French train manufacturer Alstom (ALSO.PA) announced its intention to divest assets valued at up to 1 billion euros and explore the possibility of a capital increase in a bid to fortify its financial position and alleviate concerns among investors regarding its substantial debt.
In addition to these measures, Alstom, renowned for producing the high-speed TGV trains, is set to implement job cuts as part of its strategy to restore investor confidence, following its October projection of a negative free cash flow ranging from 500 to 750 million euros for the period ending March 2024.
This grim forecast had previously caused a significant drop in Alstom’s share price, with the stock plunging by approximately one-third, making it the weakest performer on the STOXX 600 index in terms of percentage decline.
Chairman and CEO Henri Poupart-Lafarge acknowledged the sustained demand for their products but admitted a decline in the company’s commercial performance.
Poupart-Lafarge emphasized the need for change, particularly in addressing Alstom’s negative free cash flow during the first half of the fiscal year.
Regarding the potential capital increase, Poupart-Lafarge indicated that it was not the preferred choice and would depend on the success of asset sales.
He expressed concerns that asset sales alone might not suffice to address the company’s challenges.
Alstom, the world’s second-largest train manufacturer after China’s state-owned CRRC, holds significant contracts, including the HS2 high-speed railway in Britain and Denmark’s largest-ever train tender.
Despite these accomplishments, the company has faced obstacles stemming from inherited problematic contracts following its acquisition of Bombardier’s rail unit two years ago.
Delays in downpayments on deals have also contributed to its short-term difficulties, despite a robust order backlog totaling 90 billion euros.
Alstom aims to reduce its net debt by 2 billion euros by March 2025, with its net debt standing at 3.4 billion euros as of September 30. The company also proposed foregoing dividend payments for the current fiscal year.
Key investors in Alstom include the Caisse de dépôt et placement du Québec pension fund and the French state-backed investment bank Bpifrance, with stakes of 17% and 7.4%, respectively.
As part of its asset disposal program, Alstom plans to generate proceeds ranging from 500 million to 1 billion euros.
Additionally, the company intends to reduce its workforce by around 1,500 employees as it strives to meet its mid-term objectives.
The company also announced that Philippe Petitcolin, a former CEO of Safran (SAF.PA), would be proposed as the new chairman of Alstom’s board, with Poupart-Lafarge retaining his role as chief executive.