Ladies and gentlemen, welcome to the Alstom Third Quarter Orders and Sales Conference Call. [Operator Instructions] This conference is being recorded. At this time, I would like to hand the call over to Laurent Martinez. Please go ahead.

So good morning, everyone. Happy New Year to all of you. It's still time. And welcome to our Alstom webcast dedicated to our third quarter for the fiscal year '22, '23, which is focused on orders and sales. So starting with the order intake, We saw continued good commercial performance during the third quarter with orders at EUR 5.2 billion. This quarter has been marked by the exercise of options on frame agreements in Spain, Ireland, also in Kazakhstan for locomotive, and as well as the completion of the Elizabeth line in London, which enabled us to book the associated Service contract for more than EUR 1 billion, leading to EUR 5 billion of Services orders over 9 months. Altogether, order intake is at EUR 15.2 billion year-to-date with a book-to-bill at 1.2, which brings our backlog to around EUR 85 billion with a negative ForEx effect over the quarters due to euro appreciation. Overall, I'm very satisfied by the quality of this order intake. Margin on orders continues to largely exceed our margin trading in the P&L, fully consistent with our midterm objective, both in terms of margin and cash, and as a result, our margin in backlog is improving, supporting our trajectories of profitable growth. Looking at some of our commercial successes on this slide with nice pictures. First, with a strong H1 on Coradia Stream platform, happy to see new orders in Spain with Renfe adding 49 on the backlog on this very successful platform, which is now exceeding 900 trains ordered. We have seen as well a number of options on frame agreements, Kazakh Locomotive, Irish Rail. And this highlights, obviously, the quality of our long-lasting relationship with our customers and as well provide increased industrial visibility on product which has been already developed. Second, we see a continuous positive trend, I was explaining before, on bundle offers, Rolling Stock and Services again, again, Kazakhstan and Delhi Metro with Services commitments over the full life cycle of the product. Turning to sales, 9 months year-to-date sales increased 8% against last year and 6% organic. And we recorded EUR 4.2 billion in this quarter, 5% up compared to the second quarter. We've seen, in particular, positive development on our Rolling Stock activities during third quarter with sales growth accelerating plus 5% year-on-year in the third quarter from plus 2% in H1, resulting altogether, as you see on the slide, by 3% increase over 9 months. I'll remind as well that Rolling Stock activities reflected as well in our system sales with around half of the system growth which are linked to Rolling Stock activities. Looking at the other product line, equally successful. System momentum year-to-date remains extremely positive, as you see, plus 29%, thanks to Cairo Monorail and Canada ramp-up. Services increase remains extremely solid, 15% year-on-year, and Signaling continued on a steady growth as well. Overall, execution is progressing well in line with our trajectory. Moving to next slide and illustrating on a couple of project milestones in the last quarter, starting with the U.S., where we successfully delivered an extension of 2.5 miles on the Phoenix Sky Train, our automated people mover system. In Netherlands, we successfully concluded number of tests, demonstrating for the first time full autonomy driving on shunting locomotive. In Greece, we completed the infrastructure work for all of the 6 stations to the extension of the third line of the Metro in Athens. Turning to Egypt, which is a very important country for Alstom, as you know, successfully delivered Signaling control system for Cairo third line of Metro. And in the U.K., the flagship completion of the Elizabeth line in London during this quarter following the final acceptance of the system and the last trains. So to conclude, let me highlight a few messages. Number one, our delivery is on track. We have a positive ramp-up in Rolling Stock and a continued good performance on Signaling, Services, and Systems, supporting our trajectories. Second, the demand momentum is dynamic. Our pipeline is strong. And I do confirm the EUR 190 billion of opportunities in the next 3 years based on our latest commercial plan. Ridership is back, as you know, to pre-COVID level in many countries and government funding are confirmed and unfolding supported by stimulus packages and as well, of course, focus from public decision-makers on fleet replacement and green transportation transition. Third, we continue to expand our backlog, focusing on quality orders consistent with our midterm profit and cash target. Finally, our business model is resilient and we are laser-focused on managing external headwinds. Supply chain risks including electronic components are under control. And related to inflation, salary negotiation in our 70 countries are starting as expected, while pressure is reducing on energy and raw materials as expected. Based on this, we confirm our outlook for this fiscal year and our midterm targets. Specifically for this year, order intake confirmed at a book-to-bill above 1, sales growth consistent with midterm guidance, adjusted EBIT between 5.1% to 5.3%, and free cash flow between plus EUR 100 million and plus EUR 300 million. So just a remark on this slide. For urgent and practicality reasons, we have decided to include ESG topic into our investor day on May 10 instead of having a separate date in March. And you will see on the next slide, our Investor Relations timetable for this calendar year with notably all conferences where we intend to participate, for your reference, and I will be glad to meet you as well. So thank you for listening in on this introduction. And with this, back to you, operator, moving to the Q&A section. We have a small technical issue that we need to fix, so bear with us. The operators will be back soon.

