Ladies and gentlemen, welcome to the Alstom conference call. Today's conference is being recorded. I now hand over to Henri Poupart-Lafarge. Sir, please go ahead.
Thank you. Good morning, ladies and gentlemen. Welcome to the conference call on orders and sales for the first quarter of this fiscal year. As you have seen on the press release, Alstom has achieved a solid commercial performance over this first quarter, with order intake of EUR 1.9 billion compared to EUR 0.9 billion last year. Some commercial successes of the quarter, two contracts for almost 100 light rail vehicles for Toronto and Ottawa in Canada. We are the first metro system in Vietnam, which is a new country for us, so it's another territory. Similarly, a contract for regional trains in Senegal, which is a new country, but also for Germany, which is not a new country. We have received an order for the fleet modernization for Los Angeles after having been awarded a number of modernization contracts in the East Coast.
It's one of the first ones on the West Coast. Finally, also to be noticed, we have recorded part of a metro system contract for Manila in Philippines. If you may recall, this is a contract which has been discussed for quite a long time, but which has now come into force. Again, this is a first country for us. In terms of delivery, we continue our organic growth, the sales have reached EUR 1.9 billion, up 5% organically or 6% in actual numbers, compared to the first quarter of last year. This is, as you've seen, perfectly in line with our 2020 objectives. If you look at the deliveries of the quarter, the sales were mainly fueled by the deliveries of regional trains in France, Sweden, by the high-speed trains in France and in Italy, by the significant progress of Riyadh Metro in Saudi Arabia.
I told a number of times that Riyadh Metro would be one of the major contributors this year of sales, as well as PRASA project for the last deliveries of the first batch of trains. We are continuing to deliver the maintenance contract in the U.K. We are starting the Dubai Metro. It's a very fast project. We are already trading sales on the Dubai Metro. At the end of June 2017, the backlog reached EUR 34 billion, which again, provides a strong visibility on future sales. The book-to-bill was one. If the backlog has decreased, this is due to the Forex impact, we continue to fuel the future activities. Interestingly, during this quarter, we have launched several breakthrough technologies. I think it has been a very good quarter for that. Quite unusual.
If you look at the number of technologies that we have released, these technologies have addressed the evolving needs of both operators and passengers. One of them, for example, is Mastria, which is the first multimodal supervision solution for the global mobility system. Moving on to smart mobility, smart city. We have also a very important strategic cooperation with Airbus on cybersecurity, which is becoming an increasingly important factor in all our system, and we are very pleased now to team up with Airbus, which has unmatched experience in that matter. Last but not least, I think Alstom has been one of the first company in Europe to obtain the ISO 37001 certification for our anti-bribery management system. I think this is a nice confirmation of our day-to-day fight against corruption in the world. Thank you. These were the main events of the quarter.
A good quarter, as I said, both in terms of commercial momentum, in terms of deliveries, as well as in terms of innovation. Thank you for your attention. Now I suggest we switch for question and answers. Thank you.
Thank you. If you would like to ask a question, please press star one on your telephone keypad. We'll now take our first question from Akash Gupta from JP Morgan.
Hi, good morning, Henri. My first question, or my only question is on Signalling. Maybe if you can provide some more details there. After orders down last year, Q1 was also down heavily on both orders and sales. Maybe if you can talk about what's the factor and what should we expect for the rest of the year. Thank you.
Thank you. No, it's fair to recognize that sales were down for two reasons. One was more of a kind of hedging of some large contracts, particularly in Toronto. This is not a hedging of some contracts, nothing I would say particularly to be worried about. There was one other factor which is unfortunately more consistent, which is the low level of Signalling activities in North America. I think I had already the opportunity to point it out. We are today at a low level in terms of freight activity in North America in general, both in terms of new locomotives, as you probably know, as well as in terms of investment on the network. We are relatively at a low point on this market. As you know now that we are quite present in freight in North America.
This has an impact on our sales and on our order intake. Both are impacted. Apart from that, this quarter in terms of order intake, does not include any very large contract. There are still some large contracts being tendered. It's difficult, as always, to predict what will be the order intake level this year. I would say that for both order and sales, there is an element of volatility, but there's also an element of low tide in North America.
Thank you.
We'll now take our next question from Dennis Dinkelmeyer from Goldman Sachs.
Good morning. Thanks for taking my question. I have a question on consolidation, also related to the Signalling business. We have some news flow this morning that Alstom might be interested in purchasing the mobility assets of Siemens. Could you make any comments on this? If you cannot comment on this, would there be a fit in terms of the assets between Siemens and Alstom? Thank you.
