Alstom Unsp/Adr

Hello and welcome to the Alstom first quarter orders and sales. Please note for the durations of the call, your lines will be on listen only. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star 1 on your telephone keypad to register your question. If you require assistance at any point, please press star 0 and you will be connected to an operator. I will now hand you over to your host, Laurent Martinez, CFO, to begin today's conference. Thank you.

So good morning, everyone. Welcome to this publication for our first quarters focusing on orders and sales. I'm very happy to introduce Bernard Delpit, our new Alstom CFO, which is joining us for the first time for this publication.

Thank you, Laurent. And good morning, everyone. I'm thrilled to join Alstom post Q1 and to support this fantastic industry and this company in its next chapter. I very much look forward to speaking and meeting with you all in due course. In the meantime, I will turn back to Laurent to run through the presentation.

So thank you, Bernard. And let's turn to the first slide on the order intake, confirming that our market dynamics is confirmed and our potential is intact with 220 billion euros of pipeline over the next three years. As you know, last year in order intake Q1, we had a very strong order intake thanks to the Baden-Württemberg orders of 2.5 billion euros, while this year, as we discussed as well during our full year release, the phasing of our large orders is rather back-end loaded. On the regions, worth noting Americas with Philadelphia orders, which is a proof point of the strong growth and the potential we see in the U.S. market. As reminders, we are expecting in the years to come an average order intake in this region, which is roughly double compared to the last three years. I want also to highlight the success on the large systems in Q1, which has been resuming after modest orders in the fiscal year 2022-2023. Happy also to report a good flow of base orders, illustrating the continuous management focus on this subject, which is, as you know, important for our margins. Two additional points for orders which are positive. Number one, percentage of orders with indexation largely exceeds 90% for the quarters as per our target. And second, good quality of order intake in terms of margin, which continues to support our mid-term trajectory. So moving to some of the flagship orders for this quarter, starting with a turnkey project in the Philippines for around €1 billion, illustrating our €700 million, and a system project in Romania for Cluj-Napoca. As you have seen in the recent press release, we have as well secured a quite large list of deals which are not yet booked, as we speak, including positive momentum on our flagship locomotive product, Trax. We have seen some announcements yesterday. And a regional train product, Coradia Stream, in Germany, but also Abidjan Metro in the Ivory Coast and Quebec Tramway in Canada. All of that are expected to be booked within this year. We are therefore confirming our guidance of book to bill above one for the full year 23-24. So turning to sales, overall, we continue our positive track on quality execution with a solid sales ramp-up, as you see, of 7.6% on organic Q1 to Q1, notably with a good momentum on rolling stock. This sales growth definitely supports our expectation for the year with a positive momentum, as you see, all across our four product lines. We do confirm as well our good progress on our 1.7 billion euros of sales at 0% gross margin for the full year 2023-2024. progressing as planned on the execution, and therefore expecting those sales to be front-end loading during this year. Moving to our climate roadmap achievement on these quarters. First, we have announced on July 6 our CO2 emission target, which has been validated by the SBTI, which is a major milestone. and this consistent with the level required to meet the goal of the Paris Agreement. In precise terms, this means that we have increased our ambition taking into account the new size of the group, including Bombardier, and committing now to 40% of reduction on scope 1 and 2 by 3031 versus 25% in the Exalston perimeters. And on the third scope, we are now committing to 42% on reduction on passengers and 35% on freight. On the second element, we have been signing a major solar power purchase agreement in Spain. So this will be a massive project since it will basically start the operation early 2025 for 10 years contract and will cover the equivalent of 80% of Alstom electric consumption in Europe, which is a major step to reach our target, as you know, of 100% of electric consumption from renewables. So, as a conclusion, we do confirm our financial trajectories both for the year but also for the mid-term target we were setting out in May 2023, specifically looking at the fiscal year 2023-2024 we confirmed the adjusted debit margin at around 6% and our free cash flow to be significantly positive. With that, I will be happy to take your questions back to you, operators.

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question. We will take our first questions from Akash Gupta from Jeffrey Morgan. Your line now has been opened. Please go ahead.

