Spain - Wind energy Gamesa maintains profitable growth

At 30 September, the sales volume (2,805 MW for 2011) had already covered 100% of 2011 sales guidance. Sustained profitability: wind turbines EBIT margin (4.8%) in line with 2011 guidance.

94% of MW sold outside Spain: Sales increased 2.8-fold in India (accounting for 20% of the total) and 5-fold in Latin America/Southern Cone (16% of the total); Eastern Europe accounted for 13% of the total. China accounted for 21% and the US for 14%.

Gamesa is growing profitably, despite the macroeconomic scenario and uncertainties in some markets coupled with fierce competition:
+13% in sales, to 2.015 billion euro
+11% in EBITDA, to 223 million euro
+11% in EBIT, to 83 million euro
+20% in net income, to 30 million euro
146 million euro in capex

Temporary increase in debt (810 million euro, or 2.3 times EBITDA) due to reactivation of the wind farm business and increased production for delivery in China and India

WTG: MW sold, +23%, and MW delivered, +34%. Temporary increase in working capital (to 33% of sales) due to accounts receivable for wind farms, advanced production for season fluctuations in India, and increased activity worldwide

O&M services: 15,000 MW under maintenance (including the 1,400 MW added in 2011), which provided recurring revenues of 250 million euro

Development and sale of wind farms, a key area: progress in value creation plan with 286 MW in sales agreements and 9 million euro in EBIT

2012 Outlook: growth in sales (3,000-3,500 MW), based on presence in emerging markets, new products and an integrated business model. 1,000 MW firm orders in November for 2012

Gamesa continued to expand profitably during the first nine months of 2011, throughout which it continued to focus on strengthening expansion abroad, efficient management and cost control, launching new products, and maintaining the pace of activity in all business areas, with results in line with 2011 guidance in terms of volume, profitability and debt.

Between January and September 2011, Gamesa obtained consolidated revenues of 2.015 billion euro (+13%), driven by the recovery in wind turbine activity. EBIT amounted to 83 million euro (+11%) and net profit was 30 million euro (+20% yoy).

The wind turbines division increased sales (in MWe) by 23% to 1,965 MW, almost all (94%) of which are outside Spain, reinforcing the company's internationalisation strategy.

The sales volume at September for 2011 was 2,805 MW, covering 100% of the wind turbine sales guidance for the year (2,800-3,100 MW). In 3Q11, Gamesa received more than 1,500 MW in orders; 535 MW of which for delivery in the year.

Wind turbine deliveries increased 34% in the period, to 2,244 MW, with the US accounting for a notable amount in the third quarter.

The recovery in wind turbine manufacturing activity, together with the focus on controlling costs, provided an EBIT margin of 4.8% (in line with 2011 guidance: 4%-5%), despite the persisting fierce competition. The start of development of several farms for delivery in 2011 and early 2012 enabled the wind farm development and sales division to obtain EBIT of 9 million euro, compared with -6 million euro in 9M10.

Entry into new markets (e.g. Brazil), seasonal fluctuations in India, and the recovery in wind farm development in the US raised the division's working capital/sales ratio to 33%; however, it should decline in 4Q11 in line with 2011 guidance (15%-20%).

As part of its Business Plan 2011-2013, Gamesa continued to invest in international expansion, launching new products and developing the wind farm portfolio; as a result, consolidated net financial debt was 810 million euro (2.3 times EBITDA), i.e. slightly above the 2011 guidance ceiling (2x), but it is also expected to revert in the fourth quarter.

At 30 September 2011, Gamesa had a workforce of 8,267 employees (41% outside Spain) and noted a substantial improvement in its accident frequency and severity indicators, which declined by 11% and 30%, respectively. The wind turbine capacity installed by Gamesa avoids the emission of close to 35 million tonnes of CO2 each year.

5 main markets each accounting for over 10% of total sales:
In the first nine months of 2011, almost all (94%) of the MW sold were outside Spain, with notable growth in India and Latin America/Southern Cone (Brazil and Mexico), as well as Eastern Europe. China and the US continue to be strategic markets, accounting for 21% and 14%, respectively, of total sales.

Gamesa strengthens its geographic diversification: 5 of its principal markets each account for more than 10% of total sales:
- Sales in India increased 2.8-fold to 389 MW, i.e. 20% of the total. After just two years in this market, Gamesa has attained a market share of 10% (according to the Indian Wind Turbine Manufacturers Association- IWTMA), placing it among the top three wind energy companies in the country.

