Q1 21/22 TU

Jul 20, 2021

So good morning, ladies and gentlemen. Welcome to our conference call on order and sales for the 1st quarters of our fiscal year 2021, 2022. So moving to the 3rd slide for the Q1 of 2021, 2022, we recorded a €6,400,000,000 order intake. This exceptional order intake benefits from 3 contracts above €1,000,000,000 in Denmark, Mexico and France. It demonstrates clearly the very positive momentum of the rail market notably in Europe where we concentrate more than 70% of our order intake this quarter. Also proved as well our commercial strength based on our Alstom expanded profile. If we look at our product lines, rolling stock orders intake at €3,400,000,000 very solid with various orders both in urban and regional. Turnkey this quarter's dynamic with 3 contracts totaling €1,400,000,000 in Athens, Mexico and Miami Services order intake at €1,100,000,000 was sound with maintenance contracts, but also train operations and maintenance services. Last signaling at €500,000,000 mainly coming from onboard signaling contracts. So this dynamic order intake leads us to a consolidated backlog of close to €77,000,000,000 So let's move to Page 4 with zooming on some orders that we have been awarded these quarters. As you see on these nice pictures, starting with Denmark, where we won the largest railway contract in Denmark history, first from orders of 100 Coradia Stream Regional trains as well as 15 years of full service maintenance agreements for a total value of €1,400,000,000 and this as part of a framework agreement with DSB valued at a total of €2,600,000,000 In Germany, we are paving the way for automated train operation in the highly frequented Stuttgart network and we will equip another 18 regional trains with signaling technology. In Americas, with our new portfolio, we have been awarded new signaling technologies for automated people movers system in Miami and will provide 10 years of provisions and maintenance services for the Skyway automated people mover system at Houston Airport. We'll also supply 60 new Flex City streetcars for the city of Toronto. Last but not least, we'll supply the Trane Manya, a flagship train for Mexico, built in Mexico for a total of €1,000,000,000 by combining the strength of our platform, Extra Polis from Alfaem Legacy, components portfolio from ex Montmartier and our site in Mexico in Saragun. Looking ahead, while this quarter was exceptional, we do see a very robust tender pipeline in all regions. So let's move to Page 5, turning to the sales. This quarter, our sales reached EUR 3,700,000,000 which is 33% growth compared to last year Q1, which was impacted as you know by COVID. Our sales in ramp up in rolling stock is reaching €2,200,000,000 and shows a positive ramp up aligned with our production step up. In Services at €800,000,000 we have a continued positive level of activities, signaling at sales at 0.5 €1,000,000,000 evidence the sound level of execution. Finally, on Systems at €200,000,000 we are continuing to ramp down as expected driven by Middle East system projects nearing completion. So all in as you see a solid sales execution for this quarter. So just to wrap up on the key messages for our Q1, 2021, 2022, excellent commercial momentum this quarter driven by a few large orders and very dynamic markets leading to a very solid backlog of €77,000,000,000 Sales consistent with the priorities we communicated during our CMD with H1 dedicated to project stabilization and production ramp up in order to serve our customers. Overall, we do confirm today our outlook given during the Capital Market Day 2 weeks ago. So thank you for this your attention and I suggest we switch now to the Q and A session. Today's first question is coming from Arj Jain calling in from Credit Please go ahead. Hi, good morning, Laurent and thank you for taking my question. I've got 2 from my side if possible. So firstly, it's on the rolling stock sales, which has been very solid for the quarter at €2,200,000,000 And you've mentioned that it's helped either ramp of production. And could you maybe unpackage this number a bit for us? Maybe how much of it is driven by the ramp up on the outbound side And how much is from the BT side? I mean I do appreciate that it's now a consolidated company, so that maybe you do not wish to distinguish between the 2. But just given that the free cash flow this year is going to be very associated to the industrial ramp up of duty. So I just hope to kind of have a better understanding of how much this rolling stock sales is maybe driven by the fact that The industrial output or manufacturing at BT side is being ramped up and also how much of it is from Alstom side? And secondly from my side is on the order intake or customers appetite when it comes to the service attachment for the rolling stock contracts because obviously you've got the Danish contracts with service parts attached to it. And would like to know kind of that now versus 2 to 3 years ago, how do you see the customers' appetite