Q3 20/21 TU

Jan 19, 2021

Ladies and gentlemen, welcome to the Alstom Conference Call. I will now hand over to Laurent Martinez. Sir, please go ahead. Thank you. Good morning, ladies and gentlemen. Welcome to our conference call for the 1st 9 months of our Fiscal year 2021. We'd like first to wish you all a very happy and safe New Year For you and your relatives, we all face a number of challenges in 2020 and show that all wish that 2021 will be a year of recovery. So starting with the positive spin for Alstom, You may know that 2021 has been declared the year of sale by the European Union. Let's move directly to Slide 4. So moving to the order intake. We recorded €4,500,000,000 order intake for our 1st 9 months, Thanks to a solid order of €1,180,000,000 in the 3rd quarters. Our outlook for the Q4 is positive with several large orders in the pipeline. And you might have seen recently that the METRA Board of Directors in Chicago approved last week The purchase of up to 500 railcars for Alstom, which is clearly a flagship order to come. Additionally, support to reinvestments We are confirmed with €672,000,000,000 recovery in the resilience facility Enmark to climate naturalities, which has been finally adopted by the EU on December 11. In parallel, you have seen as well That you unveiled early December, it's a smart and sustainable mobility strategy, which is taking quite ambitious targets, Such as doubling of high speed rail by 2,030 and confirming as well that signaling ERDMS rollout These priorities. If I look towards the U. S, one of the key administration goals Is to achieve, as you have seen, a net zero emission by 2,050 and spark what Joe Biden calls a second railroad revolution. So in this context, we are expecting a new 5 year transportation funding bill, which should propose $60,000,000,000 of funding for rail And up to $105,000,000,000 for transit and this should be on the agenda as soon as 2021. Last example, in Australia, on the other side of the world, where the federal government will invest A5.5 Australian dollar investment in the inland rail project, which is a 1700 kilometers freight line from Melbourne To Brisbane. So all in all, as you see, this confirm our positive market momentum, and we are confirming A book to bill above 1 for our fiscal year 2021 on the back of this positive tender pipeline. Moving to Page 5 and turning to some of our strategic wins in the 3rd quarters, Well, we've been awarded a number of key projects such as the metro system tender in Toulouse around €500,000,000 contract, flagship win in France, our first holding stock contract in Romania with 30 Metropolis Train On line 5. On the lightweight segment as well some flagship wins with the Tramway in Germany, in coal And the time trial in France. And as well, our first, I would say, main line, singe nanny contract in India, Which is an additional landmark for Alstom Development in India, which is, as you know, a strategic country for us, Well, we have already a well established position in rolling stock and yeoman signaling. Moving to the next slide. And turning to sales. For the 1st 9 months, we reached €5,600,000,000 in line with our targeted trajectories, out of which €2,000,000,000 trading in the 3rd quarters, this representing a 2% organic growth year on year for these last quarters And this is driven by the ramp up of our major rolling stock project and with a plus 9% growth on a year to year Basis continued very positive dynamic on Signalling with a plus 10%. And by the way, we've been Achieving this quarter's highest sales ever for our senior activities, confirming our Alstom in Motion strategy, Services has been impacted down at 7% by the COVID-nineteen. And finally, systems activities Continued its anticipated decline by 23% due to the contracts, as you know, which are nearing completion in Middle East. Moving to Page 7. So we move forward as well in our Alstom in Motion Strategy implementation, with notably the acquisition of a minority stake in Silus, which is An Israel based cybersecurity startup. We'll be developing with them integrated cyber technologies into Highway processes component and solution to serve our customers. We also won a contract for Hydrogen Train in Italy, Which is confirming our leading position on this extremely important new hydrogen market. And finally, turning my eyes to India and these very nice pictures on the right. Our Alstom flagship e locomotives were Delivered the news to inaugurate the fight section and this attended by Prime Minister Modi, we are extremely pleased By the progress we are doing in India on this flagship contract. Moving to Slide 8, And turning to the ESG front, our leadership was confirmed and particularly rewarded. First, Alstom was included for the 10 consecutive years in the DGSI. I'll start maintaining its ranking amongst more than 7,300 companies and being part of the top 5% of these companies. Specifically, we have been noticed for action in the areas of product business conduct and social reporting. 