Q3 16/17 TU

Jan 17, 2017

Earnings release

Ladies and gentlemen, welcome to the Alstom Conference Call. For your information, this conference is being recorded. I will now hand over to Henri Poupet Lafarge. Sir, please go ahead. Thank you. Good morning, ladies and gentlemen. First of all, happy New Year to all of you. It's still January. So welcome to this conference call on orders and sales for the 1st 9 months of our financial year 2016, 2017 with, of course, a specific focus on the Q3. As you have seen on the press release, Alstom has achieved a solid commercial performance over the 1st 9 months of this year with an order intake at $7,200,000,000 up 16% compared to the same period of last year. In the Q3 and after a very strong first half, we booked €1,000,000,000 of orders. And the main commercial successes, which were booked during this quarter, included some signaling and infrastructure contract for Cairo Metro Line 3, some regional trains again for Southern Germany, new generation of metros for what we call Greater Lyon in France and some maintenance for freight locomotives in Mexico. As you have probably noticed in the press, have recently been awarded several new contracts, which are not booked during the Q3. They include 15 regional trends for Senegal, which is quite important. This is our first order in Western Africa, which was one of the last region, if I may say, where we were not present. And also, last week, Alstom Bombardier Consortium has been selected to renew the suburban trends, the double deck suburban trends in France, in Paris. And Assam share of this contract, I mean, I think there are several numbers, second round. And Assam share is 780,000,000 euros for the first phase. You have probably also seen this morning that we have announced our 1st metro system in Vietnam, which confirm Alstom, I would say, expertise and leadership in system. And this is for us a breakthrough in the urban sector in Vietnam, which is one of the last country in the world without any urban system, which will be soon corrected. All these projects are expected to be booked in the Q4. As far as sales are concerned, for the 1st 9 months of 2016, 2017, sales amounted to €5,200,000,000 up 5% organically, which is in line with our global objectives compared to the 9 months of last year. And this is absolutely perfectly in line. The quarter, as you know, our quarterly sales are fueled by all our large contracts. So this quarter, it has been fueled by deliveries of suburban and regional trains in Europe. Some progress of Rial Metro System, which is now full speed and of course, Prada project in South Africa and still the maintenance project in the U. K, which are extremely long term projects. For the 1st 9 months, we have a good book to bill at 1 strong book to bill at 1.4. And of course, at 31 December 2016, the backlog reached a new record at €33,800,000,000 which again confirms the visibility on future sales and give a good ground to our objectives for 2020. Some events in this quarter, one which has been quite heavily publicized, which was the fact that in October 2016, the French government and as Tom presented a plan to maintain the railway and digital activities on Belfort, which was one of the events of the quarter. As importantly, in December 2016, we ended over the 1st Praza extrapolice megatrend. So when we say ended over, it means that not only of course the train is delivered in South Africa, but the train has been accepted by the customer. And the manufacturing plant, where the 580 trains will be produced is currently under construction, and I have visited it again, and it's going absolutely according to schedule. 21 December 2016, we have signed also the purchase agreement for the acquisition of Nomad Digital. It's a world leading provider of connectivity solutions to the railway industry. And this is a relatively small acquisition, but which is important in our strategy towards digitalization. Not only it provides us some solution, Wi Fi and connectivity solutions, but also it provides us with some key technology, which were actually being developed within Axtom and this will speed up the development of this technology of these bricks of technology necessary to implement digitalization inside the trends. So this quarter, which is totally in line with our expectations, allow us, of course, to reconfirm again today our 2020 objectives as far as growth is concerned, profitability and cash generations are concerned. You very much for your attention. With Marie Jose Donsfion, our CFO, I'm now ready to answer to all of your questions. Thanks a lot. We will take our first question from Karl De Bruy of Deutsche Bank. Please go ahead. Your line is open. Thank you very much. Good morning, everybody. My first question is on the top line development. So you've delivered 2% organic growth in Q3 and 5% for the first 9 months of the year. But how do you see Q4 planning out now in terms of milestones recognition on some of the key contracts like, for example, the Riyadh Metros or the Prava project? And how do you see the comparison basis for Q4 given the very strong performance of last year's Q4? The second question is on