Ladies and gentlemen, welcome to the Alstom conference call. I now hand over to Henri Poupart-Lafarge. Sir, please go ahead.
Thank you. Good morning, ladies and gentlemen. Welcome to our classical conference call on our Q3 numbers. First of all, as still the case, happy new year. We are still in January, so I wish all of you a very happy new year. I will comment a little bit the numbers and the press release you have seen. I will give you also one word on our proposed transaction with Siemens. As you have seen on the press release, Alstom has achieved an excellent commercial momentum for the first nine months. I would say again, with record order intake for the first nine months of EUR 10.5 billion, which is to be compared with EUR 4.9 billion last year.
In particular, this quarter, during Q3, Alstom recorded EUR 3.4 billion of orders. The orders were particularly strong in service, which as you know, is one of our strategic goal, which also, as you know, will be translated into sales over quite a long period. Notably, this quarter, we have recorded the long-term maintenance contract for Riyadh Metro as a service contract. We have also recorded a number of trains in Luxembourg, in Germany, as well as signaling a contract in Mumbai for Mumbai Metro Line 3. Altogether, as you have seen, the book-to-bill is much better than one, and therefore, the backlog of Alstom is also reaching a record level of close to EUR 40 billion on December 31st. In terms of sales, totally in line with our expectations and totally in line with our guidance for the full year.
The first nine months amounts to EUR 6 billion, up 18% organically compared to last nine months. Over the quarter, our sales reached as well EUR 2 billion, so we are really in a EUR 2 billion quarter after quarter level. This has been fueled again, I would say, as in line with previous quarters by the Dubai Metro systems, some deliveries of regional trains in France, as well as usually the maintenance contract in the U.K., which is one of our main contract in our backlog. Again, book-to-bill strong at 1.7 globally. As you can imagine, we have extremely good visibility on the future sales and I would say the visibility is increasing quarter after quarter.
If you want to have some updates on some of our major contracts and some of the major milestones of our contracts, of course, one of the main event was the delivery of the first train built in South Africa. All of you know this very large contract. After having manufactured 20 trains in Brazil, we are now up and running in South Africa, and we have delivered the first train from our new factory in South Africa, which is, I think, a fantastic achievement. We have also completed a number of trains in our factory in India, and quite notably, we have completed the delivery of our 20 trains for Sydney Metro out of our factory in India, which I think is also a significant milestone, not only for Sydney but as well for our factory in India in terms of maturity.
For the outlook, of course, these good numbers are just confirming our outlook for the full year, which we have given since the beginning of this calendar year, because of the change on IFRS 15 as well. We confirm sales for 2018/ 2019, of around EUR 8 billion. We confirmed as well the adjusted EBIT around 7%, even though we are not disclosing today some EBIT numbers, but we are confirming the guidance for the full year. Of course, for the medium term, our strong backlog and our visibility and improved, I would say, visibility for the future, allows us to confirm our guidance, our midterm guidance, which is to outperform the market growth and to gradually improve profitability as well as cash generation.
With, of course, always a caveat on cash generation, which we always remind all of you that we can have some volatility over short-term periods because, of course, of the nature of our project business. As far as the transaction with Siemens and, in particular, the antitrust process with the European Commission, I can just remind you the few elements. As you know, on December 12th, to answer competition concerns expressed by the European Commission in their statement of objections, Siemens and Alstom jointly submitted remedy package. Both companies consider that this package as appropriate and adequate to answer to the Commission concerns while preserving the industrial and economic value of the deal.
Since then, as you have seen, we have continuous dialogue with the European Commission, including some improvement of the remedy package, to respond to the European Commission concerns. Of course, in the limit of preserving the interest of the deal. The proposed divestments have attracted significant interest from suitable buyers, which confirms the viability of our proposal. Now the European Commission decision is expected by February 18th, and today there is no certainty that the content of the proposed package will be sufficient to alleviate the concerns of the Commission. This being said, this merger would enable to create a European global leader capable to face increasing worldwide competition, in some case, based on strong protected markets. We consider that competition in Europe will also be preserved thanks to divested asset transfer, which will reinforce existing competitors landscape.
It is therefore extremely an historical and crucial decision for the rail industry in Europe. I don't think there is any other comment to be made on the transaction. I will probably propose you to focus your Q&A on the situation of Alstom. As far as the transaction is concerned, I think everything has been said. Thank you for your attention, and now I'm ready to take your questions.
Ladies and gentlemen, if you would like to ask a question, please signal on your telephone keypad by pressing star and then the one. If you would like to remove yourself from the queue for questions, you can press star two. Again, please press star one to ask a question. We can now take our first question from Gaël de-Bray from Deutsche Bank. Please go ahead.