[Operator Instructions] And our first question today comes from Calvin Chen of Credit Suisse.

I've got 2. So the first 1 is in terms of the demand, have you seen any signs of changes in customer activity and planning? I do appreciate that you mentioned many of your customers have been confirming or what government has been confirming plans, but if you could elaborate a little bit there for us, that would be great. And also, do we expect to see any order growth go down in fiscal year '23 and '24, because given you mentioned a big chunk of your Service order growth is coming from the TFL long-term contract recognition. So in particular, how should we expect Service growth in this fiscal year and the next, please?

So thanks, Calvin, for your question. So number one, on your global question on demand, I do confirm that the demand is extremely positive. A couple of trends on these matters. Number one, as I say, ridership is resuming to pre-COVID-19 level with an exception in the U.S., and we had some record level of ridership in Europe in the summer, for instance. There is obviously a number of stimulus packages which are unfolding in Europe, in U.S., in Australia, to name a few countries. And we have, obviously, the trend on the replacement fleet. And you need to bear in mind that looking ahead, around 70% of our market is geared toward replacement and the rest will be, of course, incremental capacities. And this as well includes, of course, diesel replacement. So the trends are very positive, and I do not see any sign, to your question, Calvin, of slowdown on our demand globally. Your second point on the Services growth. So very pleased by the global Services performance. We have EUR 5 billion worth of Services orders for this first 9 months, and I see a continuous positive trend, which are backed by 2 trends, basically, number one, the fact that we have more and more bundled contracts, and the second fact that there is, I would say, the strategic purpose of operators more and more to move to OEM services.

Our next question now comes from Alasdair Leslie of Societe Generale.

This is Amit dialing in on behalf of Alasdair Leslie. Thanks for taking my questions. I have 2. First, when we look at new orders taken since April 2021, on average, it seems there's been a significant reduction in risk profile, specifically on new projects versus the legacy projects. Do you kind of agree with that? And how important a driver is that in terms of realizing your margin ambitions? And maybe if you could expand on the potential implications for cash generation as well. I'll follow up on my second question after that.

So indeed, we are focusing in our order intake on standardization of our platform and the success of Coradia Stream is a perfect example of this. This is linked with our global strategy of standardization of our platforms post Bombardier acquisition and on our activities of maturity of platforms. So you're absolutely right to say that by having this standardization, there is a reduction of the risk profile on our Rolling Stock orders specifically.

And maybe -- my second question, you mentioned in your opening remarks about wage negotiations, which is underway in most of the countries. If you can provide us small insights into key countries like France, Germany, U.K., and U.S.? And a follow-up there is, are you still confident on the inflation trajectory peaking this year and ramping down over the next few years?

So on wages, definitively, we are just starting, as I say, the negotiation, which will be in 70 countries. So it will be, of course, a complex negotiation with, of course, the current inflationary environment. It's just starting, so I cannot provide you any color. Still, if I look at the moving part on inflation, raw material and energies are easing as anticipated. And of course, there is the wages, salaries negotiation to come. All of this is within our global scenario that we have been using to define our guidance of 5.1% to 5.3% that we are confirming today. Just want to remind as well, Amit, that 2/3 of our backlog is protected by indexation clauses. And I explained that within this indexation clauses, there is as well labor indices, which represents, by the way, a very large share of this protection. So this is something where we have a natural edge coming from our customers.

