Alstom Unsp/Adr

Hello and welcome to the outstanding half-year results for fiscal year 2025-2026. My name is George and I'll be your coordinator for today's event. Please note this conference is being recorded and for the duration of the call, your lines will be in the listen-only mode. However, you will have the opportunity to ask questions towards the end of the presentation and this will be done by pressing star 1 on your telephone keypad to register your question. If you require assistance any time, please press star zero and you'll be connected to an operator. I'd like to hand the call over to your hosts, Mr. Henri Poupard-Lafarge, CEO, and Mr. Bernard Bilpy, Executive Vice President and CFO. Please go ahead.

Thank you. Thank you. Good evening. Good evening, everybody, and thanks for joining Alstom's first half results conference call. I'm Henri Poupal-Affar, Group CEO, and I'm joined by Bernard Delpit, EVP and CFO. I will first comment on the highlights of the first half before Bernard will walk you through the financial results. I will then comment on guidance before opening the floor for your questions. So let me start with the key figures for the first half. Orders reached 10.5 billion euros with strong commercial momentum in Q2, particularly driven by holding stock in North America. The book-to-bill ratios stood at 1.2, fully aligned with full year guidance. Sales came in at 9.1 billion euros, reflecting 7.9% organic growth with all product lines and regions contributing. Adjusted EBIT was 580 million euros, up 13% year-on-year, representing a 6.4 margin compared to 5.9% in the same period last year. Free cash flow was negative, 740 million euros as expected, reflecting typical in higher seasonality. The solid performance underscores the strength and resilience of our business model. Let me highlight three key competitive advantages that I believe will continue to drive commercial and operational success. First, the multi-local footprint is more relevant than ever in today's macroeconomic and geopolitical environment. It allows us to win business and execute projects effectively, and we are continuing to expand in this direction. Second, the integrated approach across rolling stock services, signaling, and systems is delivering strong sales synergies. In particular, most of our rolling stock orders are now linked to long-term service contracts, reinforcing revenue visibility. Third, the harmonization of the rolling stock portfolio is delivering results, particularly in high-speed rail. Progress towards the homologation of the Avelia Horizon platform is encouraging, and we have secured additional orders for the platform in the recent months. In the meantime, we continue to execute on our strategic priorities. With the Bombardier transportation integration now complete, we are focusing on driving industrial and development performance. The Transformation Plan in Germany, in particular, is progressing well, and we are holding out efficiency initiatives across engineering and manufacturing. Looking now at page 6, Alstom's addressable market remains stable for the three fiscal year beyond March 2026, at around 200 billion euros. Europe continues to stand as our first market, concentrating many rolling stock commuters and mainline signalling opportunities. American customers will tender train replacement opportunities in the north, with mainline and urban network expansions being expected again in the south. Half of AMECA's 31 billion pipeline will be made of turnkey projects, and Alstom stands ready to tap into those. In Asia Pacific, Australia and India will continue to be our main markets, with India focusing on freight and urban developments, while Australia could see the exercising of several rolling stock optional trenches. Now turning to slide 7, focusing on orders in the second quarter. The Americas region had a very successful semester this year, with two landmark orders. This includes a €2 billion holding stock contract with MTA in New York, a €1 billion holding stock option exercised by NGT in New Jersey. In Asia-Pacific, commercial activity was also strong in the second quarter, with key wins such as another metro project in India, confirming Axom's long-lasting presence in the city of Mumbai, A 500 million euro rolling stock and maintenance contract in New Zealand, in addition to the KiwiRail signalling project signed by Alstom in 2022. A signalling order in Singapore, enabling faster travel times from the Shanghai airport. Together with other small orders, Alstom recorded 6.4 billion euros in total orders for the second quarter. This brings the book-to-bill ratio for the first half of the year to 1.2. Moving to slide 8, highlighting large orders announced and booked since the start of the second half. Let me start with