2G Energy AG — Earnings Release 2015

Sep 24, 2015

News Details

Corporate | 24 September 2015 07:30

2G Energy AG reports solid business progress in line with expectations in H1 2015

DGAP-News: 2G Energy AG / Key word(s): Half Year Results/Alliance

2015-09-24 / 07:30

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– 2G strengthens business abroad: good business trends in the USA, partnership with one of the global leaders in optimized resource management (water, waste and energy)

– Service business reaches 39 percent sales revenue share

– Consolidated sales revenue of the EUR 59.0 million (previous year: EUR 52.2 million), total operating revenue of EUR 62.5 million (previous year: EUR 86.5 million), and EBIT at EUR -3.9 million (previous year: EUR -0.5 million)

– FY 2015 forecast adjusted: Earnings expectation reduced to low positive EBIT figure (previously 5 % to 7 % EBIT margin); sales revenue target confirmed EUR 140 million to EUR 160 million

Heek, September 24, 2015 – 2G Energy AG (ISIN DE000A0HL8N9), one of the leading German manufacturers of combined heat and power (CHP) systems, generated consolidated sales revenue of EUR 59.0 million as of 30 June 2015 (previous year: EUR 52.2 million), reflecting 13 % growth. 2G Cenergy Inc., the US subsidiary that was fully consolidated for the first time, contributed EUR 4.1 million in this context. Total operating revenue stood at EUR 62.5 million (previous year: EUR 86.5 million). The higher total operating revenue in the previous year arose from deliveries and services deriving from many accelerated CHP plant orders for the German market before the amendment to the German Renewable Energies Act (EEG) came into force on 1 August 2014. Sales performed well in markets outside Germany between January and June 2015, especially in the USA, the UK and Japan. 2G has been investing continuously in expanding its international business and further optimising its operating and organisational processes during the reporting period, and has been leveraging synergies, especially in the USA. These measures were accompanied by cost adjustments both in Germany and at the foreign subsidiaries. This resulted in one-off effects in the form of higher legal and consultancy costs, and expenses for special personnel measures. An impairment loss was also applied for the first time to the goodwill of 2G Cenergy following the full takeover of this company in February 2015. Due to seasonal effects and effects relating to the reporting date, the company reports a result before interest and tax (EBIT) of EUR -3.9 million as of 30 June 2015 (previous year: EUR -0.5 million). The Group incurred a consolidated net loss of EUR 4.3 million in the first half of 2015 compared with a consolidated net loss of EUR 1.4 million in the previous year. The loss per share (EPS) stood at EUR -0.96 (previous year: EUR -0.40 per share), after deducting profits/losses attributable to non-controlling interests.

As expected, German companies’ ordering patterns for CHP systems were reticent during the first two quarters given the forthcoming amendment of the German Combined Heat and Power Generation Act (KWKG) in 2016. A seasonal trend is emerging, with a greater number of orders at the start of the heating period, and utilisation of production capacities in the second half of 2015, especially in the fourth quarter. The advancing consolidation and transformation within the sector is also affecting sales prices and margins. In addition, due to the uptrend in business in the second half the year, 2G had to maintain capacities during the preceding months in order to ensure punctual building, delivery and commissioning of 2G systems. The lack of even distribution of orders over the course of the business year, and the fact that production always occurs on an order-related basis, make it very difficult to manage manufacturing capacity utilisation.

2gs growing business abroad is not yet able to offset major fluctuations in orders in Germany. 2G has invested in expanding its international business and in further optimising its processes in order to achieve this goal more quickly. Overall, the future-oriented investments that have been realised, the reorganisation measures that have been implemented, and price movements due to somewhat restrained demand in Germany, have incurred costs and burdened profitability.

For this reason, the Management Board is adjusting the earnings forecast for the full 2015 year, which it published at the end of May, to a low positive EBIT figure (previous forecast: EBIT margin of 5 % to 7 %), and is confirming its estimate for sales revenue of between EUR 140 million and EUR 160 million.

