Form 6-K
FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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 2003
Commission File Number: 1-14836
ALSTOM
(Translation of registrant's name into English)
25, Avenue Kléber, 75116 Paris, France
(Address of principal executive offices)
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
----- -----
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(1):
Yes No X
----- -----
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(7):
Yes No X
----- -----
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
----- -----
If "Yes" is marked, indicate below the file number assigned to the Registrant in
connection with Rule 12g3-2(b)
This Report on Form 6-K includes materials relating to an Ordinary and
Extraordinary Shareholders' Meeting to be held on 18 November 2003, on second
call. These materials make reference and relate in part to certain proposed
issuances of securities by ALSTOM. The securities mentioned in these materials
have not been and will not be registered under the United States Securities Act
of 1933, as amended, and may not be offered or sold in the United States absent
registration or exemption from registration under the Securities Act.
These materials are not an offer to sell securities or the solicitation of an
offer to buy securities, nor shall there be any offer or sale of securities in
any jurisdiction in which such offer or sale would be unlawful.
ENCLOSURES:
Press release dated November 5, 2003, "ALSTOM Awarded Frame Contract
for Control and Signaling Equipment by Belgian Railways"
Press release dated November 12, 2003, "ALSTOM Wins Transport Orders
Worth €84 Million in Germany and Italy"
Press release dated November 13, 2003, "ALSTOM Awarded 250 Million
Euro Contract in Sudan"
Interim Consolidated Financial Statements for Half-Year Ended
September 30, 2003
Management Discussion and Analysis on Interim Consolidated Statements
as at 30 September 2003
Press release dated November 20, 2003, "ALSTOM Capital Increase"
Press release dated November 20, 2003, "ALSTOM Wins €240 Million
Contract for Maintenance of Bucharest Metro Fleet"
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 21, 2003 By: /S/ Philippe Jaffré
--------------------------------
Name: Philippe Jaffré
Title: Chief Financial Officer
5 November 2003
ALSTOM AWARDED FRAME CONTRACT
FOR CONTROL AND SIGNALING EQUIPMENT
BY BELGIAN RAILWAYS
A consortium consisting of ALSTOM and Siemens has been awarded a frame contract
by Belgian Railways (SNCB) for the supply of new electronic control centers and
signaling equipment.
The total value of the contract is approximately €116 million. ALSTOM's scope of
supply, worth €76 million, is for interlocking technology from its SMARTLOCK
range. Siemens is responsible for project management and will supply the control
room equipment; its share of the order is €40 million.
This is a repeat order for both ALSTOM and Siemens, which have already supplied
the same technology for SNCB's long-term project to optimize safety and
punctuality of their train operations.
"We are delighted with this significant order for more SMARTLOCK technology,"
said Philippe Mellier, president of ALSTOM Transport. "It is a further
confirmation of the trust that our customers are placing in ALSTOM."
WITH MORE THAN 35 PRODUCT LINES AND A PRESENCE IN MORE THAN 60 COUNTRIES,
ALSTOM'S TRANSPORT SECTOR OFFERS COMPLETE PRODUCTS AND SERVICES FOR NEW ROLLING
STOCK, SIGNALING, AND ELECTRICAL AND MECHANICAL INFRASTRUCTURE AS WELL AS
MAINTENANCE AND REHABILITATION SERVICES TO FOUR DISTINCT TYPES OF CUSTOMERS:
URBAN TRANSIT AUTHORITIES AND OPERATORS; INTERCITY PASSENGER RAIL OPERATORS AND
ROLLING STOCK OWNERS; RAIL FREIGHT OPERATORS; AND INTERCITY RAILWAY
INFRASTRUCTURE OWNERS. ALSTOM'S TRANSPORT SECTOR, WITH SALES OF €5.1 BILLION IN
FINANCIAL YEAR 2002-2003, IS AMONG THE WORLD'S LEADING SUPPLIERS TO THE RAILWAY
INDUSTRY.
Press relations: Gilles Tourvieille
Tél. +33 1 47 55 23 15
internet.press@chq.alstom.com
Investor relations: Emmanuelle Chatelain
Tel. +33 (0)1 47 55 25 33
investor.relations@chq.alstom.com
12 November 2003
ALSTOM WINS TRANSPORT ORDERS WORTH
€84 MILLION IN GERMANY AND ITALY
ALSTOM has won a €45 million commuter-train order from Hamburg S-Bahn and a €39
million order for railway systems and infrastructure from Rete Ferroviaria
Italiana (RFI).
TRAINS FOR S-BAHN HAMBURG
S-Bahn Hamburg, the city's rapid-transit railway, has awarded a consortium
consisting of ALSTOM and Bombardier Transportation an order for the supply of
nine new trains and the rebuilding of 33 existing trains. ALSTOM's share of the
€90 million order is €45 million.
The 42 three-unit trains will offer service on a new extension of an S-Bahn
line. Both the new and the renovated trains will be equipped to use two
different power-supply systems.
ALSTOM will supply the mechanical equipment from its site at Salzgitter, and
Bombardier will supply the electrical equipment.
RAILWAY SYSTEMS AND INFRASTRUCTURE FOR MILAN-BOLOGNA LINE
RFI, the infrastructure subsidiary of Italy's national railway group, Ferrovie
dello Stato, has awarded an ALSTOM-led consortium a €65 million order to supply
systems and infrastructure for a railway line between Milan and Bologna.
ALSTOM's share of the contract is €39 million.
ALSTOM will design, manufacture, install and test the systems for signaling,
train control, telecommunications, power supply and lighting.
The other members of the consortium are the Italian companies Sirti, Ceprini,
Icefs and CLF, which will carry out other engineering and construction work,
such as civil works and trackwork.
Press relations: S. Gagneraud/G. Tourvieille
(Tél. +33 1 47 55 25 87)
internet.press@chq.alstom.com
Investor relations: E. Chatelain
(Tél. +33 1 47 55 25 33)
Investor.relations@chq.alstom.com
13 November 2003
ALSTOM AWARDED 250 MILLION EURO
CONTRACT IN SUDAN
ALSTOM has just been awarded a contract by the Ministry of Irrigation and Water
Resources of the Republic of the Sudan to supply the electro-mechanical
equipment for the Merowe Dam Project, located on the Nile River. The value of
the contract is in excess of 250 million euro.
ALSTOM's scope of supply includes 10 hydro turbines and generators, each with an
output of 125 MW, the balance of plant, control system and engineering. The
scope also includes erection and commissioning. One of the key factors in ALSTOM
winning this contract has been its unrivalled experience in the field of hydro
power. This new contract confirms ALSTOM's No. 1 position in this world-wide
market.
This contract marks a milestone in the economic progress of Sudan. On completion
of this project, the power generation capacity will be more than doubled. The
project, due to commence in December 2003 will be executed over a period of five
years and will involve several engineering and manufacturing units in ALSTOM
including Brazil, Switzerland, France and Germany.
Philippe Soulié, President of ALSTOM's Power Environment Sector said "winning
this contract represents a major success for us. At this particular point in
ALSTOM's recovery plan, we regard this award as a strong and encouraging
demonstration of confidence on the part of our Customer and we are proud to be
associated with this prestigious project"
Press relations: G. Tourvieille / S. Gagneraud
(Tél. +33 1 47 55 23 15)
internet.press@chq.alstom.com
Investor Relations: E. Chatelain
(Tél. +33 1 47 55 25 33)
Investor.relations@chq.alstom.com
(FREE TRANSLATION OF A FRENCH LANGUAGE ORIGINAL PREPARED FOR CONVENIENCE PURPOSE
ONLY. ACCOUNTING PRINCIPLES AND AUDITING STANDARDS AND THEIR APPLICATION IN
PRACTICE VARY FROM ONE COUNTRY TO ANOTHER. THE ACCOMPANYING FINANCIAL STATEMENTS
ARE NOT INTENDED TO PRESENT THE FINANCIAL POSITION, RESULTS OF OPERATIONS AND
CASH FLOWS IN ACCORDANCE WITH ACCOUNTING PRINCIPLES AND PRACTICES GENERALLY
ACCEPTED IN COUNTRIES OTHER THAN FRANCE. IN ADDITION, THE PROCEDURES AND
PRACTICES FOLLOWED BY THE STATUTORY AUDITORS IN FRANCE WITH RESPECT TO SUCH
FINANCIAL STATEMENTS INCLUDED IN A PROSPECTUS MAY DIFFER FROM THOSE GENERALLY
ACCEPTED AND APPLIED BY AUDITORS IN OTHER COUNTRIES. ACCORDINGLY, THE FRENCH
FINANCIAL STATEMENTS AND THE AUDITORS' REPORT - OF WHICH A TRANSLATION IS
PRESENTED IN THIS DOCUMENT FOR CONVENIENCE ONLY - ARE FOR USE BY THOSE
KNOWLEDGEABLE ABOUT FRENCH ACCOUNTING PROCEDURES, AUDITING STANDARDS AND THEIR
APPLICATION IN PRACTICE.)
BARBIER FRINAULT & AUTRES DELOITTE TOUCHE TOHMATSU
ERNST & YOUNG 185, avenue Charles-de-Gaulle
41, rue Ybry B.P. 136
92576 Neuilly-sur-Seine Cedex 92203 Neuilly-sur-Seine Cedex
INDEPENDENT AUDITORS' REVIEW REPORT ON THE
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM 1 APRIL 2003 TO 30 SEPTEMBER 2003
Pursuant to article L. 232-7 of the French Commercial Code (CODE DE COMMERCE),
we have reviewed the accompanying interim consolidated financial statements of
ALSTOM ("the Group") covering the period from 1 April 2003 to 30 September 2003
and the information contained in the half year management report.
The interim consolidated financial statements are the responsibility of the
board of directors. Our responsibility is to issue a report on them based on our
review.
We have conducted our review in accordance with professional standards
applicable in France. These standards require that we perform limited
procedures, to obtain moderate assurance, which is less than obtained in an
audit, as to whether the interim consolidated financial statements are free of
material misstatement. We have not performed an audit, as a review is limited
primarily to analytical procedures and to inquiries of group management and
knowledgeable personnel on information as we deemed necessary.
Based on our review, nothing has come to our attention that causes us to believe
that the accompanying interim consolidated financial statements, prepared in
accordance with accounting principles generally accepted in France, do not give
a true and fair view of the financial position and the assets and liabilities of
the Group as at 30 September 2003 and of the results of its operations for the
six month period then ended.
The accompanying interim consolidated financial statements have been prepared
assuming that ALSTOM will continue as a going concern. ALSTOM has incurred
significant operating losses and a high level of indebtedness as a result of
which its ability to meet its financial needs depends on the successful
execution of its action plans. As part of these action plans and as explained in
Note 19, ALSTOM has reached agreement with its banks and with the Republic of
France, the implementation of which depends on certain future events set out in
Note 19 and Note 14. The accompanying interim consolidated financial statements
do not include any adjustments to assets and liabilities, in particular
goodwill, other intangible assets and deferred tax assets that are stated on the
balance sheet as of 30 September 2003 for, respectively, €3,931, 974 and 1,884
million (see Notes 7, 8 and 6), that may possibly result from a negative outcome
to the uncertainty related to going concern arising through the matters
described above.
As set out in Note 6, independent of the success of the action plans, the
capacity of ALSTOM to continue to support the carrying value of its deferred tax
assets depends on the Group's ability to generate an adequate level of taxable
income over the coming years.
We have also reviewed, in accordance with professional standards applicable in
France, the information contained in the management report accompanying the
interim consolidated financial.
We have no comment to make as to its consistency with the interim consolidated
financial statements or the fair presentation of the information contained in
the management report.
Neuilly-sur-Seine, 13 November 2003
The Independent Auditors
-------------------------------------- --------------------------------------
BARBIER FRINAULT & AUTRES DELOITTE TOUCHE TOHMATSU
Gilles Puissochet Alan Glen
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
HALF-YEAR ENDED 30 SEPTEMBER 2003
INTERIM CONSOLIDATED INCOME STATEMENTS
HALF-YEAR ENDED
30 SEPTEMBER YEAR ENDED
---------------------- 31 MARCH
NOTE 2002 2003 2003
---------- ---------- ----------
(IN € MILLION)
SALES (16) 10,769 8,854 21,351
OF WHICH PRODUCTS 8,514 6,602 16,374
OF WHICH SERVICES 2,255 2,252 4,977
Cost of sales (8,905) (7,577) (19,187)
OF WHICH PRODUCTS (7,182) (5,805) (15,504)
OF WHICH SERVICES (1,723) (1,772) (3,683)
Selling expenses (515) (435) (970)
Research and development expenses (319) (239) (622)
Administrative expenses (488) (471) (1,079)
---------- ---------- ----------
OPERATING INCOME (16) 542 132 (507)
Other income (expense), net (4) (188) (397) (555)
Other intangible assets amortisation (8) (32) (31) (67)
---------- ---------- ----------
EARNINGS BEFORE INTEREST AND TAX (16) 322 (296) (1,129)
Financial income (expense), net (5) (128) (220) (270)
---------- ---------- ----------
PRE-TAX INCOME (LOSS) 194 (516) (1,399)
Income tax (charge) credit (6) (36) 29 263
Share in net income (loss) of equity
investments 2 - 3
Minority interests (5) (2) (15)
Goodwill amortisation (7) (144) (135) (284)
---------- ---------- ----------
NET INCOME (LOSS) 11 (624) (1,432)
========== ========== ==========
Earnings per share in Euro
Basic - (2.2) (5.4)
Diluted - (2.2) (5.4)
The accompanying Notes are an integral part of these
Interim Consolidated Financial Statements.
INTERIM CONSOLIDATED BALANCE SHEETS
AT 31 AT 30
MARCH SEPTEMBER
NOTE 2003 2003
------------ ------------
(IN € MILLION)
ASSETS
Goodwill, net (7) 4,440 3,931
Other intangible assets, net (8) 1,168 974
Property, plant and equipment, net 2,331 1,940
Investments in equity method investees and
other investments, net 245 249
Other fixed assets, net (9) 1,294 1,239
------------ ------------
TANGIBLE, INTANGIBLE AND OTHER FIXED ASSETS,
NET 9,478 8,333
DEFERRED TAXES (6) 1,831 1,884
Inventories and contracts in progress, net 4,608 3,744
Trade receivables, net (10) 4,855 4,686
Other accounts receivables, net 2,265 2,602
------------ ------------
CURRENT ASSETS 11,728 11,032
Short term investments 142 98
Cash and cash equivalents 1,628 1,671
------------ ------------
SHORT TERM INVESTMENTS AND CASH AND CASH
EQUIVALENTS 1,770 1,769
------------ ------------
TOTAL ASSETS 24,807 23,018
============ ============
LIABILITIES
SHAREHOLDERS' EQUITY 758 183
MINORITY INTERESTS 95 94
PROVISIONS FOR RISKS AND CHARGES (12) 3,698 3,500
ACCRUED PENSION AND RETIREMENT BENEFITS (13) 972 937
FINANCIAL DEBT (14) 6,331 6,076
DEFERRED TAXES (6) 37 55
Customers' deposits and advances (15) 3,541 3,085
Trade payables 4,629 4,132
Accrued contract costs, other payables and
accrued expenses 4,746 4,956
------------ ------------
CURRENT LIABILITIES 12,916 12,173
============ ============
TOTAL LIABILITIES 24,807 23,018
============ ============
Commitments and contingencies (17)&(18)
The accompanying Notes are an integral part of these
Interim Consolidated Financial Statements.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
HALF YEAR
YEAR ENDED ENDED
31 MARCH 30 SEPTEMBER
2003 2003
------------ ------------
(IN € MILLION)
NET INCOME (LOSS) (1,432) (624)
Minority interests 15 2
Depreciation and amortisation 754 337
Changes in provision for pension and retirement
benefits, net 22 47
Net (gain) loss on disposal of fixed assets and
investments (19) (91)
Share in net income (loss) of equity investees (net
of dividends received) (3) -
Changes in deferred tax (424) (77)
NET INCOME AFTER ELIMINATION OF NON CASH ITEMS (1,087) (406)
Decrease (increase) in inventories and contracts in
progress, net 415 319
Decrease (increase) in trade and other receivables,
net 650 (355)
Increase (decrease) in sale of trade receivables, net (661) (144)
Increase (decrease) in contract related provisions, 160 (262)
Increase (decrease) in other provisions, (49) 33
Increase (decrease) in restructuring provisions, (29) 137
Increase (decrease) in customers' deposits and
advances (98) (221)
Increase (decrease) in trade and other payables,
accrued contract costs and accrued expenses 162 168
CHANGES IN NET WORKING CAPITAL(2) 550 (325)
------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (537) (731)
------------ ------------
Proceeds from disposals of property, plant and
equipment 252 166
Capital expenditures (410) (105)
Decrease(increase) in other fixed assets, net (55) 145
Cash expenditures for acquisition of investments, net
of net cash acquired (166) (3)
Cash proceeds from sale of investments, net of net
cash sold 38 772
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (341) 975
------------ ------------
Capital increase 622 -
Dividends paid including minorities (1) (2)
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 621 (2)
------------ ------------
Net effect of exchange rate (41) 15
Other changes(3) (464) (3)
------------ ------------
DECREASE (INCREASE) IN NET DEBT (762) 254
------------ ------------
NET DEBT AT THE BEGINNING OF THE PERIOD(1) (3,799) (4,561)
------------ ------------
NET DEBT AT THE END OF THE PERIOD(1) (4,561) (4,307)
============ ============
Cash paid for income taxes 70 50
Cash paid for net interest 172 129
-----------------------------------
(1) Net debt includes short-term investments, cash and cash equivalents net of
financial debt.
(2) See Note 11
(3) Included in year ended 31 March 2003 is the reclassification of redeemable
preference shares of a subsidiary and undated subordinated notes totalling
€455 million.
The accompanying Notes are an integral part of these
Interim Consolidated Financial Statements.
INTERIM CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
NUMBER OF ADDITIONAL CUMULATED
OUTSTANDING PAID-IN RETAINED TRANSLATION SHAREHOLDERS'
SHARES CAPITAL CAPITAL EARNINGS ADJUSTMENT EQUITY
--------------------------------------------------------------------------------
(IN € MILLION)
AT 1 APRIL 2002 215,387,459 1,292 85 516 (141) 1,752
Capital increase 66,273,064 398 224 - - 622
Changes in cumulative
translation adjustments - - - - (184) (184)
Net income - - - (1,432) - (1,432)
AT 31 MARCH 2003 281,660,523 1,690 309 (916) (325) 758
================================================================================
Capital decrease - (1,338) (309) 1,647 - -
Changes in cumulative
translation adjustments - - - - 49 49
Net income - - - (624) - (624)
AT 30 SEPTEMBER 2003 281,660,523 352 - 107 (276) 183
================================================================================
In July 2002, an issue of shares was made and 66,273,064 shares having a par
value of €6 were subscribed. Related costs net of tax of €15 million were
charged against additional paid-in of €239 million.
At 31 March 2003, the issued paid-up share capital of the parent company,
ALSTOM, amounted to €1,689,963,138 and was divided into 281,660,523 shares
having a par value of €6.
At the Ordinary General Shareholders' Meeting held on 2 July 2003, it was
decided that no dividend be paid.
The ALSTOM shareholders' equity at 31 march 2003 constituted less than 50% of
its share capital. Therefore, in accordance with article L. 225-248 of the
French Code de commerce, the shareholders were requested, at the General
Shareholders' Meeting held on 2 July 2003, to decide not to liquidate the
company by anticipation. Further, it was decided at such General Shareholders'
Meeting, to reduce ALSTOM's share capital, due to losses, from €1,689,963,138 to
€352,075,653.75. This reduction in the share capital was implemented through the
reduction in the nominal value of ALSTOM ordinary share from €6 per share to
€1.25 per share.
At 30 September 2003, the share capital amounted to €352,075,653.75 consisting
of 281,660,523 shares with a nominal value of €1.25 per share. All of the shares
are fully paid up.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS AND BASIS OF PREPARATION
(A) DESCRIPTION OF BUSINESS
ALSTOM (the Group) is a provider of energy and transport infrastructure. The
energy market is served through activities in the fields of power generation and
power transmission and distribution, power conversion, and the transport market
through rail and marine activities. A range of components, systems and services
is offered by the Group covering design, manufacture, commissioning, long-term
maintenance, system integration, management of turnkey projects and applications
of advanced technologies. The Group's business is not materially affected by
seasonality.
(B) BASIS OF PREPARATION
The interim consolidated financial statements for the six months ended 30
September 2003 have been prepared on the basis of the accounting policies and
methods of computation as set out in Note 2.
The Group in preparing its interim consolidated financial statements has assumed
the successful implementation of the financing package set out in Note 19.
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES
The Consolidated Financial Statements of the Group are prepared in accordance
with French Generally Accepted Accounting Principles and Règlements 99-02 &
00-06 of the Comité de Règlementation Comptable (French consolidation
methodology). Benchmark treatments are generally used. Capital lease
arrangements and long term rentals are not capitalised. If capital leases had
been capitalised, the impact would have been an increase of property plant and
equipment net of €212 million and €244 million, an increase of financial debt of
€216 million and €246 million and a decrease of shareholder's equity of €4
million and €2 million, at 31 March 2003 and 30 September 2003 respectively. If
long term rentals had been consolidated it would have increased long-term lease
receivable and long-term lease payable of €667 million and €655 million at 31
March 2003 and 30 September 2003, respectively (see Note 17).
(A) CONSOLIDATION METHODS
Investments over which the Group has direct or indirect control of more than 50%
of the outstanding voting shares, or over which it exercises effective control,
are fully consolidated. Control exists where the Group has the power, directly
or indirectly, to govern the financial and operating policies of an enterprise
so as to obtain benefits from its activities.
Joint ventures in companies in which the Group has joint control are
consolidated by the proportionate method with the Group's share of the joint
ventures' results, assets and liabilities recorded in the Consolidated Financial
Statements.
Investments in which the Group has an equity interest of 20% to 50% and over
which the Group exercises significant influence, but not control, are accounted
for under the equity method.
Results of operations of subsidiaries acquired or disposed of during the year
are recognised in the Consolidated Income Statements as from the date of
acquisition or up to the date of disposal, respectively.
Inter company balances and transactions are eliminated on consolidation.
A list of the Group's major consolidated businesses and investees and the
applicable method of consolidation is provided in Note 21.
(B) USE OF ESTIMATES
The preparation of the Consolidated Financial Statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent gains and liabilities at the date of the financial
statements and the reported amounts of the revenues and expenses during the
reporting period. Management reviews estimates on an ongoing basis using
currently available information. Costs to date are considered, as are estimated
costs to complete and estimated future costs of warranty obligations. Estimates
of future cost reflect management's current best estimate of the probable
outflow of financial resources that will be required to settle contractual
obligations. The assumptions to calculate present obligations take into account
current technology as well as the commercial and contractual positions, assessed
on a contract by contract basis.
The introduction of technologically advanced products exposes the Group to risks
of product failure significantly beyond the terms of standard contractual
warranties applying to suppliers of equipment only. Changes in facts and
circumstances may result in actual financial consequences different from the
estimates.
(C) REVENUE AND COST RECOGNITION
Revenue on contracts which are of less than one year duration, substantially the
sale of manufactured products, is recognised upon transfer of title, including
the risks and rewards of ownership, which generally occurs on delivery to the
customer.
Revenue on construction type contracts of more than one year, long term
contracts, is recognised on the percentage of completion method, measured either
by segmented portions of the contract "contract milestones" or costs incurred to
date compared to estimated total costs.
Claims are recognised as revenue when it is probable that the claim will result
in additional revenue and the amount can be reasonably estimated, which
generally occurs upon agreement by the customer. Government subsidies relating
to the shipbuilding sector are added to the related contract value and are
recognised as revenue using the percentage of completion method.
For long term service contracts, revenues are generally recognised on a straight
line basis over the term of the contract.
Total estimated costs at completion include direct (such as material and labour)
and indirect contract costs incurred to date as well as estimated similar costs
to complete, including warranty accruals and costs to settle claims or disputes
that are considered probable. Selling and administrative expenses are charged to
expense as incurred. As a result of contract review, accruals for losses on
contracts and other contract related provisions are recorded as soon as they are
probable in the line item "Cost of sales" in the Consolidated Income Statement.
Adjustments to contract estimates resulting from job conditions and performance,
as well as changes in estimated profitability, are recognised in "Cost of Sales"
as soon as they occur.
Cost of sales is computed on the basis of percentage of completion applied to
total estimated costs. The excess of that amount over the cost of sales reported
in prior periods is the cost of revenues for the period. Contract completion
accruals are recorded for future expenses to be incurred in connection with the
completion of contracts or of identifiable portions of contracts. Warranty
provisions are estimated on the basis of contractual agreement and available
statistical data.
(D) TRANSLATION OF FINANCIAL STATEMENTS DENOMINATED IN FOREIGN CURRENCIES
The functional currency of the Group's foreign subsidiaries is the applicable
local currency. Assets and liabilities of foreign subsidiaries located outside
the Euro zone are translated into euros at the period end rate of exchange, and
their income statements and cash flow statements are converted at the average
rate of exchange for the period. The resulting translation adjustment is
included as a component of shareholders' equity.
(E) FOREIGN CURRENCY TRANSACTIONS
Foreign currency transactions are translated into local currency at the rate of
exchange applicable to the transaction (market rate or forward hedge rate). At
period end, foreign currency assets and liabilities to be settled are translated
into local currency at the rate of exchange prevailing at that date or the
forward hedge rate. Resulting exchange rate differences are included in the
Consolidated Income Statement.
(F) FINANCIAL INSTRUMENTS
The Group operates internationally giving rise to exposure to market risks and
changes in interest rates and foreign exchange rates. Financial instruments are
utilised by the Group to reduce those risks. The Group's policy is to hedge
currency exposures by holding or issuing financial instruments.
The Group enters into various interest rate swaps, forward rate agreements
("FRA") and floors to manage its interest rate exposures. Net interest is
accrued as either interest receivable or payable with the offset recorded in
financial interest.
The Group enters into forward foreign exchange contracts to hedge foreign
currency transactions. Realised and unrealised gains and losses on these
instruments are deferred and recorded in the carrying amount of the related
hedged asset, liability or firm commitment.
The Group also uses export insurance contracts to hedge its currency exposure on
certain long-term contracts during the open bid time as well as when the
commercial contract is signed. If the Group is not successful in signing the
contract, the Group incurs no additional liability towards the insurance company
except the prepaid premium. As a consequence, during the open bid period, these
insurance contracts are accounted for as such, the premium being expensed when
incurred. When the contract is signed, the insurance contract is accounted for
as described above for forward foreign exchange contracts.
In addition, the Group may enter into derivatives in order to optimise the use
of some of its existing assets. Such a decision is taken on a case by case basis
and is subject to approval by the management.
(G) GOODWILL
Goodwill represents the excess of the purchase price over the fair value of the
assets and liabilities acquired in a business combination. Initial estimates of
fair values are finalised at the end of the financial year following the year of
acquisition. Thereafter, releases of unrequired provisions for risks and charges
resulting from the purchase price allocation are applied to goodwill. Goodwill
is amortised on the straight-line basis over a period of twenty years in all
sectors due to the long-term nature of the contracts and activities involved.
(H) OTHER INTANGIBLE ASSETS
The Group recognises other intangible assets such as technology, licensing
agreements, installed bases of customers, etc. These acquired intangible assets
are amortised on the straight-line basis over a period of twenty years in all
sectors due to the long-term nature of the contracts and activities involved.
(I) IMPAIRMENT
At the balance sheet date, whenever events or changes in markets indicate a
potential impairment to goodwill, other intangible assets, property, plant and
equipment and deferred tax assets, the carrying amount of such assets is reduced
to their estimated recoverable value. Impairment tests are performed annually.
(J) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at historical cost to the Group.
Depreciation is computed using the straight-line method over the following
estimated useful lives:
Estimated useful
life
in years
------------------
Buildings 25
Machinery and equipment 10
Tools, furniture, fixtures and others 3-7
Assets financed through capital lease are not capitalised (see Note 17 (b)).
(K) OTHER INVESTMENTS
Other investments are recorded at the lower of historical cost or net realisable
value, assessed on an individual investment basis. The net realisable value is
calculated using the following parameters: equity value, profitability and
expected cash flow from the investment.
(L) OTHER FIXED ASSETS
Other fixed assets are recorded at the lower of historical cost or net
realisable value, assessed on an individual investment basis.
(M) INVENTORIES AND CONTRACTS IN PROGRESS
Raw materials and supplies, work and contracts in progress, and finished
products are stated at the lower of cost, using the weighted average cost
method, or net realisable value. Net realisable value is the estimated selling
price in the ordinary course of business, less the estimated costs of completion
and selling expenses. Inventory cost includes costs of acquiring inventories and
bringing them to their existing location and condition. Finished goods and work
and contract in progress inventory includes an allocation of applicable
manufacturing overheads.
