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Turnaround at ALSTOM (A)
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Time can compress in strange ways, thought Patrick Kron as he turned the calendar on his
desk to March 1, 2003. It had been only two months since he assumed the role of Chairman
and CEO of ALSTOM, but it seemed much longer. The famous enterprise, whose products
included the TGV high-speed trains and cruise ships such as the Queen Mary 2, had run into
unexpected trouble during the past two years, leading to Kron’s assuming the top job ahead of
schedule. Although he had been a board member since 2001, even Kron was surprised by the
extent of the difficulties the firm faced. He had scheduled a briefing of equity analysts for
March 12, and he realized that at this pivotal moment they and the company’s 126,000
employees would look to him for a clear statement of how bad the company’s situation was
and how he intended to reverse its deteriorating financial situation. ALSTOM had
disappointed analysts so many times that Kron’s plan would have to be both clear and
credible. What steps, he wondered, would send the right signal and restore confidence in the
enterprise?
ALSTOM’s Emergence1
ALSTOM traced its historical roots back to the 1928 merger of the Société Alsacienne de
Constructions Mécaniques and Thomson-Houston that formed Alsthom (ALsace +
THOMson). Eventually, Alsthom became part of the Compagnie Générale d'Electricité
(CGE), which was privatized in 1987. CGE was renamed Alcatel Alsthom in 1991 which was
shortened to Alcatel in 1998.
In 1989, Alcatel Alsthom and the UK-based General Electric Company (now known as
Marconi plc) formed a 50/50 joint venture called GEC Alsthom, pooling their power and
transportation businesses. The Deputy CEO of Alcatel, Pierre Bilger, a veteran of France’s
Ministry of the Economy and Finance and of Alcatel, joined the joint venture and became its
Chairman in 1991. In 1998, the parents floated the venture on the stock exchange as an
independent entity, ALSTOM SA, with Bilger as its initial CEO.
The ALSTOM initial public offering was one of the largest of the year, and it was more than
three times oversubscribed, valuing the enterprise above €4 billion. The company was
profitable, had deep heavy-engineering expertise, and possessed a solid order book. It was a
world leader in power generation and distribution infrastructure, rail transport, and
shipbuilding, and just before the IPO it had added to its portfolio of businesses Cegelec, a
profitable electrical contracting and process control business that it acquired from Alcatel
Alsthom.
The deal was not, however, problem-free. GEC and Alcatel maintained 24% shares in the
new company, meaning it would have to manage two strategic stakeholders with increasingly
divergent interests and corporate cultures. Furthermore, before the flotation ALSTOM paid
its parents a special €1.2 billion dividend, which left its debt/equity ratio extraordinarily high
at birth. Furthermore, in its largest sector, the businesses serving the power industry,
1
See Appendix 1, prepared by participants in AMS, for a timeline of events through January, 2003.
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1998-2002: Growth in Revenues and Risks
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Globally, the market for power generation systems grew dramatically in the late 1990s; in
hindsight, the 1997-2000 period appears to have been a demand bubble. ALSTOM produced
a range of gas turbines for this market, but licensed the technology for the largest turbines
from the American firm GE. Wanting to grow its sales in Europe, GE withdrew its license in
1999. In July of that year, in order not to lose the opportunity to address this booming market,
ALSTOM combined its power generation business into a 50/50 joint venture with ABB called
ABB ALSTOM Power. Along with GE and Siemens, ABB was a major global vendor with a
large range of control systems and industrial gas turbines. To account for the difference in
size of the two companies, ALSTOM paid ABB €1.4 billion in cash, financing the deal with
debt and therefore increasing its leverage and cash-flow needs significantly.
Once Siemens acquired Westinghouse’s power generation operations in 1998, ABB was the
sole logical acquisition candidate for a firm that wanted to establish a presence quickly in
heavy gas turbines. Since ALSTOM believed it had to participate in this segment, it decided
to merge its Power activities with ABB’s in a 50-50 joint company. In this merger operation,
both parties made extremely limited due diligence, thus ALSTOM did not properly assess
some technical problems that were beginning to become serious at ABB just as ALSTOM
bought into the business.
ABB had made the decision to develop gas turbines in 1990, and rapidly staffed up its
research and development arm by hiring many people who were not gas turbine specialists.
