During the first half of fiscal year 2020/21 (between 1 April 2020 and 30 September 2020), Alstom booked EUR2.7 billion of orders and sales reached EUR3.5 billion.
Book-to-bill ratio stood at 0.8. Adjusted EBIT reached EUR263 million leading to an adjusted EBIT margin of 7.5%. Net income (from continued operations, group share) amounted to EUR161 million. Free Cash Flow amounted to EUR(253) million.
At EUR40 billion on 30 September 2020, the current backlog provides strong visibility on future sales.
1. Growth by offering greater value to our customers
Orders and sales
The Group booked EUR2,652 million in orders in the first half of fiscal year 2020/21. This compares to EUR4,618 million in orders over the same period last year. This decrease was expected, as a consequence of the shift in tendering activity from the first half towards the second half in the Covid-19 context.
Alstom was awarded projects mainly for Rolling Stock and Services, including orders for the Nantes tramway in France, rolling stock and maintenance follow-on orders of currently active projects in AMECA, and the renewal of a full maintenance contract in Mexico. Alstom also booked a metro system in Taiwan, a new-generation digital interlocking project in France, and signalling and infrastructure order as part of a modernization project in Romania.
The backlog amounted to EUR40 billion on 30 September 2020, providing strong visibility on future sales. The book-to-bill ratio stood at 0.8, reflecting the impact of the Covid-19 crisis.
In the first half of fiscal year 2020/21, Alstom's total sales reached EUR3,518 million, down 13% organically. This decrease is a consequence of the Covid-19 crisis, in particular during the lockdown period in Q1 when some of our production units and suppliers had to slow down temporarily operations. Operations in Q2 were back to a normal level with sales of EUR2,011 million, up from EUR1,507 million in Q1.
In H1 2020/21, rolling stock sales reached EUR1,713 million (down 8% organic) as sales recognition was affected during the containment period, particularly in Europe. Signalling sales reached EUR691 million (down 2% organic), with a moderate decline due to a shift in installation during containment followed by a recovery during the second quarter. Services sales reached EUR662 million (down 5% organic) due to train traffic reduction during the first quarter followed by a normalization of train traffic during the second quarter and the execution of the growing service backlog. Systems sales decreased at EUR452 million (down 42% organic) with an expected ramp-down on Dubai and Riyadh systems projects, a fully traded contract in Panama and the impact of containment measures.
In Q2 2020/21, all product lines experienced positive organic growth compared to Q2 2019/20 except Systems which is continuing its anticipated ramp down at -35%. Between Q2 2019/20 and Q2 2020/21, Rolling stock grew at +10% organically with ramp up in large projects, Services at +8% organically and Signalling at +3% organically.
Acquisition
On 30 June 2020, Alstom acquired IBRE (since renamed Alstom IBRE), a company specialised in the development, manufacture and supply of cast iron or steel brake discs for high-speed, intercity, regional and suburban trains, trams and metros. With this acquisition, Alstom reinforces its internal capabilities regarding railway braking systems, which are essential to the overall dynamic performance of trains. IBRE had a turnover of approximately EUR10 million in 2019.
Stock market index
In September 2020, the Steering Committee of the Euronext Indices decided to include Alstom in the list of the 40 stocks making up the French CAC40 index; this took effect on Monday 21 September 2020.
Innovation in smarter and greener mobility solutions
Despite the Covid-19 context, Alstom preserved its innovation capabilities with a sustained level of research and development net costs at EUR125 million, i.e. 3.6% of sales, in the first half of 2020/21.
During the first semester, Alstom entered into several agreements in Europe to shape the mobility of the future with hydrogen trains. The Coradia iLint hydrogen train has performed successful extensive testing phase in Groningen, in the Netherlands, obtaining the authorization to run on the national railway network and perfectly fitting the commercial service of the current timetable. In addition, after successful trial operations in Germany, the Coradia iLint will now demonstrate its worth in Austria over three months during which it will transport passengers on geographically challenging routes. In the United-Kingdom, Eversholt Rail and Alstom announced a bold plan to fast-track the hydrogen train industry with investment in Breeze hydrogen trains. To make it, Alstom will rebuild Eversholt Rail's Class 321 electric trains to use hydrogen power.
In May 2020, in Germany, the Federal Ministry of Economics has awarded Alstom with the 'Innovation Prize for Regulatory Sandboxes', related to a planned test project to implement Automatic Train Operation (ATO) in daily passenger operation of regional trains. The project will begin in 2021 together with the Regional Association of the greater area of Braunschweig, the German Aerospace Center (DLR) and the Technical University of Berlin (TU Berlin) and the first test of automated train operations is expected beginning 2023.
