January-June 2016 Results

27 July 2016

GAMESA INCREASES GUIDANCE FOR 2016 AND ADVANCES WITH ITS LONG-TERM STRATEGY After the first quarter's strong commercial performance and profitable growth trends were sustained through the second quarter, Gamesa Corporación Tecnológica1 reached mid-year 2016 with record orders, sales and profitability. This performance in excess of projections made at the beginning of the year supports an upgrade of the 2016 guidance for volume (≥ 4.000 MWe) and operating profit (underlying EBIT ≥€430mn). Strong commercial activity arising from a growth-oriented competitive position resulted in record order intake in the second quarter:1,180 MW2, 16% more than in the same period of 2015, which raised order intake in the last twelve months to 4,259 MW. Total order intake in the first half was 2,211 MW and the order book stood at 3,228 MW at the end of June, exceeding 100% coverage3 of the initial low end guidance for volume in 2016 (3,800 MWe) which supports an upgrade to the full-year guidance (≥ 4,000 MWe). Financial performance in the first half was also strong, with revenues up 33% year-on-year to €2,192 million. Underlying EBIT amounted to €230 million4 in the first half, i.e. 70% year-on- year growth, and the EBIT margin was 10.5%, 2.3 percentage points more than in the same period of 2015. Underlying net profit4 pre-Adwen increased by 76% in H1 2016 to €151 million. Consolidating Adwen had a negative impact of €13.5 million on net profit; including this, net profit would have amounted to €138 million. This growth in profitability combined with focused investment in working capital, which was reduced by 53% y/y to 3.2% of revenues5, and in capex, which rose €30 million year-on-year, enabled Gamesa to achieve a 22% ROCE and maintain its commitment to a sound balance sheet, having ended the first half of 2016 with a net cash position of €287 million. Gamesa is advancing with its long-term strategy and has announced an agreement to merge with Siemens Wind Power to create a global leader in the wind power business. Main consolidated figures for H1 2016:
  • Revenues: €2,192 million (+32.8% y/y)
  • Underlying EBIT pre-Adwen4: €230 million (+69.7% y/y)
  • Underlying net profit pre-Adwen4: €151 million (+75.9% y/y)
  • NFD (Cash)6: -€287 million (-0.5x EBITDA7 )

    o MWe sold: 2,180 MWe (+47.1% y/y)

    1 Gamesa Corporación Tecnológica engages in wind turbine manufacture, which includes the development, construction and sale of wind farms, as well as O&M services.

    2 Firm orders and confirmation of framework agreements for delivery in the current and subsequent years, including 916 MW signed in Q2 16 and announced in Q3 16

    3 Coverage based on total order intake through 30 June 2016 for activity in 2016 (>3,800 MWe in February 2016)

    4 In the first half of 2016, underlying net profit pre-Adwen excludes items amounting to -€13,5 million relating

    to Adwen (equity method). EBIT and underlying net profit pre-Adwen in the first half of 2015 are expressed net of items amounting to €29 million and €11.2 million, respectively. Year-on-year variations are calculated excluding those items in both years.

    5 Ratio of working capital to revenues in the last twelve months.

    6 Net financial debt means interest-bearing debt, including subsidised loans, derivatives and other current financial liabilities, less other current financial assets and cash.

    7 Underlying EBITDA pre-Adwen in the last twelve months.

  • Firm order intake: 2,211 MW (+20.5% vs. H1 2015)
Gamesa Corporación Tecnológica ended the first half of 2016 with €2,192 million in revenues, 33% more than in the same period of 2015, due to strong growth in wind turbine manufacturing and sales. At constant exchange rates, revenues increased by 40% y/y to €2,307 million. Revenues in the Wind Turbine Generator (WTG) division increased by 38% y/y, to €1,964 million, due to growth in activity volume to 2,180 MWe in the first half, 47% more than in the same period of 2015. That growth was distributed over practically all regions: Europe/RoW, Latin America, the US and India. APAC (including China) was the only region that did not achieve double-digit growth in the first half, but it is expected to recover in the second half and to register double-digit growth in the full year. The decline in revenues in China in the first half also resulted in a reduction in the category of financial customers and industrial developers, grouped under "Others", while electric utilities and IPPs continue to evidence solid growth. Revenues from O&M services amounted to €228 million, i.e. 2% higher than in H1 2015, or 4% at constant exchange rates, in line with 4% year-on-year growth in the post-warranty fleet under maintenance, which reached 15,486 MW at the end of the first half. The first signs of a recovery in the total fleet under maintenance were detected in the first half: 7% growth since 2015 year-end and 9% year-on-year, to 22,436 MW, boost by growth in the fleet in emerging markets, in line with the projections of the business plan 15-17E projections. Growth in sales volume in the period and the improved outlook for 2016 are the result of the company's strong competitive positioning in markets with current and projected above- average growth rates, and of a positive general demand environment. Gamesa's strong competitive position is supported not only by a diversified geographic footprint (55 countries) but also by an extensive customer base, a portfolio of products and services focused on maximising the return on wind assets, and a presence throughout the wind value chain. As a result of that positioning, the company signed 1,180 MW8 of orders in the second quarter, 16% more than in the same period of 2015, which raised total order intake to 2,211 MW in the first half of 2016 and to 4.3 GW in the last twelve months, i.e. exceeding the 4 GW projected for 2016 and equivalent to a book-to-bill ratio of 91.10. The order book at end-June 2016 stood at 3,228 MW, i.e. 13% more than at 30 June 2015, and exceeding 100% coverage of the low end 10of the volume guidance for the full year (3,800 MW), which supports an upgrade to the full- year guidance (≥ 4,000 MWe).

