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Smiley faces outnumbered glum ones in Alstom's presentation of prospects for its varied businesses, from hydro projects to rail rolling stock, on Tuesday. Not on the stock market. There, Alstom shares dropped almost 10 per cent as the French group released full-year figures to end-March and revised its forecasts.
Here is the market's conundrum. Orders piled up nicely last year at €24-billion ($31.5-billion). This was 10 per cent higher than in 2011/12, giving a book-to-bill ratio of 1.2 and lifting Alstom's backlog by 7 per cent to €53-billion.
Yet 2012/13 sales disappointed (up only 2 per cent at €20-billion) and, in spite of the swelling order book, Alstom is downgrading its revenue growth outlook to "low single-digit" (compared with 5 per cent-plus previously). Operating margin improvement – to around 8 per cent compared with just over 7 per cent at present – is also pushed back from 2015 to 2016 or 2017.
According to chief executive officer Patrick Kron, this reflects a rather subtle downgrading of prospects, as weaker economic trends combine with a range of project hiccups – a Brazilian strike here, an Indian land issue there. To offset sales weakness – noticeably, last year, on the grid and renewables fronts – Alstom is stepping up restructuring. Charges for this will again be in the €100- to €150-million range this year. But operating margins should be held at around 2012/13's 7.2 per cent as a result.
The question for investors is whether this is simply a case of promises deferred or whether it reflects more fundamental problems, such as weak market positioning and emerging-market competition. There is comfort in €400-million of free cash flow last year – positive for the first time in three years. But, although the shares surged earlier this year, they now trade on under nine times forward earnings. Given the uncertainties, that five-5 percentage-point discount to the Stoxx Industrial Goods index may not close quickly.