Alstom pursues asset sales after warning on cash flow

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Train manufacturer Alstom is seeking up to €1bn in asset sales and has said it will consider a capital increase after a cash flow warning last month spooked investors and raised concerns about the French company’s debt level. 

Henri Poupart-Lafarge, Alstom’s chief executive, told the Financial Times the cash warning had been a “call for change” as he outlined measures to cut the group’s net debt by €2bn over the next year and a half.

Alstom shares slumped by more than a third in early October when it said it expected negative free cash flow of €500mn to €750mn for the year to March 2024.

Known for making France’s high-speed TGV trains, Alstom is the world’s second-biggest train manufacturer after China’s CRRC and has contracts stretching from Australia to Saudi Arabia, and more than 80,000 employees globally.

Alstom is riding high on record orders for trains and related services — its backlog reached €90.1bn in its first half ending in September, it confirmed in results on Wednesday — but the company is coming under pressure from short-term problems, including with some downpayments on deals not coming in as rapidly as planned. 

“I’ve always said to the market that our trajectory allows us not to need any capital increase. It is fair to say that we have deviated from this trajectory . . . and having a strong balance sheet for me is key,” Poupart-Lafarge said. 

Our trajectory allows us not to need any capital increase. It is fair to say that we have deviated from this trajectory

Alstom was not envisaging a capital raise from investors straight away as the company felt no pressure to do so and wanted to give asset sales a chance, Poupart-Lafarge added.

The group is focused on preserving its investment-grade credit rating, he said, while top shareholders were on board with Alstom’s latest plans. 

The Caisse de dépôt et placement du Québec pensions fund holds 17 per cent of Alstom, while French state-backed investment bank Bpifrance has 7.4 per cent. 

The chief executive — who is set to relinquish his additional role of chair after taking on both jobs in 2016 — said the group would increase cash generation by tackling operational problems that tripped up Alstom.

It has struggled with problem contracts inherited from its acquisition of Bombardier’s rail unit, and also had trouble keeping up with an increased pace of production.

Alstom is also exposed to political uncertainty. UK Prime Minister Rishi Sunak last month radically scaled back Britain’s planned High Speed 2 rail line, although Poupart-Lafarge said Alstom’s train orders as part of that project had been confirmed. 

“The decision is where to run the trains, as these trains could run on conventional lines,” he added. 

Some 550 looming job cuts at Alstom’s manufacturing plant in Derby were linked to different train programmes now coming to an end, Poupart-Lafarge said.  

Part of Alstom’s recent issues have derived from its delay in producing as many trains as planned as it increasing its manufacturing, creating issues with inventory costs.

The hangover from the €5.5bn Bombardier deal that closed in early 2021 also persists, and has weighed on Alstom’s efforts to increase its operating profit margins. Some of Bombardier’s contracts were lossmaking. 

Alstom announced 1,500 job cuts in administrative and support roles on Wednesday as it speeds up the last phase of its Bombardier integration.

Poupart-Lafarge said the group was still “in the middle of the battle . . . to have a fully efficient organisation” after the acquisition, in line with the three to four years of adjustments it had always expected. 

“There is no silver bullet. We solved all the individual problems on all the individual projects that existed,” he added of the deal. 

Alstom is rated one notch above junk status by Moody’s, and it had net debt of €3.4bn at the end of September.

The company said it was aiming for between €500mn and €1bn in asset sales, and would also consider selling equity stakes in some of its subsidiaries to other businesses. It would also examine other forms of capital injection.

Alstom is now proposing to split the roles of chief executive and chair, after feedback from top investors before its cash flow warning, Poupart-Lafarge said.

Philippe Petitcolin, a former boss of jet engine maker Safran, will be proposed as chair ahead of Alstom’s shareholder meeting next July.