Alstom Unsp/Adr

Hello and welcome to the Alstom full year 2023-24 annual results call. My name is Saskia and I will be your coordinator for today's event. Please note this call is being recorded and for the duration your lines will be on listen only. However, you will have the opportunity to ask questions at the end. This can be done by pressing star 1 on your telephone keypad. If you require assistance at any point, please press star zero and you will be connected to an operator. I will now hand you over to Henri Poupare-Lafarge, CEO, and Bernard Delpy, CFO, to begin today's conference. Please go ahead.

Good morning everyone. Welcome to Alstom's full year results for the fiscal year 23-24. I will start by a few highlights and then Bernard will walk you through the full year results. Then I will go through our trajectory and guidance before taking our questions. So let's start with the key figures. Starting with financial performance. Orders and sales came a bit better than we expected with a strong finish of the year. Adjusted EBIT was close to 1 billion, up 17% year-on-year. This represents a 5.7% margin in line with our guidance. Recage flow of negative 557 million euros came up on the upper part of the range announced last October. Regarding ESG performance, we are making good progress against our roadmap. Scope 1, 2, and 3 emissions are reducing ahead of plan, with notably good energy and heating savings at our production facilities. Further improvement on taxonomy sales alignment comforts our position as a leading company on this indicator. And step by step, we are making progress on diversity with close to one fourth of management now being women. Turning to the usual snapshot on market opportunities, we continue to see very supportive demand for rail globally, largely thanks to the growing need for zero emission mobility. We have reviewed our pipeline for the next three years down to 190 billion euros from 200 billion plus previously. There are two main drivers. The first one is India. Indian railways are currently revisiting their procurement strategy, leading to mega-tenders being canceled or postponed. Elsewhere, the pipeline in Europe is broadly unchanged, and we see many opportunities in America, the Middle East, Africa, and Australia and New Zealand. Overall, we have decided to reinforce our commercial focus on geographies where we've got a clear competitive advantage to make sure that we invest time and effort on fewer tenders but with a higher win rate. The revised approach does not change our book-to-bill guidance of above one for the next three years. As usual, a few illustrations of orders booked during this second half. services contracts, cross-country in the UK, velocity in Australia, attractive turnkey projects with Tel Aviv Green Line, Abidjan Metro and Alula Tramway in Saudi Arabia, and some options on long-term frame agreements like the MF19 metros for Paris. On the operational front, we see the benefits of the efforts made by the teams to integrate Bombardier and bring quality and efficiency to the levels closer to Alstom's level before the acquisition. For instance, we are getting good margin on orders and our customers are showing again a high level of satisfaction with a remarkable progress on quality indicators like the number of demerits per car. We are ramping up despite logistics headwinds and pressure on the supply chain giving high demand from all O&Ms. We are improving our engineering and manufacturing on-time delivery, even if we can, and we will do better. Now the priority is to translate these operational improvements into accelerated profit and cash generation. In order to do so, we have taken resolute actions. We are looking to reduce industrial inefficiencies as we accelerate industrial optimization. We are actively implementing cost efficiencies, in particular across overheads and indirect procurement. Finally, we are optimizing supply chain in order to drive further inventory term improvements. As we promised to you earlier this year, we are today announcing the details of the deleveraging plan, and this is a balanced plan. Firstly, we have already announced two disposals for a total of around 700 million euros. This includes, for the most part, the sale of the U.S. signaling activities announced last month. We have here a good deal with a good price. Then we will be launching an abridged bond for about 750 million euros and a right issue for around 1 billion. The total proceeds are expected to be around 2.4 billion euros, equivalent to an actual deleveraging of 2 billion euros, consistent with what we announced back in November. The precise timing and modalities will depend, of course, on market conditions. I will now let Bernard comment on the results for the next year and walk you through the details of the deleveraging plan. Bernard, up to you.

