Alstom SA (AOMFF.PK)
F1Q 2011 (Qtr End 06/30/2010) Earnings Call
July 20, 2010 10:00 am ET
Emmanuelle Châtelain - IR
Patrick Kron - Chairman and CEO
Nicolas Tissot - CFO
Nick Paton - Execution Noble
James Moore - Redburn
Andreas Willi - JPMorgan
Ben Uglow - Morgan Stanley
Martin Prozesky - Berstein
Martin Wilkie - Deutsche Bank
Olivier Esnou - Exane BNP Paribas
Frederic Stahl - UBS
Alfred Glaser - Cheuvreux
Arnaud Schmit - Natixis
Lisa Randall - Nomura
Gael De-Bray - SG
Ben Elias - Sterne Agee
Good morning ladies and gentlemen and welcome to the conference call on orders and sales for the first quarter of the current fiscal year; that means numbers from the April 1, 2010 to the June 30, 2010. We have published as usual a press release this morning, giving you all the figures by sector and by geography, as well as variations in both reported and organic basis, which mainly includes currency effect.
You will also find a brief summary of the main events of this very active quarter, the most significant being obviously the closing of the acquisition of the Areva transmission, which occurred on June 7, and the creation of the third sector within the group, Alstom Grid.
As orders and sales for Alstom Grid were not yet available on the June 30 for release, the new sector will be fully consolidated on September 30, 2010 in the half year results. And this sector will account for four months that spans from the June 1 till end of September.
Coming back on the publication this morning, orders, as you have seen for the first quarter were at €3.1 billion, clearly still impacted by the lack of large contracts, particularly in Power, as customers continue to lay their investments in new power plants.
The tendering activity remains sustained. Clients are waiting for better economic outlook before finalizing their new large investments. Nevertheless, as you may have seen as well, the flow of medium and small-sized contracts were listed well, and the rail market remained sound, offering opportunities in both developed economies and emerging markets.
The backlog is stable at €42 billion as a consequence of a positive €1.3 billion currency effect. It represents 27 months of sales. If I go by sector, Power recorded orders of just slightly below €2 billion during the quarter. This is a decrease of 35% compared to Q1 last year, and this decrease came for the challenging commercial environment in new equipment, as thermal systems and products received only in the first quarter, small and medium-sized orders.
Thermal services registered a good number of projects for both retrofit and classical regular service, as well as two operation and maintenance contracts in Spain. The numbers in my view confirm the better resilience of this activity. In Renewable, the main orders booked were for hydel contracts in the Americas as well as for wind turbines in Brazil.
In Transport, again you know that this is an activity where orders are bulky. Orders represented €1.1 billion in the quarter. The main contracts booked in the first quarter were locomotives in Russia for slightly above €400 million, as well as suburban trains and maintenance in Sweden. But besides this medium-sized locomotive contract in Russia, no large contracts during the quarter.
A word on sales now. They reached €4.7 billion, slightly down compared to the same period of last year. They grew in Transport by 9% and they started as expected to decline in Power, down 6% versus Q1 of last year, and this is clearly the consequence of the order evolution over the past year in the sector.
Concerning the financial situation of the group, during the first quarter, Alstom turned into a net debt position, and surprisingly due to the financing of Areva transmission for €2.1 billion, the payment of the dividend for €300 million to €400 million as well as the impact on the free cash flow of the low book-to-bill ratio of 0.65 for the quarter.
We gave guidance for the year of 2010/11 and 2011/12 of operating margins between 7% and 8%, which I confirm. This guidance, as already expressed is based upon proper contract execution and gradual recovery of demand. This was the introduction I wanted to make on the comments of this quarterly orders and sales. I thank you for your attention.
And with Nicolas Tissot, our CFO, and Emmanuelle Châtelain, we are now at your disposal to answer your questions.
(Operator Instructions) Our first question comes from the line of Nick Paton from Execution Noble.
Nick Paton - Execution Noble
I've got two questions. The first one is on your Power business. It seems as though the market has recovered to some degree, although it's not entirely clear if the market has recovered significantly or just that the suppliers are now starting to offer products at prices which the customers are asking for. And it certainly seems as though Siemens have won quite a few orders for both their H-frame and their F-frame turbine. I just wondered if you could make a comment on why it seems that they are taking market share from you. Is it only that they are being more aggressive on price, or is there some other reason that they are managing to get orders while you are not?
And the second question is, you mentioned in the press release and you said in your opening remarks that sales declined as expected in Power. And I guess it's obvious given the order decline that sales will decline, but I guess we're all a little bit unclear as to the scheduling of those orders for the next few years. So perhaps you could give us some guidance as to what exactly your expectations are for sales for the next couple of years in terms of the gradual ramp-down to a level commensurate with orders. Thanks.