Bangkok--13 Mar--Priority Consultants
Patrick Kron was appointed Chairman & CEO of Alstom on 11 March 2003. In the decade between 2003 and 2013, the company battled for survival from 2003 to 2005, before enjoying a strong growth between 2006 and 2009. Alstom coped with the global financial and economic crisis from 2010 onwards. On 21 January 2013, the construction of four new plants to make offshore wind turbines kicked off in Saint-Nazaire — Alstom's first new factories in France in over 30 years was an impressive milestone. Alstom was the symbol of a solid company at the forefront of the world's power generation, power transmission and rail transport industries, with an order backlog of nearly ?50 billion; Alstom is a company firmly determined to meet the challenges of the new world that will emerge after the crisis, with the industrial tools and technologies of tomorrow at its disposal.
When Patrick Kron was appointed Chairman & CEO of Alstom, he took the helm of a company in a critical situation, whose very survival was at stake. The drastic decisions which would be taken and the considerable efforts implemented in the following years would have a profound effect on Alstom.
"Never give up"
The downward spiral in which Alstom found itself in 2003 dates back to the turn of the 21st century, when serious design flaws affecting gas turbines recently acquired from ABB led to considerable commercial and financial difficulties. Problems in contract execution, notably in rail transport, and the bankruptcy of a major customer of the company’s shipyards worsened the financial drain. This was compounded by a lack of confidence among consumers, suppliers and bankers, and even among employees, as to the company's ability to stay the course — a disastrous situation for a long-term businesses like Alstom. Between 2003 and 2004, the group’s order book shrunk to one year of sales, far below the usual backlog of two to three years. Net losses total over ?1 billion in FY 2002/03, followed by a loss of ?1.8 billion in 2003/04. Debts reached ?5 billion and increasing losses wiped out the company’s capital. Alstom was on the edge of the abyss. Most observers felt that its fate was to be sealed.
However, Patrick Kron and a fully renewed management team he put in place stood firm in a 'never-give-up' policy and disappointed the expectations of many observers. Things overturned in under three years — a recovery made possible by the considerable commitment of employees, bankers and shareholders. Alstom cut its workforce from 110,000 in 2003 to 65,000 in 2006. Many assets were divested, such as the industrial turbine business in 2003, the transmission and distribution division in 2004, the electric motors and converters activity (Power Conversion) in 2005 and the shipbuilding sector (Alstom Marine) in 2006. Factories were shut down. At the same time, Patrick Kron overcame a crisis of confidence among investors and convinced customers that the company was viable in the long term: he pressed ahead with two consecutive capital increases, giving Alstom the financial resources to turn things around and stabilise its shareholder's base, with the French government temporarily taking a minority interest at the request of shareholders in 2004. Meanwhile, the unrelenting efforts of Alstom’s engineering and technical staff successfully resolved the technical issues affecting gas turbines once and for all.
In pursuit of growth
Alstom emerged from this recovery plan focused on its core businesses: power generation and rail transport infrastructures. With a simplified organisation, Alstom prioritised manufacturing quality and successful contract execution, reaping the rewards of more than 2,000 quality improvement initiatives launched during the crisis. The company regained the confidence of customers and got orders back on track. Between 2005 and 2006, the group announced net gains of ?178 million after four successive years of losses. Order backlog once again topped ?30 billion the following year.
On 26 April 2006, the French government sold its 21% stake in Alstom to Bouygues, with a capital gain of ?1 billion. Alstom shares — demoted to penny stock on the Paris stock exchange at the core of the crisis, returned to the CAC 40 three months later. Debts were almost cleared. As Patrick Kron noted in 2006, Alstom is "back on track" and in a position to look ahead into the future.
The company thus embarked on an ambitious strategy of profitable growth, implemented on every front and backed by strong demand in its worldwide markets. Alstom developed the widest range of products and services in power generation infrastructure, covering every source of energy: coal, gas, nuclear, oil, hydroelectricity, geothermal and biomass; an offering that would be expanded over the next few years through Alstom's expansion into wind power and tidal energy.
Some achievements during this period illustrated the success of the company, such as equipment for the Three Gorges Dam in China, the world's largest hydro power plant, the sale of 60 gas turbines worldwide and an order for the most powerful steam turbine available in the market (1,750 MW) for the Flamanville nuclear power plant in France.
