Alstom Unsp/Adr

Hello, and welcome to Alstom's 9-Month Results for Fiscal Year 2024-2025 presentation. My name is George. I'll be coordinating today's event. Please note, this conference is being recorded, and for the duration of the call, your line is in listen-only mode. However, you have the opportunity to ask questions towards the end of the presentation, and this can be done by pressing star 1 on your telephone keypad to answer your questions. If you require assistance at any point, please press star zero and you will be connected to an operator. I'd like to hand you over to your host this evening, Mr. Bernard Ndipi, Executive Vice President and Chief Financial Officer. Please go ahead, sir.

Good evening, everyone, and welcome to Awesome's webcast dedicated to the third quarter of the fiscal year 24-25, presenting Orders and Sales. Before jumping to the slides, let me please emphasize some context points. Market perspectives remain solid. Commercial activity is high. And we see a stable pipeline for the next quarters, i.e., no change to last talks we had in November with H1 releases. A number of large projects have been awarded lately and options on large frame contracts have been exercised. Worth also noting that competition has been intensifying lately in certain regions like Middle East, Asia or Latin America. That being said, Let's focus on our sum orders and sales and I'll start with orders on page 3 Order intakes total 4.3 billion euros in Q3 with large orders at 2.2 billion and the sound level of base orders around 2 billion So after nine months Europe is still leading the pack and represents large majority of total order intake. 58% of total orders come from services and signaling year-to-date. Group book-to-bill stands at 1.1, while services book-to-bill is at 2, signaling at 1.3, and rolling stock is 1%. Backlog remains stable around 95 billion, even after a 0.9 booktube in Q3, as FX was slightly positive in Q3. The margin on orders continues to be largely exceeding the margin traded in the P&L. and it is fully consistent with our mid-term objective, and as a result, our margin in backlog is improving, supporting our trajectory of profitable growth. On page 4, a few contracts to highlight, reflecting the commercial successes of the third quarter. about 1.5 billion euros of large services orders, two major orders for regional trains maintenance in Europe for 9 and 23 years respectively. And also, two important wins in the US in California and Denver airport, an unrolling stock, 500 million euros of options on RER ENGIE in Paris. Of note, two promising frame agreements in signaling have been signed in Europe for a total of 800 million euros with orders to be booked progressively over next quarters, which will support signaling growth trajectory. Turning to sales. Organic growth was 9.8% in Q3 and 6.9% year to date. Strong performance of services delivering double-digit organic growth over the nine months. Sequential growth in rolling stock production from Q2 to Q3. and organic growth accelerating in Q3 with high system deliveries, notably in Mexico. Signaling reported growth impacted by the sale of our U.S. conventional SIG to Gnor-Brenso in August, and Forex impact has reversed during Q3 and only weighs negative 0.3% on sales after nine months. Regarding rolling stock production, Q3 saw an increase in the output with 1,098 cars. It's up 6% versus Q2, and it's up 10% versus H1 monthly average. It's fair to say that it's below our target for two reasons. The first one was already discussed after Q2, situation of the supply chain. Out of 63 critical suppliers, we still had a few impacting our European production lines. It is gradually improving. Another one that is not new, but worth mentioning, is that we have a high proportion of projects in their starting phase which are less, let's say, stable than serial production. So not a supply chain issue, but rather some phasing in the ramp-up. We now see total rolling stock output between 4300 and 4400 at the end of the year. below the previous forecast of 46 to 4,400, but still higher than last year when you exclude Derby that is not producing cows anymore. It has an impact on sales and margin of rolling stock. It has been mediated thanks to the rolling stock mix that is improving, thanks to other product line growth that is above the forecast, and thanks to the adaptation of the running stock production cost and the acceleration of other cost savings programs. Turning to the outlook, I can confirm that after nine months, the main assumptions of our full year targets are the same. Market demand is supportive, and the level of down payments is should be consistent this year as compared to last fiscal year. And we are now expecting an output of 4,300 to 4,400 cars for the full year as just explained. On this basis, the outlook for the full year is confirmed. Book to build above one. Sales organic growth around 5%. Adjusted EBIT around 6.5%. and free cash flow generation to be within a range of 300 to 500 million euros for the full year. Before we open for Q&A, let me share a few words of conclusion. Demand remains robust. Management focus is on project execution, with the expected increase in production output in Q4. Integration efforts... or ending the Asper plan with last countries adopting Alstom tools in Q4. Thank you for listening. I will now take your questions.

