Good morning, ladies and gentlemen. First of all, happy New Year to all of you. Welcome to this conference call on orders and sales for the first nine months of this fiscal year. First of all, as you have seen, we have achieved a good commercial performance over the first nine months with another intake of EUR 4.9 billion. In the third quarter, we booked EUR 1.7 billion of orders. This includes notably the last 100 trains for PRASA and some new Pendolino trains for NTV. I have to say that these orders were not previously announced, so it may have surprised some of you, but this is due to the customer requirements, and we could not make any announcement before today. I excuse myself for the ones who were surprised by these orders. In terms of sales, which are, as you know, the direct consequences of our large backlog.
For the first nine months, the sales amounted to EUR 5.5 billion, up 6% organically, which is totally in line with our midterm targets, which we are more than achieving year after year. If you looked at deliveries of the quarter, as for last quarter, no particular change. The growth was mainly fueled by the progress on the Riyadh Metro and of high speed and regional trends in France, as well as the large maintenance contract in the U.K. Overall, the backlog is extremely sound at EUR 32.8 billion and gives a strong visibility for our future growth going forward. Of course, these results, as you know, are totally in line with our expectations, our anticipation, and therefore, we are confirming today our Alstom 2020 objectives. A few events noticeable during the quarter.
The first one, in terms of M&A, is the fact that we have improved, reinforced our partnership in our site in Kazakhstan, and we have agreed to acquire 25% stake in EKZ, and we will have 75% of the company, the 25% remaining still being owned by our partner, TMH, from Russia. We have also announced the end of the self-reporting with the DOJ. You know that we had a 3 years period during which we had to regularly report to the DOJ. This is now coming to an end, which means that the DOJ is satisfied with the way we are managing this process. You remember as well that last year we have been one of the first company in Europe being certified ISO 37001, which is the anti-bribery certification. An update on the Siemens Alstom transaction. Today, I would say the process is going according to our plan.
We are still in the first phase of the process, if you may recall, which is a social phase where we still need to get the works council information and consultation. This is still being expected in the coming period. After this information, after this phase, we'll be in a position to sign formally the BCA, and then after that, to formally file to the European Commission. This is totally in line with what we announced back in September. Nothing new. As I said a number of times, it's a long process. We need to go step by step in this process. Nothing particular to mention. As you have seen, I would say a good quarter in line with our operations, in line with our expectations.
We are continuing our journey toward our 2020 objectives, and we are continuing our journey towards the long-term future with our colleagues from Siemens. With that, I think the last point is to say that our next call is planned on May 16th, and of course, if there is any development in the meantime, we will let you know all the developments, both on the Siemens Alstom deal and on the rest of our operations. Thank you for your attention. I think we can take some questions, and Marie-José Donsion and myself would be happy to answer any of your questions.
Thank you, sir. Ladies and gentlemen, if you want to ask a question, please press star one. We will now take our first question from Akash Gupta from J.P. Morgan. Please go ahead. Your line is open.
Hi, good morning, Henri. Good morning, Marie-José. My first question is on pipeline of large orders, and what should we expect in Q4 order intake, given first nine months book-to-bill is just below 90%?
Thank you, Akash. I think I said a number of times that this year is not a year where you would have a large number of large orders. It is just a question of phasing of a certain number of large orders. It is not a question that we have lost. There have been no particular bad news during the year in terms of large orders on which we were hoping to get something and which we have not get. There is one order that we are discussing, as you know, in France, on the, what we call TGV du futur, which is the next generation of very high speed train in France. We are discussing this one.
We may have some news on large orders. Apart from this one, I don't see any orders which could be booked before the end of March, because as you know, in our business, if you get good news on being preferred bidder or something like that, you are not going to book it very soon. It takes always a few months to book it. As expected, I would say, not a lot of very large orders with the exception of this order, which I don't know whether it will come before or after the end of the quarter.
