Alstom Unsp/Adr

Welcome to the Alstom 2025-2026 Full Year Results Conference Call. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing pound key 5 on their telephone keypad. Now I will hand the conference over to Martijn Sian, CEO. Sir, please go ahead.

Good morning. Good morning, everyone, and thank you for joining us. to discuss handsome results for the fiscal year 25-26. It is fair to say that I joined the company at a critical time. The past year has demonstrated both our strengths and the areas where we must raise the level of performance. On the one hand, the order backlog is at a record high. We've got a solid base to build on. Progress has been made in the last few years on several aspects. On the other hand, the execution challenges we have faced on some rolling stock projects are highlighting areas of project execution that require improvement. This improvement will ensure that we convert our backlog into sustainable profit and cash generation. The shortfall in cart production in the fourth quarter was not a one-off event, but instead highlights a lack of consistency in project execution within the rolling stock prototype that led to guidance being revised. After only six weeks in the role, it would be presumptuous for me to claim that I have the answers to improve operational performance on financial trajectory of such a large and complex business. Today, therefore, I will begin by highlighting key takeaways from the past fiscal year before showing my assessment of the current context and outlining my priorities for the group. Bernard will then talk and work you through the financial performance for the year, and I will conclude with the outlook of the 26-27 fiscal year. So starting with some highlights for the year. Last fiscal year was a record high for order intake, with nearly 28 billion euros for new orders. This reflects the commercial success of several new platforms, including Avelia Horizon for very high-speed trains and Coradia Max for double-deck regional train solutions. In addition, Alstom achieved a record level of orders in signaling, confirming its position as one of the leading players in digital rail solutions. Group sales grew organically by 7.2% in the last fiscal year. All product lines contributed to growth except for systems. Adjusted EBIT margin was below expectation and below last year's level. This was mainly driven by underperformance in rolling stock with a mix of projects in industrialization and homologation as well as some projects in late stage executions. I will come back to this in more details in the following slides. Three cash flows with €336 million in line with this guidance. So, this slide illustrates the commercial success of our rolling stock platforms with a particular focus on Avelia Horizon. The first order of Avelia Horizon was signed with SNCF eight years ago. we have continued to secure additional orders based on the same platform with different customers. Each new order relies on a proven core design. This brings clear benefits to both Alstom and our clients. It limits development risk and cost, makes better use of an established supplier base, and shortens the time between ordering tech and entry into commercial service. This ability to use on-scale platforms across customers and geographies is a clear strength for Alstom. It shows that we can industrial platforms while still adapting them to specific customer needs. It also strengthens our credibility with customers who are looking for reliable solutions, predictable deliveries, and faster time to market once homologation has been reached. Going forward, this platform-based approach will remain the foundation of how we build and manage the rolling stock backlog, with discipline and a strong focus on execution and risk control. Moving to a selection of key operational milestones delivered during the fiscal year. In the U.S., NextGen at CELA entered commercial service on the northeast corridor for Amtrak. with trains built in the U.S. for the U.S. market. As of this month, there are over 10 trains running for commercial service. In India, metros enter service in Bhopal and on daily line extensions, incorporating Alstom CBTC signaling technology. In France, MF19 enters service on Metro Line 10 in Paris, with further deployment planned across eight lines through to 2033. And in Australia, we delivered the country's first brownfield CBTC installation with the opening of Melbourne's metro tunnel. Turning now to this section, which explains under this slide, we explain how I look at the current situation of the group. Astom is an industrial project business. In this type of business, execution quality and financial performance depend first and foremost on the backlog, its size, its balance and its margin profile. From this perspective, clear progress has been made over the past few years. The backlog has increased by more than 20 billion euros over five years. It is also better balanced across rolling stock, services, signalling and systems. At the same time, the gross margin embedded in the backlog has improved by around 200 basis points. Several factors explain this progress. First, rail market fundamentals