Ladies and gentlemen, good day and welcome to the Alstom conference call. Today's call is being recorded. I now hand over to Laurent Martinez. Sir, please go ahead.
Good morning, everyone. Welcome to our conference call on order and sales for our first quarters of our fiscal 2021. Let's move directly to the market outlook, which is a critical part, of course, of our background. As we have all seen, mobility as a whole has been severely impacted, of course, as a result of the containment measures all over the world. We experience, as we have all seen, therefore, a significant drop in rail ridership during the peak crisis phase. However, since then, we have seen a normalization in trains operation and more progressively on passenger ridership. Train operations are now moving almost to their pre-COVID level in Europe and China, and the passenger traffic is as well increasing steadily in Europe and Asia, as well more progressively in North America.
Of course, this crisis has put operators under financial pressure due to lost revenues, but as you know, most of them have been backed by their respective governments. Take the U.S., for instance, particularly supportive on the public transport with the CARES Act totaling $25 billion for transit operators. In Europe, Deutsche Bahn will be benefiting as well from EUR 5 billion capital increase. Moving as well to the long-term investment plan, which has been confirmed by most of the operators such as HS2 in the U.K., which has been confirmed right in the middle of the crisis, or Renfe in Spain for its major regional train tenders. Rail sectors should also benefit from the different stimulus packages released across the world, which are favoring sustainable mobilities. Couple of examples.
In EU, the EUR 750 billion recovery plan should direct a share towards climate-oriented investment in line with the European Green Deal announced late 2019. The German EUR 130 billion support package will be directed partly for public transportation and green mobility with an important share as well for hydrogen. On the other side of the Atlantic to the U.S., the Infrastructure Investment and Jobs Act should allow $60 billion to rail projects, including half for Amtrak, tripling the level of funding already planned. Finally, to add on this, support comes from different forms, and you have seen, interestingly enough, that French and Austrian governments are requesting against bailouts for their national airlines to stop all domestic lines which could be replaced by trains for a duration of under two hours and a half. Our view remains therefore very strong. Sustainable mobilities, and more specifically rail, stays on top of the agenda.
Long-term fundamentals remain intact and might even be accelerated by stimulus investment policies as we have just noticed. Moving to our commercial activities over the quarter on slide four. Our level of order intake has reached close to EUR 1.7 billion, slightly above our Q1 2019/2020, mainly thanks to a large order in AMECA and our Taipei Metro system in APAC. We have been able to maintain a certain level of orders in Q1. We are anticipating, as we indicated in May, some shift in tenders and stronger activities in the second half of our fiscal year 2021. Overall, our tender funnel remains, I can tell you, very positive with large tenders decision to come before the end of our fiscal year. Altogether, our target is to maintain a book-to-bill at or above one this year.
Finally, related to our backlog, we did not have for sure any order cancellation. Our backlog as of end of Q1 remains very strong at more than EUR 41 billion. Moving to the sales. As anticipated, as we expected back in May, our sales volume has been impacted by the COVID-19 crisis, reaching EUR 1.5 billion, i.e., -25% organic compared to the same period last year. Moving on the product line perspectives, rolling stock has been down by 25% organic, impacted obviously by the shutdown of our manufacturing capabilities during confinement, with production level now back close to normalized level. Services down 19%, impacted obviously by the drop in train traffic and some delays in maintenance program. As you may know, our Services activities are partly linked to the mileage, the usage of the trains.
Signaling is down 7% organic, impacted by the difficulty to access sites for component installation during the confinement phase. Finally, Systems are down 50%, impacting firstly, I would say, by the anticipated ramp down of the large contracts, which are nearing completion in Riyadh, Dubai, fully traded contract in Panama, but as well by, of course, the site confinement measures. On Systems, we are very proud to have participated to the inauguration ceremony for the Dubai Metro Route 2020 on July seven, this only four years after project start, which is probably a record. Altogether as of today, our operations are close to normalized level. Our supply chain is as well in line with our manufacturing recovery. A quick update on Bombardier Transportation acquisition project.
As you may have seen, we have been notifying the European Commission on June 11 and submitted the remedy package on July nine, which means that the European Commission will now review our submission and will render its decision on July 31st. We are obviously maintaining a constructive dialogue with the Commission during this process. We are also in parallel progressing on the other current authorities worldwide. In the meantime, we are progressing with Alstom employees' representative as planned, with their opinion to be submitted around summer. We confirm on this basis our initial planning on next steps. We intend to sign the SPA in the second half of the calendar year 2020. EGM should take place before end of October 2020, and we target the rights issues to take place between the second half of 2020 and the first half of the calendar year 2021.