Well, I do not know about that. Frankly, I think two weeks ago, we were supposed to sell his shares to Bombardier. Three weeks ago, Bombardier was supposed to merge with Siemens. I think that there are plenty of rumors on the market. I think I put that on the big theme, which I have said, which is correct, is the fact that there will be, or there could be, some type of consolidation on the market, and that Alstom, one way or another, will participate to this consolidation. I think the main criteria for consolidation is definitely first, that there is no do or die type of deal. As I said a number of times, we are growing. Over the last few years, we have grown from EUR five billion to more than EUR seven billion. We don't feel any urgency to do anything.
We are not forced to do anything. Therefore, anything that we do should create some value, and we need to look at what kind of complementarity between the different businesses. I'm not going to discuss one or another, which would fuel any kind of stupid rumor. I can tell you that our criteria were to make sure that we create value through the complementarity of our different platforms, whatever we do in the future. Again, nothing urgent. We are very well placed today. We are enjoying a very good momentum. I will look at that, at the rumor, but nothing to be commented there.
Thank you.
We'll now take the next question from James Stettler from Barclays. Please go ahead, James Stettler from Barclays, your line is now open.
Sorry, I was on mute. Good morning, Henri.
Good morning, James.
In the absence of any further comments on consolidation, just on orders, is there anything else we should be aware of as we look into Q2, any big, large contracts? In terms of the phasing of sales, obviously, it was a bit more volatile last year from quarter to quarter, 5% being the full-year target. Is there anything we need to be aware of, any intra-quarter or any volatility as we go through the year? Thank you.
Okay. I see, James, that you are driving me towards the quarterly guidance. I would just say in terms of order pipeline, I think I said it sometime. We did EUR 10 billion of order intake in the last year. The EUR 10 billion is not a magic number. As we speak, there is no very large contract, gigantic contract, for example, which we have been awarded and which would be close to be totally booked. That means that this takes time. By definition, it will not materialize in the next quarter. I don't expect any large contracts to be booked in the next quarter, because otherwise, this would have been already been awarded. In terms of sales, there is lower level of volatility. There's some kind of volatility in the sales. We said that, for example, for PRASA, we have delivered a 20-year train from Brazil.
There will be a slowdown in terms of sales delivery, but we don't expect major volatility, certainly not on a yearly basis, not major ones, and a little bit more on the quarterly basis, but not major ones.
We'll now take the next question from James Moore from Redburn.
Good morning, everyone. Henri, Marie-José. One on the business and a couple on consolidation, if I can try. In terms of the revenue mix in the quarter, the Systems division seemed pretty strong and Signalling was soft. I'm just thinking about margin mix. Do you think that runs any implications for the first half or the year, or can mix carry on at sort of expanding 10 or 20 basis points year-on-year? On consolidation, please allow me to try, but one of the questions is antitrust, and when we had Bombardier Transportation, it was about European market shares. Do you think there's political will to consider global market shares in the event of any combination? Secondly, if I could try, is it better to participate and enjoy cost synergies while running the risk of losing some revenue, or is it better to watch others come together?
On this operational matter. First, you're right in terms of revenue mix. This year will be particularly strong in Systems. As I said, Riyadh will be important this year. Dubai is important. It will go fast. This kind of mix impact from Systems, Signalling, and so forth, is not of such another magnitude that it will impact our margin progression. As I said, we are going to give guidance on the quarterly or half-yearly type of margin progression, but we reiterate our margin guidance for 2020. The fact that I said that this would be gradually improving, and I'm not changing my statement because of this mix. Again, it's a better Systems mix. The Systems will weigh quite a lot, less Signalling, which is a minus.
A plus and a minus, the net of the two is not significant enough to influence the global picture. On the consolidation, you have two points. On the European view, frankly, I don't know, because up until you test the water, it's impossible to know whether the European Commission will change its global policy. It's true that if you look back, the policy of the European Commission was not to look at the European market, if not sometimes national market, to analyze its competitive landscape. We would probably be happy that they go for the global landscape. There was also a rumor, as you probably know, that CRRC, the Chinese company, would buy Škoda. If the European Commission can take a global view, this would also put some kind of limitation to this kind of move. The quick answer is that I don't know.