Yes. Yes. Hi. Morning, Laura. First of all, thank you for the cooperation over the year and wish you all the best for the new role. And welcome, Bernard. Looking forward to working with you. The one question that I had was that you said that the zero gross margin sales would be front-end loaded. Can you provide us a rough split between how are you currently anticipating it to fall between first half and second half? Thank you.

Good morning, Akash, and thanks for your kind words. It's been a pleasure to work with you as well. So on the content of this 0% sales contract, the most important point is that we are delivering and executing as per our target. I remind as well that we have been settling all of the commercial issues already back in May. Since we are declining and we are moving from 2.3 billion euros of 0% sales margin in last year to 1.7 in 2023-2024, there is by definition a phasing and this sales is indeed a bit front-end loaded in H1 versus H2, but a relative limited front-end loaded perspective overall. Thank you. Next question.

Thank you. As a reminder, if you'd like to ask questions, please press star 1 on your telephone keypad. To withdraw your question, please press star 2. We will take our next question from Daniel Acosta from Goldman Sachs. Your line now has been opened. Please go ahead.

Thank you very much for taking my question. Hope you're both well. Just have two questions, actually. First, I guess lots of contracts that you have announced, I sum up, I guess, maybe over $10 billion that aren't yet booked this quarter but will be booked soon. Can you help us sort of calibrate that with first half to second half cash seasonality and whether this year should be different given the large amount of prepayments? potentially in the second quarter. That would be my first question. And then second question, just maybe if you could give us a little bit of an update on what has happened in terms of cost inflation and the curves, whether this year should be front-loaded or more back-end loaded. How are you seeing things? Thank you.

Good morning, Daniela. Thanks for your two questions. So on your first question on the phasing of orders, so there is, as you have seen, a relatively soft Q1. However, our pipeline is very strong and we are very confident to confirm the book to bill above one for the full year. When it comes to the phasing of H1 or H2, it's still uncertain. From the announcement to the booking, there is a number of steps that we need to complete. So that's something that we will see. And that's back to your point on the cash. That would be one of the drivers, the phasing of the H1 and H2, having in mind that we are starting with a soft Q1 in terms of orders. Second point, as I said, the 0% sales margin will be more front-end loaded, which will have an impact on the global seasonality of our economics. And the third one is, indeed, we will have the usual seasonality and demand of our activities between H1 and H2. So these are for the drivers on the cash for H1 to H2. Bearing in mind, Daniela, that our commitment is on the full year, as you know, and our commitment is confirmed with a significant free cash flow for the full year. Second point, briefly on the cost inflation, as expected, to make it simple, no surprise on this. We are continuing to mitigate this inflation by signing orders with indexation contract and providing back-to-back close to our suppliers. So I don't expect any kind of issues on this matter, all as per target. Thank you. Next question.

Thank you. We will take our next questions from Gaël Dubré from Deutsche Bank. Your line now has been opened. Please go ahead.

Thank you very much. Good morning, Laurent. Good morning, Bernard. Hope you're both well. I have two questions, please, and the first one is for Bernard. I know it's still very early days, but I wanted to know what you learned in the past few weeks of being with the business. Is there anything materially different from what you thought it would be, And I'm also curious to know what your priorities could be in the next six months. So that's question number one. And question number two is on the – maybe for Laurent, if you could provide some update on the potential timing of the booking of the multi-billion project in Toronto. Thanks very much.

So maybe I start with the second one, Gaël. So this – This is a flagship contract on this Toronto project. You know, it's electrification of the Toronto areas, which is a few billion-euro contract. It will be basically booked by phase. We are at the early stage. So I don't expect for this year a large amount. This will be more starting as of the next fiscal year.

On my side, Gail, as it's only my fourth week in this – in this company, I wouldn't qualify my comments as plans, but rather feelings or observations. So first, I'm quite enthusiastic about what I've seen in terms of teams. Everybody is really dedicated, motivated, and it's great to see that. And by the way, what they have achieved so far is quite spectacular in terms of building a global leader. My second comment is to say that it's really a global company. I mean, it strikes me, versus what I've seen in my previous jobs, we are global. And that's really exciting to have such a global reach. My third comment is that I've been told that Alstom is a project company. And a project company is complex, it's specific in terms of accounting, in terms of management. It's true. But considering also the scale of the company, we are in fact in between a project company and a product company by the scale of what we are doing. And I think it's interesting to see, I'm not talking of the transition, but at least something more balanced than what I thought. I think that would be my three first comments. But early days in Alstom, and I'm not really a fan of the 100-day theory, so only being there for one month, we are really at the early stage of my digestion of what Alstom is. So happy to discuss that when we will discuss H1 figures.

