null Talgo increases revenue by 29% to June as a result of greater industrial activity

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21 Jul 2020

Talgo increases revenue by 29% to June as a result of greater industrial activity

  • The increase in revenue in the first half of 2020 reflects an increase in industrial activity despite the impact of the Covid-19
  • Since March, Talgo has adopted contingency plans and significant cost savings across the Company to limit the economic impact of the Covid-19
  • In line with the situation, the Chairman, the CEO and the other members of the Board of Directors agreed to reduce their salaries by 50% for the period March-December 2020
  • The Company has a robust order book with excellent visibility of industrial activity for the coming years. The Company is in an optimal financial situation to successfully execute the projects

Talgo S.A., a leading company in the design, manufacture and maintenance of high-speed light rail trains, recorded a turnover of 216.6 million euros in the first half of 2020, 29% more than the 167.8 million euros in the same period of the previous year. The growth in revenue was driven by an increase in manufacturing activity, mainly in the Spanish High-Speed Railway (Renfe) project, and it reflects the recovery in industrial activity since the end of the second quarter of 2020. In quarterly terms, Talgo obtained revenues of 103.8 million euros, slightly lower than the 112.8 million euros of the previous quarter. This is due to lower revenues recorded in the maintenance area, mainly due to the operational disruption resulting from the impact recorded by Covid-19.

The Company recorded an adjusted EBITDA of 14.5 million euros in the first half of 2020, compared to 31 million euros in the same period of the previous year. This downturn in EBITDA reflects the extraordinary situation caused by the economic context arising from Covid-19. Operational profitability fell until June, mainly due to the impact of Covid-19, in two ways: lower productivity in manufacturing projects and the interruption in the supply chain in the second quarter had a negative impact on project margins; and maintenance costs did not fall in proportion to revenues, despite the significant cost reduction measures implemented.

Talgo has a strong order book of 3.338 billion euros, of which more than 1.2 billion euros is for manufacturing projects, generating long-term revenue visibility and ensuring industrial activity for the period 2020-2024. Thus, the high quality of the order book and the exhaustive cost control will allow the Company to recover its margins in the coming months.

Also, it should be noted that Talgo is in a suitable financial situation to execute the projects in the portfolio successfully. In this regard, as of June 2020, the Company has 291 million euros in cash, of which 61 million euros correspond to advances, resulting in a solid balance sheet that gives it a strong capacity to finance new and future projects. It also has credit lines of up to 145 million euros.

Measures to deal with the impact of Covid-19

Since mid-March, maintenance activity in Spain was reduced by 77%, as well as in other markets, as a result of the declarations of the state of alarm which forced the Company to adapt to the level of operational activity of the clients. As a direct consequence, Talgo announced a proportional force majeure temporary lay-offs affecting 313 workers, which will remain in effect until the recovery of normality. The recovery of the maintenance activity will depend on the possibilities of resuming normal commercial operation by the customers, which is currently at 30% in Spain.

As far as manufacturing activity is concerned, the Company saw its industrial activity slow down due to certain delays in the supply chain. Additionally, from March 30th to April 13th, Talgo's plants in Spain remained closed, in accordance with government measures. Following this mandatory temporary interruption of activities at some of the plants, Talgo resumed activity on April 14th, adapting the schedules and degree of progress following customers and the economic situation, as well as the necessary health and safety measures to boost productivity. As a result, manufacturing activity has recovered to normal levels towards the end of the second quarter of 2020.

In response to the health emergency and to limit the economic impact of Covid-19, during March and April, Talgo adopted contingency plans and significant cost savings across the Company and its various business units to limit the economic impact of Covid-19. The objective has been to ensure the continuity of the industrial activity by maintaining its commitment to customers, preserve the operating margins of the projects and protect its workers, in full compliance with the indications of the Ministry of Health and competent authorities in Spain.

Among other measures in line with the current situation, it is worth highlighting the decision of the Chairman, the CEO and the other members of the Company's Board of Directors to reduce their salaries by 50% for the period March-December 2020. In addition, the Company has implemented the remote working mode for the different office functions, which has allowed it to give continuity to other activities related to the development of the projects, such as the Project Engineering, Purchasing and Commercial activities, among others. 

In addition, the Company has made adjustments to Ebitda, among which we would especially mention non-recurring expenses, mainly compensation and commissions for financial guarantees of the projects, as well as the adjustment to IFRS 16 (2.3 m in the period) to avoid distortions and achieve comparability with previous years.

Talgo's commitment to the fight against the Covid-19

Talgo's commitment to the fight against the Covid-19 has been clearly reflected in actions such as Talgo's transformation, in record time, of several Talgo S-730 trains for possible use by RENFE as medical trains. Talgo has also offered its innovation to position the train as the safest mode of transport in front of the Covid-19: Its trains have a greater possibility of distance between passengers, as well as an optimum distribution of passengers. In addition, they have individual and independent air treatment and renewal equipment, which is introduced from the outside for each car, minimizing the risks of mass exposure for passengers, thus ensuring health conditions and non-exposure. Additionally, Talgo will donate the amount of the 2020 edition of its emblematic "Talgo Award for Women’s Professional Excellence in Engineering" to the platform of the Spanish National Research Council (CSIC), which is coordinating the efforts for the development of a vaccine against Covid-19.

Strong order book and commercial visibility

Concerning the volume of new orders in the first half of 2020, the project awarded in Denmark for the manufacture of 8 Talgo 230 compositions for 134 million euros, as part of a framework agreement worth up to 500 million euros, stands out. This contract is a further step towards consolidating the brand in European Union markets.

Regarding commercial activity, the Company is currently working on commercial opportunities for the next 24 months worth approximately 8 billion euros, 77% of which are in Europe. In addition, as of June 2020, Talgo has bid for approximately 5.2 billion euros in identified opportunities, following a strategy based on consolidating a high-quality portfolio to ensure sustainable growth in the long term. There have been no significant cancellations on identified opportunities due to Covid-19. The Company monitors more than 50 potential opportunities for a total value of more than 15 billion euros.

In March, Talgo withdrew its forecast for 2020 until it had greater visibility of the current situation caused by COVID. Given the significant level of uncertainty about the business performance during the second half of 2020, mainly in relation to maintenance activity, the Company will not reveal new perspectives for the year at this time.

Note to editors:

Talgo S.A., is the leading Company in the design, manufacture and maintenance of high-speed light trains with an industrial presence in seven countries: Spain, Germany, Kazakhstan, Uzbekistan, Russia, Saudi Arabia and the United States. The Company is recognized worldwide for its innovative capacity, unique and distinctive technology and reliability. Talgo is the train supplier for the "Haramain" high-speed rail project between Mecca and Medina in Saudi Arabia.

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