SERGIO De Luca (pictured) has a very positive view of the railway signalling
market: "Some months ago the major question was how the financial
crisis would affect our market. Our view at the end of last year was
quite positive, but we were not 100% sure. Now, we are much more
confident that the crisis won't affect our sector and we believe we can
even benefit from the national financial stimulus packages."
Ansaldo STS might be coming through the crisis unscathed, De Luca
recognises that this is not the case for some of its private railway
customers, particularly in the United States and Australia. One of the
first casualties is the postponement of an innovative project by Rio
Tinto - which has been forced to reduce output - to automate most of
its 1300km heavy-haul railway in the Pilbara region of Western
Australia. The project involves the installation by Ansaldo STS of
automatic train protection (ATP) and automatic train operation (ATO),
and ATO prototypes for the locomotives have already been delivered.
Although Rio Tinto would be the first operator to automate a heavy-haul
railway, De Luca describes the project as "quite conventional" from
Ansaldo STS' point of view. "It is more a problem of regulating the
train operation rather than the technology," he says. "We gained a lot
of experience with ATO with the Copenhagen metro, which is a
fully-automated system. The metro achieves 98% availability and the 2%
failure is usually the result of a mechanical failure of one of the
trains rather than the ATO. So the extension of this technology to a
heavy-haul railway is not a problem." The only major difference is that
recovery from a failure on a heavy-haul railway in the Pilbara is a
little different from a metro because of the distances involved and the
remoteness of much of the line.
deluca.jpgDe Luca sees three main reasons for
Ansaldo STS to be confident about the future: strong growth, the
company's product portfolio, and its worldwide presence. First he
points to general growth in the signalling and transport systems
market, which is predicted to grow at about 7% a year worldwide. The
signalling market is worth between €6 billion and €7 billion a year and
is forecast to grow at between 5 and 6% a year. Although the transport
systems market is worth between €3 billion and €3.5 billion, this is
expected to grow more strongly at about 10% a year.
"Our commitment is
to grow at 8% a year over a four-year period, as we expect to
outperform the market by 1% a year, which I think is rather
conservative as we have an excellent portfolio of products," says De
Luca. The only problem for De Luca is that most of his competitors want
to do the same. De Luca says Ansaldo STS is one of the leaders in Level
2 of the European Train Control System (ETCS), as the company's
equipment is installed on all of the new Italian high-speed lines (Rome
- Naples, Turin - Novara, and Milan - Bologna). Although Ansaldo STS is
part of the Saturno consortium with Alstom equipping these lines, it is
the majority partner. "Because of this success we were able to capture
some business in China," he points out.
Ansaldo STS and Beijing
HollySys, China, won a €61.8 million contract last year to install ETCS
Level 2 on the Zhengzhou - Xi'an high-speed line. China plans to award
contracts for ETCS Level 2 for another 4000km of high-speed lines in
the next few months, for which Ansaldo STS and Bombardier are in the
running. "This will be a huge contract," says De Luca. "It is
impossible to think about projects on this scale in western countries."
One of the drawbacks with ETCS is that a lot of the equipment has to be
installed on the line. "You can't have balises on very long lines in
remote areas or where snow is a problem, so you have to use another
technology such as satellites," he explains. "We have a cooperation
agreement with Russian Railways (RZD) to develop a Russian version of
ETCS, called Itarus, which replaces balises with satellites."
For mass
transit, De Luca says Ansaldo STS' good reference in Copenhagen enabled
it to win other automatic metro contracts in Rome for the new Line C,
Milan for the new Line 5, Brescia, Italy, and Thessalonica, Greece. "In
April we won a contract for the first section of the new Circle Line in
Taipei," he says. This 15.5km section is part of a planned 52km line,
which will be fully-automatic and, unlike Copenhagen, based on
communications-based train control (CBTC). Ansaldo STS is also working
with Paris Transport Authority (RATP) on one of three CBTC pilot
projects. "In order to have really good technology it is important to
have a strong business relationship with a major customer," says De
Luca. "We consider ourselves to be a leader in ETCS Level 2 because we
have worked with Italian Railways (FS) and the same goes for CBTC
because of our relationship with RATP." Ansaldo STS has four domestic
markets: Italy, France (through the former CSEE), the United States
(through the former Union Switch & Signal), and Australia. It is
now establishing a fifth domestic market through its new subsidiary
Ansaldo STS China. "We use these domestic bases as a springboard to
enter other markets," says De Luca. "Our philosophy is be global from
the technology point of view and local as far as the implementation is
Ansaldo STS also has exclusive commercial agreement with a
systems integrator in China to sell CBTC in Chinese cities. Technology
transfer is also envisaged. "If we win a contract from the Chinese
Ministry of Railways, 40% of the contract value has to be local," says
De Luca. "The idea is to have more control over the local content."
Luca is trying to develop Ansaldo STS' transport systems business
because this is showing strong growth. But the philosophy is to act as
a general contractor by outsourcing other services such as
telecommunications and power supply so that Ansaldo STS can concentrate
on signalling, its core activity. De Luca believes firmly that the
company's ability to select partners for a project is a strength rather
than having to rely on in-house resources.
Ansaldo STS' business model
seems to be working as its results are impressive. It recorded a 33%
increase in profit last year, and a 49% increase in the first quarter
of this year. It also achieved a huge surge in orders in the first
quarter, boosting its order backlog considerably.
One of the drawbacks
of being in a growth market is that there is a lot competition: there
are seven major players in the signalling market as well as local
suppliers. With ETCS and CBTC, the products are becoming more
standardised, which De Luca believes will lead to a fall in profit
margins. "There should be some consolidation in such a situation, but
we have been saying that for years and it never happens," says De Luca.
"If consolidation happens, we want to be one of the consolidators and
not one of the consolidated. Ansaldo STS is the only purely signalling
company - it is our only business. The company is listed on the Milan
Stock Exchange and we have the financial structure that could ease
So if consolidation does not happen, the only clouds on
the horizon for De Luca are strong competition and the expectation that
prices will start to drop.