Henri Poupart-Lafarge - Chairman and CEO Marie-Jose Donsion - CFO and SVP, Finance

Akash Gupta - JP Morgan Dennis Dinkelmeyer - Goldman Sachs Christophe Quarante - Societe Generale Alfred Glaser - ODDO Gael de Bray - Deutsche Bank Henri Poupart-Lafarge: Thank you. Good morning, ladies and gentlemen. Welcome to our Half Year Results Conference Call. I’ll start with the usual agenda. We start with the introduction, then we go over our strategy and our results and then I will make a thought -- update on Siemens Alstom project. And of course, we will open the floor for questions and answers. As a summary, as you have seen from our press release and our results, the first half of 2017/2018 has been extremely good in terms of performance, in terms of operational performance, and totally in line with our objectives of 2020. If you take the order intake, the order intake has been of €3.2 billion. Of course, lower than last year, but we didn’t record this year any extremely large order and that’s why the small and mid-size orders are sum up to this number, which is a good number if you take into account the fact that there was no large order during this first half. Sales were up 5% organically or actually at €3.8 billion, again in line with our long-term objective of 5% growth annually. The EBIT has been up 16% at €231 million. The margin -- adjusted EBIT margin has been at 6.2%; here as well a strong progression as compared to last year, in line with our objectives. What was quite remarkable is the free cash flow of €227 million, clearly outlining the good performance of our projects as well as the results of our Cash Focus program and the emphasis that we are putting on cash within the company. This is leading to a reduction of our net debt which is now at €101 million, confirming the very strong balance sheet that we have and equity of €3.8 billion. I will come back on Siemens Alstom. Its early days, as you know, it’s a long process and things are going exactly in line with our expectations. However, it takes a lot of time as you know. Just going back to the different items of our P&L, focusing on our strategy of 2020, you remember the five pillars of this strategy; customer-focused organization, solutions, innovations, operational excellence, and diverse and entrepreneurial people. This strategy has been set now for a number of years and year-after-year, we confirm the relevance of this strategy and the results which are totally in line not only in terms of headlines, but also in the details, totally in line with the implementation of such a strategy. So the first one is definitely to take advantage of the growing market worldwide and as you can see, we have now a very balanced order intake levels in the different regions as well as in the different product lines. So out of the €3.2 billion of orders, you have now a good balance between the different product lines where rolling stock is now representing less than half of the activity as we know usually, classically in our portfolio and the rest being split between the systems, services and signaling. As I said, there was no large order this half year and therefore no large systems orders. So the level of orders for systems was relatively small as compared to last year. You can look at the split of the backlog which is as you have seen, 45% in Europe now the split of the backlog, 16% in Asia, 17% Americas, 22% in Middle East, Africa, so a situation which is much more balanced than a few years ago and if you look at the sales by the way now, we are around 50% in Europe. So the rebalancing of our portfolio taking advantage of the growth I would say outside Europe has occurred. Some examples of orders, which again we had a very nice activity in North America, particularly in Canada on the back of our strong success of our Citadis Spirit both in Ottawa and in Toronto, but also in Los Angeles. So good first half for North America. Some activities in Europe particularly on regional trains. We did book the first order in Sub-Saharan Africa in Senegal of regional trains and this is one of the last regions of Sub-Saharan Africa where we are little present and we are increasing our presence with a number of potential orders, and of course, in Asia, with continuing success in Asia. Now coming back on Canada, so you’ve seen two contracts for almost 100 light rail vehicles, our newly introduced Citadis Spirit. It’s a good story because I think this is a product that we have introduced a few years ago, only four or five years ago on the market and thanks to us, I would say the good execution of the Ottawa project, we were able to book a project in Toronto. In terms of solutions, so as said now for a number of years, we intend to decrease the relative weight of rolling stock and increase the weight of the different activities or this different other activities. Of course, quarter-by-quarter, it may vary, depend on the execution of some projects, but today, rolling stock is now 43% of the total of our activity, service 19%, signaling 16% and systems 22%. There was a high growth of sales in systems during the first half on the back of the execution of both Riyadh and Dubai. On rolling stock, it has been relatively stable situation. We have started to head the regional projects that we have booked in Europe. Amtrak is going in the right direction, I will come back to that and we have delivered some trams in Algeria. Signaling and service has slightly decreased on the back notably of their presence in the UK and the adverse ForEx impact in the UK. R&D, this is the innovation, one of the strong action of our strategic plan. As you know, we have launched five years ago the complete renewal of our product range in rolling stock starting by the tram and we have seen the good success in North America with the metro, we started properly the regional trains and now the high speed and very high speed notably with the contracts in the U.S. but also the so-called TGV, the future in