Ladies and gentlemen, welcome to the Alstom conference call. I now hand over to Mr. Henri Poupart-Lafarge. Sir, please go ahead.
Thank you. Good morning, ladies and gentlemen. Welcome to this conference call on our first quarter results, orders, and sales. As you know, our first quarter comes from 1st of April to 30th of June 2016. You have all had the press release, which has been published this morning, which gives you figures by geography and by product. I'll be very short. In this quarter, Alstom booked only small contracts with no order above EUR 100 million. This led, obviously, to an exceptionally low level of orders of EUR 900 million, which of course does not reflect the commercial activity, which indeed has been quite strong during this first quarter. We expect this commercial activity to translate into orders in the coming quarters. For example, you may have noticed that we have communicated on regional trains in Italy or on the extension of the metro for Dubai 2020.
As far as sales are concerned, we are continuing to show a good organic growth. The sales have reached EUR 1.7 billion, up 7% organically or 9% in actual numbers compared to the first quarter of 2015/2016. Sales delivery were mainly driven by regional, high speed, and suburban trains in France, regional trains in Italy, Germany, and Sweden, of course, the progressive ramp-up of the Prasa project in South Africa. We have as well some maintenance of high speed in the U.K. as well as Signalling projects in Canada. All in all, I would say that this good sales momentum as well as the commercial activity give us full confidence to confirm all our guidance for the coming years and particularly our 2020 objectives. I think this is what we could say on this first quarter activity. Now, I will switch to the Q&A session.
I am together with Marie-José Donsion, our CFO, at your disposal if you have some questions. Thank you for your attention.
Ladies and gentlemen, if you wish to ask a question, please press zero one on your telephone keypad. Question is coming from Akash Gupta, JP Morgan. Please go ahead with your question.
Yeah. Hi, good morning, everybody. I have 3 questions, please. My first question is on Services sales. I can see in your release that Services sales has gone down from EUR 393 in Q1 last year to EUR 361 this year. I'm wondering if you can help me understand what are the moving parts here, and what should we expect for first half, given Services profitability is higher than the group average. That's the question number 1. Question number 2 is on, in the press release you talked about acquisition and partnership in the month of April. I'm wondering if you can give us some number on cash flow impact in those partnership and acquisitions. Then, the final question is on Brexit. Just say some thoughts on how that will impact financing condition for your customers, particularly in Europe.
Thank you, Akash. I will take your last question first. On Brexit, of course, it's very early days. I mean, it's early days for everybody on this topic. We have not seen any signs of impact of the Brexit on our market. We could say that the first consequence of the Brexit is a movement in currency. All our sales are local in the U.K. All our sales are actually in Services, in infrastructure, and in Signalling. We are not exposed from any kind of either competitiveness issue or aging issues. We are U.K. to U.K. Of course, there will be a translation impact, but which is relatively minimal. As far as the big projects are concerned, like HS2 or these ones which will require some heavy financing, again, it's too early to say. We are monitoring the situation quite closely.
One could say from a kind of general perspective that uncertainty will probably lead to kind of slowdown of these big projects. To be fair, I've not seen any sign of that. This is, at that stage, pure speculation. On your first question of Services, yes. Indeed, if you look at last year, there was a huge growth in Services business. We said that this was partially explained by large renovation contracts in the U.S. This is now being reversed, and we have now a slowdown of this renovation contract which had been delivered last year. I will not comment on the profitability side.
Just to tell you that these renovation contracts are not necessarily the ones which are the most profitable of our Services portfolio, as it's closer to a new build type of activity rather than a kind of long-term maintenance type of activity. On the partnership, I may hand over the floor to Marie-José on the partnership and the acquisitions.
Akash, I confirm we've communicated on in fact two main acquisitions for a value which is roughly EUR 10 million. The first one is the purchase of the 50% share of Nexans. We had a JV with Nexans in Morocco called Cabliance for some components, which we acquired back. It's a small size activity, mainly to basically diversify our sourcing and have a second source of supply on this component. The second acquisition, which is more significant, is a company called CTLE in South Africa, which was acquired in April, in fact, to support the execution model and the localization that we have in South Africa to execute our Prasa project. This is, in fact, a company that today retrofits and maintains the fleet in South Africa.
It's roughly 400 blue collars that are in a manufacturing site roughly 10 km away from the site where we will erect our greenfield factory to manufacture the Prasa project.
