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 2004
Commission File Number: 1-14836
ALSTOM
(Translation of registrant's name into English)
3, avenue André Malraux, 92300 Levallois-Perret, 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
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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
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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
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If "Yes" is marked, indicate below the file number assigned to the Registrant in
connection with Rule 12g3-2(b)
ENCLOSURES:
Press release dated November 18, 2004, "ALSTOM First-Half Results 2004/05 (1st
April 2004 - 30 September 2004)"
Interim Consolidated Financial Statements for Half-Year Ended 30 September
2004
Management Discussion and Analysis on Interim Consolidated Financial Statements
as at 30 September 2004
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 22, 2004 By: /s/ Henri Poupart-Lafarge
------------------------------
Name: Henri Poupart-Lafarge
Title: Chief Financial Officer
PRESS INFORMATION
18 November 2004
ALSTOM FIRST-HALF RESULTS 2004/05
1ST APRIL 2004 - 30 SEPTEMBER 2004
FIRST-HALF RESULTS IN LINE WITH OUR RECOVERY PLAN
o Orders received: €8.4bn, up 51% versus first half 2003/04 , on a
comparable basis
o Sales: €6.4bn, down 12% on a comparable basis
o Operating margin: 3.6%, up from 1.5 % in first half 2003/04
o Net income: €(315)m as compared to €(624)m
o Free cash flow: €(294)m as compared to €(674)m
* * *
Commenting on the results Patrick Kron, Chairman & Chief Executive Officer,
said:
" The financial operations successfully completed during the summer have given
us the visibility and the stability needed to implement our recovery plan. Our
balance sheet has been substantially strengthened through a €2 billion capital
increase. We have stabilised our capital structure with the French State holding
a 21.4% share. Finally, we have secured access to bonding facilities.
During this first half, we have seen positive impacts of our recovery plan:
- We have recorded a strong rebound of orders across our Sectors, despite
continuing difficult market conditions in new power equipment, thus confirming
the return of customer confidence. The quality of our orders also shows
continuous improvement, with higher margins in line with our profitability
targets.
ALSTOM - 3 avenue André Malraux - 92300 Levallois (France)
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PRESS INFORMATION
- New commercial successes have been achieved in recent weeks. The award of
projects for Transport and Hydro in China for a total value of € 1.4 billion
will create a significant change of our presence in the largest global market. I
am also pleased to announce that ALSTOM has been selected for a turnkey project
including 4xGT26 gas turbines for a customer in Thailand, confirming, along with
the order received in Spain in the beginning of 2004, that we are firmly back in
the large gas turbine market.
- The improvement of our operational performance during this semester is also
very encouraging. All Sectors have made progress in contract execution and our
cost-reduction programmes are now well advanced.
We will continue implementing our action plan in order to meet our targets of a
6% operating margin and a positive free cash flow by March 2006. Given our
achievements over the first half of the year, we are confident that these
objectives can be reached."
ALSTOM - 3 avenue André Malraux - 92300 Levallois (France)
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PRESS INFORMATION
FIRST HALF RESULTS IN LINE WITH OUR RECOVERY PLAN
KEY FINANCIAL FIGURES
The following tables set out, on a consolidated basis, some of our key financial
and operating figures:
--------------------------------------------------------------------------------
TOTAL GROUP % Variation
ACTUAL FIGURES First Half 2nd Half First Half Sept. 04/
(IN € MILLION) SEPT. 03 MAR. 04 SEPT. 04 Sept. 03
---------- -------- ---------- ----------
Order Backlog 27 174 25 368 27 077 (0%)
Orders received 7 439 9 061 8 362 12%
Sales 8 854 7 834 6 402 (28%)
Operating income 132 168 233
Operating margin 1,5% 2,1% 3,6%
Net income (624) (1 212) (315)
Free Cash Flow (674) (333) (294)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
TOTAL GROUP % Variation
ACTUAL FIGURES First Half 2nd Half First Half Sept. 04/
(IN € MILLION) SEPT. 03 MAR. 04 SEPT. 04 Sept. 03
---------- -------- ---------- ----------
Order Backlog 24 650 25 174 27 077 10%
Orders received 5 525 8 461 8 362 51%
Sales 7 296 7 197 6 402 (12%)
Operating income 35 142 233
Operating margin 0,5% 2,0% 3,6%
--------------------------------------------------------------------------------
REBOUND OF ORDERS CONFIRMED
The power generation new equipment market remained low overall but growth
drivers were solid in the environmental markets with strong demand for hydro
equipment and environmental control systems. Power service and rail
transportation markets remained healthy and the cruise-ship market has regained
some activity.
The level of orders registered in the first half of fiscal year 2004/05
confirmed restored confidence from our customer base. We have booked orders for
€8.4 billion, an increase of 51% compared with the first half of last year on a
comparable basis. Quality of order intake continued to improve and margins on
ALSTOM - 3 avenue André Malraux - 92300 Levallois (France)
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PRESS INFORMATION
orders are in line with profitability targets. The book-to-bill ratio at 1.3 has
significantly improved.
Our backlog on September 30th 2004 was €27.1 billion, representing approximately
two years of sales.
LOW LEVEL OF SALES DUE TO PAST SLOWDOWN OF ORDER INTAKE
Sales have reached a low point at €6.4 billion in the first half of fiscal year
2004/05, compared with €7.3 billion in the first half of fiscal year 2003/04, a
decrease of 12% on a comparable basis. This decrease was due to lower levels of
orders in the second half of fiscal year 2002/03 and in the first half of fiscal
year 2003/04, leading to lower sales in Marine and Power
Turbo-Systems/Environment. Sales in the other Sectors increased on a comparable
basis.
STRONG IMPROVEMENT IN OPERATING INCOME
Operating income and operating margin were €233 million and 3.6% in the first
half of fiscal year 2004/05 versus €132 million and 1.5% respectively over the
same period in the previous year. On a comparable basis, operating income and
operating margin were €35 million and 0.5% in the first half of fiscal year
2003/04. Improvement has been recorded in all our Sectors with the exception of
Marine. The impact of a lower level of sales was more than offset by better
contract execution.
NET LOSS REDUCED
Net loss was €(315) million compared with €(624) million in the first half of
last year. This improvement comes from the better operational performance and by
the decrease in restructuring and financial charges.
FREE CASH FLOW STILL IMPACTED BY GT24/GT26 LEGACY PAYMENTS
As expected, our free cash flow was still negative at €(294) million in the
first half of fiscal year 2004/05 ; it includes a €206 million cash outflow on
GT24/GT26, €122 million of restructuring expenses and a significant negative
movement of the working capital in Marine.
ALSTOM - 3 avenue André Malraux - 92300 Levallois (France)
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PRESS INFORMATION
DEBT REDUCED BY €1.3 BILLION
Net debt was €2.4 billion at 30 September 2004 compared with the restated amount
of €3.7 billion at 1st April 2004, including €827 million coming from the
consolidation of ad hoc entities due to recent changes in accounting rules. This
reduction of debt is mainly the consequence of the financial operations
completed during the period.
ALSTOM - 3 avenue André Malraux - 92300 Levallois (France)
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PRESS INFORMATION
REVIEW BY SECTOR
1
POWER TURBO-SYSTEMS/ENVIRONMENT
Power Turbo-Systems and Power Environment Sectors are now combined to reflect
the current management organisation.
Orders received in the first half of fiscal year 2004/05 amounted to €2.2
billion, an increase of 18%. Compared with last year, growth came primarily from
our Hydro and Environmental Control System businesses, whereas no large order
has been recorded in turbine and boiler turnkey projects. From a geographical
standpoint, the main contracts booked over the period were located in the US and
Asia.
In the first half of fiscal year 2004/05, sales at €1.8 billion were 28% lower
than in the first half of fiscal year 2003/04 . This reflects the exceptionally
low order intake booked one year ago.
Operating income was €(64) million in the first half of fiscal year 2004/05,
compared with €(105) million in the first half and €(146) million in the second
half of fiscal year 2003/04. Despite under-absorption of costs due to lower
sales, losses have been significantly reduced as a consequence of improved
project execution.
POWER SERVICE
Orders received for the first half of fiscal year 2004/05 at €1.7 billion were
30% higher than the first half of fiscal year 2003/04. The orders booked during
the period included several long term maintenance contracts, mainly in Europe
and Asia.
Sales at €1.4 billion for the first half of fiscal year 2004/05 grew steadily,
with an increase of 8% versus the first half of fiscal year 2003/04.
____________________
1 All comments are made on a comparable basis (same scope and exchange rate)
ALSTOM - 3 avenue André Malraux - 92300 Levallois (France)
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PRESS INFORMATION
Operating income reached a record high at €232 million or 16.3% of sales in the
first half of fiscal year 2004/05 compared with €191 million or 14.4% of sales
in the first half of fiscal year 2003/04.
TRANSPORT
Orders received by Transport in the first half of fiscal year 2004/05 amounted
to €2.9 billion, an increase of 74%, compared with the first half of fiscal year
2003/04 which was particularly low.
Several large orders have been recorded in Europe, including a metro system in
Barcelona, locomotives in France and tram-trains in the Netherlands.
Sales at €2.5 billion increased by 8% in the first half of fiscal year 2004/05
compared with the first half of fiscal year 2003/04 .
The operating income for the first half of fiscal year 2004/05 amounted to €119
million or 4.8% of sales compared with €(31) million in the first half 2003/04
and €98 million in the second half of 2003/04. This steady increase was due to
the improvement of our project execution while the first half of last year was
impacted by significant losses in relation to our US Transport business.
MARINE
Orders received during the first half of fiscal year 2004/05 reached €1.1
billion mainly comprising of two cruise ships and a LNG tanker.
Sales were low at €274 million in the first half of fiscal year 2004/05, as for
most of the period, no cruise-ship was under construction. The main deliveries
in the first half of the year included a cruise-ship in May, and the fore half
of a naval assault ship in July.
Operating income was negative in the first half of fiscal year 2004/05 by €(34)
million. Adjustment of our production capacity is currently being implemented
but the low level of activity during the first half generated significant
under-absorption of charges.
ALSTOM - 3 avenue André Malraux - 92300 Levallois (France)
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PRESS INFORMATION
POWER CONVERSION
Orders received in the first half of fiscal year 2004/05 amounted to €300
million, an increase of 38% compared with the first half of fiscal year 2003/04.
This improvement came mainly from the UK with the booking of one major order.
Sales at €257 million in the first half of fiscal year 2004/05 increased by 20%
compared with the first half of fiscal year 2003/04.
Operating income reached €17 million in the first half of fiscal year 2004/05, a
strong increase compared to the first half of fiscal year 2003/04, mainly due to
the success of cost reduction programmes and better project execution.
PROGRESS ON OPERATIONS
RESTRUCTURING PLANS
The restructuring plans announced in fiscal year 2003/04 are progressing
according to schedule; out of the planned 8,400 headcount reduction, 6,300 have
left the Group at end of September 2004.
Additional plans concerning 1,000 positions have been announced since March
2004, including one in Switzerland to adapt capacity in Power
Turbo-Systems/Environment, as well as other more limited adjustments in various
locations.
GT24/GT26
The commercial situation with respect to the 76 GT24/GT26 gas turbines sold a
few years ago continues to improve: as of today, 75 units are in commercial
operation and 1 is in commissioning. These units have accumulated over 1'100'000
hours at a high reliability level. Today, we have concluded commercial
settlements for 65 units, of which 50 are unconditional (as compared to 42
unconditional at March 2004).
The risks related to this GT24/GT26 issue have been further reduced. The
corresponding cash outflow is down to €206 million in the first half of fiscal
ALSTOM - 3 avenue André Malraux - 92300 Levallois (France)
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PRESS INFORMATION
year 2004/05, a better than anticipated level and significantly below the €394
million spent during the same period of last year.
As customer confidence increases with these positive developments, we have been
selected for a new turnkey combined cycle project with associated long term
maintenance agreement including 4 GT26 in Thailand ; we expect to book the
corresponding order in the coming weeks.
OUTLOOK
On a comparable basis, orders for fiscal year 2004/05 should exceed the level of
fiscal year 2003/04, while sales should be down by approximately 5% as compared
to fiscal year 2003/04. Based on the encouraging performance of the first half
2004/05, we reiterate our forecast for the full year 2004/05 of an operating
margin between 3.5% and 4% and a free cash flow at approximately €(400) million.
We confirm our previously announced objectives for March 2006 to reach a 6 %
operating margin and a positive free cash flow.
- ends -
A FULL COPY OF THE MD&A DOCUMENT IS AVAILABLE ON ALSTOM'S WEBSITE, TOGETHER WITH
A FULL SET OF ACCOUNTS AND NOTES (WWW.ALSTOM.COM).
Press relations: G. Tourvieille /M. Boulot
(Tél. +33 1 41 49 27 13/ +33 1 41 49 29 36)
internet.press@chq.alstom.com
Investor relations: E. Châtelain
(Tél. +33 1 41 49 37 38)
Investor.relations@chq.alstom.com
M Communications: L. Tingström
Tel. + 44 789 906 6995
ALSTOM - 3 avenue André Malraux - 92300 Levallois (France)
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PRESS INFORMATION
* * *
FORWARD-LOOKING STATEMENTS
This press release contains, and other written or oral reports and
communications of ALSTOM may from time to time contain, forward-looking
statements, within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Examples of such
forward-looking statements include, but are not limited to (i) projections or
expectations of sales, orders received, income, operating margins, dividends,
provisions, cash flow, debt or other financial items or ratios, (ii) statements
of plans, objectives or goals of ALSTOM or its management, (iii) statements of
future product or economic performance, and (iv) statements of assumptions
underlying such statements. Words such as "believes", "anticipates", "expects",
"intends", "aims", "plans", "are confident" and "will" and similar expressions
are intended to identify forward looking statements but are not exclusive means
of identifying such statements. By their very nature, forward-looking statements
involve risks and uncertainties that the forecasts, projections and other
forward-looking statements will not be achieved. Such statements are based on
management's current plans and expectations and are subject to a number of
important factors that could cause actual results to differ materially from the
plans, objectives and expectations expressed in such forward-looking statements.
These factors include: (i) the inherent difficulty of forecasting future market
conditions, level of infrastructure spending, GDP growth generally, interest
rates and exchange rates; (ii) the effects of, and changes in, laws,
regulations, governmental policy, taxation or accounting standards or practices;
(iii) the effects of currency exchange rate movements; (iv) the effects of
competition in the product markets and geographic areas in which ALSTOM
operates; (v) the ability to increase market share, control costs and enhance
cash generation while maintaining high quality products and services; (vi) the
timely development of new products and services; (vii) the results of ALSTOM's
restructuring and cost reduction programmes; (viii) continued validity of
ALSTOM's new Bonding Facility to obtain bonds in amounts that are sufficient to
meet the needs of our business; (ix) the timing of and ability to meet the cash
generation and other initiatives of the new action plan; (x) the results of the
investigations by the United States Securities and Exchange Commission's ("SEC")
and the French Autorite des Marches Financiers ("AMF"); (xi) the outcome of the
putative class action lawsuit filed against ALSTOM and certain of its current
and former officers; (xii) our ability to improve operating margins in a
timely manner and to progressively increase the after-sales service and
maintenance in our businesses; (xiii) the availability of external sources of
financing on commercially reasonable terms; (xiv) the inherent technical
complexity of many of ALSTOM's products and technologies and our ability to
resolve effectively, on time, and at reasonable cost technical problems,
infrastructure constraints or regulatory issues that inevitably arise, including
in particular the problems encountered with the GT24/GT26 gas turbines and the
UK trains; (xv) risks inherent in large contracts and/or significant fixed price
contracts that comprise a substantial portion of ALSTOM's business including in
contract execution; (xvi) the inherent difficulty in estimating future charter
or sale prices of any cruise ship in any appraisal of ALSTOM's exposure in
respect of Renaissance Cruises and ships that have been seized from Festival;
(xvii) the inherent difficulty in estimating ALSTOM's vendor financing risks and
other credit risks, which may notably be affected by customers' payment default;
(xviii) ALSTOM's ability to invest successfully in, and compete at the leading
edge of, technology developments across all of its sectors; (xix) the
availability of adequate cash flow from operations or other sources of liquidity
to achieve management's objectives or goals, including our goal of reducing
indebtedness; (xx) whether certain of ALSTOM's markets, particularly the Power
Turbo-Systems/Environment Sector, recover from their currently depressed state;
(xxi) the impact on customer confidence of ALSTOM's recent financial
difficulties, and its ability to re-establish this confidence; (xxii) the
effects of acquisitions and disposals generally and the outcome of claims
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PRESS INFORMATION
related to ALSTOM's disposals; (xxiii) the unusual level of uncertainty at this
time regarding the world economy in general; and (xxiv) ALSTOM's success in
adjusting to and managing the foregoing risks.
The foregoing list is not exhaustive; when relying on forward-looking statements
to make decisions with respect to ALSTOM, you should carefully consider the
foregoing factors and other uncertainties and events, as well as other factors
described in other documents ALSTOM files or submits from time to time with the
SEC and/or the AMF, including our Annual Report for the fiscal year ended 31
March 2004. Forward-looking statements speak only as of the date on which they
are made, and ALSTOM undertakes no obligation to update or revise any of them,
whether as a result of new information, future events or otherwise.
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INTERIM CONSOLIDATED FINANCIAL STATEMENTS
HALF-YEAR ENDED 30 SEPTEMBER 2004
INTERIM CONSOLIDATED INCOME STATEMENTS
HALF-YEAR ENDED
30 SEPTEMBER YEAR ENDED
--------------------- 31 MARCH
NOTE 2003 2004 2004
-------- -------- --------
(IN € MILLION)
SALES (17) 8,854 6,402 16,688
OF WHICH PRODUCTS 6,602 4,511 12,786
OF WHICH SERVICES 2,252 1,891 3,902
Cost of sales (7,577) (5,408) (14,304)
OF WHICH PRODUCTS (5,805) (3,983) (11,353)
OF WHICH SERVICES (1,772) (1,425) (2,951)
Selling expenses (435) (271) (785)
Research and development expenses (239) (166) (473)
Administrative expenses (471) (324) (826)
-------- -------- --------
OPERATING INCOME (17) 132 233 300
Other income (expense), net (4) (397) (177) (1,111)
Other intangible assets amortisation (8) (31) (29) (60)
-------- -------- --------
EARNINGS (LOSS) BEFORE INTEREST AND TAX (17) (296) 27 (871)
Financial income (expense), net (5) (220) (185) (460)
-------- -------- --------
PRE-TAX LOSS (516) (158) (1,331)
Income tax (charge) credit (6) 29 (40) (251)
Share in net income (loss) of equity investments - - -
Minority interests (2) (3) 2
Goodwill amortisation (7) (135) (114) (256)
-------- -------- --------
(624) (315) (1,836)
======== ======== ========
NET LOSS
Earnings per share in Euro
Basic (2.2) (0.1) (4.1)
Diluted (2.2) (0.1) (4.1)
The accompanying Notes are an integral part of these Interim Consolidation Financial Statements.
