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Q4 2026 Earnings Call
Apr 17, 2026 12:00 AMOperator: Welcome to the Alstom conference call. [Operator Instructions] Now I will hand the conference over to the speakers. Please go ahead.
Martin Sion: Good evening, everyone. Thank you for joining us tonight at short notice. I'm Martin Sion, Group CEO of Alstom. Joining me is Bernard Delpit, Executive Vice President and Chief Financial Officer. We'll start with a few opening remarks on tonight's announcement, and then we'll open the line for Q&A. First, let me be very clear from the start. This is not the way I was expecting to start my mandate. The financial result on cash generation are not at the level you should expect from a market leader, especially with a EUR 100 billion backlog in a growing industry. After the last 12 months, we delivered strong organic sales growth of 7%, but this did not lead to margin improvement. And in a year of record commercial activity with EUR 28 billion of order intake, free cash flow generation should have been much stronger. Multiple factors are at play here. The production ramp-up of new rolling stock platforms has not been as steep as what we expected in the fourth quarter. On other projects that met challenges early in their life cycle, we've not been able to turn them around as planned. And fair to say that the current situation in the Middle East has been an additional constraint. Taken together, this factor will have knock-on effects on near-term financial performance. Over the last 2 weeks since my arrival, I've been visiting factories in Italy, France and Germany. I've got -- I went into the detail of financial reviews and processes. I met people that are highly committed and highly competent. I met teams on the shop floor. I met engineers, project leaders and obviously, the regional management. But one conclusion is very clear. Our ability to stick to planning is not strong enough. In a project business, sticking to planning is essential. And today, development, industrialization and manufacturing across multiple sites are not always aligned, creating complexity. In some cases, productions move ahead while homologation is still pending. That's why my priority is to drive deep operational changes and improve execution quality. In short, this means tighter day-to-day execution, stronger planning discipline and better coordination across engineering, supply chain and production. We will also start a broader reflections about adopting a more focused product and commercial strategy. Of course, in parallel, we will continue to further improve results in Services and Signaling, where I see more opportunities and we'll continue the work done in recent years to improve the quality and risk profile of the order intake across all product lines. As I'm new in the role, I will also be reviewing the portfolio and industrial footprint. This includes reviewing the industrial transformation plan already in place and assessing where adjustment or acceleration is required. Restoring performance in rolling stock is a major opportunity for the group. It is achievable with discipline. This is a necessary step to execute the backlog and prepare the group for sustainable cash generation and profitable growth. We will keep you informed on our progress, and we will outline our action plan later this fiscal year. And I now hand over to Bernard.
Bernard-Pierre Delpit: Thank you, Martin. I will now comment on the preliminary unaudited figures for the fiscal year '25, '26 as well as the preliminary outlook for the next fiscal year. Starting with orders. Alstom recorded EUR 27.6 billion of orders in the fiscal year, representing a book-to-bill of 1.4. The second half saw a higher proportion of services contracts compared to the first half. Overall, order intake was well balanced by product line over the full year with both rolling stock and services at a book-to-bill of 1.4. Turning to operations with a particular focus on car production. The group produced 4,284 cars during the fiscal year, down 2% year-on-year. In the fourth quarter, car production came in below our January expectations as some rolling stock projects are ramping up more slowly than anticipated and homologations have shifted. Moving to sales. Alstom recorded EUR 19.2 billion of sales in the fiscal year, up 4% compared to last year. After adjusting for negative currency and scope effects, organic sales grew by 7%. All production lines contributed to organic growth with the exception of systems, which faced a tough comparison base. Turning to profitability. Adjusted EBIT margin for fiscal year '25-'26 lands at around 6%. At constant currency and scope, adjusted EBIT margin is broadly stable compared to the prior fiscal year. On the one hand, execution of contracts signed over the recent years and tight control over SG&A supported margins. On the other hand, this was more than offset by a slower-than-expected execution on some large rolling stock projects and therefore, with associated costs, all those most visibly in the fourth quarter, but also stronger-than-expected execution headwinds on a limited number of late-stage projects in rolling stock as well as higher R&D expenses, it has a negative impact on adjusted EBIT. Altogether, adjusted EBIT margin is coming lower than last year and to the guidance. Moving to free cash flow. Free cash flow for fiscal year '25-'26 amounted to around EUR 330 million. Despite execution challenge, adverse currency effects and effects of geopolitics on payments related to Middle East contracts, we've achieved free cash flow in the guided range. Contract working capital increase was offset by down payments, reflecting strong commercial momentum and by favorable trade working capital. This is not particularly satisfying having met cash guidance 2 years in a row that we are not reconfirming the cash plan for the next fiscal year. Financial net debt is coming as expected, around EUR 400 million at the end of fiscal year '25-'26. Liquidity is solid with a gross cash position of EUR 2.3 billion at the end of March '26, revolving credit facilities of respectively, EUR 2.5 billion and EUR 1.75 billion and a EUR 2.5 billion commercial paper program. Turning now to the preliminary '26-'27 outlook. Commercial activity should remain strong, and we guide for a book-to-bill ratio above 1. Organic sales growth should be around 5%. We expect the adjusted EBIT margin to return to around 6.5% in fiscal year '26-'27. With R&D expenses expected to increase as a percentage of sales, the improvement will be driven by a rebound in gross margin back to levels seen in fiscal year '23-'24. Gross margin in the backlog now stands at 18%. We expect positive free cash flow for year '26-'27. On the one hand, we expect commercial activity will be robust, driving solid down payments. On the other hand, lower margin than previously anticipated. CapEx to support the growth of services being put forward as well as trade working capital changes will weigh on the cash compared to what we previously planned. This concludes our introduction remarks. Now Martin and I will open the floor to your questions.