Thank you. Next question.
The next question is coming from Daniela Costa, Goldman Sachs. Please go ahead.
Hi, good morning. Two things from my side. Could you maybe remind us regarding sort of free cash flow for transport? How should we think about the volatility of that throughout quarters? The second thing, can you give us some more details about Dubai and Italy in terms of the share of Alstom? Also what else is there in tenders beyond those that could be potentially large projects? Not necessarily saying that they're going to go to yourselves, but just so that we know what are the big things out there. Thank you.
Okay. Thank you, Daniela. On your first question on free cash flow, of course, this is orders and sale quarter, so I'm not going to go into the details. You probably remember both our guidance in terms of long-term guidance of 2020, which is to convert 100% of our profit into cash. We have also detailed some of the short-term impacts, both of the exceptional investment that we are currently pursuing, particularly in India and South Africa, as well as some legacy costs or cash out, which relates to the separation with GE. We have also said, and I confirm, that there is a volatility in our cash flow.
This volatility is due to large down payments which can occur for some contracts, but also from progress payments, because we have large contracts progress payments, not only down payments, but from time to time, progress payments, which can be of significance. I do confirm that there is a volatility in our cash flow. Our intention, and as you know, this is one of the main focus of the company, is to generate, I would say, regularly some cash, taking into account this short-term volatility. In terms of orders intake, I think we have said that basically, the Dubai extension order was around EUR 2.6 billion for the total of the project, and half of it is for Alstom, more or less. As we have not communicated our number, I'll let you do the math, but that's around this number.
On Italy, it is a little bit more complex, because there have been some communication by the customer on the total value of the frame contract, which is around EUR 4.5 billion. These frame contracts include 3 contracts, actually, one for diesel trains, one for high capacity. Diesel trains high capacity have been won by competitors, and for medium capacity, which is our part of the contract. This is basically 150 trains. In addition, there will be a portion which will be firm and a portion which will be optional. At the end of the day, the orders which will be booked for regional trains will be of several hundred, but not a very large contract. This is yet to be finalized with the customer. If you take There is 150 trains for us and 300 out of 400, more or less out of 500.
You can make a proportionate amount that works more or less, 150 as compared to 500 for EUR 4.5 billion. Out of this proportionate amount, there is a portion, maybe one third of that, which will be for the first batch. Sorry for the lack of precision, but we need to continue to discuss with the customer. On your other question on the commercial momentum in general, there have been orders which we have disclosed in the past, but for which there have been some communication, like in Philippines, like in Egypt, like in Mecca, in Saudi Arabia, where we are also a preferred bidder. There are some orders for which we are preferred bidder, for which we are still discussing, and it can take a number of months to come to a conclusion.
There was also a very large one in the U.S., Amtrak, high-speed trains, for which we are still waiting for the final answer. There are number of contracts for which we are waiting final answers. There are contracts which are more in early stage of tendering, particularly in Australia, particularly in France, where we are talking about the new double-deck suburban trains, for which we are waiting some news during next autumn. There are still a number of tickets. We have also a large contract in Netherlands. For which we are waiting also the final confirmation. We have a number of projects at different stages. Some of them, like Italy and Dubai, we are just completing the contracts. Some of them we are still negotiating. Some of them we are waiting for the answer to the bids.
All that make us confident that the yearly number for order intake should be in line with our expectations and should be in line with our growth perspective.
Thank you. Next question.
The next question is coming from Guillermo Peigneux-Lojo, UBS. Please go ahead.
Good morning. It's Guillermo, UBS. Maybe two questions, if I may, less than one by one. First, regarding your revenue growth, I think reported figure is nine, organic is 7%. I wanted to get more details on the 2% there that will come from a structure and currency. How much was the currency contribution, and how much is just acquisitions, if I may? Thank you.
That's for Marie-José.
In fact, in the revenues, we face some adverse Forex effect compared to last year. I would say mainly two currencies play a role for us. It's the GBP, obviously, with the recent evolution of the currency, roughly 10% compared to last year. As well as the ZAR, which if you recall, had suffered a significant decrease last year during the summer. Obviously, quarter one compared to quarter one, we were still on a high level last year. Roughly, I would say currency impacts us in the magnitude of EUR 60 million negative. Then in terms of scope, we have obviously the contribution of GE Signalling mainly, since obviously the acquisition joined our scope only November 2nd last year. This contributes to roughly EUR 70 million of revenue for the first quarter.
