William Mackie

William Mackie of Kepler Cheuvreux questioned the guidance for 'similar' free cash flow in 2025, asking for the key offsetting factors given expected revenue growth, margin expansion, and improved working capital.

Answer

Executive Morten Wierod explained that the primary reason is an increase in CapEx investments, specifically to expand existing facilities in high-growth markets like North America and India to support the Electrification business. Executive Ann-Sofie Nordh confirmed that higher CapEx is the main factor tempering the free cash flow outlook.

William Mackie of Kepler Cheuvreux asked why 2025 free cash flow guidance is only 'similar' to 2024, despite expected growth and margin expansion, and inquired if higher CapEx was the primary reason.

Answer

Executive Morten Wierod confirmed that increased CapEx is the key factor, with investments focused on expanding capacity in the Electrification business, particularly in North America and India. Executive Ann-Sofie Nordh reiterated that higher CapEx is the main offset to otherwise positive cash flow drivers.

William Mackie of Kepler Cheuvreux questioned the guidance for 'similar' free cash flow in 2025, asking for the key offsetting factors given expectations for revenue growth and margin expansion.

Answer

CEO Morten Wierod identified increased CapEx as the primary reason, specifying that investments are being directed towards expanding capacity and automation in the Electrification business, particularly in North America and India, to support growth. Executive Ann-Sofie Nordh confirmed that higher CapEx is the main factor tempering the free cash flow outlook.

Asked why the full-year margin guidance of 18% implies a drop in Q4 given strong H1 and Q3 guidance, and also inquired about growth and pricing dynamics in the Distribution Solutions business.

Answer

The implied Q4 margin drop is due to historical seasonality, as the fourth quarter is typically about 150 basis points weaker due to holiday shutdowns. The Distribution Solutions (medium voltage) business is performing very well with strong demand and good margins after a successful restructuring, and it is expected to remain a strong player.

William Mackie of Kepler Cheuvreux asked for clarification on the expected doubling of order intake in the Americas and for more detail on expected growth rates across different business lines for the year.

Answer

CFO Laurent Martinez clarified that the potential for Americas order intake could move from around €3 billion to €6 billion per year, driven by the Biden infrastructure plan and private high-speed projects. For the full year, he expects the business mix to be largely unchanged, with growth rates for all product lines (Systems, Rolling Stock, Services, Signalling) to be around the group average.

William Mackie of Kepler Cheuvreux asked about the expected H1 vs. H2 development of working capital, the gross margin difference between legacy and new orders, and a perceived increase in warranty provisions in H2.

Answer

CFO Laurent Martinez confirmed that typical H1/H2 seasonality would apply to working capital. Chairman and CEO Henri Poupart-Lafarge stated that new orders have a 'very large difference' in gross margin compared to zero-margin legacy contracts. CFO Martinez clarified that the H2 warranty provision movement was normal as they are booked upon project completion, with the overall level remaining stable year-over-year.

In a follow-up, William Mackie of Kepler Cheuvreux asked for an update on global plant optimization and the expected level of restructuring provisions, particularly following recent measures in Germany.

Answer

CFO Laurent Martinez detailed the German transformation program, which involves reducing 900-1,300 manufacturing roles while hiring 700 in digital and services. He clarified that no other major global restructuring is planned, only ongoing rightsizing. Provisions will be determined by the end of March.