INTERIM CONSOLIDATED BALANCE SHEETS
AT AT AT
NOTE 31 MARCH 1 APRIL 30 SEPTEMBER
2004 2004(1) 2004
-------- -------- -------
(IN € MILLION)
ASSETS
Goodwill, net (7) 3,424 3,424 3,309
Other intangible assets, net (8) 956 956 927
Property, plant and equipment, net 1,569 2,262 1,947
Investments in equity method investees and other
investments, net 160 160 136
Other fixed assets, net (9) 1,217 1,102 1,641
-------- -------- -------
TANGIBLE, INTANGIBLE AND OTHER FIXED ASSETS, NET 7,326 7,904 7,960
DEFERRED TAXES (6) 1,561 1,561 1,546
Inventories and contracts in progress, net 2,887 2,997 3,195
Trade receivables, net 3,462 3,462 3,569
Other accounts receivables, net 2,022 2,160 2,044
-------- -------- -------
CURRENT ASSETS 8,371 8,619 8,808
Short term investments 39 39 181
Cash and cash equivalents 1,427 1,427 1,409
-------- -------- -------
TOTAL ASSETS 18,724 19,550 19,904
======== ======== =======
LIABILITIES
SHAREHOLDERS' EQUITY 29 29 1,695
MINORITY INTERESTS 68 68 69
BONDS REIMBURSABLE WITH SHARES (12) 152 152 139
PROVISIONS FOR RISKS AND CHARGES (13) 3,489 3,484 3,275
ACCRUED PENSION AND RETIREMENT BENEFITS (14) 842 842 842
FINANCIAL DEBT (15) 4,372 5,199 3,998
DEFERRED TAXES (6) 30 30 36
Customers' deposits and advances 2,714 2,714 3,254
Trade payables 3,130 3,130 2,833
Accrued contract costs, other payables
and accrued expenses 3,898 3,902 3,763
-------- -------- -------
CURRENT LIABILITIES 9,742 9,746 9,850
======== ======== =======
TOTAL LIABILITIES 18,724 19,550 19,904
======== ======== ======
Commitments and contingencies (18)&(19)
---------------
(1) Amended opening balance sheet at 1 April 2004 pursuant to the first application of the Reglèment
CRC 2004-03. See Note 2 (a)
The accompanying Notes are an integral part of these Interim Consolidated Financial Statements.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED HALF YEAR ENDED
31 MARCH 30 SEPTEMBER
2004 2004
------------------- -----------------
(IN € MILLION)
NET INCOME (LOSS) (1,836) (315)
Minority interests (2) 3
Depreciation and amortisation 726 290
Changes in provision for pension and retirement benefits, net 85 3
Net (gain) loss on disposal of fixed assets and investments (175) 1
Share in net income (loss) of equity investees (net of dividends received) - -
Changes in deferred tax 149 38
NET INCOME AFTER ELIMINATION OF NON CASH ITEMS
(1,053) 20
Decrease (increase) in inventories and contracts in progress, net 389 (231)
Decrease (increase) in trade and other receivables, net 770 (68)
Increase (decrease) in sale of trade receivables, net (267) (82)
Increase (decrease) in contract related provisions, (295) (103)
Increase (decrease) in other provisions, 113 1
Increase (decrease) in restructuring provisions, 271 (53)
Increase (decrease) in customers' deposits and advances (1) 556
Increase (decrease) in trade and other payables, accrued contract costs and
accrued expenses (985) (376)
CHANGES IN NET WORKING CAPITAL (2) (5) (356)
------------------- ------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (1,058) (336)
------------------- ------------------
Proceeds from disposals of property, plant and equipment 244 17
Capital expenditures (254) (57)
Decrease(increase) in other fixed assets (5) 125 (563)
Cash expenditures for acquisition of investments, net of net cash acquired (8) -
Cash proceeds from sale of investments, net of net cash sold (4) 1,454 340
------------------- ------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 1,561 (263)
------------------- ------------------
Capital increase 1,024 1,995
Issuance (conversion) of Bonds reimbursable with shares 152 (13)
Dividends paid including minorities (3) (3)
------------------- ------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,173 1,979
------------------- ------------------
Net effect of exchange rate (7) (7)
Net effect of new accounting pronouncement (3) - (827)
Other changes (14) (48)
------------------- ------------------
DECREASE (INCREASE) IN NET DEBT 1,655 498
------------------- ------------------
NET DEBT AT THE BEGINNING OF THE PERIOD - (1) (4,561) (2,906)
------------------- ------------------
NET DEBT AT THE END OF THE PERIOD - (1) (2,906) (2,408)
=================== ==================
Cash paid for income taxes 75 40
Cash paid for net interest 251 134
(1) NET DEBT INCLUDES SHORT-TERM INVESTMENTS, CASH AND CASH EQUIVALENTS NET OF FINANCIAL DEBT.
(2) SEE NOTE 11
(3) EFFECT AT 1ST APRIL 2004 ON FINANCIAL DEBT PURSUANT TO THE FIRST APPLICATION OF THE RÈGLEMENT CRC 2004-03. SEE NOTES
2(A) AND 15.
(4) IN THE YEAR-ENDED 31 MARCH 2004, THE NET PROCEEDS OF € 1,454 MILLION ARE MADE OF:
- TOTAL SELLING PRICE OF € 1,977 MILLION INCLUDING A TOTAL AMOUNT OF € 1,927 MILLION FOR T&D SECTOR AND INDUSTRIAL
TURBINES BUSINESSES
- CONSIDERATION TO BE RECEIVED FOR A TOTAL AMOUNT OF € 263 MILLION OF WHICH € 214 MILLION ARE HELD IN ESCROW AT 31
MARCH 2004,
- NET CASH SOLD TO BE REIMBURSED BY THE ACQUIRERS AND SELLING COSTS OF € 260 MILLION.
IN THE HALF YEAR YEAR-ENDED 30 SEPTEMBER 2004, THE NET PROCEEDS OF € 340 MILLION ARE MADE OF:
- PROCEEDS OF € 41 MILLION FOR FORMER T&D AND INDUSTRIAL TURBINES ENTITIES NOT SOLD IN THE YEAR-END 31 MARCH 2004
(SEE NOTE 3)
- RELEASE OF € 56 MILLION FROM THE T&D AND INDUSTRIAL TURBINES ESCROW ACCOUNTS RETAINED AT 31 MARCH 2004.
- NET DEBT OF € 243 MILLION SOLD AS PART OF THE DISPOSAL OF ONE SPECIAL PURPOSE ENTITY IN THE TRANSPORT SECTOR (SEE
NOTE 3)
(5) IN THE HALF-YEAR ENDED 30 SEPTEMBER 2004, THE OUTFLOW RELATING TO OTHER FIXED ASSETS IS MAINLY DUE TO THE € 700
MILLION CASH DEPOSIT MADE TO SECURE THE NEW BONDING GUARANTEE FACILITY PROGRAMME PARTIALLY OFFSET BY REPAYMENT OF
OTHER LONG TERM DEPOSITS.
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 31 MARCH 2003 281,660,523 1,690 309 (916) (325) 758
Capital decrease (1) - (1,338) (309) 1,647 - -
Capital increase (2) 774,997,049 969 64 - - 1,033
Changes in cumulative translation - - - - 74 74
adjustments
Net income - - - (1,836) - (1,836)
------------- ------- ---------- -------- ----------- ------------
AT 31 MARCH 2004 1,056,657,572 1,321 64 (1,105) (251) 29
============= ======= ========== ======== =========== ============
Conversion of ORA (3) 9,398,251 11 2 - - 13
Conversion of TSDDRA (4) 240,000,000 300 - - - 300
Capital decrease (5) - (1,175) (64) 1,239 - -
Capital increase (6) 4,135,265,768 1,447 259 - - 1,706
Changes in cumulative translation - - - - (38) (38)
adjustments
Net income - - - (315) - (315)
------------- ------- ---------- -------- ----------- ------------
AT 30 SEPTEMBER 2004 5,441,321,591 1,904 261 (181) (289) 1,695
============= ======= ========== ======== =========== ============
o NET EQUITY MOVEMENT BETWEEN 1 APRIL 2003 AND 31 MARCH 2004
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 General Shareholders' Meeting held on 2 July 2003, it was decided
that no dividend be paid.
(1) 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.
(2) Subsequently, in November 2003, an issue of shares was made and 239,933,033
shares with a par value of €1.25 were subscribed.
In December 2003, an issue of bonds reimbursable into shares "OBLIGATIONS
REMBOURSABLES EN ACTIONS" was made and 643,795,472 bonds were subscribed at
€1.4 per bonds with a par value of €1.25. At 31 March 2004, 535,064,016
bonds were converted into shares on the basis of one share for one bond.
Related costs of €16 million (net of tax of €9 million) were charged
against additional paid-in CapITAL of €80 million.
At 31 March 2004, the share capital amounted to €1,320,821,965 consisting
of 1,056,657,572 shares witH a nominal value of €1.25 per share. All shares
are fully paid up.
At the General Shareholders' Meeting held on 9 July 2004, it was decided
that no dividend be paid.
o NET EQUITY MOVEMENT BETWEEN 1 APRIL 2004 AND 30 SEPTEMBER 2004
(3) During the period 9,275,231 bonds reimbursable into shares "Obligation
Remboursable en Actions" were converted into shares initially on the basis
of one share for one bond and as from 16 August 2004 following completion
of the capital increase with preferential subscription rights, on the basis
of an adjusted ratio of 1.2559 share for one bond, resulting in the issue
of 9,398,251 new shares (see Note 12)
(4) On 7 July 2004, following the European Commission's approval, the
subordinated bonds reimbursable with shares "Titres Subordonnés à Durée
Déterminée Remboursables en Actions" held by the French Republic were
repaid into 240,000,000 new shares at a par value of €1.25.
(5) The ALSTOM shareholders' equity at 31 march 2004 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 and agreed, at
the General Shareholders' Meeting held on 9 July 2004 not to liquidate the
company by anticipation. It was decided to reduce ALSTOM's share capital,
due to losses, from €1,631,815,076.25 to €456,908,221.35. This reduction in
the share capital was implemented through the reduction in the nominal
value of one ALSTOM ordinary share from €1.25 per share to €0.35 per share.
(6) On 12 and 13 August 2004, the Group closed two simultaneous capital
increases :
A capital increase with preferential subscription rights to be subscribed
either in cash or by set-off against certain of our outstanding debt was
subscribed for a total gross amount of €1,508 million As follows:
o €1,277 million gross amount consisting of 3,192,826,907 new shares
issued at €0.40 having a PAR VALUE of €0.35 subscribed in cash.
o €231 million gross amount consisting of 462,438,861 new shares issued
at €0.50 having a par value of €0.35, subscribed by set-off against
debt.
A second capital increase which was reserved for certain Group's creditors
to be subscribed by set off against certain of our outstanding debts was
subscribed for a total gross amount of €240 million consisting of
480,000,000 new shares issued at €0.50 having a par value of €0,35.
Related costs of €42 million (net of tax of €24 million) were charged against
additional paid in capital of €301 million.
At 30 September 2004, the share capital amounted to €1,904,462,556.85 consisting
of 5,441,321,591 shares with a nominal value of €0.35 per share. All 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 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 2004 have been prepared on the basis of the accounting policies and
methods of computation as set out in Note 2.
The Group's Consolidated Financial Statements for the year-ended 31 March 2004
were prepared after taking into account a number of matters including :
- The Financing Package negotiated in September 2003 resulted in a new set of
financial covenants. As at 31 March 2004, the Group would have failed to
comply with those covenants related to "consolidated net worth" and
"EBITDA". Accordingly, the Group obtained agreement from its lenders to
suspend the covenants it had previously negotiated until 30 September 2004.
- The Group obtained bonding and guarantee facilities as a result of the
Financing Package agreed in September 2003 of €3,500 million, of which 65%
was guaranteed by the French State. This facility WAs sufficient to meet
approximately one year of orders and was expected to be used during the
summer 2004. The Group entered into discussions with certain of its main
banks to secure access to contract bonding and guarantee facilities.
- The approval of the European Commission for the Financing Package announced
on 22 September 2003 was outstanding.
Having considered the matters set out above, the Group concluded that the going
concern principle was the appropriate basis of preparation for the 31 March 2004
Consolidated Financial Statements on the assumptions that it would be able to:
- secure contract bonding and guarantee facilities to meet its normal
business activity,
- successfully negotiate new covenants with its lenders,
- obtain all necessary approvals from the European Commission,
- generate operating income and cash flow sufficient to respect covenants or
waivers being granted, thus ensuring continued availability of debt
financing.
During the six month period ended 30 September 2004 these matters were resolved:
- The Group reached agreement with its banks on a new set of financial
covenants and amendments required to allow implementation of the financial
plan.
- The European Commission, approved under certain conditions, the Group's
financing plan including the French State's participation in the plan.
- Shareholders approved at a General Shareholders Meeting the financing Plan
and authorised the Group to launch a capital increase.
The financing package secured bonding and guarantee facilities to a maximum
outstanding amount of up to €8 billion of which €6.6 billion have already been
committed at 30 September 2004 and a capital increase of €2.048 billion (before
related costs) through debt to equity swaps and cash injection.
To respond to the European Commission requirements the Group has committed to
dispose of businesses representing approximately €1.5 billion in sales over the
next two years.
The divestments include the industrial boilers business which is part of the
Power Turbo Systems/Environment Sector, Transport Sector's activities in
Australia and New Zealand, freight locomotive business in Spain and other
activities yet to be identified. In addition, the Group is required, within four
years, to enter into one or more long-term partnership including a partnership
to be established for Hydro power business, with a joint venture to be set up
under joint control. In the Transport Sector, the Group must forgo acquisitions
for four years over a certain threshold.
The French State has committed to sell its shares at the latest twelve months
following the Group's obtaining an investment-grade rating, or in any event
prior to July 2008.
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 Réglementation Comptable (French consolidation
methodology). Benchmark treatments are generally used. However, capital lease
arrangements and long term rentals are not capitalised (see Note 18 (b)).
(A) NEW ACCOUNTING PRONOUNCEMENT EFFECTIVE 1 APRIL 2004
The Financial Security Act of 1 August 2003 (article 133 modifying article
L-233-16 of the French "Code de commerce") has modified the conditions of
exercice of the control on an entity by cancelling the obligation to hold at
least one share in the controlled enterprise.
Consequently, the § 1002 of the Règlement 99-02 of the Comité de Réglementation
Comptable has been amended by Reglèment 2004-03 of the 4 may 2004, which
cancelled the obligation to hold at least one share of the capital of the
controlled enterprise to be consolidated.
This Règlement is applicable for the fiscal years starting on the 4 August 2003
or later, ie for the Group the year commencing 1 April 2004.
The Group has reviewed its existing interests in Special Purpose Entities
previously not consolidated but now falling into the scope of the Règlement
2004-03 of the 4 may 2004. The Group concluded that at 1 April 2004 five ad-hoc
entities have to be fully consolidated in application of the Règlement 2004-03
of the 4 may 2004.
The impacts of the change in accounting principles have been determined
retrospectively, after tax effect, and allocated to the opening net equity as
follows:
AT
31 MARCH 2004
(AS APPROVED BY THE IMPACT OF
SHAREHOLDERS' MEETING RÈGLEMENT AT
ON 9 JULY 2004) CRC 2004-03 (1) 1 APRIL 2004
--------------------- --------------- -------------
(IN € MILLION)
Property, plant and equipment, net 1,569 693 2,262
Inventories and contract in progress, net 2,887 110 2,997
Other fixed assets, net 1,217 (115) 1,102
Other assets,net 11,585 138 11,723
Short term investments and cash equivalents 1,466 - 1,466
--------------------- --------------- -------------
TOTAL ASSETS 18,724 826 19,550
===================== =============== =============
Shareholders' equity 29 - 29
Provisions for risks and charges 3,489 (5) 3,484
Financial debt 4,372 827 5,199
Other liabilities 10,834 4 10,838
--------------------- --------------- -------------
TOTAL LIABILITIES 18,724 826 19,550
===================== =============== =============
---------------
(1) See Note 16
(B) CONSOLIDATION METHODS
Entities 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, whether it holds shares or not.
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.
Entities 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 22.
(C) 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.
(D) REVENUE AND COST RECOGNITION
Revenue on contracts which are of less than one year duration, including the
sale of manufactured products and rendering of services, is recognised upon
transfer of title, including the risks and rewards of ownership, which generally
occurs on delivery to the customer and performance of service activities.
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.
For long term service contracts, revenues are generally recognised over the term
of the contract as work is performed and services rendered.
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.
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 measured
either by segmented portions of the contract "contract milestones" or costs
incurred to date compared to estimated total costs. The excess of this 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.
(E) 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.
(F) 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.
(G) 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.
(H) 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.
(I) 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.
(J) IMPAIRMENT
At the balance sheet date, whenever events or changes in markets indicate a
potential impairment to goodwill, other intangible assets and property, plant
and equipment, the carrying amount of such assets is reduced to their estimated
recoverable value. Impairment tests are performed at each year-end.
(K) 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
Cruise ships 30
Assets financed through capital lease are not capitalised (see Note 18 (b)).
(L) 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.
(M) OTHER FIXED ASSETS
Other fixed assets are recorded at the lower of historical cost or net
realisable value, assessed on an individual investment basis.
(N) 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.
(O) 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.
(P) CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and highly liquid investments with an
initial maturity of less than three months.
(Q) 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 gross and valuation
allowances are recorded when necessary to reflect the estimated 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.
(R) 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.
(S) 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;
- it is probable that an outflow of economic resources will be required to
settle the obligation;
- 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.
(T) 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.
(U) RESEARCH AND DEVELOPMENT
Internally generated research and development costs are expensed as incurred.
(V) 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.
(W) RESTRUCTURING
Restructuring costs are accrued when reduction or closure of facilities, or a
program to reduce the workforce is announced and when management is committed
with the concerned employees and when related costs are precisely determined.
Such costs include employees' severance and termination benefits, estimated
facility closing costs and write-off of assets.
(X) 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, fees paid for putting in
place guarantees, syndicated loans and other financing facilities, depreciation
of financial assets and investments.
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 other costs
incurred in connection with borrowings are expensed, when appropriate, over the
maturity period of the borrowings.
(Y) 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 is loss making. .
(Z) EXCHANGE RATES USED FOR THE TRANSLATION OF MAIN CURRENCIES
---------------------------------------------------------------------------------------------------------------------
At 30 September 2003 At 31 March 2004 At 30 September 2004
-------------------------- ------------------------- --------------------------
€for 1 monetary unit Average Closing Average Closing Average Closing
British pound 1.427823 1.431434 1.444363 1.501727 1.486586 1.456028
Swiss franc 0.650886 0.649182 0.646074 0.641272 0.649218 0.644164
US dollar 0.879388 0.858222 0.849427 0.818063 0.823088 0.805867
Canadian dollar 0.634476 0.636254 0.628913 0.625821 0.618614 0.635324
Australian dollar 0.573704 0.584761 0.591628 0.622975 0.582867 0.580990
---------------------------------------------------------------------------------------------------------------------
NOTE 3 - CHANGES IN CONSOLIDATED COMPANIES
o Starting 1 April 2004, pursuant to the first application of the Règlement
CRC 2004-03, the Group fully consolidates five Special Purpose Entities
(see Notes 2(a) and 16).
On 20 September 2004, the Group completed the disposal of one of these
entities financing sixty locomotives for a nominal sales value. The net
debt associated with this entity amounted to €243 million. This entity has
been deconsolidated from the date of disposal
o On 15 April 2004, the disposal of the US entities of the former Industrial
Turbines Businesses (disposed of during the year-ended 31 March 2004) was
completed with effect from 1 April 2004 for proceeds of €27 million. This
business has been de-consolidated from 1 April 2004.
o During the half-year ended 30 September 2004, following the obtention of
local regulatory approvals, the disposal of certain non significant
entities of the former T&D Sector (disposed of during the year-ended 31
March 2004) was completed for proceeds of €14 million.
No other significant changes in the scope of consolidated companies in the
half-year ended 30 September 2004 occurred.
NOTE 4 - OTHER INCOME (EXPENSE), NET
HALF-YEAR ENDED
30 SEPTEMBER YEAR ENDED
------------------- 31 MARCH
2003 2004 2004
-------- -------- ----------
(IN € MILLION)
Net gain (loss) on disposal of fixed assets (1) 14 - 13
Net gain (loss) on disposal of investments (2) 35 (7) (24)
Restructuring costs (3) (276) (69) (655)
Employees' profit sharing (9) (1) (16)
Pension costs (4) (138) (84) (263)
Others, net (5) (23) (16) (166)
-------- -------- ----------
OTHER INCOME (EXPENSE), NET (397) (177) (1,111)
======== ======== ==========
---------------
(1) In the half-year ended 30 September 2003 and in the year ended 31 march
2004 it mainly corresponds to the net gain on the disposal of real estate
portfolio in Western Europe
(2) In the half Year ended 30 September 2003 it corresponds to the net gain on
the disposal of the Industrial Turbine businesses; In the year ended 31
March 2004 it mainly corresponds to:
- the net loss of €10 million on the disposal of the Industrial Turbine
businesses. The Group 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 and 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 net gain of €4 million on the disposal of T&D sector excluding the
Power Conversion business. Certain restructuring costs in T&D totaling
€62 million accruals recorded prior to disposal but not impacting cash
and wholly for the benefit of the acquirer are shown as part of the
Net gain (loss) on disposal of investments.
- the net loss of €10 million on the disposal of the Group's 40%
shareholding in the Chinese entity "FIGLEC"
- other net losses of €8 million on various disposal of non significant
consolidated companies
In the half-year ended 30 September 2004 it corresponds to the disposal of
non significant investments.
(3) In the half-year ended 30 September 2004, it corresponds to additional
plans accrued for relating to the downsizing of activities including
closure of plants or activities and reduction in employees, and to €2
million of write-off of assets (see Note 13).
(4) See Note 14 "Accrued pension and retirement obligations"
(5) For the half year ended 30 September 2003 and in the year ended 31 March
2004, in addition to other non operating costs it mainly includes costs
related to past acquisitions and disposal of activities , costs of existing
or reorganising activities not qualifying as restructuring costs and costs
related to the capital increase. For the half-year ended 30 September 2004,
it corresponds to various other minor non operating costs.