This should be the trend, but until you test the water, you don't know. On your question about cost and revenues. It's a very good question. This is why also there have been not so many consolidation in the past, is that in our industry, apart from consolidation, this is already one of our objective, which is, of course, to drive economies of scale. This is, I would say, a never-ending effort, which we are pursuing within Alstom, and it's a difficult effort. By saying that, I tell you that we should be very careful. To compensate revenue dis-synergy with cost energy, which would come from some kind of economies of scale and things like that, is a bet which is not easy to take.
Again, economies of scale, because I think I discussed that with some of you, the variety of technical requirements, the variety of administrative authorizations, and so forth. Economies of scale is something that we are pursuing day after day, but which is not easy to grasp. Which is explaining also why you have actors on the market which are very different types, in that if economies of scale were so obvious, this would not be the case. This is the case because it's not so obvious.
Thank you.
We'll now take the next question from Gaël de Bray from Deutsche Bank.
Yes, hello. Good morning, everybody. Can I have a couple, please? The first one is on the tendering pipeline. Do you still expect the Mecca metro contract and also the contract for very high-speed trains in France to be booked by year-end? The second question is about the PRASA contract in South Africa, which I think contributed to about 5% of sales last year. I think you previously said that the contribution should be pretty limited this year now. Given the completion of the 20 first trains in July, was there a meaningful contribution to sales growth in the first quarter?
Look, on the very high speed, the partnership with SNCF is doing extremely well. We are progressing on the definition of the train, I think it's proved to be a very nice way of partnering and collaborating with SNCF. We are still targeting the order before the end of the financial year. Of course, this will have to be confirmed, but I would say this is still the plan. On Mecca, there are, of course, more uncertainty. It's still a priority for the government and the Kingdom of Saudi Arabia. Having said that, we have discussed that for a number of times. The government is still working on it, but I will not give you any kind of date for that. This has to come first, and this has to be finalized. On PRASA, yes.
That's typically why I'm reluctant to enter into too many details, because on one hand, you are right that sales will go down in terms of contribution. On the other hand, as I said, Riyadh and Dubai are growing extremely fast, for example, to give other examples. This is a mixed portfolio, and even though if you just focus on one negative, you will conclude that there would be a global impact, which should not be the case. That is a global portfolio. There is some kind of volatility, because one milestone of Riyadh or one milestone for Dubai is significant, even considering the global picture. In terms of flow, we are continuing to grow on the back of the deliveries of our backlog. Of course, some projects have higher sales in one quarter, lower sales in one quarter.
The portfolio impact, if I may say, mixed, I think.
We'll now take the next question from Akash Gupta from JP Morgan.
Yeah. Hi, thanks for taking follow-up question. My question is on leverage, let's say if you have a good, attractive deal on the table, what is the maximum leverage that you can consider for a deal, given the prepayment and concern from customers if you have very high leverage?
The optimal balance sheet is a balance sheet whereby you have on the balance sheet a net debt position of close to zero, so cash free, debt free. Precisely because we know that we have a volatile working capital. We know that we are partially financed by our customer. I believe that we need to keep a strong balance sheet, strong being more or less debt free, cash free. As you probably recall, we have a lot of cash coming in September 2018 through the put, if we want to exercise them. Therefore, I don't see that as a limitation today in our deals potential. As I said at the beginning, anyhow, there is nothing here. I don't think it's a little bit theoretical, but in our own, I would say assessment, debt free, cash free is what should be achieved.
Thank you.
Maybe a last question.
We'll now take the last question from Dennis Dinkelmeyer from Goldman Sachs. Please go ahead.
Good morning, and another follow-up question on the business. With regards to your orders in emerging markets, you've mentioned, for example, Senegal and Vietnam, where new countries that you're entering. Could you please comment on the requirements for local content, i.e., how much CapEx you expect to spend in these new countries going forward? Thank you.
Thank you. We believe that, globally speaking, we are at the end or close to the end of our globalization. We don't expect any large investment in any new country today. These particular cases that you are mentioning are actually financed by French financing. If there is a localization content, this is in France, for both Dakar and Hanoi. We will produce these trains respectively in Reichshoffen and in Valenciennes. As I said, in terms of geographical coverage, we have now supply chain per continent, so I don't expect any large investment. Of course, when you install yourself in a country, you have some small investment, but limited, nothing compared to what we've done in the past. Okay. Thank you very much. Thank you for your attention. Thank you for your time. Again, a nice quarter for Alstom. Nice in terms of order intake, commercial momentum.
Nice in terms of delivery and, as I was emphasizing, also nice in terms of innovation. I'll be pleased to meet all of you soon for our next announcement. Thanks a lot. Have a nice day.
Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.