Alstom Unsp/Adr

Good morning, good morning everybody. Welcome to Alstom 22-23 financial results. I will start by giving you some highlights on the year and then I will hand over to Laurent who will detail to you the financial results as well as the trajectory and outlook and I will come back for the conclusion and we will then open the floor for questions and answers. So just to give you a few highlights of the year. Of course, one of the main items is the fact that we are now well established as a global leader in a very good market, in a buoyant market, on all continents, all countries, in all our activities. And that's one of the most satisfactory factors, I would say, in a year marked by a complex and uncertain macroeconomic environment. We are the undisputed global leader in this market. We have now a solid foundation. We have restored the customer satisfaction. We have stabilized all the projects, notably the ones coming from the ex-Bombardier portfolio. All the new orders have been with the right quality, the right margin, the right risks. And we have now, we can benefit now from the synergies and we are, I would say, up and running to open this new chapter of Alstom history. Just one or two words on the results themselves, which will be again detailed by Laurent later on. They are in line with our guidance, in line with our objectives, in line with our trajectory. which is, I remind you, with a growing adjusted debit, a positive free cash flow of roughly 200 million euros. We are giving to you some new objectives for the current year, so the year 2023-2024, with an adjusted debit of around 6%, and the free cash flow will be significantly positive. And we are confirming our mid-term targets, which will be reached in 2025-2026, so one year after what was previously forecasted, and this is mainly due to the macroeconomic environment and indeed the inflation, and we have already in the past opportunities to detail to you the consequences of this macroeconomic environment. So back to the main numbers of the year, orders, 20.7 billion, a book-to-bill of 1.25, showing a good market momentum, a good commercial momentum, sales plus 7%, 16.5%. Adjusted EBIT, which increased more than 10%, 11% increase in adjusted EBIT, margin increasing at 5.2%. And again, a positive free cash flow of around 200 million euros, which of course is a remarkable improvement as compared to last year's situation. As far as our ESG indicators are concerned, we have a strong decrease in our scope 1 and scope 2 emissions, strong decrease on energy consumption. So I have to say that we are in line, even ahead of our trajectory in terms of CO2 emission, in terms of net zero trajectory. which is extremely good news. And we are, for the first time, we are publishing our taxonomy alignment, to come back to that, but at 59%, this is an extremely high number. I think it's among the large capital goods industry. It's probably the highest level I know. We are still continuing to work on gender diversity within the group, and we are making improvement in that perspective as well. So talking about the market, two aspects to the market. First is the traffic recovery after the COVID episode. So, of course, it depends on the different regions. It varies depending on the continent. In Europe and Asia, it has mostly recovered the pre-COVID level. In the U.S., it's not as much, particularly in the urban transport, as much as it was in the past. But Amtrak is now back to a pre-COVID level. As importantly, if not more importantly, we have seen during this year a confirmation of the sustainable agenda of most of the countries and regions in the world. A lot of investment plans have been announced throughout the world, and we are excited. Naming a few of them on the slide, whether it's in Germany, in Italy, in France, with the 100 billion ticket, in India, in the U.S., with the Infrastructure and Job Act starting to produce results, over the plan in Europe for the Model C, for the diesel replacement. So very nice momentum in favor of rail transportation throughout the world. These are not just, I would say, policies. These are being translated into real order, real pipeline of orders. And you can see on the slide, so we are confirming market potential, a pipeline of more than 220 billion euros till 2025-2026, ahead of what we were showing you last time. And in the next 18 months, we believe that there will be around 120 billion. I'm not going to detail all the regions, but all regions are concerned. In Europe, of course, which is the majority of the market, half of the market is in Europe, but not only in Asia-Pacific, whether it's in the Philippines, in India, Australia, whether we are in America, with the By the way, a number of turnkey orders coming back in the Gulf countries as well. Latin America, which was slow in the previous years, is now back on a very positive trend. And of course, the US, Canada is also very positive. So across the globe, a