the I mean, what do you make of what do you think of your Chinese competitor now getting an access to the Czech Republic market? Do you think this is the sort of moves that could possibly accelerate the consolidation process amongst European players? Thank you, Gael, for your questions. On the sales profile, and you are right by mentioning the milestones. It's clear that our sales profile depend on a few milestones. And therefore, one should not look at €50,000,000 more or €50,000,000 less because this €50,000,000 is less than one milestone. Having said that, it's clear as well that our Q3 is usually lower than our Q4. In Europe, mostly, you have the Christmas time, which is taking some of the days and, of course, which are not helping the overall sales level. We, today, I'm not going to give more guidance that we used to do, but we confirmed the guidance of 5% on average growth, and we have no reason to believe that this average will not be met this year. This is on the sales development. And despite to be clear, despite the fact that Q4 of last year was particularly strong, I have that part well in mind. On the Chinese competition, as I said, I think a number of times, in my plan, I was expecting the Chinese to enter into Europe one day or another. And by the way, of course, I'm not surprised that they enter into Europe from the Eastern. So this was expected. So in that sense, whether it accelerates any strategic move, I would not say so because it's not a surprise per se. Whether globally, the Chinese expansion in general is a global triggering factor for the consolidation in general, I would say, yes, this participates among other things to such as standardization, such as economies of scale, such as a number of other things. But there are a number of factors, which explain why I think that in the long term, this industry will consolidate. And this is confirming this view. No surprise, no change, just a confirmation of this trend. Thank you very much. We will take our next question from James Stettler, Barclays. Please go ahead. Your line is open. Yes. Good morning all and thanks for taking my questions. Can you just talk again about the order pipeline, what you're seeing out there, what we should be aware of in terms of large projects coming up? And indeed, what you're seeing, again, we hear again a lot about the Chinese, is it having any impact on pricing terms and conditions? And then finally, just on PRAS, I mean, how should we be looking at the revenue recognition? I think you're going to see a bit of a gap as the plant gets built out. And how are you getting on and building up the supply chain, which is obviously a very important part of the entire project? Thank you. Thank you. In terms of orders, you have seen the largest order which was in the pipeline, was probably the suburban trains for France, which has been awarded and booked now in January. So there is no you have a few tenders around the world, which are still floating. I don't expect in the coming weeks any such large announcements, but to be the pipeline is still quite active. It's more a question of phasing of these orders. But I don't expect huge announcement in the coming weeks. There is nothing that I'm expecting as a tender in the coming weeks. We have announced today Hanoi, which was a midsized order, which is not a large order, but a midsized very important for our Asian footprint and for the system capabilities. That's what we expect so far. We are still working on projects such as Macau and so forth, but these are long term projects. In terms of Chinese, I don't see today any direct impact on the Chinese competition on terms and conditions. As you know, the terms and conditions are part of the tendering documents, and they are quite stable, whether we call on a kind of on a commercial terms or on financial terms. So I have not seen any impact there. Clearly, in terms of cost, as you know, our strategy is to be able to be competitive against the Chinese, either through quality, through TCOs or total cost of ownership or also through cost per se, and this is why we have launched this platform in India for Asia to be very competitive even in terms of cost base, not only even though we count on it as well, but not only in terms of quality or in terms of total cost of ownership. Lastly, of Prazzar, sales recognition, you are right in your sequence. It's true that because of the delay of the beginning of the erection of the factory, you may have that in mind because of the delay in the access of the land. We have a gap in the production of the trains between the production of the trains in Brazil and the production of the trains in South Africa. So you will have a gap in sales as well in that respect. But we have a number it's milestones, so we have a number of internal milestones. So it will not be there will be nothing dramatic and certainly nothing that we'll see at the global level of Alfa Romeo. Mo. It's a minor phasing, nothing that you should take into account really at your level. In terms of supply chain, again, we are entering into this Prada project much more than we should and much more than we do for other projects, but I understand