Zamudio, 26 July 2012 January-June 2012 Results DEBT REDUCTION BEGINS ON THE BACK OF CLOSE TO 100 MILLION IN FREE CASH FLOW GENERATION IN Q2 12, AND A DEBT WITH RECOURSE RATIO 1 OF 2.5 TIMES EBITDA In a complex global economic environment and a difficult market, Gamesa Corporación Tecnológica 2 ended the first half of 2012 with recurring EBIT of 12 million 3, having absorbed the losses in the first quarter. The group's net financial debt totals 938 million, i.e. nearly 100 million less than at the end of March 2012, and net financial debt amounted with recourse to 729 million 1, practically stable with respect to December 2011 and amounting to 2.5 times EBITDA. Main consolidated figures for 1H 2012: o Sales: 1,649 million (+27% y/y) o Recurring EBIT: 12 million 3 (-80% y/y) o EBIT: 3 million 4 (-95% y/y) o Recurring Net Income: -24 million 3 o Net Income: -33 million 4 o Net financial debt with recourse: 729 million (2.5x EBITDA) o Net Financial Debt: 938 million (3.2x EBITDA) Wind Turbine Division 5 - Main figures 1H 2012: o MWe sold: 1,140 (-12% y/y) o Recurring EBIT margin: 0.2% 3 Group sales amounted to 1,649 million, 27% higher than in the first half of 2011, due to strong growth in construction and sales in the Wind Farm division 6, which offset the lower level of business in the Wind Turbine division. During the first half of the year, Gamesa Energía 6 signed sales agreements totalling 554 MW, volume almost three times that of the first half of 2011. Wind Turbine division had sold 1,140 MWe at the end of June 2012, i.e. 12% less than in 1H11. The deceleration by the Wind Turbine division is attributable to the progressive alignment of manufacturing to deliveries (assembly and commissioning), in a context of slowing demand, especially in China and India. Weakening demand in Asia is also reflected in Wind Turbine order intake in the second quarter, which registered a 70% decline in orders from that region (China and India). This decline is attributable to the slowdown in project approval in China, due to problems with grid connections, and to project delays in India, due to the impact of recent regulatory changes and higher funding costs. However, despite the sharp decline in demand in one of the company's key areas for growth in 2012-1 Excluding 209 million associated with the wind farm construction business, which is without recourse to Gamesa Corporación Tecnológica. 2 Gamesa Corporación Tecnológica engages in wind turbine manufacture (referred to in this document as Wind Turbines) and the development, construction and sale of wind farms (referred to in this document as Wind Farms or Gamesa Energía). 3 Excluding 9 million in restructuring costs. 4 Including 9 million in restructuring costs. 5 Wind Generators and Holding Company includes the wind turbine manufacturing business. 6 Gamesa Energía (the Wind Farm division) develops, builds and sells wind farms. 1
2013, Gamesa ended the second quarter of 2012 with 548 MW 7 in new orders, i.e. just 3% less than in the second quarter of 2011 (565 MW), due to its successful sales diversification strategy. Gamesa ended the first half of the year with new order intake totalling 1,235 MW,7, an improvement of 44% year-on-year. Total orders in Q2 2011-12 (MW) (1) 565-3% 548 343-70% 102 2Q 11 2Q 12 (1) Firm orders and confirmation of framework agreements for delivery in 2012 and later Firm orders and confirmation of framework agreements for 2012 and later, from Asia The Wind Farm division maintains the pipeline monetisation strategy, having signed sales agreements amounting to 554 MW for delivery in 2012-2013, of which 154 MW were signed in the second quarter of 2012. The company delivered 164 MW in the second quarter of 2012, included 51% (26 MW) of the Sandy Ridge Wind Power Facility under the agreement signed with Algonquin 8 in the first quarter of 2012. Those deliveries, together with advances received under new sales agreements signed in the quarter, amounted to 205 million, which largely offset construction capex to meet delivery commitments in the second half of 2012. Accordingly, Gamesa Energía's net financial debt increased just slightly in the quarter, to 619 million, of which 209 million is related to the construction of new farms with delivery and payment scheduled in the second half of 2012 and is without recourse to the company. The slowdown in Wind Turbine activity and the consequent lower absorption of fixed costs, the reduction in prices, and the costs associated with launching and industrialising new products continued to impact the profitability of the division, which ended 1H12 with a recurring EBIT margin of 0.2%, excluding 9 million in restructuring costs, i.e. absorbing the losses reported in the first quarter of 2012. The Wind Farm division ended 1H12 with EBIT of -1 million, which reflects the impact of regulatory changes and uncertainty on the profitability of the sale agreements, and which will most likely continue to affect the division in the second half of the year. As a result of the quarter-onquarter improvement in Wind Turbine margins, due to greater activity and a more favourable sales mix, Gamesa Corporación Tecnológica ended the first half of 2012 with recurring EBIT of 12 million (excluding 9 million in restructuring costs), providing an EBIT margin of 0.8%, thereby offsetting the losses incurred in the first quarter. As part of the efforts to strengthen the balance sheet and generate free cash flow, a priority for the company in 2012, Gamesa Energía's net financial debt at rose only slightly in the second quarter of 2012 and Wind Turbine net financial debt declined, from 389 million in 1H11 to 319 million in 1H12 ( 495 million in 1Q12). That reduction is equivalent to producing 176 million in free cash flow 7 Firm orders and confirmation of framework agreements for delivery in 2012-2013. 