I said also a number of times, with our backlog, I think this kind of pause in very large order is not something which I'm necessarily negative about, because as you have seen our growth in sales, we need to absorb quarter after quarter this growth in sales. I think it's a nice way of globally manage the company.
Thank you, sir. Our next question comes from Gael de-Bray from Deutsche Bank. Please go ahead. Your line is open.
Thanks very much for taking my questions. I have a couple, please. First of all, since we've seen a two-point decline in the share of both services and signaling activities as a percentage of group sales so far in the year, would it be fair to assume that the mix will turn a bit negative for margins this year? Still in relation to the potential margin development, is there any guidance you'd like to give on the potentially negative FX transaction impact for the second half of the year? That's basically a combination of questions. Perhaps the third one is in relation to the two contracts that we had not anticipated. In particular for the contract in Italy, would it be fair to assume relatively similar terms as the contract that you had been awarded last year with the same client?
Do you also confirm that the size of the contract for the last 100 trains in South Africa is around EUR 600 million?
Thank you, Gael. On the first question, we are not giving, of course, a guidance on the margin. What I can confirm, and this is in line with your assumptions, that in terms of drivers for margin expansion, the mix impact, if you step back and look at our journey since we have announced Alstom 2020, the mix impact is mostly behind us. There may be some little positive, little negative, but we are more or less where we wanted to be. In terms of share of the different activities, yes, you can have systems growing faster and then the other ones growing not as fast or having some ups and downs. We are more or less where we want to be.
The first driver today is the impact of what we did in the first years, which is the complete renewal of our platforms, which are bringing competitiveness to our product. That I can confirm, and I confirm that the results that we see are in line with our expectations, which allow us to confirm, as I said, our objectives for 2020, which means that we are confident on this second driver or second engine to the margin expansion, which is not only the mix which was achieved more rapidly, but also the cost-cutting initiatives and the competitiveness of our platform. In terms of transaction or translation impact, I guess you mean maybe Marjo, this I can say a word I don't see in-
In the organic growth calculation, you can actually spot the scope adjustment, which comes from the acquisition of Nomad end of last year, as well as some Forex conversion effect, which is slightly negative coming from the evolution of the U.S. dollar and the British pound. Frankly, no major things to highlight there. As you know, we have a systematic hedging policy, which means we are protected in our operations from currency fluctuation from the start of the contracts, and therefore, I do not expect any adverse effect in the P&L coming from the volatility of the currencies.
Thank you. On your second question, yes, first it illustrates it's interesting because NTV is a private customer. Of course, we don't have the same kind of open tender and so forth. It's a very partnering, if I may say, approach with NTV, where they are ordering a few trains. Also it depends on our production facilities and so forth. It's a very pragmatic approach, which we can have with NTV. Yes, globally, the order is of a similar nature and therefore order of magnitude in terms of price or value per train and maintenance as the one we have booked in the past. Nothing particularly different.
Similarly for PRASA, it's the last 100 trains. Yes, in the main, the price per train is the same with a little bit of differences due to the Forex and so forth, but you can take as an assumption that it's more or less the same price per train as the ones we have booked during the first booking.
Our next question comes from Martin Wilkie from Citi. Please go ahead. Your line is open.
Hey, good morning. Thank you. It's Martin from Citi. I appreciate you've given some commentary on the structure or the timetable for the merger with Siemens. Just to understand if there's been any feedback from customers or any change in order patterns. Often when a merger is happening or a change of control is happening, you can see either customers delaying orders or perhaps in this case, people feel that the merged entity will be better and therefore you're seeing more orders. Just to give some sort of sense as to what customers are, or how customers are reacting, sorry, to the merger announcement. Thank you.