And we now take our next question from William Mackie of Kepler Cheuvreux.

Yes. The first question is just a general question with relation to orders and then a specific follow-up on orders. which relates to -- to what extent have you been able to improve the terms and conditions in the order bookings that you've been making during this year compared to previous years to perhaps incorporate greater flexibility in a more inflationary environment? And a specific follow-up on orders is, could you perhaps describe the environment in India and your prospects for order wins in India and any feedback with regard to perhaps the locomotive opportunity that went to a competitor? That's my first question around margin booking in revenues that we might expect this year or what was taken in Q3?

Will, thanks for your question. So on your first question on orders, yes, we do improve our T&Cs related to inflation specifically. If I look at, for instance, our third quarter, we are in the 75%, 80% protected in terms of inflation, which is above our 2/3. And if I look at our pipeline, we have the lion's share of our pipeline opportunities, which are protected by inflation indices, because our customers understand that as a company we cannot take inflation risk on the mid- to long-term projects. On your second point on India, just to remind a couple of facts. We are definitively, as you know, very strong in India. We have more than 10,000 people. We just won Delhi Metro for the third quarter, which is a key success. And we are developing and delivering very successfully our e-locomotive in Madhepura, which is a contract of 800 locomotives, as you know, based on our local manufacturing and supply chain. So I will not comment, of course, any specific orders from our competitors. We are definitively committed to India, and we expect still a very positive momentum for Alstom in India based on our footprint and track record. On your second question, Will, on 0% margin. So bottom line, in line with what we explained in H1, was around EUR 2.4 billion for the full year and third quarter fully consistent with this trajectory. So absolutely as expected. And this is reflecting the quality of our execution for this quarter.

And I have a follow-up around China. You have a number of joint ventures in China. Is there any insight that you could share regarding the effect of the opening up either on the short-term health impact to the business or perhaps the medium-term opportunity as the business starts to normalize?

So on China, if I look at the dynamic of the various markets, well Signaling remains extremely positive. And CASCO is a success service with a large share of the market, which is addressed by this joint venture. On the Metro line, there is steady evolution, I would say, and there is ramp down on the very high speed, on the new very high speed, where basically, we are expecting as well a rebound in the next years with the first wave of replacement. So all in, I would say, a contrasted picture in China. If I look at contribution of our JV, I do not expect any major evolution moving forward on the basis of this Signaling, urban and high-speed portfolio.

And now moving on to Daniela Costa of Goldman Sachs.

I just have 1 question, and I wanted to follow up on cash. Obviously, you're reiterating the guidance for this year. Your medium-term guidance is the fiscal '24, '25. So there's 1 year in the middle. Can you run us through, is there any reason why we shouldn't think about a linear progression between now and that in terms of cash conversion? Are there any makeups in the bridge that we should remember if it is different to a linear progression?

Thank you, Daniela. Happy New Year as well to you. So a couple of -- maybe I rewind on the key cash flow drivers for this second half of the year for the full fiscal year '22, '23, where we have definitively, as drivers, number one, the profit uplift, which will be reaching 5.1% to 5.3% for the full year. For the second half, I see a working capital stabilization with the ballistic headwind of the provision consumption, I was saying around EUR 300 million for the full year. Half of this is met in H1. And the tailwind on execution and continuous positive down payment. And as well, finalizing on the second half cash, CapEx acceleration with the usual seasonality. So that is the drivers Daniela to this fiscal year. Early days to answer to you on next year. Something, of course, where we will provide you color in our full year results in May.

And up next, we have James Moore from Redburn.

