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 May 2005
Commission File Number: 1-14836
ALSTOM
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(Translation of registrant's name into English)
3, avenue André Malraux, 92300 Levallois-Perret, France
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(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
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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)(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 May 16, 2005, "ALSTOM and Dongfang Electric Win Ling AO
Phase 2 2000 MW Steam Turbine-Generator Package Order"
Press release dated May 24, 2005, "ALSTOM and LØGSTØR RØR Sign an
Agreement for the Sale of ALSTOM's Flowsystems Business"
Press release dated May 31, 2005, "Full Year Results 2004/05 (1st April 2004 -
31st March 2005)"
Consolidated Financial Statements for Fiscal Year 2004/2005
Management Discussion and Analysis on Consolidated Financial Statements dated
March 31, 2005.
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: June 3, 2005 By: /s/ Henri Poupart-Lafarge
-----------------------------------
Name: Henri Poupart-Lafarge
Title: Chief Financial Officer
16 May 2005
ALSTOM AND DONGFANG ELECTRIC WIN LING AO PHASE 2 2000 MW STEAM
TURBINE-GENERATOR PACKAGE ORDER
This strengthens the Company's position in China's nuclear
conventional island market
ALSTOM has won a contract worth more than €80 million with Dongfang Electric
Group Corporation (DEC) for its part in the supply of two 1000 MW Arabelle steam
turbine and generator packages for phase II of construction at Ling Ao nuclear
power station, run by China Guangdong Nuclear Power Corporation (CGNPC), in
Shenzhen, China.
This partnership reinforces the leadership position of ALSTOM and its
technologies in China's nuclear conventional island market. It is the third
significant nuclear power contract ALSTOM has won in China in recent years.
Previously, the company has recorded two major contracts for the supply of Daya
Bay and Ling Ao nuclear power stations.
ALSTOM's Arabelle steam turbine is the only state-of-the-art, proven technology
covering 1000 MW to 1800 MW range. Its configuration gives high overall
efficiency, extended design lifetime, short overhaul periods, and low
maintenance costs. Arabelle can operate with any type of nuclear island
configuration.
ALSTOM is the world's No.1 supplier of nuclear steam turbines and generators.
With over 40 years' experience and 175 units installed in more than 12
countries, ALSTOM technology is present in over a third of the world's total
installed nuclear capacity.
Winning of the Ling Ao Phase II project builds on ALSTOM's successful execution
of Ling Ao Phase I project. As the design and supply contractor for the two
units of the Phase I project, ALSTOM contributed to the commercial inauguration
of Unit 1 and the Unit 2 in 2002, respectively 48 days and 66 days earlier than
the dates specified in the contract.
Philippe Joubert, President of ALSTOM's Power Turbo Systems and Power
Environment Sectors, said : "ALSTOM is very pleased to be chosen by our Chinese
partner and customer to serve this key project in China's programme of nuclear
power generation. It confirms ALSTOM's position as a key worldwide player and
technology leader in conventional islands for nuclear power plants and its
commitment to participate, alongside Chinese partners, to the ambitious
development of power generation in China."
Press relations: G. Tourvieille / Séverine Gagneraud
(Tél. +33 1 41 49 27 13 / 27 40)
internet.press@chq.alstom.com
Investor relations: E. Chatelain
(Tél. +33 1 41 49 37 38)
Investor.relations@chq.alstom.com
24 May 2005
ALSTOM AND LØGSTØR RØR SIGN AN AGREEMENT FOR THE
SALE OF ALSTOM'S FLOWSYSTEMS BUSINESS
ALSTOM and LØGSTØR RØR Holding A/S have signed an agreement regarding the sale
of ALSTOM's Flowsystems business to LØGSTØR. ALSTOM's Flowsystems Business is
headquartered in Fredericia (Denmark) and has units in Sweden, Poland, Finland,
Lithuania, Germany, Austria, France, Italy and Holland. FlowSystems is currently
part of ALSTOM's Power Service Sector.
This operation is subject to its approval by the relevant competition
authorities and therefore closing could be anticipated before the end of June.
Flowsystems manufactures and sells insulated pipe systems for district heating
to approximately 40 countries and recorded sales of €150 million in 2004/05,
mainly in Northern and Central Europe. It employs approximately 600 persons.
LØGSTØR manufactures and sells similar products and is headquartered in Løgstør
(Denmark).
Press relations: S. Gagneraud / G. Tourvieille
(Tél. 01 41 49 27 40)
internet.press@chq.alstom.com
Investor Relations: E. Châtelain
(Tél. 01 41 49 37 38)
investor.relations@chq.alstom.com
PRESS INFORMATION
31st May 2005
FULL YEAR RESULTS 2004/05
1st April 2004 - 31st March 2005
ALSTOM's recovery is clearly reflected in the FY04/05 results:
o Orders received of €15.8 billion, up 15 per cent on a comparable basis
from FY03/04
o Operating income at €550 million, multiplied by three on a comparable
basis versus €168 million in the previous fiscal year; operating margin
up from 1.2 per cent in FY03/04 to 4.0 per cent in FY04/05
o Net losses cut in half to €0.86 billion from €1.84 billion in FY03/04 in
spite of significant non-recurring charges
o Net debt strongly reduced during the fiscal year, down to €1.4 billion
from €3.7 billion
o Free Cash Flow showing strong improvement at -€170 million versus -€1007
million in the last fiscal year
o Liquidity reinforced due to the financial consolidation undertaken
during the fiscal year
2005/06 objectives confirmed:
o 6 per cent operating margin leading to a return to profitability
o Positive Free Cash Flow with continuing debt reduction
The Board, in its meeting held on 30th May 2005, has approved the accounts for
the fiscal year 2004/05. Commenting on these results, Patrick Kron, Chairman &
Chief Executive Officer said:
"The results we are presenting today clearly demonstrate the ongoing recovery of
ALSTOM. All key indicators are in line with, or better than the guidance
previously given. These results enable us to confirm the FY 2005/06 targets
announced in March 2003 when we launched our recovery plan: an operating margin
of 6 per cent leading to a return to profitability and a positive Free Cash
Flow.
Customers' renewed confidence in ALSTOM is clearly evidenced by €15.8 billion of
orders, up 15 per cent on a comparable basis from FY03/04. This positive trend
is not only quantitative but also qualitative. Margins on orders booked continue
to improve; those in our current order book, which represents two years of
sales, are in line with the profitability targets announced for the
ALSTOM - 3 avenue André Malraux - 92309 Levallois-Perret cedex -
Tel : 33 (0)1 41 49 27 40 - Fax : 33 (0)1 41 49 79 35
PRESS INFORMATION
Group and its operational Sectors. On a geographical basis, the commercial
success achieved in markets with strong growth potential is encouraging. Chinese
orders reached €1.6 billion, more than twice the level of the previous year, and
orders from India were close to €0.5 billion.
Our operational performance is greatly enhanced: the GT24/GT26 heavy-duty gas
turbine issue is now resolved, with the remaining disbursements fully reserved.
Agreements with our customers have been reached on 74 out of the 76 turbines
sold. New orders - for a total of seven machines - have been secured in Spain
and in Thailand, and new tenders are under review in several countries. We have
actively pursued our cost-cutting programme; a set of restructuring measures,
aimed at adapting our industrial and engineering capacity and improving our
overall efficiency has led to a reduction of the workforce by 11,500 (8,000
departures to date), which should bring an annual reduction in costs of €500
million. We have focused on the improvement of contract execution, adapting our
manpower, organisation and internal controls. These actions have allowed us, in
spite of the low level of sales resulting from low order intake 12 to 18 months
ago, to significantly increase our operational income, with the operating
margin, on a comparable basis, rising from 1.2 per cent to 4 per cent. Our Free
Cash Flow is also considerably better with net cash outflow reduced from €1,007
million last financial year to €170 million in 2004/05 - out of which €366
million were spent as part of the settlement of the GT24/26 problem.
Thanks to our ongoing disposal programme and to the capital increases which took
place in July 2004, our net debt has been significantly reduced, from €3.7
billion to €1.4 billion in March 2005. The successful refinancing undertaken in
February 2005 and our current headroom (our cash at holding company level and
the available undrawn credit lines at 31 March 2005 stood at €2 billion) give us
a considerable buffer to cover our future liquidity needs.
The progress achieved makes us confident for the future. The ambitious
objectives we have set for March 2006 are thus confirmed: an operating margin of
6 per cent allowing for the return to profitability and a positive Free Cash
Flow. Obviously we intend to further improve our performance beyond our current
financial year: operating margin at the end March 2008 should be up by one or
two percent, reaching 7 to 8 percent, and Free Cash Flow, thanks to a strict
management of working capital, should also continue to show strong growth. Thus,
from a significantly stronger base, ALSTOM will pursue an ambitious and
profitable development strategy in its growing markets.
ALSTOM - 3 avenue André Malraux - 92309 Levallois-Perret cedex -
Tel : 33 (0)1 41 49 27 40 - Fax : 33 (0)1 41 49 79 35
PRESS INFORMATION
ALSTOM's recovery is clearly reflected in the FY04/05 results
Key financial figures
The following tables set out, on a consolidated basis, some of our key
financial and operating figures:
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Total Group % Variation % Variation
Actual figures* Year ended 31 March March 04/ March 05/
(in € million) 2003 2004 2005 March 03 March 04
-------- -------- -------- ----------- -----------
Order backlog 30,330 25,368 27,203 (16%) 7%
Orders received 19,123 16,500 15,841 (14%) (4%)
Sales 21,351 16,688 13,662 (22%) (18%)
Operating income (loss) (507) 300 550
Operating margin (2.4%) 1.8% 4.0%
Net income (loss) (1,432) (1,836) (865)
Free Cash Flow (265) (1,007) (170)
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Total Group % Variation % Variation
Comparable figures* Year ended 31 March March 04/ March 05/
(in € million) 2003 2004 2005 March 03 March 04
-------- -------- -------- ----------- -----------
Order backlog 26,180 24,792 27,203 (5%) 10%
Orders received 13,774 13,776 15,841 0% 15%
Sales 16,107 14,202 13,662 (12%) (4%)
Operating income (loss) (581) 168 550
Operating margin (3.6%) 1.2% 4.0%
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* French GAAP
Orders up 15 per cent as compared with previous fiscal year
During fiscal year 2004/05, we faced contrasted markets. Demand for new power
generation equipment in Asia and particularly in China and India remained strong
by contrast to the United States and some European countries, where demand
remained very low. As a result of the increasing importance of environmental
concerns, demand for environmental control equipment remained strong. In the
field of Rail Transport, the European market has provided opportunities in
Italy, Spain and France while the German and UK markets have been slower; the
Asia market has been strong. The cruise ship market has become more active.
ALSTOM - 3 avenue André Malraux - 92309 Levallois-Perret cedex -
Tel : 33 (0)1 41 49 27 40 - Fax : 33 (0)1 41 49 79 35
PRESS INFORMATION
The strong rebound in our commercial activity illustrates the return of customer
confidence: we have booked €15.8 billion of orders in fiscal year 2004/05, an
increase of 15 per cent compared with fiscal year 2003/04 on a comparable basis,
with all of our Sectors contributing to this increase. Of note among the main
orders received are an order received in November 2004 for four new GT26
heavy-duty gas turbines in Thailand (the second order for these machines
following an order received in Spain in January 2004), a contract in China for
passenger trains (Electrical Multiple Units) and an order for two cruise ships.
Our backlog was €27 billion at 31 March 2005, representing approximately two
years of sales.
Sales impacted by low level of orders in 2003
Sales were €13.6 billion in fiscal year 2004/05, decreasing by 4 per cent
compared with fiscal year 2003/04 on a comparable basis, mainly in our Power
Turbo-Systems / Power Environment and Marine Sectors, due to the impact of the
low level of orders in the second half of fiscal year 2002/03 and in the first
half of fiscal year 2003/04. Sales in other Sectors increased on a comparable
basis.
Operating income improving strongly as a result of continuing cost reduction
and improvement in contract execution
Our operating income in fiscal year 2004/05 was €550 million or 4.0 per cent of
sales, as compared with €168 million or 1.2 per cent of sales in fiscal year
2003/04 on a comparable basis. This strong improvement of our operating margin
despite a lower level of sales is notably due to a reduction in our cost base
and to improved performance in the execution of our contracts.
Net loss cut in half
Net results showed a loss of €865 million, resulting notably from the high level
of restructuring charges (€358 million), financial expenses (€346 million) and
tax expenses (€203 million) from the write-off of deferred tax assets. The net
loss was cut in half compared with €1,836 million in fiscal year 2003/04.
Free Cash Flow
Our Free Cash Flow was negative at -€170 million in fiscal year 2004/05,
improving strongly despite cash outflows of €366 million related to GT24/GT26
gas turbines and the high level of restructuring and financial cash outflows.
This progress was derived from a further improvement of our working capital in
all Sectors excluding Marine.
ALSTOM - 3 avenue André Malraux - 92309 Levallois-Perret cedex -
Tel : 33 (0)1 41 49 27 40 - Fax : 33 (0)1 41 49 79 35
PRESS INFORMATION
Further scope adjustments
After the disposals of the Transmission & Distribution Sector and the Industrial
Turbines activity carried out during fiscal year 2003/04, we have continued our
disposal programme during fiscal year 2004/05, in line with the commitments made
to the European Commission.
With respect to the disposals identified in May 2004:
- the locomotives manufacturing unit of Valencia, Spain, has been sold to
Vossloh.
- the sale of our transport activities in Australia and New Zealand is in final
negotiation.
- the disposal of our industrial boiler business is underway.
As for the other disposals needed to reach the total activity turnover of
approximately €1.5 billion as agreed with the European Commission:
- an agreement has just been signed for the sale of our Flowsystems activity.
- miscellaneous activities have been sold in Australia.
- the sale of Power Conversion has been launched.
The completion of these disposals should cover our commitment made to the
European Commission with respect to disposals of industrial activities.
Net debt strongly reduced
Net debt was reduced during the fiscal year to €1.4 billion on 31 March 2005
compared with €3.7 billion. This significant decrease is due to the capital
increases and the proceeds of the disposals.
Bonding
We have syndicated our 2-year bonding programme launched in July 2004 with 17
banks, for a total of €7.4 billion. This program, together with the additional
bilateral lines obtained recently, should cover our needs until July 2006.
ALSTOM - 3 avenue André Malraux - 92309 Levallois-Perret cedex -
Tel : 33 (0)1 41 49 27 40 - Fax : 33 (0)1 41 49 79 35
PRESS INFORMATION
Sector Review
Power Turbo-Systems / Power Environment
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Power Turbo-Systems / Power
Environment % Variation % Variation
Actual figures* Year ended 31 March March 04/ March 05/
(in € million) 2003 2004 2005 March 03 March 04
-------- -------- -------- ----------- -----------
Order backlog 7,308 6,448 7,139 (12%) 11%
Orders received 4,404 5,107 5,181 16% 1%
Sales 6,955 5,059 4,256 (27%) (16%)
Operating income (loss) (1 175) (253) (35)
Operating margin (16.9%) (5.0%) (0.8%)
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
Power Turbo-Systems / Power
Environment % Variation % Variation
Comparable figures* Year ended 31 March March 04/ March 05/
(in € million) 2003 2004 2005 March 03 March 04
-------- -------- -------- ----------- -----------
Order backlog 7,062 6,395 7,139 (9%) 12%
Orders received 4,128 5,047 5,181 22% 3%
Sales 6,437 4,997 4,256 (22%) (15%)
Operating income (loss) (996) (251) (35)
Operating margin (15.5%) (5.0%) (0.8%)
-----------------------------------------------------------------------------------------
* French GAAP
Orders received in fiscal year 2004/05 by the Power Turbo-Systems / Power
Environment Sector were 3 per cent higher than in fiscal year 2003/04 on a
comparable basis, at €5.2 billion. The main improvements were due to the Hydro
and Utility Boiler businesses. From a geographical point of view, orders have
increased significantly in Asia, which provided 42 per cent of our orders
received in fiscal year 2004/05.
Sales in fiscal year 2004/05 decreased by 15 per cent on a comparable basis.
This was mainly due to the exceptionally low level of orders received during
fiscal year 2002/03 and during the first half of fiscal year 2003/04.
The operating loss of €35 million in fiscal year 2004/05 is strongly reduced
from the loss of €251 million recorded in fiscal year 2003/04, with operating
margin improving from -5 per cent to -0.8 per cent. This marked improvement
reflects a better portfolio of projects, improved project execution and a
reduction of costs.
ALSTOM - 3 avenue André Malraux - 92309 Levallois-Perret cedex -
Tel : 33 (0)1 41 49 27 40 - Fax : 33 (0)1 41 49 79 35
PRESS INFORMATION
Power Service
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Power Service % Variation % Variation
Actual figures* Year ended 31 March March 04/ March 05/
(in € million) 2003 2004 2005 March 03 March 04
-------- -------- -------- ----------- -----------
Order backlog 2,793 3,107 3,669 11% 18%
Orders received 2,934 3,023 3,228 3% 7%
Sales 2,678 2,747 2,844 3% 4%
Operating income (loss) 403 417 473
Operating margin 15.0% 15.2% 16.6%
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Power Service % Variation % Variation
Comparable figures* Year ended 31 March March 04/ March 05/
(in € million) 2003 2004 2005 March 03 March 04
-------- -------- -------- ----------- -----------
Order backlog 2,723 3,083 3,669 13% 19%
Orders received 2,775 2,967 3,228 7% 9%
Sales 2,579 2,690 2,844 4% 6%
Operating income (loss) 426 410 473
Operating margin 16.5% 15.3% 16.6%
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* French GAAP
The power service market remained sound in fiscal year 2004/05. Orders received
amounted to €3.2 billion, 9 per cent higher than fiscal year 2003/04 on a
comparable basis. They remained at a high level despite the fact that a limited
number of long-term maintenance contracts were booked over the fiscal year.
Sales continued to increase at €2.8 billion.
The operating margin, at 16.6 per cent of sales, benefited from increased sales
in the more profitable segments of the business and good contract execution.
ALSTOM - 3 avenue André Malraux - 92309 Levallois-Perret cedex -
Tel : 33 (0)1 41 49 27 40 - Fax : 33 (0)1 41 49 79 35
PRESS INFORMATION
Transport
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Transport % Variation % Variation
Actual figures* Year ended 31 March March 04/ March 05/
(in € million) 2003 2004 2005 March 03 March 04
-------- -------- -------- ----------- -----------
Order backlog 14,676 14,321 14,489 (2%) 1%
Orders received 6,412 4,709 5,490 (27%) 17%
Sales 5,072 4,862 5,134 (4%) 6%
Operating income (loss) (24) 64 260
Operating margin (0.5%) 1.3% 5.1%
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-----------------------------------------------------------------------------------------
Transport % Variation % Variation
Comparable figures* Year ended 31 March March 04/ March 05/
(in € million) 2003 2004 2005 March 03 March 04
-------- -------- -------- ----------- -----------
Order backlog 14,283 13,945 14,489 (2%) 4%
Orders received 6,054 4,687 5,490 (23%) 17%
Sales 4,877 4,836 5,134 (1%) 6%
Operating income (loss) (8) 71 260
Operating margin (0.2%) 1.5% 5.1%
-----------------------------------------------------------------------------------------
* French GAAP
During fiscal year 2004/05, the market remained active in Europe and in Asia,
especially in China where we were awarded a large contract for mainline
passenger rolling stock. The market for urban transport has been sound and we
were awarded several contracts in Europe, North America and South America. We
also recorded significant successes in intercity and freight rolling stock, with
orders for regional trains in Italy and Belgium and locomotives for France.
Orders received by Transport in fiscal year 2004/05 amounted to €5.5 billion, up
17 per cent on a comparable basis, mainly due to a higher order intake in Asia
and in Southern Europe.
Sales increased by 6 per cent at €5.1 billion. The main contributor to this
sales increase was Europe.
The operating margin amounted to 5.1 per cent of sales versus 1.5 per cent on a
comparable basis for the previous fiscal year, mainly due to better project
execution and continued cost reduction.
ALSTOM - 3 avenue André Malraux - 92309 Levallois-Perret cedex -
Tel : 33 (0)1 41 49 27 40 - Fax : 33 (0)1 41 49 79 35
PRESS INFORMATION
Marine
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Marine % Variation % Variation
Actual figures* Year ended 31 March March 04/ March 05/
(in € million) 2003 2004 2005 March 03 March 04
-------- -------- -------- ----------- -----------
Order backlog 1,523 817 1,266 (46%) 55%
Orders received 163 381 1,104 134% 190%
Sales 1,568 997 630 (36%) (37%)
Operating income (loss) 24 (19) (103)
Operating margin 1.5% (1.9%) (16.3%)
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-----------------------------------------------------------------------------------------
Marine % Variation % Variation
Comparable figures* Year ended 31 March March 04/ March 05/
(in € million) 2003 2004 2005 March 03 March 04
-------- -------- -------- ----------- -----------
Order backlog 1,523 817 1,266 (46%) 55%
Orders received 163 381 1,104 134% 190%
Sales 1,568 997 630 (36%) (37%)
Operating income (loss) 24 (19) (103)
Operating margin 1.5% (1.9%) (16.3%)
-----------------------------------------------------------------------------------------
* French GAAP
In fiscal year 2004/05, the shipbuilding market experienced an increased level
of orders, both for cruise ships and LNG tankers.
Orders received during fiscal year 2004/05 by our Marine Sector reached €1.1
billion and sales amounted to €630 million, reflecting the low level of orders
during previous fiscal years.
A charge of approximately €50 million related to the difficulties experienced in
the construction of an LNG tanker for Gaz de France, along with the
under-activity during this fiscal year, have led to an operating loss of
€103 million. Strengthening the order book and strongly reducing costs are the
priorities of the Marine Sector.
ALSTOM - 3 avenue André Malraux - 92309 Levallois-Perret cedex -
Tel : 33 (0)1 41 49 27 40 - Fax : 33 (0)1 41 49 79 35
PRESS INFORMATION
Power Conversion
-----------------------------------------------------------------------------------------
Power Conversion % Variation % Variation
Actual figures* Year ended 31 March March 04/ March 05/
(in € million) 2003 2004 2005 March 03 March 04
-------- -------- -------- ----------- -----------
Order backlog 568 495 529 (13%) 7%
Orders received 533 434 579 (19%) 33%
Sales 523 499 539 (5%) 8%
Operating income (loss) 15 15 36
Operating margin 2.9% 3.0% 6.7%
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
Power Conversion % Variation % Variation
Comparable figures* Year ended 31 March March 04/ March 05/
(in € million) 2003 2004 2005 March 03 March 04
-------- -------- -------- ----------- -----------
Order backlog 539 487 529 (10%) 9%
Orders received 494 433 579 (12%) 34%
Sales 492 498 539 1% 8%
Operating income (loss) 17 15 36
Operating margin 3.5% 3.1% 6.7%
-----------------------------------------------------------------------------------------
* French GAAP
Orders received in fiscal year 2004/05 are up 34 per cent on a comparable basis
at €579 million, mainly due to two large orders in the UK marine activity. Sales
continued to increase at €539 million.
The operating margin, at 6.7 per cent, increased as a result of the actions
launched across businesses to improve performance, as well as better market
conditions.
ALSTOM - 3 avenue André Malraux - 92309 Levallois-Perret cedex -
Tel : 33 (0)1 41 49 27 40 - Fax : 33 (0)1 41 49 79 35
PRESS INFORMATION
Outlook
Fiscal year 2004/05 was a transition year. The encouraging results recorded
during this period enable us to confirm our objectives for financial year
2005/06 and, looking further ahead, target an operating margin of 7 to 8 per
cent in March 2008, a significant increase in Free Cash Flow and a continued
reduction of net debt.
Once our base is strengthened, we are determined to pursue a profitable
development strategy in the expanding markets where ALSTOM is already active.
Through partnerships wherever appropriate and advantageous, we intend to take
advantage of profitable growth opportunities, both in transport and energy,
particularly in Asia which shows the strongest growth potential in our
activities.
* * *
Press relations: S. Gagneraud / G. Tourvieille
(Tél. 01 41 49 27 40)
press@chq.alstom.com
Investor Relations: E. Châtelain
(Tél. 01 41 49 37 38)
investor.relations@chq.alstom.com
ALSTOM - 3 avenue André Malraux - 92309 Levallois-Perret cedex -
Tel : 33 (0)1 41 49 27 40 - Fax : 33 (0)1 41 49 79 35
PRESS INFORMATION
Forward-Looking Statements:
This press release contains, and other written or oral reports and
communications of ours may from time to time contain, forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. Examples of such forward-looking statements include, but are not
limited to (i) projections or expectations of sales, income, operating margins,
dividends, provisions, cash flow, debt or other financial items or ratios; (ii)
statements of plans, objectives or goals of the Group 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" and "will" and similar expressions are
intended to identify forward-looking statements but are not the 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
our 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 and increases of overall prices of raw
materials,; (iv) the effects of competition in the product markets and
geographic areas in which we operate; (v) our 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 our restructuring and cost reduction programmes; (viii)
continued capability 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 our action plan; (x) the results of the
investigations by the SEC; (xi) the outcome of the putative class action lawsuit
filed against us and certain of our 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 our 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; (xv) risks inherent in large contracts and/or
significant fixed price contracts that comprise a substantial portion of our
business; (xvi) the inherent difficulty in estimating our vendor financing risks
or exposure and other credit risks, which may notably be affected by customers'
payment defaults; (xvii) our ability to invest successfully in, and compete at
the leading edge of, technology developments across all of our sectors; (XVIII)
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; (xix) the effects of acquisitions and disposals generally
and the outcome of claims related to our disposals; (xx) the unusual level of
uncertainty at this time regarding the world economy in general; and (xxi) our
success in adjusting to and managing the foregoing risks.
We caution you that this list of important factors is not exhaustive; when
relying on forward-looking statements to make decisions with respect to us, you
should carefully consider the foregoing factors and other uncertainties and
events, as well as other factors described in other documents we file with or
submit to, from time to time, the SEC and/or the AMF, including our Annual
ALSTOM - 3 avenue André Malraux - 92309 Levallois-Perret cedex -
Tel : 33 (0)1 41 49 27 40 - Fax : 33 (0)1 41 49 79 35
PRESS INFORMATION
Report for the fiscal year ended 31 March 2004 and any update thereof . Such
forward-looking statements speak only as of the date on which they are made, and
we undertake no obligation to update or revise any of them, whether as a result
of new information, future events or otherwise.
