With an EBIT margin of 5.4% and net profit of 31 million EUR, Gamesa is able to improve profitability substantially

In Summary:

• In a situation of lower activity, the company is now targeting the high end of the profitability and sales objectives in the Business Plan for 2013.
• Order intake in the third quarter enabled the group to attain the upper end of its guidance for the full year (2,000 MWe), and orders signed in October provide very good prospects for volume growth in 2014.
• Operation and maintenance services contributed 16% of group revenues and boosted returns.

Gamesa's results in the first nine months of 2013 reflect the steps taken by the company during the year and reaffirm the 2013 targets set out in the business plan; the company now expects to reach the upper end of its objectives for profitability (EBIT margin ≥5%) and sales (2,000 MWe).

Despite the economic difficulties and the complex situation in the industry, Gamesa reported 31 million euro in net profit in the first nine months of 2013, contrasting with a loss of 67 million in the same period last year. This positive result, coupled with expanding margins, is an advance on the profitability improvement process that commenced in the first quarter, and actually exceeds the guidance for the full year.

Key financial figures January-September 2013 (vs. M9 2012):

• Sales: 1,655 million (-20%)
• Sales in MW: 1,402 MWe (-14%)
• EBITDA: 204 million (+32%) and EBITDA margin: 12.4% (vs. 7.5%, +4.9 p.p.)
• EBIT: 90 million (vs. 4 million) and EBIT margin: 5,4% (vs. 0.2%, +5.2% p.p.)
• Net income: 31 million (vs. -67 million)
• Net financial debt: 765 million (vs. 1,065 million, -28%)

EBIT and net profits in the first nine months of 2013 include 4.8 million in non-recurring expenses. The year-on-year change is calculated with respect to pro forma M9 2012 numbers, with the wind farm business in the USA classified under discontinued operations, and including 18 million of restructuring expenses in EBIT and net profit.

Sales and order intake:

In a situation of slowing demand, Gamesa attained 1,655 million euro in revenues between January and September; the lower volume of activity was due to the strategy of controlling working capital and aligning manufacturing to deliveries, plus the lower contribution from the wind farm business.

Sales amounted to 1,402 MWe, in line with the company's guidance for 2013 (1,800 -2,000 MW). Latin America+Southern Cone was the largest single sales destination, accounting for 51% of the total, followed by Europe+Rest of the World (29%) and India (18%). The contribution by the US and China (1% each) declined in the quarter.

Order intake in the third quarter (380 MW) enabled the company to attain the high end of volume guidance for 2013 (2,000 MWe).

Moreover, sales are surging in the fourth quarter, with 470 MW of new firm orders signed in October, on the basis of the new product portfolio and the company's positioning in emerging markets, which raised the order book to 1,750 MW. This acceleration in activity supports rising volume performance in 2014.

Operating and maintenance services contributed 16% of total revenues: revenues increased by 18.2% year-on-year to 269 million, i.e. far outstripping the 8% growth in MW under maintenance (19,830 MW at end-September), as the company prioritised value over volume.

Rising profitability and a sound financial position:

Gamesa obtained 90 million euro in EBIT in the first nine months of 2013, providing an EBIT margin of 5.4%, which far exceeds the 0.2% margin attained in 2012 and is above the guidance range for the year (3%-5%). Despite slower sales, profitability continues to rise based on the project mix, sound execution of the plan to save on fixed costs, optimization of variable costs, and the strong contribution from the services division, whose EBIT margin was 12.6%.

The gain in profitability coupled with the strategy to control working capital and capital expenditure (75 million euro, 42% less than in M9 2012), strengthened Gamesa's balance sheet and enabled it to reduce net financial debt by 28% to 765 million euro at the end of September. The temporary increase in working capital, due to the normal seasonal variation in business in the third quarter, raised the NFD/EBITDA ratio to 2.8x; the ratio will decline in the fourth quarter to end the year in line with the guidance (NFD < 2.5x EBITDA).

As a result of the improved profitability and sound balance sheet, Gamesa is advancing towards its value creation objective, having attained a ROCE of 4.8%.

Example of Games's global diversification strategy: