Ladies and gentlemen, welcome to the Alstom third quarter orders and sales conference call. I now hand over to Laurent Martinez. Sir, please go ahead.
Good morning, everyone. Welcome to our conference call for the first nine months of our fiscal year 2021/2022. Let me first start to wish you all a very happy and safe year for you and your relatives. Let's get directly to the order intake with, as you see, very positive EUR 14.3 billion order intake for our first nine months, combined with EUR 9.7 billion pro forma for last year. All of this with a solid EUR 4.6 billion for our third quarter. Europe and Americas are definitely key fueling the growth, and our shares of signalling, Services and Systems are nearly half of our total order intake for our first nine months.
These orders has been taken as well with a healthy margin. Pleased with that, our hit rate remains really positive. All in, our book to bill is at 1.3 for our first nine months. This is definitively consolidating our strong backlog at close to EUR 78 billion. Looking forward, I can tell you that our commercial and bid team are very busy with a solid pipeline and obviously supported by a very, very dynamic market.
Moving to some of our flagship orders for our third quarter, starting with High speed 2, extremely proud to have been awarded this flagship contract with Hitachi Rail in a joint venture 50/50, which will be designing, building and as well maintaining the next generation of very high-speed train with an initial 12-year maintenance contract. Moving to Metrorex in Romania, we've been signing a contract for maintenance for 15 years, EUR half a billion. We are working with Metrorex since 2024 with train availability which has been reaching 99.96%, which is exceptional.
In Belgium, we have received a new order to supply 98 double-deck M7 to SNCB as part of a framework contract signed in 2015 with close to 750 train car order so far. In Ireland, we've been signing a 10-year framework agreement with Irish Rail up to 750 X'Trapolis commuter rails, including 15 years of services, six EMUs and 13 battery electric multiple units, all of this replacing diesel power trains. In France, we have been signing and participating to the implementation of the first concession of a French regional train with Transdev supplying 16 Omneo trains. All of this part of a framework contract where we've been selling close to 500 Omneo Premium over 10 French regions. As well on this side, Alstom Services will provide maintenance, engineering, spare part and overall.
As you see on all these examples, we see a clear market trend to bundle Rolling Stock and Services contract. You know that Services is definitively one of the key strengths of Alstom. Moving to sales, we reach EUR 11.4 billion in our nine months, definitively in line with our targeted progressive increase with the quarter-on-quarter growth of 5%. If I look at the product line on Rolling Stock, as expected, continuous sales ramp up in third quarters following stabilization effort and overall industrial ramp up. Very good performance in Services. Pleased with that and progressive increase as well in signalling. On Systems, as you see, we are resuming growth with a ramp up of our key contract in Egypt, Thailand and Canada, to name a few.
In terms of project stabilization, this remains definitively one of our key focus, our top priorities with these quarters, again, very intense and positive work. Overall, we do progress according to our plan on all dimension, technical issues resolution, quality, reliability improvement plan, and globally deliveries on our key contracts. We made as well positive steps in terms of settlement negotiation with our customers. All in, we traded, as you see, EUR 1.9 billion of sales at zero margin, representing 17% of our total sales, and this fully in line with our trajectories. Overall, subject by subject, we are stabilizing the situation, and we do confirm our trajectories on the zero-margin backlog trading over the next two to three years. Moving to supply chain and overall, no breaking news on this on these subjects.
We are actively managing shortage and inflation issues. Starting with the inflation front, we are, as you know, well-protected. Two-thirds of our backlog is hedged with inflation indexation clauses. We have as well, as you know, usually a quite long lead time versus other industries. In addition, as you have seen, we observe a recent stabilization of the raw material price after a period of increase. On component shortage, we have now implemented a very comprehensive processes and teams ensuring timely access to our components. This component control tower is deployed within our factories, but as well within our supply chain, and we are assessing needs, priorities, and solution on a case-by-case basis. As a whole, we do not have material impact on sales as of December 2021. We'll continue, obviously, to closely monitor the situation for this quarters and for the quarters to come.
We're still, of course, monitoring the same way the COVID impact on our factories, which is well contained so far on these subjects. As a last word on my side for this introduction on our third quarter on our guidance, as you see, we are definitively well on track and confirming our global trajectories to meet our short-term and mid-term financial target. We do confirm our short-term outlook with a book-to-bill above one, as I say, on the back on a very good visibility and very positive market momentum. Sales progression, which is confirmed in H2 versus H1 as a result of our continuous production ramp-up and stabilization progress, progressive recovery of adjusted EBIT, and free cash flow generation as of second half of this year. We confirm equally, obviously, our midterm outlook.
Thank you very much for your attention, and I guess we can now switch to the Q&A session.
