RNS Number:0163S
Alstom
13 November 2003
13 November 2003
ALSTOM FIRST HALF RESULTS 2004
1 April 2003 - 30 September 2003
First Half Results impacted by uncertainties over ALSTOM's situation
* Orders received: Euro7.4bn, down 23% on a comparable basis
* Sales: Euro8.9bn, down 9% on a comparable basis
* Operating margin: 1.5%
* Net income: Euro(624)m
* Free cash flow: Euro(674)m
* Economic debt reduced to Euro4.5bn
Progress on action plan
* Euro2.5 bn proceeds from disposals secured
* Financing package announced 22 September to strengthen the Group's
financial structure, with positive feedback from customers
* Significant progress made on GT24/GT26 gas turbines issue
* Operational performance: restructuring accelerated with cost-reduction
programmes underway
* * *
Commenting on the results Patrick Kron, Chairman & Chief Executive Officer,
said:
"ALSTOM's results for the first half of fiscal year 2004, though unsatisfactory,
are generally in line with previous guidance.
Our low level of order intake mainly reflects weak demand for new power
equipment, the impact of customer concerns surrounding ALSTOM's past financial
position and difficulties experienced during the period in obtaining contract
bonds. Our income was hit by additional charges on some US contracts and a
significant increase in financial and restructuring charges.
The financing package announced on 22 September 2003 is designed to strengthen
substantially the Group's financial structure and we are now seeing positive
reactions from customers, as illustrated by Euro700 million in orders having been
secured in October by our Transport Sector. Despite difficult circumstances, we
managed during the first half to win good orders such as trams and metros in
Europe, gas turbines in Algeria, a combined cycle plant in Bahrain, Power
service in the US and Brazil and a major utility boiler in China.
We also made significant progress on the action plan announced last March
designed to improve Group profitability and cash generation, to close out past
operational issues and reduce our level of debt. To date we have secured Euro2.5 bn
proceeds from disposals, including our small and medium-sized industrial
turbines and our transmission & distribution activities; we continue to make
encouraging headway on the GT24/GT26 issue, while major restructuring and
cost-reduction programmes are underway worldwide to drastically cut our cost
base.
My priority, and that of ALSTOM's management team, remains the continued full
implementation of this action plan. The September financing agreement will be
submitted for approval at a Shareholders' Meeting on 18 November and will be
fully implemented as soon as possible thereafter. It will substantially increase
our equity base through a capital increase and issue of bonds redeemable in
shares, while providing the Group with adequate medium to long-term financing
and on-going liquidity and contract bonding coverage. I believe the financing
agreement is also a strong signal to the market that ALSTOM is back in normal
business, not only with a commitment to meeting its operational improvement
objectives, but above all its customers' needs and expectations."
- ends -
A summary of ALSTOM's MD&A for the six-month period is attached. A full copy of
this document, which takes precedence over this press release, is available on
ALSTOM's website, together with a full set of accounts and notes
(www.alstom.com).
Press relations:
S. Gagneraud / G. Tourvieille
(Tel. +33 1 47 55 25 87)
internet.press@chq.alstom.com
Investor relations:
E. Chatelain
(Tel. +33 1 47 55 25 33)
Investor.relations@chq.alstom.com
M Communications:
L. Tingstrom
Tel. + 44 789 906 6995
ALSTOM: Summary of MD&A
Summary of results
Key financial figures
The following tables set out, on a consolidated basis, some of our key financial
and operating figures :
(1) We define free cash flow to mean net cash provided by (used in)
operating activities plus capital expenditures, net of proceeds from
disposals of property, plant and equipment (excluding proceeds from the
sale of real estate as part of our strategic plan) and increase
(decrease) in variation in existing receivables considered as a source
of funding of our operations. Free cash flow is not a measurement of
performance under either French or US GAAP.
(2) Adjusted for changes in business composition and exchange rates.
Comparable figures are not measurements of performance under either
French or US GAAP.
Trading impacted by difficult markets and uncertainties surrounding ALSTOM's
financial position
Since 31 March 2003, we have continued to face difficult markets in power
generation new equipment and cruise-ships. The Transport market stayed
relatively healthy, notably in the service activity, but as a whole lower than
the record level of the previous year. The Power Service market remained sound.