are strong, with around 210 billion euros of identified opportunities globally over the next three years. This provides visibility but also requires discipline in how we select products. Second, the combination of rolling stock and services transcends visibility on lifecycle economics. Over the past two years, around half of the rolling stock volumes secured also included maintenance contracts. Third, Alstom has built a strong position in digital rail solutions supporting both standalone signaling growth and integrated turnkey projects. Overall, this gives a solid base to build upon and gives me confidence that the business can be set back on course. In an industrial project business like ASTOM, balance sheet strengths and cost disciplines are essential. Progress has been made on this front over the last three years. The deleveraging plan launched in 2024 strengthens the balance sheet, and fixed costs have declined as a percentage of sales. On the environmental side, scope-free emissions linked to passenger transport products sold to customers have been reduced by around 20% over three years, reflecting both product evolution and customer demand for low-carbon mobility. Some progress has also been achieved operationally. Manufacturing quality has improved, and the transformation plan has been launched in Germany, where the industrial footprint is being adjusted to improve efficiency and competitiveness. The improvements do not solve all issues, but they show that actions taken in recent years are starting to deliver results and create a stronger foundation. This slide shows clearly that further progress is required on execution. Execution in the rolling stock business has not yet reached the level of consistency we expect. This has affected operational performance, reduced financial visibility, and complicated forecasting, particularly in the fourth quarter. Car production was broadly stable over the first nine months of the year, but fell short in Q4. resulting in full-year production finishing nearly 100 cars below plan. Most of the Q4 shortfall relates to several major rolling stock platforms where development and industrialization phase are happening at the same time and are taking longer than expected. As a result, homologation has been delayed and additional costs have been incurred. Resources remain engaged for longer, testing phases are extended, and in some cases, retrofits are required. These factors are putting pressure on near-term margins and cash. They do not lead to deliveries being cancelled, but rather delay them on the associated cash inflow. In parallel, the group is analyzing a limited number of contracts, where additional challenges were identified during project reviews in the fourth quarter. So this slide highlights the margin impact of execution inconsistency and industrial inefficiencies. In short, we should be operating at a gross margin level much closer to the 16 to 16.5 percent implied in the backlog. This gap is not structural, and closing it is my number one priority. Before defining solutions, it is critical to fully understand root causes. First, planning execution is often impacted by insufficient end-to-end coordination between teams, suppliers, customers, and regulatory authorities, leading to overlaps in development, industrialization, testing, and homologation. Second, while our engineering capabilities are strong, we need to reach a level of quality and technology in order to have a maturity which comes faster with a clear right first time approach. Finally, development and manufacturing are often organized through highly optimized but complex setups. When project management is not strong enough and business processes are not fully aligned across the group, This can lead to blurred accountability and execution inefficiency. This issue can be fixed and the team and I are fully focused on delivering tangible operational improvements. In the meantime, on this slide, you see that we are already launching a number of pragmatic short-term actions that can start making a difference quickly. First, we are reinforcing lean operating discipline with shorter management cycles, faster decision-making, and earlier issue identification closer to the shop floor. Second, we are strengthening accountability across teams by clearly defining roles and decision-wise. We are simplifying the way we work so teams can focus on execution rather than coordination. Third, we are maintaining a lean cost base with resources prioritized towards critical projects and spending tightly linked to delivery needs. Finally, we are accelerating procurement actions through faster sourcing, increased standardization and better leverage of our order book in supplier negotiations. These actions contribute to core execution fundamentals. We will be implementing these actions with determination, and I will keep you regularly informed on how we are progressing. In the meantime, we are preparing for deeper operational changes. And by deeper changes, I mean aligning offering, footprint, and operation organization. This concludes my preliminary remarks and I will now hand over to Bernard for the final financial review.