trains. This is now well ongoing. So we are continuing to develop and we are spending a lot of money on the very high speed and on regional trains. Of course, we have come down our spend on the tram and metro now that we have renewed the range. Continuing to grow our smart mobility program in signaling but not only in different digitalization of the mobility and we have also spent quite a lot of money on predictive maintenance. Some, I would say headlines, the first one with the hydrogen train and we have signed November 9, a few days ago the first commercial success for the Coradia iLint as per the developments of the hydrogen train and quite noticeable is that we have received the innovation award at the Busworld. The Busworld is equivalent of InnoTrans, so the world fair for buses, which happens to be in Belgium and we received the innovation award for Aptis, which means that we are ready to go to the market with breakthrough concept. Operational excellence, I think it’s always the same story. I mean day after day, we are taking advantage of all our initiatives in terms of cost cutting and in terms of project management, in terms of portfolio improvement although this half year, there is very strong growth of systems which is good, but not -- I would say in terms of margin but as good as signaling or service. So the mix has not played such a large role, but having said that, we continue to take advantage of all our initiatives and the good execution of our portfolio. In terms of initiatives, just a few of them as we still continue to work a lot with our suppliers. Of course, as you know, two third of what we sell has been bought so we need to clearly improve day-after-day the partnership with our suppliers and we have created what we call an Alliance and now 20% of our supply is being purchased through the Alliance, which is innovating together in terms of products, it’s also innovating together in terms of ways of working. We have increased the low level cost countries purchase to 45% trigger to 40% lifetime. Year-after-year, we are increasing that. Of course, because we are growing globally, so we take advantage as we grow but also, we take advantage of this footprint to serve other regions. One example of that is India, we are continuing to grow our activity in India. We have now more than 3,000 people in India. Bangalore as an engineering site is becoming the largest engineering site for signaling but also, and this is new, the largest engineering site for rolling stock as well. So continuing nice story in India and as you can see on the picture and I’ll come back to that, the Madhepura factory is now being built. So coming back to this very large contract that you probably follow, on PRASA, not a lot to say as we have delivered all our trains from Brazil as you can on the picture, revenue operation has started. So all that is going well. The factory is almost completed. Actually, even though, it’s not fully completed, we have started to work in the factory of Gibela. So things are moving in line with our plans. Clearly on India, I think we have done excellent, excellent work on India. The contract was booked two years ago more or less and within two years, we have managed to build a new factory in Madhepura and we are producing the first locomotive which will go out of the locomotive by February 2018 and I think this is extremely, extremely good achievement of all our teams worldwide who have been able to produce in such a record time, actually much ahead of schedule in terms of Indian production, the first locomotive. Amtrak, its early days for Amtrak. We have started to [freeze the design] and the livery which is always very important, which has been revealed in October. So far so good, I think we are progressing quite well on the engineering of the train. Of course, its early days in terms of project execution. So clearly, the solid project execution has allowed us to grasp the fruits of our cost cutting measures, which has not been hampered by any deterioration of the margin of backlog. On the contrary, the margin in the backlog continues to improve quarter-after-quarter. Just on a more general topic, we have been very proud to have been certified ISO 37001, which is anti-bribery management system. I think we are the first French company to have been certified ISO 37001 and I think it shows all the efforts and all the discipline that we have put in place in the company on this topic. Similarly, we have been selected for the Dow Jones Sustainability Index for the 7th year -- consecutive year, and we are now part of the top 5%, which means that we are also progressing on sustainability. Clearly, as being seen by the CDP scores B, clearly, as you know, Alstom is fully dedicated to a sustainable development, both because of our products [indiscernible] fundamentally finally the mode of transportation, but also internally we are improving our weather tracking in order decrease the energy and the carbon footprint of our production. I will now hand over to Marie-Jose for the financial results. Marie-Jose Donsion: Good morning, everyone. So, I will take you through the other financial indicators. So moving straight to the items below the adjusted EBIT line in the P&L, you will see we have -- sorry for that -- we have restructuring charges of just below €20 million for the semester, driven by a footprint -- footprint rationalization, notably in the U.K. and in Brazil. The other charges include the amortization of intangible assets and integration costs, which are progressively reducing compared to last year. This led to a substantial increase of our EBIT at 194 million compared to the 168 million last year. The financial result has decreased to 51 million compared to 71 million last year for the same period. And this comes directly out of the reduction of the gross financial debt after we repaid the bond maturing last February for close to [0.5 billion]. The group also recorded a tax charge of 