H2 17/18

May 16, 2018

To the Alstom Conference Call. I now hand the call over to your Jose today, Mr. Henri Poupart Lafarge. Sir, please go ahead. Thank you, gentlemen. Good morning, ladies and gentlemen. Welcome to our annual results conference call. I will go through the classical agenda, and I will review the 2020 strategy. Just to let you know, as you probably have seen, Marie Jose Danchon has left. We leave the company. So I'm today with Selma, that you all know, and Selma will take over the financial part of the presentation as well as all the tough questions. So as a global introduction on the results of this year, If I had to summarize our performance, I would say that this performance is totally in line with our strategy. And if I had to even to say that we are 1 year in advance as compared to our plans. 1 year in advance in terms of growth as we have our sales have grown by 10% organically. You know that our guidance, we are more 5% per year. So by doing 10%, it's like 2 years in 1 year. And that, as you have probably noticed as well, we have given a new guidance in terms of EBIT margin of 7% already this year, this year meaning ending March 2019 rather than 2020, which was obviously the previous target. So if you go line by line, the order intake at €7,200,000,000 which confirms a very wealthy backlog, a very good backlog of €34,200,000,000 dollars Sales have commented 10% organic growth at €8,000,000,000 I think it's symbolically we have reached €8,000,000,000 I recall you that a few years ago, we are only at €6,000,000,000 So there is a gradual year after year growth. We are always insisting on the yearly performance, but I think it's fair to step back a little bit and look at several years. And for several years in a row, we have actually exceeded the 5% organic growth. EBIT at 6.5%, ahead of our expectation. Again, we saw that we will reach gradually the 7%, and we had 2 years to do so. And I think we'll as I said, we'll reach it this year. Positive free cash flow and therefore, very healthy balance sheet, so with equity now of €4,000,000,000 Altogether, we are going to propose a dividend of $0.35 which is a growth of 40% as compared to last year. So I'll go now on the different items of the 2020 strategy. I just recall you the 2020 strategy, which was relatively simple. The basic idea of the 2020 strategy was just to say that our market is growing worldwide on the back of very, very sound fundamentals, which is the mobility needs in the different countries and the different cities in the world. But we have to see that this growth is higher in emerging countries, in Asia, in Middle East or in Americas rather than in Europe, even though it continues to grow in Europe. So we have to deploy and to redeploy ourselves in order to capture this growth. That was the first element of the strategy. The second one was about the solutions. Boost, because this was required by the customer and particularly the new customers, but also because it's a differentiator for us against other competitors, which do not master the global systems, the global railway systems. When we talk about solutions, we talk about systems, we talk about automation, signaling, and we talk, of course, about services. Innovation was also a key differentiator, and we are not at all in a kind of commodity business. We are in a business which is innovating there today, and we want to be at the leading edge of this innovation. And of course, project execution, operational excellence, cost competitiveness. So this has paid off. And if you look at our orders this year, of course, these orders are lower than the previous years, which were including very large orders each year, last year, the years before. This year, there is no gigantic order. It's partially a coincidence and partially related to the fact that, as I mentioned it in the past, in the Middle East, a number of large orders have been postponed due to the oil price. And hopefully, with the oil price recovery, we'll see them coming back. The very good news is that we are entering into 'eighteen, 'nineteen with a very strong pipeline. Actually, a number of orders which are being discussed, not yet booked. You probably have seen Montreal, what we call REM, which is a new line of Montreal. Interestingly, by the way, this is the only turnkey which has been last turnkey, I would say, which has been awarded this year. So we are particularly proud of being awarded this turnkey, and this will come in our books only during this quarter. We have also we are discussing the Grand Paris. We are discussing on TGV in the future as well. We are discussing on a number of opportunities. So the pipeline is much stronger than the one we had at the same time last year. So I think I was candid enough with most of you to tell that this year order will not be as strong as the previous years. But I can tell you that this year being March 2018, but for March 2019, we have a much greater visibility. The second piece of good news is that we were also, I