Alstom shares plunge 37% on cash flow warning

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Alstom shares plunged as much as 37 per cent on Thursday morning after the French maker of high-speed trains slashed its forecast for free cash flow as a UK project and other deliveries were delayed.

The group now expects negative free cash flow of €500mn to €750mn this year, a reversal from its earlier prediction that it would be “significantly positive”, it said in a statement on Wednesday evening. Shares were down 34 per cent to €14.2 in Paris, valuing the company at €5.46bn.

Alstom pinned some of the blame on a big increase in inventory build-up and delivery delays particularly in the US and Europe.

It said about half the impact had come from increasing production to meet new orders. “This, combined with tight supply chain conditions, resulted in a significant increase in the level of inventories and contract assets built in order to avoid production disruption and delivery delays during the first half of the year, particularly in Americas and in Europe,” it said.

A third of the cash flow squeeze stemmed from delays in completing the Aventra programme in the UK, an electric train project that it took on with the purchase of Bombardier Transportation of Canada in 2020, the company said. Alstom also suffered from a decrease in downpayments because of weaker than expected orders in the first half of the fiscal year.

The hit to cash flow is “a major blow to management’s credibility”, noted Gael de-Bray, an analyst at Deutsche Bank. Alstom’s investment grade rating “now looks at risk, with a capital increase becoming increasingly likely”.

Alstom agreed to buy Bombardier’s train unit in a deal worth close to €7.5bn, as it sought to bulk up in the face of rising Chinese competition and growing demand in Europe. A year earlier, EU antitrust regulators blocked a merger with Germany’s Siemens.