Alstom SA (OTCPK:ALSMY) Q2 2021 Earnings Conference Call November 10, 2020 12:30 PM ET

Company Participants

Henri Poupart-Lafarge – Chairman & CEO

Laurent Martinez – CFO & Senior VP of Finance

Conference Call Participants

Guillermo Peigneux – UBS

Gael de-Bray – Deutsche Bank

Daniela Costa – Goldman Sachs

James Moore – Redburn

Akash Gupta – JPMorgan

William Mackie – Kepler Cheuvreux

Alfred Glaser – ODDO

Katie Self – Morgan Stanley

Iris Zheng – Credit Suisse

Operator

Ladies and gentlemen, welcome to the Alstom Conference Call. I now hand over to Henri Poupart-Lafarge. Sir, please go ahead.

Henri Poupart-Lafarge

Thank you. Good afternoon, everybody. Welcome to our half year results conference call for the year ending March 2021. I will start by a few highlights, then I will go through a market update, the business update, and some update on the Bombardier transaction. And then I will hand over to Laurent, who will detail for us the financial results and then we come back for the conclusion, and we will have time, of course, for the questions and answers.

So as far as the highlights of the first half are concerned, as you know, some order intake have shifted to the second half of the year. And therefore, the level of order intake of the first half, even though it is quite sustained, is at a relatively low level as compared to historical basis. But we are extremely comfortable with the second half, which helps us to confirm the guidance of the book-to-bill above 1 for the year, as we see a very important pipeline of tenders coming in the coming period. And also, as we have announced quite recently, a number of wins, which are comforting our vision for the full year.

That’s for the full year. But for the midterm, we confirm as well very positive midterm outlook for our market. As you have seen, there are numerous stimulus packages, plan, governmental plans to relaunch the economies in general, and in particular, help transportation and the green economy and the sustainable economy. This has been confirmed, and we have seen recently, and we’ll come back to that later on, that the units subsidy has totally confirmed our vision of the market.

Sales are down and have been down, of course, during the first quarter due to the lockdown, and we discussed that during — in July, during our call in July. The very good news is that it has come back to a normal level as soon as the second quarter, which means that we have been agile enough to restore our industrial supply chain quite rapidly after the lockdown. This has enabled us, together with a good project execution, a sound project execution during the first half. We have a resilient adjusted EBIT with continuous, and you will see that improvement of the gross margin. So clearly, a good half year in terms of project execution, which has enabled us to, I would say, mitigate the impact of the COVID.

The free cash flow has been impacted by the COVID definitively. We have ramped up our rolling stock facilities, a number of inventories which are there. And we have had some delays in some of deliveries due to the first quarter of difficulties in our supply chain.

Bombardier transaction, major milestones have been reached. As you know, we have now almost all the regulatory approval as we are in a very good way to finalize this acquisition. And the closing is definitively confirmed for the first quarter of 2021.

So in terms of markets, and before the market, sorry, I want just to highlight our sustainable policy and the corporate’s full responsibility on different fronts, on this green supply chain and green production. We have inaugurated a new site in Morocco. And to say also that this is a good industrial strategy where we are more and more investing in best cost countries, more and more, putting some industrial capacity in the best cost countries. And this site is to assemble harnesses, cables. And we have installed a number of solar panels to the site.

Hydrogen, we’ll come back to that. Of course, hydrogen has taken a lot of momentum during the last period. And the fact that we have been pioneer in that technology is, of course, a great differentiator as compared to the rest of the industry, which is now moving in the same direction.

Caring for people, I think we are not talking a lot about it, but I’m quite proud to say that The Wall Street Journal has ranked Alstom #1 in human capital for the sustainable management out of the 100 top sustainable companies. We have worked, of course, after the COVID crisis on healthier solutions for transportation, ranging from antivirus materials, contactless doors and things like that, to make sure that people — passengers are safe traveling within Alstom products.