ABB pioneered an innovative but untested approach called “sequential combustion” to boost
power plant capacity and efficiency without increasing firing temperatures. Using an
environmentally friendly burner that produced low levels of nitrogen oxide during
combustion, the design passed hot exhaust gases from one compressor-turbine pair to a
second pair at high pressure. This process had many advantages: it kept emissions low and
allowed relatively small power units to generate high volumes of power. However, it created
pressures more similar to those found in high-performance jet engines than in a typical power
plant. Unfortunately, rushing to meet the burgeoning demand for large turbines, ABB tested
the first unit2 on an actual site instead of in a test plant, and it began selling units before it
understood their performance record. The original design proved unable to generate as much
power as promised, and the blades failed much earlier than they were supposed to. In July
1999, the recently-born joint venture introduced an improved version designed to fix these
problems, but new technical flaws emerged.
ABB’s contracts guaranteed specific performance and efficiency minimums and included
heavy penalties if these were not met. When the power generation market became softer,
customers changed their collaborative attitude and took a stricter tone, becoming more and
more willing to invoke these penalty clauses and less willing to give their vendors time and
space to engineer their way around technical teething problems.
2
The GT/24 turbine was designed for the 60Hz power generation market concentrated in North America,
and the GT/26 was designed for the 50Hz market that predominates elsewhere.
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ALSTOM faced GE and Siemens, two powerful global competitors who had larger market
shares. One of Bilger’s first priorities was to bolster this sector.
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Because of strategic differences of opinion between the two shareholders, in May 2000
ALSTOM purchased ABB’s stake in the joint venture for €1.25 billion and renamed it
ALSTOM Power. Again the deal was financed by debt, adding further leverage to the
balance sheet. More critically, ALSTOM underestimated again the impact of the gas turbines
problems, and senior management was later surprised to find that it had acquired a potentially
ruinous set of liabilities without the proper compensations by the seller. Even as these
problems were emerging, ALSTOM continued acquiring companies and ramping up its debtto-equity ratio. To enhance its position as the global leader in high-end train rolling stock,
ALSTOM acquired 51% of Fiat Ferrovaria in October, 2000. The Italian firm manufactured
the “Pendolino” tilt trains used on the West Coast Main Line linking London and Glasgow,
with the first passengers scheduled to be carried in August 2002. Yet as ALSTOM added to
its portfolio of high-performance trains, the market was undergoing a significant shift.
In the UK, the Railways Act of 1993 began a process of dismantling and privatizing British
Rail, which traditionally had a close working relationship with ALSTOM. ALSTOM was
awarded the first five projects put out to bid in the newly privatized environment, but instead
of dealing with a state-owned enterprise, it now had to bargain with a variety of leasing
companies (typically banks) and private coach companies, totaling eight customers for five
contracts. Instead of the technically well-defined contracts from British Rail to which
ALSTOM had become accustomed, these new customers insisted on performance-based
contracts with heavy penalties for delays or performance shortfalls, transferring significant
risks to ALSTOM.
Like the GT 24/26 liabilities, these problems lurked largely below the surface. In mid-2001,
ALSTOM appeared to be a reasonably healthy company, though not one without challenges –
its net income fell 42% between 2000 and 2001. The firm announced in July 2000 that it
would not be able to meet its contractual obligations with respect to the heavy turbines, and
began negotiating with each of the customers who had bought 80 units up until that time. In
November 2000, it announced a further €903 million in provisions for liabilities related to
these contracts, but investors accepted its plan to improve efficiency, negotiate with
customers, and focus on driving sales of mid-range turbines. Reported Credit Suisse in April,
2001, “From any angle you look at it, Alstom appears to be undervalued in our view. Alstom
is clearly one of the cheapest stocks in its peer group.”
The fundamentals driving ALSTOM’s value seemed quite strong, including growth in
demand for electricity worldwide, customers needing to replace aging equipment, rising
demand to retrofit plants in response to stricter environmental requirements, and increased
outsourcing of maintenance and repair by utilities to vendors such as ALSTOM. At the
beginning of 2001, ALSTOM was the largest supplier of power generation equipment in the
world (though it still trailed in large gas turbines) and was number two in transport behind
Bombardier/Adtranz. Its service revenues had risen 50% in the previous three years, and it
was entering new, interesting businesses such as network planning and energy management.
