RNS Number:6089I
Alstom
12 March 2003
12 March 2003
ALSTOM PRESENTS NEW ACTION PLAN
* IMMEDIATE ACTIONS TO REDUCE DEBT AND IMPROVE PERFORMANCE
* Disposal programme extended: Euro3bn to be raised by March 2004, including
Transmission & Distribution Sector and Industrial Turbines business
* Cost reduction plans accelerated: annual savings of Euro500m within 2
years
* Management team and organisation renewed
* NET LOSS EXPECTED FOR FISCAL YEAR 2002/03
* Estimated additional provision of Euro1.35bn before tax (Euro1.2bn after tax)
in 2002/03 accounts to cover GT24/26 and UK train problems
* Estimated net loss of between Euro1.3-1.4bn in 2002/03
* FINANCIAL POSITION
* Adequate liquidity: Euro1bn of available credit lines
* Up to Euro600m through a capital increase by way of a rights issue in due
course
ALSTOM is today hosting a presentation in Paris for investors and analysts at
which Patrick Kron, Chairman & Chief Executive Officer, will detail ALSTOM's new
action plan. The plan is designed to: improve the Company's operational
performance; deal with the impact of past operational issues; and reduce its
high level of debt.
Patrick Kron commented: "ALSTOM's 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 today's 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 Euro3 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 Euro500 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 Euro1.35 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.
In addition, we will be seeking to raise up to Euro600 million of additional funds
through a capital increase at the appropriate time. Our leading lending banks
have given their full support to this plan and, with Euro1 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 Euro1.6 billion. Maximum
exposure is estimated at Euro2.0 billion, on which the Company expects mitigation
of Euro400 million (20 per cent). We therefore expect to take an estimated
additional provision of Euro1.2 billion before tax in the Company's accounts for
the current financial year, in addition to an existing estimated provision at
end-March 2003 of Euro400 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 Euro150 million in the Company's accounts
for the current year.
* Marine Vendor Financing
ALSTOM's total gross exposure on Marine vendor financing has reduced to Euro900
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 ALSTOM's range of activities, while strengthening its financial base
Extended disposal programme to generate proceeds of Euro3 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 Euro3.0 billion by March 2004, nearly double the previous
target of Euro1.6 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 Euro5.0-5.5 billion, operating income of Euro320 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 ALSTOM's 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: Euro500 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 Euro200
million to Euro300 million and the Company expects to extract recurring annual
savings of Euro500 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
ALSTOM's 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 Company's senior management will be renewed, with five newcomers joining
ALSTOM's 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 Soulie, 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
Company's 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. ALSTOM's
current outlook is:
* Sales at approximately Euro21bn, stable versus last year on a comparable
basis
* Orders reviewed at approximately Euro19bn, 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 Euro1.2bn after tax
comprising:
- Estimated provision on GT24/26 of Euro(1,200)m
- Estimated provision on UK trains of Euro(150)m
- Estimated tax impact of Euro150m
* Estimated net loss of Euro1.3-1.4bn
* Estimated free cash flow (net cash provided by operating activities
after capex) of Euro(0.4)-(0.5)bn, after more than Euro1.0bn cash outflow linked to
GT24/26
* Total debt at March 2003 estimated at slightly below Euro5bn, reduced from
Euro5.3bn in March 2002, which included net financial debt of Euro2.1bn,
securitisation of existing receivables of Euro1.0bn, securitisation of future
receivables of Euro1.7bn and Euro0.5bn 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
Up to Euro600 million through a capital increase by way of a rights issue in due
course
As part of the overall plan, ALSTOM will seek to raise up to Euro600 million of
additional funds at the appropriate time through a capital increase by way of a
rights issue. Resolutions regarding the capital increase will be submitted for
approval at the Company's Annual General Shareholders' Meeting on 2 July 2003.
New credit lines
ALSTOM's liquidity needs are adequately covered. The Company's main lending
banks have agreed to extend a new credit facility of Euro600 million and to renew
Euro475 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 ALSTOM's 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 the capital increase mentioned above will allow the
banks to require repayment of the new Euro600 million credit facility and the Euro475
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 Euro15 bn
* Operating margin of 6% by 2005/06
* Free cash flow strongly positive
* Total debt to be reduced from Euro5.3 billion in March 2002, to a level in
the range of Euro2.0-2.5 bn by March 2005, depending on the magnitude of additional
funds raised through the capital increase
* * * * *
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.alstom.com
Note to editors:
A copy of the presentation to analysts and investors is available on
www.alstom.com
Disclaimer
This press release is not an offer to sell or the solicitation of an offer to
buy nor shall there be any sale of securities in any jurisdiction, including the
United States, in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of such jurisdiction.
Securities may not be offered or sold in the United States absent registration
or exemption from registration. If any public offering of securities is made,
it will only be made pursuant to a prospectus prepared for such purpose that may
be obtained from the Company and filed with the appropriate regulatory
authorities or exempt from filing requirements. The prospectus will contain
detailed information regarding the Company and management, including financial
statements and a description of its business and strategy.
Safe Harbour
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 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 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 ALSTOM's 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 ALSTOM's 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 ALSTOM's
Sectors; (x) the availability of adequate cash flow from operations or other
sources to achieve management's objectives or goals; (xi) timing of completion
of the actions focused on cash generation contemplated in ALSTOM's 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
ALSTOM's exposure to vendor financing which may notably be affected by
customer's payment default; (xiv) the unusual level of uncertainty at this time
regarding the world economy in general; (xv) ALSTOM's 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) ALSTOM's 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 group's 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.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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