ALSTOM - 3 avenue André Malraux - 92309 Levallois-Perret cedex -
Tel : 33 (0)1 41 49 27 40 - Fax : 33 (0)1 41 49 79 35
Consolidated financial statements
Fiscal year 2004 / 2005
ALSTOM
CONSOLIDATED INCOME STATEMENTS
Year ended 31 March
----------------------------------
Note 2003 2004 2005
---------- ---------- ----------
(in € million)
SALES (26) 21,351 16,688 13,662
Of which products 16,374 12,786 9,858
Of which services 4,977 3,902 3,804
Cost of sales (19,187) (14,304) (11,601)
Of which products (15,504) (11,353) (8,752)
Of which services (3,683) (2,951) (2,849)
Selling expenses ((970) (785) (545)
Research and development expenses ((622) (473) (336)
Administrative expenses (1,079) (826) (630)
---------- ---------- ----------
OPERATING INCOME (LOSS) (26) (507) 300 550
Other income (expenses), net (4) (555) (1,111) (583)
Other intangible assets amortisation (8) (67) (60) (59)
---------- ---------- ----------
EARNINGS (LOSS) BEFORE INTEREST AND TAX (26) (1,129) (871) (92)
Financial income (expense), net (5) (270) (460) (346)
---------- ---------- ----------
PRE-TAX LOSS (1,399) (1,331) (438)
Income tax (charge) credit (6) 263 (251) (203)
Share in net income (loss) of equity
investments 3 - -
Minority interests (15) 2 ((1)
Goodwill amortisation (7) (284) (256) (223)
---------- ---------- ----------
NET LOSS (1,432) (1,836) (865)
========== ========== ==========
Earnings per share in Euro
Basic (5.4) (4.1) (0.2)
Diluted (5.4) (4.1) (0.2)
The accompanying Notes are an integral part of these
Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEETS
At At At At
31 March 31 March 1 April 31 March
Note 2003 2004 2004(1) 2005
-------- -------- -------- --------
(in € million)
ASSETS
Goodwill, net (7) 4,440 3,424 3,424 3,194
Other intangible assets, net (8) 1,168 956 956 909
Property, plant and equipment, net (9) 2,331 1,569 2,262 1,468
Investments in equity method investees
and other investments, net (10) 245 160 160 118
Other fixed assets, net (11) 1,294 1,217 1,102 1,264
-------- -------- -------- --------
Tangible, intangible and other fixed
assets, net 9,478 7,326 7,904 6,953
Deferred taxes (6) 1,831 1,561 1,561 1,370
Inventories and contracts in progress, net (12) 4,608 2,887 2,997 2,760
Trade receivables, net (13) 4,855 3,462 3,462 3,446
Other accounts receivables, net (15) 2,265 2,022 2,160 1,661
-------- -------- -------- --------
Current assets 11,728 8,371 8,619 7,867
Short term investments (18) 142 39 39 15
Cash and cash equivalents (19) 1,628 1,427 1,427 1,462
-------- -------- -------- --------
TOTAL ASSETS 24,807 18,724 19,550 17,667
======== ======== ======== ========
LIABILITIES
Shareholders' equity 758 29 29 1,182
Minority interests (20) 95 68 68 74
Bonds reimbursable with shares (17) - 152 152 133
Provisions for risks and charges (21) 3,698 3,489 3,484 3,156
Accrued pension and retirement benefits (22) 972 842 842 826
Financial debt (23) 6,331 4,372 5,199 2,907
Deferred taxes (6) 37 30 30 21
Customers' deposits and advances 3,541 2,714 2,714 3,150
Trade payables 4,629 3,130 3,130 2,992
Other payables (24) 4,746 3,898 3,902 3,226
-------- -------- -------- --------
Current liabilities 12,916 9,742 9,746 9,368
======== ======== ======== ========
TOTAL LIABILITIES 24,807 18,724 19,550 17,667
======== ======== ======== ========
Commitments and contingencies (27)&(28)
--------------------
(1) Amended opening balance sheet at 1 April 2004 pursuant to the first
application of the Règlement CRC 2004-03. See Note 2 (a)
The accompanying Notes are an integral part of these
Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended 31 March
---------------------------------
2003 2004 2005
--------- --------- ---------
(in € million)
Net loss (1,432) (1,836) (865)
Minority interests 15 (2) 1
Depreciation and amortisation 754 726 639
Changes in provision for pension and retirement
benefits, net 22 85 -
Net (gain) loss on disposal of fixed assets and
investments (19) (175) (51)
Share in net income (loss) of equity investees
(net of dividends received) (3) - -
Changes in deferred tax (424) 149 185
--------- --------- ---------
Net loss after elimination of non cash items (1,087) (1,053) (91)
Decrease (increase) in inventories and
contracts in progress, net 415 389 205
Decrease (increase) in trade and other
receivables, net 650 770 423
Increase (decrease) in sale of trade
receivables, net (661) (267) (87)
Increase (decrease) in provisions for risks and
charges 82 89 (301)
Increase (decrease) in customers' deposits and
advances (98) (1) 510
Increase (decrease) in trade and other
payables 162 (985) (786)
Changes in net working capital (1) 550 (5) (36)
--------- --------- ---------
Net cash provided by (used in) operating activities (537) (1,058) (127)
Proceeds from disposals of property, plant and
equipment 252 244 52
Capital expenditures (410) (254) (182)
Decrease (increase) in other fixed assets, net (2) (55) 125 (372)
Cash expenditures for acquisition of
investments, net of net cash acquired (166) (8) -
Cash proceeds from sale and de-consolidation
of investments, net of net cash sold (3) 38 1,454 928
--------- --------- ---------
Net cash provided by (used in) investing activities (341) 1,561 426
Capital increase 622 1,024 2,022
Issuance (conversion) of Bonds reimbursable
with shares - 152 (19)
Dividends paid including minorities (1) (3) (5)
--------- --------- ---------
Net cash provided by (used in) financing activities 621 1,173 1,998
Net effect of exchange rate (41) (7) 48
Net effect of new accounting pronouncement at
1st April 2004 (4) - - ( 827)
Other changes (5) (464) (14) (42)
--------- --------- ---------
Decrease (increase) in net debt (762) 1,655 1,476
--------- --------- ---------
Net debt at the beginning of the period (*) (3,799) (4,561) (2,906)
--------- --------- ---------
Net debt at the end of the period (*) (4,561) (2,906) (1,430)
========= ========= =========
Cash paid for income taxes 70 75 92
Cash paid for net interest (6) 254 275 204
------------------
(*) Net debt includes short-term investments and cash and cash equivalents net
of financial debt.
(1) See Note 16
(2) In the year ended 31 March 2005, 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 (see Note 11) partially offset by €328
million repayment of other long term deposits.
(3) 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 year year-ended 31 march 2005, the net proceeds of €928 million are
made of :
- proceeds of €207 million related to the completion of the disposal of
certain non significant entities of the former T&D Sector not yet sold at
31 March 2004 (see Note 3) and partial reimbursement of the receivables
retained at 31 March 2004.
- proceeds of €59 million related to the completion of the disposal of US
entities of the former Industrial Turbines business (see Note 3) and
partial reimbursement of the escrow accounts retained at 31 March 2004.
- Other proceeds net of net cash sold of €35 million including the disposal
of the freight locomotive business in Spain
- Net debt of €627 million sold as part of the disposal of one Special
Purpose Entity in the Transport Sector and the de-consolidation of Two
Special Purpose Entity in the Marine Sector consolidated at 1st April
2004 (see Note 3)
(4) Effect at 1st April 2004 on Financial debt pursuant to the first application
of the Règlement CRC 2004-03. See Notes 2(a) and 25.
(5) Including in the year-ended 31 March 2003 the reclassification in financial
debt of redeemable preference shares of a subsidiary and subordinated notes
totalling €455 millions (see Note 23)
(6) Including cash paid related to interest on securitisation of future
receivables
The accompanying Notes are an integral part of these
Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Number of | Additional Cumulative
In € million outstanding | Paid-in Retained Translation Shareholders'
Except for number of shares shares | Capital Capital Earnings Adjustment Equity
---------------------------- ------------ | ---------- --------- -------- ----------- -------------
At 1st April 2002 215,387,459 | 1,292 85 516 (141) 1,752
Capital increase 66,273,064 | 398 224 - - 622
Changes in Cumulative
Translation Adjustments _ | _ _ - (184) (184)
Net loss _ | _ _ (1,432) _ (1,432)
------------- | ---------- --------- -------- ---------- -----------
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 Adjustments - | - - - 74 74
Net loss - | - - (1,836) - (1,836)
------------- | ---------- --------- -------- ---------- -----------
At 31 March 2004 1,056,657,572 | 1,321 64 (1,105) (251) 29
Conversion of ORA (3) 15,473,425 | 14 5 - - 19
Conversion of TSDDRA (4) 240,000,000 | 300 - - - 300
Capital decrease (5) - | (1,175) (64) 1,239 - -
Capital increase (6) 4,185,080,412 | 1,464 261 - - 1,725
Changes in Cumulative
Translation Adjustments - | - - - (26) (26)
Net loss - | - - (865) - (865)
------------- | ---------- --------- -------- ---------- -----------
At 31 March 2005 5,497,211,409 | 1,924 266 (731) (277) 1,182
============= | ========== ========= ======== ========== ===========
--------------
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 Ordinary 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 and agreed, at
the General Shareholders' Meeting held on 2 July 2003, 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
were fully paid up.
At the Ordinary 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 31 March 2005
(3) During the period, 14,112,541 bonds reimbursable into shares "Obligation
Remboursables 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
the adjusted ratio of 1.2559 share for one bond, resulting in the issue of
15,473,425 new shares (see Note 17).
(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 Extraordinary General Shareholders' Meeting held on 9 July 2004 not to
liquidate the company by anticipation. Further, 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.
On 6 December 2004, the Group closed a share capital increase reserved for
its employees consisting of 49,814,644 new shares issued at a par value of
€0.35.
Related costs of €40 million (net of tax of €22 million) were charged against
additional paid in capital of €301 million.
At 31 March 2005, the share capital amounted to €1,924,023,993.15 consisting of
5,497,211,409 shares with a nominal value of €0.35 per share. All shares are
fully paid up.
The accompanying Notes are an integral part of these
Consolidated Financial Statements.
NOTES TO THE 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.
(b) Basis of preparation
The consolidated financial statements for year ended 31 March 2005 have been
prepared on the basis of the accounting principles generally accepted in France
and methods of computation as set out in Note 2.
During the year ended 31 March 2005 a number of issues concerning the financing
of the Group were resolved:
- The Group secured bonding and guarantee facilities to a maximum outstanding
amount of up to €8 billion of which €7.15 billion have already been committed
at 31 March 2005.
- Agreement was reached with the Group's banks on a new set of financial
covenants and amendments required to allow implementation to a 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 of €2,048 million
(before related costs) through cash injection and debt to equity swaps.
To respond to the European Commission requirements the Group has committed in
July 2004 to dispose of, over the next two years, businesses representing
approximately €1.5 billion in sales. The divestments include the industrial
boilers business which is part of the Power Turbo Systems/ Power Environment
Sector, Transport Sector's operations in Australia and New Zealand and freight
locomotive business in Spain (disposed at 31 March 2005 (see Note 3)), and other
activities/businesses now identified (see Note 32). In addition, the Group is
required to establish a 50-50 joint venture for Hydro power business and to
enter, within four years, into industrial partnerships. In the Transport Sector,
the Group must forgo acquisitions for four years in the European Union 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.
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 €3.5 billion, 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.
Note 2 - Summary of accounting policies
The Consolidated Financial Statements of the Group are prepared in accordance
with French Generally Accepted Accounting Principles and Règlement 99-02 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 27 (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
exercise of the control on an entity by cancelling the obligation to hold at
least one share in the controlled enterprise.
Consequently, the ss. 10052 of the Règlement 99-02 of the Comité de
Réglementation Comptable has been amended by Règlement 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 :
Consolidated Balance Sheet
At 31 March 2004
(As approved
by the
Shareholders'
meeting Impact of
On 9 July Règlement At
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 25
(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 33.
(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 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. Changes in the value of forward
exchange contracts are thus recognised in the results of the same period as
changes in the value of the underlying assets and liabilities.
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 27 (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;
- and 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 will record 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
2003 2004 2005
------------------- ------------------- -------------------
€ for 1 monetary unit Average Closing Average Closing Average Closing
----------------------- -------- -------- -------- -------- -------- --------
British pound 1.549571 1.450116 1.444363 1.501727 1.463325 1.452433
Swiss franc 0.682536 0.677323 0.646074 0.641272 0.650036 0.645745
US dollar 0.997990 0.917852 0.849427 0.818063 0.791901 0.771367
Canadian dollar 0.646284 0.623558 0.628913 0.625821 0.621966 0.635445
Australian dollar 0.563472 0.553220 0.591628 0.622975 0.585581 0.596552
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 25).
On 20 September 2004, the Group completed the disposal of one of these
entities financing sixty locomotives. The net debt associated with this
entity amounted to €243 million. This entity has been de-consolidated from
the date of disposal.
On 1st December 2004, the Group completed the disposal to a third party of
its loans to two entities financing two Cruise ships. From that date, the
Group concluded that the criterias of the Règlement CRC 2004-03, triggering
at 1st April 2004 the consolidation of these two entities, were no longer
met. The net debt associated with these entities amounted to €384 million.
These entities have been de-consolidated from 1st December 2004.
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. This business has been
de-consolidated from 1 April 2004.
o During the year ended 31 March 2005, following the obtaining 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. At 31 March 2005, the former T&D Indian units are still in the
process of being sold (see Note 32).
o On 31 March 2005, the Group completed the sale of its freight locomotive
business in Spain. This business has been deconsolidated from that date.
o During the year ended 31 March 2005, the Group disposed of its non core
Information Technology and Industrial products business in Australia.
No other significant changes in the scope of consolidated companies in
the year ended 31 March 2005 occurred.
Note 4 - Other income (expense), net
Year ended 31 March
--------------------------------------
2003 2004 2005
---------- ----------- ----------
(in € million)
Net gain on disposal of fixed assets (1) 29 13 8
Net gain (loss) on disposal of
investments (2) (35) (24) 1
Restructuring costs (3) (268) (655) ( 358)
Employees' profit sharing (18) (16) ( 8)
Pension costs (4) (214) (263) ( 175)
Others, net (5) (49) (166) ( 51)
---------- ----------- ----------
Other income (expense), net (555) (1,111) ( 583)
========== =========== ==========
-------------
(1) In the year ended 31 March 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 year ended 31 March 2003, it mainly corresponds to the net losses on
disposal of South Africa operations and Alstom Power Insurance Ltd.
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 totalling
€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 disposals of non significant
consolidated companies
In the year ended 31 March 2005 it mainly corresponds to the net gains on
disposal of activities including the freight locomotive business in Spain
offset by costs and provisions on guarantees, claims and price adjustments
on past disposals.
(3) In the year ended 31 March 2004, it corresponds to additional plans accrued
for a net amount of €628 million relating to downsizing of activities
including closure of plants or activities and reduction in employees in all
sectors except Marine and €27 million of write-off of assets. In the year
ended 31 March 2005, it corresponds to additional plans accrued for a net
amount of €343 million relating to the downsizing of activities including
closure of plants or activities and reduction in employees mainly in the
Power Turbo-Systems / Power Environment and Transport Sectors, and to €15
million of write-off of assets (see Note 21).
(4) See Note 22 "Retirement, termination and post-retirement benefits"
(5) In the year ended 31 March 2003, in addition to other non operating costs it
mainly include €15 million of costs related to past acquisition and disposal
of activities.
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 of €59 million, costs of existing or reorganising activities not
qualifying as restructuring costs of €34 million, and €10 million of costs
related to the capital increase.
In the year ended 31 March 2005, in addition to other non operating incomes
it mainly includes contract costs related to past acquisitions and disposal
of activities of €34 million, costs of exiting or reorganising activities
not qualifying as restructuring costs of €22 million.
Note 5 - Financial income (expense)
Year ended 31 March
-------------------------------------
2003 2004 2005
---------- ----------- ----------
(in € million)
Net interest expense (1) (264) (271) (208)
Foreign currency gain (loss) (2) 55 (19) (27)
Other financial expense (3) (61) (170) (111)
---------- ----------- ----------
Financial income (expense), net (270) (460) (346)
========== =========== ==========
--------------
(1) Including interests on securitisation of future receivables of €82 million,
€24 million and €19 million for the years-ended 31 March 2003, 2004 and 2005
respectively. The reduction of the net interest income (expense) mainly
results from the reduction of the level of net debt during the year-ended 31
March 2005.
(2) The foreign currency gain in the year ended 31 March 2003 mainly results
from the unwinding of forward sale contracts of US dollars against euros
following a reassessment of the financing structure in the USA.
(3) Other financial income (expenses), net include fees paid on guarantees,
syndicated loans and other financing facilities of €41 million , €125
million and €83 million for the years ended 31 March 2003, 2004 and 2005
respectively.
Note 6 - Income tax
(a) Analysis by nature and geographic origin
Year ended 31 March
-------------------------------------
2003 2004 2005
---------- ----------- ----------
(in € million)
France (3) (7) 14
Foreign (150) (95) (32)
---------- ----------- ----------
Current income tax (153) (102) (18)
France 8 14 (112)
Foreign 408 (163) (73)
---------- ----------- ----------
Deferred income tax 416 (149) (185)
---------- ----------- ----------
Income tax (charge) credit 263 (251) (203)
========== =========== ==========
(b) Effective income tax rate
Year ended 31 March
-------------------------------------
2003 2004 2005
---------- ----------- ----------
(in € million)
France (218) (796) ( 332)
Foreign (1,181) (535) (106)
---------- ----------- ----------
Pre-tax loss (1,399) (1,331) (438)
Statutory income tax rate of the
parent company 35.43% 35.43% 34,93%
Expected tax (charge) credit 496 472 153
Impact of:
- difference in rate of taxation (1) (110) 5 16
- reduced taxation of capital gain
(non recognised losses on
disposals) (2) 36 (172) (23)
- recognition (non recognition) of
deferred tax assets (3) (76) (377) (218)
- net change in estimate of tax
liabilities 35 (43) (38)
- intangible assets (22) (21) (18)
- other permanent differences (96) (115) (75)
---------- ----------- ----------
Income tax ( charge ) credit 263 (251) (203)
---------- ----------- ----------
Effective tax rate - - -
========== =========== ==========
---------------
(1) At 31 March 2003, the effective income tax rate was affected by the lower
rate of taxation in Switzerland.
(2) At 31 March 2004, it was affected by the reduced taxation of capital gain.
(3) In all years the effective tax rate was principally affected by the
non-recognition of deferred tax assets resulting from the generation of
losses.
The Group consolidates most of its country operations for tax purposes,
including in France, the United Kingdom, the United States, and Germany.
The basis of tax loss carry forward by maturity is as follows :
At 31 March At 31 March At 31 March
2003 2004 2005
----------- ------------ -----------
(In € million)
Expiring within 1 year 221 20 36
2 years 66 15 26
3 years 157 75 34
4 years 507 80 182
5 years and more 2,873 1,999 1,532
Not subject to expiration 1,501 2,293 2,679
----------- ------------ -----------
Total 5,325 4,482 4,489
=========== ============ ===========
The basis of tax losses carry forward after valuation allowance amounts to
€1,721 million ; of this amount €453 million expires within 15 years or more and
€723 million is not subject to expiry.
The losses incurred over the last three years have led to a detailed review 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 a valuation allowance on deferred tax assets of €948 million at 31 March
2005 (€730 million at March 31 2004). Most of the deferred tax assets currently
subject to valuation allowance remain available to be utilised in the future.
The deferred tax assets and liabilities are made up as follows :
At 31 March
-------------------------------------
2003 2004 2005
---------- ----------- ----------
(in € million)
Accelerated depreciation 48 54 78
Intangible assets 245 337 338
Profit sharing, annual leave and pension
accrual not yet deductible 113 89 89
Provisions and other expenses not
currently deductible 535 512 482
Contract provisions taxed in advance 110 38 55
Tax loss carry forwards 1,755 1,510 1,504
Others 149 161 100
---------- ----------- ----------
Gross Deferred tax assets 2,955 2,701 2,646
---------- ----------- ----------
Valuation allowance (365) (730) (948)
---------- ----------- ----------
Netting by tax grouping or by legal entity (759) (410) (328)
---------- ----------- ----------
Deferred tax assets 1,831 1,561 1,370
========== =========== ==========
Accelerated depreciation for tax purposes (81) (63) (50)
Contract revenues not currently taxable (255) (132) (126)
Losses on inter company transfers (34) (4) (4)
Deferred income related to leasing
transactions (60) (67) (16)
Inventory valuation methods (49) (22) (9)
Pensions and other adjustments not
currently taxable (91) (57) (25)
Provisions and other expenses deducted in
advance (226) (95) (119)
---------- ----------- ----------
Gross Deferred tax liabilities (796) (440) (349)
---------- ----------- ----------
Netting by tax grouping or by legal entity 759 410 328
---------- ----------- ----------
Deferred tax liabilities (37) (30) (21)
---------- ----------- ----------
Net deferred tax 1,794 1,531 1,349
========== =========== ==========
The Group is satisfied as to the recoverability of the deferred tax assets, net
at 31 March 2005 of €1,349 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. On the basis of an extrapolation of the Company's three
years business plan, it is estimated that around 60% of the net deferred tax
assets will be recovered within 5 years.
Note 7 - Goodwill, net
Net Net Translation Net
value at value at Adjustments value at
31 March 31 March Acquisitions/ and other 31 March
2003 (1) 2004 (1) Disposals Amortisation changes 2005
--------- --------- ------------ ------------ ----------- ---------
(In € million)
Power Turbo-Systems /
Power Environment (1) 870 817 - (52) - 765
Power Service (2) 2,166 1,991 - (128) - 1,863
Transport 558 530 - (37) (3) 490
Marine 2 2 - - - 2
Power Conversion (3) 87 79 - (6) 1 74
Power Industrial Turbines (2) 329 - - - - -
Transmission &
Distribution (3) 428 - - - - -
Other - 5 (5) - - -
--------- --------- ------------ ------------ ----------- ---------
Goodwill, net 4,440 3,424 (5) (223) (2) 3,194
========= ========= ============ ============ =========== =========
----------------------
(1) From 1 April 2004, the former Power Turbo-Systems and Power Environment
sectors were merged into one Sector (See Note 26 (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.
(2) In April 2003, the Group announced the completion of the disposal of its
small gas turbine business and on 1 August 2003, the completion of the
disposal of the medium gas turbines and industrial steam turbines business
was announced, both to Siemens. The related Service activities were sold in
the same transactions.
(3) In January 2004, the Group announced the completion of the disposal of the
majority of its T&D Sector (excluding Power Conversion business). As a
result, Power Conversion goodwill, included in T&D Sector in March 2003, has
been presented in a separate line. Goodwill relating to the T&D activities
not de-consolidated at 31 March 2004 is shown in the line "other".
The gross value of goodwill was €5,449 million, €4,420 million and €4,405
million at 31 March 2003, 2004 and 2005 respectively.
At 31 March 2005, the Group requested a third party valuer to provide an
independent report as part of its impairment test, performed annually, on
goodwill and other intangible assets (see Note 8).
The valuation in use was determined primarily by focusing on the discounted cash
flow methodology which captured the potential of the 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 at sector level and reviewed by external experts.
- Extrapolation of the three year Business Plan by up to 10 years.
- The Group's Weighted Average Cost of Capital, post-tax, of 9% to 11%
reflecting the differing risks profiles of each Sector of the Group.
The terminal value at the end of the ten year period represents approximately 50
% of total enterprise value.
The valuation supported the Group's opinion that its goodwill and other
intangible assets were not impaired.
Note 8 - Other intangible assets, net
Translation
At At adjustments At
31 March 31 March Acquisitions/ and other 31 March
2003 2004 Amortisation Disposals changes 2005
--------- --------- ------------ ----------- ----------- ---------
(In € million)
Gross value 1,354 1,172 12 - - 1,184
Amortisation (186) (216) (59) - - (275)
--------- --------- ------------ ----------- ----------- ---------
Other intangible
assets, net 1,168 956 (47) - - 909
========= ========= ============ =========== =========== =========
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. Additions
in the year-end 31 March 2005 reflect payments under a technology sharing
agreement.
The decrease in the year-ended 31 March 2004 reflects the disposal of the
Industrial Turbines businesses and amortisation of the period.
Note 9 - Property, plant and equipment, net
Translation
At At At Changes in Adjustments At
31 March 31 March 1st April Acquisitions/ scope of and other 31 March
2003 2004 2004(*) Depreciation Disposals consolidations(1) changes 2005
-------- -------- --------- ------------ --------- ---------------- ----------- --------
(In € million)
Land 286 152 152 0 (5) (2) (1) 144
Buildings 1,505 1,113 1,113 21 (12) (6) 5 1,121
Machinery and
Equipment 3,174 2,320 2,320 81 (168) (8) (32) 2,193
Tools, furniture,
fixtures and others 947 558 1,443 79 (60) (730) (76) 656
-------- -------- --------- ------------ --------- ---------------- ----------- --------
Gross value 5,912 4,143 5,028 181 (245) (746) (104) 4,114
-------- -------- --------- ------------ --------- ---------------- ----------- --------
Land (8) (6) (6) (3) 0 0 0 (9)
Buildings (638) (491) (491) (58) 19 0 (5) (535)
Machinery and Equipment 2,415) (1,717) (1,717) (159) 151 4 34 (1,687)
Tools, furniture,
fixtures and others (520) (360) (552) (98) 57 178 0 (415)
-------- -------- --------- ------------ --------- ---------------- ----------- --------
Accumulated depreciation (3,581) (2,574) 2,766) (318) 227 182 29 (2,646)
-------- -------- --------- ------------ --------- ---------------- ----------- --------
Land 278 146 146 (3) (5) (2) (1) 135
Buildings 867 622 622 (37) 7 (6) 0 586
Machinery and
Equipment 759 603 603 (78) (17) (4) 2 506
Tools, furniture,
fixtures and others 427 198 891 (19) (3) (552) (76) 241
-------- -------- --------- ------------ --------- ---------------- ----------- --------
Net value 2,331 1,569 2,262 (137) (18) (564) (75) 1,468
======== ======== ========= ============ ========= ================ =========== =======-
--------------------
(*) Amended amounts at 1st April 2004 pursuant to the first application of the
Règlement CRC 2004-03. See Note 2(a)
(1) Change in scope of consolidation is mainly due to the deconsolidation during
the period of three special purpose entities consolidated at 1st April 2004
following the the first application of the Règlement CRC 2004-03 (see Note
25).
Assets financed through capital leases are not capitalised (see Note 27 (b)).
Note 10 - Equity method investments and other investments, net
Investments in 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. Only investments in which the Group has an equity
interest of 20% to 50% and over which it exercises significant influence are
accounted for under the equity method.
(a) Equity method investments
At 31 March
-------------------- % Share in
2003 2004 2005 Interest Net income
------ ------ ------ -------- ----------
(in € million)
Guangxi Laibin Electric Power Co
Ltd "Figlec" (1) 59 - -
Termoeléctrica del Golfo and
Termoeléctrica Peñoles 87 66 66 49.5 -
ALSTOM S.A. de C.V., Mexico (2) 8 8 - -
Others 8 10 4 - -
------ ------ ------ ----------
Total 162 84 70 -
====== ====== ====== ==========
----------------
(1) During the year ended 31 March 2004, the Group sold to a third party its
shareholding of 40% of the registered capital of a Chinese entity "Figlec",
a company which operates a thermal Power Plant at Laibin, China
(2) The 49% interest in ALSTOM S.A de C.V, Mexico which the Group did not intend
to transfer has in fact been transferred with a sold subsidiary to the
purchaser of the former T&D Sector 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. It has reached an agreement
with the holder of the 49% interest in ALSTOM S.A de CV Mexico confirming
their best efforts to obtain a transaction back to the Group and defining
their role until this event. Having reviewed the position the Group would intend
to dispose of the asset after recovery. On this basis, the assets of €8 million
is included in "other receivables, net" (see Note 15). The Group counter
guarantees part of the entity's financial debt for €33 million included in the
line "other guarantees" in Note 27.
(b) Other investments, net
At 31 March
---------------------------------------
2003 2004 2005 %
------ ------ ------------------------ Interest
Net Net Gross Provision Net 2005
------ ------ ------ --------- ------ ---------
(in € million)
Ballard Power Systems Inc (1) 22 27 22 (15) 7 1.8%
Birecik Baraj ve Hidroelektrik Santrali
Tesis ve Isletme AS (2) 20 15 20 (5) 15 13.6%
A-Train AB & A-Train Invest AB (3) 5 - - - -
Tramvia Metropolita SA 8 8 8 - 8 25.35%
Tramvia Metropolita del Besos 8 8 8 - 8 25.35%
Others (4) 20 18 22 (12) 10
------ ------ ------ --------- ------
TOTAL 83 76 80 (32) 48
====== ====== ====== ========= ======
(1) During the fiscal year ended 31 March 2005, the Group disposed of 0.57% of
its shareholding in Ballard. In addition, the remaining interests in Ballard
Power Systems Inc have been depreciated to align with the stock price at 31
March 2005 on the Toronto Stock Exchange.
(2) During the fiscal year ended 31 March 2005, the Group signed a sale
agreement for its 13.6% of its shareholding in Birecik Barajve Hidroelektrik
Santrali Tesis ve Isletme AS for a consideration close to the net book value
but subject to the obtaining of approvals from external parties. These
approvals have been obtained subsequent to 31 March 2005.
(3) A-Train AB & A-Train Invest AB were sold in January 2004
(4) No other investments' net value exceeds €5 million
Information on the main other investments at 31 March 2005 is based on the most
recent financial statements available and is the following:
Share in
Net income Net Equity
---------- -----------
(in € million)
Ballard Power Systems Inc (139) 8
Birecik Baraj ve Hidroelektrik Santrali
Tesis ve Isletme AS 119 43
Tramvia Metropolita SA 0 8
Tramvia Metropolita del Besos (Trambesos) 0 8
Note 11 - Other fixed assets, net
At At At At
31 March 31 March 1st April 31 March
2003 2004 2004 (*) 2005
-------- -------- --------- --------
(in € million)
Long term loans and deposits
(vendor financing) (1) 510 329 250 -
Deposits securing the Bonding
Guarantee Facility (2) - - - 700
Other long term loans and deposits (3) 304 469 433 129
Prepaid assets - pensions (see
Note 22) 397 357 357 353
Others 83 62 62 82
-------- -------- --------- --------
Other fixed assets, net 1,294 1,217 1,102 1,264
======== ======== ========= ========
----------------
(*) 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 At At At
31 March 31 March 1st April 31 March
2003 2004 2004 2005
-------- -------- --------- --------
(en € million)
Cruiseinvest/Renaissance (a) 261 240 226 -
Festival (b) 26 41 24 -
Others (c) 223 48 - -
-------- -------- --------- --------
TOTAL 510 329 250 -
======== ======== ========= ========
(a) Cruiseinvest / Renaissance
-At 31 March 2003 and 2004, the Group held US$170 million (€156 million at
31 March 2003 and €139 million at 31 March 2004) of limited recourse notes
issued by Cruiseinvest (Jersey) and bearing interest at 6 % per annum
payable half yearly in arrears, and maturing in December 2011. At 31 March
2005, after the disposal of part of the notes the Group held US$42 million
(€33 million).
-The Group guaranteed the financing arrangements of a subsidiary of
Cruiseinvest (Jersey)Ltd, Octavian Shipping LLC of which USD84 million
(€77 million at 31 March 2003 and €69 million at 31 March 2004) were
supported by a cash deposit. In the year-ended 31 March 2005, this deposit
has been fully released.
-The Group provided Cruiseinvest LLC with a €40 million line of credit, of
which €15 million was drawn down at 31 March 2003 and €16 million was
drawn at 31 March 2004 and 31 March 2005, respectively.
-The Group also granted loans for €16 million at 31 March 2004 and €4
million at 31 March 2003 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.
At 31 March 2005, the Group has reviewed the risks associated with the € 53
million remaining Marine vendor financing assets and depreciated them. This
depreciation was covered by the Marine vendor financing provision of €140
million at 31 March 2004 included in Provision for risks and charges (see
Note 21- Other provisions).
(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 Règlement 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 2003 and 31 March 2004 the Group guaranteed the
financing arrangements of two cruise ships delivered to Festival of which
€26 million and €24 million, respectively were supported by a cash
deposit. At 31 March 2005, following the sale of these Cruise ships during
the period, the cash deposit was reimbursed and the guarantees released
(see Note 27 (a) (2)).
