Shares in Luas-maker Alstom plunge 37% on cash flow warning

French maker of high-speed trains blames increase in inventory build-up

Alstom shares plunged as much as 37 per cent on Thursday after the French maker of Luas carriages and high-speed trains slashed its forecast for free cash flow as a UK project and other deliveries were delayed.

The group now expects negative free cash flow of €500 million to €750 million this year, a reversal from its earlier prediction that it would be “significantly positive”, it said on Wednesday evening.

The rapid deterioration alarmed investors, with the group’s shares down 34 per cent to €14.20 in Paris in early afternoon trading, valuing the company at €5.46 billion.

Alstom pinned some of the blame on a big increase in inventory build-up and delivery delays, particularly in the US and Europe.


It said about half the impact had come from having to increase production to meet new orders. “This, combined with tight supply chain conditions, resulted in a significant increase in the level of inventories and contract assets built in order to avoid production disruption and delivery delays during the first half of the year, particularly in Americas and in Europe.”

A third of the cash flow squeeze stemmed from delays in completing the Aventra programme in the UK, an electric train project that it took on with the purchase of Bombardier Transportation of Canada.

Alstom also suffered from a decrease in downpayments because of weaker than expected orders in the first half of the fiscal year.

The hit to cash flow is “a major blow to management’s credibility”, noted Gael de-Bray, an analyst at Deutsche Bank. Alstom’s investment grade rating “now looks at risk, with a capital increase becoming increasingly likely”.

Alstom initially agreed to buy Bombardier’s train unit in a deal worth close to €7.5 billion, including debt, but later cut the price in September 2020. The cut in the value of the deal came after the Canadian group reported a surprise quarterly loss due to charges linked to British and German projects. The final acquisition price was set at €5.5 billion.

It had sought the acquisition as a means of bulking up in the face of rising Chinese competition and growing demand in Europe. A year earlier EU antitrust regulators blocked a merger with Germany’s Siemens.

Analysts at Deutsche Bank said that the group was now likely to finish the year with net debt of €3 billion, around €1 billion higher than previously expected. – Copyright The Financial Times Limited 2023