NOTE 5 - FINANCIAL INCOME (EXPENSE)
HALF-YEAR ENDED
30 SEPTEMBER YEAR ENDED
----------------- 31 MARCH
2003 2004 2004
-------- -------- ----------
(IN € MILLION)
Net interest income (expense) (136) (112) (247)
Securitisation expenses (16) (10) (24)
Foreign currency gain (loss) (20) (13) (19)
Other financial income (expense) (1) (48) (50) (170)
-------- -------- ----------
FINANCIAL INCOME (EXPENSE) (220) (185) (460)
======== ======== ==========
-----------------
(1) Other financial income (expenses), net included fees paid on guarantees,
syndicated loans and other financing facilities of €57 million and €40
million for the half-year ended 30 September 2003 and 30 September 2004
respectively and €125 million for the year ended 31 March 2004.
NOTE 6 - INCOME TAX
(A) ANALYSIS OF INCOME TAX CHARGE
HALF-YEAR ENDED
30 SEPTEMBER YEAR ENDED
----------------- 31 MARCH
2003 2004 2004
-------- -------- ----------
(IN € MILLION)
Current income tax (charge) (48) (2) (102)
Deferred tax income (charge) 77 (38) (149)
-------- -------- ----------
INCOME TAX CHARGE 29 (40) (251)
======== ======== ==========
EFFECTIVE TAX RATE 5.6% - -
======== ======== ==========
(B) EFFECTIVE INCOME TAX RATE
The effective income tax rate can be analysed as follows:
HALF-YEAR ENDED
30 SEPTEMBER 2004
----------------------
PRE-TAX INCOME (LOSS) (158 )
Statutory income tax rate of the parent company 35,43 %
----------------------
EXPECTED TAX CREDIT (CHARGE) 56
----------------------
Impact of :
- (non recognition) recognition of deferred tax assets (66 )
- net change in estimate of tax liabilities 22
- intangible assets amortisation (10 )
- other permanent differences (41 )
- non recoverable withholding taxes, etc (11 )
- differences in rates 10
----------------------
INCOME TAX CREDIT (CHARGE) (40 )
----------------------
EFFECTIVE TAX RATE -
----------------------
(C) DEFERRED TAX ASSETS, NET
AT
AT 31 MARCH SEPTEMBER
2004 2004
---------------- -------------
(IN € MILLION)
Tax loss carryforwards 1,510 1,514
Others 1,191 1,110
---------------- -------------
GROSS DEFERRED TAX ASSETS 2,701 2,624
---------------- -------------
VALUATION ALLOWANCE (730) (704)
---------------- -------------
NETTING BY TAX GROUPING OR BY LEGAL ENTITY (410) (374)
---------------- -------------
DEFERRED TAX ASSETS AFTER NETTING 1,561 1,546
---------------- -------------
DEFERRED TAX LIABILITIES AFTER NETTING (30) (36)
---------------- -------------
DEFERRED TAX ASSETS, NET 1,531 1,510
================ =============
The losses incurred over the last two years led to a detailed review at 31 March
2004 by jurisdiction of deferred tax assets. This review took into account
current and past performance, length of carry back, carry forward and expiry
periods, existing contracts in the order book, budget and three years plan. This
review led to valuation allowances on deferred tax assets of €730 million at 31
March 2004. Most of the deferred tax assets currently subject to valuation
allowance remain available to be utilised in the future.
The Group was satisfied as to the recoverability of the deferred tax assets, net
at 31 March 2004 of €1,531 million, on the basis of an extrapolation of the
three year business plan, approved by the Board of Directors, which shows a
capacity to generate a sufficient level of taxable profits to recover its net
tax loss carry forward and other net assets generated through timing differences
over a period of four to twelve years, this reflecting the long term nature of
the Group's operations.
Comprehensive Group wide forecasts of taxable profits by jurisdiction have not
been revised at 30 September 2004 and the Group considers the basis on which it
concluded as the recoverability of deferred tax assets at 31 March 2004 remains
unchanged.
As every year the Group will prepare a new three year plan in the fourth quarter
of the financial year . A further detailed review of the recoverability of
deferred tax assets will be conducted when this is available at 31 March 2005.
€6 million of tax loss carried forward at 30 September 2004, net of valuation
allowance, expire within five years.
NOTE 7 - GOODWILL, NET
TRANSLATION
ADJUSTMENTS
NET VALUE AT ACQUISITIONS AND OTHER NET VALUE AT
31 MARCH 2004(1) / DISPOSALS AMORTISATION CHANGES 30 SEPTEMBER 2004
---------------- ------------ ------------ ------------ -----------------
(IN € MILLION)
Power Turbo-Systems / Environment 817 - (28) - 789
Power Service 1,991 - (64) - 1,927
Transport 530 - (19) (1) 510
Marine 2 - - - 2
Power Conversion 79 - (3) - 76
Other 5 - - - 5
---------------- ------------ ------------ ------------ -----------------
GOODWILL , NET 3,424 - (114) (1) 3,309
================ ============ ============ ============ =================
----------------
(1) From 1 April 2004, the former Power Turbo-Systems and Power Environment
sectors were merged into one Sector (See Note 17(a)). Consequently, the
Goodwill, net allocated to the former Power Turbo-Systems and Power Environment
sector is now presented to reflect the current reporting structure.
At 31 March 2004, the Group requested a third party value 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 three Sectors (Power Turbo-Systems/ Environment, Power
Service and Transport) 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
45% 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 Group has concluded that triggering events have not occurred that would lead
to impairment testing at 30 September 2004.
NOTE 8 - OTHER INTANGIBLE ASSETS, NET
TRANSLATION
ADJUSTMENTS
NET VALUE AT ACQUISITIONS AND OTHER NET VALUE AT
31 MARCH 2004(1) / DISPOSALS AMORTISATION CHANGES 30 SEPTEMBER 2004
---------------- ------------ ------------ ------------ -----------------
(IN € MILLION)
Gross value 1,172 - - - 1,172
Amortisation (216) - (29) - (245)
---------------- ------------ ------------ ------------ -----------------
OTHER INTANGIBLE ASSETS, NET 956 - (29) - 927
================ ============ ============ ============ =================
--------------------
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.
NOTE 9 - OTHER FIXED ASSETS, NET
AT 31 MARCH AT 1ST APRIL AT 30 SEPTEMBER
2004 2004 (*) 2004
----------------- ----------------- -----------------
(IN € MILLION)
Long term loans and deposits (vendor financing) (1) 329 250 224
Other long term loans and deposits (2) 469 433 295
Deposits securing the Bonding Guarantee Facility (3) - - 700
Prepaid assets - pensions (see Note 14 ) 357 357 346
Others 62 62 76
----------------- ----------------- -----------------
OTHER FIXED ASSETS, NET 1,217 1,102 1,641
================= ================= =================
-----------------------
(*) Amended amounts at 1st April 2004 pursuant to the first application of the
Règlement CRC 2004-03. See Note 2(a)
(1) The long term loans and deposits relating to vendor financing concern the
marine sector and are the following:
AT 31 MARCH AT 1ST APRIL AT 30 SEPTEMBER
2004 2004 (*) 2004
----------------- ----------------- -----------------
(IN € MILLION)
Cruiseinvest/ Renaissance (a) 240 226 224
Festival (b) 41 24 -
Others (c) 48 - -
----------------- ----------------- -----------------
TOTAL 329 250 224
================= ================= =================
(a) CRUISEINVEST / RENAISSANCE
- US $170 million (€139 million at 31 March 2004 and €137 million at
30 September 2004)) of limited recourse notes issued by Cruiseinvest
(Jersey) Ltd are held by the Group. These limited recourse notes are
composed of a series of five notes bearing interest at 6% per annum
payable half yearly in arrears, and maturing in December 2011.
Related interests are not recorded until it is reasonably certain to
be received.
- The Group guaranteed the financing arrangements of a subsidiary of
Cruiseinvest (Jersey) Ltd, Octavian Shipping LLC of which USD 84
million (€69 million at 31 March 2004 and €68 million at 30
September 2004) are supported by a cash deposit
- The Group provided Cruiseinvest LLC with a €40 million line of
credit, of which €16 million was drawn down at 31 March 2004 and 30
September 2004.
- Additional loans were granted by the Group at 31 March 2004 and 30
September 2004 for an amounts of €16 million and €3 million to
Cruiseinvest (Jersey) Ltd subsidiaries. At 1 April 2004, pursuant to
the application of the Règlement CRC 2004-03, Octavian shipping LLC,
a subsidiary of Cruiseinvest (Jersey) Ltd is fully consolidated and
the related Group financing (€14 million) has been eliminated as
part of the consolidation process.
(b) Festival
- At 31 March 2004, the Group granted a loan of €17 million to an
entity involved in the financing of one cruise-ship. At 1 April
2004, pursuant to the application of the Reglèment CRC 2004-03, this
entity is fully consolidated and the related Group financing has
been eliminated as part of the consolidation process.
- In addition, at 31 March 2004 the Group has guaranteed the financing
arrangements of two cruise ships delivered to Festival of which €24
million were supported by a cash deposit at 31 March 2004. At 30
September 2004, following the sale of these Cruise ships during the
period, the cash deposit was reimbursed and the guarantees released
(see Note 18 (a) (2)).
(c) Others
At 31 March 2004, the Group granted loans of €48 million to two
entities involved in the financing of two cruise-ships. At 1 April
2004, pursuant to the application of the Règlement CRC 2004-03, the
two entities are fully consolidated and the related financing has been
eliminated as part of the consolidation process.
(2) At 31 March 2004 and 30 September 2004, it includes €125 million and €79
million, respectively held in escrow following the disposal of the small
and medium gas turbine businesses and the industrial steam turbines
business.
(3) It corresponds to the cash deposit made by the Group to secure in the form
of collateral the new Bonding Guarantee Facility Programme of up to €8
billion implemented during the half-year ended 30 September 2004 (see Note
18 (a)(1))
NOTE 10 - SALE OF TRADE RECEIVABLES
The following table shows net proceeds from sale of trade receivables:
AT 31 MARCH AT 30 SEPTEMBER
2004 2004
--------------------- ---------------------
(IN € MILLION)
Trade receivables sold 94 12
--------------------- ---------------------
NET CASH PROCEEDS FROM SECURITISATION OF TRADE RECEIVABLES 94 12
===================== =====================
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. There are no retained interests.
NOTE 11 - CHANGES IN NET WORKING CAPITAL
AT AT CHANGES IN AT
31 MARCH 1 APRIL TRANSLATION SCOPE AND 30 SEPTEMBER
2004 2004(*) CASH FLOW ADJUSTMENTS OTHERS 2004
-------- -------- --------- ------------- ---------- -------------
(IN € MILLION)
Inventories and contract in progress, net 2,887 2,997 231 (17) (16) 3,195
Trade and other receivables, net (1) 5,578 5,717 68 (34) (126) 5,625
Sale of trade receivables, net (94) (94) 82 - - (12)
Contract related provisions (2,703) (2,703) 103 5 17 (2,578)
Other provisions (401) (396) (1) - 27 (370)
Restructuring provisions (385) (385) 53 3 2 (327)
Customers' deposits and advances (2,714) (2,714) (556) 14 2 (3,254)
Trade and other payables (7,028) (7,032) 376 30 30 (6,596)
-------- -------- --------- ------------- ---------- -------------
NET WORKING CAPITAL (4,860) (4,610) 356 1 (64) (4,317)
======== ======== ========= ============= ========== =============
(1) Before impact of net proceeds from sale of trade receivables
(*) Amended amounts at 1 April 2004 pursuant to the first application of the
Règlement CRC 2004-03. See Note 2(a)
NOTE 12 - BONDS REIMBURSABLE WITH SHARES "OBLIGATIONS REMBOURSABLES EN ACTIONS"
During the year ended at 31 March 2004 the group issued 643,795,472 bonds
reimbursable with shares at €1.4 per bond with a par value of €1.25. During this
period 535,064,016 bonds were converted into shares on the basis of one share
for one bond. At closing 108,731,456 bonds reimbursable with shares were
outstanding for an amount of €152 million.
During the half year ended at 30 September 2004, 9,275,231 bonds reimbursable
into shares were converted into shares initially on the basis of one share for
one bond and as from 16 August 2004 following completion of the capital increase
with preferential subscription rights, on the basis of an adjusted ratio of
1.2559 share for one bond.
At 30 September 2004, 99,456,225 bonds reimbursable with shares were outstanding
for an amount of €139 million.
NOTE 13 - PROVISIONS FOR RISKS AND CHARGES
AT AT TRANSLATION AT
31 MARCH 1ST APRIL ADJUSTMENTS 30 SEPTEMBER
2004 2004(*) ADDITIONS RELEASES APPLIED AND OTHER 2004
-------- ---------- --------- -------- ------- ----------- ------------
(IN € MILLION)
Warranties 807 807 157 (46) (143) 9 784
Penalties and claims 1,078 1,078 127 (19) (201) (21) 964
Contract loss 304 304 112 (23) (150) 5 248
Other risks on contracts 514 514 152 (45) (24) (15) 582
PROVISIONS ON CONTRACTS 2,703 2,703 548 (133) (518) (22) 2,578
RESTRUCTURING 385 385 76 (9) (120) (5) 327
OTHER PROVISIONS 401 396 45 (18) (26) (27) 370
-------- ---------- --------- -------- ------- ----------- ------------
TOTAL 3,489 3,484 669 (160) (664) (54) 3,275
======== ========== ========= ======== ======= =========== ============
---------------
(*) Amended amounts at 1 April 2004 pursuant to the first application of the
Règlement CRC 2004-03. See Note 2(a).
PROVISIONS ON CONTRACTS
GT24/GT26 HEAVY-DUTY GAS TURBINES
During the six-month period, the Group utilised provisions for €179 million and
retains at 30 September 2004, after exchange rate effects, €543 million as
provisions for risks and charges in respect of these turbines. These amounts do
not include €108 million of exposure for which the Group considers the risks
mitigated BY appropriate action plans. This amount has been reduced from €454
million at 31 March 2003 to €234 million at 31 March 2004 and to €108 million at
30 September 2004.
UK TRAINS
At 30 September 2004, provisions of €40 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 2004 as, among other items, the outcome of claims
made by or against the Group are at a stage that allows no meaningful assessment
of amounts which may become due to or by the Group. On one of the UK contracts,
the West Coast Main Line, a settlement has been signed with the customer but the
approval of the relevant UK rail authority is still required.
RESTRUCTURING EXPENDITURES AND PROVISIONS
During the year ended 31 March 2004, further restructuring plans were adopted
for an amount of €645 million in all Sectors other than Marine, and also in
Corporate headquarters. At 31 March 2004, provisions of €385 million were
retained after an expenditure in the period of €357 million.
During the half-year ended 30 September 2004, further restructuring plans were
adopted for an amount of €76 million in all Sectors. At 30 September 2004,
provisions of €327 million were retained after an expenditure in the period of
€120 million.
OTHER PROVISIONS
Other provisions include €132 million at 30 September 2004 (€140 million at 31
March 2004) to cover Marine vendor financing exposure (see Note 16)
Based on current known facts and circumstances, cash flow forecasts based on the
existing leasing arrangements and on assumptions as to leases renewal and ships
sales for Cruiseinvest and other cruise-ships, the Group considers that the
provision is adequate to cover the probable risk.
NOTE 14 - 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 accounted for as either defined contribution or defined benefit
plans.
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 generally
based on employee pensionable remuneration and length of service. With cash
balance plans the benefit is dependent on the promised credited interest. These
plans 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 for each year-end 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 cumulative
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.
At 31 March 2004 and 30 September 2004, cumulative unrecognised actuarial losses
to be amortised amounted to €918 million and €888 million, respectively.
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
2004 2004
----------------- -----------------
(IN € MILLION)
Accrued pension and retirement benefits (842) (842)
Prepaid assets - pensions (see note 9) 357 346
----------------- -----------------
NET (ACCRUED) PREPAID BENEFIT COST (485) (496)
================= =================
The components of the pension cost are the followings:
HALF-YEAR ENDED
30 SEPTEMBER YEAR ENDED
--------------------- 31 MARCH
2003 2004 2004
---------- ---------- ----------
(IN € MILLION)
Service cost 51 39 87
Expected interest cost 100 109 195
Expected return on plan assets (74) (102) 147)
Amortisation of unrecognised prior service cost - - 1
Amortisation of actuarial net loss (gain) 32 30 61
Curtailments / Settlements (32) (4) (143)
TOTAL DEFINED BENEFITS NET PERIODIC PENSION COST 77 72 54
Other defined contributions and multi-employer 29 12 60
Curtailments/Settlements effects included in Net gain on
disposal of investments (see Note 4) (1) 32 - 149
---------- ---------- ----------
PENSION COST (SEE NOTE 4) 138 84 263
========== ========== ==========
(1) For the year-ended 31 March 2004, it relates to the disposal of the T&D
Sector as well as Small and Medium gas turbines and Industrial steam
turbines businesses.
During the half-year ended 30 September 2004, the Group has elected to account
for its Swiss cash balance pension plans under French GAAP as defined benefit
plans, as now required by a recent US accounting pronouncement.
The scheme is fully funded as at 1 April 2004 with assets and liabilities of
€515 million.
NOTE 15 - FINANCIAL DEBT
(A) ANALYSIS BY NATURE
AT 31 MARCH AT 1ST APRIL AT 30 SEPTEMBER
2004 2004 (*) 2004
-------------------- -------------------- --------------------
( IN € MILLION )
Redeemable preference shares (1) 205 205 205
Subordinated notes (2) 250 250 250
Bonds (3) 650 650 650
Syndicated loans (4) 1,922 1,922 1,705
Subordinated long term bond (TSDD) (5) 200 200 -
Subordinated bonds reimbursable with shares (TSDDRA) (6) 300 300 -
Bilateral loans 260 260 250
Commercial paper (7) - - 9
Future receivables securitised, net (8) 265 265 100
Other borrowings (9) 196 1,023 721
Bank overdraft 78 78 80
Accrued interest 46 46 28
-------------------- -------------------- --------------------
FINANCIAL DEBT 4,372 5,199 3,998
==================== ==================== ====================
Long-term 3,829 4,602 3,537
Short-term 543 597 461
---------------
(*) Amended amounts at 1 April 2004 pursuant to the first application of the
Règlement CRC 2004-03. See Note 2 (a).
(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 on the 5th anniversary 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 at par 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. These
notes are listed since 1 October 2004 on the Luxemburg stock exchange and
are non callable until their final maturity in September 2006.
(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.
(4) Syndicated loans include:
o A 2008 Subordinated Debt Facility signed on 30 September 2003 with a
syndicate of banks and financial institutions for an amount up to €1,563
million (the "PSDD"). This subordinated debt facility is divided between :
- THE TERM LOAN "PART A" OF €1,200 MILLION: this part was fully drawn
as at 31 March 2004 and €161 million have been exchanged for shares
as part of the capital increase closed on 12 and 13 August 2004,
- AND THE REVOLVING CREDIT "PART B" OF €363 MILLION: this part was
available for draw down as at 31 March 2004. €82 million have been
exchanged for shares as part of the capital increase closed on 12
August 2004. €281 million were available for draw down as at 30
September 2004.
o A 2006 Multicurrency Revolving Credit Agreement initially signed for an
amount up to €1 110 million : the line was fully drawn and €722 million
were outstanding as at 31 March 2004. During the half-year ended 30
September 2004, €18 million have been exchanged for shares as part of the
capital increase closed on 12 August 2004 and €38 million have been
reimbursed and were available for draw down at 30 September 2004.
At 30 September 2004, the 2008 Subordinated Debt Facility ("the PSDD") and
the 2006 Multicurrency Revolving Credit Agreement are subject to the
following financial covenants agreed unanimously by the lenders on the 23
June 2004 as adjusted to take into account the impacts of the 13 August
2004 capital increase:
MINIMUM MINIMUM MAXIMUMM
INTEREST CONSOLIDATED NET MAXIMUM TOTAL NET DEBT MINIMUM
COVER WORTH DEBT LEVERAGE EBITDA
COVENANTS (A) (B) (C) (D) (E)
-------- ---------------- ------------- ----------- ---------
(in € million) (in € million) (in € million)
September 2004 - 1,000 4,329 - -
December 2004 - - 4,129 - -
March 2005 - 1,100 3,979 - -
June 2005 - - 4,179 - -
September 2005 - 850 4,179 - 0
December 2005 - - 4,129 - -
March 2006 3 1,150 3,979 4.0 -
June 2006 - - 3,929 - -
September 2006 3 1,150 3,929 3.6 -
December 2006 - - 3,929 - -
March 2007 3 1,150 3,929 3.6 -
June 2007 - - 3,929 - -
September 2007 3 1,150 3,929 3.6 -
December 2007 - - 3,929 - -
March 2008 3 1,150 3,929 3.6 -
June 2008 - - 3,929 - -
--------------
(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 (excluding the cumulative impact of any
deferred tax assets impairments arising after 31 March 2004 and
including Bonds Reimbursable with Shares "ORA" not yet reimbursed) and
minority interests (this covenant will not apply if and for as long as
ALSTOM is INVESTMENT GRADE).
(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
is INVESTMENT GRADE).
(d) Ratio of total net debt (total financial debt less short-term
investments and cash and cash equivalents) to EBITDA (see (e) below).