have changed when it comes to having the rolling stocks plus service contract? And also what are the progress that kind of Alstom has made in order to get more tractions with the Once it comes to the service part of the orders and new business. Thank you. Yes. Thank you very much, Iris, for your two questions. So on your first one, as you rightly point out, we are not splitting the sales between X AT and XBT, so it will be difficult for me to provide you a lot of precision on this subject. What I can tell you is that we definitively see a progressive ramp up of our rolling stock activities. As we indicated, we are investing today to prepare the future growth in the second half definitively. To give you some colors, we are definitely in ramp up mode in the UK and in France, in India as well, in the U. S. So these are, I would say, huge geographies where we are definitely ramping up. And again, there is in this mix of X AT and X BT projects. On your second question, Iris, which is a very good one. Indeed, we have more and more as a trend customers, which are eager to have kind of one stop shop commitment from the OEM I. E. Rolling stock plus services on a life cycle cost perspective and you have seen that indeed for DSB, for Maya Train and for many examples. And if I look at market trend, we see more and more of these kind of contracts where customers are asking a bundle commitment rolling stock plus services for a very long period of time. We are talking 15, 20, 25 years sometime. And on that, as Alstom, we are bringing, I would say, the knowledge of the design of the OEM. We are bringing on the table everything which is as well digital services, predictive maintenance with our HealthHub platform, which is giving us a competitive edge versus our competitors. We'll move to the next question. Yes, sir. Thank you. We'll now proceed to Akash Gupta calling from JPMorgan. Please go ahead. Your line is open. Thank you. Yes. Hi. Good morning, Laura. My one question is on Bombardier. Can you update us on the provision side and how much you are Comfortable with the provisions that we have taken at the full year results? Or do you see there may be more need for provisions going forward? Thank you. Good morning, Akash. Thanks for your question. So Akash, we do confirm the level of provision that has been booked end of March 2021. So there is, I would say, no reason to update on these subjects. If I'll be a bit more specific on the project stabilization, we are making meaningful progress on a number of subjects talking about, for instance, Bart in the U. S, SBB with the royalty growth or Avantra in Derby, where we are developing and ramping up our production. So all in, I would say, we are confident on our project stabilization path. We told that it will take time, but we are on this trajectory and there is no reason to update the provision, which confirmed as we booked in March 2021. Thank you, sir. We'll now go to Gael DeBries calling from Deutsche Bank. Please go ahead. Thanks very much. Good morning everybody. Good morning Laurent. First question I have is on the relationship between the very strong order performance you had in Q1 and obviously the very strong negative free cash flow you guided for in the first half of this Yes. Because obviously, I mean, the exceptional order intake you've just reported includes several large orders. So could you comment on the absence of major down payments in relation to these large orders. I wondered if there has been any sort of structural change to the financing terms of the contract with customers perhaps less willing to pay in advance given their own cash constraints related to the pandemic? Good morning, Gael. Thanks for your question. It helps to clarify this important point indeed. So I want to be very clear on this. There is absolutely no change of pattern whatsoever when it comes to the down payment in terms of customer behaviors. So there is of course contract by contracts, some contracts which have better down payment, some others which have lower down payment. But in average absolutely no change in the overall patterns of down payments. And if I look at our full year perspective, we are definitively in the type of average range of down payment that we had in the past. So stability on this and absolutely no sign, Gael, of change of behaviors on these subjects despite the pandemics. Thank you, sir. We'll now go to Gil Penault calling in from Union Bank of Switzerland. Please go ahead. Hi, good morning. Thank you for taking my question. Guillermo here from UBS. I wanted To ask about the pipeline, you mentioned that you do have a relatively good pipeline looking ahead. And I wonder whether you can name some of the projects or some of the tenders in which Obviously, we could see over the second half of this calendar year. And Secondly, about the ramp up. How far are you on the ramp up as you see it for 2020 this fiscal year? I'll leave it to those 2. Thank you. Good morning, Guillermo. Thank you for your questions. So