Form 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of November 2002
ALSTOM
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(Exact Name of Registrant as Specified in its Charter)
25, avenue Kléber, 75116 Paris, France
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(Address of Registrant's Principal Executive Office)
(Indicate by check mark whether the Registrant files or will file annual
reports under cover of Form 20-F or Form 40-F)
Form 20-F X Form 40-F
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(Indicate by check mark whether the Registrant, by furnishing the
information contained in this Form, is also thereby furnishing the information
to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act
of 1934)
Yes No X
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(If "Yes" is marked, indicate below the file number assigned to the
Registrant in connection with Rule 12g3-2(b):____)
Enclosures:
Management Report Half-year ended 30 September
2002...........................................................................3
Management Report
Half-year ended 30 September 2002
(First half of fiscal year 2003)
1. OVERVIEW
Environment
During the last six months, economic slowdown in Europe has followed the
slowdown in the USA, the US Dollar has decreased by 9%1 against the Euro,
and the stock market has fallen accompanied by a dramatic increase in
volatility.
During this period, the market remained very buoyant for Transport.
Markets were sustained for Transmission and for the Service and
Environment Segments of Power. They were less favourable than in the same
period of last fiscal year for the Gas and Steam Segments of Power, for
Distribution and also for Marine.
Restore Value
After six months, we have achieved significant progress in implementing
our strategic plan, "Restore Value".
Restoring operating margin
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Restore Value target is an operating margin of 6% in March 2005.
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Operating margin is defined as operating income divided by sales.
For the first half of fiscal year 2003, the operating margin was 5.0%. On
a comparable basis (same business composition and same foreign exchange
rates as at 30 September 2002, see Key Performance Indicators on pages 6-7
for more details), operating margin was 4.5% and 3.5% for the first and
the second halves of fiscal year 2002 respectively.
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1 Variation of the average rate.
This improvement in operating margin resulted from the phasing out of
certain contracts with negative margins during fiscal year 2002, from the
improvement in operational performance and from the reduction of
administrative and selling expenses. On a comparable basis, these costs
were lower by €52 million and by €101 million against the first and second
halves of fiscal year 2002 respectively.
We are on track to achieve the Restore Value target of an operating margin
of 6% in March 2005. Our order backlog shows an improvement in our
business mix, with an increase in higher-growth and higher-margin
activities. We are also on track to reduce overheads by €250 million per
year by March 2005.
On a comparable basis, all Sectors showed an improvement in operating
margin against those of the second half of fiscal year 2002 and are in
line with the internal targets established to meet the March 2005 Restore
Value targets.
Marine's current and March 2005 target margins are affected by the
phasing-out of government subsidies but through our Restore Value cost
reduction programme we are on track to reach a 5% operating margin by
March 2006.
Restoring a positive cash flow
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Restore Value target is to generate a total free cash flow from operations
of €1.3 billion by March 2005.
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Free cash flow from operations is defined as net cash provided by
operating activities less capital expenditure and net of proceeds from
minor disposals of property, plant and equipment.
The Restore Value target includes:
o a forecast cash outflow of €840 million by March 2005 related to
the GT24/26 gas turbines issue (total of €1,440 million of
provisions and accrued contract costs, net of €600 million of
cash to be received from our customers), and
o an exceptional cash outflow on three contracts in Power and one
contract in Transport, which had benefited from exceptional down
payments of €200 million.
Net cash provided by operating activities
Net cash provided by operating activities for the first half of fiscal
year 2003 was positive by €83 million, compared with a negative €238
million and €341 million respectively for the first and second halves of
fiscal year 2002.
The €83 million included an exceptional cash outflow of €574 million,
comprising the provisions and accrued contract costs for the GT24/26 gas
turbines of €398 million and a €176 million cash outflow in customers'
deposits and advances which finance work in progress on three Power
contracts and one Transport contract that had previously benefited from
exceptional down payments. There was a reduction of €152 million in
securitisation of existing receivables, compared with an increase of €138
million and €2 million respectively for the first and second halves of
fiscal year 2002. The underlying free cash flow for the first half of
fiscal year 2003 was consequently positive by €809 million.
This improvement is mainly due to continuous action throughout ALSTOM to
improve the cash profiles of contracts, reduce working capital
requirements and to secure a good level of customer deposits and advances.
Free Cash Flow from operations
Capital expenditure net of proceeds from minor disposals of property,
plant and equipment for the first half of fiscal year 2003 was €160
million compared with €236 million and €196 million respectively for the
first and second halves of fiscal year 2002.
Free cash flow from operations for the first half of fiscal year 2003 was
negative by €77 million compared with a negative €474 million and negative
€537 million respectively for the first and the second halves of fiscal
year 2002.
Adjusting for the €726 million exceptional cash outflows described
above, underlying free cash flow from operations was positive by €649
million.
Restoring the balance sheet: one-off proceeds
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Restore Value target is to generate one-off proceeds of €2.1 billion by
March 2003 from real estate sales, non-core disposals and a capital
increase.
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Of the €2.1 billion of one-off proceeds targeted in March 2002, €667
million has already been achieved with the capital increase (€617 million)
and the disposal of our activities in South Africa (€50 million).
o As announced in the Restore Value plan, the capital increase by
way of a rights issue was completed in July 2002. Despite
unfavourable stock market conditions, the issue was
oversubscribed.
66.3 million new shares were issued, at a ratio of 4 new shares
for every 13 existing shares. The price of each new share,
at €9.6, was set on the basis of the average of the 20
preceding closing prices (€13.2). Following the subscription
period, which ran from 5 June to 17 June, the new shares were
listed on 5 July 2002. The net proceeds of the transaction
amounted to €617 million.
The capital of the Company was composed of 281 660 523 shares as
at 30 September 2002.
o In the first step in the disposal programme, our South African
activities were sold to local empowerment participants and
financiers for total proceeds of €50 million. The sale contract
was signed with effect from 1 October 2002. Proceeds from the
sale were received in October 2002 and are not included in our
Consolidated Cash Flow Statement as of 30 September 2002.
Progress has been made on the sale, and sale and leaseback of real estate.
We received two offers, which met our cash target but were not on
acceptable economic terms. We therefore decided to modify the process into
several separate transactions. The sale portfolio has been reduced from 70
sites to 55 sites and new negotiations are in progress. We now expect to
realise total proceeds of around €600 million, compared to €750 million
estimated for the initial sale portfolio. Of this €600 million, we
anticipate receiving €400 million by March 2003.
We have received firm offers for several non-core businesses. Active sales
negotiations are underway based on the offers received. We expect the
total proceeds from the non-core business disposals to be €1,000 million
before the end of March 2003, compared with our initial estimate of €900
million.
Given the momentum to date, we are in a position to generate one-off
proceeds of €2.1 billion by March 2003 as announced in Restore Value.