Thank you very much, Mr. Delpy. Ladies and gentlemen, as a reminder, if you have any questions, please press star 1 on your keyboard. Our very first question is coming from Daniela Costa, calling from Goldman Sachs. Please go ahead.

Hi, good afternoon. Thank you for taking my questions. Just two things. One, sort of to follow up on the points that you mentioned on car production, you keep the revenue guidance despite lowering the cars. Can you clarify sort of is there a mix change in terms of the views? These are sort of like higher quality cars. And can you talk through your level of confidence that the supply chain issues are resolved by the end of the year, so just related to card production. And the second point is whether you could comment on what big tenders are out there in the industry at the moment that we should be tracking.

Okay. Thank you for the questions. So, first, I would like to remind you that rolling stock is only 50% of sales and production costs. All rolling stock sales are not related to to car deliveries. Third, systems and services are growing faster than expected. Fourth, as a consequence, total sales are not deviating and are, in fact, above the initial roadmap, growing at the end of December 6.9% versus a 5% guidance. The financial planning is updated since the summer, so we are flexing costs, and production costs are now lower than our initial assumptions. So negative impacts are mitigated by the actions on costs year-to-date, and we will continue to do so. So in a nutshell, the reduction in the number of cars has a limited impact on our financials. The supply chain issues are gradually being solved. It takes, I would say, normal time to do so. Double sourcing is starting, and it will mitigate some of the issues we had in the past. It's progressing, so we are confident we can deliver to our plan. On the big tenders, That's your second question. We already published a news on the Toronto overalls, which is a good contract. We're expecting now also decisions for projects that have already been awarded, but not yet booked, such as Portugal. We are also working with MTA in New York And we have been considered as preferred bidders in Morocco for the very high-speed train, still expecting signature of the contract. We have also call-offs for some rolling stop frame agreements in Europe and in the U.S., and service contracts extension expected in the U.K., in the U.S., and in Europe. And as a reminder... We always have a higher level of base orders in Q4. So as a conclusion, I see full year order intake above 20 billion.

Thank you.

Thank you, Ms. Koster. Our next question will come from Andre Cookman, calling from UBS. Please go ahead.

Hi, good evening, everyone. Thank you for taking my questions. I'll just go one at a time. Firstly, just referring to your opening remarks on increased level of competitiveness in certain regions and the comments that I think are slightly different to the past when you said your order intake margin is largely above the current. Can you just elaborate a little bit more on that? And has that kind of order intake margin profile become a little more uncertain? Is that the right thing to do? Or is it just a minor difference that's you outlined for completeness.

I'm not sure I get the real sense of your question, André. Could you please rephrase it?

Yeah. The first one, just on that increased competitiveness in the Middle East and a couple of other regions, could you just elaborate? Is that something that affects you directly? Is that something you may end up walking away from as a result?

Okay. No, I just... wanted to flag that what I discussed with some investors after Q2, I mean, competition mostly with China, when Chinese competitor was intense in some countries. It's a case, as I said, in the Middle East, where I'm sure you've seen the Dubai blue line awarded to one of our competitors. I also mention it because something happened in Sao Paulo where a reverse auction awarded a contract to a Chinese competitor. And I would say in some other geographies in Asia, same thing. I don't think it doesn't change anything, but when having a look at the landscape in terms of pipeline and competition, I think it's worth mentioning that we've seen some competition being more aggressive, but we do not see, by the way, any impact on the margins of our order intake. as most of the regions where we have been awarded new contracts, Europe, are out of the scope of what I call more intense competition.

That's very clear. Thank you. And then just the second part of that question is the language that you said on your order intake and order backlog margins. versus the current sales margin. I think you said largely above. I think before, I was just trying to check my notes, I think it was more of a clear above. Is this a change in tone, or is this just us being pedantic?

Well, I don't know exactly what you mean by it, but there is no change in the wording, in the language, in anything like that. In fact, the margin... Year to date, it is in the same vicinity as at the end of H1 for order intake. So we keep the same pace, same trajectory, and it keeps improving the margin on the backlog. And as a matter of fact, it's well above the margin that we trade in the P&L. So the margin in the backlog is improving gradually. That's why the... 50 bps improvement year over year is confirmed. There is absolutely no change. And sorry if you detected some different wording because it's not the case at all.

