2023-10-05 16:21:00
Paris (awp/afp) – Alstom shares collapsed 37.58% on Thursday on the Paris Stock Exchange following the world’s second largest railway manufacturer revealed excessive cash burn in the first half, with investors fearing that This does not portend other problems.
More than two years following the 5.5 billion euro takeover of Canadian Bombardier Transport, the stock of the French manufacturer dropped 37.58% compared to the previous day’s close. 3.04 billion euros thus evaporated in 24 hours for shareholders.
The cause of this collapse? Alstom, which notably manufactures trams and trains, including those for the future TGV, and has been struggling since 2021 to digest Bombardier, announced Wednesday evening that its free cash flow (“free cash flow”) would be largely negative on its annual financial year, of the order of -500 to -750 million euros, although he had previously promised investors that this indicator would move into “significantly positive” territory.
Free cash flow is a central indicator for estimating the value of a business. It corresponds to the difference between operating cash surplus and investment expenses. The more negative it is, the more financing the company needs to meet the cash flow requirement…
However, in the first half of its staggered financial year (ending September 30), the group saw it go into the red, to -1.15 billion euros.
“We are engaged in a strong ramp-up, in particular in the Rolling Stock activity, which, when added to projects inherited from the portfolio which were in the finalization phase at the same time, weighs on the free cash flow of this first half”, explained CEO Henri Poupart-Lafarge, quoted in the press release on Wednesday.
Of this negative free cash flow, half is due to the ramp-up in the manufacturer’s production which led to a significant increase in inventories in order to avoid a breakdown in production lines, which consumes cash. This should be “totally resolved in the years to come,” says the group.
Bombardier Legacy ___
Around a third comes from the delay in finalizing the Aventra program of 443 trains for the United Kingdom, inherited from the Bombardier Transportation portfolio acquired by Alstom in early 2021. Finalization is now planned “at the start of the 2024-2025 fiscal year “, which will begin on April 1, 2024.
The rest is due to program shifts which led to a “decrease in the level of advances received during the first half” when contracts were signed.
In the second half, free cash flow should be positive, between 400 and 650 million euros, said Alstom, which has 3.5 billion euros of liquidity.
However, according to Stifel analysts, this warning “will immediately trigger questions regarding the health of the balance sheet” of the group.
“It is difficult to understand how inventories can increase so massively in a context of improving supply chains,” they said, raising the possibility of “bigger problems”.
Their counterparts at Oddo BHF, while recognizing that the cash flow gap would “reverse over time”, pointed out a “major” warning which “is not the first” and which will follow them “rekindle fears” of a downward revision of the company’s rating by the Moody’s agency.
The group’s financial director tried to curb these apprehensions, telling the Bloomberg agency on Thursday morning that he “completely understands” the disappointment of analysts and investors and conceding that Wednesday’s announcement was a “shock” for them.
According to the agency, Bernard Delpit said he was open to the possibility of disposals to improve the group’s financial situation: “if there are good opportunities, I will of course discuss them with the board of directors”.
But he ruled out resorting to fundraising via, for example, a capital increase. Such a process “is not on the table,” he assured.
In the first half, the railway manufacturer achieved a turnover of 8.3 billion euros, up 2.7% (6.5% at constant scope and exchange rates) and earned 8.4 billion euros. euros of new orders (-16.8%).
The group confirmed its other forecasts on Wednesday, notably organic growth in turnover and operating margin for the entire financial year. It will publish its first half results on November 15.
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