Operator: [Operator Instructions] The next question comes from Gael de-Bray from Deutsche Bank. Gael de-Bray: I guess the first question is for Mr. Sion. I'm wondering if you had time to go through some of the projects yourself. I mean, if the project review, I guess, is not finalized, but I guess I'm trying to judge whether there will be a second round of adjustments potentially later in the year. So that's question number one. Question number two is around the free cash flow guidance, which apparently you expect to remain positive in the upcoming year, although with a negative free cash flow that is expected to be around EUR 1.5 billion in H1. So I don't really get how you hope to turn it into a positive free cash flow for the year given the pretty slow start. And then lastly, at the end, I mean, do you expect the group's net debt to decrease or increase by the end of the next fiscal year?
Martin Sion: Bernard, maybe I take the first one and you take the two other. What did I do in the last two weeks? I shared my time between [Technical Difficulty] regional reviews and product line reviews. We were concentrating on the budget process, which was being achieved. So regions by regions, we had the concatenation of all programs and with an overview of all the challenges and also all the achievements of each program. So I did not do a specific program review for each of the programs, but it was regions by regions and product line by product line. The other half of my time, I was in the different sites in France, Germany, and Italy [ and other ] sites to confront what was assumptions -- operational assumptions, which will be behind the financial figure. If we look at today’'s situation, I acknowledge the situation that this is what I know today. It’s true that we have already identified areas where we can put in place immediate improvement in terms of operational excellence and our priority is to secure execution of the projects to deliver what is mentioned in this guidance. Bernard?
Bernard-Pierre Delpit: Yeah. As you said, Gael, we expect a strong seasonality in the next year, both in H1 negative around EUR 1.5 billion, you spotted it well. In H2 with a very positive free cash flow expected. By the way, when you look at the track record of those last years, H2 has been stronger and stronger year-over-year. So yes, I confirm strong H2 expected, bringing the cash flow for the year in positive territories and regarding the debt, I expect it’s going to be stable or a slight increase.
Operator: The next question comes from James Moore from Rothschild & Co Redburn.
James Moore: I don't know if you can hear me because I couldn't hear your answer to the last question. There seem to be some distortion on the line, but I'll try anyway. I just -- it's a philosophical question really. And if we think about the last 20 years, free cash conversion has been about 50%, 60%. It's been a long-standing topic. And if we take the free cash, including your new guidance for the 7 years since the merger, you're talking about declaring EUR 1.2 billion of free cash, but probably closer to EUR 2.5 billion of free cash burn if we adjust for hybrid and lease payments and minorities. I have to confess to believing with a number of the managerial changes in the last couple of years that you would be able to change the free cash management of the company to deliver an improved outcome, which we now appear not to be able to achieve. I guess the question would be when you look at the last couple of years, Bernard, and you compare it to, say, your main competitor making a high single-digit free cash margin, what is it you think you've come to understand about the challenges of delivering an improved free cash flow?
Bernard-Pierre Delpit: James, to make it very simple, execution makes a difference. And that's where we have -- we are facing some challenges here. So there is no magic trick here. We need to improve execution. So again, I said that I was not really happy with having met the guidance in the last years and semesters and not doing it again next year. I will not answer over the longer cash conversion because what was Alstom 20 years ago is totally different from what Alstom is today. And our plan is to have Alstom very different in the next years from what Alstom has been since the merger in 2021. So we are in this phase, true. And we'll discuss the bridge on free cash flow on the 13th of May when we will have some detailed analysis on what makes the gap to the EUR 1.5 billion that we planned 2.5 years ago. And so we'll make it clear that project execution -- simply project execution makes the difference.
Martin Sion: And if I may complete, I mean, the project execution is really concentrated on rolling stock and among rolling stock in the part of the projects, which are -- significant part of the problems are in a part of the projects where we are developing new products, and there are a lot of new products which are being introduced in service. And the end of development, homologation and ramping up production, is a challenge in some sites. The good news is that when we are in serial production, the products are produced efficiently with a good quality and customer satisfaction. So I don't want to give the feeling that it's all the projects on all phases. There are some topics where we should concentrate the effort.