That's also very clear. Thank you. I thought it was worth double-checking. And if I may, just last one. On this dynamic of delivering revenue in line with guidance but with lower costs, production by quarter and for the full year as you've got it now, you're very clear that you don't expect any implications from that exchange to margin. But in terms of free cash flow, is there anything that we should read into that in terms of maybe that's a customer acceptance or low inventories that could maybe point to better working capital development that you're basically getting higher revenue content with less units?

Yeah, well, there are different impacts, and I don't want to elaborate too much on that. But in a nutshell, if sales on rolling stock are lower but sales on the other segments of our business are higher, I mean, it gives the room to mitigate any other impacts. So on the P&L, I think it's clear. And so that's why we do not change the guidance. Around 6.5% is, I think, is the right way to look at that, including the new assumptions in rolling stock. And on free cash flow, I mean, we have reiterated that in terms of down payments, We see a level that is fully consistent with last year. So, of course, when you deliver less cars, you could have an impact on the cash in. But on the other hand, you also flex your costs, so less cash out. And we expect to burn inventories in Q4 as well. So let's see that at the end of the fiscal year. But again, the message is that we do not change the guidance. I don't think it's material. And we are, let's say, mitigating, offsetting all those impacts here and there. And above all, we have a plan in order to increase our running stock. Because, I mean, here we are looking at things from a, I would say, a helicopter view on our production. But in fact... When you go into the details, as I tried to do by deducting Darby that is now not producing anymore, in fact, our total production of cars is increasing year on year. So, I mean, it's a clear ramp-up. Maybe not as expected, but it's a clear ramp-up. So, no impact.

Got it. Thank you very much.

You're welcome. Thank you, Mr. Cookton. We'll now move to Akash Gupta of J.P. Morgan. Please go ahead. Your line is open.

Yes, hi. Thank you. A couple of questions, please. The first one is on organic growth. If I look at nine months organic growth, you had 6.8%. And then when I look at your revised car production outlook, at the midpoint in Q4, your car production will see around 13% year-on-year growth. So the question I have is that is it fair to assume that there could be some upside to your organic guidance of around 5% that you have left unchanged, or is there anything I'm missing in Q4?

I don't think that you are missing anything. So it's your view, and I can say that I share some of what you said. I mean, organic growths, was strong on systems. We are confident on signaling as well. And organic is a very strong, I mean, services has a very strong organic growth. So you can put it in different ways, but we are confident that we can deliver the 5% organic growth. Maybe it was a different mix from what we thought at the beginning of the year, but I think it goes in the right direction.

Thank you. And my second question is on cash flow. So you mentioned in the statement that guidance of 300 to 500 million free cash flows zoom this year down payments to be consistent with last year. And if I look at your nine months order intake, then rolling stock and solutions, and these two, I believe, drive down payments. I mean, these two are down 10% year on year while you have had strong growth in service and signaling. The question I have is that with nine months already gone and the visibility that you have for the remaining period, is it reasonable to anticipate that this year down payments will be consistent with last year? Thank you.

Absolutely. It means that we expect some contracts to be signed in Q4, a strong Q4 in order intake. So fair to say that some uncertainty here, but we are confident. That's why we reiterate the guidance.

Thank you very much.

Good evening, everybody. Actually, I have three questions, so potentially one at a time. Firstly, in terms of the commercial dynamics that apparently remain quite solid in terms of what you've been saying so far, but when you discuss with customers, when you discuss with public rail authorities, I mean, Are there any early signs that rail capex spending could be about to slow down a bit going into next year or the rest of 2025? I mean, any signs that government's commitment to rail is somewhat challenged by other priorities, such as defense, for example?

Well, I do not have any signs of such a swing from, let's say, infrastructure to defense. I have not discussed with rail authorities, but... From what I get from the clients, I mean, by the way, they are not the ones making the choice between defense and infrastructure, but I've not noticed any change. By the way, our... Tender activity is still very high, so it means that we have a lot of opportunities in the pipe. We have seen some big contracts under discussion for years and years materializing. We've seen also some call-offs, some options being exercised, as I said at the beginning of the of my presentation. So frankly, it's not what I noticed. And by the way, most of our clients have access to capital markets. So we are not dealing directly with states depending on fiscal discussion. So I've not noticed such a thing, Gaël.

Great. No, that sounds great. Thank you. The second question is, I think you flagged yourself the award of the turnkey Dubai Metro Blue Line to CRC. Does it mean the Chinese are now on an equal footing with you in terms of systems and integration capabilities?