Finally, to get to a close of the transaction in the first half of the year 2021. Overall, I can say that we are very pleased by the progress on our transaction process this quarter with important milestones which has been reached, and this despite that almost everything has been done virtually. We are still very much committed to the transaction as the strategic rationale of the deal is very much intact. Just a couple of takeaway to end this short presentation and before getting into the Q&A. I would say that despite the crisis and the slowdown, our tender activities has been sustained this quarter, thanks to the orders we had in AMECA and APAC. Our sales has been impacted exactly as anticipated back in May on the first quarters due to the COVID-19 crisis, but our operation are now close to normalized level.
On this basis, we confirm the outlook we have been provided at our full year 19/20 results, i.e., confirmation of our 22/23 objectives of 9% adjusted EBIT margin and conversion from net income to free cash flow above 80%, and our objective of 5% average annual growth rates over the period 19/20 to 22/23 will be slightly impacted from temporary tender activities slowdown. On the BT transaction, we have been reaching important milestones and progressing as planned. I would say that altogether, the rail market proves to be very resilient with the numerous recent pro-rail announcements. I leave it from there and from this presentation. I propose we switch to the Q&A session.
Thank you. Ladies and gentlemen, if you would like to ask a question, please signal by pressing star one on your telephone keypad. Please be advised that only one question will be taken at a time. If you're using a speakerphone, please make sure the mute function is turned off to allow your signals to reach our equipment. Again, please press star one to ask a question today. We'll now take our first question from Daniela Costa from Goldman Sachs. Please go ahead. Your line is open.
Hi. Good morning. Thank you for taking my question. I wanted to ask two things. One, I wanted to ask you for any commentary now that you have, I guess, better visibility operations are fully open on how shall we think about the path on recovery of margin or cash, if you can tell us anything about the seasonality or how different it is from a normal year. My second question relates to the deal you've done on the braking technology a few weeks ago. If you can tell us a little bit of sort of what, is that part of a longer intention of internalizing more content? Is it a platform for growth? Can you tell us just a little bit more about the intentions behind it? Thank you.
Good morning, Daniela. Thanks for your question. Giving you a bit of colors on the margin and on the cash for 2021. Starting with the margin. Couple of key factors. Number one, of course, our overall margin EBIT level will be impacted by the reduction of volume. That's kind of mechanical impact. Second factors of the equation, of course, we will have some specific costs related to COVID-19, related to inefficiencies and costs of sanitary measures. This will be, of course, only for the first half of the year. You know we had a specific element into this in the second half of our March 2020 result. Against that, we have been implementing, and I would say we are according to our planImplementing cost recovery measures, furlough scheme, partial work, indirect cost prioritization, hiring, tightening control, which will partly offset this negative impact.
Altogether, we will see, of course, a more important impact in H1 and recovery in H2 while volume will step up. Last small point on the margin, we will have as well, of course, some Bombardier transaction costs, which will be impacting our EBIT line. To the cash, briefly. Here, the equation is quite simple. H1 will be a difficult half year, as I indicated back in May, with, I would say, the mechanical impact from the delivery drift while we are protecting our inventories. We will have a recovery in the second half with a rebound on deliveries and as well inflows from our expected order intake pipeline. All of that, of course, will be building as well on our cash focus success from 2019, 2020.
You should have in mind as well that related to cash, we have indicated back in our capital market day that we will have structurally a ramp-up of inventories due to the ramp-up of our rolling stock project in 2021. Finally, on Ibre, that's an interesting point indeed. Ibre is manufacturing, I would say, brake discs. It is a part of our Alstom in Motion strategy to engage on some niche technologies to, I would say, build up our capabilities on some critical subsystem, brake being one of them. It allows us to enter into the strategic market and to have, I would say, some capabilities to have the choice between internal and external solution. This is something that we continue to pursue on an ad hoc basis, when and if it makes sense. Next question.
Thank you. We'll now take our next question from Akash Gupta from J.P. Morgan. Please go ahead.