8 Agreement to sell 480 MW to Algonquin Power & Utilities Corp., for delivery in 2012. 2
in the second quarter, and was attained through containment of working capital (which accounted for 18% of sales at June 2012) and of capex, which totalled 97 million in the first semester, in line with the investment performed in H1 11. The reduction in Wind Turbine working capital over sales (25% in 2Q11 and by 28% in 1Q12) was achieved through a reduction in inventory, improved management of payments and collection, application of tax credits, payments by public administrations, and the implementation of "just-in-time" manufacturing processes. As a result, Gamesa Corporación Tecnológica ended the first half of 2012 with 729 million in net financial debt with recourse (in line with the figure at 2011 year-end and equivalent to 2.5 times group EBITDA) and with 938 million in total NFD, i.e. almost 100 million less than in March 2012, having deleveraged by more than expected in the second quarter of the year. Reduction in WTG working capital to 18% of sales Containment of investment in fixed assets Construction for delivery in 2012 partially offset by Q2 deliveries and advances under firm orders EUR1,035 M EUR47 M -EUR253 M EUR47 M EUR62 M EUR938 M EUR729 M Debt with recourse >50% of NFD linked to wind farms for delivery in 2012: EUR209 M is non-recourse NFD with recourse/sales is 2.5x Group NFD Q1 2012 Gross Operating Cash Flow, Group Var. WTG Division WC Capex Var. WF Division WC Group NFD Q2 2012 Net financial debt linked to wind farms sold with delivery already committed in H2 2012 Non-recourse financial debt (EUR209 M) linked to wind farms sold and under construction with delivery committed in H2 2012 In a context of a slowdown in the economic recovery, and in a highly competitive and volatile market, Gamesa ended the first six months with earnings in line with expectations, offsetting first quarter losses at Wind Turbine and group level, and also ahead of schedule with deleveraging, one of its priorities in 2012. 3
2012 OUTLOOK Despite ending the first half of 2012 with financial results in line with guidance, i.e. positive recurring EBIT and lower debt, the outlook for future demand and the accelerated decline in orders from China and India (trends we expect to continue in the third quarter) required an adjustment in 2012 Wind Turbine targets, to 2,000 MWe. That adjustment, which will impact profitability in the year, is part of a strategy to prioritise free cash flow and strengthen the balance sheet, which requires not only alignment of manufacturing with deliveries (assembly and commissioning) but also a reduction in working capital. The impact of lower activity on profitability projections in the year will be partly offset by cost optimisation measures that are already under way and are expected to enable the Wind Turbine division to attain break-even in underlying EBIT terms 9. The adjustment to Wind Turbine activity and the resulting impact on division and group profitability do not impact the commitment to generating free cash flow and reducing leverage to attain a NFD/EBITDA ratio of 2.5x at group level. Group NFD/EBITDA c.2.5x Group free cash flow > 0 million WTG MWe sold c. 2,000 MW WTG Recurring EBIT 9 >0 Under its new executive team, Gamesa is currently undertaking a review of its business plans in the short and medium term with a focus on reducing the company's operating leverage and indebtedness. These lines of action, which will form part of the Business Plan 2013-2015, are focused on enabling Gamesa to operate profitably in a situation of moderate demand while retaining the necessary flexibility to respond to rising demand when it appears. The new business plan will be unveiled in October 2012. Despite the uncertainties in the industry at present, and the uncertainty created by the weak macroeconomic situation worldwide, Gamesa is fully confident of wind energy's long-term potential. This potential however demands from the company a reduction of the cost of energy for wind to comparable cost levels of more efficient conventional energy sources, and is supported by the need to attain a balanced energy supply as a fundamental component of sustainable economic development in both emerging and developed countries. 9 WTG EBIT margin, excluding restructuring costs and including intra-group consolidation adjustments linked to WTG profitability. 4
