor. I estimate this loss to be, I don't know, around 600 to 800 points down to 30, 32% over the the last 3 years. Is this significant loss due to, I don't know, pricing, weaker innovation, power, or maybe a moving customer base? Or what are the key reasons for this development? Hi, Patrick. Thank you for the question. I share your view when we look in the U. S. Over the last few years, we did have a loss in market share. I think that's a fair assessment. You know, where we had a few projects, which we couldn't win 2, 3 years ago. Having said this, Revela was our response to that, you know, from a technology perspective, and I think Rivello has a very good, I would say action in the market, you know, when I look now this project under regulatory approval. So I think we are definitely, on an equal footing to Cyprus, we believe we have, technology, leadership. But having said this, Patrick, you're absolutely right. And that's why we will see in the U S, you know, this, this top line compression, which is really driven by these roll offs of projects, which we cannot replace what you just said with the new projects. And then Obviously, these regulatory approvals on top of it. So that's a fair, a very fair assessment from your side. Okay, good. So it's definitely not driven by pricing. I mean, it looks like that it's more on weaker innovation power here. Yes. I think it's a fair assessment. Now there's always a mix that you can imagine, but, I definitely think that we're very low we were able to close the gap or even achieve technology leadership. Okay, good. And the second question is around EMEA. He, obviously, the big concern about EMEA is the lack of revenues once the UK rollout has been completed. This means that finding new sources of revenues will be key for you. However, statements you have made so far remained very, very weak here. So we heard about Talondis strengthening its footprint in the Nordics, in Eastern Europe, potentially also in Africa and Middle East. We that's more for the organic side and inorganically you, you mentioned that potentially acquisitions, in water metering in EV, in heat metering, gas meet shrink, and more recently in cybersecurity could be interesting. So all these remains very interesting here. However, obviously, very vague. Can you provide more insights about your focus here? I know that days of Capital Market Day, in a couple of weeks or months, to take place. However, would be nice to have, you know, a first indication, what could be the most interesting investment or let's say, 4Qs, in the next couple of weeks or months? Probably months or years. Not weeks months or a year. Absolutely. In terms of EMEA, you know, orders intake one thing I would like to say before I go into different countries is in EMEA, actually, on a very positive side, you know, the UK market is peaking in 22. I think that's for us very important. It gives us a little bit time in terms of shifting more into new markets. So that's the positioning. And then as I mentioned in the past, we see interesting opportunities in the Nordics. That's something where we already had wins. And as you heard, through my first part, I think E360 is well accepted. We clearly heavily focus on the Nordics. We see we see opportunities in Ireland. We see opportunities in Eastern Europe. In Eastern Europe, there we have some really strong positions, for example, in countries like Poland, but other countries where actually we have room for opportunity. And, and, Middle East, Africa definitely. We want to have an increased presence. I think that's important. You know, when you look from a legacy per active. Our legacy markets were really UK, France, Netherlands, and STs rollouts are coming to an end. It's super important. That we are able to actually to, to, to gain increased traction in this market. I think we make good steps But obviously, you're right, Patrick, you're absolutely right. You know, show me the results and that's something, which needs to follow. In terms of acquisitions, I think a strong focus on it. We have the balance sheet and, trust me. I, I'm someone, I make quite a few acquisitions in the past. I'm very hungry to do that. We look at software in particular. We look at grid Edge. In particular. There were some interesting opportunities. Having said this, it always needs to fit a little bit at the profile. What do I mean with that? You know, on one hand, When you look at, for example, in a more software environment, you know, you pay for a company 10 times revenue, where you pay for a hardware company 1 times revenue. So it needs to fit actually the wiring power, which we have at the moment, which I think it's important And then when I look into grid Edge, there are not that many opportunities, around them as one great opportunity, which we wanted to get, but obviously became very pricey. But I do hope that, you know, at the Capital Markets Day, that we can give a little bit more color because we need to be in the target zone that we actually could talk about something. Next question comes from Ben Ogla from Morgan Stanley. Please go ahead. Hello, good morning, Bernard. Good morning, Jonathan. Thank you for taking my questions. The first was just a bit of a clarification. I think, at the beginning, you were talking about the EMEA revenue. And you mentioned this sort of 60% installation rate. Is that what you're basing your kind of future revenue assumption on, are you basically thinking that you can carry on in EMEA at that type or you mentioned the UK, but anemia at that type of rate. So that was a clarification. Secondly, on EMEA, if we carry on at the current rate and we get the benefit to the Project Hermes savings next year, Is your assumption that that market will be, will be profitable? I. E. Can it be EBITDA positive if we continue at the same rate with future cost savings coming in. So that I'll ask that one and then come back if I may. Yes, no pain. Very good question. Thank you. Answer to 60%, my view is or our view is we think it should go up higher than 60 in the UK, and we think that's doable. Now I need to predicate that obviously with the latest COVID development, which we not just see in the UK, you know, we see it, Switzerland and all over the place. So I think that's something we need to watch very carefully, but My view is also that all of us learned to deal with it better. So the UK, we expected actually that should go in the second half further up, above the 60, closer to 100. In