Against these adverse market conditions, uncertainty regarding the Group's
financial position contributed to a significant decline in orders received.
Group order intake, at Euro7.4bn, was down 23% on a comparable basis. The order
backlog amounted to just over Euro27bn at 30 September 2003, representing 18 months
of sales. On a comparable basis, sales decreased by 9% against the first half of
the previous fiscal year.
Results
Operating income was Euro132 million, or 1.5% of sales, after additional charges
taken in relation to the US Transport business of Euro102 million and Euro60 million
in respect of a utility boiler contract in the US, where two key sub-contractors
went bankrupt.
Net income after goodwill amortisation was Euro(624) million as a result of the low
operating income, significantly higher financial expenses and restructuring
charges, and lower than anticipated deferred tax credits.
Free Cash Flow
Free cash flow was Euro(674) million in the first half of fiscal year 2004,
including Euro394 million cash outflow on the GT24/GT26, higher restructuring and
financial expenses combined with an increase in our working capital
requirements.
Economic debt reduced by Euro399 million
Economic debt* was reduced to Euro4,519 million at 30 September 2003 from Euro4,918
million at 31 March 2003, following receipt of disposal proceeds partially
offset by cash outflow.
* We define economic debt as net debt including securitisation of future and
existing receivables. Economic debt is not a measurement of performance under
either French or US GAAP.
Review by Sector
Power Turbo-Systems
A low level of activity in the power generation new equipment market continued,
with overcapacity in some markets delaying decisions on new capital investments.
On a comparable basis, orders fell by 36% to Euro839 million compared with the
first half of fiscal year 2003, but rose 89% compared with the second half of
fiscal year 2003. Sales on a comparable basis declined 16% to Euro1,211 million
compared with the second half of fiscal year 2003.
Operating income was Euro(127) million, compared with Euro(1,306) million for the full
fiscal year 2003 on a comparable basis, mainly as a result of the low level of
sales recognised during the period.
Power Service
On a comparable basis, orders in Power Service rose 15% to Euro1,368 million
compared with the second half of fiscal year 2003, mainly due to the booking of
several medium-sized operations & maintenance contracts and a strong US service
market. Orders were down 12%, however, as compared with the high level in the
first half of fiscal year 2003. Sales rose 12% on a comparable basis to Euro1,361
million, compared with the first half of fiscal year 2003, and 8% compared with
the second half of fiscal year 2003.
Operating income was Euro196 million, or 14.4% of sales, in the first half of the
fiscal year on a comparable basis, compared with 15.3% for the full fiscal year
2003.
Power Environment
On a comparable basis, orders were relatively stable at Euro1,042 million compared
with the second half of fiscal year 2003, but 23% lower than the first half of
fiscal year 2003, reflecting an abrupt market downturn in the US and a drop in
the number of projects in Latin America. Sales at Euro1,331 million were stable on
a comparable basis versus the first half of fiscal year 2003.
Operating income, at Euro24 million, reflects the Euro60 million charge taken on a
utility boiler contract in the US and the execution of some low-margin contracts
in the Sector's Hydro business.
Transport
On a comparable basis, orders declined 47% compared with the first half of
fiscal year 2003 to Euro1,672 million due to lower level of order intake in the US
and to customers' concerns over the Group's financial situation.
Following the announcement of a new financing package at the end of September
2003, however, the Sector secured Euro700 million of new orders in October,
illustrating that customer confidence is returning.
On a comparable basis, sales increased by 3% to Euro2,297 million compared with the
first half of fiscal year 2003 reflecting the delivery of systems projects in
Greece, Spain and France and the increased locomotive maintenance and
refurbishment activities in Spain and Germany.
Transport's operating income was Euro(37) million after additional charges of Euro102
million taken in relation to the US Transport business. On a comparable basis,
this compares with Euro85 million in the first half of fiscal year 2003 and Euro(95)
million in the second half of fiscal year 2003 during which we recorded a Euro213
million provision on UK and US trains contracts.