Wind Turbines Key factors Gamesa's results in the first half of 2012 reflect the complex environment in the world economy in general and the wind industry in particular. Accordingly, the wind industry is being affected by slowing energy demand, government budget restrictions leading to adjustments in the regulatory framework of support for wind power, and greater difficulties and higher costs of funding projects. In this market context, dominated by external factors such as surplus capacity and the resulting price pressure and grid restrictions (mainly in China), Gamesa is focused on managing the sustainability of its business by controlling its balance sheet, and tailoring production to the payment, assembly and commissioning milestones of the projects. Gamesa's Wind Turbine Unit ended 1H 2012 with: 1,140 MWe of wind turbines sold, down -12% with respect to 1H 2011, attributable to less activity in China and India recurring EBIT amounting to +3 million, as profitability recovered in the second quarter, but still less than in the first half of 2011 ( 66 million) as a result of lower activity, pressure on prices, higher general expenses due to rapid internationalisation, and the costs of tooling for the new platforms. Including restructuring costs, EBIT amounted to - 6 million. and working capital amounting to 18% of sales, i.e. below the level reported at 2011 year-end (24%) and 12 months ago (25%), as a result of the reduction in stocks and of cash management. The Wind Turbine division's activity during the first half of 2012 can be broken down as follows: (MW) 1H 2011 1H 2012 % chg. Status MW delivered to customers + Variation in MWe available Ex Works + Variation in MWe Work in Progress 1,106 929-16% -172-14 N.A. 358 224 N.A. Handover of ownership to customer, in wind farm, or factory; Invoiced. Variation in stock of WTG available for delivery to customer; Invoiced Ex Works. Variation in the stock of WTG not available for delivery to customer; Not invoiced. MWe sold 1,292 1,140-12% At the end of the first half of 2012, MWe sold totalled 1,140 MW, i.e. 12% less than in 1H 2011, as a result of the decline in activity in China and India. The variation in MW WIP declined by 55% with respect to 2011 year-end and 37% year-on-year as a result of the reduction of stocks due to aligning production to deliveries and to assembly and commissioning milestones. 5
In accordance with the market diversification strategy under the Business Plan 2011-2013, Gamesa continues to enter new markets (it signed orders in six new markets in 2012) and new customers (orders were signed with 20 new customers in 2012). Latin America and the Southern Cone made a significant contribution, together accounting for 40% of sales in the first half, due to the contribution by Brazil, Mexico, the Dominican Republic and Nicaragua. The US accounted for 25% of total sales in the period, mainly as a result of the agreement signed by Gamesa Energía and Algonquin Power & Utilities Corp. for 480 MW. The contribution by China and India to sales in the first half was impacted by delays in project approvals in China due to grid off-take difficulties and to uncertainties in India caused by changes in the incentives for wind power and, in particular, the accelerated depreciation method (traditional market). As a result, China accounted for just 5% of sales, and India for 14%. As Gamesa had expected, the sales contribution by Europe and the Rest of the World fell to 17% of the total in 2012. Geographical breakdown of wind turbine sales (MWe) (%) 1H 2011 1H 2012 USA 15% 25% China 20% 5% India 17% 14% Latin America+Southern Cone 19% 40% Europe and RoW 30% 17% TOTAL 100% 100% Gamesa is also working to expand its product portfolio, with: o o Turbines with larger rotors for every class of wind (IEC I, II and III) within the new G9X-2.0 MW product platform, such as G97-2.0 MW Class S and G114-2.0 MW Class III. Turbines with greater capacity (G10X-4.5 MW). Accordingly, the G97-2.0 MW Class III turbine made a significant contribution to sales in the first half, accounting for over 25% of MWe sold. Additionally, the G9X-2.0 MW segment accounted for 89% of MWe sold in 1H 2012, compared with 81% in 1H 2011. The G5X 850 kw platform accounted for 11% of MWe sold. 6
Wind Turbine Division Results 1H 2012 Gamesa's Wind Turbine division ended the first half of 2012 with the following results: (million euro) 1H 2011 1H 2012 % Chg. 2Q 2012 Sales 1,261 1,345 +7% 826 Recurring EBITDA Recurring EBITDA/Sales (%) 158 12.5% 75 (10) 5.5% -53% 51 (11) 6.2% EBITDA 158 67-58% 45 EBITDA/Sales (%) 12.5% 4.9% 5.4% Recurring EBIT Recurring EBIT/Sales (%) 66 5.2% 3 (1) 0.2% -95% 17 (2) 2.0% EBIT 66-6 NA 10 EBIT/Sales (%) 5.2% -0.4% 1.2% Net Income 37-37 NA -9 Net income/sales (%) 3.0% -2.8% -1.1% Working capital 737 537 537 % Sales 25% 18% -7pp 18% NFD 389 319 319 NFD/EBITDA 1.1x 1.3x +0.2x 1.3x Limited review by external auditor Sales in the first half increased by 7% year-on-year, with an increase in the average price per MW as a result of the geographic mix, the growing importance of the G9x-2MW turbine, the launch of the G97 turbine, and the greater proportion of projects with a strong civil engineering component. The Services unit provided 152 million in revenues, similar to the first half of 2011 ( 150 million). Gamesa regained operating profitability in the second quarter, to end the first half with 3 million in recurring EBIT. EBIT was lower than in the first half of 2011 due to the lower level of activity (less absorption of fixed costs), price pressure, the cost of tooling up for new 10 Excluding 9 million in restructuring costs in 1H 2012. 11 Excluding 7 million in restructuring costs in 2Q 2012. 7
