Bloomberg News

Alstom Third-Quarter Orders Rise 3% on Demand for Trains

January 22, 2013

Alstom SA (ALO), the French maker of power equipment and high-speed trains, reported a 3 percent increase in its fiscal third-quarter orders and said demand will remain “strong” in the current period.

Orders in the three months ended Dec. 31 climbed to 5.05 billion euros ($6.74 billion) from 4.89 billion euros a year earlier, the company, based in the Paris suburb of Levallois- Perret, said today. That’s in line with the 5.06 billion-euro average of five analyst estimates collected by Bloomberg. Revenue rose 1 percent to 4.92 billion euros, lagging behind the 5.15 billion euro estimate.

Emerging markets remain buoyant across all areas of Alstom’s business, with a large number of train orders supporting European operations, Chief Executive Officer Patrick Kron said in the statement. As a result, revenue will probably increase by more than 5 percent annually through March 2015, offsetting a slowdown in power-generator demand in some Western nations, Alstom reiterated today. It stood by forecasts for improving margins and cash flow.

“Sales are a bit light but the outlook for the fourth- quarter is somewhat reassuring,” said Gael de Bray, an analyst at Societe Generale in Paris. “For the whole year, we’ll have a positive free cash flow. The deleveraging process will continue, so I imagine that the re-rating that has started several months ago will continue.”

Alstom shares rose as much as 1.6 percent to 32.37 euros, and were up 1.1 percent to 32.22 euros as of 1:03 p.m. in Paris, giving it a market value of 9.9 billion euros.

Strong Finish

Order trends point to a robust end to the year, Kron said on a conference call. The target for a 5 percent increase in annual sales this year “isn’t the easiest part of the guidance” as markets remain “difficult,” the CEO said.

“Thanks to our current dynamic commercial activity, we expect order intake to be strong in the fourth quarter with sales continuing their recovery,” Kron said. The pipeline remains active and “larger tickets” for thermal power equipment may be booked in the fourth quarter, the CEO said.

Kron reiterated his target to win orders for about 14 gas turbines in the fiscal year ending in March after booking eight in the first nine months. The gas turbine market “isn’t great,” he said.

Disappointing Speed

Orders for thermal-power equipment and services fell 13 percent to 1.62 billion euros in the third quarter due to the lack of turnkey contracts, Alstom said.

The speed of Alstom’s discussion with Shanghai Electric Group Co. (2727) to form a joint venture to sell boilers for coal-fired plants is disappointing, Kron said. The tentative agreement may be signed “in a couple of months” or may fall apart, he said.

In renewable-power equipment such as hydroelectric and wind turbines, orders almost doubled in the period to 616 million euros, Alstom said. Orders for transport equipment climbed 12 percent to 1.72 billion euros. Power-transmission systems orders fell 6 percent to 1.09 billion euros, and sales fell 12 percent, partly because of “customer-related project delays” mainly in India, the French company said. Alstom will have a “good” fourth quarter in grids, Kron said.

’Big Shootings’

The company continues to work on a number of “small to medium-sized” acquisition projects, “with no big shootings expected in the months to come,” Kron said. “Our financial room for maneuver isn’t absolutely astronomic.”

Free cash flow should be positive in the second half and in each of the three fiscal years through 2015, the company repeated. This follows a cumulative outflow of almost 1.1 billion euros in the past two fiscal years as Alstom cut jobs in Europe and the U.S., developed new products, and invested in plants and partnerships in faster-growing countries such as India, Russia and China.

Moody’s Investors Service cut Alstom’s long-term credit rating by one level in 2012 to Baa2, the second-lowest investment grade, and said there’s the possibility of another reduction because of “material negative trends in working- capital levels.” Standard & Poor’s also has a negative outlook on Alstom’s BBB rating.

Margins Intact

The company’s operating margin is likely to gradually improve to about 8 percent of sales in the fiscal year ending in 2015 from 7.1 percent in the year ended March 2012, Alstom reiterated today.

Alstom ranks behind Fairfield, Connecticut-based General Electric Co. (GE:US) and Munich-based Siemens AG (SIE) in the power-equipment industry. The French company also competes with companies such as Siemens and Canada’s Bombardier Inc. (BBD/B) on train and metro cars, and with Siemens and ABB Ltd. (ABBN) in power-transmission gear.

To contact the reporter on this story: Francois de Beaupuy in Paris at fdebeaupuy@bloomberg.net

To contact the editor responsible for this story: Simon Thiel at sthiel1@bloomberg.net


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