think, candid enough to say that last year, we were a little bit disappointed by the signaling order intake. And this year, we are back to a much sounder level. And we have increased our signaling order intake by 30%, which is, of course, very good news after a year which was a lower year last year. Some examples of orders. Again, nothing, I would say, particularly large in these orders. Some good success in Canada. Canada is moving very nicely in March 2019 and also in March 2019 because of REM already. Europe, again, continue to channel a number of orders, so fuel the growth. Interestingly, we talk about Senegal. I always say that Sub Saharan Africa is probably one of the latest region of the world where we are not totally present. We are now filling this gap with Senegal with the Dakar trends, but also we are discussing in Ivory Coast for the metro of Abidjan. So there are some projects in Africa being developed as well. And Asia continue to be positive as well. So a good mix of midsized orders, I would say. In terms of geographical reach, you know that we have continuously developed our workforce and resources, expertise, competencies in the world. So now not only we are covering commercially the world, and we are in the top 3 of all the continents. Depending on the year and last contract, we can be number 1, number 2 or number 3, but we are now consistently top 3 on all the continents. And now I would say Europe represents 50% we see of our activities, so it's much more balanced than in the past. And in terms of employees, we have now significant numbers of employees in all our regions. In terms of solutions, here as well, good balance of the portfolio, very high growth of system this year, mainly due to 2 contracts. I will come back on that. But overall, we are close to our goal, which is to be 40% in holding stock and 60% for services, signaling and system, split 2020, 2020. We are more or less there. Of course, depending on the year, it can change, but this is where we stand. So in more details, so we have some growth in rolling stock this year, but I would say, in line with our global growth of the company, with some deliveries in Europe, the beginning of Amtrak, I'll come back to the project, but it's going well, Some trends in Algeria and of course, Praza, which is also going on. Huge growth in systems on the back, on Dubai and Riyadh. Some steep growth in service. Very as you know, service is growing relatively slowly because in terms of order intake, we have a very large order intake of service, including again this year. But these are long term maintenance contracts. And therefore, in terms of sales, it takes a lot of time to really feel the growth of our service activities in terms of sales. Signaling, yes, a slight decrease on the back of Threat and Mining market conditions, particularly in the U. S. Fair to recognize as well that last year, we didn't have a very fantastic commercial performance, as I said, but which has been totally recovered this year. So 2 snapshots on our 2 contracts of systems, so in Riyadh and in Dubai. I think this is again the sign of our nice project execution and the signs of our competence in system. Just one way to give you some flavor about that. Clearly, in Riyadh, we are starting to test the metros. And we are proud. I mean, there are 3 consortia in Riyadh. And we have been the first one out of the 3 consortia to actually have some trends running on the in Riyadh, of course, on test, but still running in Riyadh. And as far as Dubai is concerned, we have launched a production in Cata Vice. So I think that's going according to schedule. And again, these are extremely complex projects, of course, but these are projects which are really at the heart of our know how, and again, which explain why we have been awarded the Rheim contract in Montreal. Continuing to invest in R and D, of course, I mentioned it in the past. We had launched 5 years ago the complete renewal of our rolling stock ranges, starting from Tram, then Metro, Regional Trends. And of course, now we are on high speed with the famous TECE Video Future, continuing to invest in smart mobility and, of course, continuing to invest in digital technology, in particular, on predictive maintenance. This year, there have been 2 remarkable events on innovation, which has attracted a lot of attention, and I think rightly so. The first one, which is our hydrogen train, which has been awarded by the way, the FinTech Mobility Price in Munich, and which has had its first service with passengers. So it's not a normal service, but it has been authorized to carry passengers on in Germany. We have also, I would say, launched a new hybrid vehicle, which is halfway between the bus and a tram, which is also attracting a lot of positive attention. And we have received for that as well for, I would say, our 1st participation to the best world, the innovation award of the best world. I think this shows the nice innovation capacity of Fast Storm. I think as well that we were pretty