products, and higher general expenses. Including the restructuring costs incurred in the first half, EBIT was -6 million. Warranty provisions were below 3.5% of Wind Turbine sales despite internationalisation of the manufacturing platform and sales and the expansion of the product offer, revealing the steady improvement in processes, the strength of Gamesa's product platform and the emphasis placed on operational excellence. Gamesa ended the first half of 2012 with a working capital/sales ratio of 18%, i.e. lower than at 2011 year-end (24%) and than at 30 June 2011 (25%). In the second quarter, Gamesa reduced working capital by over 250 million by cutting stocks (finished products, raw materials and services), managing cash flow, and collecting tax credits. Gamesa also maintained strict control over capex to ensure an appropriate return and safeguard the balance sheet. As a result, investments totalled 97 million, stable year-on-year. Capex in the first half was focused on: o o o R&D for new platforms (G97-2.0 MW, G114-2.0 MW, G10X-4.5 MW and offshore). A blade plant in India for the G5X-850 kw and G9x-2MW models Adaptation of G97-2.0 MW production capacity o Capex related to manufacturing the new G10X-4.5 MW wind turbine. As a result, Gamesa's Wind Turbine division ended the first half of 2012 with net financial debt of 319 million, due to containing working capital and capex in the period. Consequently, net financial debt was reduced by over 170 million in the second quarter. 8
Wind Farms Key factors In the first half of 2012, Gamesa sold 164 MW in German, France, Poland, the US and Mexico (in the second quarter). The Wind Farm Development and Sales division signed new sale agreements totalling 554 MW in 1H 2012 in the US, Mexico, France, Spain and Germany (154 MW signed in 2Q). The unit ended the first half of 2012 with sales of 641 million and EBIT of -1 million. Gamesa's global wind farm pipeline amounted to 23,807 MW at 30 June 2012. Wind Farm Development Stages (MW) 1H 2011 1H 2012 % Growth Highly Confident 3,592 3,947 +10% Total pipeline 24,501 23,807-3% The company has 868 MW in the final stages of construction and commissioning, 656 MW of which are covered by sale agreements signed with third parties. Gamesa continues to develop its pipeline of wind farms for delivery in the coming months. Accordingly, 422 million of the working capital at the Wind Farm Development and Sale unit ( 834 million in total) is linked to farms with sale agreements that will be monetised, mainly in the second half of 2012. Evolution of the Activity Profile (MW) 1H 2011 1H 2012 % Growth MW under Construction 279 503 1.8x MW Commissioned 200 365 1.8x Total 479 868 1.8x Note: does not include MW in joint development agreements in China (in which Gamesa holds a minority stake), or India. Wind Farm division results for 1H 2012 The Wind Farm division's results for the first six months of the year reflect intense capital expenditure on the construction of new farms to fulfil sales commitments signed in recent months in Europe and North America. The Wind Farm Development and Sale division obtained 641 million in revenues and -1 million in EBIT in 1H 2012. 9
This division ended the period with financial debt of 619 million, i.e. exceeding the year-end guidance ( 250 million), due to the large proportion of MW in the final phases of construction (868 MW), which will be sold in the coming months. (million euro) 1H 2011 1H 2012 % Chg. 2Q 2012 Sales 182 641 3.5x 247 EBIT 3-1 N.A. -4 Net Income -1-6 N.A. -6 NFD 218 619 2.8x 619 Limited review by external auditor 10
Gamesa Corporación Tecnológica Results 1H 2012 Then as a result of the contribution of the different business units, are the main financial figures for the Consolidated Group. (million euro) 1H 2011 (1) 1H 2012 (1) % Chg. 2Q 2012 Sales 1,297 1,649 +27% 871 Recurring EBITDA 153 85 (2) -44% 51 (2) Recurring EBITDA/Sales (%) 11.8% 5.2% -6.6pp 5.9% EBITDA 153 77-50% 45 EBITDA/Sales (%) 11.8% 4.7% -7.1pp 5.2% Recurring EBIT 62 12 (2) -80% 15 (2) Recurring EBIT/Sales (%) 4.8% 0.8% -4.0pp 2.0% EBIT 62 3-94% 8 EBIT/Sales (%) 4.8% 0.2% -4.6pp 1.0% Recurring Net Income 29-24 (2) N.A -5 (2) Profit 29-33 N.A. -12 NFD with recourse 607 729 729 NFD/EBITDA 1.7x 2.5x 0.8x 2.5x NFD 607 938 938 NFD/EBITDA 1.7x 3.2x +1.5x 3.2x Limited review by external auditor (1) The results of Gamesa Corporación Tecnológica reflect the impact of the consolidation adjustment from eliminating sales (and the corresponding margins) by the Wind Turbine division to the Wind Farm division for which sale agreements were in the final phases of negotiation at the end of the period. (2) Excluding 9 million in restructuring costs spread over 1Q 2012 ( 2 million) and 2Q ( 7 million) 11