(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. The
EBITDA shall be positive at 30 September 2005.
These covenants have been contractually determined based on accounting standards
generally accepted in France at 31 March 2004. The agreement states that any
change in the accounting standards will be neutralised either through an
amendment of the covenants or through a recalculation of the agregates mentioned
above excluding the impact of the change in accounting principles. (see Note 2
(a)).
(5) During the fiscal year ended 31 March 2004, €200 million of subordinated
bonds were issued with a 15-year maturity to the French State ("TSDD" or
Titres Subordonnés à Durée Déterminée). On 13 August 2004, the French State
has subscribed shares as part of the capital increase with preferential
subscription rights by way of set-off of the €200 million "TSDD". The
"TSDD" was carrying an interest rate of EURIBOR plus 5% of which 1.5% were
capitalised annually and paid upon set-off.
(6) During the fiscal year ended 31 March 2004, €300 million of subordinated
bonds were issued with a 20-year maturity to the French State, which should
be automatically reimbursable with shares upon the approval of the
reimbursement with shares by the European Commission ("TSDDRA" or Titres
Subordonnés à Durée Déterminée Remboursables en Actions). On 7 July 2004,
following the approval of the European commission, the €300 million of
"TSDDRA" held by the French State have been reimbursed into shares. These
subordinated bonds were carrying an interest rate of 2% paid upon their
reimbursement. The issue price for each bond was €1.25, and each bond was
reimbursed with one share.
(7) The total authorised commercial paper program is €2,500 million,
availability being subject to market conditions. At 30 September 2004, €9
million of commercial paper were outstanding from this program. As part of
the financing package, the French State and a consortium of banks have
committed to subscribe, if requested by the Group, an amount of commercial
paper up to €420 million until January 2005.
(8) The Group sold, in several transactions, the right to receive payment from
certain customers for future receivables for a net amount of €265 million
and €100 million at 31 March 2004 and 30 September 2004, respectively. The
total amount concerns the Transport Sector.
(9) Following the application of Reglèment CRC 2004-03 (see Note 2 (a)), "other
borrowings" include, at 1 April 2004, €827 million of borrowings related to
special purpose entities. At 30 September 2004, these borrowings have been
reduced to €558 million following :
- the sale of one special purpose entity during the period (€243
million), and
- repayments of € 26 million.
Total available credit lines at Group level at 30 September 2004 amounts to €739
million and is constituted of:
- €420 million of committed line of commercial paper,
- €281 million of the "Part B" of the 2008 Subordinated Debt Facility
"PSDD"
- €38 million as part of the 2006 Multicurrency Revolving Credit
Agreement.
(B) ANALYSIS BY MATURITY AND INTEREST RATE
SHORT TERM LONG TERM
-------------------------------------------------------------------------------
WITHIN OVER 5 AVERAGE RATE
TOTAL 1 YEAR 1-2 YEARS 2-3 YEARS 3-4 YEARS 4-5 YEARS YEARS OF INTEREST
----------------------- -------------------------------------------------------------------------------
(in € million) (in € million)
Redeemable preference 205 205 5.0%
Subordinated notes 250 250 14.1% (1)
Bonds 650 650 3.5% (2)
Syndicated loans 1,705 666 1,039 5.6%
Bilateral loans 250 27 223 4.4%
Commercial Paper 9 9 2.2%
Future receivables
securitised, net (3) 100 100 5.4%
Other facilities 721 244 50 41 43 43 300 4.1% (2)
Bank overdraft 80 80 4.9%
Accrued interests 28 28
----------------------- -------------------------------------------------------------------------------
FINANCIAL DEBT 3,998 461 1,848 264 1,082 43 300
======================= ===============================================================================
---------------
(1) On 23 September 2004, the margin above Euribor of these notes have been
reset through an auction process at 4.99%.
(2) Including the effects of interest rate swaps associated with the underlying
debt.
(3) 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 2004
---------------------------------------
AMOUNT BEFORE AMOUNT AFTER
HEDGING HEDGING (1)
------------------- -------------------
(IN € MILLION)
Financial debt at fixed rate 1,369 963
Financial debt at floating rate (2) 2,629 3,035
------------------- -------------------
TOTAL 3,998 3,998
=================== ===================
---------------
(1) After taking into accounts €320 million of interest swaps hedging the
bonds, and €86 million of interest swaps hedging the borrowings of special
purpose entities.
(2) Floating rates are based on EURIBOR and LIBOR
NOTE 16 - SPECIAL PURPOSE ENTITIES
At 31 March 2004, the Group did not consolidate its interests in four active
entities (three in Marine and one in Transport) and Cruiseinvest Jersey Ltd ,
parent company of Cruiseinvest LLC and Octavian Shipping LLC as it held no
shares.
As mentioned in Note 2 (a) the Group applied the Reglèment CRC 2004-03 with
effect from 1 April 2004. Under this Reglèment, the Group reviewed its
accounting treatment for all special purpose entities at 1 April 2004 assessing
its level of control over the entities and its participation in the risks and
rewards of ownership. The Group concluded that four Special purpose leasing
entities and Octavian Shipping LLC should be fully consolidated from 1 April
2004 and these entities are included in the Consolidated Financial Statements
from that date. The five ships held by subsidiaries of Cruiseinvest LLC have not
been consolidated as it has been determined that the Group does not have control
of the structure and does not bear the major part of the risks and rewards of
ownership.
At 1 April 2004, four Marine entities and one Transport entity are fully
consolidated. At 30 September 2004, four Marine entities owning four ships are
consolidated. Following the disposal of all Group's interests in the Transport
entity, this entity has ceased to be consolidated from 20 September 2004 (see
Note 3)
In assessing the opening balance sheet impact of the consolidation of the four
entities and Octavian Shipping LLC, the Group recorded their fixed assets at the
lower of historical cost and fair value, current assets at realisable value and
liabilities at the amount required to settle the obligations.
Three entities at 1 April 2004 and two at 30 September 2004, respectively, were
structured in such a way that cumulative results of each special purpose leasing
entity equal zero at the end of each arrangement, interest expenses being
compensated by leasing revenues. As a consequence, interim net income (loss) is
put to zero by the recording of a corresponding liability (asset) to reflect the
substance of the transactions.
For the two other entities at 1 April 2004 and 30 September 2004, one ship is
held for resale and recorded within "Inventories and contract in progress, net"
and the other ship currently chartered to a cruise operator is recorded in
"Property plant and equipment".
The contribution of these entities at 1 April 2004 and 30 September 2004
consolidated balance sheets before intra-group elimination is as follows:
AT
AT 30 SEPTEMBER
1ST APRIL 2004 2004
-------------- --------------
ASSETS
Property, plant and equipment, net 693 474
Inventories, and contract in progress, net 110 110
Short term investments - 131
Other assets, net 138 47
-------------- --------------
TOTAL 941 762
============== ==============
LIABILITIES
Net equity (*) (8) (15)
Provisions for risks and charges (*) 3 3
Financial debt 827 558
Group financing (*) 115 209
Other liabilities 4 7
-------------- --------------
TOTAL 941 762
============== ==============
(*) before intra-group elimination.
The negative impact on opening net equity is offset by a €8 million utilisation
of the provision for Marine vendor financing (see Note 13).
NOTE 17 - 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 2004, the former Power Turbo- Systems Sector and the
former Power Environment Sector were merged into one Sector «Power
Turbo-systems/Environment».
At 30 September 2004, the Group is organised in four Sectors and one business :
o POWER TURBO-SYSTEMS / ENVIRONMENT SECTOR
Power Turbo-Systems / Environment provides steam turbines, generators and power
plant engineering, construction and mid-range gas turbines. It also focuses on
boilers and 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.
o POWER SERVICE SECTOR
Power Service promotes the service activities relating to the Power Turbo
Systems / 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
compatibility); and
- new service product development.
In addition, certain GT24/GT26 contracts are transferred from Power
Turbo-Systems/Environment to Power Service as part of the Group's after sales
market operations.
o TRANSPORT SECTOR
Transport offers equipment, systems, and customer support for rail
transportation including passenger trains, locomotives, signalling equipment,
rail components and service.
o MARINE SECTOR
Marine designs and manufactures cruise and other speciality ships.
o POWER CONVERSION
Power Conversion 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.
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 as well as
Margin, Backlog and other specific ones.
Some units, not material to the sector presentation, have been transferred
between sectors. The revised Sector composition has not been reflected on a
retroactive basis as the Group determined it was not practicable to do so.
SALES HALF-YEAR ENDED
30 SEPTEMBER YEAR ENDED
------------------------- 31 MARCH
2003 2004 2004
----------- ----------- -----------
(IN € MILLION)
Power Turbo Systems / Environment 2,542 1,817 5,059
Power Service 1,361 1,427 2,747
Transport 2,297 2,485 4,862
Marine 822 274 997
Power Conversion 226 257 499
Corporate & others (1) 60 142 241
Transmission & Distribution (2) 1,336 - 2,073
Power Industrial Turbines (3) 210 - 210
----------- ----------- -----------
TOTAL 8,854 6,402 16,688
=========== =========== ===========
OPERATING INCOME HALF-YEAR ENDED
30 SEPTEMBER YEAR ENDED
------------------------- 31 MARCH
2003 2004 2004
----------- ----------- -----------
(IN € MILLION)
Power Turbo Systems / Environment (103) (64) (253)
Power Service 196 232 417
Transport (37) 119 64
Marine 4 (34) (19)
Power Conversion - 17 15
Corporate & others (1) (26) (37) (59)
Transmission & Distribution (2) 84 - 121
Power Industrial Turbines (3) 14 - 14
----------- ----------- -----------
TOTAL 132 233 300
=========== =========== ===========
EBIT HALF-YEAR ENDED
30 SEPTEMBER YEAR ENDED
------------------------- 31 MARCH
2003 2004 2004
----------- ----------- -----------
(IN € MILLION)
Power Turbo Systems / Environment (248) (129) (641)
Power Service 123 180 227
Transport (150) 87 (189)
Marine (2) (38) (40)
Power Conversion (12) 11 (19)
Corporate & others (1) (32) (84) (252)
Transmission & Distribution (2) 18 - 36
Power Industrial Turbines (3) 7 - 7
----------- ----------- -----------
TOTAL (296) 27 (871)
=========== =========== ===========
CAPITAL EMPLOYED(*) HALF-YEAR ENDED
30 SEPTEMBER YEAR ENDED
------------------------- 31 MARCH
2003 2004 2004
----------- ----------- -----------
(IN € MILLION)
Power Turbo Systems / Environment (616) (479) (499)
Power Service 2,295 1,835 1,921
Transport 467 338 360
Marine (593) 111 (580)
Power Conversion 69 16 25
Corporate & others (1) 1,342 1,836 1,333
Transmission & Distribution (2) 939 - -
----------- ----------- -----------
TOTAL 3,903 3,657 2,560
=========== =========== ===========
---------------
(*) 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.
(1) Corporate & others include all units accounting for Corporate costs, the
International Network and the overseas entities in Australia, New Zealand
and India, that are not allocated to Sectors.
(2) Disposed of in January 2004
(3) Disposed of in a two step process in April 2003 and August 2003.
B) GEOGRAPHIC DATA
The table below set forth the geographic breakdown of Sales by country of
destination :
SALES HALF-YEAR ENDED
30 SEPTEMBER YEAR ENDED
------------------------- 31 MARCH
2003 2004 2004
----------- ----------- -----------
(IN € MILLION)
Europe 4,160 3,393 8,002
North America 1,662 933 3,001
South & Central America 489 301 857
Asia / Pacific 1,875 1,159 3,401
Middle East / Africa 668 616 1,427
----------- ----------- -----------
TOTAL 8,854 6,402 16,688
=========== =========== ===========
The table below set forth the geographic breakdown of Sales by country of
origin:
SALES HALF-YEAR ENDED
30 SEPTEMBER YEAR ENDED
------------------------- 31 MARCH
2003 2004 2004
----------- ----------- -----------
(IN € MILLION)
Europe 6,521 4,718 12,204
North America 1,332 874 2 519
South & Central America 229 170 415
Asia / Pacific 703 604 1,416
Middle East / Africa 69 36 134
----------- ----------- -----------
TOTAL 8,854 6,402 16,688
=========== =========== ===========
NOTE 18 - OFF BALANCE SHEET COMMITMENTS AND OTHER OBLIGATIONS
A) OFF BALANCE SHEET COMMITMENTS
AT 31 MARCH AT 30 SEPTEMBER
2004 2004
---------------- -----------------
(IN € MILLION)
Guarantees related to contracts (1) 8,169 7,829
Guarantees related to Vendor financing (2) 640 441
Discounted notes receivable 6 40
Commitments to purchase fixed assets - 2
Other guarantees 43 12
---------------- -----------------
TOTAL 8,858 8,324
================ =================
Disposal of the former T&D Sector (3)
(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.
On 27 July 2004, the Group and its main banks signed a up to €8 billion secured
Bonding Guarantee Facility Programme. This programme includes the bonds issued
under the bonding facility of €3.5 billion provided during the summer 2003. The
programme is a 2-year revolving programme designed to cover all the Group's
bonding needs for a 2 year period. At 30 September 2004, the programme was
underwritten up to €6.6 billion, covering approximately eighteen months of the
Group's bonding needs.
The programme is secured by a €2 billion security package made of:
- a "first loss" protection in the form of a cash/cash equivalent deposit of
€700 million (see Note 9) and;
- a "second loss" security of €1,300 million including a financial guarantee
provided by the French State / CFDI for €1,250 million and the Group's main
banks for €50 million.
The bonds and guarantees issued under that programme are covered by counter
indemnities from ALSTOM Holdings and from the Group subsidiary requiring the
bond.
The banks can make a claim under the security package if, and only if, a bond
issued under the programme has been called by a customer and neither the Group
subsidiary nor ALSTOM Holdings have been in a position to indemnify the banks.
The issuance of new bonds under the bonding programme mentioned above is also
subject to the financial covenants disclosed in the Note 15 (a)(4).
(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 off-balance sheet "vendor financing" is €640 million at 31 March
2004 and € 441 millioN At 30 September 2004. Balance sheet items relating to
vendor financing totalling €329 million at 31 March 2004 and €224 million at 30
September 2004 are included in "other fixed assets" (Note 9)
The table below sets forth the breakdown of the outstanding off-balance sheet
vendor financing by Sector at 31 March 2004 and 30 September 2004 :
AT 31 MARCH AT 1ST APRIL AT 30 SEPTEMBER
2004 2004 2004
------------- ------------- ---------------
(IN € MILLION)
MARINE 314 174 124
CRUISEINVEST/ RENAISSANCE 83 40 39
FESTIVAL 144 48 -
OTHERS 87 86 85
TRANSPORT 321 321 312
EUROPEAN METRO OPERATOR (2) 266 266 258
OTHERS 55 55 54
OTHER SECTORS 5 5 5
------------- ------------- ---------------
OFF BALANCE SHEET (1) 640 500 441
============= ============= ===============
---------------
(1) Off-balance sheet figures correspond to the total guarantees and
commitments, net of related cash deposits, which are shown as balance-sheet
item (see Note 9)
(2) Guarantees given include the requirement to deposit funds in escrow in the
event of non-respect of certain covenants, waived at 30 September 2004
(3) The total vendor financing exposure at 31 March 2004 and 30 September 2004
is the following :
AT 31 MARCH AT 1ST APRIL AT 30 SEPTEMBER
2004 2004 2004
------------- ------------- ---------------
(IN € MILLION)
OFF BALANCE- SHEET EXPOSURE 640 500 441
BALANCE SHEET EXPOSURE (SEE NOTE 9) 329 250 224
EXPOSURE RELATING TO CONSOLIDATED ENTITIES (*) - 219 219
------------- ------------- ---------------
VENDOR FINANCING EXPOSURE 969 969 884
============= ============= ===============
(*) entities consolidated at 1 April 2004 following the first application of
the Règlement CRC 2003-04 (see Notes 2 (a) and 16).
MARINE
CRUISEINVEST / RENAISSANCE
At 31 March 2004, it corresponds to the guarantees of the financing of two
subsidiaries of Cruiseinvest Jersey Ltd for US$72 million (€59 million) and to
the undrawn portion of the credit line granted to Cruiseinvest LLC of €24
million.
At 1st April 2004, the decrease of the exposure is due to the consolidation of
Octavian shipping LLC, a subsidiary of Cruiseinvest Jersey Ltd pursuant to the
application of the Reglèment CRC 2004-03 (see Note 15), the relating guarantee
becoming internal and consequently no longer reported.
At 30 September 2004, it corresponds to the guarantee of the financing of one
subsidiary of Cruiseinvest LLC for US$18 million (€15 million) and the undrawn
portion of the credit line granted to Cruiseinvest LLC of €24 million.
FESTIVAL
At 31 March 2004, the Group guarantees the financing of one entity relating to
one cruise-ship for an amount €96 million. At 1st of April 2004, pursuant to the
application of the Reglèment CRC 2004-03, this entity is fully consolidated and
the relating financial debt is included in the Net financial debt of the Group.
In addition, at 31 March 2004 the Group has guaranteed the financing
arrangements of two cruise ships delivered to Festival for an amount of €48
million. At 30 September 2004, following the sale of these Cruise ships during
the period, the guarantees were released.
At 30 September 2004, the Group has no outstanding guarantees relating to
Festival.
OTHER
The Group has guaranteed the financing arrangements of one cruise-ship and two
high speed ferries delivered to three customers for an amount of €86 million at
31 March 2004 and €85 million at 30 September 2004.
TRANSPORT
Guarantees given as part of vendor financing arrangements in Transport Sector
amount to €321 million and €312 million at 31 March 2004 and 30 September 2004,
respectively.
Included in this amount are guarantees given as part of a leasing scheme
involving a major European metro operator as described in Note 18 (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 (€266
million and €258 million at 31 March 2004 and 30 September 2004, respectively).
(3) DISPOSAL OF THE FORMER T&D SECTOR
The T&D Sector (excluding Power Conversion) was disposed of in early January
2004. Several entities have not yet been transferred to the purchaser as a
result of local regulatory requirements and transfer procedures.
With respect to one entity transferred, debt has been guaranteed by another
subsidiary also transferred, this guarantee being counter guaranteed irrevocably
by a subsidiary of the Group. The likelihood of the counter guarantee being
called is considered remote.
One entity owned by a transferred subsidiary which the Group intended to retain
has in fact been transferred with the subsidiary to the purchaser following
refusal of the entity's lenders to approve a transaction back to the Group. The
Group has no indication the entity's lenders will change their position.
The disposal required agreement on closing net financial debt of the sold
entities. Such an agreement has yet to be achieved between the parties. The
matter has been referred to an independent expert for resolution. His report is
awaited in the coming months.
At 30 September 2004, €210 million is included in "other receivables" as due
from Areva.
B) CAPITAL AND OPERATING LEASE OBLIGATIONS
TOTAL WITHIN 1 YEAR 1 TO 5 YEARS OVER 5 YEARS
----------------- ------------------ ------------------ -----------------
(IN € MILLION)
Long term rental (1) 657 12 79 566
Capital leases obligation (2) 325 39 116 170
Operating leases (3) 438 56 193 189
----------------- ------------------ ------------------ -----------------
TOTAL OF FUTURE PAYMENTS 1,420 107 388 925
================= ================== ================== =================
(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 €683 million and €657 million at 31 March 2004 and 30 September 2004,
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
2004 2004
-------------- ---------------
(IN € MILLION)
Increase of Property plant and equipment, net 205 256
Increase of long term financial debt 200 255
-------------- ---------------
INCREASE IN SHAREHOLDER'S EQUITY 5 1
============== ===============
(3) Operating leases
A number of these operating leases have renewal options. Rent expense was €51
million in the six month period ended 30 September 2004.
No material commitments are omitted in this note in accordance with current
accounting rules.
NOTE 19 - CONTINGENCIES
- LITIGATION
The Group is engaged in several legal proceedings, 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 the Group operates, particularly for large,
long-term projects. In some cases, the amounts claimed against the Group,
sometimes jointly with its consortium partners, in these proceedings and
disputes are significant, ranging up to approximately €492 million in one
particular dispute (USD 611 million). Some proceedings against the Group are
without a specified amount. Amounts retained in respect of litigation,
considered as best 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 ("RCCL")
In August 2003, RCCL and various RCCL group companies filed a lawsuit in
Florida, USA against various Rolls Royce group companies and against various
ALSTOM group companies claiming damages for a global amount of approximately
€242 million (USD 300 million) for alleged misrepresentations in the selling of
pods, and negligence in the design and manufacture of pods. The Group and Rolls
Royce are strongly contesting this claim.
- 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 it's 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 its operating units world-wide and to promote the
application of this principle to all of the Group's 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 the Marine Sector and to a lesser extent in the other Sectors.