2nd, We obtained the highest possible score of A in the 2020 annual assessment run by CDP. And this is definitively underlining our commitment, robust policies, demonstrable actions, We cut emission and contribute positively to the development of the low carbon economy. Moving to Slide 9 and turning to Montbladiers Transportation acquisition. As you know, we are Now, I got full clearance on all the authorities and antitrust authorities in November 2020. On the financing side, we completed very successfully our high tissues of €2,000,000,000 With 170 percent oversubscription rate in December and followed, as you have seen, early Jan by 8 Your bond insurance with, I would say, very nice 0% fixed coupon within orders which has been oversubscribed More than 4 times. The completion of this acquisition is expected to take place on Jan 29. Moving to Slide 10. Last word will be on our guidance. As you can see, we are well on track to meet our short and mid term financial targets. We confirm, therefore, our short term outlook with a targeted book to bill ratio above 1, Sales between €7,600,000,000 €7,900,000,000 Adjusted EBIT in the range of 7.7 percent to 8 percent. Breakeven to positive free cash flow generation for the full year. And we confirm equally as well Our midterm outlook. So I have finished for this overview of our 3rd quarters. Thanks for your attention, and I suggest that we switch now to the Q and A session. So, operator, back to you. Thank you. We will take our first question from Martin Wilkie with Citi. It's Martin from Citi. Just on the order intake, you obviously reconfirmed You're booked to bill above 1, and you pointed to several government programs. We have seen some governments talking about scaling back on Budget and obviously traffic is down. Have you seen anything getting deferred from an order perspective, whether it's on the maintenance side or even new projects? Just to understand The spectrum of sort of what's happening in different places if governments are easing back anywhere on investment? Thank you. Yes. Good morning, Martin. Thanks for your question. So in the main, we have Seeing all the, I would say, government and decision makers confirming The investment in Wales. So I've been addressing the overall pictures of the seamless packages, which are confirming The need and the decision to invest into the green mobility. So if I look at the, I would say orders pipeline remains very positive for us for Alstom. We have a solid Pipeline for the Q4 with METRA, as I said, which has already been announced and which will be awarded to Alstom. But as well, We have a number of large orders to come in Europe on suburban regional train in Spain, in Italy and Germany, Together with, I would say, a number of several midsized orders, which is as well in the pipeline. So in the main, you are right, Martin, Some limited shift here and there, but nothing which is changing the big picture. The next question? Our next question comes from Iris Zeng with Credit Suisse. Please go. Thank you. I actually have two questions. So the firstly is just a follow-up on the order intake question because the guidance Still guide for book to bill to be above 1. And as you've mentioned that the Q4 momentum looking quite good. And if I just take the book to bill ratio of above 1 times, then that implies more than €3,000,000,000 of order intake for the next quarter. So I want to check if you think there is a bit of boost from the delayed orders for the quarter or you think that will be a sustainable rate going forward? And I'll ask the next one afterwards. Yes. Good morning, Iris. Thanks for your question. So yes, so if I zoom in and double click on the Q4, just notice that our base orders Has been positive in the 3rd quarters. I mean, we are expecting as well to be positive for the 4th quarters. There is a number of key tenders which are up for decision in the Q4. And I mentioned a few of them at METRA Already in the box, I would say, in Chicago, but as well some in Spain and some as well regional trends in Italy, Which are on which we have been passing a number of key commercial milestones, which are positive for us To get to this number of orders that we are targeting for the Q4. If I look ahead as well to give a bit of a wider perspective, 2021, 2022 looks equally positive. We have a number of key tenders, which are in the pipeline. We talked about Denmark. We have key tenders as well in the U. S, In Germany, so the pipeline looking ahead in 2021, 2022 remains equally positive. Your next question, Iris. Thank you for the color. The next question is on the U. S. Market because It has traditionally been a leg out on the passenger rail side, but with all the supportive government Policies as you've mentioned and with the Biden election. So could you maybe give us a bit just flavor on your strategy in the U. S. Markets Maybe against your peers and if how Bamali acquisition is going to help you in the market? Yes. Yes, absolutely. So indeed, North America, if I enlarge a bit, not only on the U. S. Because US and Canada will become the 2nd key pillars of the new Alstom. And we know it's within 25% of