So market update. Actually, nothing really new on this market. There is a strong confirmation of all the plans in favor of rail, as we had already discussed in July. Strong support from the European Union, gigantic numbers of EUR 672 billion of recovery plan. Germany, close to EUR 90 billion of spending for rail. And a huge deployment, not only of — the immense pipeline of tender is going up, but there is also a huge program of deployment of signalling entity, which also gives a lot of momentum to the Bombardier acquisition, because Bombardier has the traditional legacy interlocking technology in Germany, which we don’t have in Alstom. In France, as you’ve seen what we call the plant relaunch with EUR 4.7 billion directly directed to the operators. In India, a huge work on electrification of the network. A lot of momentum as well here on the locomotives. And our project of e-locomotive is now putting us in an excellent position to benefit from this electrification efforts, which will require a lot of substitution from diesel to electrical locomotives.

And as you know, in the U.S., we have EUR 60 billion funding for rail. I have to say that Joe Biden election, on that respect, we also have good news. I’ve not seen the — I have not put the picture, but we have a picture of him looking at our new various e-trains.

Next. In terms of business. So order intake, as I said, EUR 2.7 billion. Some tender activities have been shifted from H1 to H2, as anticipated. But the good news is that it’s confirmed for H2. So we have answered to a very large number of tenders, as said. What has been won, nevertheless, some trams in [indiscernible], a system in Taipei, confirming our strong leadership in metro system because after Taipei, we have announced recently 2 turnkey in metro systems, in Athens and in Toulouse, which really confirm our strong leadership there. Signalling, important, key signaling in France of ARGOS, as I said, signalling in Germany to come. So a good mix of orders during the first half and some good prospects for this coming half. As again, and guidance of a book-to-bill, about one.

Sales, a similar story, with Q2 being back to a normal level.

If you look at our Q2 numbers, which are more, I would say, meaningful from a momentum perspective and a midterm perspective, things are happening exactly as planned. We have strong growth in rolling stock. As we know, we have taken — have announced it last year and the year before, that this is a ramp-up of [indiscernible] subway system was going down exactly as planned as well, clearly in the Middle East. But with the new system orders in Athens, in Toulouse, in Asia, we will have the System going back again positively. So that’s very good news.

Service continuing its nice growth and recovery of train operations. It has been impacted during Q1 due to the lack of train operations, but the recovery is very good and signaling is there and has gone on Q2.

Next one. Some update on our strategy, Alstom in Motion. Growth, a small acquisition was extremely important for us and which is already bearing a lot fruits, which is the acquisition of braking systems. You know that braking systems are extremely important for the service business, service components. And this company is very much capable of providing some discs for brakes, and this is — this will be — this will equip a lot of our trains, so a very nice acquisition.

On the technology, of course, we have Mastria, which is progressing in Panama, hydrogen train, as said a little bit everywhere. Come back to that. And in terms of execution, a lot of milestones have been reached in Dubai, complete delivery of the metros, but locomotives in India are well delivered, trains in South Africa are well delivered, the regional trains in Italy are well delivered.

Amtrak is ramping up. So very active in, trains in Amtrak. So a good half year in terms of delivery despite the COVID.

Next. In terms of hydrogen, I was mentioning, so we have a lot of hydrogen solutions now being tried all over Europe. It has started in Germany, as you know, but we have contracts in Italy. We have contracts in the U.K. We are discussing some orders in France. We had some trials in Netherlands, in Austria. So I mean — I see it positively the fact that a number of our competitors are now announcing some development in hydrogen. I think that’s really — proves that we were right in launching that in anticipation and gives us a significant advantage in the market, which will be there definitively. And as you know, most of the networks in Europe have announced that they will completely ban diesel technology in the coming years.

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As far as Bombardier is concerned, so very well on track. As you know, we have signed the SPA in September. The proceeds are now expected up to EUR 5.3 billion. All the guidance that we gave to you in the past are being confirmed. The balance sheet structure with a strong investment grade has been confirmed. The clearance process is now well underway. The shareholder, as you know, have approved to a very, very large extent on the last AGM, the transaction. So we now have — the next steps are relatively straightforward, we have the closing first quarter of the next financial — fiscal year — calendar year, sorry, calendar year. And the right issue to finance the transaction between now and the first half of the next calendar year.

Now I will hand over to Laurent for the financial results.

Laurent Martinez

Thank you, Henry. Good evening, everyone. So let’s start with our P&L for our first half 2021. With an adjusted EBIT, which proves to be resilient, indeed, at 7.5%. And this, despite the volume impact linked to the COVID-19 crisis.