(c) Others
At 31 March 2003 and 31 March 2004, the Group granted loans of €223 million
and €48 million, respectively 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 were fully consolidated and the
related financing has been eliminated as part of the consolidation process.
On 1st December 2004, these loans have been sold to third party (See Note
3).
(2) It corresponds to a cash deposit made by the Group with a third party
Trustee to secure in the form of remunerated collateral the new Bonding
Guarantee Facility Programme of up to €8 billion implemented during the
year-ended 31 March 2005 (see Note 27 (a) (1)) and invested by the Trustee
into Euro government bonds and/or central bank securities with a residual
maturity of less than 12 months. The release of this collateral will depend
on release of the bonds and guarantees issued under the Programme.
(3) At 31 March 2004 and 31 March 2005, it includes €125 million and €74
million, respectively held in escrow following the disposal of the small and
medium gas turbine businesses and the industrial steam turbines business.
The decrease is due to the use of €19 million to cover post closing
adjustments and a partial payment of €32 million.
Note 12 - Inventories and contracts in progress, net
At 31 March At 1st At 31
---------------- April March
2003 2004 2004 (*) 2005
-------- ------- -------- --------
(in € million)
Raw materials and supplies 1,485 1,094 1,094 647
Work and contracts in progress 5,198 3,363 3,363 3,240
Finished products 276 63 173 60
-------- ------- -------- --------
Inventories, and contracts in progress,
gross 6,959 4,520 4,630 3,947
Less valuation allowance (301) (241) (241) (242)
-------- ------- -------- --------
Inventories, and contracts in progress,
net of valuation allowances 6,658 4,279 4,389 3,705
Less related customers' deposits and
advances (2,050) (1,392) (1,392) (945)
-------- ------- -------- --------
Inventories, and contracts in progress,
net of valuation allowances and related
customers' deposits and advances 4,608 2,887 2,997 2,760
======== ======= ======== ========
---------------
(*) Amended amounts at 1st April 2004 pursuant to the first application of the
Règlement CRC 2004-03. See Note 2(a)
Note 13 - Trade receivables, net
At 31 March
-----------------------------
2003 2004 2005
------- -------- --------
(in € million)
Trade receivables on contracts 10,941 7,499 7,415
Other trade receivables 1,142 692 641
------- -------- --------
Trade receivables, gross (1) 12,083 8,191 8,056
Less valuation allowance (130) (113) ( 142)
------- -------- --------
Trade receivables, net of valuation allowances 11,953 8,078 7,914
Less related customers' deposits and advances (7,098) (4,616) ( 4,468)
------- -------- --------
Trade receivables, net of valuation allowances
and related customers' deposits and advances 4,855 3,462 3,446
======= ======== ========
-------------------
(1) after sale of trade receivables (see Note 14)
Note 14 - Sale of trade receivables
The following table shows net proceeds from sale of trade receivables:
At 31 March
-----------------------------
2003 2004 2005
------- -------- --------
(in € million)
Trade receivables sold 357 94 7
Net cash proceeds from sale of trade receivables 357 94 7
======= ======== ========
----------------
During the years ended 31 March 2003, 2004 and 2005, 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.
Note 15 - Other accounts receivables, net
At 31 March At 1st At 31
------------------ April March
2003 2004 2004 (*) 2005
-------- ------- -------- --------
(in € million)
Advances paid to suppliers 758 528 528 603
Amounts due on local part of
contracts 248 111 111 74
Income tax and other government
receivables 496 450 450 387
Prepaid expenses 262 200 200 163
Others (1) 501 733 871 434
-------- ------- -------- --------
Other accounts receivables, net 2,265 2,022 2,160 1,661
======== ======= ======== ========
-----------------
(*) Amended amounts at 1st April 2004 pursuant to the first application of the
Règlement CRC 2004-03. See Note 2(a)
(1) the variation between fiscal year 2003 and 2004 is mainly due to the
receivables held at 31 March 2004 following the disposal of the T&D Sector
to Areva. The decrease in the year-ended 31 March 2005, is mainly due to the
final settlement of the T&D Sector disposal and the deconsolidation during
the period of three special purpose entities consolidated at 1st April 2004
following the first application of the Règlement CRC 2004-03 (see Note 25).
Note 16 - Changes in net working capital
At At Changes in At
31 March 1 April Cash Translation scope and 31 March
2004 2004(*) flow adjustments others 2005
-------- ------- ------- ----------- ---------- --------
(in € million)
Inventories and contract in
progress, net 2,887 2,997 (205) (26) (6) 2,760
Trade and other receivables,
net (1) 5,578 5,717 (423) (51) (129) 5,114
Sale of trade receivables,
net (94) (94) 87 - - (7)
Contract related provisions (2,703) (2,703) 195 11 19 (2,478)
Other provisions (401) (396) 160 - (2) (238)
Restructuring provisions (385) (385) (54) 2 (3) (440)
Customers' deposits and
advances (2,714) (2,714) (510) 23 51 (3,150)
Trade and other payables (7,028) (7,032) 786 22 6 (6,218)
-------- ------- ------- ----------- ---------- --------
Net working capital (4,860) (4,610) 36 (19) (64) (4,657)
======== ======= ======= =========== ========== ========
--------------
(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 17 - 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 31 March 2004, 108,731,456 bonds reimbursable with shares were
outstanding for an amount of €152 million.
During the year ended at 31 March 2005, 14,112,541 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 31 March 2005, 94, 618,915 bonds reimbursable with shares were outstanding
for an amount of €133 million.
Note 18 - Short-term investments
Carrying Within 1 Over 5
Value year 1 to 5 years years
--------- -------- ------------ --------
(in € million)
Government debt securities 4 1 3 -
Deposits 53 53 - -
Bonds and other debt securities 85 36 43 6
--------- -------- ------------ --------
At 31 March 2003 142 90 46 6
========= ======== ============ ========
Bonds and other debt securities 39 35 4 -
--------- -------- ------------ --------
At 31 March 2004 39 35 4 -
========= ======== ============ ========
Other debts securities 15 15 - -
--------- -------- ------------ --------
At 31 March 2005 15 15 - -
========= ======== ============ ========
The aggregate fair value is €143 million, €39 million and €15 million at 31
March 2003, 2004 and 2005, respectively.
Note 19 - Cash and cash equivalents
Cash and cash equivalents include cash at banks and cash on hand of €897
million, €735 and €653 million at 31 March 2003, 2004 and 2005 respectively, and
highly liquid investments of €731 million, €692 million and €809 million, at 31
March 2003, 2004 and 2005, respectively.
Note 20 - Minority interests
At 31 March
------------------------------
2003 2004 2005
-------- --------- ---------
(in € million)
Balance beginning of year 91 95 68
Share of net income 15 (2) 1
Translation adjustment (15) (4) (3)
Dividend paid (1) (3) (5)
Change in scope and other changes 5 (18) 13
-------- --------- ---------
Balance end of year 95 68 74
======== ========= =========
Note 21 - Provisions for risks and charges
At At At Translation
31 March 31 March 1st April Adjustments 31 March
2003 2004 2004 (*) Addition Releases Applied and other 2005
-------- -------- --------- -------- -------- ------- ----------- --------
(in € million)
Warranties 815 807 807 475 (118) (207) (5) 952
Penalties and claims 1,766 1,078 1,078 225 (77) (555) 7 678
Contract loss 412 304 304 314 (33) (234) 5 356
Other risks on contracts 271 514 514 283 (79) (189) (37) 492
Provisions on contracts 3,264 2,703 2,703 1,297 (307) (1,185) (30) 2,478
Restructuring 138 385 385 363 (20) (289) 1 440
Other provisions 296 401 396 166 (39) (287) 2 238
-------- -------- --------- -------- -------- ------- ----------- --------
Total 3,698 3,489 3,484 1,826 (366) (1,761) (27) 3,156
======== ======== ========= ======== ======== ======= =========== ========
--------------
(*) 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 year ended 31 March 2005, the Group utilised provisions of €359
million and retains at 31 March 2005, after exchange rate effects, €379 million
in provisions for risks and charges in respect of these turbines. The mitigation
plan related to formerly identified potential risks which were not covered by
provisions has been completed during the fiscal year ended 31 March 2005.
During the year ended 31 March 2004, the Group utilised provisions and accrued
contract costs for €825 million and retained at 31 March 2004 , after exchange
rate effects, €738 million in Provisions for risks and charges in respect of
these turbines. These provisions did not include €234 million of exposure for
which the Group considered the risks mitigated by appropriate action plans
During the year ended 31 March 2003, the Group recorded an additional €1,637
million of provisions and accrued contract costs related to these turbines,
including €83 million recorded in the Customer Service Segment (now Power
Service Sector) in respect of contracts transferred to this Segment as part of
the Group's after market operations and on which it has no uncovered exposure.
The Group, therefore, retained €1,655 million of provisions and accrued contract
costs at 31 March 2003 in respect of these turbines. These provisions did not
include €454 million of exposure for which the Group considered the risks
mitigated by appropriate action plans. In addition, these provisions did not
take into account interest to be paid to customers (cost of carry), the cost of
which are recorded when it falls due.
Restructuring expenditures and provisions
During the year ended 31 March 2005, further restructuring plans were adopted
for an amount of €363 million mainly in Power Turbo-Systems / Power Environment
and Transport Sectors. At 31 March 2005, provisions of €440 million were
retained after an expenditure in the period of €289 million.
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 year ended 31 March 2003, restructuring expenditure amounted to €297
million. New plans were adopted during the period in Power, Transmission &
Distribution and Transport, for which provisions have been created.
Other provisions
During the year-ended 31 March 2005, the Group has reviewed its residual
exposure attached to Marine Vendor financing and confirmed that the provision
was adequate to cover the costs and risks attached.
At 31 March 2005, the remaining provision for risks and charges amounts to €14
million. The reduction results from the utilisation against losses incurred (€73
million) and the remainder has been allocated to Marine Vendor financing assets
for €53 million (see Note 11).
At 31 March 2003 and 2004, the line "other provisions" included €140 million to
cover Marine vendor financing exposure (see Note 27).
Note 22 -- Retirement, termination and post-retirement benefits
The Group provides various types of retirement, termination benefits and post
retirement benefits (including healthcare benefits and medical cost) to its
employees. The type of benefits offered to an individual employee is related to
local legal requirements as well as operating practices of the specific
subsidiaries.
Termination benefits are generally lump sum payments based upon an individual's
years of credited service and annualised salary at retirement or termination of
employment. Pension benefits are generally determined using a formula which uses
the employee's years of credited service and average final earnings. 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.
Change in benefit obligation
Pension Benefits Other Benefits Total
------------------------ ------------------------ ------------------------
At 31 March At 31 March At 31 March
------------------------ ------------------------ ------------------------
2003 2004 2005 2003 2004 2005 2003 2004 2005
------- ------- ------- ------- ------- ------- ------- ------- -------
(In € million)
Accumulated Benefit
Obligation At end of year (3,137) (3,335) (4,072) (204) (144) (145) (3,341) (3,479) (4,217)
Benefit Obligation at
beginning of year (1) (3,527) (3,339) (4,003) (242) (204) (145) (3,769) (3,543) (4,148)
Service cost (107) (86) (81) (2) (1) (1) (109) (87) (82)
Interest cost (196) (184) (209) (15) (11) (9) (211) (195) (218)
Plan participants
contributions (20) (26) (29) - - - (20) (26) (29)
Amendments 1 (2) (5) - 15 - 1 13 (5)
Business Combinations/
disposals (2) (3) 129 (15) - - - (3) 129 (15)
Curtailment 12 6 18 - - - 12 6 18
Settlements 91 74 15 - - - 91 74 15
Actuarial (loss) gain (97) (234) (252) (12) 17 (13) (109) (217) (265)
Benefits paid 149 206 269 17 18 14 166 224 283
Foreign currency
translation 358 (32) 96 50 21 8 408 (11) 104
------- ------- ------- ------- ------- ------- ------- ------- -------
Benefit Obligation
at end of year (3,339) (3,488) (4,196) (204) (145) (146) (3,543) (3,633) (4,342)
======= ======= ======= ======= ======= ======= ======= ======= =======
--------------
(1) During the fiscal year ended 31 March 2005, the Group has elected to account
for its Swiss cash balance pension plan under French GAAP as defined
benefits plan, as now required by a recent US accounting pronouncement. The
costs of this plan have been included as net periodic benefit costs and not
as costs of scheme mixing defined benefits and defined contributions. The
scheme was fully funded as at 1st April 2004 with assets and liabilities of
€515 million.
(2) In the year ended 31 March 2004, the Business combination relates mainly to
the Disposal of T&D Sector (excluding Power Conversion business).
Change in plan assets
Pension Benefits Other Benefits Total
------------------------ ------------------------ ------------------------
At 31 March At 31 March At 31 March
------------------------ ------------------------ ------------------------
2003 2004 2005 2003 2004 2005 2003 2004 2005
------- ------- ------- ------- ------- ------- ------- ------- -------
(In € million)
Fair value of plan assets
at Beginning of year (1) 2,712 2,012 2,778 - - - 2,712 2,012 2,778
Actual return on plan
assets (282) 302 242 - - - (282) 302 242
Company contributions 73 74 99 - - - 73 74 99
Plan participant
contributions 23 26 28 - - - 23 26 28
Business Combinations/
disposals (2) (30) 12 10 - - - (30) 12 10
Settlements (75) (33) (13) - - - (75) (33) (13)
Benefits paid (95) (159) (210) - - - (95) (159) (210)
Foreign currency
translation (314) 29 (79) - - - (314) 29 (79)
------- ------- ------- ------- ------- ------- ------- ------- -------
Fair value of plan assets
at end of year 2,012 2,263 2,855 - - - 2,012 2,263 2,855
Funded status of the plan (1,327) (1,225) (1,341) (204) (145) (146) (1,531) (1,370) (1,487)
Unrecognised actuarial
loss (gain) 933 904 1,020 34 14 21 967 918 1,041
Unrecognised prior
service cost 11 8 11 (1) (14) (12) 10 (6) (1)
Unrecognised
transitional obligation (24) (29) (28) 3 2 2 (21) (27) (26)
------- ------- ------- ------- ------- ------- ------- ------- -------
(Accrued) prepaid
benefit cost (407) (342) (338) (168) (143) (135) (575) (485) (473)
------- ------- ------- ------- ------- ------- ------- ------- -------
Of which:
Accrued pensions and
retirement Benefits (804) (699) (691) (168) (143) (135) (575) (842) (826)
Prepaid assets (Note 11) 397 357 353 - - - 397 357 353
--------------
(1) During the fiscal year ended 31 March 2005, the Group has elected to account
for its Swiss cash balance pension plan under French GAAP as defined
benefits plan, as now required by a recent US accounting pronouncement. The
scheme was fully funded as at 1st April 2004 with assets and liabilities of
€515 million.
(2) In the year ended 31 March 2004, the Business combination relates mainly to
the Disposal of T&D Sector (excluding Power Conversion business).
Components of plan assets
At 31 March
------------------------------------------------------------
2003 2004 2005
----------------- ----------------- -----------------
(In € (In € (In €
million) % million) % million) %
Equities 1,156 57.5 1,289 57.0 1,445 50.6
Bonds 641 31.8 734 32.4 1,042 36.5
Properties 129 6.4 137 6.0 248 8.7
Others 86 4.3 103 4.6 120 4.2
-------- ------- -------- ------- -------- -------
TOTAL 2,012 100 2,263 100 2,855 100
======== ======= ======== ======= ======== =======
The actuarial assumptions used vary by business unit and country, based upon
local considerations:
Assumptions (weighted average rates)
Pension Benefits Other Benefits
------------------------ ------------------------
Year ended 31 March Year ended 31 March
------------------------ ------------------------
2003 2004 2005 2003 2004 2005
------ ------ ------ ------ ------ ------
Discount rate 5.90% 5.66% 5.09% 6.75% 6.3% 6.00%
Rate of compensation increase 3.28% 3.00% 2.97% N/A N/A N/A
Expected return on plan assets 7.57% 8.00% 7.07% N/A N/A N/A
--------------
Regarding the Expected return of plan assets, the same basis has been applied in
all countries where the Group has assets covering its pension liabilities: the
Expected return on plan assets is the weighted average of the returns of bonds,
equities and properties portfolios determined as follows:
- Equity return = risk free rate (government bond yield) + Equity risk premium
(4%)
- Bond return = Discount rate
- Property return = Equity return - 1%
The 4% equity risk premium is considered to be a fair assumption given the
following reasons:
- It reflects the relatively low valuation of stock markets, following 3 years
of stock market declines,
- In addition, risk free rates are low by historical standards due to
disappointing growth and aggressive monetary policies.
The following table shows the amounts of net periodic benefit cost for each of
the three years ended 31 March 2003, 2004 and 2005.
Pension Benefits Other Benefits Total
------------------------ ------------------------ ------------------------
Year ended 31 March Year ended 31 March Year ended 31 March
------------------------ ------------------------ ------------------------
2003 2004 2005 2003 2004 2005 2003 2004 2005
------- ------- ------- ------- ------- ------- ------- ------- -------
(in € million)
Service cost 107 86 81 2 1 1 109 87 82
Interest cost 196 184 209 15 11 9 211 195 218
Expected return on plan
assets (193) (147) (198) - - - (193) (147) (198)
Amortisation of
unrecognised prior
service cost 2 1 1 - - (1) 2 1 -
Amortisation of actuarial
net loss (gain) 16 61 55 1 - - 17 61 55
Curtailments/Settlements 9 (143) (3) - - - 9 (143) (3)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net periodic benefit cost 137 42 145 18 12 9 155 54 154
======= ======= ======= ======= ======= ======= ======= ======= =======
Curtailments/Settlements
effects included in Net
gain on disposal of
investments (See Note 4)(1) - 149 - - - - - 149 -
------- ------- ------- ------- ------- ------- ------- ------- -------
Net periodic benefit cost
classified in pensions 137 191 145 18 12 9 155 203 154
======= ======= ======= ======= ======= ======= ======= ======= =======
Costs contributions
related to schemes mixing
defined benefits and
defined contributions 32 32 - - - - 32 32 -
Multi-employer
contributions 27 28 21 - - - 27 28 21
------- ------- ------- ------- ------- ------- ------- ------- -------
Total pension cost
(See Note 4) 196 251 166 18 12 9 214 263 175
======= ======= ======= ======= ======= ======= ======= ======= =======
(1) Disposal of T&D Sector as well as Small and Medium gas turbines and
Industrial steam turbines businesses.
The Group's health care plans, disclosed in other benefits are generally
contributory with participants' contributions adjusted annually. The healthcare
trend rate is assumed to be 10% in the year ended 31 March 2005 and 8% to 9.5%
thereafter.
The total of pension and other post retirement benefit costs for each of the
three fiscal years are shown in Note 4 - Other income (expenses), net.
The total cash spent in the year ended 31 March 2005 was €193 million.
Estimated Future Benefit Payments
The estimated future benefit payments expected to be paid are as follows :
Pension Other
Benefits Benefits Total
------------- ------------- -------------
2006 200 13 213
2007 213 12 225
2008 223 13 236
2009 232 13 245
2010 243 13 256
Years 2011-2015 1,373 60 1,433
------------- ------------- -------------
Total over the next 10 years 2,484 124 2,608
============= ============= =============
Note 23 - Financial Debt
(a) Analysis by nature
At 31 At 31 At 1st At 31
March March April March
2003 2004 2004(*) 2005
----- ----- ----- -----
(in € million)
Redeemable preference shares (1) 205 205 205 205
Subordinated notes (2) 250 250 250 5
Bonds (2) 1,200 650 650 1,228
Bonds exchange premium (2) - - - (26)
Syndicated loans (3) 2,627 1,922 1,922 1,039
Subordinated long term bond (TSDD) (4) - 200 200 -
Subordinated bonds reimbursable with
shares (TSDDRA) (5) - 300 300 -
Bilateral loans 358 260 260 33
Commercial paper (6) 83 - - 14
Future receivables securitised, net (7) 1,292 265 265 49
Other borrowings facilities (8) 196 1,023 252
Bank overdraft 266 78 78 58
Accrued interest 50 46 46 50
----- ----- ----- -----
Financial debt 6,331 4,372 5,199 2,907
===== ===== ===== =====
Long-term 3,647 3,829 4,602 2,414
Short-term 2,684 543 597 493
--------------
(*) 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) At 31 March 2004, the Group had:
- €250 million of Auction Rate Coupon Undated Subordinated Notes redeemable
at par in September 2006, (with floating rate coupon reset at 4.99% over
Euribor p.a. until maturity, following auctions in September 2004),
- €650 million of bonds listed on the Paris and Luxembourg Stock Exchanges,
bearing a 5% coupon and redeemable at par on 26 July 2006,
During the fiscal year ended 31 March 2005, these bonds were offered to be
exchanged for new bonds due March 2010. €668 million of the €900 million
bonds eligible for exchange were tendered to the offer, leading, after
application of the exchange ratio to €695,3 million of new 2010 Bonds being
issued as a result of the exchange, in addition to which, the Group issued
€304.7 million of additional bonds with same terms and condition. The
related exchange premium of €26 million has been recorded in diminution of
the bonds and is amortised up to March 2010.
As a result of the above, at 31 March 2005, the Group has:
- €5 million of Auction Rate redeemable in September 2006,
- €228 million of bonds bearing a 5% coupon and redeemable at par on 26 July
2006,
- €1,000 million of bonds bearing a 6.25 % coupon with a 5 year maturity,
- €(26) million of bonds exchange premium.
(3) 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"), and comprising a Term Loan Tranche A for €1,200
million (fully drawn until maturity or redemption), and a Revolving Facility
Tranche B for €363 Million.
At 31 March 2005, this subordinated debt facility was divided between:
- the Term Loan "Tranche A" of €1,039 million following the redemption of
€161 million thereof into shares as part of the capital increase closed in
August 2004.
- and the Revolving Credit "Tranche B" of €281 million following the
redemption of €82 million thereof into shares as part of the capital
increase closed in August 2004. The full amount of €363 million was
available for draw down as at 31 March 2004. The full amount of €281
million was available for draw down as at 31 March 2005.
o A 2006 Multicurrency Revolving Credit Agreement initially signed for an
amount up to €1,110 million, amortised down to €722 million as at March
2004, and was fully drawn as at 31 March 2004. During the fiscal year ended
31 March 2005, €18 million have been redeemed into shares as part of the
capital increase closed in August 2004 and the remaining amount of €704
million was fully available for draw down as at 31 March 2005.
At 31 March 2005, the 2008 Subordinated Debt Facility ("the PSDD") and the
2006 Multicurrency Revolving Credit Agreement are subject to the following
financial covenants amended with unanimous agreement by the lenders on 23
June 2004 and on 24 December 2004, and as adjusted to take into account the
results of the August 2004 capital increases:
Minimum Minimum Maximum Maximum Minimum
Interest Consolidated Total Net debt EBITDA
Cover net worth debt leverage
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 income less interest expense including securitisation interest).
(b) Sum of shareholders' equity (excluding the cumulative impact of any deferred
tax assets impairment 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's rating is
Investment Grade).
After excluding the impact of the impairment of deferred tax assets recorded
in the fiscal year ended 31 March 2005 of €218 million the minimum
consolidated net worth to compare with the covenant above is €1,607 million.
(c) Sum of the financial debt (SPEs excluded) 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) Earning 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 the recalculation of the aggregates
mentioned above excluding the impact of the change in accounting principles.
(see Note 2 (a)). At 31 March 2005, the total debt to compare with the covenants
above is €2,820 million excluding the impact of €94 million of the first
application of the Règlement CRC 2004-03 (see Note 2 (a) and 25). The amendment
signed 24 December 2004 confirms the exclusion of the SPEs' financial debt.
(4) 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). In 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.
(5) 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.
(6) The total authorised commercial paper program is €2,500 million,
availability being subject to market conditions. At 31 March 2005, €14
million of commercial paper were outstanding from this program.
(7) The Group sold, in several past transactions, the right to receive payment
from certain customers for future receivables. The total net amounts
outstanding under these transactions were of €265 million and €49 Millions
at 31 March 2004 and 31 March 2005, respectively. The total amount concerns
the Transport Sector.
(8) Following the application of Règlement CRC 2004-03 (see Note 2(a) and Note
25), bank overdraft and "other borrowings facilities" include, at 1 April
2004, €827 million of borrowings related to special purpose entities. At 31
March 2005, these borrowings have been reduced to €94 million following:
- the sale of one special purpose entity during the period (€243 million),
- the deconsolidation of two special purpose entities (€384 million),
- repayments and impact of foreign exchange (€106 million).
Total available undrawn credit lines at Group level amounts to €1,202 million at
31 March 2005 (€783 million at 31 March 2004) and is constituted of:
- €217 million under several bilateral lines of credit,
- €281million under the Tranche B of the 2008 Subordinated Debt Facility
"PSDD",
- €704 million under the 2006 Multicurrency Revolving Credit Agreement.
(b) Analysis by maturity and interest rate
Short
term Long term
--------------------------------------------------
Within 1-2 2-3 3-4 4-5 Over 5 Average rate
TOTAL 1 year years years years years years Of interest
------------- --------------------------------------------------
(in €
million) (in € million)
Redeemable preference shares 205 205 - - - - - 4.8%
Subordinated notes 5 - 5 - - - - 10.6% (1)
Bonds 1,228 - 228 - - 1,000 - 6%
Bonds exchange premium (26) (6) (5) (5) (5) (5) -
Syndicated loans 1,039 - - - 1,039 - - 6.6%
Bilateral loans 33 - 33 - - - - 6.6%
Commercial Paper 14 14 - - - - - 2.4%
Other facilities 252 123 20 20 19 38 32 3.0%
Bank overdraft 58 58 - - - - - 4.4%
Accrued interests 50 50 - - - - -
Future receivables
securitised, net (2) 49 49 - - - - - 5.7%
------------- --------------------------------------------------
Financial debt 2,907 493 281 15 1,053 1,033 32
============= ==================================================
--------------
(1) On 23 September 2004, the margin above Euribor of these notes have been
reset through an auction process at 4.99%.
(2) 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 31 March 2004 At 31 March 2005
----------------------- -------------------------
Amount Amount Amount Amount
before after before after
Hedging Hedging Hedging (1) Hedging (1)
----------------------- -------------------------
(in € million) (in € million)
Financial debt at fixed rate 1,055 735 1,375 1,375
Financial debt at floating rate 3,317 3,637 1,532 1,532
---------- ---------- ----------- -----------
Total 4,372 4,372 2,907 2,907
========== ========== =========== ===========
(1) Following the cancellation of a portion of the €650 million bond issue,
there is no longer any interest rate hedging on the Group's financial debt.
The result generated from the swap cancellation is spread unti the initial
maturity date of the instrument.
(c) Analysis by currency
At 31 March
------------------------------
2003 2004 2005
-------- -------- --------
(in € million)
Euro 6,205 4,214 2,722
US dollar 22 112 130
British Pound 3 12 7
Other currencies 101 34 48
-------- -------- --------
Financial debt 6,331 4,372 2,907
======== ======== ========
Note 24 - Other payables
At 31 March At 1st At 31
--------------- April March
2003 2004 2004 (*) 2005
------ ------ -------- -----
(in € million)
Accrued contract cost (contract completion) 2,822 2,229 2,229 1,913
Staff and associated costs 888 694 694 673
Income taxes 192 195 195 107
Other taxes 254 291 291 213
Others 590 489 493 320
------ ------ -------- -----
Other payables 4,746 3,898 3,902 3,226
====== ====== ======== ======
--------------
(*) Amended amounts at 1st April 2004 pursuant to the first application of the
Règlement CRC 2004-03. See Note 2(a)
Note 25 - 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 Règlement CRC 2004-03 with
effect from 1 April 2004. Under this Règlement, 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. On 20 September 2004, the Group completed the disposal of its
interests in the Transport entity. On 1st December 2004, the Group completed the
disposal to third party of its loans in two entities financing two Cruise ships.
From those respective dates, the Group concluded that the criterias of the
Règlement CRC 2004-03 triggering at 1st April 2004 the consolidation were no
longer met. At 31 March 2005, two Marine entities are consolidated with only one
being active and owning one cruise.
In assessing the provisional 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.
At 1 April 2004, three entities 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. At
31 March 2005, this aforementioned accounting treatment is no longer applicable
as a result of the de-consolidation of the related entities.
The contribution of these entities at 1 April 2004 and 31 March 2005
consolidated balance sheets before intra-group elimination is as follows:.
At At
1st April 2004 31 March 2005
-------------- -------------
Assets
Property, plant and equipment, net 693 85
Inventories, and contract in progress, net 110 -
Other assets, net 138 39
Cash equivalents - 2
-------------- -------------
Total 941 126
============== =============
Liabilities
Net equity (*) (8) (29)
Provisions for risks and charges (*) 3 3
Financial debt 827 94
Group financing (*) 115 52
Other liabilities 4 6
-------------- -------------
Total 941 126
============== =============
--------------
(*) before intra-group elimination.
The significant decrease of the balance sheet in the fiscal year ended 31 March
2005 is explained by the deconsolidation of three special purpose entities (as
explained above) and the sale to a cruise operator of one cruise ship recorded
at 1st April 2004 within "Inventories and contract in progress, net". At 31
March 2005, the remaining Property, plant and equipment, net corresponds to one
cruise ship currently chartered to a cruise operator.
The negative net equity is offset by a corresponding utilisation of the
provision for Marine vendor financing (see Note 21-other provisions).
Note 26 - 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 / Power Environment».