Eurostar. Eurostar has placed an order for 30 Avelia Horizon double-decker very high-speed trains for a total value of 1.4 billion euros. The agreement also includes an option for the purchase of 20 additional units. This is a strong validation of the Avelia Horizon platform. which is now close to homologation and has built a very solid order book of more than 170 trains, serving multiple clients both in France and abroad. On the right hand side, Polish operator PKP awarded Astorm a contract worth 1.6 billion euros for the supply of 42 Coradia Max trains together with 30 years of maintenance. This award illustrates the strength of the Caradio platform as well as the increasing share of holding stock contracts being bundled with long-term maintenance. The agreement with PPP also includes an option for the purchases of 30 additional trains. Turning now to the backlog on slide 8, the average gross margin in the backlog stands at 18% at the end of the first half, compared to 17.8% at the end of the same time last year. This represents a 20 basis point increase compared to the end of the last fiscal year. Continuing the weight of holding stock orders in the first half, the increase in the gross margin backlog demonstrates the quality of the order intake across all product lines. Our commercial wins this semester have shed a particular light on the North American rail market, as explained on slide 10. We have seen over the recent years ridership increasing closer to pre-COVID activity, with Amtrak ridership in the U.S. already exceeding the pre-crisis level. The need for enhancing passenger experience and upgrading aging train fleets remains a powerful commercial driver, with 50% of the U.S. installed base needing replacement in the short to medium term. The U.S. railway supply market, as addressed by ASTOM, has witnessed further concentration of with the three largest players accounting for about three-quarters of all orders in the last three years. Finally, in Canada, ASTOM enjoys a unique position thanks to five main sites and 5,000 employees. Continuing with North America on page 11, on the delivery aspects, we celebrated in August the debut of the Amtrak high-speed next-gen Acela on the Northeast Corridor. These are the fastest and most technologically advanced trains in the U.S. that Aston manufactured at its Ornell hub. This facility in upstate New York is the largest dedicated passenger rail manufacturing facility in the U.S. Ornell is also where the trains from the newly signed MTS M9A order will be delivered, with further investment made there to manufacture carbony shells. On the west coast, the Bay Area Rapid Transit part in California accepted the 1,000th car from the fleet of the future. This rail car came from Alstom's Plattsburgh facility, where the group is also manufacturing the NGT multi-level three double-deck EMUs. Turning our attention to France on page 12. The first MF19 metro interring service on Paris Metro Line 10 has brought the focus back on the widest generation of trains in the United Nations that have simultaneously matured. Within a timeframe of only five years, no less than five new train platforms will have reached operational service stage, among which MF19, Aria-NG and Avelia-Horizon for high speed. The RER-NG in particular commuter trains have been running on the RER-E line since November 2023 and on RER-D line since November 2024. Combining single and double deck cars, this train embarks numerous capacity, comfort and accessibility innovations. And last, the Avelia Horizon platform witnessed several further milestones, with TGVM starting endurance tests in France following completion of certification tests and with another high-speed commercial success achieved with Eurostar. On page 13, we reflect again on car production levels, providing insights into the rolling stock business, which together with the trend components represents about 50% of sales. Production volumes were broadly stable in the first half compared to last year. Some projects saw an increase in production, including RERNG and TGV in France, commuter trains for BART in the U.S., or several German projects where volumes are on the rise. At the same time, some large projects that contributed to volumes last year have now been completed. This includes some tire metros in Paris, some metros in Sao Paulo, the Trenmaya project in Mexico, or the Avelia Liberty for Antrax in the U.S. In addition to a favorable mix of cars and sales, it's worth noting that more cars produced in the first half were part of projects in ramp-up phase compared to same period last year, which also contributed to rolling stock sales growth. Overall, we continue to expect stable production for the full year. Let me now pass it on to Bernard, who will comment the first half results.