(N) SHORT-TERM INVESTMENTS
Short-term investments include debt and equity securities and deposits with an
initial maturity greater than three months but available for sale. Short-term
investments are recorded at the lower of cost or market value, on a line by line
basis.
(O) CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and highly liquid investments with an
initial maturity of less than three months.
(P) DEFERRED TAXATION
Deferred taxes are calculated for each taxable entity for temporary differences
arising between the tax value and book value of assets and liabilities. Deferred
tax assets and liabilities are recognised where timing differences are expected
to reverse in future years. Deferred tax assets are recorded up to their
expected recoverable amount. Deferred tax amounts are adjusted for changes in
the applicable tax rate upon enactment.
Deferred tax assets and liabilities are netted first by legal entity and then by
tax grouping.
No provision is made for income taxes on accumulated earnings of consolidated
businesses or equity method investees for whom no distribution is planned.
(Q) CUSTOMER DEPOSITS AND ADVANCES
Customer deposits and advances are shown net, and represent amounts received
from customers in advance of work being undertaken on their behalf. Where
trading has taken place under the long term contract trading rules, but
provisional acceptance of the contract has not taken place, the related customer
advance is shown as a deduction from the related receivables.
If any balance of customer deposits and advances is still outstanding and where
work is undertaken on behalf of customers before sale, the related customer
advance, termed a progress payment is deducted from Inventories and Contracts in
Progress on a contract by contract basis.
(R) PROVISIONS FOR RISKS AND CHARGES
A provision is recognised when the Group has a present legal or constructive
obligation of uncertain timing or amount as a result of a past event and it is
probable that an outflow of economic resources will be required to settle the
obligation and such outflow can be reliably estimated.
Provisions for warranties are recognised based on contract terms. Warranty
periods may extend up to five years. The provisions are based on historical
warranty data and a weighting of all possible outcomes against their associated
probabilities. Provisions for contract losses are recorded at the point where
the loss is first determined. Provisions are recorded for all penalties and
claims based on management's assessment of the likely outcome.
(S) STOCK OPTIONS
Stock options are not recorded by the Group at the date of grant. However, upon
exercise of stock options, the Group records the issuance of the common shares
as an equity transaction based on the amount of cash received from the holders.
(T) RESEARCH AND DEVELOPMENT
Internally generated research and development costs are expensed as incurred.
(U) EMPLOYEE BENEFITS
The estimated cost of providing benefits to employees is accrued during the
years in which the employees render services.
For single employer defined benefit plans, the fair value of plan assets is
assessed annually and actuarial assumptions are used to determine cost and
benefit obligations. Liabilities and prepaid expenses are accrued over the
estimated term of service of employees using actuarial methods. Experience gains
and losses, as well as changes in actuarial assumptions and plan assets and
provisions are amortised over the average future service period of employees.
For defined contribution plans and multi-employer pension plans, expenses are
recorded as incurred.
(V) RESTRUCTURING
Restructuring costs are accrued when management announces the reduction or
closure of facilities, or a program to reduce the workforce and when related
costs are precisely determined. Such costs include employees' severance and
termination benefits, estimated facility closing costs and write-off of assets.
(W) FINANCIAL INCOME (EXPENSE)
Financial income (expense) is principally comprised of interest payable on
borrowings, interest receivable on funds invested, foreign exchange gains and
losses, and gains and losses on hedging instruments that are recognised in the
income statement.
Interest income is recognised in the income statement as it accrues, taking into
account the effective yield on the asset. Dividend income is recognised in the
income statement on the date that the dividend is declared.
All interest and other costs incurred in connection with borrowings are expensed
as incurred as part of net financing costs.
(X) EARNINGS PER SHARE
Basic Earnings per share are computed by dividing the period net income (loss)
by the weighted average number of outstanding shares during the financial year.
Diluted earnings per share are computed by dividing the period net income (loss)
by the weighted average number of shares outstanding plus the effect of any
dilutive instruments.
For the diluted earnings per share calculation, Net income (loss) is not
adjusted as the Group has no interest bearing dilutive instruments.
(Y) EXCHANGE RATES USED FOR THE TRANSLATION OF MAIN CURRENCIES
--------------------------------------------------------------------------------------------------
At 30 September 2002 At 31 March 2003 At 30 September 2003
-------------------- -------------------- --------------------
€ for 1 monetary unit Average Closing Average Closing Average Closing
British pound 1.579384 1.588562 1.549571 1.450116 1.427823 1.431434
Swiss franc 0.683094 0.684416 0.682536 0.677323 0.650886 0.649182
US dollar 1.038550 1.014199 0.997990 0.917852 0.879388 0.858222
Canadian dollar 0.668892 0.642426 0.646284 0.623558 0.634476 0.636254
Australian dollar 0.573345 0.552456 0.563472 0.553220 0.573704 0.584761
--------------------------------------------------------------------------------------------------
NOTE 3 - CHANGES IN CONSOLIDATED COMPANIES
(1) DISPOSAL OF INDUSTRIAL TURBINE BUSINESSES
In April 2003, the Group signed binding agreements to sell its small gas
turbines business and medium-sized gas turbines and industrial steam turbines
businesses in two transactions.
The first transaction covers the small gas turbines business, and the second
transaction covers medium-sized gas turbines and industrial steam turbines
businesses.
On 30 April 2003, the closing of the sale of the small gas turbines business was
announced. On 1 August 2003 completion of the major part of the disposal of the
medium gas turbines and industrial steam turbines businesses was announced
following approval from both the European Commission and US merger control
authorities.
Total proceeds are €967 million (subject to closing price adjustments) of which
€125 million is held in escrow.
These businesses have been de-consolidated at the respective dates of each
transaction.
(2) DISPOSAL OF TRANSMISSION & DISTRIBUTION SECTOR (EXCLUDING THE POWER
CONVERSION BUSINESS)
On 25 September 2003, the Group concluded an agreement to sell its Transmission
& Distribution sector excluding the power conversion business to Areva with
closing expected in early January 2004. The sold businesses will be
deconsolidated from this date. Proceeds are €950 million, subject to closing
price adjustments.
NOTE 4 - OTHER INCOME (EXPENSE), NET
HALF-YEAR ENDED
30 SEPTEMBER YEAR ENDED
--------------- 31 MARCH
2002 2003 2003
------ ------ ----------
(IN € MILLION)
Net gain (loss) on disposal of fixed assets(1) (1) 14 29
Net gain (loss) on disposal of investments(2) (9) 35 (35)
Restructuring costs (3) (80) (276) (268)
Employees' profit sharing (8) (9) (18)
Pension costs (4) (97) (138) (214)
Others, net 7 (23) (49)
------ ------ ----------
OTHER INCOME (EXPENSE), NET (188) (397) (555)
====== ====== ==========
----------------
(1) In the half-year ended 30 September 2003 and in the year ended 31 march
2003 it mainly corresponds to the net gain on the disposal of real state
portfolio in Western Europe.
(2) In the year ended 31 March 2003, it mainly corresponds to the net losses on
the disposal of South Africa operations and Alstom Power Insurance Ltd. In
the Half Year ended 30 September 2003 it corresponds to the net gain on the
disposal of the Industrial Turbine businesses (See Note 3). The Group has
disposed of its Industrial Turbines businesses in a two part transaction
with effect from, respectively, 30 April 2003 and 31 July 2003. As a
result, the consolidation packages prepared for each unit disposed of for
the last month of activity prior to sale were prepared under the control of
the acquirer. The Group made certain adjustments to the consolidation
packages received to ensure conformity with Group accounting principles and
judgements, consistently applied. These adjustments resulted in no impact
on Earnings Before Interest and Taxation on or Net income, but did result
in a reclassification reducing the gain on disposal included within other
income (expense), net and increasing operating income by €67 million. The
quantum of this reclassification remains subject to subsequent
confirmation. However, the Group considers the amount of €67 million to be
a best estimate of the adjustment required.
(3) See Note 12 "Provisions for risks and charges"
(4) See Note 13 "Accrued pension and retirement obligations"
NOTE 5 - FINANCIAL INCOME (EXPENSE)
HALF-YEAR ENDED
30 SEPTEMBER YEAR ENDED
----------------------- 31 MARCH
2002 2003 2003
-------- -------- ----------
(IN € MILLION)
NET INTEREST INCOME (EXPENSE) (84) (136) (182)
Securitisation expenses (56) (16) (82)
Foreign currency gain (loss) (1) 35 (20) 55
Other financial income (expense) (2) (23) (48) (61)
-------- -------- -----------
FINANCIAL INCOME (EXPENSE) (128) (220) (270)
======== ======== ===========
-------------
(1) The Foreign currency gain in the half-year ended 30 September 2002 and in
the year ended 31 March 2003 mainly results from the unwinding of forward
sale contracts of US dollars against Euros following reassessment of the
financing structure in USA.
(2) Other financial income (expenses), net included fees paid on guarantees,
syndicated loans and other financing facilities of €18 million and €57
million for the half-year ended 30 September 2002 and 30 September 2003
respectively and €41 million for the year ended 31 March 2003.
NOTE 6 - INCOME TAX
(A) ANALYSIS OF INCOME TAX CHARGE
HALF-YEAR ENDED
30 SEPTEMBER YEAR ENDED
----------------------- 31 MARCH
2002 2003 2003
-------- -------- ----------
(IN € MILLION)
Current income tax (charge) (51) (48) (153)
Deferred tax income (charge) 15 77 416
-------- -------- ----------
INCOME TAX CHARGE (36) 29 263
======== ======== ==========
EFFECTIVE TAX RATE 18.4% 5.6% 18.8%
======== ======== ==========
(B) EFFECTIVE INCOME TAX RATE
The effective income tax rate can be analysed as follows:
HALF-YEAR ENDED
30 SEPTEMBER 2003
------------------
PRE-TAX INCOME (LOSS) (516)
Statutory income tax rate of the parent company 35.43%
------------------
EXPECTED TAX CREDIT (CHARGE) 183
------------------
Impact of:
- disposals (78)
- (non recognition) recognition of tax loss carryforwards (59)
- net change in estimate of tax liabilities 5
- intangible assets amortisation (10)
- other permanent differences (11)
- non recoverable withholding taxes, etc (9)
- differences in rates 8
------------------
INCOME TAX CREDIT (CHARGE) 29
------------------
EFFECTIVE TAX RATE 5.6%
------------------
(C) DEFERRED TAX ASSETS, NET
AT 31 MARCH AT 30 SEPTEMBER
2003 2003
---------------- ----------------
(IN € million)
Tax loss carryforwards, net of valuation
allowance 1,390 1,223
Provisions and other expenses not
currently deductible 535 497
Others 665 791
---------------- ----------------
GROSS DEFERRED TAX ASSETS 2,590 2,511
---------------- ----------------
NETTING BY TAX GROUPING OR BY LEGAL
ENTITY (759) (627)
---------------- ----------------
DEFERRED TAX ASSETS AFTER NETTING 1,831 1,884
---------------- ----------------
DEFERRED TAX LIABILITIES AFTER NETTING (37) (55)
---------------- ----------------
DEFERRED TAX ASSETS, NET 1,794 1,829
================ ================
On the basis of the Group's business plan, the Group has the capacity to
generate sufficient levels of taxable profit in the coming years to recover its
net tax loss carry forward in general within five years.
NOTE 7 - GOODWILL, NET
TRANSLATION
AT ADJUSTMENTS AT
31 MARCH ACQUISITIONS/ AND OTHER 30 SEPTEMBER
2003(2) DISPOSALS AMORTISATION CHANGES 2003
-------- ------------ ------------ ----------- ------------
(IN € MILLION)
Power Environment 755 - (22) - 733
Power Turbo-Systems 115 - (4) - 111
Power Service(1) 2,166 (47) (64) - 2,055
Power Industrial Turbines(1) 329 (324) (5) - -
Transmission & Distribution 515 - (22) (1) 492
Transport 558 - (18) (2) 538
Marine 2 - - - 2
------- ------------ ------------ ----------- ------------
GOODWILL , NET 4,440 (371) (135) (3) 3,931
======= ============ ============ =========== ============
------------------
(1) On 28 April 2003, the Group announced the completion of the disposal of its
small gas turbine business and on 1 August 2003, the completion of the
disposal of the medium gas turbines and industrial steam turbines business
was announced, both to Siemens. The related Service activities were sold in
the same transactions. The result of these transactions is a decrease of
Goodwill of €371 million (see Note 3).
(2) From 1 April 2003, the former Power Sector was reorganised into three new
sectors, Power Turbo-Systems, Power Service and Power Environment (See Note
16). Consequently, the Goodwill, net allocated to the former Sector is now
presented to reflect the current reporting structure.
At 31 March 2003, the Group requested a third party valuer to provide an
independent report as part of its impairment test, performed annually, on
goodwill and other intangible assets. This valuation focused primarily but not
exclusively on the two Sectors which account for the majority of the Group's
goodwill and other intangibles.
The valuation in use was determined primarily by focusing on the discounted cash
flow methodology which captured the potential of the net asset base to generate
future profits and cash flow and was based on the following factors:
- The Group's internal three year Business Plan prepared as part of its
annual budget exercise,
- Extrapolation of the three year Business Plan over 10 years,
- Terminal value at the end of the ten year period representing approximately
55% of total enterprise value.
- The Group's Weighted Average Cost of Capital, post-tax, of 10.5% to 11.5%.
The valuation supported the Group's opinion that its goodwill and other
intangible assets were not impaired on a reporting unit basis.
The review made during the summer of the business plan has not caused the Group
to conclude that triggering events have occurred that would lead to impairment
testing at 30 September 2003.
A similar independent third party valuation will be requested at 31 March 2004.
NOTE 8 - OTHER INTANGIBLE ASSETS, NET
TRANSLATION
AT ADJUSTMENTS AT
31 MARCH ACQUISITIONS/ AND OTHER 30 SEPTEMBER
2003 AMORTISATION DISPOSALS CHANGES 2003
-------- ------------ ------------ ----------- ------------
(IN € MILLION)
Gross value 1,354 - (193) - 1,161
Amortisation (186) (31) 30 - (187)
-------- ------------ ------------ ----------- ------------
OTHER INTANGIBLE ASSETS, NET 1,168 (31) (163) - 974
======== ============ ============ =========== ============
------------------
Other intangible assets mainly result from the allocation of the purchase price
following the acquisition of ABB's 50% shareholding in Power. It includes
technology, an installed base of customers and licensing agreements.
The decrease of €163 million results from the disposal of the small and medium
gas turbine business and the industrial steam turbine business (see Note 3).
NOTE 9 - OTHER FIXED ASSETS, NET
AT 31 MARCH AT 30 SEPTEMBER
2003 2003
---------------- ----------------
(IN € MILLION)
Long term loans, deposits and retentions(1) 814 796
Prepaid assets - pensions (see Note 13) 397 363
Others 83 80
---------------- ----------------
OTHER FIXED ASSETS, NET 1,294 1,239
================ ================
------------------
(1) Include loans and cash deposits in respect of Marine vendor financing for
total amounts of €510 and €326 million at 31 March 2003 and 30 September
2003 respectively (see Note 17 (a)(2)). At 30 September 2003, it also
includes €125 million held in escrow following the disposal of the small
and medium gas turbine businesses and the industrial steam turbines
business.
NOTE 10 - SALE OF TRADE RECEIVABLES
The following table shows net proceeds from sale of trade receivables:
AT 31 MARCH AT 30 SEPTEMBER
2003 2003
---------------- ----------------
(IN € MILLION)
Trade receivables sold 357 212
Retained interests - -
---------------- ----------------
NET CASH PROCEEDS FROM SECURITISATION OF
TRADE RECEIVABLES 357 212
================ ================
The Group sold, irrevocably and without recourse, trade receivables to third
parties. The Group generally continues to service, administer, and collect the
receivables on behalf of the purchasers.
NOTE 11 - CHANGES IN NET WORKING CAPITAL
CHANGES
AT IN SCOPE AT
31 MARCH CASH TRANSLATION AND 30 SEPTEMBER
2003 FLOW ADJUSTMENTS OTHERS 2003
-------- -------- ----------- -------- ------------
(IN € MILLION)
Inventories and contract in
progress, net 4,608 (319) (83) (462) 3,744
Trade and other receivables, net (1) 7,477 355 (75) (258) 7,499
Sale of trade receivables, net (357) 144 1 - (212)
Contract related provisions (3,264) 262 84 24 (2,894)
Other provisions (296) (33) (1) (12) (342)
Restructuring provisions (138) (137) 1 12 (262)
Customers' deposits and advances (3,541) 221 54 181 (3,085)
Trade and other payables (9,375) (168) 134 321 (9,088)
-------- -------- ----------- -------- ------------
NET WORKING CAPITAL (4,886) 325 115 (194) (4,640)
======== ======== =========== ======== ============
(1) Before impact of net proceeds from sale of trade receivables
NOTE 12 - PROVISIONS FOR RISKS AND CHARGES
AT 31 TRANSLATION AT
MARCH ADJUSTMENTS 30 SEPTEMBER
2003 ADDITIONS RELEASES APPLIED AND OTHER 2003
------- --------- -------- ------- ----------- ------------
(IN € MILLION)
Warranties 815 230 (66) (155) (26) 798
Penalties and claims 1,766 139 (45) (268) (96) 1,496
Contract loss 412 140 (19) (239) 23 317
Other risks on contracts 271 92 (37) (34) (7) 285
PROVISIONS ON CONTRACTS 3,264 601 (167) (696) (106) 2,896
RESTRUCTURING 138 280 (4) (139) (13) 262
OTHER PROVISIONS 296 48 (2) (13) 13 342
------- --------- -------- ------- ----------- ------------
TOTAL 3,698 929 (173) (848) (106) 3,500
======= ========= ======== ======= =========== ============
PROVISIONS ON CONTRACTS
GT24/GT26 HEAVY-DUTY GAS TURBINES
During the six-month period, the Group utilised provisions and accrued contract
costs of €433 million and now retains, after exchange rate effects, €1,193
million as provisions and accrued contract costs in respect of these turbines.
These amounts do not include €336 million of exposure for which the Group
considers the risks mitigated by appropriate action plans.
UK TRAINS
At 30 September 2003, provisions and accrued contract cost of €64 million are
retained in respect of UK train equipment supply contracts.
Actual costs incurred may exceed the amounts of provisions and accrued contract
costs retained at 30 September 2003 as, among other items, the outcome of claims
made by or against the Group are at such an early stage that no meaningful
assessment of amounts which may become due to or by the Group is possible. On
one of the UK contracts, the West Coast Main Line, any settlement will require
the approval of the Strategic Rail Authority.
ALSTOM TRANSPORTATION INC.
During the first half year ended 30 September 2003 and after the General Meeting
held on 2 July 2003, the Group identified and recognised additional provisions
for contract losses following the re-estimation of costs to complete on several
contracts in Alstom Transportation Inc. The additional provisions concern two
North East Corridor (NEC) line contracts together with receivables write-down
and accrued contract costs and other payables.
NEC CONTRACTS
On the two NEC contracts, new build and maintenance, all parties agreed to enter
a mediation phase starting June 2003. This mediation initially scheduled to end
in late September 2003 has failed and the outcome of the litigation is difficult
to predict at this stage. Major uncertainties remain on those contracts.
RESTRUCTURING EXPENDITURES AND PROVISIONS
During the year ended 31 March 2003, restructuring expenditure amounted to €297
million. New plans were adopted during the period in Power, Transmission &
Distribution and Transport, for which provisions have been recorded.
During the six-month period ended 30 September 2003, restructuring expenditure
amounted to €139 million. New plans were adopted and provisions were retained in
all Sectors excluding Marine.
OTHER PROVISIONS
Other provisions include €140 million at March 2003 and September 2003 to
cover Marine vendor financing exposure.
NOTE 13 - ACCRUED PENSION AND RETIREMENT OBLIGATIONS
The Group provides various types of retirement, termination benefits and post
retirement benefits (including healthcare and medical cost) to its employees.
The type of benefits offered to an individual employee is related to local legal
requirements as well as the historical operating practices of the specific
subsidiaries and involves the Group in the operation of or participation in
various retirement plans.
These plans are either defined contributions or defined benefits.
For the defined contributions plans, the level of Group contribution to
independent administered funds is fixed at a set percentage of employees' pay.
The pension costs charged in the Profit and Loss account represent contributions
payable by the Group to the funds.
For the defined benefits plans, which the Group operates, benefits are based on
employee pensionable remuneration and length of service. These are either
externally funded or unfunded, with provisions maintained in the Group balance
sheet. All are subject to regular actuarial review. Actuarial valuations are
carried out by external actuaries employed by the Group using the projected unit
method. The actuarial assumptions used to calculate the benefit obligation vary
according to the country in which the plan is situated.
Most defined-benefit pension liabilities are funded through separate pension
funds. Pension plan assets related to funded plans are invested mainly in equity
and debt securities.
Other supplemental defined-benefit pension plans sponsored by the Group for
certain employees are funded from the Group's assets as they become due.
The Group reviews annually plan assets and obligations. Differences between
actual and expected returns on assets together with the effects of any changes
in actuarial assumptions are assessed. If this difference exceeds 10% of the
greater of the projected benefit obligations or the market value of plan assets,
the resulting unrecognised gains/losses are amortised over the average remaining
service life of active employees.
The Group also provides post-retirement benefits (mainly post-retirement medical
benefits plans) to a number of retired employees in certain countries
principally in the United-States under plans which are predominantly unfunded.
The balance sheet position of these liabilities and assets, which are
predominantly long term, are presented below:
AT 31 MARCH AT 30 SEPTEMBER
2003 2003
---------------- ----------------
(IN € MILLION)
Accrued pension and retirement benefits (972) (937)
Prepaid assets - pensions (see note 9) 397 363
---------------- ----------------
NET (ACCRUED) PREPAID BENEFIT COST (575) (574)
================ ================
The components of the pension cost are the following:
HALF-YEAR ENDED
30 SEPTEMBER YEAR ENDED
----------------------- 31 MARCH
2002 2003 2003
-------- -------- ----------
(IN € MILLION)
Service cost 56 51 109
Expected interest cost 106 100 211
Expected return on plan assets (96) (74) (193)
Amortisation of unrecognised prior
service cost - - 2
Amortisation of actuarial net loss
(gain) 13 32 17
Curtailments / Settlements - (32) 9
TOTAL DEFINED BENEFITS NET PERIODIC
PENSION COST 79 77 155
Other defined contributions and
multi-employer 18 29 59
Curtailments/Settlements effects
included in Net gain on disposal of
investments (see Note 4) (1) - 32 -
-------- -------- ----------
PENSION COST 97 138 214
======== ======== ==========
(1) Disposal of small and medium gas turbines and industrial steam turbines
businesses.
NOTE 14 - FINANCIAL DEBT
(A) ANALYSIS BY NATURE
AT 31 MARCH AT 30 SEPTEMBER
2003 2003
---------------- ----------------
(IN € MILLION)
Redeemable preference shares (1) 205 205
Subordinated notes (2) 250 250
Bonds (3) 1,200 1,200
Syndicated loans (4) 2,627 2,498
Bilateral loans 358 358
Bank overdraft and other facilities 266 265
Commercial paper (5) 83 720
Accrued interest 50 58
---------------- ----------------
TOTAL 5,039 5,554
================ ================
Future receivables securitised, net (6) 1,292 522
---------------- ----------------
FINANCIAL DEBT (7) 6,331 6,076
================ ================
Long-term 3,647 2,390
Short-term 2,684 3,686
------------------
(1) On 30 March 2001, a wholly owned subsidiary of ALSTOM Holdings issued
perpetual, cumulative, non voting, preference shares for a total amount of
€205 million. The preference shares have no voting rights. They were not
redeemable, except at the exclusive option of the issuer, in whole but not
in part, on or after the 5th anniversary of the issue date or at any time
in case of certain limited specific pre identified events. Included in
those events, are changes in tax laws and the issuance of new share
capital. In July 2002 an issue of shares was made triggering the
contractual redemption of the preferred shares at 31 March 2006 at a price
equal to par value together with dividends accrued, but not yet paid.
(2) The Group issued, on September 2000, €250 million Auction Rate Coupon
Undated Subordinated Notes. In March 2003, the terms of redemption were
amended and the notes are redeemable in September 2006. They retain their
subordinated nature and rank "pari passu" with holders of other
subordinated indebtedness. Interest is payable quarterly, at variable rates
based on EURIBOR.
(3) On July 26, 1999, the Group issued bonds for a principal amount of €650
million with a 7 year maturity, listed on the Paris and Luxembourg Stock
Exchanges, bearing a 5% coupon and to be redeemed at par on 26 July 2006.
On February 6, 2001, the Group issued bonds for a principal amount of €550
million with a 3 year maturity, listed on the Luxembourg Stock Exchange,
bearing a 5.625% coupon and to be redeemed at par on 6 February 2004.
(4) Syndicated loans
- FINANCIAL COVENANTS APPLICABLE AT 31 MARCH 2003
In March 2003 an agreement was signed with a consortium of banks, "the
lenders", to extend until 21 January 2004 the maturity of a revolving
credit facility of €400 million and two bilateral loans totalling €75
million out of the €358 million of bilateral loans at 31 March 2003 that
were originally scheduled to mature in March and April 2003. A new bridge
facility of €600 million maturing 15 December 2003 was signed under similar
terms and conditions.
Both extended and bridge facilities were subject to compliance with new
financial covenants, which had also replaced former covenants in the two
other existing syndicated revolving credit facilities (totalling at 31
March 2003 €1,250 million maturing in April 2004 and €977 million of which
€255 million maturing in August 2003 and was paid and €722 million will
mature in August 2006).
The credit facilities of €475 million and the €600 million bridge facility
were immediately repayable if the Group failed to meet its financial
covenants in the coming financial year set out below:
- "Total debt" contractually defined as the sum of the gross financial debt
and the net amount of sale of trade receivables (see Note 10) should have
been tested on the last day of each month until maturity and should have
not exceeded at respectively 31 March 2003 and 30 September 2003 amounts of
€7,000 million(1) and €6,800 million. At 31 March 2003, the "total debt"
amounted to €6,688 million.
- "Economic debt" contractually defined as the sum of the net financial debt
and the net amount of sale of trade receivables (see Note 10) should have
been tested on the last day of each month until maturity and should not
have exceed at respectively 31 March 2003 and 30 September 2003 amounts of
€5,300 million, €5,500 million. At 31 March 2003, the "economic
debt" amounted to €4,918 million.
- "Consolidated net worth" contractually defined as the sum of shareholders'
equity and minority interests should not have been lower at respectively 31
March 2003 and 30 September 2003 than €800 million and €500 million. At 31
March 2003, the "consolidated net worth" amounted to €853 million.
Financial covenants mentioned above also applied to the €1,250 million and
€977 million syndicated revolving credit facilities. At 31 March 2004,
"total debt" should not have exceeded €4,800 million, "Economic Debt"
should not have exceeded €3,600 million and "Consolidated Net worth" should
not have been lower than €500 million. Interest cover, the ratio between
EBITDA(2) and consolidated net financial expenses(3), should not have been
lower than 1.8 at 31 March 2004. These financial covenants applied in the
periods up to the last maturity in 2006.
- FINANCIAL COVENANTS APPLICABLE AT 30 SEPTEMBER 2003
As set out in Note 19, the Group reached an agreement with all interested
parties on a new financing package (the "Financing package") which was
announced on 22 September 2003.
The Financing package includes a Subordinated Debt Facility signed on 30
September 2003 with a syndicate of banks and financial institutions for an
amount up to €1,563 million to be made available as described below. This
subordinated debt facility will be subject to new financial covenants
amending the one applicable at 31 March 2003.
In addition, as part of the negotiation of the financing package it was
agreed with all interested parties that the financial covenants described
above applicable to the syndicated and bilateral loans did not apply at 30
September 2003.
------------------
(1) Additional flexibility of €500 million is granted at the two month-ends
following this date.
(2) EBITDA is defined as Earnings Before Interest and Tax plus depreciation and
amortisation as set out in Consolidated Statements of Cash flow less goodwill
amortisation and less capital gain on disposal of investments (see Note 4)
(3) Consolidated net financial expenses are defined as net interest income/
expenses plus securitisation expenses (see Note 5)
- NEW FINANCIAL COVENANTS
The 5 year subordinated debt facility negotiated as part of the financing
package is divided between the term loan "Part A" of €1,200 million and the
revolving credit "Part B" of €263 million, which may be subsequently
increased by up to €100 million. The amount of this increase, if any, shall
be up to the amount by which the guarantee of the signatory banks to that
agreement in connection with the issuance of the ORAs will not be called
into play, and the amount received by such banks resulting from the
exercise of the purchase warrants in connection with the capital increase.
No drawdown may occur under the subordinated debt facility unless, among
other things, certain actions contemplated under the financing package
agreement are completed.
The "Part A" will be available in two advances. The first advance being
used, to the extent of the amounts made available by lenders other than
CFDI, to repay part of the outstanding balance of the €1,250 million
Multicurrency Revolving Credit Agreement and, to the extent of the amounts
made available by CFDI, towards the repayment or prepayment of €300 million
of commercial paper (billets de trésorerie). The second advance of the
"Part A" will not become available earlier than 30 January 2004 and will be
used for the repayment and cancellation of the €550,million bonds in full.