At 31 March 2005, the Group is organised in four Sectors and one Business:
• Power Turbo-Systems / Power Environment Sector
Power Turbo-Systems / Power Environment provides steam turbines, generators and
power plant engineering, including hydro construction and heavy duty 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.
• 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.
• Transport Sector
Transport offers equipment, systems, and customer support for rail
transportation including passenger trains, locomotives, signalling equipment,
rail components and service.
• Marine Sector
Marine designs and manufactures cruise and other speciality ships.
• Power Conversion Business
Power Conversion provides solutions for manufacturing processes and supplies
high-performance products including motors, generators, propulsion systems for
marine applications 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, Free Cash Flow as
well as Margin in 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 At 31 March
-----------------------------------------
2003 2004 2005
---------- ---------- ----------
(in € million)
Power Turbo-Systems/Power
Environment 6,955 5,059 4,256
Power Service 2,678 2,747 2,844
Transport 5,072 4,862 5,134
Marine 1,568 997 630
Power Conversion 523 499 539
Corporate & others (1) 205 241 259
Transmission & Distribution (2) 3,082 2,073 -
Power Industrial Turbines (3) 1,268 210 -
---------- ---------- ----------
TOTAL 21,351 16,688 13,662
========== ========== ==========
Operating income At 31 March
-----------------------------------------
2003 2004 2005
---------- ---------- ----------
(in € million)
Power Turbo-Systems/Power
Environment (1,175) (253) (35)
Power Service 403 417 473
Transport (24) 64 260
Marine 24 (19) (103)
Power Conversion 15 15 36
Corporate & others (1) (44) (59) (81)
Transmission & Distribution (2) 212 121 -
Power Industrial Turbines (3) 82 14 -
---------- ---------- ----------
TOTAL (507) 300 550
========== ========== ==========
EBIT At 31 March
2003 2004 2005
---------- ---------- ----------
(in € million)
Power Turbo Systems/Power
Environment (1,420) (641) (361)
Power Service 304 227 360
Transport (113) (189) 168
Marine 12 (40) (16)
Power Conversion (22) (19) 15
Corporate & others (1) (46) (252) (258)
Transmission & Distribution (2) 103 36 -
Power Industrial Turbines (3) 53 7 -
---------- ---------- ----------
TOTAL (1,129) (871) (92)
========== ========== ==========
Capital employed (**) At 31 March At 1st At 31
--------------- April March
2003 2004 2004 (*) 2005
------ ------ -------- -----
(in € million)
Power Turbo-Systems/Power
Environment N/A (499) (499) (608)
Power Service N/A 1,921 1,921 1,683
Power Industrial Turbines (3) N/A - - -
TOTAL POWER 2,383 1,422 1,422 1,075
Transport 738 360 653 125
Marine (343) (580) 59 (234)
Power Conversion (4) N/A 25 25 (4)
Corporate & others (1) 1,208 1,333 1,228 1,341
Transmission & Distribution (2) 963 - - -
------ ------ -------- -----
TOTAL 4,949 2,560 3,387 2,303
====== ====== ======== =====
--------------
(*) Amended amounts at 1st April 2004 pursuant to the first application of the
Règlement CRC 2004-03. See Note 2(a)
(**)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 April 2003 and August 2003.
(4) Included in Transmission & Distribution at 31 March 2003
b) Geographic data
Sales by country of destination Year ended 31 March
----------------------------------------
2003 2004 2005
---------- ---------- ----------
(in € million)
Europe 9,219 8,002 7,429
North America 4,719 3,001 1,977
South & Central America 1,534 857 575
Asia / Pacific 3,727 3,401 2,489
Middle East / Africa 2,152 1,427 1,192
---------- ---------- ----------
TOTAL 21,351 16,688 13,662
========== ========== ==========
Sales by Country of Origin Year ended 31 March
----------------------------------------
2003 2004 2005
---------- ---------- ----------
(in € million)
Europe 14,762 12,204 9,951
North America 3,935 2,519 1,919
South & Central America 601 415 374
Asia / Pacific (*) 1,833 1,416 1,301
Middle East / Africa 220 134 117
---------- ---------- ----------
TOTAL 21,351 16,688 13,662
========== ========== ==========
Net sales of €3,300 million (15.5%), €2,650 million (15.9%) and €3,420 million
(25.0%) in the years ended 31 March 2003, 2004 and 2005 respectively, are
obtained from a group of state owned companies, independently managed, the
largest of which represented, 4.2%, 3.9% and 4.9% in the years ended 31 March
2003, 2004 and 2005, respectively.
No client represented more than 10% of net sales in any of the three years.
Note 27 - Off balance sheet commitments and other obligations
a) Off balance sheet commitments
At 31 March At 31 March At 31 March
2003 2004 2005
----------- ----------- -----------
(in € million)
Guarantees related to contracts (1) 9,465 8,169 7,526
Guarantees related to Vendor financing (2) 749 640 429
Discounted notes receivable 11 6 5
Commitments to purchase fixed assets 7 - 1
Other guarantees 94 43 114
----------- ----------- -----------
TOTAL 10,326 8,858 8,075
=========== =========== ===========
--------------
(1) Guarantees related to contracts
In accordance with industry practice, the above instruments can, in the normal
course, extend from the tender period until the final acceptance by the
customer, up to the end of the warranty period and may include guarantees on
project completion, 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 and are issued in favour of the customer with whom the commercial
contracts have been signed. The Group provides a counter indemnity to the bank
or Surety Company which issues the said instrument.
The projects for which the guarantees are given are regularly reviewed by
management and should payments becomes probable pursuant to guarantees, the
necessary accruals will be made and recorded in the Consolidated Financial
Statement at that time.
In the context of the Share Purchase and Settlement Agreement signed with ABB
Ltd in March 2000 pursuant to which the Group purchased ABB's 50% share of the
joint venture ABB ALSTOM Power, the Group has agreed to indemnify ABB with
respect to parent company guarantees that it had previously issued with respect
to certain of power contracts, the total outstanding amount of such ABB
guarantees being €2.7 billion at 31 March 2005. These parent company guarantees
are included in the above figures.
The above figures exclude:
- €3.8 billion at 31 March 2005 (€3.2 billion at 31 March 2004 and €2.9
billion at 31 March 2003) of advance and progress payment related
guarantees which payments have been included over time in the balance
sheet in "Customers deposits and advances, gross".
- €2.1 billion at 31 March 2005 (€3.3 billion at 31 March 2004 and €4.3
billion at 31 March 2003) of surety and conditional bonds where the
likelihood of the commitments becoming obligations is considered to be
remote.
The bonding guarantees relating to contracts, issued by banks or surety
companies, amount to €10.7 billion at 31 March 2005.
The Group has 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 up to 27 July 2006.
The bonds under this new programme benefit from a €2 billion security package
consisting of:
- a first loss guarantee in the form of cash collateral provided by the
Group for €700 million (see Note 11); and
- a second rank security for a total amount of €1,300 million covering
second losses in excess of the cash collateral, in the form of guarantees,
given on a pari passu basis by a French State- guaranteed institution
(Caisse Française de Développement Industriel) for an amount of €1,250
million, and the remainder (€50 million) by a group of banks consisting of
the initial banks of the program.
This programme is revolving : any bond expiring releases capacity to issue new
bonds within the €8 billion limit and the two year period.
The commitment of our core banks was for an initial volume of up to €6.6
billion, of which final documentation was dated July 27th 2004. This initial
amount was expected to cover the Group's forecasted bonding needs for
approximately 18 months.
Since that date further syndication in the program has allowed us to secure to
date €7.4 billion (€7.15 billion at 31 March 2005) which together with bilateral
capacity obtained outside of the program is at this stage anticipated to cover
all our needs till the end of the program in July 2006.
The bonds and guarantees issued in the syndicated facility under that programme
are covered by counter indemnities from ALSTOM Holdings and from the Group
subsidiary performing the contractual obligations pertaining to the guarantee.
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, paid by the bank to
the beneficiary 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 23(a)(3).
At 31 March 2005, €78 million of bonds and guarantees relating to units sold as
part of disposals were still held by the Group.
(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 €749 million at 31 March
2003, €640 million at 31 March 2004 and €429 million at 31 March 2005.
The table below sets forth the breakdown of the outstanding off-balance sheet
vendor financing by Sector at 31 March 2003, 2004 and 2005:
At 31 March At 31 March At 1st April At 31 March
2003 2004 2004(*) 2005
----------- ----------- ------------ -----------
(in € million)
Marine 423 314 174 120
Cruiseinvest/ Renaissance 107 83 40 38
Festival 208 144 48 -
Others 108 87 86 82
Transport 317 321 321 309
European Metro Operator (2) 257 266 266 257
Others 60 55 55 52
Other Sectors 9 5 5 -
----------- ----------- ------------ -----------
Off balance sheet (1) 749 640 500 429
=========== =========== ============ ===========
--------------
(*) Amended amounts at 1 April 2004 pursuant to the first application of the
Règlement CRC 2004-03. See Note 2(a).
(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 11)
(2) Guarantees given include the requirement to deposit funds in escrow in the
event of non-respect of certain covenants, waived through 30 June 2005
The total vendor financing exposure at 31 March 2003, 2004 and 2005 is the
following:
At 31 March At 31 March At 1st April At 31 March
2003 2004 2004(*) 2005
----------- ----------- ------------ -----------
(in € million)
Off balance- sheet exposure 749 640 500 429
Balance sheet exposure
(see Note 11) 510 329 250 -
Exposure relating to
consolidated entities (*) - - 219 146
----------- ----------- ------------ -----------
VENDOR FINANCING EXPOSURE 1,259 969 969 575
=========== =========== ============ ===========
(*) corresponding to the maximum exposure related to four Marine entities
consolidated at 1st April 2004 following the first application of the
Règlement CRC 2003-04 (see Notes 2(a) and 25). At 31 March 2005, this
exposure is covered by €117 million of assets, net.
Marine
Cruiseinvest / Renaissance
At 31 March 2003 and 2004, it corresponds to the guarantees of the financing of
two subsidiaries of Cruiseinvest Jersey Ltd for respectively US$89 million and
US$72 million (€82 million and €59 million) and to the undrawn portion of the
credit line granted to Cruiseinvest LLC of respectively €25 million and €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 Règlement CRC 2004-03 (see Note 25), the relating guarantee
becoming internal and consequently no longer reported.
At 31 March 2005, it corresponds to the guarantees of the financing of one
subsidiary of Cruiseinvest LLC for US$18 million (€14 million) and to the
undrawn portion of the credit line granted to Cruiseinvest LLC of €24 million.
Festival
At 31 March 2003 and 2004, the Group guaranteed the financing of one special
purpose leasing entity relating to one cruise-ship for an amount €111 million
and €96 million respectively. At 1st of April 2004, pursuant to the application
of the Règlement CRC 2004-03, this entity is fully consolidated and the relating
financial debt is included in the Net financial debt of the Group. At 31 March
2005, following the sale of this cruise ship, the associated debt was fully
reimbursed (see Note 25).
In addition, at 31 March 2003 and 2004 the Group guaranteed the financing
arrangements of two cruise ships delivered to Festival for an amount of €97
million and €48 million respectively. At 31 March 2005, following the sale of
these Cruise ships during the period, the guarantees were released.
At 31 March 2005, the Group has no outstanding guarantees relating to Festival.
Other
At 31 March 2003, 2004 and 2005, it mainly corresponds to the guarantees
provided by the Group on the financing arrangements of one cruise-ship and two
high speed ferries delivered to three customers for an amount of €91 million,
€86 million and €82 million, respectively.
Based on known facts and on assumptions as to leases renewal and ships sales for
Cruiseinvest and other cruise-ships, the Group considers that the provision in
respect of Marine Vendor financing of €14 million at 31 March 2005 (€140 million
at 31 March 2003 and 2004) remains adequate to cover the probable risk.
Transport
At 31 March 2003, 2004 and 2005, guarantees given as part of vendor financing
arrangements in Transport Sector amount to €317 million, €321 million and €309
million, respectively.
Included in this amount are guarantees totalling US$63 million (€58 million, €52
million and €49 million at 31 March 2003, 2004 and 2005, respectively) given
with respect to equipment sold to Amtrak and also guarantees given as part of a
leasing scheme involving a major European metro operator as described in Note
27(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 GBP177 million (€257
million, €266 million and €257 million at 31 March 2003, 2004 and 2005,
respectively).
b) Capital and operating lease obligations
Total Within 1 year 1 to 5 years Over 5 years
-------------- --------------- -------------- --------------
(in € million)
Long term rental (1) 667 6 48 613
Capital leases obligation (2) 278 31 93 154
Operating leases (3) 534 90 225 219
-------------- --------------- -------------- --------------
At 31 March 2003 1,479 127 366 986
============== =============== ============== ==============
Long term rental (1) 683 11 75 597
Capital leases obligation (2) 237 37 94 106
Operating leases (3) 430 62 181 187
-------------- --------------- -------------- --------------
At 31 March 2004 1,350 110 350 890
============== =============== ============== ==============
Long term rental (1) 650 13 86 551
Capital leases obligation (2) 335 46 118 171
Operating leases (3) 403 57 183 163
-------------- --------------- -------------- --------------
At 31 March 2005 1,388 116 387 885
============== =============== ============== ==============
--------------
(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 financial
debt by €667 million, €683 million and €650 million at 31 March 2003, 2004 and
2005, 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 31 March At 31 March
2003 2004 2005
------------- ------------- -------------
(in € million)
Increase in property plant and equipment, net 212 205 248
Increase in financial debt 216 200 255
------------- ------------- -------------
Increase in (decrease) of shareholder's equity (4) 5 (7)
============= ============= =============
(3) Operating leases
A number of these operating leases have renewal options. Rent expense was €110
million, €87 million and €72 million in the year ended 31 March 2003, 2004 and
2005, respectively.
No material commitments are omitted in this note in accordance with current
accounting rules.
Note 28 - 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 around €500 million in one particular
dispute.
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 other payables.
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
€230 million (USD300 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 in many countries in which it operates,
regarding the control and removal of asbestos-containing material and
identification of potential exposure of 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 our operating units worldwide and to promote the
application of this principle to all of our 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 our Marine Sector and to a lesser extent in our other Sectors. The
Group is subject to asbestos-related legal proceedings or claims including in
France, the United States and the United Kingdom.
Some of the Group's subsidiaries are the subject in France of judicial
proceedings instituted by certain employees or former employees 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. Although the courts of competent jurisdiction have made
findings of inexcusable fault, the damages in most of these proceedings have
been borne to date by the general French Social Security (medical) funds.
Although no assurance can be given, the Group believes that those cases where it
may be required to bear a portion of the damages do not represent a material
exposure and therefore, no provisions have been recorded.
In addition to the foregoing, in the United States, the Group is subject to
asbestos-related personal injury lawsuits which have their origin solely in the
Company's purchase of certain former power businesses of Combustion Engineering,
Inc.("CE") or its former subsidiaries for which the Group is indemnified by its
parent company, ABB Ltd.
The Group is also subject to two putative class action lawsuits in the United
States asserting fraudulent conveyance claims against various ALSTOM and ABB
entities in relation to 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 us from ABB. In January
2003, CE filed a "pre-packaged" plan of reorganisation in United States
bankruptcy court. In addition to its protection under the ABB indemnity, the
Group believes that under the terms of this plan, it would have been protected
against pending and future personal injury asbestos claims, or fraudulent
conveyance claims, arising out of the past operations of CE. The pre-packaged
plan was confirmed by the bankruptcy court on 23 June 2003 and by the United
States federal district court on 31 July 2003. The plan, however, subsequently
was appealed, and the United States Court of Appeals for the Third Circuit
vacated the plan confirmation order and remanded the case to the federal
district court for further proceedings. As a result, confirmation of the plan
will be subject to further lower district court and/or bankruptcy court
proceedings and the plan will have to be revised and approval thereof
re-solicited from creditors and asbestos claimants. On 21 March 2005, ABB
announced that it had reached agreement with certain representatives of asbestos
claimants on certain "settlement points" that would form the basis for such a
revised plan. All of the pending CE-related asbestos cases currently are stayed
by virtue of a bankruptcy court order issued at the outset of the case.
At 31 March 2005, the Group is subject to approximately 31 other
asbestos-related personal injury lawsuits in the United States involving
approximately 486 claimants that, in whole or in part, assert claims against the
Group which are not related to the power generation business purchased by us
from ABB or as to which the complaint does not provide details sufficient to
permit us 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 the Group'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. For purposes of the foregoing
discussion, the Group considers a claim to no longer be pending against it if
the plaintiff's attorneys have executed a notice or stipulation of dismissal or
non-suit, or other similar document.
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 our financial condition. The Group can give no assurances that
asbestos-related cases against us will not grow in number or that those we have
at present, or may face in the future, may not have a material adverse impact on
our 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 are expected to,
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.
- United States Putative Class Action Lawsuit
The Group, certain of its subsidiaries and certain of its current and former
employees, 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, 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 its 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 31 March 2005, 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 Industrial 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 a number
of national authorities and 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 matters outstanding and unprovided that
are capable of estimation that are likely to have a material adverse impact on
the consolidated financial statements.
Note 29 - Market related exposures
(a) Currency risk
In the course of its operations, the Group is exposed to currency risk arising
from tenders for business remitted in foreign currency, and from awarded
contracts or "firm commitments" under which revenues are denominated in foreign
currency. The principal currencies to which we had significant exposure in
fiscal year ended 31 March 2005 were the US dollar, British Pound and Swiss
Franc.
Due to these exposures, numerous cash flows of the Group are denominated in
foreign currencies. The Group acquires financial instruments with off balance
sheet risk solely to hedge such exposure on either anticipated transactions or
firm commitments. The instruments used are exchange rate guarantees obtained
through export insurance companies, forward exchange contracts and options.
The Group may not, in specific circumstances, and as an exception to the policy
described above, fully hedge certain identified exposures or anticipate the
forthcoming risks on its operating transactions with management approval.
With respect to anticipated transactions:
• During the tender period, depending on the probability of obtaining the
project and market conditions, the Group generally hedges a portion of its
tenders using options or export insurance contracts when possible. The
guarantees granted by these contract become firm if and when the underlying
tender is accepted.
• Once the contract is signed, forward exchange contracts or currency swaps are
used to adjust the hedging position to the actual exposure during the life of
the contract (either as the only hedging instruments or as a complement to
existing export insurance contracts).
(b) Interest rate risk
The Group does not have a dynamic interest rate risk management policy. However,
it may enter into transactions in order to hedge its interest rate risk on a
case by case basis according to market opportunities, under the supervision of
the Executive Committee.
At 31 March
2005 ‹1 year 1 - 5 years ›5 years
----------- ----------- ----------- -----------
( in € million )
Financial assets at floating rate 2,325 1,564 13 748
Financial assets at fixed rate 5 2 3 -
Financial assets not bearing interests 58 18 20 20
----------- ----------- ----------- -----------
Financial assets 2,388 1,584 36 768
Financial debt at floating rate (1,532) (410) (1,107) (15)
Financial debt at fixed rate (1,375) (83 ) (1,275) (17)
----------- ----------- ----------- -----------
Financial debt (2,907) (493) (2,382) (32)
Net position at floating rate before hedging 793 1,154 (1,094) 733
Net position at fixed rate before hedging (1,370) (81 ) (1,272) (17)
----------- ----------- ----------- -----------
Net position before hedging (577) 1,073 (2,366) 716
Swap fixed to variable - - - -
Net position at floating rate after hedging 793 1,154 (1,094) 733
Net position at fixed rate after hedging (1,370) (81 ) (1,272) (17)
----------- ----------- ----------- -----------
Net position after hedging (577) 1,073 (2,366) 716
--------------
The net short term loan position at floating rate after hedging amounts to
€1,154 million. A 100 bps increase in the market rates would have decreased the
net interest expense by €12 million, representing 5.7% of the net interest
expense for the year ended 31 March 2005.
(c) Nominal and fair value of financial instruments outstanding at year-end
Nominal value of financial instruments
At 31 March 2005
------------------------------------------------------
Remaining Average
term fixed rate
Total ‹1 year 1-5 years ›5 years (*)
--------- --------- --------- --------- ----------
(in € million)
Interest rate instruments:
Interest rate swaps - receive fixed (1) 94 - 94 - 4%
Foreign exchange instruments:
Currency swaps - currencies purchased (2) 1,241 1,179 62 -
Currency swaps - currencies sold (2) 2,459 2,247 212 -
Forward contracts - currencies purchased 1,534 1,232 302 -
Forward contracts - currencies sold 2,300 1,766 534 -
Insurance contracts - currencies purchased 3 3 - -
Insurance contracts - currencies sold 193 34 159 -
Currency options - purchased 130 130 _ -
Currency options - sold 75 75 _ -
--------------
(*) Floating rates are generally based on EURIBOR/LIBOR.
(1) The interest rate swaps of €320 million that were hedging a portion of the
€650 million bond issue were cancelled before maturity.
(2) The currency swaps whose final pay-off were related to the Group's share
price reached maturity during the period.
At 31 March 2004
------------------------------------------------------
Remaining Average
term fixed rate
Total ‹1 year 1-5 years ›5 years (*)
--------- --------- --------- --------- ----------
(in € million)
Interest rate instruments:
Interest rate swaps - receive fixed (1) 374 21 353 - 5.1%
Foreign exchange instruments:
Currency swaps - currencies purchased (2) 2,728 2,705 23 -
Currency swaps - currencies sold (2) 4,708 4,511 197 -
Forward contracts - currencies purchased 922 691 231 -
Forward contracts - currencies sold 2,477 2,028 449 -
Insurance contracts - currencies purchased - - - -
Insurance contracts - currencies sold 161 148 13 -
Currency options - purchased 557 557 - -
Currency options - sold 522 522 - -
--------------
(*) Floating rates are generally based on EURIBOR/LIBOR.
(1) At 31 March 2004, the outstanding interest rate swaps mainly relate to €320
million receiving fixed rates hedging a portion of the €650 million bond issue.
(2) the currency swaps include four swaps, two swaps - currency purchased for a
notional amount of €1,200 million and two swaps - currency sold for a notional
amount of €1,200 million, whose final pay-off are also related to Group's share
price. As a whole, these swaps do not create any currency position and their
future potential losses are capped.
At 31 March 2003
------------------------------------------------------
Remaining Average
term fixed rate
Total ‹1 year 1-5 years ›5 years (*)
--------- --------- --------- --------- ----------
(in € million)
Interest rate instruments:
Interest rate swaps - receive fixed (1) 649 248 401 - 4.4%
Foreign exchange instruments:
Currency swaps - currencies purchased (1) 2,906 1,658 1,249 -
Currency swaps - currencies sold (1) 6,898 4,867 2,031 -
Forward contracts - currencies purchased 798 584 214 -
Forward contracts - currencies sold 2,708 1,646 895 168
Insurance contracts - currencies purchased 96 78 18 -
Insurance contracts - currencies sold - - - -
Currency options - purchased 591 568 23 -
Currency options - sold 564 544 20 -
--------------
(*) Floating rates are generally based on EURIBOR/LIBOR.
(1) At 31 March 2003, the main interest rate swaps outstanding are:
- €353 million receiving fixed rates, €320 million hedging a portion of the
€650 million bond issue and €33 million hedging a bilateral loan.
- €33 million receiving fixed rates with an effective starting date at 20
January 2004.
- €200 million receiving fixed rates to optimise the short term liquidity
management.
(2) the currency swaps include four swaps, two swaps - currency purchased for a
notional amount of €1,200 million and two swaps - currency sold for a notional
amount of €1,200 million, whose final pay-off are also related to Group's share
price. As a whole, these swaps do not create any currency position and their
future potential losses are capped.
Fair value of financial instruments
Publicly traded equity and marketable debt securities are disclosed at market
prices. The fair values of all financial instruments other than specified items
such as lease contracts, controlled businesses and Equity method investees,
other investments and employers' pension and benefit obligations have been
estimated using various valuation techniques, including the present value of
future cash flows. However, methods and assumptions followed to disclose data
presented herein are inherently judgmental and involve various limitations,
including the following:
- Fair values presented do not take into consideration the effects of future
interest rate and currency fluctuations,
- Estimates as at 31 March 2005 are not necessarily indicative of the amounts
that the Group would record upon further disposal/termination of the
financial instrument.
The use of different estimations, methodologies and assumptions may have a
material effect on the estimated fair value amounts. The methodologies used are
as follows:
Long term loans, deposits and other fixed assets
The fair values of these financial instruments were determined by estimating
future cash flows discounted using a risk free rate (Government bond yield)on an
item-by-item basis or external valuations when available.
Cash and cash equivalents and short term investments
The carrying amounts reflected in the consolidated balance sheet approximate
fair value due to the short-term maturity of theses instruments.
Financial debt
The fair value of the financial debt is estimated based on either quoted market
prices for traded instruments or current rates offered to the Group for debt of
the same maturity.
Interest rate swaps, currency swaps, options, and forward exchange
contracts
The fair value of these instruments is the estimated amount that the Group would
receive or pay to settle the related agreements, valued upon relevant yield
curves and foreign exchange rates as of 31 March 2003, 2004 and 2005.
The fair value of forward exchange contracts was computed by applying the
difference between the contract rate and the market forward rate at closing date
to the nominal amount.
Export insurance contracts related to tenders are insurance contracts that are
not marked to market. Export insurance contracts that hedge firm commitments are
considered as acting as derivatives and were marked to market for the purpose of
the disclosure.
The fair value of financial instruments outstanding is analysed as follows:
At 31 March 2003 At 31 March 2004 At 31 March 2005
------------------ ------------------ ------------------
Carrying Fair Carrying Fair Carrying Fair
Value Value Value Value Value Value
-------- ------ -------- ------ -------- ------
(in € million)
Balance sheet
Assets
Long term loans, deposits and retentions 814 701 798 782 829 829
Other fixed assets 83 83 62 62 82 82
Short-term investments 142 143 39 39 15 15
Cash & cash equivalents 1,628 1,628 1,427 1,427 1,462 1,462
Liabilities
Financial debt 6,331 5,909 4,372 4,310 2,907 2,934
Off balance sheet
Interest rate instruments:
Interest rate swaps - receive fixed - 39 - 18 - 3
Foreign exchange instruments
Currency swaps - currencies purchased - (178) - (127) - -
Currency swaps - currencies sold - 257 - 121 - 41
Forward contracts - currencies purchased - (30) - (58) - (91)
Forward contracts - currencies sold - 87 - 94 - 106
Insurance contracts - currencies purchased - (6) - - - -
Insurance contracts - currencies sold - - - (5) - (2)
Currency option contracts - purchased - 37 - 19 - 19
Currency option contracts - sold - (7) - (4) - (1)
--------------
The increase in fair value of forward contracts and currency swaps (currency
sold) and the decrease in fair value of forward contracts and currency swaps
(currency purchased) during the fiscal years ended 31 March 2003, 2004 and 2005
is mainly due to the appreciation of the Euro against the US Dollar.
(d) Credit risk
The Group hedges up to 90% of the credit risk on certain contracts using export
credit insurance contracts. The Group believes the risk of counterparty failure
to perform as contracted, which could have a significant impact on the Group's
financial statements or results of operations, is limited due to the Group
seeking to ensure that customers generally have strong credit profiles or
adequate financing to meet their project obligations.
(e) Liquidity risk
The analysis by maturity and interest rate of the Group's debt is set out in
Note 23(b). Details of short-term liquidity are set out below.
The Group available liquidity within one year at 31 March 2004 and 31 March 2005
is as follows:
At 31 March At 31 March
2004 2005
----------- -----------
(in € million)
Available credit lines (see Note 23(a)) 783 1,202
Cash equivalents available at parent Company level (1) 532 796
Cash equivalents and Short term investments at
subsidiary level (1) 934 681
----------- -----------
Available liquidity 2,249 2,679
Financial debt to be reimbursed within one year
(see Note 23)(b) (278) (444)
Available credit line to be reimbursed within one year (420) (27)
----------- -----------
Available liquidity for the coming year 1,551 2,208
=========== ===========
----------------
(1) See Notes 18 & 19
(2) The reimbursement of securitisation of future receivables is excluded as it
come from the direct payment of the customer to the investor to whom the
Group sold the right to receive the payment.
The Group's lines of credit as well as certain of its other financing agreements
contain covenants requiring it to maintain compliance with financial covenants
as disclosed in Note 23(a) .
Note 30 - Payroll, staff, employee profit sharing
Year ended 31 March
----------------------------------
(in € million except number of employees) 2003 2004 2005
---------- ---------- ----------
Total wages and salaries 3,919 3,274 2,715
Of which executive officers (*) 5 5 6
Social security payments and other benefits 1,032 866 744
Employee profit sharing 18 16 8
Staff of consolidated companies at year-end
Managers, Engineers and professionals 35,983 23,885 23,691
Other employee 73,688 52,926 45,903
---------- ---------- ----------
Approximate number of employees 109,671 76,811 69,594
========== ========== ==========
---------------
(*) executive officers at closing.
Note 31 - stock options
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 (plan n°7).
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 1,007
Number of options initially granted 111,320,000
Number of options exercised since the origiN 0
Number of options cancelled 1,200,000
Number of remaining options at 31 march 2005 110,120,000
Number of shares that may be subscribed 24,400,000
by the members of the executive committee
Terms and conditions of exercise - 50% of options granted to
each beneficiary are subject
to exercise conditions
relating to the group's free
cash flow and operating margin
for fiscal year 2006. The
conditional options may only
be exercised entirely if at
the closing of fiscal year
2006, the free cash flow of
the Group is positive and the
operating margin of the group
is superior or equal to 6%.
Below these thresholds the
options shall be partially
exercisable. They will be
forfeited if the free cash
flow is negative at more than
€(500) million or if the
operating margin is inferior
to 5%.