Thank you. If you want to ask a question, please press star one on your telephone keypad, and please clearly announce your name and company name. Our first question today comes from Ga ë l de Bray of Deutsche Bank. As a reminder, please limit yourself to one question only. Thank you.
Okay. Thanks very much. Good morning, everybody. My only question today is gonna be about the supply chain challenges that apparently you've been able to mitigate rather well so far. Can I ask in which parts of your supply chain organization you would see the greatest disruption risks? What keeps you awake at night?
Thank you, Gaël, for your question. In terms of supply chain risk, the key concern not only for Alstom but for overall the industries is on the electronic components. This is where we focus the bulk of our priorities. You have to bear in mind that we have a number of components which are specific to our rail industries and which are different from the one of our smartphone or computers, high power. That's basically our priorities, and we are working actively with our supply chain and suppliers to mitigate this risk. As I say, we are at no disruption in terms of sales impact for the third quarter, and we continue to mitigate that and monitor that moving forward.
Our next question today comes from Daniela Costa of Goldman Sachs. Again, please ask one question only. Thank you.
Hi, good morning. Happy New Year. I'll ask one question only. My question relates to how you're thinking about the pacing going forward of free cash flow, is impacted by sort of how your orders have been. I saw you had extremely strong service orders, which normally, I believe, they give you long-term visibility, but they don't bring advances. If you compare versus sort of what we talked about during the second half, can you shed some color on how to think about the pace of free cash recovery over the coming halves, given what seems to be more a service-weighted order intake at the moment compared to rolling stock and signalling? Thank you.
Thank you, Daniela, for your question. Maybe taking a step back in terms of our free cash flow drivers for the second half of this year. The underlying trends are basically twofold. The acceleration of the deliveries, which is linked to the industrial ramp-up and the stabilization of the project. That's the key drivers in terms of our cash positive generation for the second half. The second one is indeed the down payment. Well, to be honest, we have a services level which is in the main within the average of the group. We are benefiting of close to EUR 11 billion of order intake, which are not services related.
I think that globally the market is very good. The quality, Daniela, of the down payment, of course, outside of services is absolutely normal. We are having something which is very standard in terms of down payment level. I'm looking with confidence in terms of the down payment as well to come, which will be the second drivers to support a free cash flow generation in H2. All in, I do not see any evolution from our H1 perspective in terms of cash for the H2. Can move to the next question.
Thank you. Our next question today comes from Guillermo Peigneux Lojo of UBS.
Good morning, and thank you for taking my question. I wanted to ask about whether there's been any changes, incremental orders, reorders or any sort of changes with regards to the Bombardier legacy order and option framework agreements. I am trying to gauge whether there's any potential positional level changes on the back of it. Thank you.
Thank you, Guillermo. In the main, nothing spectacular on this. No large change in terms of option. I take maybe a step back on this question, Guillermo, to say that overall, we have a lot of framework contract in our activities, which are not considered in our backlog. If I look ahead, we have option to come in France, in Netherlands, we had option signed in Belgium. This is part as well of what I will call opportunities that will be materializing and which will be fueling our growth and order intake in the quarters to come. Let's move to the next question.
Our next question today comes from William Mackie of Kepler Cheuvreux. Please go ahead.
Hello. Good morning. Happy New Year. I would like to ask a question about where we are with respect to the zero-margin backlog and the projects associated with that. Could you please remind us of the level of outstanding zero-margin backlog at the end of the third quarter, how that is expected to trade going forward, and which are the key projects which are the focus of your execution teams? Thank you.
Good morning, Will. Thanks for your question. In terms of the 0% traded sales, I can confirm what we say in H1, which means that the level of sales to be traded at 0% in H2 will be consistent with the same of H1. Overall, if I look next year, it will be as well consistent around the same level as the one of 2021, 2022. This is to give you the trend to come on these sales . As we say, we are expecting to deliver this backlog in the next two or three years.
In terms of the key projects, and these are the ones, I will not get into project reviews, but these are the same projects that we have been always talking about. We are talking about projects in U.K., in Germany, in France, some in the U.S. These are the same projects. What I can tell you is that there is meaningful progress in terms of deliveries, in terms of customer acceptance, in terms of quality level. I can quote in Switzerland an increase of reliability by a factor of two since basically we took over. There is very meaningful progress on the execution of this project, and we are very confident that we are on track to deliver according to our expectation.
Our next question today comes from Martin Wilkie of Citi. Please go ahead.
Thank you. Good morning. It's Martin from Citi. Just one question coming back again to supply chain and potential impact on cash. It sounds like you're managing to control that quite well. Just to clarify, you've mentioned there are some obviously some specific components you have, whether it's high-power semiconductors or elsewhere. Are there any components that could cause late acceptance of trains? In general, you know, are you managing to control this in a way that we shouldn't expect any major sort of phasing differences? Just particularly thinking about whether final payments and the cash impact could get impacted if there's some you know, relatively small components that delay the final sign-off or acceptance of a train. Thank you.
