Alstom SA (ALO) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the combined shareholders meeting of Alstom. I'll hand over to Henri Poupart-Lafarge.

Good afternoon to you all. I declare the combined ordinary and extraordinary General Meeting of Shareholders open. The current health context and the restrictions related to COVID-19 lead us exceptionally to hold this meeting behind closed doors at our registered office without the presence of shareholders and other persons entitled to attend. I therefore warmly thank all shareholders who have kindly agreed to log on to attend this meeting remotely. Sitting next to me, Mrs. Emmanuelle Petrovic, General Counsel; and Laurent Martinez, CFO. In accordance with the law, it's now up to me to set up the presiding officers. In view of the closed door conditions, I call for the functions of scrutineers, Mrs. Emmanuelle Petrovic; and Mr. Laurent Martinez, present at this assembly and who have accepted this function. I propose to appoint Mrs. Emmanuelle Petrovic as the secretary to the presiding officers, and you have the floor.

Thank you, Chairman. First of all, I would like to remind you that a special meeting of holders of shares with double voting rights was held this very morning. Over 99% of the shareholders voted to eliminate the voting rights attached to the shares of [ your ] company with effect from the date of the completion of the acquisition of Bombardier Transportation and provided that it is approved by this meeting. The agenda of this combined meeting is set out on Page 3 of the Notice of Meeting brochure on our website and sent to our shareholders. This agenda also appears in the various notices published in accordance with the law. The meeting will proceed as follows. Your Chairman will remind you of the main considerations of the operational acquisitions of Bombardier Transportation and will conduct governance with you in order to introduce you to the Directors whose appointment has been submitted to your vote and the composition of the Board of Directors as from the completion of this operation. Mr. Laurent Martinez, CFO, will present the funding conditions of the operation and the financial resolutions, which will be used to carry out this funding. Mr. Yann Delabrière, Lead Independent Director and Chairman of the Nomination and Remuneration Committee, will present to you the changes submitted to your vote on the compensation policy of your Chairman and CEO. In view of the closed session, there will be no debate. And I would like to point out that your company has received no recent questions, no questions via the [ free expression ] platform that has made -- been made available to you between the 15th and the 26th of October. We will conclude with the results of the vote on the resolutions set out in the Notice of Meeting brochure on Pages 37 and following pages. The report of the Board of Directors on the resolutions in the same document, Page 8, and following the statutory auditor's reports have been made available to you on the company's website. The documents required by law and which will be listed in the minutes of this meeting are included in the folder on the desk. All of those documents have been made available to shareholders at your company's registered office in accordance with the law. Having stated this, I would like to inform you that on the registration date of the shares to which at least 1 voting right is attached, the share capital of your company is composed of 226,884,499 shares of EUR 7 of nominal value each. The vote took place exclusively at a distance due to the closed door procedures imposed by the health crisis. Shareholders were able to vote up until yesterday, the 28th of October, 3:00 p.m. On that day, the shareholders voting remotely had 156,038,942 shares with voting rights, I'd say, 68.77% of shares having voting rights. The quorum required for this general meeting held on first notice is 20% for the ordinary part and 25% for the extraordinary part. A quorum of 25% being reached, the meeting can validly deliberate. And I'll give the floor to your Chairman.