In addition, the characteristics of the previous stock option plan outstanding
at 31 March 2005 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
------------ ------------ ------------
Date of shareholders' meeting 24 July 2001 24 July 2001 24 July 2001
Creation date 24 July 2001 8 January 2002 7 January 2002
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
Number of options originally
granted 4,200,000 4,200,000 1,220,000
Number of options exercised 0 0 0
Number of options cancelled
since the origin 1,225,251 1,093,784 0
Adjusted number of remaining
options at 31 March 2005 (2) 4,793,296 5,001,275 1,899,378
Number of shares that may be
subscribed by the members of the
executive committee 124,077 169,068 1,868,239
Terms and conditions of exercise - 1/3 of - 1/3 of - 1/3 of
options options options
exercisable exercisable exercisable
as from as from as from
24 July 8 January 7 January
2002 2003 2004
- 2/3 of - 2/3 of - 2/3 of
options options options
exercisable exercisable exercisable
as from as from as from
24 July 8 January 7 January
2003 2004 2005
- all - all - all
options options options
exercisable exercisable exercisable
as from as from as from
24 July 8 January 7 January
2004. 2005. 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 n°3, 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 August 2004.
The following is a summary of activity of the plans:
Weighted
average
exercise
price per
Shares share
------------- -------------
Outstanding at 1 April 2002 adjusted 14,726,354 € 24.81
Granted 1,220,000 € 6.00
Exercised - -
Cancelled (4,833,091) € 28.62
Outstanding at 31 March 2003 11,113,263 € 21.09
Outstanding at 1 April 2003 adjusted 13,775,923 € 17.01
Granted - -
Exercised - -
Cancelled (1) (3,267,286) € 20.25
Outstanding at 31 March 2004 10,508,637 € 16.00
Outstanding at 1 April 2004 adjusted 12,855,532 € 12.65
Granted 111,320,000 € 0.43
Exercised - -
Cancelled (2,361,563) € 7.17
Outstanding at 31 March 2005 121,813,949 € 1.59
-------------------
(1) including Plan n°1 which became void in April 2004.
Note 32 - Subsequent events
- On 6 April 2005, the Group signed a selling agreement with Areva for the
acquisition of its T&D business of Alstom Ltd (India).
- On 23 May 2005, the Group signed a binding agreement to dispose of our Flow
Systems Business headquartered in Fredericia (Denmark). This business
manufactures district heating equipment mainly for the Northern Europe market
and other Continental Europe markets. It was integrated in the Power Service
Sector. This disposal will be included in the Group's commitment towards the
European Commission.
- The Group launched the disposal of its Power Conversion Business.
Note 33 - Major companies included in the scope of consolidation
The major companies are selected according to the following criteria:
- holding companies
- sales above €50 million
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 Holding Ltd.............. 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 Belgium SA ................. Belgium 100.0 Full consolidation
ALSTOM Brasil 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 Leroux Naval................ France 100.0 Full consolidation
ALSTOM LHB GmbH.................... Germany 100.0 Full consolidation
ALSTOM Ltd ........................ United Kingdom 100.0 Full consolidation
ALSTOM Ltd ........................ India 100.0 Full consolidation
ALSTOM NL Service Provision Ltd.... United Kingdom 100.0 Full consolidation
ALSTOM Power Asia Pacific Sdn Bhd.. Malaysia 100.0 Full consolidation
ALSTOM Power Boiler................ France 100.0 Full consolidation
ALSTOM Power Boiler GmbH........... Germany 100.0 Full consolidation
ALSTOM Power Centrales............. France 100.0 Full consolidation
ALSTOM Power Conversion GmbH....... Germany 100.0 Full consolidation
ALSTOM Power Conversion Inc........ United-States 100.0 Full consolidation
ALSTOM Power Conversion SA France.. France 100.0 Full consolidation
ALSTOM Power Energy Recovery GmbH.. Germany 100.0 Full consolidation
ALSTOM Power Flowsystems A/S....... Denmark 100.0 Full consolidation
ALSTOM Power Generation AG......... Germany 100.0 Full consolidation
ALSTOM Power Hydraulique........... France 100.0 Full consolidation
ALSTOM Power Hydro................. France 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 Norway AS............. Norway 100.0 Full consolidation
ALSTOM Power O&M Ltd............... Switzerland 100.0 Full consolidation
ALSTOM Power SA.................... Spain 100.0 Full consolidation
ALSTOM Power Service............... France 100.0 Full consolidation
ALSTOM Power Service Ltd........... United Arab
Emirate 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 Projects India Ltd.......... India 68.5 Full consolidation
ALSTOM Transport SA................ France 100.0 Full consolidation
ALSTOM Transportation Inc.......... United States 100.0 Full consolidation
ALSTOM Transport BV................ Netherlands 100.0 Full consolidation
ALSTOM Transporte ................. Spain 100.0 Full consolidation
Chantiers de l'Atlantique.......... France 100.0 Full consolidation
West Coast Traincare............... United Kingdom 100.0 Full consolidation
Companies included in the list of major companies at 31 March 2004 for which
sales are below €50 million at 31 March 2005.
ALSTOM Power Turbomachines......... France
Eurokrail.......................... South Korea
ALSTOM Power sro................... Czech republic
ALSTOM Schienenfahrzeuge AG........ Switzerland
Alstom Signalling Inc.............. United States
Alstom Transporte SA de CV......... Mexico
Alstom Power Mexico SA de CV....... Mexico
Alstom Power Austria Gmbh.......... Austria
Alstom Export SDN Bhd............. Malaysia
Alstom T&D Inc..................... United States
Alstom New Zealand Holding Ltd..... New Zealand
Companies included in the list of major companies at 31 March 2005 for which
sales were below €50 million at 31 March 2004.
Alstom Leroux Naval................ France
Alstom NL Service Provision Ltd.... United Kingdom
Alstom Power Boiler................ France
Alstom Power Flowsystems A/S....... Denmark
A list of all consolidated companies is available upon request at the head
office of the Group.
MANAGEMENT DISCUSSION AND ANALYSIS ON CONSOLIDATED
FINANCIAL STATEMENTS
AS AT 31 MARCH 2005
FISCAL YEAR 2004/05
The following discussion should be read together with the 31 March 2005
Consolidated Financial Statements. During the periods discussed in this section,
we undertook several significant transactions that affected the comparability of
our financial results with previous 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. These adjustments are described below,
under "--Change in business composition and presentation of our accounts,
non-GAAP measures--Comparable basis" below.
OVERVIEW
INTRODUCTION
We serve the energy market through our activities in the field of power
generation and the transport market through our activities in the rail transport
and ship-building. We design, supply and service a complete range of
technologically advanced products and systems for our customers, and possess a
unique expertise in systems integration and through-life maintenance and
service.
We believe the power and transport markets we operate in are sound, offering:
- solid long-term growth prospects based on customers' need to expand
essential infrastructure systems in developing economies and to replace
or modernise them in the developed world ; and
- attractive opportunities in service and systems.
We believe we can capitalise on our long-standing expertise in these two markets
to achieve competitive differentiation. We are strategically well-positioned for
the following reasons:
- we are one of the top players in all major market segments ;
- we benefit from one of the largest installed bases of equipment in
power generation and rolling stock, which should enable us to develop
our service business ;
- we are a recognised technology leader in most of our fields of
activity, providing best-in-class technology ; and
- we have global reach, with a presence in around 70 countries worldwide.
STATUS OF OUR ACTION PLAN AND MAIN EVENTS OF FISCAL YEAR 2004/05
On 12 March 2003, we presented our new strategy and action plan to overcome
three key difficulties: an insufficient level of profitability and cash
generation, problems with the GT24/GT26 gas turbines sold in previous years and,
to a lesser extent, with certain individual contracts, and a high level of debt.
Our action plan comprised three main elements:
- focusing ALSTOM's range of activities through the disposal of certain
assets ;
- improving operational performance and adapting to market conditions ;
and
- strengthening our financial base.
We achieved significant progress during fiscal year 2003/04: we put in place a
more efficient organisation and launched significant restructuring plans; we
achieved substantial progress in resolving past operational problems concerning
our UK trains contract and our GT24/GT26 heavy duty gas turbines and we
successfully re-introduced them in the market; finally, we reached agreement on
a financing package which has strengthened our balance sheet and financial
structure.
In fiscal year 2004/05, we made further progress in our action plan, the results
of which can be seen in our key performance indicators:
- customers' confidence is renewed as underlined by a 15% increase in
order intake on a comparable basis ;
- our operational performance is improving as shown in the strong
increase of our operating margin from 1.2% to 4.0% on a comparable
basis, in line with our objectives and reflecting our improved project
management and reduced cost base ;
- our free cash flow has improved from €(1,007) million in fiscal
year 2003/04 to €(170) million in fiscal year 2004/05 ; and
- our overall financial situation has been strengthened by further
reducing our net debt, and increasing our access to bonding facilities.
DISPOSAL PROGRAMME
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.
The first transaction covered our small gas turbines business, and the second
transaction covered our medium-sized gas turbines and industrial steam turbines
businesses. In the fiscal year ended 31 March 2003, the Industrial Turbines
businesses generated sales of approximately €1.25 billion and had an operating
margin of approximately 7%. At 31 March 2003, these businesses employed around
6,500 people.
To date we have received total proceeds from Siemens of €904 million from the
disposal of these businesses, including €59 million during fiscal year 2004/05.
Of the €125 million of the initial escrowed amounts that were to be released to
us on or before 3 May 2005, we agreed to use €19 million to cover some
post-closing adjustments and we received €32 million. The release of the
remaining €74 million is still under discussion.
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 closed on 9 January 2004, except for some minor businesses
located in jurisdictions where transfer procedures were mostly completed during
fiscal year 2004/05, and for a T&D publicly-listed company in India for which
Areva has launched a public offer in April 2005, with Alstom's agreement. The
price after closing adjustments has been set at €1,053 million, including €140
million for cash transfered.
As of 31 March 2005, we had received proceeds of €1,036 million from Areva,
including €207 million in fiscal year 2004/05. A further €17 million were held
in escrow primarily to cover the value of the shares of T&D India to be
transferred at completion of the public offer launched by Areva. It is expected
that this transaction will be completed during the first half of fiscal year
2005/06.
Disposal of our Transport activities in Valencia, Spain
On 29 November 2004, we signed a binding agreement to sell our Transport
activities of the factory in Valencia, Spain, to Vossloh. This factory, located
north of Valencia, was built in 1990 and as of the end of fiscal year 2004/05
employed 420 people. It specialises in the manufacturing of locomotives and
bogies as well as non modular trains for the regional market. This transaction
was closed on 31 March 2005.
Disposal of various non-core activities in Australia
We sold our Information Technology and Industrial Products activities in
Australia during fiscal year 2004/05 in a management buy-out. These non-core
activities, reported under "Corporate and other" employed around 130 people and
recorded €90 million of sales in fiscal year 2003/04, a significant portion of
which derived from the distribution in Australia of IT servers and software.
PROGRESS ON OPERATIONAL PROBLEMS WITH OUR GT24/GT26 HEAVY-DUTY GAS TURBINES
GT24 and GT26 gas turbines, with outputs of around 180 MW and 260 MW,
respectively, are the largest of our extensive range of gas turbines. The
technology was originally developed by ABB in the mid-1990s, with most sales
made prior to the acquisition by ALSTOM. At the start of the commercial
operation of the second generation, or "B" version turbines, in 1999 and 2000, a
number of technical issues were identified, indicating that the turbines would
not meet contractual performance obligations.
We have implemented several technical improvements to the turbines, which
generally permit flexible and reliable operation of the fleet. Cumulative plant
reliability since the start of the commercial operation is now 97% for the
GT24/GT26 fleet. Operational reliability and flexibility are important factors
for our customers, particularly for those in merchant markets.
Our confidence in the technology is being reinforced by major progress achieved
to date. Modifications aimed at delivering enhancements to output and efficiency
have been designed, validated, tested and are being implemented as follows:
- Compressor mass flow and efficiency increase for GT24 and GT26, with
increased electrical output. It has been successfully implemented on
twenty-two engines in Mexico, USA, Spain, the UK, Ireland, Singapore
and Canada totalling 120'000 hours of operation.
The fleet lead unit, with the new compressor, has now been in operation
for more than 17'300 hours. This compressor is now part of the standard
design for new engines ;
- Dual Fuel Capability - Successful demonstration in operation. The
system is now available for commercial application on both existing and
new gas installations ;
- Life-time Package - twenty-five engines have been fitted with a blade
improvement package, and after 15,200 hours of operation on the lead
unit, inspection shows a fully satisfactory behaviour. The twenty-five
units have now accumulated more than 140,000 hours of operation.
The 76 machines in service today have accumulated appoximately 1,300,000
operating hours at high reliability levels.
As a consequence of the technical improvements implemented on our GT24/GT26 gas
turbines, we are now back in the large gas turbine market. The successful
re-marketing of the GT26 machine was demonstrated by the securing of a
significant contract for three GT26 turbines in Spain for Gas Natural in January
2004 and four GT26 units in Thailand for Gulf Power in November 2004. We believe
that these contracts signal that both technology and performance are now fully
in line with customer expectations.
The commercial situation with respect to the 80 GT24/GT26 gas turbines initially
sold continues to improve: as of today, 76 units are in commercial operation and
four units have been cancelled.
Today, we have reached commercial settlements for 74 out of the 76 units sold.
Under agreements covering to date 8 of the units (9 as of 31 March 2005 and 22
as of 31 March 2004), 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 under normal warranty or have had those warranty
periods expire. All of the cases of client 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 one project for which the customer has accepted the two turbines, but alleges
that contractual penalties are due in amounts contested by the Group.
Cash outflow related to the GT24/GT26 gas turbines over fiscal year 2004/05 at
€366 million has decreased as compared with €766 million in fiscal year 2003/04
and €1,055 million in fiscal year 2002/03 and was better than the amount
expected (€500 million). We expect our remaining cash outflow related to the
GT24/GT26 gas turbines issue to be around €380 million over the next three years
including €200 million in fiscal year 2005/06.
As of 31 March 2005, we retained €379 million of related provisions and accrued
contract costs compared with €738 million as of 31 March 2004 and €1,655 million
as of 31 March 2003. As of 31 March 2003 and 2004, these provisions were
estimated without taking into account an additional exposure, which we consider
will be mitigated by appropriate action plans. Such exposure to be mitigated by
appropriate action plans amounted to €454 million at 31 March 2003 and had been
reduced to €234 million as of 31 March 2004 and to nil as of 31 March 2005. Our
mitigation plan has been successfully implemented with no significant impact on
our operating income over the last two fiscal years.
RESTRUCTURING AND COST REDUCTION PROGRAMMES
Restructuring plans launched in fiscal year 2003/04 are progressing according to
schedule. During fiscal year 2004/05 we launched new initiatives in order to
further improve our operational performance and further reduce our cost base. As
a result, we have recorded €358 million for restructuring in fiscal year 2004/05
in addition to the €655 million recorded in fiscal year 2003/04, of which mainly
€190 million for Power Turbo-Systems / Power Environment, €105 million for
Transport and €30 million for Power Service.
In addition to the headcount reduction of 8,400 through restructuring announced
during fiscal year 2003/04, new plans launched in fiscal year 2004/05 included
an additional reduction of approximately 3,100. These new plans comprise notably
a reduction of 1,600 employees in Power Turbo-Systems / Power Environment and
1,300 employees in Transport.
Out of the total planned headcount reduction of 11,500 launched within the two
last fiscal years, approximately 9,100 were in Europe. The plans have been
largely implemented and as a result our workforce has been reduced through
restructuring plans by around 8,000 positions during fiscal years 2003/04 and
2004/05.
FINANCING PACKAGES
Financing package - Summer 2003
We launched in the summer of 2003 a financing package that was fully completed
in December 2003 and that comprised:
- €300 million capital increase ;
- €300 million of subordinated bonds issued to the French State, which
were to be automatically reimbursable with shares upon the approval of
the European Commission (TSDDRA) ;
- €200 million of subordinated bonds issued to the French State (TSDD) ;
- the issuance of €901 million of bonds mandatorily reimbursable with
shares (ORA) ;
- 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
- 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 also included some short-term liquidity rolled over until January
2005.
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 of 2004 a supplemental
financial package covering the following items:
- a bonding programme aimed at covering our needs for 18 to 24 months ;
- a total capital increase of €1,748 million subscribed either in cash or
by set-off against certain of our outstanding debt.
As part of this financing package, we have re-negotiated our financial covenants
as described in Note 23 (a)(3) to our Consolidated Financial Statements.
Bonding Programme
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 summer 2003 and new bonds to be issued over a two year period up
to 27 July 2006.
The bonds under this bonding programme benefit from a €2 billion security
package consisting of:
- a first loss guarantee in the form of cash collateral provided by
ALSTOM for €700 million (out of the proceeds of the capital increases
described below) ; and
- a second rank security for a total amount of €1,300 million covering
second losses in excess of the cash collateral, in the form of
guarantees, given on a pari passu basis by a French State-guaranteed
institution (Caisse Française de Développement Industriel) for an
amount of €1,250 million, and by a group of banks consisting of the
initial banks of the program for the remaining amount of €50 million.
This programme is revolving: any bond expiring releases capacity to issue new
bonds within the €8 billion limit and the two year period.
The issuance of new bonds under the bonding programme mentionned above is
subject to the financial covenants disclosed in the Note 23 (a) (3) to our
Consolidated Financial Statements.
The commitment of our core banks in July 2004 was for an initial volume of up to
€6,600 million. This initial amount was expected to cover our forecasted bonding
needs for approximately 18 months.
Since that date further syndication in the program has allowed us to secure to
date an amount of €7.4 billion which together with bilateral capacity obtained
outside of the program is at this stage anticipated to cover all our needs till
the end of the program in July 2006.
Share capital increases
We completed in fiscal year 2004/05 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:
- 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 ; and
- 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:
- €212 million from the part of PSDD held by our banks ;
- €18 million from our multi-currency Revolving Credit Agreement due
2006 of €722 million ; and
- €10 million from committed bilaterals.
Following the automatic reimbursement with 240,000,000 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 capital 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.
Finally, on 6 December 2004, we closed a share capital increase reserved to our
employees consisting of 49,814,644 new shares issued at a value of €0.35.
Approval by the European Commission and commitments
The formal investigation launched by the European Commission in 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:
- our freight locomotive business in Valencia, Spain (disposal completed
at 31 March 2005) ;
- our Transport Sector's activities in Australia and New Zealand
(disposal on-going) ; and
- our industrial boilers business, which is part of our Power
Turbo-Systems / Power Environment Sector (disposal on-going).
The remainder of our commitment, representing €800 million of annual sales from
unspecified activities on the fiscal year 2002/03, is partially covered by the
disposal of our Information Technology and Industrial Products activities in
Australia (representing €103 million of sales in fiscal year 2002/03) and by the
disposal of our Flow Systems activities (representing €131 million of sales in
2002/03).
In addition, we have launched the disposal of our Power Conversion Business with
sales of €592 million in fiscal year 2002/03 (including intercompany
transactions). The achievement of all the disposals completed, or on-going,
should enable us to fulfill our commitments towards the European Commission to
dispose of certain industrial activities.
We also agreed to enter into a 50-50 joint venture in our Hydro business.
Finally, we committed to concluding industrial partnerships during a period of
four years concerning a significant part of our activities to ensure our future
development.
DEBT REFINANCING
In February 2005, we launched an exchange offer for €650 million of bonds due
July 2006 and €250 million of Euribor-indexed Auction Rate Notes (ARN) due
September 2006, to be exchanged for new 6.25% fixed-rate bonds due March 2010.
A total of €668 million in principal amount of bonds were submitted in the
exchange offer out of a total of €900 million principal amount of eligible bonds
(respectively €422 million of the July 2006 bonds out of €650 million of
existing bonds, and €245 million out of €250 million of September 2006 ARN)
leading after application of the exchange ratio to €695 million in principal
amount of new 2010 bonds. In addition, we issued €305 million additional bonds
with the same terms and conditions.
In total, the new 6.25% bonds due March 2010 are in the principal amount of
€1,000 million. With this transaction, our liquidity and the maturity profile of
our debt have been substantially improved.
GENERAL COMMENTS ON ACTIVITY AND RESULTS
Key financial figures
The following tables set out, on a consolidated basis, some of our key financial
figures:
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Total Group Year ended 31 March %Variation %Variation
Actual figures March 04/ March 05/
(in € million) 2003 2004 2005 March 03 March 04
---- ---- ---- -------- --------
Order backlog 30,330 25,368 27,203 (16%) 7%
Orders received 19,123 16,500 15,841 (14%) (4%)
Sales 21,351 16,688 13,662 (22%) (18%)
Operating income (loss) (507) 300 550
Operating margin (2.4%) 1.8% 4.0%
Net income (loss) (1,432) (1,836) (865)
Free Cash Flow (265) (1,007) (170)
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Total Group Year ended 31 March %Variation %Variation
Actual figures March 04/ March 05/
(in € million) 2003 2004 2005 March 03 March 04
---- ---- ---- -------- --------
Order backlog 26,180 24,792 27,203 (5%) 10%
Orders received 13,774 13,776 15,841 0% 15%
Sales 16,107 14,202 13,662 (12%) (4%)
Operating income (loss) (581) 168 550
Operating margin (3.6%) 1.2% 4.0%
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General comments on activity
During fiscal year 2004/05, continuing expansion of our markets in the emerging
countries contrasted sharply with the relatively weak markets in Europe. Power
generation demand in Asia and particularly in China and India remained strong in
contrast to the United States and European markets, where demand remained very
low. As a result of this geographical shift as well as the increasing importance
of environmental concerns, demand for hydro products remained strong. In the
field of Transport, the market has been contrasted with opportunities in Italy,
Spain and France and an overall growth in Asia while the German and UK markets
have been slower. The cruise-ship market has become more active.
Orders received and backlog
We recorded during fiscal year 2004/05 a strong rebound in our commercial
activity: we booked €15,841 million of orders in fiscal year 2004/05, an
increase of 15% compared with fiscal year 2003/04 on a comparable basis (a
decrease of 4% on an actual basis mainly due to the disposal of our T&D
activities). On a comparable basis, all our Sectors contributed to the increase
in order intake, with higher growth rates in the Transport, Marine and Power
Service Sectors.
Our backlog was €27.2 billion at 31 March 2005, representing approximately two
years of sales.
Sales
Sales were €13,662 million in fiscal year 2004/05, decreasing by 4% compared
with fiscal year 2003/04 on a comparable basis. The decrease resulted mainly
from our Power Turbo-Systems / Power Environment and Marine Sectors due to the
impact of the low level of orders in the second half of fiscal year 2002/03 and
in the first half of fiscal year 2003/04. Sales in other Sectors increased on a
comparable basis.
Sales decreased by 18% in fiscal year 2004/05 on an actual basis. This decrease
was mainly due to the disposal of our Industrial Turbines business and T&D
activities and to a lesser extent to the decline of the US dollar against the
Euro.
Operating income (loss)
On an actual basis, our operating income in fiscal year 2004/05 was €550 million
or 4.0% of sales, as compared with an operating income of €300 million and an
operating margin of 1.8% in fiscal year 2003/04. On a comparable basis, mainly
when excluding the favourable effect of our T&D activity last year before its
disposal, our operating income amounted to €168 million or 1.2% of sales in
fiscal year 2003/04. This strong improvement of our operating margin despite a
lower level of sales is notably due to a reduction in our cost base and to a
better performance in the execution of our contracts.
Net income (loss)
Net loss after goodwill amortisation was €865 million resulting primarily from
financial expenses (€346 million) and substantial restructuring charges (€358
million) as well as some additional write-off of deferred tax assets (€218
million). This represents a significant improvement as compared to a loss of
€1,836 million in fiscal year 2003/04.
Free cash flow
Our free cash flow was €(170) million in fiscal year 2004/05; it included:
- cash outflows of €366 million on the GT24/GT26 gas turbines, as
compared with €766 million for fiscal year 2003/04 ;
- high restructuring and financial expenses ;
- the strong improvement in our working capital in all Sectors excluding
Marine, mainly due to the reduction of our overdue receivables and
higher customer deposits resulting from a recent rebound in orders
received, partly offset by a negative change in working capital for our
Marine Sector.
The improvement from free cash flow of €(1,007) million for fiscal year 2003/04
stems mainly from lower cash outflow related to the GT24/GT26 gas turbines and
improved operational performance.
RECENT DEVELOPMENTS
On 23 May 2005, we signed a binding agreement to dispose of our Flow Systems
Business headquartered in Fredericia (Denmark). This operation is subject to its
approval by the relevant competition authorities. This business which
manufactures district heating equipment mainly for the Northern Europe market
and other markets in continental Europe was part of our Power Service Sector and
has recorded sales of €150 million in fiscal year 2004/05 with a total number of
employees of 570.
OUTLOOK
The increase in the power generation new equipment market and the timing for
recovery of the cruise-ship market remain uncertain over the short to
medium-term even though we foresee some positive developments: we believe
however that the rail transport and service markets should remain sound.
Regardless of short term fluctuations, we believe that market fundamentals
should lead, in the medium to long-term, to growing demand for both new
equipment and services in all our markets.
In the following outlook, operating income and operating margins are made by
reference to current French GAAP.
For internal planning purposes, we have established the following objectives to
be achieved in fiscal year 2005/06:
- 6% operating margin leading to return to profitability ;
- positive free cash flow.
Our ability to meet these objectives depends on a number of actions, including
the successful completion of our restructuring and cost reduction programmes
(our goal is to save approximately €500 million on an annualized basis in March
2006), recovery in our Power Turbo-Systems / Power Environment Sector,
improvement of the performance of our Marine Sector, increase in operating
margin in the Transport Sector as well as growth in the more profitable Service
businesses.
We are taking the following steps to reach our objectives in each of the
Sectors:
- Power Turbo-Systems / Power Environment: We aim to increase the intake
of profitable orders, improving our project management and optimising
further our cost base. Our business plan also includes seizing profit
opportunities on certain targeted markets, such as environmental
related projects, as well as benefiting from overall growth in the
Asian markets, especially in China. Major restructuring plans are
underway to adapt our industrial capacity to the new equipment market
downturn and to cut losses and reach an operating margin of 3% in
fiscal year 2005/06 ;
- Power Service: We expect that the service market will continue to grow
and we aim to develop our services based on our field presence,
manufacturing and technical capabilities. We intend to maintain our
operating margins above 15% through cost-cutting measures as well as
through the evolution of our portfolio of businesses towards high
margin segments ;
- Transport: Based on our strong backlog and additional orders we target,
our objective is to reach an operating margin of 7% due to growing
sales, improvements in contract execution and cost reduction through
standardisation, sourcing, restructuring plans and overhead adjustments
;
- Marine: We are working on rebuilding our order backlog with
cruise-ships and other high value-added ships and are implementing
strong measures to reduce costs. Our target is to return to a positive
operating margin within 2 to 3 years ;
- Power Conversion: Our objective is to continue improving the
performance of this business.
Positive net income for fiscal year 2005/06 should result from increased
operating profitability and lower restructuring and financial charges.
Beyond the current fiscal year, we aim to improve further our operational
performance targeting a 7 to 8% operational margin in March 2008 leading,
through a strict management of our working capital management, to a strong
increase of our free cash flow and thus to further reduce our debt.
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 "Cautionary Note
Regarding Forward- Looking Statements" and "Risk Factors", or other unknown
risks, materialise. In particular, our ability to achieve our objectives
depends, among other things, on our complying with the commitments requested by
the European Commission, our financial position allowing us to obtain additional
or extended sources of bonding, our meeting some of the financial covenants in
our financing agreements, our successfully resolving litigation and
performance-related issues, our managing working capital effectively, and our
avoiding adverse effects relating to the credit of our customers.
OPERATING AND FINANCIAL REVIEW
CHANGE IN BUSINESS COMPOSITION AND PRESENTATION OF OUR ACCOUNTS, NON-GAAP
MEASURES
CHANGES IN BUSINESS COMPOSITION
Our results of operations for the three years ended 31 March 2003, 2004 and 2005
have been significantly impacted by the acquisitions and disposals described
below.
The table below sets out our main acquisitions during the periods indicated.
Sales and numbers of employees are presented for the fiscal year preceding the
acquisition, except as otherwise indicated.
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Country/ % of shares Sales Number of
Companies/Assets acquired Sectors Region acquired (in @ million) employees
---------------------------------------------------------------------------------------------
Fiscal year 2004/05
-------------------
No acquisition - - - - -
Fiscal year 2003/04
-------------------
Innorail Transport France 100% 7 7
Fiscal Year 2002/03
-------------------
Fiat Ferroviaria (1) Transport Italy Remaining 49%
Farham T&D United Kingdom Assets 5 62
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(1) Fiat Ferroviaria consolidated with effect from 1 October 2000
The table below sets out our main disposals during the periods indicated. Sales
are presented for the fiscal year preceding disposal.
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Country/ % of shares Sales Number of
Companies/Assets disposed Sectors Region acquired (in € million) employees
---------------------------------------------------------------------------------------------
Fiscal year 2004/05
-------------------
Valencia plant Transport Spain 100% 58 420
Information Technology Corporate Australia Assets 90 130
Fiscal year 2003/04
-------------------
T&D activities T&D World-wide 100% 3,082 28,182
Industrial Turbine activity Power World-wide 100% 1,268 6,327
Power
Schilling Robotics Conversion USA 100% 14 54
Power
AP Chaudieres lndustrielles Environment France 100% 33 209
FIGLEC shares Corporate China 40%
Fiscal year 2002/03
-------------------
Operations in South Africa All Sectors South Africa 90% 170 4,000
AP Insurance Ltd. All Sectors Switzerland 100% 28 0
Brazil Services T&D Brazil 51% 9 911
Reducteurs de Mesures T&D Italy Assets 7 98
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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 sites of our Industrial Turbines
businesses have since been transferred to Siemens.