lucky because we have launched these 2 vehicles at a time where diesel is becoming really the evil of transportation. And it took 2 years to for diesel to become the really bad technology. If you want to make a parallel to do a car parallel with coal a little bit for energy, it took probably 10, 20 years for coal to really be banned from energy. Now GSL is going to be banned much more rapidly. And it happened that we come on the market precisely with solutions to replace diesel, whether it's hydrogen train, to replace diesel trains, of course, the electrical bus to replace diesel buses. So 2 very nice innovations. All that can only, I would say, matter if we also execute and deliver our performance. Just to remind you the past years, so since the last 4 years, so we have moved nicely from EUR 300,000,000 adjusted EBIT to more than €500,000,000 adjusted EBIT, nice growth of the profitability. What is important is that I remember when I talked to you in March 20 15, when we launched the project, we said that there were 3 drivers. There were 3 drivers for our margin improvement: one which was the portfolio, one which was the volume and the third one which was operational excellence. I think in terms of portfolio, as I told you, we are more or less where we want to be. In terms of volume, we benefited a lot from the volume, and we'll continue to do so. Now which is what is really impacting the margin this year is the operational excellence, which is a combination of competitiveness, notably thanks to this renewal of our platforms as well as good project execution. And if we have delivered this year the level of sales that we have delivered probably beyond some of your expectations, It is precisely because we have perfectly delivered our projects. And therefore, all our milestones have been hit on time. And that the machine, if I may say, has delivered all what was supposed to be delivered, and this has fueled a lot the growth. In terms of operational excellence, as you know, we are working a lot with our suppliers, global sourcing, alliance. So the idea is not just to have a kind of battlefield with the supplier, but to try to partner with them. And as you know, India is playing a strong role in our global footprint in terms of competitiveness, and we are continuing to ramp up our activities in India and with more now more than 3,300 people, including 1500 engineers in Bangalore. So a very, very fast ramp up of our Indian activities, which is bringing a bit of fruits. In terms of projects, as I said, it's really important to deliver our projects on our, I would say, flagships in addition to Riyadh and Dubai. Praza, Praza is moving nicely. As you know, you have followed that year after year. So we designed the trends. We produced the first trends in Brazil. This is all behind us. So now we are really in the South African industrial scheme. And the first trains will be delivered by South Africa this year and will come in revenue service by the end of the year. So the factory is completed. The production has started, both in Ghibellas and in our other factory, which we call Hubunier. And the trends will be delivered from South Africa. So we have really now derisked, if I may say, this contract. We are starting to be in serial production in South Africa, which is the ultimate goal of this project. Mabe Pura, very, very nice achievement. Frankly, a very, very nice achievement of all our teams. We have, 2 years after the contract, delivered our first locomotive from India directly from the new factory in Madepurra in India. I think this Indian project is, I would say, that combines all the competence of Fastestorm in terms of transfer of technology, in terms of localization, in terms of technology. So this is an extremely nice achievement. On Amtrak, so far so good. Earlier stage, obviously, but we are starting to assemble the prototype. So the engineering goes well. It's here, as I also explained in the past, this is a very high-tech product. So there is no such localization, I would say, challenge, even though because of the Buy American Act, this will be entirely produced in the U. S, but the challenge is, of course, different. The challenge is mostly technological, and so far so good. The engineering is progressing well, and we are on time. Other activities continue to work on environment, continue to work on the energy consumption, safety. Here as well, I could say that, and I'm particularly pleased about it, we are in advance as compared to our plan, 2 years in advance because our 2020 goal was to reach ISR 1 of 1 in 2020. And actually, we have reached it this year, March 2018. And we have moved in 4, 5 years from 3.4 to 1. So it's a remarkable, I would say, improvement our safety at work. All that can only be, I would say, achieved thanks to our people and our teams. We are working on diversity. I'm not saying here that I'm totally satisfied with where we are. We are improving a little bit the gender diversity within Astell, but we have a lot to be done. So thank