Restore Balance Sheet: Debt and Gearing Ratio
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Restore Value target is to achieve a gearing ratio of 20% by March 2005,
with no further securitisation of future receivables.
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The gearing ratio is defined as net debt divided by the sum of
shareholders' equity and minority interests.
Net Cash Flow
Net cash flow is defined as the total of net cash provided by (used in)
operating activities, investing activities and financing activities.
The net cash generated over the six-month period was €394 million,
compared with an outflow of €331 million and €100 million
respectively for the first and second halves of fiscal year 2002.
Net cash inflow at 30 September 2002 included the successful capital
increase of €617 million completed in July 2002, despite the depressed
stock market environment. It also included €166 million of net cash
expenditure on acquisition of investments, mainly the 49% remaining in
ALSTOM Ferroviaria Spa for €154 million.
The net outflow for full fiscal year 2002 included €113 million of net
cash expenditure on acquisition of investments and net receipts of €772
million from the sale of investments, principally Contracting (€689
million) and GTRM (€66 million).
Net debt and gearing ratio
On 30 March 2001, a wholly-owned subsidiary of ALSTOM Holdings issued
perpetual, cumulative, non-voting preferred shares for a total amount of
€205 million. In July 2002, the capital increase triggered the contractual
redemption of the preferred shares at 31 March 2006. We have therefore
reclassified this amount as long-term financial debt (See Notes 1(v) and
11 to our Consolidated Financial Statements). This reclassification has no
impact on the net cash generated over the period, but has an impact on net
debt variation.
The variation in net debt is defined as the total net cash flow, together
with the net effect of exchange-rate and other changes (mainly
reclassifications).
Without the exceptional reclassification of preferred shares, but
including the effect of exchange-rate variations and other changes, net
debt at 30 September 2002 would have decreased by €347 million, and the
gearing ratio would have been 75%.
Future receivables increased by €27 million (cash effect of €41 million
offset by a reclassification) from €1,735 million in the second half of
fiscal year 2002 to €1,762 million in the first half of fiscal year 2003.
Without the reclassification of preferred shares, the total of net debt
and future receivables would have decreased by €320 million from €3,799
million in the second half of fiscal year 2002 to €3,479 million in the
first half of fiscal year 2003.
With the reclassification of preferred shares, net debt at 30 September
2002 decreased by €142 million. The gearing ratio decreased
significantly to 84%. After adjusting for the movements in future
receivables and including the reclassification of preferred shares, the
total of net debt and future receivables decreased by €115 million
from €3,799 million at 31 March 2002 to €3,684 million at 30 September
2002.
Given the continuing improvement in our free cash flow from operations,
together with the one-off proceeds to be received in the current year, we
are confident of reaching the targeted gearing of 20% in March 2005 and to
close the future receivables programmes.
Key performance indicators
Comparable basis
The presentation of our consolidated accounts is impacted by the
translation effects of our accounts in Euros following the depreciation of
foreign currencies against the Euro. Our real exposure to foreign
exchange-rate variations is minimal, as we hedge all the risks related to
firm commitments. We have restated the actual figures for the first and
second halves of fiscal year 2002 using 30 September 2002 exchange rates
for order backlog, orders received, sales and operating income.
Adjustments due to changes in business composition have also been made to
order backlog, orders received, sales and operating income for the first
and second halves of fiscal year 2002, to provide a basis comparable with
the first half of fiscal year 2003.
In summary:
o The first and second halves of fiscal year 2002 have been
restated using September 2002 foreign currency exchange rates.
o Contributions of activities sold since 30 September 2001 have
been excluded from the first and second halves of fiscal year
2002 (mainly GTRM and Contracting).
o No adjustments have been made to fiscal year 2003 figures.
Tables are included both on an as reported basis and on a comparable
basis.
Key financial figures
The following table sets forth, on a consolidated basis, key financial
figures:
On a comparable basis, the order backlog and orders received decreased by
6% in the first half of fiscal year 2003 compared with the first half of
fiscal year 2002. The first half of fiscal year 2002 generated a high
level of orders received at €11.2 billion, with a number of large
individual orders. However, orders received increased by 15% in the first
half of fiscal year 2003 compared with the second half of fiscal year
2002, with order backlog and sales both stable.
On an actual basis, the order backlog included €5.8 billion of operation
and maintenance contracts in the first half of fiscal year 2003 compared
with €5.8 billion in the second half of fiscal year 2002.
Service accounted for 29% of orders received, as compared with 25% and 27%
respectively for the first and second halves of fiscal year 2002.
Operating income and operating margin both increased compared with the
first and second halves of fiscal year 2002 on a comparable and actual
basis. This increase resulted from the improvement of the margins in our
order backlog, better control of costs and the first results of the
restructuring launched as a part of the Restore Value plan.
Net income after goodwill amortisation was positive at €11 million for the
first half of fiscal year 2003, compared with a gain of €92 million for
the first half and a loss of €231 million recorded for the second half of
fiscal year 2002.
Capital employed remained stable.
Recent developments
There have been no major developments since 30 September 2002.
2. CHANGES IN BUSINESS COMPOSITION AND PRESENTATION OF ACCOUNTS
Change in business composition
We acquired the remaining 49% of ALSTOM Ferroviaria Spa in April 2002 for
€154 million. It had already been fully consolidated from 1st October
2000.
South Africa was disposed of on 30 September 2002. It was de-consolidated
with effect from 30 September 2002. This business generated annual sales
of €170 million and had 4,000 employees.
Power Conversion was operationally merged into the T&D Sector with effect
from 1 April 2002 and is therefore no longer presented as a separate
Sector. T&D figures include Power Conversion for the periods presented.
Change in presentation of accounts
The following changes have been made to the presentation of our accounts
(please refer to Note 1 of the Consolidated Financial Statements for more
details):
o Amortisation of goodwill is now presented immediately above net
income and no longer included in Earnings Before Interest and Tax
(EBIT).
o Future receivables are now presented separately in the balance
sheet and no longer included in "Customer deposits and advances".
o The cost of future securitisation is accounted for in "Net
financial income" rather than in "Other income net".
o Cash effects of securitisation of receivables (both existing and
due in the future) are shown separately in the cash flow
statement.
o Deferred tax assets and liabilities are shown net to reflect the
effects of tax groupings within the same scope.
o Preferred shares have been reclassified in long-term financial
debt (See Notes 1(v) and 11 of the Consolidated Financial
Statements).
Last year's figures have been restated accordingly.