The "Part B" will be available from 20 January 2004 until 29 September
2008.
Under this agreement, upon the occurrence and continuation of events that
qualify as events of default (or early repayment events), the lenders may
cancel all commitments and declare all outstanding amounts to be
immediately due and payable. For example, an event of default will be
triggered if the Group fail to meet certain financial covenants, each as
described below:
MINIMUM MAXIMUM TOTAL
CONSOLIDATED DEBT MAXIMUM
MINIMUM NET WORTH (EXCLUDING NET DEBT MINIMUM
INTEREST (INCLUDING TSDDRA *) LEVERAGE EBITDA
COVER TSDDRA *)
COVENANTS (A) (B) (C) (D) (E)
--------- ---------------- ---------------- ---------- ----------------
(IN € MILLION) (IN € MILLION) (IN € MILLION)
December 2003 5,550
March 2004 1,400 4,750 100
June 2004 4,850
September 2004 1,000 4,800 230
December 2004 4,600
March 2005 1.2 1,100 4,450 8.0
June 2005 4,650
September 2005 1.6 850 4,650 7.5
December 2005 4,600
March 2006 2.5 1,150 4,450 4.0
June 2006 4,400
September 2006 2.5 1,150 4,400 3.6
December 2006 4,400
March 2007 2.5 1,150 4,400 3.6
June 2007 4,400
September 2007 2.5 1,150 4,400 3.6
December 2007 4,400
March 2008 2.5 1,150 4,400 3.6
June 2008 4,400
-----------------------
*TSDDRA, or "titres subordonnés a durée déterminée remboursables en actions"
(a) Ratio of EBITDA (see (e) below) to consolidated net financial expense
(interest expense plus securitisation expenses less interest income)
(b) Sum of shareholders' equity and minority interests (this covenant will
not apply if and for as long as ALSTOM's long term unsecured,
unsubordinated debt is assigned a credit rating of at least Baa3 by
Moody's or BBB- by Standard & Poor's). For purposes of this financial
covenant, consolidated net worth shall include the TSDDRA
(c) Sum of the financial debt and the net amount of sale of trade
receivables (this covenant will not apply if and for as long as
ALSTOM's long term unsecured, unsubordinated debt is assigned a credit
rating of at least Baa3 by Moody's or BBB- by Standard & Poor's).
For purposes of this financial covenant, total debt is to be
calculated excluding the TSDDRA
(d) Ratio of total net debt (total financial debt less short term
investments and cash and cash equivalents) to EBITDA (see (e) below).
For purposes of this financial covenant, total financial debt is
contractually to be calculated excluding the TSDDRA
(e) Earnings Before Interest and Tax plus depreciation and amortisation as
set out in Consolidated Statements of Cash Flow less goodwill
amortisation and less capital gain on disposal of investments
(5) The total authorised commercial paper program is €2,500 million,
availability being subject to market conditions
(6) The Group sold, in several transactions, the right to receive payment from
certain customers for future receivables for a net amount of €1,292 million
and €522 million at 31 March 2003 and 30 September 2003, respectively and
is split as follows between the Marine and Transport Sectors:
- Marine Sector: €581 million and €32 million at 31 March 2003 and 30
September 2003, respectively;
- Transport Sector: €711 million and €490 million at 31 March 2003 and
30 September 2003, respectively.
(7) The financial debt in Euro currency amounts to €6,205 million and €6,038
million at 31 March 2003 and 30 September 2003, respectively.
At 31 March 2003, in addition to drawn down amounts of syndicated loans, the
Group has unused confirmed credit lines of €600 million resulting in a bridge
credit facility which a group of banks executed in march 2003 and maturing 15
December 2003.
At 30 September 2003, out of the €900 million commercial paper facility obtained
from the Caisse des dépôts et Consignations as part of the financing package in
addition to the €300 million formerly obtained, €600 million remain unused.
(B) ANALYSIS BY MATURITY AND INTEREST RATE
SHORT TERM LONG TERM
------------------ --------------------------------------------------------------
AVERAGE RATE
OF INTEREST
WITHIN 1-2 2-3 3-4 4-5 OVER LONG TERM
TOTAL 1 YEAR YEARS YEARS YEARS YEARS 5 YEARS (1)
------------------ --------------------------------------------------------------
(IN € MILLION) (IN € MILLION)
Redeemable
preference shares 205 - - 205 - - - 5.2%
Subordinated Notes 250 - - 250 - - - 14.5%
Bonds 1,200 550 - 650 - - - 4.5%
Syndicated loans 2,498 1,777 - 721 - - - 4.1%
Bilateral loans 358 75 - 50 233 - - 3.1%
Bank overdraft and
other facilities 265 223 16 3 3 3 17 4.3%
Commercial Paper 720 720 - - - - - 4.1%
Accrued
interests 58 58 - - - - - -
------- -------- ------- ------- ------- ------- --------
TOTAL 5,554 3,403 16 1,879 236 3 17 -
======= ======== ======= ======= ======= ======= ========
Future receivables
securitised, net (2) 522 283 235 4 - - - 5.0%
------- -------- ------- ------- ------- ------- --------
FINANCIAL DEBT 6,076 3,686 251 1,883 236 3 17
======= ======== ======= ======= ======= ======= ========
-----------------------
(1) Including the effects of interest rate swaps associated with the underlying
debt.
(2) The reimbursement of which will come from the direct payment of the
customer to the investor to whom the Group sold the right to receive the
payment.
AT 30 SEPTEMBER 2003
-------------------------------
AMOUNT BEFORE AMOUNT AFTER
HEDGING HEDGING(1)
---------------- -------------
(IN € MILLION)
Financial debt at fixed rate 1,320 967
Financial debt at floating rate (2) 4,756 5,109
---------------- -------------
TOTAL 6,076 6,076
================ =============
-----------------------
(1) After taking into accounts €353 million of interest swaps.
(2) Floating rates are based on EURIBOR and LIBOR
NOTE 15 - QUEEN MARY II FINANCING
In the year ended 31 March 2003 the Group's marine subsidiary entered into a
construction finance contract in respect of one ship presently under
construction. Under the terms of this contract finance is made available against
commitments to suppliers and to work in progress. The amounts financed are
secured against the ship involved and the future receivable is collaterised by
way of a guarantee of the prefinancement.
Cash received has firstly been applied against amounts included in trade
receivables then against work in progress and where commitments made have not
yet become work in progress cash is shown as part of customer deposits and
advances.
At 31 March 2003 cash received on this pre-financing was €453 million, of which
€434 million has been applied and the remaining balance of €19 million included
in customer deposits and advances.
At 30 September 2003 cash received on this pre-financing was €462 million fully
applied against the corresponding trade receivables.
NOTE 16 - SECTOR AND GEOGRAPHIC DATA
A) SECTOR DATA
The Group is managed through Sectors of activity and has determined its
reportable segments accordingly.
Starting from 1 April 2003, the Group is organised in six sectors:
The Former Power sector has been reorganised into three new sectors. Starting
from 1st April 2003, the former Gas Turbine and Steam Power Plant segments have
been merged into Power Turbo-systems, the Boiler & Environment and Hydro segment
have been merged into Power Environment, the Customer Service segment has been
renamed Power Service.
• POWER TURBO-SYSTEMS SECTOR
Power Turbo-Systems provides steam turbines, generators and power plant
engineering and construction and mid-range gas turbines.
• POWER ENVIRONMENT SECTOR
Power Environment focus on emissions control equipment in the power generation,
petrochemical and industrial markets; demand for upgrades and modernisation of
existing power plants; hydro power plant refurbishment; small-scale hydro
plants; and large-scale irrigation projects.
• POWER SERVICE SECTOR
Power Service promotes the service activities relating to the Power Turbo
Systems Sector and the Power Environment Sector and services to customers in all
geographic markets. The Segment supplies the following products and services:
- portfolio of services from spare parts and field services to full operation
and maintenance packages;
- refurbishment and modernisation of existing plants;
- technical consultancy services;
- tailor-made services and "value packages" (integrated solutions designed to
achieve improved plant availability and reliability; improved plant
efficiency and capacity; lower production costs and enhanced environmental
compatability); and
- new service product development.
• TRANSMISSION & DISTRIBUTION SECTOR
The Transmission & Distribution Sector offers equipment and customer support for
the transmission and distribution of electrical energy.
From 1 April 2002 Power Conversion has been integrated within the Transmission &
Distribution Sector and provides solutions for manufacturing processes and
supplies high-performance products including motors, generators, propulsion
systems for Marine and drives for a variety of industrial applications.
This sector, excluding Power Conversion, is presently in the process of being
sold.
• TRANSPORT SECTOR
Transport offers equipment, systems, and customer support for rail
transportation including passenger trains, locomotives, signalling equipment,
rail components and service;
• MARINE SECTOR
Marine designs and manufactures cruise and other speciality ships.
The composition of the Sectors may vary slightly from time to time. As part of
any change in the composition of its sectors, Group management may also modify
the manner in which it evaluates and measures profitability.
It evaluates internally their performance on Operating income and Free Cash
Flow.
Some units, not material to the sector presentation, have been transferred
between sectors. The revised segment composition has not been reflected on a
retroactive basis as the Group determined it was not practicable to do so.
HALF-YEAR ENDED
ORDERS RECEIVED 30 SEPTEMBER YEAR ENDED
----------------------------- 31 MARCH
2002 2003 2003
------------- ------------- ----------
(IN € MILLION)
Power Environment 1,469 1,042 2,583
Power Turbo Systems 1,368 839 1,821
Power Service 1,686 1,368 2,934
Power Industrial Turbines 508 320 1,265
--------------------------------- ------------- ------------- ----------
Total Power 5,031 3,569 8,603
Transmission & Distribution 2,067 1,801 3,731
Transport 3,300 1,672 6,412
Marine 26 340 163
Corporate & others (1) 113 57 214
------------- ------------- ----------
TOTAL 10,537 7,439 19,123
============= ============= ==========
HALF-YEAR ENDED
SALES 30 SEPTEMBER YEAR ENDED
----------------------------- 31 MARCH
2002 2003 2003
------------- ------------- ----------
(IN € MILLION)
Power Environment 1,457 1,331 3,098
Power Turbo Systems 2,413 1,211 3,857
Power Service 1,350 1,361 2,678
Power Industrial Turbines 592 210 1,268
--------------------------------- ------------- ------------- ----------
Total Power 5,812 4,113 10,901
Transmission & Distribution 1,778 1,562 3,605
Transport 2,339 2,297 5,072
Marine 725 822 1,568
Corporate & others (1) 115 60 205
------------- ------------- ----------
TOTAL 10,769 8,854 21,351
============= ============= ==========
HALF-YEAR ENDED
OPERATING INCOME 30 SEPTEMBER YEAR ENDED
----------------------------- 31 MARCH
2002 2003 2003
------------- ------------- ----------
(IN € MILLION)
Power Environment n/a 24 224
Power Turbo Systems n/a (127) (1,399)
Power Service n/a 196 403
Power Industrial Turbines n/a 14 82
--------------------------------- ------------- ------------- ----------
Total Power 270 107 (690)
Transmission & Distribution 110 84 227
Transport 90 (37) (24)
Marine 16 4 24
Corporate & others (1) 56 (26) (44)
------------- ------------- ----------
TOTAL 542 132 (507)
============= ============= ==========
HALF-YEAR ENDED
EBIT 30 SEPTEMBER YEAR ENDED
----------------------------- 31 MARCH
2002 2003 2003
------------- ------------- ----------
(IN € MILLION)
Power Environment n/a (29) 107
Power Turbo Systems n/a (219) (1,527)
Power Service n/a 123 304
Power Industrial Turbines n/a 7 53
Total Power 133 (118) (1,063)
--------------------------------- ------------- ------------- ----------
Transmission & Distribution 61 6 81
Transport 43 (150) (113)
Marine 15 (2) 12
Corporate & others (1) 70 (32) (46)
------------- ------------- ----------
TOTAL 322 (296) (1,129)
============= ============= ==========
HALF-YEAR ENDED
CAPITAL EMPLOYED (2) 30 SEPTEMBER YEAR ENDED
----------------------------- 31 MARCH
2002 2003 2003
------------- ------------- ----------
(IN € MILLION)
Power Environment n/a 850 n/a
Power Turbo Systems n/a (1,466) n/a
Power Service n/a 2,295 n/a
Power Industrial Turbines n/a - n/a
--------------------------------- ------------- ------------- ----------
Total Power 3,529 1,679 2,383
Transmission & Distribution 1,028 1,008 963
Transport 759 467 738
Marine (220) (593) (343)
Corporate & others (1) 1,601 1,342 1,208
------------- ------------- ----------
TOTAL 6,697 3,903 4,949
============= ============= ==========
---------------------
(1) Corporate & others include all units accounting for Corporate costs, the
International Network and the overseas entities in Australia, New Zealand,
South Africa (before disposal) and India, that are not allocated to
Sectors.
(2) Capital employed is defined as the closing position of the total of
tangible, intangible and other fixed assets net, current assets (excluding
net amount of securitisation of existing receivables) less current
liabilities and provisions for risks and charges.
(B) GEOGRAPHIC DATA
The table below set forth the geographic breakdown of Sales by country of
destination
HALF-YEAR ENDED
SALES 30 SEPTEMBER YEAR ENDED
----------------------------- 31 MARCH
2002 2003 2003
------------- ------------- ----------
(IN € MILLION)
Europe 4,303 4,160 9,219
North America 2,673 1,662 4,719
South & Central America 775 489 1,534
Asia / Pacific 1,833 1,875 3,727
Middle East / Africa 1,185 668 2,152
------------- ------------- ----------
TOTAL 10,769 8,854 21,351
============= ============= ==========
The table below set forth the geographic breakdown of Sales by country of origin
HALF-YEAR ENDED
SALES 30 SEPTEMBER YEAR ENDED
----------------------------- 31 MARCH
2002 2003 2003
------------- ------------- ----------
(IN € MILLION)
Europe 7,167 6,521 14,762
North America 2,207 1,332 3,935
South & Central America 330 229 601
Asia / Pacific 905 703 1,833
Middle East / Africa 160 69 220
------------- ------------- ----------
TOTAL 10,769 8,854 21,351
============= ============= ==========
NOTE 17 - OFF BALANCE SHEET COMMITMENTS AND OTHER OBLIGATIONS
A) OFF BALANCE SHEET COMMITMENTS
AT 31 MARCH AT 30 SEPTEMBER
2003 2003
---------------- ----------------
(IN € MILLION)
Guarantees related to contracts (1) 9,465 8,206
Guarantees related to Vendor financing (2) 749 643
Discounted notes receivable 11 9
Commitments to purchase fixed assets 7 -
Other guarantees 94 49
---------------- ----------------
TOTAL 10,326 8,907
================ ================
(1) GUARANTEES RELATED TO CONTRACTS
In accordance with industry practice guarantees of performance under contracts
with customers and under offers on tenders are given.
Such guarantees can, in the normal course, extend from the tender period until
the final acceptance by the customer, and the end of the warranty period and may
include guarantees on project completion, of contract specific defined
performance criteria or plant availability.
The guarantees are provided by banks or surety companies by way of performance
bonds, surety bonds and letters of credit and are normally for defined amounts
and periods.
The Group provides a counter indemnity to the bank or Surety Company.
The projects for which the guarantees are given are regularly reviewed by
management and when it becomes probable that payments pursuant to performance
guarantees will require to be made accruals are recorded in the Consolidated
Financial Statement at that time.
Guarantees given by parent or group companies relating to liabilities included
in the consolidated accounts are not included.
(2) VENDOR FINANCING
The Group has provided financial support, referred to as vendor financing, to
financial institutions and granted financing to certain purchasers of its
cruise-ships for ship-building contracts signed up to fiscal year 1999 and other
equipment. The total "vendor financing" is €1,259 million at 31 March 2003 and
€969 million at 30 September 2003.
The table below sets forth the breakdown of the outstanding vendor financing by
Sector at 31 March 2003 and 30 September 2003:
AT 31 MARCH 2003 AT 30 SEPTEMBER 2003
----------------------------- ------------------------------
BALANCE OFF BALANCE BALANCE OFF BALANCE
SHEET (1) SHEET (2) TOTAL SHEET (1) SHEET (2) TOTAL
--------- ----------- ------ --------- ----------- ------
(IN € MILLION)
MARINE 510 423 933 326 324 650
CRUISEINVEST/
RENAISSANCE 261 107 368 251 93 344
LEASING ENTITIES 223 128 351 49 105 154
OTHERS 26 188 214 26 126 152
TRANSPORT - 317 317 - 310 310
EUROPEAN METRO
OPERATOR - 257 257 - 253 253
OTHERS - 60 60 - 57 57
POWER - 5 5 - 5 5
T&D - 4 4 - 4 4
--------- ----------- ------ --------- ----------- ------
TOTAL 510 749 1,259 326 643 969
========= =========== ====== ========= =========== ======
--------------------
(1) Balance sheets items are included in «other fixed assets» (Note 9)
(2) Off-balance sheet figures correspond to the total guarantees and
commitments, net of related cash deposits, which are shown as balance-sheet
items.
MARINE
Cruiseinvest / Renaissance
The "vendor financing" granted to Cruiseinvest relating to Renaissance Cruises
amounts to €368 million and €344 million at 31 March 2003 and 30 September 2003,
respectively. The decrease is due to the appreciation of Euro against US Dollar
during the period.
Leasing entities
The Group finances and guarantees the financing of three special leasing
entities relating to three cruise-ships for an amount of €351 million and €154
million at 31 March 2003 and 30 September 2003, respectively. The decrease is
mainly due to the repayment of part of the financing granted to two leasing
entities for an amount of approximately €180 million.
Other ships
The Group has guaranteed the financing arrangements of three cruise-ships and
two high speed ferries delivered to three customers for an amount of €214
million and €152 million at 31 March 2003 and 30 September 2003, respectively.
One of these guarantees is supported by a cash deposit amounting to €26 million
at 31 March 2003 and 30 September 2003. The decrease is due to the release by a
French state company of the counter guarantee obtained from the Group at
delivery of one cruise-ship.
The provision retained in respect of Marine Vendor financing is €140 million at
31 March 2003 and 30 September 2003.
TRANSPORT
Guarantees given as part of vendor financing arrangements in Transport Sector
amount to €317 million and €310 million at 31 March 2003 and 30 September 2003,
respectively.
Included in this amount are guarantees given as part of a leasing scheme
involving a major European metro operator as described in Note 17 (b). If the
metro operator decides in year 2017 not to extend the initial period the Group
has guaranteed to the lessors that the value of the trains and associated
equipment at the option date should not be less than GBP 177 million (€257
million and €253 million at 31 March 2003 and 30 September 2003, respectively).
B) CAPITAL AND OPERATING LEASE OBLIGATIONS
WITHIN 1 1 TO 5 OVER 5
TOTAL YEAR YEARS YEARS
------------ ------------ -------------------------
(IN € MILLION)
Long term rental (1) 655 9 65 581
Capital leases obligation (2) 335 35 119 181
Operating leases (3) 478 70 205 203
------------ ------------ ------------ ------------
TOTAL OF FUTURE PAYMENTS 1,468 114 389 965
============ ============ ============ ============
--------------------
(1) Long term rental
Pursuant to a contract signed in 1995 with a major European metro operator, the
Group has sold 103 trains and associated equipment to two leasing entities.
These entities have entered into an agreement by which the Group leases back the
trains and associated equipment from the lessors for a period of 30 years. The
trains are made available for use by the metro operator for an initial period of
20 years, extendible at the option of the operator for a further ten year
period. The trains are being maintained and serviced by the Group.
These commitments are in respect of the full lease period and are covered by
payments due to the Group from the metro operator.
If this lease was capitalised it would increase long-term assets and long-term
debt by €667 million and €655 million at 31 March 2003 and 30 September 2003,
respectively.
(2) Capital leases
If capital leases had been capitalised, it would have had the following effects
on the consolidated balance sheet:
AT 31 MARCH AT 30 SEPTEMBER
2003 2003
---------------- ----------------
(IN € MILLION)
Increase of long term assets
(property plant and equipment) 212 244
Increase of long term financial debt 216 246
---------------- ----------------
DECREASE OF SHAREHOLDER'S EQUITY (4) (2)
================ ================
(3) Operating leases
A number of these operating leases have renewal options. Rent expense was €44
million in the six month period ended 30 September 2003.
No material commitments are omitted in this note in accordance with current
accounting rules.
NOTE 18 - CONTINGENCIES
- LITIGATION
The Group is engaged in several legal proceedings, mostly contract disputes that
have arisen in the normal course of business. Contract disputes, often involving
claims for contract delays or additional work, are common in the areas in which
the Group operates, particularly for large, long-term projects. In some cases,
the amounts claimed against us in these proceedings and disputes are significant
ranging up to €248 million. Amounts retained in respect of litigation,
considered as reasonable estimates of probable liabilities are included in
provisions for risks and charges and accrued contract costs. Actual costs
incurred may exceed the amount of provisions for litigation because of a number
of factors including the inherent uncertainties of the outcome of litigation.
CLAIM FROM ROYAL CARIBBEAN CRUISES LIMITED
On 7 August 2003, RCCL and various RCCL group companies filed a lawsuit in
Florida, USA against Rolls Royce and various Rolls Royce group companies and
against various ALSTOM group companies claiming damages for a global amount of
approximately €248 million (US$290 million) for alleged misrepresentations in
the selling of pods, and negligence in the design and manufacture of pods. The
Group will strongly contest this claim.
- ENVIRONMENTAL, HEALTH AND SAFETY
The Group is subject to a broad range of environmental laws and regulations in
each of the jurisdictions in which it operates. These laws and regulations
impose increasingly stringent environmental protection standards regarding,
among other things, air emissions, wastewater discharges, the use and handling
of hazardous waste or materials, waste disposal practices and the remediation of
environmental contamination. These standards expose the Group to the risk of
substantial environmental costs and liabilities, including liabilities
associated with divested assets and past activities. In most of the
jurisdictions in which operations take place, industrial activities are subject
to obtaining permits, licenses or/and authorisations, or to prior notification.
Most facilities must comply with these permits, licenses or authorisations and
are subject to regular administrative inspections.
Significant amounts are invested to ensure that activities are conducted in
order to reduce the risks of impacting the environment and capital expenditures
are regularly incurred in connection with environmental compliance requirements.
Although involved in the remediation of contamination of certain properties and
other sites, the Group believes that its facilities are in compliance with its
operating permits and that operations are generally in compliance with
environmental laws and regulations.
The outcome of environmental matters cannot be predicted with certainty and
there can be no assurance that the amounts budgeted and provided will be
adequate. In addition, future developments, such as changes in law or
environmental conditions, could result in increased environmental costs and
liabilities that could have a material effect on the financial condition or
results of operations. To date, no significant liability has been asserted
against us, and compliance with environmental regulations has not has a material
effect on the results of operations.
- ASBESTOS
The Group is subject to regulations, including in France, the US and the UK,
regarding the control and removal of asbestos-containing material and
identification of potential exposure of employees to asbestos. It has been the
Group's 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 of our suppliers, including in those
countries where the use of asbestos is permitted. In the past, however, the
Group has used and sold some products containing asbestos, particularly in
France in its Marine Sector and to a lesser extent in the other Sectors.
As of 30 September 2003, in France, the Group was aware of approximately 1,990
asbestos sickness related declarations accepted by the French Social Security
authorities in France concerning our employees, former employees or from third
parties, arising out of our activities in France. All of such cases are treated
under the French Social Security system which pays the medical and other costs
of those who are sick and which pays a lump sum indemnity. Out of these 1,990
declarations, we were aware of approximately 156 asbestos-related cases in
France from our employees, former employees or from third parties. These persons
have instituted judicial proceedings against certain of our subsidiaries with
the aim of obtaining a court decision holding these subsidiaries liable for an
inexcusable fault (FAUTE INEXCUSABLE) in order to obtain a supplementary
compensation above payments made by the French Social Security funds of related
medical costs. All decisions rendered as of today by the Social Security Affairs
Courts in proceedings involving ALSTOM's subsidiaries have found these
subsidiaries liable on the grounds of inexcusable fault. Decisions of the Courts
of Appeal have all confirmed these findings of inexcusable fault (25 decisions
rendered as of 30 September 2003). The Group has appealed all of such decisions
to the French Supreme Court. Even where the Group has been found liable on the
grounds of inexcusable fault, it does not expect to suffer any material adverse
financial consequences, because the financial consequences of any liability for
inexcusable fault have been attributed by court decision or by applicable
regulations to the French Social Security (medical) funds. Thus, in 102 of the
156 proceedings before French courts at 30 September 2003, which concern the
Marine Sector, the social security authorities have ruled that the financial
consequences of any liabilities for inexcusable fault will not be attributed to
the Marine Sector and will be borne by the Social Security authorities. Although
as of 30 September 2003 the Group had not yet obtained a specific ruling from
the relevant French Social Security authorities in respect of the remaining 54
proceedings, of which 40 concern the Power Sector, the Group believes the same
principle affording us financial protection will apply to such proceedings and
that, accordingly, it will not suffer any material adverse financial
consequences as a result of such asbestos related litigations in France.
The Group therefore believes that compensation for most of the current 156
proceedings involving certain of its subsidiaries as of 30 September 2003,
including cases where we may be found to be at fault, is or will be borne by the
general French Social Security (medical) funds. Based on applicable legislation
and current case law, the Group also believes that the publicly funded
Indemnification Fund for Asbestos Victims (FIVA), created in 2001 and effective
since 29 March 2002, does not increase its current risk exposure. The FIVA was
implemented to compensate persons harmed by exposure to asbestos in France. Once
a person has received an offer of compensation, the fund itself may then take
action against the employer considered responsible. However this subrogatory
right can only be exercised pursuant to and within the limits of French Social
Security regulations. The Group believes that those cases where compensation may
not be definitely borne by the general French Social Security (medical) funds or
by the FIVA represent an immaterial exposure for which it has not made any
provisions.
In addition to the foregoing, in the United States, as of 30 September 2003, the
Group was subject to approximately 154 asbestos-related personal injury lawsuits
which have their origin solely in the Company's purchase of some of ABB's power
generation business, for which it is indemnified by ABB.
The Group is also currently subject to two class action lawsuits in the United
States asserting fraudulent conveyance claims against various ALSTOM and ABB
entities in relation to Combustion Engineering, Inc. ("CE"), for which it has
asserted indemnification against ABB. CE is a United States subsidiary of ABB,
and its power activities were part of the power generation business purchased by
us from ABB. In January 2003, CE filed a "pre-packaged" plan of reorganisation
in United States bankruptcy court. This plan was recently confirmed by the
bankruptcy court and a United States federal district court. The plan has been
appealed and has not yet become effective; consummation of the plan is subject
to certain other conditions specified therein. In addition to its protection
under the ABB indemnity, ALSTOM believes that under the terms of the plan it
would be protected against pending and future personal injury asbestos claims,
or fraudulent conveyance claims, arising out of the past operations of CE.
As of 30 September 2003, the Group was also subject to approximately 38 other
asbestos-related personal injury lawsuits in the United States involving
approximately 533 claimants that, in whole or in part, assert claims against
ALSTOM which are not related to ALSTOM's purchase of some of ABB's power
generation business or as to which the complaint does not provide details
sufficient to permit us to determine whether the ABB indemnity applies. Most of
these lawsuits are in the preliminary stages of the litigation process and they
each involve multiple defendants. The allegations in these lawsuits are often
very general and difficult to evaluate at preliminary stages in the litigation
process. In those cases where ALSTOM's defense has not been assumed by a third
party and meaningful evaluation is practicable, we believe that we have valid
defenses and, with respect to a number of lawsuits, the Group is asserting
rights to indemnification against a third party.
The Group has not in recent years suffered any adverse judgment, or made any
settlement payment, in respect of any US personal injury asbestos claim. Between
31 October 2002 and 30 September 2003, a total of 139 cases involving
approximately 17,672 claimants were voluntarily dismissed by plaintiffs,
typically without prejudice (which is to say the plaintiffs may refile these
cases in the future).
For purposes of the foregoing discussion of asbestos-related cases, the Group
considers a claim to have been dismissed, and to no longer be pending against
it, if the plaintiffs' attorneys have executed a notice or stipulation of
dismissal or non-suit, or other similar document.
The Group is also subject to a minor number of asbestos related or other
employee personal injury related claims in other countries, mainly in the UK
where it is currently subject to approximately 153 such claims.
While the outcome of the existing asbestos-related cases described above is not
predictable, the Group believes that those cases will not have a material
adverse effect on its financial condition. ALSTOM can give no assurances that
asbestos-related cases against it will not grow in number or that those the
group has at present, or may face in the future, may not have a material adverse
impact on its financial condition.