Thank you. Next question.
The next question is coming from James Stettler, Barclays. Please go ahead.
Yes, thank you. Good morning, all. Three quick questions. Can you talk a bit about how the execution is going in terms of Prasa? I guess you're now starting to build that plant, how things are progressing. In terms of another integration question, GE Signalling, how is that going? How is it performing versus expectations so far? Then just when you talk about these tenders, any change in the competitive environment in terms of conditions that you have observed? Thank you.
Thank you, James. On Prasa, I think there is nothing to report. The trains are arriving one by one. From Brazil, as I had already the opportunity to say, the tests are going extremely well. We are now quite secure on the quality of the train itself. I think all the manufacturing in Brazil is now under completion. This is going well, and we have started to erect the factory. Things are moving nicely there. There is nothing, I would say, to be reported. I think I'm going to put a webcam in Dunnottar so that you can follow closely this contract. I will report each time on this one. Obviously it's going very nicely. On GE Signalling, there's obviously some good news and not so good news.
The good news is that the integration is going extremely smoothly, this is now well in Alstom. The good news is that really they bring us a lot of expertise in terms of product, and there is a number of things that we can learn from GE for our product business in Signalling. There are also different ways of channels to the market, and this is quite interesting and enriching for us. The not so good news is the fact that the U.S. market has been down, particularly the freight market. Hopefully with the return of the oil price a little bit up and some positive signs coming from the oil industry in the U.S., this will come back to a better situation.
As far as the, I would tell you, European type of technology, CBTC and ERTMS, we are now merging our product family, this is going smoothly, I have to say. Overall, positive. Timing of the U.S. market, not optimal, I think it will come back quite soon. In terms of tenders, to be fair, most of the tenders I am talking about are actually relatively old tenders. When we are talking about these big tickets that we are waiting, whether it's Mecca, whether it's Netherlands, whether it's Amtrak, these are quite old tickets. These have been tendered a number of months, if not years ago.
We have not seen huge competitive changes apart from the global change that we have seen over the recent years, which is a globalization of a number of actors, and particularly the Asian actors, with Rotem being more active worldwide, CRRC being more active worldwide as well. This has not been unnoticed in the U.S., for example. Apart from that, in Europe, we have a stable situation among the different players. I don't see any change in trends in Europe itself. No particular change in the recent period, but a general movement of globalization of a number of factors, which, as you know, we are answering by being local, this is the way we are playing our cards. Okay. Thank you. Next question.
The next question is coming from Martin Wilkie, Citi. Please go ahead.
Hi. It's Martin from Citi. Just a couple of questions. Firstly, coming back to the GE Signalling acquisition, you mentioned, I think EUR 70 million of revenue acquired there. From memory, that was a EUR 400 million annual revenue business, and you mentioned that U.S. freight is down, but presumably there's some seasonality in that number as well. If you could just clarify, is this quarter sort of a seasonally low quarter for that business anyway, or was that drop relative to sort of EUR 100 million run rate in a quarter, and really that badly affected by the freight market? That was the first question. The second one, I'm not sure how much you'll be able to comment on this.
There were some articles on the news wires a little while ago, last month, I think, about some dispute over the final payment for GE Signalling for working capital and so forth. Could that be a substantial amount in terms of the difference, or is it more of a technical point? Thank you.
Thank you. I give it to Marie-Josée.
Okay. On GE Sig, actually, we had mentioned that the volume of activity of GE Signalling was decreasing compared to the, let's say, initial discussions we had when we started the transaction with General Electric, mainly due to the market evolution in the U.S. If you go back to our publication end of March 2016, we actually communicated on the contribution of GE Signalling for the first five months in Alstom. We disclosed the number of EUR 130 million for five months of activity. When you compare right now with one quarter of EUR 70 million, it's not actually massively different. For sure, there is no recovery yet in the U.S., and therefore, we are still on a low number in terms of contribution from this activity in our numbers.
Regarding the dispute we've got with GE, it's in fact part of the, let's say, a price adjustment that is part of the contract. Basically, there is a price adjustment on working capital. We've made a notice to GE. There is a process to actually agree on the adjustment on this working capital level. The process is actually progressing. Hopefully, we can come to a conclusion, either together or through an expert. Nothing, let's say, abnormal on this process, I would imagine. The adjustment that we are asking for is today not incorporated in our books, let's say, no impact to be expected from this claim.