In addition, we now disclose EBIT, Capital Employed and Return on Capital
Employed (ROCE) by Sector:
o EBIT by Sector does not include restructuring costs.
o Capital employed is defined as the closing position of the total
of tangible, intangible and other fixed assets nets (including
goodwill), current assets (excluding net amount of securitisation
of existing receivables), less provisions for risks and charges
and less current liabilities.
o ROCE is the Return on Capital Employed defined as the annual EBIT
divided by Capital Employed. For the first half of fiscal year
2003, we have multiplied the actual EBIT by 2 to calculate this
ratio.
3. KEY PERFORMANCE INDICATORS BY SECTOR
Power
Market environment
In Europe, electricity demand continues to grow in Spain and Italy, while
Combined Heat & Power installations are being encouraged in Germany
through new government incentives. The Middle East continues to be stable
on both power and oil & gas activities. Asia also continues to be an
important market.
Customer services and environmental markets are growing world-wide and
especially in the USA.
Demand for new gas-fired power plants in the USA has slumped following a
dramatic boom over the past three years, which resulted in over-ordering.
Many of these gas projects are now being cancelled. This downturn has
limited direct implications for ALSTOM as, due to our GT24/26 technical
issues, we have not been marketing or selling large gas turbines in the
USA for the past two years. New coal-fired power plants are still being
ordered in the USA.
In South America, the Brazilian economy has deteriorated reducing the
possibility for infrastructure investments in the near future.
Key performance indicators
For Power, the difference between actual and comparable figures is due to
exchange-rate variations.
Orders received in the first half of fiscal year 2002 were higher than in
the second half, mainly due to four large orders for the Termo Rio
Conversion, Perlis, Al Hidd and Seward contracts.
On a comparable basis, orders received for the first half of fiscal year
2003 were 19% higher than the previous six months, but 20% lower than for
the same period of the last fiscal year. The increase in orders received
over the previous half year reflects the impact of the large Dunkirk gas
turbine combined-cycle contract secured in April and the continuing growth
in services and environmental control. The decrease in orders received
compared with the first half of last year is mainly in gas turbines and
related Heat Recovery Steam Generators.
Customer Service finished the first half of fiscal year 2003 ahead of the
same period last year in terms of orders received, supported by improved
O&M (Operation and Maintenance) business and continuous strong performance
in Western European markets and in America.
Orders received in Hydro during the first half of fiscal year 2003 show a
decrease against the same period in the previous year, due to a lower
proportion of large contract awards.
Orders received for Industrial Turbines decreased in the first half of
fiscal year 2003 compared with the same period last year due to the
downturn in the US gas and combined-cycle markets.
Orders received for Steam Power Plants remained stable on a comparable
basis. Although the turnkey market has been low during these first six
months, a number of opportunities exist, but it is difficult to predict
the timing of financial close. The retrofit market worldwide has been
strong, supported by demand for nuclear power plant life-extension, mainly
in the USA.
During the first half of fiscal year 2003, Power booked the following
major orders:
In the Customer Service Segment
o The Piratininga operating & maintenance contract for Petrobras in
Brazil
o A power plant refurbishment contract for CS Energy in Australia
In the Steam Segment
o Turnkey contract for Gaz de France to supply an 800 MW
combined-cycle power plant to be built at Dunkirk, France, which
includes the delivery of 2 x GT13E2 together with an operation
and maintenance contract
o Steam turbine retrofit order for Dominion Virginia Power in the
US consisting of 4 steam turbines (2 x 822 MW & 2 x 944 MW) for a
nuclear power plant
In the Boilers & Environment Segment
o The Santee Cooper contract in the US for a 1 x 642MW sub-critical
coal-fired boiler for the South Carolina Public Service Authority
In the Gas Turbine Segment
o Contract for a combined-cycle power plant for EVN in Vietnam,
including 1 x GT13E2 gas turbine (450 MW)
o The Hormozgan contract in Iran for MAPNA including 6 GT13E2 gas
turbines (990MW)
o 2 x GT13 E2 gas turbines (330 MW) for Naoc JV in Nigeria
On a comparable basis, sales for the first half of fiscal year 2003 were
stable for Power compared with the second half of fiscal year 2002, and
down by 9% compared with the first half. Lower sales in the Gas Segment
were due to the decline in order intake and in the Steam Power Plant
Segment due to the phasing of large turnkey project deliveries. Boilers &
Environment Segment sales increased, due to higher demand for
environmental control and heat recovery systems. Due to a high past order
intake, Hydro Segment sales also increased as the order backlog converted
into sales. Customer Service Segment sales also increased compared with
the first half of fiscal year 2002, while Industrial Turbine sales
remained stable.
On a comparable basis, the operating margin of Power at 4.7% increased by
0.4% compared with the same period of fiscal year 2002 and by 0.3%
compared with the second half of fiscal year 2002, reflecting the
continuing restructuring and overhead reduction benefits and the improved
business mix with a higher service component.
Capital employed at €3,529 million for the first half of fiscal year
2003 increased by 18% on an actual basis compared with the first half of
fiscal year 2002, mainly resulting from the application of provisions and
accrued contract costs for the GT 24/26 of €398 million and the impact
of the exceptional cash outflows on contracts over-financed (€87
million).
Update on GT 24/26 Gas Turbine Issues
GT24 and GT26 gas turbines, with outputs of 180 MW and 260 MW
respectively, are the largest of our extensive range of gas turbines. The
technology was originally developed by ABB in the mid-1990s, with most
sales made prior to the acquisition by ALSTOM. These turbines are based on
an advanced design concept. At the start of commercial operation of the
second generation, or "B" version turbines, in 1999 and 2000, a number of
technical issues were identified.
In response, we set in motion high-priority initiatives to design and
implement modifications across the fleet. We also embarked on a
comprehensive programme to discuss and resolve any contractual issues with
customers. Both technically and commercially these initiatives are
proceeding as planned.
We have implemented a variety of technical improvements, which have
enabled highly flexible and reliable operation of the fleet. This is
confirmed by third-party statistics showing GT24 fleet reliability better
than 98% in this calendar year. Operational reliability and flexibility
are important competitive advantages for our customers, particularly for
those in merchant markets.
Modifications aimed at delivering further enhancements to output and
efficiency have already been designed and tested:
o High Efficiency Compressor - Successful demonstration of 5%
electrical output improvement at our full scale test facility in
Birr, Switzerland. Components are now being delivered to the
first GT24 customer field validation site.
o High Fogging Inlet System - Successful demonstration of better
than 6% electrical output in both the test facility and field
validation units. The system can be applied to both existing and
new gas turbine installations.
o Dual Fuel Capability - Successful demonstration in both the test
facility and field validation units. The system is now available
for commercial application on both existing and new gas turbine
installations.
Reduction of design risk and the speed of development and implementation
of these programmes have been aided by the technology agreement with
Rolls-Royce.