you for your attention. Now I'll move to Selma after I mentioned, of course, all our certification in Dojo, in what is the disclosure, anti corruption, anti bribery and so forth. So Selma, floor is yours. Thank you, Harish. Good morning, everybody. So starting with the P and L on Page 22 and moving straight to the items below the adjusted EBIT lines. We had €47,000,000 restructuring charges driven by footprint rationalization and competitiveness initiatives, notably in the United Kingdom, the USA and Brazil. Other charges of €86,000,000 included amortization of intangible assets and integration costs related to business combinations such as SSL, g signaling, nomad that were reduced to €25,000,000 this year. In other charges, as well some transaction costs related to the Siemensal Stump deal amounted to €39,000,000 The financial result decreased to €91,000,000 compared to €127,000,000 last year. This is consistent with the decrease in the gross financial debt resulting from the repayment of bonds which have matured. On the income tax rate, the group recording a tax charge of €73,000,000 this year. It corresponds to a net year of 25% compared to 33% last year. And this improvement came mainly from a favorable environment in France and the USA. And we expect to maintain a stable level in the tax rate in the future. Share in net income of equity investees amounted to €260,000,000 mainly as a result of the remiss amount of the production in the energy JVs. We also benefited from the improved performance of TMH and Casco. Net income of discontinued operation amounted to €52,000,000 mainly due to a remasement of certain tax risks. As a result, the net income group share amounted to €475,000,000 this year compared to €289,000,000 last year. Moving to Slide 23 on free cash flow. The group free cash flow was positive this year at €128,000,000 benefiting from the impact of our cash focus program. The working cap was globally stable, variation being within the classical short term volatility. The free cash flow was also impacted by the ramp up of the transformation CapEx that we will detail just right now on Page 24. Alstom invested EUR 202,000,000 in CapEx this year in order to strengthen its global footprint in the emerging market, while modernizing its existing facilities. This including transformation CapEx at €108,000,000 The group has continued the construction of the manufacturing site, notably in India, Nadi Pura in South Africa, Dinantar as well as the extension of the Onel site in the U. S. A. To serve the Amtrak project. As end of March 2018, the accumulated amount of transformation CapEx already spent represented €159,000,000 out of the €300,000,000 envelope we've indicated you during the Analyst Day. Moving to liquidity and gross debt on Slide 25. So the group had a gross cash in hand of 1.6 €1,000,000,000 at end of March 2018. In addition to this available €1,200,000,000 cash and cash equivalents, Istom can access €400,000,000 revolving credit facility maturing in June 2022 and which is obviously fully undrawn. In addition, the put options in the energy JV with GE provide additional flexibility. On 9th May 2018, Alstom signed an agreement with GE relating to the implementation of the agreements of 2015 regarding the exit of Alstom from the 3 energy JVs. The transfer of all interest will occur on 2nd October 2018 for a total amount of €2,600,000,000 Regarding the gross debt, Alstom outstanding bonds amounted to €1,200,000,000 at end of March. The October 2017 maturity of roughly €300,000,000 has been reimbursed and the next maturities is now in October of this year for almost €400,000,000 On Slide 26, the high stop net debt remained roughly stable over the period at €255,000,000 end of March compared to €208,000,000 last year. This evolution resulted mainly from a positive free cash flow of €128,000,000 generated over the period €104,000,000 acquisition and disposals, including notably some GE related separation impact, the ISIT cash out as well as an advance payment on the IKZ shares. Dollars 47,000,000 increase including the Indian Railways contribution to Madepura Capital as well as some stock option subscription, dividends of €60,000,000 and lastly, ForEx and others of €58,000,000 Moving now to the equity on Slide 27. The equity reached €4,000,000,000 at the end of this fiscal year from €3,700,000,000 last year. It was mostly impacted by a net income of €475,000,000 group share, variation of pensions of €55,000,000 net of tax, dividends paid to shareholders of €55,000,000 share based payment of EUR 55,000,000 and ForEx and other of EUR 220,000,000 Last, moving to Slide 28, an update on IFRS 15 implementation, the new standard for revenue recognition. It will be effective for Alstom from the fiscal year 2018, 2019 and we have elected the full retrospective method. There is no impact on the cash position and no impact at completion on the economics. However, there is a change in percentage of completion methods. Currently, Alstom is trading revenues on