Alstom SA Faces Cash Flow Challenges and Share Price Plummets
Introduction
Alstom SA, a prominent French high-speed train manufacturer, has experienced a significant decline in its share price after revising its free cash flow forecast. The company attributes this downgrade to delays in deliveries by its British customers. Alarmed investors reacted swiftly to this news, causing the company’s shares to fall by 37% in Paris. In this article, we will delve deeper into the factors contributing to Alstom’s cash flow challenges, explore the impact on its financial stability, and discuss potential solutions to mitigate the situation.
The Cash Flow Downgrade
Alstom had previously projected a “significantly positive” free cash flow for the year. However, the company now expects negative free cash flow ranging from 500 to 750 million euros. The reduction in cash flows is primarily attributed to delays in the completion of the U.K.’s Aventra program, a project inherited by Alstom following its acquisition of Bombardier Transportation in 2020.
Approximately a third of the decline in cash flows stems from delays in the Aventra program. The project involves the construction of 443 electric trains, and the delays in train delivery have had a significant impact on Alstom’s cash flow projections. These setbacks, coupled with inventory management challenges resulting from supply chain disruptions and project delays, have put immense pressure on the company’s financial outlook.
Gael de-Bray, an analyst at Deutsche Bank, notes that the rapid deterioration of Alstom’s cash flows has dealt a blow to the management’s credibility. There are concerns that the company’s investment grade rating is now at risk, raising the possibility of a capital raise in the near future. However, Alstom remains optimistic that its cash flow problems will begin to resolve themselves next year, dismissing the need for a capital injection at this stage.
Challenges Faced by Alstom
Alstom cites the sharp rise in inventory levels as a significant challenge resulting from the company’s decision to ramp up production to avoid supply chain disruptions. This surge in inventory has strained the company’s cash flow and has further exacerbated the effects of project delays. These delays, particularly in the United States and Europe, have led to postponed payments for some of Alstom’s major contracts, contributing to the cash flow difficulties.
The United Kingdom has also presented challenges for Alstom, with more than 80 completed trains sitting idle at the company’s Derby factory awaiting payment from train operators. The Aventra program, in particular, has encountered difficulties due to delays in driver training and investments in maintenance facilities. These setbacks have occurred against the backdrop of uncertainty in the rail sector, which has been financially strained by the COVID-19 pandemic.
Notably, the British government has recently indicated the possibility of canceling part of a £2 billion order from the Alstom-Hitachi joint venture for the beleaguered HS2 line. The government’s intention to scale back this project has raised concerns about the future prospects of Alstom’s involvement. However, Alstom states that it has not been officially informed of any changes to the order and highlights the risk of a compensation bill if the government attempts to cut the order.
Alstom’s Past and Future Prospects
Alstom’s acquisition of Bombardier’s rail assets was seen as an opportunity to strengthen its position in the face of growing competition from Chinese manufacturers and increasing demand in Europe. The initial price tag of the acquisition was nearly 7.5 billion euros, but it was eventually reduced to 5.5 billion euros due to a profit warning issued by Bombardier before the deal closed.
This acquisition followed the European Union’s rejection of Alstom’s proposed merger with Siemens in 2019, a decision that disappointed officials in Paris and Berlin who were in favor of the 15 billion euro deal. The merger would have created a larger European rail industry player, but regulatory authorities were concerned about reduced competition in the market.
Alstom’s history also includes a government bailout in 2004 when the company faced significant restructuring costs and losses. The French government stepped in with a 2.5 billion euro infusion to support the strategic importance of the company. Over the years, Alstom has divested itself of certain non-core businesses, such as cruise ship and nuclear power plant turbine manufacturing, to focus on its core strength in transportation equipment.
Despite the current challenges, Alstom remains a major player in the global transport sector, recognized for its high-speed French TGV trains and its involvement in key infrastructure projects such as the Elizabeth Line and London’s HS2. With over 80,000 employees and sales of €16.5 billion in the previous year, the company has a strong foundation to navigate through the current cash flow difficulties.
Potential Solutions and Outlook
While the immediate cash flow outlook for Alstom seems challenging, the company is confident that these problems will start to resolve themselves in the next year. It anticipates improvements in inventory management, reduced delays in project execution, and a more stable rail environment in the United Kingdom. These factors collectively provide a foundation for Alstom’s positive outlook.
However, given the potential risks to Alstom’s investment grade rating and the concerns raised by market analysts, the possibility of a capital raise cannot be completely ruled out. Alstom may need to consider this option to strengthen its financial position and reassure investors about its ability to weather the current storm.