- PRODUCT LIABILITY
The Group designs, manufactures, and sells several products of large individual
value that are used in major infrastructure projects. In this environment,
product-related defects have the potential to create liabilities that could be
material. If potential product defects become known, a technical assessment
occurs whereby products of the affected type are quantified and studied. If the
results of the study indicate that a product liability exists, provisions are
recorded. The Group believes that it has made adequate provisions to cover
currently known product-related liabilities, and regularly revises its estimates
using currently available information. Neither the Group nor any of its
businesses are aware of product-related liabilities, which would exceed the
amounts already recognised and believes it has provided sufficient amounts to
satisfy its litigation, environmental and product liability obligations to the
extent they can be estimated.
- SEC INVESTIGATION
On 11 August 2003, the Group announced that the SEC is conducting a formal
investigation, and the Group has conducted its own internal review, into certain
matters relating to ALSTOM Transportation Inc. ("ATI"), one of the Group's
subsidiaries. These actions followed receipt of anonymous letters alleging
accounting improprieties on a railcar contract being executed at ATI's New York
facility. Following receipt of these letters, the United States Federal Bureau
of Investigation (the "FBI") also began an informal inquiry. The Group has fully
cooperated with the SEC and the FBI in this matter and intends to continue to do
so.
The internal review identified that losses had been significantly understated in
the ATI accounts, in substantial part due to accounting improprieties. As a
result an additional charge of €51 million (after tax) was recorded in ATI's
accounts for the year-ended 31 March 2003 and was recorded in the Group's
consolidated financial statements approved by shareholders on 2 July 2003.
- COB INVESTIGATION
Senior officials of the Group have been interviewed by inspectors of the French
Commission des Opérations de bourse (the COB) in connection with the COB's
investigation regarding public disclosures by the Group and trading of the
Group's shares since 31 December 2001.
- UNITED STATES PUTATIVE CLASS ACTION LAWSUITS
The Group and certain of its current and former officers, recently have been
named as defendants in a number of purported shareholder class action lawsuits
filed on behalf of various alleged classes of purchasers of American Depositary
Receipts or other ALSTOM securities between various dates between 17 November
1998 and 30 June 2003. The actions seek to allege violations of United States
federal securities laws, specifically Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934, as amended, on the basis of various allegations that there
were untrue statements of materials facts, and/or omissions to state material
facts necessary to make the statements made not misleading, in various ALSTOM
public communications regarding our business, operations and prospects, causing
the putative classes to purchase ALSTOM securities at artificially inflated
prices. The plaintiffs seek, among other things, class action certification,
compensatory damages in an unspecified amount, and an award of costs and
expenses, including counsel fees. The Group intend to vigorously defend these
actions.
NOTE 19 - FINANCING PACKAGE AND LIQUIDITY RISK
FINANCING PACKAGE
Subsequent to the shareholder's meeting held on 2 July 2003, the Group engaged
in negotiations with its banks on a capital increase and the refinancing of the
Group. The Group reached an agreement with its banks and the French State,
announced on 6 August 2003. This was subsequently modified in order to satisfy
certain requirements of the European Commission. The modified agreement ("the
Financing Package") was announced on 22 September 2003.
The principal features of the Financing Package are set out below.
The French State and a syndicate of banks will make funds available to the Group
as follows:
In €
MILLION
-----------
EQUITY AND BONDS REIMBURSABLE IN SHARES 1,200
Share capital increase with preferential rights 300
Issue of bonds mandatorily reimbursable in shares
("ORA")1with a five year maturity 900
LONG-TERM DEBT INSTRUMENTS 500
Subordinated bonds to be provided by the French State with a
20 year maturity ("TSDDRA")2 300
Subordinated bonds to be provided by the French State with a
15 year maturity ("TSDD")3 200
MEDIUM-TERM LOANS 1,500
Subordinated loan to be provided by the French State with a
five year maturity 300
Subordinated loans to be provided by a syndicate of banks
with a five year maturity 1,200
-----------
TOTAL 3,200
===========
(1) ORA or "Obligations remboursable en actions", may be increased up to €1,000
million, with the banks subordinated loans correlatively reduced to €1,100
million
(2) TSDDRA or "Titres subordonnés à durée déterminée remboursable en actions",
converted into shares immediately subject to European Commission review and
approval
(3) TSDD or "Titres subordonnés à durée déterminée"
The Financing Package also provides for short-term facilities being made
available in an amount of €1,500 million, of which the share of the French State
is €1,200 million, until the long term part of the Financing Package is fully
implemented.
In addition a syndicate of banks is providing a contract bonding and guarantee
facility of €3,500 million, counter-guaranteed in part (65%) by the French
State, to allow the Group to cover its normal business activity.
The Group will have to return to the market for bonding in the fourth quarter of
calendar year 2004, when its balance sheet structure will reflect the benefit of
the implementation of the financing package thereby facilitating access to the
bonding market.
Under the Financing package the new maturity profile of the Group's liquidity
will be as follows:
PRINCIPAL AMOUNTS RECEIVED /(DUE)
Q3 Q4 TOTAL
OUTSTANDING FISCAL FISCAL FISCAL FISCAL AFTER
30 SEPTEMBER YEAR YEAR YEAR YEAR FISCAL FISCAL FISCAL
2003 2004 2005 2004 2005 YEAR 2006 YEAR 2007 YEAR 2007
------------ ------ ------ ------ ------ --------- --------- ---------
Redeemable preference shares 205 - - - - (205) - -
Subordinated notes 250 - - - - - (250) -
Subordinated loan - 650(3) 850(3) 1,500 - - - (1,500)
Subordinated long term bond (TSDD) - 200(3) - 200 - - - (200)
Subordinated bonds reimbursable
with shares (TSDDRA)(4) - 300(3) - 300 - - - -
Bonds 1,200 - (550) (550) - - (650) -
Syndicated loans 2,498 (1,377)(2) (400)
Bilateral loans 358 - (75) (75) - (50) (33) (200)
Commercial paper 1,320(1) (800) (100) (900) (420) - - -
Banks overdrafts/other
facilities/accrued interests 323 (281) - (281) (16) (3) (3) (20)
------ -------- ------ ------- ------ ------ ------- -------
TOTAL 6,154 (1,308) (275) (1,538) (436) (258) (1,657) (1,920)
Future receivables
securitised, net 522 (113) (118) (231) (236) (55)
------ -------- ------ ------- ------ ------ ------- -------
LIQUIDITY 6,676 (1,421) (393) (1,814) (672) (313) (1,657) (1,920)
Capital increase 300(3) 300
Bonds reimbursable with
Shares 900(3) 900
------ -------- ------ ------- ------ ------ ------- -------
LIQUIDITY AND OTHER FUNDING
SOURCES (221) (393) (614) (672) (313) (1,657) (1,920)
--------------------
(1) Maximum availability under commitments provided by a syndicate of banks
(€120 million) and the Caisse des dépôts et Consignation (€1,200 million),
including a €600 million commercial paper that was not drawn at 30 September
2003.
(2) Includes the expected early repayment of €1,250 of syndicated loans in the
third quarter of fiscal year 2004.
(3) Expected proceeds to the Group.
(4) Subordinated bonds reimbursable with shares (TSDDRA) will only be reimbursed
in cash in the event the European Commission does not approve their
reimbursement with shares.
The Group is confident in its ability to successfully implement the Financing
Package:
• New covenants have been negotiated (see Note 14). The continued
availability of debt financing will be dependent on banking covenants being
respected or waivers being granted. This will in part be dependent on the
Group's ability to generate operating profit and cash flow.
• The short term financing and the bonding facilities have been put in place
and are fully available to the Group. The subordinated loan facility of
€1.2 billion to be provided by the banks has been signed and commitment
letters relating to the ORA have been received from all banks involved.
• Shareholders will be asked to approve the Financing Package at a general
meeting called for 18 November 2003 on second call. A quorum of 25% of
shareholders entitled to vote is required for this general meeting to be
held. The Group has always been able to reach such a quorum in the past, on
second call.
The European Commission has announced it will not object to the implementation
of the Financing Package. It has at the same time and as is usual in such
circumstances announced that it has opened a formal investigation to determine
whether the Financing Package and certain other transactions with entities
controlled by the French State are compatible with laws of the European common
market.
NOTE 20 - POST BALANCE SHEET EVENTS
On 12 November 2003, the Group learned that the mediation in relation to the NEC
contracts had failed and litigation is likely to follow (see Note 13).
NOTE 21 - MAJOR COMPANIES INCLUDED IN THE SCOPE OF CONSOLIDATION
The major companies are selected according to the following criteria:
- Holding companies
- Sales above 90 M€ in year ended 2003 but excluding company's which had a
significant decrease in sales during the six-month period ended September
2003.
OWNERSHIP CONSOLIDATION
COMPANIES COUNTRY % METHOD
--------- ------- --------- --------------
ALSTOM............................. France Parent company
ALSTOM Holdings.................... France 100.0 Full consolidation
ALSTOM Gmbh (holding).............. Germany 100.0 Full consolidation
ALSTOM UK Ltd (holding)........... United Kingdom 100.0 Full consolidation
ALSTOM Inc (holding)............... United-States 100.0 Full consolidation
ALSTOM NV (holding)................ Netherlands 100.0 Full consolidation
ALSTOM Mexico SA de CV (holding)... Mexico 100.0 Full consolidation
ALSTOM Espana IB (holding)......... Spain 100.0 Full consolidation
ALSTOM (Switzerland) Ltd........... Switzerland 100.0 Full consolidation
ALSTOM Australia Ltd............... Australia 100.0 Full consolidation
ALSTOM Belgium SA ................. Belgium 100.0 Full consolidation
ALSTOM Brasil Ltda................. Brazil 100.0 Full consolidation
ALSTOM Canada Inc.................. Canada 100.0 Full consolidation
ALSTOM Controls Ltd................ United Kingdom 100.0 Full consolidation
ALSTOM DDF SA...................... France 98.8 Full consolidation
ALSTOM Energietechnik GmbH......... Germany 100.0 Full consolidation
ALSTOM Ferroviaria Spa............. Italy 100.0 Full consolidation
ALSTOM K.K......................... Japan 100.0 Full consolidation
ALSTOM LHB GmbH.................... Germany 100.0 Full consolidation
ALSTOM Ltd ........................ United Kingdom 100.0 Full consolidation
ALSTOM Power sro................... Czech Republic 100.0 Full consolidation
ALSTOM Power Asia Pacific Sdn Bhd.. Malaysia 100.0 Full consolidation
ALSTOM Power Boiler GmbH........... Germany 100.0 Full consolidation
ALSTOM Power Centrales............. France 100.0 Full consolidation
ALSTOM Power Conversion GmbH....... Germany 100.0 Full consolidation
ALSTOM Power Conversion SA France.. France 100.0 Full consolidation
ALSTOM Power Generation AG......... Germany 100.0 Full consolidation
ALSTOM Power Hydraulique........... France 100.0 Full consolidation
ALSTOM Power Inc................... United States 100.0 Full consolidation
ALSTOM Power Italia Spa............ Italy 100.0 Full consolidation
ALSTOM Power ltd................... Australia 100.0 Full consolidation
ALSTOM Power Norway AS............. Norway 100.0 Full consolidation
ALSTOM Power O&M Ltd............... Switzerland 100.0 Full consolidation
ALSTOM Power SA.................... Spain 100.0 Full consolidation
ALSTOM Power Service............... France 100.0 Full consolidation
ALSTOM Power Sp Zoo................ Poland 100.0 Full consolidation
ALSTOM Power Sweden AB............. Sweden 100.0 Full consolidation
ALSTOM Power Turbinen GmbH......... Germany 100.0 Full consolidation
ALSTOM Power Turbomachines ........ France 100.0 Full consolidation
ALSTOM Projects India Ltd.......... India 68.5 Full consolidation
ALSTOM Signalling Inc.............. United States 100.0 Full consolidation
ALSTOM T&D Inc..................... United States 100.0 Full consolidation
ALSTOM T&D SA...................... France 100.0 Full consolidation
ALSTOM T&D SA de CV................ Mexico 100.0 Full consolidation
ALSTOM Transport SA................ France 100.0 Full consolidation
ALSTOM Transporte SA de CV......... Mexico 100.0 Full consolidation
ALSTOM Transportation Inc.......... United States 100.0 Full consolidation
ALSTOM Transporte.................. Spain 100.0 Full consolidation
Chantiers de l'Atlantique.......... France 100.0 Full consolidation
EUKORAIL Ltd....................... South Korea 100.0 Full consolidation
West Coast Traincare............... United Kingdom 76.0 Full consolidation
A list of all consolidated companies is available upon request at the head
office of the Group.
MANAGEMENT DISCUSSION AND ANALYSIS ON INTERIM CONSOLIDATED STATEMENTS AS AT
30 SEPTEMBER 2003
FIRST HALF OF FISCAL YEAR 2004
YOU SHOULD READ THE FOLLOWING DISCUSSION TOGETHER WITH THE 30 SEPTEMBER 2003
INTERIM CONSOLIDATED FINANCIAL STATEMENTS. DURING THE PERIODS DISCUSSED IN THIS
SECTION, WE UNDERTOOK SEVERAL SIGNIFICANT TRANSACTIONS THAT AFFECTED THE
COMPARABILITY OF OUR FINANCIAL RESULTS BETWEEN PERIODS. IN ORDER TO ALLOW YOU TO
COMPARE THE RELEVANT PERIODS, WE PRESENT CERTAIN INFORMATION BOTH AS IT APPEARS
IN OUR FINANCIAL STATEMENTS AND ADJUSTED FOR BUSINESS COMPOSITION AND EXCHANGE
RATE VARIATIONS TO IMPROVE COMPARABILITY. WE DESCRIBE THESE ADJUSTMENTS UNDER
"--CHANGE IN BUSINESS COMPOSITION AND PRESENTATION OF OUR ACCOUNTS, NON-GAAP
MEASURES--COMPARABLE BASIS" BELOW.
STATUS ON OUR ACTION PLAN AND MAIN EVENTS OF FIRST HALF OF FISCAL YEAR 2004
On 12 March 2003, we presented our new strategy and action plan to overcome
three key difficulties: an insufficient level of profitability and cash
generation, past problems with the GT24/GT26 gas turbines and to a lesser extent
the UK Trains contracts and a high level of debt. This plan has been launched
throughout the Group. We have achieved significant progress during the first
half of fiscal year 2004 and in particular we have:
• built a more effective organisation;
• secured €2.5 billion from the disposal programme;
• achieved the expected progress in resolving specific operational
problems (GT24/GT26 heavy duty gas turbines and UK trains issues);
• launched the restructuring plans; and
• agreed on a comprehensive financing package to strengthen our
financial structure.
BUILDING A MORE EFFECTIVE ORGANISATION
IMPLEMENTATION OF A MORE EFFECTIVE ORGANISATION IN THE SECTORS
Our former Power Sector, which accounted for more than half of Group sales in
fiscal year 2003, was reorganised into three new Sectors on 1 April 2003; the
former Power Sector management layer has been removed and the former Segments
have been merged. The new structure is now fully in place and is reflected in
the figures presented in this section.
On 7 October 2003, the management of our Transport Sector announced a new
organisation, to be effective as of 1 January 2004. The Sector will be organised
in four international regions, with strengthened customer focus and with clearer
definition of responsibility for project execution.
A simpler and more reactive Group wide structure is being implemented, with
clearer P&L accountability in the Sectors. Empowerment and full responsibility
are given to the Sector management with a clearer relationship between business
and country organisations.
REORGANISATION OF INTERNATIONAL NETWORK AND CORPORATE
Our objective is to reduce our overhead significantly, notably through the
simplification of administrative processes and a reduction of management layers.
Some central functions have been reallocated to the Sectors or eliminated. As a
consequence, the Corporate and the International Network organisations have been
reorganised and reduced by more than a third. Overall, savings are targeted to
reach 35% of related costs as compared with fiscal year 2003 on an annual basis
by March 2005. Vigorous plans have been launched in the Sectors where the target
is to save 15% of overhead costs in each Sector by March 2005.
STRICTER RISK MANAGEMENT
We are exercising a stricter control of the contractual terms and conditions and
the margins in our order intake, notably with the creation of a central Risk
Committee headed by the Chairman and CEO which was set up in March 2003 to
review all major bids and contracts under execution. We are continuously
improving the processes in the Sectors and are setting up a project database
allowing more efficient central control. A new Risk Management Director has been
appointed and new processes established to ensure more effective supervision of
the Sectors.
DISPOSAL PROGRAMME
As part of our new plan, in March 2003 we increased our disposal programme
target proceeds from €1.6 billion as intended at the beginning of fiscal year
2003, to €3.0 billion by March 2004. We maintain our objective of total proceeds
of €3 billion and have now secured €2.5 billion, but in order to fully value the
assets to be disposed, we have extended the period by one year to March 2005.
Our disposal programme comprises:
• 600 million of targeted proceeds from real estate disposals, of which
€415 million was achieved during fiscal year 2003 and the first half
of fiscal year 2004; and
• €2,400 million of targeted proceeds from business disposals, including
both the T&D Sector and the Industrial Turbines businesses. €151
million of this target was achieved during fiscal year 2003 with the
disposal of our activities in South Africa and of our captive
insurance company. We expect that the sale of our Industrial Turbines
businesses will generate net proceeds of approximately €950 million
(of which €842 million has been received to date). We sold our T&D
Sector for an enterprise value of €950 million, subject to closing
adjustments. We expect to receive the major part of these proceeds in
January 2004.
DISPOSAL OF OUR INDUSTRIAL TURBINES BUSINESSES
On 26 April 2003, we signed binding agreements to sell our small gas turbines
business and medium-sized gas turbines and industrial steam turbines businesses
in two transactions to Siemens AG.
The first transaction covered our small gas turbines business, and the second
transaction covered our medium-sized gas turbines and industrial steam turbines
businesses.
The Industrial Turbines businesses accounted for approximately 10% of Power
Sector revenues in fiscal year 2003. They include:
• the small gas turbines business (3 MW - 15 MW), based principally in
the UK;
• the medium-sized gas turbines business (15 MW - 50 MW), based
principally in Sweden; and
• the industrial steam turbines (up to about 100 MW) business, with
manufacturing sites in Sweden, Germany and the Czech Republic, and
global customer service operations.
In the year ended 31 March 2003, Industrial Turbine businesses generated sales
of approximately €1.25 billion and had an operating margin of approximately 7%.
At 31 March 2003, these businesses employed around 6,500 people.
On 30 April 2003, we announced the closing of the sale of the small gas turbines
business. Completion of this transaction followed receipt of a formal derogation
from the European Commission under EC Merger Regulations, allowing ownership of
the business to be transferred to Siemens AG with immediate effect. On 10 July
2003 we announced that the European Commission had granted formal clearance
under EC Merger Regulations for the disposal of both the small gas turbines and
the medium gas turbines and industrial steam turbines businesses.
On 1 August 2003 we announced that we had completed the major part of the
disposal of the medium gas turbines and industrial steam turbines businesses.
Completion of this second stage of the disposal followed approval from both the
European Commission and US merger control authorities.
Certain minor sites of our Industrial Turbines business have yet to be
transferred to Siemens pending completion of legal procedures, for example,
relating to anti-competition laws in select jurisdictions. To date we have
received net proceeds of €842 million from the disposal of these businesses and
an additional €125 million is currently being held in escrow to cover certain
post-closing adjustments and indemnities, if any. Unless otherwise used, 50% of
these escrowed amounts are to be released to us on the business day following
the first anniversary of the sale of the small gas turbines business (April
2004), and the remainder on the business day following the second anniversary of
the sale (April 2005). See as well Note 4 to the Interim Consolidated Financial
Statements.
DISPOSAL OF OUR T&D ACTIVITIES
The process to dispose of the T&D Sector was announced on 12 March 2003. On 25
September 2003, we signed a binding agreement to sell our T&D activities
(excluding the Power Conversion business) to Areva for an entreprise value of
€950 million, subject to closing adjustments. This transaction is expected to
close in January 2004.
DISPOSAL OF REAL ESTATE
In April 2003, we received proceeds of €138 million in respect of the disposal
of 15 sites in France, Spain, Switzerland and Belgium and, in July 2003, we
received proceeds of €10 million in respect of the disposal of one site in
France. Total proceeds to date from our real estate programme have reached €415
million (€267 million received in fiscal year 2003 and €148 million in the first
half of fiscal year 2004). Select further real estate disposal projects are
currently progressing.
PROGRESS ON SPECIFIC OPERATIONAL PROBLEMS
GT24/GT26 HEAVY-DUTY GAS TURBINES
During the first half of fiscal year 2004, we continued to implement technical
improvements to our GT24/GT26 gas turbines. The new upgrade packages have been
tested successfully and deployment in the field has started. The machines'
reliability has been demonstrated with 72 units in operation and the cumulation
of more than 730,000 operating hours. In addition, the commercial situation is
becoming clearer with all of the cases of client litigation, which affected 7
units as of March 2003, now resolved via satisfactory commercial settlements.
Related cash outflow over the first half of fiscal year 2004, €394 million, has
decreased as compared with the second half of fiscal year 2003, €657 million. We
expect our cash outflow (for Power Turbo-Systems and Power Service) to be around
€800 million, €600 million and €200 million in fiscal years 2004, 2005 and 2006
respectively compared with €1,055 million spent on this matter in fiscal year
2003.
We reported on 31 March 2003 that we had retained provisions and accrued
contract costs after taking into account mitigation targets of €454 million. As
of 30 September 2003, the mitigation target has been reduced by €118 million to
€336 million. This reduction included €22 million related to changes in exchange
rates, €68 million of achieved mitigation actions and certain planned mitigation
actions which did not materialise resulting in a corresponding €28 million
charge in our operating income for the first half of fiscal year 2004. As of 30
September 2003, we retained €1,193 million of related provisions and accrued
contract costs outflow (for Power Turbo-Systems and Power Service). This amount
does not include €336 million of exposure, which we consider will be mitigated
by appropriate action plans.
UK TRAINS
All 119 regional trains have been delivered and are now in service but costs
related to the in service reliability improvement programme are still being
incurred. On the West Coast Main Line contract, 28 of the 53 trains have been
delivered in line with the customer's revised expectations. On completion of the
WCML contract in September 2004, our UK new build activities will be halted as
we will convert to a substantial service/maintenance base in the UK.
US TRAINS
On 30 June 2003, we announced that we were conducting an internal review,
assisted by external lawyers and accountants, following receipt of anonymous
letters alleging accounting improprieties on a railcar contract being executed
at the New York facility of ALSTOM Transportation Inc. ("ATI"), one of our US
subsidiaries. Following receipt of these letters, the SEC and the FBI began
informal inquiries. We believe the FBI inquiry is currently dormant.
The Transport Sector's operating loss in fiscal year 2003 included an additional
charge of €73 million, recorded following contract losses at ALSTOM
Transportation Inc. (ATI). This charge was included in the Consolidated
Financial Statements as approved at the General Shareholders Meeting on 2 July
2003.
In addition, following the discovery of accounting improprieties at ATI, we
subsequently conducted reviews of other ATI contracts and, as a result, we
recorded costs of €102 million (€94 million of contract provisions and
write-down of receivables and €8 million of professional fees and other costs)
in relation to the US Transport business. Slightly more than half of this amount
related to a single equipment supply and maintenance project in the United
States when we recorded significant provisions in respect of expected contract
losses relating to a number of important performance related issues. The €102
million of costs is reflected in our Consolidated Financial Statements for the
first half of fiscal year 2004.
RESTRUCTURING AND COST REDUCTION PROGRAMMES
We have launched restructuring and cost-reduction programmes necessary to adapt
our organisation and industrial base to current market conditions. We consider
these programmes to be vital as we believe that the power market downturn is set
to continue for some years before returning to the long term fundamental growth
trend. We expect that these programmes will improve our operational performance.
As we have accelerated our restructuring plans, we expect to accrue
significantly more related charges in fiscal year 2004 than in fiscal year 2003.
We are currently informing and consulting with trade union representatives
regarding the consequences of the overhead reduction and industrial
restructuring plans. This process is expected to continue in the coming months.
We have to date announced plans to reduce our workforce by approximately 7,300
employees in aggregate world wide. Of the proposed reduction in headcount,
approximately 2,000 positions are outside Europe (mainly the US and Asia) and
5,300 positions are in Europe. The trade union consultation process at the
European level has been completed, and local plans, country by country, are
being implemented.
The announced reduction in employee numbers impacts mainly Power Turbo-Systems
for approximately 3,300 employees, Transport for 2,000 employees, Power
Environment for 1,000 employees, Power Service for 500 employees, and Head
offices for 200 employees. We have not implemented restructuring plans in our
Marine Sector other than the closure of our small yard in Saint-Malo already
announced in fiscal year 2003, while some staff reduction has occurred by
natural attrition (retirement, early retirement).
FINANCING PACKAGE
INITIAL FINANCING PACKAGE
As part of our 12 March 2003 strategy and action plan, we reported that we
needed to strengthen our financial base by conducting a capital increase and
refinancing our debt. In the months following the announcement of our new plan,
however, the markets for our products and services continued to deteriorate,
resulting in reduced levels of orders. Furthermore, problems in obtaining
contract performance bonds due to a general tightening of the bond market and
concerns within that market on our position exacerbated the deterioration in
order intake. Our worsening financial situation made negotiations with our main
lending banks in connection with the proposed renewal of our credit lines and
the capital increase more difficult. By the end of July 2003, we faced the risk
of not being able to meet our short-term financial commitments, which led us to
renegotiate with more than 30 of our banks with the support of the French State.
We reached agreement on a comprehensive financing package for the Group, which
was designed to provide adequate long term financing and short term liquidity.
This initial financing package announced on 6 August 2003 included:
• a combined €600 million capital increase consisting of a €300 million
underwritten capital increase with preferential subscription rights
for existing shareholders, and a €300 million capital increase
reserved for the French State;
• a €1 billion issuance of bonds mandatorily reimbursable with shares
("ORA", obligations remboursables en actions) with preferential
subscription rights for existing shareholders;
• subordinated loans with 6-year maturity totalling €1,200 million. A
French State-controlled financial institution agreed to provide €200
million of the total amount of these subordinated loans;
• a contract bonding guarantee facility of €3,500 million provided by a
syndicate of banks to support our continued commercial activity. A
French State-controlled financial institution agreed to counter
guarantee 65% of the aggregate amount of these bonds and guarantees;
and
• short term facilities amounting to €600 million from a syndicate of
banks and the French State.
We were informed on 8 and 14 August 2003 that the French State notified and
provided information to the European Commission relating to its commitments
under the proposed financing package, pursuant to European Community laws. As a
result of this notification, the European Commission began a preliminary
examination of the French State's measures described in the August notification.
The uncertainty generated by this situation substantially worsened the concerns
of our customers and suppliers as to our financial stability and our long term
viability, and negatively impacted our commercial activity and sources of
liquidity. Following the European Commission's preliminary examination of the
French State's measures described in the August notification, it opened a formal
investigation procedure under Article 88(2) of the EC Treaty on 17 September
2003. When opening this procedure, the Commission stated that it believed the
conditions for the issuance of an injunction were present pursuant to applicable
EU regulations. Specifically, the Commission threatened to oppose the
implementation of certain parts of the financing package regarded as
"irreversible" until it had reached a final decision on their State aid
legitimacy and compatibility with the common market regulations. On 17 September
2003, the Commission announced that it had authorised the Competition
Commissioner to issue an injunction unless the French authorities agreed not to
participate in measures that would automatically and irreversibly result in the
French State's participation in our equity capital prior to clearance by the
Commission of the financing package.
REVISED FINANCING PACKAGE
As a consequence, we entered into new discussions with our banks, the French
State and the European Commission towards designing a revised package to meet
our financial needs while complying with European Commission requirements. On 22
September 2003, we announced that we had reached a revised agreement on our
financing package. While this revised package is still subject to European
Commission review, the Commission has announced that it does not intend to issue
an injunction against any parts of the package, and the implementation of the
related transactions may go forward without delay.
On 8 November 2003, the European Commission announced formally, in the Official
Journal of the European Union, that it was extending the procedure to determine
whether the package is compatible with the common market.
The revised financing package includes:
• a €300 million capital increase. The capital increase will involve the
subscription of shares directly by a syndicate of banks, with the
simultaneous distribution of free warrants to existing shareholders
allowing them to purchase the shares directly from the banks. The
subscription price for the shares and the exercise price of the
warrants will be €1.25 per share;
• €300 million of subordinated bonds with a 20 year maturity to be
issued to the French State, which will be automatically reimbursable
with shares upon the approval of the reimbursement with shares by the
European Commission ("TSDDRA" or titres subordonnes a duree determinee
remboursables en actions). These subordinated bonds will carry an
annual interest rate of 2% until a decision of the European Commission
is obtained, at which point (if the decision is negative) the rate
will be adjusted to EURIBOR plus 5%, of which 1.5% will be capitalised
annually and paid upon reimbursement. The issue price for each bond
will be €1.25, and each will be reimbursable with one share, subject
to antidilution adjustments;
• €200 million of subordinated bonds with a 15 year maturity to be
issued to the French State ("TSDD" or titres subordonnees a duree
determinee). These subordinated bonds will carry an interest rate of
EURIBOR plus 5%, of which 1.5% will be capitalised annually and paid
upon reimbursement; and
• an issuance of approximately €900 million of bonds mandatorily
reimbursable with shares (ORA) with preferential subscription rights
for existing shareholders, which is to be underwritten by a syndicate
of banks. This amount may be increased to €1 billion. The issue price
of the ORA is €1.40 per bond, representing 100% of each bond's
principal amount. The ORA are to mature on 31 December 2008. Each ORA
will be reimbursable at maturity with one share, subject to
anti-dilution adjustments. ORA holders will have the right to receive
shares prior to maturity, based on the same ratio.
