Undeniably, Alstom is a company with many advantages: an interesting position in an oligopolistic sector, a strong industrial presence in the West, a large order book, long-term contracts and recognized management. However, the title is experiencing a very difficult stock market journey, what are, from your point of view, the reasons that explain such a fall?
LM: “Indeed, the acquisition of Bombardier Transport (BT) positions us as the leader in sustainable and intelligent mobility, with the largest international presence. Alstom can now support operators, transport authorities, municipalities all over the world. in their green mobility projects. This acquisition gives us the most complete portfolio of rail solutions and endows us with unparalleled innovation capabilities. Alstom has very good commercial visibility with an order book of 78 billion euros at December 31, 2021 and a very high flow of new orders with good margins. This improvement in our commercial positioning is part of a context where the rail market should also grow by 2.8% per year between 2020 and 2025, against a backdrop of growing environmental concerns and investments in greener mobility. Rail is indeed the green column the battle for tomorrow’s mobility: according to the International Energy Agency, rail emits 7 to 11 times less CO2 emissions per passenger-kilometre than by plane or road! We are working to reassure the market publication after publication on our ability to successfully integrate the operational integration of Bombardier Transportation and to respect the financial trajectory announced last July.”
In the current inflationary context, intensified by the conflict in Ukraine, what means does Alstom use to protect itself? Is the group worried about possible disruptions to supply chains?
LM: “Alstom is relatively well protected against inflation, as approximately two-thirds of its order book is covered by clauses adjusting its selling prices according to the evolution of raw materials and labor indices. Our margin has been spared so far. The subject of inflation and supply chain disruptions is however a subject of major attention, with teams mobilized to mitigate the effects. that our supply chain exposure to Ukraine and Russia is quite negligible.”
- Integration of Bombardier
In your opinion, what are the metrics on which retail investors should focus to understand if the integration of Bombardier Transportation is done in good conditions?
LM: “The stabilization of projects inherited from Bombardier Transportation had a material impact on our free cash flow generation and profitability in H1 2021/22. We are committed to the gradual recovery of adjusted operating income as well as a generation of Free Cash Flow from the second half of 2021/22 and beyond. These metrics are particularly monitored by our shareholders, we are confident in our recovery trajectory.”
Should Alstom’s exposure in Russia through the Russian locomotive leader worry investors?
LM: “Alstom holds a 20% minority stake in the capital of Transmashholding (TMH), the Russian supplier of locomotives and railway equipment which mainly serves the local market. There was no commercial or operational link between Alstom and TMH. The carrying value of this stake will be reassessed as part of the closing of the financial year 2021/22. In addition, TMH’s contribution to Alstom’s net income was slightly negative, at (2 ) million euros in the last semester. In any case, Alstom’s operational exposure in Russia is very limited.”
Do you think average annual sales growth of 5% and an EBIT margin above 8% are achievable in the medium term (horizon 2023/2024)? How will the many orders in the signaling, systems and services segments materialize on the group’s FCF?
LM: “Between 2020/21 (proforma revenue of €14 billion) and 2024/25, Alstom is aiming for an average annual revenue growth rate above 5%, supported by strong market momentum Adjusted operating margin should reach between 8% and 10% from 2024/25, benefiting from operational excellence initiatives, the full execution of complex projects in the backlog while synergies should generate 400 million euros annualized between 2024/25 and 2025/26 From 2024/25, the conversion of adjusted net income into free cash flow will be above 80%, driven by the medium-term stability of working capital requirements, the stabilization of investments (CAPEX) at around 2% of revenue and cash focus initiatives while benefiting from increased volume and synergies.”
In recent years, investors thought they had a relatively defensive portfolio in Alstom, perfectly calibrated for modern challenges. In your opinion, what did you miss to cause such a lack of love among investors and how do the group’s teams plan to win them back?
LM: “The stabilization of the difficult projects inherited from Bombardier Transportation had a material impact on our free cash flow generation and our profitability in H1 2021/22. The integration of Bombardier Transportation is proceeding according to our plans with an improvement in already visible in operational efficiency, we are fully confident in our ability to improve our profitability and our generation of free cash flow by relying on a very buoyant market and our 75,000 colleagues. investors in order to explain to them our trajectory and our ability to maintain it. We look forward to seeing you on May 11 for the publication of our annual results, which will be followed by an Investor Day.”