Thank you, Marie-Josée. New questions?
The next question is coming from Gaël de-Bray, Deutsche Bank. Please go ahead.
Yes. Hello, good morning. Thanks for taking the questions. The first one is on the Signalling contract in Egypt and the metro contract in the Philippines that you had signed quite a long time ago now, and that have not yet been booked in the backlog. Can you perhaps give us some update on this? Just trying to understand what's going on in here. The second question is on the Africa, Middle East sales deliveries, which actually were down 6% in Q1 on a year-over-year basis, and also down more than 50% compared to Q4, sequentially. Since you're now executing on the South African project, what's driving the weakness here? Thank you.
Thank you, Gaël. First of all, I'm going to meet in 2 hours, the customer for Manila, so I'll answer after this meeting. No, to be serious, both for the Manila contract and for the Egypt contract, yes, there are some difficulties to come to a final conclusion and to come to the notice to proceed. I'm not going to comment. These are different difficulties and different ones for both contracts, and there are several of them for each of the contracts. I don't want to enter into the detail of these 2 contracts, but suffice to say that it will not be booked before now a number of months. You should not expect it in the very short term. This is, again, we are not, just to enlarge the subject. Typically, the contracts takes time to come to, again, to a notice to proceed.
At the same time, sometimes we are bound for external communication by some events, like some signature, some visits and so forth. We are not necessarily hiding the communication behind some of the projects. It's fair to recognize that sometimes these projects are communicated quite at early phase. Sometimes they are communicated only when they are booked. I imagine that this is a little bit perturbing. In Middle East and Africa, I will answer to your question, but before that, I will say that in Middle East Africa, we have a number of very large contracts, such as Prasa, such as Riyadh, Systems contracts such as Morocco. Therefore, it creates some volatility in the sales.
If I wanted to answer to your question, I would say, yes, as compared to last year, we had a lot of sales on the Moroccan very high-speed train project, which we are not talking about anymore because it's over now. It's the, I would say, numerical reason. The general reason is that the fact that it will be ups and downs because we have large contracts with large milestones. Let's not focus on 1 quarter, particularly for this geography, which is again, quite bumpy. We had also in Azerbaijan, we had delivered some metro in Baku. All that is a negative, and you could wonder, why don't we have more positive? It depends on the milestones on the different large contracts. Okay. Next question.
The next question is coming from Andrew Carter, RBC. Please go ahead.
Oh, hi. Good morning. I had another couple of questions sort of around sterling and Brexit, if I may. Firstly, just in terms of the question about sort of sensitivity to movements in the currency. I have had quite a few questions on this, and I realized, I think to an earlier question that you mentioned that the translation impact was relatively minimal. Is it possible to help us understand, perhaps give a sensitivity to both sales and profit so that we can sort of better understand that impact? The next one was, I guess, just thinking about two sort of related issues. One was in terms of the CapEx plans that you've got.
I was wondering whether any of those plans include work that you're doing in the U.K. if given what's happened, there are any sort of changes to those items in your budget for CapEx over the next couple of years. Maybe just sort of quite a specific one relating to some of the service work that's being done in the U.K. Is there any of the service that you're doing that is sort of relatively, I'd almost say things like cleaning services or anything like that, sort of relatively simple business in the U.K. that's using a lot of people and that might possibly be impacted if we were to see quite a lot of non-U.K. citizens, i.e., EU citizens, decide to leave the U.K. in the coming months?
We have heard some businesses already talking about issues such as that and saying it's going to impact their employment plans.
Thank you, Andrew. I will give the floor to Marie-José for these U.K. related questions.
Regarding the Brexit, we've actually indicated that roughly 10%, a little bit less than 10% of our volume of business is done in the U.K. Basically, if we simulate a 10% drop in the currency, we get roughly EUR 70 million impacts in terms of volume in our revenues. Because most of our business in the U.K. is actually as its cost also based in the U.K., that's why we said actually most of the effect for us is a translation effect rather than a P&L effect. The businesses concerned are mainly Services and Signalling, since these are the two main activities we today operate in the U.K. And when we simulate actually their contribution to profit versus the total profit of the group, I would say potential impact could be 10 basis points on the adjusted EBIT of the company.
