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French Train Maker Alstom Slumps After Cash Flow Warning

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(Bloomberg) — Alstom SA will be “opportunistic” on potential asset sales after a warning on its financial guidance wiped out as much as €3.1 billion ($3.3 billion) of the train maker’s market value.

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“If there are good opportunities, of course I will discuss it with the board,” Chief Financial Officer Bernard Delpit said in a phone interview on Thursday. 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.

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, including 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 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, it said Wednesday. 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.

Bombardier Troubles

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.

Read more: Sunak Cancels Rest of HS2 High-Speed Rail to Re-Invest Funds

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.

(Updates with details throughout)

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