James Moore: And Martin, maybe if I could follow up and very nice to meet you, but I noticed a huge improvement in the operational performance in your previous business, Arianespace. And I wondered if you could talk about some of the levers that you use to improve that performance and what you think is relevant for your current role? And from your early exploration of the company, what you identify as topics that could be changed in the way that you perhaps previously changed them in that position?
Martin Sion: Yes, I was [ in just 3 ] previous years, CEO of ArianeGroup, which is also a project company with 2 big projects and the one you're mentioning is Ariane 6. And it's clear that one of the levers that we use on Ariane 6 was to really focus all the management in order to secure first as the first flight date and then the production ramp-up. There are levers which are, I would say, usual levers of improvement, which exist in all industrial company. And in a project company, we need to have a strong focus on planning adherence, which is clearly a key even more than in other companies. At the same time, one of the specificity of Alstom compared to Ariane Group is that we've got hundreds of projects. We have an industrial footprint which is very different. We are multi-local. And so it will not be a copy-paste from things we have done before. But I believe that with the people I met in the factories, on the site, we do have the resources in order to improve operational excellence. It will not be something which will be from day 1 to day 2, but there are things that we can start very rapidly.
Operator: The next question comes from Akash Gupta from JPMorgan.
Akash Gupta: I got 3 questions as well. My first one is a follow-up to previous question when you answered that the problems are in some rolling stock projects. So I mean, we have heard before that Alstom in a given year is working on hundreds of projects in a year. Can you quantify, are we talking about issues in just a handful of projects? Or is it more widespread across the organization, which means that it might take significantly longer to fix? So that's number one to quantify how many projects out of the total projects that you're working on are really this problem child. The second one is on balance sheet. So when you -- when we look at your cash flow guidance and you're guiding EUR 1.5 billion outflow in first half, when you speak to rating agencies, is your balance sheet strength enough to cope with this first half cash outflow? Or do you think that some action might be required to strengthen the balance sheet? And then the third and final one is on contract assets. When I look at your revenue for last fiscal year as well as guidance, I don't see any haircut on your revenues, which to me doesn't indicate that you are -- you have taken any haircut on contract asset or you are planning to take any haircut on contract asset. And can you confirm if that is really the case?
Martin Sion: So what I can say is that there are several projects which are in difficulty, but it's obvious that there are some big projects. And when we are late, then you've got domino effect with significant consequences. But an addition of small projects which are late can have also consequences on the -- for the company. So what we really consider is that we have to improve execution throughout our rolling stock activity, and it's not a topic of solving 1 or 2 or 3 projects. It's more something that we have to address in general and concentrating on the critical phase, which is the ramp-up, which is the headwind that we had this year. By the way, you also know that we have also some projects which are at late stage of execution with low margin, but I think that has been already discussed in the past.
Bernard-Pierre Delpit: Yes. Akash, I will take the next one. Yes, I believe the balance sheet is strong and robust enough to deal with the seasonality of H1. Credit metrics are estimated in line with previous fiscal year with solid cash position. The business plan confirms consistency with Baa3 rating expectations. And we are, of course, totally committed on investment-grade rating and further credit metrics improvement. We have an open dialogue with credit agency, but I would not -- and I cannot speak on behalf. But we have an open and transparent dialogue with the agency. And on your last question, contract assets, no indeed, no haircut on contract assets.
Operator: The next question comes from Daniela Costa from Goldman Sachs.
Daniela Costa: I have 2 as well. But I just wanted to actually understand in the last 3 months, since you had reiterated the 7% guidance before, exactly sort of like all of these -- was it just all of these projects coincided on that? Was it a bit of Middle East pause? Or is it pretty -- a very big chunk and with like 100% drop-through lost? How come you -- that everything just came now or you just found it out now and you had to do adjustments maybe to what was going on before just -- because it was fairly shortly that you've actually had reiterated the 7% margin guidance.
Bernard-Pierre Delpit: I will take this one, Daniela. It's true that the operational situation was not the same at the end of December, at the end of Q3. And you remember that we said since the very beginning of the year that the ramp-up was back-end loaded and Q4 was key for volumes and for homologation, for project milestones. So it's true that what happened in Q4 has changed our view on the way to address project reviews that are happening, by the way, in February, March and beginning of April. So that's absolutely true. The situation has changed in the last quarter. But in a way, it was expected that the Q4 was kind of a critical time for the full year.
Daniela Costa: Got it. And then just thinking about sort of like the margin guidance for next year and what you factored in, is it sort of the whole versus what you had before, just continuing to roll these problems for longer? Or how much have you factored in already from things like the new way the Section 232 is calculated in the U.S. where it seems like final products now get 25% and the USMCA is overwritten and just general inflation? And then how different are you in being able to deal with this general inflation versus what you were able to do like 2, 3 years ago when we had a similar situation?