I have 2, if I could, to follow up on your comments on inflation. The first 1 is on your comments that you feel good about raw materials, supply chain and energy. But my understanding is that if metal prices finish the period higher than the average of the contract, your indexation escalated covers book enjoys a positive final delivery impact, which we saw at the half. But now the metal prices have dropped a lot and energy prices have dropped a lot. Could there be any final impacts that are more negative? Is that a topic we should think about? That's the first question. The second question is on wages. You mentioned we're going into negotiations, which feels like a risk yet to be firmed up. I'm somewhat concerned about wage inflation. In terms of expectations of your margins to lift 120 basis points next year, which is a meaningful progression, I understand the dynamics for synergies and the dropping down of the bad backlog, but could wages pose a topic to this degree of development?

So on your first -- James, Happy New Year as well to you. So on your point on metal price up and down, you're absolutely right that this is something which is a potential headwind, limited one, because, as you know, our raw material are representing only 7% of our cost base. So this is in line, of course, with our global indices with our contracts. There is a couple of edge to this. Number one, we are buying the material over a long period of time, so we are averaging out our cost output. And second, we have as well back-to-back close with our suppliers on this matter. So there is, I would say, plus and minus into this equation of the raw material evolution when it comes to inflation. To your second point, on wages, as you know, we have defined a global scenario in terms of inflation that we have reflected in our guidance of 70 to 90 basis points all in. Today, we confirm the guidance of 5.1% to 5.3%. We'll see, of course, at the end of the day, all of this, but I don't have any sign that globally, our assumptions are wrong as we speak.

And just to follow up on that, my sense was, as the degree of revenues that are covered with indexation increase, say, 60%, 70%, 80% over the next 3 fiscal years, as the higher cover in order intake rolled through the P&L, but one should expect the inflation headwinds to fade almost linearly, even with the current wage environment, do you think that's still possible?

No, absolutely -- that's what I explained in H1, James, absolutely. So 70 to 90 basis points, call it, 80 basis points is a peak as we see it. And as we deliver our backlog not protected and replenish with the backlog, which is protected, this will be linearly reducing. And what I said is that in '24, '25, our level of sales exposed to inflation will be from 40% this year to 20% in '24, '25. So this is confirmed. And that's part, of course, of our global edge we are having on inflation. I want to add as well, James, that we are fighting, of course, inflation with terms and conditions. We are fighting as well with cost out measures in our overhead direct costs in projects. So that's something that we are, of course, increasing the momentum as we speak.

And we're moving now to a question from Akash Gupta of JPMorgan.

My question is on Service growth where you had another double-digit growth in the quarter, and year-to-date we had 15% growth in Service revenues. Maybe if you can elaborate what is driving it? And given that you still guide solid mid-single-digit CAGR in Service as part of medium-term growth outlook, shall we expect below mid-single-digit growth in the coming years? Or there could be some upside to this medium-term Service growth target?

Akash, thanks for your question. So indeed, very positive performance in the first 9 months on Services, as you said, around 15%. We see a continuous increase in the last quarter as well in terms of Services evolution, maybe less spectacular than what we had in the first 9 months. The drivers are very simple. It's increased ridership, increased usage of our fleet with our strong franchise in the U.K. and in Italy and in the U.S. and as well, of course, the benefit of all of the win of new orders that we have had in the last years on Services. I want to add as well in terms of drivers, Akash, that we are focusing more and more on basically small orders businesses, small orders capture, which are generating short-cycle sales, and this is something which is very valid for Services and Signaling as well. To your point on the trend for the years to come, definitively, we see Services contributing more in terms of growth than the average of the group, so in excess of the 5% CAGR that we have as a target.

And our next question now comes from Vlad Sergievskii of Bank of America.

Yes. Thank you for taking my 3 questions. My first one will be on the very big EUR 1.1 billion 30-year Service contract in the U.K., which is good to see it. Would it be fair to assume about EUR 30 million plus of average revenue per year from this contract, and if that can renew or not? Also, do such contracts carry material prepayment? And are those revenues defined in the contract through all 30 years ahead, or they are subject to certain assumptions? So that's just one.

Vlad, sorry, we did not get your question acoustically. If you can recap?

Yes, one can understand, Laurent. So hope you hear me okay. So I'm asking about this EUR 1.1 billion Service contracts in the U.K. Do such contracts carry material prepayment? And also, do such contracts specifically define revenues in any given year over the next 30 years, or those revenues are subject to assumption?

