Alstom Unsp/Adr

Hello and welcome to the LSTOM full year results for fiscal year 2024-2025. My name is Laura and I will be your coordinator for today's event. Please note this call is being recorded and for the duration of the call, your lines will be on listen and remote. 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 questions. If you require assistance at any point, please press star zero and you will be connected to an operator. Today, we have Henri Poupal-Lefarge, CEO, and Bernard Delpit, Executive VP and CFO, as our presenters. I will now hand you over to your host, Henri Poupal-Lefarge, to begin today's conference. Thank you.

Thank you. Good morning, everyone. Welcome to Alstom's results for the fiscal year 24-25. So I will start by a few highlights and then Bernard with me will walk you through the full year results. I will go through our outlook and guidance before taking your questions at the end. So let's start with the key figures. So orders came at 19.8 billion euros for the year, with a strong momentum in small orders during the fourth quarter. So book-to-bill came at 1.1 for the year, in line with our guidance. Sales came actually ahead of the plan at 18.5 billion euros, an equivalent of 6.6% organic growth. Adjusted EBIT was close to 1.2 billion euros, up 18% on a year-on-year basis. This represents a 6.4% margin compared to 5.7% last year, in line with our guidance. Free cash flow at €502 million came at the top of the guided range and for the third semester in a row, with €640 million free cash flow generation in the second half, despite a low order intake in rolling stock and systems over the same period. The strong set of numbers reflects the continuous progress we are making on our strategic priorities. And let's come back to three of them. First, the quality of our backlog continues to improve. The backlog margin is now close to 18%, and back to the level we had before the merger. This reflects quality order intake, a favorable mix towards service and signaling, as well as the end of specific legacy contracts inherited from the merger, like Avantra in the UK. Second, we continue to work on improving execution. During the year, we had to mitigate supply chain constraints. But in this context, we are happy to report record activity in the fourth quarter in terms of production volumes. Third, now that the integration of Bombardier Transport is done, we have mobilized around an ambitious plan to improve industrial efficiency. On the industrial side, we are working towards increasing standardization across manufacturing lines while optimizing our industrial footprint. with, for example, the launch of the transformation plan in Germany. On the engineering front, we have started the deployment of the PLN, the Product Lifecycle Management, in partnership with Dassault Systèmes. Objective is to reduce by 30% cost and time needed for trends development, leveraging on the new scale of the group. So overall, a solid set of results with all objectives delivered. Turning to the usual snapshot on the market opportunities on slide six, we continue to see very supportive demand for help globally, largely thanks to increased ridership in most countries. Alstom pipeline for the next three years remains broadly stable, globally at around 200 billion euros. Let me give you a few regional highlights. The European pipeline is up 10% compared to September, thanks notably to high-speed opportunities in continental Europe. And for clarity, this does not factor any upside from the German infrastructure plan. It is too early to adequately measure its effects. We are a bit more prudent on the Americas, with some delay in decision-making on a few large-scale rolling stock and system projects, in part due to the current macro environment. In terms of competitive dynamics, the landscape in Europe and North America has generally been quite stable. The Chinese player CRC remains absent from these markets. In the regions where they do compete against us, such as Latin America, the Middle East, or Southeast Asia, these regions collectively account approximately 15% of Alstom addressable market. So bottom line, this pipeline supports Alstom growth trajectory and our objective of book to build above one for rolling stock in the short term as well. So turning to slide seven with a few contracts to highlight for the second half, 1.8 billion euros of large service orders, regional train maintenance in Europe, and several important operations and maintenance wins in the U.S. On Rolex stock, we won the tender in Morocco for various speed trains, and we received a batch of 500 million euros of options for RE-ING. We note two promising frame agreements in signaling. We have been signed in Europe for a total 800 million euros with orders to be booked progressively over the next quarters. On slide eight, you see the mix of order intake over the last four years. The share of order intake from services and signaling has increased from 36% in fiscal year 22 to 58% in fiscal year 25. These are, of course, the most profitable activities and support the margin trajectory. This, combined with lower rolling stock orders over the last two years, results in a more balanced backlog, with around 40% from service and around 40% from rolling stock. A few comments here. On the signaling side, we have seen major investment decisions in geographies like Perth in Australia during the first half, but also many small orders on frame agreements like in Italy. Such frame agreements are now also in place in Germany, which is only starting its rollout of ERTMS. Travis's orders in fiscal year 25 have been outstanding, with a book-to-bill at 1.8 and orders exceeding 8 