The offerings described above are to be submitted for approval by our
shareholders at an Ordinary and Extraordinary Meeting to be held on 18 November
2003 (on second call). The capital increase, ORA, TSDDRA and TSDD offerings will
be implemented as soon as possible following shareholder approval.
Assuming that the offerings described above are approved for and take place, and
that the European Commission approves the reimbursement with shares of the
TSDDRA, the French State would own 31.5% of our shares and voting rights
following the reimbursement of the TSDDRA, before taking into account the
conversion or reimbursement of the ORAs. After taking into account the
reimbursement of the ORAs, the French State would own 16.25% of our shares and
voting rights.
The revised financing package also includes:
• subordinated loans with 5-year maturity totalling approximately €1,500
million ("PSDD" or prêt subordonné à durée determinée). The banks have
agreed to provide approximately €1,200 million of the total amount of
these subordinated loans, with the remainder to be provided by the
French State. The loans may be increased by up to €100 million subject
to certain conditions. The rate of interest on these subordinated
loans is EURIBOR plus 4.5%, of which 1.5% will be capitalised annually
and paid upon reimbursement. The Subordinated Debt Facility Agreement
relating to these loans was entered into on 30 September 2003; and
• a contract bonding guarantee facility of €3,500 million provided by a
syndicate of banks to support our continued commercial activity. A
French State-controlled financial institution will counter guarantee
65% of the aggregate amount of these bonds. This facility was entered
into on 29 August 2003, was amended on 1 October 2003 and is fully in
place.
Pending our receipt of proceeds from the financing package and the disposal of
our T&D activities, our short-term liquidity is being supported through the
purchase of commercial paper (billets de tresorerie) by a syndicate of banks
(for €120 million), and the purchase of commercial paper by the Caisse des
Dépôts et Consignations, a financial institution controlled by the French State
(for €300 million). This commercial paper will be rolled over untiL 12 months
after the date of final issuance occurring before 8 February 2004. In addition,
a syndicate of banks financed the early reimbursement to us of €180 million of
debt due to us from two special purpose entities in connection with Marine
vendor financing. Further, the Caisse des Dépôts et Consignations has also
committed to provide us with up to €900 million in commercial paper financing
which will be available to us until the long term portion of our financing
package becomes available (expected in December 2003), except that €100 million
may remain outstanding until we receive the main proceeds from the sale of our
T&D activities (expected in January 2004). All these facilities are fully in
place.
For information about our new liquidity profile, please see "Liquidity and
capital resources - Maturity and liquidity" below.
GENERAL COMMENTS ON ACTIVITY AND RESULTS
KEY FINANCIAL FIGURES
The following tables set out, on a consolidated basis, some of our key financial
and operating figures:
-----------------------------------------------------------------------------------------------
First First % %
TOTAL GROUP Half 2nd Half Full Half Variation Variation
ACTUAL FIGURES Sept. 02 March 03 Year Sept. 03 Sept. 03/ Sept. 03/
(IN € MILLION) (Unaudited) (Unaudited) 2002/03 (Unaudited) Sept. 02 March 03
----------- ----------- ------- ----------- --------- ------------
Order backlog 33,611 30,330 30,330 27,174 (19%) (10%)
Orders received 10,537 8,586 19,123 7,439 (29%) (13%)
Sales 10,769 10,582 21,351 8,854 (18%) (16%)
Operating income 542 (1,049) (507) 132
Operating margin 5.0% (9.9%) (2.4%) 1.5%
EBIT 322 (1,451) (1,129) (296)
Capital Employed 6,697 4,949 4,949 3,903
ROCE 9.6% n/a n/a N/A
Net income 11 (1,443) (1,432) (624)
Free Cash Flow(1) 75 (340) (265) (674)
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
TOTAL GROUP First Full First % %
COMPARABLE Half 2nd Half Year Half Variation Variation
FIGURES(2) Sept. 02 March 03 2002/03 Sept. 03 Sept. 03/ Sept. 03/
(IN € MILLION) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Sept. 02 March 03
----------- ----------- ----------- ----------- --------- ---------
Order backlog n/a 28,496 28,496 27,174 n/a (5%)
Orders received 9,677 7,973 17,650 7,439 (23%) (7%)
Sales 9,697 9,886 19,583 8,854 (9%) (10%)
Operating income 495 (998) (503) 132
Operating margin 5.1% (10.1%) (2.6%) 1.5%
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
TOTAL GROUP First Full First % %
PRO FORMA Half 2nd Half Year Half Variation Variation
FIGURES(3) Sept. 02 March 03 2002/03 Sept. 03 Sept. 03/ Sept. 03/
(IN € MILLION) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Sept. 02 March 03
----------- ----------- ----------- ----------- --------- ---------
Order backlog n/a 26,351 26,351 24,844 n/a (6%)
Orders received 8,264 6,292 14,556 5,541 (33%) (12%)
Sales 8,660 8,418 17,078 7,308 (16%) (13%)
Operating income 433 (1,243) (810) 34
Operating margin 5.0% (14.8%) (4.7%) 0.5%
-----------------------------------------------------------------------------------------------
(1) See "Change in business composition and presentation of our accounts,
non-GAAP measures - Use and reconciliation of non-GAAP financial measures".
(2) Adjusted for changes in business composition and exchange rates. See
"Change in business composition and presentation of our accounts, non-GAAP
measures - Comparable basis".
(3) Adjusted to reflect the effect of the disposals of the T&D Sector,
excluding the Power Conversion business, and our Industrial Turbines
activities. For the derivation of pro-forma sales, operating income and
operating margin, see our Pro-forma Consolidated Financial Statements year
ended 31 March 2003 and half-year ended 30 September 2003 for more details.
We derived order backlog and orders received in an analogous manner.
GENERAL COMMENTS ON ACTIVITY
Since 31 March 2003, we have continued to face market uncertainties, a
tightening contract performance bond market and, more generally, a weak global
economy. The power generation new equipment and cruise-ship markets remained at
historically low levels. The transport market remained relatively healthy, but
as a whole lower than the record level of the previous year. The power service
market remained sound. Against these globally difficult market conditions,
uncertainty regarding the Group's financial condition contributed to a
significant decline in orders received during the first half of the fiscal year.
ORDERS RECEIVED AND BACKLOG
In addition to weak markets for equipment and projects, the Group's commercial
activity for the first half of fiscal year 2004 was significantly impacted by
customer uncertainty as to our financial future, as well as by difficulties in
issuing contract bonds. These two factors had a number of significant negative
impacts on our commercial activity during the period preceding the announcement
of our new financing package. In light of the long-term nature of many of our
projects, customers delayed placing new orders or did not place orders with us
and/or delayed making advance or progress payments pending clarification of our
financial perspectives.
This contributed to the low level of orders received during the first half of
fiscal year 2004. Orders decreased on a comparable basis by 23% and 7% compared
with the first and second halves of fiscal year 2003 respectively (29% and 13%
respectively on an actual basis). Our backlog was €27,174 million at 30
September 2003, representing approximately 18 months of sales.
SALES
On an actual basis, sales decreased by 18% in the first half of fiscal year
2004 as compared with first half of fiscal year 2003. This is due to the
decrease in orders received in fiscal year 2003, mainly in Power Turbo-Systems
as a result of the strong decline in orders that started to materialise last
year as well as to the disposal of our Industrial Turbines businesses and the
decline of the US dollar against the Euro. On a comparable basis, sales
decreased by 9% versus the first half of fiscal year 2003.
OPERATING INCOME
Following the discovery of accounting improprieties at ATI (as announced on 30
June 2003 just prior to the General Shareholders Meeting on 2 July 2003), we
subsequently conducted reviews of other ATI contracts. They led management to
make revised estimates of costs to complete contracts in our Transport Sector,
leading to additional charges of €102 million in relation to the US Transport
business. Separately, two key subcontractors on a utility boiler contract in the
US declared bankruptcy, causing a charge estimated at €60 million for the Power
Environment Sector. In addition, the decrease in sales, which was not completely
offset by a corresponding decrease in operating expenses due to the time
necessary to realise the benefits of our restructuring programmes, led to a
decrease in our operating income.
As a consequence, our operating income in the first half of the fiscal year 2004
was €132 million or 1.5% of sales.
NET INCOME/LOSS
Net loss after goodwill amortisation was €624 million as a result of the low
level of operating income, higher financial expenses and restructuring charges
and lower than anticipated deferred tax credits.
FREE CASH FLOW
Our free cash flow was €(674) million in the first half of fiscal year 2004
as a result of:
• cash outflows of €394 million on the GT24/GT26 gas turbines (as
compared with €1,055 million for the full fiscal year 2003);
• higher restructuring and financial expenses; and
• deterioration of our working capital, related among other things to
the strong decline in orders received in the first half of fiscal year
2004 as a result of the uncertainty generated by our financial
situation during the summer and to customers and suppliers seeking
payment terms that were less favourable to us.
RECENT DEVELOPMENTS
There have been no major developments since 30 September 2003. However, we have
seen an encouraging rebound in orders in our Sectors where orders received and
secured (meaning the contract is signed but not formally registered in our
backlog because it has not yet come into force) by the end of October
represented approximately €1,400 million (out of which €700 million for
Transport).
OUTLOOK
The timing of recovery in the power generation equipment and cruise-ship markets
is uncertain over the short to medium-term, while we believe that the transport
market should remain sound. We expect overall demand in power generation
equipment to remain generally low over the coming months but we are confident
that market fundamentals will lead, in the medium to long-term, to growing
demand for both new equipment and service. We believe as well that the financing
package announced in September 2003 will positively impact our commercial
prospects. Sales should continue to decrease in the second half of fiscal year
2004 when compared with fiscal year 2003 due to the lower level of orders
received in fiscal year 2003 mainly in the former Power Sector.
The current situation regarding our markets and the extent and timing of the
impact of our financing package on our commercial operations make it difficult
to predict our likely future financial results. For internal planning purposes,
however, we have set a number of financial objectives, including achieving
consolidated sales of more than €15 billion (excluding our T&D and Industrial
Turbines activities) and an operating margin of approximately 6% by fiscal year
2006. Our ability to achieve these objectives depends on the results of our
extensive restructuring and cost reduction plans, the recovery and downsizing of
Power Turbo-Systems, the closing out of the GT24/GT26 issue, the implementation
of the financing package, the improvement of our Transport operating margin to
7%, and the progressive shift of our business mix towards more profitable after
market and service activities.
We have also set internal objectives with respect to our free cash flow and our
economic debt.
We expect our free cash flow to be negative through the end of fiscal year 2005,
and we are currently anticipating approximately €(1,200) million of free cash
flow on a cumulative basis for fiscal years 2004 and 2005. This figure takes
into account anticipated cash outflows linked to the GT24/GT26 gas turbines,
which will continue in the second half of fiscal year 2004 and in fiscal year
2005, as well as significant restructuring costs. We have an objective to
achieve positive cash flow once the cash outflows on the GT24/GT26 cease.
We have set as an objective to reduce our economic debt below €2.5 billion by
March 2005 (on the basis of our current definition and before any change in
accounting principles and without taking into account the conversion of the 20
year-bond reserved for the French State) through the proceeds from disposals,
the €300 million capital increase and the issuance of mandatory convertible
bonds, each of which is part of our financing package described above.
The foregoing are "forward-looking statements," and as a result they are subject
to uncertainties. The success of our strategy and action plan, our sales,
operating margin and financial position could differ materially from the goals
and targets expressed above if any of the risks we describe in our Annual Report
for fiscal year 2003 as updated and in our Annual Report on Form 20F in the
sections entitled "Forward Looking Statements" and "Risk Factors", or other
unknown risks, materialise.
CHANGE IN BUSINESS COMPOSITION AND PRESENTATION OF OUR ACCOUNTS, NON-GAAP
MEASURES
CHANGES IN BUSINESS COMPOSITION
Our results for the first half of fiscal year 2004 as compared with the first
and second halves of fiscal year 2003 have been significantly impacted by the
disposal of our Industrial Turbines businesses and to a lesser extent by the
disposal of our activities in South Africa in September 2002. Our Industrial
Turbines were disposed of under two transactions: our small gas turbines
business was sold with effect from 30 April 2003 and our medium-sized gas
turbines and industrial steam turbines businesses were sold with effect from 1
August 2003. Certain minor sites have yet to be transferred to Siemens pending
completion of legal procedures relating, for example, to anti-competition laws
in select jurisdictions.
USE AND RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
From time to time in this section, we disclose figures which are non-GAAP
financial indicators. Under the rules of the United States Securities and
Exchange Commission ("SEC") and the Commission des Operations de Bourse ("COB"),
a non-GAAP financial indicator is a numerical measurement of our historical or
future financial performance, financial position or cash flows that excludes
amounts, or is subject to adjustments that have the effect of excluding amounts,
that are included in the most directly comparable measurement calculated and
presented in accordance with GAAP in our consolidated income statement,
consolidated balance sheet or consolidated statement of cash flows; or includes
amounts, or is subject to adjustments that have the effect of including amounts,
that are excluded from the most directly comparable measurement so calculated
and presented. In this regard, GAAP refers to generally accepted accounting
principles in France.
FREE CASH FLOW
We define free cash flow to mean net cash provided by (used in) operating
activities less capital expenditures, net of proceeds from disposals of
property, plant and equipment and Increase (decrease) in variation in existing
receivables considered as a source of funding of our activity. Total proceeds
from disposals of property, plant and equipment in our Consolidated Statements
of Cash Flows include proceeds from our real estate disposal programme designed
under our strategy and action plan that we eliminate from the calculation of the
free cash flow given that this programme is non-recurring and that we consider
only the receipt of minor proceeds as part of our normal operations.
Free cash flow does not represent net cash provided by (used in) operating
activities, as calculated under French GAAP. The most directly comparable
financial measure to Free cash flows calculated and presented in accordance with
French GAAP is Net cash provided by (used in) Operating activities, and a
reconciliation of free cash flows and Net cash provided by (used in) operating
activities is presented below.
------------------------------------------------------------------------------------------
TOTAL GROUP First Full First
ACTUAL Half 2nd Half Year Half
FIGURES(3) Sept. 02 March 03 2002/03 Sept. 03
(IN € MILLION) (Unaudited) (Unaudited) (Unaudited) (Unaudited
----------- ----------- ----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 83 (620) (537) (731)
Elimination of variation in existing
receivables 152 509 661 144
Capital expenditures (200) (210) (410) (105)
Proceeds from disposals of property,
plant and equipment 40 212 252 166
Elimination of proceeds from our
programme of disposal of real estate
assets (231) (231) (148)
----------- ----------- ----------- -----------
FREE CASH FLOW 75 (340) (265) (674)
------------------------------------------------------------------------------------------
We use the free cash flow measure both for internal analysis purposes as well as
for external communications, as we believe it provides more accurate insight
into the actual amount of cash generated or used by our operations. Management
believes the presentation of free cash flow is beneficial to investors for this
reason.
ECONOMIC DEBT
We define economic debt to mean net debt (or financial debt net of short term
investments and cash and cash equivalents) plus cash proceeds from sale of trade
receivables ("securitisation of existing receivables"). Economic debt does not
represent our financial debt as calculated under French GAAP, and should not be
considered as an indicator of our currently outstanding indebtedness, as trade
receivables securitised are sold irrevocably and generally without recourse. The
financial measure most directly comparable to economic debt calculated and
presented in accordance with French GAAP is financial debt, and a reconciliation
of economic debt and financial debt as measured in accordance with French GAAP
is presented below.
-------------------------------------------------------------------------------
TOTAL GROUP At 30 Sept. At 30 Sept.
ACTUAL FIGURES 2002 At 31 March 2003
(IN € MILLION) (Unaudited) 2003 (Unaudited)
--------------------------------- ------------ ----------- -------------
Financial Debt 4,312 6,331 6,076
Undated subordinated notes(1) 250
Short term investments (265) (142) (98)
Cash and cash equivalents (2,126) (1,628) (1,671)
Cash proceeds from sale of trade
receivables 884 357 212
ECONOMIC DEBT 3,055 4,918 4,519
-------------------------------------------------------------------------------
(1) Our undated subordinated notes have been reclassified in Financial debt as
at 31 March 2003.
We use the economic debt measure both for internal analysis purposes as well as
for external communications, as we believe it provides a more accurate measure
by which to analyse our total external sources of funding for our operations and
its variation from one period to another.
CAPITAL EMPLOYED/RETURN ON CAPITAL EMPLOYED (ROCE)
We define capital employed to mean fixed assets, net, plus current assets
(excluding net amount of securitisation of existing receivables), less
provisions for risks and charges and current liabilities. The main part of our
other fixed assets is allocated to Corporate's capital employed because they are
managed by Corporate; they mainly include loans in respect of Marine Vendor
Financing and prepaid assets - pensions. Further, we use capital employed to
calculate return on capital employed (ROCE), which we define as EBIT divided by
capital employed. Capital employed does not represent current assets, as
calculated under French GAAP. The most directly comparable financial measure to
capital employed and presented in accordance with French GAAP is current assets,
and a reconciliation of capital employed and current assets is presented below.
Capital employed by Sector and for the Group as a whole are also presented in
Note 16 to the 30 September 2003 Interim Consolidated Financial Statements.
-------------------------------------------------------------------------------
TOTAL GROUP At 30 Sept. At 30 Sept.
ACTUAL FIGURES 2002 At 31 March 2003
(IN € MILLION) (Unaudited) 2003 (Unaudited)
--------------------------------- ------------ ----------- -------------
Current assets 13,010 11,728 11,031
Cash proceeds from sale of trade
receivables 884 357 212
Current liabilities (13,956) (12,917) (12,173)
Provisions for risk and charges (3,197) (3,698) (3,500)
Fixed assets 9,955 9,478 8,333
CAPITAL EMPLOYED 6,696 4,948 3,903
-------------------------------------------------------------------------------
We use the capital employed and ROCE measures both for internal analysis
purposes as well as for external communications, as we believe they provide
insight into the amount of financial resources employed by a Sector or the Group
as a whole and the profitability of a Sector or the Group as a whole in regard
to the resources employed. Management believes the presentation of capital
employed and ROCE is useful to investors for this reason.
COMPARABLE BASIS
The figures presented in this section include performance indicators presented
on an actual basis and on a comparable basis. Figures have been given on a
comparable basis in order to eliminate the impact of changes in business
composition and changes resulting from the translation of our accounts into Euro
following the variation of foreign currencies against the Euro. All figures
provided on a comparable basis are non-GAAP measures. We use figures prepared on
a comparable basis both for our internal analysis and for our external
communications, as we believe they provide means by which to analyse and explain
variations from one period to another. However, these figures provided on a
comparable basis are unaudited and are not measurements of performance under
either French or US GAAP.
To prepare figures on a comparable basis, we have performed the following
adjustments to the corresponding figures presented on an actual basis:
• restatement of the actual figures for the first and second halves of
fiscal year 2003 using 30 September 2003 exchange rates for order
backlog, orders received, sales and operating income and elements
constituting our operating income; and
• adjustments due to changes in business composition have then been made
to the same line items for first and second halves of fiscal year
2003. More particularly contributions of material activities sold
since 1 April 2003 have been excluded from the figures reported in the
first and second halves of fiscal year 2003, mainly the South Africa
business disposed of in September 2002 and Industrial Turbine
businesses disposed of in the first half of fiscal year 2004.
The following table sets out the estimated impact of changes in exchange rates
and in business composition ("Scope impact") for all indicators disclosed in
this document both on an actual basis and on a comparable basis for the first
and second halves of fiscal year 2003. No adjustment has been made on figures
disclosed for the first half of fiscal year 2004.
---------------------------------------------------------------------------------------------------------
1st Half 2nd Half
September 2002 March 2003
--------------------------------------- ---------------------------------------
UNAUDITED FIGURES ACTUAL EXCHANGE SCOPE COMPARABLE ACTUAL EXCHANGE SCOPE COMPARABLE
(IN € MILLION) FIGURES RATE IMPACT FIGURES FIGURES RATE IMPACT FIGURES
-------- -------- ------ ---------- -------- -------- ------ ----------
Power Turbo-systems n/a n/a n/a n/a 3,445 (53) 0 3,392
Power Environment n/a n/a n/a n/a 3,863 (42) 0 3,821
Power Service n/a n/a n/a n/a 2,793 (142) 0 2,651
Industrial Turbines n/a n/a n/a n/a 1,285 (29) (1,256) 0
POWER 13,599 N/A N/A N/A 11,386 (266) (1,256) 9,864
T&D 2,960 (112) 0 2,848 2,694 (71) 0 2,623
Transport 14,784 (739) 0 14,045 14,675 (240) 0 14,435
Marine 2,229 0 0 2,229 1,523 0 0 1,523
Corporate and other 39 (1) 0 38 52 (1) 0 51
-------- -------- ------ ---------- -------- -------- ------ ----------
ORDER BACKLOG 33,611 N/A N/A N/A 30,330 (578) (1,256) 28,496
Power Turbo-systems 1,368 (65) 0 1,303 453 (9) 0 444
Power Environment 1,469 (116) 0 1,353 1,114 (14) 0 1,100
Power Service 1,686 (131) 0 1,555 1,248 (57) 0 1,191
Industrial Turbines 508 (18) (170) 320 757 (16) (421) 320
POWER 5,031 (330) (170) 4,531 3,572 (96) (421) 3,055
T&D 2,067 (78) (85) 1,904 1,664 (44) 0 1,620
Transport 3,300 (165) 0 3,135 3,112 (51) 0 3,061
Marine 26 0 0 26 137 0 0 137
Corporate and other 113 (3) (29) 81 10l (1) 0 100
-------- -------- ------ ---------- -------- -------- ------ ----------
ORDERS RECEIVED 10,537 (576) (284) 9,677 8,586 (192) (421) 7,973
Power Turbo-systems 2,413 (144) 0 2,269 1,444 (29) 0 1,415
Power Environment 1,457 (142) 0 1,315 1,641 (48) 0 1,593
Power Service 1,350 (133) 0 1,217 1,328 (63) 0 1,265
Industrial Turbines 592 (16) (366) 210 676 (16) (450) 210
POWER 5,812 (435) (366) 5,011 5,089 (156) (450) 4,483
T&D 1,778 (78) (65) 1,635 1,827 (38) 0 1,789
Transport 2,339 (101) 0 2,238 2,733 (51) 0 2,682
Marine 725 0 0 725 843 0 0 843
Corporate and other 115 (1) (26) 88 90 (1) 0 89
-------- -------- ------ ---------- -------- -------- ------ ----------
SALES 10,769 (615) (457) 9,697 10,582 (246) (450) 9,886
Power Turbo-systems n/a n/a n/a n/a n/a n/a n/a n/a
Power Environment n/a n/a n/a n/a n/a n/a n/a n/a
Power Service n/a n/a n/a n/a n/a n/a n/a n/a
Industrial Turbines n/a n/a n/a n/a n/a n/a n/a n/a
POWER 270 (31) 2 241 (960) 88 (54) (926)
T&D 110 (3) (9) 98 117 (1) 0 116
Transport 90 (5) 0 85 (114) 19 0 (95)
Marine 16 0 0 16 8 0 0 8
Corporate and other 56 (1) 0 55 (100) (1) 0 (101)
-------- -------- ------ ---------- -------- -------- ------ ----------
OPERATING INCOME 542 (40) (7) 495 (1,049) 105 (54) (998)
---------------------------------------------------------------------------------------------------------
-------------------------------------------------------------
FULL YEAR FULL YEAR 1ST HALF
2002/03 2002/03 SEPT. 2003
------------------------------------
UNAUDITED FIGURES ACTUAL COMPARABLE ACTUAL
(IN € MILLION) FIGURES FIGURES FIGURES
--------- ---------- ---------
Power Turbo-systems 3,445 3,392 3,027
Power Environment 3,863 3,821 3,452
Power Service 2,793 2,651 2,860
Industrial Turbines 1,285 0 0
POWER 11,386 9,864 9,339
T&D 2,694 2,623 2,894
Transport 14,675 14,435 13,795
Marine 1,523 1,523 1,041
Corporate and other 52 51 105
--------- ---------- ---------
ORDER BACKLOG 30,330 28,496 27,174
Power Turbo-systems 1,821 1,747 839
Power Environment 2,583 2,453 1,042
Power Service 2,934 2,746 1,368
Industrial Turbines 1,265 640 320
POWER 8,603 7,586 3,569
T&D 3,731 3,524 1,801
Transport 6,412 6,196 1,672
Marine 163 163 340
Corporate and other 214 181 57
--------- ---------- ---------
ORDERS RECEIVED 19,123 17,650 7,439
Power Turbo-systems 3,857 3,684 1,211
Power Environment 3,098 2,908 1,331
Power Service 2,678 2,482 1,361
Industrial Turbines 1,268 420 210
POWER 10,901 9,494 4,113
T&D 3,605 3,424 1,562
Transport 5,072 4,920 2,297
Marine 1,568 1,568 822
Corporate and other 205 177 60
--------- ---------- ---------
SALES 21,351 19,583 8,854
Power Turbo-systems (1,399) (1,306) (127)
Power Environment 224 213 24
Power Service 403 380 196
Industrial Turbines 82 28 14
POWER (690) (685) 107
T&D 227 214 84
Transport (24) (10) (37)
Marine 24 24 4
Corporate and other (44) (46) (26)
--------- ---------- ---------
OPERATING INCOME (507) (503) 132
-------------------------------------------------------------
A significant part of our sales and expenditures are realised and incurred in
currencies other than the Euro. The principal currencies to which we had
significant exposures in fiscal year 2004 were the US Dollar, British Pound,
Swiss Franc, Mexican Peso and Brazilian Real. Our orders received and sales have
been impacted by the translation of our accounts into Euros resulting from
changes in value of the Euro against other currencies in fiscal year 2004. The
impact was a decrease of approximately 6% compared with first half of fiscal
year 2003.
PROFORMA FIGURES
The figures presented in this section include financial measures and performance
indicators presented on a proforma basis. Proforma figures have been adjusted to
reflect the effect of the disposals of the T&D Sector, excluding the Power
Conversion business, and our Industrial Turbines activities. For the derivation
of pro-forma sales, operating income and operating margin, see our Pro-forma
Consolidated Financial Statements year ended 31 March 2003 and half-year ended
30 September 2003 for more details. We derived order backlog and orders received
in an analogous manner.
KEY GEOGRAPHICAL FIGURES FOR FIRST AND SECOND HALF OF FISCAL YEAR 2003 AND FIRST
HALF OF FISCAL YEAR 2004
GEOGRAPHICAL ANALYSIS OF ORDERS
The table below sets out, on an actual basis, the geographic breakdown of orders
received by region of destination.
------------------------------------------------------------------------------------------------------------------
Actual Figures Proforma
-------------------------------------------------------------- --------------------
Figures
First Half 2nd Half First Half First Half
TOTAL GROUP Sept. 02 % March 03 % Sept. 03 % Sept. 03 %
(IN € MILLION) (Unaudited) contrib. (Unaudited) contrib. (Unaudited) contrib. (Unaudited) contrib.
Europe 5,180 49% 3,709 43% 3,819 51% 2,818 51%
North America 2,138 20% 2,466 29% 1,034 14% 869 16%
South and Central America 603 6% 395 5% 314 4% 244 4%
Asia / Pacific 1,638 16% 1,079 13% 1,193 16% 849 15%
Middle East / Africa 978 9% 937 11% 1,079 15% 761 14%
ORDERS RECEIVED BY DESTINATION 10,537 100% 8,586 100% 7,439 100% 5,541 100%
------------------------------------------------------------------------------------------------------------------
For the first half of fiscal year 2004, the geographic breakdown showed a
decrease of the North America's contribution as compared with the first half of
fiscal year 2003. For other regions the breakdown was broadly equivalent. The
decrease in North America was mainly due to the decrease in orders received by
Transport, which were at exceptionally high levels last year, due to
over-capacity in the power generation market and to the fall of the US dollar
against the Euro.
Europe remained the largest market in terms of orders received representing 51%
of the total. This region remained important for Transport as well as for Power
Environment.
Activity in South and Central America remained low and markets were depressed in
Brazil for Power Environment and Power Service.
The Asia / Pacific region remained stable, at 16% of the total. The level of
orders received during the first half of fiscal year 2004 was lower as compared
with last year although we believe the prospects for the future are positive.