No, thank you. We have, as you can imagine, a large number of discussions with customers on the future positioning of the company. Clearly, the feedback is extremely positive from the customers. They value it as a possibility to have with them a very strong partner, and also locally based. They see that as an opportunity to have very close intimacy with the future company being present in a very, very large number of locations. In terms of order flow, it does not really change, to be fair, because all the customers have launched public tenders. In some cases, we are in competition with Siemens. As you know, till the closing, we are competitors. In some cases, we are in competition because we are answering both of us to the same tender.
It has not really changed the situation, neither positively nor negatively, because they are just following their process and we are answering to the tender and it's a very, I would say, mechanical and technical evaluation on that respect. No particular impact in the meantime.
Thank you. Our next question comes from James Stettler from Barclays. Please go ahead.
Thank you. Good morning, all. Two brief questions. First of all, just to confirm with all these commodity movements that you are indeed fully hedged and we should really expect no impact on margins. The second question is: Is there anything else you can say about feedback from other stakeholders on the merger since we last spoke in, I guess, November?
James, maybe Marie-José on the first one?
On commodities, we have no particular, let's say, hedging policy in place. In fact, what we have embedded in our contract is more of an escalation type of formulas since we have a multiple year type of execution projects. The indices broadly reflect, in fact, the evolution of the procurement price evolution. Far, basically based on the experience we have, it has been a pretty efficient way to deal with fluctuation of commodities in the market. Therefore, no particular adverse impact is expected from those fluctuations at this point.
Yes. You should also keep in mind that commodities in our cost mix is relatively low. It is maybe 5%-10% max. We are not a steel pipe manufacturer or something.
One commodity we are protected, let's say, in the escalation is also inflation of the labor.
Yes, labor is probably. I'm not sure.
That can come in the various geographies where we operate.
I'm not sure.
A commodity.
appropriate to call it a commodity. On the various stakeholders, in terms of the merger, the first stakeholder is the internal stakeholder. We made some survey internally within Alstom and within Siemens. In both companies, the overall backing of the transaction is more than 80%, where 80% of our employees or more, depending on the geographies, are saying that the transaction is a good transaction for both companies. You have discussions, as you probably have seen, particularly in France, about what will be the future of the different sites. As I said, as we are in the social time of the process, we are discussing with our unions, and they express some concern on some aspects. Customer, we discussed. I had a number of discussions with the customers, always positive discussions on the way forward and the way we structure.
European Union, on the antitrust, we have not yet started. We are just in the very early phase of describing our activities. I cannot give you any feedback. It's a very in-depth dialogue. That said, it's a very analytical dialogue. We cannot say that there is any conclusion so far. Globally, the authority on the transport side of the European Commission sees it positively in terms of bringing the European industry to a next step. I would say there is a positive global undercurrent from the stakeholders. There is no negative. That being, for those of you based in France, there was a political debate, which is mostly behind us.
Thank you. We will now proceed to our next question from James Moore from Redburn. Please go ahead, sir. Your line is open.
Morning, everyone. James at Redburn. Maybe three, if I could. On the free cash flow, I know you don't report at the quarter, but you mentioned at the first half that CapEx would increase in the second half. Did you mention it would roughly double, and is that still valid? Are there any considerations on working capital from the mix that you now see better in the second half that we should consider? The second question is really a broad one. Henri, perhaps for you, what's the rough percentage of management time split at the moment between the deal and the organic operation? Could you perhaps talk us through the current priorities and how they're going? Lastly, maybe if you could expand a little on the issues with the French unions that need to be overcome.
Probably first on free cash flow. I confirm the CapEx evolution that we described at the end of the first semester. There is an acceleration of the spending visible in both South Africa and India for the greenfield factories we are building up to execute the PRASA contract and the Madhepura contract in India. Regarding working capital, as mentioned a few times, in fact, we are in a business with some volatility in the execution of the projects in terms of cash curve, since over the lifetime of one project, we would have phases which would be pre-funded and some phases that would be underfunded. Therefore, there is this, let's say, a variance that can occur during the execution of a project. Overall, of course, at the end of the contract, the margin equals the cash.
