Q1 18/19 TU

Jul 19, 2018

Earnings release

Good day, ladies and gentlemen, and welcome to the Alstom Conference Call. I will now turn the call over to your host, Mr. Henri Poupart Lafarge. Sir, please go ahead. Thank you. Good morning, ladies and gentlemen. Welcome to our classical conference call on orders and sales for the Q1 of the financial year 2018 2019. First of all, I'm pleased to introduce to you Laurent Martinez, our new CFO, who is sitting just next to me and will be happy to answer to any questions you may have. Just as a reminder, as you know, we have adopted the new IFRS 16 norm for revenue recognition since the beginning of the financial year. So all the numbers which are published today are under the new norm. And I want to thank the financial team for having done this change smoothly. We have restated last year numbers, of course, for comparison reason. But as I said at the end of last year, it's difficult to predict exactly what would be the full year restatement. So you will not take the Q1 of last year as being a sign of projects. This number has been a sign of the full year momentum for last year. Coming back to our number for this year. First of all, as announced as anticipated, the commercial momentum for the Q1 is particularly good at €2,600,000,000 of orders intake. Notably, as you know, we have recorded the new driverless line in Montreal. We had also other orders France with what we call the tram train, new contracts for Sydney for the long term maintenance contract for Metro of Sydney. As you have seen, signaling is increasing again, and we have recorded notably the onboard equipment for Norway. And finally, we have, for the first time, penetrated the German market on Tram with the award of Tram for Frankfurt. The book to bill was indeed strong at 1.3, and this is due to the order because at the same time, sales have grown significantly at €2,000,000,000 in line and I will confirm it, of course, at the end of my introduction, but in line with our expectations for the full year at €8,000,000,000 As I said, we are up 17 the sales were up 17% organically or 14% in actual numbers because as you have seen, IFRS 16 numbers of last year are lower than the IFRS 11 numbers. As for the end of last year, the sales are mainly fueled by the system project in Middle East and in particular Dubai. Why in particular Dubai and not Riyadh? Because Riyadh was already quite a high contributor last year. So in terms of growth, it's mostly Dubai coming. We have also and I was there last week, a nice ramp up of activities in South Africa because as you know we are now up and running in our new factory in South Africa. Trends has been recorded in our sales. In the quarter, we had 1 or 2 events of very different nature. The first one is extremely very, very positive news is that TMH, our partner in Russia has merged with Locotec, which is another Russian company in service. TMH was only on rolling stock. Locotec is operating or is maintaining most of the fleet the majority of the locomotive fleets in Russia. They are merging together to maintain our level of shareholding at 20%. We are going to reinvest €115,000,000 in the global entity in order to reach this 20%. This is extremely good news for TMH because obviously the business model of TMH has to be on the 2 pillars of rolling stock and service. It's very good news for us as well and it will allow us to enlarge our platform for service activities and leverage all our capabilities in maintenance, predictive maintenance and all the efforts that we are doing to improve the maintenance capabilities of Astom. Last news quite recently, extremely important for us as well. As you know, we have launched our hydrogen train and we have received the homologation from the EBA, which is a German homologation, which is probably one of the toughest, if not the toughest in Europe. So this is extremely good news and we will prepare service now with passengers for September onwards. This was the quarter event for us. Of course, with this results, financial results, we confirm our sales for the full year at around €8,000,000,000 and the EBIT margin up to 7%. And this good commercial momentum and this good activities should allow us to continue to outperform the market growth for the future and to gradually improve our profitability. Last but not least, some word on our project with Siemens Mobility. As you know, in the last quarter, we have filed for the merger control in the European Commission. We have filed for a number of jurisdiction, but in particular for the European Commission on June 8. On July 13, a few days ago, the European Commission has announced that we will go to Phase 2, to initiate Phase 2, which is not a surprise. I mean, this was absolutely known. And this is a classical process very common for this kind of file. Finally, 2 days ago, the general assembly of Axtom and the shareholders of Axtom have approved the transaction with a very, very large majority of more than 95% of the votes. So now the transaction remains obviously subject to the approval of all the antitrust authorities and we still and we confirm that we expect the closing for the first half of 2019. So thank you a lot for your attention. Now I suggest that we switch for the questions and Laurent will be pleased to answer to you. Thank you, operator. Maybe we can open the floor for questions. Thank you very much, sir. Today's first question will be coming from Guillermo Peigneur calling from UBS. Please go ahead. Good morning. It's Guillermo Peigneux from UBS. Thank you for taking my questions. And I wanted to ask actually one