The share of Middle East/Africa in orders received increased from 9% in the
first half of fiscal year 2003 and 11% in the second half of fiscal year 2003,
up to 15% in first half of fiscal year 2004, as a result of orders received by
our Power Turbo-Systems Sector in Algeria and Bahrain.
GEOGRAPHICAL ANALYSIS OF SALES BY REGION OF DESTINATION
The table below sets out, on an actual basis, the geographical breakdown of
sales by region of destination.
------------------------------------------------------------------------------------------------------------------
Actual Figures Proforma
-------------------------------------------------------------- --------------------
Figures
First Half 2nd Half First Half First Half
TOTAL GROUP Sept. 02 % March 03 % Sept. 03 % Sept. 03 %
(IN € MILLION) (Unaudited) contrib. (Unaudited) contrib. (Unaudited) contrib. (Unaudited) contrib.
Europe 4,303 40% 4,917 46% 4,161 47% 3,437 47%
North America 2,673 25% 2,046 19% 1,662 19% 1,435 20%
South and Central America 775 7% 759 7% 488 6% 410 6%
Asia / Pacific 1,833 17% 1,894 18% 1,875 21% 1,572 22%
Middle East / Africa 1,185 11% 967 9% 668 8% 454 6%
SALES BY DESTINATION 10,769 100% 10,583 100% 8,854 100% 7,308 100%
------------------------------------------------------------------------------------------------------------------
Although the level of sales in Europe decreased in actual terms, Europe's share
of total sales increased from 40% in the first half of last fiscal year to 46%
in the first half of fiscal year 2004. This is the result of the significant
decrease in sales in other areas such as North America and South and Central
America.
North America decreased mainly as a result of the low level of sales in the
field of power generation, reflecting the evolution of this market.
Asia/Pacific remained stable in absolute terms at about €1.9 billion, and its
share of total sales increased as major Power plant deliveries were achieved in
South East Asia.
POWER SECTORS
The following table sets out some key financial and operating data for the
former Power Sector:
--------------------------------------------------------------------------------------------------
First First % %
POWER Half 2nd Half Full Half Variation Variation
ACTUAL FIGURES Sept. 02 March 03 Year Sept. 03 Sept. 03/ Sept. 03/
(IN € MILLION) (Unaudited) (Unaudited) 2002/03 (Unaudited) Sept. 02 March 03
----------- ----------- ------- ----------- --------- -----------
Order backlog 13,599 11,386 11,386 9,339 (31%) (18%)
Orders received 5,031 3,572 8,603 3,569 (29%) (0%)
Sales 5,812 5,089 10,901 4,113 (29%) (19%)
Operating income 270 (960) (690) 107
Operating margin 4.6% (18.9%) (6.3%) 2.6%
EBIT 133 (1,196) (1,063) (118)
Capital Employed 3,529 2,383 2,383 1,679
ROCE 7.5% n/a n/a N/A
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
First Full First % %
POWER Half 2nd Half Year Half Variation Variation
COMPARABLE FIGURES Sept. 02 March 03 2002/03 Sept. 03 Sept. 03/ Sept. 03/
(IN € MILLION) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Sept. 02 March 03
----------- ----------- ----------- ----------- --------- ----------
Order backlog n/a 9,864 9,864 9,339 n/a (5%)
Orders received 4,531 3,055 7,586 3,569 (21%) 17%
Sales 5,011 4,483 9,494 4,113 (18%) (8%)
Operating income 241 (926) (685) 107
Operating margin 4.8% (20.7%) (7.2%) 2.6%
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
First First % %
POWER Half 2nd Half Full Half Variation Variation
PROFORMA FIGURES(1) Sept. 02 March 03 Year Sept. 03 Sept. 03/ Sept. 03/
(IN € MILLION) (Unaudited) (Unaudited) 2002/03 (Unaudited) Sept. 02 March 03
----------- ----------- ------- ----------- --------- -----------
Order backlog n/a 10,101 10,101 9,339 n/a (8%)
Orders received 4,523 2,815 7,338 3,249 (28%) 15%
Sales 5,220 4,413 9,633 3,903 (25%) (12%)
Operating income n/a n/a (772) 93
Operating margin n/a n/a (8.0%) 2.4%
--------------------------------------------------------------------------------------------------
(1) Proforma figures excluding Industrial Turbines businesses.
The Power Sector was reorganised into three new Sectors following the end of
fiscal year 2003. The figures shown above and discussed below reflect this new
organisation. However, due to the reorganisations, and to intra-segments/
inter-segments transactions, the figures reported for fiscal year 2003 cover
only full year operating income with no split of operating income by semester.
POWER TURBO-SYSTEMS
The following table sets out some key financial and operating data for the Power
Turbo-systems Sector:
--------------------------------------------------------------------------------------------------
First First % %
POWER TURBO-SYSTEMS Half 2nd Half Full Half Variation Variation
ACTUAL FIGURES Sept. 02 March 03 Year Sept. 03 Sept. 03/ Sept. 03/
(IN € MILLION) (Unaudited) (Unaudited) 2002/03 (Unaudited) Sept. 02 March 03
----------- ----------- ------- ----------- --------- -----------
Order backlog n/a 3,445 3,445 3,027 n/a (12%)
Orders received 1,368 453 1,821 839 (39%) 85%
Sales 2,413 1,444 3,857 1,211 (50%) (16%)
Operating income n/a n/a (1,399) (127)
Operating margin n/a n/a (36.3%) (10.5%)
EBIT n/a n/a (1,527) (219)
Capital Employed n/a n/a n/a (1,466)
ROCE n/a n/a n/a N/A
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
First Full First % %
POWER TURBO-SYSTEMS Half 2nd Half Year Half Variation Variation
COMPARABLE FIGURES Sept. 02 March 03 2002/03 Sept. 03 Sept. 03/ Sept. 03/
(IN € MILLION) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Sept. 02 March 03
----------- ----------- ----------- ----------- --------- ----------
Order backlog n/a 3,392 3,392 3,027 n/a (11%)
Orders received 1,303 444 1,747 839 (36%) 89%
Sales 2,269 1,415 3,684 1,211 (47%) (14%)
Operating income n/a n/a (1,306) (127)
Operating margin n/a n/a (35.5%) (10.5%)
--------------------------------------------------------------------------------------------------
ORDERS RECEIVED
The first half of fiscal year 2004 saw a continued downward trend in the power
generation market due to a decline in US activity and a slowdown in other parts
of the world, except for China. The uncertain global economic climate led to
delayed decisions about new capital investments. Overall, North America
experienced over-capacity and the new market forces shifted the focus away from
favouring merchant power plants to regulated businesses (utilities). In Europe
certain markets still show demand such as in Spain, Italy and the northern
countries; however sluggish economies may impact the progress of deregulation
and unbundling in the power generation and transmission market. The regional
demand in the Middle East remained sustained. Asia was much better oriented and
economic growth is coming back after the crisis of the late 1990's. China
continued to develop a very large equipment ordering programme to meet with
strong electricity demand but most of this is met by local suppliers.
The increased price volatility for fuel and electricity emanating from the
liberalisation of markets re-emphasised the need for flexibility and diversity
of power generation technologies.
On an actual basis, orders received by Turbo-Systems for the first half of
fiscal year 2004 were 85% higher than the second half of fiscal year 2003, but
39% lower than for the first half of fiscal year 2003, reflecting the overall
market environment described above.
During the first half of fiscal year 2004, Power Turbo-Systems booked the
following major orders:
• F Kirina, an open cycle plant in Algeria (2x GT13 E2 gas turbines);
• Alba P4, a combined cycle plant (2x GT 13 E2) for Aluminium Bahrain;
and
• Several Steam turbine retrofit orders, both in Europe and in the US.
By geography, compared to the second half of fiscal year 2003, orders received
significantly decreased by 20% in Europe, while North America dropped by 58%.
Steam turbine retrofits remained active, essentially for nuclear plants. South
America was extremely depressed with a limited expected level of new
infrastructure investments in the near future. Asia is still an important
market, but no significant project materialised during the first half of fiscal
year 2004. The most active region was Middle East, with a total amount of orders
received for the 6 month period already higher than the full fiscal year 2003.
SALES
Sales by Power Turbo-Systems in the first half of fiscal year 2004 decreased by
50% compared with the first half of fiscal year 2003, on an actual basis, and by
47% on a comparable basis. This is mainly due to very high level achieved during
the first half of last year, as a continuation of the exceptional level of
orders received in the prior years. The lower level of orders received in the
fiscal years 2002 and 2003, have had a significant negative impact on the
current year's sales.
On a actual basis, sales for Power Turbo-Systems in the first half of fiscal
year 2004 decreased by 16% compared with the second half of fiscal year 2003.
The effect of the decline in orders started to materialise in the second half of
last year, in particular for the sale of turbines to power plants.
By geography, compared to the second half of fiscal year 2003, North America
decreased by 35%, Europe decreased by 22%, while Asia/Pacific increased by 51%.
This is due to the high volumes traded on Power plant contracts, particularly in
Malaysia, Vietnam and Singapore.
OPERATING INCOME AND OPERATING MARGIN
Power Turbo-Systems' operating income was €(127) million in the first half of
fiscal year 2004 compared with €(1,399) million in the full fiscal year 2003 on
an actual basis. The main reasons for negative operating income in the first
half of fiscal year 2004 were the low level of sales recognised in the period
and a charge of €22 million, as certain anticipated achievements in our
mitigation plan for the GT24/GT26 did not materialise.
Operating income in fiscal year 2003 was strongly impacted by the negative
effects of the GT24/GT26 gas turbines problems and the related exceptional
provisions and accrued contract costs, and by a sharp decrease in sales as
compared with fiscal year 2002.
UPDATE ON GT24/GT26 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 the commercial operation of the second generation, or "B"
version turbines, in 1999 and 2000, a number of technical issues were
identified, showing the turbines would not meet the contractual performance and
lifetime obligations.
In response, we set in motion high-priority initiatives to design and implement
modifications across the fleet. The first step of these initiatives was to
de-rate the units so that they could operate in commercial service with lower
efficiency and output, while we developed the technical solutions to allow full
rating operation. We also embarked on a comprehensive programme to discuss and
resolve any contractual issues with customers. Commercial settlements with
customers were negotiated to deal with the consequences of the de-rating.
Typically, what was proposed was a Performance Recovery Period of around 2-3
years, prior to implementing the life-time and performance upgrades, that we
call a "recovery package". This deferred the timing of the date at which
provisional acceptance was achieved and related contractual remedies, including
liquidated damages, applied. During that period, varying solutions were applied
depending on the situation, however in general we replaced short life components
at our cost and agreed on contractual amendments, including revised financial
conditions, with each customer.
We have implemented several technical improvements to the turbines, which permit
flexible and reliable operation of the fleet. The cumulative plant reliability
since start of commercial operation is now 97% for the GT24/GT26 fleet.
Operational reliability and flexibility are important ingredients for our
customers, particularly for those in merchant markets.
Our confidence in the technology is being reinforced by the major progress
achieved, as modifications aimed at delivering enhancements to output and
efficiency have been designed, validated, tested and are being implemented as
follows:
• Compressor mass flow and efficiency increase for GT26 - Successful
demonstration of increased electrical output improvement at our
full-scale test facility in Birr, Switzerland. Compressor mass flow
and efficiency increase for GT24 successfully tested at a power plant
in Mexico. Improved, validated and tested compressor upgrades have
been installed on existing sites in USA, Spain and Ireland, and are
being included in new applications. The fleet lead unit, with the new
compressor, has now been in operation for more than 4,000 hours.
• High fogging Inlet System - Successful demonstration of an increase of
more than 6% in electrical output in both the test facility and field
validation units. The system can be applied to both existing and new
gas turbine installations.
• 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 installations.
• Life-time package - 5 engines have been fitted with the blade
improvement package, and after 2,300 hours of operation the inspection
shows a fully satisfactory behaviour.
The 72 machines in service had accumulated over 730,000 operating hours at high
reliability levels as of 30 September 2003.
The commercial situation with respect to the GT24/GT26 gas turbines is also
becoming clearer. Of the 80 units, 72 units are in commercial operation, 2 are
in commissioning, 2 are in construction and for 4 the contract has been
suspended. Commercial settlement is progressing well with several additional
agreements concluded (68 settlements agreed or not needed as at 13 November
2003), and all of the 7 litigation cases have now been settled satisfactorily.
Under agreements covering 31 of the units, we are committed to or otherwise have
the opportunity to make upgrade improvements within agreed time periods. The
remaining units, which are in commercial operation, are either in normal
warranty or have had those warranty periods expire. The order backlog still
includes €498 million, in respect of a GT26 contract for 4 units currently
suspended on which the owner has an option for termination. If this contract
does not proceed, the orders in hand will need to be adjusted accordingly.
In the fourth quarter of fiscal year 2003 unexpected setbacks and delays, now
resolved, were experienced in validating and testing several important
components of the recovery package, notably the compressor upgrade and "full
lifetime" blades. These delays resulted in our being unable to implement certain
scheduled performance recovery measures during the recovery periods agreed with
certain of our customers.
In the current state of the energy wholesale markets, customers do not have the
incentive to accept these machines. These delays therefore mean significantly
increased exposure as customers are less inclined to agree to further extensions
of the recovery periods and are invoking penalties and liquidated damages. We
also incur additional costs because we have been forced to shut down the
machines more frequently to replace short life components at our expense. Our
previously expected targets were therefore not achievable in the current
context.
In fiscal year 2000, ABB ALSTOM Power, of which we owned 50% at that time,
recorded a total of €519 million of provisions and accrued contract costs in
respect of the GT24/GT26 gas turbines. In fiscal year 2001, we recorded a total
of €1,068 million of provisions and accrued contract costs related to the
turbines and retained provisions and accrued contract costs of €1,530 million at
31 March 2001. In fiscal year 2002, we recorded an additional €1,075 million of
provisions and accrued contract costs related to the turbines and retained
provisions and accrued contract costs of €1,489 million at 31 March 2002,
including a €49 million provision in respect of an option exercised on a
contract after the bulk of the GT24/GT26 portfolio was sold. We recorded an
additional €1,637 million of provisions and accrued contract costs related to
these turbines in fiscal year 2003, including €83 million recorded in fiscal
year 2003 in the Customer Service Segment in respect of contracts transferred to
this Segment as part of our after market operations and on which we have no
uncovered exposure. We therefore retained €1,655 million of provisions and
accrued contract costs at 31 March 2003 in respect of these turbines after
taking into account mitigation plans of €454 million.
As of 30 September 2003, the mitigation target has been reduced by €118 million
to €336 million. This reduction included €22 million related to exchange rate
movements, €68 million of achieved mitigation actions and certain planned
mitigation actions which did not materialise resulting in a corresponding €28
million charge in our operating income for the first half of fiscal year 2004
(€22 million for Power Turbo-Systems and €6 million for Power Service). As of 30
September 2003, we retained €1,193 million of provisions and accrued contract
costs. This amount does not include €336 million of exposure, which we consider
the risks mitigated by appropriate action plans.
POWER ENVIRONMENT
The following table sets out some key financial and operating data for the Power
Environment Sector:
--------------------------------------------------------------------------------------------------
First First % %
POWER ENVIRONMENT Half 2nd Half Full Half Variation Variation
ACTUAL FIGURES Sept. 02 March 03 Year Sept. 03 Sept. 03/ Sept. 03/
(IN € MILLION) (Unaudited) (Unaudited) 2002/03 (Unaudited) Sept. 02 March 03
----------- ----------- ------- ----------- --------- -----------
Order backlog n/a 3,863 3,863 3,452 n/a (11%)
Orders received 1,469 1,114 2,583 1,042 (29%) (6%)
Sales 1,457 1,641 3,098 1,331 (9%) (19%)
Operating income n/a n/a 224 24
Operating margin n/a n/a 7.2% 1.8%
EBIT n/a n/a 107 (29)
Capital Employed n/a n/a n/a 850
ROCE n/a n/a n/a N/A
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
First Full First % %
POWER ENVIRONMENT Half 2nd Half Year Half Variation Variation
COMPARABLE FIGURES Sept. 02 March 03 2002/03 Sept. 03 Sept. 03/ Sept. 03/
(IN € MILLION) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Sept. 02 March 03
----------- ----------- ----------- ----------- --------- ----------
Order backlog n/a 3,821 3,821 3,452 n/a (10%)
Orders received 1,353 1,100 2,453 1,042 (23%) (5%)
Sales 1,315 1,593 2,908 1,331 1% (16%)
Operating income n/a n/a 213 24
Operating margin n/a n/a 7.3% 1.8%
--------------------------------------------------------------------------------------------------
ORDERS RECEIVED
Fiscal year 2003 saw an abrupt market downturn in the US - particularly in the
combined cycle market following a boom during the prior two years. The first
half of this year has shown a continuation of that trend. Latin America suffered
from economic difficulties last year leading to a drop in the number of projects
being built. The Brazilian market in particular was very weak, severely
impacting the Hydro business. In Europe, the market remained active in some
areas, in particular Germany for Waste to Energy contracts and Italy for Heat
Recovery Steam Generators. In Asia, China continued to develop its capacity of
electricity generation, with some awards in Hydro; however a large numbers of
projects were awarded to local suppliers.
The increased price volatility for fuel and electricity emanating from the
liberalisation of markets re-emphasised the need for flexibility and diversity
of power generation technologies. Environmental policies are increasingly being
integrated into market requirements favouring our environmental control
equipment.
Orders received by Power Environment in the first half of fiscal year 2004 were
lower than in the first half of 2003, due to the slow down in the markets across
all businesses that commenced during the second half of last year. In the first
half of fiscal year 2003, large contracts were booked in Utility Boilers (Santee
Cooper) & Hydro (Victoria Falls).
On an actual basis, orders received by Power Environment for the first half of
fiscal year 2004 decreased by 6% as compared with the second half of fiscal year
2003, and 29% as compared with the first half of fiscal year 2003.
During the first half of fiscal year 2004, Power Environment booked the
following major orders:
• In Germany, a combined heat and power plant in Sandreuth, two waste
incineration boilers in Muenster, new firing systems for lignite-fired
boilers in Schkopau; and
• In China, a circulating fluidised bed (CFB) boiler in Baima, Sichuan
Province.
By geography, orders were strongest in Europe this year. The strongest market
has been Germany, primarily the Waste to Energy market, but we also booked
orders in Italy and France. Some smaller orders were booked in China and India,
and our prospects in Asia remain positive overall. Activity in North and South
America continued to be low.
SALES
Sales of Power Environment in the first half of fiscal year 2004 fell 9%
compared with the first half of fiscal year 2003, on an actual basis, and
increased slightly on a comparable basis. Hydro Business sales were higher
compared to first half of last year due to a large order booked in the second
half of last year. Utility Boiler sales are significantly lower than first half
last year due to low bookings in the second half of last year.
OPERATING INCOME AND OPERATING MARGIN
The operating income of Power Environment was €24 million for the first half of
fiscal year 2004, compared with €224 million for the full fiscal year 2003. This
low level included a charge of €60 million related to the revised cost of
completion of a utility boiler contract in the US due to the bankruptcy of two
key subcontractors.
POWER SERVICE
The following table sets forth some key financial and operating data for the
Power Service Sector:
--------------------------------------------------------------------------------------------------
First First % %
POWER SERVICE Half 2nd Half Full Half Variation Variation
ACTUAL FIGURES Sept. 02 March 03 Year Sept. 03 Sept. 03/ Sept. 03/
(IN € MILLION) (Unaudited) (Unaudited) 2002/03 (Unaudited) Sept. 02 March 03
----------- ----------- ------- ----------- --------- -----------
Order backlog n/a 2,793 2,793 2,860 n/a 2%
Orders received 1,686 1,248 2,934 1,368 (19%) 10%
Sales 1,350 1,328 2,678 1,361 1% 2%
Operating income n/a n/a 403 196
Operating margin n/a n/a 15.0% 14.4%
EBIT n/a n/a 304 123
Capital Employed n/a n/a n/a 2,295
ROCE n/a n/a n/a 10.7%
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
First Full First % %
POWER SERVICE Half 2nd Half Year Half Variation Variation
COMPARABLE FIGURES Sept. 02 March 03 2002/03 Sept. 03 Sept. 03/ Sept. 03/
(IN € MILLION) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Sept. 02 March 03
----------- ----------- ----------- ----------- --------- ----------
Order backlog n/a 2,651 2,651 2,860 n/a 8%
Orders received 1,555 1,191 2,746 1,368 (12%) 15%
Sales 1,217 1,265 2,482 1,361 12% 8%
Operating income n/a n/a 380 196
Operating margin n/a n/a 15.3% 14.4%
--------------------------------------------------------------------------------------------------
ORDERS RECEIVED
Fiscal year 2003 saw a continuation of trends already emerging in the last
financial year in the service market for gas fired and combined cycle plants.
Clients generally were more cost driven and continued to lower their maintenance
budgets. Many markets showed impacts of generation over-capacity and high fuel
prices leading to less operating hours and deferred spending, thus lowering the
potential service business. Despite these difficult circumstances, the business
maintained a good workload with regular service work and the development of the
sale of service packages and system solutions in addition to parts and repair
projects.
The increased price volatility for fuel and electricity following the
liberalisation of markets has re-emphasised the need for flexibility and
diversity of power generation technologies and environmental policies are
increasingly being integrated into market requirements. These developments
favour our upgrade solutions for existing equipment.
Complete power plant management solutions are mainly sold for new plants and are
therefore directly affected by the market success of new gas fired and combined
cycle plants sold by the Power Turbo-Systems Sector.
On a regional basis orders were strong in the US supported by the booking of
several time and material contracts and our large installed base of coal fired
plants, which have been running at high capacity.
Capacity increase projects in Italy, mainly conversions from Steam to combined
cycle power plants, are ongoing. In Spain, new Combined Cycle Gas Turbines will
continue to come online in 2003, offering some opportunities for the near
future. The German market remained stable while the Eastern European markets
were and continue to be slow. In Asia several long term service agreements were
signed.
On a comparable basis, orders received for the first half of fiscal year 2004
were 15% higher than the second half of fiscal year 2003, but 12% lower than for
the first half of fiscal year 2003. The decrease in orders received compared
with the strong first half of fiscal year 2003 was mainly due to the delay in
several larger Operation & Maintenance orders.
During the first half of fiscal year 2004, Power Service booked the following
major orders:
• In the US, an order for a Hot Gas Protection Plant for a GT24 Combined
Cycle Plant for La Paloma and an order for a GT11N inspection in
Camabalanche;
• In Fortaleza, Brazil, an O&M order for a GT11N2 Power plant for CGTF;
and
• In Olkiluoto, Finland, a modernisation and design contract for new
reheaters/moisture separators and High Pressure Turbine for a power
plant.
By geography, on an actual basis, orders received decreased by 9% in Europe,
essentially due to a decrease in France and UK to some extent compensated by a
slight increase in Germany. North America increased by 20%, due to a strong US
general construction business and high service volumes on our large installed
fleet of coal plants. South America was low during this year while prospects in
Asia remain good although volumes have been somewhat below last years' level.
SALES
Salesbooked by Power Service in the first half of fiscal year 2004 were stable
as compared with the first half of fiscal year 2003, on an actual basis, and
increased 12% on a comparable basis. This is mainly due to a healthy level of
sales in the US supported by a strong opening backlog of Time & Material work
for environmental contracts and increased sales on O&M contracts as more
contracts were starting their operation phase this year.
On a comparable basis, sales for the first half of fiscal year 2004 increased by
8% for the Power Service Sector compared with the second half of fiscal year
2003. This increase was due to several reasons including slightly increasing
construction sales in the US and a strong increase in Spain and Columbia
supported by higher sales on O&M contracts.
OPERATING INCOME AND OPERATING MARGIN
Power Service operating income was €196 million or 14.4% of sales in the first
half of fiscal year 2004 compared with €403 million or 15.0% of sales for the
full fiscal year 2003. This slight decrease resulted from the integration within
the Power Service Sector of two loss making activities transferred from the
former Industrial Segment, to negative settlements on two old contracts, and to
a charge of €6 million given that certain anticipated achievements in our
mitigation plan for the GT24/GT26 relating to Power Service did not materialise.
INDUSTRIAL TURBINES
The following table sets out some key financial and operating data for our
Industrial Turbines businesses:
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First First % %
INDUSTRIAL TURBINES Half 2nd Half Full Half Variation Variation
ACTUAL FIGURES Sept. 02 March 03 Year Sept. 03 Sept. 03/ Sept. 03/
(IN € MILLION) (Unaudited) (Unaudited) 2002/03 (Unaudited) Sept. 02 March 03
----------- ----------- ------- ----------- --------- -----------
Order backlog n/a 1,285 1,285 0 n/a (100%)
Orders received 508 757 1,265 320 (37%) (58%)
Sales 592 676 1,268 210 (65%) (69%)
Operating income n/a n/a 82 14
Operating margin n/a n/a 6.5% 6.7%
EBIT n/a n/a 53 7
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Our Industrial Turbines businesses were sold to Siemens in the first half of
fiscal year 2004 pursuant to two transactions: our small gas turbines business
with effect from 30 April 2003 and our medium-sized gas turbines and industrial
steam turbines businesses with effect from 1 August 2003. Certain minor sites
have yet to be transferred to the buyer pending completion of legal procedures
relating, for example, to competition regulations.
The scope of the businesses which we have sold is a sum of several management
units, assets and investments for which it is very complex to reconstruct
historical data for the first month of last year, for our small gas turbines
business, and for the first four months of last year, for our medium-sized gas
turbines and industrial steam turbines businesses. For the presentation of
ALSTOM's comparable consolidated figures for fiscal year 2003, we have taken the
same data as for fiscal year 2004.
TRANSMISSION & DISTRIBUTION (T&D)
Our T&D Sector has been sold to Areva, excluding our Power Conversion
business, with a completion of the transaction forecasted for the beginning of
January 2004.
The following table sets out some key financial and operating data for our
T&D Sector:
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First First % %
T&D Half 2nd Half Full Half Variation Variation
ACTUAL FIGURES Sept. 02 March 03 Year Sept. 03 Sept. 03/ Sept. 03/
(IN € MILLION) (Unaudited) (Unaudited) 2002/03 (Unaudited) Sept. 02 March 03
----------- ----------- ------- ----------- --------- -----------
Order backlog 2,960 2,694 2,694 2,894 (2%) 7%
Orders received 2,067 1,664 3,731 1,801 (13%) 8%
Sales 1,778 1,827 3,605 1,562 (12%) (15%)
Operating income 110 117 227 84
Operating margin 6.2% 6.4% 6.3% 5.4%
EBIT 61 20 81 6
Capital Employed 1,028 963 963 1,008
ROCE 11.9% 4.2% 8.4% 1.2%
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First Full First % %
T&D Half 2nd Half Year Half Variation Variation
COMPARABLE FIGURES Sept. 02 March 03 2002/03 Sept. 03 Sept. 03/ Sept. 03/
(IN € MILLION) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Sept. 02 March 03
----------- ----------- ----------- ----------- --------- ----------
Order backlog 2,848 2,623 2,623 2,894 2% 10%
Orders received 1,904 1,620 3,524 1,801 (5%) 11%
Sales 1,635 1,789 3,424 1,562 (4%) (13%)
Operating income 98 116 214 84
Operating margin 6.0% 6.5% 6.3% 5.4%
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ORDERS RECEIVED
Over the first half of fiscal year 2004, the transmission and distribution
market stabilised after the previous years' weak evolution, however at a
relatively low level. This was due to macro-economic uncertainty following the
Iraq war and political instability in South America. By region, Europe remained
weak, especially in the industrial market. North America started to show first
signs of recovery. Asia, especially China, continued to show strong growth
despite SARS epidemic. India shows also positive perspectives for the coming
period following the implementation of a new regulatory framework.
Orders received by T&D in the first half of fiscal year 2004 decreased by 13%
compared with the first half of fiscal year 2003, mainly due to exchange rate
variations and the impact of the disposal of our activities in South Africa in
September 2002. On a comparable basis, the decrease was 5%. The level of orders
received has decreased by 14% in Europe, particularly in Germany and the UK.
This was partly offset by an increased order intake in Scandinavia and Russia.
With total orders of €791 million in the first half of fiscal year 2004, Europe
remained the largest contributor to T&D activity (44% of T&D orders received).
Order intake in the Americas almost halved as compared to the first half of
fiscal year 2003, as a result of the negative exchange rate impact and the lack
of large orders received, in South America. In the US, there was a decrease in
the activity of both Power Conversion and Energy Management Market Businesses.
The African/Middle Eastern market was lower than last year, with a 9% decrease
in the level of orders received. This evolution was due to the phasing of large
orders that are expected in the second half of the fiscal year. This area
remains a growing market for T&D, with large projects being won in the
Transmission Projects Business.
T&D's orders in Asia increased by 25% due to a high level of activity in China.
The main contributor to this increase was Power Conversion, which booked several
large projects in this region.
SALES
T&D sales amounted to €1,562 million in the first half of fiscal year 2004, a
decrease of 12% compared with the first half of fiscal year 2003. On a
comparable basis, the decrease was limited to 4%.