Bernard-Pierre Delpit: Frankly, Daniela, I don't see the inflation topic as totally crucial for the way we assess our margins going forward. I don't know if it's the time now to give you a proper bridge in terms of moving parts from gross margin in '25-'26 to '26-'27. But for sure, we see a strong improvement from last fiscal year to the next one. And on top of that, you have also to consider volumes. You need also to take into consideration some -- maybe some cautiousness in the way we assess next year challenges because as Martin said, we are in the ramp-up phase. We have not been able to be totally successful, the least we can say in Q4 this year. So the ramp-up continues, and it will be on our agenda -- top of the agenda for H1 this year. And that's why, by the way, we have this kind of seasonality. So inflation, I do not see that as a major topic because as [ you ] said before, we are -- we think, well protected. We look at -- very carefully at everything that happens on logistics and commodities. But I do not think that's the main point that we wanted to raise by updating the margin in '25-'26 and '26-'27.
Operator: The next question comes from Vlad Sergievskii from Barclays.
Vladimir Sergievskiy: I have 2 groups of questions. I'll start with first on free cash flow. The guidance is up to EUR 1.5 billion cash outflow in the first half. But at the same time, you -- I understand plan to make some positive EBIT in the first half. So can I ask why this gap between cash flow and earnings just keeps widening. The other one, why swings between first half and second half cash flows are just getting bigger and bigger every year? And maybe finally, on cash flow, which component of trade working capital will be driving a big cash outflow in the first half? Is it contract assets or contract liabilities?
Bernard-Pierre Delpit: I will try to answer to your question. So it's true that we have a strong seasonality. EBIT has also kind of seasonality. But let me take a step back. When I try to explain what is missing in the cash with the previous plan, it comes from FX, it comes from CapEx, but it comes also from EBITDA. So from that point of view, I think we have very good consistency with what we were saying on EBIT and margin and what we are seeing in terms of free cash flow. Now to your last question, what we see for the working capital, it has to do first with the seasonality in terms of contract liabilities. I mean we think that the phasing of down payments will be more pronounced with less in H1 and more again in H2. And we also have trade working capital in H1 that would be adverse with some payables increase in H1. So I don't know if you can -- it answers all your questions, but please that, that are the moving parts in the equation of free cash flow next year.
Vladimir Sergievskiy: Can I also ask then on the balance sheet? It looks like you could have net debt in excess of EUR 2 billion in September and intra-period potentially even higher. Do you think in principle, this is the right balance sheet for a project business, which carries sizable multibillion prepayments? And also, just to clarify, did you manage to speak to Moody's already on those numbers or this conversation is yet to happen?
Bernard-Pierre Delpit: Okay. So I say again what I said. We have an open dialogue with Moody's, but I will not share more on that with you. We speak, of course, with Moody's on regular occasions, so they are aware. And second, on the balance sheet, I keep saying the same for the last 2 years. We need to have a strong balance sheet. I think we need to be net cash considering the size of the backlog and the kind of activity that we have. It's not that different from other integrators with some seasonality in what they do. So I have not changed my mind. We need a strong balance sheet to operate in this business. But looking at it with another angle, our liquidity is ample today, and I do not see that at all as an issue.
Operator: The next question comes from Jonathan Mounsey from BNP Paribas.
Jonathan Mounsey: Just really thinking back to -- obviously, we had a -- we had to clear the [ decks ] exercise in, I think, 2024 and '25 rights issue, hybrid bond, as I remember it. And on the hybrid bonds, my remembering is that the plan was probably to redeem it at the first opportunity, which I think is like 5 years, isn't it 2029? And from memory, if you don't do that, it's almost 3% margin on top of the going rate. Do you think -- I mean, obviously, we're not going to generate at least EUR 1.5 billion to the end of '27. I don't know what comes after, but the starting point on the margin is only 6.5% now. It should have been somewhere in the 7s, high 7s by the end of '27. It's not going to be so now. So all points to less cash generation. What's going to happen to that hybrid now? I understand you've got liquidity for now, but your liquidity would be greatly reduced if you had to redeem that bond? Or is there a potential here that we're just going to turn it into equity?
Bernard-Pierre Delpit: Jonathan, I mean, as you said, [ it's an uncalled 5 that we have -- an uncalled 5.25% ], by the way, that we have issued in May 2024. So that's not a question for the short term. And we have not discussed and we will not discuss free cash flow beyond March '27. So it's not a question for today. And the way we will deal with hybrid is something that we discuss at a later stage. But I take your point, but I don't think it's on the agenda for the coming, I would say, months and quarters.
Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing remarks.
Bernard-Pierre Delpit: Thank you very much. Just want to reiterate that we were dealing with preliminary figures and preliminary outlook. So we will talk to you next on the 13th of May with our fiscal year results and usual financial communication. Thank you very much. Good evening.