Outlook and risks The second quarter of 2012 brought a reduction in the short- and medium-term prospects for growth in new wind facilities. This was mainly due to the weak situation in China and southern Europe, and reflects the impact of three main factors on demand: o o o Electricity grid restrictions, which require significant capex to resolve and which limit growth in onshore wind farms in emerging markets and offshore farms in developed ones. Those restrictions are especially notable in China, but they also affect other key markets for wind farm growth in the coming years, such as India and Brazil. Economic and financial weakness of developed economies, especially in southern Europe. As a result, energy demand and prices are falling, economic support for renewable energies (including wind) is being reduced and even eliminated in some countries, such as Spain and access to funding is proving to be difficult and more expensive. All of these factors play a significant role in reducing the profitability of wind farms and are forcing integrated utilities and independent power producers (IPPs) to reconsider their renewable energy capex programmes. Regulatory uncertainty, which increases demand volatility in markets such as the US and India. In the US, the expiration of Production Tax Credits (PTC) in December 2012 has led to projects being fast-tracked with a view to commissioning before year-end; as a result, demand for WTG increased notably in the first half of 2012. However, the lack of visibility about an extension of the PTC, together with low gas prices in the US, making it difficult to sign profitable PPAs 12, has practically paralysed demand for WTG as from the second quarter of 2012. The recent regulatory change in India 13 with regard to tax incentives (accelerated depreciation) and production incentives (GBIs) to shift to a subsidised price or, alternatively, a market price plus an supplement or a tradeable green certificate, coupled with more expensive funding, is also slowing the pace of project commissioning. As a result, several independent wind consulting companies 14 are downgrading their growth expectations for 2012-2014 by 8,000 MW worldwide except for the US, for which they raised their estimates by 3,500 MW. As a result, the 2011-2016 annual growth rate for new wind farms is 7%, compared with 8.5% at the beginning of 2012. In this scenario of weakening demand, Gamesa has two objectives for the second half of 2012. First, it maintains its priority of strengthening the balance sheet and generating cash flow, which it had announced during the publication of 1Q earnings. Second, it is committed to defining and implementing a business plan which enables it to operate profitably in a scenario of less demand than initially expected, while also maintaining the necessary flexibility to seize growth opportunities once they return. Gamesa will reinforce the balance sheet during the second half of 2012 through: o o Delivery and collection of payment for wind farms committed in the second half of the year by Gamesa Energía, which will reduce the division's debt by 60% with respect to the end of June, to attain the 250 million target by December 2012. Reduction of WTG working capital and alignment of manufacturing with delivery and payments, which already commenced in the second quarter of the year. 12 PPA (Power Purchase Agreement): an agreement to purchase electricity at a specific price for a period that normally ranges from 10 to 20 years 13 Until the end of the fiscal year in March in 2012, the owners of renewable energy projects were able to deduct 80% of the investment during the first year in operation, or opt for a generation based incentive. As from April 2012, the incentive system changed to a subsidised prices (market prices + subsidy established by each State) or the market price + a green certificate, which can be traded on a national certificates market with minimum and maximum prices 14 Data from MAKE 12
o Containment of capex in fixed assets to less than the 229 million spent in 2011 through a capex optimisation programme implemented in the second quarter. Alignment of manufacturing with delivery in a situation of weakening demand, the need to reduce WTG working capital to reinforce the balance sheet, and the decline in orders from Asia in 2Q (which we don't expect to recover in 3Q), require an adjustment to the volume of business originally projected for the WTG division for 2012, to a new target of 2,000 MWe. This reduction in manufacturing activity will impact the division's operating profit due to the lower absorption of fixed costs. The implementation of actions to contain costs and temporary capacity adjustments will offset part of the impact to the point that the division should break even in recurring EBIT terms 15. Order intake 1 from Asia (MW) 343-70% 125 93 102-26% Q1 11 Q1 12 Q2 11 Q2 12 (1) Firm orders and confirmation of framework agreements for delivery in 2012 and later 15 WTG EBIT, excluding restructuring costs and including consolidation adjustments relating to WTG profitability. 13
