Alstom SA isn’t ruling out selling assets, its chief financial officer signaled, after a warning on financial guidance wiped out as much as €3.1 billion ($3.3 billion) of the train maker’s market value.
(Bloomberg) — Alstom SA isn’t ruling out selling assets, its chief financial officer signaled, after a warning on financial guidance wiped out as much as €3.1 billion ($3.3 billion) of the train maker’s market value.
“If there are good opportunities, of course I will discuss it with the board,” CFO Bernard Delpit said in a phone interview on Thursday when asked about possible divestments. He declined to elaborate on what assets may be considered non-strategic.
Shares plunged 38% after the French company slashed its financial guidance due to delays on a major UK contract and a rise in inventories. The decline added to the company’s woes stemming from its troubled $5.5 billion acquisition of Canadian manufacturer Bombardier Inc.
Deutsche Bank analyst Gael de-Bray wrote in a note that a capital increase to maintain the group’s investment grade rating is “increasingly likely,” adding the warning is a “major blow” to management’s credibility.
Alstom’s euro-denominated bonds due 2029 dropped more than 3%, the most on record, to 78 cents on the euro, according to prices compiled by Bloomberg.
An equity raising “isn’t on the table,” Delpit said. “Commercial momentum, profitability, organic growth are in line” and the company is standing by its mid-term targets, he added.
The French company expects a delay to the UK Aventra project it inherited from Bombardier, which includes 443 trains that serve lines such as the London Overground and Elizabeth Line, several of which have suffered from setbacks. Alstom said the work should be completed during fiscal 2024-25, compared to the first half of this year, according to a statement late Wednesday.
Alstom also warned it sees negative free cash flow of as much as €750 million for the full fiscal year, compared with a previous forecast of “significantly positive” results. The delay to the UK project accounts for about one-third of the cut.
The biggest impact was from much higher inventory levels, after the company hiked output amid tight supply chains to fill its order backlog and avoid production disruption and delivery delays. New orders also weakened.
Nearly three years after the purchase of Bombardier’s rail business, Alstom continues to wade through costly legacy contracts from its former fierce competitor. Alstom has blamed mismanagement by Bombardier for delivery delays and the heavy spending needed to complete them.
“We have produced 95% of the whole program and we’ve been paid for 87%. It creates what we call the working capital issue right now,” Delpit said.
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Alstom had negative free cash flow of €1.15 billion in the six months through September, while affirming its mid-term guidance as well as a target for organic sales growth above 5% for fiscal 2024.
Alstom shares have been under pressure since the takeover of Bombardier train operations, which have presented a range of challenges from the start.
–With assistance from James Cone and Dana El Baltaji.
(Updates with CFO declining to elaborate on what assets may potentially be considered non-strategic in second paragraph)
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