In June 2020, Alstom has launched a new version of the multimodal control system, Mastria. Using artificial intelligence, the solution allows operators to adapt, easily and in real time, their offer to the various social distancing and public gathering requirements that have arisen due to the Covid-19 pandemic. It enabled Panama Metro to limit the occupancy rate to 40%, as recommended by the country's health authorities.
In July 2020, Alstom introduced a new portfolio called 'Healthier Mobility' creating solutions and products for customers in 4 domains: Cleaning & disinfection, Contact surfaces, Air treatment, and Contactless & Passenger flow. It gathers all the key expertise, knowledge and resources needed to develop solutions allowing its customers to operate while ensuring a high standard of the sanitary conditions for the passengers.
Efficiency powered by digital
Alstom delivered an adjusted EBIT[1] of EUR263 million corresponding to a 7.5% margin in first half 2020/21 compared to EUR319 million corresponding to a 7.7% margin over the same period last year
This resilient adjusted EBIT margin despite the volume impact linked to the Covid-19 crisis results mainly from an increase in gross margin. The cost of sales ratio improvement was achieved through the optimisation of production capacities, enhanced industrial efficiency, and control over overhead production costs. The increased signalling and services share within the overall company sales mix also had a positive impact.
Moreover, the contribution of the CASCO joint-venture increased due to sustained Signalling activities in China.
To mitigate the impact of the sanitary crisis on volume, Alstom optimized selling, tender and administrative costs across all regions and controlled the level of R&D investments while preserving commercial and innovation capabilities.
Below adjusted EBIT, Alstom booked a EUR68 million charge related to Covid-19 incremental costs and inefficiencies resulting from the implementation of all necessary sanitary measures in all Alstom sites. In addition, it booked EUR44 million in costs related to the Bombardier Transportation acquisition and one-off gains such as the reversal of asset impairments and provisions.
As a result, net income from continued operations (group share) reached EUR161 million compared to EUR213 million the previous year, primarily impacted by the Covid-19 crisis effect on volumes and one-off items below adjusted EBIT.
One Alstom team, agile, inclusive and responsible
Acknowledging that the value Alstom adds to its customers strongly relies on its employees, Alstom is committed to providing employees with the best working environment and employee experience. In October 2020, this commitment was rewarded by the Wall Street Journal sustainable management rating which ranked Alstom 1st in the Human Capital category and the 34th globally.
In July 2020, Alstom received another subsequent 3-year renewal of its accreditation ISO 37001 anti-bribery certification. The ISO 37001 is an international standard ensuring organisations prevent, detect and tackle bribery through rigorous assessment in order to achieve this anti-bribery certification. This renewal constitutes another important milestone in Alstom's continued efforts to improve the efficiency of its integrity programme.
Solid balance sheet
During the first half of fiscal year 2020/21, Group Free Cash Flow was negative at EUR(253) million. This cash outflow was driven largely by decreased profitability, drift in cash-in due to the sanitary situation, anticipated inventories increase linked to the ramp-up of large Rolling Stock projects as well as lower down payment level due to order intake shift from the first to the second semester.
The Group had gross cash in hand of EUR1,953 million at the end of September 2020. It also had a credit line of EUR400 million and an additional EUR1,750 million Revolving Credit Facility[2] put in place in April 2020, both fully undrawn. Consequently, its liquidity resources stood at EUR4,103 million as of 30 September 2020. Alstom's bond debt amounted to EUR700 million as of 30 September 2020.
Alstom's net cash amounted to EUR843 million on 30 September 2020, compared to EUR1,178 million on 31 March 2020. Lastly, equity reached EUR3,341 million at 30 September 2020, compared to EUR3,328 million on 31 March 2020.
Bombardier Transportation acquisition update and indicative timetable
On 31 July 2020, the European Commission cleared Alstom's acquisition of Bombardier Transportation. The Commission's approval for the transaction is conditional on the proposed engagements (cf. press release dated July 31st 2020).
On 16 September 2020, Alstom announced that it had signed the sale and purchase agreement with Bombardier Inc and Caisse de depot et placement du Quebec (CDPQ) for the acquisition of Bombardier Transportation. Price has been revised to take into account the current context. Net proceeds are now expected up to EUR5.3 billion[3] against a range of EUR5.8 - EUR6.2 billion previously agreed.
On 7 October 2020, an amendment to the Universal Registration Document 2019/20 was filed with the French financial markets authority (Autorite des marches financiers - AMF). On such date, the AMF also approved the prospectus related to the reserved capital increases for the benefit of, respectively, Bombardier and CDPQ.
On 29 October 2020, an extraordinary shareholders' meeting approved all the resolutions the transaction. The removal of doubled voting rights was also approved by a special meeting of holders of shares with double voting rights held on the same day.
The rights issue is contemplated to take place between Q4 2020 and H1 2021, subject to market conditions.