the overall Europe is 50%. North America is around 25%. So in terms of strategic access And the market momentum, we definitively have, I would say, is a continued commuter market And the Double Deckers high capacity is a key strategic product. So Metro Chicago will be a first of this kind. So it will be a huge, I would say framework contracts and there is a similar opportunities in Ontario. There is similar opportunities as well in Quebec, Which is obviously a key market and we are now building a specific product with this Metro flagship win. We have the Metro as well. I know that New York City is to decide on the replacement On the New York City Metro car, now which will be another key axis. So that's the second, I would say, strategic axis we want to develop. The third one will be Signalling. You know that we are specifically strong in Signalling in Alstom. This will be complemented By Bombardier Capabilities, and this is something that we'll be developing as well moving forward. We have as well, as you know, The high speed segment, Amtrak is performing very well. We are in testing phase. Amtrak will be the 1st high speed line in the U. S. Market, and we are expecting To have more opportunities on this field as well, and we will have with Amtrax the 1st certified product in North America. Next question? Our next question is coming from Akash Gupta with JPMorgan. Please go ahead. Hi, good morning, Laurent. It's Akash here from JPMorgan. My question is on Bombardier Transportation deal process. So maybe if I can ask you on the remedies that you have agreed for satisfying European Commission requirements. So can you tell us how much of sales will go away with these divestments that you have proposed? And any proceeds that we Should we take care while we do our valuation for the combined entity? Thank you. Thank you, Akash. Good day to you. So on the remedies, in terms so the process is going on, You have seen in the press who are the contender and we are in deep discussion now with Codan Related to Reischofen and Eningsdorf, in terms of sales, Akash, we are talking about Around €450,000,000 of sales. So that's roundabout the impact we are seeing on these two sites. In terms of proceed, you can imagine that I will not get into the details of this, but The profitability, as I hinted, is quite limited on these activities. So we should not expect major proceeds From this divestment. The next question? The next question is coming from Daniela Costa with Goldman Sachs. Please go ahead. Hi, good morning. Happy New Year. I have one question and one clarification on some of the prior questions. But the first question I have was regarding the €850,000,000 bond. Can you just elaborate on why that was Bigger than what you needed for from the BT perspective. So can you give Some cover on that and then I'll ask the clarification, which is on the orders. Sure. Good morning to you, Daniela. Appear to you as well. So to the bond, so to be honest, indeed, we went to a benchmark Size now of €750,000,000 down for this insurance. To be honest, the market condition was so Exceptional that we felt it was appropriate to size this benchmark size of €750,000,000 You have seen that We reached 0% coupon on this insurance. On top of it, we had a very fruitful dialogue with Moody's. And you have seen that Nyni has been confirming our Baa2 rating with these numbers With the 24 months horizon. So this is this was the second part as well of the equation. Go to your next question. Our next question is coming from Alexander Sorry, Daniela, I think I had a follow-up question. Hi. Am I still on the line? Yes. Yes, you are. You are. Thank you. So my question was a follow-up on some of the other comments you mentioned before. When you mentioned Chicago, on a contract like that, which has 2 parts, will you book just the first part, which is the I think it's 845,000,000 U. S. Dollars or would you book the whole thing? And the other order I wanted I didn't hear you talking about, but it's a lot On the news is the Belgrade metro order, which I guess somewhere between $1,000,000,000 to $3,000,000,000 Is that are those rumors wrong or Can you comment? Yes. So on your first point, you are absolutely right, Daniela. We will be booking only, which is our policies, the firm part of the orders. So That's clear. So that will be round the belts, the numbers you've been quoting a bit more. That's round the belts, the numbers you indicated. However, the framework Contract is more than twice these numbers. And that's something very interesting always when we consider our order intake and order book. There is always or often a number of interesting option, which are, I would say, Putting more opportunities moving ahead. On the second one, this is not something which is on the short term, but Something which is more for 2021, 2022. On the next question? Next question is coming from Alexander Villegas with Bank of America. Please go ahead. Thanks very much. Good morning, Laurent. Happy New Year to you. Just a quick follow-up, I guess, around the dynamics On your PDPs, the milestone