The table below summarises the financial results for the first half of the year and objectives for 2012. Wind Turbines Guidance 2012 1H 12 Factors leading to change in 2012 guidance WTG Manufacturing MWe sold 2.000 1,140 Lower demand and delays in orders in Asia, with a strategy of aligning activity with deliveries and payments Recurring EBIT margin >0% (1) (2) Impact of the decline in activity partially offset by 0.2% cost-containment measures Working capital as % of sales 20%-25% 18% Capex <200 (3) 97 Optimisation of 2012 capex plan Wind Farms Wind Farm Development & Sales MW delivered (3) c. 720 164 EBIT ( million) < 0-1 Impact on project IRR/return on sale agreements due to regulatory changes and uncertainty Net debt ( million) c. 250 619 Group Recourse NFD/EBITDA c.2.5 < 2.5x NFD/EBITDA c.2.5x 3.2x 209 million in debt, without recourse to Gamesa, related to deliveries of wind farm committed for 2H 2012 Temporary increase due to seasonal fluctuation in WTG working capital and strong activity in wind farm construction FCF Break even (1) Excluding restructuring costs and including consolidation adjustments related to WTG profitability (2) Excluding restructuring costs of 9 MM in H1 2012 (3) Excluding joint development agreements in China Beyond 2012, it is necessary to implement the measures needed to adapt to a situation of weakening demand, without sacrificing the flexibility needed to take advantage of profitable growth opportunities when and where they arise. During Gamesa's boom years (2005-2008), it commenced internationalisation of its operations, expanding into the US and China using a combination of internal and external resources while maintaining an optimal ratio of capex per MW of installed capacity. Following the financial crisis in 2008, Gamesa implemented a sales diversification strategy, in terms of both geographies and customers, moving into more than 11 countries and establishing commercial relations with more than 40 new customers, which partially offset the impact of the financial crisis on demand. Gamesa is also focusing its resources on optimising the product portfolio, with a clear focus on reducing the Cost of Energy (CoE). As a result, the products under the new G9X-2 MW platform have achieved double-digit growth in energy output in sites with low wind, where the bulk of demand is today (G97-2 MW and G114-2 MW, currently in the commercialisation phase). The improvement in the product portfolio and new O&M services have increased the availability of the Gamesa fleet to more than 98% in all geographies and platforms. However, sales diversification and optimisation of the product platform have required an increase in the organisation structure and debt, which must be trimmed in line with the new market situation. Now Gamesa must undertake a process to rationalise and optimise its resources, in terms of both the balance sheet and the corporate structure, to enable it to operate profitably again in a situation of lower volume. Optimisation, which should preserve the flexibility necessary to return to growth, should 14
have a direct impact on the gradual improvement in the ROCE, which is key for creating value for Gamesa shareholders. 2005-2008 2009-2011 2012-2013 GROWTH PHASE Growth Internationalize of sales and manufacturing DIVERSIFICATION PHASE Commercial diversification: new customers/markets Technological advance and optimization of product portfolio: Focus on CoE Sizeable increase in structure and debt RATIONALISATION PHASE Optimize resource use: Balance sheet and structure According to expected volumes Prioritizing investments with quick return Direct impact on ROCE Flexibility Opportunities for future growth Presentation of the 2013-2015 business plan: October 2012 The demand situation in the near future should be interpreted as merely a structural characteristic of the wind energy sector. The factors currently restricting demand are temporary. Governments in emerging markets have defined and implemented ambitious grid infrastructure capex programmes, which are necessary not only for the development of renewable energies, but also for those countries' own economic development. Weak demand in the south of Europe is clearly linked to the difficult economic situation; however, the European Union as a whole and its Member States maintain their long-term commitment to renewables. Regulatory uncertainty will be resolved in the second half of the year, with results that are more or less positive but which undoubtedly contribute to reducing demand volatility, improving planning capacity and, therefore, manufacturers' profitability. But more important than the temporary nature of the factors that are restricting demand today is the need to design and implement a sustainable global energy system. Such a system requires a balanced combination of supply sources, in which wind energy plays an important role due to its maturity and efficiency. As things stand, wind energy is the most efficient renewable energy (excluding hydroelectric), and independent sources 16 estimate that it will be competitive with gas in terms of average load factors by 2016. Consequently, Gamesa is committed to reducing the Cost of Energy by 30% by 2015. Most independent consultants expect 8% annual growth in wind farms in the long term (2015-2018), within energy scenarios that predict growth in the contribution of renewables to the primary energy mix of close to 27% by 2050. 16 Bloomberg Energy Finance 15