looking at the tender pipeline, so definitively a strong pipeline ahead of us for 2021, 2022 and this in all regions. So maybe just to give you a sense, good pipelines in Middle East and Africa, in Israel, in Egypt, where we are definitively gaining traction, definitively very strong in Europe. We can talk about Paris Grand Paris lines, which will be on decision in the weeks to come. We have, of course, the flagship HS2 projects, which should be as well for the final award and decision in the weeks months to come. We have a number of option as well in Europe, in Trans Italia, in France, in Netherlands, in Belgium. And looking at APAC as well, very positive traction in Australia, in India, in Taiwan where we are very well placed. So we are looking with confidence in terms of our pipeline looking ahead, noting that our Q1 has been very exceptional driven by very large orders as you have seen. The ramp up to your second question. So we see definitively a progressive ramp up in terms of sales, rolling stock being a key driver, but not only signaling. On signaling, we are targeting high single digit CAGR over time. So that's something which will as well materialize. So that's very much the 2 key drivers in terms of progressive ramp up for 2021, 2022. Thank you so much, sir. Next question is coming from Alastair Leslie calling in A question around normalization of working capital That's Bombardier. I appreciate that it has many dimensions. But from what I understand, you also expect that's going to continue to be influenced by sort of stabilization of tenders and orders signed Currently by Bombardier, and you're still in the process of putting in Alstom's guidelines into those tenders. I guess previously maybe Bombardier was perhaps prioritizing cash instead of margins. Now the margin profile is maybe okay, which I think you've commented on. But maybe the cash profile on new orders still isn't where you want it to be. So what can you say about the cash profile on BT's current tenders and new projects? And just how quickly you can reshape them? Thank you. Yes. Good morning, Alastair. Thanks for your question. So you're making a valid point because indeed on the shape of our cash is very much predicated by the tenders. And we have defined, I would say, early in the integration process, what is a pattern of working capital we like and we want to have on tenders. So everything which we are signing today into the new group is kind of framed by this working capital pattern. So overall, and to take a step back, indeed, we said that we will be as of September 2021 with a kind of new normalized working capital after the cash outflow of the first half and then there will be a progressive cash ramp up. We are definitively confident to be cash positive for the second half of twenty twenty one, twenty twenty two and then there will be a progressive cash ramp up over the years up to the above 80% cash conversion target we have been framing. Thank you much, sir. Next question will be coming from Katie Self dialing in from Morgan Stanley. Please go ahead. Hi, good morning. Thanks for taking my question. I just wanted to clarify really a couple of points around the HS2 contract since we get asked on this one quite a lot. Firstly, is there any information you can give us on the down payment related to this contract? Would it be wrong to assume something in the kind of 10% to 15% region? And also, can you clarify the situation on the 2 bids? Are we right to think that Alstom would benefit if the Hitachi Bombardier consortium was awarded the contract even though the technology involved there is part of the antitrust divestments? Thanks. Good morning, Katie. Thanks for your questions. So indeed, we have 2 bids on the table on HS2, one which is Alstom standalone as It was launched before the closing of the transaction and one which is a consortium between ex Bombardier and Itachi. So we have kind of 2 chance to get the contracts and we will see there is competition. So we will see the outcome of this as I say in the weeks or months to come. I will not comment Katie on the down payment specifics. It's always a commercial sensitive information to quote on this. But I would say that it's a standout kind of down payment that we have on these kind of contracts. Thank you much, sir. Today's last question will be coming from Jonathan Nalancey From Eitan PNPB. Please go ahead. Hi, thanks. Good morning. So maybe a different way of At Ash's question around the provisions, I guess the difficult bit to provision for would be the I don't know if you call them fines or at least monies that you'll agree to either pay or take off the ultimate bill to the customers where the projects are in difficulty. So those are negotiations, which as I understand it, are yet to be completed. Could you maybe give us a bit of color around where the negotiations are most going to be acutely felt, where we're likely to have To pay fines? And also possibly, is this what changed? Is this it feels like in the