To go straight below adjusted EBIT, we had limited restructuring charge at EUR 7 million, and also a classified COVID-19 incremental and inefficiency costs for an amount of EUR 68 million. We remind that we booked EUR 24 million back in March for around 2 weeks of disruption. Impairment cost and others reached EUR 26 million, including mainly positive one-off, such as the reversal of asset impairment for EUR 47 million, and the legal proceeding provision adjustment for EUR 30 million, together with one-off costs related to the Bombardier Transportation acquisition for an amount of EUR 44 million.

Finally, we have the usual CASCO mechanical reversal impact in our EBIT, which accounts for minus EUR 24 million. So on all this basis, our EBIT reached 5.4% and our net income, EUR 161 million.

So moving to the EBIT range. As indicated, we reached this 7.5% on EBIT from 7.7% last year. So what are the drivers on this adjusted EBIT? First, continuous improvement of the gross margin by 0.7%, benefiting first from, to say, solid project execution and as well improved mix in services and signalling.

We have as well a reduction in absolute value in terms of saving and administrative costs, thanks to the cost mitigation measures we’ve been implementing and controlling, of course, our R&D investment and protecting, of course, our innovation capabilities. This — both factors leading to a negative 1.1%, which is volume related. And finally, we have a small positive contribution of CASCO, our signalling activities in China, which is still benefiting from an excellent momentum.

On backlog, we are pleased to see again this year, this half year, continued improvement of our backlog average profitability, driven by the flawless execution and our competitiveness step up. If we look ahead for H2, we expect a further uplift of our adjusted EBIT, driven by increased volume and the continued step up on our gross margin.

Moving to free cash flow. As anticipated, we had a cash usage in H1 of around EUR 250 million, driven first by, of course, an EBIT, which has been impacted by the volume and the COVID-19 specific cost, depreciation and amortization amounting to EUR 101 million. Classical, I would say, contained CapEx EUR 54 million. And as expected, working capital increased by around EUR 430 million, which is linked to a drift in cash in due to the sanitary situation. Lower downpayment level due to the shift of order intakes from the first half through the second half. And finally, what we anticipated back in the Capital Market Day, anticipated inventories increased, related to the ramp-up of our large rolling stock project. We know Coradia stream in Netherland, Amtrak in the U.S., e-Loco in India.

Looking at H2, we firmly expect to be back to a sound cash generation, thanks to cash in acceleration from deliveries and as well down payment out of our very strong commercial order pipeline for the second half of the year.

Moving to the liquidity position. We have, end of September 2020, a strong liquidity position, above EUR 4 billion, as you see, including 2 credit revolving facilities of EUR 401.7 billion, which are both fully undrawn. Our target remains, obviously to stay in a strong Baa2 rating.

Henri, back to you for the conclusion. Thank you.

Henri Poupart-Lafarge

Thank you, Laurent. So just as a conclusion, I would say that the results of the first half are totally in line with our expectations. We had — of course, we have been impacted by the COVID. But the first half, nevertheless, has shown a very strong execution, which has allowed us to benefit from the good profitability of the selection of this backlog. And we have managed, again, to have our operations back to normal level in Q2, which, frankly, I think it’s a very nice achievement from the business and from the supply chain.

We have been — that gives us a lot of comfort to be positive for the full year. One on commercial outlook because of, again, the strong pipelines of orders across — notably across Europe, but not only. The sales would be, I would say, at — returning to their growth pattern after again Q1 distributed, but Q2 was back to the normal situation, and Q3 and Q4 should continue to grow. The sound [indiscernible] of the backlog would allow us to get to a margin between 7.7% to 8% for the full year. So good adjusted EBIT margin concerning the situation. And as importantly, more importantly, to get to breakeven to positive actually free cash flow generation.

So we are, I think, well on track to integrate Bombardier colleagues. We are impatient and excited by this perspective. And I think Bombardier is taking some steps to control and to improve and to turn around their situation. And we’ll be — we confirm that we are extremely positive about this acquisition and looking forward to it.

So thank you, ladies and gentlemen. I think now we can take some questions, if I may. Operator, thanks a lot.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Gil Peigneux at UBS.

