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Original Source: FD (FAIR DISCLOSURE) WIRE
PATRICK KRON, CHAIRMAN AND CEO, ALSTOM SA: Thank you. Good morning ladies and gentlemen and welcome to the conference call presenting our first half results for the fiscal year 2007/'08, accounts thus from April 1, 2007 through September 30, 2007.
I remind you that all the published elements, presentation, MD&A, accounts and press release are available on our website, alstom.com. You have, I guess, access to the slides of my presentation.
I will start by the key highlights of the first semester and, as previously announced, give you an update on the markets. Then Henri Poupart-Lafarge will go through the financial results as well as the yearly outlook. Again, please refer to our presentation to follow.
If I go on slide three, this slide includes the main figures for H1. They show an excellent level of orders, at EUR12.8b, which is up 33% from the H1 of last year, which was already substantially above the previous year. It was plus 46% on a comparable basis, with major commercial successes in our three sectors.
A record level of backlog, growing to and reaching EUR37m [sic. see presentation], a strong growth of sales at EUR8m, up 21% on the back of the strong increase of order intakes over the previous period. An improvement of profitability, thanks to a healthier backlog. A strong focus on project execution and a positive volume impact with an income from operation at EUR573m, which is up for 39% versus last year and represents a 7.2% operating margin.
The net income increases by 49% at EUR388m. The free cash flow was at an exceptional level of EUR1.2b, thanks to a better profitability and a new and very significant improvement of our working capital.
I will now detail by sector some of these key indicators. If you go on slide four where we mention the orders at EUR12.8b, which is a 33% growth on actual basis and 35% organic growth.
All the sectors contributed with this strong increase, particularly in Transport, by 114%. Power Systems and Power Service were up 9% and 6%, respectively from a very high level in H1 2006 and '07. If you compare it over two years, it's very simple. Power orders have quasi doubled as compared to H1 '05/'06. It's today more or less for two years ago. And Transport, as I just indicated, more than doubled on H1 versus H1 of previous year.
By geography on slide five, you see a good general split, even if Europe remains dominant, accounting for 54% [sic. see presentation] of the total orders. This obviously explain -- is explained by the positive commercial activity in France in Transport, including the high speed contract I'll mention in a minute, but also in a number of European countries, such as U.K., Ireland, Greece, in Power.
Middle East and Africa show a significant increase, representing 12%, with a booking of 12 gas turbines in the region. The rest being more stable. North America 16% with successes in environmental control system in the U.S. and Metropolis from New York City.
Asia at 14%, with significant contracts in China, India and Australia. As well as South America at 4% with several projects in Brazil, hydro, metro and [Mugades].
If we have a look at the large contracts awarded to Power and Transport, you please have to refer to the slide six and seven.
From this slide, you see that we have booked -- on slide seven -- on slide six, I'm sorry, 29 gas turbines over the six months, out of which 10 is GT26 for 12 countries. This -- we expect the overall level to reach 35 over the year and this is to be compared, I remind you, to the 20 which were booked last year as a reference.
We had a breakthrough in the desalination market with the award of Fujairah in the Middle East, which includes the first GT26 to be implemented in the area -- five GT26. This contract, a large contract representing around EUR1b has not -- as when -- as indicated when we announced it, has not been booked on the first half. And we expect the booking to occur in H2.
The number of contracts in Hydro. Hydro is showing strong activity on the first half. Continued participation in the nuclear program in China, with four conventional islands for projects using the same technology as in Ling Ao.
And the service business remaining very solid in terms of contracts and orders and sales. Six operation and maintenance contracts in Italy, U.K., Ireland, Morocco and India, representing around 20% of the total order intake. That means that 80% are covered by the classical small and medium sized contracts which were, over the first half, at a healthy level.
In Transport we had, we already mentioned large order for TGVs in France. 80 trains with possibility to get 40 additional ones as there is an option in the project. We had contracts in Metro in New York, in Sao Paulo and in Shanghai. A very successful activity in the tramways, which are getting momentum in term of demand and where we are very well positioned, having sold 1,000 tramways over the last decade. It was a strong acceleration in recent period that we expect to continue. Success in the regional train in Germany and in signaling and a maintenance project as well.
This high commercial activity makes the backlog reach a record level of EUR37b, which represents 28 months of sale.
By sector, as we have two years of sales in Power Systems, 20 months for Power Service and more than three years in Transport. But more importantly, the increase of quantity goes with an improvement of the quality of our order book as we have clearly exercised selectivity in our order intake policy.
