Alstom CEO Discusses F2Q2011 Results - Earnings Call Transcript
Alstom (
)
F2Q2011 Earnings Call
November 4, 2010; 12:00 pm ET
Executives
Patrick Kron - Chairman & Chief Executive Officer
Nicolas Tissot - Chief Financial Officer
Analysts
Andreas Willi – JPMorgan
Ben Uglow - Morgan Stanely
Lisa Randall - Nomura
Daniel Cunliffe - RBS
Martin Wilkie - Deutsche Bank
William Mackie - Berenberg Bank
Gael de Bray - Societe Generale
Olivier Esnou - Exane BNP Paribas
Jose Manuel Arroyas – Santander
Christel Monot - UBS
Alfred Glaser - Cheuvreux SA
James Stettler - UniCredit
Presentation
Patrick Kron
»
Alstom CEO Discusses F1Q11 Results - Earnings Call Transcript
»
Alstom SA FQ410 Earnings Call Transcript
»
Flamel Technologies CEO Discusses Q3 2010 Results - Earnings Call Transcript
Thank you and good morning ladies and gentlemen. Welcome to the conference call presenting our first half results for the fiscal year 2010/11. That means accounts from the 1 April 2010 to 30 September of the same year, which includes four months of our new Grid sector from June to September with no comparison with last year available.
I would like to remind you that all the published elements; presentation, financial reports, including MD&A and accounts, as well as the press release are available on our website www.alstom.com.
I will start with the key highlights of the first semester and review the situation of our Power, Transport and Grid sectors. Then Nicolas Tissot, our CFO, will go through the financial results and the conclusions.
On slide three, you can see that the group published this morning an operating performance which is in line with the guidance. Excluding the four months of Grid consolidation, sales declined by 8%, as a consequence of the drop of orders for the last 18 months, including Grid. That amounts to €10.4 billion, up 8%.
Income from operation reached €675 million, excluding Grid, which corresponds to a margin of 7.6%, in line with the 7% to 8% bracket that we gave and as expected, Grid’s margin at 5.8% is slightly dilutive.
Finally, the net income at €401 million, which includes a specific negative impact of €75 million linked to Grid’s acquisition, PPA impact and acquisition costs, elements which will be commented by Nicolas later on, the net income decreased by 29%. This drop resulted mainly from the low operating income and higher financial and restructuring charges.
On slide four, you can see at the same time that order intake continued to be impacted by the weak power thermal markets at €5.6 billion. Orders are down to around 20%, 21% from the first half of last year, which included two large contracts; one for power plant in the UK, around €1 billion at that time, and the other one for suburban trade advice. The backlog continues to be solid despite its moderate decline at €45.3 billion. It represents a little bit less of two years of sales.
Free cash flow became negative over the period at 963 minus, due to the strong deterioration of the working capital linked to the low book-to-bill ratio, the lack of down payments associated to turnkey orders, as well as the unfavorable cash profile of contracts at the end of their execution. This will be commented in details further on.
Looking at the orders on slide five, you see that the low demand on new power equipment, thermal power equipment in mature markets continue to impact the group intake during the first half of the year, while you can see on the slide that at the same time the flow of medium and small-sized projects resisted quite well and is more or less steady.
We have however experienced a strong decrease in the booking of large contracts, illustrated by the fact that only eight projects about 100 million of size were booked during the six months, as compared to 10 and above over the previous semesters.
Geographically, one can see that Western Europe has been the largest area in terms of orders; 35% of the total, notably with the booking of a win contract in the U.K. and regular orders in Sweden, while North America accounted for 15% of these total orders, but it needs to be remarked that this geographical split corresponds to a balanced repartition between mature and emerging markets.
In H1, 50% of our sales, of our orders were booked in historical markets; Western Europe plus North America, while 50% were booked in the faster-growing markets as BRICs or other emerging markets. Asia-Pacific representing 21% where the main contract registers. We have metros in India; nuclear equipment in China; Middle East/Africa representing 12% of the order with an air quality control system in South Africa, tramways in Tunisia and substations in the Emirates as well as in Libya. These were among the main contracts received.
Eastern Europe is 10% of the total orders, benefited from the large contract for locomotives in Russia. Finally, South and Central America contributed 27% of the orders, with wind turbines in Brazil and a hydro contract in Chile, but again it’s interesting to note that the share of emerging markets in the order books represented 50% of the total orders, editing fees compared to last year where it stood slightly below 30%. This evolution highlights, one, the quick recovery of demand in these regions, and secondly, our ability to participate in this recovery to our presence in these areas.
On slide six, you see that we have obviously a book-to-bill ratio which is low at 0.63, excluding Grid 0.67, including this new sector. That means a level well below one over the period. This being said, you also can see that the backlog remains ahead of it, even is slightly decreasing because of this book-to-bill below one, giving us still around two years of visibility; 25 months excluding Grid, 23 including Grid, which by nature has shorter lead times. I remind you that our order book is fully secured and as I say repeatedly, the proper execution of this backlog remains our top operational priority.
On slide seven, you have more details about sales and income from operations evolution. You can see that excluding Grid, sales declined by 8% as a consequence obviously of the decrease of past order intakes. The income from operation moved from €828 million in September 2009 to €763 million in September 2010. And as you can see, it has been mainly affected by the impact on the gross margin of the lower volumes of sales, combined with some under-recovery, the combination representing around €200 million. This has been partly offset by a positive impact of around €50 million linked to meet execution and S&A saving.
You will also see that Grid contributed to the IFO at the level of €88 million for these four months. Overall, operating margin declined from €8.6 million in H1 to €7.3 million during H1 of last year, to €7.3 million for the first half of this year.
If we go to slide eight, you have a general view of our market condition. They remained globally challenging during this first half, while presenting some contrasted situations. Starting with Power, you see demand from end markets continue to be weak, especially in the new thermal equipments and the reason is simple; because of the uncertainty on the rhythm of the economic recovery, customers continue to postpone some projects, not only in Europe, but also in the USA, with in addition to, some uncertainties in future regulations such as the Climate Change Bill, which probably blocked some decision processes.
The situation in emerging markets where the economic growth has rebounded is more encouraging. Globally speaking, increasingly stringent environmental or regulation continues to drive the need for CO2-free technologies such as hydro, wind and nuclear. And lastly, the aging of the fleet and the postponement of investment for new equipment in mature market continued to sustain demand for service and retrofit markets which definitely remain sound.
Concerning transport, the market was more resilient. For passengers’ railways, we are more, as you know, in passengers’ railways than in the freights, which has been a little bit more bumpy. The opportunities still exist not only in historical markets, but beyond the traditional frontiers of Western Europe and this evolution continues to be driven by economic growth, demographics, ever-increasing urbanization and the rising concern for environmental issues.
Lastly on Grid, the market started to recover after the 2009 crisis. As I said, this market has lower lead time, shorter lead time, than in power generation and we are confident that it will continue to grow in the future.
If you go to Slide Nine, you can see that due to the weak market conditions in Thermal, we launched in the mature markets of Europe and North America. We launched a restructuring plan in order to adjust to demand, and this is important in our business, not compromising our chances to benefit from the rebound.
Read the rest of this transcript for free on seekingalpha.com