milestones. With a new standard, iStom will apply cost to cost to recognize revenues. Hence, we expect some timing effects on the revenue and profit recognition. The estimated impacts are reduction of equity at transition of roughly €450,000,000 while the other backlog is expected to increase of more than €2,000,000,000 and reach around EUR 36,900,000,000 at 1st April 2017. Again, there is no impact on cumulative profit or cash generation recognized over contract life cycle, just some timing effect. Thank you, everyone. Thank you, Selma. So in terms of outlook, I think I mentioned it already. So we are upgrading our guidance, and we are, of course, including all consequences of IFRS 15 changes by having a new guidance of around €8,000,000,000 of sales in 2019. This year, we have a growth of 10%. So I would say, we have done 2 years in 1 year. So we should see this €8,000,000,000 I would say number as in line and consistent with our global trajectory. And again, the adjusted EBIT is at expected at 7% in March 2019 rather than March 2020. In the medium term, of course, now, if I may say, and this is the next chapter, we have projected this merger with Siemens. So the medium term is just global guidance on our positioning on the market. And this medium term is continue to outperform the market growth as we have done consistently in the last 6 years, always above the market growth, continuing to improve our profitability as we have done consistently in the last 6 years and of course, continue to improve the cash generation. Nice transition to the cement system project. Where do we stand? Things are moving according to plan, to schedule. So we have, of course, signed 1st, a memorandum of understanding. You recall on September 26. Then we signed the contract itself, which we call the BCA on March 23. Then this BCA has to be approved by Alstom shareholders on July 17. And we target to close the operation by the end of 2018. In the meantime, of course, we need to get all antitrust clearances in the world in a number of jurisdictions, of course, including Europe. We have announced yesterday night the new future board, of course, subject to the completion of the deed. So I will not go into the details of each member. We have 6 independent members. We have 5 women out of the 11 members. So if you take me out of the board, then it's a perfect match. I think this is a group of people which are combining a wealth of experience, global experience and also, I would say, by activities, industrial, finance, HR, compliance, experience. So I'm extremely pleased with this new board, and I will be looking forward to working with all of them. We are also progressing in terms of targeting our ways of working. As you know, this is extremely important. We are competitor up until day 1 of the new company. So we can work on the organization and a little bit on processes, but certainly not on business related matters. And we have decided to adopt an organization, which is based upon the 3 main pillars. 1st, I would say the intimacy with customers and with the new scope will be even more intimate and closer to all the customers in the world with all our with our large footprint and extremely diverse footprint. We want to put a strong emphasis on digitalization. I mean, if we do this merger, as you know, this is primarily to address the new mobility and the new digital technologies. So we put some emphasis on this digitization with a strong organization in charge of this particular matter. And then, of course, all that makes only sense if we adopt the same ways of working, the same processes and if we have a standout platforms. So we have also 2 main functions, which will be in charge to drive platforms and operational excellence, which basically are the 2 functions, which will be in charge of driving the synergies between the two groups. So in a nutshell, I think if I had to look back at 'seventeen, 'eighteen, this has been a fantastic year for Alstom. I think we have achieved or close to complete our 2020 strategy, which has been launched a few years ago, which was one very important phase for the group, which was a globalization of the group, which was to put some sound base for worldwide in order to take advantage of these sound markets. And at in the same time, we launched an extremely exciting and positive strategic move together with Siemens, and we are projecting this merger. So I think 'seventeen, 'eighteen will probably remain in the health chemistry as one of the key year for Alstom. So thank you very much. And now I'm available for your questions. Thank you much, sir. Thank you. This first question is coming from James Tetler calling in from Barclays. Please go ahead. I guess my one question just is on the time schedule. I mean, you look like you're doing everything you can from your side to get the merger done. Is there anything you see out there which could delay the process? And can you maybe talk about in terms of the antitrust approval process from here? Thank you. Thank