However, in power generation its margins averaged 3.2%, a fraction of GE’s and Siemens’
margins in the same business.3 Power generation was clearly the largest of ALSTOM’s seven
divisions, which included:
3
Estimated at 15% and 24% respectively for 2002 by Datamonitor Marketwatch in May, 2003.
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Division
Power4
Transport
Transmission and Distribution
Contracting
Marine
Power conversion
% of sales 2001
49%
17%
12%
10%
8%
3%
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The €756 million sale of ALSTOM’s contracting division in mid-2001 appeared to bolster the
balance sheet, and by June 2001, ALSTOM shares reached what would be their high-water
mark. Marconi and Alcatel sold most of their stakes in ALSTOM for €800 million in July,
2001, but the departure of these strategic investors was seen by shareholders as freeing
ALSTOM management to pursue a more independent course. It was just at this time that
Patrick Kron joined the ALSTOM board. A graduate of the Ecole Polytechnique and the
Paris Ecole des Mines, he had joined the French Ministry of Industry in 1979, served in
various roles at Pechiney Group from 1984-98, and was chairman of Carbone Lorraine
Company from 1993-97 and of Imerys from March 1998.
Within three months, the board and management team confronted an unexpected crisis. In the
wake of the September 11 attacks on the World Trade Center, bookings for leisure cruises
nose-dived. A major operator, Renaissance Cruises, declared bankruptcy on September 25.
On 27 September, Pierre Bilger shocked investors with the unexpected news that ALSTOM
had guaranteed some of the loans that Renaissance had taken out to finance eight ships it had
purchased. Although the maximum exposure was declared to be €684 million, ALSTOM
shares lost €2 billion in equity within two days of the announcement and fell by more than
50% over the five days following the announcement.
Why did the firm’s equity plunge by so much more than the potential loss exposure?
Analysts inferred that investors had lost confidence in senior management. First the GT 24/26
liability had surfaced, then a second provision had proven necessary. Now, without warning,
investors learned that ALSTOM not only was liable for the Renaissance guarantees but also
had €589 million more in exposure on other vendor financing deals. Most damningly, it
surfaced that ALSTOM had provided vendor financing to Renaissance without demanding
any collateral. The Renaissance affair prompted doubts about whether the firm was truly in
control of its risks and liabilities, as investors wondered what other bad news might be buried
in its operations. The capital markets had largely shrugged off the GT 24/26 provisions, but
the Renaissance revelations, though smaller in scope, eroded management’s credibility.
In February, 2002, Philippe Jaffré, a former CEO of the bank Credit Agricole and the major
oil company Elf, who had the confidence of investors, joined ALSTOM as Advisor to the
Chairman and CEO. Unfortunately, at this time simmering problems in the Transport division
became public. ALSTOM was having difficulty delivering trains on time as specified by
contract, and its new, tougher customers in the UK demanded financial redress. A cost
reduction program and the implementation of a non-standard Enterprise Resource Planning
(ERP) system contributed to delivery delays, and the firm’s financial systems did not
4
The Power division, whose chief reported to the CEO, comprised seven segments: Gas Turbine, Industrial
Turbine, Steam Power Plant, Boiler, Environment, Hydro Power, and Customer Service.
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immediately alert management to the extent of liquidated damages that would result. In
former times, ALSTOM and British Rail would have worked out the difficulties amicably, but
ALSTOM’s new UK customers rejected 29 of the 119 trains scheduled to be delivered in
2001, worth €670 million, and demanded additional modifications. ALSTOM’s provisions
against these liabilities proved considerably smaller5 than had been necessary to cover its GT
24/26 and Renaissance exposures, but investors continued to lose confidence in ALSTOM’s
ability to identify and manage risks.