40 million corresponding to an effective tax rate of 28% compared to 33% last year. I actually considered this rate should be sustainable in the future. The share in net income of equity investees amounted to €110 million. This is made of, let’s say, two main items. First, the re-evaluated options on the Energy alliances for €80 million and the improved performance of our non-controlling interest in CASCO in China and TMH in Russia, which together contributed €30 million in terms of P&L for the semester. So this leads us to the net result. The net income of €213 million for the first half ‘17/’18. If we look at the cash flow generation, of course the operating performance increasing as supported the good cash flow generated over the period, as well as two main other items. The positive evolution of the working capital, which benefits, of course, from the company-wide efforts from the Cash Focus program that continues to bear its fruits as well as from the favorable cash profile of a number of contracts, which has allowed us to decrease the construction contracts in progress in our balance sheet. The second item is the staging of -- or the phasing of the CapEx where you actually recognize there is a ramp-up of our CapEx, in particular, including the strategic CapEx we are making in South Africa and in India. And definitely, I expect more to come in the second half. So, all these actually contributed to this high profit cash generation over the period of €227 million for the first semester. Looking a little bit more in detail into the CapEx, as I mentioned before. So we invested €80 million over the semester, which is twice as much as last year. And this included, let’s say, the normative €30 million that we have on a recurring basis as well as the €50 million transformation CapEx, mainly, as I said, in PRASA and -- in South Africa, as well as in Madhepura in India. We also recently inaugurated Widnes, our biggest and most sophisticated train modernization center in the UK which allows us to do some renovations on the fleet in this market. We are now at €100 million spent out of the €300 million transformation CapEx over the three years and I definitely expect a ramp-up on the second half year. Looking at the liquidity and gross debt. The company enjoys a sound liquidity position, over €2 billion, which includes the cash available as well as the €400 million revolving credit facility, which is of course fully undrawn. And on the top, we continue to enjoy the flexibility with the put options we have on the Energy JV. You can see the gross debt continues to be reduced over time. It sits now at €1.5 billion at the end of September 2017 and we have actually reimbursed the €272 million bond maturing in October last month. The next maturity will come next October and should follow the same path. Looking at the evolution of the net debt as a consequence, it’s been reduced 100 million over the semester, so moving from a 200 million position, at the end of March to now 100 million. It benefits, of course, from the positive cash flow generation over the period. And basically this cash generation allows to offset the cash we spend on the IT separation costs we have with GE, as well as the dividend payments that were performed in June this year. We have a slight capital increase that you can see on the chart of €30 million, including Indian Railways contribution to Madhepura for 11 million as well as €20 million stock option subscription. So this, of course, has positively contributed on the reduction of the net debt. And we have, similarly, actually enjoyed an increase in the equity level of the company reaching now a little bit under €3.8 billion, benefiting from a net income of 213 million generated over the period, some positive evolution of the pensions, thanks to the positive evolution of the interest rates in the UK, which is the main pension scheme that we have in the company, which basically totally offset the dividend payments as well as the ForEx evolution that we have where basically Euro has strengthened over all the other currencies worldwide by around 10% over the semester. This is it. Henri? Henri Poupart-Lafarge: Thank you, Marie-Jose. On the project, on Siemens-Alstom project, as I said nothing particularly new. As you know we have signed the Memorandum of Understanding on September 26. We have put in place the necessary teams to execute the deal as well as to start all the different procedures. The first one being the Works Councils’ information, which has been launched in line with expectations. As you know we should sign the business combination argument after this information process and this should happen in the first quarter of 2018, the first quarter of calendar year 2018, so between January and March 2018. And thereafter we’ll launch the actual process of authorization by the anti-trust administrations around the world. So nothing new there. Things are moving smoothly, totally in line with our expectation and anticipation, knowing that, as we said, it will be a process which will last during, at least, 12 months. In terms of objectives, it will not surprise you. I think these good results, in terms of operational performance confirms our 2020 objectives. We continue to see the sales growth which has been fueled by the last backlog. Adjusted EBIT to reach 7% and 100% cash conversion knowing that this is something that we have achieved during the first half, that’s something which we have achieved last year despite some cash outflow linked to CapEx notably, but I think that we totally would confirm that the sustainability of our working capital -- you know that one thing which is extremely important for us is to stabilize our working capital to make sure that the absence of money at the table and that’s what we have achieved over the last two to three years now and we continue to do so thanks to our own efforts. Thanks a lot. I think it will be time for the question and answer. Thanks.