As of 30 September 2004, in France, the Group is aware of approximately 2,408
asbestos sickness related declarations accepted by the French Social Security
authorities in France concerning the Group's employees, former employees or
third parties, arising out of the Group's 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 2,408 declarations, the Group is aware of approximately 237
asbestos-related cases in France from employees or former employees. They have
instituted judicial proceedings against certain of the Group's subsidiaries with
the aim of obtaining a court decision holding these subsidiaries liable for an
inexcusable fault (FAUTE INEXCUSABLE) which would allow them to obtain a
supplementary compensation above the 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 the Group'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.
In March 2004, the French Supreme Court (COUR DE CASSATION) rendered its first
decisions on the appeals lodged by a subsidiary of the Group's Marine Sector.
The French Supreme Court has confirmed the inexcusable fault, but has reversed
the Court of Appeal's decisions which had ordered the Group's subsidiary to pay
damages as the damages are to be directly compensated by the Social Security
funds (CAISSE PRIMAIRE D'ASSURANCE MALADIE). In May 2004, the French Supreme
Court has confirmed the finding of inexcusable fault in six decisions rendered
in relation to cases in the Group's Marine Sector, while confirming that the
damages were to be definitively borne by the Social Security funds . In the
current cases within the Group's Marine Sector, the Social Security authorities
have not in fact attempted to charge the Group subsidiary the financial
consequences of occupational disease, including those arising out of the
inexcusable fault pursuant to article 2 paragraph 2 of the decree of 16 October
1995. In the other Sectors, the Group estimates that most of the current cases
will be governed by the same terms, pursuant to the above-mentioned decree.
The Group therefore believes that the above-mentioned lawsuits in France will
not have material adverse consequences on the Group financial position. The
compensation for most of the current 237 proceedings, including in the cases
where we could be found liable, has been and is expected to continue to be borne
by the general French Social Security (medical) funds. Based on applicable
legislation and current case law, the Group believes that the financial
consequences of any subrogatory action of the publicly funded Indemnification
Fund for Asbestos Victims (FIVA), created in 2001, in relation to proceedings
referred to above, will be borne by the general French Social Security (medical)
funds. The Group also believes that those cases where compensation may not be
definitively borne by the general French Social Security (medical) funds or by
the FIVA represent an immaterial exposure for which the Group has not made any
provisions.
In addition to the foregoing, in the United States, as of 30 September 2004, the
Group was subject to approximately 155 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 the Group 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 the Group 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
the Group from ABB. In January 2003, CE filed a "pre-packaged" plan of
reorganisation in United States bankruptcy court. This plan was confirmed by the
bankruptcy court and the 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 2004, the Group was subject to approximately 48 other
asbestos-related personal injury lawsuits in the United States involving
approximately 528 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 the Group 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, the Group believes
that it has valid defences 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 judgement, or made any
settlement payment, in respect of any US personal injury asbestos claim. Between
31 October 2002 and 30 September 2004, a total of 185 cases involving
approximately 17,742 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 U.S. 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 asbestos-related or other employee personal injury
related claims in other countries, including in the UK. As of 30 September 2004,
the Group is subject to approximately 145 asbestos related claims currently
ongoing in the UK. The Group retains provisions of approximately €3 million
in relation to these 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.
- 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
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 Group believes the FBI inquiry is
currently dormant.
- AMF INVESTIGATION
Senior officials of the Group have been interviewed by inspectors of the French
Autorite des Marches Financiers (the "AMF") in connection with the AMF's
investigation regarding public disclosures by the Group and trading of the
Group's shares since 31 December 2001. ALSTOM is cooperating fully with the AMF
in these inquiries.
- UNITED STATES PUTATIVE CLASS ACTION LAWSUITS
The Group, certain of its subsidiary and certain of its current and former
officers and directors, have been named as defendants by shareholders in the
United States in a number of putative shareholder class action lawsuits filed on
behalf of various alleged classes of purchasers of American Depositary Receipts
or other ALSTOM securities between various dates beginning as of 17 November
1998. These lawsuits which are now consolidated into one proceeding before the
Federal District Court of the Southern District of New York 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, and Section 11 of
the Securities Act of 1933, 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.
- 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 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 had a material effect on the
results of operations.
- CLAIMS RELATING TO DISPOSALS
From time to time the Group disposes of certain businesses or business segments.
As is usual certain acquirers make claims against the Group as a result of price
adjustment mechanisms and warranties generally foreseen in the sale agreements.
At 30 September 2004, the Group has outstanding warranties and has received
claims in connection with the disposals of certain of its activities including
its former T&D Sector (excluding Power Conversion), the Small and Medium
Industrial Turbines and Industrial Steam Turbine businesses, the former
Contracting Sector and part of the former Industry Sector.
The Group has received a number of demands from the acquirer following the
disposal of the T&D Sector, including with respect to investigation by the
European Commission of alleged anti-competitive arrangements among suppliers in
certain T&D activities and an administrative procedure in Mexico concerning the
alleged payments by an agent that could result in an entity sold as part of the
T&D Sector being prevented from bidding for government contracts for a two year
period.
The Group considers that there are no claims or demands outstanding and
unprovided that are capable of estimation and likely to have a material adverse
impact on the consolidated financial statements.
NOTE 20 - EMPLOYEE SHAREHOLDING
Following the approval of the annual shareholders' meeting held on 9 July 2004,
the board of Directors decided on 17 September 2004 the implementation of a
share capital increase reserved for the employees participating in the Group's
saving plan and a new stock option plan.
- EMPLOYEE SHARE CAPITAL INCREASE
The main characteristics are the following :
o A maximum of 120,000,000 new shares with a nominal value of €0.35 per share
representing a maximum total nominal capital increase of €42,000,000, ie
2.2% of the share capital.
o The subscription price is set at €0.35 per share. The subscription price
will be paid by the voluntary payment of the participant plus the Group
contribution of €0.135 per share. The employee will consequently be
entitled to subscribe shares at a price of €0.2150 per share which make a
discount of 50% in comparison with the average opening price of the ALSTOM
share on Euronext Paris during the twenty trading days preceding the
decision of the Board of Directors of 17 September 2004 ie €0.43 per share.
The maximum of shares to be subscribed by participant is 6,000.
o The offering is available in the following countries : France, Germany,
Italy, Spain, Switzerland, Brazil and Poland.
o The subscription period will start on 19 November 2004 to 6 December 2004,
and the listing of the new shares on the Premier Marche of Euronext Paris
is expected to take place on 20 December 2004.
STOCK OPTION PLAN
The characteristics of the plan n°7 are the following
PLAN NO. 7
---------------------------
DATE OF SHAREHOLDERS' MEETING 9 July 2004
CREATION DATE 17 September 2004
EXERCISE PRICE (1) €0.43
BEGINNING OF EXERCISE PERIOD 17 September 2007
EXPIRY DATE 16 September 2014
NUMBER OF BENEFICIARIES 1,002
TOTAL NUMBER OF OPTIONS GRANTED 111,320,000
TERMS AND CONDITIONS OF EXERCISE -50% referred as
«Conditional options».
The exercice conditions
of these conditional
options will depend on
the levels of Group's
free cash flow and
operational margin
achieved at the end of
fiscal year 2005/2006.
In addition, the characteristics of the previous stock option plan outstanding
at 30 September 2004 have been adjusted following the completion on 13 August
2004 of the share capital increase with preferential subscription rights and are
as follows :
PLAN NO. 3 PLAN NO. 5 PLAN NO. 6
-------------------- -------------------- --------------------
24 July 2001 24 July 2001 24 July 2001
DATE OF SHAREHOLDERS' MEETING
CREATION DATE 24 July 2001 8 January 2002 7 January 2003
EXERCISE PRICE (1) €33.00 €13.09 €6.00
ADJUSTED EXERCISE PRICE (2) €20.48 €8.13 €3.86
BEGINNING OF EXERCISE PERIOD 24 July 2002 8 January 2003 7 January 2004
EXPIRATION DATE 23 July 2009 7 January 2010 6 January 2011
NUMBER OF BENEFICIARIES 1,703 1,653 5
TOTAL NUMBER OF OPTIONS ORIGINALLY GRANTED 4,200,000 4,200,000 1,220,000
ADJUSTED NUMBER OF REMAINING OPTIONS AS OF 30 5,041,701 5,259,173 1,899,378
SEPTEMBER 2004 (2)
TERMS AND CONDITIONS OF EXERCISE - 1/3 of options - 1/3 of options - 1/3 of options
exercisable as exercisable as from exercisable as from
from 24 July 2002 8 January 2003 7 January 2004
- 2/3 of options - 2/3 of options - 2/3 of options
exercisable as exercisable as from exercisable as from
from 24 July 2003 8 January 2004 7 January 2005
- all options - all options - all options
exercisable as from exercisable as from exercisable as from
24 July 2004. 8 January 2005. 7 January 2006.
(1) Subscription price corresponding to the average opening price of the shares
during the twenty trading days preceding the day on which the options were
granted by the board (no discount or surcharge) or the nominal value of the
share when the average share price is lower.
(2) Plans nº3, 5 and 6 have been adjusted in compliance with French law as a
result of the completion of the operations which impacted the share capital
in 2002 ,2003 and 2004.
NOTE 21 - PRO FORMA FOR SEPTEMBER 2003 COMPARED WITH 30 SEPTEMBER 2004
In updating its results in the Document de Référence dated 17 November 2003, the
Group provided pro forma Consolidated Income Statement for the Half year-ended
30 September 2003 on the assumptions of the disposal of the T&D Sector
(excluding Power Conversion) and the Industrial Turbines businesses.
The summarised consolidated income statement for the half year ended 30
September 2004 compared with the pro forma consolidated income statement for the
half year ended 30 September 2003 are as follows :
HALF-YEAR ENDED
30 SEPTEMBER
---------------------------------
PRO-FORMA ACTUAL
2003 2004
--------------- ---------------
SALES 7,308 6,402
OPERATING INCOME 34 233
EARNINGS (LOSS) BEFORE INTEREST AND TAX (356) 27
PRE-TAX LOSS (549) (158)
NET LOSS (581) (315)
=============== ===============
NOTE 22 - MAJOR COMPANIES INCLUDED IN THE SCOPE OF CONSOLIDATION
The major companies are selected according to the following criteria:
- Holding companies
- Sales above €50 million for the half-year ended 30 September 2004.
CONSOLIDATION
COMPANIES COUNTRY OWNERSHIP % 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 Brazil Ltda................................. Brazil 100.0 Full consolidation
ALSTOM Canada Inc.................................. Canada 100.0 Full consolidation
ALSTOM Controls Ltd................................ United Kingdom 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 Ltd (India) ................................ India 100.0 Full consolidation
ALSTOM NL Service Provision Ltd.................... United Kingdom 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 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 O&M Ltd............................... Switzerland 100.0 Full consolidation
ALSTOM Power Service............................... France 100.0 Full consolidation
ALSTOM Power Service Gmbh.......................... Germany 100.0 Full consolidation
ALSTOM Power Sp Zoo................................ Poland 100.0 Full consolidation
ALSTOM Power Sweden AB............................. Sweden 100.0 Full consolidation
ALSTOM Transport BV................................ Netherlands 100.0 Full consolidation
ALSTOM Transport SA................................ France 100.0 Full consolidation
ALSTOM Transportation Inc.......................... United States 100.0 Full consolidation
ALSTOM Transporte SA............................... Spain 100.0 Full consolidation
Chantiers de l'Atlantique.......................... France 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 FINANCIAL STATEMENTS
AS AT 30 SEPTEMBER 2004
FIRST HALF OF FISCAL YEAR 2005
YOU SHOULD READ THE FOLLOWING DISCUSSION TOGETHER WITH THE 30 SEPTEMBER 2004
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.
MAIN EVENTS OF THE FIRST HALF OF FISCAL YEAR 2005
FINANCIAL PACKAGES
FINANCING PACKAGE - SUMMER 2003
We launched in summer 2003 a financing package that was fully completed in
December 2003 and that comprised:
o €300 million capital increase ;
o €300 million of subordinated bonds issued by the French State, which
were to be automatically reimbursable with shares upon the approval of
the European Commission (TSDDRA);
o €200 million of subordinated bonds issued by the French State (TSDD);
o the issuance of €901 million of bonds mandatorily reimbursable with
shares (ORA);
o a subordinated debt facility due 2008 totalling €1,563 million (PSDD),
of which our banks provided €1,263 million and a French
State-guaranteed institution (CFDI) €300 million ; and
o a bonding guarantee facility agreement of €3,500 million to support
our commercial activity. CFDI provided counter guarantees of 65% of
the aggregate amount of these bonds.
This package comprised as well some short-term liquidity rolled over until
January 2005. For more details on this financing package, see our Annual Report
2003/04.
FINANCING PACKAGE - SUMMER 2004
In order to further reduce our debt, increase our equity, secure our access to
contract bonding to support our commercial activity and to stabilise our
shareholder base, we implemented during the summer 2004 a supplemental financial
package covering the following items:
o a bonding programme aiming at covering our needs for the next 18 to 24
months ;
o a total capital increase of 4,135,265,768 new shares representing a
total amount of €1,748 million of new capital subscribed either in
cash or by set-off against certain of our outstanding debt .
As part of this financing package, we have re-negotiated some financial
covenants described in Note 15a(4) to our Interim Consolidated Financial
Statements.
BONDING PROGRAMME TO COVER OUR NEEDS FOR 18 TO 24 MONTHS
We have put in place a up to €8 billion committed bonding guarantee facility
programme, with an initial commitment of our banks for €6,6 billion. This
programme includes the bonds issued under the bonding line of €3.5 billion
provided during the summer 2003 and new bonds to be issued over a two year
period. The bonds under this new programme benefit from a €2 billion guarantee
package consisting of :
o a first loss guarantee in the form of cash/cash equivalent collateral
provided by ALSTOM for €700 million (out of the proceeds of the
capital increases described below); and
o a second rank security for a total amount of €1,300 million covering
second losses in excess of the cash/cash equivalent collateral, in the
form of guarantees, given by a French State-guaranteed institution for
€1,250 million, and the remainder (€50 million) by a group comprising
our core banks.
This programme is revolving: any bond expiring releases capacity to issue new
bonds within the €8 billion limit and the two year period.
The initial commitment of our core banks for a volume of up to €6,600 million,
on which final documentation was signed in August 2004, is expected to cover our
forecasted bonding needs for approximately 18 months. Other banks have committed
for an additional of around €200 million.
SHARE CAPITAL INCREASES
We implemented a global offering of new shares by way of transferable
preferential subscription rights allocated to holders of our existing shares.
The 3,655,265,768 new shares issued have been subscribed as follows:
o 3,192,826,907 shares subscribed in cash at €0.40 representing an
amount of €1,277 million, including 459,610,902 new shares subscribed
by the French State representing an amount of €183.8 million;
o 462,438,861 shares subscribed by set -off against debt from the French
State and CFDI, an entity guaranteed by the French State, at €0.50 per
share representing a total amount of €231.2 million : €200 million
subscribed by set off against the TSDD subscribed by the French State
as part of our Summer 03' Financing package and €31.2 million
subscribed by set off against part of the CFDI's holding in the PSDD.
We implemented a concurrent debt-for-equity exchange offering to holders of
certain of our outstanding debt instruments through which we issued a further
480,000,000 new shares at the price of €0.50 per share representing an amount of
€240 million subscribed by set-off against:
o €212 million from the part of PSDD held by our banks;
o €18 million from our multi-currency Revolving Credit Agreement due
2006 of €722 million; and
o €10 million from committed bilaterals.
Following the automatic reimbursement with 240,000,00 new shares of the €300
million TSDDRA on 7 July 2004 upon the European Commission approval and its
participation in the above described capital increases, the French State's
participation reached 21.4 % of the outstanding share of ALSTOM.
The French State has committed to remain a shareholder during the recovery of
ALSTOM. It has committed to sell its shares at the latest 12 months following
ASLTOM's obtaining an investment grade rating, or in any event prior to July
2008.
APPROVAL BY THE EUROPEAN COMMISSION AND COMMITMENTS
The formal investigation launched by the European Commission on September 2003
concluded on 7 July 2004 with the positive approval by the European Commission
of our financing packages.
As part of this approval, we have committed not to make acquisitions in the
Transport Sector within the European Union over the next four years above a
certain level and to dispose of businesses representing approximately €1.5
billion in sales. Half of our disposal commitment is to be fulfilled by selling
the following activities:
o our freight locomotive business in Valencia, Spain ;
o our Transport Sector's activities in Australia and New Zealand ; and
o our industrial boilers business, which is part of our Power
Turbo-Systems/Environment Sector.
The rest of our commitment, representing €800 million of annual sales will
be fulfilled by disposing of activities yet to be identified.
We also agreed to enter into a 50-50 joint venture in our Hydro business.
Finally, we committed to implementing, within the next four years, industrial
partnerships concerning a significant part of our activities to ensure our
future development.
DISPOSAL PROGRAMME
During the first half of fiscal year 2005, we have received €97 million of
proceeds from disposals of businesses of which:
o €53 million from the sale of our Industrial Turbines businesses of
which €27 million received in April 2004 from the transfer of our
activities in the US and €26 million from the escrow account. €784
million of proceeds net of cash sold and costs incurred were
previously received in fiscal year 2004, with an additional €125
million held in escrow to cover certain post-closing adjustments and
indemnities. Of the €62 million to be released to us on 3 May 2004
from the escrow account we have received to date €26 million and
agreed to use €20 million to cover some post-closing adjustments, the
remainder of €16 million being still claimed and under discussion with
the buyer. The second part of the escrow, €63 million, should be
received on 2 May 2005 ;
o €44 million from the sale of our T&D activities of which €14 million
from the transfer of our Belgian and Chinese units and €30 million
from the escrow account funded at closing.
DISPOSAL OF OUR TRANSMISSION & DISTRIBUTION (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 (our
T&D Sector excluding the Power Conversion business) to Areva for gross proceeds
of €957 million, subject to closing adjustments.
This transaction was closed on 9 January 2004, except for some minor businesses
located in jurisdictions where transfer procedures were on-going. As of 31 March
2004, we had received proceeds net of cost incurred of €632 million from Areva,
and a further €89 million were held in escrow to cover closing adjustments and
the value of the businesses still to be transferred. Of this amount, €30 million
were released to ALSTOM in the first half of fiscal year 2005 and an additional
€28 million were released in October 2004.
In addition €188 million of cash sold and other closing adjustments were claimed
from Areva, of which it paid €10 million in the first half of fiscal year 2005
and a further €16 million in October 2004. An expert has been jointly designated
by Areva and ALSTOM with respect to the remainder of this amount as provided in
the sale and purchase agreement. We expect the expert to issue its report in the
next months.
DISPOSAL OF OUR FREIGHT LOCOMOTIVE BUSINESS IN VALENCIA, SPAIN
We have signed with Vossloh a Memorandum of Understanding (MOU) regarding the
sale of our Transport freight activities in Spain. This document sets out both
the general principles of the sale contract to be negotiated and a timeframe
during which the parties expect the relevant documents to be signed. The
signature of a binding agreement should follow and the closing of this operation
will be subject to customary conditions including approval by the companies'
boards and the relevant anti-trust authorities.
The sale of this business in Spain is part of the commitments made in connection
with the European Commission's approval of our financing packages, as announced
in May 2004.
This factory, located north of Valencia, was built in 1990 and currently employs
420 people. It specialises in the manufacture of locomotives and bogies as well
as non-modular trains for the regional market.
DISPOSAL OF ONE SPECIAL PURPOSE ENTITY IN THE TRANSPORT SECTOR
Following a new accounting pronouncement effective 1st April 2004, we have
consolidated several Special Purpose Entities with of the effect of increasing
our debt by €827 million as of 1st April 2004. See Note 2 to our Interim
Consolidated Statements.
During the first half of fiscal year 2004, we have sold one of these Special
Purpose Entities in the Transport Sector. This disposal has decreased our
amended financial debt by €243 million. The net effect on our debt as at 30
September 2004 is an increase by €558 million after taking into account the
reimbursement of €26 million during the first half of the year.
PROGRESS ON SPECIFIC OPERATIONAL PROBLEMS
GT24/GT26 HEAVY-DUTY GAS TURBINES
The commercial situation with respect to the 76 GT24/GT26 gas turbines sold
prior to the end of fiscal year 2001 (four from the 80 initially ordered were
cancelled) continues to improve. As of today, 75 units are in commercial
operation, one is in commissioning. These 75 units have accumulated over
1,100,000 hours at high reliability level.
Today, commercial settlements have been reached for 65 units out of the 76 sold.
Under agreements covering to date 15 of the units, the Group is committed to or
otherwise has the opportunity to make upgrade improvements within agreed time
periods. The other units in commercial operation are either in normal warranty
or have had those warranty periods expire. All cases of court litigation which
affected seven units as of March 2003 are now resolved via satisfactory
commercial settlements. There are commercial disputes involving contractual
arbitration ongoing with respect to two projects for which the customers have
accepted the turbines (10 machines), but allege that contractual penalties are
due in amounts contested by the Group.
