Talgo S A : 2020 3Q Results

Talgo's Results

3Q 2020

12 November 2020

Table of content

1. Key business highlights
2. Financial Review
3. Final Remarks and outlook

APPENDIX

1

Operations successfully adapted to COVID-19 challenging dynamics

• • Comprehensive set of measures implemented to ensure employee safety and enhance productivity
• Health-careand safety on- board solutions development already incorporated to fleets

 Efficient	management	of	Managing
supply	chain disruptions	to
COVID-19
properly deliver ongoing projects

• Cost-cuttingmeasures aiming to protect business profitability while ensuring best-in-class services
• • Improved financial profile to strengthen company liquidity

• Crosswise commitment with the fight against the outbreak
• Exemplary management of Covid-19 risks on Talgo sites
• Recovered pre-outbreak manufacturing pace
• Strong quarterly revenue increase
• On the road to recover profitability
• Suitable financial position with sound cash position

Source: Company information

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Key business highlights of 9M2020

Operational highlights

• Resilient business performance…:

1. Manufacturing projects on the right track recovering pre-Covid pace.

o Maintenance activity impacted in the

short-term but resilient in the long run.

• … backed by a strong backlog and an attractive pipeline to ensure long-term business sustainability.

Backlog 9M2020:

1,2%

3,8%

30,5%

3.6 €b

64,5%
Manufacturing		Light Maintenance
Heavy Maintenance		Maint. Equipment

Financial highlights

• P&L reflects the correct implementation of appropriate measures in an adverse context:

1. Increasing revenues to reach 339 €m in 9M2020 (+18% in 3Q vs 2Q 2020) mainly driven by manufacturing activity ramp-up.

1. Profitability improvement with Adjusted EBITDA amounting 23 €m in 9M2020 resulting on 6.7% margin.

Maintenance projects - margins evolution(1):

Pre-	COVID impact period	Post-
COVID	COVID
			100%
			margins
			recovery
	Revenues	Costs

Strong manufacturing backlog accelerates industrial activity enhancing revenues increase

and partially offsetting negative impact of COVID-19

1. The graph is a simulation that does not attempt to reflect or represent real data of specific projects performance.

Source: Company information

3 3

Favorable momentum to consolidate business international growth

• Attractiveness of rail as the most efficient passenger travel mode remains unaffected from COVID-19, and is expected to continue registering reliable growths in the mid/long term.
• Moreover, COVID-19 did not substantially modified nor cancel the opportunities in Talgo's pipeline.
• In this regard, pipeline currently amounts approximately 7.8 €b with a wide range of national and international opportunities in diversified segments.
• Europe remains as the main geographical area targeted by the Company, highlighting commuter opportunities in Spain and HS/VHS in northern Europe and UK.

Pipeline by segment (24 months)(1)

5,2%

16,7%

7.8 €b	56,5%

21,7%

VHS/HS		Commuter/Regional
Passenger coaches		Services

Macro trends enhancing rail passenger transportation industry

• Environmental awareness to enhance modal shift from air to rail travel in Europe
• Most increasingly convenient transport mode in terms of time and cost efficiency
• Increasing trend to concentration in large cities further the current extraordinary COVID-19 context

Demand for rolling stock is expected to

outperform across accessible markets

lead by opportunities in VHS/HS segment

(+8% CAGR in the period 2020-2025)(2)

1. Approximate amounts based on available information. Maintenance is included subject to availability

(2) UNIFE WRMS 2020-2025

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Source: Company

Table of content

1. Key business highlights
2. Financial Review
3. Final Remarks and outlook

APPENDIX

5

Strong backlog execution to consolidate revenue ramp-up phase

Cumulative revenues - QoQ (€m)		Quarterly revenues evolution (€m)

	+23%
	339,4
275,5
9M2019	9M2020

		+18%
126,2	112,8	122,7
107,7	103,8

80,7

2Q2019 3Q2019 4Q2019 1Q2020 2Q2020 3Q2020

• Revenues significantly increased in 9M2020 to reach 339.4 €m (122.7 €m in 3Q2020) in line with the expected ramp-up driven by the execution of manufacturing projects in the backlog.
• In quarterly terms, remarkable increase compared to 2Q2020 as a result of:
• 1. Operational measures successfully implemented to normalize manufacturing pace.
  2. A slight activity increase in al installed bases except in Saudi Arabia where fleet is still out of service.
• As a result, business performance is gradually getting back to normalized level of activity. However, maintenance business line is still significantly impacted and full resume of operations will be linked to mobility measures, which as of today still leaves room for significant uncertainty.