question, one follow-up. First, on the momentum of orders, is there any reason to believe that any specific region or going into the future, you will see a little bit less of a momentum in order intake as we progress through the year? Or as you see it at this point in time, the tendering activity is as solid as it has been during the last two quarters? So that is the first question. And then the second question relates actually to the antitrust communication. I see this as in line as well as a typical Phase 2 commentary. But do you or were you a little bit impacted or surprised by the language used in the communication? Or that was also quite standard under your expectations? Thank you. Thank you. Thank you. So 2 different questions. On the commercial momentum, nothing new on this subject. As I said, I think last time, we still have a low situation in Middle East Africa and in particular in Middle East because of the time to relaunch some of the projects which have been altered because of the oil price drop. So if you look at our geographical breakdown, we have basically no order in Middle East Africa during this quarter. And this is not only because of us. It's the market. It has been very low during the Q1. We expect it to come back gradually in this region. So it will take time. We have a very good first mover, I would say, countries like Ivory Coast, where we're discussing metro for Abidjan like Nigeria where we have signed a letter of intent in Lagos. So this is progressing. So progressively from a few countries, it's becoming a complete geographical new geographical market. So this will but frankly the time we discussed that I think in May. I mean the time for the new projects to be transformed into orders is longer than just 6 months or 1 year, so it takes time to recover. Similarly, in the Americas, the North America and in particular Canada is doing very good, not only due to the large order that we have booked, but also in terms of global commercial momentum, whilst Latin America impacted by the Brazilian crisis is not as strong. So the and Europe is more stable classically. And Asia is still Southeast Asia. Asia is still very positive. And we have recorded an order in Taiwan for Wanda. We will we have been awarded sorry, contract in Taiwan and we will record it for H1. So it's no I think there's no particular change as compared to my comments at the last quarter. Globally, very good markets with a little bit of slowdown in countries which are impacted by particular crisis, whether it's financial crisis or political crisis. As far as the antitrust is concerned, no, I mean, I'm not going to comment on all the press releases or the comments of the European Commission. These are standard practices. No surprise. Thank you, sir. We'll now go to Mr. James Steffer of Barclays. Please go ahead. Yes. Good morning, all. Oli, just a follow on here. I mean, I was a bit surprised by the language from the European Commission. In terms of talking about no risk of a new entrant coming into the market when we've seen Hitachi come in, when we see CRC trying to come in wherever they can, so I was a bit surprised by that. And indeed, the comments on signaling, so a follow on on that side, how difficult would it be to carve out activities if that is indeed what they will require you to do in signaling? Thank you. Thanks, James. No, I don't want to comment on the EC language. Just to tell you, I definitely think that CRC is a very strong competitor, is present in most geographies in the world, has already been awarded some contracts in Europe and including during this quarter a contract for shunting loco to Deutsche Bahn. So on that matter, I cannot say that I agree with the comment on the European Commission, but that's a continuous dialogue with them. I'm not going to speculate on potential remedies. I think it's much, much too much early days, but I'm confident that we'll find the right solution. Impact on special dividend of up to €4 per share, which will be coming from GE Proceed, where you have said previously that this number will come down when you if you plan to invest in acquisitions. And therefore, I want to ask, should we expect a lower dividend after you announced investment of €115,000,000 in TMH in Russia? Thank you, Akash, for the question. Mechanically, you are right. As I said and as I explained, the up to 4 is related to threshold for the balance sheet. And therefore, yes, the fact that we invest EUR 150,000,000 mechanically impact this balance sheet. And therefore, potentially and that's where there is a nuance, potentially they're up to €4,000,000 because it's a threshold. So it depends on other elements. So I mean, it increases the likelihood that the threshold plays a role, but it's not necessarily it would not be necessarily the case. So it's still possible that it will be 4. This does not prevent it from being 4. However, it is on the column, which is impacting negatively, I would say, the balance We'll be going now to Mr. William Mackie calling in from Kepler Cheuvreux. Please go ahead, sir. Your line is open. Very good morning. Thank you for the time. A couple of questions. Firstly, on the orders, looking to the tender pipeline into Q2, a bit more tangible. Should we still expect that you can book the Teja de Futur in Q2 order intake? And are there any specific tenders which we also consider significant in the foreseeable future? And then when we consider revenues and the bookings through the year, if we look at last year, obviously, there isn't a standard equal quarterly flow to your bookings of revenues from the backlog. So is there