Far, you've observed actually a pretty good evolution of the working capital. Let's say it is not a trend that I expect as a generic trend. The working capital should be pretty stable. I don't see any major evolution in the conditions and terms and conditions that we get on the new contracts compared to the ones that are in the portfolio, therefore, let's say, nothing major to be expected in terms of trend there.
Thank you. Thank you on that. On your question, it's a good question and it's a very important question, your question on management and how we organize ourselves. It's clear that we have a dedicated team for the deal implementation to make sure that we are executing the deal properly. As I said, it's a long time, we need to make sure that the management and the day-to-day operational management is fully focused on the execution of the contract, on the commercial momentum and so forth. At the same time, of course, we need progressively to project ourselves in the new setup. I would say that for most of the teams, it's, I would say, a small fraction of their time, which is dedicated. When I say the teams, it's at the management committee level, a small fraction of their time, which is dedicated to the deal.
For myself, of course, it's a little bit more than that. I'm more involved on the day-to-day. It's not a question to give you a personal flavor. It's not a question of number of hours which I'm dedicating to the deal, which at the end of the day remains relatively limited. It's more a question to make sure that in my head, I'm combining the two dimensions. One, the long-term dimensions of the deal and how to set up the new company, the short-term dimension, which is the day-to-day business, which is continuing to run. This is classical for any managerial situation to have this kind of situation, particularly in a company such as ours, which is quite a compact company. In these days, it's probably one of the challenges to make sure that we continue to sustain this.
I'm not overly concerned by the number of hours, but more, I would say, concerned or attached to the balance in terms of management attention to the two aspects. In terms of unions, as you know, there have been some commitments taken by Siemens in front of the French state. It's more a question of social organization and so forth. It's not particularly the French unions, it's the unions in general, rather than a physical commitment. It's more the way we are going to be organized in the future and so forth. No, I would say no particular concern.
Thank you. Our next question comes from Daniela Costa from Goldman Sachs. Please go ahead, madam. Your line is open.
Hi. Good morning. I just wanted to ask you about sort of how do you think the U.S. tax reform could potentially impact you, I guess, on the back of GE signaling? If you could comment on that, what that would do to the current perimeter, let's say, of Alstom and, I guess also French tax reform, what would be the impact? Thank you.
Marie-José?
Regarding the evolution of tax reforms, actually in a number of countries. We've looked into the U.S. new tax reform. You should remember probably U.S. activity represents less than 10% of the revenues of Alstom. It's around 7%, to be precise. Let's say, no very significant impact expected at this point. You may also recall that the deferred tax assets that we have recorded are pretty limited. No major impact actually expected there. Regarding France, in fact, we've got two measures going opposite directions, which is the first one, the cancellation of the tax on the dividends, which are being distributed within the same group. We are getting some refunding on some dividends that were taxed upfront.
At the same time, there is a special tax, actually this year, to fund this first measure, which has a slightly adverse effect and offsets the first one. There also, no major news, let's say, in terms of net impact on Alstom accounts. I'm still expecting, let's say, an effective tax rate pretty much in line with what we reported in the first semester, which is around 28%.
Thank you. Next question.
Thank you. Our next question comes from Christophe Ferrand from Societe Generale. Please go ahead, sir, your line is open.
Yes. Good morning, everybody. Just coming back to two, if I may. Looking at IFRS rules, could you give us some view on any potential change, more particularly related to IFRS 15, if I'm correct? Looking at France also, do you have any impact on the CICE measure? This is the first question on accountancy. Second one is, in terms of orders, as you discussed with the first question, could you come back on the potential tenders you may have in the coming quarters? Is there any in India? Is there any in Canada? Is there any in other country that you may be concerned with? And particularly also in U.K. and in France with the evolution of the Grand Paris financing steps. Thanks a lot.