We have now satisfied contract requirements or negotiated commercial
settlements on over 70% of the units. We have still to conclude
settlements in respect of 22 units (including 7 units which are the
subject of litigation). With the increasing number of units gaining final
acceptance by owners in the past six months we have been able to
accelerate the hand-over of units to our customer service organisation,
signifying normalisation of handling for GT24 and GT26 plants.
We have established provisions to cover the anticipated costs of making
modifications to the turbines and for the additional expenditure not
already covered within contract costs that we expect to incur in reaching
settlements with our customers, including the costs of fulfilling
contractual conditions. We retained €1,042 million of provisions and
accrued contract costs at 30 September 2002 in respect of these turbines
compared with €1,440 million at 31 March 2002.
Sales of GT 24/26 gas turbines €430 million) represented approximately 7%
of Power's sales during the first half of fiscal year 2003, compared with
14% during the first half of fiscal year 2002. Sales of GT 24/26 gas
turbines do not contribute to the gross margin, which means that Power's
operating margin will mechanically improve with the phasing out of these
contracts.
T&D
Market environment
T&D market trends differ: while Transmission is still sound, the
Distribution market is more difficult. Geographically, market growth is
continuing in fast-developing countries such as China and Eastern Europe,
while Western Europe is flat and the USA experiencing a slowdown in
deregulation.
Key performance indicators
Orders received in Transmission & Distribution totalled €2,067 million, an
increase of 19% on a comparable basis compared with the second half of
last year and 5% compared with the first half of last year. High voltage
equipment and systems maintained a high activity level, whereas Medium
Voltage products were weaker.
Orders remained stable in Europe: the slight decrease in Western Europe
was offset by an increase in Eastern Europe, where T&D has expanded its
presence. Markets in Central and Southern America as well as Africa /
Middle East were dynamic as a result of large Transmission projects. In
the USA, activity was flat on a comparable basis: the increase in drive
activity offset a decrease in energy management markets, resulting from a
slowdown in the deregulation process. Finally, despite continuing growth
in China and Singapore, the relative share of Asia has decreased, as a
result of the absence of major projects in India.
Major orders received in the first half of fiscal year 2003 include:
o Refurbishment of substations, implementation of a Telecom network
for BCC Sonelgaz in Algeria
o Substations (extension 200 kV and 500 kV + Turnkey 500 kV ) for
Transelec in Chile
o 18 distribution sub-stations for CFE, Mexico's state electricity
utility
o Supply of protection and control products for the National Grid
Company in the UK
T&D sales totalled €1,778 million for the first half of fiscal year 2003.
On a comparable basis, sales decreased by 10.0% compared with the
second half of fiscal year 2002 and increased by 6.0 % compared with the
first half of fiscal year 2002. Lower activity in the first half of the
year is due to a smaller number of working days in this period in Europe.
Growth was particularly strong in the Middle East, as a result of the
important transmission project and energy management market contracts
signed in Qatar and the United Arab Emirates last year and traded this
year.
On a comparable basis, service represented 11.7 % of T&D sales (€221
million) for the first half of fiscal year 2003, compared with 10.3% for
the first half of fiscal year 2002.
T&D operating income amounted to €110 million, compared with €100 million
on a comparable basis in the first half of fiscal year 2002. The operating
margin stands at 6.2% as compared with 6.0% in the first half of fiscal
year 2002, on a comparable basis.
The increase in margin was the result of strong monitoring of overhead
expenditure and reflects the first results of our cost reduction
programmes. This has more than offset continuing price pressure. Systems
activity improved as a result of tighter risk management, while profits
from medium-voltage products were impacted by lower volumes.
EBIT amounted to €94 million, compared with €95 million an as reported
basis in the first half of fiscal year 2002. For the first half of fiscal
year 2003, EBIT was mainly impacted by increased pension costs.
Capital employed amounted to €1,028 million for the first half of fiscal
year 2003, as compared with €1,158 million for the first half of fiscal
year 2002 and €1,044 for the second half of fiscal year 2002.
Transport
Market environment
During the first half of fiscal year 2003, the rail market maintained
sustained growth, both in Europe, where the main networks had previously
delayed major procurement of rail equipment, and in the USA, especially in
urban transportation. Environmental and Safety policies are pushing for
more efficient modes of transport, which benefits our signaling and
control system activities.
Key performance indicators
Orders received by Transport in the first half of fiscal year 2003
amounted to €3,300 million, a 26% increase compared with the same period
of last year, on a comparable basis. Transport won a major contract with
the New York Metropolitan Transportation Authority, not yet included in
the order backlog. The contract is for the supply of 660 Subway cars (with
ALSTOM's part valued at €650 million). An option exists for 1,000
additional cars. The cars will be produced in the USA, Canada and Brazil.
Services, which include maintenance and renovation contracts, represent
14% of the orders received for the first half of fiscal year 2003, as
compared with 17% for the first half of fiscal year 2002. In October 2002
we were awarded a €500 million services contract in Spain which will be
booked in the third quarter. Total orders received for maintenance and
renovation contracts were €465 million, compared with €552 million in the
first half of fiscal year 2002.
The growth in orders received was largely due to the booking of rolling
stock contracts, particularly in North and South America.
As a percentage of total orders received, Asia remained stable at 14%,
while North America grew to 21% compared with 10% for the same period last
year. Europe continues to represent a very significant market with 65% of
orders received.
Major orders received in first half of the fiscal year 2003 include:
o Design and manufacture of 62 new heavy rail subway cars for WMATA
in Washington
o 135 new passenger rail coaches for the expanding New Jersey
transit fleet
o 50 regional trains for Trenitalia
o 55 regional trains for Sweden for service in the greater
Stockholm area
o 20 Coradia (commuter trains) for traffic in Helsinki, Finland
o 60 Metro cars for Santiago in Chile
o Supply and construction of electrical and mechanical elements for
a new suburban line between ATHENS and the new airport
o 8 new tilting trains for Finland
o Project management and supply of equipment for a new airport
railway link between Incheon and Seoul, South Korea.
On a comparable basis, sales for Transport amounted to €2,339 million
for the first half of fiscal year 2003, a 35% increase on the first half
of fiscal year 2002.
Transport's sales breakdown remains stable: Europe (63%), the Americas
(19%) and Asia (16%).
Operating income in the second half of fiscal year 2002 was impacted by
the provisions for losses related to the UK regional Train contracts. In
the first half of fiscal year 2003, operating margin recovered to the same
level as in the first half of fiscal year 2002.
EBIT followed the same trend as operating income. The decrease in EBIT
compared with the first half of fiscal year 2002 resulted from a
non-recurring capital gain on the disposal of GTRM of €43 million last
year.
On an actual basis, capital employed was €759 million for the first half
of fiscal year 2003, compared with €1,041 million and €1,155 million
respectively for the first and second halves of fiscal year 2002. This is
a direct result of increasing customer deposits, in line with orders
received.