billion. This has been achieved thanks to a high attach rate with new rolling stock customers like S-Bahn Highland or Proxima. A positive momentum in short cycle sales, with overall and spare parts coming on top of the long-term maintenance contracts. all operation and maintenance contracts coming to an end have been extended, and some of them with increased scope, like in California in preparation of the 2028 Olympic Games in LA. And finally, Alstom was successful in securing new customers like Transnet in South Africa for the maintenance of its fleet. Regarding the rolling stock production output on slide nine, After a more challenging start of the year, marked by serial production stoppages and supply chain issues, Q4 saw a remarkable mobilization of Alstom operation teams with 1,282 cars being produced. In particular, the teams have worked toward reducing supply chain constraints. The early identification of capacity issues of suppliers has enabled to reduce the quantity of critical suppliers from 69 to 44 at the end of the quarter. For the few outliers which had been impacted our production chains, the action plan deployed is producing its impact. And they have been able to deliver in line with expectations during Q4. To make our supply chain more resilient, several dual sourcing initiatives have also been put in place. Slide 10 on two projects for which we gave regular updates. The Amtrak program is substantially over. Seven trains remain to be accepted as of March 25 out of 443, and all consequences of the closeout negotiations have been provisions, including penalties or modification costs. For the Amtrak project, testing is complete. We expect homologation and start of revenue service as per Amtrak announcement. Manufacturing is nearly finished, and we now expect cash-in to come following homologation. Turning to slide 11 and a few operational highlights, overall we continue to make progress on the key operational indicators we are on track. For instance, we have remarkable progress on quality indicators like the number of demerits per car at a record low. We are humping up despite pressure from the supply chain. We are improving our engineering and manufacturing on time delivery, even if we can and we will do better continuously. Client satisfaction measured by the net promoter score is continuously high and continuously increasing. We will double down on this operational excellence initiative to support competitiveness and on-time delivery objectives. So now let's take a look at Germany, which is one of our key focus areas. So on slide 12, on Germany, Germany is the number one market. This market represents around 14% of the group backlog, and it's attractive in terms of mix and diversification of the customer base. The announcement by the new government of the major infrastructure plan will most likely reinforce the market attractivity. At Alstom, we have invested in rolling stock, new rolling stock platforms, like, for instance, the Coralia regional trains, the Trax locals, and metros. These platforms have been successful in the market with a higher order intake in the past few years, like in Cologne, Hamburg, or in Baden-Württemberg. We also have invested in services and signaling, already doubling our sales in these two activities during the last four years. And with landmark win beginning of 2025 with DBNet signaling frame agreement. While demand and our positioning is strong, we recognize that our industrial footprint in this market is not optimal. That's why we have announced in October last year a transformation plan, which includes the sales of Gerlitz sites announced in February, the reduction of three NCB sites from six today, and the transformation of two rolling stock sites into service sites. As part of this transformation plan, we expect €100 million restructuring charges over the next three years, mostly linked to severance, transfers of production and transformation to improve cost base and competitiveness. We anticipate our strong positioning in Germany, combined with a transformational plan, will yield tangible results over the near to medium term. In particular, we expect, first, a significant activity increase, second, improving mix towards services and signaling, and third, strong efficiency improvement with a 30% increase in utilization rate at our sites. Deployment of standard manufacturing line and the phase-out of legacy projects. Decarbonization remains central to Alstom's strategy. The group continues to strive to lead the societies to a low-carbon future, as you can see on slide 13. The group is actively reducing its own direct and indirect emissions. On Scope 1 and 2 emissions, Indicator stands well at 128 kilotons of CO2 emissions in 2024-2025. This is a 8% decrease comparing to last year. So overall, Alstom has achieved its target of reducing scope one and two emissions by 40% since 21-22, as early as this year, more than five years ahead of the original target plan. This is an important milestone in enabling us to look forward towards more ambitious goals in the future. On scope three, sole products emissions, still well-oriented, reducing by 2% this year, we are on track to meet our objectives regarding CO2 emissions intensified of Alstom passenger transport solutions sold during the year. Finally, the taxonomy says alignment results have improved again by six points, now reaching 66%, placing Elsom among the top-notch industrial companies on these indicators. I'm very satisfied with these performances, which reaffirms the group's role as a pioneer in sustainable operations and smart mobility solutions. Now, I will hand over to Bernard for an overview of the financial results. Up to you, Bernard.