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Turnaround at ALSTOM: The Restore Value initiative
Between 1998 and 2002, ALSTOM’s sales had grown from €11.2 billion to €23.5 billion, but
with the share price down 60% from its June 2001 high, Bilger was aware that a crisis of
confidence was brewing. He scheduled a high-profile briefing for March 14, 2002 to set forth
his plan to turn around ALSTOM. Called “Restore Value”, this initiative rested on three
pillars. One was renewing the management team. Bilger announced that Phillipe Jaffré
would take an operational role as CFO in July. A second was an operating performance
improvement plan aimed at focusing the firm on high-margin, high-growth activities such as
aftermarket services while improving productivity and reducing overhead. The third was
consolidating the balance sheet. Between the acquisitions and the liabilities it had incurred,
ALSTOM had an unsupportable debt-to-equity ratio that this program was designed to
address. To address the problem, the firm would:
•
Sell €750 million in real estate by the end of calendar 2002, mostly via sale/leaseback
arrangements.
•
Dispose of 12 unidentified businesses worth an estimated €900 million
•
Generate €1.3 billion in free cash flow via a “cash for growth” program that would
include cash generation and management as a key indicator in the firm’s compensation
and reward system.
•
Secure an additional €850 million in credit lines from its banks
•
Launch a €600 million rights issue to raise new capital.
In May 2002, ALSTOM released its results for the fiscal year ended March 31 and confirmed
that it had suffered a net loss for the first time since it had become a public company, totaling
€139 million. 66 million new shares were offered in a two-week window in June at €9.6 per
share, down 26% from when the deal was priced at the end of May.
Initially, the Restore Value program was well-received by analysts, who appreciated having a
clear plan in place. However, as 2002 progressed, ALSTOM appeared slow to dispose of the
real estate and businesses it had promised to divest.6 It also became clear to investors that the
power generation market was collapsing. ALSTOM’s largest sector had benefited from the
growth in the market for energy production from 120 gigawatts of capacity in 1997 to 230
gigwatts of capacity in 2001, but in 2002 demand for new equipment dropped by more than
6
Eventually, €267 million of real estate was sold in fiscal year 2002/3 according to the annual report.
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If the Restore Value program was working, it was not producing visible results rapidly
enough. Pierre Bilger announced in November 2002 that ALSTOM had in the previous six
months eked out a slight profit, and at the same time announced his support for a board
decision that he step down as CEO effective January 1, 2003, to be succeeded by Patrick
Kron. It was planned that Bilger would continue as Chairman for a transition year, with Kron
to take over that role as well on January 1, 2004.
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Patrick Kron Takes Charge
With the start of the new year, Patrick Kron and a small team reporting to him began to delve
into the firm’s numbers to formulate an action plan. Kron knew that fairly soon he would
have to tell the company’s stakeholders what he planned to do to restore confidence in the
enterprise, and he wanted to ensure that whatever news he reported was accurate and surprisefree. Gradually, it became clear that due to delays in implementing recovery packages, the
liabilities associated with the GT 24/26 contracts could exceed by as much as €2 billion the
provision that had already been made. A mitigation plan was assessed in view of limiting such
a negative impact but it was deemed able to address only €400 million of the total cost.
The slow progress of the Restore Value initiative was creating a cash crisis, and it appeared
possible that the firm would by mid-year be unable to pay its wage bill. Gradually Kron got a
handle on the magnitude of the crisis. ALSTOM carried €4.9 billion in debt, a debt-to-equity
ratio of 500%. Although the Restore Value initiative was supposed to generate €1.3 billion in
cash flow by 2005, the power market downturn and the firm’s losses meant that, at present
rates, cash flow through 2005 was projected at a negative €300 million. In its present
condition, ALSTOM would not be able to repay debts that were scheduled to come due within
the next twelve months and bear the additional cost to resolve the GT24/GT26 technical and
commercial issue. If it chose to reduce its workforce, social regulations and labor agreements
meant it would incur significant restructuring charges in the short run.
The numbers were only part of the story. Few of the firm’s executives seemed to understand
how serious ALSTOM’s situation was. Because of ALSTOM’s complex matrix structure, too
many people believed that even if the firm as a whole was stumbling, their individual
operations were performing adequately. It seemed clear that some sort of management shakeup was needed, but ALSTOM operated in businesses where long-standing personal
relationships were a key to customer retention. At a deeper level, it was clear that one root
cause of ALSTOM’s difficulties was that it retained much of its pre-IPO culture, even though
its markets had changed significantly.
