Channel NewsAsia

Alstom reports strong rail activities, shares rally

French engineering group Alstom reported sales and order figures on Wednesday (July 23) which fit its strategy, controversial in France, of selling energy assets to focus on being a world leader in rail equipment.

PARIS: French engineering group Alstom reported sales and order figures on Wednesday (July 23) which fit its strategy, controversial in France, of selling energy assets to focus on being a world leader in rail equipment.

The company, a top name in French industry which is to sell power assets to GE, has taken record orders thanks to a huge rail contract in South Africa, and said it expected the rail division to do well. But its energy division is still suffering because of weak demand in the power-generation industry, it said a month after agreeing a tie-up with US group General Electric which was highly controversial in France.

The sales figures showed an overall fall of 4.0 per cent to 4.34 billion euros (US$5.8 billion) in the quarter to the end of June, which marks the first quarter of its 2014-2015 financial year. Shares in the group were showing a gain of 1.84 per cent to 27.90 euros in early trading. The overall French market as measured by the CAC 40 index was up 0.44 per cent.

However, the outcome was slightly below analysts' expectations, and reflected a 13.0-per cent fall in sales by the thermal power division, a 17.0-per cent fall by the renewable energy activities and a 9.0-per cent fall by the electrical network operations.

New orders taken by the thermal power division, part of which is to be sold to US group General Electric, also suffered. But orders taken by the entire group doubled from the equivalent figure last year to 8.2 billion euros, with a strong performance by the rail division which Alstom, builder of TGV high-speed trains, now intends to make its main business and the world leader. Under its agreements with GE, it is to buy GE's rail signalling activities.

"From 1 April to 30 June 2014, Alstom booked 8.2 billion euros of orders, twice the level of the first quarter last year," the group said in a statement. "This record performance derives essentially from a contract with PRASA in South Africa booked in transport for around 4 billion euros, as well as a good flow of orders in renewable power and grid."

The South African order, worth about 4.0 billion euros, is for 600 trains for urban-region rail services, and for maintenance and spare parts for 18 years. This takes the total order book to 56 billion euros at the end of June, representing two and a half years of work.

STRONG START TO YEAR

Chief executive Patrick Kron said that the "first quarter's orders made for a strong start of the year, thanks to transport which maintained a good commercial dynamic." He said: "We expect transport to achieve a good commercial performance this year with sales to grow organically at a sustained pace." Referring to the agreements with GE, he said: "We expect to call for a shareholders' meeting before the end of 2014 for a decision on the deal."

Alstom is in the process of selling its power-generation turbine business to General Electric with which it is also to tie-up energy ventures as a result of controversial negotiations last month. The French government, which was initially hostile to a GE takeover of Alstom's energy assets, has taken an option to become a shareholder in Alstom, a pillar of French industry.

Alstom, which was under pressure on the stock market and from looming financial strains, had said it had to restructure its business because it was not big enough in the global market for power generation, and also because of weak demand in its main energy market in Europe. But the group had already offered part of its rail operations for sale, before GE emerged as a serious bidder for power assets.

Alstom did not offer forecasts for its performance this year, but said that the growth of 17.0 per cent of sales in the first quarter would not be sustained throughout the year.

Tweet photos, videos and updates on this story to  @channelnewsasia