Hi, good morning, Laurent. I have a follow-up. I have a question. Follow-up is on margin is that if you look at Q1 decline, you don't report Q1 margins, but if you had to guess whether the margins were positive or negative on 25% organic sales decline, if you give us any help on that would be great. My question is on antitrust review. Are there any other jurisdictions where you may need to offer remedies to get this deal approved? Maybe if you can walk us through the antitrust review process in China, where do we stand currently on that in China? Could there be any risk given the geopolitical issues? How crucial Chinese approval is for this deal to close?
As I think in earlier deal with Siemens, I think you were not needing Chinese approval in order to close the deal. Thank you.
Good morning, Akash. Thanks for your question. On your follow-up on Q1, of course, the impact I'm mentioning on the volume is more important on Q1. That's very clear. This will recover again in the second quarters and as well in the H2, together with the sales step up. I want to add as well that the quality of the margin of our project, if I move aside, of course, the COVID-19 cost and efficiencies remains very positive and with on a positive trend. We don't have absolutely any issues in terms of execution of our project. On antitrust, Akash, to your second point. We are running a process on around 20-ish, I would say, other jurisdictions than the EU. We are not expecting, I would say, massive or any remedies, significant remedies to fix this other than EU regulations.
This is something which is ongoing, but we are expecting that it will flow naturally. To your specific point in China, process is ongoing in China. It's positive that Bombardier is very active in China, very strong in China, around 8,000 people, a number of joint ventures, close coordination with partnership with CRRC. We are not expecting any difficulties in China as far as the regulatory process is concerned. Okay. Listen to the next question.
We will now take our next question. Yes, from Guillermo Peigneux-Lojo from UBS. Please go ahead. Your line is open.
Hi. Good morning, everyone. Thank you for taking my question. I guess I wanted to have a follow-up on the Bombardier remedies that were announced recently. I wanted to understand a little bit what providing access to certain interfaces and products for some Bombardier Transportation Signaling OBUs and TCMS means in terms of what's going to happen, if the deal gets approval, what's the aim of that particular point in the remedy?
Good morning, Guillermo. Thanks for your question. Indeed. This is what I will be using expert slang. This is what in EU term is behavioral commitment, which means that there is, when it comes to these Signaling issues that you are referring to, that there is no transfer of assets. We are talking about a fair access to interfaces, documents, product going to a price catalog for Bombardier OBU, on-board unit and TCMS subsystems, so that there is a level playing field into the competition. That's basically it. This is to ensure that competitors will have access to these subsystems in a fair and reasonable manner. That's about it. Okay. We move to the next question. James?
Yes. Mr. Moore from Redburn, please go ahead. Your line is open.
Yeah, morning, everyone. Hi, Laurent. Thanks for taking my question. First, before I give my first input, can I just clarify on the margin point? Could you possibly quantify what the full year Bombardier and COVID-19 costs might be? For my question, I just really want to talk about free cash flow, because I see in your statement on the outlook, you talk about COVID-19 having a negative effect on the financial performance of free cash flow, which I think was a slightly new comment, and I can understand that with demand and a negative working capital company, particularly in the first half. For the full year as a whole, do you anticipate having a negative free cash flow this year?
On the BT cost, not to be too specific for sure, but you have in mind probably the cost of Siemens. We are talking about a lower cost than the Siemens cost. This is what I can say at this stage on the BT cost transaction, which will be recorded in the EBIT. On your second point on the cash, if I look at the full year, as I say, the trend is anyway related to the working capital headwinds relating to the rolling stock project ramp-up. This is something which is anticipated. No surprise on this. We are expecting a rebound of the order intake in the second half of 2021, probably to the last quarters, which will help as well in terms of cash recoveries. On this basis, as I say, difficult H1, positive rebound on the H2.
The net of the two will be factors of multiple elements. Know that we have as well our short-term volatilities on our working cap, and we'll be fighting hard, of course, to get to reasonable numbers at the end of the year.
Thank you. We'll take our next question from Alexander Virgo from Bank of America. Please go ahead.
Morning, everyone. Laurent, [Foreign language] for taking the questions. It's just a quick one on your comments on Signaling. The issues around site access obviously impeding the revenue in the quarter, which is totally understandable. I'm just wondering around scope for catch-up there. Obviously the benefit that that would bring to mix as we go back through the rest of the year. Thank you.