UK Regional Trains
At the end of March 2002, we reported that difficulties had been
encountered on the five contracts for UK Regional Trains received in 1997,
following the privatisation of the UK rail industry.
Measures taken to address the various technical and contractual issues
have enabled us to work with the operators and the rail authorities to
deliver.
At 30 September 2002, 6 of the 119 trains remain to be delivered compared
with 29 at 31 March 2002. These 6 trains will be delivered by the end of
the 2002 calendar year.
Marine
Market environment
The passenger cruise liner holiday market has recovered from the aftermath
of the 11 September 2001 events. The cruise liner shipbuilding market has
been impacted since May 2002 by the decrease of the US dollar exchange
rate against the Euro. Cruise operators, whose base currency is USD,
reacted by delaying their orders in the hope that the weakness of the US
dollar would not last for long. Marine Sector competitors are essentially
European and are facing the same environment. The market has also stalled
in the last few months, pending the outcome of takeover and merger
discussions involving the three major cruise-shipowners, which together
account for the bulk of new-build orders. Thanks to our substantial order
backlog, we have been able to cope with these market uncertainties, and we
have therefore not been forced to make offers for prospective contracts at
unacceptable margins. For the same reasons, we have chosen not to extend
certain options formerly granted to P&O Princess.
The LNG market is very active but the specialist European and Japanese
yards are facing tough competition from Korean shipbuilders on a less than
open-market basis. After several attempts to find a compromise, the
European Commission recently decided to lodge a claim with the World Trade
Organisation for unfair competition.
Naval and other specialist ship markets remained stable.
Key performance indicators
All Marine Units are in France and the scope of the Marine business has
not changed since last year. The figures are the same on both a reported
and comparable basis.
Orders received by Marine in the first half of fiscal year 2003 amounted
to €26 million and included no new construction contracts. Orders received
in the first half of fiscal year 2002 were €223 million, comprising French
Naval Vessels. The Marine order backlog represents approximately 18 months
of sales.
Marine completed and delivered in the first half of fiscal year 2003 two
cruise-ships:
o "European Stars" to Festival Cruises,
o "Constellation" to R.C.C.L. for its "Celebrity" brand.
In the first half of fiscal year 2002, Marine delivered two similar
cruise-ships to the same owners, plus two high-speed ferries.
In the first half of fiscal year 2003, Marine also progressed with the
construction of other cruise ships (mainly Coral Princess, MSC Lirica,
Crystal Serenity and the super cruise liner Queen Mary 2) for several
shipowners, a surveillance frigate for the Royal Moroccan Navy and a
hydrographical and oceanographic vessel for the French Navy.
Operating income amounted to €16 million. Comparison with the previous two
periods are not significant, since total lead-time for cruise-ship
contracts averages 2.5 years and margins are traded according to
construction milestones, the number of which may be quite different from
one period to another. Operating margin was higher for the first half of
fiscal year 2003 compared with the second half of fiscal year 2002, mainly
due to the European Stars cruise-ship.
Capital employed decreased as a result of the financing obtained for the
cruise-liner Queen Mary 2 (See Note 13 of the Consolidated Financial
Statements).
Others
"Others" comprises all units accounting for Corporate costs, the
International Network and the overseas entities in Australia, New Zealand,
South Africa (prior to its disposal) and India, that are not reported by
Sectors.
All restructuring costs are recorded against the EBIT of Corporate Units
and not Sectors' EBIT.
Capital employed in "Others" consists mainly of loans and cash deposits in
respect of Marine Vendor Financing, pensions prepaid assets and other
long-term deposits (See Note 7 to our Consolidated Financial Statements).
4. GEOGRAPHIC ANALYSIS
We have a permanent industrial or commercial presence in more than 70
countries around the world. The table below sets forth the geographic
breakdown of orders received and sales by country of destination for the
two halves of fiscal year 2002 and the first half of fiscal year 2003:
For the first half of fiscal year 2003, the geographic breakdown was
broadly equivalent to the first half of fiscal year 2002.
Europe remains the most important market in terms of orders received, with
49% of the total. On an actual basis, orders received in this region
decreased by 13% compared with the first half of fiscal year 2002, due to
the decreases in France and Germany resulting from the sale of
Contracting, and to the decrease in the United Kingdom, resulting from the
sale of GTRM.
Nevertheless, on a comparable basis, orders received in France decreased
by 24% due to a 74% decrease in Transport and despite a €571 million
increase in Power, and increased in Germany and in the UK due to orders
received for Transport.
Approximately 9% of the 32% decrease in orders received in America is due
to the devaluation of the dollar against the Euro. The decrease is
attributable to Power, but nonetheless North America represented 25% of
Power's orders received.
Orders received decreased in Far East Asia and in the Middle East, mainly
due to Power.
5. FINANCIAL STATEMENTS
Profit and Loss
For the first half of fiscal year 2003, the EBIT of the Group was as set
out in the table below:
Sales
Sales have already been analysed by Sector above. On a comparable basis,
overall sales remained stable compared with both the first and second
halves of fiscal year 2002.
Cost of sales
Our cost of sales consists primarily of labour, raw materials and
components, transport and freight, production overheads including
depreciation, as well as provisions on contracts.
Gross margin, defined as sales less cost of sales, improved in the first
half of fiscal year 2003 on a comparable basis, compared with the second
half of fiscal year 2002.
Both on a comparable and actual basis, gross margin increased to 17.3% in
the first half of fiscal year 2003.
Operating income
Operating income is measured before taxes, interest income and expense,
restructuring costs, goodwill amortisation and other items, which include
foreign-exchange gains and losses, gains and losses on sales of assets,
pension expense and employee profit sharing.
On a comparable basis, the improvement in the operating margin, 5%
compared with 4.5% and 3.5% in the first and second halves respectively of
fiscal year 2002, resulted from reduced administrative and selling
expenses. On a comparable basis, administrative and selling expenses
decreased by €52 million and €101 million compared with the first and
second halves of fiscal year 2002. This reduction resulted from synergies,
the impact of restructuring and from actions launched to reduce costs
under our Quality Focus 6-Sigma Programme.
This gives us confidence that we will achieve our target of a 10% annual
reduction in overhead expenses over the next three years, to reach an
estimated saving of €250 million per year in March 2005.
Research and Development expenses were substantially the same as for the
immediately preceding half-year. They increased from the first half of
fiscal year 2002 as we maintain our investment in this field in order to
prepare for the future.
Other income/(expenses)
Other income (expenses) net comprise gains or losses on disposal of fixed
assets and investments, restructuring expenses, pension costs, employee
profit-sharing and others.
The increase in other expenses compared with the first half of fiscal year
2002 results from the exceptional capital gains in the first half of
fiscal year 2002 on the disposals of Contracting (€106.4 million) and GTRM
(€43.0 million). No such gain occurred in the first half of fiscal year
2003.