A good order book position with a growing international component is also emerging for H2

The order book position for CHP orders stood at around EUR 76 million as of 30 June 2015 (previous year: EUR 112.3 million, due to accelerated purchasing effects reflecting the 2014 EEG amendment). This includes a verified order book position from the USA of EUR 16.4 million. The order book position is being renewed at a stable, high level. Major national and international plant construction projects in the tender process enjoy very good prospects of 2G participation. Order book positions from the USA, the United Kingdom and the rest the world (around EUR 29 million) underscore 2G’s drive for diversification and international growth. As of the reporting date, a total of 46 % of the orders derive from abroad. As far as gas types are concerned, the order book in Germany comprises a clear preference for natural gas-driven CHPs at around 74 %. The opposite applies abroad, where around 62 % of the order book position is attributable to biogas-driven CHPs. This shift is evident in a comparison with the prior-year period (89 % of the order book position for biogas-driven CHP systems), and a continuation of the demand trend toward natural gas-driven CHP systems abroad.

Service share of revenue grows and generates stable cash flows

The constant growth in the installed base of 2G systems over recent years is boosting the sales revenue volumes of the company’s service division. Its share of total sales revenue amounted to 39 % as of the reporting date (previous year: 29 %). In particular, the growing business with natural gas-driven CHP systems in Germany and abroad is connected with full maintenance agreements. The arrangement of a service contract is also obligatory with CHP modules distributed through 2G Rental’s rental and leasing offerings. Long-term service contracts and the replacement parts business based on installed systems generate predictable and stable cash flows for 2G.

Considerable preliminary work to expand market shares abroad already bearing first fruit

With the takeover of all shares in 2G Cenergy in the USA, and the bundling of the US companies under 2G Energy Inc., St. Augustine, Florida, 2G is now offering its customers all services and products on a one-stop-shop basis, and its US market profile is increasingly becoming that of an integral unit. This new profiling, reflected in a new management team and an enhanced sales function, is confirmed by a growing order book position and a well filled pipeline of offers. 2G assumes that it can leverage the sales potentials for biogas and natural gas driven CHP systems in the USA significantly faster. The Management Board remains certain that the US market will develop into the largest sales market for CHP systems outside Germany in the medium term. The reorganisation measures in the European subsidiaries in Italy, Spain and Poland over the last quarters are also ensuring more streamlined cost structures and more efficient processes. Structures and processes there have meanwhile become so streamlined that, even in the absence of business generated with new equipment, profitable results are possible from the service and spare parts businesses. Sales support is provided by the 2G Group in Germany and regional sales partners on a performance-measured basis.

Target 50 % export ratio in the next three years

2G’s aim is to rapidly further boost the share of sales generated on markets outside Germany, especially in the USA. The export ratio stood at 25 % as of 30 June 2015, in relation to total sales revenue (previous year: 29 %). In terms of sales of CHP systems, this share already amounts to 43 % (previous year: 46 %). Dependency on individual markets and regulatory conditions is to be offset and significantly reduced through internationalisation. The aim is to realise 50 % of sales within the next three years through sales of CHP systems, service and after-sales outside Germany.

Cooperation agreement with one of the global leaders in optimized resource management is under way

A further step on the road to realizing a higher share of business outside Germany are the current contract negotiations with one of the worldwide largest companies in the water, waste and energy sector.

Objective of this cooperation is that 2G provides key technology for CHP solutions up to 4,400 kW and that the well-established partner in the CHP market in its home market continuous to run the sales, the service and the project management. On expected success of this cooperation a worldwide penetration of the markets is envisaged. 2G estimates to announce further details in the next weeks.