So on this one, there is no specific prepayment on this contract, like on Services, as you know, Vlad, we typically do not have down payment or very limited one.

Understood, Laurent. And if I can also ask you about Rolling Stock revenue progression. It picked up in Q3 this year. Would you be able to share the organic growth rate for Rolling Stock sales specifically in Q3 this year versus Q3 last year?

Yes. So on third quarter, Vlad, this year to third quarter last year, globally 5%. The organic is close to that because you need to have in mind that we have the deconsolidation of our [indiscernible] activities, which is impacting, of course, negatively our sales for this quarter. So organic close to actual growth in terms of Rolling Stock.

Perfect. And my last one, very quick, could you talk about potential impact on your interest cost going forward from variable interest rate, if there is any impact at all?

Okay. So indeed, there is, as you know, very well, that the interest rate has been increasing from around minus 1%, say, to plus 2%, plus 3% during the second half. So indeed, there will be headwinds in terms of financial interest cost in the second half compared to the first half.

And now we're moving on to Jonathan Day of HSBC.

I was wondering if you could just elaborate a little bit more. You talked about the Service orders focused on the small service orders and shorter cycle. Does that means that the level of base orders that you talk about has increased at all? That's my first question. And then secondly, I was wondering if you could touch a little bit on the stimulus plans and the longer term sort of impact of stimulus plans and where you see those coming through?

Jon, thanks for your questions. So on Services orders, indeed, as I said, we are focusing on this short cycle, which is a positive driver for our sales. We are talking, just to illustrate, on spare parts, we are talking about ad hoc services that we are having, we are talking as well about step-up on the current scope of our long-term contract with incremental activities, which are variation orders to our large maintenance contracts, which are multi-years. So these are the drivers that we are having on our short cycle, something which is very positive in terms of margin accretion. To your second point on stimulus packages, we have an expectation of support on stimulus packages in terms of, in the U.S., we are expecting step up of the order intakes, thanks to the Biden Infrastructure Plan specifically. We have some specific opportunities as well in Canada, which are supported, like the Toronto area, which is, as you know, the electrification of Toronto areas, which is a multibillion euro contract to illustrate. On Europe, we see next-gen starting to unfold, specifically in Italy, in Eastern Europe with first clear contracts which will be signed in the short term. And we see globally as well European Signaling Systems, ERTMS, to unfold. And just to illustrate, we see a doubling of these activities from this year to the next 3 years, which will be as well extremely positive for our signaling activities.

[Operator Instructions] And up next we have Marc Zeck of Stifel.

Two questions from my side. First one, on the Elizabeth Line contract, in the report you said that you've realigned the order intake. Does it mean that there's something, let's say, unusual about this? Or is it just -- the word realigned is just [indiscernible] freedom, so to say. Second question would be on wages. We've seen, let's say, in the industrial space, wage increases so far in the high single digit, low teens or so. And I guess you said that so far you feel like your wage inflation outlook is confirmed. Does it mean that high single digit, low teens is something that we should model as well for next year?

Thank you very much for your question. So on your first question, this Elizabeth Line, just to be very clear, we have reached a number of milestones, which is system completion and final deliveries. And that is, for us, our internal triggering points to basically book the full extent of the contract. So it's more technical matters. On your second point, on wages, I will not comment on country by country. I just want to remind that we have not far from 40% of our headcount which are based in the best cost countries, which are having, as always, very high inflation, and we are living that since many years. So the dynamic is very different from one country to the other. Again, we confirm our global guidance of 5.1% to 5.3%. And the negotiation is starting and we'll update you, of course, in May on the outcome of it.

As there are no further questions in the queue, I would like to hand the call back over to Laurent Martinez for any additional or closing remarks.

So thank you very much all for your attention. So just to wrap up, for our third quarter, positive market momentum is fully confirmed, very pleased with it. Very pleased as well with the execution, which is fully on track. And on this basis, our trajectory for the full year is confirmed. Thank you for your attention. I look forward to meeting you next in May for our full-year results. Thank you.