Conclusion
Alstom SA’s cash flow challenges, primarily driven by delays in the Aventra program and inventory management issues, have had a significant impact on its financial outlook. The company’s share price experienced a steep decline, and investor confidence has been shaken. Alstom is navigating through a period of uncertainty, but it remains optimistic about future improvements in cash flow and project execution.
As a leading player in the global transport sector, Alstom’s ability to overcome these challenges will have broader implications for the industry. By addressing the root causes of its cash flow difficulties and implementing appropriate solutions, Alstom can reinforce its position as a key player in the rail transportation market and restore investor confidence in its financial stability.
Summary
Alstom SA, a French high-speed train manufacturer, has revised its free cash flow forecast, leading to a significant decline in its share price. Delays in the U.K.’s Aventra program and inventory management challenges have contributed to negative cash flow projections. The company faces potential risks to its investment grade rating and may consider a capital raise in the future. Despite these challenges, Alstom remains a major global player in the transport sector, with a positive outlook for improved cash flow and project execution.
—————————————————-
| Article | Link |
|---|---|
| UK Artful Impressions | Premiere Etsy Store |
| Sponsored Content | View |
| 90’s Rock Band Review | View |
| Ted Lasso’s MacBook Guide | View |
| Nature’s Secret to More Energy | View |
| Ancient Recipe for Weight Loss | View |
| MacBook Air i3 vs i5 | View |
| You Need a VPN in 2023 – Liberty Shield | View |
Receive free updates from Alstom SA
We will send you a myFT Daily collection email with the list of the latest news Alstom SA news every morning.
Alstom shares fell by more than a third on Thursday after the French high-speed train maker cut its free cash flow forecast, partly due to delays by British customers in taking delivery.
The group warned that it now expects negative free cash flow of between 500 and 750 million euros this year, a reversal from its previous forecast that it would be “significantly positive”.
Alstomwhich makes transportation equipment and manages project contracts, said a third of the reduction in its cash flows comes from delays in completing the U.K.’s Aventra program, a project to build 443 electric trains that it inherited when it bought Canadian Bombardier Transportation in 2020. .
The rapid deterioration of Alstom’s expected cash flows, disclosed after the French stock market closed on Wednesday, has alarmed investors. The group’s shares fell 37% in Paris on Thursday afternoon.
Alstom has placed much of the blame on the sharp rise in inventories it now faces after ramping up production to avoid supply chain disruptions. It has also suffered from project delays, particularly in the United States and Europe, which have delayed payments on some large contracts.
The hit to cash flow was “a blow to management’s credibility,” noted Gael de-Bray, an analyst at Deutsche Bank. Alstom’s investment grade rating “now appears at risk, with a capital raise becoming increasingly likely,” de-Bray said.
Alstom insisted that a capital injection would not be needed and said cash flow problems would start to resolve themselves next year.
The company, which last year recorded sales of €16.5 billion and employs more than 80,000 people, is a leading global manufacturer and contractor in the transport sector, known for producing high-speed French TGV trains. speed. It is also involved in major upgrades to the UK’s rail infrastructure, including the Elizabeth Line and London’s HS2.
In the UK, more than 80 completed trains, built at Alstom’s Derby factory, are idle and have not yet been paid for by train operators, according to the company.
The Aventra project has been fraught with problems, but Alstom said the latest setbacks stem from delays in driver training and investment in maintenance facilities by the UK against a backdrop of “uncertainty” in the rail sector, which is under financial pressure after Covid. -19 pandemic.
“The rail environment in the UK is very unstable at the moment,” an Alstom official told the Financial Times.
The British government on Thursday also opened the door to canceling part of a separate £2 billion order from a joint venture between Alstom and Hitachi to supply trains to the beleaguered HS2 line after announcing plans to radically scale back the project early on of this week.
Alstom was not informed of any changes to the order, and the government would face a compensation bill if it tried to cut the order, according to an Alstom official.
Alstom’s purchase of Bombardier’s rail assets proved problematic. The deal’s initial price tag of nearly 7.5 billion euros was cut to 5.5 billion euros, partly due to a shock profit warning announced by Bombardier before the deal closed.
It had sought the acquisition as a means to strengthen itself in the face of growing Chinese competition and growing demand in Europe. A year earlier, EU antitrust authorities had blocked a merger with Germany’s Siemens, angering officials in Paris and Berlin who had supported the proposed 15 billion euro deal.
In 2004, Alstom was deemed strategic enough for the French government to step in with a 2.5 billion euro bailout when the group was hit by a series of restructuring costs and losses. At the time it also built cruise ships and turbines for nuclear power plants, a business it later sold off.
Analysts at Deutsche Bank said the group was likely to end the year with net debt of 3 billion euros, about 1 billion more than previously expected.
Additional reporting by Sarah White
—————————————————-