Okay. Referring to the Signaling activities, you are referring, Alex, just to make sure I well understood on the Signaling activities for 2021 as a whole? Getting back to this point on Signaling, we are, as I say, -7% on the first quarter of this year due to the, I would say, limited impact related to the access to the site for installation. We are expecting a recovery during the second half of 2021 when it comes to Signaling. If I look at the second half, we are expecting indeed to be back to a growth trajectories compared to the second half of last year. Indeed, as you mentioned, there will be a positive small mix impact due to the faster deliveries of Signaling if I compare to the rolling stock activities for 2021. Move to the next question.
Thank you, Alex. Yes, next question comes from Gael de-Bray from Deutsche Bank. Please go ahead. Your line is open.
Thanks very much and good morning, everyone. When you say that production is now back to normalized levels, I guess this is great, of course, but have you seen any push out of deliveries by some of your customers, which could potentially further delay the return to growth for revenues in the coming quarters? I'd be interested about your comments about this. Maybe if you've heard of anything in relation to this push out in specific products or geographies, and in relation to that, if you could give us perhaps an update on the execution profile of the India and South African contracts? Thank you.
Thanks, Gael, for your question. To your point on the production back to normalized level, and maybe I make the link with India and South Africa. On India first, we are very proud to have been delivering. As you have seen, our first batch of our e-loco in Madhepura, which is a flagship project. The product is homologated. The customer has been starting the commercial services, which is very positive. We are, of course, now getting into the ramp-up of this project. I would say with some ups and downs due to the Indian situation in COVID-19, which remains very complex, as you know. To South Africa. South Africa as well is in a ramp-up mode. We are having as well, in South Africa, some ups and downs due to the COVID-19 impact, but no disruption in terms of our production chain.
Since we have been starting, we do not have any stoppage in terms of production. To your point on the customer deliveries, we are in constant dialogue with our customers when it comes to production rescheduling due to the COVID. I can say that none of our customers have been asking us to push the deliveries to the right. We are accommodating the delivery schedule along to our capabilities to deliver, to catch up with the couple of weeks of drift we had during the peak of the COVID crisis. Altogether, I would say, very positive on the production. Maybe a last word on Amtrak, to mention that we have had as well the two prototype testing, which are up and running, and which are so far, I would say, tested with success. Can move to the next question.
Thank you. Our next question comes from Jonathan Mounsey from Exane BNP Paribas. Please go ahead.
Hi. Good morning. Thanks for taking my questions. A couple. On the comments on tendering, obviously, you say the pipeline is extremely strong. Your outlook message does mention, though, temporary disruption to tendering. I just want to kind of understand that. Are we talking about a lack of new tender launches now, which would then affect order intake in a year or two years' time? Because it seems to me that the pipeline right now is going to support order intake in this fiscal year. What's the outlook slightly further on, given all the disruption we're seeing at the moment? Just back to those COVID-19 costs. You had EUR 24 million in the final two weeks of the previous fiscal year. Can we get some guidance on what it's going to be? I guess you had about eight weeks of disruption.
That would be EUR 100 million at the run rate. How much of that are you going to avoid? Obviously, it's a number that you now would be able to have some line of sight on, at least for Q1, which I guess is when most of the issues are going to have been for H1. Can you give us any help on modeling that, please?
Sure. Good morning, Jonathan. Thanks for your two questions. On the tender, I need to underline that our tender pipeline is very positive. Market remains very buoyant. Just want to quote a number of key tenders we are working on in Paris for the RER replacement, in Denmark, in Spain, in Germany, in Austria, in the U.S. The pipeline is extremely positive for 2021. We see this pipeline continues in 2021, 2022, 2023, as we see it today. We don't see, I would say, a midterm disruption on the market due to the crisis. As I say, to the contrary, we are expecting hopefully some upside from the various stimulus package. Our comments on the disruption is more a short term, very short-term comment, Jonathan.
We are talking about, I would say, the flow of smaller orders for Q1 and Q2 which are for, I would say, obvious reasons, have been a bit shifted to the right. We are seeing during the year 2021, a drift to the right of the key tenders. I would say most of the major tender decisions are still expected for the Q4 2021. To your point on the COVID-19 cost, indeed, you mentioned the EUR 24 million for the two weeks lost. I think that the numbers you are quoting for eight weeks is probably too high, so it will be lower than that. We will see that, of course, in the H1. So far, we are still, of course, in the making of, I would say, accounting and mitigating this cost as we speak.
