UPDATE 1-Alstom bets on sales growth in rail after GE deal in power

Wed Jul 23, 2014 2:00am EDT

* Q1 transport orders 4.8 bln eur with Prasa contract

* Thermal and renewable power sales fall 10 pct

* Sees "sustained" organic sales growth in transport

* Says cannot yet provide detailed guidance (Adds details, background)

PARIS, July 23 (Reuters) - France's Alstom said it expected sustained organic sales growth at its rail arm this year but would not provide a revenue or profit target following a deal that will see General Electric buy most of its power business.

The engineering group achieved record orders for rail equipment that offset a drop in sales in its power activities in the first quarter of its fiscal year. Over the period, these activities - thermal power, renewable power and electricity grid - had been the target of a two-month bidding war between GE, Mitsubishi Heavy Industries and Siemens.

Alstom has over the past years suffered from weak orders for power equipment that hit its cash flow and credit ratings. But it agreed last month on a 12.4-billion-euro ($16.7 billion) deal that will see GE buy the bulk of that business while Alstom focuses on its better-performing rail arm.

In a statement on Wednesday, Alstom said transport orders reached 4.8 billion euros in the first quarter of its fiscal year, helped by a 4-billion-euro contract in South Africa. Transport sales grew 17 percent on an organic basis.

Quarterly sales in thermal and renewable power dropped 10 percent while sales in grid fell 5 percent.

While the level of organic growth in transport "should not be extrapolated" over the full year, sales should grow at a "sustained pace" this year, mainly through the execution of a record backlog, Alstom said.

The GE deal, which sparked a two-month tug-of-war with the French government, is expected to be submitted to shareholder approval by the end of this year and to close by mid-2015.

Alstom plans to use the proceeds from the deal to pay off debt, strengthen its rail arm via acquisitions and return cash to shareholders, but it has not given details. Some analysts expect it to put aside around 2 billion euros for acquisitions and to return 2 billion to shareholders, via a special dividend or a share buyback.

The government intervened in the deal to preserve jobs and ensure Alstom still had a future in the strategic power sector. As a result, three 50:50 joint ventures will be set up in electricity grid, renewable energy and nuclear power. Alstom will also buy GE's rail signalling unit to beef up its rail arm. ($1 = 0.7428 Euros) (Reporting by Natalie Huet; Editing by James Regan and Mark John)