Good morning, everyone. As shown on slide 15, Alstom recorded 27.6 billion afforders in the fiscal year. The book-to-deal ratio was 1.4 at group level. As a result, the backlog reached 104.4 billion euros compared with 95 at the end of March 2025. The increase was driven by strong order intakes, partly upset by negative currency effects. All product lines contributed to growth of the backlog. In rolling stock, the book-to-bill was also 1.4%. It's important to underline that this performance was in part supported by several options exercised during the year. Those options represent 37% of the order intake of the rolling stock product line. This includes Avelio Horizon high-speed trains, Aero RNG commuter trains in Paris, New Jersey transit trains in the U.S., and Coradia Max regional trains in Germany. This reflects the strength of our platforms and the quality of the discussions we have with our clients, rather than a purely opportunistic commercial decision to tender. And of course, orders booked as options have a different cash impact compared to new orders. Signaling had a record year for order intake. We secured major contracts in Italy, Taiwan, Brazil, and Singapore. In services, order intake accelerated in the second half of the year, driven in particular by operations and maintenance contracts in the US and Canada. While the share of backlog from services decreased slightly to 38% at the end of March 26th, will continue to ambition a share of above 40% in the short term. Looking at regions, the Americas delivered their best year ever, including a large commuter train order in New York. Europe continues to stand as the largest region for Alstom, supported by strong momentum in France, as well as flagship contracts in Portugal and in Poland. Turning to sales, on slide 16, sales reached 19.2 billion euros for the year, up 7.2% on an organic basis. All production lines, with the exception of systems, contributed to sales growth. Rolling stock sales totaled 10 billion, representing 9% organic growth. This reflects good momentum in France, particularly supported by the RER-NG program, continued momentum in Asia Pacific with locomotives in India, and project execution in Italy. Service sales reached 4.7 billion with 7% organic growth, supported by strong performance in Italy, the UK, Australia, and airport people movers in the U.S. Sales in signaling came in at 2.7 billion euros, with 8% organic growth, driven by robust execution in France, Italy, and Germany. Reported growth was more modest, 2%, mainly due to the deconsolidation of the North American conventional signaling business. Finally, system sales. totaled 1.8 billion, representing a 5% organic decline. Performance was impacted by the ramp-down of the Mexico Trenmeyer contract, which was naturally upset by ramp-ups in the Philippines, Taiwan, and Brazil. Looking at inorganic items, foreign exchange was a 2.8 point headwind, driven by euro appreciation against most currencies. Scope had a negative 0.6 point impact also. On the reported basis, sales, therefore, increased by 3.7% during the fiscal year. Let me now turn to the P&L on slide 17. Gross margin was 2.5 billion euros for the fiscal year, representing 13.3% of sales. This is a decrease of 80 basis points compared with the previous fiscal year. Excluding scope and currency, the gross margin percentage decreased by 60 basis points. On the one hand, we continued to make progress on industrial efficiency, contributing 50 basis points to gross margin. While total car production declined at group level, production increased in countries that previously had excess capacity. In particular, production in Germany almost doubled compared with the prior fiscal year. On the other hand, this improvement was more than offset by project execution challenges. These mainly relate to higher-than-expected costs at completion on several rolling stock projects. This resulted in a negative impact of 110 basis points on gross margin. Despite currency, scope and gross margin headwinds, adjusted EBIT was broadly unchanged at 1.2 billion euros compared with the prior fiscal year. Turning to slide 18 and the analysis of adjusted EBIT margin development for the fiscal year. Scope and currency... had a negative 30 basis point impact. Adjusted for these items, adjusted debit margin was stable compared to the prior year. For the reasons I just discussed, gross margin was a headwind on adjusted debit margin for 60 basis points. R&D expenses accounted for 3% of sales in the year, 20 basis points higher than in the prior fiscal year, with stronger spend in H2 compared to H1 As for CLAM, headwinds from gross margin R&D were offset by continued tight control costs on SG&A, contributing to 40 bps improvement, as well as the strong performance of Goin Ventures, contributing 40 bps. I would stress that the later reflects strong performance for JD's overall, but also an exceptional contribution from one specific JV in China upon the successful completion of proportion contracts. Together, adjusted debit margin was down 30 basis points to 6.1%. Looking at net profits on slide 19, non-operating expenses have reduced to 155 million euros in the fiscal year, non-operating expenses mostly related to right-sizing initiatives of the food price in Belgium, in France also, and the German transformation plan and some legal costs. As a reminder, integration costs were nil in the fiscal year as Bombardier's integration program was included in the prior fiscal year. Net financial expenses decreased to 165 million euros from 214 million last year, thanks to lower interest charges and benefit from currency hedging compared to the prior year. Effective tax rate was 35%, stable compared to the prior year, reflecting some depreciation of deferred tax assets in a limited number of countries, with the structural tax rate remaining around 27%. Finally, adjusted net profit increased by 12% to 559 million for the year. Turning to free cash flow on slide 20, free cash flow came at 336 million in line with guidance. Let me highlight a few items. Adjusted EBITDA was 1.5 billion broadly unchanged compared to the level of the prior year. CapEx and CapDev together amounted to $567 million, up $85 million compared to the prior year, representing 3% of sales, in line with the