Operator: The conference is now over. You may now disconnect.
Martin Sion: Good evening, everyone. Thank you for joining us tonight at short notice. I'm Martin Sion, Group CEO of Alstom. Joining me is Bernard Delpit, Executive Vice President and Chief Financial Officer. We'll start with a few opening remarks on tonight's announcement, and then we'll open the line for Q&A. First, let me be very clear from the start. This is not the way I was expecting to start my mandate. The financial result on cash generation are not at the level you should expect from a market leader, especially with a EUR 100 billion backlog in a growing industry. After the last 12 months, we delivered strong organic sales growth of 7%, but this did not lead to margin improvement. And in a year of record commercial activity with EUR 28 billion of order intake, free cash flow generation should have been much stronger. Multiple factors are at play here. The production ramp-up of new rolling stock platforms has not been as steep as what we expected in the fourth quarter. On other projects that met challenges early in their life cycle, we've not been able to turn them around as planned. And fair to say that the current situation in the Middle East has been an additional constraint. Taken together, this factor will have knock-on effects on near-term financial performance. Over the last 2 weeks since my arrival, I've been visiting factories in Italy, France and Germany. I've got -- I went into the detail of financial reviews and processes. I met people that are highly committed and highly competent. I met teams on the shop floor. I met engineers, project leaders and obviously, the regional management. But one conclusion is very clear. Our ability to stick to planning is not strong enough. In a project business, sticking to planning is essential. And today, development, industrialization and manufacturing across multiple sites are not always aligned, creating complexity. In some cases, productions move ahead while homologation is still pending. That's why my priority is to drive deep operational changes and improve execution quality. In short, this means tighter day-to-day execution, stronger planning discipline and better coordination across engineering, supply chain and production. We will also start a broader reflections about adopting a more focused product and commercial strategy. Of course, in parallel, we will continue to further improve results in Services and Signaling, where I see more opportunities and we'll continue the work done in recent years to improve the quality and risk profile of the order intake across all product lines. As I'm new in the role, I will also be reviewing the portfolio and industrial footprint. This includes reviewing the industrial transformation plan already in place and assessing where adjustment or acceleration is required. Restoring performance in rolling stock is a major opportunity for the group. It is achievable with discipline. This is a necessary step to execute the backlog and prepare the group for sustainable cash generation and profitable growth. We will keep you informed on our progress, and we will outline our action plan later this fiscal year. And I now hand over to Bernard.
Bernard-Pierre Delpit: Thank you, Martin. I will now comment on the preliminary unaudited figures for the fiscal year '25, '26 as well as the preliminary outlook for the next fiscal year. Starting with orders. Alstom recorded EUR 27.6 billion of orders in the fiscal year, representing a book-to-bill of 1.4. The second half saw a higher proportion of services contracts compared to the first half. Overall, order intake was well balanced by product line over the full year with both rolling stock and services at a book-to-bill of 1.4. Turning to operations with a particular focus on car production. The group produced 4,284 cars during the fiscal year, down 2% year-on-year. In the fourth quarter, car production came in below our January expectations as some rolling stock projects are ramping up more slowly than anticipated and homologations have shifted. Moving to sales. Alstom recorded EUR 19.2 billion of sales in the fiscal year, up 4% compared to last year. After adjusting for negative currency and scope effects, organic sales grew by 7%. All production lines contributed to organic growth with the exception of systems, which faced a tough comparison base. Turning to profitability. Adjusted EBIT margin for fiscal year '25-'26 lands at around 6%. At constant currency and scope, adjusted EBIT margin is broadly stable compared to the prior fiscal year. On the one hand, execution of contracts signed over the recent years and tight control over SG&A supported margins. On the other hand, this was more than offset by a slower-than-expected execution on some large rolling stock projects and therefore, with associated costs, all those most visibly in the fourth quarter, but also stronger-than-expected execution headwinds on a limited number of late-stage projects in rolling stock as well as higher R&D expenses, it has a negative impact on adjusted EBIT. Altogether, adjusted EBIT margin is coming lower than last year and to the guidance. Moving to free cash flow. Free cash flow for fiscal year '25-'26 amounted to around EUR 330 million. Despite execution challenge, adverse currency effects and effects of geopolitics on payments related to Middle East contracts, we've achieved free cash flow in the guided range. Contract working capital increase was offset by down payments, reflecting strong commercial momentum and by favorable trade working capital. This is not particularly satisfying having met cash guidance 2 years in a row that we are not reconfirming the cash plan for the next fiscal year. Financial net debt is coming as expected, around EUR 400 million at the end of fiscal year '25-'26. Liquidity is solid with a gross cash position of EUR 2.3 billion at the end of March '26, revolving credit facilities of respectively, EUR 2.5 billion and EUR 1.75 billion and a EUR 2.5 billion commercial paper program. Turning now to the preliminary '26-'27 outlook. Commercial activity should remain strong, and we guide for a book-to-bill ratio above 1. Organic sales growth should be around 5%. We expect the adjusted EBIT margin to return to around 6.5% in fiscal year '26-'27. With R&D expenses expected to increase as a percentage of sales, the improvement will be driven by a rebound in gross margin back to levels seen in fiscal year '23-'24. Gross margin in the backlog now stands at 18%. We expect positive free cash flow for year '26-'27. On the one hand, we expect commercial activity will be robust, driving solid down payments. On the other hand, lower margin than previously anticipated. CapEx to support the growth of services being put forward as well as trade working capital changes will weigh on the cash compared to what we previously planned. This concludes our introduction remarks. Now Martin and I will open the floor to your questions.