Marine
The timing of the recovery in the cruise-ship market remains uncertain. Orders
received in the Marine Sector represented Euro340 million for the first half of
fiscal year 2004, including a cross channel ferry and an LNG tanker. Sales were
Euro822 million, up 13% on a comparable basis compared with the first half of
fiscal year 2003 and down 2% compared with the second half of fiscal year 2003;
they include the delivery of two cruise-ships, Island Princess and Crystal
Serenity, and a surveillance frigate to the Moroccan Navy. Construction
continued on the largest passenger cruise-ship in the world, the Queen Mary 2,
which satisfactorily completed its second series of sea-trials on 11 November
2003, as well as on another cruise ship, a yacht and an LNG tanker.
Transmission & Distribution
On a comparable basis, orders dropped by 5% compared with the first half of
fiscal year 2003. Sales were down 4% compared to the same period last year,
mainly due to a decrease in the UK and Germany.
T&D's operating income, at Euro84 million, or 5.4%, declined in comparison with
6.0% in the first half of fiscal year 2003, mainly as a result of the lower
level of trading in its products and systems activities.
12 March Action Plan Update
On 12 March 2003, we presented a strategy and action plan which includes the
following elements:
* Disposals programme: Euro2.5 bn proceeds secured
As part of our March 2003 plan we increased our disposal programme to Euro3.0
billion. To date we have signed agreements for Euro2.5 bn but in order to fully
value the assets to be disposed, we now expect the remainder to be achieved by
March 2005.
These disposals include:
* Industrial Turbines businesses
The sale of our Industrial Turbines activities was completed in two stages on 30
April and on 1 August 2003, for total net proceeds of Euro950 million.
* Transmission & Distribution activities
On 25 September 2003, we signed a binding agreement to sell our T&D activities
(excluding Power Conversion) to Areva for an enterprise value of Euro950 million,
subject to closing adjustments. This transaction is expected to close in January
2004 after completion of usual conditions precedent.
* Real Estate
Total proceeds to date from our real estate programme have reached Euro415 million
(Euro267 million received in fiscal year 2003 and Euro148 million in the first half of
fiscal year 2004).
* Operational Issues: significant progress on GT24/GT26
GT24/GT26 heavy-duty gas turbines
During the first half of fiscal year 2004, we continued to implement technical
improvements to our GT24/GT26 gas turbines. The new upgrade packages have been
tested successfully and deployment in the field has started. The machines'
reliability has been demonstrated with 72 units in operation and more than 730
000 operating hours accumulated. The commercial situation is becoming clearer,
with all of the cases of client litigation, which affected 7 units as of March
2003, now resolved via satisfactory commercial settlements.
Cash outflow related to the GT24/GT26 was in line with projections. We reported
on 31 March 2003 that we had an overall mitigation target of Euro454 million. As of
30 September 2003, this overall mitigation target was lowered to Euro336 million,
as a result of successful mitigation actions achieved to date, and of a Euro28
million charge for mitigation actions which did not materialise.
After mitigation, provisions remaining for GT24/GT26 were Euro1,193 million as of
30 September 2003.
Transport projects in UK and US
All 119 trains UK regional trains have been delivered but the in-service
reliability improvement programme is still underway. On the West Coast Main Line
contract, 28 trains from a total of 53 have been delivered in line with the
customer's expectations. On completion of this contract in September 2004, our
UK new build activities will be refocused on service/maintenance activities.
Internal reviews by auditors and legal teams of accounting irregularities in the
US have been performed. Project reviews concerning this unit have also been
completed directly by Sector management, leading to additional operating losses
of Euro102 million in the first half of fiscal year 2004. Management has been
changed and internal controls strengthened.
* Improving operational performance: strong action taken
Restructuring and cost reduction
We target Euro500 million savings as of fiscal year 2006 through restructuring and
have other cost reduction initiatives, including Group-wide programmes to
improve quality and sourcing efficiency.
Our Corporate and International Network organisations were significantly
down-sized during the first half of fiscal year 2004. Plans to reduce our
workforce by approximately 7,000 worldwide, mainly in Power Turbo-Systems,
Transport and Power Environment Sectors have been launched and the process of
consultation with trade union representatives at European level has been
completed.