that it's of interest for you. But we have crossed a very important milestone during this quarter, which is the fact that the components, some of the components, main subsystems would actually be manufactured in which is the factory which we have precisely bought for that purpose very close to the new factory that we are erecting. So we have bought another factory, which was a historical site of train manufacturing in South Africa, very close to our new factory. And this will help a lot in the supply chain progression because part of the equipment would actually be internally made. So we are progressing in that respect. And as I said as well, I remind you that our trends in Brazil are already including a number of supplies coming from South Africa. So we have made already a lot of progress. And this is a challenge to be clear on the ramp up of the supply chain is a challenge, but we are progressing quite well in that direction. Thank you. We will take our next question from Alfred Glaser of ODDO. Please go ahead. Your line is open. Yes, good morning. I would like to ask you about the Indian locomotive contract. Could you update us also on progress in India on the site construction and on the project itself? And second, I wanted to ask you when do you expect to get the orders in France related to the Belfort manufacturing project? On India, I mean, it's with this call will turn into a project review soon. But on India, of course, we are much behind Prasad in that respect. So we are more talking about the engineering of the locomotives. We have passed a number of milestones in terms of engineering, in terms of design freeze, which was expected at the end of December. So this is in line. And we are just starting the construction of the site. So we have now we have the land. It has been much quicker to get the land in that respect because it was already organized during the tender. So we have the land and now we are starting to erect the factory. I will invite you to come. I think it's quite far away from Delhi. But today, there is nothing really to see. It's a very flat land, but we are starting. We have engaged the engineering company and so forth. So this is starting in line. There is no signs of worry neither on engineering solutions have been accepted by the customer nor on the site itself. It's starting. On BELFOR, it's as always, it has been quick to be promised and then it takes time to be implemented. So I don't know if you have that in mind, but there are several orders which should come. The first one is regarding 30 regional trends, which actually are not directly for BELFOR, but for Raichofen. This has been accepted by the Board of SLCS in December. So this should be put this should be awarded soon. And then you have the famous very high speed, which are not yet, I would say, accepted by the Board of SNCF or of Steve. So it will take a little bit more time. So to your point or to whether this will be included in Q4 of this year or Q1 of next year, To be fair, I don't know at that stage. My guesstimate would be that the regional trends will be probably in Q4 of this year. The rest, I'm more uncertain. Because as you know, we are booking when everything is there, everything is done, everything is we received all the paper, the payments and so forth. So that's between the 2. So these things are progressing, I can say slowly, but not surprisingly. We will take our next question from Christophe Cohen of Societe Generale. Please go ahead. Your line is open. Yes. Good morning, everybody. Two questions, if I may ask. 1st, could you come back on the mix evolution during Q3, just to be aware of what has really happened there? And second question, could you give us what's happened with the Spanish contract where you were not awarded? It appears to me that it was a bit that there were some pricing pressure on the price on this contract. And then could you update us about the specific ones? On more globally, as you mentioned also, no big pipelines in the coming weeks. Could you just update us about the UK and the London Metro, if I may ask, please? Sure. And you may be directly impacted by the London Metro. On by the way, on the London Metro, just to answer on this one, it's not at all something which will come in the coming weeks. I mean, we are coming months, if not more. I mean, it's a very, very complex standard, which will take a lot of time to be analyzed by the London Metro and then finalized. This is clearly something which is on the pipe for a long time. Back to your first question on the mix on Q3. First, as you have seen, the general trend is one we have described for a long time. So now rolling stock is clearly below 50%. So that's we were at 46%, we are at 45%. I mean, this is more or less now established, let's say, below the 50% mark. We had, as for H1, relatively slow maintenance service contracts, and this is primarily due to the exchange rate in the UK. We have a large proportion of our service business in the UK, both on West Coast Mainline and on other line in London. And this, of course, is impacted by the evolution of the British pound. This is explaining and also, of course, because you could