On an actual basis, restructuring costs were €79.6 million, compared with
€65.2 million during the first half of fiscal year 2002. The
early benefits of these restructuring costs are shown in the improvement
in the operating margin. As part of the Restore Value plan, we intend to
spend €200 million per year in restructuring.
On an actual basis, pension costs were €96.9 million, compared with €74.2
million during the first half of fiscal year 2002. This increase was
primarily due to the exceptional impact of the disposal of Contracting in
July 2001 and to an increase in the amortisation of the unrecognised
actuarial difference between pensions obligations and the fair market
value of the assets following the fall in the global stock market.
We do not expect an increase in the amortisation of unrecognised
difference between pensions obligations and fair market value of the
assets for the second half of fiscal year 2003. If in March 2003 the fair
market value of the assets remains the same as in March 2002, i.e. shows
an increase of 20% on the market value in September 2002, amortisation
will remain stable for fiscal year 2004. If the March 2003 fair market
value of the assets is the same as in September 2002, the amortisation
cost could be increased by around €40 million for fiscal year 2004.
The effect of pensions on cash will remain stable.
Earnings Before Interest and Tax (EBIT)
EBIT is defined as operating income less other income (expenses) net and
the amortisation of other intangible assets. Goodwill amortisation is
accounted for below the EBIT line.
EBIT was €322 million for the first half of fiscal year 2003. EBIT for the
first half of fiscal year 2002 included exceptional capital gains of
€149.4 million as described above. EBIT for the second half of fiscal year
2002, at €19 million, was impacted by exceptional provisions for Marine.
Operational profitability improved due to higher operating margins and
reduced overheads.
For the first half of fiscal year 2003, the net income of the Group was as
set out in the table below:
Financial income/(expenses)
Our financial expenses in the first half of fiscal year 2003 were €128
million, compared with €145 million for the first half and €150 million
for the second half of fiscal year 2002.
This improvement was due to a decrease in market interest rates, net gains
on exchange- rate variations, partially offset by an increase in
securitisation costs and by the reclassification of interest costs on
preferred shares (See Notes 1(v) and 3 of the Consolidated Financial
Statements).
Income tax
The effective tax rate of 18.4% for the period is principally affected by
favourable differences between book and taxable income. In the previous
period the rate of 19.1% was principally affected by reduced tax rates on
capital gains.
Net income
Net income in the first half of fiscal year 2003 was €11 million, compared
with a gain of €92 million in the first half and a loss of €231 million in
the second half of fiscal year 2002.
Balance Sheet
The main elements of our Balance Sheet are:
Variations of Balance Sheet accounts are due to operations and to exchange
rate variations.
Goodwill
Goodwill as reported decreased to €4,586 million at 30 September 2002
compared with €4,612 million at 31 March 2002, due to the net effect of
the acquisition of Fiat Ferroviaria (€157 million) offset by goodwill
amortisation (€144 million). (See Note 6 of the Consolidated Financial
Statements for more details).
Working capital
Working capital (defined as current assets less current liabilities and
provisions) at 30 September 2002 was €(4,144) million compared with
€(4,545) million as reported at 31 March 2002. This variation was due to
the decrease in provisions, mainly for the GT24/26 turbines, partially
offset by tighter working capital management. Changes to working capital
are presented in the Consolidated Cash flow Statement.
Net translation effects on working capital were not significant.
Equity
Shareholders' equity at 30 September 2002 was €2,289 million, including
minority interests, compared with €1,844 million at 31 March 2002 on a
reported basis. The increase was mainly due to:
o the capital increase ( +€617 million),
o the result for the period (+€11 million), and
o the negative impact of Cumulative Translation Adjustments (CTA),
mainly due to the evolution of the Peso and the Pound Sterling
against the Euro (-€184 million).
See "Changes in Shareholders' Equity" in the Consolidated Financial
Statements.
Accrued pension and retirement obligations
At 30 September 2002, accrued pension and retirement obligation provisions
made to cover the difference between obligations in respect of pension
benefits due to our employees and the fair market value of the plan
assets, were €983.5 million compared with €994.0 million at 31 March 2002.
The pre-paid pension assets classified in other fixed assets were €451.8
million at 30 September 2002 compared with €469.3 million at 31 March
2002.
As a result, the net accrued pension obligations were €532 million for the
first half of fiscal year 2003. They were €525 million in the second half
of fiscal year 2002. They are a very long-term liability.
The net amounts in the balance sheet relating to pension assets and
liabilities were the following:
(See Note 10 of the Consolidated Financial Statements).
Provisions
At 30 September 2002, the provisions for risks and charges were €3,197
million compared with €3,849 million at 31 March 2002.
This net decrease is accounted for by the following movements:
o decrease of €295 million in GT24/26 provisions (and by €103
million of accrued contract costs)
o decrease of €79 million in other provisions, mainly restructuring
o increase of €57 million in other movements on provisions on
contracts
o decrease of €118 million in foreign currency translation effects,
change in scope and other changes.
Debt
Net Debt
We define net debt as financial debt less short-term investments, cash and
cash equivalents.
Net debt was €1,922 million at 30 September 2002, compared with €2,064
million at 31 March 2002. Without the reclassification of preferred
shares, the net figure would have decreased to €1,717 million at 30
September 2002 as compared with €2,064 million at 31 March 2002.
(See Note 11 of the Consolidated Financial Statements for further analysis
on nature and maturity).
Securitisation of future receivables
In order to finance working capital and to mitigate cash negative profiles
of some contracts, we sell to third parties the future receivables due
from our customers. This action has had the additional benefit of reducing
the ALSTOM exposure to its customers and applies to Marine and Transport.
The total securitisation of future receivables at 30 September 2002 was
€1,762 million compared with €1,735 million at 31 March 2002. The
objective of Restore Value is to reimburse all securitisation of future
receivables by March 2005. The slight increase in September 2002 does not
mean a change in this policy.
Marine: At 30 September 2002 the amount of future receivables securitised
in Marine was €879 million compared with €1,072 million at 31 March 2002.
The decrease represents the net effect of the reimbursement of an existing
contract partially offset by the signature of a new contract.
Recourse against us for these future receivables is capped at €250
million, comprising up to €82 million in respect of a customer's order for
one cruise-ship, and €168 million in respect of two cruise-ships to a
second customer.
Transport: At 30 September 2002 there were €883 million of future
receivables securitised compared with €663 million at 31 March 2002.
The increase is a net effect of the reimbursement of existing contracts
and the signature of new contracts. There is no recourse against ALSTOM
under these securitisations, assuming that we perform our contractual
obligations in the ordinary course of business.