payments and actually maybe broader networking capital terms. Just wondering if you can comment upon those Given your prognosis for order intake and the free cash flow guidance. And then as a follow-up, Can you make any comments around the prognosis for recovery in our service business? Thank you. Yes. Good morning to you, Alexander. Well, all the best for 2021. So to your first point, I mean, in the main, nothing has Change compared to our cash trajectories we have been outlining in May November. So our projects are very well executed. We are very satisfied by So technical and the ramp up on all our main projects across Alstom portfolio. So we are definitely Expecting to continue to have a positive, I would say, progress payment and cash in acceleration due to our On the other side of the equation, we still are building up Inventories to support the ramp up of our rolling stock as we anticipated and this Back in May 2019 in our Capital Market Day, so we are still on this kind of ballistic trajectories. So all in, we definitively see a positive working capital contribution in our second half of the year. And together with the down payment, as you mentioned, we are very confident to a breakeven to positive Free cash flow for the full year of 2021. The next question? Our next question is coming from Gael Debre with Deutsche Bank. Please go ahead. Well, thanks very much. Good morning, Laurent, Bonnelly. Happy New Year to everybody. I have Probably three questions, please. The first one is, as we approach the 29th January, Can I ask when you did the latest due diligence and reviewed Bombardier's backlog and how things Progressing as planned on this front? The second question is about how you intend To deal with Bombardier's joint venture in China from an accounting perspective, would it be treated like Cascaux and booked within the adjusted EBIT? Or will it be reclassified with the other associates? And if we assume a margin of, let's say, 4% for Bombardier in The 1st year, does it include the contribution of the Chinese joint venture or not? And then the third question is about the commercial activity. I think you described a positive picture for Europe. But do you expect to see some delays in the commercial tendering processes outside Europe perhaps? And if you could give us a bit of an update regarding what's going on in Abidjan, Brain, India as well, that would be very useful. Thanks very much. Thank you, Gael. Excellent. So yes, a number of interesting question, Gael. Let's go one by one. On your first point, so we are in continuous dialogue with Bombardier. I would say related to their project execution, as you have seen on the 3rd quarter, So project portfolio has been stabilized, which is positive With some progress on a number of projects, challenge remains On some projects, as expected, there is nothing new into this. And you have seen as well that, For instance, the lockdown in the UK will have some consequences or may have some consequences as well on this subject. So we'll see What could be the impact in the Q4? Overall, however, again, we do not see a new element nor new weeks, Which is changing our perspective on the overall BT backlog profitability. So All as anticipated by us on these subjects. To your second point, which is a technical point, so Something that needs to be decided, I would say, in the year 2021, 2022, but The direction we are leaning at is to treat indeed the joint ventures from BT in China, China like Cascaux. So that's Be part of the adjusted EBIT because this is a bit the same logic as we have for Casco. So to your 3rd point in terms of the commercial activities outside of Europe, and you've been mentioning a number of subjects, which are interesting because Abidjan, Baghdad and Ukraine are kind of government to government agreement. So this is something where There is no open tender. It's a gre agre kind of transaction. So things are proceeding well on these three subjects. Now Like always in this kind of countries and if I look at Abidjan or Baghdad, it's of course Countries which are in some cases in a difficult state, it's always taking time, but I would say positive momentum on that. And we are hopefully expecting some positive momentum, but that could be more mid term topics than short term topics. If I look at the market beside that in India, we are definitely building on our success on Eloqua. There is a massive prospect from India to electrify 7,000 kilometers Also lines and to upgrade capabilities in terms of rolling stock, both in terms of locomotives and passenger coach and Passenger EMUs, so these are as well definitively a very interesting market to look at. I can quote as well Bangkok With very interesting metro line as well on which we are working, I can put as well Israel With a number of critical project in Tel Aviv and Israel on which we are equally well positioned. So The market momentum is as well positive in Asia Pacific and in other parts of the world. So to the next question. Our next question is coming from Jonathan Mufti with Exane BNP Paribas. Please go