Thank you, Henri. I will focus on the full year results, and then we'll address details of the deleveraging plan. This brings total... Okay, sorry, I start again. starting with the order intake, slide 11. The group enjoyed a strong Q4 with €5 billion of orders, including notably a high level of small orders. This brings total order intake for the year to nearly €19 billion, equivalent to a book-to-bill of 1.1%. Europe has been again the most dynamic region. Middle East and Africa and Australia also recorded good momentum. Numbers for Americas have been impacted by a few orders being postponed. In terms of product lines, the group recorded strong performance on services and systems with book-to-bill well above 1. And this offsets a softer performance for rolling stock with book-to-bill at 0.7. If we take a step back, more than €60 billion of orders have been booked since the merger with BT, which represents two-thirds of our current backlog. We're happy with the quality of the €19 billion of orders in the year. Margins on new orders continue to exceed the margin in the backlog, which in turn largely exceeds the margin in the P&L, and therefore supports our mid-term margin trajectory. Turning to sales on slide 12, organic growth stood at 9.4% for the year, well ahead of the guidance and with a strong finish on Q4. In particular, the group delivered a strong performance in services, systems, and signaling, all delivering close or above double-digit organic growth. Rolling stock organic growth at 6% reflects close to 4,700 cost deliveries. Forex and scope had a negative impact on sales during the year. These headwinds were less pronounced in the second half. We can also confirm that we have booked around 1.7 billion euros of sales at zero gross margin from the legacy BT backlog during the year. Looking now at the P&L on slide 13. Sales growth was 6.7% on a reported basis at 17.6 billion euros. Gross margin increased by 20 bps year-on-year to 14.3%, or 2.5 billion euros. Net R&D costs on P&L end of the year in line with the prior year level at 3.1% of sales. Selling and administrative costs improved, now 6.3% of sales. The SG&A cost program starts to impact despite inflation during the year. Finally, we had a sound and stable contribution from Chinese GVs at 131 million euros. Altogether, adjusted debit margin increased by 50 bps compared to the prior year and reached 5.7%. Analyzing the main drivers behind the adjusted debit margin increase for the full year, I would make four comments. Synergies from BT acquisition have delivered a contribution of 30 bps. This will be the last year to track that indicator now that operations at costs are fully merged. Non-performing sales from legacy BT portfolio have reduced significantly. to 1.7 billion in the fiscal year from 2.3 in the prior year. This represents a 30 bps improvement in line with expectations. Volume and mix developed in line with plan. And finally, we revised margin at completion both positive and negative on a few BT legacy contracts. This includes, obviously, Aventra, which was the most significant one. The net effect of these revisions was a negative 30 bps for the year. Turning to net profit on slide 15... It's fair to say this year we booked a lot of non-operational and one-off impacts, leading to a net profit before PPA of 44 million euros. On restructuring, 115 million euros were booked and relate to the SG&A cost efficiency program announced during the year, and 31 million euros were booked for industrial setup rationalization in Europe. we incurred €142 million for integration over the full year, down 22% versus previous year. As planned, integration efforts will be finished next year, where we plan less than €90 million. We had also two unfavorable decisions on litigations for which we had booked a bit more than 100 million euros of provisions, one in the U.S. and one in Turkey. We are appealing against the U.S. one, but Turkey should be cashed out shortly. On financial results, as expected, we saw an increase in the second half of the year, largely due to the volume of drawdowns during the year and to the level of interest rates compared to last year. Alone, it represents a toll of $242 million this year, and it will slightly decrease in This year, when the full impact of the deleveraging plan will materialize in H2. Next year, we should come back to something more in line with around 150 million. And finally, as announced in Q3, we have closed the sale of the stake in TMH for 75 million euros. This has resulted in a non-cash recycling charge in P&L of 197 million euros relating to currency translation effects. And slide 16 shows reflect this, as we think they should drastically drop over the next three years and as such contribute to stronger cash generation, non-operating expenses will definitely go down starting this year. Turning to free cash flow for the year on slide 17. Free cash flow was a negative €557 million for the year at the upper end of the guided range. A few moving parts to flag. Equivalent to adjusted EBITDA reached €1.1 billion or 6.4% of sales. CapEx and CapDev reached €450 85 million euros, or 2.7 of sales, in line with expectation and exactly at the same level as a percentage of sales as last year. Financial and tax cash out were particularly heavy. The delivery plan will reduce financial expenses going forward. To be reminded, it was only 173 million cash outs last year, so 2.5 times less. And working capital change has impacted negatively free cash flow by 856 million euros, and we will review details in the next slides. A few additional considerations here. First, a few individual factors have had a, what I would call, a disproportionately large impact on free cash. Either way, with VAT effect of changing rules in France, or the Aventra program as two obvious examples. Second, from a business standpoint, we faced a double whammy in rolling stock, whereby production continued to ramp up fast, while book-to-bill was only 0.7%. Third, Raising shortened debts to fund working capital needs combined with rising interest rates led to high financial cash charges, as I already said. Fourth, seasonality between the two halves have been more pronounced this year, with the second half of the year generating a solid free cash flow of €562 million. We