We'll take our next question from Alfred Glasser from Oddo. Please go ahead.
Yes, good morning. I just wanted to ask you said in your release that by mid of July, you are close to normal capacity utilization in your activity. What does it imply for the full year in terms of revenues and activity overall? What is your best guess now on how the full year could look like?
Good morning, Alfred. Thanks for your question as well. I would say that our full-year outlook is exactly as anticipated back in May. No surprise, no good or bad surprise from our perspective back in May. If I look briefly product line by product line, we are looking at a progressive recovery of the rolling stock which is in ramp-up phase, even if the ramp-up has been shifted to the right by a couple of weeks due to the, I would say, the slowdown or the stop of our site deliveries. Services and Signaling will be as well in recovery mode in the second half, back to growth trajectories. System, finally, will, I would say, as anticipated, and this is to a large extent independent to the COVID, will continue a slowdown for 2021 in line with the deliveries of, for instance, the Dubai project as I mentioned.
All together, Alfred, we are seeing as anticipated around one month overall of production shift. Of course, we are in this, I would say, ramp-up phase, and the catch-up, of course, will be very difficult due to this ramp-up situation we are in. Can move to the next question.
Thank you. Yes. Our next question comes from William Mackie from Kepler Cheuvreux. Please go ahead. The line is open.
Yeah. Good morning, Laurent, everybody. Thanks for the time. One clarification question, please, on the below the line items. You've given us some detail on the Bombardier and the COVID-19 costs, but how are you capitalizing on this crisis to perhaps review the manufacturing base? In consequence, how should we think about the level of restructuring and rationalization costs between operating profit and EBIT in the current year? That's the first question. The second one, I think follows on a little bit from a couple of other questions about recovery. Look, the world is obviously very complex, and every country is dealing with this situation in a different way. Your operations in India, South Africa or Europe or North America are all responding differently to the effects of the COVID-19 crisis.
When you think, let's move through this second quarter, when you look at Q3 this year, can you at least give us some color or flavor on which regions or which businesses should have returned or which businesses should return to the same level we saw at Q3 last year, or perhaps a little higher? Which areas are likely to fall behind? In terms of looking out perhaps three months, as you go through this ramp-up, where can we feel confident that you should be back on track? Where, perhaps like South Africa or India, will you still be facing some challenges either in the supply chain or in the ramp-up? Thank you.
Good morning, Will. To your two question on the restructuring and manufacturing base. As you know, we are in a ramp-up in terms of activities, in terms of sales. We are on this around 5% trajectory, we are not expecting any restructuring on our industrial footprint because of the visibility we have as well on our record backlog of €41 billion. In terms of giving you more colors, Will, to the third and the fourth quarters, in terms of recoveries, if I look at the rolling stock, we are expecting to be back to a growth trajectory on the third quarter, but mainly on the fourth quarter. This is where we will see the takeoff in terms of, I would say, a sales uplift compared to last year's.
In terms of geographies, this is very much linked to the India, South Africa, as well the regional trend in Europe and Amtrak in the U.S. All of that, for sure, is based on the assumption that we will not have a massive second wave of COVID-19, which could impact any of the geographies we are working on. Equally on Services will be as well back to positive trajectories in the second half of this year, and equally on Signaling, where we will be recovering fast on this product line. Finally, on Systems, as I said, Systems is naturally lower than last year's for this quarter, but as well for the rest of the year, due to simply the fact that we are progressing to the final deliveries of Riyadh, Dubai, and Latin America system project.
Thank you. This concludes the Q&A session today. I will now hand over again to Mr. Martinez for any additional or closing remarks. Thank you.
Thanks all for your attention. As a conclusion, I would say that Alstom team has shown agility and resilience to weather the COVID crisis during these very specific quarters for not only for Alstom, and for the world. We are extremely pleased by the positive market momentum and the commercial momentum and the tender pipeline we are seeing in front of us. We are now, in terms of operation, back, I would say, fully engaged to deliver our commitment and benefit as well from the various plans we had supporting transition towards sustainable mobilities, which will be, of course, as well, a key lever for the overall economic recoveries. I thank you all for your attention and would be pleased to talk with you at our next opportunities, which will be our H1 results. Thank you very much.
Thank you, sir. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.