(Bloomberg) — Alstom SA Chief Executive Officer Henri Poupart-Lafarge expects costly and painful months ahead as the rail-equipment maker works to turn around the flagging operations of the Canadian rival it acquired.
Alstom is set to detail on Tuesday a path for improving profitability for the combined group after the Bombardier deal was sealed in January. Alstom is forecasting a cash drain in the first half of this year and a return to pre-acquisition margin levels only in the 2024-2025 fiscal year, according to a statement.
There will be “no more skeletons” going forward, he said in an interview, saying provisions for problematic contracts related to Bombardier have been capped at the roughly 1.08 billion euros ($1.3 billion) already announced. “The key element is to turn around Bombardier.”
Alstom has won major large train orders in recent months, benefiting from a wave of investment in carbon-free transport. But integrating Bombardier’s business has been a rocky process.
Alstom is forecasting negative cash flow in the first half of this fiscal year of between 1.6 billion euros and 1.9 billion euros, according to the statement. This will lead to “significant” negative free cash flow for the full year.
This is due to higher spending to make up for delivery delays and mismanagement related to ex-Bombardier orders, Poupart-Lafarge said. These are in countries like the U.K. and Switzerland and will require Alstom to raise train deliveries by 35%.
On the brighter side, Alstom is looking at additional spending in the U.S. on infrastructure under the Biden administration as “upside potential,” he said.
In Europe, the biggest markets will be Germany along with Italy, Spain and Portugal — southern countries set to spend under the region’s stimulus package.
Alstom sees significant negative free cash flow this fiscal year including between negative EU1.6 billion and negative EU1.9 billion in the first half“Stabilization” of Bombardier legacy contracts in two or three yearsAdjusted Ebit margin to reach between 8% and 10% from 2024-25 onwards vs 5% pro formaYearly positive free cash flow toward mid-term targetOrder backlog stands at 74.5 billion eurosGoal to expand global market share by 5 percentage points to 36%: CEO
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