- Sales in Latin America/Southern Cone increased 5-fold to 318 MW, notably increasing the region's contribution to total sales (16%). Of special note are sales in Mexico and Honduras, as well as Brazil, where Gamesa began manufacturing just three months ago;

- China and the US maintain their relative weight, accounting for 21% and 14%, respectively, of MW sold in the first nine months of 2011. Gamesa signed contracts for 200 MW with Chinese utility Huadian in the period;

- Europe (Spain not included) accounts for 22% of sales, of which Eastern Europe (Poland and Romania, in particular) accounts for 13%. Spain accounts for 6% of sales and the rest of the world 2%.

Pursuing its internationalisation strategy, Gamesa opened up three new markets and added 21 new customers in 2011.

Gamesa continued to invest in the principal wind energy markets and in innovation, with capital expenditure totalling 146 million euro, for: the construction of a new plant in India, the global launch of the G97-2.0 MW platform, the manufacture of the G10X-4.5 MW platform, and new capacity in Brazil (nacelle assembly plant).

Gamesa's future growth is sustained in part by a large, optimised product portfolio:
- G97-2.0 MW: simultaneous launch in four markets and the installation of three prototypes in Alaiz (Navarra, Spain), Colorado (US) and Baitugang (China). Gamesa has received orders for 125 MW in Europe, the US and China with framework agreement totalling 1,300 MW signed in India;

- G128-4.5 MW: received the Type Certificate from GL Renewables Certification, which independently guarantees the technology used in the most powerful onshore wind turbine in the market. This wind turbine is very light for its size, competitive in terms of Cost of Energy (CoE), and easy to transport and assemble, due to its segmented blade (the first of its kind) and a nacelle-mounted crane which facilitates assembly and operation (Flexifit);

- G11X-5.0 MW: the offshore plan is moving ahead on schedule to have the first prototype installed in 2012. Installation of an offshore technology centre in Glasgow (Scotland).

- 15,000 MW under O&M provides recurring revenues of 250 million euro

The operation and maintenance (O&M) services area is key for Gamesa's profitable growth, contributing to recurring revenues and improving margins. After expanding its portfolio by 1,400 MW during the year, Gamesa has 15,000 MW under O&M, which provides recurring revenues in 250 million euro.

In 2011, Gamesa obtained its first O&M contract for non-Gamesa turbines (covering 100 MW for five years), and is in the process of negotiating other contracts.

The company advanced in the sale of wind farm productivity enhancement packages, which combine maintenance programmes and installation of new algorithms, and the sale of GPA 99, a programme which raises plant availability to up to 99%. Gamesa has installed GPA 99 on 192 MW in France and Spain and is negotiating installation on 650 wind turbines more.

Development and sale of wind farms, a key area: resumed capital expenditure and value realisation, with sales agreements totalling 286 MW.

In 9M11, Gamesa resumed capital expenditure in the development and sale of wind farms and continued to focus on monetisation, with sales agreements for 286 MW with leading utilities in Poland, Mexico, Greece, Spain and Germany. At 30 September 2011, it had delivered 75 MW (66 MW in the third quarter).

Gamesa had 628 MW in the final phases of construction and commissioning at 30 September 2011, and expects a significant increase in activity in the fourth quarter, in terms of sales agreements and completion of wind farm sales in Europe and the US.

The division ended the first nine months of 2011 with EBIT of 9 million euro (vs. -6 million euro in the same period last year), due to recognising work in progress in the wind farms covered by agreements for sale and delivery in the fourth quarter of 2011 and early months of 2012.

Wind Farms is a vital division for Gamesa, as it provides the company with competitive advantages and complements its wind turbine manufacturing activity: it is currently developing high performance wind farms in the US (35-45% load factor) whose sale is under negotiation; it continues to develop strategic agreements for joint development in China; and the division has been vital for the company to achieve its current position in India, with a portfolio of 2,175 MW under development in seven states.

At 30 September 2011, the company had a pipeline of 24,527 MW of capacity worldwide.
2012 outlook: growth in sales (3,000 - 3,500 MW)

Gamesa expects growth in MW sales in 2012, to 3,000-3,500 MW. In November, the company already had orders for 1,000 MW for 2012, i.e. more than the comparable figure twelve months earlier for delivery in 2011.

Despite the macroeconomic situation and the short-term impact on demand of regulatory uncertainty in some wind markets, Gamesa attributes the positive sales (MW) performance to several factors:

Its diversified sales and industrial operations in emerging markets (LatAm, India, other Asian countries, Australasia, Africa), which will be the main source of growth in the near future;

Cost optimisation and presence throughout the value chain (Gamesa model: development, wind turbines and O&M services), competitive advantages;

Versatile, optimised product portfolio: G9X-2.0 MW;

Despite volatility in the markets in the short term, wind power's long-term growth fundamentals remain solid.