ahead. Hi, good morning. Thanks for fitting me in. I wonder if you could ask about The Bombardier acquisition completion and particularly in regard to the accounting treatment of what must be some loss making contracts. I think at the beginning, when the deal was announced, we talked about some sort of bad orders in the backlog that we have to ship out over 1st 2 years. And while we've had 1 year already of that, my guess is there are still some rolling stock contracts, in particular, where Losses are expected to accrue. And I think under IFRS accounting rules, usually, you'd write those to 0 and provide a provision, Which would obviously, in terms of headline margins going forward, would sort of deal with the headwind. I mean, is that what you're going to do? Are you going to basically Look through the backlog and anything that's going to is likely to make a loss, you're likely to provide for that at the time when the deal completes? So good morning, John. So indeed, there is, I would say, a business and an accounting Pointing your question. So on the accounting point, we know so we'll be working on the price purchase allocation as you Famous PPA exercise like in any acquisition. On that will be something which will be, I would say, happening in the first half of the calendar year twenty twenty one. On the business side, you are absolutely right. There is this contract, which will be delivered in the main in 2021 and 22 calendar years, in 2023, the bulk of this contract will be completed. So this is something where we will be facing headwinds in terms of average profitability Due to the execution of this project in the next 24 months or so. So moving to the next question. Our next question is coming from Katie Self with Morgan Stanley. Please go ahead. Hi, good morning. I just had a question actually coming back to the CASCO JV. I wondered if you could elaborate on how that JV was performing over the quarter or really over the 9 months? And how much was that a key element of the signaling strength you saw in the quarter? Or was that strength more coming from Europe and other regions? Good morning, Kathy. Thanks for your question. So, Casco joint ventures is performing very well, To be honest, so you know it's one of the leading companies in terms of the urban signaling in China. So A number of key win in terms of order intakes in the 1st 9 months. A number of as well innovation that We are pulling into Cascaux and we will have some specific announcement on that in the future. In terms of, I would say, COVID crisis, absolutely no impact on the Cascor Peri Metteus, so this is something which has been contributing very positively. To your specific question, Kathy, this is Cascogivi sales are not consolidated into our sales numbers. So the good performance we have on the 3rd quarter It's not coming from the Cascaux sales performance. It's coming from the positive momentum we have in Europe To a large extent and some as well positive development in Asia Pacific, but not in China. Your next question? Our next question is coming from Alfred Glaser, Ritu I'm sorry, William Amechey with Kepler. Please go ahead. Hello, good morning and happy New Year to you, Laurent. Thank you for making the time. I wanted a couple of questions. Firstly, on the longer term perspective In North America, obviously, the implementation of the Buy America Act had a Big impact on the competitive landscape of some of the Asian players, particularly in areas like Chicago and Boston. How do you see the competitive landscape now in the USA developing in the future? When you're bidding on these contracts, Have the number of players and the pricing conditions of the contracts being observed to start changing As the landscape has been changing. And the second question comes to the revenue guidance for the year. Specifically, you must have a lot of visibility at this point. So what is it that pushes you to the lower end or the upper end for the pace of recovery into 2021 and into 2022 year against the backdrop of this second wave of COVID lock Sounds. Thank you. Thank you, Will, for your question. Good morning to you. Happy New Year to you as well and your family. So on your first question, you are right that there is interesting dynamic in North America market. First, we can say that CRRC is not welcome anymore. And you have seen that there is a specific bill, Which is targeting to avoid P and R seems to be in the future in the U. S. So that's the first key Elements into the market. There is some as well new players, if I look back from the last few years, Arnstadt being One of them, which is becoming more present. Now in the main, I don't see Will we appoint any evolution in terms of the price behaviors? And the fact that as you undermine rightfully so, The Buy American Act command to have 50%, 60% of Buy in Americas He's supporting actors or industrial companies like us, where we have, I would say, a significant footprint In the U. S, so this is something which is a benefit for us. So in the main competitors, which are getting out New competitors, but nothing