ALSTOM presents new action plan

IMMEDIATE ACTIONS TO REDUCE DEBT AND IMPROVE PERFORMANCE

· Disposal programme extended: 3bn to be
raised by March 2004, including Transmission & Distribution
Sector and Industrial Turbines business

· Cost reduction plans accelerated: annual savings
of 500m within 2 years

· Management team and organisation renewed

NET LOSS EXPECTED FOR FISCAL YEAR 2002/03

· Estimated additional provision of 1.35bn
before tax (1.2bn after tax) in 2002/3 accounts to cover
GT24/26 and UK train problems

· Estimated net loss of between 1.3-1.4bn
in 2002/03

FINANCIAL POSITION

· Adequate liquidity: 1bn of available
credit lines

 

ALSTOM is today hosting a presentation in Paris for
investors and analysts at which Patrick Kron, Chairman &
Chief Executive Officer, will detail ALSTOMs new action
plan.  The plan is designed to: improve the
Companys operational performance; deal with the impact
of past operational issues; and reduce its high level of
debt.

Patrick Kron commented: ALSTOMs core
businesses in the global energy and transport markets offer
solid long-term growth prospects and attractive
opportunities.  With its strong market positions,
technology leadership, broad commercial presence and large
installed base, the Company is strategically
well-positioned.

However, we must face todays reality.  We
need to adapt to the power market, where demand has
significantly weakened over the past year, to address the
additional costs of past operational problems, and materially
strengthen our financial structure.

 

This situation calls for immediate action.  We
will refocus the Company by selling both our Transmission &
Distribution and Industrial Turbines businesses which, taken
together with other assets already sold during the past year or
about to be sold, should generate 3 billion in proceeds,
including real estate double the target set this time
last year.  We are taking strong action to improve our
inadequate profitability by substantially reducing our cost
base, generating 500 million in annual savings within
the next two years through industrial restructuring and
overhead reduction programmes.

We have thoroughly reviewed the impact of operational
problems with our GT24/26 gas turbines and in UK trains: we
will put these problems behind us, but we need to make an
additional provision estimated at 1.35 billion to cover
the associated costs.

We estimate that the business disposal programme,
combined with measures to improve our operational performance,
will halve our total debt by March 2005.  Our leading
lending banks have given their full support to this plan and,
with 1 billion in available credit lines, we have
adequate liquidity going forward.

Rapid implementation of this plan is my top
priority.  My conviction is that, with a restructured
industrial base and strong market positions in power and
transport, supported by a worldwide commercial presence and
highly-competent technical teams, ALSTOM has a promising
future.  We have renewed the management team and are
streamlining the organisation to make this happen.

* * * * *

Market Conditions

In the power market, conditions have deteriorated markedly
in the past year, particularly in the US. This downturn affects
about half of our Power portfolio, particularly gas and steam
turbines and related plant engineering, but we are still seeing
growth in service, retrofit and environment-related markets.
The Transmission & Distribution markets have weakened in
medium voltage and systems. The rail transport market is at
high levels. The cruise ship market remains uncertain, pending
an overall economic recovery and the resolution of the current
international situation.

Dealing with Past Issues

- GT24/26 heavy-duty gas turbines

Major progress has been made in developing the technical
recovery package on the GT24/26 heavy-duty gas turbines,
following the announcement in July 2000 that the machines could
not meet contractual performance and lifetime obligations.

Commercial settlements have been reached on 61 of the 80
units sold, of which 20 are unconditional (i.e. contracts are
in the normal warranty period and ALSTOM has no obligation to
upgrade or pay further penalties) and 41 require
additional  improvements, either to performance or to the
lifetime of key components.  Of the 19 units on which
commercial settlements have not been reached, seven are
currently subject to litigation and negotiations are underway
on the remainder.

However, since November 2002, as a consequence of delays
experienced in finalising the technical recovery package,
coupled with the tougher than expected commercial attitude of
customers, ALSTOM is facing extra costs and significantly
increased exposure.

We estimate the remaining exposure in March 2003 to be
1.6 billion.  Maximum exposure is estimated at
2.0 billion, on which the Company expects mitigation of
400 million (20 per cent). We therefore expect to take
an estimated additional provision of 1.2 billion before
tax in the Companys accounts for the current financial
year, in addition to an existing estimated provision at
end-March 2003 of 400 million.