2G Rental opens up new opportunities to expand market shares in Germany

With the founding of 2G Rental GmbH, 2G has created a sales financing capability through leasing and hire purchase offerings for CHP systems driven by natural gas and biogas. 2G is thereby offering its customers simple processing for the financing or refinancing of 2G power plants in Germany. These offerings are encountering lively interest among energy utilities, local authorities and industry. No other CHP plant manufacturer has offered this type of sales financing to date. With a look to 2015, 2G expects sales of 15-20 plants worth EUR 6-8 million. 2G anticipates that the rental business will become a main pillar of 2G’s business in Germany in the future.

Forward-looking investment strengthen 2G’s future competitive position

2G has also been investing in the technological further development of engine mechanics and components, high-end control electronics and software solutions to make CHP systems flexible in integrated grid operation, and in the quality of service business, and of operating and plant management. 2G sets standards in the sector, invests in know-how and structures, and consistently pursues its business strategy as a technology leader.

Over the past years, 2G has repeatedly proved its ability to adapt its business model at an early juncture to changing competitive and overall conditions as part of its corporate strategy. 2G has always emerged stronger and with higher market shares from such phases. For instance, 2G has continually raised the proportion of natural gas driven CHP systems in relation to its total revenue, thereby offsetting the drop in demand on the biogas market. 2G is also benefiting from constant growth in its plant construction experience, confirmed through several major orders awarded by renowned companies such as Brauerei Krombacher, BASF, Katjes, Metro, Nestlé, and Osram. With sales financing through 2G Rental, the aforementioned new corporation ventures, and investments in foreign subsidiaries, 2G sees itself as strengthening the basis for further profitable growth long-term, including in relation to its competitors, as a diversified, globally operating provider of technologically cutting-edge CHP power plants. The medium- and long-term prospects are intact. In this context, the 2015 financial year is a year of investments, adjustment, corporate organisation in Germany and abroad, and of transition.

Demand for natural gas driven CHPs reports dynamic growth

Demand for natural gas driven CHP systems continued to grow during the first half of 2015. Whereas the sales revenue ratio in the new CHP system business still amounted to 65 % biogas and 35 % natural gas driven CHP modules during the first of 2014, these sales revenue proportions drew sharply closer during the period under review to 54.6 % biogas and 45.4 % natural gas driven CHP modules. The share of sales revenue generated with natural gas driven CHP systems outside Germany also increased from 7.6 % in the previous year to 9.2 %. Expectations for the German biogas business were moderate, as expected. 2G sold mainly smaller biogas powered CHP systems as part of repowering measures and rendering existing systems more flexible. This corresponds to a 22.4 % share of total CHP sales revenue during the first six months of 2015 (previous year: 25.5 %). The sale of biogas systems outside Germany continues to play an important role. The international share of 35.9 % is stable overall (previous year: 39.1 %).

Of the total consolidated sales revenues in the first half of 2015, a 55 % share (EUR 32.6 million) derives from CHP systems (previous year: 61 %), a 39 % share (EUR 22.9 million) is generated from service (previous year: 29 %), and a 6 % share (EUR 3.5 million) derives from after-sales (previous year: 10 %).

2G’s solid balance sheet structure secures financial independence

The balance sheet structure of the 2G Energy Group continued to be very stable as of June 30, 2015. Total assets grew to reach EUR 101.8 million, up by 10 % compared with the December 31, 2014 balance sheet date. This is particularly due to an increase in stocks of raw materials and supplies, as well as a higher level of trade receivables. The value of the interests in associates has risen due to the complete takeover of 2G Cenergy Inc., USA, during the first half of the year, a company consolidated for the first time by way of transition consolidation. This is also reflected in higher goodwill. The equity of the 2G Group fell to EUR 47.4 million as of the balance sheet date due to the loss incurred by the Group (31 December 2014: EUR 52.1 million). The equity ratio has dropped to 46.6 % (December 31, 2014: 53.2 %) in line with the increase in total assets, which reflects seasonal and reporting date factors. Bank borrowings were almost unchanged at EUR 6.2 million as of the balance sheet date (31 December 2014: EUR 6.1 million). Financial liabilities of EUR 0.5 million were repaid on schedule, while 2G Rental GmbH raised EUR 0.6 million of new loans to refinance CHP plants. Operating cash flow amounts to EUR -1.6 million. This cash outflow resulted mainly from the loss incurred during the period and an increase in inventories related to the reporting date. The company realized EUR 0.9 million of investments, primarily spending on property, plant and equipment. Liquid assets amounted to EUR 10.8 million as of June 30, 2015 reporting date (previous year: EUR 10.3 million).