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 closed on 9 January 2004, except for some minor businesses located
in jurisdictions where transfer procedures were completed during fiscal year
2004/05 and a T&D publicly-listed company in India for which a selling agreement
was signed with Areva on 6 april 2005.
USE AND RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
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 Autorité des Marchés 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. A
reconciliation of free cash flows and net cash provided by (used in) operating
activities is presented below.
--------------------------------------------------------------------------------
Total Group Year ended 31 March
Actual figures
(in € million) 2003 2004 2005
-------------- ---- ---- ----
Net cash provided by (used in) operating
activities (537) (1,058) (127)
Elimination of variation in existing receivables 661 267 87
Capital expenditures (410) (254) (182)
Proceeds from disposals of property, plant and
equipment 252 244 52
Elimination of proceeds from our programme of
disposal of real estate assets (231) (206) -
----- ----- -
Free Cash Flow (265) (1,007) (170)
---------------------------------------------------------------------------------
We use the free cash flow measure both for internal analysis purposes as well as
for external communications, as we believe it helps the reader understand 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 At 31 March
Actual figures
(in € million) 2003 2004 2005
---- ---- ----
Current assets 11,728 8,371 7,867
Net cash proceeds from sale of trade receivables 357 94 7
Current liabilities (12,916) (9,742) (9,368)
Provisions for risks and charges (3,698) (3,489) (3,156)
Fixed assets 9,478 7,326 6,953
----- ----- -----
Capital employed 4,949 2,560 2,303
--------------------------------------------------------------------------------
Capital employed by Sector and for the Group as a whole are also presented in
Note 26 to the 31 March 2005 Consolidated Financial Statements.
We use the capital employed measure both for internal analysis purposes as well
as for external communications, as we believe they help the reader understand
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 variations 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 on a comparable basis. 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:
- restatement of the actual figures for fiscal years 2003/04 and 2002/03
using fiscal year 2004/05 exchange rates for order backlog, orders
received, sales, operating income and elements constituting our
operating income ; and
- adjustments due to changes in business composition to the same line
items for fiscal years 2003/04 and 2002/03. More particularly
contributions of material activities sold since 1 April 2003 have been
excluded from the figures reported in the fiscal years 2003/04 and
2002/03, i.e., mainly the Industrial Turbines businesses sold in the
first half of fiscal year 2003/04 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 fiscal years
2003/04 and 2002/03. No adjustment has been made on figures disclosed for fiscal
year 2004/05.
---------------------------------------------------------------------------------------------------------------------------------
March 2003 March 2004 March 2005
-------------------------------------- ------------------------------------- -----------------
Actual Scope Exchange Comparable Actual Scope Exchange Comparable Actual % Var 05
(in € million) figures Impact rate figures figures impact rate figures figures /04
------- ------ -------- ---------- ------- ------ -------- ---------- ------- --------
Power Turbo-Systems/Environment 7,308 19 (265) 7,062 6,448 10 (63) 6,395 7,139 12%
Power Service 2,793 (19) (51) 2,723 3,107 (10) (14) 3,083 3,669 19%
Transport 14,676 (86) (307) 14,283 14,321 (197) (179) 13,945 14,489 4%
Marine 1,523 0 0 1,523 817 0 0 817 1,266 55%
Power Conversion 568 (14) (15) 539 495 0 (8) 487 529 9%
Corporate and other 51 0 (1) 50 70 0 (5) 65 111 71%
------------------------------- ------- ------ -------- ---------- ------- ------ -------- ---------- ------- --------
New ALSTOM 26,919 (100) (639) 26,180 25,258 (197) (269) 24,792 27,203 10%
------------------------------- ------- ------ -------- ---------- ------- ------ -------- ---------- ------- --------
T&D 2,126 (2,126) 0 0 110 (110) 0 0 0
Industrial Turbines 1,285 (1,285) 0 0 0 0 0 0 0
------------------------------- ------- ------ -------- ---------- ------- ------ -------- ---------- ------- --------
ORDER BACKLOG 30,330 (3,511) (639) 26,180 25,368 (307) (269) 24,792 27,203 10%
Power Turbo-Systems/Environment 4,404 38 (314) 4,123 5,107 15 (75) 5,047 5,181 3%
Power Service 2,934 (38) (121) 2,775 3,023 (15) (41) 2,967 3,228 9%
Transport 6,412 (7) (351) 6,054 4,709 0 (22) 4,687 5,490 17%
Marine 163 0 0 163 381 0 0 381 1,104 190%
Power Conversion 533 (10) (29) 494 434 0 (1) 433 579 34%
Corporate and other214 214 (42) (12) 160 320 (48) (11) 261 259 (1%)
------------------------------- ------- ------ -------- ---------- ------- ------ -------- ---------- ------- --------
New ALSTOM 14,660 59 (827) 13,774 13,974 (48) (150) 13,776 15,841 15%
------------------------------- ------- ------ -------- ---------- ------- ------ -------- ---------- ------- --------
T&D 3,198 (3,198) 0 0 2,231 (2,231) 0 0 0
Industrial Turbines 1,265 (1,265) 0 0 295 (295) 0 0 0
------------------------------- ------- ------ -------- ---------- ------- ------ -------- ---------- ------- --------
ORDERS RECEIVED 19,123 (4,522) (817) 13,774 16,500 (2,574) (150) 13,776 15,841 15%
Power Turbo-Systems/Environment 6,955 23 (541) 6,437 5,059 24 (86) 4,997 4,256 (15%)
Power Service 2,678 (23) (76) 2,579 2,747 (24) (33) 2,690 2,844 6%
Transport 5,072 (6) (189) 4,877 4,862 0 (26) 4,836 5,134 6%
Marine 1,568 0 0 1,568 997 0 0 997 630 (37%)
Power Conversion 523 (12) (19) 492 499 0 (1) 498 539 8%
Corporate and other 205 (41) (10) 154 241 (44) (13) 184 259 41%
------------------------------- ------- ------ -------- ---------- ------- ------ -------- ---------- ------- --------
New ALSTOM 17,001 (59) (835) 16,107 14,405 (44) (159) 14,202 13,662 (4%)
------------------------------- ------- ------ -------- ---------- ------- ------ -------- ---------- ------- --------
T&D 3,082 (3,082) 0 0 2,073 (2,073) 0 0 0
Industrial Turbines 1,268 (1,268) 0 0 210 (210) 0 0 0
------------------------------- ------- ------ -------- ---------- ------- ------ -------- ---------- ------- --------
SALES 21,351 (4,409) (835) 16,107 16,668 (2,327) (159) 14,202 13,662 (4%)
Power Turbo-Systems/Environment (1,175) (8) 187 (996) (253) (7) 9 (251) (35)
Power Service 403 8 15 426 417 7 (14) 410 473
Transport (24) 1 15 (8) 64 0 7 71
Marine 24 0 0 24 (19) 0 0 (19) (103)
Power Conversion 15 3 (1) 17 15 0 0 15 36
Corporate and other (44) 0 0 (44) (59) 0 1 (58) (81)
------------------------------- ------- ------ -------- ---------- ------- ------ -------- ---------- ------- --------
New ALSTOM (801) 4 216 (581) 165 0 3 168 550
------------------------------- ------- ------ -------- ---------- ------- ------ -------- ---------- ------- --------
T&D 212 (212) 0 0 121 (121) 0 0 0
Industrial Turbines 82 (82) 0 0 14 (14) 0 0 0
------------------------------- ------- ------ -------- ---------- ------- ------ -------- ---------- ------- --------
OPERATING INCOME
(LOSS) (507) (290) 216 (581) 300 (135) 3 168 550
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
Total Group
Sales 21,351 (4,409) (835) 16,107 16,688 (2,327) (159) 14,202 13,662 (4%)
Cost of sales (19,187) 3,365 968 (14,854) (14,304) 1,709 149 (12,446) (11,601) (7%)
Selling expenses (970) 354 33 (583) (785) 222 5 (558) (545) (2%)
R & D expenses (622) 152 17 (453) (473) 86 1 (385) (336) (13%)
Administrative
expenses (1,079) 248 33 (798) (826) 174 7 (645) (630) (2%)
Operating income (loss) 507 (290) 216 (581) 300 (135) 3 168 550
Operating margin (2.4%) (3.6%) (3.6%) 1.8% 1.2% 4.0%
---------------------------------------------------------------------------------------------------------------------------------
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 in fiscal year
2004/05 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 fiscal year 2004/05. The impact was a decrease
of approximately 1% of the orders received and the sales compared with fiscal
year 2003/04.
KEY GEOGRAPHICAL FIGURES FOR FISCAL YEARS 2004/05, 2003/04 AND 2002/03
Geographical analysis of orders
The table below sets out, on an actual basis, the geographic breakdown of orders
received by region of destination:
--------------------------------------------------------------------------------
Year ended 31 March
Total Group
Actual figures % % %
(in € million) 2003 contrib. 2004 contrib. 2005 contrib.
---------------- ---------------- ---------------
Europe 8,889 46% 8,252 50% 7,416 47%
North America 4,604 24% 2,079 13% 2,195 14%
South and Central America 998 5% 704 4% 471 3%
Asia/ Pacific 2,717 14% 3,063 19% 4,289 27%
Middle East / Africa 1,915 10% 2,402 15% 1,470 9%
Orders received by
destination 19,123 100% 16,500 100% 15,841 100%
--------------------------------------------------------------------------------
Europe remained the largest market in terms of orders received, representing 47%
of the total compared with 50% in the prior year. Asia/Pacific increased from
19% to 27% of our orders received. Middle East/ Africa decreased from 15% to 9%
while Americas remained stable at 17%.
The decrease of order intake in Europe was mainly due to Power Turbo-Systems /
Power Environment after the large turnkey projects in Spain and Germany booked
in fiscal year 2003/04.
The increase in Asia/Pacific was mainly due to our performance in China (with
approximately €1.6 billion of order intake mainly for Transport and Power
Turbo-Systems / Power Environment) and in Thailand (with 4 GT26 gas turbines
placed).
The decrease in Middle East/Africa was mainly due to the decrease in orders
received by Power Turbo-Systems / Power Environment, as booking were
particularly high last year.
In fiscal year 2003/04, the geographic breakdown of orders received compared to
fiscal year 2002/03 saw the share of Asia/Pacific and Middle East/Africa
increasing while North American share decreased from 24% to 13% due to lower
order intake in Transport and Power Turbo-Systems / Power Environment.
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 Year ended 31 March
Actual figures % % %
(in € million) 2003 contrib. 2004 contrib. 2005 contrib.
---------------- ---------------- ---------------
Europe 9,219 43% 8,002 48% 7,429 54%
North America 4,719 22% 3,001 18% 1,977 14%
South and Central America 1,534 7% 857 5% 575 4%
Asia / Pacific 3,727 17% 3,401 20% 2.489 18%
Middle East / Africa 2,152 10% 1,427 9% 1,192 9%
Sales by destination 21,351 100% 16,688 100% 13,662 100%
--------------------------------------------------------------------------------
Although the level of sales in Europe decreased in actual terms due to scope
variation, Europe's share of total sales increased from 48% in the fiscal year
2003/04 to 54% in fiscal year 2004/05.
North America decreased mainly as a result of the low level of sales in power
generation, reflecting the current depressed state of the US market.
The increase in order intake in Asia/Pacific recorded in fiscal year 2004/05 did
not yet translate into high sales in this geographical area during the same
year.
In fiscal year 2003/04, the share of European sales increased compared to fiscal
year 2002/03 while the share of North American sales decreased mainly as a
result of the low level of sales in Power Turbo-Systems / Power 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 Year ended 31 March
Actual figures % % %
(in € million) 2003 contrib. 2004 contrib. 2005 contrib.
---------------- ---------------- ---------------
Europe 14,762 69% 12,204 73% 9,951 73%
North America 3,935 18% 2,519 15% 1,919 14%
South and Central America 601 3% 415 2% 374 3%
Asia / Pacific 1,833 9% 1,416 8% 1,301 10%
Middle East / Africa 220 1% 134 1% 117 1%
Sales by origin 21,351 100% 16,688 100% 13,662 100%
--------------------------------------------------------------------------------
Although the overall level of sales decreased in actual terms as a result of the
scope variation, the geographical distribution of our sales remained unchanged
in fiscal year 2004/05 compared with fiscal year 2003/04. In particular,
Europe's share of sales by origin remained at 73%.
POWER TURBO-SYSTEMS / POWER ENVIRONMENT
The following table sets out certain key financial data for the Power
Turbo-Systems / Power Environment Sector:
---------------------------------------------------------------------------------
Power Turbo-Systems / Power Year ended 31 March
Environment %Variation %Variation
Actual figures March 04/ March 05/
(in € million) 2003 2004 2005 March 03 March 04
---- ---- ---- -------- --------
Order backlog 7,308 6,448 7,139 (12%) 11%
Orders received 4,404 5,107 5,181 16% 1%
Sales 6,955 5,059 4,256 (27%) (16%)
Operating income (loss) (1,175) (253) (35)
Operating margin (16.9%) (5.0%) (0.8%)
EBIT (1,420) (641) (361)
Capital employed n/a (499) (608)
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Power Turbo-Systems / Power Year ended 31 March
Environment %Variation %Variation
Comparable figures March 04/ March 05/
(in € million) 2003 2004 2005 March 03 March 04
---- ---- ---- -------- --------
Order backlog 7,062 6,395 7,139 (9%) 12%
Orders received 4,128 5,047 5,181 22% 3%
Sales 6,437 4,997 4,256 (22%) (15%)
Operating income (loss) (996) (251) (35)
Operating margin (15.5%) (5.0%) (0.8%)
---------------------------------------------------------------------------------
Orders received
Although to a lesser extent than in fiscal year 2003/04, China dominated the
global power generation market in fiscal year 2004/05. The market size remained
stable overall in the rest of the world, with some disparities across the
regions: Europe and the Americas continued to show limited activity, while the
market in Asia was marked mainly by strong demand in India. The Middle East,
confirmed as a key development area, saw its demand for new power plants growing
compared to the previous year.
The regional switch from North America to Asia, particularly China, continues to
give increasing importance to coal-based steam and hydro plants rather than gas
turbine ones. Increasing price volatility for fuel and electricity triggers 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.
Orders received in fiscal year 2004/05 were 3% higher than in fiscal year
2003/04 on a comparable basis (+1% on a actual basis). The main improvements
were due to Hydro and Utility Boiler businesses offsetting fewer large turnkey
contracts.
By region, orders received have decreased in Europe compared with fiscal year
2003/04. Orders have increased in the Americas, despite a relatively low market,
with the South American market being particularly depressed. We had numerous
successes in North America with Boiler and Environmental Control orders. Orders
have increased significantly in Asia, which provided 42% of our orders received
in the fiscal year 2004/05, of which the major part comes from China (Hydro
activity mainly) and from South East Asia (turnkey plants).
Sales
Sales in Power Turbo-Systems / Power Environment in fiscal year 2004/05
decreased by 16% compared with fiscal year 2003/04 on an actual basis, and by
15% on a comparable basis. This was mainly due to the low level of orders
received during fiscal year 2002/03 and during the first half of fiscal year
2003/04.
By geographical region, compared to fiscal year 2003/04, Europe decreased by 9%,
North America decreased by 26%, South and Central America decreased by 42%,
Asia/Pacific decreased by 26% while Middle East/Africa increased by 16%.
The following table sets out, on an actual basis, the geographic breakdown of
sales by destination:
--------------------------------------------------------------------------------
Power Turbo-Systems / Power Year ended 31 March
Environment % % %
(in € million) 2003 contrib. 2004 contrib. 2005 contrib.
---------------- ---------------- ---------------
Europe 1,877 27% 1,647 33% 1,495 35%
North America 1,865 27% 979 19% 728 17%
South and Central America 852 12% 402 8% 231 5%
Asia / Pacific 1,390 20% 1,320 26% 977 23%
Middle East/Africa 971 14% 711 14% 825 19%
Sales by destination 6,955 100% 5,059 100% 4,256 100%
--------------------------------------------------------------------------------
Operating loss and operating margin
Power Turbo-Systems / Power Environment operating loss was €35 million in fiscal
year 2004/05, compared with €253 million in fiscal year 2003/04 on an actual
basis. This strong improvement reflected better project execution and cost
reduction partly offset by the under-absorption of fixed charges related to low
sales (which are gradually being reduced through the implementation of
restructuring plans). The operating margin improved from (5.0%) to (0.8%) on a
comparable basis.
The operating performance in fiscal year 2003/04 had been impacted by cost
increases in the execution of certain turnkey contracts as well as significant
under-absorption of fixed costs.
POWER SERVICE
The following table sets forth some key financial data for the Power Service
Sector:
---------------------------------------------------------------------------------
Power Service Year ended 31 March %Variation %Variation
Actual figures March 04/ March 05/
(in € million) 2003 2004 2005 March 03 March 04
---- ---- ---- -------- --------
Order backlog 2,793 3,107 3,669 11% 18%
Orders received 2,934 3,023 3,228 3% 7%
Sales 2,678 2,747 2,844 3% 4%
Operating income (loss) 403 417 473
Operating margin 15.0% 15.2% 16.6%
EBIT 304 227 360
Capital employed n/a 1,921 1,683
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Power Service Year ended 31 March %Variation %Variation
Comparable figures March 04/ March 05/
(in € million) 2003 2004 2005 March 03 March 04
---- ---- ---- -------- --------
Order backlog 2,723 3,083 3,669 13% 19%
Orders received 2,775 2,967 3,228 7% 9%
Sales 2,579 2,690 2,844 4% 6%
Operating income (loss) 426 410 473
Operating margin 16.5% 15.3% 16.6%
---------------------------------------------------------------------------------
Orders received
The power service market remained sound in fiscal year 2004/05. Growth in Europe
is mainly due to on-going modernisation needs generated by environmental
concerns. In North America, the power demand is stable as there are still high
reserve margins of installed fleet. There is nevertheless some demand for asset
optimisation and growth in steam turbines and generator services. In Asia,
demand is growing due to existing plants upgrade needs and on-going market
liberalisation.
We have developed product strategies for each of our main product ranges that
are designed to increase market penetration. The changing market conditions
caused by energy price increases and further liberalisation of markets have led
us to adopt different approaches to our customers and to follow up new
opportunities, particularly with respect to upgrading existing equipment.
Orders received were €3,228 million in fiscal year 2004/05, 9% higher than in
fiscal year 2003/04 on a comparable basis. On an actual basis, orders were 7%
higher. We have recorded an increase in orders for gas turbine parts and
services and an increase in steam turbine parts and services partly offset by a
decrease of construction and erection in North America, as a consequence of
market evolutions and more selective order intakes.
By region, on an actual basis, orders were down by 14% in the Americas, stable
in Europe, up by 49% in Asia and by 51% in the Middle East and Africa.
Sales
Sales booked by Power Service in fiscal year 2004/05 increased by 4% as compared
with fiscal year 2003/04 on an actual basis, and increased by 6% on a comparable
basis. On a geographical basis, sales were up by 17% in Europe. Sales in
Americas were down by 9% due to the reduced erection market and up by 5% in
Asia.
The following table sets out, on an actual basis, the geographic breakdown of
sales by destination:
--------------------------------------------------------------------------------
Power Service Year ended 31 March
Actual figures % % %
(in € million) 2003 contrib. 2004 contrib. 2005 contrib.
---------------- ---------------- ---------------
Europe 881 32% 989 36% 1,153 41%
North America 984 36% 852 31% 784 28%
South and Central America 131 5% 119 4% 95 3%
Asia / Pacific 475 17% 534 19% 561 20%
Middle East / Africa 207 8% 253 9% 251 9%
Sales by destination 2,678 100% 2,747 100% 2,844 100%
--------------------------------------------------------------------------------
Operating income and operating margin
Power Service's operating income was €473 million or 16.6% of sales in fiscal
year 2004/05 compared with €410 million or 15.3% of sales for fiscal year
2003/04 on a comparable basis. Operating margin increased due to increased sales
in the more profitable segments of the business and the positive evolution of
several operation and maintenance contracts, as well as cost reductions,
including with respect to overhead costs.
TRANSPORT
The following table sets out some key financial data for the Transport Sector:
---------------------------------------------------------------------------------
Transport Year ended 31 March %Variation %Variation
Actual figures March 04/ March 05/
(in € million) 2003 2004 2005 March 03 March 04
---- ---- ---- -------- --------
Order backlog 14,676 14,321 14,489 (2%) 1%
Orders received 6,412 4,709 5,490 (27%) 17%
Sales 5,072 4,862 5,134 (4%) 6%
Operating income (loss) (24) 64 260
Operating margin (0.5%) 1.3% 5.1%
EBIT (113) (189) 168
Capital Employed 738 360 125
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Transport Year ended 31 March %Variation %Variation
Comparable figures March 04/ March 05/
(in € million) 2003 2004 2005 March 03 March 04
---- ---- ---- -------- --------
Order backlog 14,283 13,945 14,489 (2%) 4%
Orders received 6,054 4,687 5,490 (23%) 17%
Sales 4,877 4,836 5,134 (1%) 6%
Operating income (loss) (8) 71 260
Operating margin (0.2%) 1.5% 5.1%
---------------------------------------------------------------------------------
Orders received
During fiscal year 2004/05, the market remained active in several segments in
Europe and in Asia, especially with the highly promising transportation market
in China where we were awarded our first rolling stock contract of mainline
passengers.
The market for tramways has been sound. We were awarded several contracts,
including Rotterdam, Lyon, Le Mans, Nice, Montpellier, Strasbourg, Tenerife and
Madrid. We believe that this business will remain active and benefit from
further orders in the coming months.
We also confirmed five significant Metro contracts for Barcelona, Santiago,
Shanghaï, Valencia and Washington.
Finally, we also recorded significant locomotives orders in France and should
record shortly a large order in China.
Several countries, including Italy, Spain, Switzerland, the UK and the
Netherlands, are expanding their high speed networks, offering significant
business opportunities.
Orders received by Transport in fiscal year 2004/05 amounted to €5,490 million
compared with €4,709 million in fiscal year 2003/04, on an actual basis. This
increase of 17% was due to a higher order intake in Asia Pacific and in Southern
Europe compared to the previous fiscal year.
As a percentage of total orders received, Asia/Pacific and the Americas
represented 19% and 7% respectively, compared with 17% and 10% last year. Europe
continued to represent a very significant market share with 68% of orders
received.
Sales
Sales in Transport increased by 6% in fiscal year 2004/05 compared with fiscal
year 2003/04 on both an actual and comparable bases. The main contributor to
this increase was Europe. The Americas increased slightly and the Asia Pacific
region decreased due to the end of the High Speed Train project in Korea which
started its commercial service in April 2004.
With respect to fiscal year 2003/04 as compared to fiscal year 2002/03, sales
decreased to €4,862 million on an actual basis from €5,072 million, reflecting
decreases in the United States due to delivery delays.
In fiscal year 2004/05, Transport's sales breakdown by region was as follows:
Europe 74%, the Americas 12%, Asia/Pacific 12% and Middle East/Africa 2%.
Compared with fiscal year 2003/04, Europe increased from 71% to 74% whereas the
Americas and Asia decreased slightly.
In fiscal year 2003/04, France was again the major contributor to the increase
in sales, more than offsetting the decrease in the Asia / Pacific region.
The following table sets out, on an actual basis, the geographic breakdown of
sales by destination:
--------------------------------------------------------------------------------
Transport Year ended 31 March
Actual figures % % %
(in € million) 2003 contrib. 2004 contrib. 2005 contrib.
---------------- ---------------- ---------------
Europe 3,367 66% 3,463 71% 3,817 74%
North America 543 11% 419 9% 383 8%
South and Central America 253 5% 145 3% 214 4%
Asia / Pacific 764 15% 703 14% 638 12%
Middle East / Africa 145 3% 132 3% 82 2%
Sales by destination 5,072 100% 4,862 100% 5,134 100%
--------------------------------------------------------------------------------
Operating income and operating margin
The operating income of Transport for fiscal year 2004/05 amounted to €260
million or 5.1% of sales, mainly due to volume increase, improved mix of product
sales and further cost and overhead reduction.
In fiscal year 2003/04, Transport recorded an operating profit of €64 million as
compared to a loss of €(24) million in the prior year. This increase was due to
one-off difficulties encountered with the UK Trains and US Trains issues in
fiscal year 2002/03.
MARINE
The following table sets out some key financial and operating data for our
Marine Sector:
---------------------------------------------------------------------------------
Marine Year ended 31 March %Variation %Variation
Actual figures March 04/ March 05/
(in € million) 2003 2004 2005 March 03 March 04
---- ---- ---- -------- --------
Order backlog 1,523 817 1,266 (46%) 55%
Orders received 163 381 1,104 134% 190%
Sales 1,568 997 360 (36%) (37%)
Operating income (loss) 24 (19) (103)
Operating margin 1.5% (1.9%) (16.3%)
EBIT 12 (40) (16)
Capital employed (343) (580) (234)
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Marine Year ended 31 March %Variation %Variation
Comparable figures March 04/ March 05/
(in € million) 2003 2004 2005 March 03 March 04
---- ---- ---- -------- --------
Order backlog 1,523 817 1,266 (46%) 55%
Orders received 163 381 1,104 134% 190%
Sales 1,568 997 630 (36%) (37%)
Operating income (loss) 24 (19) (103)
Operating margin 1.5% (1.9%) (16.3%)
---------------------------------------------------------------------------------
Orders received
In fiscal year 2004/05, the global shipbuilding market experienced an increased
level of orders, compared to the level of the previous years. This growth was
also observed into the main segment of our Marine sector, the cruise ships
market, where eleven vessels were ordered worldwide, compared to only five
vessels in 2002/03.
The Liquefied Natural Gas LNG carrier market remained very active, with 69 units
booked in 2004, increasing the worldwide order backlog to 113 LNG tankers,
compared with a fleet in service of 174. These orders have been booked mainly by
Korean shipyards. However newcomers, such as Chinese shipyards, have entered the
market in 2004. Market prices, although improving remained depressed in spite of
this high demand.
With respect to the Marine Sector, orders received during fiscal year 2004/05
reached €1,104 million compared with €381 million in fiscal year 2003/04. Orders
received included two cruise ships for Mediterranean Shipping Company (MSC) and
one 153,000 m3 LNG tanker, which will be a sister-ship of the Gaz de France
tanker ordered in the previous year.
At the end of fiscal year 2004/05, the Marine backlog included two cruise-ships
for MSC, two LNG tankers for Gaz de France, one LNG tanker for NYK, the forward
part of one Land Helicopter Dock for the French Navy, one Yacht and one roll-in
roll-out ferry.
In fiscal year 2003/04, Marine's main market, cruise ships, remained weak and
Marine registered no new cruise ship orders. Orders received in fiscal year
2003/04 comprised a trans-channel car-ferry for Seafrance and a 153,000 m3 LNG
tanker for Gaz de France.
Sales
Sales amounted to €630 million in fiscal year 2004/05, during which Marine
completed and delivered the following vessels:
- the cruise ship MSC Opera for Mediterranean Shipping Company ;
- the ferry SeaFrance Berlioz for SeaFrance ; and
- the forward part of LHD Mistral for the French Navy.
During fiscal year 2003/04 Marine completed and delivered a surveillance frigate
for the Royal Moroccan Navy, the cruise ship Island Princess, the cruise ship
Crystal Serenity, and the cruise-liner Queen Mary 2 for Cunard.
The following table sets out, on an actual basis, the geographic breakdown of
sales by destination:
--------------------------------------------------------------------------------
Marine Year ended 31 March
Actual figures % % %
(in € million) 2003 contrib. 2004 contrib. 2005 contrib.
---------------- ---------------- ---------------
Europe 724 46% 442 44% 605 96%
North America 636 41% 343 34% 2 0%
South and Central America 0 0% 9 1% 14 2%
Asia / Pacific 186 12% 192 19% 9 1%
Middle East / Africa 22 1% 11 1% - 0%
Sales by destination 1,568 100% 997 100% 630 100%
--------------------------------------------------------------------------------
Operating loss and operating margin
The operating loss reached €103 million in fiscal year 2004/05, compared with a
loss of €19 million in fiscal year 2003/04. The low level of activity has
generated a significant under-activity which is being dealt with through the
headcount decrease achieved over 2004/05. In addition, during fiscal year
2004/05, a technical deficiency arose with the new LNG tank containment system
used in LNG tankers in the process of construction by our Marine Sector. This
containment system uses the most advanced technology (called "CS1") developped
by Marine's licensor Gas Transport & Technigaz ("GTT"). Difficulties revealed
during sea trial of the LNG ENERGY have caused Marine to delay delivery of this
ship and to stop work on the LNG PROVALYS. A sound technical solution is in the
process of validation by GTT and the customer Gaz de France, with whom Marine is
in the process of finalizing agreements as to the resulting financial
consequences. A charge of around €50 million has been recorded for the net costs
that Marine estimates will ultimately be borne by it, including costs of repair
and potential penalties.