The total of net debt and securitised future receivables was €3,684
million compared with €3,799 million at 31 March 2002 on a reported basis,
representing a reduction of €115 million. Currency movements increased
this total by €67 million, and the reclassification of preferred shares by
€205 million. Without these effects, the total of net debt and future
receivables would have reduced by €387 million.
Cash flow
Cash Flow statement
Net cash provided by operating activities
Net cash provided by operating activities, for the first half of fiscal
year 2003, derived from the net profit of €11 million. Adjustments
with no cash effect (depreciation and amortisation, pensions costs)
amounted to €397 million. Changes in working capital generated a net
cash outflow of €325 million.
The principal movements in working capital were due to:
o An increase of €435 million in customer deposits and advances
in Transport and Marine (Queen Mary 2), partially offset by the
impact of the exceptional cash outflows on over-financed Power
and Transport contracts (€176 million). This increase was a
consequence of our policy to negotiate positive contract cash
profiles and of the high level of orders received in Transport.
o A decrease of €111 million in inventories and trade receivables.
o A decrease of €420 million in contract-related provisions and
accrued contract costs due to the application of provisions and
accrued contract costs, in particular €398 million relating to
the GT24/26 gas turbines.
o A decrease of €152 million in existing receivables, essentially
in Transport.
Net cash provided by investing activities
Cash used for acquisitions, net of cash acquired, was €166 million for the
first half of fiscal year 2003, including €154 million due to the
acquisition of the remaining 49% of ALSTOM Ferroviaria Spa in April 2002.
Capital expenditures net of proceeds were €160 million for the first half
of fiscal year 2003. Our capital expenditures relate principally to
acquisitions of machinery, equipment, tools and fixtures for maintaining
our manufacturing base.
Net cash provided by financing activities
Cash Flow from financing activities for the first half of fiscal year 2003
was €658 million, due to the capital increase of €617 million and an
increase in securitisation of future receivables of €41 million.
Liquidity and maturity
As at 30 September 2002, we have total gross outstanding financial debt of
€4,312 million. Net debt was €1,922 million after netting €2,390 million
of available cash and cash equivalents and short-term investment.
Liquidity
Total liquidity was €3,210 million at 30 September 2002, compared with
€3,896 million at 31 March 2002. This total liquidity represents the cash
available in the Company together with available unused credit lines.
Liquidity is comprised of:
o Liquidity at parent company level, which amounted to €1,628
million at 30 September 2002, compared with €1,827 million at 31
March 2002.
o Liquidity at subsidiary level, which amounted to €1,582 million
at 30 September 2002, compared with €2,069 at 31 March 2002. The
parent company has access to cash in subsidiaries as they are
fully-owned, although local constraints can delay this access.
Our policy is to centralise liquidity of subsidiaries at parent
company level; this is underway.
Maturity
The maturities of the committed funds available to the Company are as
follows:
---------------------------------------------------------------------------------------------------------------------------
Level Sept. Dec. March June Sept. March March
02 02 03 03 03 04 05
---------------------------------------------------------------------------------------------------------------------------
Preferred share Parent C. 205 205 205 205 205 205 205
Bonds Parent C. 1,200 1,200 1,200 1,200 1,200 650 650
Committed bilaterals Parent C. 758 758 358 283 283 283 283
Syndicated central Parent C. 2,226 2,226 2,226 2,226 1,972 1,972 722
Local facilities in subsidiaries Subsidiaries 75 75 75 75 75 75 27
---------------------------------------------------------------------------------------------------------------------------
Committed end of period 4,464 4,464 4,064 3,989 3,735 3,185 1,887
Local facilities in subsidiaries Subsidiaries 441 0 0 0 0 0 0
(1)
Commercial paper (2) Parent C. 227 0 0 0 0 0 0
---------------------------------------------------------------------------------------------------------------------------
Uncommitted, end of period 668 0 0 0 0 0 0
---------------------------------------------------------------------------------------------------------------------------
Total 5,132 4,464 4,064 3,989 3,735 3,185 1,887
---------------------------------------------------------------------------------------------------------------------------
(1) Numerous credit lines, of variable maturity, considered as non committed and
short term by prudence at central level
(2) Roll over
---------------------------------------------------------------------------------------------------------------------------
None of the facilities (except commercial paper, which is rolled over, and
local overdrafts, which are also rolled over) mature before 31 March 2003.
At 31 March 2003, we will have to reimburse €400 million. In fiscal year
2004, we will have to reimburse €804 million, of which €254 million is due
by September 2003 and €550 million by March 2004.
6. VENDOR FINANCING
In some instances, we have provided certain financial assistance to institutions
which finance some of our customers and also, in some cases, directly to our
customers for their purchases of our products. We refer to this financial
assistance as "vendor financing".
We have decided that we will not make commitments to provide additional vendor
financing guarantees to our customers.
Vendor financing totalled €1,381 million at 30 September 2002 compared with
€1,493 million at 31 March 2002. The decrease is due to exchange-rate
translation effects.
The table below provides a breakdown of the outstanding vendor financing (total
of on and off balance sheet) by Sector at 30 September 2002, 31 March 2002 and
30 September 2001 (See Note 16 of the Consolidated Financial Statements for more
details on this table and split between on and off balance sheet exposure):
Marine
In the period from fiscal years 1997 to 1999, we granted financial assistance in
support of the recovery plan for the Marine Sector, in order to obtain several
repeat orders for cruise-ships and to increase the productivity of the shipyard.
We provided guarantees to financial institutions relating to indebtedness
incurred by certain purchasers of our cruise-ships and high-speed ferries.
At 30 September 2002, the outstanding guarantees related to a total of fourteen
ships, which comprise six cruise-ships delivered to Renaissance Cruises, six
cruise-ships for three other customers, and two high-speed ferries for one
customer. In addition, two other cruise-ships were supplied to Renaissance
Cruises without such guarantees.
Following the bankruptcy of Renaissance, the restructuring of the financing of
the six cruise-ships was completed in fiscal year 2002 by the financial
institutions, and our guarantees were accordingly modified. We have agreed to
help the owners of the eight Renaissance cruise-ships to re-market the
cruise-ships. Four of them have since been re-chartered and/or sold. The
re-marketing of the four remaining ships is under negotiation, and progress is
being achieved on a number of them.
Our overall exposure to Renaissance vendor financing, which was €684 million at
30 September 2001, was reduced to €432 million at 31 March 2002. It was reduced
further to €387 million at 30 September 2002, mainly as result of the decrease
of the US Dollar in which most of our guarantees are expressed.
In addition to our Renaissance "vendor financing exposure", our other
outstanding Marine "vendor financing" guarantees amount to €588 million,
relating to six cruise-ships and two high-speed ferries for four customers.
Consequently, our total "vendor financing" exposure in relation to Marine
amounts to €975 million at 30 September 2002 compared with €1,044 million at 31
March 2002.