[Operator Instructions] We will now take our first question from Akash Gupta from JP Morgan.

My first question is on sharp increase in GE puts contribution, given that you have said previously that there is a formula of how the value of these puts will increase per year, which I think is 2% for two joint ventures and 3% for 1%. So, maybe if you can elaborate what exactly has changed in terms of how you revalue these put options. That’s my question number one? Marie-Jose Donsion: In fact, as you know the put options are used as hedging instruments to protect us against the adverse effect of the negative results of the GE JVs. So not only those instruments allow us to be used as a coverage for any negative results, but they also get remuneration. And it’s -- the valuation is based on Black and Scholes method for those of you who are -- want to go into the nitty-gritty of the details and therefore there is a content in the valuation which is the value of time and as time elapses and we get closer to the exercise date of the puts, this amortization of time speeds up, let’s say and therefore -- let’s say, we have an hockey stick in the valuation, so that we capture the execution value of those put options, which you already know is 2.6 billion in September ‘18. So, we are basically ramping up the valuation that fits in the balance sheet to achieve that and the realization value by September ‘18. So you should expect a similar phenomenon in the second half of the year.

We will now take our next question from Dennis Dinkelmeyer from Goldman Sachs.

I’d like to further clarify the terms of the GE option given the recent changes at General Electric, I just wanted to ask you to remind us of the outstanding terms of that transaction and if there is anything that GE could do to reverse the transaction or if there is any conditions that are potentially subject to the closing of Siemens and Alstom. Thank you.

Thank you. No, no, there is a -- I mean, nothing has changed. Obviously, the changes within GE has no consequences on our contract with GE. So it’s a put option that we have in our hands on two of three of the joint venture as we know, the renewable and the grid one. On the third one, of course it’s a much smaller number because we are talking about only 100 million out of the 2.6 billion and here it’s a call from GE if we exercise a put on the two first one. So nothing has changed and there is no -- it’s totally in our hands for the two put options.

[Operator Instructions] We will now take our next question from Christophe Quarante from Societe Generale.

Just coming back with three questions if I may. First coming back to the execution of the current projects, could you come back on your ability of increasing the profitability there? What are the main drivers behind -- to give more color on the achievement you have made in terms of profitability is my first question. Second question relates to the competition on the current environment. Did you see any pressure on prices still and then could you give us a view on what’s happened since the announcement of the potential merger with Siemens and have you seen any negative reaction from clients and what are the main reaction of the clients, but also of the competitive landscape with regard to this potential combination? And last question, could you come back on the [indiscernible] on the positive evolution there and clearly what are the down payments part of -- in terms of contribution as it is with regards to the inventories and how do you see this metric evolving into the future as Marie mentioned, this is a clear focus of the company. Thanks a lot. Henri Poupart-Lafarge: Thank you, thank you Christophe. On the first question, on execution, as you know, the first objective is first to execute in line with the customer objectives so, in terms of cost, time, quality of course and then, as the execution goes, we can improve our cost base. For example, [indiscernible] activities, but clearly, the number one I would say goal is not to have any problem and if you have no problem, then of course as you have set aside some contingencies, as you have set aside some money there, I mean it allows you to improve the global portfolio, but classically, we are trying to improve a little bit everywhere and clearly avoid -- and we are trying to avoid any negative contract and that’s why it’s so important that our last contract, as you have seen, are executed properly which is totally the case. We have not seen any I would say impact of the announced deal of September 26, it’s also fair to recognize that its early days, I mean, we are just one month after the execution -- the announcement. So, we cannot see any move on the market. We have not seen any negative positions taken from any customer. We have not seen any move from competition. We’ve not seen things on the market. So it has been very well received by our employees internally, both in Siemens and in Alstom, which I think is a very, very good starting point because we need to design this new organization together that’s value positive. It has been positively as well received by the customer. I think we have -- it confirms that both Siemens and Alstom are seen on the market as two very strong player with a very good reputation in terms of technology and quality. So I think it will adapt to a very, very nice brand. So only positive things and we have not seen any changes of any attitude of our customers or competitors. On the working cap, Marie-Jose? Marie-Jose Donsion: On the working capital, actually we’ve been continuously improving. So when you look at the down payments, they have been relatively flat over the period, meaning actually the down payment consumption equaled the new down payments received on the orders that we booked over the semester. Basically, we continue to get progress payments, let’s say, on the projects under execution, in line let’s say with what we explained earlier, which is with high 12, let’s say, more linear or more regular flow of cash between the customers and ourselves during the execution phase of our projects. At the same time -- so we are obviously continuing to grow the company and increase our capabilities to enhance the effect and the increase you use in the inventories. It has also a collateral effect which is an increase in the payables since we buy more in line with the growth of the company. We also have a nice evolution of the trade receivables with, let’s say, close to €150 million decrease of the receivables, in line let’s say, with the good cash collection that we’ve had over the period.