Cash outflow related to the GT24/GT26 gas turbines over the first half of fiscal
year 2005 was €206 million compared with €766 million for the full fiscal year
2004. We expect our cash outflow related to the GT24/GT26 gas turbines issue to
be around €400 million in fiscal years 2005, below the €500 million as estimated
previously.
As of 30 September 2004, we retained €543 million of related provisions compared
with €738 million as of 31 March 2004, both after taking into account an
exposure, which we consider will be mitigated by appropriate action plans. The
exposure to be mitigated estimated initially at €454 million had been reduced to
€234 million as of 31 March 2004 and to €108 million as of 30 September 2004.
RESTRUCTURING
Restructuring plans under execution are progressing well. During fiscal year
2004 and the first half of fiscal year 2005, the workforce in the current
portfolio of activities has been reduced through restructuring plans by
approximately 6,300 employees out of the planned 8,400 headcount reduction. New
plans have been launched and announced since March 2004 for approximately 1,000
positions in addition to the 8,400 workforce reduction previously announced.
These new plans include notably a reduction of 550 employees in Power
Turbo-Systems/Environment in Switzerland announced in October 2004, the
rationalisation of our bogies activities in Transport and some other adjustments
in various locations.
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:
--------------------------------------------------------------------------------------------------------------------------
TOTAL GROUP % Variation % Variation
ACTUAL FIGURES First Half 2nd Half First Half Sept. 04/ Sept. 04/
(IN € MILLION) SEPT. 03 MAR. 04 SEPT. 04 Sept. 03 March 04
-------------- -------------- -------------- --------------- --------------
Order backlog 27,174 25,368 27,077 (0%) 7%
Orders received 7,439 9,061 8,362 12% (8%)
Sales 8,854 7,834 6,402 (28%) (18%)
Operating income 132 168 233
Operating margin 1.5% 2.1% 3.6%
Net income (624) (1,212) (315)
Free Cash Flow (674) (333) (294)
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
TOTAL GROUP % Variation % Variation
COMPARABLE FIGURES First Half 2nd Half First Half Sept. 04/ Sept. 04/
(IN € MILLION) SEPT. 03 MAR. 04 SEPT. 04 Sept. 03 March 04
-------------- -------------- -------------- --------------- --------------
Order backlog 24,650 25,174 27,077 10% 8%
Orders received 5,525 8,461 8,362 51% (1%)
Sales 7,296 7,197 6,402 (12%) (11%)
Operating income 35 142 233
Operating margin 0.5% 2.0% 3.6%
--------------------------------------------------------------------------------------------------------------------------
ORDERS RECEIVED AND BACKLOG
The power generation new equipment market remains overall low, but is marked by
huge domestic demand in China and growth drivers remain solid in the
environmental markets with a strong demand for hydro and environmental products.
Demand for service for power equipment and the rail transportation market remain
strong. The cruise-ship market starts to resume.
We have registered €8,362 million of orders in the first half of fiscal year
2005, an increase of 51% compared with the first half of last year on a
comparable basis with an increase in all our Sectors. The level of orders
received in this first half is stable compared with the level registered in the
second half of last year on a comparable basis demonstrating a continuous order
recovery after the difficult first six months of fiscal year 2004.
Our backlog was €27.1 billion, representing approximately two years of sales.
SALES
Sales were €6,402 million in the first half of fiscal year 2005, compared with
€8,854 million in the first half of the fiscal year 2004, a decrease of 28% on
an actual basis. This decrease was due principally to the disposal of our
Industrial Turbines businesses and T&D activities, as well as to the impact on
the sales coming from the lower levels of orders in the second half of fiscal
year 2003 and in the first half of fiscal year 2004 in Marine and Power
Turbo-Systems/Environment. Sales in other Sectors increased on actual and
comparable bases. Overall, on a comparable basis, sales decreased by 12%.
OPERATING INCOME
On an actual basis, operating income and operating margin were €233 million and
3.6% respectively in the first half of fiscal year 2005, as compared with
operating income of €132 million and operating margin of 1.5% in first half of
fiscal year 2004. On a comparable basis, mainly when excluding the favourable
effect of T&D last year before its disposal to Areva, our operating income at
€233 million in the first half of fiscal year 2005 strongly improved compared
with €35 million and €142 million respectively in the first and second halves of
fiscal year 2004. This increase despite a lower level of sales is notably due to
a better performance in the execution of our contracts as compared to the
unexpected charges related to contract execution in the last fiscal year.
NET INCOME/LOSS
Net loss after goodwill amortisation was €(315) million compared with €(624)
million and €(1,212) million in the first and second halves of last year
respectively. This improvement comes from the improvement of our operational
performance as well as the decrease in our restructuring, financial and tax
charges.
FREE CASH FLOW
Our free cash flow was €(294) million in the first half of fiscal year 2005 as a
result of cash outflow related to GT24/GT26 gas turbines legacy, high
restructuring expenses and negative change in the Marine working capital
requirements in the first half of the year. Improvement as compared with
€(1,007) million for the last full fiscal year mainly stems from lower cash
outflow related to GT24/GT26 gas turbines and an improved profitability.
RECENT DEVELOPMENTS
PROJECTS FOR NEW GT 26 GAS TURBINES
We have been selected for a new turnkey combined cycle project with associated
long term operation maintenance agreement including 4 GT26 gas turbines in
Thailand. This confirms with the order for 3 GT26 signed during last fiscal year
in Spain that we are back in the market for this range of products with
competitive equipment and attractive service proposals. We expect to book the
corresponding order in the coming weeks.
ORDERS IN CHINA
We were recently awarded projects representing a total amount of €1.4 billion
for Power and Transport in China. These awards confirmed our strong and lasting
presence in China as well as our ability to serve the needs of this market,
based notably on strong partnerships with Chinese industrial groups. We expect
to book these orders in the coming months.
OUTLOOK
For internal planning purposes, we have set a number of financial objectives. On
a comparable basis, we aim to exceed in fiscal year 2005 the level of orders
received in fiscal year 2004. On the basis of our assessment of current market
conditions and backlog, we forecast that our sales (on a comparable basis) would
decrease by approximately 5% in fiscal year 2005 when compared with fiscal year
2004, reflecting the lower level of orders received in fiscal years 2003 and
2004 mainly in power equipment markets. We aim to reach an operating margin
between 3.5% and 4% in fiscal year 2005.
Based on the progress to date of our action plan and the positive results of the
first half of fiscal year 2005, we confirm our financial objectives set for
fiscal year 2006 in our Annual Report 2003/04, notably our objective to reach a
6% operating margin and a positive free cash flow in March 2006.
Our ability to meet these objectives depends on a number of factors, including
notably the results of our restructuring and cost reduction programmes, recovery
in our Power Turbo-Systems/Environment Sector, definitive resolution of our
GT24/GT26 gas turbine issues, the improvement of operating margin in the
Transport Sector, the proper execution of our large contracts and the
progressive growth in our businesses of the more profitable after-sales service
and maintenance.
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 Interim
Consolidated Financial Statements as at 30 September 2004 and in our Annual
Report for 2003/04 in "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 of operations for fiscal year 2004 and the first half of fiscal year
2005 have been significantly impacted by the main disposals described below.
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. On 30 April 2003, we announced the closing of
the sale of the small gas turbines business. 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. All other minor sites of our Industrial
Turbines businesses have since been transferred to Siemens following the
completion of legal procedures relating to competition laws and transfer
procedures in certain jurisdictions.
DISPOSAL OF OUR TRANSMISSION & DISTRIBUTION (T&D) ACTIVITIES
On 25 September 2003, we signed a binding agreement to sell our T&D activities
(our T&D Sector excluding the Power Conversion business) to Areva. This
transaction was closed on 9 January 2004, except for some minor businesses
located in jurisdictions where transfer procedures have been completed in the
first half of fiscal year 2005 or are on-going.
COMBINATION OF POWER-TURBO SYSTEMS AND POWER ENVIRONMENT
Following the operational merger of Power Turbo-Systems and Power Environment
into a single management and organisation, and to reflect this in our
disclosure, these two Sectors are now presented as a single one. Historical data
have been combined as well to reflect this change.
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 Autorite des Marches Financiers ("AMF"), 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 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 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
ACTUAL FIGURES First Half 2nd Half First Half
(IN € MILLION) SEPT. 03 MAR. 04 SEPT. 04
---------------- ---------------- -----------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (731) (327) (336)
Elimination of variation in existing receivables 144 123 82
Capital expenditures (105) (149) (57)
Proceeds from disposals of property, plant and equipment 166 78 17
Elimination of proceeds from our programme of disposal of real
estate assets (148) (58) -
---------------- ---------------- -----------------
FREE CASH FLOW (674) (333) (294)
--------------------------------------------------------------------------------------------------------------------------
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.
CAPITAL EMPLOYED
We define capital employed to mean net fixed assets, plus current assets
(excluding net amount of securitisation of existing receivables), less
provisions for risks and charges and current liabilities.
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.
--------------------------------------------------------------------------------------------------------------------------
TOTAL GROUP
ACTUAL FIGURES At 30 Sept. At 31 Mar. At 30 Sept.
(IN € MILLION) 2003 2004 2004
---------------- ---------------- -----------------
Current assets 11,031 8,371 8,808
Cash proceeds from sale of trade receivables 212 94 12
Current liabilities (12,173) (9,742) (9,850)
Provisions for risks and charges (3,500) (3,489) (3,275)
Fixed assets 8,333 7,326 7,960
---------------- ---------------- -----------------
CAPITAL EMPLOYED 3,903 2,560 3,655
--------------------------------------------------------------------------------------------------------------------------
Capital employed by Sector and for the Group as a whole are also presented in
Note 17 to our Interim Consolidated Financial Statements.
We use the capital employed measure 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.
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 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:
o restatement of the actual figures for the first and the second halves
of fiscal year 2004 using 30 September 2004 exchange rates for order
backlog, orders received, sales and operating income; and
o adjustments due to changes in business composition to the same line
items for the first and second halves of fiscal year 2004. More
particularly contributions of our Industrial Turbines businesses sold
in the first half of fiscal year 2004 and our T&D activities sold as
of 9 January 2004, have been excluded from the comparable figures.
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 2004. No adjustment has been made on figures
disclosed for the first half of fiscal year 2005.
---------------------------- ---------------------------------------------------------------------------------------------------
1ST
HALF
SEPT.
1ST HALF SEPTEMBER 2003 2ND HALF MARCH 2004 2004
--------------------------------------- --------------------------------------- --------- ---------
ACTUAL Exchange Scope COMPARABLE ACTUAL Exchange Scope COMPARABLE ACTUAL % VAR
(IN € MILLION) FIGURES Rate Impact FIGURES FIGURES Rate Impact FIGURES FIGURES H1 / H1
------- --------- --------- ---------- -------- --------- -------- ----------- --------- ---------
Power Turbo-Systems/
Environment 6,479 (66) 0 6,413 6,448 (13) 0 6,435 6,674 4%
Power Service 2,860 (85) 0 2,775 3,107 (28) 0 3,079 3,412 23%
Transport 13,795 (149) 0 13,646 14,321 (141) 0 14,180 14,681 8%
Marine 1,041 0 0 1,041 817 (0) 0 817 1,624 56%
Power Conversion 564 (3) (2) 559 495 (4) (0) 490 536 (4)%
Corporate and other 105 28 83 215 70 (1) 103 172 149 (31%)
---------------------------- ------- --------- --------- ---------- -------- --------- -------- ----------- --------- ---------
ORDER BACKLOG - NEW ALSTOM 28,844 (275) 81 24,650 25,258 (187) 103 25,174 27,077 10%
---------------------------- ------- --------- --------- ---------- -------- --------- -------- ----------- --------- ---------
T&D 2,330 (57) (2,273) 0 110 (7) (103) 0 0
Industrial Turbines 0 0 0 0 0 0 0 0 0
---------------------------- ------- --------- --------- ---------- -------- --------- -------- ----------- --------- ---------
ORDER BACKLOG 27,174 (332) (2,192) 24,650 25,368 (194) 0 25,174 27,077 10%
Power Turbo-Systems/
Environment 1,881 (16) 0 1,865 3,226 (3) 0 3,223 2,194 18%
Power Service 1,368 (40) 0 1,328 1,655 1 0 1,656 1,725 30%
Transport 1,672 (14) 0 1,658 3,037 4 0 3,041 2,886 74%
Marine 340 0 0 340 41 (0) 0 41 1,101 223%
Power Conversion 224 (1) (4) 218 210 (0) 4 215 300 38%
Corporate and other 57 1 56 116 238 (33) 82 286 157 36%
---------------------------- ------- --------- --------- ---------- -------- --------- -------- ----------- --------- ---------
ORDERS RECEIVED - NEW
ALSTOM 5,542 (69) 52 5,525 8,407 (32) 86 8,461 8,362 51%
---------------------------- ------- --------- --------- ---------- -------- --------- -------- ----------- --------- ---------
T&D 1,577 (15) (1,563) 0 654 61 (715) 0 0
Industrial Turbines 320 (2) (318) 0 0 0 0 0 0
---------------------------- ------- --------- --------- ---------- -------- --------- -------- ----------- --------- ---------
ORDERS RECEIVED 7,439 (86) (1,828) 5,525 9,061 29 (629) 8,461 8,362 51%
Power Turbo-Systems/
Environment 2,542 (28) 0 2,514 2,517 21 0 2,538 1,817 (28%)
Power Service 1,361 (39) 0 1,322 1,386 (12) 0 1,374 1,427 8%
Transport 2,297 (2) 0 2,295 2,565 (1) 0 2,564 2,485 8%
Marine 822 0 0 822 175 (0) 0 175 274 (67%)
Power Conversion 226 (3) (9) 214 273 3 3 279 257 20%
Corporate and other 60 21 46 128 181 27 61 268 142 11%
---------------------------- ------- --------- --------- ---------- -------- --------- -------- ----------- --------- ---------
SALES - NEW ALSTOM 7,308 (50) 37 7,296 7,097 39 64 7,197 6,402 (12%)
---------------------------- ------- --------- --------- ---------- -------- --------- -------- ----------- --------- ---------
T&D 1,336 (26) (1,314) 0 737 9 (742) 0 0
Industrial Turbines 210 (3) (207) 0 0 0 0 0 0
---------------------------- ------- --------- --------- ---------- -------- --------- -------- ----------- --------- ---------
SALES 8,854 (80) (1,485) 7,296 7,834 48 (678) 7,197 6,402 (12%)
Power
Turbo-Systems/Environment (103) (2) 0 (105) (150) 4 0 (146) (64)
Power Service 196 (5) 0 191 221 8 0 229 232
Transport (37) 6 0 (31) 101 (3) 0 98 119
Marine 4 0 0 4 (23) 0 0 (23) (34)
Power Conversion 0 0 1 1 15 (1) 0 14 17
Corporate and other (26) 0 1 (25) (33) 0 3 (30) (37)
---------------------------- ------- --------- --------- ---------- -------- --------- -------- ----------- --------- ---------
OPERATING INCOME - NEW 34 (1) (2) 35 131 8 3 142 233
ALSTOM
---------------------------- ------- --------- --------- ---------- -------- --------- -------- ----------- --------- ---------
T&D 84 (2) (82) 0 37 1 (38) 0 0
Industrial Turbines 14 3 (17) 0 0 0 0 0 0
---------------------------- ------- --------- --------- ---------- -------- --------- -------- ----------- --------- ---------
OPERATING INCOME 132 0 (97) 35 168 9 (35) 142 233
--------------------------------------------------------------------------------------------------------------------------------
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 the first half of fiscal year 2005 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 the first half of fiscal year 2005. The impact was
a decrease of approximately 1% of the orders received and the sales compared with the first half of fiscal year 2004 and a slight
increase compared with the second half of fiscal year 2004.
KEY GEOGRAPHICAL FIGURES FOR THE FIRST AND SECOND HALVES OF FISCAL YEAR 2004,
AND FOR THE FIRST HALF OF FISCAL YEAR 2005
GEOGRAPHICAL ANALYSIS OF ORDERS
The table below sets out, on an actual basis, the geographic breakdown of orders
received by region of destination.
---------------------------------------------------------------------------------------------------------------------
TOTAL GROUP
ACTUAL FIGURES First Half % 2nd Half % First Half %
(IN € MILLION) SEPT. 03 contrib. MAR. 04 contrib. SEPT. 04 contrib.
------------- ---------- ------------- ---------- ------------- ----------
Europe 3,819 51% 4,433 49% 5,075 61%
North America 1,034 14% 1,045 12% 1,156 14%
South and Central America 314 4% 390 4% 256 3%
Asia / Pacific 1,193 16% 1,870 21% 1,572 19%
Middle East / Africa 1,079 15% 1,323 15% 304 4%
ORDERS RECEIVED BY DESTINATION 7,439 100% 9,061 100% 8,362 100%
---------------------------------------------------------------------------------------------------------------------
Europe remained the largest market in terms of orders received, representing 61%
of the total compared to 51% in the first half of fiscal year 2004, mainly due
to orders received by Transport and Marine. The increase in North America was
mainly due to the increase in orders received by Power
Turbo-Systems/Environment, which were exceptionally low last year. Activity in
South and Central America remained slow. The contribution of the Middle
East/Africa region decreased from 15% in first half of fiscal year 2004 down to
4% in first half of fiscal year 2005, notably as a result of the absence of
major turnkey orders in the region this year whereas last year we recorded
orders for gas power plants in Algeria, a steam power plant in Saudi Arabia as
well as a hydro power plant in Sudan.
GEOGRAPHICAL ANALYSIS OF SALES BY REGION OF DESTINATION
The table below sets out, on an actual basis, the geographic breakdown of sales
by region of destination.
---------------------------------------------------------------------------------------------------------------------
TOTAL GROUP
ACTUAL FIGURES First Half % 2nd Half % First Half %
(IN € MILLION) SEPT. 03 contrib. MAR. 04 contrib. SEPT. 04 contrib.
------------- ---------- ------------- ---------- ------------- ----------
Europe 4,160 47% 3,842 49% 3,393 53%
North America 1,662 19% 1,339 17% 933 15%
South and Central America 489 6% 368 5% 301 5%
Asia / Pacific 1,875 21% 1,526 18% 1,159 18%
Middle East / Africa 668 8% 759 10% 616 10%
SALES BY DESTINATION 8,854 100% 7,834 100% 6,402 100%
---------------------------------------------------------------------------------------------------------------------
Although the level of sales in Europe decreased in actual terms, Europe's share
of total sales increased from 47% in the first half of fiscal year 2004 to 53%
in first half of fiscal year 2005. This is the result of the scope variation and
a stronger decrease in sales in Americas and Asia/Pacific. North America and
Asia/Pacific decreased mainly as a result of low level of sales in Power
Turbo-Systems/Environment.
GEOGRAPHICAL ANALYSIS OF SALES BY REGION OF ORIGIN
The table below sets out, on an actual basis, the geographical breakdown of
sales by region of origin.
---------------------------------------------------------------------------------------------------------------------
TOTAL GROUP
ACTUAL FIGURES First Half % 2nd Half % First Half %
(IN € MILLION) SEPT. 03 contrib. MAR. 04 contrib. SEPT. 04 contrib.
------------- ---------- ------------- ---------- ------------- ----------
Europe 6,521 74% 5,683 73% 4,718 74%
North America 1,332 15% 1,187 15% 874 14%
South and Central America 229 3% 186 2% 170 3%
Asia / Pacific 703 8% 713 9% 604 9%
Middle East / Africa 69 1% 65 1% 36 1%
SALES BY ORIGIN 8,854 100% 7,834 100% 6,402 100%
---------------------------------------------------------------------------------------------------------------------
Europe's share of total sales is stable at 74% in first half of fiscal year
2005. North America decreased mainly as a result of the low level of sales in
power generation, reflecting the evolution of this market and lower deliveries
in Transport.
POWER TURBO-SYSTEMS / ENVIRONMENT
POWER TURBO-SYSTEMS AND POWER ENVIRONMENT SECTORS NUMBERS ARE NOW COMBINED TO
REFLECT THE MANAGEMENT ORGANISATION.
