Alstom’s shares fell by more than a quarter on Thursday, after the French manufacturer of high-speed rails lowered its forecast of free cash flow. This was due in part to delays in UK customers taking delivery.
The group has warned that they now expect negative free cash flows of €500mn-€750mn in this year. This is a change from their earlier prediction that the flow would be “significantly” positive.
Alstom manufactures transport equipment, manages projects, and said that a third the squeeze in its cash flow was due to delays in completing Aventra in the UK. Aventra is a programme for building 443 electric trains, inherited by Alstom when it acquired Canada’s Bombardier Transportation 2020.
Investors were alarmed by the rapid decline in Alstom’s projected cash flow, which was revealed after the French stock exchange closed on Wednesday. The shares of the group closed at €14.11, down 37 percent in Paris. This leaves the company’s market capitalisation at €5.1bn.
Alstom blamed a large increase in its inventory, which it now has to deal with as a result of ramping up production for supply chain disruptions. The company also experienced project delays in the US and Europe that delayed payments for some large contracts.
Analyst Gael De-Bray at Deutsche Bank noted that the hit to cash flow “was a major blow to management’s credibility”. Alstom’s investment grade rating is now at risk and a capital increase becomes more likely, according to de-Bray.
Alstom said it did not require a capital infusion and that the cash flow problems would start to resolve themselves by next year.
It is the world’s leading transportation contractor and manufacturer, with sales of €16.5bn in 2012 and more than 80,000 employees. The company is best known for its fast-speed TGV train made in France. It also has a major role in the UK’s rail infrastructure upgrade, including London’s Elizabeth Line (HS2) and London’s Elizabeth Line.
According to Alstom, in the UK, over 80 completed trains are still sitting at the factory of the company in Derby, and the train operators have yet to pay for them.
Aventra has had many problems. But Alstom explained that the delays were due to the UK’s lack of investment in maintenance facilities and the “uncertainty”. This uncertainty was caused by the financial strain on the rail industry since the Covid-19 epidemic.
Alstom official said: “At this time, the UK rail environment is very unstable.”
After announcing earlier this week plans to drastically scale back the project, the UK government opened the possibility of cancelling a part of a £2bn separate order placed with a joint venture between Alstom & Hitachi for the supply trains to HS2’s beleaguered line.
According to an Alstom representative, the company has not been informed of any possible changes to the contract. The government could be charged a fee if they tried to reduce the order.
Alstom has had some difficulties with its purchase of Bombardier’s train business. The initial price was reduced from almost €7.5bn to €5.5bn due in part to a surprise profit warning that Bombardier issued before the deal closed.
The company had been looking to acquire a competitor in Europe and China, as well as to bulk up its business in response the rising competition. The EU’s antitrust regulators had blocked a merger between Siemens and Germany a year before, angering officials from Paris and Berlin, who had supported the proposed €15bn transaction.
Alstom’s strategic importance was so high that, in 2004, the French government provided a €2.5bn bailout to the group when it was hit with restructuring costs and losses. It also made cruise ships and turbines for nuclear power plants at the time. These activities have since been sold.
Analysts at Deutsche Bank say the group is now likely to end the year with a net debt of €3bn – €1bn more than originally expected.