Conclusions Gamesa ended the first six months of the year with financial results in line with its guidance, with a recurring EBIT margin 17 of 0.8% in the group and of 0.2% 17 in the WTG division, offsetting losses from the first quarter of 2012. Financial de-leveraging, initially envisaged for the second half of 2012, was also brought forward having reduced group net financial debt by c. 100 million in the second quarter, to 938 million, at 30 June 2012, and with NFD with recourse 1 amounting to 2.5 times EBITDA. WTG order intake ended the period below expectations as a result of the accelerated decline in orders from Asia, which were 58% lower year-on-year in 1H12 and 70% lower year-on-year in 2Q12. As a result, WTG order intake in the second quarter amounted to 548 MW, i.e. slightly lower than in the second quarter of 2011. This decline in orders from Asia, a key area for attaining the growth targets set for 2012, together with the downgrade in short- and medium-term growth projections, obliged the company to adjust WTG objectives for 2012, to 2,000 MWe sold. Despite the impact that the reduction in activity will have on the division's and the group's profitability, WTG is expected to break even in recurring EBIT terms 18 due to the cost optimisation measures that are already in place. Adjustments to the volume and profitability objectives for the WTG division have not affected Gamesa's priority objective: generating free cash flow and reinforcing the balance sheet, to achieve a NFD/EBITDA ratio of 2.5x. Beyond 2012, Gamesa must implement actions that enable it to operate profitably with less volume but without sacrificing the flexibility it needs to maximise growth when opportunities arise. Those actions require optimisation of resource use, in terms of both the balance sheet and the corporate structure, which should have a gradual positive impact on the return on capital employed (ROCE), an essential factor for shareholder value. It's important to note that the downgrade of growth expectations for wind farm installations in the short and medium term does not call into question the industry's long-term potential. That potential hinges on the implementation of a sustainable energy model in which wind energy due to its greater maturity and efficiency will play a leading role. 17 Excluding restructuring costs amounting to 9 MM 18 Excluding restructuring cost and including consolidation adjustments collect intra-group profitability of wind turbines 16
Annex Financial Statements January-June 2012 19 Gamesa Corporación Tecnológica - Consolidated Profit and Loss Account - Million Euro 1H 2011 1H 2012 Turnover 1,297 1,649 Own work capitalised 42 51 Consumption -857-1.260 Personnel expenses -173-188 Other expenses -156-174 EBITDA 153 77 Depreciation -46-49 Provisions -46-24 Assets impairment 0 EBIT 62 3 Financial result -30-37 Gains (losses) on disposal of non-current assets - - Net asset impairment losses - - Equity method gains (losses) - 0 Profit before tax 32-34 Taxes -2 2 Net Profit 29-32 Net income attributable to the parent company 29-33 19 The financial statements in the annex have not been audited but have been subject to limited review by our external auditors in accordance with International Standard on Review Engagements 2410. Subtotals and totals are rounded to the nearest whole number. 17
Balance Sheet - Million Euro 1H 2011 1H 2012 Goodwill 387 387 Other intangible assets 195 263 Property, plant and equipment 443 533 Shareholdings in associated companies 45 96 Deferred taxes, net 168 188 Working capital 1,219 1,338 Total 2,457 2,805 Shareholders' Equity 1,659 1,646 Provisions for contingencies and expenses 221 230 Net financial debt 607 938 Derivative financial instruments and others -30-9 Total 2,457 2,805 18
Cash Flow Million Euro 1H 2012 Profit -33 + Depreciation +49 + Provisions +24 + Assets impairment 0 +/- Variation in provisions -44 +/- Variation in long-term taxes, net -17 +/- Variation in working capital -7 +/- Others -87 Operating cash flow -114 +/- Investments -111 +/- Others - Cash flow for the period -225 +/- Dividends and other -2 Cash flow for the period -227 Variation in net financial debt 227 Initial net financial debt 710 Final net financial debt 938 19
Financial Statements January-June 2012 20 Wind Turbine Division + Holding company Profit and Loss Account - Million Euro 1H 2011 1H 2012 Turnover 1,261 1,345 Own work capitalised 42 50 Consumption -833-967 Personnel expenses -163-178 Other expenses -149-183 EBITDA 158 67 Depreciation -45-48 Provisions -46-24 Assets impairment 0 EBIT 66-6 Financial result -21-31 Gains (losses) on disposal of non-current assets - - Net asset impairment losses - - Equity method gains (losses) - 0 Profit before tax 45-37 Taxes -7 0 Attributable net profit 37-37 Net income attributable to the parent company 37-37 20 The financial statements in the annex have not been audited but have been subject to limited review by our external auditors in accordance with International Standard on Review Engagements 2410. Subtotals and totals are rounded to the nearest whole number. 20