I know it was very early days, but thanks very much for the comment here.

Thank you. Let's move to the next question.

Thank you. We will move to the next question from Jonathan Mouncey from BNP Paribas, Exxon. Your line now has been opened. Please go ahead.

Good morning. Thank you very much. Well, let me ask a question. And yes, I'll just say goodbye to Laurent. It's been great working with you. I think you had some very difficult questions to answer. with great grace and calm. And also, welcome to Bernard. I look forward to working with you, too. First question, maybe on the Russian asset disposals, it's been going on some time. Just wanted maybe an update as to whether they're making any progress. And also, I know you wrote the assets down, but what are we really gunning for here on an exit? Is it basically going to be a nominal $1 sale, or could we actually see some cash come in on the disposal? of that business. And then just to follow up on the inflation, you mentioned the indexation. Can I just confirm, if we put service to one side, talking more about rolling stock specifically, when it comes to wage inflation, that remains not hedged, yes? You have to budget for that when you bid for the orders and hopefully get that roughly right. And as an adjunct to that, what do you think wage inflation is likely to be in the following year, 2024, 2025?

So thanks, John, for your kind comment as well, and thank you for the partnership in the last years indeed. So on the Russian assets, we are very opportunistic on this one. As you know, we have been depreciating 100% of this. It's a participation, a holding position on our side. So if at one point in time we can make a reasonable deal, we'll make it. Otherwise, it's just wait and see and there is not much progress on this matter as we speak. On inflation, so to be very precise on the wages, the wages are part of the indices which are covering our index contract. As a matter of fact, the largest part in terms of share. So we are fully protected for rolling stock, services, signaling when it is covered, on wages, inflation as well. And this is why our basic strategy on the midterm is to be immune from inflation, and being immune from inflation is having index contracts and back-to-back close with our suppliers. And as I told, 90% of these Q1 orders are indexed. So when it comes to the wages next fiscal year, so that will be a negotiation which will be starting, as you know, from June to March, so it's very early days. I expect still a tense negotiation as inflation, while easing, remains high in many of our regions. So I guess this will be still a tense negotiation. Next question.

Thank you. We will take our next question from from UBS. Your line now has been open. Please go ahead.

Thank you for taking my question. I join everyone else by saying farewell to Lauren and welcome to Bernad. It's been great to work with you and it will be great to work with you as well. So my question is regarding the organic growth rate. Obviously now over 7% and I wanted to know how sustainable is this growth rate into in two years to come. I guess at the moment, obviously, we're facing projects and deliveries, but I wonder, you know, that gap between 7 point something percent and your guidance of around 5 percent. Is there a bottleneck that prevents you from reaching that 7 percent? Thank you.

Thank you, Guillermo. Thanks for your kind words as well. Thank you so much. So on our organic growth rate, so we have been starting with a very good fit in Q1 with a bit of acceleration on the rolling stock, which is healthy. Overall, we are in line with our execution trajectory, so no surprise on this. Looking ahead for the full year, Guillermo, we do not see any change in the And we see indeed at least 5% organic for the full year based on our good Q1 dynamic. I will not, of course, bet on 7-8% on the midterm as a continuous basis. Next question.

We will take our next questions from James Moore from Redburn. Your line is open. Please go ahead.

Yes, good morning, everyone. Can I too say good luck. Thanks for all the excellent improvements in disclosure and congratulations on holding the provision red line. And Bernard, nice to have you with us and I look forward to working together. Can I just talk a little bit about the margin seasonality this year? I know it's early days. But is there anything compared to the seasonality that you expected or the traditional seasonality in the profitability first half, second half that you could note at this point? And secondly, could we just talk a little bit about what's going on behind the trains revenue? It looks like it's stepped up 100%. 70, 80 million queue on queue in terms of revenue? And is that the expected ramp up going according to plan? And behind that, when you think about contract to contract and the important contracts, are there any things that are running a bit behind, running a bit ahead that we should watch out for?