POWER CONVERSION
The following table sets out some key financial data for our Power Conversion
Business:
---------------------------------------------------------------------------------
Power Conversion Year ended 31 March %Variation %Variation
Actual figures March 04/ March 05/
(in € million) 2003 2004 2005 March 03 March 04
---- ---- ---- -------- --------
Order backlog 568 495 529 (13%) 7%
Orders received 533 434 579 (19%) 33%
Sales 523 499 539 (5%) 8%
Operating income (loss) 15 15 36
Operating margin 2.9% 3.0% 6.7%
EBIT (22) (19) 15
Capital Employed 48 25 (4)
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Power Conversion Year ended 31 March %Variation %Variation
Comparable figures March 04/ March 05/
(in € million) 2003 2004 2005 March 03 March 04
---- ---- ---- -------- --------
Order backlog 539 487 529 (10%) 9%
Orders received 494 433 579 (12%) 34%
Sales 492 498 539 1% 8%
Operating income (loss) 17 15 36
Operating margin 3.5% 3.1% 6.7%
---------------------------------------------------------------------------------
Orders received
On an actual basis, orders received in fiscal year 2004/05 increased by 33%
compared with fiscal year 2003/04. This increase came mainly from the UK marine
activity with the booking of two major orders, including one for the Royal Navy
and from the development of the metal market notably in China and Brazil.
Orders received in fiscal year 2003/04 decreased by 19% compared with fiscal
year 2002/03. This decrease was mainly seen in Europe and was partially offset
by a strong increase of orders in China and in the United-States.
Sales
On an actual basis, sales in fiscal year 2004/05 increased by 8% compared with
fiscal year 2003/04 as a consequence of the improved order intake.
On an actual basis, sales decreased by 5% in fiscal year 2003/04 compared with
fiscal year 2002/03 as a consequence of order intake trend.
The following table sets out, on an actual basis, the geographic breakdown of
sales by destination:
--------------------------------------------------------------------------------
Power Conversion Year ended 31 March
Actual figures % % %
(in € million) 2003 contrib. 2004 contrib. 2005 contrib.
---------------- ---------------- ---------------
Europe 305 58% 306 61% 332 62%
North America 91 17% 79 16% 82 15%
South and Central America 34 7% 28 6% 20 4%
Asia / Pacific 42 8% 41 8% 72 13%
Middle East / Africa 51 10% 45 9% 33 6%
Sales by destination 523 100% 499 100% 539 100%
--------------------------------------------------------------------------------
Operating income and operating margin
The increase in operating income from €15 million in fiscal year 2003/04 to €36
million in fiscal year 2004/05 was 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 data for our Corporate and Other
organisation:
---------------------------------------------------------------------------------
Corporate & Other Year ended 31 March %Variation %Variation
Actual figures March 04/ March 05/
(in € million) 2003 2004 2005 March 03 March 04
---- ---- ---- -------- --------
Order backlog 52 70 111 35% 59%
Orders received 214 295 259 38% (12%)
Sales 205 241 259 18% 7%
Operating income (loss) (44) (59) (81)
EBIT (46) (252) (258)
Capital Employed 1,208 1,333 1,341
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Corporate & Other Year ended 31 March %Variation %Variation
Comparable figures March 04/ March 05/
(in € million) 2003 2004 2005 March 03 March 04
---- ---- ---- -------- --------
Order backlog 50 65 111 30% 71%
Orders received 160 261 259 63% (1%)
Sales 154 184 259 20% 41%
Operating income (loss) (44) (58) (81)
---------------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating income (loss)
Operating income includes Corporate costs as well as the contribution of the
International Network and the overseas entities. Since fiscal year 2003/04,
operating income also included costs of the former Power Sector headquarters
which are now borne by Corporate and that amounted to approximately €25 million
in fiscal year 2002/03.
Operating income was €(81) million in fiscal year 2004/05, compared with €(59)
million in fiscal year 2003/04. The variation is mainly due to changes in the
way costs of information technology services are re-invoiced to the Sectors.
Gross spending at Corporate level was reduced due to restructuring actions
implemented in fiscal year 2003/04.
Capital employed
In fiscal year 2004/05, capital employed for Corporate was high at €1,341
million because the main part of our other fixed assets is allocated to
Corporate's capital employed as they are managed by Corporate; they mainly
included:
- the collateral provided by Alstom Holdings for €700 million as a first
loss guarantee for the bonding facility programme launched in 2004 for
a maximum of €8 billion ; and
- prepaid assets - pensions (€311 million).
Capital employed was €1,333 million in fiscal year 2003/04 compared to €1,208
million in fiscal year 2002/03.
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 bases for the Group as a
whole:
---------------------------------------------------------------------------------
Total Group Year ended 31 March %Variation %Variation
Actual figures March 04/ March 05/
(in € million) 2003 2004 2005 March 03 March 04
---- ---- ---- -------- --------
SALES 21,351 16,688 13,662 (22%) (18%)
Cost of sales (19,187) (14,304) (11,601) (25%) (19%)
Selling expenses (970) (785) (545) (19%) (31%)
R&D expenses (622) (473) (336) (24%) (29%)
Administrative expenses (1,079) (826) (630) (23%) (24%)
OPERATING INCOME(LOSS) (507) 300 550
Operating margin (2.4%) 1.8% 4.0%
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Total Group Year ended 31 March %Variation %Variation
Comparable figures March 04/ March 05/
(in € million) 2003 2004 2005 March 03 March 04
---- ---- ---- -------- --------
SALES 16,107 14,202 13,662 (12%) (4%)
Cost of sales (14,854) (12,446) (11,601) (16%) (7%)
Selling expenses (583) (558) (545) (4%) (2%)
R & D expenses (453) (385) (336) (15%) (13%)
Administrative expenses (798) (645) (630) (19%) (2%)
OPERATING INCOME (LOSS) (581) 168 550
Operating margin (3.6%) 1.2% 4.0%
---------------------------------------------------------------------------------
Sales
Sales were €13,662 million in fiscal year 2004/05, decreasing by 4% compared
with fiscal year 2003/04 on a comparable basis, mainly in Power Turbo-Systems /
Power Environment and Marine Sectors due to the impact of the low level of
orders in the second half of fiscal year 2002/03 and in the first half of fiscal
year 2003/04. Sales in other Sectors increased on a comparable basis.
Sales decreased by 18% in fiscal year 2004/05 on an actual basis. This decrease
was mainly due to the disposal of our Industrial Turbines business and T&D
activities and, to a lesser extent, the depreciation of the US dollar against
the Euro.
Sales in fiscal year 2003/04 decreased by 22% as compared with sales in fiscal
year 2002/03 on an actual basis, due principally to disposals and exchange rate
variations.
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 €1,175 million in fiscal year 2004/05
compared to €1,611 million in fiscal year 2003/04 and €2,049 million in fiscal
year 2002/03, due principally to the disposal of our T&D and Industrial Turbines
activities. On a comparable basis, selling and administrative expenses decreased
by 2% between fiscal year 2003/04 and fiscal year 2004/05 following a 13%
decrease between fiscal years 2002/03 and 2003/04. This decrease reflected the
results of our launched restructuring programmes.
On an actual basis, selling and administrative expenses have decreased by 21%
between fiscal year 2002/03 and fiscal year 2003/04 mainly due to the disposal
of our Industrial Turbines and T&D activities and restructuring actions.
Research and development expenses
Research and development expenses were €336 million in fiscal year 2004/05, as
compared to €473 million in fiscal year 2003/04 and €622 million in fiscal year
2002/03. On a comparable basis, research and development expenses have decreased
by 13% in fiscal year 2004/05 as compared to fiscal year 2003/04. This decrease
was mainly due to a reduction of expenses related to the GT24/GT26 gas turbines
development programme as the technology has now stabilised. The decrease
recorded between fiscal year 2003/04 and 2002/03 was also mainly due to a
decrease in the GT24/GT26 gas turbines development programme.
Operating income (loss) and operating margin
Operating income is measured before restructuring costs, goodwill and other
intangible assets amortisation expenses, 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. The
operating margin is calculated by dividing the operating income by total annual
sales.
On an actual basis, our operating income in fiscal year 2004/05 was €550 million
or 4.0% of sales, as compared with an operating income of €300 million and an
operating margin of 1.8% in fiscal year 2003/04 and an operating loss of €507
million and an operating margin of (2.4%) in fiscal year 2002/03. On a
comparable basis, mainly when excluding the favourable effect of our T&D
activity last year before its disposal, our operating income amounted to €168
million or 1.2% of sales in fiscal year 2003/04. This year's strong improvement
of our operating margin despite a lower level of sales is notably due to a
reduction in our cost base and to improved performance in the execution of our
contracts, as compared to last year where exceptional charges related to
execution of contracts in the previous fiscal year were accounted for.
In fiscal year 2002/03, exceptional provisions and accrued costs were recorded
for the GT24/GT26 heavy duty gas turbines and for UK trains leading to a
substantial operating loss.
Earnings Before Interest and Tax (EBIT)
EBIT was €(92) million in fiscal year 2004/05, compared with €(871) million in
fiscal year 2003/04 and €(1,129) million in fiscal year 2002/03.
The improvement in EBIT in fiscal year 2004/05 was mainly due to:
- the improvement of our operating income ;
- the decrease of restructuring costs amounting to €358 million in fiscal
year 2004/05, compared with €655 million in fiscal year 2003/04 as the
restructuring programme initiated in March 2003 has now been fully
recorded in our accounts ; and
- the decrease in pension costs at €175 million in fiscal year 2004/05,
compared with €263 million in fiscal year 2003/04. This decrease was
primarily due to scope variation and to reduced service costs resulting
from a smaller workforce.
The negative EBIT in fiscal year 2003/04 was mainly due to a low level of
operating income and high levels of pension and restructuring costs.
Financial expenses, net
The improvement of our net financial expenses, €346 million in fiscal year
2004/05 compared with €460 million in fiscal year 2003/04 was due to the
decrease in net interest expenses as a consequence of the reduction in our level
of indebtedness.
The financial charges included fees paid on guarantees, syndicated loans and
other financing facilities, which amounted to €83 million in fiscal year 2004/05
compared with €125 million in 2003/04.
Income tax
The income tax charge was €203 million for fiscal year 2004/05 as we recognised
a deferred tax charge of €185 million and a current income tax charge of €18
million. This deferred tax charge of €185 million in fiscal year 2004/05
compared with €149 million in fiscal year 2003/04 was due to the valuation
allowance made after a detailed review by tax jurisdiction as described in Note
6 to the Consolidated Financial Statements. Given the ability to carry forward
indefinitely certain tax losses and that some other losses expire within 15
years or more, those deferred tax assets currently subject to valuation
allowance remain available to be utilised in the future. Our deferred tax assets
amounted to €1,370 million as of 31 March 2005. Based on our business plan, we
expect the deferred tax that is not currently subject to valuation allowance
will be recovered over a period of four to twelve years. For more details, see
Note 6 to the Consolidated Financial Statements.
Goodwill amortisation
Goodwill amortisation amounted to €223 million in fiscal year 2004/05 compared
with €256 million in fiscal year 2003/04 and €284 million in fiscal year
2002/03. The decrease was due to the disposal of our Industrial Turbine
businesses and our T&D activities.
We requested an independent third party evaluation as part of our annual
impairment tests of goodwill and other intangible assets. The valuation as at 31
March 2005 supported our opinion that our goodwill and other intangible assets
were not impaired.
Net income (loss)
Net loss in fiscal year 2004/05 amounted to €865 million, compared with a net
loss of €1,836 million in fiscal year 2003/04 and a net loss of €1,432 million
in fiscal year 2002/03.
BALANCE SHEET
Special Purpose Entities
Following a new accounting pronouncement effective 1 April 2004, we have
consolidated several Special Purpose Entities with an effect notably of
increasing our financial debt by €827 million, increasing our Property, plant
and equipment by €693 million and Inventories and contracts in progress by €110
million as of 1 April 2004. See Note 2 (a) and 25 to our Consolidated Financial
Statements.
The effect on our net debt was reduced to €94 million at 31 March 2005 due to :
- the sale of one special purpose entity during the period (€243 million)
;
- the deconsolidation of two special purpose entities (€384 million) ;
and
- repayments and impact of foreign exchange (€106 million).
Goodwill, net
Net Goodwill decreased to €3,194 million at 31 March 2005 compared to €3,424
million at 31 March 2004 mainly due to the amortisation of the period for €223
million.
Net Goodwill decreased to €3,424 million at 31 March 2004 compared to €4,440
million at 31 March 2003 due to the amortisation of goodwill for €256 million
and to the disposal of our industrial Turbine and Transmission & Distribution
businesses, which led to a decrease of the corresponding goodwill of €759
million.
Working capital
Working capital (defined as current assets less current liabilities and
provisions for risks and charges) at 31 March 2005 was €(4,657) million compared
with €(4,860) million as reported at 31 March 2004 or €(4,610) million as at 1
April 2004 to account for the impact of the consolidation of our special purpose
entities. The variance reflected primarily:
- changes in the scope of our activities ; and
- a decrease in trade payables partly offset by the significant increase
in customer deposits and advances. See Note 16 to the Consolidated
Financial Statements for more details.
Working capital at 31 March 2004 was €(4,860) million compared with €(4,886)
million as reported at 31 March 2003. This variation was mainly due to a
positive net effect of foreign currency and to changes in scope.
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 €8,563 million,
€8,722 million and €12,689 million at 31 March 2005, 31 March 2004 and 31 March
2003 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 31 March 2005, our net
customer deposits and advances were €3,150 million, compared with €2,714 million
as of 31 March 2004 and €3,541 million as of 31 March 2003.
The impact on our cash flow of the change in customer deposits and advances was
positive by €510 million in fiscal year 2004/05 after a negative €1 million in
fiscal year 2003/04. This is due to the significant increase in our backlog in
fiscal year 2004/05. The decrease of customer cash deposits at the end of fiscal
year 2003/04 as compared to fiscal year 2002/03 was mainly due to currency
translation effects and the impact of the disposal of our Industrial Turbines
and T&D businesses.
Net deferred tax assets
Net deferred tax assets amounted to €1,349 million at 31 March 2005 compared
with €1,531 million at 31 March 2004.
At 31 March 2005, we reviewed by jurisdiction the recoverability of these
deferred tax assets on the basis of extrapolation from our business plan. This
review led to a cumulative valuation allowance on deferred tax assets of €948
million at 31 March 2005 compared with €730 million at 31 March 2004. At 31
March 2005 we are satisfied as to the recoverability of our net deferred tax
assets.
Pensions
Under French GAAP and US GAAP, we have reviewed the accounting treatment for the
Swiss pension schemes from defined contribution to defined benefits accounting.
The impact at 1 April 2004 is an increase in projected benefits of €515 million
and an increase in the fair value of assets by €515 million.
Provisions for risks and charges
At 31 March 2005, the provisions for risks and charges were €3,156 million
compared with €3,489 million at 31 March 2004. This net decrease was accounted
for mainly by the following movements:
- a decrease in provisions on contracts for €225 million, mainly
resulting from the application of the GT24/GT26 gas turbines provisions
;
- an increase in restructuring provisions of €55 million due to the new
restructuring plans announced ; and
- a decrease of other provisions mainly due to the utilisation against
losses incured and remaining assets related to Marine vendor financing.
At 31 March 2004, the provisions for risks and charges were €3,489 million
compared with €3,698 million at 31 March 2003. The decrease was due to a
decrease in provisions for contracts partially offset by an increase in
provisions for restructuring.
Shareholders' equity and minority interests
Shareholders' equity at 31 March 2005 was €1,256 million, including minority
interests, compared with €97 million at 31 March 2004 and €853 million at 31
March 2003. This increase at 31 March 2005, was mainly due to the capital
increases described above for a total amount of €1,725 million net of related
cost, to the reimbursement with shares of the TSDDRA subscribed by the French
State for €300 million, reduced by the net loss for the period of €865 million.
The decrease at 31 March 2004 was mainly due to the net loss and translation
adjustments, partially offset by a capital increase of €300 million and the
issuance of convertible bonds for €733 million net of related costs.
As at 31 March 2005, €133 million of bonds, out of the €901 million issued, have
not yet been converted into capital.
Securitisation of existing receivables
We sell 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 31 March 2005 was €7 million compared with €94 million at
31 March 2004 and €357 million at 31 March 2003.
Securitisation of future receivables
In order to finance working capital and to mitigate the cash-negative profiles
of some contracts, we have sold to third parties selected future receivables due
from our customers. This securitisation of future receivables applies
principally to Marine and Transport. The total securitisation of future
receivables at 31 March 2005 was €49 million compared with €265 million at 31
March 2004 and €1,292 million at 31 March 2003. The decrease in fiscal year
2004/05 compared with fiscal year 2003/04 was mainly due to the amortisation of
the current programmes. The decrease in fiscal year 2003/04 compared with fiscal
year 2002/03 was mainly due to the delivery of two cruise-ships by our Marine
Sector.
Financial debt
Our financial debt was €2,907million at 31 March 2005, compared with €4,372
million at 31 March 2004, €5,199 million at 1 April 2004, pursuant to the first
application of the Règlement CRC 2004-03, and €6,331 million at 31 March 2003.
Borrowings decreased by €1,271 million and securitisation of future receivables
decreased by €216 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 such entity in the Transport Sector.
At 31 March 2005, we were in compliance with our covenants as follows:
- our consolidated net worth, as defined in our covenant agreement, was
€1,607 million (contractually defined as the sum of €1,182 million of
shareholders' equity, €74 million of minority interests, €133 million
of bonds reimbursable with shares, €218 million of additional deferred
tax valuation allowance in year 2004/05), which exceeds the €1,100
million required by our covenants ; and
- our total debt was €2,820 million (contractually defined as the sum of
€2,907 million of financial debt, €7 million of sale of trade
receivables, minus €94 million as the net impact of the consolidation
of our SPE to neutralise the effect of a new accounting pronouncement,
see Note 23(a) (3) in our Consolidated Statements), which is below the
€3,979 million required by our covenants.
Net debt
We define net debt as financial debt less short-term investments, cash and cash
equivalents. Net debt was €1,430 million at 31 March 2005, compared with €2,906
million at 31 March 2004 and €4,561 million at 31 March 2003. 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 by 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 €94 million at 31 March 2005.
The decrease in net debt in fiscal year 2003/04 was due to the capital increase,
the issuance of bonds mandatorily reimbursable with shares and proceeds on
disposal of investments partly offset by net cash used in operating activities.
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 Year ended 31 March
Actual figures
(in € million) 2003 2004 2005
------------------- --------------------------- ---- ---- ----
Net income (loss) after elimination of non cash
items (1,087) (1,053) (91)
Change in networking capital 550 (5) (36)
Net cash provided by (used in) operating
activities (537) (1,058) (127)
Net cash provided by (used in) investing
activities (341) 1,561 426
Net cash provided by (used in) financing
activities 621 1,173 1,998
(257) 1,676 2,297
Net effect of exchange rate (41) (7) 48
Net effect of new accounting pronouncement* (827)
Other changes and reclassifications (464) (14) (42)
Decrease (increase) in net debt (762) 1,655 1,476
--------------------------------------------------------------------------------
*Effect at 1 April 2004 on Financial debt pursuant to the first application of
the Règlement CRC 2004-03.
Net cash provided by (used in) operating activities
Net cash provided by (used in) 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 €(127) million in fiscal year
2004/05 compared to €(1,058) million in fiscal year 2003/04 and €(537) million
in the fiscal year 2002/03.
Net income after the elimination of non-cash items was €(91) million in fiscal
year 2004/05. 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.
This negative amount was mainly due to high levels of restructuring and
financial expenditures.
Change in net working capital was €(36) million. Working capital was affected
principally by:
- a decrease of €(87) million in sale of trade receivables
(securitisation of existing receivables) ;
- a decrease of €(195) million in contract-related provisions mainly due
to the application of GT24/GT26 provisions ;
- an increase of €510 million in customer deposits and advances following
a continuing rebound in orders received and the resulting increase of
our backlog ;
- a decrease of €(786) million in trade payables and other payables
related to the lower level of sales ; and
- a decrease by €205 million of inventories and contracts in progress ;
- a decrease by €423 million of trade and other receivables.
The net cash used in operating activities of €(1,058) million in fiscal year
2003/04 was mainly due to the net loss of the fiscal year. The net cash used in
operating activities of €(537) million in fiscal year 2002/03 was mainly due to
the net loss of the fiscal year partly offset by a positive change in working
capital.
Net cash provided by (used in) investing activities
Net cash provided by investing activities was €426 million in fiscal year
2004/05. This amount comprised:
- proceeds of €52 million from disposals of property, plant and equipment
;
- capital expenditures for €182 million ;
- variation in other fixed assets of €(372) million mainly due to the
€700 million cash collateral made to secure the new bonding programme
partially offset by monetisation of other financial fixed assets ; and
- cash proceeds from the sale of investments, net of net cash sold, for
€928 million.
The cash proceeds from the sale of investment included for €627 million the net
debt sold as part of the disposal of one Special Purpose Entity in the Transport
Sector and the deconsolidation of two Special Purpose Entities in the Marine
Sector.
Net cash provided by (used in) investing activities was €1,561 million in fiscal
year 2003/04 and €(341) million in fiscal year 2002/03. The net cash inflow in
fiscal year 2003/04 was mainly due to cash proceeds from sale of T&D Sector and
Industrial Turbines businesses.
The net cash outflow in fiscal year 2002/03 was mainly due to €410 million of
capital expenditures and €154 million of cash expenditures for the acquisition
of the remaining 49% in Fiat Ferroviaria Spa.
Net cash provided by (used in) financing activities
Net cash provided by financing activities in fiscal year 2004/05 was €1,998
million, including capital increases for €1,725 million net of related cost and
the redemption on shares of the TSDDRA for €300 million.
Net effect of new accounting pronouncement
As discussed above and in Note 2 (a) to our Consolidated Financial Statements,
following a new accounting pronouncement effective 1 April 2004, we have
consolidated several Special Purpose Entities with an effect of increasing our
financial debt by €827 million at 1 April 2004 and €94 million at 31 March 2005.
Decrease (increase) in net debt
As a result of the above, our net debt decreased by €1,476 million in fiscal
year 2004/05 after a decrease of €1,655 million in fiscal year 2003/04 and an
increase of €762 million in fiscal year 2002/03.
MATURITY AND LIQUIDITY
We have a variety of sources of liquidity in order to finance our operations,
including principally borrowings under revolving credit facilities, the issuance
of commercial paper and asset disposals. Additional sources include customer
deposits and advances and proceeds from the sale of trade receivables, including
future trade receivables. In the past, we have also used the issuance of
securities, including debt securities and preferred shares, as a source of
liquidity.
The following table sets forth the list of our drawn and undrawn lines of credit
and financial debt obligations (including future receivables securitised) and as
part of these, the available lines of credit as of 31 March 2005:
(in € million) At 31 Fiscal Fiscal Fiscal Fiscal Fiscal After Fiscal
March Year Year Year Year Year Year
2005 2005/06 2006/07 2007/08 2008/09 2009/10 2009/10 Maturity
----- ------- ------- ------- ------- ------- ------------ --------
Redeemable preference
shares 205 (205) 31-Mar-06
Subordinated notes 5 (5) 30-Sep-06
Bonds 2010 1,000 (1,000) 03-Mar-10
Bonds 228 (228) 26-Jul-06
Bonds exchange premium (26) 6 5 5 5 5
PSDD 1,320 (1,320) 30-Sep-08
Syndicated loans 704 (704) 03-Aug-06
Bilateral loans 250 (27) (33) (190)
Commercial Paper 14 (14)
Other facilities (I) 252 (123) (20) (20) (19) (38) (32)
Bank overdraft 58 (58)
Accrued interests 50 (50)
Future receivables
securitized, net 49 (49)
----- ------- ------- ------- ------- ------- ------------
Total lines of credit 4,109 (520) (985) (205) (1,334) (1,033) (32)
----- ------- ------- ------- ------- ------- ------------
Financial debt 2,907
-----
Available lines 1,202 27 704 190 281
-----
(1) Most facilities held 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
and short term investments amounted to €2,679 at 31 March 2005, compared to
€2,249 million at 31 March 2004.
These amounts consisted of:
- Available credit lines at Group level for €1,202 million, which
comprised €281 million of part B of the PSDD, €704 Million of
syndicated loan and €217 million of bilateral facilities at 31 March
2005, compared with €420 million of commercial paper and €363 million
of part B of the PSDD at 31 March 2004 ;
- Cash available at parent company level of €796 million at 31 March
2005, compared with €532 million at 31 March 2004 ; and
- Cash and cash equivalent, short term investments available at
subsidiary level of €681 million at 31 March 2005 compared with €934
million at 31 March 2004.
ALSTOM, the Group parent company, can access some cash held by wholly owned
subsidiaries through the payment of dividends or pursuant to intercompany loan
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 granting 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 equivalents, short term
investments available at subsidiary level were €1,160 million, €934 million and
€681 million respectively in March 2003, 2004 and 2005.
PENSION ACCOUNTING
We provide various types of retirement, termination and post-retirement benefits
(including healthcare and medical) to our employees. The type of benefits
offered to an individual employee is related to local legal requirements as well
as operating practices of the specific subsidiaries and involves us in the
operation of, or participation in, various retirement plans.
These plans are either defined-contribution, defined-benefit or multi-employer
plans.
Defined contribution plans
For the defined-contribution plans, we pay contributions to independently
administered funds at a fixed percentage of employees' pay. The pension costs in
respect of defined-contribution plans are charged in the income statement as
operating expenses and represent the contributions paid by the Company to these
funds.
Defined-benefit plans
These plans mainly cover retirement and termination benefits and post-retirement
medical benefits.
For the defined benefit plans, which we operate, benefits are normally based on
an employee's pensionable remuneration and length of service. These plans are
either funded through independently administered pension funds or unfunded.
Pension liabilities are assessed annually by external professionally qualified
actuaries. These actuarial assessments are carried out for each plan using the
Projected Unit Credit method with generally a measurement date of 31 December.
The financial and demographic assumptions used are determined at the measurement
date as being appropriate for the plan and the country in which it is situated.
The most important assumptions made are listed below:
- discount rate ;
- inflation rate ;
- rate of salary increases ;
- long-term rate of return on plan assets ;
- mortality rates ; and
- employee turnover rates.
Certain assumptions used are discussed in Note 22 to the Consolidated Financial
Statements.
The assets of externally administrated defined-benefit plans are invested mainly
in equity and debt securities. The components of these assets are disclosed in
Note 22 to the Consolidated Financial Statements.
The expected costs of providing retirement pensions under defined benefit plans,
as well as the costs of other post-retirement benefit plans, are charged to the
profit and loss account over the periods benefiting from the employees'
services.
Valuation of the Projected Benefit Obligation
The actuarial value of the future obligations of the employer estimated with the
Projected Unit Credit method (Projected Benefit Obligation - "PBO") fluctuates
annually, depending upon the following:
- increases related to the acquisition by the employees of one additional
year of rights ("service cost") ;
- increases in the present value of the PBO which arises because the
benefits are one year closer to their payment dates ("interest cost") ;
- decreases related to the benefits paid during the year ;
- changes related to modifications of the actuarial assumptions
("actuarial gains and losses": discount rate, inflation rate, rate of
salary increases etc.) ;
- changes in obligations related to plan amendments ; and
- changes due to curtailments or settlements applied on the plans ;
- changes in scope ("business combinations/disposals").
The change in the PBO is disclosed in Note 22 to the Consolidated Financial
Statements.
Valuation of plan assets
The fair value of the assets held by each plan is the amount that the plan could
reasonably expect to receive in a current sale of the assets between a willing
buyer and a willing seller. This is compared with the PBO and the difference is
referred to as the "funded status" of the plan.
The changes in the fair value of assets and the funded status are disclosed in
Note 22 to the Consolidated Financial Statements.
Actuarial gains and losses, prior year service costs and transition
obligations
A number of factors can trigger actuarial gains and losses:
- differences between the assumptions used and the actual experience (for
instance, an actual return on assets differing from the expected rate
of return at the beginning of the year) ;
- changes in the long-term actuarial assumptions (inflation rate,
discount rate, rate of salary escalation, mortality table etc.) ; and
- changes due to plan amendments.
The impact of these factors is shown in the table entitled "Change in plan
assets" in Note 22 to the "Consolidated Financial Statements":
- unrecognised actuarial loss (gain) ;
- unrecognised prior service cost (due to plan amendments) ; and
- unrecognised transition.
The unrecognised actuarial loss (gain) at the year-end is compared on a
plan-by-plan basis with the higher of the PBO and the fair value of the assets
held. If the unrecognised actuarial loss (gain) exceeds 10% of this amount, the
excess above the 10% level is spread across the remaining working lives of the
employees of the respective plan.
As of 31 March 2005, the actuarial losses unrecognised in the balance sheet were
€1,041 million, an increase of €123 million since March 2004. Recognition of
these liabilities under French GAAP is allowed over the average remaining
working lives of the relevant participants. The portion above a 10% corridor
calculated scheme by scheme, is spread over the average remaining working lives
of participants in these plans, being 10-15 years.
The unrecognised gains on prior service costs and on transition amounted to €27
million at 31 March 2005. The total amount is amortised on a straight-line basis
over the remaining working lives of the plans' participants.
Pension cost
The total pension cost related to defined benefit is defined annually by
qualified actuaries and is detailed in Note 22 to the "Consolidated Financial
Statements" as follows:
- service cost, which corresponds to the acquisition of one additional
year of rights ;
- interest cost, which is due to the increase in the present value of the
PBO which arises because the benefits are one period closer to their
payment dates ;
- expected return on plan assets (profit) ;
- cost (or potentially profit) corresponding to the amortisation of prior
service cost ;
- cost (or potentially profit) corresponding to the amortisation of
actuarial gains and losses ; and
- profit (or potentially cost) of Curtailments/Settlements corresponding
to the impact of a reduction/cancellation of the obligation mainly due
to a modification of the plan's scope (downsizing, business disposals,
closing of a defined-benefits plan, etc.).