Balance Sheet - Million Euro 1H 2011 1H 2012 Goodwill 311 311 Other intangible assets 194 262 Property, plant and equipment 431 506 Shareholdings in associated companies 45 95 Deferred taxes, net 165 190 Working capital 737 538 Total 1,884 1,903 Shareholders' Equity 1,275 1,334 Provisions for contingencies and expenses 219 229 Net financial debt 389 319 Derivative financial instruments and others 1 21 Total 1,884 1,903 21
Cash Flow Million Euro 1H 2012 Profit -37 + Depreciation 48 + Provisions 24 + Impairment 0 +/- Variation in provisions -44 +/- Variation in long-term taxes, net -13 +/- Variation in working capital 163 +/- Others -89 Operating cash flow 53 +/- Investments -97 +/- Others - Cash flow for the period -44 +/- Dividends and other -1 Cash flow for the period -46 Variation in net financial debt 46 Initial net financial debt 273 Final net financial debt 319 22
Financial Statements January-June 2012 21 Wind Farm Unit Profit and Loss Account - Million Euro 1H 2011 1H 2012 Turnover 182 641 Own work capitalised 1 1 Consumption -160-602 Personnel expenses -11-10 Other expenses -9-16 EBITDA 3 15 Depreciation -1-1 Provisions 1-15 Assets impairment 0 EBIT 3-1 Financial result -9-6 Gains (losses) on disposal of non-current assets - - Net asset impairment losses - - Equity method gains (losses) - 0 Profit before tax -6-8 Taxes 5 2 Net Profit -1-5 Net income attributable to the parent company -1-6 21 The financial statements in the annex have not been audited but have been subject to limited review by our external auditors in accordance with International Standard on Review Engagements 2410. Subtotals and totals are rounded to the nearest whole number. 23
Balance Sheet - Million Euro 1H 2011 1H 2012 Goodwill 76 76 Other intangible assets 1 1 Property, plant and equipment 12 27 Shareholdings in associated companies 0 0 Deferred taxes, net 3-2 Working capital 516 834 Total 608 935 Shareholders' Equity 419 345 Provisions for contingencies and expenses 2 1 Net financial debt 218 619 Derivative financial instruments and others -31-29 Total 608 935 24
Disclaimer This material has been prepared by Gamesa Corporación Tecnológica, S.A., and is disclosed solely for information purposes. This material may contain declarations which constitute forward-looking statements, and includes references to our current intentions, beliefs or expectations regarding future events and trends that may affect our financial condition, earnings and share value. These forward-looking statements do not constitute a warranty as to future performance and imply risks and uncertainties. Therefore, actual results may differ materially from those expressed or implied by the forward-looking statements, due to different factors, risks and uncertainties, such as economical, competitive, regulatory or commercial factors. The value of any investment may rise or fall and, furthermore, it may not be recovered, partially or completely. Likewise, past performance is not indicative of future results. The facts, opinions, and forecasts included in this material are furnished as of the date of this document, and are based on the company s estimates and on sources believed to be reliable by Gamesa Corporación Tecnológica, S.A., but the company does not warrant their completeness, timeliness or accuracy, and, accordingly, no reliance should be placed on them in this connection. Both the information and the conclusions contained in this document are subject to changes without notice. Gamesa Corporación Tecnológica, S.A. undertakes no obligation to update forward-looking statements to reflect events or circumstances that occur after the date the statements were made. The results and evolution of the company may differ materially from those expressed in this document. None of the information contained in this document constitutes a solicitation or offer to buy or sell any securities or advice or recommendations with regard to any other transaction. This material does not provide any type of investment recommendation, or legal, tax or any other type of advice, and it should not be relied upon to make any investment or decision. Any and all the decisions taken by any third party as a result of the information, materials or reports contained in this document are the sole and exclusive risk and responsibility of that third party, and Gamesa Corporación Tecnológica, S.A. shall not be responsible for any damages derived from the use of this document or its content. This document has been furnished exclusively information purposes, and it must not be disclosed, published or distributed, partially or totally, without the prior written consent of Gamesa Corporación Tecnológica, S.A. English version for information only purposes. In case of doubt the Spanish version prevails" 25