Informe Anual 2020 1 Annual Report 2020 2 Talgo 2020 Index Main results 2020 How do we achieve this? About this report 2.1. Profile, identity and commitments 4.1. Methodology, scope and coverage Message from the President 2.2. Business model 4.2. Materiality analysis 2.3. Proprietary products and technologies 4.3. GRI Index 2 2.4. Innovation 4 2.5. Strategy A year of challenges 1.1. Main milestones 1.2. Financial results How do we manage it? Annexes 1.3. Industrial activity and services 1.4. Commercial activity 3.1. Corporate governance structure Consolidated Group Financial Statements 1 3.2. Risk management Individual Financial Statements 1.5. Creation of shareholder value 1.6. Commitment to people 3.3. Ethics and compliance 1.7. Commitment to the environment 3 3.4. Social accountability management 1.8. Sustainable supply chain 1.9. Social development 3 Main results 2020 Revenue Quarterly revenue development (€M) (€m) 324.4 Q1-2020 Q2-2020 Q3-2020 Q4-2020 2018 112.8 103.8 122.7 147.7 €m €m €m €m 401.7 2018 2019 2020 Human Resources 2018 2019 2020 2019 Adjusted EBITDA (€m) 65.6 75.2 34.2 Number of employees 2.240 2.597 2.668 Men 1.980 2.267 2.305 Adjusted EBITDA margin (%) 20.2% 18.7% 7.0% Women 260 330 363 Accident resulting in medical leave frequency 3.16 7.47 6.66 Net profit (€m) 17.7 38.4 -17.4 487.1 Severity index 0.117 0.252 0.17 Net profit margin (%) 5.5 % 9.6% -3.6% 2020 Environment 2018 2019 2020 Free cash flow (€m) 153.0 35.3 -100.6 Hazardous waste generated (tonnes) 186 217 211 Investments - Capex (€m) 9.6 23.3 24.7 Fuel consumption (thousands of litres) 397 286 226 NetConversión Financial Debt* en (€m)2019 -104.4 -59.3 48.1 GHG Emissions - Scopes 1 and 2 (Ton. CO eq.) 2.226 2.040 1.827 21.3% 2 Energy intensity (kWh/employee) 15.431 12.871 14.158 Var. 2019-2020 Net Financial Debt / EBITDA (x) -1,6x -0,8x 1,4x Water consumption (m3) 23.103 *NFD = LT Financial Debt + ST Financial Debt - Cash and Equivalents 4 Message from the President Dear Shareholder, It is an honour to present the Talgo 2020 annual report, which reflects transport and the most realistic and immediate solution to help reduce the the hard and tireless work of our company in a year marked by the carbon footprint. unprecedented global health crisis caused by Covid-19, which has Talgo is a respected and disrupted the operating conditions of businesses around the world. Talgo’s mission in 2021 will be to continue to drive innovation and Talgo’s capacity and the flexibility of its business model to successfully commercial activity in order to maintain our position as a global railway consolidated brand, as well as a adapt its cost structure to adverse and changing situations, as well as company, a benchmark for quality and a promoter of sustainable mobility, the success of comprehensive measures to ensure employee safety and while at the same time contributing to creating a more sustainable, fairer “global reference. This is due, in large improve productivity and the efficient management of the supply and and wealth-generating reality for all, anticipating the needs of our industry logistics chain, have ensured the proper execution of projects during the in order to take advantage of all opportunities, as we have done up to now. part, to its innovative spirit and its extraordinary situation produced by the pandemic. In particular, we have Only in this way will we continue to be an active player in defining the been able to overcome this situation thanks to the commitment and future of rail transport worldwide. vision and ability to anticipate the efforts of our employees, the trust of our customers and the support of current and future demands of the you, our shareholders. Talgo is a respected and consolidated brand, as well as a global reference. Summary of 2020 global high-speed market. This is due, in large part, to its innovative spirit and its vision and ability The 2020 financial year began successfully adding to our to anticipate the current and future demands of the global high-speed internationalisation objectives with the award of a new framework contract market. From Spain to the United States, from Germany or Denmark to with the Danish operator DSB to link the Danish capital, Copenhagen, with Russia, Kazakhstan or Saudi Arabia, our trains link cities and connect the German port of Hamburg. Talgo thus continued to position itself as a people, reducing travel times and offering comfortable and sustainable benchmark in Western Europe. This contract is in addition to the one awarded transport, thanks to cutting-edge technology that we have perfected over in 2019 by the German operator Deutsche Bahn, under which Talgo 230 79 years of constant innovation and an internationalisation strategy that