Multi-employer plans in the United States and Canada
We employ workers from US and Canadian trade unions mainly in our Power Service
activity related to the boiler after-market.
The pension costs charged in the income statement as "Other expenses - Pension
costs" represent contributions payable by us to these dedicated funds.
During the year ended 31 March 2005, pension and other post retirement benefit
costs of a total of €175 million were recorded. Of this amount €145 million
related to defined benefit schemes, €21 million to multi-employer schemes and €9
million to other post retirement benefits. The total cash spend in the year was
€193 million.
The fair value of defined benefit scheme asset totaled €2,855 million at 31
March 2005 and the benefit obligations, pension and other benefits, totaled
€4,342 million leaving an underfunding in the plans of €1,487 million. We have
recorded accrued a net benefit cost of €473 million in our Consolidated
Financial Statements.
The remaining €1,014 million relates to the unrecognised items that are to be
amortised over the average future service period of employees and reassessed
periodically taking into account changes in the actuarial assumptions on benefit
obligations and plan assets.
OFF BALANCE SHEET COMMITMENTS AND CONTRACTUAL OBLIGATION
OFF BALANCE SHEET COMMITMENTS
The following table sets forth our off-balance sheet commitments, which are
discussed further at Note 27 to the Consolidated Financial Statements:
--------------------------------------------------------------------------------
Total Group At 31 March
Actual figures
(in € million) 2003 2004 2005
-------------- ---- ---- ----
Guarantees related to contracts 9,465 8,169 7,526
Guarantees related to vendor financing 749 640 429
Discounted notes receivables 11 6 5
Commitments to purchase fixed assets 7 0 1
Other guarantees 94 43 114
Off balance sheet commitments 10,326 8,858 8,075
--------------------------------------------------------------------------------
Guarantees related to contracts
The overall amount given as guarantees on contracts decreased from €8,169
million in March 2004 to €7,526 million in March 2005, a decrease by 8% mainly
as a result of the disposal of our T&D activities.
Vendor Financing Exposure
In some instances, we have in the past years 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 1998/99.
The following table set forth our vendor financing exposure, which are discussed
further at Note 27 to the Consolidated Financial Statements:
--------------------------------------------------------------------------------
Vendor Financing Exposure At 31 March
(in € million) 2003 2004 2005
-------------- ---- ---- ----
Marine 933 643 266
Transport 317 321 309
Other 9 5 0
Total vendor financing exposure 1,259 969 575
--------------------------------------------------------------------------------
Vendor financing exposure has decreased from €969 million at 31 March 2004 to
€575 million at 31 March 2005 as a result of :
- the sale of ALSTOM loans to two entities involved in the financing of
two cruise ships ;
- the sale of the notes of ALSTOM in Cruiseinvest related to five ships
previously owned by Renaissance ; and
- the sale of the three ships previously owned by Festival and for which
ALSTOM was holding some financing exposure. See Note 11 and Note 27 (a)
(2) to our Consolidated Financial Statements.
Vendor financing exposure decreased from €1,259 million at 31 March 2003 to €969
million at 31 March 2004 due to the early reimbursement to us of €180 million
due to us from two special purpose entities following our agreement with lenders
under our financing package.
CRITICAL ACCOUNTING POLICIES
The preparation of our Consolidated Financial Statements requires us to make
estimates and judgements that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of commitments and
contingencies, including financing arrangements. On a regular ongoing basis, we
evaluate our estimates, including those relating to projects, products, parts
and other after-market operations, and included in accrued contract costs,
provisions for risks and charges, bad debts, inventories, investments,
intangible assets, including goodwill and other acquired intangibles, taxation
including deferred tax assets and liabilities, warranty obligations,
restructuring, long-term service contracts, pensions and other post-retirement
benefits, commitments, contingencies and litigation. Estimates are based on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgements about the carrying value of assets and liabilities. Actual
results may differ from those estimates under different circumstances,
assumptions or conditions.
Accounting policies important to an understanding of the financial statements
include business combinations, consolidation methods, goodwill, other acquired
intangible assets and restructuring that may be subject to the application of
differing accounting principles. We believe the following critical accounting
policies are most affected by our judgements and estimates in preparing our
consolidated financial statements.
Revenue recognition on long term contracts
We recognise revenue and profit as work in progress progresses on long-term,
fixed-price contracts using the percentage of completion method, based on
contract milestones or costs incurred (See Note 2 (c) to the Consolidated
Financial Statements), which relies on estimates of total expected contract
revenue and cost. We follow this method because we believe we can make
reasonably dependable estimates of the revenue and costs applicable to various
defined stages, or milestones, of a contract. Recognised revenues and profit
taken are subject to revisions as the contract progresses to completion.
Revisions to profit estimates are charged to income in the period in which the
facts that give rise to the revision become known. When we book revenue, we also
book certain contract cost (including direct materials and labour costs and
indirect costs related to the contract) so that the contract margin, on a
cumulative basis, equals to the total contract gross margin determined in the
latest project review. We generally account for long-term service contracts
using the percentage of completion method, recognising revenue as performance of
the contract progresses using estimated contract profit rates. Selling and
administrative expenses are charged to expenses as incurred.
Contract accruals
Significant estimates are involved in the determination of provisions related to
contract losses and warranty costs. If a project review indicates a negative
gross margin, we recognise the entire expected loss on the contract when we
identify the negative gross margin. Estimates of future costs reflect our
current best estimate of the probable outflow of financial resources that will
be required to settle contractual obligations. These estimates are assessed on a
contract-by-contract basis. Such estimates are subject to change based on new
information as projects progress toward completion.
We provide for the estimated cost of product warranties at the time revenue is
recognised. Our warranty obligations are affected by product failure rates,
material usage and service delivery costs incurred in correcting any failures.
Should actual failure rates, material usage or service delivery cost of the
products differ from current estimates, revisions to the estimated warranty
liability would required. The introduction of technologically advanced products
exposes us to risk of product failure significantly beyond the terms of standard
contractual warranties applying to suppliers of equipment only. Should adverse
changes to product failure rates occur, additional cost to complete may be
required and result in actual financial consequences different from our
estimates.
Inventories
We write down our inventories for estimated obsolescence or unmarketability in
an amount equal to the difference between the cost of the inventory and the
estimated market value based on assumptions about future demand and market
conditions. If actual market conditions are less favourable than those we
project, additional inventory write-downs may be required.
Doubtful accounts
We maintain allowances for doubtful accounts, for estimated losses resulting
from the inability of our customers to make required payments. If the financial
conditions of our customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances could be required.
Impairment of fixed assets and valuation of deferred tax assets
We review our fixed assets, both tangible and intangible, on an annual basis and
record an impairment charge when we believe an asset has experienced a decline
in value that is other than temporary. Future adverse changes in market
conditions or poor operating results from underlying assets could result in
losses or an inability to recover the carrying value of the assets that may not
be reflected in the current carrying value. This could require us to record an
impairment charge in the future.
In respect of goodwill and other intangible assets we base our impairment
testing by Sector on the Group's internal 3 year Business Plan and extrapolate
over up to ten years together with a terminal value. These are discounted at the
Group's Weighted Average Cost of Capital "WACC".
We record a valuation allowance to reduce our deferred tax assets to the amount
that is more likely than not to be realised. We take into account future taxable
income based on an extrapolation of the Group's internal 3 year Business Plan
and ongoing prudent and feasible tax planning strategies in assessing the need
for the valuation allowance. When we determine that we are able to realise our
deferred tax assets in excess of our net recorded amount, we make an adjustment
to the deferred tax asset, to increase income in the period that such
determination is made. Likewise, when we determine that we are not able to
realise all or part of our net deferred tax assets, an adjustment to the
deferred tax asset is charged to income.
Pension benefits
We sponsor pension and other retirement plans in various forms covering
substantially all employees who meet eligibility requirements. Several
statistical and other factors that attempt to anticipate future events are used
in calculating the expense and liability related to the plans. These factors
include assumptions about the discount rate, expected return on plan assets and
rate of future compensation increases as determined by us, within certain
guidelines.
In addition, our actuarial consultants also use subjective factors such as
withdrawal and mortality rates to estimate these factors. The actuarial
assumptions we use may differ materially from actual results due to changing
market and economic conditions, higher or lower withdrawal rates or longer or
shorter life spans of participants. These differences could result in a
significant change to the amount of pension expense recorded and on the
assessment of the benefit obligations.
Capital leases
Under French GAAP the Group can elect whether or not to capitalise finance
leases (benchmark treatment). The Group has chosen not to capitalize them.
Operating income
The Group does not include restructuring costs, employee profit sharing and
pension costs within its Income Statement line item Operating Income. These are
included within the line item Earnings before Interest and Tax.
Other significant accounting policies
Other significant accounting policies are important to an understanding of the
financial statements. Policies related to purchase accounting, consolidation
policies, provisions and financial instruments and debt require difficult
judgements on complex matters that are often subject to multiple sources of
authoritative guidance.
TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS IFRS
Following the coming into force of European Regulation n° 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's 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. In order to present those comparative data, an opening balance sheet
at 1 April 2004 (transition date) converted to IFRS is being produced.
Management information including an Income Statement reconciliation of IFRS to
French GAAP and Balance Sheet under IFRS at 31 March 2005 is also currently
being prepared.
The Group has set up an IFRS implementation program aiming at the following
objectives:
- Identification of differences between the accounting principles
currently followed by the Group and the applicable provisions of IFRS,
with respect to recognition, measurement and presentation ;
- Estimation of main impacts ;
- Analysis of required adaptations of corporate processes and information
systems ; and
- Organisation of training action plans.
The project is supervised by a Management Committee, chaired by the Group Chief
Financial Officer and composed of representatives of Sectors and Corporate.
Working groups were set up in order to address the main issues potentially
impacting the Group's financial statements and the existing information systems.
A central team is in charge of co-ordinating the project.
However the IFRS information being produced is transitional information, which
will be finalised on production of the audited consolidated Financial Statements
of ALSTOM for the year ended 31 March 2006, the first year in which accounts
prepared under IFRS will be the Group's primary accounts. The Group will prepare
its 6 months to 30 September 2005 Consolidated Financial Statements under IFRS.
As of today, the Group is of the opinion that the main differences in accounting
treatments due to the conversion to IFRS already identified are the following:
Options taken at first time adoption of IFRS at 1 April 2004
Pension and long-term benefits
According to IFRS 1, which governs the preparation of the balance sheet at the
transition date, two alternative treatments of unrecognised actuarial gains or
losses can be considered:
- Immediate recognition in the balance sheet of all actuarial gains or
losses related to pension benefits existing at the date of transition,
measured according to IAS 19 (Employee Benefits) ; or
- Complete retrospective application of IAS 19 since inception of all
plans with cumulative amortisation of actuarial gains and losses, as if
the standard had been applied in the previous years.
The Group has elected to adopt the complete retrospective application of IAS 19.
In addition it has also elected to include the service cost element of pension
benefit costs in Income from operating activities. Other elements of pension
benefit cost including interest cost and asset returns will be included in
Financial Income/Expense.
Business combinations
As permitted by IFRS 1, the Group has elected not to restate past business
combinations according to IFRS.
Under the new standard, goodwill will no longer be amortised. Impairment tests
have to be performed at transition date and at regular intervals, at least,
yearly.
Financial instruments
Derivative instruments will have to be recorded at their fair value in the
balance sheet, whatever the nature of the underlying asset or liability.
The new standards will mainly affect foreign currency hedges. Financial
instruments must meet documentation and hedge effectiveness criteria in order to
qualify for hedge accounting. At the inception of the hedge and in subsequent
periods the hedge must be highly effective in achieving offsetting changes in
fair value attributable to the hedge risk during the period for which the hedge
is designated. Currency derivative financial instruments which will not meet the
documentation and effectiveness criteria required by the standard will be
recorded without any corresponding offset by the recognition of the fair value
of hedged items. Such a situation may generate volatility in income from
operations.
There are major implications for accounting and treasury systems, as hedging
instruments are required to be reviewed with the underlying assets or
liabilities to which they relate. The Group Treasurer has reviewed the systems
and processes to ensure they meet the new requirements of IFRS and new Treasury
software has been acquired and installed.
Due to the complexity of processes to be implemented to satisfy the IFRS
requirements on financial derivatives, the group has decided, as authorised by
IFRS 1 - First time application of IFRS, not to apply IAS 32-39 (Financial
instruments) in the comparative data being prepared for the fiscal year 2005.
Revaluation of property, plant and equipment net and other intangible
assets net
The Group has decided not to apply the exemption provided for in IFRS 1,
allowing property, plant and equipment and other intangible assets to be
revalued at fair value in the opening IFRS balance sheet at 1 April 2004. The
option chosen by the Group therefore has no impact on equity in the opening IFRS
balance sheet at 1 April, 2004.
Other Accounting Policies
Recognition of development costs as assets
Development costs which meet the conditions set out in IAS 38 (Intangible
assets) must be recognised as assets, whereas they are presently expensed as
incurred.
The Group has reviewed its information systems in order to identify costs that
meet the IFRS criteria for recognition as assets, with respect to the technology
internally developed and in use at the date of first-time adoption of the
standard.
The counterpart of any recognition of development assets is an increase in
assets and opening equity at the transition date.
Leases including sales type leases
The main impact of the conversion to IFRS will relate to assets financed through
capital leases and sales type leases.
Those assets, as well as corresponding liabilities, will be recognised in the
balance sheet, while they are presently disclosed as off balance sheet
commitments. This change of accounting method will significantly increase both
fixed assets and financial debt. Opening equity and future earnings will be
marginally affected.
Revenue and cost recognition
Revenue and cost recognition on construction and long term service contracts has
been reviewed.
The Group has recognised revenue on construction type contracts 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.
From 1 April 2005 the Group will harmonise its approach to revenue recognition
on construction type contracts to the milestone method at the same date as
accounts under IFRS become its primary accounts.
IFRS will lead to a number of reclassifications of contract items including
reclassification of penalties and claims as a reduction of sales instead of
increase in costs, which will reduce future revenues on contracts subject to
penalties, if any.
Reclassifications in the presentation of construction contracts in the balance
sheet will occur.
Deferred taxation - Business Combinations
In business combinations, the cost is allocated by recognising the identifiable
assets acquired and liabilities assumed at their fair values at the acquisition
date. Temporary differences arise when the tax bases of the identifiable assets
acquired and liabilities assumed are not affected by the business combination or
are affected differently. When the carrying amount of an asset is increased to
fair value but the tax base of the asset remains at cost to the previous owner,
a taxable temporary difference arises which results in a deferred tax liability.
Under IFRS, the difference between the carrying amount of a revalued asset, in
ALSTOM's case included in other intangible assets Net (note 8), and its tax base
is a temporary difference and gives rise to a deferred tax liability.
Under French GAAP as the revalued carrying amount of the asset will be recovered
and refreshed through use and thus generate taxable income in excess of
depreciation allowable for tax purposes in future periods, no deferred tax
liability was recognised as the timing differences were not expected to reverse.
IFRS will also require a number of additional disclosures and footnotes.
IMPACT OF EXCHANGE RATE AND INTEREST RATE FLUCTUATIONS
Our policy is to use derivatives, such as forward foreign exchange contracts, in
order to hedge exchange rate fluctuations and, to a much lesser extent, interest
rate fluctuations. Our policy does not permit any speculative market position.
We have implemented a centralised treasury policy in order to better control the
company's financial risks and to optimise cash management by pooling our
available cash, thereby reducing the amount of external debt required and
permitting us to obtain better terms under our various financing arrangements.
The Corporate Treasurer reports to the Senior Vice-President funding and
treasury (who reports to the Chief Financial Officer) and has global
responsibility for foreign exchange risk, interest rate management, and cash
management. He manages a team of more than 20 people located in the Paris
Headquarters. Corporate Treasury is organised in a Front-Office or Dealing Room,
a Middle-Office and a Back-Office to ensure segregation of duties. In addition
to this, a small team operates the netting of intercompany payments and prepares
a weekly cash forecast. A network of Country Treasurers supports Corporate
Treasury in the countries where we have a significant presence.
Corporate Treasury acts as an in-house bank for subsidiaries by providing
hedging and funding and maintaining internal current accounts. We have
implemented cash pooling structures to centralise cash on a daily basis in the
countries where local regulations permit it.
Corporate Treasury uses the Reuters CashFlow Treasury Management System for
straight-through processing of treasury transactions from dealing to settlement
and management of inhouse banking activity. Our Treasury Management System is
interfaced with SAP for automatic generation of accounting entries. The Dealing
Room is equipped with a Reuters Information System for realtime market data and
uses a professional telephone dealing system provided by Etrali to tape all
exchanges with bank's dealing rooms. A dedicated Information Technology team
administers Treasury systems and guarantees back-up and contingency plans.
The Middle Office monitors the Dealing Room activity, guarantees that no open
positions are maintained, and produces regular risk reporting.
Exchange rate risks
In the course of our operations, we are exposed to currency risk arising from
tenders for business remitted in foreign currency, and from awarded contracts or
"firm commitments" under which revenues are denominated in foreign currency. The
principal currencies to which we had significant exposure in fiscal year 2004/05
were the US dollar, British Pound and Swiss Franc. We hedge risks related to
firm commitments and tenders as follows:
- by using forward contracts for firm commitments ;
- by using foreign exchange derivative instruments, for tenders, usually
pursuant to strategies involving combinations of purchased and written
options ; or
- by entering into specific insurance policies, such as with Coface in
France or Hermes in Germany.
The purpose of these hedging activities is to protect us against any adverse
currency movements which may affect contract revenues should the tender be
successful, and to minimise the cost of having to unwind the strategy in the
event of an unsuccessful tender. The decision whether to hedge tender volumes is
based on the probability of the transaction being awarded to us, expected
payment terms and our assessment of market conditions. Under our policy, only
senior management may make such decisions.
When a tender results in the award of a contract, we hedge the resulting net
cash flows mainly in the forward markets or, in some exceptional cases, keep
them covered under insurance policies. Due to the long-term nature of our
business, the average duration of these forward contracts is approximately 12-14
months. We may, in some circumstances, enter into forward foreign exchange
contracts of a shorter maturity than the expected underlying currency flow.
Such contracts are rolled over until the occurrence of the underlying flow.
Although this provides adequate protection against exchange rate fluctuations,
we remain exposed to variations in the differential between the interest rates
of the two currencies involved. The impact of such variations remains however
relatively minor.
We do not hedge our net assets invested in foreign operations. We monitor our
market positions closely and regularly analyse market valuations. We also have
in place counter-party risk management guidelines. All derivative transactions,
including forward exchange contracts, are designed and executed by our central
corporate treasury department, except in some specific countries where
restrictive regulations prevent centralised execution.
Interest rate risks
See Note 29(b) to the Consolidated Financial Statements for discussion of our
interest rate risks and of sensitivity to interest rate variation.
VALUE OF FINANCIAL INSTRUMENTS
----------------------------------------------------------------------
| Nominal value | Fair market value |
----------------------------------------------------------------------
(in € million) Maturing in year ending 31 March 2005
----------------------------------------------------------------------
|Total | ‹1 | 1-5 |›5 | | Total | ‹1 | 1-5 |›5 |
| | year | years |years | | | year | years |years |
----------------------------------------------------------------------
------------------------------------ ----------------------------------------------------------------------
|BALANCE SHEET ITEMS | | | | | | | | | | |
| ASSETS | | | | | | | | | | |
| ---------------------------------|-|-------|-------|--------|--------|-|--------|--------|--------|-------|
| Loans and long term deposits | | 82 | 21 | 26 | 35 | | 82 | 21 | 26 | 35 |
| Other assets | | 829 | 86 | 10 | 733 | | 829 | 86 | 10 | 733 |
| Short-term investments | |1,462 |1,462 | 0 | 0 | | 1,462 | 1,462 | 0 | 0 |
| Cash and cash equivalent | | 15 | 15 | 0 | 0 | | 15 | 15 | 0 | 0 |
| ---------------------------------|-|-------|-------|--------|--------|-|--------|--------|--------|-------|
| LIABILITIES | | | | | | | | | | |
| ---------------------------------|-|-------|-------|--------|--------|-|--------|--------|--------|-------|
| | | | | | | | | | | |
| Financial debt | |2,907 | 493 |2,382 | 32 | | 2,934 | 499 | 2,403 | 32 |
| ---------------------------------|-|-------|-------|--------|--------|-|--------|--------|--------|-------|
|OFF BALANCE SHEET ITEMS | | | | | | | | | | |
| | | | | | | | | | | |
| Interest rate instruments | | | | | | | | | | |
| | | | | | | | | | | |
|Interest rate swaps: receive fixed | | | | | | | | | | |
| ---------------------------------|-|-------|-------|--------|--------|-|--------|--------|--------|-------|
| USD US Dollar | | 94 | 0 | 94 | 0 | | 3 | 0 | 3 | 0 |
| ---------------------------------|-|-------|-------|--------|--------|-|--------|--------|--------|-------|
| Foreign exchange instruments | | | | | | | | | | |
| | | | | | | | | | | |
|Currency swaps - Currency purchased | |1,241 |1,180 | 61 | 0 | | 0 | 3 | (3) | 0 |
| ---------------------------------|-|-------|-------|--------|--------|-|--------|--------|--------|-------|
| CHF Swiss Franc | | 363 | 343 | 20 | 0 | | (1) | (1) | 0 | 0 |
| USD US Dollar | | 249 | 230 | 19 | 0 | | (1) | 2 | (3) | 0 |
| SEK Swedish Krona | | 230 | 216 | 14 | 0 | | (2) | (2) | 0 | 0 |
| CZK Czech Krona | | 79 | 77 | 2 | 0 | | 0 | 0 | 0 | 0 |
| FLN Polish New Zloty | | 63 | 61 | 2 | 0 | | 2 | 2 | 0 | 0 |
| GBP British Pound | | 59 | 59 | 0 | 0 | | 0 | 0 | 0 | 0 |
| AUD Australian Dollar | | 56 | 56 | 0 | 0 | | 0 | 0 | 0 | 0 |
| Other Currencies | | 141 | 137 | 4 | 0 | | 1 | 1 | 0 | 0 |
| ---------------------------------|-|-------|-------|--------|--------|-|--------|--------|--------|-------|
| | | | | | | | | | | |
|Currency swaps - Currency sold | |2,459 |2,247 | 212 | 0 | | 40 | 26 | 14 | 0 |
| ---------------------------------|-|-------|-------|--------|--------|-|--------|--------|--------|-------|
| USD US Dollar | |1,012 | 826 | 186 | 0 | | 25 | 11 | 14 | 0 |
| CHF Swiss Franc | | 847 | 841 | 6 | 0 | | 6 | 6 | 0 | 0 |
| GBP British Pound | | 199 | 187 | 12 | 0 | | (1) | (1) | 0 | 0 |
| SGD Singapore Dollar | | 88 | 88 | 0 | 0 | | 12 | 12 | 0 | 0 |
| SEK Swedish Krona | | 70 | 63 | 7 | 0 | | 0 | 0 | 0 | 0 |
| JPY Japanese Yen | | 54 | 54 | 0 | 0 | | 0 | 0 | 0 | 0 |
| CAD Canadian Dollar | | 41 | 41 | 0 | 0 | | (1) | (1) | 0 | 0 |
| Other Currencies | | 147 | 147 | 0 | 0 | | (1) | (1) | 0 | 0 |
| ---------------------------------|-|-------|-------|--------|--------|-|--------|--------|--------|-------|
| | | | | | | | | | | |
|Foreign exchange contracts | |1,534 |1,232 | 302 | 0 | | (91) | (12) | (79) | 0 |
|- Contracts purchased | | | | | | | | | | |
| ---------------------------------|-|-------|-------|--------|--------|-|--------|--------|--------|-------|
| CHF Swiss Franc | | 976 | 926 | 50 | 0 | | (5) | (3) | (2) | 0 |
| USD US Dollar | | 308 | 96 | 212 | 0 | | (91) | (14) | (77) | 0 |
| FLN Polish New Zloty | | 63 | 62 | 1 | 0 | | 3 | 3 | 0 | 0 |
| SEK Swedish Krona | | 55 | 33 | 22 | 0 | | 0 | 0 | 0 | 0 |
| AUD Australian Dollar | | 52 | 50 | 2 | 0 | | 0 | 0 | 0 | 0 |
| GBP British Pound | | 17 | 16 | 1 | 0 | | 0 | 0 | 0 | 0 |
| SAR Saudi Riyal | | 17 | 17 | 0 | 0 | | 0 | 0 | 0 | 0 |
| Other Currencies | | 45 | 32 | 13 | 0 | | 2 | 2 | 0 | 0 |
| ---------------------------------|-|-------|-------|--------|--------|-|--------|--------|--------|-------|
| | | | | | | | | | | |
|Foreign exchange contracts | |2,300 |1,766 | 534 | 0 | | 106 | 22 | 84 | 0 |
|- Contracts sold | | | | | | | | | | |
| ---------------------------------|-|-------|-------|--------|--------|-|--------|--------|--------|-------|
| CHF Swiss Franc | |1,010 | 952 | 58 | 0 | | 4 | 3 | 1 | 0 |
| USD US Dollar | | 981 | 586 | 395 | 0 | | 107 | 19 | 88 | 0 |
| GBP British Pound | | 109 | 54 | 55 | 0 | | (6) | (2) | (4) | 0 |
| AUD Australian Dollar | | 38 | 33 | 5 | 0 | | (2) | (1) | (1) | 0 |
| CAD Canadian Dollar | | 37 | 30 | 7 | 0 | | 0 | 0 | 0 | 0 |
| JPY Japanese Yen | | 29 | 22 | 7 | 0 | | 4 | 4 | 0 | 0 |
| CZK Czech Krona | | 17 | 17 | 0 | 0 | | 0 | 0 | 0 | 0 |
| Other Currencies | | 79 | 72 | 7 | 0 | | (1) | (1) | 0 | 0 |
-------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------
| Nominal value | Fair market value |
----------------------------------------------------------------------
(in € million) Maturing in year ending 31 March 2005
----------------------------------------------------------------------
|Total | ‹1 | 1-5 |›5 | | Total | ‹1 | 1-5 |›5 |
| | year | years |years | | | year | years |years |
----------------------------------------------------------------------
------------------------------------ ----------------------------------------------------------------------
|Interest contracts - Contracts | | | | | | | | | | |
|purchased | | 3 | 3 | 0 | 0 | | 0 | 0 | 0 | 0 |
| ---------------------------------|-|-------|-------|--------|--------|-|--------|--------|--------|-------|
| USD US Dollar | | 3 | 3 | 0 | 0 | | 0 | 0 | 0 | 0 |
| ---------------------------------|-|-------|-------|--------|--------|-|--------|--------|--------|-------|
|Insurance contracts - Contracts sold| | 192 | 34 | 158 | 0 | | (2) | (5) | 3 | 0 |
| ---------------------------------|-|-------|-------|--------|--------|-|--------|--------|--------|-------|
| USD US Dollar | | 176 | 29 | 147 | 0 | | 0 | (5) | 5 | 0 |
| JPY Japanese Yen | | 9 | 0 | 9 | 0 | | (2) | 0 | (2) | 0 |
| SEK Swedish Krona | | 4 | 4 | 0 | 0 | | 0 | 0 | 0 | 0 |
| DZD Algerian Dinar | | 2 | 0 | 2 | 0 | | 0 | 0 | 0 | 0 |
| GBP British Pound | | 1 | 1 | 0 | 0 | | 0 | 0 | 0 | 0 |
| CAD Canadian Dollar | | 0 | 0 | 0 | 0 | | 0 | 0 | 0 | 0 |
| ---------------------------------|-|-------|-------|--------|--------|-|--------|--------|--------|-------|
| | | | | | | | | | | |
|Currency options - Purchased | | 130 | 130 | 0 | 0 | | 19 | 19 | 0 | 0 |
| ---------------------------------|-|-------|-------|--------|--------|-|--------|--------|--------|-------|
| CALL: | | 4 | 4 | 0 | 0 | | (0) | (0) | 0 | 0 |
| USD US Dollar | | 4 | 4 | 0 | 0 | | (0) | (0) | 0 | 0 |
| | | | | | | | | | | |
| PUT: | | 126 | 126 | 0 | 0 | | 19 | 19 | 0 | 0 |
| USD US Dollar | | 106 | 106 | 0 | 0 | | 17 | 17 | 0 | 0 |
| JPY Japanese Yen | | 20 | 20 | 0 | 0 | | 2 | 2 | 0 | 0 |
| ---------------------------------|-|-------|-------|--------|--------|-|--------|--------|--------|-------|
| | | | | | | | | | | |
|Currency options - Sales | | 75 | 75 | 0 | 0 | | 0 | 0 | 0 | 0 |
| ---------------------------------|-|-------|-------|--------|--------|-|--------|--------|--------|-------|
| CALL: | | 71 | 71 | 0 | 0 | | 0 | 0 | 0 | 0 |
| USD US Dollar | | 71 | 71 | 0 | 0 | | 0 | 0 | 0 | 0 |
| | | | | | | | | | | |
| PUT: | | 4 | 4 | 0 | 0 | | 0 | 0 | 0 | 0 |
| USD US Dollar | | 4 | 4 | 0 | 0 | | 0 | 0 | 0 | 0 |
| ---------------------------------|-|-------|-------|--------|--------|-|--------|--------|--------|-------|
| | | | | | | | | | | |
------------------------------------- -----------------------------------------------------------------------