Before starting I have to admit that I hardly knew Bombardier. A Canadian company manufacturing trains, to be taken over by Alstom. Somehow I got the impression that it was a powerful giant, but after analysing the annual and quarterly reports I changed my view. Not only trains, but also aeroplanes and then half of the revenue is coming from European subsidiaries, but powerful? Well, the products might be good – I don’t know – but their finances are not healthy at all.
Photo by Andi Graf on Pixabay
The reports are very transparent and easy to obtain, but is this company a money incinerator? It shows negative equity to start with. Then the cost of sales is very close to the revenue, leaving hardly any money for other expenses and indeed losses were reported for the more recent periods.
In this series we are not looking at net income, but at cash-flow from operations and this was even worse. Looking at the calculation I was confused for a moment by the large negative amounts, but then I realised that some parts of the profit might not come from “operations”, hence their removal. It turned out that parts of the company were sold. Jumping from note to note I landed at note 31 of the annual report 2019 where it is explained that the trainings services were sold for more than USD 500 mln. (precise amounts are mentioned in the note). Then in H1 2020 the trick was repeated by selling an aircraft programme to Mitsubishi for a similar amount. This means that the cash-flow from operations is a much better indicator of what’s going on.
The 3D-graph was not easy to obtain. The generator is able to deal with negative equity and the “building” will be shown as a hollow one. The issue was Munich Re being too large like BP was previously. I had to remove it from the input-file, but then the parameters had to be adjusted because a negative width (the equity) messes with the distances, but in the end the result was ok. The negative cash-flow is reflected in the red roofs for H1 2019 and H1 2020. Only H2 2019 had a small positive cash-flow from operations and therefore the roof is a thin green one.
Double-clicking the screenshot will open the 3D-graph in your browser. Beware: thegraph haw so many companies that zooming out is necessary to see the whole picture! Clicking the right mouse-button and moving the mouse up and down at the same time, will zoom the graph in and out. For manipulation of this 3D-graph: Clicking left while moving the mouse will tilt the graph in different directions. Double clicking in the graph translates it and readjusts the centre at the same time. Just try it – If you don’t know how to get the normal position back, refresh the page in your browser.
Rotating the graph will show the depth of the buildings (liabilities) better. Remember that with a positive equity the ratio would not have been healthy for a manufacturer (for a bank or insurance company it’s a normal shape) and here we are dealing with negative equity!
The question is still: ”what about Corona?”. Looking for the code “COVID-19” several occurences were found in the Q2 report 2020. The most relevant on probably being the one quoted below:
“Operations Status and Financial performance Revenues of $2.7 billion during the quarter reflect a lower level of production activity and deliveries as operations at key Aviation and Transportation sites across North America and Europe were temporarily suspended due to the global COVID-19 pandemic. Revenues from services proved more resilient during this period.”
That’s a way to put it: hundreds of millions of revenue being missed as a result of the pandemic. On the other hand, have a look at the finance expenses: the liabilities are extremely high and a lot of money has to be paid – most likely not only interest but also high fees (hundreds of millions and even over a billion in 2019).
On page 58 of the Q2-report a whole chapter is explaining the impact of COVID-19, but it seems that the liabilities are even more dangerous to the company than the virus. Yet the desease might be cured, as Alstom acquired Bombardier in 2020 and the annual report 2020 will be its last.
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