Kron wondered whether simply speeding up the implementation of the Restore Value
initiative would suffice, or whether the capital markets needed a new message. It seemed to
him that the firm would need a major capital injection to survive, but how could he persuade
7
Turbomachinery, plant (turnkey projects and control systems), boilers and environment, hydro, and
customer services.
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half to 105 gigawatts. The power sector was reorganized in July 2002 into five segments, 7 but
stakeholders worried about the effect on ALSTOM’s fragile finances of hostile market
conditions in its biggest sector.
investors to put more equity into the company when their holdings had just been diluted via
the 2002 rights issue? Anyone who had purchased ALSTOM shares in the past 18 months
had suffered a significant loss and might be reluctant to put more money into the enterprise.
One certainty was that the markets would not stand for any more unexpected surprises—Kron
knew he would have to get all of ALSTOM’s problems out on the table and communicate
effective measures to stem the continual emergence of unanticipated bad news.
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With only twelve days to go before he had to communicate his turnaround plan, Kron
wondered how to set forth a manageable number of concrete initiatives that would address
ALSTOM’s most severe problems and put it on track to deliver the results it promised.
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1998
1997
1996
1995
1993
1992
1991
1989
1989
1989
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GEC ALSTOM becomes a company 50% owned by Alcatel Alstom and
GEC ALSTOM formed as a merger of the power and transportation
interests of Alcatel Alstom and GEC of the UK.
50% by GEC.
European Gas Turbines (EGT) is formed with GE (US)
GEC ALSTOM acquires Metro Cammell (rail transport) in the UK,
ACEC (energy and transport) in Belgium, EVT (energy) in Germany
and Gri-Sapag (industrial) in France.
GEC ALSTOM purchases Cyril Bath in the US, Ceme (T&D) in Italy
and Zeitz Neumark (energy) in Germany.
GEC ALSTOM acquires the Sobelco business of the Belgian company
Harmon (condensing and feed water heating systems), Schilling
development Inc. (robotics in the US, Maquinista/Ateinsa and
Meinfesa (rail transport and hydro generators) in Spain and Kanis
Energy (power generation) in Germany.
GEC ALSTOM purchases CAMSA (relays) in Argentina, Turalmex
(steam turbines) in Mexico and Enertub (power generation) in Brazil.
GEC ALSTOM acquires Linke-Hofmann-Busch (rail transport), the
outstanding shares in MAN Energy (steam turbines), Geo Railmex (rail
transport) in Mexico, Powermark New Zealand (T&D maintenance),
Productos Electricos Elmex (swichgear) in Mexico and General Turbo
Malthe Winje (T&D) in Romania.
GEC ALSTOM acquires the T&D activities of AEG in Germany and
REFA in Poland, AMF (rolling stock maintenance) in Canada and the
Central Infrastructure Maintenance Company (CIMCo) in the UK.
Acquisition of Mirrless Blackstone (Diesel engines) in the UK, Hornell
(rolling stock) in the US, Konstal (roling stock) in Poland and Leroux
et Lotz (shipyards) in France.
Acquisition of SASIB Railway Signalling in Italy and Marconi SpA
(T&D) in Italy.
Appendix 1
Timeline of key events
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ALSTOM takes a majority stake in De Dietrich Ferroviaire
1998
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In May 1998, ALSTOM purchased the Engineering and Systems
sector of ALCATEL, comprising CEGELEC S.A., a French
company and a number of other companies, divisions and
operating units (together with CEGELEC S.A., "CEGELEC'') for
a total purchase price of €1,628 million (including transaction
costs). CEGELEC specialized in electrical contracting and process
control systems. The activities of CEGELEC in the fields of
energy, transmission and distribution and transport were generally
distinct from and complementary to ALSTOM's activities.
This is the starting point of an impossible mission: to continue to
grow by acquisitions without any money left by the previous
shareholders. While the company was given day-to-day autonomy,
it remained under the control of its parent companies (each kept
approximately 22% of the shares) and had to incorporate the
objectives and opinions of two separate groups of shareholders.
Alstom started a new period in the somewhat unique position of a
joint French-British operation.