Source: Company

6

Flexibility as one of main pillars of Talgo's business model enabling effective cost-cutting measures implementation

Adjusted EBITDA(1) (€m) and margin (%)

Quarterly Adj. EBITDA and Net Income (€m)

52,2
	COVID				Margins recovery
18,3%				subject to mobility and
impact(1)
					working measures
	22,6				implemented by
	6,7%				authorities
	3Q2019	4Q2019	1Q2020	2Q2020	3Q2020
9M2019	9M2020

Adjusted Ebitda		Adjusted Ebitda mg.		Adj. Ebitda		Net Income

• Adjusted EBITDA margins recovery in 3Q2020 (from -0,1% to 6.5%) confirms the strong capacity of the business to recover normalized profitability once 1) services business rapidly react to higher levels of interurban mobility and 2) execution of high quality manufacturing projects upturns.
• In addition, during the period Talgo designed and implemented noteworthy contingency plans and significant cost-cutting measures aimed to adapt the costs base to the current adverse scenario.
• Adjusted EBITDA(2) in 9M2020 decreased to 22.6 €m (6.7% margin) dragged by:

1. Cost overruns in manufacturing projects due to supply chain disruptions and identified lower productivity in 2Q2020. However, such disruptions were successfully mitigated during 2Q/3Q2020.

1. 1. Maintenance services significantly impacted in the period given the lower demand registered due to force majeure (COVID-19).
2. "COVID impact" is a theoretical simulation based on the Adjusted EBITDA margin guidance provided in February 2020 (16,5% mg), subsequently withdrawn in march 2020 due to COVID-19 context
3. Adjustment to EBITDA includes non-recurrent costs, mainly guarantees considered to be financial costs, and layoffs.

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Source: Company

Table of content

1. Key business highlights
2. Financial Review
3. Final Remarks and outlook

APPENDIX

8

Final remarks and outlook

• Strict packages of measures and protocols aimed to protect employees remain as first priority of the company at this stage
• 9M2020 results confirm Talgo's reliable capacity to successfully adapt its cost structure to adverse situations
• Resilient order book at historical highest levels with high quality projects ensures high workload and revenues over the following years
• Consistent vocation of European and global authorities to enhance and encourage investments in rail as most environmental friendly travel mode
• The company is proactively working on several projects that could be financed by the EU Recovery Fund (Next Generation EU)
• Strong balance sheet with limited short and medium term financial debt maturities and over 150 €m of available credit lines to provide surplus liquidity
• Lack of visibility over mobility measures and its impact on demand for rail services still limits company capacity to provide guidance for years 2020 and 2021

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Table of content

1. Key business highlights
2. Financial Review
3. Final Remarks and outlook

Appendix

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Appendix 1. Profit & Loss

Profit & Loss Account (€m)	9M20	9M19	% Change
Total net turnover	339.4	275.5	23.2%
Other income	8.3	4.0	109.7%
Procurement costs	(202.5)	(101.1)	100.3%
Employee welfare expenses	(90.3)	(90.4)	(0.1%)
Other operating expenses	(36.3)	(41.2)	(11.7%)
EBITDA	18.6	46.8	(60.2%)
% Ebitda margin	5.5%	17.0%
Other adjustments	4.0	5.4	(25.2%)
Adjusted EBITDA	22.6	52.2	(56.6%)
% Adj. Ebitda margin	6.7%	18.9%
D&A (inc. depreciation provisions)	(15.0)	(12.0)	25.1%
EBIT	3.6	34.8	(89.6%)
% Ebit margin	1.1%	12.6%
Other adjustments	4.0	5.4	(25.2%)
VitTal Amortization	1.7	1.7	0.0%
Adjusted EBIT	9.3	41.9	(77.7%)
% Adj. Ebit margin	2.7%	15.2%
Net financial expenses	(6.8)	(4.9)	39.4%
Profit before tax	(3.2)	29.9	(110.7%)
Tax	(4.4)	(5.0)	(12.3%)
Profit for the period	(7.6)	24.9	(130.4%)
Adjusted Profit for the period	(6.3)	26.2	(124.2%)

Source: Company information

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