ROUNDING off a year dominated by mergers and acquisitions, the completion of GE's €12bn takeover of Alstom's energy activities on November 2 recast one of the industry's leading players as a company dedicated solely to the rail business.
With the completion of the transaction Mr Patrick Kron resigned as chairman and CEO, his place at the helm taken by director and executive vice-president Mr Henri Poupart-Lafarge, who had led Alstom Transport since 2011.
Last year France's economy minister Mr Emmanuel Macron said Alstom's challenge is to grow, and that the reduction of debt from the sale of the energy business "should help it to acquire competitors internationally." While Alstom has not publically disclosed an interest in any potential purchases, Poupart-Lafarge says the company is now in stronger position to pursue expansion in this way.
"The GE deal has two important consequences," Poupart-Lafarge told IRJ. "Firstly, it strengthens Alstom by giving us the ability to pursue growth both organically and strategically. Secondly, it gives us the momentum and dynamism to reinforce our position in the market, putting us closer to our customers, and giving us a platform for strategic partnerships."
Over the last year Alstom has continued to expand its rail portfolio with a number of strategic acquisitions. The purchase of Motola Train in Sweden and a 51% stake in South Africa's Commuter Transport & Locomotive Engineering have enabled the company to strengthen its position in the rolling stock overhaul and refurbishment market. In the signalling business, Alstom has acquired Balfour Beatty's stake in Britain's Signalling Solutions, a 50:50 joint venture between the two companies established in 2007. Proceeds from the sale of the energy business were used to acquire GE's signalling activities, a transaction worth around €700m which boosts Alstom's signalling sales by around 40%.
At the end of last year Alstom increased its stake in Russia's Transmashholding to 33%, while in February it acquired an additional 25% stake in the Kazakh EKZ joint venture locomotive manufacturer from Kazakhstan Railways (KTZ) to become the main shareholder with a 50% holding.
Poupart-Lafarge says Alstom will consider further opportunities for acquisitions if they are "good for the company" but he rejects the suggestion that Alstom needs to grow to compete with China's vast CRRC Corporation, which is actively seeking to expand its international business. "This is not a strategy to compete with one competitor or another," he says. "It's about having a global footprint, being present in all key markets, and providing a complete range of solutions for all the sectors we are active in."
Alstom achieved sales of €6.2bn in the 2014-15 financial year and the company's order backlog stood at a record €28.7bn on December 31 2015. The company is active in over 60 countries and employs around 32,000 staff. Poupart-Lafarge says Alstom has emerged from the GE deal in good financial health, and he is confident the rail equipment market will remain strong, despite the weakening global economy.
"Our order book is looking good at the moment and while the situation varies between countries I think it's fair to say the market is firm worldwide," Poupart Lafarge says.
Europe remains at the core of Alstom's business, accounting for 63% of sales in the first three quarters of the 2015-16 financial year, although recent successes elsewhere in the world - particularly in emerging markets - are helping to diversify revenue sources. "Our business is two-thirds European - it's a large part of the market and our industrial base, so you would expect that," says Poupart Lafarge. "We see a number of interesting prospects in Europe, such as the British market, which is quite buoyant at the moment with High Speed 2 and contracts for London Underground coming up. However, the fastest-growing sector is urban and suburban rail in developing countries."
Forging alliances
One of Alstom's most prominent current projects falls into this category, and demonstrates how the company is forging alliances with local partners to win business in emerging markets. In December 2013, Passenger Rail Agency of South Africa awarded Gibela Rail, a consortium of Alstom (61%) Ubumbano Rail (30%), and New Africa Rail (9%) a Rand 51bn ($US 3.4bn) contract to supply 600 six-car Xtrapolis commuter trains, 580 of which will be assembled at a new manufacturing plant and maintenance facility at Dunnottar, 50km east of Johannesburg. Gibela broke ground on the factory on March 4 and the first South African-built trains are due to roll off the production line next year.
Supply chain
Localisation of the supply chain will be vital to reach Prasa's target of 70% South African content, and Gibela is in the process of recruiting 250 South African suppliers for the project.
Last November Alstom was awarded a Rs 230bn ($US 3.5bn) contract by Indian Railways (IR) to supply 800 double-unit Prima electric locomotives. The project will be delivered through a joint venture company, with the IR holding a 26% stake, and all except the first five units will be assembled at a new factory in the Indian state of Bihar.
Both of these major orders include lengthy maintenance contracts, and like many of its competitors, Alstom sees significant potential for developing the fleet management side of its business, which already accounts for 15-20% of the company's turnover. "For new operators, or existing operators buying new trains, it can often be simpler to outsource the maintenance of their fleets," says Poupart-Lafarge. "Increasingly we see that operators are taking the total cost of ownership into account at the procurement stage and this means factors such as maintainability and energy consumption are becoming more important."
Alstom is one of the founding members of the Shift²Rail joint undertaking for rail research and Poupart-Lafarge is an enthusiastic supporter of the programme. "Anything that improves the efficiency of the rail system in Europe is a very important step," he says. The goal of reducing life-cycle costs by 50% is very ambitious, but it's important that we achieve it. We need to ensure the efficiency of the rail system through greater standardisation."
Poupart-Lafarge also believes the Fourth Railway Package will improve efficiency through the introduction of measures to streamline rolling stock approvals. "The Technical Pillar is a step in the right direction at the European level and it's crucial that more power goes to ERA, because the homologation of new equipment is taking far too long." he says. "This is an important regulatory and innovation issue that we have to address."
Free of net debt and with a bulging orderbook, Alstom is undoubtedly in a strong position to emerge as one of the winners in the current round of industry consolidation. The focus will remain on expanding the non-European business and Alstom's tried-and-tested strategy of establishing local partnerships to penetrate new markets looks set to continue, and while organic growth remains a core objective, further expansion through strategic acquisitions looks almost certain.
