Burning Through Cash: Alstom's Struggle for Financial Stability
The TGV manufacturer, Alstom, is battling a mountain of debt. The company aims to drastically reduce this debt within the next two years, and investors are left cringing. Alstom's strategy? Job cuts, reduced dividends, and exploring new revenue streams - all of which aren't sitting well with stockholders.
The turbulent train tech company announced a hefty 1,500 job losses, along with slashing the dividend. Desperate measures include asset sales, share issuance, and even capital increases. These actions leave a nasty taste in the market, sending Alstom's already battered shares careening downwards. Since the start of the year, shares have plummeted roughly 38%.
Battling Medium-term Goals
Alstom's aim is to achieve the profit and cash generation targets the conglomerate had set post-merger with Canadian rival Bombardier Transportation, completed in January 2021. Initially, these targets were scheduled for 2025-26, but the company recently announced delays, pushing expectations to 2026-27. In October, Alstom withdrew its annual cash flow forecast due to holdups in a UK contract, casting doubt on its ambitions. The CEO, Henri Poupart-Lafarge, acknowledged the negative free cash flow as a clear call for change.
Reorganizing Management
Alstom plans to restructure its management to elevate accountability and financial discipline. The Board of Directors plans to throw Safran's former CEO, Philippe Petitcolin, into the ring as Director before eventually assuming the Chairmanship. Separating these positions may improve financial control.
Cutting debt is high on Alstom's agenda. The company aims to shave off 2 billion euros from its current 3.4 billion euros by March 2025. Asset sales, which the company has already initiated, could generate up to a billion euros. To avoid paying a dividend in 2024, Alstom made an announcement. In March 2023, the Group had employed more than 80,000 individuals, according to their annual report.
Financial Turnaround
Despite these efforts, Alstom's shares are stumbling. However, the company has managed to return to profitability in the first half of the 2023-24 financial year. Alstom reported a modest profit of 1 million euros, marking an improvement from the 21 million euro loss in the previous year. Revenue swelled from nearly 8.1 billion to more than 8.4 billion euros, as well. Incoming orders reached a healthy 8.5 billion euros, and the adjusted return on sales before interest and taxes was a respectable 5.2% - both numbers aligning with preliminary forecasts. Alstom remains optimistic about its financial projections for the full year.
Challenging Times Ahead
Alstom's quarterly figures highlight a tough period, with the company's debt sitting heavy at 3.4 billion euros. Alstom's aim is to reduce this debt by 2 billion euros by March 2025, with a combination of asset sales and temporarily halting the dividend.
Alstom's shares have tanked around 38% since the beginning of the year, reflecting investor doubts over the company's financial stability and its ability to meet medium-term objectives. These difficulties test Alstom's resilience in these trying times.
Enrichment Data
Alstom's Q3 2024/25 figures show a positive push, with the company recording €4.7 billion in sales and €4.3 billion in order intake. Total orders for the 9-month period reached €15.2 billion, with sales at €13.4 billion - both figures displaying modest growth compared to the year prior. The backlog, as of December 31, 2024, stands at €94.7 billion, offering strong sales visibility.
Financial targets for FY 2024/25 include a book-to-bill ratio above 1, an organic sales growth of approximately 5%, an aEBIT margin of around 6.5%, and a free cash flow expected between €300 and €500 million. Rolling stock production faces supply chain challenges, but Alstom's cost efficiency measures and integration efforts with Bombardier Transportation are supporting its financial objectives. A pipeline of opportunities and long-term framework contracts further bolster Alstom's financial rebound.
