* Warns of cash drain in second half
* Margin may fall next year instead of expected rise
* Nine-month orders fall 12 pct to 15.05 bln euros
* CEO Kron says results don't bode well for dividend
* Shares sink 13 percent, close to two-year low
(Adds context on thermal power sales, updates analyst comment)
By Natalie Huet and Benjamin Mallet
PARIS, Jan 21 French heavy engineering group
Alstom lowered its profitability and cash-flow targets
on Tuesday on the back of weak orders for power equipment,
raising the spectre of a dividend cut and sending its shares
down 13 percent.
The maker of power station turbines, wind farms and
high-speed trains said orders fell 12 percent in the first nine
months of its fiscal year and warned it would keep burning
through cash in the second half, after draining 511 million
euros ($693 million) in the first.
Chief Executive Patrick Kron told analysts he expected
positive free cash flow in the following fiscal year but would
not make that a firm target, saying his credibility was at stake
after the latest guidance cut.
Kron also said the latest results did not bode well for the
company's dividend, something that would be addressed by the
board later in the year.
Alstom has been securing record orders for trains and trams,
but demand for the huge turbines and other components it
supplies to coal and gas-fired power stations has waned. Yet
sales in thermal power still account for close to 45 percent of
group revenue, against little over a quarter for transport.
The power equipment takes years to install and usually comes
with hefty downpayments that underpin cash flow at Alstom and
its European rivals Siemens and ABB.
Underlining the volatility of the business, Alstom has
burned cash for half of the past decade, Reuters data shows. In
an attempt to steady its finances, Kron pledged last year to cut
1.5 billion euros of annual costs by 2016.
"The expected deleveraging process was the main support to
the shares, but is further postponed. Confidence is broken,"
Societe Generale analysts wrote in a note.
Alstom shares were down 12.3 percent by 1408 GMT, close to a
two-year low. The drop wiped more than 1 billion euros off its
market value. Shares in Bouygues, Alstom's main
shareholder with a 29 percent stake, fell 5.3 percent. Both were
the biggest losers on France's CAC 40 index.
The dearth of large orders in thermal power comes as
utilities delay spending in a weak global economy. In some
European countries, government caps on electricity bills and
competition from renewable energy have made traditional power
stations fired by coal or gas less profitable.
Alstom kept a full-year forecast of low single-digit sales
growth from existing businesses, but said it expected its
operating margin - a measure of profitability - to dip slightly
to around 7 percent this year, before declining again in 2015.
It had previously aimed for positive free cash flow for the
year and a stable operating margin at 7.2 percent, which it
would try to improve to 8 percent within three years.
Alstom said in November it planned around 1,300 job cuts and
said it would sell up to 2 billion euros of assets, including a
minority stake in its transport unit, which makes France's
prized high-speed TGV trains.
That announcement was met with a cool response from the
Socialist government, whose centre-right predecessor already
bailed out Alstom when it ran into similar trouble a decade ago,
stretching European competition rules to rescue a company seen
as a champions of French industry alongside Peugeot
Nomura analyst Daniel Cunliffe said Alstom should forego a
dividend and launch a share issue to fill the cash hole, or else
it would have to sell an even bigger stake than planned in the
transport unit, further squeezing future earnings.
"Do a rights issue, cut the dividend - the only person
you'll annoy is Bouygues and you'll keep the family silver which
is the transport business," Cunliffe said.
In the third quarter, the transport unit booked a record
2.57 billion euros in orders, driven by a 1.2 billion contract
to equip Riyadh's subway, helping offset a 4 percent drop in
orders in thermal power.
The last time Alstom shares fell by as much in one day was
in May, when it cut its sales forecast for the next three years,
saying customers were delaying projects.
The month after, Moody's lowered Alstom's long-term credit
rating to Baa3, one notch above "junk". Standard & Poor's, which
rates Alstom BBB, also said it may downgrade its debt.
Kron insisted in November there was no need to ask
shareholders for more capital and on Tuesday did not mention
such a scenario. He said he was confident the company would
raise up to 2 billion euros by asset sales. And he saw no need
to renegotiate debt covenants.
Group orders stood at 5.62 billion euros in the quarter, up
11 percent from a year ago. Nine-month sales fell 1 percent to
14.53 billion and were up 3 percent on an organic basis.
($1 = 0.7373 euros)
(Editing by Tom Pfeiffer and David Holmes)