The following table sets out certain key financial and operating data for the
Power Turbo-Systems/Environment Sector :
-----------------------------------------------------------------------------------------------------------------------
POWER TURBO-SYSTEMS / ENVIRONMENT % Variation % Variation
ACTUAL FIGURES First Half 2nd Half First Half Sept. 04/ Sept. 04/
(IN € MILLION) SEPT. 03 MAR. 04 SEPT. 04 Sept. 03 March 04
---------- ---------- ---------- --------- ----------
Order backlog 6,479 6,448 6,674 3% 4%
Orders received 1,881 3,226 2,194 17% (32%)
Sales 2,542 2,517 1,817 (29%) (28%)
Operating income (103) (150) (64)
Operating margin (4.1%) (6.0%) (3.5%)
EBIT (248) (393) (129)
Capital employed (616) (499) (479)
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
POWER TURBO-SYSTEMS / ENVIRONMENT % Variation % Variation
COMPARABLE FIGURES First Half 2nd Half First Half Sept. 04/ Sept. 04/
(IN € MILLION) SEPT. 03 MAR. 04 SEPT. 04 Sept. 03 March 04
---------- ---------- ---------- --------- ----------
Order backlog 6,413 6,435 6,674 4% 4%
Orders received 1,865 3,223 2,194 18% (32%)
Sales 2,514 2,538 1,817 (28%) (28%)
Operating income (105) (146) (64)
Operating margin (4.2%) (5.8%) (3.5%)
-----------------------------------------------------------------------------------------------------------------------
ORDERS RECEIVED
The global power generation market during the first half of fiscal year 2005
remained overall low in Europe and Americas, while Asia was marked by a huge
demand in China and a recovery in other major countries. America, especially the
over-equipped US market, showed limited activity. Europe remains globally
stable. In the Asia/Pacific region, the market has shown a surge in demand led
by China, with South East Asia also much more active in new power generation
projects.
The regional switch from North America to Asia, particularly China, gives
increasing importance to coal-based Steam and Hydro compared to Gas Turbine
Plants. Increasing price volatility for fuel and electricity increases the need
for diversity and flexibility of power generation products and technologies.
Environmental policies are increasingly driving market requirements, favouring
our environmental control solutions and equipment mainly in North America and
Europe.
On an actual basis, orders received by the Sector for the first half of fiscal
year 2005 were 17% higher than in the first half of fiscal year 2004 (+18% on
comparable basis). The main improvements compared with the same period of last
year are in the Hydro and Environmental Control System businesses, whereas
orders received in our turnkey activities have decreased.
By region, orders received in the first half of fiscal year 2005 have decreased
in Europe compared with the first half of fiscal year 2004. Orders have
increased in the Americas, despite a continuous low market, with the South
America market being particularly depressed. We had numerous successes in North
America in large Boiler, Environmental Control & HRSG (Heat Recovery Steam
Generators) orders. Orders have increased significantly in Asia, which provided
34% of our orders received in the first half of fiscal year 2005, of which the
major part comes from China (Hydro activity mainly) and from India mainly coming
from one turnkey order. Orders decreased in the Middle East and Africa after the
high booking of last year.
SALES
In the first half of fiscal year 2005, sales in Power Turbo-Systems/Environment
Sector were 29% lower than in the first half of fiscal year 2004 on an actual
basis (28% lower on a comparable basis). This is due to the lower level of
orders last year and the close out during last fiscal year of several orders
from the "US bubble".
By geographical zone, compared with the first half of fiscal year 2004 and in
line with the orders profile from fiscal year 2004, the Americas decreased by
47%, Europe decreased by 28%, Asia/Pacific decreased by 46%, while Middle
East/Africa increased by 66%.
OPERATING INCOME AND OPERATING MARGIN
Power Turbo-Systems/Environment Sector operating income was €(64) million in the
first half of fiscal year 2005, compared with €(103) million in the first half
and €(150) million in the second half of fiscal year 2004. This improvement
reflected more stable results on projects this fiscal year, but remains negative
mainly due to the impact of low sales on the cost base, which is affected by
under-absorption of fixed charges in spite of the current restructuring plans.
POWER SERVICE
The following table sets forth some key financial and operating data for the
Power Service Sector:
-----------------------------------------------------------------------------------------------------------------------
POWER SERVICE % Variation % Variation
ACTUAL FIGURES First Half 2nd Half First Half Sept. 04/ Sept. 04/
(IN € MILLION) SEPT. 03 MAR. 04 SEPT. 04 Sept. 03 March 04
---------- ---------- ---------- --------- ----------
Order backlog 2,860 3,107 3,412 19% 10%
Orders received 1,368 1,655 1,725 26% 4%
Sales 1,361 1,386 1,427 5% 3%
Operating income 196 221 232
Operating margin 14.4% 15.9% 16.3%
EBIT 123 104 180
Capital employed 2,295 1,921 1,835
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
POWER SERVICE % Variation % Variation
COMPARABLE FIGURES First Half 2nd Half First Half Sept. 04/ Sept. 04/
(IN € MILLION) SEPT. 03 MAR. 04 SEPT. 04 Sept. 03 March 04
---------- ---------- ---------- --------- ----------
Order backlog 2,775 3,079 3,412 23% 11%
Orders received 1,328 1,656 1,725 30% 4%
Sales 1,322 1,374 1,427 8% 4%
Operating income 191 229 232
Operating margin 14.4% 16.7% 16.3%
-----------------------------------------------------------------------------------------------------------------------
ORDERS RECEIVED
The power service market confirmed in the first half of fiscal year 2005 its
positive trends. We are well positioned in a market growing with the need of
environmental compliance, plant modernisation, coping with higher fuel prices
and life-time extension of some plants. In the energy deregulation environment,
we offer more and more full-service packages and innovative solutions to private
financial investors who are solely cost driven.
On an actual basis, orders received for the first half of fiscal year 2005 are
26% higher than the first half of fiscal year 2004 (and 30% on a comparable
basis). This high level of orders is mainly due to O&M (Operation and
Maintenance) contracts, the duration of which is generally over ten years; thus
the translation of the first half year's high level of orders received into
sales will be spread over relatively long periods.
By geographical zone, most significant growth compared with the first half of
last fiscal year was seen in the Asia-Pacific area supported by several medium
sized orders awarded in Malaysia, Australia and New Zealand. Volumes in the
European market have also been developing very positively this year with a
number of smaller to medium sized orders booked. The Middle East region remained
strong with good volumes in Iran and several other countries in the area. The
Americas overall were slightly down from last year caused mainly by a slower
market in South and Central America. North America held up well due to improved
volumes in Gas Turbine and Generator parts and Long Term Service Agreements,
partly offset by a slow-down in environment related service.
SALES
Sales booked by Power Service in the first half of fiscal year 2005 showed
steady growth, with an increase on a comparable basis of 8% compared with the
first half of fiscal year 2004. The greatest improvement over last year was seen
in Europe, where Power Service registered an increase in sales of 16% overall,
with strong volumes in Western Europe. Sales in Eastern Europe showed a positive
trend in the first half of fiscal year 2005. Asia has been strongly growing
compared with the same period of last year. Americas overall showed volumes,
which were stable compared with last year with a moderate growth in North
America offset by a reduction in Central and South America caused by a low order
intake in the second half of last fiscal year.
OPERATING INCOME AND OPERATING MARGIN
Power Service operating income reached €232 million or 16.3% of sales in the
first half of fiscal year 2005 compared with €196 million or 14.4% of sales in
the first half of fiscal year 2004. This good achievement was due notably to
strong spare parts sales as well as positive evolution of several Operation and
Maintenance contracts.
TRANSPORT
The following table sets out some key financial and operating data for the
Transport Sector:
-----------------------------------------------------------------------------------------------------------------------
TRANSPORT % Variation % Variation
ACTUAL FIGURES First Half 2nd Half First Half Sept. 04/ Sept. 04/
(IN € MILLION) SEPT. 03 MAR. 04 SEPT. 04 Sept. 03 March 04
---------- ---------- ---------- --------- ----------
Order backlog 13,795 14,321 14,681 6% 3%
Orders received 1,672 3,037 2,886 73% (5%)
Sales 2,297 2,565 2,485 8% (3%)
Operating income (37) 101 119
Operating margin (1.6%) 3.9% 4.8%
EBIT (150) (39) 87
Capital Employed 467 360 338
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
TRANSPORT % Variation % Variation
COMPARABLE FIGURES First Half 2nd Half First Half Sept. 04/ Sept. 04/
(IN € MILLION) SEPT. 03 MAR. 04 SEPT. 04 Sept. 03 March 04
---------- ---------- ---------- --------- ----------
Order backlog 13,646 14,180 14,681 8% 4%
Orders received 1,658 3,041 2,886 74% (5%)
Sales 2,295 2,564 2,485 8% (3%)
Operating income (31) 98 119
Operating margin (1.4%) 3.8% 4.8%
-----------------------------------------------------------------------------------------------------------------------
ORDERS RECEIVED
Following a decline in fiscal year 2004 caused, primarily, by an almost complete
lack of new projects in North America, the completion of a major rolling stock
purchasing round in the UK and significant budgetary constraints in Germany, the
market in fiscal year 2005 is showing positive prospects. Southern Europe is
strong, in particular in Spain as the country continues the expansion of its
high speed network and enhances several of its metro systems and in Italy for
rolling stock and railway infrastructure. Outside Europe, the highly promising
market of China is rapidly awakening and has led to a number of recent contract
announcements for ALSTOM (to be booked in the coming months).
From a product standpoint, the tramway market remains active and we have been
awarded contracts for trams for Tenerife, Nice, Strasbourg, Montpellier and
Madrid.
Orders received by Transport in the first half of fiscal year 2005 amounted to
€2,886 million, an increase of 73% compared with the first half of fiscal year
2004. This large increase is due both to a very high level of orders in the
first half of this year and to a very low level registered last year. Europe
continued to represent the dominant share of the orders received.
SALES
Sales in Transport increased by 8% in the first half of fiscal year 2005
compared with the first half of fiscal year 2004 on an actual basis. This
increase was mainly seen in Europe, representing 73% of sales, with Italy, Spain
and Germanyand being the three main contributors to this growth.
OPERATING INCOME AND OPERATING MARGIN
The operating income of Transport for the first half of fiscal year 2005
amounted to €119 million, 4.8% of sales, compared with €(37) million in the
first half of fiscal year 2004. This strong increase was due to a stabilisation
of our project execution while last year was impacted by major losses in
relation to our US Transport business.
MARINE
The following table sets out some key financial and operating data for our
Marine Sector:
-----------------------------------------------------------------------------------------------------------------------
MARINE % Variation % Variation
ACTUAL FIGURES First Half 2nd Half First Half Sept. 04/ Sept. 04/
(IN € MILLION) SEPT. 03 MAR. 04 SEPT. 04 Sept. 03 March 04
---------- ---------- ---------- --------- ----------
Order backlog 1,041 817 1,624 56% 99%
Orders received 340 41 1,101 224% n/a
Sales 822 175 274 (67%) 57%
Operating income 4 (23) (34)
Operating margin 0.5% (13.1%) (12.4%)
EBIT (2) (38) (38)
Capital employed (593) (580) 111
--------------------------------------------- -------------- -------------- -------------- --------------- ---------------
-----------------------------------------------------------------------------------------------------------------------
MARINE % Variation % Variation
COMPARABLE FIGURES First Half 2nd Half First Half Sept. 04/ Sept. 04/
(IN € MILLION) SEPT. 03 MAR. 04 SEPT. 04 Sept. 03 March 04
---------- ---------- ---------- --------- ----------
Order backlog 1,041 817 1,624 56% 99%
Orders received 340 41 1,101 224% n/a
Sales 822 175 274 (67%) 57%
Operating income 4 (23) (34)
Operating margin 0.5% (13.1%) (12.4%)
-----------------------------------------------------------------------------------------------------------------------
ORDERS RECEIVED
Marine's main market, cruise ship construction, has commenced a recovery with
eleven market orders for passenger ships ordered over the first months of
calendar year 2004, after only five during calendar year 2003, three in calendar
year 2002, and only one in calendar year 2001.
In August 2004, Mediterranean Shipping Company placed an order with Marine for
two 1,275 cabin cruise ships and the contract came into force in September 2004
after the customer successfully concluded its financing arrangements.
Orders received during the first half of fiscal year 2005 reached €1,101 million
comprising the two cruise ships for MSC, a 153,000 m3 LNG tanker for NYK,
sister-ship of the tanker ordered in fiscal year 2004 by Gaz de France.
SALES
Sales at €274 million in the first half of fiscal year 2005 were 67% lower than
in the first half of last year due to the low level of orders obtained in the
three previous years. Marine delivered in May 2004 the cruise-ship MSC OPERA,
and in July 2004 the fore portion of BPC MISTRAL, the first of two naval assault
ships built for the French Navy in association with DCN.
OPERATING INCOME AND OPERATING MARGIN
Operating income was negative in the first half of fiscal year 2005 by €(34)
million. Adjustment of our capacity is currently being implemented but the low
level of activity has generated over the first half of the fiscal year
significant under-absorption of charges.
CAPITAL EMPLOYED
The variation of Marine capital employed in the first half of fiscal year 2005
is mainly due to the effect of the consolidation of our Special Purpose
Entities.
POWER CONVERSION
The following table sets out some key financial and operating data for our Power
Conversion Business:
-----------------------------------------------------------------------------------------------------------------------
POWER CONVERSION % Variation % Variation
ACTUAL FIGURES First Half 2nd Half First Half Sept. 04/ Sept. 04/
(IN € MILLION) SEPT. 03 MAR. 04 SEPT. 04 Sept. 03 March 04
---------- ---------- ---------- --------- ----------
Order backlog 564 495 536 (5%) 8%
Orders received 224 210 300 34% 42%
Sales 226 273 257 14% (6%)
Operating income 0 15 17
Operating margin 0.0% 5.5% 6.6%
EBIT (12) (7) 11
Capital Employed 69 25 16
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
POWER CONVERSION % Variation % Variation
COMPARABLE FIGURES First Half 2nd Half First Half Sept. 04/ Sept. 04/
(IN € MILLION) SEPT. 03 MAR. 04 SEPT. 04 Sept. 03 March 04
---------- ---------- ---------- --------- ----------
Order backlog 559 490 536 (4%) 9%
Orders received 218 215 300 38% 39%
Sales 214 279 257 20% (8%)
Operating income 1 14 17
Operating margin 0.5% 5.0% 6.6%
-----------------------------------------------------------------------------------------------------------------------
ORDERS RECEIVED
On an actual basis, orders received in the first half of fiscal year 2005
increased by 34% compared with the first half of fiscal year 2004. This increase
came mainly from the UK with the booking of one major order for the Royal Navy.
SALES
On an actual basis, sales in the first half of fiscal year 2005 increased by 14%
compared with the first half of fiscal year 2004 and decreased by 6% compared
with the second half of fiscal year 2004 as a consequence of orders received
trend in the second half of fiscal year 2004 and the level of order backlog at
the end of fiscal year 2004.
OPERATING INCOME AND OPERATING MARGIN
The operating income of the first half of fiscal year 2005 has shown a strong
improvement compared with the first half of fiscal year 2004 due to actions
across businesses to improve performance.
CORPORATE AND OTHER
"Corporate and Other" comprises all units accounting for Corporate costs, the
International Network and the overseas entities in Australia, New Zealand, 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:
-----------------------------------------------------------------------------------------------------------------------
CORPORATE AND OTHER % Variation % Variation
ACTUAL FIGURES First Half 2nd Half First Half Sept. 04/ Sept. 04/
(IN € MILLION) SEPT. 03 MAR. 04 SEPT. 04 Sept. 03 March 04
---------- ---------- ---------- --------- ----------
Order backlog 105 70 149 42% 114%
Orders received 57 238 157 176% (34%)
Sales 60 181 142 137% (22%)
Operating income (26) (33) (37)
EBIT (32) (220) (84)
Capital Employed 1,342 1,333 1,836
-----------------------------------------------------------------------------------------------------------------------
OPERATING INCOME
Operating income was €(37) million in the first half of fiscal year 2005
compared with €(26) million in the first half of fiscal year 2004.
CAPITAL EMPLOYED
Capital employed for Corporate was high at €1,836 million because the main part
of other fixed assets not specific to a Sector is allocated to Corporate's
capital employed as they are managed by Corporate; they mainly include the
impact of the cash collateral for €700 million on the bonding facility and
prepaid assets - pensions.
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:
-----------------------------------------------------------------------------------------------------------------------
TOTAL GROUP % Variation % Variation
ACTUAL FIGURES First Half 2nd Half First Half Sept. 04/ Sept. 04/
(IN € MILLION) SEPT. 03 MAR. 04 SEPT. 04 Sept. 03 March 04
---------- ---------- ---------- --------- ----------
SALES 8,854 7,834 6,402 (28%) (18%)
Cost of sales (7,577) (6,727) (5,408) (29%) (20%)
Selling expenses (435) (350) (271) (38%) (23%)
R & D expenses (239) (234) (166) (31%) (29%)
Administrative expenses (471) (355) (324) (31%) (9%)
---------- ---------- ----------
OPERATING INCOME 132 168 233
OPERATING MARGIN 1.5% 2.1% 3.6%
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
TOTAL GROUP % Variation % Variation
COMPARABLE FIGURES First Half 2nd Half First Half Sept. 04/ Sept. 04/
(IN € MILLION) SEPT. 03 MAR. 04 SEPT. 04 Sept. 03 March 04
---------- ---------- ---------- --------- ----------
SALES 7,296 7,197 6,402 (12%) (11%)
OPERATING INCOME 35 142 233
OPERATING MARGIN 0.5% 2.0% 3.6%
-----------------------------------------------------------------------------------------------------------------------
SALES
Sales were €6,402 million in the first half of the fiscal year 2005, compared
with €8,854 million in the first half of the fiscal year 2004, a decrease by 28%
on an actual basis. This decrease was due principally to the disposal of our
Industrial Turbines businesses and T&D activities, as well as to lower levels of
orders in the second half of fiscal year 2003 and in the first half of fiscal
year 2004 generating lower sales in Marine and Power Turbo-Systems/Environment.
Sales in other Sectors increased on actual and comparable bases. As a
consequence, overall on a comparable basis, sales decreased by 12%.
On an actual basis, percentage of services in sales increased to 29% in the
first half of the fiscal year 2005, compared with 25% in the first half of
fiscal year 2004 and 21% in second half of fiscal year 2004, due to change in
our scope of activities and the decrease of the contribution of our power
equipment activity in our total sales following a decrease in orders over the
past years.
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 €595 million in the first half of
fiscal year 2005 compared with €906 million in the first half of last year, the
decrease being due principally to the disposal of our Industrial Turbines
businesses and our T&D activities as well as to a reduction of costs on a
comparable basis following the reorganisation of the Group and restructuring
plans.
RESEARCH AND DEVELOPMENT EXPENSES
Research and Development expenses were €166 million in the first half of fiscal
year 2005 compared to €239 million in first half of fiscal year 2004 and €234
million in the second half, the decrease being due principally to the disposal
of our Industrial Turbines businesses and our T&D activities and to a reduction
of expenses in connection with the GT24/GT26 gas turbines as the recovery
programme nears conclusion.
OPERATING INCOME (LOSS) AND OPERATING MARGIN
Operating income is measured before restructuring costs, goodwill and other
intangible assets amortisation, and other items including 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 total annual sales.
On an actual basis, operating income and operating margin were €233 million and
3.6% respectively in the first half of fiscal year 2005, as compared with
operating income of €132 million and operating margin of 1.5% in first half of
fiscal year 2004. On a comparable basis, mainly when excluding the favourable
effect of T&D last year before its disposal to Areva, this operating income at
€233 million in the first half of fiscal year 2005 showed significant
improvements compared with €35 million and €142 million in the first and second
halves of fiscal year 2004 respectively. This increase despite a lower level of
sales is notably due to a stabilisation in the execution of our contracts as
compared to the first and second halves of last year when we recorded unexpected
charges related to contract execution.
EARNINGS BEFORE INTEREST AND TAX (EBIT)
EBIT was €27 million in the first half of fiscal year 2005, compared with €(296)
million in the first half of fiscal year 2004 and €(575) million in the second
half of fiscal year 2004.
The improvement in EBIT in the first half of fiscal year 2005 was mainly due to:
o the improvement of our operating income;
o restructuring costs amounting to €(69) million in the first half of
fiscal year 2005, compared with €(276) million in the first half of
fiscal year 2004 and with €(379) million in the second half of fiscal
year 2004. The relatively low level recorded in the first half of this
year is due to exceptional levels booked at the end of last year and
phasing of amounts that we will record in the second half of fiscal
year 2005 ;
o pension costs at €(84) million in the first half of fiscal year 2005,
compared with €(138) million in the first half fiscal year 2004 and
€(125) million in the second half of fiscal year 2004. This decrease
was primarily due to scope variation and to reduced service costs as
workforce and activity reduced.
FINANCIAL EXPENSES, NET
The improvement of our net financial expenses, €(185) million in the first half
of fiscal year 2005 compared with €(220) million in the first half of fiscal
year 2004 and €(240) million in the second half of fiscal year 2004, was due to
the decrease in net interest expenses (as a consequence of the implementation of
the 2004 refinancing package), and to a lower amount of fees recorded on this
year financing arrangements.
