Bloomberg News

Alstom Orders Double on South African Railway Contract

July 23, 2014

Alstom SA (ALO), the French engineering company which is selling most of its energy-equipment businesses to General Electric Co. (GE:US) to focus on train-making operations, said orders doubled in the fiscal first quarter because of a 4 billion-euro ($5.4 billion) rail contract in South Africa.

Orders in the three months through June surged to 8.2 billion euros, the company, based in Levallois-Perret near Paris, said today. The stock rose as much as 2 percent.

The growing train business is a boost for Chief Executive Officer Patrick Kron, who decided to sell most of Alstom’s energy assets to GE for 12.35 billion euros amid slowing demand for power plants in Europe and rising competition from Asian rivals. The French company plans to use some of the proceeds to expand its rail division, reduce debt and reward shareholders.

“First-quarter orders made for a strong start of the year, thanks to transport which maintained a good commercial dynamic,” Kron said today. “In the energy businesses, thermal power had no large orders in new build, but benefited from a good commercial activity in service. Renewable power and grid orders had a solid start compared to last year.”

Alstom shares rose 1 percent to 27.67 euros at 10:52 a.m. in Paris trading.

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Quarterly sales fell 4 percent from a year earlier to 4.3 billion euros, as the stronger euro, the timing of milestone payments on thermal power equipment and temporary delays in wind sales recognition in Brazil offset rising transport revenue. Analysts had estimated 4.5 billion euros.

Alstom will reinvest 2.5 billion euros from the GE deal to create joint ventures with the U.S. company in the steam-turbine, renewable energy and power-transmission businesses. Alstom will also buy GE’s rail-signaling operations for about 600 million euros.

“We expect transport to achieve a good commercial performance this year with sales to grow organically at a sustained pace,” Kron said, while declining to provide a full-year forecast for the company because of the GE transaction. He said he expects a shareholder meeting to decide on the GE deal this year.

Alstom’s rail division, whose sales rose 17 percent in the quarter, has a backlog which represents almost 4 1/2 years of revenue, the company said.

“The strong sales growth and record backlog at Transport are encouraging,” Gael de Bray, an analyst at Societe Generale, said in a research note today. “The main positive surprise actually came from Grid.”

Orders rose 40 percent at the power-grid unit in the first quarter from a year earlier, and climbed 29 percent at the renewable power division, while dropping 3 percent at the thermal power unit.

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

To contact the editors responsible for this story: Simon Thiel at sthiel1@bloomberg.net Andrew Noel, Robert Valpuesta, Thomas Mulier


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