Thank you very much indeed. I'm now going to share with you the context of the acquisition. First of all, a brief reminder on Alstom, and Alstom during the past years. As you know, Alstom has grown at a very rapid pace, and it has significantly increased its footprint. The backlog went from EUR 30 billion to EUR 40 billion. And during this period, we've increased our sales, sales growth, 4.5% per year on average, which is double the market average, going from EUR 7 billion to EUR 8.2 billion. Profitability went up as well, going from 5.7% to 7.7%, thanks to cost savings and also thanks to better execution of our projects. With -- following Alstom 2020, we rolled out a new plan called Alstom in Motion. 2020 was about benefiting from growing markets, especially in emerging markets. Alstom in Motion is driven more by the environment and by our capability to offer greater value and innovate by -- more environmentally conscious products, by being more digital and by delivering our backlog, sharing the same values with an inclusive, agile and responsible Alstom team. The market context we are in as we are speaking has been impacted by the COVID-19 crisis. What the market shows is that we're getting very strong support by all governments who are acting in favor of local rail operators to keep them in business and to allow them to invest. We have a number of investment plans in railway. There are several examples here. We have different European initiatives, German initiatives, French initiatives, India as well or the U.S. All governments have stimulus packages that are either supporting the environment and, of course, approaching -- with a different approach of mobility. And we're seeing a shift from different means of transportation to rail, for example, air to rail, but also road freight to rail freight. So what the UNIFE anticipates is a 2.3% annual growth rate, which is fairly similar to what we had before the crisis, with somewhat of a slowdown, somewhat of a dip in 2020, which is something we've seen in our orders, but we expect a rebound in 2021. So let's take a look now at the Bombardier Transportation acquisition. BT is one of the leading players in rail. They've been a leader and have been recognized as such for decades worldwide. They have a very strong portfolio of products going from tramways to high-speed trains. And BT has products that we don't have, people movers, for example, or monorail. BT has a very comprehensive set of skills. They control everything in the rail industry going from signaling to digital to traction and systems. It is a company which really fully understands and controls the manufacturing and -- design and manufacturing of railway equipment. They have a very balanced industrial footprint, very similar to Alstom, a good balance between emerging countries and more mature countries. But their footprint is different from Alstom's footprint, which we will see in a moment. Last but not least, they have the largest installed base worldwide with a fleet of 100,000 vehicles. That is a key element for our maintenance business which is a growing business and a good money generating business. So Bombardier Transportation will help us further increase our footprint with a strong presence in the future in countries where we were not very present so far, rolling stock in the U.K., Germany, for example, Scandinavian countries as well, countries that are very actively investing, as a matter of fact. So that puts BT in a very good position in emerging countries. Bombardier there again has a very strong position in China, more than we are. We have a stronger presence at Alstom in India. They're in Thailand, Australia, New Zealand. And of course, Bombardier has a very strong footprint historically in North America, Canada, the U.S. where massive investments are expected as well. So in -- all in all, I think we can say that the acquisition will give us the critical size we need in all -- in the most important countries across all continents on the globe. And this will help us deploy our technologies and have this stronger footprint to further innovate. Now this is not about changing our strategy. Instead, it's more about accelerating our strategic road map. BT is going to help us and it will accelerate the launch of new rolling stock. Once again, we're very complementary companies. And it's not a surprise to see that in the U.K., for example, they've developed Aventra, the Aventra platform, which will put them and us in a very good position. The San Francisco metro, for example. And we have some niche markets, although they're very attractive markets, the monorail, people mover or -- and the European locomotive. We're in a very good position at Alstom with very heavy locomotives in India or Central Asia. Bombardier is also a very competitive player. So much for rolling stock. Moving on to services. Services, EUR 12.6 billion backlog, EUR 1.9 billion in sales for services, 100,000 installed train fleet, which will become an unequaled company, which will help us in terms of predictive maintenance, for example. This will give us the status of a referenced player. Last but not least, signaling. As you know, signaling is what makes systems more efficient. It's probably the most important one. And in terms of efficiency, as far as the efficiency cost ratio is concerned, we're going to become #2 in signaling once Alstom and BT combine their efforts. BT is a little smaller, but they have key technologies in a number of geographies like Germany, for example. So this puts us in a much stronger position in Germany, thanks to the acquisition. As I said earlier, we -- I'd like to take a look at Bombardier's industrial capacity, which is very complementary with -- in terms of footprint. Here again, this does not come as a surprise. They have their industrial product and commercial presence. As you can see, they have a strong footprint in China with 7 sites, in Germany as well, in Central Europe. They have a strong footprint in the U.S., Canada, Mexico, when we are -- where Alstom is more present in Brazil, for example. A quick word on the shareholders. There is going to be strong value creation for shareholders. This is going to be a true global company, a leader in its industry, which means more innovation, sales or revenue of EUR 15.7 billion, a backlog of over EUR 70 billion and a significant increase in the number of clients and geographies. We're going to create value by improving the performance of the new company. We're going to improve the performance of Bombardier Transportation. They had some operational difficulties. We're going to help them solve these problems. They're already solving them, and we're going to continue our efforts to improve their operational levels and bring them back to more industry standard levels of profitability, similar to Alstom's. And there will be some synergies, about EUR 400 million per year coming from procurement, purchasing, innovation as well. We're going to innovate and put more products out there on the market. And there are a number of very clearly established or identified levers. There's a strong cultural and business fit. We've been working very closely with BT since the early days, and we have very good relations between the teams, and I think that we truly understand one another. And that is good. Once again, I think we have -- Alstom has a very successful track record in terms of profitability and profitable recovery. So all in all, we're looking at a double-digit EPS accretion from the second year after the closing. A quick look at the acquisition. Well, the acquisition is now well on track. We signed the purchase agreement. The price has been established at EUR 5.3 billion, which is slightly below the initial bracket, which was between EUR 5.8 billion and EUR 6.2 billion. The rationale has been fully confirmed, but we've taken the new consideration -- the new situation into consideration, rather. We have -- we're maintaining the financing structure and preserving Alstom's strong rating. The clearance process is in -- has made good progress, and we've so far received all the necessary authorizations. We had a number of authorizations that we needed to file. And week -- every week, we keep receiving new authorizations. A quick look now at the next steps. We're going to have the capital increase, which will allow us to pay for this acquisition, with the preferential right of subscription which will be maintained. And of course, subject to market conditions and to the EGM approval, expected closing is planned for Q1 '21. As far as the governance is concerned, further to this operation, as you know, the Caisse de dépôt Quebec will be part of the capital of Alstom and will benefit from 2 Directors and 1 observer. With regard to the 2 new Directors, they were submitted to your vote. From CDPQ, represented by Mrs. Kim Thomassin, who is presently Executive Vice President and Head of Investments in Quebec and sustainable investments within CDPQ. The second Director, Mr. Serge Godin, Creator and Executive Chairman of the Board of CGI, having 77,500 employees in 41 countries throughout the world. Detailed information on Mrs. Thomassin and Mr. Godin are included in the meeting notice on Page 34 and the following pages. I would like to invite Mrs. Kim Thomassin to introduce herself to you.