Operator: [Operator Instructions] The next question comes from Gael de-Bray from Deutsche Bank. Gael de-Bray: I guess the first question is for Mr. Sion. I'm wondering if you had time to go through some of the projects yourself. I mean, if the project review, I guess, is not finalized, but I guess I'm trying to judge whether there will be a second round of adjustments potentially later in the year. So that's question number one. Question number two is around the free cash flow guidance, which apparently you expect to remain positive in the upcoming year, although with a negative free cash flow that is expected to be around EUR 1.5 billion in H1. So I don't really get how you hope to turn it into a positive free cash flow for the year given the pretty slow start. And then lastly, at the end, I mean, do you expect the group's net debt to decrease or increase by the end of the next fiscal year?
Martin Sion: Bernard, maybe I take the first one and you take the two other. What did I do in the last two weeks? I shared my time between [Technical Difficulty] regional reviews and product line reviews. We were concentrating on the budget process, which was being achieved. So regions by regions, we had the concatenation of all programs and with an overview of all the challenges and also all the achievements of each program. So I did not do a specific program review for each of the programs, but it was regions by regions and product line by product line. The other half of my time, I was in the different sites in France, Germany, and Italy [ and other ] sites to confront what was assumptions -- operational assumptions, which will be behind the financial figure. If we look at today’'s situation, I acknowledge the situation that this is what I know today. It’s true that we have already identified areas where we can put in place immediate improvement in terms of operational excellence and our priority is to secure execution of the projects to deliver what is mentioned in this guidance. Bernard?
Bernard-Pierre Delpit: Yeah. As you said, Gael, we expect a strong seasonality in the next year, both in H1 negative around EUR 1.5 billion, you spotted it well. In H2 with a very positive free cash flow expected. By the way, when you look at the track record of those last years, H2 has been stronger and stronger year-over-year. So yes, I confirm strong H2 expected, bringing the cash flow for the year in positive territories and regarding the debt, I expect it’s going to be stable or a slight increase.
Operator: The next question comes from James Moore from Rothschild & Co Redburn.
James Moore: I don't know if you can hear me because I couldn't hear your answer to the last question. There seem to be some distortion on the line, but I'll try anyway. I just -- it's a philosophical question really. And if we think about the last 20 years, free cash conversion has been about 50%, 60%. It's been a long-standing topic. And if we take the free cash, including your new guidance for the 7 years since the merger, you're talking about declaring EUR 1.2 billion of free cash, but probably closer to EUR 2.5 billion of free cash burn if we adjust for hybrid and lease payments and minorities. I have to confess to believing with a number of the managerial changes in the last couple of years that you would be able to change the free cash management of the company to deliver an improved outcome, which we now appear not to be able to achieve. I guess the question would be when you look at the last couple of years, Bernard, and you compare it to, say, your main competitor making a high single-digit free cash margin, what is it you think you've come to understand about the challenges of delivering an improved free cash flow?
Bernard-Pierre Delpit: James, to make it very simple, execution makes a difference. And that's where we have -- we are facing some challenges here. So there is no magic trick here. We need to improve execution. So again, I said that I was not really happy with having met the guidance in the last years and semesters and not doing it again next year. I will not answer over the longer cash conversion because what was Alstom 20 years ago is totally different from what Alstom is today. And our plan is to have Alstom very different in the next years from what Alstom has been since the merger in 2021. So we are in this phase, true. And we'll discuss the bridge on free cash flow on the 13th of May when we will have some detailed analysis on what makes the gap to the EUR 1.5 billion that we planned 2.5 years ago. And so we'll make it clear that project execution -- simply project execution makes the difference.
Martin Sion: And if I may complete, I mean, the project execution is really concentrated on rolling stock and among rolling stock in the part of the projects, which are -- significant part of the problems are in a part of the projects where we are developing new products, and there are a lot of new products which are being introduced in service. And the end of development, homologation and ramping up production, is a challenge in some sites. The good news is that when we are in serial production, the products are produced efficiently with a good quality and customer satisfaction. So I don't want to give the feeling that it's all the projects on all phases. There are some topics where we should concentrate the effort.