very nice pipeline. Our own commercial successes, a growth of 7% as compared to last year, but 20.7, which is important, is to have a positive book-to-bill, and even more important, which is to have a very quality order intake. I mean, the question is not to book an order just for the sake of booking orders. It's really to improve the quality of our backlog, which we have done very well this year. If you look at the two last years, we have booked more than 40 billion euros of orders, which is nice. I mean, after... such a merger after the equivalent of this large merger. Sometimes you have a commercial slowdown, and this has not happened, and I think this is on the back, both on the successful integration as well as on a good market. In terms of scope, in terms of activities, as well as geographical spread of these orders, as you can see on the slide, quite nice spread. Relatively large level of order intake this year in Europe. But we have in Americas, in APAC and AMECA, I would say, also a large chunk of orders. In terms of activities, she's reflecting more or less where we want to go. with a very large portion of services, but signaling has also been with a book-to-bill of 1.2, and system is relatively low this year. As you know, it's bumpy. We have, as you will see, sales growing quite fast in systems, low level of order, but I expect more orders to come next year, as we have already been awarded a number of orders which we have not yet booked. Some examples of orders, operation and maintenance, to recall that we are not doing only maintenance, but also operations, like in New York or Mark. A lot of options on rolling stock orders, which is very good news, because options are usually less risky than new orders. This is easier to implement. And, as I said, some very large orders in Toronto, for example, or in Singling in Hong Kong. From a such perspective, so also a very steady growth from 15.5 to 16.5, something which is extremely good in terms of momentum, the right level of growth. With rolling stock, which could be seen as relatively stable, but you have a high level of rolling stock in the system as well. So the combination of the two is showing good growth. But as we want to add is faster growth in services, in signaling and in systems, which is picking up after a slowdown, after the execution of some projects in the Middle East and which is now ramping up in Egypt, in Mexico or in Thailand. So, a very nice mixed evolution as well. I was detailing earlier our ESG emissions, our ESG targets. So, as said, very much in line, minus 22 percent in terms of scope one and scope two. Our target for 2030 was 138, so we have already done more than half of the target. Reduction needed to get to this level, so obviously a lot of efforts have been done this year. That's extremely good on the back of all the energy savings which have been launched as well, to be fair, to save costs considering the energy price environment. On scope three, more complex to look at it. As you know, this is the emission of the products which have been sold. Here as well, we have a clear target and a clear reduction of scope that we are envisaging as we are moving. It's not only, by the way, due to us, it's also due to the fact that our customers, the operators, are also decarbonizing their operations. In terms of taxonomy, as you know, in the first year, we need to publish to give you our taxonomy, European taxonomy. Eligibility is 100%, as we are working on environmental topics. And we have an alignment of, depending on sales, capex or opex of 50+, which, again, is much higher than any capital good industry. Last but not least, as you know, we have a set of KPIs for the decarbonization, caring for our people, positive impact, acting as a responsible business partner, and all these indicators are moving today in the right direction, and we have set up clear targets for March 2025. Finally, a word on innovation. As you know, the ultimate goal of the new company, of the merged company, is to boost innovation in order to bring to the market more sustainable, greener, more digital, smarter solutions to the market. As we are moving, I would say, from the situation where we had to very thoroughly integrate the two companies to a situation where we can accelerate now our growth and our development, we are accelerating the R&D, and you will see that we are accelerating the investment in R&D as well. A lot of very positive points this year. On hydrogen, of course, as you know, we have done a fantastic momentum in terms of fantastic evolution in hydrogen. in terms of digital with cybersecurity, trade autonomy, but also in terms of new platforms where we have developed, as you know, the new very high-speed platform, which is saving at least 15% to 20% energy in terms of consumption and which is adding 20% of seats. So energy per seat is a marked improvement. I will now hand over to Laurent. We will detail for you the financial results.

