AEG Power Solutions Reports Mixed Results for Q3 2013

November 18, 2013 by Jeff Shepard

3W Power SA, the holding company of AEG Power Solutions B.V. reported its interim management statement for Q3 2013, providing unaudited operating results for Q3 2013. Order intake in Q3 2013 was EUR58.0 million (Solar EUR9.7 million, POC EUR4.3 million and EES EUR44.1 million), down 36.8% year-on-year (Q3 2012: EUR91.8 million) and down 12.2% compared to the prior quarter (Q2 2013: EUR66.1 million). Order backlog in Q3 2013 was EUR104.0 million (Solar EUR12.1 million, POC EUR4.9 million and EES EUR87.0 million), down 25.4% year-on-year (Q3 2012: EUR139.3 million), but up by 7.4% compared to the prior quarter (Q2 2013: EUR96.8 million).

Historical numbers have been represented to reflect the change in classification of the telecom converter business (CVT/LED). It is now included in the reported financials. Revenue in Q3 2013 was EUR53.9 million (Solar EUR7.8 million, POC EUR4.6 million and EES EUR41.4 million), down 36.4% compared to Q3 2012 (EUR84.7 million) and down 7.0% compared to the prior quarter (Q2 2013: EUR57.9 million). The expected decline was due to low order intake during Q2 2013, primarily in Solar and POC. Revenue as of end of October 2013 totaled EUR227.0 million.

The market for large project orders in Solar remains difficult. Industry consolidation, a continued reduction in inverter prices and stretched payment terms/customer financing requirements pose challenges for AEG Power Solutions. Also, POC presently is not expecting to show a recovery until the end of 2014 to the middle of 2015. As such, Power Controller revenue in support of polysilicon manufacturing is likely to remain near zero over the near term and then return, at a low level in late 2015. AEG Power Solutions continues to apply its industry leading technology into other expanding industrial and energy management markets. Orders and revenue for Industrial Power Solutions continue to grow as planned as a result of our focus on the expanding Oil and Gas markets.

EBITDA in Q3 2013 was EUR(11.6) million including restructuring expenses of EUR3.3 million. This corresponds to EBITDA of EUR8.4 million (including restructuring expenses of EUR3.0 million) in Q3 2012 and EUR(11.6) million in Q2 2013. The decrease in EBITDA was mainly due to lower volumes in Solar and POC.

At the end of Q3 2013, the cash position of the Company was EUR28.9 million, down EUR20.6 million from EUR49.5 million at the end of Q2 2013 and its gross accounts receivable balance was EUR70.5 million. The Company's large Solar customer represents 21.3% of the Group's gross trade receivable balance as of September 30, 2013. For September 30, the total gross trade receivable for this customer was EUR15.0 million with a bad debt provision of EUR8.5 million. Following receipt of EUR4.0 million from the customer in October, the gross receivable due from the customer has been reduced to EUR11.0 million. At the end of October 2013, the cash position of the Company was EUR32.4 million and its gross accounts receivable balance was EUR66.1 million.

Despite the Group's higher cash balance as of October 31, 2013 versus September 30, 2013, the Company's liquidity position remains under pressure and there is currently limited access to credit. While AEG PS is positioned to serve the opportunities of the future, the outlook for the Group remains challenging especially with respect to cash flow generation. Failure to improve the liquidity position and cash flow of the business could threaten the Company's ability to continue as a going concern. For 2013, AEG Power Solutions expects overall sales volumes to fall below EUR285 million on lower Solar and POC revenues and Normalized EBITDA to be negative. EES is expected to be slightly below last year's revenue with negative EBITDA.

On October 29, 2013, the Company announced that it had retained external financial and legal advisors to review the Company's business plan, liquidity situation and future earnings. In light of current trading and based on the expert advice, the Company is reviewing its current capital structure in order to decide whether any adjustments are required.

As part of this review and in order to establish a solid basis going forward, the Company intends to engage in discussions with the holders of its EUR100 million corporate bond (ISIN DE000A1A29T7, 3W9A) on November 25, 2013 in Frankfurt am Main, Germany. The agenda points to be discussed and voted on at the meeting are 1) the appointment of a common representative to represent the bondholders and 2) providing a mandate to the common representative to renegotiate the terms and conditions of the coupon payment of EUR9.25 million becoming due and payable on December 1, 2013. Subsequently the Company intends to enter into discussions with the common representative about a restructuring of the bond.

In addition to the envisaged bondholder process, the Company is pursuing several alternatives and solutions to potentially monetize noncore assets and is in discussions with lending banks to provide additional financing. Commencing with this interim management statement, the Group has changed its quarterly public reporting policy in line with applicable Luxembourg and German securities law. The Group's new policy is to publish interim management statements for the quarterly periods ending March 31 and September 30 of the fiscal year and full Condensed Consolidated Interim Financial Statements for the semi-annual period ending June 30 of the fiscal year.