We will now take our next question from Alfred Glaser from ODDO. Please go ahead, your line is open.

I wanted to ask you, can you give us maybe a bit on updated guidance on the transformation CapEx? How much you want to spend in the second half year and how much you want to spend next year? And then on the order intake, could you give us kind of expectation, what you see ahead for second half year, how much you might book overall for -- in the current fiscal year? Henri Poupart-Lafarge: On the order intake first, Alfred, I think we said it already in the past and we don’t -- there are not so many very large orders this year. So it’s a question of phasing the orders, nothing which could be alarming or could affect the trend of the market. We have not lost large orders as well. So it’s just that none of them have already been booked by anybody so far. So we’ll see. It’s always difficult to predict the timing of some orders. As you know well not order, it’s about the TGV in the future which is the renewal of the high speed fleet in France. Of course, if it falls before end of March or at the end of March, it will change the actual numbers. To be fair, that’s not really changed the operational -- the operational aspect to it. But from purely a communications standpoint it will change a lot the total number. So we don’t -- we are not expecting very soon some very large orders which would be soft on that aspect. Maybe Marie-Jose on the CapEx. Marie-Jose Donsion: Yes. Regarding the transformation CapEx, as Henri indicated this year we are clearly starting production in both South Africa and India. And therefore, we are now clearly having an acceleration stage of the investments. I expect definitely the second half year to be twice as much, let’s say, as the first half year in this respect.

We will now take our next question from Gael de Bray from Deutsche Bank. Please go ahead. Your line is open.

Actually I’ve been disconnected and missed the first set of questions, so I hope I will not make you repeat what you’ve already said. But two questions please. The first one is on the incremental margin which was close to 17% in the first half. I think this is a much better drop-through than what we had seen in the past couple of years when it probably ranged between 10% and 14%. So was there anything unusually positive in the first half or would you expect to be able to maintain such a good operating leverage going forward? The second question is on the order performance, because if I adjust for the two large contracts in Italy and Sweden in fiscal Q2, the flow of small and mid-sized orders below €50 million exceeded €900 million in the quarter, right. So I think this is a record high level. So could you talk a bit about this whether there is an ongoing change in the market or perhaps in your commercial approach towards smaller contracts or if it is just the usual volatility of the business that made it this way? Henri Poupart-Lafarge: I think, Gael, on the first question I’m not looking at precisely whether it was missing by 17% or 14%. I mean, there is a nice [indiscernible] of actions. I mean we said it, I think, two or three years ago that starting more or less now all the operational measures will kick in after the time which was marked more by just the impact of the growth and the impact of the mix. Now we already see the impact of the cost reduction measures. So on that front, it’s a good number but I don’t expect it to slow down in the future. So this is in line with our objective and in line with what we expected from the plan. Positively impacted by the fact that, as I said, we have no issue on our project execution, which are well executed and therefore we have no negative news coming from that. So it’s a combination of the cost reduction measures kicking in and the good execution of the projects. So it should not stop in the future. On the order intake, it’s true that we are increasing the small and mid-size orders. It’s difficult to say whether it’s the trend of the market. It’s clearly something that we are pushing and our geographical organization, our localization help us in getting more small and mid-size orders. It’s clear that it’s much easier when you are closer to the customer to get these kind of orders than when you are far away. At the same time I mean it’s a little bit early days to know whether the numbers you are quoting is a recurring number. I mean, we’ll see in the coming quarter. But it’s true that this is something that we’re pushing internally. It’s true not only are the big orders, but also to have day to day gathering, as we put it.

[Operator Instructions] Henri Poupart-Lafarge: Okay. If there are no other questions, I mean thank you for having attended this call. I mean, Selma and Julien are of course at your disposal to answer any further questions. And I think our next meeting or call will be on January 17, 2018 for the Q3 order and sales and I wish you a very good day. Thanks. Bye, bye everybody.