James Moore: And Martin, maybe if I could follow up and very nice to meet you, but I noticed a huge improvement in the operational performance in your previous business, Arianespace. And I wondered if you could talk about some of the levers that you use to improve that performance and what you think is relevant for your current role? And from your early exploration of the company, what you identify as topics that could be changed in the way that you perhaps previously changed them in that position?
Martin Sion: Yes, I was [ in just 3 ] previous years, CEO of ArianeGroup, which is also a project company with 2 big projects and the one you're mentioning is Ariane 6. And it's clear that one of the levers that we use on Ariane 6 was to really focus all the management in order to secure first as the first flight date and then the production ramp-up. There are levers which are, I would say, usual levers of improvement, which exist in all industrial company. And in a project company, we need to have a strong focus on planning adherence, which is clearly a key even more than in other companies. At the same time, one of the specificity of Alstom compared to Ariane Group is that we've got hundreds of projects. We have an industrial footprint which is very different. We are multi-local. And so it will not be a copy-paste from things we have done before. But I believe that with the people I met in the factories, on the site, we do have the resources in order to improve operational excellence. It will not be something which will be from day 1 to day 2, but there are things that we can start very rapidly.
Operator: The next question comes from Akash Gupta from JPMorgan.
Akash Gupta: I got 3 questions as well. My first one is a follow-up to previous question when you answered that the problems are in some rolling stock projects. So I mean, we have heard before that Alstom in a given year is working on hundreds of projects in a year. Can you quantify, are we talking about issues in just a handful of projects? Or is it more widespread across the organization, which means that it might take significantly longer to fix? So that's number one to quantify how many projects out of the total projects that you're working on are really this problem child. The second one is on balance sheet. So when you -- when we look at your cash flow guidance and you're guiding EUR 1.5 billion outflow in first half, when you speak to rating agencies, is your balance sheet strength enough to cope with this first half cash outflow? Or do you think that some action might be required to strengthen the balance sheet? And then the third and final one is on contract assets. When I look at your revenue for last fiscal year as well as guidance, I don't see any haircut on your revenues, which to me doesn't indicate that you are -- you have taken any haircut on contract asset or you are planning to take any haircut on contract asset. And can you confirm if that is really the case?
Martin Sion: So what I can say is that there are several projects which are in difficulty, but it's obvious that there are some big projects. And when we are late, then you've got domino effect with significant consequences. But an addition of small projects which are late can have also consequences on the -- for the company. So what we really consider is that we have to improve execution throughout our rolling stock activity, and it's not a topic of solving 1 or 2 or 3 projects. It's more something that we have to address in general and concentrating on the critical phase, which is the ramp-up, which is the headwind that we had this year. By the way, you also know that we have also some projects which are at late stage of execution with low margin, but I think that has been already discussed in the past.
Bernard-Pierre Delpit: Yes. Akash, I will take the next one. Yes, I believe the balance sheet is strong and robust enough to deal with the seasonality of H1. Credit metrics are estimated in line with previous fiscal year with solid cash position. The business plan confirms consistency with Baa3 rating expectations. And we are, of course, totally committed on investment-grade rating and further credit metrics improvement. We have an open dialogue with credit agency, but I would not -- and I cannot speak on behalf. But we have an open and transparent dialogue with the agency. And on your last question, contract assets, no indeed, no haircut on contract assets.
Operator: The next question comes from Daniela Costa from Goldman Sachs.
Daniela Costa: I have 2 as well. But I just wanted to actually understand in the last 3 months, since you had reiterated the 7% guidance before, exactly sort of like all of these -- was it just all of these projects coincided on that? Was it a bit of Middle East pause? Or is it pretty -- a very big chunk and with like 100% drop-through lost? How come you -- that everything just came now or you just found it out now and you had to do adjustments maybe to what was going on before just -- because it was fairly shortly that you've actually had reiterated the 7% margin guidance.
Bernard-Pierre Delpit: I will take this one, Daniela. It's true that the operational situation was not the same at the end of December, at the end of Q3. And you remember that we said since the very beginning of the year that the ramp-up was back-end loaded and Q4 was key for volumes and for homologation, for project milestones. So it's true that what happened in Q4 has changed our view on the way to address project reviews that are happening, by the way, in February, March and beginning of April. So that's absolutely true. The situation has changed in the last quarter. But in a way, it was expected that the Q4 was kind of a critical time for the full year.
Daniela Costa: Got it. And then just thinking about sort of like the margin guidance for next year and what you factored in, is it sort of the whole versus what you had before, just continuing to roll these problems for longer? Or how much have you factored in already from things like the new way the Section 232 is calculated in the U.S. where it seems like final products now get 25% and the USMCA is overwritten and just general inflation? And then how different are you in being able to deal with this general inflation versus what you were able to do like 2, 3 years ago when we had a similar situation?