Thank you, Henri. Very happy to share good news on Alstom with all of you today. Starting with order intake on slide 15. Order intake increased compared to last fiscal year and reached 19.8 billion. This represents a book-to-bill at 1.1, in line with guidance, even if slightly below the 20 billion mark mentioned in January. Q4 order intake came at 4.6 billion, thanks to a solid base order's for a total of 3 billion. This compensated a few large rolling stock orders shifting to fiscal year 26 compared to what we expected earlier in the year, in particular the contract with CP in Portugal. Europe has been again the most dynamic region. Americas and Africa, Middle East also recorded good momentum. In terms of product lines, the group recorded a strong performance on services and signaling. Margins on order intake continue to exceed margins in the backlog, and this is not only thanks to mix by product lines, but also to the quality of rolling stock orders. Based on that, we are very optimistic on the order intake for next year, along the year, but particularly in H2. You may have seen Bulgaria, option on RAR-NG. As I mentioned, CP in Portugal will come later in the year. And we have good news coming from Americas and Australia. Turning to sales on slide 16, reported sales grew at 4.9% for the full year, reaching $18,449,000,000. FX had a minor negative impact. Scope was also a 1.3% negative, mostly due to the sale of the U.S. signaling business before the end of H1. As a total, organic growth was up 6.6%. Rolling stock sales reached $9,454,000,000, up 3.7% organically, with ramp-up in Australia and good execution in France, Italy, South Africa. Mix explains why, with a stable production, sales were up almost 4%. Services and signaling consistently deliver strong growth. For signaling, the scope impact has been fully compensated elsewhere, notably in Europe and Australia. Systems were very strong in Mexico, France, and Africa. And even if we can see some reasons for a slower growth in signaling and services this year, I do not see it today in our current trading. Looking now at the P&L on slide 17, gross margin reached 2.6 billion. In percentage, it decreased by 20 bps to 14.1% compared to the prior fiscal year due to legacy projects and scope. We'll see the details on the next slide. Net R&D cost on P&L ended up the year at 2.8% of sales. notably due to cost discipline and to projects phasing, and also to the disposal of the U.S. signaling business, which was R&D intensive. Selling and administrative costs have reduced to 5.7% of sales following the cost-saving plan launched last year. Finally, we had a sound contribution from Chinese JVs at 148 million. Altogether, adjusted EBIT margin increased by 70 bps compared to the prior year and reached 6.4%, totally in line with guidance. Analyzing the main drivers behind the adjusted debit margin figure for the full year on slide 18. Gross margin decreased by 20 bps. Volume and mix developed in line with plan up 30 bps. Scope was a negative 20 bps impact, largely due to the sale of the U.S. conventional signaling business to Knorr Bremse. Legacy contracts were overall an additional 30 bps headwind to gross margins. Aventra was the most significant one, which is now over. Finally, the German transformation plan was announced in October 2024, so the tangible contribution to profitability is expected to be more visible in the years to come. Below gross margin, we are ahead of plan on SG&A savings, with a positive 60 bps contribution to adjusted debit margin growth this fiscal year. R&D as a percentage of sales came 30 bps lower than in the prior year, as explained before. Those two items somehow offset delay in restructuring in Germany, which is starting now. Looking at net profit on slide 19, non-operating expenses have reduced from 510 million last year to below 200 million euros this year in line with guidance. Looking at it in more details, integration costs came at 97 million, according to plan, as we finished the integration of Bombardier. Legal costs reached 36 million, mainly for the preparation of the arbitration against Bombardier Inc., Other non-operational expenses include the consequential impacts of the German plan and other costs. With the end of the integration, we expect non-operating expenses to reduce further and to stand around €100 million per year going forward, depending on the intensity of some footprint operations. Financial results decreased to $214 million with two main effects here. First, a strong reduction in net interest expenses from $153 million to $64 million in this year, thanks to the deleveraging plan. This positive effect was partly offset by an increase in other financial expenses, notably a €30 million increase in hedging costs compared to last fiscal year, mainly due to significant changes in foreign currency cash position in Mexico and Poland. an increase of 16 million euros relating to the mark-to-market entry of a virtual purchase power agreement, and the increase in significant financial components on contracts for 10 million. You know that this is the IFRS entry by which the financial interest generated by large and well-financed contracts is reclassified to gross margin from financial results. Effective tax rate stood at 35%. This should revert to around 27% or 25% in next years. Finally, adjusted net profit stood at 498 million, which evidences an improvement in the quality of earnings. Turning to free cash flow. For the year on slide 20, free cash flow came at 502 million euros in the very high hand of the guided range. Let me highlight a few moving parts here. Adjusted EBITDA reached nearly 1.5 billion versus 1.1 last year, representing 8% of sales. It was 6.4% last year. CapEx and CapDev amounted to 2.6% of sales below the plan, with some phasing impact that will reverse next year. Financial cash-out has reduced at $175 million thanks to the deleveraging plan and reduced recourse to shortened debt. Tax cash-out has increased in line with profit uplift at $181 million, now close to the P&L tax charge. This results in funds from operations at 553 million for the year, representing 3% of sales against 1.7% last year. Finally, the working capital headwind since the first half has mostly been reversed in H2. In short, we managed well this year above our own midpoint guidance, and