In a still challenging commercial environment in the first half of 2010/11, Alstom performed in line with guidance and adapts its Power Thermal activity to market evolutions

Between 1st April 2010 and 30th September 2010, Alstom registered a low level of order intake, as demand continued to be affected by some weak end-markets in Power. Over this first half year 2010/11, sales amounted to 10.4 billion including Grid, and income from operations reached 763 million, corresponding to a margin of 7.3%. The net result stood at 401 million, whilst the free cash flow was negative at (963) million, due to the low volume of orders and the lack of large turnkey contracts.

Key figures 

 1 Consolidated for four months (from June to September 2010)

 _{² After a negative impact of 75 million from Grid purchase price allocation and acquisition costs} 

During the first half of 2010/11, demand remained weak for new thermal
power equipments in mature markets, leading to a low level of order
intake. To address this situation, a restructuring plan was launched in
the concerned European and North-American businesses. The rest of the
portfolio has been doing better with a number of opportunities being
worked upon, notably in the emerging countries. While cash generation
was strongly impacted by the level and nature of orders, the operational
performance was overall in line with expectations, as illustrated by
the evolution of sales and margin. This performance combined with the
expected impact of the adjustment plan on costs allow us to confirm that
over the current and next fiscal years, the Groups operating margin
should stay within a 7 to 8% bracket, said Patrick Kron, Alstoms
Chairman & Chief Executive Officer.

Contrasted markets
During
the first six months of 2010/11, the market conditions remained overall
challenging with contrasted situations across geographies and
technologies. GDP growth in emerging countries was quick to rebound,
leading to increasing needs for new infrastructure. On the other hand,
the sluggish recovery experienced in Europe and in the USA kept on hold a
number of projects, which particularly affected thermal activity in
Power. Renewables and services overall confirmed their resilience.
Demand for rail transportation remained sustained, whilst the
transmission market started to recover after the 2009 crisis.

Weak order level
Orders
booked over the first half amounted to 5.6 billion, a 21% decrease
(excluding Grid which registered 1.4 billion of new contracts over 4
months) from the same period last year, which included two large
projects, one for a turnkey power plant in the UK and the other one for
suburban trains in Paris. On 30th September 2010, the total
backlog amounted to 45.3 billion, representing 23 months of sales.

In
Power, Thermal Systems & Products recorded no large projects during
the first semester, leading to a new decline of their orders in
comparison to last year. Thermal Services registered a flow of small and
medium-sized orders for regular service and retrofit, as well as the
extension of long-term operation and maintenance contracts for two power
plants in Spain. In Renewables, the main orders booked during the
period were for wind projects in Brazil and in the UK, as well as for
hydro contracts in Asia and in the Americas.

In Transport, the
main contracts registered during the first half of the fiscal year
included locomotives in Russia, metros in India, various tramway
projects in France as well as contracts for suburban trains and
maintenance in Sweden.

Grid booked, among others, two main orders for gas-insulated substations in the United Arab Emirates and Libya.

Operational performance in line with guidance
Sales
in the first half of 2010/11 amounted to 8.9 billion, compared to 9.7
billion for the first half of 2009/10, representing an 8% decrease when
excluding Grids four months (amounting to 1.5 billion). As
anticipated, sales declined in Power (-13%) following the drop of orders
over the past 18 months, whilst turnover in Transport continued to
ramp-up (+5%).

Income from operations amounted to 763 million
for the first half of 2010/11 , representing a margin of 7.3%, in line
with the full year forecast. Excluding Grid, income from operations was
down 18% as compared to the first half of 2009/10 and operating margin
moved from 8.6% to 7.6% mainly due to the lower volume of sales and
manufacturing activities. Powers operating margin dropped from 9.8% to
8.5%, whilst in Transport the operating margin increased from 7.0% to
7.3%. Grids operating margin stood at 5.8%.

Net profit, which
included a specific negative impact of 75 million linked to Grids
acquisition, amounted to 401 million compared with 562
million in the first half of 2009/10. This decrease resulted from lower
income from operations as well as higher financial and restructuring
charges.

Strong balance sheet despite current pressure on cash flow
Free
cash flow became negative at (963) million during the first half of
2010/11, due to the strong deterioration of the working capital linked
to the low book-to-bill ratio, the lack of down payments associated to
turnkey orders as well as the unfavourable cash profile of contracts at
the end of execution.

At 30 September 2010, Alstom turned into a
net debt position of 1,473 million as compared to net cash of 2,222
million at 31 March 2010, due to the financing of Grid for 2,351
million, the negative free cash flow over the period and the payment of
the dividend for 2009/10. Since 31st March 2010, the Group consolidated
its liquidity with the extension of two existing bonds by a total amount
of 500 million and the issuance post-closing of two new ones for 1
billion. At 30 September 2010, gross cash amounted to 1,685 million
whilst a credit line of 1 billion maturing in 2012 remained undrawn.

Equity
remained almost flat over the period, standing at 3,989 million at 30
September 2010 from 4,101 million at 31 March 2010, with the
pensions variation and dividend partially offset by the net income.

Adaptation to the load and preparation for the rebound
To
adapt to the current low demand for coal and gas plants in Europe and
USA, Alstom announced a plan to reduce by 4,000 positions (i.e. around
20%) the headcount of the Thermal Systems & Products businesses in
these regions. Over the first six months of the fiscal year, the Groups
workforce (excluding Grid) was adjusted by 1,800 either by natural
attrition or non-renewal of some fixed term contracts. Including Grid,
Alstom employed 94,500 people at 30 September 2010.

To be more
flexible and to benefit from the most favourable markets, Power
reorganised its activities by fuel. Since the beginning of the fiscal
year, the Sector also strengthened its portfolio in renewables and
services, with the acquisition of Amstar, the investment in Brightsource
Energy and the cooperation agreement with Rushydro.

The two
other Sectors remained active in preparing the future: Transport
established or consolidated strategic partnerships to access the large
CIS market and strengthened its presence in China, whilst Grid signed a
cooperation agreement with FSK in Russia.

Research and
development expenses in Power and Transport remained at a high level.
Including Grid, they amounted to 329 million and aim at reinforcing the
three Sectors competitive edge.

Capital expenditures, at 196
million with Grid accounting for 47 million, were maintained while
selectivity was strictly applied on any new project. Major investments
in Power for wind in the Americas and steam in India have been launched.

Outlook
Even
though the level of commercial and industrial activities will be
impacted by the slower than expected recovery of demand in some areas
and businesses in Power, given its sound backlog, Alstom confirms its
Groups operating margin guidance at 7 to 8% for fiscal years 2010/11
and 2011/12.

 

• Corporate Press Release 1.4