Thank you, James, for your kind words as well, and thanks for the dialogue, very positive dialogue we had in the last five years. I take the compliment of the red line of the provision. We said it back in May 21, and we did confirm that in the last two years and a half indeed. So talking on your first question on the margin seasonality, H1 to H2, So we will have a sales seasonality related to the sales at 0% margin. As I said, we will have more sales at 0% margin in H1 than in H2. So that will be mechanically weighting down on the margin on H1. Second, we will have the global seasonality of our sales in H1 versus H2. As you know, we are always accelerating our sales in the second half while we are globally in ramp-up. So that will be, I would say, two drivers that I see in terms of the margin dynamics between H1 and H2. So talking about rolling stock evolution, indeed a strong Q1 with 5% up. despite indeed the scope evolution, which was high chauffeur related, which was in the range of 100 million euros. So we are good on the organic growth in terms of rolling stock on Q1 to Q1. The drivers, James, are very much Americas. We have a large step up on Americas, both in North Americas and South Americas, and as well, continental Europe, where we are still uplifting our ramp-up on the regional trains globally. So these are the two key drivers of our organic growth for the rolling stock that we are still expecting to continue to unfold during the rest of the year.

Next question.

Thank you.

Thank you. We will take our next questions from Delphine Brault from Odo. Your line is open. Please go ahead.

Yes. Good morning, gentlemen. Thanks for taking my questions. I have two. First, can you comment on the growth margin of the orders booked in Q1? And second, can you update us on the tensions you may still see in your supply chain?

Yep. Good morning, Delphine. So thanks for your two questions. So on the gross margin on order intake, I'm very pleased by the quality of the order intake. I told you back in May, we are not about quantity of order intake. We are about quality of order intake. And the quality of order intake is threefold. Number one is a profitability target. And on this, I can confirm that that the profitability that we have been booking in our Q1 orders is consistent with the 8% to 10% profitability target we have on the midterm. The second parameter is the cash parameters, and we are not looking only at the down payment but at the overall cash profile. And equally, I'm pleased by the quality of the cash profile of this order intake, which will be supporting cash. our 80% cash conversion. And the third parameter is around risks, which are products and TNCs. And this is where our selectivity and leadership position is, of course, playing a role to be protective on this part. On your second question on the tension on the supply chain, we know that we've been passing the peak of the electronic component crisis from last year. It's still a tense and complex situation, but which is very well monitored, under control, and I do not see that as a major risk as we speak, but still something that we need to watch out, not only on the electrical component, but globally on our supply chain. But I would say nothing specific on this matter as we speak, Delphine. Next question.

Thank you. We will take our next questions from Martin Wilkie from Citi. Your line is open. Please go ahead.

Yeah, thank you. Good morning. Thanks for taking the question. And also, Laurent, I would say good luck to your future role. The question I had was, you've obviously pointed to ongoing success in passing through inflation, and you also talk about the health pipeline. And it does feel that, surely at the margins, something's got to give in terms of either end consumers paying higher real ticket prices, The government has to borrow more to pay for trains. Has there been any tension in the pipeline? So not in terms of your firm orders, but have any pipeline projects been delayed because of inflation pass-through and the governments are sort of backing away from certain contracts if they're going to be higher cost than they might have been a couple of years ago?

Thank you, Martin. Thanks for your word as well. Thank you so much. So on the pipeline, we do confirm the quality and the momentum of our pipeline. You know that we are updating our commercial pipeline on a quarterly basis, and you have seen that we confirmed 220 billion euros with the same phasing as the last three months. On a very concrete basis, We have not seen at all any evolution in terms of the dynamic due to the interest rate of the budgetary situation. I just remind that 70% of our pipeline is based on replacement. I've been in New York City with Martin a few months ago now, and if you look in Paris, if you look in France, In Germany, there is so many replacements which is needed, and this is something which is, of course, a must-do for the stakeholders and a very strong backbone of our pipeline ahead of us. So to make a long story short, no impact whatsoever on this matter as we speak.