Martin, good morning. Thanks for your good question. I mean, a train is a puzzle. If we miss one piece of the puzzle, you can't deliver it to your customers. Your comment is extremely important. So far, Martin, no impact in terms of final deliveries. We've been able to manage these issues satisfactorily and without any impact. I can't guess what will be the impact, of course, in a few months' time. We are actively working on this, but I will not discount that there is a risk that here and there we may have these kind of issues. So far, in the current knowledge, we do not see any major risk which will jeopardize our cash trajectories for the full year.
Again, something that we are watching and monitoring very carefully.
We will now take a question from Jonathan Mounsey of BNP Paribas Exane. Please go ahead.
Thanks very much. Good morning. Back to free cash flow, I'm afraid. Why no explicit guidance this close to the year-end? I think probably bulls were hoping for some clarity on that. You know, around that, have you sort of spoken to Moody's ahead of these results, and how did that conversation go? Do you effectively need to generate cash every half going forward for the next two years? Would any half where you didn't do that trigger a problem with Moody's? Is there still actually some room for the natural variation that historically we've seen in this business when it comes to free cash flow on a same-half basis?
Good morning, John. Thanks for your questions. In terms of the free cash flow for the second half and, you know, the nature of our business, we always have the kind of short-term volatilities which can be huge and which is even more important in the companies of a size that we are in. That's why we prefer to stick on a positive free cash flow guidance for H2. Again, I do confirm our expectation we had for H1, no change whatsoever on these subjects. On Moody's, we have a continuous positive dialogue with them. We do not expect any change from our conversation. This is fully in line with the dialogue I have with Moody's.
In terms of what you say about the half year cash, it's a bit early days, John, to provide you some colors on that, for sure. What I can tell you, however, that Moody's is not looking at the quarterly result as a triggering point. They are looking at more the midterm perspective, both in terms of supporting, confirming the cash generation, which we do, and as well our long-term target in terms of profitability that we do confirm as well. This is the way they are looking at Alstom with a midterm angle.
We will now move to a question from Akash Gupta of JP Morgan. Please go ahead.
Yes. Hi, good morning. It's Akash here from JP Morgan. My question is on progress made so far on settlement talks with customers. I think you mentioned previously that half of the Bombardier projects have been negotiated with customers, and you were planning for remaining half before end of the financial year. Can you tell us the progress made in Q3 and how confident you are that you won't need any additional provisions? Thank you.
Good morning, Akash. Thanks for your question. Indeed, half of this settlement has been, I would say, agreed upon in H1. We continue to make meaningful progress into this. Overall, we do have the same target in the main. We'll see, of course, like any negotiation, you need to be two to tango. So far, all the negotiation proceeds according to our target, and I do not see any need to update our provisioning on the basis of what I know as we speak. We do confirm on track.
Our next question today comes from Alasdair Leslie of Société Générale. Please go ahead.
Oh, yeah. Hi, good morning. Just wondering if you could talk a little bit more about in detail about the order pipeline, Laurent. I suppose your comments around the pipeline, I suppose today have been kind of oriented around this year and H2. I'm just wondering what kind of visibility you have already heading into next fiscal year, especially H1. Just wondering, where do you see a danger of a kind of an air pocket forming, I suppose, next year in terms of sort of demand as COVID-related pent-up demand slows down, perhaps, and before stimulus-driven orders kick in? Just really the outlook heading into H1 next year. Thank you.
Good morning, Alasdair. Thanks for your question. No, the pipeline remains very strong, not only for the last quarters of our fiscal, but as well for the next 12-24 months. Let me remind you what we've been presenting to you in H1, 400 opportunities above EUR 100 million, and take the chance to precise that in average, each of these opportunities, it's at EUR 300 million all together. This picture remain confirmed. I do not have any sign of delay of this pipeline in the medium term due to COVID whatsoever.
To the contrary, we see in some cases some opportunities arising from the stimulus packages, and you see that, the NextGenerationEU plan starts to hit the ground and provide upside, if I take Italy as a meaningful example. If I look at second half of this year and the next years, we have been, as you know, selected on Cairo, Ukraine, Norway. All of this is not in our order intake for our third quarter. Santiago, we have opportunities, large opportunities in Germany. As I say, we have a number of options which will materialize in France, in Netherlands.
The market remains very positive, Alasdair, altogether, not only for this quarters, but as well for the next quarters to come.
We will now take a question from Katie Self of Morgan Stanley. Please go ahead.
Good morning. Thanks. Most of my questions have been asked, so just a quick one from me. To clarify, on the remedies from the European Commission that have sort of been finalized now with CAF and Hitachi, is there any financial impact that we should be anticipating for Alstom in the next quarter, two quarters? Thanks.
