Alstom SA (ALO) Earnings Call Transcript

Welcome to the Alstom 2026-2027 First Quarter Orders and Sales [indiscernible] [Operator Instructions] Now I will hand the conference over to Bernard Delpit, Executive Vice President and CFO. Sir, please go ahead.

Thank you. Good morning, everyone, and thanks for joining us on the orders and sales update for the first quarter of fiscal year '26-'27. And let's start with orders on Slide 3. The group recorded EUR 2.6 billion of order intake in the first quarter. This represents a book-to-bill ratio of compared with 0.9% in Q1 last year. Similar to prior years, we expect order intake to accelerate in the coming months and reach a book-to-bill ratio above 1 for the full year, starting with Q2, where we also expect a book-to-bill above 1. Some additional color by product line and region, rolling stock was the largest contributor this quarter, representing around EUR 1.2 billion of orders. In particular, the group was awarded a locomotive contract in the Africa, Middle East and Central Asia region for EUR 800 million. Services delivered a solid performance with EUR 0.8 billion of order intake with in particular, contract for locomotive maintenance in India and several service contracts in Northern Europe. Signaling recorded EUR 600 million of orders, benefiting notably from around EUR 300 million of orders in Egypt. So as a whole, a low volume but good quality of order intake with locomotives being a platform we push for and with average margin on new orders being accretive to overall gross margin in the backlog. At the end of June, the backlog amounted to EUR 102.8 billion. Turning to Slide 4 with some operational highlights in the first quarter. In France, TGV M received homologation from both the European and French authorities to enter passenger service. This is an important milestone for the group, considering that 190 Avelia Horizon trains have been ordered by several customers to date. Some of them, including the ones ordered by SNF and Eurostar, we'll have 11 cars in total. Some others will be configured with 1 or 2 fewer cars, but all are based on the same platform. In Egypt, commercial service began on Africa's first monorail system. This marks a significant milestone for the first large turnkey project and the start of the operations and maintenance contract by Alstom for a period of 30 years. In signaling, we commissioned the first Argos digital interlocking system in France, this is an important step in the future deployment of the European signaling standard, ERTMS. In the U.K. The first of the 10 Elizabeth line train option based on the Aventra platform has been manufactured and is now undergoing testing. Finally, in France, cell production programs reached significant milestone to date, regional trains have been manufactured under the Omni platform and our customer yielders Mobility has more than 100 are new generation trains in commercial service now across the Paris region. Turning to Slide 5 on car production, which gives an indication of the level of activity for slight -- slightly over half of our business. The group produced 940 cars in the first quarter compared with 961 in last -- in Q1 last year. Beyond this 2% decrease, we do note that all regions reported year-on-year growth, except the Americas, partly due to the completion of major programs such as Bart for San Francisco. From a mix perspective, in the first quarter, the group produced few metros, but more commuter and regional trains compared to the same period last fiscal year. In addition, we continue to bring the several new platforms we mentioned in Q4 through their industrialization phase. You recall, this had an impact on car production in Q4 last year, and it continues to weigh on production in Q1. However, the year-on-year decline moderated to 2% compared with 6% in the previous quarter. Beyond the usual seasonality, we expect car production to improve relative to last year's levels, particularly in the second half. The full year production target is 4,400 to 4,500 cars compared with 4,284 produced last fiscal year. We also note that the number of cars delivered to our clients increased in the first quarter compared to the same period last year and exceeded the number of cars produced, which is a KPI that we report here since '24 -- 2024. Let me now turn to sales performance in the first quarter. The group recorded EUR 4.7 billion of sales in the first quarter, up 4.9% compared to the same period last year. Currency impact on sales was broadly neutral, meaning organic growth was 4.8% over the period. Rolling stock recorded sales of EUR 2.5 billion, up 6% versus last year on an organic basis. This was primarily driven by the execution of regional and commuter train projects currently in serial production in France, but also the ramp-up of production for regional trains sold in Eastern Europe as well as increased locomotive production. Services delivered another strong quarter at EUR 1.2 billion of sales, up 9% on an organic basis. Growth was supported by the expansion of our operations in maintenance activities in North America as well as commuter and regional maintenance contracts in Australia. Signaling sales grew by 4%, reaching EUR 600 million. It was supported by the acceleration of the Perth high-capacity signaling project in Australia, while several signaling contracts in Poland continued to progress according to plan. System sales were EUR 400 million, down 10% on an organic basis. This mainly reflects major projects such as Tren Maya in Mexico and the Sao Paulo Monorail continuing to ramp down and now reaching the final stages of execution. Turning to Slide 7. I where we confirm the outlook for this current fiscal year as given at the time of full year results in May. We expect a book-to-bill above 1. Organic sales growth of around 5% and car production in the range of 4,400 to [ 3,500 ] units. The target is an adjusted EBIT margin of around 6.5%, and positive free cash flow for the full year. As usual, cash generation will be heavily weighted towards the second half, and we, therefore, continue to anticipate around EUR 1.5 billion of free cash flow consumption in H1 and a strong recovery in the second half. Finally, regarding capital structure, the group issued its first green hybrid bond last month with a nominal amount of EUR 700 million. This transaction will enable Alstom to continue financing both capital expenditure and operating expenditures that are aligned with the European taxonomy. It also strengthened the group's liquidity position ahead of the repayment of the EUR 700 million senior bond maturing in October this year. This concludes the presentation, and we will now open the floor to your questions. Thank you.