- UK trains

All trains under the UK regional contracts have been
delivered, but a programme to improve the trains
reliability is ongoing and leading to additional costs. 
Trains are also being delivered on the West Coast Main Line
(WCML) contract at the rate of two units per month, in line
with customer requirements.  Services on the line began in
January 2003 and the remaining 41 trains are scheduled for
delivery by September 2004, but there have been major delays
and cost-overruns on this contract.

Decisive action has already been taken to address these
issues, including strengthening management and optimising
resources for new-build and service functions in the UK. 
Following a comprehensive review of costs, we expect to take an
estimated additional provision of 150 million in the
Companys accounts for the current year.

· Marine Vendor Financing

ALSTOMs total gross exposure on Marine vendor
financing has reduced to 900 million, largely due to
currency effects.  The Company believes it has adequate
provisions in its accounts, provided there is no further
deterioration in the cruise-ship holiday market.

· Asbestos

The Company reiterates that it believes it has no material
liability in respect of asbestos personal-injury cases. 
In France such liabilities are covered by publicly-funded
systems.  In the USA the businesses purchased from ABB are
covered by an ABB indemnity.  For its other US businesses,
ALSTOM believes its exposure is insignificant and considers the
cases filed against the Company are without merit. 
Currently, the Company has 80 asbestos cases, grouping a total
of 6,200 asbestos claims, following the filing of new cases and
the dismissal of others.  ALSTOM has made no compensation
payments.

Action Plan

The action plan comprises three main elements:

1. Focus ALSTOMs range of activities, while
strengthening its financial base

Extended disposal programme to generate proceeds of 3
billion

ALSTOM will refocus its activities on the power generation
and transport markets by selling the Transmission &
Distribution Sector (T&D) and the Industrial Turbines
business.  In all, the extended disposal programme is
expected to generate proceeds of 3.0 billion by March
2004, nearly double the previous target of 1.6
billion.

The sale of the T&D Sector has been prepared and is
launched today.  The sale of the Industrial Turbines
business, which comprises small gas and steam turbines, was
launched five months ago and is nearing signature. 
Together, these businesses have sales of 5.0-5.5
billion, operating income of 320 million and around
35,000 employees.

The decision to sell T&D and the Industrial Turbines
business was taken after a thorough review and appraisal of
ALSTOMs current portfolio: both are good, high-value
businesses, but their sale will not impact the remaining
activities.

ALSTOM will also review options to consolidate its Marine
activities in the medium term through partnerships or alliances
at either national or international level.

2. Improve operational performance and adapt to market
conditions

Cost Reduction: 500 million of annual recurring savings
within 2 years

All existing cost-reduction initiatives will be accelerated,
while new overhead reduction targets will be assigned at
Corporate, International Network and Sector levels.
Corresponding industrial restructuring plans and overhead
reduction programmes will be announced in the Sectors and
countries affected over the coming weeks.  Annual
restructuring costs will be increased from 200 million
to 300 million and the Company expects to extract
recurring annual savings of 500 million within two
years.

3. Overhaul of organisation and management

Immediate action will be taken to implement a more efficient
organisation

- The Power Sector, which currently accounts for more than
half of ALSTOMs revenues, will be reorganised into 3 new
Sectors: Power Turbo-Systems (the former Gas and Steam
Segments); Power Service (the former Customer Service Segment);
and Power Environment (the former Boilers & Environment and
Hydro Segments).  ALSTOM will thus comprise five more
equally-balanced Sectors, plus the T&D Sector pending its
disposal.

The Companys senior management will be renewed, with
five newcomers joining ALSTOMs Executive
Committee.  Alexis Fries, former Power Sector President
and Michel Moreau, former Transport Sector President, are
leaving the Company. The following new Sector Presidents will
join the Executive Committee: Mike Barrett, Power
Turbo-Systems; Walter Graenicher, Power Service; Philippe
Soulié, Power Environment; and Philippe Mellier,
Transport, who will join the Company on 1 May 2003 from the
Volvo group.  A new head of the Human Resources function
will join the Executive Committee in the near future.

- Sectors will be fully empowered, with clear P&L
responsibility, and a fast-track reporting system will be
implemented.  Stricter risk management will be enforced by
the Corporate Risk Committee chaired by Patrick Kron, which
will review major tenders and execution of large projects and
analyse the Companys customer and country risk
exposure.  The organisation will be delayered and
simplified to enhance reactivity.