Bernard-Pierre Delpit: Frankly, Daniela, I don't see the inflation topic as totally crucial for the way we assess our margins going forward. I don't know if it's the time now to give you a proper bridge in terms of moving parts from gross margin in '25-'26 to '26-'27. But for sure, we see a strong improvement from last fiscal year to the next one. And on top of that, you have also to consider volumes. You need also to take into consideration some -- maybe some cautiousness in the way we assess next year challenges because as Martin said, we are in the ramp-up phase. We have not been able to be totally successful, the least we can say in Q4 this year. So the ramp-up continues, and it will be on our agenda -- top of the agenda for H1 this year. And that's why, by the way, we have this kind of seasonality. So inflation, I do not see that as a major topic because as [ you ] said before, we are -- we think, well protected. We look at -- very carefully at everything that happens on logistics and commodities. But I do not think that's the main point that we wanted to raise by updating the margin in '25-'26 and '26-'27.
Operator: The next question comes from Vlad Sergievskii from Barclays.
Vladimir Sergievskiy: I have 2 groups of questions. I'll start with first on free cash flow. The guidance is up to EUR 1.5 billion cash outflow in the first half. But at the same time, you -- I understand plan to make some positive EBIT in the first half. So can I ask why this gap between cash flow and earnings just keeps widening. The other one, why swings between first half and second half cash flows are just getting bigger and bigger every year? And maybe finally, on cash flow, which component of trade working capital will be driving a big cash outflow in the first half? Is it contract assets or contract liabilities?
Bernard-Pierre Delpit: I will try to answer to your question. So it's true that we have a strong seasonality. EBIT has also kind of seasonality. But let me take a step back. When I try to explain what is missing in the cash with the previous plan, it comes from FX, it comes from CapEx, but it comes also from EBITDA. So from that point of view, I think we have very good consistency with what we were saying on EBIT and margin and what we are seeing in terms of free cash flow. Now to your last question, what we see for the working capital, it has to do first with the seasonality in terms of contract liabilities. I mean we think that the phasing of down payments will be more pronounced with less in H1 and more again in H2. And we also have trade working capital in H1 that would be adverse with some payables increase in H1. So I don't know if you can -- it answers all your questions, but please that, that are the moving parts in the equation of free cash flow next year.
Vladimir Sergievskiy: Can I also ask then on the balance sheet? It looks like you could have net debt in excess of EUR 2 billion in September and intra-period potentially even higher. Do you think in principle, this is the right balance sheet for a project business, which carries sizable multibillion prepayments? And also, just to clarify, did you manage to speak to Moody's already on those numbers or this conversation is yet to happen?
Bernard-Pierre Delpit: Okay. So I say again what I said. We have an open dialogue with Moody's, but I will not share more on that with you. We speak, of course, with Moody's on regular occasions, so they are aware. And second, on the balance sheet, I keep saying the same for the last 2 years. We need to have a strong balance sheet. I think we need to be net cash considering the size of the backlog and the kind of activity that we have. It's not that different from other integrators with some seasonality in what they do. So I have not changed my mind. We need a strong balance sheet to operate in this business. But looking at it with another angle, our liquidity is ample today, and I do not see that at all as an issue.
Operator: The next question comes from Jonathan Mounsey from BNP Paribas.
Jonathan Mounsey: Just really thinking back to -- obviously, we had a -- we had to clear the [ decks ] exercise in, I think, 2024 and '25 rights issue, hybrid bond, as I remember it. And on the hybrid bonds, my remembering is that the plan was probably to redeem it at the first opportunity, which I think is like 5 years, isn't it 2029? And from memory, if you don't do that, it's almost 3% margin on top of the going rate. Do you think -- I mean, obviously, we're not going to generate at least EUR 1.5 billion to the end of '27. I don't know what comes after, but the starting point on the margin is only 6.5% now. It should have been somewhere in the 7s, high 7s by the end of '27. It's not going to be so now. So all points to less cash generation. What's going to happen to that hybrid now? I understand you've got liquidity for now, but your liquidity would be greatly reduced if you had to redeem that bond? Or is there a potential here that we're just going to turn it into equity?
Bernard-Pierre Delpit: Jonathan, I mean, as you said, [ it's an uncalled 5 that we have -- an uncalled 5.25% ], by the way, that we have issued in May 2024. So that's not a question for the short term. And we have not discussed and we will not discuss free cash flow beyond March '27. So it's not a question for today. And the way we will deal with hybrid is something that we discuss at a later stage. But I take your point, but I don't think it's on the agenda for the coming, I would say, months and quarters.
Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing remarks.
Bernard-Pierre Delpit: Thank you very much. Just want to reiterate that we were dealing with preliminary figures and preliminary outlook. So we will talk to you next on the 13th of May with our fiscal year results and usual financial communication. Thank you very much. Good evening.
Operator: The conference is now over. You may now disconnect.