ALSTOM's strategy has three principal dimensions:
1. To reinforce its position as world leader in its three principal
markets: Energy, Transmission & Distribution and Transport;
2. To optimize its position in its three complementary activities:
Industry, Marine and Contracting;
3. To improve its margins.
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9
GEC ALSTOM becomes a publicly-quoted company after its flotation
on Paris, London and New York stock exchanges. GEC Alstom leaves
its parent company (Alcatel Alsthom, ex CGE) and is renamed
ALSTOM SA. Pierre Bilger is appointed CEO. Before it floats, the
new company is valued at between €6 - €8 billion and pays its parent
companies €1,2 billion in a special dividend. The payment leaves the
company virtually penniless. The shares are sold at approximately €31
on the stock exchanges in Paris, London, and New York.
June 1998
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Acquisition of CEGELEC (electrical contracting).
May 1998
Appendix 1 (Cont’d)
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Considerations for entering the JV:
Market prices for power plants decreased by approximately 50% in the
1990s.
A shift of the power market from Asia (after the Asian Crisis) to the
US, from coal plants to GT-driven plants. However, ALSTOM was
prevented from entering this market due to the license agreement with
GE (limiting ALSTOM to 50Hz markets)
Until 1998/99, ALSTOM's principal source of liquidity in recent years
has been cash generated from operations. ALSTOM's net cash
provided by (used in) operating activities was €150 million in
1998/99, €134 million in 1997/98 and €326 million in 1996/97. In
1998/99, payment of dividends to the principal shareholders prior to
ALSTOM's initial public offering, as well as the CEGELEC
acquisition, utilized almost all of ALSTOM's existing liquid resources.
Accordingly, ALSTOM arranged a short-term standby facility with a
group of commercial banks of approximately €1,400 million which
could also be used by ALSTOM for general corporate purposes. At
March 31, 1999, ALSTOM had drawn down €573 million under this
facility. This facility was replaced in April 1999 by a medium-term
revolving facility of €1,875 million.
In a press release on the ABB Web site, Pierre Bilger stated, "This
move will be a strong accelerator for the performance of both parent
companies."
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10
ALSTOM and ABB merge their energy business in a 50-50 joint
company known as ABB ALSTOM Power. In a parallel move,
ALSTOM sells its heavy duty gas turbine business to General Electric
of the US. To account for the difference in size of the two companies,
ALSTOM paid ABB a cash compensation of €1.4 billion.
July 1999
Copyright © 2009 INSEAD
ALSTOM acquires ER Equipamentos Elétricos (T&D) in Brazil
1999
Appendix 1 (Cont’d)
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Copyright © 2009 INSEAD
October
ALSTOM Acquires Telecite Inc. based in Montreal, Canada.
1999
November ALSTOM joins the CAC 40 (French Stock Exchange Index)
1999
May 2000 ALSTOM acquires ABB's share in ABB ALSTOM Power for €1.25
billion. The new company becomes known as ALSTOM Power.
July 2000 ALSTOM begins to experience financial difficulties. There are serious
and costly problems associated with the heavy-duty gas-turbine
technology purchased from ABB. Although Pierre Bigler announces to
shareholders that the difficulties will not affect profit margins, shares
fall 15% on the day of the announcement.
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01/2009-5579
Historically, demand for power equipment came principally from large
state-owned utilities. Since 1989, however, IPPs have accounted for an
increasingly important portion of new equipment orders, rising from 17%
of the world market in 1989 to 33% in 1998.
Privatisation/Deregulation Trend. The energy sector has been particularly
impacted by the effects of privatisation of power producers and the
related power sector deregulation. (i) modernization of procurement
practices, (ii) increasingly global competition as customers seek suppliers
beyond national boundaries, (iii) significant downward pressures on
payment terms, prices, implementation time and maintenance costs, and
(iv) increased emphasis on performance criteria and on the operating
profitability of equipment.
Market participants in the increasingly competitive market for energy
projects have assumed increased project-related risk, both financial and
operational, continuing at times for significant periods after delivery. For
example, customers now increasingly require suppliers, including
ALSTOM, to guarantee the availability of generating equipment for a
period of time after completion, and an increasing
number of projects bear significant penalties. However, ALSTOM
believes that the ability to participate financially in the development of a
power project and to share customer risk offers real business
opportunities to ALSTOM.