Good morning, Katie. Thanks for your question. Indeed, we have been first pleased to close this deal with CAF, which is kind of the last step of our process with the EU. As you know, we are anticipating a closing in the first half of our next fiscal. In terms of impact, we will have some, of course, deconsolidation of orders, maybe around half a billion, around EUR 250 million of impact in terms of sales. The margin, as I always say, is below Alstom average. That will not be a major issue. We may have some working capital impact as well that we need to see at closing.
That's basically where we stand. Nothing, I would say major in terms of financial impact of this. What is important is, to close the deal and now, to get to the end of this process, and we have been pleased by the progress on this, on this file.
Our next question today comes from Simon Toennessen of Jefferies. Please go ahead.
Yes. Good morning, Laurent. Laurent, can I ask on the phasing of the execution risk related to the backlog? If you think about the remaining, call it EUR 5 billion that's left now, is the execution, in your view, equally weighted across the next two to three years from today's standpoint? Or will the backlog be more de-risk, particularly over the coming quarters? I'm interested not from a volume perspective per se, but more from an execution perspective as you judge sort of the individual risk of each project.
Good morning, Simon. Yes, it's an interesting angle to this point. I answered in terms of the volume of the sales, basically, 2021/ 2022 will be the same as next year. In terms of the profile of the risk, number one, finalization of the settlement with the customers. That's as we say, which is more short-term issues. Second, there is, I would say in the next six-12 months, finalization of the technical issues, the quality, the design, which are remaining. That will be more a 12 months around story. Then we will have more basic execution, so quality, supply chain, ramp up, but which is more on a kind of ballistic trajectories.
That would be the and that will be lasting a couple of years, as I say, around two to three years, where we would have basically delivered the bulk of this contract. These are the three kind of steps I see, three horizons I see on this project stabilization journey.
Ladies and gentlemen, as a reminder to ask a question, please press star one on your telephone keypad. We will now take a question from William Mackie of Kepler Cheuvreux. Please go ahead.
Thank you for the follow-up. The question relates to the optimization and restructuring of the enlarged production base. You announced a number of measures in Germany to reorient towards Services and Signalling and change the scope of perhaps Rolling Stock production. Could you update on your thoughts about plant optimization on a more global basis and also what level of restructuring provision we should anticipate for the year? Thank you.
Yes. Thank you, Will. To touch this point, give me a chance to give you some colors of what we have been initiating in Germany. We are talking about a transformation program in Germany with a decrease of the manufacturing workforce between 900-1,300 positions over a couple of years. And a shift, indeed, as you say, to digital skills, to services, to signalling, which is, as you know, a key market that we want to develop in Germany with around 700 positions in terms of hiring. This is a reshuffling of the activities. There is no site closure whatsoever in Germany.
It's a reshuffling of the positioning of the companies in Germany. We have been starting the process with our social partners in December, which will be implemented in the next three years or so. To your point, in terms of provisioning, we'll see where we stand end of March in terms of provisioning, depending on the progress with our social partners. To your more global question, Will, in terms of restructuring, we do not expect any large restructuring in terms of our plants. We'll continue to have right sizing, optimization, specialization. But in the main, we have not any plan to have a major restructuring whatsoever in other part of the world.
We continue to optimize and right size along the needs we have, region by regions. Let's move to the probably next question. Last question.
Yes. Our last question today comes from Gaël de Bray of Deutsche Bank. Please go ahead.
Oh, thanks very much for the follow-up. You said that you had two-thirds of your backlog hedged with indexation clauses. Could you talk a little bit more about the nature of the other contracts that are not hedged and what's the typical lead time for these contracts? Thank you.
Indeed, to be precise, this subject. Typical one-third of the other contracts are more short-term in nature. You know that we are signalling jobs, for instance, or can be one year, two years. On this one, the risk we are taking is extremely limited. The other key point, of course, is that if we have something which is a bit more long-term, say three to four years, then we are of course pushing a back-to-back close to our suppliers. i.e., we are asking and getting firm fixed offers from our suppliers, so we are hedged as well from this perspective. These are the two dimensions of this remaining one-third and the way we are dealing with it. I do not see any risk exposure on this subject.
We are managing that very carefully and very well as we speak. I want to thank you all for this session. Maybe as a short word of conclusion, as you see two key priorities for our Q4. Number one, continue the positive execution on project stabilization and in turn of course delivers on our outlook for sales, EBIT, and cash. Second priorities is to continue the very positive dynamic on our commercial success. I've been saying that our hit rate is extremely positive, so we are gaining this leadership position on the back of a market which remains extremely dynamic. Overall, as you see, we are fully confident to stick on our trajectories going forward.
Thank you very much, everyone, and look forward to exchange with you for our full year result in May. Thank you very much.