There is no other vendor financing arrangement or commitment relating to any
contract in Marine's order backlog.
The €144 million provision made available at 31 March 2002 to cover risks
associated with the Marine "vendor financing" has been slightly decreased to
€140 million at 30 September 2002.
Transport
Transport has entered into certain vendor financing arrangements to support a
small proportion of their sales. Such arrangements are tailored to the specific
requirements of each transaction. In every case, the potential exposure is
capped as to time and as to amount, as shown in the table above.
7. CONTRACT GUARANTEES
Financial institutions such as banks or insurance companies provide to our
customers guarantees during the execution of our contracts (guarantees for
bidding, guarantees on deposits, guarantees on cost, performance, etc...). This
is normal practice in our markets and in other similar industries. For ALSTOM,
the risk is in the execution of the contract, and during its execution, ALSTOM
puts aside any necessary provisions to cover any liabilities that arise. The
existence of these external guarantees does not increase ALSTOM's risk.
If ALSTOM were to fail to meet its contractual obligations and if the customer
cannot negotiate a solution with ALSTOM, he has the right to call the external
guarantee. In this very rare case, ALSTOM repays the bank and continues to
negotiate with the customer or initiates arbitration or legal proceedings under
the contract to resolve the dispute.
Such external guarantees are disclosed under French GAAP, but not under German,
UK and US GAAP, probably because they are not regarded as an incremental risk
for the company.
Such external guarantees were €10,289 million at 30 September 2002 compared with
€11,535 million at 31 March 2002 and €10,825 million in 30 September 2001.
We have observed a general contraction of the market for such guarantees as some
banks and insurance companies are reducing their capacity in this activity. We
have observed that this contraction has the effect of reducing our customers'
expectations, which explains the reduction in guarantees at a time when orders
received are growing. We are also examining with our core bankers the means to
ensure that alternative bonding capacity is available for our business
requirements.
8. EMPLOYEES
As at 30 September 2002, we employed 112,207 people world-wide (full-time
equivalent), compared with 118,995 people as at 31 March 2002.
9. ASBESTOS
The Company believes it has no material liability in respect of current asbestos
personal injury cases. (See Notes 6 and 17 of the Consolidated Financial
Statements).
In France such liabilities are covered by the social security and publicly
funded systems. In the USA, the businesses purchased from ABB are covered by an
ABB indemnity. For our other US businesses, we believe our current liability is
not material and we consider we have good defences to the cases filed against
us. We have made no compensation payments.
It has been our policy for many years to abandon definitively the use of
products containing asbestos by all of our operating units world-wide and to
promote the application of this principle to all our suppliers, including in
those countries where the use of asbestos is permitted. In the past we have used
and sold some products containing asbestos, particularly in France in our Marine
Sector and to a lesser extent in our other Sectors. As a result, we are
currently subject to approximately 1,300 asbestos-related cases in France from
employees, former employees or third parties. We believe, based in part on a
number of court decisions, that compensation for such cases, including cases
where we may be found to be at fault, is or will be borne by the general French
social security (medical) funds and by the publicly-funded Indemnification Fund
for Asbestos Victims.
As of 31 October 2002, we were subject to approximately 100 asbestos-related
personal injury lawsuits in the United States which have their origin in the
Company's purchase of ABB's power generation business, for which we are
indemnified by ABB (See Notes 6 and 17 of the Consolidated Financial
Statements). ABB recently announced that it was in advanced discussions
concerning a possible pre-packaged settlement of the asbestos liabilities of
Combustion Engineering Inc. In view of ABB's indemnity to ALSTOM, we believe
that for any such settlement to be successful for ABB, it must also encompass
ALSTOM in relation to power assets purchased from ABB by ALSTOM.
As of 31 October 2002, we were also subject to approximately 60 other
asbestos-related personal injury lawsuits in the United States involving
approximately 6,500 claimants that, in whole or in part, assert claims against
the Company which are not based on the Company's purchase of ABB's power
generation business. These lawsuits are currently being litigated, most of which
are in the preliminary stages of the litigation process. All such lawsuits
involve multiple defendants. The allegations in these lawsuits often are very
general and difficult to evaluate at preliminary stages in the litigation
process. In those cases where meaningful evaluation is practicable, the Company
believes that it has valid defences and with respect to a number of lawsuits,
the Company is asserting rights to indemnification against a third party.
Approximately 5,800 of these claims are asserted in two very recently filed
cases in Mississippi where the Company is one of over 200 defendants and where
the Company asserts such indemnification rights. The Company has not in recent
years suffered any adverse judgement, or made any settlement payment, in respect
of any US personal injury asbestos claim.
The Company believes that the existing asbestos-related cases described above
will not have a material adverse impact on its financial condition.
10. ACCOUNTS OF THE PARENT COMPANY, ALSTOM
ALSTOM, the parent company, has no industrial or commercial activity and,
consequently its revenue includes mainly fees invoiced to its subsidiaries for
the use of the ALSTOM name, dividends and other financial income.
Income amounted to €74 million for the first half of fiscal year 2003 and €66
million for the first half of fiscal year 2002.
11. OUTLOOK
The resilience of our first-half performance, in a challenging economic
environment, is underlined by the 15% growth in our order intake. As a result,
we expect orders received and sales for the full year to be broadly in line with
those of last year. The positive dynamics of the transport, power retrofit,
customer service and transmission markets should offset less favourable gas
turbine, power plant, distribution and marine markets.
Improved profitability was delivered across all our Sectors in the first half
and reflects not only the improved margins in our order intake, as our business
mix improves, but also the benefits that are beginning to flow from
restructuring and overhead reduction. This gives us confidence in delivering a
margin close to 5% in March 2003 and puts us well on track to achieving 6% by
March 2005.
Despite a generally much more difficult economic environment, we remain
confident of achieving the key objectives outlined in the Restore Value plan.
* * *
Forward-Looking Statements:
This Management Report 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 the exclusive means of identifying such
statements. By their very nature, forward-looking statements involve inherent
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 and control
costs 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;
(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 of liquidity to achieve
management's objectives or goals, including our goal of reducing indebtedness;
(xi) timing of completion of the actions focused on cash generation contemplated
in ALSTOM's "Restore Value" programme; (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 matter; (xiii) the
inherent difficulty in estimating ALSTOM's 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; and (xv)
ALSTOM's success at adjusting to and managing the risks of the foregoing. ALSTOM
cautions that the foregoing list of important factors is not exhaustive; when
relying on forward-looking statements to make decisions with respect to ALSTOM,
investors and others 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 Commission des Opérations de
Bourse and with the Securities and Exchange Commission, including reports on
Form 6-K. 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.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ALSTOM
Date: November 13, 2002 By: /s/ Philippe Jaffré
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Name: Philippe Jaffré
Title: Chief Financial Officer