I don't know exactly what were the metrics that the client has used to make his decision. But it's fair to say that CRC has already participated to large turnkey projects. such as the Maca Metro or Mexico, so there is no news here. In those geographies, they are already very active, but I don't know exactly what made the difference between them and us, but... For sure, it was unsatisfactory from our point of view. We thought that we had a very good offer. Does that mean... that you could have a broader approach of alternative projects. I don't know. But it's true that those kind of system activities are notably in regions where CRRC is already present. So I wouldn't say it's a change in the dynamics of what we have already seen in the market.

Okay. Thanks very much. And lastly, on CRRC, The Aventra program, I know you're not producing anymore for the program, but any update on the ongoing negotiations for the finalization of this program and also including the discussions you're having, I guess, on the potential service contracts?

Well, of course, Gaël, this is not something that I'm in a position to discuss here. I mean, negotiations are ongoing. As you said, now the Derby manufacturing phase is ended. By the way, the number of FTE that we have there, blue colors, I mean, for production is down. So it goes according to the plan. Still some trains already manufactured, but to be delivered to clients. And a lot of discussions with clients, but I cannot tell you more.

Okay. Understood. Thanks very much.

Thank you, sir. Ladies and gentlemen, if you have any questions, once again, please press star 1. We'll now move to William McKee. Okay. Please go ahead.

Yeah. Good evening, everybody. Thanks for the time. Two questions, then. Not a lot left. The first one would be, could you comment on how you see the competition manifesting itself when you talk about increased competition. Are we talking specifically on prices or on terms and conditions? That's the first. The second question, maybe there's three. The second one is, you know, you've changed at the midpoint the rolling stock units production about 150 units. You know, can you be a bit more specific? Is that Northern European projects due to supply chains in Northern Europe or is it across the whole world or is it in particular areas that you've been driven to change that outlook? And maybe the last is, you know, there's an ongoing debate about the Trump administration's view on rail and the support of passenger and freight rail and service and maintenance and high speed. What is your view on how the Trump administration may affect change across the rail industry in America?

Ooh, Will, a lot of questions. I will try to make it simple. On competition, I think that we have seen – what we have seen was mostly on price. I don't think that on our technological – proposal or in terms of payments, maybe on cash. As I've already explained, there are things that we're not ready to do, okay? And we continue to be disciplined in the way we manage tenders. So when we see some contracts where we believe that it wouldn't make any sense to to be awarded a contract with a risk in terms of execution, or even if it's not a risk but real tough conditions when executing it as sold, we do not go for it. There are some limits that we set for ourselves, and that's why we are not pursuing tenders when we think that we are beyond those limits. In terms of production and the change in our forecast, it's not statistical. I mean, it's based on site-by-site analysis, so there is not a specific pattern for a certain site, either because it's a startup project or because we know that a certain company suppliers might be not delivering exactly the volume that we have asked. This is exactly what drives a change in our production planning. So it's not statistic. It's really specific. And on your last point on the – New administration priorities for infrastructure, I guess it's bipartisan. I have not noticed anything, but I will dig into that. I will be more educated when we will discuss next time about the situation in the Americas and in the U.S. specifically.

Thank you. Good evening.

Excellent. Thank you, Swiki. Ladies and gentlemen, as a final reminder, if you have any questions or follow-up questions, please press star 1. We'll now go to Martin Wilkie of Citi. Please go ahead. Thank you. Good evening. It's Martin at Citi. Just a couple of final questions. The first one was on supply chain. It doesn't look to have impacted your service business, but presumably there's some components that come from the same suppliers in rolling stock. I just wondered if you could comment on whether the constraints there as well. And the second one was just on currency. Obviously, we have seen some dollar strength. I know that you are largely hedged across many of your projects. Are there any concerns there with dollar strength in terms of what it's doing to emerging market currencies and any risks you see as part of that. Thank you.

Okay, so as you said, no impact on our service business. I mean, we have not noticed any kind of bottleneck or impact on our performance in terms of availability or whatsoever. So it's really specific. And I think that's something that I already mentioned after H1. It's not across the board. This is something really specific to some suppliers, some sites, some projects. And that's why we have not seen that in the service, and by the way, neither in the signaling business. On hedging and donor strengthening, we are hedged everywhere. So nothing specific beyond the translation impact. We only hedge, of course, transactions, but not translation. So nothing specific here and nothing to report that could have an adverse impact on our activities and business. No, nothing.