INCOME TAX
Income tax charges were €(40) million for the first half of fiscal year 2005 as
we recognised deferred tax charge of €(38) million and a current income tax
charge of €(2) million. The deferred tax charge reflects the writing-off of
deferred tax assets where recoverability is no longer considered probable. In
the first half of fiscal year 2004, the income tax credit was €29 million, and
in the second half of fiscal year 2004, the income tax charge was €(280) million
following significant increase in deferred tax assets valuation allowance.
GOODWILL AMORTISATION
Goodwill amortisation amounted to €(114) million in the first half of fiscal
year 2005 compared with €(135) million in the first half of fiscal year 2004 and
€(121) million in the second half of fiscal year 2004. The decrease was due to
the disposal of our T&D activities and, to a lesser extent, our Industrial
Turbine businesses.
At 31 March 2004, we requested an independent third party evaluation as part of
our annual impairment tests of goodwill and other intangible assets. The
valuation supported our opinion that our goodwill and other intangible assets
were not impaired. We consider that no triggering event has occurred that would
lead to impairment testing at 30 September 2004.
NET INCOME (LOSS)
Net losses in the first half of fiscal year 2005 amounted to €(315) million,
compared with a net loss of €(624) million in the first half of fiscal year 2004
and a net loss of €(1,212) million in the second half of fiscal year 2004.
BALANCE SHEET
SPECIAL PURPOSE ENTITIES
Following a new accounting pronouncement effective 1st April 2004, we have
consolidated several Special Purpose Entities with an effect notably of
increasing our financial debt by €827 million and increasing our Property, plant
and equipment by €693 million and Inventories and contracts in progress by €110
million as of 1st April 2004. See Note 2 to our Interim Consolidated Statements.
During the first half of fiscal year 2004, we have sold one of these Special
Purpose Entities in the Transport Sector. This disposal has decreased our net
debt by €243 million.
GOODWILL, NET
Net Goodwill decreased to €3,309 million at 30 September 2004 compared to €3,424
million at 31 March 2004 due to amortisation.
WORKING CAPITAL
Working capital (defined as current assets less current liabilities and
provisions for risks and charges) at 30 September 2004 was €(4,317) million
compared with €(4,860) million as reported at 31 March 2004 or €(4,610) million
as amended at 1 April 2004 to account for the impact of the consolidation of our
special purpose entities.
This variation reflected primarily :
o changes in the scope of our activities ;
o an increase in inventories and contracts in progress due to the
increase in activity following the increase in orders received and the
consolidation for €110 million of one ship held for resale triggered
by the consolidation of our SPE ;
o a decrease in trade payables partly offset by the significant increase
in customers' deposits and advances. See Note 11 to our Interim
Consolidated Financial Statements for more details.
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 €8,932 million and
€8,722 million at 30 September 2004 and 31 March 2004 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 2004, our net customer deposits and
advances were €3,254 million, compared with €2,714 million as of 31 March 2004.
The impact on our cash flow of the change in customer' deposits and advances was
positive by €556 million in the first half of fiscal year 2005 compared to a
negative €221 million in the first half of fiscal year 2004 and after a positive
€220 million in the second half of fiscal year 2004. This is due to the strong
increase in our backlog in the first half of fiscal year 2005.
DEFERRED TAX ASSETS, NET
Deferred tax assets net amounted to €1,510 million at 30 September 2004 compared
with €1,531 million at 31 March 2004.
At 31 March 2004, we reviewed by jurisdiction the recoverability of these
deferred tax assets on the basis of the extrapolation of our business plan. We
consider that as at 30 September 2004 the basis on which we concluded on the
recoverability in March 2004 remains unchanged.
PENSIONS
Under French and US GAAPs, we are now reviewing accounting for the Swiss pension
schemes from defined contribution to defined benefits accounting. The impact is
an increase on projected benefits by €515 million and on the fair value of
assets by €515 million.
PROVISIONS FOR RISKS AND CHARGES
At 30 September 2004, provisions for risks and charges totalled €3,275 million
compared with €3,489 million at 31 March 2004.
This net decrease was accounted for mainly by the following :
o a decrease in provisions on contracts for €125 million, mainly
resulting from application of the GT24/GT26 gas turbine provisions;
o a decrease in restructuring provisions of €58 million due to a
relative low level of addition to provisions during the first half of
fiscal year 2005.
SHAREHOLDERS' EQUITY
Shareholders' equity at 30 September 2004 was €1,695 million, compared with €29
million at 31 March 2004. This increase was mainly due to the capital increases
described here above for a total amount of €1,749 million, to the reimbursement
into shares of the TSDDRA subscribed by the French State for €300 million,
reduced by the net loss for the period of €(315) million.
As at 30 September 2004, €139 million of bonds mandatorily reimbursable with
shares (ORA), out of the €901 million initially issued, have not yet been
converted into capital.
SECURITISATION OF EXISTING RECEIVABLES
We sold selected existing trade receivables to a third party on an irrevocable,
without recourse basis. The net cash proceeds from securitisation of existing
trade receivables at 30 September 2004 reduced significantly to €12 million
compared with €94 million at 31 March 2004.
SECURITISATION OF FUTURE RECEIVABLES
The total securitisation of future receivables at 30 September 2004 was €100
million compared with €265 million at 31 March 2004. The decrease in first half
of fiscal year 2005 compared with fiscal year 2004 was mainly due to the
delivery of TGV duplex and regional trains for SNCF by our Transport Sector.
During the first half of fiscal year 2005, we did not enter into any new
securitisation of future receivables.
FINANCIAL DEBT
Our financial debt was €3,998 million at 30 September 2004, compared with €4,372
million at 31 March 2004 and €5,199 million at 1 April 2004. Out of the
components of our financial debt, borrowings decreased by €767 million and
securitisation of future receivables decreased by €165 million, while other
facilities increased by €558 million due to the consolidation of Special Purpose
Entities net of the disposal during the period of one of these entities in the
Transport Sector.
At 30 September 2004, our covenants have been respected :
o our consolidated net worth, as defined in our covenant agreement, was
€1,933 million (contractually defined as the sum of €1,695 million of
shareholders' equity, €69 million of minority interests, €139 million
of bonds reimbursable with shares, €30 million of additional deferred
tax valuation allowance in the first half of fiscal year 2005), which
exceeds the €1,000 million covenant;
o our total debt was €3,452 million (contractually defined as the sum of
€ 3,998 million our financial debt, €12 million of sale of trade
receivables, minus €558 million as the net impact of the consolidation
of our SPE to neutralise the effect of a new accounting pronouncement.
See Note 1((4) in our Interim Consolidated Statements), which is below
the €4,329 million covenant.
NET DEBT
We define net debt as financial debt less short-term investments, cash and cash
equivalents.
Net debt was €2,408 million at 30 September 2004 compared with €2,906 million at
31 March 2004 and €3,733 million at 1 April 2004 amended to take into account
the €827 million impact of the consolidation of the SPE. Our net debt decreased
due to the capital increase (net of the cash collateral on the bonding programme
accounted for in other fixed assets), the reimbursement into shares of the
TSDDRA and proceeds of the disposal of investments partly offset by net cash
used in operating activities. The net impact of the consolidation of Special
Purpose Entities amounted to €558 million at 30 September 2004.
LIQUIDITY AND CAPITAL RESOURCES
CONSOLIDATED STATEMENT OF CASH FLOWS
The following table sets out selected figures concerning our consolidated
statement of cash flows:
--------------------------------------------------------------------------------------------------------------------------
TOTAL GROUP
ACTUAL FIGURES First Half 2nd Half First Half
(IN € MILLION) SEPT. 03 MAR. 04 SEPT. 04
----------------------------------------------------- ---------------- ----------------- -----------------
Net income after elimination of non cash items (406) (647) 20
Change in net working capital (325) 320 (356)
---------------- ----------------- -----------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (731) (327) (336)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 975 586 (263)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (2) 1,175 1,979
---------------- ----------------- -----------------
242 1,434 1,380
Net effect of exchange rate 15 (22) (7)
Net effect o(pound) new accounting pronouncement - - (827)
Other changes and reclassifications (3) (11) (48)
---------------- ----------------- -----------------
DECREASE (INCREASE) IN NET DEBT 254 1,401 498
--------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) 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 €(336) million in the first half of fiscal
year 2005 compared to €(731) million in the first half of fiscal year 2004 and
€(327) million in the second half of fiscal year 2004.
Net income after elimination of non-cash items was €20 million in the first half
of fiscal year 2005. This amount represented the cash generated by 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 €(356) million. The principal movements in
working capital were :
o a decrease of €(82) million in sale of trade receivables
(securitisation of existing receivables);
o a decrease of €(103) million in contract-related provisions mainly due
to the application of GT24/GT26 provisions;
o an increase of €556 million in customer deposits and advances
following a continuing rebound in orders received and the resulting
increase of our backlog; and
o a decrease of €(376) million in trade payables and other payables and
a decrease of €(231) million in inventories and contracts in progress
following the significant decrease in sales.
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
Net cash used in investing activities was €(263) million in the first half of
fiscal year 2005. This amount comprised:
o proceeds of €17 million from disposals of property, plant and
equipment;
o capital expenditures of €(57) million;
o variation in other fixed assets of €(563) million mainly due to the
cash collateral of €700 million as a first loss for our new bonding
programme put into place during the summer 2004; and o proceeds from
the sale of investments, net of net cash sold for €340 million.
The cash proceeds from the sale of investment comprised the net debt sold for
€243 million as part the disposal of one Special Purpose Entity in the Transport
Sector that we have consolidated in our financial debt with effect as at 1st
April 2004. The cash proceeds from the sale of investment also included the
release of escrowed funds from the sale of our Industrial Turbine businesses and
our T&D activities for €56 million and €41 million from the completion of sale
of minor entities of these businesses.
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
Net cash provided by financing activities in first half of fiscal year 2005 was
€1,979 million, including a capital increase for €1,749 million, and the
reimbursement into shares of the TSDDRA for €300 million.
NET EFFECT OF NEW ACCOUNTING PRONOUNCEMENT
As discussed above and in Note 2 to our Interim Consolidated Financial
Statements, following a new accounting pronouncement effective 1st April 2004,
we have consolidated several Special Purpose Entities with an effect of
increasing our financial debt by €827 million at 1st April 2004 and €558 million
at 30 September 2004.
DECREASE (INCREASE) IN NET DEBT
As a result of the above, our net debt decreased by €498 million in the first
half of fiscal year 2005, compared with a decrease of €254 million in the first
half of fiscal year 2004 and a decrease of 1,401 million in the second half of
fiscal year 2004.
Excluding the net effect of the consolidation of our Special Purpose Entities
(net of the disposal of one these entities for € 243 million and €26 million of
reimbursement during the first half), our net debt would have decreased by
€1,056 million in the first half of fiscal year 2005.
MATURITY AND LIQUIDITY
The following table sets forth our outstanding financial debt obligations
(including future receivables securitised) and available credit lines as of 30
September 2004:
AFTER
AT 30 FISCAL FISCAL FISCAL FISCAL FISCAL
SEPTEMBER YEAR YEAR YEAR YEAR YEAR
2004 2005 2006 2007 2008 2008 MATURITY
--------- ------ ------ ------ ------ -------- ---------
Redeemable preference shares 205 (205) 31-Mar-06
Subordinated notes 250 (250) 30-Sep-06
Subordinated loans (PSDD) 1,320 (1,320) 30-Sep-08
Bonds 650 (650) 26-Jul-06
Syndicated loans 704 (704) 03-Aug-06
Bilateral loans 250 (27) (33) (190)
Commercial paper 429 (429)
Future receivables securitised, net 100 (100)
Ad-hoc entities facilities 558 (118) (36) (37) (39) (328)
Bank overdrafts, other facilities
and accrued interests(1) 271 (216) (13) (3) (3) (36)
--------- ------ ------ ------ ------ -------- ---------
TOTAL 4,737 (863) (281) (1,677) (232) (1,684)
--------- ------ ------ ------ ------ -------- ---------
FINANCIAL DEBT 3,998
---------
AVAILABLE LINES 739
---------
(1) Most facilities entered into by subsidiaries have been classified as
being immediately due because such facilities are generally
uncommitted.
Total available unused credit lines together with cash available in the Group
amounted to €2,329 million at 30 September 2004, compared with €2,249 million at
31 March 2004.
These amounts consisted of:
o Available credit lines at Group level, which comprised €420 million of
commercial paper, €281 million of part B of the PSDD and €38 million
of syndicated loans, for €739 million at 30 September 2004, compared
with €420 million of commercial paper and €363 million of part B of
the PSDD, for €783 million at 31 March 2004 ;
o Cash available at parent company level of €576 million at 30 September
2004, compared with €532 million at 31March 2004 ; and
o Cash and cash equivalent, short term investments available at
subsidiary level of €1,014 million at 30 September 2004, compared with
€934 million at 31 March 2004.
ALSTOM, the Group 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 legal 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, and to
continue to progress towards this goal. The cash and cash equivalent, short term
investments available at subsidiary level were €1,160 million, €934 million and
€1,014 million respectively in March 2003, 2004 and September 2004.
TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS
Following the coming into force of European Regulation nº 1606/2002, European
listed companies are required to adopt International Financial Reporting
Standards (IFRS/IAS) in the preparation of their Consolidated Financial
Statements covering periods beginning on or after 1 January 2005. Consequently,
ALSTOM Consolidated Financial Statements covering the period beginning 1 April
2005 will be presented according to IFRS, together with comparative information
related to the previous period converted to the same standards.
The working group set up in fiscal year 2004 has moved forward on the
implementation of these new standards. Main decisions have been taken on the
Group will apply the rules and implement the IFRS. A comprehensive training
programme has been prepared and more than 800 accountants of the Group are
currently attending training all over the world.
The Group is re-writing its Reporting and Accounting Manual to reflect IFRS.
Detailed unit submissions of the opening IFRS balance sheet as at 31 March 2004
will be made in the second half of fiscal year 2005 where September 2004
comparatives will also be produced. These submissions will be subject to
detailed reviews and consolidations in order to prepare for full implementation
of IFRS in April 2005. The first accounts under IFRS will be the 6 month period
ended 30 September 2005.
OFF BALANCE SHEET COMMITMENTS
The following table sets forth our off-balance sheet commitments, which are
discussed further at Note 18 to our Interim Consolidated Financial Statements:
--------------------------------------------------------------------------------
TOTAL GROUP
ACTUAL FIGURES
(IN € MILLION) At 30 Sept. At 31 Mar. At 30 Sept.
2003 2004 2004
----------- ---------- -----------
Guarantees related to contracts 8,206 8,169 7,829
Guarantees related to vendor financing 643 640 441
Discounted notes receivables 9 6 40
Commitments to purchase fixed assets - - 2
Other guarantees 49 43 12
----------- ---------- -----------
OFF BALANCE SHEET COMMITMENTS 8,907 8,858 8,324
--------------------------------------------------------------------------------
GUARANTEES RELATED TO CONTRACTS
The overall amount given as guarantees on contracts decreased to €7,829 million
in September 2004 compared with €8,169 million in March 2004 mainly due the
disposal of our T&D activities.
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 not committed to provide any vendor financing
guarantees to our customers since fiscal year 1999.
The following table sets forth our vendor financing exposure (defined as the
total of on- and off-balance sheet) as at 30 September 2004 and 31 March 2004 :
--------------------------------------------------------------------------------------------------------------------------
TOTAL Translation EXPOSURE AT
ACTUAL FIGURES EXPOSURE AT Reimburs. of Decrease in and other 30 SEPT.
(IN € MILLION) 31 MAR. 2004 cash deposit guarantees adjustments 2004
----------------------------------------------------------------------------
MARINE 643 (24) (48) (4) 567
Cruiseinvest 323 (10) 313
Festival 185 (24) (48) 7 120
Others 135 (1) 134
TRANSPORT 321 (9) 312
European metro operator 266 (8) 258
Others 55 (1) 54
OTHER SECTORS 5 5
----------------------------------------------------------------------------
TOTAL VENDOR FINANCING EXPOSURE 969 (24) (48) (13) 884
--------------------------------------------------------------------------------------------------------------------------
RENAISSANCE
The vendor financing granted to Cruiseinvest relating to ships sold to
Renaissance Cruises amounted to €313 million at 30 September 2004, €323 million
at 31 March 2004 and €344 million at 30 September 2003. ALL the eight former
Renaissance ships resumed operations on or before July 2003 and are operated by
their charterers.
FESTIVAL
Further to Festival's failure to meet its financial obligations towards the
owners of the three cruise-ships previously built by Marine and operated by
Festival as charterer, these three ships were seized in January 2004 by the
concerned financial institutions for two ships (European Vision and European
Stars) and by the owner AMJ31 (guaranteed by ALSTOM) for the other ship
(Mistral). Festival's financial difficulties left a large number of creditors
unpaid and the three ships were sold in the first half of fiscal year 2005 by
judicial auction in the Courts of their respective places of arrest. European
Vision and European Stars were then acquired by MSC Cruises, and Mistral by Auro
Shipping, a company belonging to ALSTOM.
The acquisition of European Vision and European Stars by MSC Cruises has
decreased ALSTOM vendor financing exposure mainly by the reimbursement of a cash
deposit of €24 million and the release of a guarantee of €48 million following
the sale of these ships (see Notes 9 and 18a(2) to our Interim Consolidated
Financial Statement).
PROVISIONS ON RENAISSANCE AND FESTIVAL
We maintained a provision of €132 million at 30 September 2004 to cover risks
associated with Marine vendor financing. This decrease compared with 31 March
2004 was due to the consolidation of the SPE with a negative equity of €(8)
million that was covered by €8 million of the initial provision of €140 million.
IMPACT ON VENDOR FINANCING OF THE CONSOLIDATION OF THE SPE
We have consolidated during the first half of fiscal year 2005 our Special
Purpose Entities. Some of them own the ships on which we have a vendor financing
exposure. Nevertheless the accounting treatment of these SPE has no impact on
our total exposure. Our exposure is in general limited to the guarantees given
or to our investment and does not amount to total assets of these SPE. The
consolidation of these SPE has increased our assets by €762 million as shown in
the following table (See Note 16 to our Interim Consolidated Financial
Statements), nevertheless our total contractual exposure on these assets is
limited to €219 million at 30 September 2004 :
------------------------------------------------------------------
TOTAL IMPACT ON Of which
ACTUAL FIGURES ASSETS OF maximum
(IN € MILLION) CONSO SPE exposure
-------------------------------
MARINE 762 219
Cruiseinvest 106 50
Festival 249 120
Others 407 49
TRANSPORT N/A N/A
European metro operator n/a n/a
Others n/a n/a
OTHER SECTORS N/A N/A
-------------------------------
TOTAL SPE ASSETS 762 219
------------------------------------------------------------------
In order to facilitate the reading of our Interim Consolidated Financial
Statements, we present here after the reconciliation of our total exposure with
the amounts disclosed in our Financial Statements after the consolidation of
these SPEs :
--------------------------------------------------------------------------------------------------------------------------
TOTAL Max exp.on Long term Off Balance EXPOSURE AT
ACTUAL FIGURES assets conso loans and 30 SEPT.
(IN € MILLION) SPE (1) deposits (2) Sheet (3) (1)+(2)+(3)
---------------------------------------------------------------
MARINE 219 224 124 567
Cruiseinvest 50 224 39 313
Festival 120 120
Others 49 85 134
TRANSPORT 312 312
European metro operator 258 258
Others 54 54
OTHER SECTORS 5 5
---------------------------------------------------------------
TOTAL VENDOR FINANCING EXPOSURE 219 224 441 884
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We have funded Cruiseinvest by limited recourse notes for a total of €224
million (See Note 9 to our Interim Consolidated Financial Statements). Our
remaining off balance sheet guarantees were €441 million as at 30 September 2004
(See Note 18a(2) to our Interim Consolidated Financial Statements).
OTHER RISKS
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 train 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 began an inquiry which
is still on going.
UK TRAINS
The West Coast Main Line service, using high speed tilting trains supplied by
ALSTOM, was successfully launched by Virgin on 26 September 2004. Fifty-one of
the fifty-three trains ordered have been delivered. Remaining work on the train
build contract involves bringing two test trains to passenger service standards.
Discussions to avoid litigation over this contract have now successfully
concluded and an agreement has been signed with the customer, but approval of
the appropriate authorities is still being sought.
CLAIMS RELATING TO DISPOSALS
From time to time the Group disposes of certain businesses or business segments.
As is usual certain acquirers make claims against the Group as a result of price
adjustment mechanisms and warranties generally foreseen in the sale agreements.
The Group has received a number of demands from the acquirer following the
disposal of the T&D Sector, including with respect to investigation by the
European Commission of alleged anti-competitive arrangements among suppliers in
certain T&D activities. It is not possible to estimate the amount of potential
liability of the Group with respect to these claims, which, if decided
adversely, may have a material adverse impact on the consolidated financial
statements.
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 €49 million for the first half of fiscal year 2005 and €43
million for the first half Of fiscal year 2004.