For rail transport, Alstom Transport enlarged its portfolio by developing signalling, infrastructure and maintenance businesses, strengthening its leading position in the high-speed and very high-speed train market. The group also scored other notable successes, delivering, for instance, a fully-automated metro in Singapore and booking an order to supply the world's most powerful freight locomotives in China. The Citadis range of modern trams has become Alstom's flagship product, winning orders in many cities around the world.
Even at the peak of the crisis, the company never ceased to invest in upgrading and expanding its industrial resources while developing its technology. Alstom increased its annual R&D budget which eventually reached ?800 million. This made its assets vital to its future, leading to ground-breaking innovations. Alstom Power, for instance, achieved a world first in 2008 when it commissioned the first ever carbon-capture system using oxycombustion technology at the SchwarzePumpe Power Plant in Germany. Meanwhile, Alston Transport showcased its capacity for innovation by setting a new world record with a rail speed of 574.8 km/h with its V150 trainset on 3 April 2007. Most of the innovations used to set the record would be found later in the AGV, Alstom's fourth-generation of very high-speed trains unveiled in early 2008. This was succeeded by other milestones, including powerful offshore wind turbines and power transmission technologies such as HVDC and smart grids.
The evolution of Alstom's workforce reflected this renewed growth, rising from 67,000 in 2006 to 82,000 employees in 2009. The group now has an employee base of over 90,000.
The challenge of the new world emerging from the crisis
The 2008 financial crisis and resulting global economic crisis severely impacted the company's markets. In 2009, global electricity consumption dropped for the first time in nearly 60 years. Demand for new power plants slumped to half its previous level. Alstom's traditional markets — Western Europe and the United States — were the most affected. Alstom announced a 39% drop in order intake at the end of fiscal year between 2009 and 2010, the first of such downturns in six years.
To cope with harsh times, Alstom drew on efforts which were many years long to develop its international footprint, especially in emerging countries, such as China, Brazil, Russia and other countries where growth remain strong. This generated 60% of the orders, allowing for growth in the fiscal year between 2010 and 2011. A balance in a global market was a vital turning point. Alstom was not to be caught off guard: the group has since built on an established base in these markets, investing in new factories and research facilities close to these markets, which includes China, Brazil, India and Kazakhstan. Partnerships and power generation have developed with BHEL in India and AtomEnergomash in Russia, and in rail transport with the manufacturer Transmashholding, opening up new opportunities for Alstom in the huge Russian rail market.
Alstom maintains its momentum despite the tense economic climate, buying back the power transmission activities sold to Areva some years back, leading to the creation of a new sector, namely Alstom Grid. With sales of ?4 billion, this significantly increased the size of the group, allowing Alstom to strengthen its position in promising markets such as high voltage direct current (HVDC) technology and smart grids.
Alstom has also pursued other targeted acquisitions, especially in emerging technologies. This is the case with renewable energy, which Alstom is known as a leading player, building on its position as the world leader in hydro power. After gaining a successful foothold in the wind turbine market through the acquisition of Spanish wind specialist, Ecot?cn?a, and strengthening its position in solar thermal through a stake in US firm, BrightSource Energy, Alstom acquired a company from Rolls-Royce in 2012 which develops tidal energy solutions.
In 2011, in order to prepare the company for the new post-crisis world with all its technical, commercial and geographic challenges, Patrick Kron decided to reshape the group into four sectors: Thermal Power, Renewable Power, Grid and Transport. He also significantly reshuffled and revitalised the senior management. Buoyed by a solid financial position, a broad, leading range of products and services and a dynamic sales force that has booked orders worth nearly ?50 billion in the close of fiscal year between 2011 and 2012, Alstom ended the past decade on a high note — an achievement which employees can be proud of. Alstom, like its competitors, faces testing times. Alstom must be able to rise to other challenges, while continuously optimising its costs, adapting its growth model and upgrading its technology.
Despite all these challenges, Alstom has successfully adapted itself to stay among the vanguard of companies operating worldwide in markets that are vital to the economic and social future of our planet: power generation, power transmission and transport.