note that half of the negative 1.1 billion euros of free cash flow of the first semester has been reversed in the second semester, thanks to improving working capital. The other half, largely related to VAT, Forex, and financial charges, will therefore not be reversed. Some details... on trade working capital on slide 18. Trade working capital stood at 34 days of sales at the end of March. A few drivers to highlight. First, inventories have reduced by around 400 million since H1. Half of this reduction comes from a reclassification of fixed assets into fixed assets of a fleet of finished trains which was put on lease during the year. And the other half comes from a strong operational action plan we've been taking on supply chain and which is delivering results. And we have therefore improved turns since H1, with inventory and payable days reducing strongly. This enabled us to close with a low level of payables, which is a good starting point for the year. Second comment, of note, we have reduced long-term overdue by more than 100 million euros, which demonstrates the resolution of some long-term issues with some customers. The overall level of receivables reflects strong invoicing in the last months of the year. And last, excluding the non-reversible impact of VAT that explained the other assets and liabilities move in the first half, this line is stable. Looking at contract working cap on slide 19, a negative working cap of 4.6 billion euro with 4.9 billion assets up 440 million, 7.9 billion liabilities up 1.2 billion, and 1.6 billion provisions down 167 million. It is lumpy by nature for a project company like Alstom. Contract working cap improved to a negative 96 days of sales at the end of March compared to 89 days the year before. Contract working capital has shown significant seasonality this year. After negatively impacting the first half by €700 million, contract working capital contribution was a positive €600 million for the full year. A few drivers to highlight this strong imbalance. High level of deliveries and acceptances during the second half of the year led to contract assets reducing to 103 days compared to 116 days at the end of September. Down payments have been more second-half weighted this year. This has resulted in a significant increase in contract liabilities, as well as increased cash seasonality between the two halves. And provisions on risk on contracts have been reduced by around €200 million, as I guided. I must admit we reversed the trend more dramatically than I was expected in October, especially on the liability side. On the next slide, I wanted to take the opportunity of this presentation to deep dive into seasonality and share with you lessons learned from the past year. In the last five years, we've consistently seen stronger cash generation in the second half of the year than in the first. Free cash flow seasonality is inherent to our business, and it can be analyzed as follows. First, cash out is more or less evenly distributed annually. over H1 and H2. But cash in from progress payments has shown strong seasonality, historically, mostly due to the closing dates with fewer working days over H1. European factories being typically closed in July or in August with less production and less client availability for train acceptances. And last, down payments are either mitigating or exacerbating this seasonality depending on commercial momentum. Regarding fiscal year 2024-2025, we expect down payments to be again more second-half weighted. This is reflected in the free cash flow guidance for next year with a specific comment on H1 milestone. Turning on to liquidity slide 21, I will not comment on total available liquidity, which is very ample. As you know, it includes an additional RCF line of €2,250,000 signed in November and syndicated in December. Upon the execution of the €2 billion deleveraging plan, this RCF agreement will terminate. Looking at net debt evolution... Net financial debt was reduced to €3 billion at the end of March, compared with €3.4 at the end of September, largely thanks to a positive €562 million free cash flow during the second half of the year. The delveraging plan is precisely designed to address this situation. And now I come to the focus on the delveraging plan on slide 23. We have delivered 700 million euros of disposals. The U.S. deal delivers an excellent outcome for Alstom from a financial and strategic point of view. We will be issuing a vanilla hybrid bond for around 750 million euros. It is permanent capital. It is non-dilutive and it is subordinated instrument which allows to be considered, reconsidered in five years once cash generation reaches strong levels. It qualifies for a 50% equity content from a rating point of view and 100% equity from an accounting point of view. It fits well with our cash generation profile. This will be launched shortly, depending on market conditions. And then we will be executing a write issue for a total amount of around $1 billion, again to be launched in the next weeks, depending on market conditions. As already announced, it is obviously a transaction with preferential subscription rights. Net proceeds, all in, are expected to amount to 2.4 billion euros, while the impact on delivery is expected to be around 2 billion, again largely due to the treatment of hybrid bond as 50% equity and 50% debt by the rating agency. Proceeds would be used to repay short-term debt, including commercial papers and RCF. The remaining proceeds will be invested in highly liquid short-term investments. This additional cash will ultimately be used to repay senior debt upon maturity, but will also help reduce near-term reliance on short-term financing to absorb working capital swings. This plan is fully supported by our reference shareholders who have indicated that they intend to participate in the capital increase proportionally to the stake in Alstom. Having shared this plan... Combined with the appreciation of our company operational, commercial plan, and our guidance, Moody's has confirmed that the investment grade rating outlook would be stabilized once the two market transactions are executed. Moody's has issued a press release expressing this opinion in its own language, and I think you can read it on their website. Henri, over to you.