Sales decreased particularly in the Middle East/Africa, notably due to the
disposal of South African activities. This decrease was partially offset by
sales in Algeria and Bahrain, where the trading of significant contracts
started.
T&D's trading activity in Europe remained stable. This is principally due to the
volume of system orders won at the beginning of fiscal year 2003 in Eastern
Europe, where the projects won in Kazakhstan and Romania last year started to be
traded.
Sales in the Americas dropped 28%. Sales in the Asian market decreased slightly,
while the level of trading in China continued to increase mainly in the High
Voltage Products business.
OPERATING INCOME AND OPERATING MARGIN
T&D operating income amounted to €84 million in first half of fiscal year 2004,
compared with €110 million in the first half of fiscal year 2003 on an actual
basis, or €98 million on a comparable basis. The operating margin was 5.4% in
the first half of fiscal year 2004 as compared with 6.2% in the first half of
fiscal year 2003. T&D's operating margin was impacted by the low level of sales
recorded in the first half of the year in both product and system activities.
Despite the improvement in productivity in most of the businesses, as a result
of the standardisation programme launched in medium voltage and power
transformer activities and to the rationalisation of the production platform
launched in Europe, the gross margin and the operating income declined.
The operating working capital was adversely impacted by the lack of bonds
available at Group level, while the phasing of several large transmission
projects was not favourable, with down payments received at the end of last year
and expenses being incurred during the first half year.
TRANSPORT
The following table sets out some key financial and operating data for the
Transport Sector:
--------------------------------------------------------------------------------------------------
First First % %
TRANSPORT Half 2nd Half Full Half Variation Variation
ACTUAL FIGURES Sept. 02 March 03 Year Sept. 03 Sept. 03/ Sept. 03/
(IN € MILLION) (Unaudited) (Unaudited) 2002/03 (Unaudited) Sept. 02 March 03
----------- ----------- ------- ----------- --------- -----------
Order backlog 14,784 14,675 14,675 13,795 (7%) (6%)
Orders received 3,300 3,112 6,412 1,672 (49%) (46%)
Sales 2,339 2,733 5,072 2,297 (2%) (16%)
Operating income 90 (114) (24) (37)
Operating margin 3.8% (4.2%) (0.5%) (1.6%)
EBIT 43 (156) (113) (150)
Capital Employed 759 738 738 467
ROCE 11.3% n/a n/a N/A
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--------------------------------------------------------------------------------------------------
First Full First % %
TRANSPORT Half 2nd Half Year Half Variation Variation
COMPARABLE FIGURES Sept. 02 March 03 2002/03 Sept. 03 Sept. 03/ Sept. 03/
(IN € MILLION) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Sept. 02 March 03
----------- ----------- ----------- ----------- --------- ----------
Order backlog 14,045 14,435 14,435 13,795 (2%) (4%)
Orders received 3,135 3,061 6,196 1,672 (47%) (45%)
Sales 2,238 2,682 4,920 2,297 3% (14%)
Operating income 85 (95) (10) (37)
Operating margin 3.8% (3.5%) (0.2%) (1.6%)
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ORDERS RECEIVED
During the first half of fiscal year 2004, the market remained active in Europe
and Asia, which partially compensated the downturn in North America. The Tram
market remained the most active, and we were awarded several contracts such as
in Strasbourg, Valenciennes, and Grenoble in France, and Alicante in Spain. We
believe that this market segment will remain active with additional orders in
the coming months.
During the first half of the fiscal year 2004, we confirmed 2 significant Metro
contracts, one being 84 new vehicles for the London Underground and the other
being the supply of 168 new cars for the Yanpu line in Shanghai.
The Information Solutions segment still maintains a high level of potential, and
we took advantage of our competitiveness with major orders in Chile, China,
South Korea, and the Netherlands.
Several countries, such as Italy, Spain, Switzerland, UK and the Netherlands,
are now expanding their high speed networks, which offer very significant
business opportunities over the coming months.
The North East line in Singapore having successfully entered into service,
represented a significant showcase for our automatic driver-less system
capabilities world wide.
The Orders received by Transport in the first half of fiscal year 2004 amounted
to €1,672 million compared with €3,135 million in the first half of fiscal year
2003, on a comparable basis. This decrease by 47% was due to lower order intake
in the US where we received in fiscal year 2003 major orders and to some extent
to the uncertainties pending the announcement by ALSTOM of our revised financing
package. Since this announcement, we have experienced a positive response from
the market illustrated by about €700 million worth of orders secured in October
2003, which we consider to be a clear sign of renewed customer confidence.
Services, which include maintenance and renovation contracts, represented 21% of
the orders received for the first half of fiscal year 2004, as compared with 14%
for the first half of fiscal year 2003.
As a percentage of total orders received, Asia & North America represented
respectively 11% and 13% of the total orders received compared with 14% and 16%
for the same period of last year. Europe continued to represent a very
significant market with 72% of orders received.
The major orders received in first half of the fiscal year 2004 included:
• 28 car trainsets and 59 trailer cars for Jubilee line in London
underground;
• multi-year maintenance of freight locomotives in Mexico for Ferrosur;
• 35 Citadis trams in Strasbourg;
• 21 Citadis trams in Valenciennes;
• 35 Citadis trams in Grenoble;
• 168 metropolis cars for YangPu Metro Line in Shanghai;
• 9 light train rails from the Spanish region of Alicante;
• 55 Coradia lint regional trains for DB Regional trains;
• 60 additional trains four-car class 423 for Deutsche Bahn;
• ERTMS train control for Betuweroute rail line in Netherlands;
• Signaling system for Santiago metro line 4.
SALES
Sales in Transport decreased by 2% in first half of fiscal year 2004 compared
with first half of fiscal year 2003, on an actual basis, and increased by 3% on
a comparable basis. This was mainly due to the delivery of turnkey operations,
especially in Greece (Athens suburban line), in Spain and in France (Trams
Citadis), and to the maintenance and refurbishment activities located in Spain
and Germany for locomotive renovation.
In first half of fiscal year 2004, Transport's sales breakdown by region was as
follows: Europe 71%, the Americas 9% and Asia/Pacific 20%. Compared with the
first half of fiscal year 2003, Europe increased from 62% to 71% whereas the
Americas and Asia both decreased.
OPERATING INCOME AND OPERATING MARGIN
Project reviews led management to make revised estimates of costs to complete
contracts in our Transport Sector, leading to additional charges of €102 million
in relation to the US Transport business. As a consequence, operating income of
Transport in the first half of fiscal year 2004 amounted to €(37) million,
compared with €90 million in the first half of fiscal year 2003 on an actual
basis. Transport's operating income was €(114) million in the second half of
fiscal year 2003 due to provisions recorded on the UK Trains for €140 million
and on the US Trains for €73 million.
UK TRAINS
In 1997, shortly after the privatisation of the UK rail industry, we took five
orders for a total of 119 new regional trains with an aggregate value of €670
million. These contracts were part of the first series of orders following the
rail deregulation in the UK. At the end of March 2002, we reported that
difficulties had been encountered on these UK Regional Trains contracts. As at
30 September, all 119 Regional Trains have been delivered to the respective
train operating companies. Commitments made to customers in the previous fiscal
year in order to close out contractual disputes are being followed. This
includes extensive modification and warranty programmes at depots and the
Washwood Heath manufacturing plant.
On the West Coast Main Line (WCML) contract, the project experienced major
delays due to changing specifications and the high level of uncertainty
regarding upgrading of the WCML route and infrastructure. The major activity
relates to Pendolino High Speed Tilting Trains. At the end of September 2003, 28
of the 53 trains had been delivered, in line with the latest agreement with the
operator and the Strategic Rail Authority. Trains are being used on the
infrastructure operating a restricted service and for crew and driver training.
The next key milestone for the project is the award of the 125 miles per hour
passenger safety case and the tilting system. This is expected by the end of
November 2003. We expect that all trains will be in service by September 2004.
While our dispute on the WCML contract is currently in litigation, we continue
to attempt to reach a settlement with the buyer and the operator regarding such
claims. The conclusion of the Regional Train contracts, the conclusion of the
WCML contract expected in the near future and the lack of orders in the UK have
resulted in our decision to close the new build assembly facility in Washwood
Heath. An initial redundancy of 220 was announced in July 2003 and consultation
is currently underway with employee representatives. A key priority is to
maintain a balance between the need to reduce cost and meet our commitments on
the above programmes.
MARINE
The following table sets out some key financial and operating data for our
Marine Sector:
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First First % %
MARINE Half 2nd Half Full Half Variation Variation
ACTUAL FIGURES Sept. 02 March 03 Year Sept. 03 Sept. 03/ Sept. 03/
(IN € MILLION) (Unaudited) (Unaudited) 2002/03 (Unaudited) Sept. 02 March 03
----------- ----------- ------- ----------- --------- -----------
Order backlog 2,229 1,523 1,523 1,041 (53%) (32%)
Orders received 26 137 163 340 1208% 148%
Sales 725 843 1,568 822 13% (2%)
Operating income 16 8 24 4
Operating margin 2.2% 0.9% 1.5% 0.5%
EBIT 15 (3) 12 (2)
Capital Employed (220) (343) (343) (593)
ROCE n/a n/a n/a N/A
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ORDERS RECEIVED
Since 2001, Marine's main market, cruise-ship construction, has remained very
weak world wide, due both to the high level of orders in the previous years (the
year 2000 ended with a record orderbook of 50 ships under construction worldwide
- essentially in Europe) and to the uncertainties following September 2001
events. In 2001, there was only one new order worldwide (for ALSTOM), in 2002,
there were only 3 new orders world wide, and in 2003, none until September 2003,
when 3 new orders were booked by certain European yards. A number of observers
of the cruise market see the September 2003 orders as the possible sign of an
upcoming market recovery.
The LNG carrier market remained very active, but is jeopardised by the low
pricing policy of the Korean yards. In June 2003, the European Commission
extended to this segment the protective subsidies reserved to the market
segments directly exposed to Korean detrimental prices.
Orders received by Marine during the first half of fiscal year 2004 reached €340
million comprising a trans-Channel car-ferry for Seafrance and a 153,000 m3 LNG
carrier- for Gaz de France.
SALES
Sales amounted to €822 million in the first half of fiscal year 2004. Marine
completed and delivered during the first half of fiscal year 2004 the following
vessels:
• the cruise-ship Island Princess to P&O Princess (now Carnival plc);
• the cruise-ship Crystal Serenity to NYK/Crystal Cruises;
• a surveillance frigate to the Royal Moroccan Navy.
OPERATING INCOME AND OPERATING MARGIN
Operating income was €4 million in the first half of fiscal year 2004. Marine
had to bear additional costs in the completion and delivery of a cruise-ship,
and accrued contingency provisions on several other contracts obtained without
subsidies. Marine also had to provide for indemnification of the owners of
several recently-delivered cruise-ships propelled by podded drives.
RENAISSANCE
We had undertaken vendor financing in support of the recovery plan for the
Marine Sector from fiscal year 1996 to fiscal year 1998, which had helped us to
obtain repeat orders for cruise-ships and increased the productivity of the
shipyard. We had provided guarantees to financial institutions relating to
indebtedness incurred by certain purchasers of our cruise-ships and fast
ferries. As at 30 September 2003, the remaining guarantees related to a total of
fourteen ships, including six cruise-ships delivered to Renaissance Cruises
("Renaissance") and eight ships for four other customers. In addition, two other
cruise-ships had been supplied to Renaissance without vendor financing.
Renaissance filed for bankruptcy in September 2001. Thereafter, we and the
lenders undertook actions to secure and maintain the ships and to restructure
their financing. Our overall exposure to Renaissance vendor financing at 30
September 2001 was €684 million in guarantees of financing made in connection
with the delivery of the six ships.
As part of the restructuring, which was completed in fiscal year 2002, ownership
of the six ships, including four that were previously owned by four special
purpose leasing entities in which we had an interest, was transferred to
subsidiaries of Cruiseinvest (Jersey) Ltd., an entity in which we own no shares
and on the management of which we have no control. Cruiseinvest financed this
acquisition principally through bank borrowings, guaranteed in part by us. In
addition, we purchased subordinated limited recourse notes issued by
Cruiseinvest, agreed to provide Cruiseinvest with a line of credit and met
certain of our commitments under our pre-existing guarantees. Interest on the
subordinated limited recourse notes is payable only from amounts remaining after
satisfaction of payments due on Cruiseinvest's bank borrowings.
In parallel, the remarketing of the ships commenced, with the objective to put
the ships back into cruise operations as quickly as possible, through bare-boat
or time charters, and eventually sell them to the new operators when normal
conditions are restored on the second-hand market. One of these ships was
chartered to Swan Hellenic, a subsidiary of P&O Princess and resumed operations
in April 2003. Two other ships have been operated from summer 2003 by Oceania
Cruise, a new cruise-operator. Two others have also been operated from spring
2003 by Pullmantur, with possibilities of extension. A long-term lease has also
been finalised with the European operator Delphin Seereisen for one ship, which
has resumed cruise operations from summer 2003. The two other ships supplied to
Renaissance without vendor financing have also been taken over by P&O Princess
pursuant to a forward sales contract for transfer of title in 2005, and resumed
cruise operations in November and December 2002. In brief, all the eight former
Renaissance ships had resumed cruise operations on or before July 2003.
Our overall exposure to Renaissance vendor financing was €344 million at 30
September 2003, as compared with €368 million at 31 March 2003.
In addition to our Renaissance "vendor financing exposure", our other
outstanding Marine vendor financing guarantees amounted to €306 million at 30
September 2003 compared with €565 million at 31 March 2003, relating to six
cruise-ships and two high-speed ferries for four different customers. This
decrease is mainly due to the early reimbursement to us of €180 million of debt
due to us from two special purpose entities following the agreement with our
lenders on our financing package.
Consequently, our total vendor financing exposure in relation to Marine amounted
to €650 million at 30 September 2003 compared with €933 million at 31 March
2003.
The last shipbuilding contract having benefited from any type of vendor
financing came into force in November 1999. There is no other vendor financing
arrangement or commitment relating to any contract in Marine's order backlog.
As a result of the foregoing, we maintained a provision of €140 million at 30
September 2003 to cover risks associated with Marine vendor financing, unchanged
compared with 31 March 2003.
CORPORATE AND OTHER
"Corporate and Other" 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 which are not reported by Sectors.
The following table sets out some key financial and operating data for our
Corporate and Other organisation:
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First First % %
CORPORATE & OTHER Half 2nd Half Full Half Variation Variation
ACTUAL FIGURES Sept. 02 March 03 Year Sept. 03 Sept. 03/ Sept. 03/
(IN € MILLION) (Unaudited) (Unaudited) 2002/03 (Unaudited) Sept. 02 March 03
----------- ----------- ------- ----------- --------- -----------
Order backlog 39 52 52 105 169% 102%
Orders received 113 101 214 57 (50%) (44%)
Sales 115 90 205 60 (48%) (33%)
Operating income 56 (100) (44) (26)
EBIT 70 (116) (46) (32)
Capital employed 1,601 1,208 1,208 1,342
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First Full First % %
CORPORATE & OTHER Half 2nd Half Year Half Variation Variation
COMPARABLE FIGURES Sept. 02 March 03 2002/03 Sept. 03 Sept. 03/ Sept. 03/
(IN € MILLION) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Sept. 02 March 03
----------- ----------- ----------- ----------- --------- ----------
Order backlog 38 51 51 105 176% 106%
Orders received 81 100 181 57 (30%) (43%)
Sales 88 89 177 60 (32%) (33%)
Operating income 55 (101) (46) (26)
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OPERATING INCOME
Operating income included Corporate costs as well as the contribution of the
International Network and the overseas entities, for the first half of fiscal
year 2004, the operating income included as well some costs from the
headquarters of the former Power Sector that have been allocated to Corporate.
Operating income was €(26) million in the first half of fiscal year 2004,
compared with €(44) million for the full year 2003. Costs incurred in fiscal
year 2004 include some former sector costs, which are now borne by Corporate for
around €25 million for the full year 2003.
CAPITAL EMPLOYED
Capital employed were €1,342 million as at 30 September 2003, including the main
part of our other fixed assets, net (See Note 9 to the 30 September 2003 Interim
Consolidated Financial Statements).
FINANCIAL STATEMENTS
INCOME STATEMENT
The following table sets out, on a consolidated basis, the elements of our
operating income both on an actual and on a comparable basis for the Group as a
whole:
-------------------------------------------------------------------------
First First
TOTAL GROUP Half 2nd Half Full Half
ACTUAL FIGURES Sept. 02 March 03 Year Sept. 03
(IN € MILLION) (Unaudited) (Unaudited) 2002/03 (Unaudited)
----------- ----------- ------- -----------
SALES 10,769 10,582 21,351 8,854
Cost of sales (8,905) (10,282) (19,187) (7,577)
Selling expenses (515) (455) (970) (435)
R & D expenses (319) (303) (622) (239)
Administrative expenses (488) (591) (1,079) (471)
OPERATING INCOME 542 (1,049) (507) 132
Operating margin 5.0% (9.9%) (2.4%) 1.5%
-------------------------------------------------------------------------
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TOTAL GROUP Full First
Year Half
PROFORMA FIGURES 2002/03 Sept. 03
(IN € MILLION) (unaudited) (unaudited)
----------- -----------
SALES 17,078 7,308
Cost of sales (16,001) (6,454)
Selling expenses (609) (286)
R & D expenses (465) (187)
Administrative expenses (813) (347)
OPERATING INCOME (810) 34
Operating margin (4.7%) 0.5%
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SALES
Sales were €8,854 million in the first half of fiscal year 2004, compared with
€10,769 million in the first half of fiscal year 2003, a decrease of 18%, due
principally to exchange rate variations, to the disposal of the Industrial
Turbines businesses, and to lower sales of Power Turbo-systems while sales in
other sectors remained stable or slightly increased on a comparable basis. Sales
in first half of fiscal year 2004 decreased by 16% as compared with sales in
second half of fiscal year 2003.
Percentage of services in sales increased to 25% in first half of fiscal year
2004, compared with 21% and 26% in first half of fiscal year 2003 and in second
half of fiscal year 2003.
No single customer represented more than 10% of our sales in any of the three
periods discussed.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses were €906 million in first half of fiscal
year 2004 compared with €1,003 million in first half of fiscal year 2003 and
€1,046 million in second half of fiscal year 2003. This decrease reflected the
savings and the first impact of the restructuring programmes launched as part of
our action plan.
RESEARCH AND DEVELOPMENT EXPENSES
Research and Development expenses were €239 million in the first half of fiscal
year 2004, decreasing compared with €319 million in the first half of fiscal
year 2003 and with €303 million in second half of fiscal year 2003. This
decrease was due to a decrease in expenses in connection with the GT24/GT26 gas
turbines as the technology stabilised, and to the phasing of these expenses.
OPERATING INCOME (LOSS) AND OPERATING MARGIN
Operating income is measured before restructuring costs, goodwill and other
acquired intangible assets, amortisation expenses and other items, which include
foreign exchange gains and losses, gains and losses on sales of assets, pension
costs and employee profit sharing and before taxes, interest income and
expenses. Operating margin is calculated by dividing the operating income by the
total annual sales.
Operating income and operating margin were €132 million and 1.5% in the first
half of fiscal year 2004, as compared with operating income of €542 million and
margin of 5.0% in first half of fiscal year 2003, on an actual basis and an
operating income of €(1 049) million and margin of (9.9)% in the second half of
fiscal year 2003.
In the second half of fiscal year 2003, exceptional provisions and accrued costs
were recorded for the GT24/GT26 heavy-duty gas turbines and for UK Trains.
Our operating margin in the first half of fiscal year 2004 was impacted by:
• the lower level of sales which was not fully offset by corresponding
decrease in operating expenses as the restructuring plans being
launched in this first half year of 2004 did not yet have a material
impact; and
• charges amounting to €102 million for our Transport Sector and to €60
million for our Power Environment Sector respectively as a result of
additional provisioning following project reviews in the US and of the
bankruptcy of two subcontractors in the US.
EARNINGS BEFORE INTEREST AND TAX (EBIT)
EBIT was €(296) million in the first half of fiscal year 2004, compared with
€322 million in the first half of fiscal year 2003 and €(1,451) million in the
second half of fiscal year 2003.
The negative EBIT in the first half of fiscal year 2004 was due to:
• the low level of operating income;
• high restructuring costs amounting to €276 million in the first half
of fiscal year 2004, compared with €80 million in the first half of
fiscal year 2003. The increase in first half of fiscal year 2004 was
due to additional restructuring plans in order to reduce our overheads
significantly. During the first half of the year, restructuring plans
were implemented and led to simplification of administrative processes
and to a reduction of layers. Restructuring costs are accrued when
management announces the reduction or closure of facilities, or a
programme to reduce the workforce and when related costs are precisely
determined. Such costs include employees' severance and termination
benefits, estimated facility closing costs and write-off of assets;
• pension costs were €138 million in the first half of fiscal year 2004,
compared with €97 million in the first half of fiscal year 2003 and
€117 million in the second half of fiscal year 2003. This increase was
primarily due to an increase in the amortisation of the unrecognised
actuarial difference between pension obligations and the fair market
value of the assets following the fall in the global stock market; and
• partly offset by exceptional capital gains of €49 million mainly on
the disposal of our Industrial Turbines businesses and of real estate
in first half of fiscal year 2004, whereas capital losses occurred in
the first half of fiscal year 2003 for an amount of €10 million
corresponding mainly to the disposal of South Africa operations and
ALSTOM Power Insurance Ltd.
FINANCIAL EXPENSES, NET
The deterioration of our net financial expenses, €220 million in the first half
of fiscal year 2004 compared with €128 million in the first half of fiscal year
2003 and €142 million in the second half of fiscal year 2003, was due to the
increase in fees paid on credit lines in connection with the agreements reached
in March 2003 for a bridge facility and extension of maturity for certain loans
and to the amortisation of costs on securitisation of future receivables with
the final delivery of cruise-ships as well as by foreign exchange losses (€20
million) where gains of €35 million were recorded in the first half of fiscal
year 2003.
Exceptional fees linked to restructuring of our debt (both for the negotiations
in March 2003 for the new bridge facility and extended loans and for the
refinancing package agreement in September 2003) should amount to a total of €94
million, which will be paid out over a number of years. The related charge in
our income statement was around €4 million for the first half of fiscal year
2004, and an additional €8 million should be incurred during the second half of
the fiscal year. The remaining amount will be amortised over the next five
fiscal years.
INCOME TAX
The income tax credit was €29 million for the first half of fiscal year 2004. In
first half of fiscal year 2004, we recognised deferred tax credit for €77
million, partially offset by a current income tax charge of €48 million.
Our deferred tax assets amounted to €1,884 million as of 30 September 2003. On
the basis of our business plan, we expect our deferred tax assets will be
recovered, in general within five years.
GOODWILL AMORTISATION
Goodwill amortisation amounted to €135 million in the first half of fiscal year
2004 compared with €144 million in the first half of fiscal year 2003 and €140
million in the second half of fiscal year 2003. The decrease was due to the
disposal of our Industrial Turbines businesses.
At 31 March 2003, we requested a third party valuer to provide an independent
report, as part of our impairment tests, performed annually, on goodwill and
other intangible assets. The valuation supported our opinion that our goodwill
and other intangible assets were not impaired on a reporting unit basis. The
review of our business plan during the summer has not caused us to conclude that
triggering events have occurred that would lead to impairment testing at 30
September 2003. A similar independent third party valuation will be requested at
31 March 2004.
NET INCOME (LOSS)
The net loss in first half of fiscal year 2004 amounted to €624 million,
compared with a net income of €11 million in the first half of fiscal year 2003
and a net loss of €1,443 million in the second half of fiscal year 2003.
BALANCE SHEET
GOODWILL, NET
Goodwill, net decreased to €3,931 million at 30 September 2003 compared to
€4,440 million at 31 March 2003 due to the amortisation of goodwill for €135
million and to the disposal of our Industrial Turbines businesses which led to a
decrease of the corresponding goodwill for €371 million.
WORKING CAPITAL
Working capital (defined as current assets less current liabilities and
provisions for risks and charges) at 30 September 2003 was €(4,640) million
compared with €(4,886) million as reported at 31 March 2003. This variation was
due to a higher decrease of customers' deposits and advances and of trade
payables as compared with inventories and contracts in progress and trade
receivables.
Net effects on working capital due to foreign currency translation were positive
by €115 million in the first half of fiscal year 2004.
CUSTOMER DEPOSITS AND ADVANCES
We record customer deposits and advances on our balance sheet upon receipt as
gross customer deposits and advances. The gross amounts were €12,781 million and
€12,689 million at 30 September 2003 and 31 March 2003 respectively. At the
balance sheet date, we apply these deposits first to reduce any related gross
accounts receivable and then to reduce any inventories and contracts in progress
relating to the project for which we received the deposit or advance. Any
remaining deposit or advance is recorded as "Customer deposits and advances" on
our balance sheet. As of 30 September 2003, our net customer deposits and
advances were €3,085 million, compared with €3,541 million as of 31 March 2003.
The decrease of our customer cash deposits and advances of €456 million which
occurred during first half of fiscal year 2004 included currency translation
effects for €54 million and the impact of the disposal of our Industrial
Turbines businesses for €181 million.
PROVISIONS FOR RISKS AND CHARGES
At 30 September 2003, the provisions for risks and charges were €3,500 million
compared with €3,698 million at 31 March 2003.
This net decrease was accounted mainly for by the following movements:
• a decrease in provisions on contracts for €262 million (mainly the
GT24/GT26 gas turbines);
• an increase in restructuring provisions and other provisions of €170
million; and
• a decrease of €106 million in foreign currency translation effects,
change in scope and other adjustments.
SHAREHOLDERS' EQUITY
Shareholders' equity at 30 September 2003 was €277 million, including minority
interests, compared with €853 million at 31 March 2003. This decrease was mainly
due to the net loss for the period of €624 million, partly offset by the
positive impact of cumulative translation adjustments for €49 million.
FINANCIAL DEBT AND NET DEBT
SECURITISATION OF EXISTING RECEIVABLES
In order to fund our activity, we sell selected existing trade receivables
within which we irrevocably and without any recourse transfer eligible
receivables to a third party. The net cash proceeds from securitisation of
existing trade receivables at 30 September 2003 was €212 million compared with
€357 million at 31 March 2003.
SECURITISATION OF FUTURE RECEIVABLES
In order to finance working capital and to mitigate the cash-negative profiles
of some contracts, we sell to third parties selected future receivables due from
our customers. This securitisation of future receivables has the benefit of
reducing our exposure to customers (since some future receivables are sold
without recourse to us should the obligor under the receivable default for
reasons other than our failure to meet our obligations under the relevant
contract) and applies principally to Marine and Transport. The total
securitisation of future receivables at 30 September 2003 was €522 million
compared with €1,292 million at 31 March 2003. The decrease in the first half of
fiscal year 2004 compared with fiscal year 2003 is mainly due to the delivery of
two cruise-ships by our Marine Sector. During the first half of the fiscal year
2004, we did not enter into any new securitisation of future receivables.
FINANCIAL DEBT
Our financial debt was €6,076 million at 30 September 2003, compared with €6,331
million at 31 March 2003. Our financial debt decreased due to the decrease of
securitisation of future receivables by €770 million partly offset by the
increase of borrowings by €507 million.
NET DEBT
We define net debt as financial debt less short-term investments, cash and cash
equivalents. Net debt was €4,307 million at 30 September 2003, compared with
€4,561 million at 31 March 2003. Our net debt decreased due to the proceeds on
disposal of investments partly offset by net cash used in operations.
LIQUIDITY AND CAPITAL RESOURCES
CONSOLIDATED STATEMENT OF CASH FLOWS
The following table sets out selected figures concerning our consolidated
statement of cash flows:
---------------------------------------------------------------------------------
First First
TOTAL GROUP Half 2nd Half Full Half
ACTUAL FIGURES Sept. 02 March 03 Year Sept. 03
(IN € MILLION) (Unaudited) (Unaudited) 2002/03 (Unaudited)
----------- ----------- ------- -----------
Net income after elimination of
non cash items 408 (1,495) (1,087) (406)
Change in net working capital (325) 875 550 (325)
----------- ----------- ------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 83 (620) (537) (731)
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (347) 6 (341) 975
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 658 (37) 621 (2)
----------- ----------- ------- -----------
394 (651) (257) 242
Net effect of exchange rate (41) (41) 15
Other changes and reclassifications (252) (212) (464) (3)
----------- ----------- ------- -----------
DECREASE (INCREASE) IN NET DEBT 142 (904) (762) 254
---------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES
Net cash provided by operating activities is defined as the net income after
elimination of non-cash items plus working capital movements. Net cash provided
by (used in) operating activities was €(731) million in the first half of fiscal
year 2004 compared to €83 million in the first half of fiscal year 2003 and
€(620) million in the second half of fiscal year 2003.