Great. Thank you. Thank you. Next question. Thank you. We will take our next questions from William Mackey from Kepler. Your line is open. Please go ahead.

Good morning, Laurent, Bernard. Yes, echoing everyone else's comments, but thank you for the journey and the improved disclosure, and welcome, Bernard. My two questions go to one question about orders in Americas. You've said that we should expect order intake in the Americas to be double the base of the last three years or average. Could you maybe scope what you mean as a base of the average for the last three years and what provides you the confidence to make such an upbeat statement about the Americas? And then secondly, when looking to growth for the rest of the year, Could you provide a little more color on your expected growth rates across the business lines and what we should be penciling in with respect to the uplift in rolling stock services or signaling and systems? Thank you.

Thank you, Will, and thanks for the comment on the improved disclosures. We've been working hard with Martin and the team to get there, so thanks for all of them. So on the order intake momentum in America, the background of it is definitely the push from the Biden infrastructure plan, which is starting to unfold in terms of concrete projects. There is a number of, as well, private operators which are starting to explore the high-speed territories, and there is a very famous project line from Los Angeles to Las Vegas, for instance, which is at play. So overall, we see a potential of moving from around 3 billion euros per year of order index to around 6 billion euros. So that's basically the numbers we are talking about. Of course, this is something which will be unfolding in the years to come, and we'll see how all of this is developing. But the back of it is this rail momentum that that we see in the U.S. On the second point, which is the growth rate by product line for a full year basis, so just to have for you a sense, as I say, the mix should be largely unchanged compared to last year, which means as well that in terms of the growth rate, we see all of the product line being around the average of the group. So the system which has been done in Q1 will be basically catching up in the rest of the years. Rolling stock service will be and signaling will get closer to the average of the group. So that will be something which will be a very nice wide spread of positive momentum across the product lines. Next question.

Thank you. As a reminder, if you would like to ask questions, please press star 1 on your telephone keypad. We will take our next question from Ana Paglias from CIC Market Solutions. Your line is open. Please go ahead.

Yes, good morning. Thank you for taking my question, and all the best to Laurent and Bernard in their new roles. My question is about the negative currency impact we had in Q1 on sales. I would like to know if it could have also some negative impact on the operating margin or if it's rather neutral.

Good morning, Arnaud. Thanks for your word and thanks for your question. So as you know, we are fully edged in terms of currency risk, so there is no impact on our profitability thanks to our edging mechanism that are in place on all our projects. to the next question.

Thank you. We will take our next questions from Jonathan Day from HSBC. Your line is open. Please go ahead.

Thanks. Good morning. I just wanted to echo those sentiments again. Laurent, thank you very much and all the best. Laurent, welcome to Pernod. I just wanted to ask a little bit about the footprint and capacity and wondered if you could talk a little bit about how you're managing capacity as you ramp up production on the rolling stock side and whether given the contract opportunities like the one you mentioned in the U.S., you need to expand capacity and put up those footprint adjustments as well.

Good morning, Jonathan. Thanks for your question. So on the footprint, we do globally have enough footprint and capacity to accommodate our ramp-up across our geographies. If I'm talking, for instance, Americas, we are having, as you know, very large factories in Mexico, which is as well participating to the growth in the U.S. So we have basically all what we need to deliver this capacity globally. Overall, I reiterate our global industrial capex guidance, which is 2% over sales globally. which is our north compass when it comes to the CAPEX investment for Alstom. Next question.

Thank you. It appears there are no further questions. At this time, I'd like to turn the conference back to our host for any closing or additional remarks. Please go ahead, sir.

Thank you very much. So thanks all for this session. We are getting to the conclusion of this webcast. As this is my last call with you, and I thank all of you for your very kind words and comments which I share, I take the opportunity to thank you for these five years as the CFO of Alstom, which has been a fantastic journey. I've always highly valued... the dialogue with you, our investors, and with our sell-side analysts. And I wish now every success to Bernard and to the full Alstom team for the next steps of the development of Alstom, which is definitely the rail industry leaders. Thank you very much, and hopefully talk to you soon. Bye-bye.

This concludes today's call. Thank you for your participation. You may now disconnect.