fundamentally changing in the competition landscape in North America. To your second point on the revenue guidance, in terms of the equation for the last quarter, mainly for 20 On the positive, definitively, we have the rolling stock where We will have a continued acceleration in the rolling stock for the 4th quarters. Services, we see that as a kind of Stable compared to Q3 because we have the impact of the lockdown And the COVID, which is pushing down some of the mild usage of our trains, signaling will keep As well a positive momentum. And system will continue the slight decline In the 4th quarters versus last year. So that's the dynamic of the up and the down. We are well within the €7,600,000,000 to €7,900,000,000 of guidance That we have targeted. In terms of our working assumption for the recovery 2021, 2022, So number 1, we are all expecting that there will be no hard lockdown, which will be, I would say stopping production, and that's the main underlying assumption for sure. We are expecting a progressive recoveries In terms of the services activities, which will be taking some time, but nothing fundamental as well, She's changing our perspective for 2021, 2022. Our main, I would say, axis Will be the delivery of our backlog, the deliveries of the future orders we have in the pipeline and that should be the basis For our 2021, 2022 perspective. Moving to the next question. Our next question is coming from Alfred Glaser with ODDO Securities. Please go ahead. Yes, good morning. Happy also from my side. I wanted to ask you on the EU Market environment, EU has presented its new mobility strategy. What do you Expect more specifically for your rail business to come from this strategy. Good morning, Alfred. Excellent, Anais as well. So to your very interesting question On the EU strategy, I think that there is definitely a political push on the rail now in Europe, She's extremely positive. In terms of expectation, a couple of factors. Hydrogen Is definitively a key part which is pushed by EU and the government, so expecting Definitively a support in terms of the hydrogen economy, so infrastructure and the fact to have a positive Mechanism to replace diesel locomotive by hydrogen locomotive, that's 1. 2nd, high speed. As I said, doubling of high speed rail by 2,030 as a replacement to flight It's a strategic axis. So that's something definitively, which is a key opportunity. And you know that in Europe, there is Basically, 2 main contenders when it comes to high speed, the Siemens and us. So we are extremely well placed with as well Our new product and that we are developing as a new TGV and new on track, so we are having the leading edge in terms of technology. The third is signaling because I would say the capacity in the network in Europe is largely driven by Signaling upgrade, and you have seen that in Germany, for instance, but equally the case as well in other countries, in the Nordics, in France, There is a wave of signaling opportunities to upgrade the network. So these are 3 axis, Which I feel will be extremely important in the futures and pushed and supported by the EU. Next question? And our last question is coming from Simon Tonsten with Jefferies. Please go ahead. Yes. Good morning. Happy New Year, Laurent. I just have one question. Could you comment a bit on the CHF 2,600,000,000 contract that went to Bombardier and CAF. There seems to be quite a lot of noise in the French press. You peered against the decision. It was highlighted there have been irregularities, and it was also highlighted, I think, that the price difference It was about €500,000,000 between your offer and the one from Bombardier. As the buyer of Bombardier, can you clarify this as it sort of raises the questions On contract terms that Bombardier has taken. Good morning, Simon. Happy New Year to you as well. So on ME and G, indeed, as you know, there were 2 offers on the table, one With Alstom and one with Bombardier at 60% and CAF. So first of all, I want to say that overall, it will be Going to the new group one way or the other. So you have seen the latest status in the press. And to be honest, I We'll not comment further on that, Simon, on the specific tender for sure, while the process is ongoing. So I will not comment further on this subject. So Any other question? No, there are no further questions. I would like to turn the conference back to you for any additional or closing remarks. So Thank you very much. Thank you for your attention this morning. Maybe a couple of words indeed to conclude our session. I would say 3 takeaways. First one, we confirm our commercial and financial trajectories, which is supported by Very positive market momentum. 2nd, our financing for Bombardier acquisition is now fully in place. And third key takeaway, of course, we are now looking forward for the conclusion of the acquisition and the day 1 of the new group With a lot of enthusiasm. So I thank you all of you for your attention and look forward to speak with you Our next opportunity. Goodbye. This conference is now over. Thank you for your participation.