Thank you, Henri. Good evening, everyone. Let's start with the order intake as shown on slide 15. We recorded 10.5 billion euros of orders in the first half. The book-to-bill ratio that was 0.9 for the first quarter accelerated to 1.4 in the second quarter, resulting in a book-to-bill of 1.2 for the first half, of which 1.4 for rolling stock. The backlog reached 96.1 billion euros, up from 95 at the end of March. This increase was driven by the strong book to bill, but partly offset by negative currency effects. Looking at the regions, the Americas had their best semester ever, with large orders from New York and New Jersey, Europe remained the largest contributor, supported by strong momentum in France, and the signaling business had a solid start to the year, with contract wins in Italy, Taiwan, Brazil and Singapore. Turning to sales on slide 16. Sales reached 9.1 billion euros in the first half, up 7.9% on an organic basis. All product lines contributed to sales growth. In particular, rolling stock sales totaled 4.7 billion euros, reflecting 6% organic growth. This was driven by a strong ramp-up in Germany, with double-digit growth across multiple regional train projects, continued momentum in France, notably supported by the RER-NG program. In the Americas, increased production volumes for BART in San Francisco offset the completion of other projects, including Amtrak. In Asia-Pacific, the locomotive business in India remains an important growth driver. Service sales reached 2.3 billion euros with a 6% organic growth, supported by strong performance in Italy, the UK, Australia, and the airport people movers in the US. Sales in signaling came in at 1.3 billion euros with 17% organic growth, driven by robust execution in France, Italy, and Germany. Reported growth in signaling was more modest at 4%, mainly due to the deconsolidation of the North American conventional signaling business as of September last year. Finally, systems sales totaled €0.8 billion, representing 10% organic growth. Second quarter performance was impacted by the ramp-down of the Mexico-Trenmaya contract, which was not fully offset by ramp-ups in the Philippines, Taiwan and Brazil. The trend seen in Q2 will continue into the second half. Looking now at inorganic items, Friant Exchange was a 3.3 point headwind driven by Euro appreciation against most currencies. And Scope had a negative 1.2 impact due to the deconciliation of the US signaling business that I mentioned above. Scope will be neutral in H2. So as a result, sales grew 3.2% on a reported basis. Looking now at the P&L on slide 17. Gross margin reached 1.2 billion, representing 13.6% of sales, a slight decrease compared to the prior fiscal year. In absence of a scope and FX impact, the gross margin percentage would have remained stable. The improvement in project execution and industrial efficiencies was offset by regional mixed headwind, with, for instance, Asia-Pacific being broadly flat at current FX rates, while Germany grew solid double digits in the first half, but at lower gross margin. Net R&D costs accounted for 2.7% of sales, notably due to cost discipline project phasing, but also to the disposal of the North American signaling business, which was more R&D intensive. Selling and administrative costs have reduced both in absolute terms and as a percentage of sales, now representing 5.7% of sales in the first half, demonstrating continued efforts on cost efficiency. We also benefited from a solid 100 million euro contribution from the joint ventures. These demonstrate both the resilience of the Chinese market and the needamism of the broader Asia region, to which several of those JVs are exposed. Taken together, the adjusted EBIT increased by 65 million, reaching 580 million this semester. Turning to slide 18 and the analysis of adjusted debit margin development in the first half, the 50 bps improvement to 6.4% is the combination of 40 bps headwind and 90 bps performance. On the one hand, adjusted epic margin faced a couple of inorganic headwinds. Scope at the negative 20 basis point impact, slightly less than the impact on gross margin, due again to the higher weight of R&D for the North American signaling business compared to the group average. FX at a negative 20 basis point impact from a translation effect. On the other hand, these add-ins were more than offset by progress on project execution and industrial efficiencies, contributing around 20 bps to margin improvement. Fixed costs, looking at R&D and G&A together, contributed to a 50 basis point increase. Other elements, including the increase in net interest and equity in this speak-up, contributed 20 basis points overall. Looking at net profit on slide 19, non-operating expenses have reduced further to 37 million euros in the first half. Non-operating expenses mostly relate to the impact of the German transformation plan and some legal costs. As a reminder, integration costs