8 Firm orders and confirmation of framework agreements for delivery in the current and subsequent years. Includes firm orders signed in Q2 2016 (916 MW) that were published individually in Q3 2016.

9 Book-to-bill ratio (MWe) in the last twelve months.

10 Coverage calculated as orders received for activity in 2016 with respect to the February 16 activity guidance for 2016 (> 3,800 MWe)

Order intake in the period included a strong contribution from new generations of products: the G114 2.0-2.5 MW, whose contribution rose from 45% of order intake in the first half of 2015 to 55% in the same period of 2016. Also, in geographical terms, Gamesa retains its leading position in developing markets while strengthening its presence in mature markets. India, China, the US and Brazil are the countries where order intake increased the most.

In this context of growing activity, Gamesa remained focused on controlling structural costs so as to maintain a low break-even point. As a result, at the end of June 2016, structural expenses11 amounted to 7.5% of revenues, i.e. within the objective for 2017 set in the business plan 2015-2017E.

Control of fixed costs, together with ongoing optimisation of variable costs and quality excellence programmes, enabled Gamesa to offset a lower relative contribution to group revenues from O&M (with profitability in excess of the manufacturing business) and steadily increasing total operating profitability. Additionally, during the first half of 2016, and particularly during the first quarter, profitability was boosted by a favourable project mix and scope. Meanwhile, performance by the currencies in which Gamesa operates had a negative exchange rate impact of 0.2 percentage points, in line with the 2016E guidance (± 0.5% p.p.). As a result, Gamesa ended the first half of 2016

with an underlying EBIT margin of 10.5%, over two percentage points higher (+2.3 p.p.) than in the same period of 201512, while underlying EBIT amounted to €230 million, 70% more than in the same period of 2015.

11 Fixed expenses with a cash impact, excluding depreciation and amortisation.

12 EBIT and EBIT margin in 2015 excluding non-recurring impact of capital gains from the creation of the Adwen joint venture, which amounted to €29 million in 1Q15 (no impact in the remainder of 2015).

As a result of firming growth in volume and revenues and of rising business profitability, Gamesa's underlying net profit (pre-Adwen) increased by 76% to €151 million13 in the first half of 2016.

Adwen (equity method) had a negative impact of €13.5mn in the first half, taking reported net profit to

€138 million, i.e. 42% more than in H1 2015, when net profit included the positive impact of €29 million in gross capital gains on the creation of Adwen (€21 million net of taxes) and a negative impact of €10 million from consolidating Adwen.

In this environment of strong growth in activity and profitability, Gamesa continues to exert strict control over working capital, which stood at €129 million in the first half of 2016, equivalent to 3.2% of revenues, over 5 percentage points lower than in the same period of 2015. Average working capital has been reduced by €131 million in the last twelve months, to 4.1% of revenues, vs. 9.1% in June 2015.

Applying a modular capex policy tailored to growth needs, Gamesa invested €85 million in H1 2016,

i.e. 4.9%14 of LTM revenues, in line with the guidance for the year (4%-5% of revenues). Investments

in the first half were focused on new products (blade moulds and construction elements, plus appropriate logistics) in the regions in which Gamesa operates.

13 Underlying net profit pre-Adwen, excluding a -€13.5 million negative impact of Adwen in H1 2016. Impact of Adwen on net profit in H1 2015: +€11.2 million

14 Capex LTM / LTM revenues

Gamesa Corporación Tecnológica SA published this content on 27 July 2016 and is solely responsible for the information contained herein.
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