Net income after elimination of non-cash items was €(406) million in the first
half of fiscal year 2004. This amount represented the cash generated by the net
income before working capital movements. As provisions are included in the
definition of our working capital, provisions are not part of the elimination of
non-cash items.
Change in net working capital was €(325) million. The principal movements IN
working capital were due to:
• an increase of €355 million in trade and other receivables, mainly in
Power Environment, T&D and to a lesser extent in Transport, Power
Turbo-systems and Power Services;
• a decrease of €144 million in sale of trade receivables
(securitisation of existing receivables);
• a decrease of €319 million in inventories and contracts in progress,
mainly in Power Turbo-systems, Transport and Marine;
• a decrease of €262 million in contract-related provisions, mainly due
to the application of GT24/GT26 provisions partially offset by new
provisions recorded on other contracts not yet applied;
• a decrease of €221 million in customer deposits and advances, mainly
in Power Environment, Transport and T&D; and
• an increase of €168 million in trade payables and accrued contract
costs, resulting from a decrease in payables due to more difficult
credit terms and to an increase in accrued contract costs due to the
trading of contracts.
NET CASH PROVIDED BY INVESTING ACTIVITIES
Net cash provided by investing activities was €975 million in the first half of
fiscal year 2004. This amount comprised:
• Proceeds of €166 million from disposals of property, plant and
equipment (including €148 million from the disposal of real estate);
• Capital expenditures for €105 million;
• Decrease in other fixed assets of €145 million; including the proceeds
from the early reimbursement of receivables due to us by two special
purpose entities in connection with Marine vendor financing; and
• Cash proceeds from the sale of investments, net of net cash sold for
€772 million, comprising of the proceeds from our Industrial Turbines
businesses.
Net cash provided by (used in) investing activities was €6 million in the second
half of fiscal year 2003 and €(347) million in the first half of fiscal year
2003. The net cash outflow in fiscal year 2003 was mainly due to €410 million of
capital expenditures and €154 million of cash expenditures for the acquisition
of the remaining 49% in Fiat Ferroviaria Spa.
NET CASH PROVIDED BY FINANCING ACTIVITIES
Net cash used by financing activities in first half of fiscal year 2004 was €2
million compared with €621 million of net proceeds in fiscal year 2003,
including primarily proceeds from a capital increase completed in July 2002.
DECREASE (INCREASE) IN NET DEBT
Our net debt decreased by €254 million in first half of fiscal year 2004,
compared with an increase of €762 million in the full fiscal year 2003.
MATURITY AND LIQUIDITY
We rely on a variety of sources of liquidity in order to finance our operations,
including principally borrowings under revolving credit facilities, the issuance
of commercial paper and asset disposals. Additional sources include customer
deposits and advances and proceeds from the sale of trade receivables, including
future trade receivables. In the past, we have also used the issuance of
securities, including debt securities and preferred shares, as a source of
liquidity.
At 31 March 2003, we had €600 million of unused confirmed credit, resulting from
a bridge credit facility with a group of banks executed in March 2003. Also in
March 2003, we entered into an agreement with a consortium of banks to extend
until January 2004 the maturity of a revolving credit facility of €400 million
and two bilateral loans totaling €75 million, originally scheduled to mature in
March and April 2003. Proceeds from the disposal of assets foreseen in our
strategy and action plan are, subject to certain exceptions and thresholds,
first to be used to repay and cancel the bridge facility and, subsequently, the
extended facilities.
In August 2003, we entered into a new financing package with more than 30 of our
commercial lenders and the French State, and in September 2003 we amended this
financial package, as described above under "-- Status of our action plan and
main events of first half of fiscal year 2004 -- Financing package." When this
financing package is implemented, it will reduce and substantially change the
maturity profile of our debt.
CASH RECEIPTS AND DEBT REPAYMENT SINCE 31 MARCH 2003
Since 31 March 2003 through 30 September 2003, we have realised net cash
proceeds of €148 million from real estate disposals and €842 million from the
sale of the Industrial Turbines business. €30 million of the proceeds from the
real estate disposals and €443 million of proceeds from the sale of Industrial
Turbines were used to repay amounts outstanding under our €600 million bridge
facility. As a result, at 30 September 2003, €127 million remained outstanding
under this facility. We also reimbursed €254 million of syndicated loans
maturing on 1 August 2003.
In August 2003 we received €120 million in commercial paper financing from bank
syndicates and €300 million in commercial paper financing from the Caisse des
Dépôts et Consignations, as well as €180 million from the early reimbursement of
receivables due to us by two special purpose entities in connection with Marine
vendor financing. We used part of these proceeds, as well as the remaining
proceeds from real estate disposals and the sale of Industrial Turbines, to
finance our activity and working capital requirements.
EXPECTED IMPACT OF FINANCING PACKAGE AND DISPOSALS
We expect that future proceeds from the financing package and disposals of
assets will provide us with significant additional cash resources (approximately
€4,300 million before price adjustments on disposals, if any). These are
expected to include:
• €300 million from a capital increase, with proceeds expected to be
received in November 2003;
• at least €900 million of bonds mandatorily reimbursable into shares,
with proceeds expected to be received in December 2003;
• approximately €1,500 million of new subordinated debt, of which the
French State will provide €300 million. €650 million of proceeds is
expected to be received in December 2003 and €850 million in February
2004;
• €200 million of new subordinated long term bonds to be issued to the
French State, with proceeds expected in December 2003;
• €300 million of subordinated bonds reimbursable with shares to be
issued to the French State, with proceeds expected to be received in
December 2003;
• the major part of the proceeds from the sale of our T&D Sector
(€950 million before closing adjustments), currently expected to be
received in January 2004; and
• 50% of the remaining €125 million (currently held in escrow) from the
completion of the sale of our Industrial Turbines division (assuming
no utilisation of escrowed amounts), expected to be received in April
2004, and the remainder in April 2005.
The €1,500 million of new subordinated loans, as well as our new €3.5 billion
Bonding Facility, are subject to financial covenants, which are described in
Note 14 to our Consolidated Financial Statements.
To strengthen our liquidity, in connection with our financing plan, the Caisse
des Dépôts et Consignations has also committed to provide us with up to an
additional €900 million in commercial paper financing which will be available to
us until the long term portion of our financing package becomes available
(expected in December 2003), except that up to €100 million may remain
outstanding until we receive the proceeds from the sale of our T&D Sector
(expected in January 2004). €300 million of this facility have been used as of
30 September 2003.
Assuming receipt as and when expected, we intend to use the proceeds of our
financing package and disposals as follows:
• Proceeds from the €900 million of mandatorily reimbursable bonds and
€350 million of the new subordinated loans will be immediately used to
reimburse our €1,250 million revolving credit facility maturing in
April 2004. The early repayment of this credit is expected in December
2003.
• €550 million of the new subordinated loans will be used to repay
outstanding bonds maturing in February 2004;
• €127 million of proceeds from the €300 million capital increase will
be used to reimburse the remaining amounts outstanding under the
bridge facility;
• €475 million of proceeds from the sale of our T&D sector will be used
to repay amounts outstanding under the extended facilities; and
• The remainder (approximately €1,700 million) will be used to reimburse
short term facilities and commercial paper (€1,320 million) and
increase liquidity available to the Group.
MATURITY PROFILE
The following table sets forth our outstanding financial debt obligations
(including future receivables securitised) as of 30 September 2003 and taking
into account the assumptions described above:
OUTSTANDING AFTER
LINES THIRD FOURTH FISCAL FISCAL FISCAL FISCAL FISCAL
AS OF 30 QUARTER QUARTER YEAR YEAR YEAR YEAR YEAR
(Unaudited figures) SEPT. 03 FY2004 FY2004 2004 2005 2006 2007 2007
----------- ------- ------- ------ ------ ------ ------ ------
Redeemable preference shares 205 (205)
Subordinate notes 250 (250)
Subordinated loans (PSDD) 650(4) 850(4) 1,500 (1,500)
Subordinated long term bond (TSDD) 200(4) 200 (200)
Subordinated bonds reimbursable
with shares (TSDDRA)(5) 300(4) 300
Bonds 1,200 (550) (550) (650)
Syndicated loans 2,498 (1,377)(2) (400) (1,777) (721)
Bilateral loans 358 (75) (75) (50) (33) (200)
Commercial paper 1,320(1) (800) (100) (900) (420)
Bank overdrafts/other
facilities/ accrued
interests 323(3) (281) (281) (16) (3) (3) (20)
----------- ------- ------- ------ ------ ------ ------ ------
SUB-TOTAL 6,154 (1,308) (275) (1,583) (436) (258) (1,657) (1,920)
Future receivables 522 (113) (118) (231) (236) (55)
----------- ------- ------- ------ ------ ------ ------ ------
TOTAL 6,676 (1,421) (393) (1,814) (672) (313) (1,657) (1,920)
Capital increase 300(4) 300
Bonds reimbursable
with shares (ORA) 900(4) 900
----------- ------- ------- ------ ------ ------ ------ ------
LIQUIDITY AND OTHER
FUNDING SOURCES 6,676 (221) (393) (614) (672) (313) (1,657) (1,920)
----------- ------- ------- ------ ------ ------ ------ ------
FINANCIAL DEBT 6,076
-----------
AVAILABLE LINES 600
-----------
(1) Maximum availability under commitments provided by a syndicate of banks
(€120 million) and the Caisse des Dépôts et Consignation (€1,200 million).
Including a €600 million commercial paper that was not drawn at 30 September
2003.
(2) Includes the expected early repayment of €1,250 million of syndicated loans
in the third quarter of fiscal year 2004.
(3) Facilities entered into by subsidiaries have been classified as being
immediately due because such facilities are generally uncommitted.
(4) Expected proceeds to ALSTOM.
(5) Subordinated bonds reimbursable with shares (TSDDRA) will only be reimbursed
in cash in the event the European Commission does not approve their
reimbursement with shares. See «Status of our action plan and main events of
first half of fiscal year 2004 - Financing package».
Total available unused credit lines together with cash available in the Group
amounted to €2,369 million at 30 September 2003, compared with €2,370 million at
31 March 2003. The amounts consisted of:
• Available lines at parent Group level, which were constituted of
commercial paper from the French State for €600 million at 30
September 2003, compared with a bridge facility of €600 million at 31
March 2003;
• Cash available at parent Group level was €443 million at 30 September
2003, compared with €610 million at 31 March 2003; and
• Cash available at subsidiary level of €1,326 million at 30 September
2003, compared with €1,160 million at 31 March 2003.
ALSTOM, the parent company, may readily access some cash held by wholly owned
subsidiaries through the payment of dividends or pursuant to intercompany
lending arrangements. Local constraints can delay or restrict this access,
however. Furthermore, while we have the power to control decisions of
subsidiaries of which we are the majority owner, our subsidiaries are distinct
legal entities and the payment of dividends and the making of loans, advances
and other payments to us by them may be subject to statutory or contractual
restrictions, be contingent upon their earnings or be subject to business or
other constraints. These limitations include local financial assistance rules,
corporate benefit laws and other legal restrictions. Our policy is to centralise
liquidity of subsidiaries at the parent company level when possible.
OFF BALANCE SHEET COMMITMENTS AND CONTRACTUAL OBLIGATIONS
OFF BALANCE SHEET COMMITMENTS
The following table sets forth our off-balance sheet commitments, which are
discussed further at Note 17 to the 30 September Interim Consolidated Financial
Statements:
-----------------------------------------------------------------------
TOTAL GROUP At 30 Sept.
ACTUAL FIGURES At 31 March 2003
(IN € MILLION) (Unaudited) (Unaudited)
--------------------------------- ------------- -------------
Guarantees related to contracts 9,465 8,206
Guarantees related to vendor financing 749 643
Discounted notes receivables 11 9
Commitments to purchase fixed assets 7 -
Other guarantees 94 49
OFF BALANCE SHEET COMMITMENTS 10,326 8,907
-----------------------------------------------------------------------
GUARANTEES RELATED TO CONTRACTS
The overall amount given as guarantees on contracts decreased from €9,465
million in March 2003 to €8,206 million in September 2003, a decrease by 13%
mainly due to exchange rate variations and to the decrease of our orders in hand
by 5% on a comparable basis (and 6% due to exchange rates).
VENDOR FINANCING EXPOSURE
In some instances, we have provided financial support 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 support as
"vendor financing". We have decided that we will no longer provide any
additional vendor financing guarantees to our customers.
Vendor financing totalled €969 million at 30 September 2003 (of which €643
million was off balance sheet) compared to €1,259 million at 31 March 2003 (of
which €749 million was off balance sheet). This decrease was mainly due to the
early reimbursement to us of €180 million of debt due to us from two special
purpose entities following the agreement with our lenders under our financing
package.
CONTRACTUAL OBLIGATIONS
See Note 17 to the 30 September 2003 Interim Consolidated Financial Statements
LEGAL PROCEEDINGS
GENERAL
We are involved in several legal proceedings as a plaintiff or a defendant,
mostly contract related disputes, that have arisen in the ordinary course of
business. Contract related disputes, often involving claims for contract delays
or additional work, are common in the areas in which we operate, particularly
for large, long-term projects. In some cases the amounts claimed against us in
these proceedings and disputes are significant, ranging up to approximately
US$290 million (or approximately €248 million at 30 September 2003) and, if
adversely determined, may have a material adverse effect on our financial
condition or results of operation. Some proceedings against us are without a
specified amount. All claims and legal proceedings in which we are involved are
reviewed regularly by project managers with their Sector management and are
reviewed on a half year basis with our statutory auditors, in order to determine
appropriate level of provisions.
Some entities of our group are bound by confidentiality agreements entered into
in the normal course of their activities and that are normally linked to major
contracts. Breach of such confidentiality obligations could lead to the payment
of indemnities or other recourse that could have a material adverse impact on
our financial condition.
ASBESTOS
We are subject to regulations, including in France, the US and the UK, regarding
the control and removal of asbestos-containing material and identification of
potential exposure of employees to asbestos. 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 of our suppliers, including in those countries where the use of asbestos
is permitted. In the past, however, 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 of 30 September 2003, in France, we were aware of approximately 1,990
asbestos sickness related declarations accepted by the French Social Security
authorities in France concerning our employees, former employees or from third
parties, arising out of our activities in France. All of such cases are treated
under the French Social Security system which pays the medical and other costs
of those who are sick and which pays a lumpsum indemnity. Out of these 1,990
declarations, we were aware of approximately 156 asbestos-related cases in
France from our employees, former employees or from third parties. These persons
have instituted judicial proceedings against certain of our subsidiaries with
the aim of obtaining a court decision holding these subsidiaries liable for an
inexcusable fault (FAUTE INEXCUSABLE) in order to obtain a supplementary
compensation above payments made by the French Social Security funds of related
medical costs. All decisions rendered as of today by the Social Security Affairs
Courts in proceedings involving our subsidiaries have found these subsidiaries
liable on the grounds of inexcusable fault. Decisions of the Courts of Appeal
have all confirmed these findings of inexcusable fault (25 decisions rendered as
of 30 September 2003). We have appealed all of such decisions to the French
Supreme Court. Even where we have been found liable on the grounds of
inexcusable fault, we do not expect to suffer any material adverse financial
consequences, because the financial consequences of any liability for our
inexcusable fault have been attributed by court decision or by applicable
regulations to the French Social Security (medical) funds. Thus, in 102 of the
156 proceedings before French courts at 15 September 2003, which concern our
Marine Sector, the social security authorities have ruled that the financial
consequences of any liabilities for inexcusable fault will not be attributed to
our Marine Sector and will be borne by the Social Security authorities. Although
as of 15 September 2003 we had not yet obtained a specific ruling from the
relevant French Social Security authorities in respect of the remaining 54
proceedings, of which 40 concern our Power Sector, we believe the same principle
affording us financial protection will apply to such proceedings and that,
accordingly, we will not suffer any material adverse financial consequences as a
result of such asbestos related litigations in France.
We therefore believe that compensation for most of the current 156 proceedings
involving certain of our subsidiaries as of 30 September 2003, including cases
where we may be found to be at fault, is or will be borne by the general French
Social Security (medical) funds. Based on applicable legislation and current
case law, we also believe that the publicly funded Indemnification Fund for
Asbestos Victims (FIVA), created in 2001 and effective since 29 March 2002, does
not increase our current risk exposure. The FIVA was implemented to compensate
persons harmed by exposure to asbestos in France. Once a person has received an
offer of compensation, the fund itself may then take action against the employer
considered responsible. However this subrogatory right can only be exercised
pursuant to and within the limits of French Social Security regulations. We
believe that those cases where compensation may not be definitely borne by the
general French Social Security (medical) funds or by the FIVA represent an
immaterial exposure for which we have not made any provisions.
In addition to the foregoing, in the United States, as of 30 September 2003, we
were subject to approximately 154 asbestos-related personal injury lawsuits
which have their origin solely in the Company's purchase of some of ABB's power
generation business, for which we are indemnified by ABB. We are also currently
subject to two class action lawsuits in the United States asserting fraudulent
conveyance claims against various ALSTOM and ABB entities in relation to
Combustion Engineering, Inc. ("CE"), for which we have asserted indemnification
against ABB. CE is a United States subsidiary of ABB, and its power activities
were part of the power generation business purchased by us from ABB. In January
2003, CE filed a "pre-packaged" plan of reorganisation in United States
bankruptcy court. This plan was recently confirmed by the bankruptcy court and a
United States federal district court. The plan has been appealed and has not yet
become effective; consummation of the plan is subject to certain other
conditions specified therein. In addition to its protection under the ABB
indemnity, ALSTOM believes that under the terms of the plan it would be
protected against pending and future personal injury asbestos claims, or
fraudulent conveyance claims, arising out of the past operations of CE.
As of 30 September 2003, we were also subject to approximately 38 other
asbestos-related personal injury lawsuits in the United States involving
approximately 533 claimants that, in whole or in part, assert claims against
ALSTOM which are not related to ALSTOM's purchase of some of ABB's power
generation business or as to which the complaint does not provide details
sufficient to permit us to determine whether the ABB indemnity applies. Most of
these lawsuits are in the preliminary stages of the litigation process and they
each involve multiple defendants. The allegations in these lawsuits are often
very general and difficult to evaluate at preliminary stages in the litigation
process. In those cases where ALSTOM's defence has not been assumed by a third
party and meaningful evaluation is practicable, we believe that we have valid
defences and, with respect to a number of lawsuits, we are asserting rights to
indemnification against a third party.
We have not in recent years suffered any adverse judgement, or made any
settlement payment, in respect of any US personal injury asbestos claim. Between
31 October 2002 and 30 September 2003, a total of 139 cases involving
approximately 17,672 claimants were voluntarily dismissed by plaintiffs,
typically without prejudice (which is to say the plaintiffs may refile these
cases in the future).
For purposes of the foregoing discussion of asbestos-related cases, we consider
a claim to have been dismissed, and to no longer be pending against us, if the
plaintiffs' attorneys have executed a notice or stipulation of dismissal or
non-suit, or other similar document.
We are also subject to a minor number of asbestos related or other employee
personal injury related claims in other countries, mainly in the UK where we are
currently subject to approximately 153 such claims.
While the outcome of the existing asbestos-related cases described above is not
predictable, we believe that those cases will not have a material adverse effect
on our financial condition. We can give no assurances that asbestos-related
cases against us will not grow in number or that those we have at present, or
may face in the future, may not have a material adverse impact on our financial
condition.
CLAIMS FROM ROYAL CARIBBEAN CRUISES
In 1998, Cegelec (whose rights and obligations belong for the purposes of the
proceedings described below to ALSTOM Power Conversion), and Kamewa AB (now
Rolls-Royce AB) decided to jointly design, manufacture, market and sell podded
propulsion units, or pods, through a consortium arrangement. Pods are a
technology used in electric propulsion for ships that can be used instead of
conventional inboard propulsion motors and rudders. Pods are found within an
integrated propulsion unit that is mounted underneath the hull of the ship.
To date, 39 pods have been delivered by the consortium, 25 of them to ALSTOM
Marine/Chantiers de l'Atlantique. Chantiers de l'Atlantique has to date
delivered nine cruise ships equipped with podded drives to four cruise
operators. Between June 2000 and May 2002, Chantiers de l'Atlantique delivered
four new cruise ships of the Millennium class to Celebrity Cruises, one of the
brands of Royal Caribbean Cruises Ltd. ("RCCL").
A number of the vessels delivered to RCCL experienced technical problems with
their pods, and, as a result, some of them had to be temporarily removed from
service to be repaired in dry-dock. This occurred more than once with respect to
certain of the ships.
On 7 August 2003, RCCL and various RCCL group companies, including Celebrity
Cruises, filed a lawsuit in the State Court of Miami, Florida, against
Rolls-Royce plc, Rolls Royce AB, various U.S. members of the Rolls-Royce group,
ALSTOM Power Conversion SA, ALSTOM Inc, ALSTOM Power Conversion Inc., Marine
Service Partners Inc. and ALSTOM Marine US.
In this lawsuit, RCCL claims damages for a global estimated amount of
approximately US$290 million for alleged misrepresentations in the selling of
the pods, and negligence in the design and manufacture of the pods. ALSTOM and
Rolls-Royce are strongly contesting this claim.
While we believe the RCCL complaint is without merit, we cannot currently
predict the outcome. Any related adverse court decisions could have a material
adverse impact on our financial condition and results of operations.
SEC INVESTIGATION RELATING TO ALSTOM TRANSPORTATION INC.
On 30 June 2003, we announced that we were conducting an internal review,
assisted by external lawyers and accountants, following receipt of anonymous
letters alleging accounting improprieties on a railcar contract being executed
at the New York facility of ALSTOM Transportation Inc. ("ATI"), one of our US
subsidiaries. Following receipt of these letters, the SEC and the FBI began
informal inquiries. We believe the FBI inquiry is currently dormant.
We also announced that the internal review had identified that losses had been
significantly understated in the ATI accounts, in substantial part due to
accounting improprieties. As a result an additional charge of €73 million was
recorded in ATI's accounts for the year ended 31 March 2003 and was recorded in
the Company's consolidated financial statements approved by shareholders on 2
July 2003.
On 11 August 2003, we announced that we had been advised that the SEC had issued
a formal order of investigation in connection with its review.
We have fully cooperated with the SEC and the FBI in this matter and intend to
continue to do so. The SEC's investigation is ongoing, and we cannot predict
when it will be completed or its outcome. Any adverse developments in connection
with this matter, including, but not limited to, any enforcement action against
us or any of our personnel, could result in civil or criminal sanctions against
us, which could limit our ability to obtain governmentally-funded transportation
contracts in the United States, or could otherwise materially negatively impact
us and our business. Our management has spent, and may in future be required to
spend, considerable time and effort dealing with the internal and external
actions relating to ATI.
UNITED STATES PUTATIVE CLASS ACTION LAWSUITS
ALSTOM, and certain of its current and former officers, recently have been named
as defendants in a number of purported shareholder class action lawsuits filed
on behalf of various alleged classes of purchasers of American Depositary
Receipts or other ALSTOM securities between various dates between 17 November
1998 and 30 June 2003. The actions seek to allege violations of United States
federal securities laws, specifically Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934, as amended, on the basis of various allegations that there
were untrue statements of materials facts, and/or omissions to state material
facts necessary to make the statements made not misleading, in various ALSTOM
public communications regarding our business, operations and prospects, causing
the putative classes to purchase ALSTOM securities at artificially inflated
prices. The plaintiffs seek, among other things, class action certification,
compensatory damages in an unspecified amount, and an award of costs and
expenses, including counsel fees. We intend to defend vigorously against these
actions.
OTHER LEGAL PROCEEDINGS
A judicial investigation is currently being conducted by a judge of the TRIBUNAL
DE GRANDE INSTANCE (trial court) of Paris regarding allegations of an illegal
payment approved by former senior officers of the company to government
officials in connection with the transfer in 1994 of the headquarters of the
Transport Sector. ALSTOM has elected to join the civil proceedings in order to
seek recovery of any such payment.
Senior officials of ALSTOM have been interviewed by inspectors of the French
COMMISSION DES OPERATIONS DE BOURSE (the "COB") in connection with the COB's
investigation regarding public disclosures by the Group and trading of ALSTOM
shares since 31 December 2001. ALSTOM is co-operating fully with the COB in
these inquiries. As of the date hereof, it is not possible to predict the
outcome of such investigation with any certainty.
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 €43 million for the first half of fiscal year 2004 and €74
million for the first half of fiscal year 2003.
UNITED STATES AND CANADA PRESS RELEASE
20 November 2003
ALSTOM CAPITAL INCREASE
ALSTOM today announced the launch of a capital increase of approximately €300
million and an offering of approximately €900 million aggregate principal amount
of 2% subordinated bonds redeemable with shares due 2008.
The shareholders whose shares are registered as of 26 November 2003 will be
allocated one warrant per share. 27 warrants will permit the purchase of 23 new
shares at a price of 1.25 euro per share.
The subordinated bonds redeemable with shares are offered with preferential
subscription rights for ALSTOM shareholders on 27 November 2003. One share
registered as of 26 November 2003 will give entitlement to one right. 7 rights
will give entitlement to subscribe for 16 subordinated bonds redeemable with
shares. The subscription price is 1.40 euro per bond redeemable with shares. The
bonds will bear interest of two per cent per year, capitalised for the first
year, and will be redeemable with shares due on 31 December 2008.
* * *
Press relations : S. Gagneraud / G. Tourvieille
(Tel. +33 1 47 55 25 87) - internet.press@chq.alstom.com
Investor relations: E. Chatelain
(Tel. +33 1 47 55 25 78) - investor.relations@chq.alstom.com
MCommunications: L. Tingstrom
(Tel. +44 789 906 6995) - tingstrom@mcomgroup.com
* * *
THIS ANNOUNCEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
OFFERS TO PURCHASE OR SUBSCRIBE FOR, SECURITIES IN THE UNITED STATES. THE
SECURITIES REFERRED TO HEREIN HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED OR SOLD IN THE
UNITED STATES ABSENT REGISTRATION OR AN APPLICABLE EXEMPTION FROM REGISTRATION
REQUIREMENTS. THIS NOTICE IS ISSUED PURSUANT TO RULE 135(C) OF THE SECURITIES
ACT OF 1933.
THIS COMMUNICATION IS DIRECTED ONLY AT PERSONS WHO (I) ARE OUTSIDE THE UNITED
KINGDOM OR (II) HAVE PROFESSIONAL EXPERIENCE IN MATTERS RELATING TO INVESTMENTS
OR (III) ARE PERSONS FALLING WITHIN ARTICLE 49(2)(A) TO (D) ("HIGH NET WORTH
COMPANIES, UNINCORPORATED ASSOCIATIONS ETC.") OF THE FINANCIAL SERVICES AND
MARKETS ACT 2000 (FINANCIAL PROMOTION) ORDER 2001 (ALL SUCH PERSONS TOGETHER
BEING REFERRED TO AS "RELEVANT PERSONS"). THIS COMMUNICATION MUST NOT BE ACTED
ON OR RELIED ON BY PERSONS OTHER THAN RELEVANT PERSONS. ANY INVESTMENT OR
INVESTMENT ACTIVITY TO WHICH THIS COMMUNICATION RELATES IS AVAILABLE ONLY TO
RELEVANT PERSONS AND WILL BE ENGAGED IN ONLY WITH RELEVANT PERSONS.
STABILISATION ACTIVITIES, IF ANY, WILL BE CONDUCTED IN ACCORDANCE WITH
APPLICABLE LAWS AND REGULATIONS.
STABILISATION FSA
20 November 2003
ALSTOM wins €240 million contract
for maintenance of Bucharest metro fleet
Metrorex, the operator of the Bucharest metro, has awarded ALSTOM a 15-year
contract worth €240 million for the maintenance of the metro's fleet, which
currently comprises more than 400 cars.
To fulfil this long-term contract for full maintenance and service, ALSTOM will
take over three Metrorex maintenance depots, a workshop and associated staff.
ALSTOM will upgrade the maintenance sites. Among other improvements, ALSTOM will
install an information-technology system and bring the sites into compliance
with current environmental regulations. Included in the project are training
programs for safety, quality and management. The contract is to take effect in
January 2004.
A signing ceremony took place in Paris at the Hotel Matignon, the residence of
the French prime minister at 10:45 A.M. on November 20 in the presence of
President Ion Iliescu of Romania and Prime Minister Jean-Pierre Raffarin of
France.
Patrick Kron, Chairman & Chief Executive Officer of ALSTOM, said at the signing
of the contract. "We are very pleased by this demonstration of confidence in
ALSTOM. This long-term contract is very important for us, consolidating our
track record in metro system maintenance. Furthermore, in establishing a
long-term relationship with our new customer, Metrorex, we are proud to be
contributing to the development of urban transport in Bucharest".
Press relations: Severine Gagneraud/Gilles Tourvieille
Tel.: +33 (0)1 47 55 25 87/ 2315
internet.press@chq.alstom.com
Investor relations: Emmanuelle Chatelain
Tel.: +33 (0)1 47 55 25 33
investor.relations@chq.alstom.com