Thank you, Henri, and good morning, everyone. So let's start with a review of our P&L. We delivered close to 7% of sales growth in the year, driven by the positive execution and in line with our trajectories. Gross margin has increased by 0.2% at 14.1%. R&D was slightly lower this year in terms of P&L impact, still with a slight increase in terms of gross cost offset by financing received. S&A represents 6.6% of our sales, driven by inflation and growth in our region to support our ramp-up. Finally, as you see, a very sound and stable contribution from our Chinese GV. Quite a nice catch-up, considering the slow start of the year due to COVID restrictions back in spring last year. So altogether, 5.2% of ADJC debits, very much in line with our guidance announced at our H1 result. So moving to the main drivers behind this adjusted EBIT, very much consistent with the numbers I gave you back in November. So first of all, the ramp-up of synergies is developing as planned, contributing 60 basis points, equivalent to more than 200 million of synergies. And this is fully in line with our expected execution in terms of synergies. Second, as you see, reduction of non-performing sales had a positive impact of around 1%. 20 bps, slightly above our initial expectation due to some sales shifting to FY24 reflecting phasing dynamics of contract execution. Third point, higher volume and mix with a positive 30 basis point impact as expected. And finally, we guided, you remind, on an inflation impact of 70 to 90 basis points. We are getting to the higher part of this range, considering in particular our salary increase negotiation outcome. And we have a closer look on this on the next slide. So, looking now at the negative impact on a margin from inflation and the development which will be trending down over the years. So, you remind this 90 basis point at Edwinds is primarily linked to lower margin at completion on non-indexed contracts, reflecting impact on higher energy costs, supply chain and labour. Over the last few months, we've been working toward increasing the share of index contracts in our backlog, reaching 71% in FY23 versus 66 last year, and expecting this share to exceed 80% by FY26. As we generate a higher proportion of revenues from index contracts over the years, we expect as well a positive margin mix effect of 10 to 20 bps per year. This will bring the 90 BZ point headwinds impacting our FY23 margin to below 40 bps in FY26. So all together, of course, this margin accretion is an important driver toward our mid-term margin achievement. Meanwhile, we continue to be laser-focused on stringent action to reduce exposure to inflation. Number one, commercial side, where we do prioritize index contract. 75% of our orders of FY23 are protected from inflation, and our pipeline is well above 80%. Energies, where we have implemented energy savings with 10% reduction achieved, and of course, efficient energy aging strategy. Labor costs, where the salary negotiations are now completed. And on supply chain, where we continue, as you know, to have a large share of our suppliers in fixed price. in particular in the case of customer firm-field contracts with more than 80%. And as we move along, we secure indexation clause from our customers. We offer progressively this indexation protection as well to our suppliers. So all in all, as you see, we have been very active in managing inflation and we have a clear path toward the progressive reduction of this impact over the next three years. Turning to net profit, on restructuring, as announced, phase 2 of our general restructuring has been booked, the second half of this year for 50 million euros. In terms of integration and other costs, we are now, as planned, accelerating the deployment of our processes and tools, leading to 181 million euro costs during the year. We are specifically pleased to have deployed now our new digital suite in Latin America, Canada, France, Benelux, and this effort will decrease in FY24 and will be completed by FY25. Other one, of course, includes significant effort on legal fees, in particular related to Bombardier arbitration. On financial results, we had, as expected, an increase in the second half of the year due to rising short-term interest rates, but also due to the evolution of our portfolio of forex and bonds. A large part of these effects are non-cash, as you will see on the next slide. Last point, our ETR has been stable at 27%. So all of this is leading to an adjusted profit of 292 million euros for the full year. So turning to the cash flow generation, so we delivered spot on our guidance with a positive free cash flow of around 200 million euros. Among the positive contributors, of course, uplift of profits, definitely. Disciplines that we kept on CAPEX and R&D spends and the Chinese GVs, which has been delivering nicely in terms of dividends. Working capital has been impacted as expected, essentially by provision utilization, and I will deep dive into this in a minute. Financial cash out has been at 43 million euros, representing mostly interest expense and fees, while our tax cash out stands at 130 million euros. Overall, as you see, very pleased by our cash performance, driven by profit step-up, positive market momentum, and cash discipline across the board. So turning to the evolution of our working capital, a number of moving parts. First, I remind that we analyze inventories together with contract assets and liabilities, and it's more representative of our supply chain and production cycle. The net increase is largely reflecting the