trains will link the German capital, Berlin, with the Dutch capital, Amsterdam, has allowed us to grow globally. and will cover tourist routes in the North Sea and the Alps. Talgo is currently finalising the new very high-speed, high-capacity train, Following the outbreak of COVID-19 in March 2020, Talgo adopted the Talgo Avril, which is undergoing dynamic testing in Spain, and is contingency plans and significant cost savings across the company, with ” developing its modular rolling stock solution for commuter and regional the aim of ensuring the continuity of industrial activity while maintaining services, the Talgo Vittal. But especially noteworthy is the continued its commitment to customers, preserving project operating margins and expression of its conviction and commitment to the environment with the protecting its workers, in full compliance with the indications of the Ministry hydrogen-powered variant, the Talgo Vittal One, which will be available of Health and relevant authorities in Spain. Among other measures in line in 2023. This latest project is particularly relevant for the near future with the situation, it is worth highlighting the decision of the Chairman, the when the train will continue to be a more reliable and efficient means of 5 Message from the President CEO and the other members of the Board of Directors of the company to for the Danish operator DSB and the German operator Deutsche Bahn, as conversion by Talgo -pro bono and in record time - of several Talgo S-730 reduce their salaries by 50% for the period March-December 2020. well as projects for UTY in Kazakhstan, ENR in Egypt, Renfe hotel-train all-terrain trains for possible use by RENFE as medicalised trains. Talgo or ADIF inspection train. Regarding maintenance activity, the current has also worked to incorporate health and safety solutions in its fleets, Talgo continued its industrial activity in 2020, thanks to the company’s manufacturing backlog with associated maintenance already awarded with the aim of minimising the risks of mass exposure for passengers rapid adaptation and the success of the operational measures guarantees strong growth for the coming years, reaching an expected and guaranteeing health conditions. implemented to normalise the pace of production and protect its 3,700 vehicles by 2023. employees. The company closed the year with revenues of €487 In addition, in July last year the company donated the proceeds from the million, an increase of 21.3% over the previous year’s figure. Specifically, Talgo also has a solid financial profile with an outstanding capacity to 2020 edition of its flagship “Talgo Award for Professional Excellence revenues grew by 20.3% in the fourth quarter compared to the third successfully deliver the projects in its backlog and finance the company’s for Women in Engineering” to the Spanish National Research Council quarter of 2020, driven by increased industrial activity. growth in the coming years. The company also has available credit lines of (CSIC) platform that is coordinating efforts to develop a vaccine against up to €150 million. COVID-19. Talgo recorded an adjusted EBITDA of €34.2 million in 2020 compared to €75.2 million in the same period of the previous year. This decline in Examples such as these demonstrate, once again, the company’s firm EBITDA reflected the extraordinary situation caused by the economic commitment to its environment and society, contributing to jointly conditions arising from the pandemic. However, the positive movement Talgo’s commitment to the fight against overcoming challenges and creating a more sustainable and fairer in the margin in the second half of the year (from 0% in the second the pandemic reality for all. quarter to 7% in the fourth quarter), stemming from the increase in industrial activity and the partial recovery of maintenance activity, as Since the outbreak of COVID-19, Talgo’s commitment to the fight against well as the increase in cost-saving measures, confirmed the business’s the pandemic has been clearly demonstrated in actions such as the ability to return to normal profitability as soon as normal intercity mobility is restored. At the end of 2020, the company had a solid and diversified order book with a value of €3,184 million, which guarantees a high level of industrial activity for the period 2020-2024 (already visible in the fourth quarter of 2020) and long-term stability. In fact, at the end of 2020, Talgo’s order book was at its highest historical level in terms of diversification by number of projects, which represent 80% of the manufacturing backlog. Thus, the high quality of the order book and exhaustive cost control will allow the company to recover its operating margins throughout 2021.