Good afternoon to you all. My name is Kim Thomassin, and I have been Executive Vice President and Head of Quebec Investments and Sustainable Investments at the Caisse de dépôt et placement du Québec since April 2020. I lead the teams in charge of investments in Quebec, the post-investment management and the CDPQ. I am lucky as well because I manage a sustainable investment team in charge of implementing the Caisse investment strategy on the climate change and diversity. I sit on the Executive Committee and on Investment Risk Committee in addition to being a member of the Board of Directors of Ivanhoé Cambridge, our real estate subsidiary. Previously, I worked at the Caisse as Executive Vice President of Legal Affairs and Secretariat. I joined in January 2017 after working as a lower and senior associate at McCarthy Tétrault, a Canadian law firm, where I spent more than 17 years. It would be an honor and a great pleasure for me to represent my employer, the Caisse de dépôt et placement du Québec, on the Board of Alstom. The CDPQ is a long-term institutional investor. On June 30, 2020, the assets of the Caisse amounted to CAD 333 billion in the economy of Quebec and in 60 countries around the world. The Caisse de dépôt et placement du Québec invest in stock markets, private equity, real estate, infrastructure and fixed rate instruments. Our investment in Alstom is an extremely important one, and we are delighted with this relationship between our 2 companies. Thank you.

Thank you very much, Mrs. Thomassin. And on behalf of the company and all shareholders, I would like to welcome you very warmly. I would like to invite Mr. Serge Godin to introduce himself as well.

Dear shareholders, dear members of the Board of Directors, ladies and gentlemen, good afternoon. I'm pleased to take part today in this combined general meeting by audio conference from Montreal. I'm honored to have received invitation to join the Board of Directors of your company as of the completion of the acquisition of Bombardier Transportation by Alstom. I would be happy to have the opportunity to participate in the strategic direction and the management and the good governance of this world-renowned company. As an Independent Director, I'm committed to ensuring the best interest of the company, its shareholders, customers, employees and the communities in which Alstom operates. I'm looking forward to the opportunity to join the wonderful Alstom's team and to have the privilege to contribute to its success. I would like to thank you in advance for your confidence.