increase of our activities and accelerated production ramp-up, translating into sales, of course, and some stock anticipation to manage our supply chain challenges. Related to contract liabilities, as expected, nice increase driven by continuous healthy down payment, and we obviously expect this trend to continue during the next fiscal year. Secondly, the increase of trade payables is essentially related to the increase in inventories with turns equivalent to H1. Finally, we have been disciplined in managing our trade receivables with turns as well equivalent to H1. So looking briefly at the other specific lines, on the other liabilities, other payables are very stable at 144 billion euros in March 23 versus 1.5 in March 22. Suppliers with extended payment terms also stable at 303 million euros versus 324 last year. German specific down payment reduced to 198 million euros versus 471 million euros last year as with progress on deliveries. Of note, the change of regulation in France on VAT and progress billing to align with European VAT directives. VAT is now being accounted on unbuilt receivables. This translates into accounting impact on contract assets, unbuilt account receivables, and other current tax liabilities with limited cash impact during our fiscal year 2023. Finally, related to provision, 230 million euros consumption over the year, slightly below our expected consumption trajectories and consistent with the non-performing sales we had this year. In terms of addition and release on risk on contract, you will see that we are broadly stable, demonstrating our execution quality. So all this considering is working capital before provision standing at negative 10% of sales with continuous normalization to come in the next fiscal years. I will come back later on these subjects. Few words on liquidity with a continuous strong liquidity position at around 4.8 billion euros, out of which our committed RCF, which are fully unloaned at the end of March 23 at 4.25. As you know, we are using on top of our RCF short-term commercial papers, bank facilities to cover our working capital swing within the period. Net debt. Evolution, pretty stable as you see, with drivers coming from the free cash flow, offset by dividend and lease contribution, but some one-off as well on remedies with some forex impact as well. Broadly stable versus March 22. Turning to our long-term debt, no change in the key parameters here, namely no financial covenant, very long profile and with the first basically repayment in October 26, very low rate at 0.22%. On the right-hand side, you see as well that the current interest rate had a positive impact on our pension, with 245 million euros year-on-year net pension liability improvement. Finally, Moody's has issued a BAA3 rating with a stable outlook, confirming Alstom investment grade. We remain fully confident in our delivery trajectories, driven by cash generation and profit uplift, And we confirm that this rating has absolutely no impact on our financial trajectory. To end this section on FY23, the board is proposing a stable dividend of 25 cents per year, stable versus last year at the next July shareholder meeting, which is basically for decision. Let's now turn to our trajectory and outlook. So starting with our sales trajectory, we confirm our target of delivering sales of CAGR of above 5% over FY21 to FY26. This is based definitively on our positive market momentum, our strong 87 billion euro backlog with around 38 to 40 billion euro of sales which are secured over the next three years. We'll delve into the growth drivers of our product line in more detail this afternoon. Overall, we confirm a positive sales growth momentum, and we expect the sales contribution from signaling systems and services to increase to about 50% of our group sales by FY26. Turning to our backlog execution dynamics, you see on this chart in dark blue how the 40 billion euros of orders recorded since the last two years are now translating into sales with high quality orders, all of them with, in average, consistent fully with our 8 to 10% EBIT target, but as well our cash trajectories. In parallel, we continue to execute on our legacy backlog. In particular, we expect non-performing sales at zero percent gross margin to reduce to around 1.7 billion euro in fy 24 and then around 1 billion euro in fy 25 consistent with our expectation contribution of this will be a marginal as of fy 26. As our result, our gross margin needs backlog is increasing steadily, year on year, by around 50 basis points per year since the acquisition, and we expect definitively this trend to continue over the next three years. Overall, quality of our orders combined with focus on execution will be driving our margin trajectories moving forward. Few words on synergies. Very pleased to report a good performance this fiscal year with 250, 205 million euros achieved, even by the good jobs of our procurement and operation team, to name a few. Looking ahead, I'm very confident that we'll reach our synergy target of around Half a billion euros in FY26, based on the significant progress we've been doing in the last two years. Our teams are now delivering on a very clear and committed plan around four areas, product convergence, financing, procurement, and footprint and operation. This is translating into our margin outlook for the outer years. So zooming on FY24 first, margin contribution from synergies will reach an uplift of 50 to 60 basis points. Non-performing sales will be supporting by 20 to 30 basis points our profitability, volume and mix by 