Half-yearly report as of June 30, 2015 available for download

Further details are available in the H1 2015 report that will be published on 29 September 2015 at

www.2-g.com (financial publications).

2G company portrait

2G Energy AG ranks among the world’s leading manufacturers of cogeneration (CHP) systems for decentralised energy production and supply by means of combined heat and power. The company’s product portfolio includes systems with an electric capacity between 20 kW and 4,000 kW for operation with natural gas, biogas, biomethane and other lean gases. 2G has successfully installed several thousand CHP systems in 35 countries to date. Especially in the 50 kW to 550 kW performance range, 2G possesses proprietary technological combustion engine concepts characterised by low specific fuel consumptions, high operational availability and optimised service intervals. Besides the main production site at the Group headquarters in Heek, Germany, the company has invested in an additional production and sales & service site in St. Augustine, Florida, USA. 2G’s customers range from agricultural and industrial operations, local authorities, and the residential sector through to municipal utilities and large-scale utilities. The high level of customer satisfaction is founded on a dense service network as well as 2G power stations’ high technical quality and performance. These power stations achieve an overall degree of efficiency from 85 percent and to well above 90 percent thanks to combined heat and power performance.

Along with the construction of combined heat and power stations, the company, located in Westphalia in the north-west of Germany, offers integrated solutions spanning the planning stage and installation through to service and maintenance work. In the context of the energy policy revolution, and as part of modern energy supply concepts, CHP systems are gaining considerably in importance in intelligent energy grid systems – so-called virtual power plants – due to their decentralised and scalable operation, and predictable availability.

2G is consistently expanding its technology leadership through continuous research and development work, both in gas engine technology for natural gas, biogas and synthetic gas applications (e.g. hydrogen), as well as in specific software development. The “virtual power plant” operating type has been created with a software solution, for example. Overall, the 2G system is thereby operated on a basis that is “heating-managed and electricity-oriented” in order to significantly simplify integration within a grid group. In the energy policy revolution’s future electricity market design, such digitalisation-enabled flexibility forms an indispensable system-relevant element in combination with solar, wind, biogas and natural gas producers, and creates a high barrier to market entry for competitors.

The shares of 2G Energy (ISIN DE000A0HL8N9) have been listed in the Entry Standard of Deutsche Börse AG since July 31, 2007. The share capital amounts to EUR 4,430,000, and is divided into 4,430,000 shares. The company’s founders held 56.1 % of the shares as of December 31, 2014, with the free float amounting to 43.9 %.

2015 dates

29 September 2015 Half-yearly consolidated financial statements as of 30 June 2015

23-25 Nov. 2015 Germany Equity Capital Forum 2015

End Nov. 2015 Key Q3 figures and business trends

Further information: www.2-g.de

Contact

2G Energy AG

Benzstraße 3

48619 Heek

Telephone: +49 2568 9347-2795

Telefax: +49 2568 9347-15

E-Mail: ir@2-g.de

Internet: www.2-g.de

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Language:	English
Company:	2G Energy AG
	Benzstr. 3
	48619 Heek
	Germany
Phone:	+49 (0)2568-9347-0
Fax:	+49 (0)2568-9347-15
E-mail:	service@2-g.de
Internet:	www.2-g.de
ISIN:	DE000A0HL8N9
WKN:	A0HL8N
Listed:	Regulated Unofficial Market in Berlin, Dusseldorf, Stuttgart; Open Market (Entry Standard) in Frankfurt

End of News	DGAP News Service

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