Thank you very much, and a warm welcome as well to you here within Alstom. We are very much honored to have you among us. So the Board of Directors from the completion of the acquisition will be made of 14 members, including 2 Directors representing the employees, taking up their duties on the 1st of January 2021. Your Board would comprise 8 independent members, 5 women and 5 foreign nationalities. I would like to invite our CFO, Mr. Laurent Martinez, to take the floor.

Thank you, Mr. Chairman. We're now going to move on to the presentation of the financial authorization for which resolutions have been submitted to your vote. Please allow me to provide you with some background information first. Page 20 shows the financial plan of the proposed acquisition of BT. We plan to finance this acquisition mainly through capital increases in order to preserve our strong credit profile. The equity financing of the transaction of approximately EUR 5 billion will be as follows. First, the reserved capital increase for CDPQ, Bombardier Transportation's current shareholder. CDPQ has committed to reinvest the entire proceeds of the sale price plus an additional EUR 700 million in cash. This mechanism should lead CDPQ to subscribe for approximately EUR 2.6 billion in new shares. Then we plan on a capital increase for Bombardier. Bombardier U.K. will subscribe to new ordinary shares of the company for an amount of EUR 500 million. Thirdly, a capital increase for Alstom with preferential subscription rights for an amount, including share premium of approximately EUR 2 billion. A balance of approximately 200 million will be financed by Alstom's cash and/or a bond issue. Thanks to this financial plan, we're maintaining a very strong balance sheet and strengthening Alstom's long-term shareholder base. This is what is shown on the following page. On the left, we outline the mechanism of the transaction. For the record, CDPQ and Bombardier Inc. are the shareholders of Bombardier Transportation, while Bouygues is, to date, Alstom's main shareholder. With the acquisition of BT by Alstom, CDPQ will receive new Alstom shares, while Bombardier will receive cash and new Alstom shares. Through this mechanism and following its investment of approximately EUR 2.6 billion, CDPQ will become Alstom's first shareholder. On the right side of the page, we have shown the indicative pro forma shareholder of Alstom after the 3 capital increases. CDPQ will hold approximately 18% of Alstom's share capital with a commitment to retain its shares for 21 months after the completion of its transaction. The Bouygues shareholder is expected to be around 6%, Bombardier is at approximately 3% with a commitment to retain shares for 3 months after the completion of the transaction [ part. ] Here is a reminder of the principles of the capital increase with preferential subscription rights that is expected as part of the financing of the acquisition. The allocation of a preferential subscription right will offer existing shareholders the possibility to subscribe in priority in order to maintain their share in capital. For those who decide to sell their rights, the sale of the preferential subscription rights will contribute to compensate their dilution in capital. If this resolution is approved and once the Board of Directors deems that the conditions are met and decides to implement it, a prospectus will be approved by the French market authority. We expect subject to market conditions to launch this operation by the end of the first half of 2021 at the latest. On Page 23, you will find the resolutions relating to the capital increases planned in connection with the proposed acquisition. They're expressed as a maximum nominal amount with a par value of EUR 7 per share. Resolution 4 will allow the capital increase to be carried out among other things by EUR 2 billion. Resolutions 6 and 7 will proceed -- will allow to proceed with a capital increase reserved to CDP Investments, Inc. on the basis of a subscription price set at EUR 44.45. Resolution 6 provides for the possibility to proceed with the capital increase reserved to CDP Investments, Inc. through the issuance of a preferred share. These preferential shares are mainly intended to protect CDP Investments. Resolution 7 provides for the possibility to proceed with the capital increase reserved to CDP Investments, Inc. by issuance of ordinary share. These 2 resolutions are alternative and the Board's choice of one or the other of these structures will have no impact on the situation of the company's shareholders. Resolution 8 provides for the possibility to proceed with the capital increase reserved for Bombardier U.K. through the issuance of a common share based on a subscription price set at EUR 47.50. Lastly, Resolutions 9 and 10 provide for the possibility of the increasing company's share capital.

I would like to invite our Lead Independent Director and Chairman of the Committee of Nomination and Remuneration, Yann Delabrière, to take the floor.