any typical weighting that we should normally expect as the year progresses on the revenue side, which may lead to you being in a good position to beat at least the guidance that giving typically with a strong Q4 I'm having in mind? Thanks. Thank you. Thank you for your questions. On the pipeline, what we know is for Q2, there are a number of projects which we have been awarded and which are planned to be booked on Q2. You are discussing about TGV the future and we still expect and we can hope to have it, but it's yet to be confirmed, but this is still on the plan. We have other projects that you may have noticed the Grand Paris for example, which is a frame contract. So the first order itself will not be so large, it's an important frame contract for us. And this should also be booked in Q2. So we have I was discussing Wanda, which is this Taiwanese project as well. So the pipeline for Q2 and if some of them slip to Q3, but the pipeline for Q2 is still quite strong. On the sequence of sales for the full year, as I said, difficult to predict. What I know and I think I was quite direct in saying so that the Q4 of last year, which was exceptionally strong, I think it was at €2,200,000,000 in under IAS 11, was also related to significant milestones, which were passed in Q4. And I was asked, by the way, if this would have had a consequence on the Q1 of this year. And I said at the time that this would not have a consequence on Q1. And I think our numbers for Q1 confirms the fact that the very good last quarter of last year had no negative consequence on this Q1. However, I don't expect today necessarily the same trend quarter by quarter as the one experienced last year. And this was first a different year and secondly a different accounting method. So there is no reason why we should expect a similar pickup at the last quarter. So at that stage, no, if we saw that we should revise our sales target, we would not have been shy and we would have done it. But at that stage, we have no element to change that. We confirm just our guidance of around €8,000,000,000 Next Thank you, sir. We'll now go to I'm very sorry to interrupt you, sir. We'll now go to Mr. Martin Wilkie of Citi. It's Martin from Citi. Just two questions. The first one is on the timing of the transaction. So when you filed with the European Commission, you had talked about a delay of several months and you're guiding for a first half twenty nineteen completion. When we look at the ruling, they're due to rule by the 21 November. I was just wondering if you could talk about what's the timetable beyond November 21st that could take into next year? So that was the first question. The second one is unrelated. Just on the sort of steel price impact on how you're seeing the pricing of rolling stock? Now I know you don't give a pricing number and like for like is obviously a very difficult thing to talk about in your business. But generally, with steel price having gone up so much in certain regions, are you able to compensate for that in the pricing that you're getting in new orders? Thank you. On the timing, first, you probably have missed that, but the European Commission itself has announced in agreement with us an extension of this Phase 2 to I think 21st December, so instead of end of November. What will happen after that? We have a few, I would say, mechanical things to be done to completely complete, I would say, the transaction with Cement. And in addition, there may be some steps to be taken to implement some of the agreement with the European Commission. So by beginning end of December to first half of twenty nineteen, we are close to our target. So it confirms more or less our anticipated deadlines. But the end of Phase 2 is now scheduled for end of December. In terms of steel price, first, the commodity price in our price the commodity costs in our price sorry is relatively limited. So we are talking 5% to 10% max. On ongoing projects, as you point out, we have indexation clauses, so there is a mechanical impact. And on new project, yes, we need to take this steel price increase in our quotation. It's I'm not saying it's below the magnitude of the cost estimate, but it's being passed through. All the players the same type of evolution. I just take this opportunity to remind you that in the U. S. In particular, we have a very strong Buy American Act and therefore we are supplying and we are buying all what we do in the U. S. From the U. S. And so we have no impact on the new tax regime from the new tax regime. Thank you so much, sir. Ladies and gentlemen, We'll now go to Mr. Jonathan Mounsey calling from Exane. Please go ahead. Just on the Grand Paris, so you mentioned that it's a frame contract and could and the first order will actually be quite small. Could you give us a feeling on the actual scope in the end of what's likely to come on Grand And then on the organic sales growth, 17% in Q3, And then on the organic sales growth, 17% in Q1, you're still sort of guiding for 5% per year. And given the strength in Q1, are we not really thinking that this year is likely to be stronger? Is there not more to come from the Middle East and Prussia as Prussia ramps up in particular? Thank you. On the Grand Paris first, here we are talking about the rolling stock. I mean, obviously, there are plenty of orders for different type of activities, which are placed by the Grand Paris. Most of them do not concern that some. Most of them are civil work. I mean, most of the budget is for civil work. But we are interested by the rolling stock, which we have won. But we are also interested by the systems