terms of EMEA, yes, we do see that on current level in terms of, the, the helmet savings coming in that we need to get back to profitability. And we'll get back to profitability. Thomas, maybe some color from your side, Austin. Yes. I think fundamentally, the big impacts for EMEA certainly has been that is in the UK. So everything we say is already predicated around how the UK performs. I think, you know, given the some recovery in the UK, hopefully at the next 6 months or maybe into next fiscal year, then yes, we, we should get back to, a profitable track. And I think, we've talked with before about a 10% adjusted EBITDA target, you know, either the attributable target for the region, but obviously it requires the recovery in the top line and that requires cover in the UK? Yes, there will be pre copies revenue level and higher. Yes, exactly. Yes. Understood. Thank you. And can I ask the sort of, I, look, a bigger picture question just stepping back? None of us know obviously when these lockdowns and whatnot are going to end. But but if I if I think about your, revenue guidance, basically you've done 620 odd in the first half, And what you're thinking at the moment is that there's 7 30 at the midpoint. So maybe a 20% increase in the second half versus the first half. Philosophically, is that increase basically being driven simply by your assumption on installation rate, I. E. Is is your revenue forecast completely contingent on your view of just being on-site or is there anything else in that number? So so, and I guess the follow on to that is, if sooner or later the orders and the revenues do need to connect somehow, So if we don't get to that run rate in the second half, how do I think about the revenues as we move into, 22? So Ben, I think to a large degree, you know, that this revenue really are predicated on the installation levels. As I mentioned before, we've got some France back 100% Netherlands back 100% UK 60, but should actually come up. I think that's a fair assumption. You know. Okay. I understood. And final question and apologies for being on too long. Jonathan, in that million working capital number, were there any line items in working capital that you considered sort of extraordinary in terms of receivables or payables, or was this a sort of natural kind of inflow? Yeah. And I think on the receivables and payables side, I mean, it and it pretty much followed the revenue, track. So, obviously significant reductions in both, but not very much in line with the revenue. So that was nothing unusual in there. Okay. Thank you very much, gentlemen. Thank you, Ben. The next question comes from Daniel Kearney from Mirable. Please go ahead. Yes. I I have also one big picture question, and then I have to Exel question. First, my big picture question is, there is an election on November 3rd and What is your view? What will what is the impact of a new president and other president on your revenue line in the U. S? And then the 2 EXO questions are the interest income has gone down from 5 $1,000,000,000 to $251,000,000. Is there in 2019 a one off in there? I'm just wondering what to forecast in the second half. And then the other one would be the tax expense, you had a positive tax benefit of 13,800,000 What shall I assume for H2? Thanks. Yes. Thank you, Daniel. I think the first one, and then John and I suggested talk about, 2 and 3. And the election, I think, you know, I, I have a pretty clear view who would become president that But either way, I think that, either way, it will be positive because if it's trump, I think he's pushing business. I think that will be a positive in terms of I'm thinking now in particular about our regulatory improvement projects. And then if Biden were to come, I think Byn also has actually a green plan, which I think is very good. And he wants to push that element quite a bit. And then last but not least, we should also not forget, you know, it's not so that this is actually driven by the central government. These decisions about this, smart metering second wave, really driven by the states. You know, so for example, New York makes a different decision than, Texas and so on. So I think from that perspective, I feel that either way, I think we should get to the right answer, but it's frustrating that it takes much longer than we expected. Okay. Thank you. Let me take up the other two points on the interest. There was a big one off last year on the income line because, you're very cool, we have the settlement of the court case in Brazil on VAT. Which went back many years. So the large interest components in last year's income statement for interest, which hasn't repeated this year and and what we're doing for that repeat in future. And on the tax expense line, yes, we had some, some one off credits in the first half, which obviously gave us a big income tax benefit. I think for the year as a whole, obviously, we'd expect sort of, I mean, a more normal level of, of, of tax, charge assuming we've become profitable in the 2nd half. Okay. Okay. Thanks a lot. Thank you again. The next question comes from Jeff Osborne from Cowen and Co. Please go ahead. Most of the questions have been answered, but I just had 2. 1, I was wondering if you could just update us on the scope of the awarded that you have with the new Revelo product, but hasn't been, regulatory blessed? Yes. That's right. Yes. So the, as when I say regulatory blessed, I don't think that's right. Technology issue. You know, the way to think, Jeff, is that, obviously, these are very sizable investments. For example, when you look at, 4 projects. There are some projects where there will be a combined amount with other suppliers. There will be some projects which, we are the sole supplier. But in summary, these 4 projects are valued over $1,000,000,000. And so when you think about these projects, it's a very sizable thing. And that combined with actually the rate increase for the end customer, that's where, you know, you see a little bit the sensitivities by the regulators, right? We saw, understandably, let me say, you know, it makes a lot of sense for the utilities, but that's the way how to think about it. And do you anticipate all 4 to have clarity by Q1 of next year or just a few? I would say not all 4, but definitely 1 to 2, I definitely see 1 to 2. And then the others will be more timing, but that's how I see this whole thing unfolding. Got it. And the last one I had was for Jonathan. I might have missed it, but