Since we have accelerated our restructuring plans, we expect to accrue
significantly more related charges in fiscal year 2004 than in the previous
years.
Stricter Risk Management
A new Risk Management Director has been appointed and we are exercising stricter
risk control over the terms, conditions and margins of our order intake. The
Chairman and CEO heads the central Risk Committee set up in March 2003 to review
all major bids and contracts under execution. Process improvement is also
underway within the Sectors to ensure stricter control of project execution.
Simplified Organisation
Management has been renewed and our organisation stream-lined for greater
efficiency. The Power Sector was reorganised into three new Sectors from 1 April
2003, removing the former Sector level management layer. A new customer-focused
organisation was announced by our Transport Sector in October.
* Financial Structure Strengthened
Revised Euro3.2 bn financing package
Following the European Commission's announcement that some aspects of the
refinancing package announced on 6 August 2003 were inconsistent with the
Commission's review and approval timetable, new discussions were held between
all the concerned parties, including the European Commission, in order to amend
the plan.
A new agreement on a Euro3.2 bn package was reached on 22 September 2003 which is
designed to meet European Commission procedural requirements, whilst covering
the Group's short to long-term funding needs and on-going contract bonding
requirements. The new agreement also sends a strong positive signal to ALSTOM's
customers and suppliers.
The revised financing package includes:
in Euro million
1,200
* Equity guaranteed by the banks
Capital increase 300
Bonds mandatorily reimbursable with shares (ORA) 900
* Long-term instruments from the French State 500
20-year bond convertible into shares if approved by the 300
European Commission
15-year bond 200
* Medium-term loans 1,500
5-year loans (French State) 300
5-year loans (banks) 1,200
3,200
* Short-term facilities of Euro1,500m
* Syndicated line of bonding for Euro3,500m
Implementation status
The short-term facilities of Euro1,500 million and the syndicated line of bonding
for Euro3,500 million are now in place.
The other measures included in the package will be implemented before the end of
January 2004, subject to the approval at the Ordinary and Extraordinary
Shareholders' Meeting to be held on 18 November.
As expected, the European Commission has formally announced a review to evaluate
whether the package complies with EC regulations.
Outlook
We expect this current fiscal year (ending March 2004) to be unsatisfactory both
in terms of results and cash flow due to tough market conditions and the impact
of the past uncertainties concerning our situation on our commercial activity.
On a comparable basis (T&D to be deconsolidated at the beginning of 2004) we
expect a higher level of orders in the second half of the year than in the
first. Group order levels for the full fiscal year are expected to be between
Euro14-15bn with sales at approximately Euro17bn.
We expect our operating margin to reach between 2% and 2.5% for the full fiscal
year 2004, with second half margin in line with the first half, before
identified specific charges (boiler, US Transport).
We expect free cash flow for the full year to be negative by between Euro(800)
million - Euro(1,000) million, mainly due to an estimated cash-out flow of around Euro
(800) million linked to the GT24/GT26.
We confirm our medium-term targets: reducing the Group's current high level of
economic debt by March 2004 with the full implementation of the financing
package, to below Euro2.5 bn by March 2005. Our 6% operating margin target is
maintained for fiscal year ending March 2006, based on growth expected in
after-market and service sales, the impact of the down-sizing in the
Turbo-Systems Sector, improved margins in Transport and as the full impact of
our cost-reduction and restructuring programmes takes effect. We target positive
free cash flow in fiscal year 2006.
