Siemens Gamesa Renewable Energy S A : Annual Results FY2020 - Activity Report

Activity Report

Fiscal year 2020

October-September 2020 results

5 November 2020

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Contents
Introduction.......................................................................................................	3
Main consolidated figures for FY20...........................................................................	5
Markets and orders ..........................................................................................	5
Key financial performance metrics .................................................................	9
WTG .......................................................................................................................	13
Operation and Maintenance Service .......................................................................	14
Sustainability ..................................................................................................	16
Outlook ............................................................................................................	18
Economic situation..................................................................................................	18
Long-term worldwide prospects for wind .................................................................	19
Quarterly update of short- and medium-term demand.............................................	21
Summary of the main events relating to wind power in Q4 20 and FY20 ................	22
Auction summary ....................................................................................................	25
FY21 - FY23 business plan.....................................................................................	27
Financial framework and guidance for FY21 - FY23 ...............................................	29
Conclusions ....................................................................................................	31
Annex ..............................................................................................................	32
Financial Statements October 2019 - September 2020 ..........................................	32
Alternative Performance Measures .........................................................................	36
Glossary & Definitions for Alternative Performance Measures..................	53

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Introduction

The fiscal year from October 2019 to September 2020 (FY20) was one of intense activity and organizational changes in Siemens Gamesa1, with the appointment of a new CEO, Andreas Nauen, in June, the presentation of a new management team in July2, and the development of a business plan for the fiscal years 2021 (FY21) through 2023 (FY23) which was unveiled to the market in late August. Externally, the year was shaped by the COVID-19 pandemic and the decline of the Indian Onshore market, both of which had material unforeseen effects on the Group's financial performance. That performance was also hampered by cost overruns caused by the execution challenges in Onshore projects in Norway and Sweden, which at the date of this report have been delivered to the customers, and the necessary restructuring and operational measures taken in India.

The impact of COVID-19 was concentrated in the second quarter (Q2 20), with disruptions to the supply chain located in China, and the third quarter (Q3 20) of the fiscal year, due to temporary closures of plants (Spain and India, mainly) and borders, with an impact on the movement of people and goods. The effect of COVID-19 tailed off in the fourth quarter of the fiscal year (Q4 20) and was felt mainly in execution delays in Onshore projects; at the date of this report, both the supply chain and manufacturing activity are operating as normal. However, given the uncertainty about how the pandemic will evolve, the company is maintaining the measures implemented in FY20, designed by the global crisis management task force, to ensure both employee safety and business continuity, serving the needs of customers: strict health and safety protocols in offices, factories and wind farms, telework for office staff, inventory management to avoid bottlenecks in components at risk, and enforcing eligible contract terms towards customers and vendors, among others.

In this context, Group revenues in FY20 fell by 7% to €9,483m3 while EBIT pre PPA and before integration and restructuring costs was -€233m, equivalent to an EBIT margin of -2.5% on revenues, including a cumulative impact of the pandemic in the amount of €181m. Accordingly, performance in the year was in line with the guidance released on July 30. As the company had predicted, the positive performance in Q4 20 was not enough to offset the losses accumulated in the first nine months of the year (9M 20). Revenues in Q4 20 decreased by 2.6% y/y to €2,868m and EBIT pre PPA and before integration and restructuring costs was €31m, i.e. an EBIT margin of 1.1%, including the direct negative impact of COVID-19 in the amount of €31m. The performance of the Service activities has been sound despite the impact of the pandemic.

Integration and restructuring expenses amounted to €462m in the year (€110m in Q4 20); in addition to the expenses predicted at the beginning of the year, that figure also includes the cost of starting up an extensive restructuring process in India to respond to the sharp adjustment in short- and medium-term demand prospects, and the integration and restructuring costs related to the acquisition of Senvion assets, none of which were foreseen when the year began. Including integration and restructuring expenses and the impact of PPA on the amortization of intangible assets (€262m in FY20 and €59m in Q4 20), reported EBIT in FY20 amounted to -€958m(-€139m in Q4 20) and net income to -€918m(-€113m in Q4 20).

As for the balance sheet, Siemens Gamesa ended the year with a net debt position of €49m, i.e. €328m below the net cash position at the beginning of the year4. The debt position reflects the impact of the net loss on cash generation, partly offset by the positive trend in working capital, which ended the year at -€1,976m, equivalent

1Siemens Gamesa Renewable Energy (Siemens Gamesa) is the result of merging Siemens Wind Power, which was the wind power division of Siemens AG, with Gamesa Corporación Tecnológica (Gamesa). The Group engages in wind turbine development, manufacture and sale (Wind Turbine business) and provides operation and maintenance services (Service business).

2In addition to CEO Andreas Nauen, the Siemens Gamesa management team comprises Beatriz Puente as CFO, Lars Bondo Krogsgaard as Onshore CEO, Pierre Bauer as Offshore CEO (acting), Juan Gutierrez as Service CEO, Christoph Wollny as COO and Jürgen Bartl as Secretary/General Counsel.