Oh, thank you very much, good morning, everybody. I think I have probably three questions, if I can. The first one is that obviously the signals from Brussels have been relatively negative in the past few weeks, I suppose you are start of preparing for plan B. The question I have specifically about that is on the group's capital allocation strategy on the standalone basis. What do you see as an appropriate debt level for the group going forward? Is there actually any reason to retain more cash on the balance sheet if you are independent than if you were to tie up forces with Siemens? That's question number one. Question number two is about the remedy package.
I'm just trying to understand what's the remaining pushback from the European Commission, whether the concessions you offered are good enough in signaling or not, or if that's actually the case that you only need to work with the Commission, again, to address their concerns about the high-speed train category and only this category. The final question is about the very strong order performance you had in the first nine months of this year. Clearly, probably the highest ever reported by the company. Do you think that the rail market is overheated to a degree right now? Do you see the risk of a catch-down effect as the pipeline of the large orders possibly dries up in the next year or so? Thank you.
Thank you. Thank you, Gaël. A few points. As I said, I will not necessarily comment on the discussions that we have with the European Commission. I will not go into the details, and this was your, I think, second question, which I will not properly answer. On the first one, as I always said, there is no plan B. We are working on the plan A. Frankly, there is no plan B as well, because we don't feel the need to have necessarily a plan B ready. If plan A does not go, which again would be a strong disappointment, the company is extremely strong. As you have seen, we have a very large order intake, and we have extremely good positions. I don't think that we need necessarily to anticipate any negative outcome of our current merger proposal.
We'll see thereafter what will be the way forward. As far as we are concerned, we are working entirely on plan A. On the order performance, I think, yes, you are right. We have a record level of order intake. Also, to be fair, based upon very large orders as well, which for me is a positive news. You could see it that there are some exceptional orders in it, which is true, like the very high-speed trains for France. Maybe a little bit Montreal, although it's a more classical one, and also a lot of service contract. Where I see it positively is that although if it was, I would say, only short-term orders, we could not record such a level of order because it's very difficult to increase our capacity at such a rhythm.
The way these orders will be translated into sales will take a lot of time. When you talk about the very high speed, it's 10 years. When you talk about service contract, it's 10 years, starting in three years, and so forth. I don't think that the level of order intake is, I would say, has a total correlation with the increasing level of sales short term. In terms of rail market, I think the rail market is good in general, UNIFE has confirmed a 3% growth year-on-year. We are outperforming a good market, definitely. It's a good market. Whether it's overheating, I don't think so. I think that there are a lot of projects. The demand is still there.
I warned, I think, in one of my previous conversation, on the fact that next year there may be fewer very large contracts, not because of an overheating this year, but more generally because of some geographical market which had slowed down, like Middle East, for example, and which have not recovered, despite the slight recovery in oil price. We see fewer very large projects. Again, not because of the lack of demand, not because of the lack of needs, but probably because of the momentum in a number of countries. As you all know, we need some financing for this large project, there could be a lack of financing in one or two countries. Again, we have this very nice market where the underlying demand is untapped and will be untapped for a very long number of years.
We are far from being in a kind of cyclical market. The issue is just to answer to a very long-standing demand. Okay, next questions. Thank you.
Okay. Yes, sir. We can now take our next question from Jonathan Mounsey from Exane BNP Paribas. Please go ahead.
Hi. Yes, good morning. Thanks for taking my question. As we understand it, I think Siemens' CEO was standing up only this week at a conference and was, I think, mentioning that the issues that remain are not so much around signaling with the deal now, but around the high speed as it's been commented on. Also it sounds like the discussion is now. High speed is core to your technology platform going forward for development of regional trains, for metros, beyond that into the future. It's very difficult to see either Siemens or Alstom wanting to divest that. We move on to licensing options, and I guess that's probably what you've proposed.
The Commission's willingness to discuss those options, do you think that's indicative of the idea that there's actually an agreement that could be reached, or is it just procedural options that you offer have to be considered? Is there really any common ground here? Can an agreement ever be struck with licensing? More than that, the date it's set, which is the 18th of February, it seems quite close given the complexity that we've arrived at in terms of the options. Is that date absolutely set in stone here, or could we see the clock stop once again while the options that you're proposing are considered?