* * *
Forward-Looking Statements
This press release contains, and other written or oral reports and
communications of ALSTOM may from time to time contain, forward-looking
statements, within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Examples of such
forward-looking statements include, but are not limited to (i) projections or
expectations of sales, orders received, income, operating margins, dividends,
provisions, cash flow, debt or other financial items or ratios, (ii) statements
of plans, objectives or goals of ALSTOM or its management, (iii) statements of
future product or economic performance, and (iv) statements of assumptions
underlying such statements. Words such as "believes", "anticipates", "expects",
"intends", "aims", "plans" and "will" and similar expressions are intended to
identify forward looking statements but are not exclusive means of identifying
such statements. By their very nature, forward-looking statements involve risks
and uncertainties that the forecasts, projections and other forward-looking
statements will not be achieved. Such statements are based on management's
current plans and expectations and are subject to a number of important factors
that could cause actual results to differ materially from the plans, objectives
and expectations expressed in such forward-looking statements. These factors
include: (i) the inherent difficulty of forecasting future market conditions,
level of infrastructure spending, GDP growth generally, interest rates and
exchange rates; (ii) the effects of, and changes in, laws, regulations,
governmental policy, taxation or accounting standards or practices; (iii) the
effects of currency exchange rate movements; (iv) the effects of competition in
the product markets and geographic areas in which ALSTOM operates; (iv) the
ability to increase market share, control costs and enhance cash generation
while maintaining high quality products and services; (v) the timely development
of new products and services; (vi) the ability to implement the financing
package and to meet the financial and other covenants contained in ALSTOM's
financing agreements; (vii) difficulties in obtaining bid, performance and other
bonds (other than those available under ALSTOM's new Bonding Facility) with
customary amounts or terms; (vii) the timing of and ability to meet the cash
generation and other initiatives of the new action plan, including the ability
to dispose of certain real estate and other assets on favourable terms or in a
timely fashion; (viii) the results of the United States Securities and Exchange
Commission's ("SEC") investigation of matters relating to ALSTOM Transportation
Inc., and the impact thereof on ALSTOM Transportation Inc.'s ability to conduct
its business; (ix) the outcome of the putative class action lawsuits recently
filed against ALSTOM and certain of its current and former officers; (x) the
results of the European Commission's review of the French State's involvement in
ALSTOM's recently renegotiated financing package, the sale of our T&D Sector to
Areva and other aspects of ALSTOM's businesses; (xi) whether ALSTOM receives
shareholder approval of important elements of its recently renegotiated
financing package; (xii) the availability of external sources of financing on
commercially reasonable terms; (xiii) the inherent technical complexity of many
of ALSTOM's products and technologies and our ability to resolve effectively, on
time, and at reasonable cost technical problems, infrastructure constraints or
regulatory issues that inevitably arise, including in particular the problems
encountered with the GT24/GT26 gas turbines and the UK trains; (xiv) risks
inherent in large contracts and/or significant fixed price contracts that
comprise a substantial portion of ALSTOM's business; (xv) the inherent
difficulty in estimating future charter or sale prices of any cruise ship in any
appraisal of ALSTOM's exposure in respect of Renaissance Cruises; (xvi) the
inherent difficulty in estimating ALSTOM's vendor financing risks and other
credit risks, which may notably be affected by customers' payment default;
(xvii) ALSTOM's ability to invest successfully in, and compete at the leading
edge of, technology developments across all of its sectors; (xviii) the
availability of adequate cash flow from operations or other sources of liquidity
to achieve management's objectives or goals, including our goal of reducing
indebtedness; (xix) whether certain of ALSTOM's markets, particularly the Power
Sectors, recover from their currently depressed state; (xx) the possible impact
on customer confidence of ALSTOM's recent financial difficulties, and if so its
ability to re-establish this confidence; (xxi) the effects of acquisitions and
disposals generally; (xxii) the unusual level of uncertainty at this time
regarding the world economy in general; and (xxiii) ALSTOM's success in
adjusting to and managing the foregoing risks.
The foregoing list is not exhaustive; when relying on forward-looking statements
to make decisions with respect to ALSTOM, you should carefully consider the
foregoing factors and other uncertainties and events, as well as other factors
described in other documents ALSTOM files or submits from time to time with the
SEC, including reports submitted on Form 6-K and our Annual Report on Form 20-F
for the fiscal year ended 31 March 2003 which was filed with the SEC on 16
October 2003. Forward-looking statements speak only as of the date on which they
are made, and ALSTOM undertakes no obligation to update or revise any of them,
whether as a result of new information, future events or otherwise.
This press release is not an offer to sell securities or the solicitation of an
offer to buy securities, nor shall there be any offer or sale of securities in
any jurisdiction in which such offer or sale would be unlawful prior to
registration or qualification under the securities laws of such jurisdiction.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR UORVROSRAARA