you, James. I mean, you are right to point out that the main and actually the only remaining process to be completed is the antitrust process. Up until this is not done, it's not done. We target to complete this transaction by end of December. We have a fruitful and rich conversation with a number of jurisdictions in the world. This is still there are still some uncertainty classically in these kind of processes. But today, we are in line with our plan, which was announced at the beginning of the project. Okay. Thank you. So I'll go to Gael de Brit calling here from Deutsche Bank. Please go ahead. Could you perhaps elaborate on the group's operating leverage, please? Because the incremental margin was only about 13% in the second half despite a very strong growth achieved over the same period of time, probably around 15% organically. I'm asking you that question because you're now guiding for an additional 50 bps margin increase on relatively flat sales. So I'm just trying to reconcile a little bit what's going on there. And if I can add up a little bit to this question, also on the guidance, but this time for the €8,000,000,000 revenue guidance. I mean is the implicit lack of growth mainly due to the difficult comparison basis after the exceptionally strong Q4 performance? Or is it more related to IFRS and perhaps a bit due to FX? So on your first question, I think you need to look at year on year comparison. And if you look at year on year comparison, you will see that, as I said, it's now a mix impact, but also it's operational excellence. And therefore, we have less probably leverage on the growth. And we see more, I would say, gross margin, if I can put it like that, impact. So yes, with what we have put in place and your analysis is correct, if you look year on year with what we put in place, the drivers for margin enhancements is more related to competitiveness, is more related to operational excellence rather than pure growth. That's why we can anticipate continuous growth in profit, even though the sales will be around €8,000,000,000 dollars On your second question, I think it's I don't have the complete answer to your question. Let me tell you something. 1st, yes, the comparison is very high and higher than what we anticipated and that you anticipated as well and that we anticipated as well because our sales are higher than our own expectations. So yes, the basis of comparison is probably higher than and if we had done 5% this year, then you would have seen 5% and 5% and you would have been happy with that. Here, it's 10.0 and this is in a way, it's more demanding than 55. But that's you're right by outlining the fact that the base is higher than what we anticipated. Then on IFRS 15, and there may be some questions about that, we will never know because we have worked internally on IFRS 15 projection. What could that have been on the old rules? Nobody would ever know. It's there are some elements. Basically, that's a little bit of accounting technicalities. Normally, there is no impact because at the end of a contract, of course, your sales are your sales and therefore, there is no impact. There is a phasing impact because usually at the beginning of a contract, IFRS 15 is less aggressive, let's say, delivers less sales than IAS 11. And at the end of the contract, it's a reverse. So if you look at the global portfolio of Alstom, you would say that as we were growing, probably it has had IFRS 15 would have had a negative impact in the previous years. I would say that for 2018, 2019, that would have no significant impact. So maybe a little bit, we would again never know because we never published any IS-eleven sales this year. Maybe a small negative impact, but insignificant. So I would say the answer to your question is first the base, maybe some impact of IFRS sixteen, I don't know, and I don't estimate it as being significant. Thanks so much, sir. Now we'll go to Mr. James Moore calling from Redburn. Please go ahead. Your line is open. I wonder if I could get back to the December timetable you mentioned. I think your lawyers presented in a general forum, not regarding you, but general topics earlier this year that Phase 1s are taking 3 to 5 months. Phase II is about a year. Is there anything that gives you confidence on December? It seems quite a short time frame as I don't think you've yet filed with the European Commission. Correct me if I'm wrong. And can you explain why you haven't filed yet and when we should expect it? I will not go into the details of our conversation with the European Union Commission. And I don't agree with I mean, I don't know which lawyer have given that. But the idea there are some official deadlines for Phase 1 and Phase 2, which are much shorter. I mean, I think Phase 1 is 35 days or something like that. So it's much shorter. The question is to complete the file. I think regardless about these official dates, it's more important that the European Commission is satisfied with the information that we are giving to them