On this discussion with the European Commission, there are lots of discussions and again, I don't want to go into the details on the timing. There is a general consensus, I would say, not to go to any prolongation of the discussions. Theoretically, probably it's possible, from a total theoretical standpoint. I don't think anybody wants it at that stage. To be fair, we have discussed with the European Commission, I think for the last probably 12 months minimum, since we have filed, and I think this all potential proposal has been discussed. I think now it's time for decision rather than anything else. Everything is known, everything is on the table. Now it's time to make the decision. Thank you. Next question.
Thank you, sir. We can now take our next question from Alasdair Leslie from Société Générale.
Yeah. Hi. Good morning. Henri, just try again one on the approval process and really a follow-up in terms of the timing, just to get a sense of to what extent the clock is now running down. You just said obviously it's now time to make a decision. Kind of in view of procedural requirements, doesn't the EC's decision normally need to come at least a month before the February 18th deadline? Is that different or could that be different in this case? Can you just comment really about when the improved package was actually formally placed with the EC, perhaps? Was that last week or just this week? Thanks.
I think considering the complexity of the file and of the decision, I think it's fair for everybody to wait for the formal decision to be taken. Yes, I would say when it's a simple file, you could anticipate one month earlier, as you said. As it's a complex file, I think it's prudent and cautious for everybody to wait for the final and formal decision before anticipating. In terms of improvement, there's no one date of this improvement. As I told you, we had a very nice and positive interest from buyers. This has also fueled and triggered some discussions around the terms and conditions of our package. It has not been in one go. It has been progressive and in several goes. There is not one particular date. Okay. Thank you. N ext question.
Thank you, sir. We can now take our next question from James Moore from Redburn. Please go ahead.
Yeah. Morning, Henri. Everyone. I understand you're limited on what you can say, I suppose your shares are moving meaningfully up and down on seemingly very well-informed articles from Bloomberg and Lex. I'm going to try as well. I just wondered if you could confirm two things that is seemingly out there, and then ask you one question. On the confirmations, would you agree with the press report and the Siemens management comment that signaling is fixed and the issue is now very high speed? That's the first question. Secondly, on very high speed, would you agree that there is some softening, as reported, that a five-year license is too short, but maybe a longer one is a possibility? Finally, why not just sell TGV or Velaro, because trains were never that great a margin business in the first place?
Thank you, James, for trying this one. I agree with you. This process, of course, is disturbing on our share price, definitely. There are plenty of rumors, and each time there is a rumor, there's some movements, sometimes in our share price. That's why I can just say that, look, guys, we need to wait. There is only one day where the decision will be taken. It's either everything or nothing. That is not a staged approach where we are carrying one part or the other ones or another one. It's a complete view on a global view of the commission on the package. No, frankly, I will not comment on any particular sub-element of a sub-market. It's quite complex. I totally share the frustration and your frustration, and you can believe me that my frustration is as large as yours.
It's a global decision and a global yes or a global no. There will be nothing like a partial yes or a partial no. We continue to fight, we continue to promote our solution, which, as I told you, we believe is appropriate, adequate, and answers the commission concerns. There is no such thing as a partial okay. Thank you, James.
We can now take our next question from Simon Toennessen from Berenberg.
Yes. Good morning, Henri and everyone. My first question is on your signaling business. Orders have been down quite a bit now in the quarter. Obviously, there's some comp effect probably from last year as well. We were slightly down, I think, in Q2 as well. Can you just comment a bit on what you're seeing and expecting maybe in the signaling part going forward? Also, as we move into your next year then, is there any potential mix effect we should think about given, obviously, the higher margin content there? Second question, just on your guidance. I was maybe a bit surprised you didn't upgrade your revenue guidance, at least.
Obviously, it's only part of your guidance, looking at kind of the last two Q4s you had, you were quite a bit above the EUR 2 billion you need to get to your full year guidance for this year, given the EUR 6 billion you've done in the first nine months. Obviously, your backlog is a lot stronger even this year. Why not upgrade on the revenue side? Lastly, just an update on tend activity, I guess, if it's helpful, because you tend to talk each quarter about what you're seeing and even where you see potential larger orders arise. Has there been any change in the past three months that you can update us on? Thanks.
Okay. Thank you for your questions. Yes, on signaling, you may recall that last year we had a relatively low level of order intake in signaling, which is, yes, translated into a kind of stable sales. This is, of course, a little bit disappointing. I'm not hiding it. We are recovering in terms of orders, as now they are increasing in absolute value. Clearly we need to improve our commercial momentum in signaling. From a pure factual standpoint, I would say that the marginal decrease is linked to some contracts in North America and Latin America. I would say if you step back and you take a global view, clearly our performance in signaling should be better.