Guillermo Peigneux

It’s Guillermo Peigneux at UBS. I wanted to ask first a question maybe regarding the next year outlook. And I guess, the European Union has named 2021 as a Year of Rail, and you are now targeting for book-to-bill above 1 this fiscal year.

I was wondering, first, are you seeing any reactivation of existing projects? And second, maybe looking into ’20/’21 calendar, are you seeing the European Union meeting their commitment on the railway industry despite the fact that the network operators are going through difficult times?

Henri Poupart-Lafarge

Yes. Absolutely. I mean, what we see, clearly, and this is a very good surprise, if I may say, or very good news of the last period, that all the tenders, which were on the pipeline and which have been postponed for a few months, are now totally, I mean rejuvenated, if I may say, totally launched and totally proofed by the different operators. Which means that, yes, we have a very good order momentum. And we see as well some very large order next year coming. Some of them were forecasted and others are triggered by the new packages coming from the different countries, like the signalling in Germany, which has been accelerated a lot due to that.

We have the number of activities in Italy that we are pursuing, which are related to that as well. So we have a lot of activities, which are related to the plant. But they will come only next year. What will come during the second half are clearly order intake or order pipeline, which was estimated a few months ago, which has just been pushed and now we are waiting for the — we are waiting for the answers to these standards.

Operator

[Operator Instructions]. The next question comes from Gael de-Bray at Deutsche Bank.

Gael de-Bray

Can I get a follow-up on this? Perhaps on a more, the more cautious side of things. I mean, in your discussions with these rail operators, so I understand that some of the large ticket items that have been decided before will probably go through. But do you see some of your clients starting to get a bit more concerned about the development of work from home on the rail passenger traffic in the longer term?

I mean, if everyone decides to stay one day per week at home, I mean that would mechanically imply a 20% reduction in the commuting patterns going forward, at least compared to the pre-COVID situation. So that’s question number one.

And then question number two is about the good growth in services this quarter, plus 8%. How do I reconcile this with the fact that some rail operators have apparently taken the decision to reduce the number of trains expected to run, especially during the winter period?

Henri Poupart-Lafarge

Yes. So to your first point, actually, the cities have been — have done some analysis on the traffic generated by commuter, and it’s actually relatively low. So only 20% of the traffic, for example in Paris, is related to people going to work. And this is happening mostly at peak period. And if there is a slight decrease, or a decrease during this peak period, this will not decrease the need for health transportation for the cars themselves.

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So I don’t expect any major change on that perspective. What is true, nevertheless, is that in terms of financial model for the main line, this is where there are some discussions on business trips rather than working from home. People are maybe concerned and some operators may be concerned on 2-year business trips, not because it will have a huge impact on the traffic, but because these business trips are usually the most lucrative ones, if I may say.

On the other hand, we could say that people, which are now working their way from their office may use this mainline trains to come, for example, to Paris or to London, once, twice, three times a week. So that — no, there is not a huge, I would say, concern on — by our operator, by our customers on this issue.

On service, I would say it’s a little bit the same answer, because you have seen the passenger traffic. And going back again slowly, it’s true. But in terms of number of trains, and we are talking about Q2, we had, in Q2, a normalized level of activity in service. The number of trains, which were running were quasi-equivalent to the normal level. So we have our own growth. And you know, we are growing in service year after year. But in addition, we had no rail impact of the fact that passenger traffic was quite ample at 60% or 70% or 80%. It’s actually, even if passenger traffic was at 60%, they were 100% of the trains.

Operator

[Operator Instructions]. The next question comes from Daniela Costa at Goldman Sachs.

Daniela Costa

But I wanted to ask you about the hydrogen. You had a couple of wins. And I wonder how — sort of how real, how many tenders are there in the industry, whether you’re seeing a real pickup on this. If you could give us a little bit on the latest and what to expect going forward.

Henri Poupart-Lafarge

No, thank you. Today, it will not be massive in terms of order intake this year. We have some wins in Germany, as you see. Both at that moment in Italy and in the U.K., these are more prototypes. And we see the first commercial tenders in France that we are finalizing. There is one in Spain. There is one in Italy that is going on. But these are tenders which are coming. These are not yet orders. Again, the order that we did get in these countries are more prototype at that stage. So it will come mostly next year.