It's a pretty low impact in terms of conversion for Alstom. Regarding the CapEx that we are performing in the U.K., we are looking, as I mentioned in the closing of last year, at lease contracts that we may have in various geographies from the time Alstom conducted a very large program of leasing of their facilities. Right now, in fact, I'm looking at the premises that we use for Services, and it's fair to say that we have decided to exit a leasing contract that we have in the U.K. and build our own, let's say, depot for maintenance activities. This is a pretty limited amount of investment. It's part of our recurring CapEx, I would say. Nothing particular there.
Thank you, Marie-José. Next question, please.
The next question is coming from William Mackie, Kepler Cheuvreux. Please go ahead.
Good morning, Henri and Marie-José, thank you for the questions. A couple, please. Just looking, first of all, at the order intake within Europe. I noticed the book to bill down there in the first quarter. Could you, when we come back to your business activity and tender activity, provide a little color on your expectations for order bookings in Europe this year? Do you think we'll see a book to bill above one as we close out the year? Secondly, on revenues, strong revenue recognition, it seems, in Europe in the first quarter. To what extent, given the timing of projects and the execution of those, is that revenue growth sustainable into the following quarters in the year ahead? Lastly, on Systems. When I look at Systems, I notice there's almost no order bookings. You've talked about Dubai.
Is there a tender pipeline there which gives you some confidence you'll be able to replenish some of the orders that will be booked this year as we go through the rest of the year, excluding Dubai? Thanks a lot.
Okay, thank you for my question. On Europe first, the European market is sustained. We have, as you said, a good commercial activity, including in Europe. We have discussed about Italy. I have mentioned as well the Netherlands. We have also a number of mid-size contracts or small size contracts in Germany, which is more a recurring business for us. You may have heard about the large tender in Spain, which is coming as well in the summer. In France, as I said, we have this large double-deck suburban trains. All in all, I don't want to give too precise guidance on order intake because it's quite bumpy, as I said. I would expect for the full year, a sound level of order intake in Europe as well as in the rest of the world.
We should have, and when I say sound, is that we are targeting a book-to-bill above one. Again, there could be some bumpiness. There is no signs of slowdown of the market. When I mentioned good commercial activities, this was typically including Europe. I think in terms of sales, maybe Marie-José, you can say a word on sales or maybe I should take the orders in Systems as well. On Systems, these are typically large contracts. Dubai is the largest one and will probably remain the largest one for the year. We don't need to have many Dubais, let's say, to replenish our order backlog. If you look at our sales in terms of Systems, typically, these are of this kind of order of magnitude. Still, we expect one or two order Systems business to come before the end of the year.
We should have Dubai plus one or two. Dubai should be included in our full guidance. Marie-José on the sales.
Regarding sales, actually, sales remain at a very robust level. The top three countries we see for Europe are the same as last year. France, U.K., and Italy. I would say Germany, very close to those top three. In fact there, we see the volume basically being in line with the delivery of the backlog that those countries have in hand. For the rest of the year, I would say we are not adjusting the objective that we gave, which is roughly we expect an average organic growth of 5%. At this point in time, I have no other comment to make on this average number.
Thank you, Marie-José. I think we cut the mic to Guillermo. Maybe you got another question.
Exactly, sir. We have a follow-up question from Guillermo. Sir, please go ahead.
Thank you. I think you alluded to some extent to it, but I was wondering about regarding your mix. I understand these kind of changes quarter to quarter and probably a little bit more consistent throughout years. With bigger Systems and Signalling and to some extent, smaller contribution from Asia-Pacific as we move forward, Middle East will be volatile with South Africa. I wanted to check about mix going forward on your backlog, and is this year, 2017, the year we start to feel how the mix improves to a great extent? Thank you.
On the mix, as you said, there is some bumpiness. I think I said it during our full year results. We had last year a particular high growth in our Services, Signalling, and Systems activities. This was above both our expectations and I would say, the long-term trends. As I said, you should not expect some further change in mix or huge change in mix in the coming period after this large shift. We still have rolling stock being less than half of our business, and we continue to target rolling stock going to 40% at the end of 2020. It was at 46 last year. Again, a big chunk of the change has been done last year, and we continue to progress towards our goal, but at a smaller pace. I think this was ending our conference call. Thank you for your attention.
I think this was a nice activity during this first quarter. Very pleased that the first quarter of the so-called new Alstom for the first year of the new Alstom as a complete year is starting on a good momentum. Thank you, all of you, and see you in the coming weeks and in the coming period. Thanks a lot.
Thank you, bye.