In terms of mix, as you have seen, service is starting to grow, it takes a lot of time for service, it's always a little bit disappointing for you because it takes so much time between the order intake and the increase in sales. Also in the previous period, we had this issue of renovation contracts which were ending and which have also distorted the picture. We see service growing. Altogether, because as you point out, it's true that signaling has a higher margin content, and therefore there is a negative impact of this small boost of signaling. At the same time, there is a positive impact coming from service. Altogether, I think it's relatively stable from a mix impact.
Now, in terms of commercial momentum, nothing has really changed as compared to what I told you, which is basically, as I said, it's a very positive momentum worldwide, based upon the global growth of mobility in the world, in Europe and elsewhere on the drivers you know. With unfortunately, two regions which are still lagging behind, Middle East, which has a low level of tendering activity as compared to the recent past, of course, the last five years, let's say. Also Brazil and Latin America, which is still relatively low as compared to recent past as well, for totally different reasons, obviously, but because of the lack of financing stability in both cases. No particular changes in the commercial outlook. Thank you. Next question.
Can now take our next question from Alfred Glaser from ODDO.
Yes, good morning. Thank you for taking my questions. I just wanted to ask you, talking about tender activity and business outlook, can you give us some indications, especially on Russia and overall data, the former Soviet countries where you have your combined business with TMH and LocoTech. Second, could you also update us on the ramp-up in South Africa and India and planned production over the coming quarters, please?
Thank you for your question. On Russia, frankly, as I said, I think previously, TMH, our partner, is doing a fantastic job. The market is recovering, and TMH itself is doing a fantastic job. You have seen that in our numbers, the profitability of TMH has significantly increased, and this has explained the increase in the[ NIEK], as we call it, our share of their profit. This is continuing. There's a lot of good news coming from both the market and our partner in Russia. On the rest of CIS, I think all our activities in Kazakhstan are continuing, and we have made some progress, and you have seen that we are consolidating our factory there, and we have progressed, and this has explained as well some order intake, by the way, we have progressed in Kazakhstan.
We have not recorded other very large contracts in the region of CIS, but the execution of our project in Azerbaijan is fine as well. I think very good news from Russia on that front and I would say continuing market momentum in the rest of CIS. In terms of our factories, two very different situation. India is now clearly up and running. I remember we have inaugurated this factory, if my memory is correct, in December 2012. I was there. Now we have completed in India, Chennai, Lucknow, Kochi, [Pune]. We have completed four projects in India. It's now, I would not say it's a totally mature factory, but it's already a factory with quite some experience. We are starting the new contract, Mumbai Line 3, which has been as well awarded.
It's now a factory which is again part of our global footprint, and up and running at, I would say, Alstom standards. Very different, of course, is the situation in South Africa, where, as I said, we have just delivered the first train, which is, of course, very good news. It means that the factory is now capable of delivering trains. It's not at the level it should be for the future in terms of rhythm of delivery, so we still have to ramp up the factory. Of course, it's one contract, so we are far from being capable of executing several different contracts in this factory. This is a factory which is entirely dedicated to PRASA. I would say so far so good, but two different cases.
In both cases, by the way, there is one common element, is that the challenge, whether we are in India or whether we are in South Africa, is more on the supply chain than our manufacturing capabilities. I think we have reached a significant competence in terms of transfer of technology in our own factory. I think we are capable of manufacturing trains in our own factory using the global Alstom processes. It's fair to recognize that in terms of supply chain, we still need to strengthen, in both cases, the supply chain. That's our main goal. Thank you, Alfred. Now maybe next questions.
We can now take our next question from Ben Uglow from Morgan Stanley.
Good morning, thank you for taking the question. I know it's not directly related to the sort of the regulatory angle, Chinese competition, it's been a long time since we've talked about that. When I read the press and the sort of stuff that's coming out of various competition authorities, there does seem to be quite different views. On the one hand, some are sort of saying that the position of Chinese entering Europe has been frankly minimal. When I look at some of the stuff that's been going on between Deutsche Bahn contracts, orders in Hungary, and trying to buy Škoda, I would have thought that the threat of Chinese competition was more significant. Regardless of anything to do with the Siemens merger, how are you guys thinking about the long-term capability of new entrants coming into Europe?
Thank you, Ben. I think you have summarized the situation. Via CRRC, you have increasing number of competitors in the world, CRRC has clearly a strategy of becoming global. You have two ways to look at it. You can look at the details and say, okay, they have entered into the U.S., they didn't get an order last year. They make a number of entries in Europe, as you said, relatively limited in size, quite significant in terms of strategic meaning, both because it's, for example, a contract with DB, because it's a contract in Hungary, because they are still looking for acquisitions. They failed on Škoda, we know that they are trying on others. Their strategy is there.