medium-term view. Financial and tax cash-out together amounted to $356 million, similar to the level recorded in the prior fiscal year. This resulted in funds from operations of €507 million for the fiscal year down compared to €553 million in the prior fiscal year. Finally, working cap was a €171 million headwind last year. Turning to trade working cap on slide 21. Trade working capital stood at 29 days of sales at the end of March, compared with 34 one year ago. The change in trade working capital resulted in an actual cash inflow for $119 million over the year, with a stronger contribution in the second half. Trade working cap has been more tightly managed in a context of greater contract working capital consumption. Payables and inventory days have converged, standing at 82 days and 81 days, respectively. Let me now come to contract working cap. On slide 22, contract working cap moved from a favorable 89 days of sales one year ago to 81 days at the end of March. and now stands at negative 4.3 billion euros, less favorable than last year, where it was negative 4.5 billion. Over the year, contract working cap represented a cash outflow of close to 300 million euros. Contract liabilities, net of contract assets, decreased from a favorable 59 days one year ago to 55 days at the end of March. Solid down payments and the continued contribution from well-financed contracts supported contract working cap. This was offset by a higher proportion of projects in Rumpet compared with last year. During this phase, pre-series calls are being produced and key homologation milestones have not been reached. Rolling stock projects typically move from a contract liability position to a contract asset position, therefore consuming working capital. Finally, provisions continue to decrease by $177 million as expected, reflecting the ongoing execution of the legacy backlog. Turning to slide 23 on cash seasonality. In that fiscal year, seasonality was more pronounced than two years ago. But overall, it remained fairly consistent with the normal pattern of our business that we have already underlined over the last two years. As a reminder, the first half of the fiscal year has fewer working days than the second half, and therefore lower production. fewer deliveries, and lower cash inflows. As a result, in any given year, we typically see a cash imbalance between the two halls, corresponding to an 800 to 900 million euro drag on free cash flow in H1. This imbalance can then be mitigated or could be amplified by the timing of downpayments as well as by trade working capital management. In fiscal year 26-27, cash consumption was 740 million in the first half, followed by cash generation of 1.1 billion in the second half. The phasing of down payments ended up relatively even throughout the year. In the first half, The slightly better-than-expected cash consumption was driven by strong receivables collection and the lower build-up of contract assets. In the second half, cash generation improved in line with the usual seasonal pattern, although cash collection for milestone achievements was lower than usual. This was partly upset by effective trade working capital management. Turning to fiscal year 26-27... We expect seasonality to be more pronounced than last year for three reasons. First, trade working cap is expected to be a drag in H1 due to activity. Second, down payments are expected to be more weighted towards the second half. And third, the phasing of milestone payments in rolling stock will also be even more H2 weighted than usual. partly reflecting the progress made on some contracts currently undergoing homologation and a number of commercial negotiations. As a result, we expect cash conception of around $1.5 billion in H1, followed by strong cash recovery in H2 to generate positive free cash flow for the year. Slide 24 shows how net financial debt slightly decreased to 404 million euros at the end of March 26, compared to 434 million one year ago. In addition to free cash flow, leases, dividends to minorities, combined with the hybrid bond coupon, amounted to around 250 million total cash outflow during the fiscal year. The 53 million euros of FX and others largely relate to the negative translation effect from the appreciation of the euro and cash balances held in non-euro dominated currencies. You will find in appendix of this presentation the updated bridge computation from enterprise value to equity value reflecting these evolutions. Now, the cash generation trajectory update is of course not the one we anticipated. when we issued the 1.5 billion euro cumulative free cash flow generation over the three years through to fiscal year 26-27. Having delivered around 500 million in fiscal year 24-25, 336 million in the last fiscal year, the free cash flow guidance of positive for fiscal year 26-27 issued last month mechanically implies a 600 to 700 million euro shortfall compared to the plan. In simple terms, this can be explained by around 100 million euros of currency headwinds, 100 million euros of investments being put forward, and around 450 million euros of lower-than-expected margin resulting from additional costs linked to specific rolling stock projects, some in random places, and some nearing completion. Last, turning to slide 25, the group commitment to investment-grade grading and conservative financial policy are unchanged. We have open discussions with the credit agency that issued a position paper on April 21st with rating unchanged based on preliminary 25-26 results and 26-27 updated outlook. That we confirm today. Looking at liquidity, cash and cash equivalents stood at $2.3 billion at the end of March, broadly unchanged compared with one year ago. In addition, the group have access to a 2.5 billion revolving credit facility and a 2.5 billion euro commercial paper program, both of which were undrawn at the end of March. Taken together, this provides a group with strong liquidity to support working capital needs. Turning to debt maturity, a 700 million euro bond will mature in October this year. We plan to refinance this maturity, balancing liquidity cost and leverage ratio in line with our commitment to investment-grade rating. This concludes my comments on the financial performance. I will now hand it back to Martin for the outlook.