as you know, This cannot be a linear progression in this contracting business. Some details on trade working capital on slide 21. Trade working cap stood at 34 days of sales at the end of March, stable compared to last year, representing 1.7 billion in fiscal year 2025, almost stable over one year. Inventories increased by more than €300 million over the year and now stand at 82 days of sales. This is largely explained by the ambition to accelerate production and deliveries during the second half of the year at a time when supply chains remain tight. We are making sure now that a strong action plan is in place so we can drive inventory turns towards the 75-day medium-term objective. In the meantime, days of payables progressed in line with inventory days. Finally, Alstom has reduced again its overdue receivables as we're increasingly able to resolve customer issues faster. Looking now at contract working capital at the end of March on slide 22, it went from a favorable 96 days of sales to 89 days at the end of March and stands at 4.5 billion, so a 120 million headwind in last fiscal year. Net contract assets and liabilities went from 63 to 59 days of sales, so just below 3 billion euros, and provisions are decreasing as expected with the execution of the legacy backlog. Contract assets increased compared to last year. The first driver is services and signaling, notably long-term maintenance contracts in Europe, which are continuing to grow as we mobilize resources and costs ahead of invoicing. Second driver is French very high-speed train, which has started its ramp-up phase. And third is the Amtrak project, on which we built most of the trains but await the homologation to invoice. As explained by Henri, manufacturing is now completed at 97%, but cash is only at 79%. Looking at contract liabilities, down payments have been stable in euros compared to last fiscal year, as announced in the initial guidance. Regarding rolling stock projects portfolio, fiscal year 25 saw a high proportion of large projects in startup phase, generating positive cash over sales, notably in Germany, in France, or in AMECA regions, which have pushed the contract liabilities upwards. We expect a number of these projects to transition from startup to ramp-up phase in fiscal year 26 that will weigh on working cap. On page 23, and as already emphasized last year, let me come back on the free cash flow seasonality as it is a feature of this contracting industry. In the last years, we've consistently seen stronger cash generation in the second half of the year than in the first one. Cash out is evenly distributed over H1 and H2. Cash in from progress payments has shown strong seasonality. Historically, mostly due to the closing dates, with fewer working days over H1, typically in July and August, with less production and less client availability for train acceptances. This results in progress payments being typically 45% weighted towards H1 and 55% weighted towards H2. And down payments from commercial activity are either mitigating or exacerbating this seasonality depending on commercial momentum. So looking back at fiscal year 25, you can see on the chart how structural seasonality looks like in dotted lines, typically around 900 million. and where we landed ultimately for both half years. In fact, at the start of the year, we had already anticipated lower than usual seasonality with the minus 300 to minus 500 million in H1 and plus 600 to plus 1 billion in H2. H1 landed better than expected thanks to the combination of a high level of well-financed rolling stock project in startup phase, generating good cash but low sales. and a better-than-expected distribution of down payments in H1. Regarding H2, production was good, despite a low Q3, enabling the cash-in from progress payments in Q4, and we had some phasing effect with reduced cash-out from restructuring and R&D, partly phasing, to next fiscal year. And last, few opportunities have shifted to fiscal year 26. Nothing is lost here, just timing effect. Bottom line, this has resulted in a very low seasonality for fiscal year 25, whereas we see fiscal year 26 showing a more normal seasonality pattern with some favorable, if not strong, reversal in fiscal year 27. Turning to slide 24. Net financial debt decreased to 434 million at the end of March 25, from 3 billion debt to almost 400 million. Three main moving parts here. First, the deleveraging plan brought more than 2.3 billion. of the first half. Second, free cash flow was positive, as detailed earlier. Last, the leases, dividends to minorities, FX, combined with the 11 million euro hybrid bond coupon, which is treated as dividends under IFRS, amounted at a whole... to nearly 250 million euro cash outflow on the full year. You will find in appendix of this presentation the updated bridge computation from enterprise to equity value reflecting these evolutions. As a note, Moody's has just issued a press release affirming our rating and stable outlook after a continuous and very, very transparent dialogue about our outlook. Looking at cash and debt profile at the end of March on slide 25, on the right-hand side, you can see there is no change to the senior debt profile. The group benefits from a favorable maturity profile with no redemption before October 26 and an average interest rate of 22 bps. On the left-hand side, you can see the €2.5 billion improvement in the cash, cash equivalent, and short-term debt profile. As announced at the time of the rights issue, short-term debt has been fully repaid for a total amount of €1.2 billion. Cash and cash equivalent amount to €2.3 billion, with €1.1 invested in long-term deposits and in money market funds at the end of March. As a side note, Alstom will continue to use commercial paper and revolving credit facility for liquidity needs going forward to manage short-term working capital funding requirements as it is flexible and efficient. In terms of capital allocation, there is no change to this slide, which is the very same we presented last year. Deliveraging remains a priority in the short term. The inorganic part was finalized in the first half of the year. The rest of the deleveraging plan is linked to free cash generation. We will obviously maintain a strict M&A policy in that respect. And now, Henri, over to you for the outlook.