If you step back, my view, this will not change regardless of a Siemens merger or not, it will not change the market situation. The market is the fact that CRRC has the intention to enter into Europe. This is extremely clear, I believe that they will succeed in doing so. The timing of it is, of course, of a lot of discussions and so forth. It will take time. Whether it will go directly through a direct entry or through a merger or an acquisition of a European manufacturer, this remains to be seen. I do believe that they will manage to, by one way or another, they will manage to enter into Europe. Hitachi has managed to do it directly, by the way, through the two means.
Directly through an order in the U.K., you may remember, IEP a few years ago, also through the acquisition of Ansaldo. Now Hitachi is quite present in Europe. I think CRRC, and this is our assumption, CRRC will manage to do it as well. Again, it's a question of timing, which has some importance in some, as you said, regulatory analysis. Frankly, for me, it's not the main point. Okay, next question.
We can now take our next question from Katie Self from Morgan Stanley.
Hi, good morning. Thanks for taking my questions. I actually just have two. I wonder if I can go back to the first question on capital allocation. I know, Henri, you've said in the past that for you, an optimal balance sheet is one with a kind of zero net debt, net cash position. Regardless of the outcome of the merger, I just wondered whether that's still your view or whether there's any change there. Then my second question, different, is you talked a bit on the call about the slower conversion from orders to revenue from service contracts versus other contracts. I wonder what we should be expecting over the coming years, given the shift to IFRS 15, and whether that means that actually the proportion of revenue we'd see from rolling stock contracts would actually increase sort of earlier in that phasing. Do you have any view there?
Thank you for your question. Yes, I said exactly what you said in the past, and I confirm this statement. I think that in our business, we should not be indebted, so we should have a zero cash, zero debt level. That's a long-term capital allocation. Again, we have not looked at plan B because we are looking at plan A. We need to define our strategy going forward in case in the unfortunate event if the Siemens deal was not being approved. If this requires some capital, then we will come back to you to tell you exactly what should be our balance sheet starting. That's, again, too early to discuss. In terms of IFRS 15, the IFRS 15 does not change fundamentally the way service contracts are being recorded, are being converted into sales.
A little bit, because we have, for example, some particular strong overalls after seven years, after 15 years, which will generate more sales under IFRS 15 than they were generating under the past IAS 11. You should not expect any strong change in our translation into sales. I'm just outlining the fact that in our current backlog or current order intake during these first nine months, you have contracts like the O&M for Riyadh, for example, which will not generate any sales before two to three years, because we need first to put the trains under operation, and you have the warranty phase, and then you start actually to generate other sales. It's not related to the change of accounting methods. Other questions?
Ladies and gentlemen, if you would like to ask a question, as a reminder, you can signal by pressing star one on your telephone keypad. We have an additional question now from James Moore from Redburn.
Yes. Thanks for taking a follow-up question. Henri, it's a question about contingent liabilities, and I saw a couple were added in this year's annual report. The big one being the Brazilian situation that's sat there for some time. I'm just thinking about the possibility of these contingent liabilities either going away or turning into a cash outflow. Do you have any color on any of these that you could add?
I think there's been no, and I'm turning as well to Laurent to make sure that I'm not forgetting anything, but that you have no large evolution of these contingent liabilities in the last quarter. We still are in the process. You are talking about Brazil. We have a number of commercial contingent liabilities, and we have also some of our past issues which are still hanging around. There have been no strong evolution in the last quarter. Maybe, Laurent, if you want to add something.
No, there is no specific event into it. Some of these are very long-term procedures as well. We don't expect any short-term impact on our cash on these kind of events.
Okay. Thank you. Any other questions?
No, sir. There are no further questions. I'll hand the call back to you to conclude.
Okay. Thank you. Thank you, everybody. As a conclusion, I would have two conclusions. One is, of course, I want to outline the situation of Alstom and the fact that we are still enjoying a very strong commercial momentum, which is, I think, the combination of good markets as well as, I think, the success of our strategy in the last years. As far as the Siemens transaction is concerned, it's a very frustrating moment, as I said, for you. It's a very frustrating moment for us. We'll fight, and we'll fight till the end, and we'll see what will go on, and we'll keep you updated. I'm sort of sorry about the fact that we cannot be more precise and more detailed, but I think it's such a complexity that we need to wait now for the final decision.
Thank you, everybody, and we'll talk again on our next call or earlier. Thanks a lot.
Ladies and gentlemen, that will conclude the Alstom conference call. Thank you very much for your participation. You may now disconnect.