Key Financials

Outlook for fiscal year 2002/03

ALSTOM will announce its fiscal year 2002/03 results on 14
May, 2003.  ALSTOMs current outlook is:

· Sales at approximately 21bn, stable
versus last year on a comparable basis

· Orders reviewed at approximately 19bn, a
decrease of 4% versus last year on a comparable basis

· Operating margin, pre-exceptionals: in the 4-4.5%
range, slightly up from the previous year

· Exceptional estimated additional provision of
1.2bn after tax comprising:

- Estimated provision on GT24/26 of (1,200)m

- Estimated provision on UK trains of (150)m

- Estimated tax impact of 150m

· Estimated net loss of 1.31.4bn

· Estimated free cash flow (net cash provided by
operating activities after capex) of
(0.4)(0.5)bn, after more than 1.0bn cash
outflow linked to GT24/26

· Total debt at March 2003 estimated at slightly
below 5bn, reduced from 5.3bn in March 2002,
which included net financial debt of 2.1bn,
securitisation of existing receivables of 1.0bn,
securitisation of future receivables of 1.7bn and
0.5bn of preferred shares and undated subordinated notes

· Dividend: in view of the financial plan outlined
today, the Board will propose for this financial year not to
pay any dividend

 

New credit lines

ALSTOMs liquidity needs are adequately covered. 
The Companys main lending banks have agreed to extend a
new credit facility of 600 million and to renew
475 million of existing facilities maturing in the
coming weeks, all of which is to be repaid from the disposal
proceeds. They have also agreed to modify existing financial
covenants.  Discussions with ALSTOMs other banks
are underway to obtain their required consents to such new
financial covenants.  The Company is confident of
obtaining the necessary consents.  Failure by the
shareholders to approve a planned capital increase will allow
the banks to require repayment of the new 600 million
credit facility and the 475 million of existing
facilities.

ALSTOM in 2005/06: focused on power generation and rail
transport

Following the disposals, the new ALSTOM will have a balanced
portfolio of well-positioned activities:

 

Power Turbo-Systems   No. 1* in steam turbines,
generators and plant engineering & construction, while
recovering its position in gas turbines

Power Service  No. 1* in an attractive and growing
business

Power Environment   No. 1* in boilers, hydro and
environmental control: a clear leader in growing environmental
markets

Transport   No. 2* with a world-class business

Marine Leading cruise ship supplier; need for industry
consolidation

* ALSTOM estimates

New ALSTOM Profile

· Sales of over 15 bn

· Operating margin of 6% by 2005/06

· Free cash flow strongly positive

· Total debt to be reduced from 5.3 billion in
March 2002, to a level in the range of 2.0-2.5 bn by
March 2005

Press enquiries : Gilles Tourvieille /Maria Dowd

 (Tel. +33 1 47 55 23 15)

 
internet.press@chq.alstom.com
Investor relations :  Elisabeth Rocolle-Teyssier

 (Tel. +33 1 47 55 25 78)

 
investor.relations@chq.alstom.com
Internet :  
http://www.wcm.alstom.com

 

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, 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
managements 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
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
inherent technical complexity of many of ALSTOMs
products and  technologies and the ability to resolve
effectively and at reasonable cost technical problems that
inevitably arise, including in particular the problems
encountered with the GT24/26 gas turbines and the UK trains;
(vii) risks inherent in large contracts that comprise a
substantial portion of ALSTOMs business; (viii) the
effects of acquisitions and disposals; (ix) the ability to
invest in successfully, and compete at the leading edge of,
technology developments across all of ALSTOMs Sectors;
(x) the availability of adequate cash flow from operations or
other sources to achieve managements objectives or
goals; (xi) timing of completion of the actions focused on
cash generation contemplated in ALSTOMs Strategic
Plan; (xii) the inherent difficulty in estimating future
charter or sale prices of any relevant cruise ship in any
appraisal of the exposure in respect of the Renaissance
Cruises matter; (xiii) the inherent difficulty in estimating
ALSTOMs exposure to vendor financing which may notably
be affected by customers payment default; (xiv) the
unusual level of uncertainty at this time regarding the world
economy in general; (xv) ALSTOMs ability to dispose of
its Transmission and Distribution and Industrial Turbines
businesses on favourable terms or in a timely fashion, (xvi)
the availability of sufficient levels of credit lines from
our banking institutions; and (xvii) ALSTOMs success
at adjusting to and managing the risks of the
foregoing.  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
from time to time with the U.S. Securities and Exchange
Commission, including reports submitted on Form 6-K.  In
particular, our financial year ending March 31, 2003 has not
yet come to a close and the process of consolidating our
groups financial statements will not be completed for
several weeks.  Nothing contained in this press release
should be construed as a definitive statement regarding our
financial condition or results of operations at or for the
year ended March 31, 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.