It will not be massive numbers. I would expect it to become massive numbers mostly in 3, 4 years from now, when will come the time of the full replacement of the diesel fleet. Because if they want to have the replacement of the diesel fleet by 2030, 2035, it means that orders will start to flow 2023, ’24.

Operator

The next question comes from James Moore at Redburn.

James Moore

Yes. It’s just one, I wondered if we could talk about the timing of the rights issue, Henri. You’ve obviously not said anything. I wonder if you could talk to how you’re thinking about that and what the different factors could be to change the timing.

Henri Poupart-Lafarge

But I don’t have any — there is nothing yet to say that the market conditions. Today, we have — as I said, we have crossed most of the orders off, in fact, all or most of the orders for the completion of the transaction. So we are totally sure of our sales on this transaction. So it’s really a question of good market condition to make sure that our shareholders can participate in the best conditions as possible. That’s — there is no frequencies ID.

Operator

The next question comes from Akash Gupta at JPMorgan.

Akash Gupta

My first question or my only question is on, if you can talk about how much of this rolling stock demand in pipeline is driven by replacement versus capacity expansion or greenfield demand?

And then maybe, is it fair to think that your customer may have a bigger incentive to replace the trains and orders quickly given the savings they will achieve by replacing old, inefficient trains with more efficient new trains?

Henri Poupart-Lafarge

Yes. Most of them — I mean, it’s both replacement and capacity expansion. So what we see — that we see a wave of double deckers coming again, “in Austria, in Spain, in Germany” and these are replacing single-deck trains. So there is capacity constraints on the lines. And now the operator, they have to accelerate the replacement, not only for energy saving, not only because of the quality of the trains, the availability, partially because of that, but also and mainly because of their need to increase the capacity of the different lines.

So it’s — if you talk about regional trains, it’s very interesting to see our double deckers are taking the first — I mean the priority in the investment — priority investment in the operators.

Operator

The next question comes from William Mackie at Kepler Cheuvreux.

William Mackie

My question is a broad question about emerging market conditions and situation. Could you update us with your thoughts on China and its relevance to — crossing the hurdle, the regulatory hurdle for approval in China and also the conditions? And then when we stick with emerging markets, perhaps your thoughts on how India is coping with the COVID situation and when you’ll be up to full speed there. And then lastly, in emerging markets, Russia, would you share any thoughts on your holdings in Transmash TMH or Transmashholdings? And how core that is to Alstom?

Henri Poupart-Lafarge

So yes, on China, first, on the regulatory approval. So we are still waiting for the Chinese regulatory approvals. Things are progressing normally, I would say that there is no — I don’t expect any major difficulty there. I think we are discussing with the Chinese authorities. So things are, so far so good, I would say. As far as the Bombardier transaction, in terms of market, China has rebounded. Clearly, there have been a slowdown during some periods, but they were earlier in the COVID crisis. There was a small slowdown in urban. We can see that on a [indiscernible] from our business of signalling in urban. But this is coming back, and the market is coming back at its historical level. Although as you know, we are less exposed to this market. We are more exposed to the urban signalling or the traction equipment.

India is in testing case. They are launching huge investment plans. True to say that they have been very much impacted by the COVID. Some of our metros like Mumbai [indiscernible], a little bit delayed because of that. But in the main, all the tender activities. And as I said, for example, on a lot of locomotive tenders, some suburban train tenders, some regional train tenders as well. So the tendering activity is going nicely. And I think that they are coping quite well with the situation, managing to sustain their economy and sustain their operation despite the impact of the COVID. So I would say in India, here as well, I would say that the situation is, if I may say, quasi-normal situation.

In — in Russia with TMH, so it’s a good question. The Russian market is quite sustained. There was a huge boom of locomotives and metros [indiscernible], so it may slow down a little bit in the coming years but at a relatively high level. As I said in the past, TMH is very good in financial investment. We had a very nice dividend, flow of dividend from TMH. We have not done as much as we could have done. We are benefiting from the relatively low labor rates in Russia, and we are supplying — sourcing some — sourcing some components from Russia.