were nil the first half of this year as Bombardier integration program was concluded last year. Net financial expenses decreased to 75 million euros from 107 million as a consequence of the leveraging plan that occurred in H1 last year. Effective tax rate came back to a structural level of 28% compared to 37% in the same period last year. Finally, adjusted net profit increased by 51% to €338 million for the half-year, and net profit group share after PPA reached €220 million four times last year net profit. Turning now to free cash flow on slide 20. Free cash flow came at a negative 740 million euros, consistent with expected season housing. Let me highlight a few moving parts here. Adjusted EBITDA, including dividend payment from JVs, reached 800 million versus 708 last year. CapEx and CapDev together amounted to €225 million, or 2.5% of sales, with some favorable phasing impact of investments that will reverse out during the second half. Financial and tax cash-out together amounted to €152 million, coming in close to the P&L expense. This results in a solid increase of funds from operation to 411 million euros for the first half, up more than 100 million euros compared to the same period last year, confirming the trajectory observed over the last three years. Finally, working capital was a 1.2 billion euro headwind, slightly better than expected. Talking trade working capital on slide 21. Trade working capital stood at 43 days of sales at the end of September, broadly stable compared to the first half of last year. The increase compared to March 25 represented a 500 million euros headwind for cash generation in H1 this year. Inventories increased by €315 million over the six months and stand at 87 days of sales, not very different in terms from September 2024. This is largely explained by the anticipated acceleration in rolling stock production during the second half of the year, with higher value train sets to be manufactured this year. In comparison, days of payables progress slightly less than days of inventories. Looking now at contract working capital on slide 22, it went from a favorable 89 days of sale to 79 days at the end of September and stands at negative 3.9 billion euros. so generating close to a 600 million euro headwind during the half. Net contract assets and liabilities went from negative 59 to negative 48 days of sales, just below 2.5 billion euros. The vast majority of the decrease in the net position was driven by rolling stock with three dynamics. First, the increasing share of projects in a rapid phase compared to last year. During this phase, when pre-serial calls are being built, and homologation milestone is not reached, then rolling stock contracts pivot from a contract liability position to a contract asset position, and therefore consume working cap. Second, the phasing of down payments this year is very different to last fiscal year. Less down payments in the first half, more to be expected in the second half. And third, a few large rolling stock contracts have only recently reached cash milestones, including, for example, Amtrak, with a launch of commercial service in August, and cash-ins to be collected over the next quarters. We anticipate the three dynamics will remain valid through the rest of the year, but the timing of down payment will largely drive the improvement in contract working cap in the second half. Finally, provisions are decreasing as expected with execution of the legacy backlog. Net financial debt on slide 23, it increased to 1.4 billion euros at the end of September, up from 434 at the end of March, in addition to free cash flow changes. Leases and dividends from minorities combined with a 44 million euro annual bond coupon paid for the hybrid bond amounted to a nearly 150 million euro total cash outflow during the first half. And the strong appreciation of the euro had a negative translation effect on cash balances held in non-euro-dominated currencies of 65 million euros. This translation adjustment is, by definition, non-cash, but does impact the net debt in euro terms. You will find in appendix of this presentation the updated bridge computation from EV to equity value reflecting these evolutions. Finally, looking at cash and debt profile at the end of September... On slide 24, cash balances stood at 1.7 billion euros at the end of September compared to 2.3 at the end of March. The amount of shortened debt entirely through commercial paper stood at 400 million while the balance was nil at the end of March, leading to a net cash position excluding long-term debt of 1.3 billion euros. These moves are explained by free cash flow consumption as detailed in previous slides, the agreement with the rating agency to earmark a portion of cash to identify future debt repayments, and the need to keep a certain amount of cash to run the business. This concludes the financial review. Let me pass it on to Henri for final remarks.