Appendix 1 (Cont’d)
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ALSTOM acquires a 51% stake in Fiat Ferroviaria, the Italian rail
manufacturer and world leader in "tilting technology".
ALSTOM'S shares are put on the stock market
309-018-1
12
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01/2009-5579
ALSTOM completes the sale of its contracting sector to CDC Equity
Capital and Charterhouse Development Capital, which finances a
management buy-out.
September Following the September 11, 2001, terrorist attacks in the United
2001
States, several major cruise-liner orders fail. One of ALSTOM's clients,
Renaissance, files for bankruptcy. During September, the business
press accuses Pierre Bilger of bad management, referring specifically
to the Renaissance failure, noting that ALSTOM had taken on the
contract under a "supplier's credit financement scheme", without
demanding collateral guarantees. Once again, an announcement from
ALSTOM's corporate offices reassures shareholders that the company
is covered against such incidents, but it also confirms that the
company's exposure could be as high as €684 million. Once again,
shares drop, this time by almost 40% over two days.
February ALSTOM enter into a technology agreement with Rolls Royce which it
2002
intends to exploit to further develop heavy-duty gas turbines
technology.
March
Alstom launches the "Restore Value Plan". After announcing the
2002
suspension of payments of dividends to the shareholders, the group
tries to solve its operational and financial situation (high debt situation,
high cash problems) due to a very difficult 2001. The plan's main
characteristics are: Maintain strategic activities and sell non-strategic
ones to obtain €900 million until March 2003, capital increase, sell real
estate for a total €750 million until December 2002.
December, The last 6 months show clearly that the "Restore Value" Plan is
At this time, Alstom was bound for bankruptcy. Selling of "non core
2002
unsuccessful; Patrick Kron will succeed Pierre Bilger.
businesses" and assets, plus the margins from projects in execution, did
not generate sufficient cash to cover the cash drain resulting from the
problems on projects in Power, Transport and Marine. Debts were rising
and orders were dropping due to a loss of confidence in the market that
the company could sustain.
October
2000
February
2002
July 2001
Appendix 1 (Cont’d)
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Copyright encoded A76HM-JUJ9K-PJMN9I
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Figures in Million €
Actual & Comparable
Actual Sales
OI
Sales comparable
OI comparable
Other IC/Expenses
Goodwill amortisation & other
Net Income
Cash Flow (operative)
Cash Flow (investments)
Cash Flow (financing)
Total Cash Flow
Equity
Debts
Net Debt/Shareholder Eq.
Debts comparable 0405
Net Debt/Shareholder Eq.
04/05
ACTUAL figures as initially
reported
Actual Sales
OI
OI/Sales %
Other IC/Expenses
Goodwill amortisation & other
Net Income
Cash Flow (operative)
Cash Flow (investments)
Cash Flow (financing)
Total Cash Flow
Equity
Debts
Net Debt/Shareholder Eq.
1997/1998
1998/1999
1999/2000
2000/2001
2001/2002
Total
11,197
525
Total
14,069
707
Total
16,229
729
Total
24,550
1,151
-43
-40
304
134
-571
-213
-650
2,304
304
0.13
-89
-121
303
150
-818
-922
-1,590
1,626
1,286
0.79
72
-244
349
453
-1,273
-111
-931
1,986
3,560
1.79
-165
-305
204
184
-1,590
370
-1,036
2,090
6,231
2.98
Total
comp
03/04
23,453
941
18,282
698
-390
-286
-139
-579
124
-136
-592
1,753
6,035
3.44
11,197
525.1
4.69%
-83
-40
304
134
-571
-213
-650
2,304
304
0.13
14,069
707
5.03%
-89
-121
303
150
-818
-922
-1,590
1,626
1,286
0.791
16229
729.4
4.49%
72.4
-244
349.1
453
-1,273
-111
-931
1,986
3560
1.79
24550
1151
4.69%
-255.7
-360.2
203.7
597
-1,595
370
-628
2,090
4653
2.23
23453
941
4.01%
-476.9
-350.3
-139.4
-418
124
-136
-431
1,753
4300
2.45
01/2009-5579
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Appendix 2
Selected Financial Information