I hope that in the future, we could do more in terms of technology, which is not totally the case today. So we have good relations with TMH. But it’s true that it’s not intense relationship at that moment from an operational standpoint.

Operator

The next question comes from Alfred Glaser at ODDO.

Alfred Glaser

I wondered if you could give us some update on Bombardier Transportation, since you have renegotiated the acquisition price. Then you disclosed that actually, there will be a little bit of net debt in Bombardier Transportation when you take over the company. Could you tell us where exactly the company stands now in terms of execution? And how do you view the margin improvement potential from this starting point?

Henri Poupart-Lafarge

No. Clearly, the Q3 results of Bombardier were totally in line with our expectations. So after Q2, as you know, there were some discussions. But Q3 were in line. We’ve reached a number of milestones in the execution. Still some orders to come, definitively. I’m not neglecting that.

But in the main, it’s going in the right direction. Their — basically, their portfolio of projects is maturing, and they are not taking on board too many complex projects. So it helps them to progressively overcome some of their engineering difficulties. They get to [indiscernible], partial [indiscernible], and so. So that’s — so they are — still have this backlog of difficult contract and low margin contract, and I’m not changing a word on what I was saying in the past regarding the full guidance on Bombadier and their margin in the backlog and so forth. But Q3 was totally in line with our expectation.

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And in terms of cash as well, in line with our expectations. So nothing to be added as compared to what we say when we have renegotiated the price.

Operator

The next question comes from Katie Self at Morgan Stanley.

Katie Self

I just had one on the additional compensation in relation to the deal that was mentioned and approved at the EGM. Can you give us any detail on that? Who does it cover? What are the relevant KPIs or criteria that need to be met, time line? Any details would be great.

Henri Poupart-Lafarge

Yes. It’s a — thank you for the question. Helps me to clarify. I was personally against any kind of bonus related just to the acquisition. I don’t think that this is relevant from a shareholder perspective. So what I’ve asked is that we are — we have some shares, some LTIs, so some performance shares, which will be at 4 years. So after 4 years, which I think is a good direction, duration to verify and justify the turnaround of the company. And we need to define the indicators precisely, but there will be some external indicators, which will show the success of this integration, the success of this acquisition, as well as internal indicators such as synergy development, turnaround of Bombardier projects and so forth.

So it’s not something which is, sort of, for rewarding the acquisition itself. It’s something which will reward the good execution of the integration. And it’s only a bit triggered, of course, if the share price is reflecting such a good integration.

Operator

The next question comes from Iris Zheng at Credit Suisse.

Iris Zheng

I’ve got one on the free cash flow. Because if we are looking for breakeven for the full year, then this would imply quite some good cash generation in the second half. And you’ve mentioned that it is going to be driven by the down payment and also the delivery of projects. I wonder, could you give some additional color maybe on how much visibility you have onto this? For example, which are the large projects that you plan to deliver in the second half? And how much reduction of inventory that you are expecting from that?

Henri Poupart-Lafarge

Yes. Thank you for the question. Let me — I’ll ask Laurent to take this one for more details on the balance sheet.

Laurent Martinez

Sure. Iris, thanks for your question. So to give you some colors on the drivers for the cash for the H2. Point number one, we will have more volume, more sales, more EBIT, driven by the acceleration of the activities as we indicated. So that’s driver number one.

Second, we, of course, will be delivering the trains that we have been, I would say, building up in the first half, and that has been shifted to the right due to the COVID crisis. So there is an element into this, which is related to the progress milestones. And here, we can put, in terms of key drivers, the e-Loco in India, PRASA in South Africa, ICNG in terms of continued development, [indiscernible] contracts in France of a TGV as well in [indiscernible], too, to quote a number of our key contracts.

Finally, we will have, as I say, down payment coming from the large order intake and the — in the market, which is very positive. Which will, as well, support overall a positive working capital contribution in H2.

And last word, we are as well benefiting from our cash focus program with a very positive result. Just to quote, 20% cycle time reduction, which has been achieved as expected and as communicated back in our last [indiscernible] week. So that’s very positive subjects.

Operator

Your next question comes from Gil Peigneux from UBS.

