Alstom SA plunged by more than a third after the French train maker slashed its financial guidance due to delays on UK contracts and a rise in inventories.
The share move wiped out as much as €3.1 billion ($3.3 billion) of market value Thursday and added to the company’s woes stemming from its troubled $5.5 billion acquisition of Canadian manufacturer Bombardier Inc.
The French company expects a delay to a major UK contract, which includes 443 trains that serve lines like the London Overground and Elizabeth Line, several of which have suffered from setbacks. After falling 38% in early Paris trading, shares were down 35% at 10:38 a.m.
Alstom now expects the work to complete during fiscal 2024-25, compared to the first half of this year. Supply-chain issues leading to much higher inventories and slower new orders also contributed to the company cutting its forecast for free cash flow, the company said late Wednesday.
The warning is a “major blow” to management’s credibility, Deutsche Bank analyst Gael de-Bray wrote in a note, adding a capital increase is “increasingly likely.”
The French manufacturer now expects negative free cash flow of as much as €750 million for the full fiscal year, compared with a previous forecast of “significantly positive” results, it said Wednesday. The delay to the UK Aventra project accounts for about one-third of the cut.
Read more: Alstom Is Still Haunted by Troubled Bombardier Acquisition
Nearly three years on from the purchase of Bombardier’s rail business, Alstom continues to wade through costly legacy contracts from its former fierce competitor. Alstom has blamed mismanagement by Bombardier for delivery delays and the heavy spending needed to complete them.
“95% of the trains have been produced but customers’ acceptance has been lower than expected, with only 87% paid,” de-Bray said. “Execution risks remain high, with media talks of delays for some highspeed train projects in the US (Amtrak) and the UK (HS2).”
Read more: Sunak Cancels Rest of HS2 High-Speed Rail to Re-Invest Funds
The biggest impact was from much higher inventory levels, after the company hiked output amid tight supply chains to fill its order backlog and avoid production disruption and delivery delays. New orders also weakened.
Alstom had negative free cash flow of €1.15 billion in the six months through September, while affirming its mid-term guidance as well as a target for organic sales growth above 5% for fiscal 2024.
Alstom shares have been under pressure since the takeover of Bombardier train operations a range of challenges from the start.
--With assistance from James Cone.
(Updates with more detail throughout)