say why isn't it growing faster? I mean, typically maintenance contract and we are booking a lot of maintenance contract, but they will be traded over time. As you know, we need first to deliver the trains. Most of these contracts are bundled contracts with new trains, so the ramp up is extremely slow. The rest is in line with our expectations, no single particular signaling and systems are growing nicely. On the Spain tender, I would say it's a of course, it's a bad news. We wanted to win, otherwise we would not have tender. But at the same time, we were happy. We were number 2. So maybe it's a worst place to be. But in a way, it improves the validity of our concept and of the new trends. Yes, the prices of TAGO, because he is a winner, were quite low. To be fair, there were also some specificities in the tender, which were favoring Talgo because they were asking some of the they were awaiting some of the specificities such as the variable gauge and so forth, which we didn't have. So we had to win. We would have had to compensate for this, I would say, extra points that they get from this very Spanish type of technology. Why Spanish? Because this is the only place where you have this kind of variable growth. So it's a disappointment. I'm happy to see that nevertheless on the, I would say, the standard platform, our standard platform is very, very well placed. So we are not disappointed from a platform standpoint. Okay. May I add another question about your acquisition I. E. Nomad. Clearly, this is a small acquisition, but could you give us what is exactly the positioning into the value chain where you should be able to address maybe better your clients more particularly in terms of the passenger information and so on and so forth, how it goes with potential cross selling opportunity vis a vis your current portfolio for the solution you provide to your main clients or to your clients? Just to understand well what is the break that is breaking through this acquisition of Domat, please? I mean to be there are 2 things. There are the access to the market and the technology. In terms of access to the market, Novad is today quite well established around the world. It's not it's a startup in a way, but it's already a startup with a quite wide network. For example, Amtrak is one of their customer. And their customer is either the operator, which is upgrading the trains or which is buying their products at a different lot or the train manufacturers, which are incorporating, including NoMad product in their own solutions. Basically, where Nomad is I mean, to be a little bit simplistic because it's a number of technology, but where Nomad is extremely good at is all around telecom in the trend, communication in the trend. Either so it's either to provide connectivity such as Wi Fi or to provide passenger informations or which has not been known, but it's very important for us to provide some information on the subsystems and therefore, to help in our condition based monitoring systems. So what we want to do with NoMad is, 1, to increase their reach, both because of the network of Alstom Worldwide as well as, I would say, because of our partnership with different manufacturers worldwide. So we want to increase their global reach and we want to use their technology not only for passenger information, but also for our predictive maintenance and also for all our suites in terms of digital maintenance and digital communication that we have with our trends. As you know, we have a number of projects and solutions, which are communicating with the trains. And the technology of Nomad is of particular interest for us for this kind of communication. Okay. Thanks a lot, Eric. Thank you, operator. If there is no question, then we can stop then. We have a follow on question from Christophe Cohen of Societe Generale. Please go ahead. Your line is open. Yes. Sorry to come back. But just one last question because I don't think you mentioned that. What was the contribution of GE Signaling during the Q3, please? No, I've not mentioned it. And I'm turning to Marie Jose. Maybe she has the number. I have in mind a contribution for the 9 months of €130,000,000 To be fair, I can't recall the quarter itself. So Let's say onethree of that. Okay. But let's consider it's pretty linear. Yes. €130,000,000 Sales, yes. Yes, I'm sorry. Yes, on sales. It was €120,000,000 after 1H and then you consolidate just 1 month, if I'm correct? It's €100,000,000 it's closer to 140 for the 9 months. So it's probably 2020. Okay. We don't want to say yes, absolutely, 1 month only, yes. The organic calculation is yes. The organic calculation is has only considered, yes, 1 month gap between last year and this year since it was acquired early November. So I would say the contribution in terms of organic has been taken into account for 2 months this quarter. As we have no further questions, I would like to hand the conference back to Henri Poupart Lafarge for any additional or closing remarks. Thank you, everybody, for your attention. Thank you for your time this morning. So I'll be happy to meet you all again on May 4, which is the day of Star Wars. Thank you very much. Bye bye.