or the signaling. And we are interested as well by the infrastructure. So we have also, I would say, smaller contracts, which are booked from the Grand Paris. In terms of this contract of rolling stock, so normally the first slot is 150 cars, which means around 300,000,000 euros And the full frame contract will be for probably €1,500,000,000 or something like that at the end of the day. It will take a few years to be as you know, the Grand Paris is a very long project. So it will take a few years to book the full contract. But the first one should be around €300,000,000 Okay. In terms of ramp up, most of the ramp in terms of sales, most of the ramp up has already occurred. As I said already, if you compare with the last quarter of last year, we were already in full delivery of Riyadh, in full delivery of Dubai. Dubai the last quarter of last year was already showing a strong delivery. The Q1 of last year, no. Dubai is a very as I explained sometimes, it's a very stiff ramp up. So now there is Prasad now is in full running mode. So there is nothing more to expect, I would say. That's why I'm reiterating my guidance because there is no further ramp up to be expected. We are now up and running on all these big projects. So we just reiterate the guidance to be fair. Thank you, sir. We'll now go to Alfred Glaser calling from ODDO. Please go ahead. Yes, good morning. Thank you for taking my question. I just wanted to get back to the Russia investment that you've done. Could you please explain how you're going to benefit from the service business of Locotec as Alstom? And could you clarify what stake exactly do you own now in the Russian companies, 20% or 33%? How should we understand this? First question, I mean, it's in terms of maintenance. As you know, today, there is more and more what we call predictive maintenance, remote maintenance. And for all that, the data collection is extremely important. So the fact that all of a sudden, we'll have a partner with whom we can exchange that as on a very, very large fleet will help us to basically digitalize, simulate all the operations of all these locomotives. And this will be extremely helpful for building our capabilities for our global maintenance. I mean, the size of the fleet is increasingly important, not only in terms of spare parts and things like that, but also in terms of monitoring and again simulating the different wearing of the different elements of the locomotives and so forth. So it enlarge significantly our platforms. And that's how we do it ourselves. And now indirectly, as I said, we are accessing to a very, very large market, which is the Russian market, which is one of the largest market in the world, particularly for freight. So I think it's also, as I said, a very good news for TMH itself and for our partnership. We have as you know, we have 20%. So we'll have 20% of the totality of the business. So no more 33, but 20 of the combined business. Okay, next. We will now go to Chris Caron calling in with Societe Generale. Please go ahead. Yes. Good morning, everybody. Just two questions, if I may ask. First one is about the evolution of the adjusted EBIT as the start of the fiscal year seems to be really huge or important in terms of like for like growth. Could you just give us an idea of how the adjusted EBIT will evolve would evolve during this year? And second question is about the supply chain. Do you have any difficulties in the supply chain country? If I look at your strong organic growth, is there any issue or potential bottlenecks that you may have regarding the ability of your suppliers to come in with the huge volumes that you are requesting currently? Thanks a lot. So on the first element, yes, on adjusted EBIT, I mean, I've confirmed the guidance and I see that there are a number of attempts to make me change my guidance, but I will resist to all these attempts 1 by 1. And no, no, there is no reason to change that at that stage. It's we confirm now. It was not it's a very good performance. I'm not going to say the contrary, but this is not a surprisingly good performance. It was expected in our plan, so no reason to change the guidance. In terms of supply chain, yes, you are pointing out a real challenge. I mean, the growth of the company, but not only this year, in the last years, I have obliged us and have stretched some of our suppliers. I would like us to invest a lot on the supply chain. If I had to pinpoint one specific element now, it's not necessarily related to our own growth, but probably the fact that the automotive industries is picking up again. So it increases some challenges on some of the supply chain, which we share with automobile industry notably in terms of electronics and things like that. So this is one of the challenge of the company today, which is I mean, it's part of our competence and our capability to manage this challenge, but it's a real challenge. Next? Thank you very much, sir. As we have further questions at this time, I'd like to turn the call back over to Mr. Popav Lafarge for any additional or closing remarks. Thank you. Okay. Thank you very much for your attention. Thank you for your time. Thank you for your trust. Our next financial event is on November 14 for the H1 results. And of course, we will give the comparison with last year under IFRS 15. Meanwhile, I wish all of you a nice summer and a nice break if you take some days off. Thanks a lot and talk to you soon. Bye bye. Thank you, Mr. Gopal Lafarge. Ladies and gentlemen, that will conclude today's presentation. We thank you much for your attendance. You may now disconnect. Thank you.