Thank you, Chairman. It is now up to me to introduce you to the draft resolution, to you shareholders regarding the compensation policy of the Chairman and CEO of the company. Before entering into the description, I would like to say that this project fits into a global framework and much broader decisions of the Committee of Nomination and the Board of Directors of Alstom, aiming at associating as much as possible the management and beyond the management, the whole staff of the company, to associate that to the success of this very important operation of acquisition of Bombardier Transportation. So within this framework, we are proposing a change in the compensation policy of the Chairman and CEO as voted in July 2020 during our yearly general meeting. This change leads us to propose an exceptional compensation to the benefit of the Chairman and CEO. The -- I said it a minute ago, beyond the Chairman and CEO, also of other officers and key contributors within the group, contributors to the acquisition of Bombardier Transportation, an exceptional compensation that is -- which will be, of course, implemented after the closing of the acquisition and which will be linked not to the completion of this acquisition, but it's complete success over a period of 4 years. That's the period set by the company in order to achieve the objectives of this transaction. This exceptional compensation would be made up of shares and performance only, and here, again, in order to associate the Chairman and CEO and other officers and to associate them to the success of the operation and its translation into the performance of our share. And this allocation would be linked to performance conditions, being internal and external, assessed in this entirety at the end of this acquisition period without any provisional allocation before the end of this period. So those conditions are based on the long-term success criteria of the integration of Bombardier Transportation, as announced in February already by the company during the announcement of this acquisition project, such as the turnaround, the operational and financial turnaround of the main Bombardier Transportation projects, the main synergies and the performance of the Alstom share. I would like to point out as well that the triggering thresholds will be set at the level of the objectives as announced in February for each of those criteria. As far as the technical elements of the development of this compensation policy concern, let me say that for the limits, they will -- the limits will not count against the limits currently applicable to the long-term variable compensation as defined by the compensation policy voting during the Shareholders' Meeting of July 2020. So it is to be added. And we suggest to set an individual cap for this compensation corresponding to an IFRS value, not exceeding 100% of its annual fixed short-term compensation, of the compensation of the chairman and CEO. And the obligations with regard to the holding requirements and the limits and conditions in case of leave are identical to those for the yearly performance allocation as defined by the compensation policy. And let me point out that this is an exceptional transaction linked to this exceptional -- external growth operation, which is the acquisition of Bombardier Transportation. And this operation is not intended to be reconducted in the compensation policy of the next fiscal years. In order to have as many people as possible within the company, taking part into the success of the operation of the transaction, the Board is thinking of a possibility of a free share allocation plan targeting the whole population of employees of the group. So if we look at the compensation policy of the Chairman and CEO, and we look at all its components, you see on this presentation that all items voted in July 2020 have been taken over. It's unchanged, except, of course, for the exceptional compensation, which we had not planned in July 2020 and which is to be added through the resolutions submitted to your vote. This is it. Thank you, Chairman, and I'm going to hand over to you.

Contrary to the habit and because of the closed door procedures, we cannot exchange likely with you. As I indicated, we have not received any written questions, no questions via the free expression platform, put at your disposal between the 15th and the 26th of October. So I'm asking the secretary to present the results of the vote on resolutions.

Thank you. I remind you that the text of the resolutions is including in the Notice of Meeting brochure on Page 37 and following the report of the Board of Directors on the resolutions is included in the same document on Page 8 and following pages. In order not to extend the duration of this shareholders' meeting and insofar, this report is publicly available, I will not read it out. I remind you that the vote was closed yesterday, Wednesday, the 28th of October at 3:00. The quorum required by law is exceeded as it reached 68.77%. You see here on the screen the slides with the results of the votes for the ordinary and extraordinary resolutions. The 12 resolutions on the agenda presented to you were all adopted. So the result of the votes will be put online on our website during the day.

I thank our secretary. And before adjourning this meeting, I would like to thank again all the shareholders of the company for their confidence. I hope to see many of them, again, in a classic and more friendly configuration at our next meeting. The agenda being exhausted, the meeting is adjourned. [Statements in English on this transcript were spoken by an interpreter present on the live call.]