Thank you, Christophe. On the tenders, the pipeline of tenders remains quite strong, including in large tenders. The next year will be probably more rich in terms of large orders. There are some in Canada. You know that there is a very large tender, as you said, in Montreal, for the line which is crossing completely Montreal, which is a very large turnkey tender. The tenders on the Grand Paris is still going on. To be fair, what has been announced recently was known by everybody in, I would say, in the small world of the mobility in Paris, and therefore the tenders were issued according to this new situation. It's not a surprise that the budget of the Grand Paris has increased a lot, and the timing also was not a surprise. All that is continuing. There are some tenders in Asia.
Yes, there are some tenders in India, as you said. Both, as we said, Mumbai would be a city where there will be a number of tenders in the coming period. We have in Australia, we're in Singapore. It's a large variety of tender. We have a very large tender in India, where we are participating as well. We are still in the Middle East. We'll see whether the oil price surge has a positive impact on some of the projects. As you know, we said that in the past, that project in Saudi Arabia have been postponed. We are still working in Dubai. Just by memory, we have also a large tender in Dubai for the Al Maktoum project, which is the link between the two airports, the current airport and the new airport, which has just been launched. The pipeline is quite rich at that stage.
Regarding IFRS 15, we are currently actually assessing the impact on the backlog and on the flows of the year. The work is in progress, and as you could see, actually, in the first half, we mainly give, let's say, a qualitative indication. Clearly, for Alstom, it represents a change in the revenue recognition method. Since up till 1st of April of 2018, we are trading and recognizing our revenue based on technical milestones, which are basically events defined together with the customer that reflect, let's say, the physical progress of our projects. Tomorrow, we'll be recognizing revenue based on the cost that we incur, which may have a different speed, actually, compared to the physical progress of our contracts. We are reprocessing the portfolio. It's pretty extensive exercise since we've got, let's say, more than 700 live contracts across the company.
We'll be ready in terms of work in progress. Let's say we'll be ready to share with you some figures probably at the closing of the financial year account, which means mid-May.
Thank you. Next question?
On CICE. Sorry.
Yeah. On the tax impact, actually, no major adverse effect as we speak. As I said, we have some positives and negatives coming from the various tax reforms. Overall, pretty balanced final situation regarding the net tax charge for the company.
Yep. Thank you, Marie-Josée.
Thank you.
Next question.
We have now, sir, our last question from Geoffroy de Mendez from Kepler. Please go ahead, sir, your line is open.
Yes. Hello, good morning. I just have one question regarding your participation in the Kazakh JV. Could you please give us your view on this deal, why you've done that increase from 50% to 75%? How big this is, what it represent, and just maybe the rationale of this investment and your view on the region there, please. Thanks.
Yes. I think it's a very positive evolution of our partnership in Kazakhstan. The 25% that we are acquiring is today in the hand of KTZ, the Kazakh railway. We want to make it as a hub for locomotives and potentially other products for the region. I think in that sense it was good that we take the full control of the joint venture, which will allow us also to remove some of the barrier and legal barriers which were imposed upon us in terms of labor employment, for example, and the way we are managing a number of things due to the fact that we were in a kind of joint venture with a state-owned company of Kazakhstan.
We'll be more flexible and more agile in the way we are managing the company. At the same time, there is a privatization program in Kazakhstan. It was also for them, a good opportunity to implement this privatization program. There was a good window of opportunity to discuss ourselves now that it's quite mature, making it a kind of a normal site, if I may say, in the Alstom footprint, and for them to implement their privatization program. That's how we came. It's not huge amounts which are at stake, but it's more important from an operational standpoint. Okay?
Henri Poupart-Lafarge, that was our last question. At this point I'd like to hand the call back to you. Thank you.
Okay. Thank you very much. Thank you, all of you. Again, I wish all of you a happy New Year. Hopefully we continue to get in touch and in contact during this year, and our next event is on May 16th. Thanks a lot. Have a nice day.