3Group revenues amounted to €9,657m at constant currency. The impact of the weighted average annual depreciation of the currencies in which the Group operates amounts to €174m in FY20. Reported revenue amounted to €9,483m.

4The Siemens Gamesa Group adopted IFRS 16 effective October 1, 2019 using the retrospective approach without restating comparative figures. As a result, the beginning balance sheet as of October 1, 2019 was modified. The main impacts of the first-time application of IFRS 16 on the consolidated balance sheet as of October 1, 2019 are an increase in property, plant and equipment corresponding to the right-of-use assets amounting to €679m, a decrease in advance payments recognized under "Other non-current assets" and "Other current assets", for an amount of €85m and €10m, respectively, and the corresponding increase in current and non-current liabilities (components of net financial debt) for €583m. See Note 2.D.3 to the consolidated financial statements for FY19. As of September 30, 2020, lease liabilities amounted to €611m: €115m short term and €496m long term.

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to -21% of revenues in the last twelve months. As of September 30, 2020, Siemens Gamesa had over €4,200m in authorized funding lines, against which it had drawn c. €1,100m.

Siemens Gamesa maintained record commercial activity despite the pandemic's impact on the Onshore market, evidencing the resilience of its business. The Group ended FY20 with a backlog amounting to €30,248m, i.e. €4,742m more than at the end of September 2019. Of that backlog, 79% is in activities with performance in line with the Group's long-term vision, and longer duration: Offshore (28%) and Service (50%), enhancing the visibility of the Group's future performance. The value of the order book at September 30, 2020 was reduced by about 4% as a result of currency depreciation.

Order intake in FY20 amounted to a record €14,736m, i.e. a book-to-bill ratio of 1.6 times revenues in the year, due to strong performance by Offshore and Service that offset lower order intake in Onshore, which was affected by the pandemic and, above all, by the slowdown in the Indian market. Order intake in Q4 20 totaled €2,564m, reflecting the normal volatility of the Offshore market which, following a strong order intake in 9M 20, did not practically register any new orders in the quarter, and the recovery of commercial activity in the Onshore market. The company signed Onshore orders for 2.7 GW in Q4 20, recovering the business it had lost in Q3 20 and enabling total Onshore order intake in FY20 to reach 8.1 GW, in line with the company's projections of an average of 2 GW per quarter in new orders. Onshore platforms of over 4 MW continue to gain in importance, having accounted for 45% of Onshore order intake in the full year. In the Offshore division, the new SG 14-222 DD turbine unveiled in Q3 20 achieved very good customers reception, having gained 4.3 GW in preferential supply agreements and conditional orders signed to date.

It is important to note that, despite the significant impact of the pandemic, the energy market continues the transition towards an affordable, reliable and sustainable model in which renewable energy plays a fundamental role thanks to its growing competitiveness, and that any negative impact on the volume of wind installations projected for 2020 will not only be offset but will actually be exceeded in the coming years. This is clear in the fact that the industry's long-term demand prospects have improved in the last twelve months, driven by the role that renewable energy will play not only in the economic recovery but also in the development of a sustainable socio-economic model, which has been shown to be increasingly necessary during the pandemic. Additionally, a growing number of countries and companies have undertaken to achieve net zero emissions by 2050. Attaining this objective worldwide will require wind installations to rise to 280 GW per year by 2030, according to the latest report by the International Energy Agency (October 2020). Moreover, the increase in the consumption of renewable energy since the beginning of the pandemic, against the backdrop of a sharp decline in electricity demand, has served to evidence not only the industry's resilience but also the capacity of existing electricity systems to handle growing levels of renewable energy output.

Within the need to develop sustainable socio-economic models, Siemens Gamesa accelerated its commitment to ESG (environment, social and governance) principles in FY20. During the year, the company:

• Attained carbon neutrality, ahead of the target of reaching this goal in 2025.
• Has reached a 100% renewable electricity consumption.
• Introduced criteria of sustainability in its entire funding strategy, ranging from the syndicated loan through guarantee lines to currency hedges.
• Obtained AENOR certification that its Tax Compliance System conforms to the UNE 19602:2019 standard.
• Has launched a global crisis management task force with one workstream focused on the development and implementation of enhanced strict safety protocols for offices, plants and wind farm sites, including testing, traceability and quarantine strategies, all to protect employees, suppliers, clients and communities where the company operates.

These actions were recognized by ESG rating agencies and by the indices. MSCI upgraded the company's sustainability rating by two notches to A; Vigeo-Eiris5 ranked it #1 among the 25 companies in the Electric

5Vigeo Eiris is a rating and research agency that evaluates organizations' integration of social, environmental and governance factors into their strategies, operations and management - with a focus on promoting economic performance, responsible investment and sustainable value creation.

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