10 to 20 basis points, and the negative impact of inflation will reduce compared to FY23 with a positive impact of 10 to 20 basis points. Finally, we'll be, as well as indicated by Henri, increasing our effort in innovation and R&D with a negative impact of 30 to 40 basis points. Looking ahead toward 2025-2026, Synergies will bring another 80 to 90 basis points of profitability. Non-performing sales will be reducing basically to nil and helping our profitability by 60 to 70 basis points, while the synergies will be as well supporting our profitability by 30 to 40 basis points. As indicated in our previous communication as well, we have a very high degree of visibility on all of these drivers, and we are expecting a linear development of those drivers during the years to come. In addition, last but not least, volume and mixed effect will provide up to 2% of additional margin, leading to our 8 to 10% EBIT framework that we will be reaching as of FY26. So turning our eyes to EPS with basically a number of positive elements in terms of adjusting net income with a significant EBIT uplift driven by volume and margin, but as well the material decrease of integration cost and restructuring which will be starting as well in FY24 together with the reduction of one-off related to the legal fees mainly in the frame of our arbitration process. On the other side of the equation, negative impact on financial expense linked to higher interest rates and mechanical increase in terms of tax due to our profit uplift. So as you see, a very material step up of our net income and our EPS in the years to come. So to end this section on trajectories, turning to cash, we expect a free cash flow to be significant positive in FY24. In terms of drivers versus FY23 cash generation, positive contributors are mainly the positive momentum in EBIT and a significant reduction in integration expense, with a trend which will continue up to FY26, balancing on the other side, increasing financial interest and capex, raising to 2% of sales. Last but not least, on the working capital and consistent with our previous communication, we see around 900 million euros of working capital normalization with about 60% coming from provision consumption and 40% from net inventories ramp-up. All in all, we are confident to generate significantly positive cash in FY24 and and we confirm our ambition to exceed 80% cash conversion by FY26. Henri, back to you.

Thank you, Laurent, for this detailed presentation. I will say one or two words of conclusion. So first and foremost, I would just want to summarize our guidance for next year, for 2024. So first, we continue to have a book to build above one, which will fuel the growth of our backlog and therefore the growth of our future sales. And indeed, we forecast sales above 5%. In terms of profitability, so we're going to continue to not only increase our volume, but also increase our EBIT margin at around 6%. And again, for the free cash flow generation to be significantly positive. Regarding mid-term targets, as already stated by Laurent, we are confirming the mid-term targets of 8% to 10%, with a free cash flow conversion of 80%, to be reached in 2025-2026. In terms of global, I would say, takeaways of this full year, I think this has been a very important year for Alstom, a very significant year for Alstom. We have seen externally two aspects. The first one is, as I said at the beginning, very positive market momentum. So we continue to see the world investing in rail transportation. At the same time, we have... had to go through a number of headwinds, in particular inflation, supply chain, electronic components. And I have to say that Ashtom has extremely well managed these headwinds. We have managed to deliver our financial targets despite all these headwinds. And as importantly, we have managed to transform our operations, to be in line with our operations, to have a good customer satisfaction despite all these headwinds. I think one of the main takeaways is also the stabilization of our portfolio. So we have to say that we are now ending a period of two years where we had to stabilize, and I said it in the past, all the projects notably coming from Bombardier. It's now done. It's behind us, and we can work on the next stage of the efficiency, on the next stage of growth and development. So we have delivered customer satisfaction, we have delivered the financial results in our trajectory, and we have put back, if I may say, the execution under control. This is showing the importance and actually the reason and the consequences of our market leadership where we have extremely good customer relationship in the world. It's also showing the resilience of our business model spread across the globe, spread across different type of activities and namely also service activities, signaling activities, rolling stock activities. And last but not least, we have improved our backlog, which is paving the way for future improvements, both operationally and financially, going forward. So thank you, all of you. As you have seen, this has been, as I said, a very important year for Alstom, a very successful year for Alstom, which will mark a new step in our development. So before I open the floor for question and answer, I just remind you and invite you for an afternoon session. As you know, we do a more operational session with the leader of our different activities, as well as our CEO, Danny, this afternoon. So do not hesitate to join us at that time. Now I turn back to the operators for questions and answers. Thank you very much.