And whether we give them pre filing or during the filing or after the between Phase 1 or in Phase 2, that does not really matter. Then Phase 2 is not 1 year. It's also down in, I think, it's 4 months. So I think it's the timing is shorter than what you are mentioning. And that's why we are still on track for the end of December closing. Now as I said to James, I mean, it's clear that I need to be cautious. I mean, these processes are long and complex, and I'm not ruling out any orders during these processes, time wise, of course. But today, there is no reason to project differently than what we did in the past. We'll now move to Mr. Ben Uggwel calling in from Morgan Stanley. Good morning, everyone, and thank you for taking the questions. First of all, Henri, I just wanted to make sure I understood your answer to a previous question. In terms of the organic growth that you are thinking about this year, is it correct for us to assume that you are thinking of around 0? I mean, I know that's implied in the number, but is that actually correct that you're not really expecting significant organic growth this year? So that was the first question. Secondly, just could you quantify a little bit and maybe be a bit more specific about the operational excellence issue? You've had 70 basis points year on year margin expansion, roughly 90 odd 1000000. Are we correct to assume that the majority of that increase has come from operational excellence specifically? Thank you, Alban. Sorry, I mean, it may sound a little bit complex. And that's why we have tried, but apparently unsuccessfully, to try to simplify the work by giving an absolute number in terms of sales rather organic growth. And why that? Because we are talking IFRS 15 for next year. And you want to compare with a number of this year, which is not under IFRS 15. So the question is what kind of growth do you want to, I would say, to input in your model? I mean, if you want to compare €8,000,000,000 with this year being retreated, First, we have not given any number because we have not finalized the treatment of the flow of the current year. And therefore, I mean, to talk I mean, I'm not the one having launched this IFRS fifteen, but to talk about organic growth is a little bit complex at that stage. We'll see what could be the retreatment of 2017, 2018 under IFRS 15, and we'll see what would be the comparison. My gut feeling at that stage, as I said, is that $8,000,000,000 is the absolute number for next year as we project it internally under IFRS 16. There may be a slight negative impact this year, as I said, as well under IFRS 16 as compared to March '18. So you will see some kind of growth. But again, I'd rather now start from a fresh start and look at our €8,000,000,000 as being the year for next year. But there are some discounting impacts, I would say, destroy a little bit the logic of the organic growth itself. So that's why again, there is a the comparison between IFRS 15 and IS 11 is not equal year after year. It would be simple if you add like €200,000,000 difference between IFRS 15 and IS 11 year on year. But this is not what's happening. So the growth under IS 11 is not the same as the growth under ISFS 15. And that's why I think then you don't know what is the kind of absolute growth. I mean, it's not the same growth if you discuss it under one accounting standard and the other accounting standard. In terms of operational, I would say that this year, the 70 bps, it's most half half between operational excellence and growth. It's half half. So let's say, 35, 35. As I told you, next year, we think that we are going to continue to increase more the operational level. So we move between 35% to 50% in the rough numbers to reach between 6.5% to 7%. Okay, thanks. The next question is coming from Mr. Jonathan Moncey calling in from Exane BNP Paribas. A couple, please. Just on the CapEx. So I think the you still have the balance of the $300,000,000 of transformation CapEx. I don't know about other people's numbers, but it feels like the figures for that came in a bit lower this year than I was expecting. Can we expect then that CapEx may be a little higher than we previously thought this year? And then secondly, just on the pipeline, I mean, it does look very strong, particularly in the case of TGV in the future. Have you got any comments on what maybe the first tranche of that may look like? I think overall, it's something like 100 train sets. But how much of it are we likely to get in the first order, please? So on the CapEx, we are more or less in line with our expectations. So we announced at the time that we have 3 years of exceptional CapEx. We are in the 2nd year of this exceptional ones. And we have still, next year, some exceptional CapEx to come. So we'll reach our targets. You remember that it was €300,000,000 globally, and we are today at around 160 exceptional. So we have a little bit more than 100 remaining to come, most of it next year. But I think we are on track. In terms of TGV, I think I mean, there