(News Bulletin 247) – The railway equipment manufacturer saw its rating lowered by one notch by the rating agency Moody’s and now has almost no margin compared to its investment grade rating target. The company also postponed its profitability and cash generation targets for a year, citing the inflationary context.

Alstom delivers a series of not very encouraging announcements this Wednesday, on the occasion of the publication of its 2022-2023 results, closed last March.

The railway equipment manufacturer was forced to postpone its medium-term margin and cash flow targets by one year. Initially planned to be achieved in 2024-2025, therefore during the fiscal year ending in March 2025, the target of an adjusted operating margin of between 8% and 10% is now planned for the 2025-2026 fiscal year. The same applies to the objective of converting more than 80% of adjusted net income into free cash flow.

Alstom invoked the “new macroeconomic environment” to justify this one-year shift in these two objectives, citing mainly “the effect of inflation” on its activity.

“Inflation has had a longer impact than expected,” Alstom CEO Henri Poupart-Lafarge told analysts, adding that the company hoped it would not last beyond 2022, which was not the case. While a majority of Alstom’s contracts benefit from indexation clauses to pass on inflation, this is not the case for all. Slightly less than 30% of these contracts do not contain such clauses.

Moody’s sanctions the company

One bad news leading to another, the railway group saw its credit rating lowered by one notch on Wednesday by Moody’s to from “Baa2” to “Baa3”, a change which Alstom assures that it has “no impact on its financial trajectory.

However, it should be remembered that Alstom has made it a priority to defend its credit rating in the “investment” category. However, with the deterioration of Moody’s on Wednesday, the group is at the limit of the limit, the “Baa3” rating being the last of the agency before the so-called “junk” category (ie the speculative category) on its scale.

Moody’s justifies its downgrading by citing, precisely, the one-year lag of the company’s medium-term objectives, this decision “reducing the room for manoeuvre” of the group to return to credit parameters in line with the group’s previous rating .

“Slower recovery in margins, combined with rising interest rates and continued execution of onerous Bombardier Transportation contracts, will likely limit free cash flow (FCF) on a Moody’s-adjusted basis at course of the next 12 to 18 months”, argues the agency.

Henri Poupart-Lafarge endeavored to see this downgrading as “good news”, in particular the fact that Moody’s has attached a stable outlook to this rating and that the credit ratios required to maintain this rating are “within reach” for the group. The leader thus estimated that Alstom benefited from “better visibility”. He also ruled out a capital increase.

Results in line with expectations

These announcements come in parallel with annual results deemed “solid” by Invest Securities. Order intake increased by 5% over one year on a comparable basis to 20.69 billion euros, turnover also increased by 5% to 16.51 billion euros. Adjusted operating margin was 5.2% vs. 5% in 2021-2022, adjusted net income was €292 million vs. a loss of €173 million a year earlier . Finally, cash generation, closely watched by analysts in the case of Alstom, reached 199 million euros.

According to a consensus compiled by the company, analysts on average expected revenue of 16.55 billion euros, an operating margin of 5.1%, adjusted net income of 300 million euros and cash of 163 million euros.

Alstom has also indicated that it is aiming for an increase in sales of more than 5%, an adjusted operating margin of around 6% and a “significantly positive” cash generation for the 2023-2024 financial year.

All of these announcements are sanctioned on the stock exchange. Red lantern of the SBF 120, the Alstom share lost 5.3% to 22.24 euros around 10:00 a.m.