Guillermo Peigneux

This is Guillermo from UBS again. I was thinking about your 80% free cash flow conversion target long-term or medium-term. And then obviously, the Bombardier potential acquisition and obviously, the closing of the deal is still pending and so on. But I wanted to ask that, is it philosophically fair to assume that, that 80% conversion ratio will stay, even if you acquire Bombardier, which has been suffering from free cash flow conversion?

Henri Poupart-Lafarge

Yes, Guillermo, thank you for the question. We will, of course, update all our guidance, and we’ll probably do that a few months after the full recovery, the full integration, considering the new Bombardier scope with the new size of the company. But this target, obviously, should be sustained. There is no reason why the business [indiscernible] would be different.

On the contrary, I would say, that the fact that we will have a larger scale will decrease the amount of volatility of our cash flow because, of course, we will have it on a much larger number of projects where the volatility should decrease.

Operator

The next question comes from James Moore at Redburn.

James Moore

I wondered if I could ask two. On PRASA, e-Loco and Amtrak, would it be possible to say how many you’ve now delivered?

And secondly, on the rail operators, coming back to that topic, it’s a conceptual question, really. I mean if you look at the top 20 rail operators in the world for the last decade, they’ve collectively lost negative free cash flow every single year, and then they’re underwritten by governments that subsidize their CapEx. But the degree of free cash burn this year has gone to record levels.

When we see all of these separate government stimuli to drive incremental investment, do you think there’s a possibility that some of that government money just goes in to fill the COVID hole for day-to-day activities? Or do you think that on top of the incremental investments, governments are going to fill the day-to-day hole?

Henri Poupart-Lafarge

Thank you for the question. So on the first question, I don’t want to intervene. We need to call exactly on where we stand there. But I want to tell you that the projects are progressing normally. Just to give you an order of magnitude, and by coincidence, it’s roughly the same number, we are around 40 trains being delivered in PRASA, 42, I think, locomotives as well. And for Amtrak on the contrary, Amtrak, it’s — they are just starting to wrap up. So we are producing, we are, as you know, we have just tested the train #1 and 2, when we are producing the train #3 and 4. So this project is — it will be a very short — it will be a fast track project, if I may say. And we are ramping up. But we are train #3 and 4. But for PRASA and for e-Loco, we are around 40 for each of the projects.

The locomotives will be produced at close to 80 to 100 per year. So it’s going to be a very fast production as well.

Your question on [indiscernible] is a good one. What we have seen so far is that the first priority of the state has been actually to provide liquidity to the different operators in different forms. In the U.K., it has been up to the point of nationalizing again the franchises. In France, some debt from licenses have been taken by the government. In Germany, you want also to take a second debt of [indiscernible] . In the U.S., we had some packages. So the first priority was to ensure that all the operators could continue to operate. And therefore, they provide a lot of liquidity to the operators.

Then the second priority are the investment. They are not necessarily a link between the 2 because in a number of countries, the operators are actually not our customers. If you take in Germany, in some instances, it’s Deutsche Bank. But in most instances, it’s the PTA, these are the regions. In France, regions are also acquiring the train or the states directly. So it depends on the region — country by country. But in most cities, it’s not the operators. These are directly the cities which are really acquiring the [indiscernible]. So it’s not exactly the same financing, the same funding.

What is true is that the need to — most of the operators need to renegotiate with the public authorities their contracts. They usually have a kind of a concession or it depends on the scheme, but they have a kind of concession, in order to — in order to sustain their business. But I don’t see a kind of head off between liquidity on one hand and investment on the other hand.

Operator

It appears there no further questions at this time. Mr. Poupart-Lafarge, I’d like to turn the conference back to you for any additional or closing remarks.

Henri Poupart-Lafarge

No, thank you, operator. Thank you. Thank you a lot for all — for your attention tonight. Again, as a conclusion, I think we are very pleased with this first half considering the environment in which we are. I think the company has well performed, and we are very positive on the coming market. So I think that we’ll continue to implement our strategy. And again, looking forward to welcoming our colleagues from Bombardier to be a very, very nice addition to our portfolio.

So thanks a lot. Thanks to all of you, and talk to you very soon. Bye, bye.

Operator

This conference is now over. Thank you for your participation.



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