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Alstom Transport Orders May Reach Record on Canada Trams

Alstom Transport Orders May Hit Record on Canadian Tram Deal
An employee passes between tilting Pendolino train carriages in Virgin Trains' West Coast mainline livery, at Alstom SA's maintenance facility in Manchester. Photographer: Chris Ratcliffe/Bloomberg

Alstom SA said a Canadian tram order may determine whether its train unit will have a record order intake this fiscal year as a 23 billion-euro ($30 billion) backlog helps the French manufacturer keep competition at bay.

If the Ottawa tram contract worth “several hundreds of million euros,” for which Alstom is the preferred bidder, is booked before the end of March, the fiscal year ending that month may be the best ever in terms of orders, Henri Poupart-Lafarge, the head of Alstom’s transport unit, said in an interview. “If it’s booked on April 1, maybe it won’t.”

Alstom, which also makes power-generation and transmission equipment, had a record order intake of 8.1 billion euros at its transport unit in the year ended March 2009 before the financial crisis prompted rail operators to delay contracts. The company and rivals such as Canada’s Bombardier Inc. and Germany’s Siemens AG are benefiting from a rebound in demand for trains, metros, trams and signaling systems as governments seek to curb traffic congestion and pollution.

The stock rose 1.7 percent to 31.73 euros today, the highest in almost 10 months, beating the 0.2 percent gain of the French CAC 40 index and valuing the company at 9.8 billion euros. Alstom was the biggest winner in the 15-member Bloomberg Europe Machinery Index which rose 0.3 percent.

Russia, India

“We’ll have between 5 billion euros and 6 billion euros of sales, with orders well above that, it’s a very good year,” the Alstom transport unit head said in his office, which features a small statue of Buddha and models of locomotives built by Alstom as well as Russian and Chinese makers.

“We won’t repeat such a year permanently,” he said, adding that “we may repeat it next year” if the company books the $5.8 billion order for suburban trains in South Africa for which an Alstom-led group was also named as the preferred bidder last month, he said.

The global market for rail supply, from rolling stock to infrastructure to maintenance services, may grow by 2.6 percent per year to reach 170 billion euros in 2017, led by Latin America and the Middle East, European rail industry federation Unife and Roland Berger Consultants said in September.

“Tendering activity is good,” Poupart-Lafarge said. Alstom, based in Levallois-Perret near Paris, has recently made an offer to supply high-speed trains in Switzerland and metro cars in New Delhi. The company is also preparing this year’s tenders such as the Riyadh metro, trams, regional trains and locomotives in Russia, and a high-speed rail line in Brazil, for which it’s planning to partner with local builders and the French railways, he said.

New Rivals

While the company is winning business, competition is rising, Poupart-Lafarge said.

“We’re seeing mid-sized players competing with us in new countries,” he said, citing Spanish manufacturers, Italy’s AnsaldoBreda SpA, Switzerland’s Stadler Rail AG, as well as Asian rivals. “Competition is intense.”

As orders dwindled during the global crisis, Alstom’s transport sales fell 8 percent to a six-year low of 5.2 billion euros in the year ended March 2012. The unit’s operating margin fell to 5.1 percent from 7.1 percent a year earlier.

To adapt its global footprint, the French company has recently cut 1,380 jobs at its transport unit in Western Europe, bought a 25 percent stake in Russia trainmaker Transmashholding for $425 million, and invested in new metro plants in India and locomotive facilities in Kazakhstan.

Public Investments

The changes, which weighed on Alstom Transport’s profitability and cash flow last year, will allow the unit to participate in the company’s plan to lift its operating margin by about 1 percentage point by 2015, Poupart-Lafarge said. “There’s nothing structural” in last year’s margin drop, he said, while declining to give targets for the rail division.

As European railways investment rebounded, orders jumped by 11 percent to 6.31 billion euros in the year to March 2012, and by 72 percent to 4.58 billion euros in the six months ended in September 2012. Sales also started rebounding in the last fiscal half, boosting the unit’s margin to 5.3 percent. Alstom announced at least another 1.35 billion euros of rail contracts in the last three months of 2012, according to a Bloomberg tally.

“Alstom’s made efforts to catch up in its urban and suburban trains which are paying off,” sArnaud Schmit, an analyst at Natixis in Paris, said in an interview. He predicts the margin of Alstom Transport to rise to 6.6 percent by March 2015.

Brazilian Market

“We’re making huge progress in terms of geographical coverage,” Poupart-Lafarge said. The investments of the transport unit, which amounted to 106 million euros in the last fiscal year, won’t show “major changes” in coming years as the company builds and maintains plants, he said.

The company plans to spend 6 million euros on a new metro assembly line in Brazil and “several tens of million dollars” to build a plant and a supply chain in South Africa, Poupart-Lafarge said. It will also set up tram plants with partners in Canada and Algeria, he said.

The company may announce a tram partnership in China this year, depending on tenders, according to Poupart-Lafarge. It’s not looking at acquisitions for now, and has nothing similar to the Transmashholding deal “on the table.”

“We must continue to improve quality, reduce lead time, while remaining competitive vis-a-vis the competition which has some strengths and weaknesses,” Poupart-Lafarge said. “We’re very well placed. A lot of things are in our hands.”

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