[Operator Instructions] The next question comes from Delphine Brault from ODDO BHF.

I have 2, and we'll ask them 1 at a time. Starting with your car production in Q1, down by 2%. Was it in line with what you expected? And is it just a timing effect? Or did you experience any additional tension?

Well, it's almost in line with our expectations. As I said the ramp down of one of the large projects in Americas was planned. So this one was totally again expected. It's true that for some units, we are expecting more, but it was embedded in the yearly guidance. So no major deviations.

And then second, in your press release, you mentioned that you expect commercial momentum to accelerate in Q2 and you just confirm a book-to-bill above 1% in Q2. Can you be a bit more specific on what you see in terms of pipeline and in terms of mix between rolling stock and service signaling system.

Okay. So in the pipeline, we have orders in the Middle East, possibly confirm in the coming weeks, both in Israel and in the region, I would say. France, and in North America, we'll also have some contracts signed in Q2. I remind you that we also have an exclusive agreement with Virgin for the supply of a high-speed single-deck train and the discussions are moving well. We have also some tender awards expected in the U.K. for last this year. So we are expecting a year for strong book to bill in service in coming ahead. You know that first quarter historically are softer than the full year, so there is no change in the demand dynamics, but rather a reflection of the cycle. So I confirm here that the book-to-bill is going to be above 1, both for full year and for Q2, and we have the pipeline to get there.

The next question comes from Gael de-Bray from Deutsche Bank.

Can I just follow up on your latest comment Bernard, because I'm wondering if the slow start to the year in terms of commercial momentum, is just a question of lumpiness and phasing effects? Or is there something behind like the organization may be now paying even stronger attention to the terms and conditions of the contracts and maybe with more -- a bit more selectivity on your side?

I would say both, Gael. First, of course, Q4 last year was extremely strong. So there is a kind of cycle here, I would say. And we continue to pay a lot of attention to selectivity. There are few orders -- by the way, last year that we didn't follow. And it has an impact maybe on the on the book-to-bill of this quarter, but I would say both, we continue to be selective, and there is also the fact that the cycle is such that Q1 was expected to be low.

Okay. Understood. And then post Q1 and with certainly an even greater visibility now on the potential orders you may or not bag in Q2? I mean, would you say that the free cash flow is striking fully in line with the guidance for H1 or a bit better or a bit weaker, even after the soft order intake you had in the first quarter?

Frankly, I don't -- I will not give any qualitative indication. It tracks online with what we said. And you remember that at the time of the issuance of the guidance, we explained that down payments were planned to be totally in balance between H1 and H2. So I confirm that what you've seen here in terms of orders is in line with this unbalanced phasing of down payments in H1 and H2. And the rest, I would say, is in line. So we have confirmed the free cash flow guidance, and we have confirmed that the EUR 1.5 billion negative is what we see for H1. No news.

The next question comes from James Moore from Rothschild & Co Redburn.

I wondered if I could ask you a little bit about your soft start on car production. And my understanding was that there were some stopping of production in Germany and then some restarting. And just given the importance of the German contract, could you talk a little bit about the impact of that, how you're feeling about German profitability improvement and the ramifications for free cash flow in Germany?

James, thank you for this question. I will not elaborate on profitability and cash, specifically on Germany. When you say that we have stopped some production in Germany, it's true that we try to adapt as much as possible the production to what we see in terms of engineering and supply chain issues when there are some or to the planning of homologation in order not to build the cars that could be subject to retrofit. So that's exactly what happened in Germany. Now it has resumed. And we are, I would say, in line with what we expected. You refer to the Coradia Max platform for regional trains. So we have a lot of activity on this platform. We expect the first homologation of 6 homologations for the Coradia platform to happen in the -- at the end of this fiscal year. So we prepare for this homologation and the adaptation of the production is done in order to make it as smooth as possible.