last 6 weeks through the CMD, the messaging changed and feels like you're ramping very quickly on a number of projects in a way that you weren't describing to us earlier. Is that ramp up an attempt to get these problem projects finished and therefore minimize the fines. And if you do struggle to deliver these projects, Do the fines get larger the longer it takes to resolve them? Just some color on all that, please. John, thank you very much for these two points. So in terms of your starting with your second point, In terms of the ramp up, the process is simple. We are redefining with our customers, I would say, a new baseline that we want to deliver and this is the basis of our conversation with our customers and we want to have and lay down a schedule which is a credible one that we want to deliver. So there is no kind of rush to avoid more penalties. That's not the spirit we are in. It's all about having stability in our project execution and pricing on customer satisfaction. On your first point, this customer negotiation conversation are indeed ongoing. I want to frame that all overall consequences of this potential customers' conversation are part of the provision we booked end of March 2021. And I would say that this will be a subjects, which will be continued in the weeks months to come. We need to be too tango on this kind of subjects, but we are overall in the frame of our provisions. And overall, the important element for us again is back on credibility in terms of customer deliveries and customer satisfaction. Thank you much, sir. The next question we come from William Mackie calling from Kepler. Please go ahead. Mr. Mackie, your line is open. Could you please ask your question, sir? Thank you. Sorry. Yes, good morning, Laurent, Julie, everyone. Thanks for the time. My questions would be directed or question directed around revenue growth and order Acceptance. Firstly, you've kindly given pro form a numbers for the group last year. But just as a matter of clarity, can you I mean, the 32% or 33% pro form a growth is very impressive. Can you give us a flavor of the pro form a growth in the business areas. I missed that. And then specifically, after such a strong pro form a growth in Q1 against your baseline of €14,000,000,000 Can you at least now frame where you see the revenues in the full year? Should we expect this sort of Q1 to roll on through the whole fiscal year? Or do we see that the ramp up is all skewed in H1, and we see a much more level profile in the second half of the year. So the question is around, I guess, How we should think about pro form a growth in the business areas and growth for the full year? And then specifically a follow-up would be about your order intake. Within the contracts Related to the BT platforms that you have signed, can you at least or for the group, can you talk about your Expected level of gross margin on incoming orders in comparison to the existing gross margin, which sits in the backlog largely around the BT programs? Good morning, Will. Thanks for your question. So starting with your first one, indeed on the 33% of growth Q1 2021 to Q1 2021 2022 is very much driven by the COVID impact, which has been impacting everyone on the Q1 2021. So to give you some color, definitively a large step up in rolling stock compared to these numbers, step up as well in signaling because this is where I would say the level of activities has been ramping up in the last months and as well the most impacted in our Q1 2021. So that's for your first question. On your second question indeed and which is a fair point as well the baseline of the EUR 14,000,000,000 and the trend for 2021, 2022. So definitively, we see a progressive ramp up on the rolling stock project moving ahead, I would say in the quarters and second half of the year. As I say on signaling as well, there is definitively this high single digit CAGR, which is our overall target. So that's definitively to areas where there will be a continued progressive sales ramp up across the quarters. And finally, on your last question on the order intake, so we confirm that which is very positive that the level of margin of our order intake is above our backlog margin and that's basically getting into the virtuous circles we had in Alstom where we get, I would say, healthy order intake, which is beefing up the margins of our backlog and we are trading at a lower level because we are of course delivering at faster pace as a low margin contract. So we are into this phase, which is definitively positive. Thank you, Mr. Martinez. At this time, sir, we have no further questions. Thank you. Okay. So thank you very much on my side for your attention. Our next event will be our shareholder meetings and which will take place on July 28. And I wish you all a very good day and a very good summer. Thank you very much. Thank you, sir. Ladies and gentlemen, that will conclude today's presentation. Thank you so much for your attendance. You may now disconnect. Have a good day. Thank you.