The closing of the transaction is now expected for Q1 2021 subject to regulatory approvals and customary closing conditions.
Outlook for fiscal year 2020/21
In 2019/20, the Group launched the Alstom in Motion (AiM) strategic initiative and has since been taking steps to deliver revenues and margin growth in line with the objectives set by this plan for 2022/23.
The Covid-19 crisis is negatively affecting the financial performance of the 2020/21 fiscal year. Yet, Alstom is anticipating a strong pipeline for H2 2020/21 and observed a solid production pick-up during Q2 2020/21.Thus, Alstom targets the following outlook for the 2020/21 fiscal year, assuming that the ongoing Covid-19 'second wave' does not have a material effect on production or on the commercial tendering schedule[4]: Commercial performance allowing a book to bill ratio above one; Sales between EUR7.6bn and EUR7.9bn; An adjusted EBIT margin in the 7.7% - 8.0% range; Breakeven to positive Free Cash Flow generation[5].
Mid-term outlook for fiscal year 2022/23
The outlook given in connection with the May 12, 2020 annual results announcement is confirmed
Alstom standalone scope
In the context of the Covid-19 crisis, the objective of a 5% average annual growth rate over the period from 2019/20 to 2022/23 should be slightly impacted by the temporary slowdown of tender activity, yet the 2022/23 objectives of 9% aEBIT margin and of a conversion from net income to free cash flow above 80% are confirmed.
With a strong liquidity position, a demonstrated ability to deliver execution and profitability and the rapid launch of a cost and cash mitigation plan the Group is confident in its capacity to weather the crisis as well as to capture opportunities in a resilient rail market and contribute to the transition towards sustainable transport systems.
The management report and the consolidated financial statements, as approved by the Board of Directors, in its meeting held on 10 November 2020, are available on Alstom's website at www.alstom.com. The accounts have been reviewed by the auditors.
This press release contains forward-looking statements which are based on current plans and forecasts of Alstom's management. Such forward-looking statements are relevant to the current scope of activity and are by their nature subject to a number of important risks and uncertainty factors (such as those described in the documents filed by Alstom with the French AMF) that could cause actual results to differ from the plans, objectives and expectations expressed in such forward-looking statements. These such forward-looking statements speak only as of the date on which they are made, and Alstom undertakes no obligation to update or revise any of them, whether as a result of new information, future events or otherwise.
FY 2020/21 forecasts are based on Alstom's scope of consolidation at the end of September 2020, therefore exclude any scope impacts from the expected Bombardier Transportation acquisition. They are mainly based on the following assumptions:
Alstom internal assumptions
The sales improvement in the second semester as compared to the first semester will primarily come from a decrease in the Covid-19 related disruptions that affected Alstom during the first half of this fiscal year, and from the execution of its orders backlog.
The adjusted EBIT margin improvement compared to the first semester will primarily come from additional volume, rigorous project execution, and the delivery of projected sourcing savings.
Standardisation of engineering tools and processes together with design to cost, and optimisation of our footprint both for engineering and manufacturing, will also support the improvement of Alstom performance. In addition, digital transformation, combined with efficient discipline in overhead cost management, will contribute to the improvement of the adjusted EBIT margin.
Improved cash generation over the second semester as compared to the first semester will mainly come from accelerated deliveries and commercial performance. It remains subject to usual short-term volatility in down- and progress payments from clients.
Macro-economic assumptions
They have been established excluding any major variations in exchange rates of the currencies of the main countries outside of Euro-zone in which the Group generates its revenues, compared to the rates in effect as at 30 September 2020.
They assume an overall stable political environment in areas where Alstom operates or delivers products.
They assume the absence of Covid-19 crisis-related production slowdowns, arising from partial or full lockdown situations, that would exceed the lockdown measures in place on the date of this document and affecting either Alstom or its key suppliers. In addition, they assume that customer tenders scheduled for the second semester will not considerably shift to later periods and that train mileage for purposes of calculating indexed payments under maintenance contracts will not decrease very significantly during the remainder of the second semester due to the ongoing health crisis.
This press release does not constitute or form part of a prospectus or any offer or invitation for the sale or issue of, or any offer or inducement to purchase or subscribe for, or any solicitation of any offer to purchase or subscribe for any shares or other securities in the Company in France, the United Kingdom, the United States or any other jurisdiction. Any offer of the Company's securities may only be made in France pursuant to a prospectus having received the visa from the AMF or, outside France, pursuant to an offering document prepared for such purpose. The information does not constitute any form of commitment on the part of the Company or any other person. In particular, in furnishing the information, the Company, the Banks, their affiliates, shareholders, and their respective directors, officers, advisers, employees or representatives undertake no obligation to provide the recipient with access to any additional information
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