have been some numbers floating around in the press. So we are still finalizing the contract, of course, with SSF and discussing the details of technical details. The numbers which have been announced in the press were around 100, and this is one time. Those will be one contract. We'll now move to Mr. Christopher Caron calling in from Societe Generale. Please go ahead. Yes. Good morning, everybody. Christophe Camp, Societe Generale. First, congratulations with your performance in fiscal year 20 17 and 'eighteen. Three questions, if I may. First one is about the orders. Could you give us your view about trends year on year as you gave us last year a good indicator? Then could you have just an idea or a color of what's going on here? And what could be the landing point for this fiscal year 2018 or 'nineteen? 2nd question, if I may ask. Could you come back please on the mix that has maybe also has an impact on your profitability? And if I am correct, due to the signaling coming back, Is it fair to assume that you may have also reserve good surprise for this fiscal year? And lastly, did you see any change into your competitive environment currently? So no, in terms of other intake, we don't give any guidance because, of course, we were discussing the TGV the future because of the events in handset sales and so forth. This has been a little bit delayed. If we had to book that before end of March, this would have had a tremendous impact on our order intake. So we had 3 years at around €10,000,000,000 Each of these 3 years were including one very large contract of more than €2,000,000,000 2,500,000,000 3,000,000,000 This year, we don't have it, and it goes to €7,000,000,000 I don't know if we can draw a conclusion that it's €7,000,000,000 plus very large contracts. I don't know. But we have a strong pipeline, and we have a sustained activity. So I don't think we should we can give any guidance there. But again, the pipeline is good. On your second point of mix, no, I mean, there have been a very strong growth of systems. So all in all, I would say the share of rolling stock has remained roughly the same. So last year, there were few year systems, we did more signaling. This year, a little bit less signaling, more systems. Maybe next year, it would be the reverse. So we don't expect anymore in the mix impact we are where we should be. So that's yes, signaling will come back, as you said. But at the same time, as I said, system was particularly high this year. So it may compensate in the future. In terms of competitive environment, frankly, I don't see any major move. We discussed a number of trends in the past. They are still there. We still have a global competition, globalization. We have been the 1, Siemens and Alstom, to have moved or to a project to move. But in terms of competitive behavior, frankly, no major evolution. We'll now go to Mr. Alfred Blaser calling in today from ODDO. Please go ahead. Yes. Good morning. I wanted to come back on free cash flow. You've had a very, very strong first half and a negative second half. Could you give us a bit an outlook on free cash flow generation going forward and on the transformation of earnings into free cash flow, please? Yes, Efe. Yes. I mean, this illustrates the volatility of the cash flow. One element of that is, of course, the order intake. I mean, we have a few year down payment when you have a lower level of order intake, of course. So this can go up and down. We still have and this explains, I would say, the structural difference between our cash flow generation and our profitability is the transformation CapEx. Of course, we have a high CapEx this year of more than €200,000,000 which is much higher than our recurring level. So this explains also partially. Finally, we still have also some, I would say, exceptional expense due to our deals, particularly on the new one. So this expands also a little bit. But overall, I think what is mostly important for me is the working capital evolution. And frankly, in the last years and including this year, we have managed to stabilize working capital, which is, as you know, my goal. So that when we have finished with the exceptional CapEx, this is our guidance and this is our target. We will deliver in cash our profitability, and we have done that. And the fact that we have improved last year a little bit our working capital, that we have deteriorated a little bit this year our working capital. When we talk about 50,000,000 frankly, with the size of our working capital, this is extremely small numbers. I think overall, we have in this last year achieved our target, which is to have a stable working capital. I think this was ending our conversation. So thank you very much for your time. I'll be happy to meet some of you soon. We have the shareholder meeting on July 17, for those of you who are interested. And we have on July 19 the Q1 orders and sales. And of course, in the meantime, Selma and Julien are here to answer to all your requests. Thanks a lot. Have a nice