(News Bulletin 247) – The railway equipment manufacturer announces an asset sale program to reduce its debt, which is more than 3 billion euros at the end of September. Alstom has also not ruled out launching a capital increase, depending on market conditions.

Another difficult day for Alstom on the Paris Stock Exchange. The stock of the railway equipment manufacturer fell by more than 18% this Wednesday morning around 11:10 a.m., after being reserved for a decline at the opening.

This drop, however significant it may be, is however incommensurate with the heavy plunge of 37.58% recorded on October 5. Investors were then caught cold by the heavy warning issued by Alstom on its cash consumption, a major indicator which focuses the attention of the market and analysts.

On this occasion, the group revealed preliminary results on its half-year results, closed at the end of September.

“A clear call for change”

The figures announced Wednesday morning before the stock market, appear “in line” with those communicated on October 4. The group confirms having consumed more than 1 billion euros of cash in the first half (1.119 billion euros). This cash consumption “during this first half constitutes a clear call for change”, declares its manager, Henri Poupart-Lafarge.

Alstom still confirms that it anticipates a largely negative free cash flow for the financial year ending next March, with a disbursement of between 500 million and 750 million euros.

With its back against the wall, Alstom must tighten the screw. The group therefore announced a cost reduction plan to reduce its heavy debt after this significant cash consumption. It is aiming to reduce its debt by 2 billion euros by March 2025. At the end of September, the group declared a debt of 3.43 billion euros.

To deflate this debt, Alstom is planning an action plan including an asset sale program for an amount of between 500 million and 1 billion euros. The group also announced the elimination of 1,500 positions worldwide, representing nearly 10% of total commercial and administrative functions.

Alstom also plans to position itself on more profitable calls for tenders to favor “quality” order taking. The result is an increase of 0.5% per year in the gross margin of the order book over the next three years.

Measures to maintain your investment grade rating

The goal is to preserve its precious credit rating at “Baa3” at Moody’s, the last notch in the “investment” category (investment as opposed to “junk”, the speculative category). The rating agency granted Alstom a reprieve on its credit rating on October 12, a week after Alstom’s heavy warning on its cash consumption.

Moody’s, however, issued a yellow card to Alstom. The rating agency had lowered the outlook for this rating from “stable” to “negative”, which means that it could downgrade Alstom’s rating in the medium term, if Alstom’s adjusted debt level did not return to a reasonable level. Other indicators will condition the rating agency’s decision, such as an adjusted operating margin which remains below 5% or whether the adjusted cash flow remains negative “on a sustainable basis”, she warns.

Moody’s also judged that the pace of deleveraging “would remain uncertain” if the company does not “complement organic deleveraging with additional inorganic measures to support the restoration of its credit metrics to a level consistent with an investment grade rating at this time.” of the next twelve months.

A capital increase in the pipeline?

“Inorganic debt reduction measures” can take the form of asset sales or a capital increase. Alstom’s financial director, Bernard Delpit, had already mentioned the first solution, in an interview with Bloomberg at the beginning of October. He had also closed the door to the second solution. However, it is clear that time is running out for Alstom, with the fear of losing its precious investment grade rating, and therefore of financing itself on less advantageous terms.

Alstom therefore changed its tune and said in its press release that it was studying a call to the market to accelerate the company’s debt reduction process, “depending on market conditions”. Enough to further crystallize the market’s concerns, since a capital increase is synonymous with dilution for shareholders.

As bad news never comes alone, the return to shareholders will also be sacrificed. The group also warned that its board of directors will propose at the General Meeting of Shareholders in July 2024 not to have a dividend for the current financial year.

To manage Alstom’s renewal, the group will also simplify its organization. The functions of chairman of the board of directors and general manager will then be separated. Henri Poupart-Lafarge will remain CEO while the group’s presidency will be held by Philippe Petitcolin, the former CEO of Safran.

The bond of trust with shareholders, already quite fragile after the heavy warning on its cash generation launched last October, is even more damaged. Alstom shares are still unable to recover from their historic fall on the stock market, and have lost another 43% since this big disappointment.