the $20,000,000 for the state of Washington, did you already take charge? And if you're taking that in the next period, where will that flow through in the model? Jeff, no, we haven't taken a charge with that. And in fact, we, we won't take a charge for it even if we make the payment, because we're very confident so that we'll finally win this case. And therefore, we will hold it as a prepayment in our balance sheet. Got it. Thank you. That's all I had. The next question comes from Peter Joseph And One Investments. Please go ahead. Hi, thank you. Maybe just following on from that first question, when you look at the larger project, and the comments around expecting a definitely 1 or 2 clarity in Q1 'twenty one. Can you give some sort of sense as to what's leading you to that view as a seen any any change in conversations or tone or you said it wasn't on the on the meeting schedules, but could you just give some some view on that, please? Yeah, definitely, Peter. The, you know, so this regulator utility and then customer who actually are having this cussions. So we are so called that bystander, it's not that we unfortunately can directly participate in these discussions. However, we are actually supporting the utility as much as we can. And what we do see is, also my conversations directly with these customers, that we have an increased level where they come back and say this question or that question, which we view as positive. So I think that leads us to the to the view that we think, you know, by endofMarch, 21, there should be some clarity. My view is also Peter. I mean, if by mid next year, these projects are not coming through, we should stop talking, we should stop talking about it, you know. Because there's always a time window. So I do think in this time frame we are in right now, I think we should see some movement. Okay. And and do you and you see that more on 1 or 2 of them than the other 2? So that's kind of why you say that and get that answer. I I actually see it across. Yeah, I see it actually, I mean, I talked to all 4. And, but I see on, you know, when they have been filed and so on, so there's a certain projects to it. And we see 1 to 2 projects a little bit ahead of, the other projects. That's why I think it will pan out this way. Right. And then just on the point you made on Nordic opportunity, you highlighted about 10,000,000 meters opportunity. Do you have any sense of the timeframe of those award are we talking 1 to 3 years, 1 year, which is just some view on how that opportunity spells through? Yes, I think that's probably should. I mean, that the whole 10,000,000, I cannot give you a view on that, but I think there are sizable opportunities in the next 12 to 24 months coming up. I mean, we are just, as we sit here, quoted for 1 and more to come. But for the 10,000,000, that's something we could provide you later. Which time frame do we think about that? That's probably more than in the, I would say, 3 to 4 year for all of them. Okay. And last question is just when you look at the point you made about your roll offs and so on in North America, Are you looking at this as being larger projects coming to an end over the next 12 months or is it just a series of smaller ones and kind of a natural evolution of the backlog? So I made the comment to, Patrick Larker's question when he said, Hey, did you lose market share? We did have, we did lose 2, 3 projects, you know, 2, 3 years ago. And therefore, we were not able to actually then replenish the top line because all the projects, actually rolled off and then we were not able actually to bring in the new projects as a company. And that's compounded now obviously with this situation we are having with this regulatory approval delays. Sure. But, yeah, I was just wondering going forward, you you made a comment about roll roll off continuing. And I was trying to understand whether this was just a the series of projects over time or whether there are any particular large projects in that? No, there's no, no, I think it's it's pretty gradual, you know, in terms of what we see in terms of backlog and so on. That's why it's so important that we can win new projects, but it's not that we would have a cliff or something like that. The last question comes from Billy Andreas from JP Morgan. Please go ahead. Yes, thanks. I just had a follow-up question on Brexit deal versus non no deal, what that could mean for you in terms of impact next year and given that a lot of the are outside the UK for you for the deployment? Yes. No, thank you. We have here real English man with us. Jonathan said, why don't you keep this time? Thank you. Yeah, I mean, obviously there's always a sort of a supply chain disruption risk, I mean, just in terms of physically getting products into the UK. We think that's probably at worst a short time impact. But the direct impact would be, import duties, if the UK trades on WTO terms, And those are between 1% 2% for meters depending on the type of meter, but maximum too. So that would be a cost that we would have to, to bear at least in the, short term. And then we're, obviously, also conscious around the FX exposure that we have, which is obviously the level of the pound is quite geared to the, Brexit. And that's obviously why we've got some quite significant hedges in place to, mitigate any impact there. I guess it's sort of the most immediate direction franchise, the WTO duties, if that's, if that's what, what was to happen. Thank you very much. Thank you, Andreas. Then I would like to make some closing comments. And that before I do that, thank you really very much for your questions. I think great questions. You know, and, want to have some key takeaway before of today's call. First, you know, I do think the situation is the current environment are challenging. However, you know, I really keep it with service in Churchill, never waste a good crisis. And we are making good progress, and we are getting the house, you know. Second point I want to make is, despite almost 70% revenue decline, we were able to produce a solid free cash flow from the $5,900,000 and traded profitably with an 8% adjusted EBITDA margin. And then last but not least, I would also like to say that we are convinced that we have the right strategic focus in drive leading edge technology and transform the business. We thank. Thank you for joining us today. Stay safe and healthy. Look forward to speaking with you very soon. Thanks a lot and have a good day.