Alstom (ALSO.PA) CEO Henri Poupart-Lafarge faces an uphill struggle to shore up his credibility. The French train maker lost 35% of its market value – amounting to 3 billion euros - on Thursday after announcing that it would book negative free cash flow of 500 to 750 million euros this year. The dramatic reaction from investors seems to indicate they are less than convinced by the group's apparent confidence in its own basic profitability.
Alstom laid out three explanations for the hit. The main one is increased inventories from ramping up of rolling stock production of wagons and locomotives in the last two years, to cover a backlog of orders. But then there were delays in completing the Aventra programme in the UK, which provides trains for the London Underground and UK railway companies. Finally, weaker than expected orders in the first half of the year generated less cash in the form of down payments.
It’s hard to understand why Poupart-Lafarge couldn’t have seen at least some of this coming. Given the potential for the group’s net debt to be 3 billion euros by year-end, 1 billion euros more than expected, Deutsche Bank analysts reckon it may soon need a capital increase. Alstom predicts it won’t. It will have to work hard to ensure that that forecast, at least, comes true. (By Pierre Briancon)
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