And maybe I could try a second one. Obviously, we would love to hear your first thoughts or Martin's first thoughts on what he's going to say next year, but I presume you won't be able to talk about that at all. But what do you think internally are the exercises that have already been done since Martin's arrival and what has to be done ahead of the CMD next year in terms of how you want to lay out your own internal understanding of the ability to reach the margin in the backlog and the future improvement in free cash flow beyond this year, just in terms of sequencing of what you're trying to do at C-suite level organizationally?

Frankly, I don't think it's -- I'm not the one that should discuss this on behalf of Martin. You will have occasions, opportunities to talk to Martin at a later stage. What I see that is now -- he has now visited many different sites. He had the opportunity to discuss with many project managers. So I think that moving forward, he has a good sense of how the company is both organized and working and what he wants to change in both the organization and the ways of working. So we have already started to implement some changes. There are some work streams going on the way we organized the, let's say, the way we can simplify the organization. We are also launching some initiatives in terms of cost because this is where competitiveness realizes. So it's not the timing for me to say anything more on that. But I think that he has an agenda in order to deliver some changes, some improvements in order to meet our backlog gross margin. And I will let it to him to express the impact of what is expected here. Let's wait for H1 disclosures to be more specific on that, James.

Very helpful.

The next question comes from Daniela Costa from Goldman Sachs.

Just 2 quick things. Can you help us understand a little bit better in terms of like how payments work in terms of the various phases in the contracts. For example, when you -- when there is homologation, do we get an amount of cash there is, for example, similar to when it is in advance? Or is it very different? It would be good to have some color in there. And the second one also in terms of a bit of help on guidance on should we think about sort of a platform like the TGV versus in terms of like the type of profitability that you get versus your kind of normal group margin. I understand you have a much stronger position probably in terms of market share and dominance in there. Are we talking sort of -- is it the highest margin in the group? Or can you help us give some pointers on how should we think about forecasting those type of events?

Okay. So it's sales and order conference today. So I will not elaborate a lot on that, but maybe share with you that on payments. So all contracts are different. And specifically in Germany, the contract that we are discussing here, the one on the Coradia platform, those were well under contracts. So the down payments at the time of the notice to proceed to the very start of the program. I think it was in '21, something like that, were high. So of course, there is some cash in tied to the deliveries of the trains, not specifically to the homologation but to the deliveries of the trains. So it will come after the homologation. There is some payments attached to that, but not that much as a down payment, typically at the inception of the contract. So payments will be attached to cars deliveries, and I cannot elaborate more on that, but it's not as much as a down payment. -- to be specific. On TTV profitability, nothing I can share with you, of course, but I confirm that we have a high market share for TGV in France for sure. But nothing I can share. This is an innovation. This is a high-tech trains for -- so there are some risk attached to it, and it's the price is in line with the content of the train that for sure, is not the same as for a tram or a commuter. That's the only thing I can share with you.

The next question comes from Andre Kukhnin from UBS.

Can I just pick up on the part of the slide that talks about a higher share of projects in ramp-up phase up, I think, versus last year. How do you expect that to develop through the year? And if it is heavier in H1 versus H2, should we think about kind of more pronounced margin seasonality for H1 versus H2?

In fact, Andre, thank you for the question. The full year, the share of ramp-up program on the full year will be higher than the share of ramp-up program in Q1. So we have this profile that explained by the way, the profile of the cash flow as we have to get prepared for the production of those cars. So no, I mean, in the opposite, we have more ramp-up projects in -- for the full year than in H1 than in Q1, sorry.

That's very helpful. And does that affect profitability or not? Will that affect the seasonality this year?

Not materially, I would say.

Great. And I just wanted to check, we've gone through, I think majority of the projects that you mentioned before that were challenging and very clear on the expected time line for the German one. Is there anything else out there that is sizable that we need to sort of keep an eye on and think about this year with kind of the Ventra,j,mtrauck kind of making the announce?

I mean, I'm not going to give the long list of the critical projects that we are watching. I remind you that the portfolio is made of 2,500 contracts. So it's a lot of different contracts, and we have a list of, I would say, 50 contracts, maybe that we are watching more precisely than the others. Coradia Max in Germany is one of them. We have also contracts in the Nordics. We have the TGV revenue service starting in September. I won't go into the list. I just want to remind you that rolling stock is 50% of our business. And we are dealing here with a portion of that. So don't forget that in signaling, in services, we have also large contracts developing well that do not have this phase of ramp up, ramp down, start-up series that makes the life more difficult for rolling stock than for the rest of the business by definition.

The next question comes from Vlad Sergievskii from Barclays.