How would you characterize the year?
2015-16 was a very positive year for Faiveley Transport, and one of intense change. It was the first year of our Creating Value 2018 strategic plan, in which we successfully achieved major milestones. It was also a year of transition as we laid the groundwork for a proposed combination with Wabtec. We regained our customers’ confidence, winning a number of landmark projects, which I see as testimony of our growing reputation for strong execution. And we generated strong financial results in terms of sales, profitability and cash flow.
Last year you unveiled the Creating Value 2018 strategic plan. What were the key achievements in the first year?
One of the key objectives of Creating Value is to create a more efficient industrial footprint and cost base in order to improve our performance, and our service to customers. In January we opened our new industrial site in Plzen in the Czech Republic. A multi-product facility, it increases our competitiveness in Europe.
In India, one of our four key markets, we extended the capacity and capabilities of our Hosur site, near Bangalore, to cover our full product portfolio and we invested to master the special processes that are unique to our industry. The site is booming, and turnover has increased sharply, demonstrating the logic of our investment.
In technology, we invested in a number of areas. I would like to highlight Faiveley NeoFlexx® Disc, whose innovative production process brings significant benefits to customers, including shorter time to market, reduced weight and lower lifecycle costs.
Finally, I would like to stress our solid organic growth, driven by the performance of our Services business, which is a key driver of our profitability.
What were the year’s highlights in terms of contracts?
Our most important wins are those where we have gained positions on our customers’ new platforms. This is because new platforms have a high probability of being sold elsewhere, making us well positioned to win more projects going forward.
For example, we won a landmark project with Siemens for the new Rhine-Ruhr Express trains, the largest regional project in Germany last year. Bombardier awarded us contracts for several products for their M7 commuter train in Belgium, one of the largest European platforms today. And we won contracts on Alstom’s new Metropolis platform.
We also won projects in Australia, India and the Americas demonstrating our strength in major markets outside Europe.
Why is the proposed combination with Wabtec attractive?
The proposed combination with Wabtec would be an excellent strategic move for Faiveley Transport. The complementary nature of our activities is striking, both in terms of product range and geographic coverage. This transaction would allow us to pursue our aim of building a global leader in rail equipment and services in the Passenger Transit field.
What is the current state of the rail market in Faiveley Transport’s key geographies?
Year on year the rail market is growing in line with UNIFE* projections. This steady growth masks some differences depending on product, segment and geography.
We have already started to see a downturn in freight in the United States, as well as in mining-dominated countries, but this is largely offset by overall growth in the transit market.
Europe has been slow during the last couple of years, but we see it stabilizing, with growth coming from northern Europe.
China remains a strong market, driven by the expansion of the high-speed rail network, a large number of metro projects, and the emergence of Light Rail Vehicles, albeit with lower growth than in previous years. Finally, India is booming, driven by a large number of metro projects and a fast-paced program of modernization of Indian Railways. It is a market where we enjoy a strong reputation and position.
What progress have you made on customer satisfaction and operational excellence?
We have demonstrated to our customers that we are reliable and have enhanced our control over the entire project value chain, putting in place strong governance of our projects. We have put quality at the top of the agenda, and the improvements we have made are visible in the indicators we systematically monitor. These include non-conformity reports (NCRs), a measure on which I believe we outperform the industry today.
What were the principal reasons behind your increase in profitability in 2015-16?
Our contract margin has improved, driven by three factors. The first is improved project execution, which has resulted in far fewer project margin deteriorations. The second is our mix between services and original equipment, with higher-margin services now accounting for 45% of total sales.
We also enjoyed higher sales volumes.
This is important as we had taken the decision to increase our cost structure to gain better control. While we booked one-off costs relating to restructuring and the Wabtec transaction, our adjusted Group operating profit was slightly above our market guidance.
What are your priorities in 2016-17?
Looking ahead to 2016-17, there are three main priorities. We will focus on closing the Wabtec deal, completing the regulatory process. We will work hard to deliver our full year guidance to the market. And we will execute our three-year strategic plan.
We have delivered the first visible milestones of our transformation, but Creating Value 2018 is a mid-term change program. We have agreed with Wabtec that we will pursue the plan finalizing the transaction, incorporating best practices where appropriate. In this way, we will position the combined company for the future, and serve our customers even better.
*UNIFE: Union des Industries Ferroviaires Européennes, a professional association for the railway supply industry.