If I go to the sales, the strong backlog and order intake over the past period has led to a stronger increase in our sales. They are up 21% on an actual basis, 22% on an organic one. This ramp up in volume is strong in all sectors, which all show a double digit growth. 30% for Power Systems, with first key milestones on gas and coal projects registered over the last period.
In Italy, [Moden Ugici], in Spain, Ecotecnia, in [Maritsoa], Eastern Europe etc. 18% for Power Service with strong activity across all the -- over all the sectors' product range. It has been another very strong half year. And 13% for Transport with 4m [PMUs] in China, Metros in Washington, Barcelona, etc.
After the record level of full year '06/'07, with a book to bill ratio of 1.34, it sets a new record level for the half year at 1.6 -- a book to bill ratio of 1.6. This obviously gives us a strong visibility for the coming period.
Moving to performance, you have on slide 10 the operating income numbers. They show a growth of close to 40% increase, going from EUR413m to EUR573m in the first half of '07/'08. And the operating margin is up 7.2% from 6.3% recorded a year ago. The reason for this increase are obvious. High level of activity, continuous improvement of the order book quality, proper execution of contracts, action and cost reductions.
All the sectors, as you may see, have contributed to this improvement. Power Systems, moving from 3% to 4.5%, Power Service, where we expect more or less stability showing some improvement from 16% to 16.3%, and Transport having its operating margin moving half a percentage point up from 6.4% to 6.9%. These good numbers, both in terms of performance and, you will see cash flow has been done while we have initiated strong -- continued strong programs to prepare the future.
You will see on slide 11, substantial increase in our capital expenditure, up 40% -- 38%. This deals with the already explained objective of debottlenecking our supply chain, but also, strengthening our manufacturing capabilities, capacities. Mexico, for the American market, India -- China to serve the Asian continent, etc.
There should be a ramp up of CapEx in the second half of the year that we expect for the full year to be around EUR300m. Same applies for R&D where the expenses are up by 23% from EUR205m to EUR252m. This growth is impacting all the sectors.
In Power, you have the indication of our focus. It's obviously related to CO2 capture processes, among others, both on post combustion and oxyfiring.
You have also R&D projects in Transport focused on the new development of new -- development of the new generation -- sorry, for high speed trains, the so called AGV. Our prototype is moving ahead and will be tested for validation in the coming months. New development in the Tramway business, where there is a momentum on the market. And we want to fully benefit from this development as well as projects in relations with other areas such as locomotives, where we mentioned a project as well.
If we look at HR management, human resources management, in line with the previous trend and expanding it -- extending it, we have had a record level of recruitment with 4,800 new colleagues joining the Company over the first half, with a strong part of highly qualified individuals, as the engineers and managers represent more than half of the total, 2,550 engineers and managers.
You have also, in slide 13, the split of where these recruitments are done. Half are in Europe and half -- and the other half split more or less evenly between Asia and America.
Obviously, in addition to recruiting, we train, we integrate. And we also are launching a new employee stock purchase scheme, Alstom sharing 2007, to retain talents and increase employees' participation in the capital. We have done that over the recent period and want to continue on this trend.
Finally, before going to the market where I promised you an update, which I'm going to give you and leaving the floor to Henri Poupart-Lafarge for the financial results, one word on the external growth.
Since April 1, 2007 we have completed some acquisitions on slide 14. Wuhan Boiler Company in China where we own 51% since the end of September. This will give us a manufacturing base for the Chinese market and for export. And we are currently starting to build a new factory.
Ecotecnia in Spain, the deal has just been closed and it will allow us, as previously indicated, to enter the wind business.
The joint venture with a Russian nuclear specialist, Atomenergomash, dedicated to the manufacturing of conventional islands for Russian nuclear power plant architectures. And on a smaller scale, a joint venture in signaling, which has been created in early October with Balfour Beatty to serve the U.K. and Irish markets.
Let's now please go on an update on our markets that you will get from slide 16 and later. I'll tell you the real change in our assessment of the market concerns the new equipment of our -- for demand -- the demand for new equipment for power generating plants.
We noting the change is not in the main characteristics (it remains balanced between technology and between geography), but in its size. We now expect our assessment for the market -- for the period 2007/2011, five years' period starting this year, is around 185 gigawatts per year on average. And this is substantially above our former ideas and assumptions.
We were previously speaking for …