Great. That's good to hear. Thank you. Thank you. Thank you, Suki. Thank you. We now have a follow-up question from Andre Cookman of UBS. Please go ahead. Your line is open, sir.

Thanks very much for taking follow-ups. I'll be brief. I just wanted to ask about services growth and that double-digit growth that you've been delivering. Does that kind of bode well for 2026, 2027 as well? Because I kind of see we're fading those kind of growth assumptions in those years, and you're beating on order intake and the revenue delivery appears to be kind of consistent as well. So I noted it earlier, but how should we think about maybe calendar year 2026? Can you sustain that sort of level of growth?

Frankly, André, it's too early to discuss the next years. The only thing I can say is that what we are seeing here in terms of growth is just paving the way for the continuous growth of this business. The proportion of services in our order intake is largely in line with what we want to see in the future. So I think it's just what – it's fully consistent with what we explained last year when detailing our midterm plan. If it can be better, that would be good news, but we have not – We have not discussed that yet, and we are working, in fact, on the update of our medium-term plan, but it's not a discussion that we can have today.

Okay. We'll follow up in three months' time. And if I may, just another broader question on this changing of production lines to flexible, that sort of one-third of the targeted 60s. We've now seen the Indian production line that I think is the first. Could you talk us through the roadmap on this, that kind of change of the 20 sites? Over what number of years do you plan that, and what has the progress been?

Frankly, between November and Jan, there is no real update on that. The roadmap is still the same. in terms of reducing the total number of assembly lines and having a large proportion of that. That can be flexible, no change. And to be totally honest, it's too short a period to see any material change in what we have done. Got it. Thank you. Thank you, everybody. Another one?

Yes, we have one question remaining, I believe. It's Jonathan Mounsey of BNP Paper. Please go ahead.

Good evening. Thanks for fitting me in. Just a follow-up on the supply chain issues. You described them as specific issues, specific sites. Is it also specific train types and given its specific suppliers? And if so, does that mean that there's a concentrated number of projects maybe that are being impacted. And if that were to be the case, are there just maybe some customers where there's maybe a difficult discussion that has to be had about the delay to their train deliveries, and could there be a financial cost to that? I mean, we're talking now about a few hundred trains that won't be delivered relative, I guess, to what we originally expected at the beginning of the year. That feels like something where there may be a price to pay for late delivery of trains. Could you comment on that, please?

You know, Jonathan, it's a day-to-day life of trains to anticipate, sometimes to renegotiate some issues. some impacts of deliveries missing. By the way, we are talking here of production, not deliveries, right? In terms of deliveries, our numbers are also growing because when you exclude Derby, I mean, things are also improving. So what I mentioned was really specific to certain trains, certain projects. We are not a product company, okay? So everything we do is dedicated to certain projects. That's why we are not talking of a commodity that could affect all our projects. No, it's really specific. So in case it has an impact on some contractual terms with clients, of course we discuss it. If it has an impact on the margin of completion, we update it. That's what we're going to do now on the project reviews for the closing of the year, and we will update you in May on all those impacts. But as I said, it's taken into account in the guidance.

Obviously, we think about the years to come. When we started 2025, you laid out the 4,800 to 5,000 cars per year. I know it's a bit early for guidance, but with these trains not being manufactured this year, is it reasonable to expect that there'll be some catch-up in 2026? Maybe we can go beyond the 5,000, or is this really just things that permanently sort of move to the right somewhat?

No, no, no. I don't see... kind of recovery or some kind of sudden impact, and then you come back to average. It's more a question of having a long-term trend. And I keep the same order of magnitude. We are sizing the company to deliver between 4,500 and 5,000 cars. The question is how long it takes to deliver, and that's what we are assessing when we are tendering for a contract. It's all about having more flexibility in the way we are dealing with that. But, no, I do not see any kind of strong catch-up because we would have missed, I don't know, X train. Next year would be 5,000 plus X or 4,500 plus X train. I do not expect that. So we'll update you on the number of cars for next year, but I still see as a ballpark the total capacity installed for the next years between 4,500 and 5,000 cars. Thank you very much.

Thank you, sir. As we have no further questions, I'll turn the call back over to Mr. Diop for any additional or closing remarks.

Thank you. Okay, thank you. No other remarks. Talk to you later, and we will see you in May for the full year results. Thank you. Bye-bye.