PARIS French power and engineering firm Alstom (ALSO.PA) said it would shed 1,300 jobs and sell a stake in its transport business to raise between 1 and 2 billion euros after a drop in orders hit first-half profit and cash flow.
The disposals of a minority stake in the unit known for making high-speed TGV trains and non-strategic assets will take place before December 2014, but the job cuts, which will run to 2016, will put the company on a possible collision course with the French government.
Alstom, which also makes wind turbines and turbines for power stations, was bailed out by the French government a decade ago and has relied on orders from state rail operator SNCF and utility EDF (EDF.PA).
Shares in Alstom rose 8 percent to a five-month high in morning trade, the strongest performers on France's CAC 40 .FCHI blue-chip index.
"Overall, the results were higher than the estimates, book-to-bill looks very good, although the free cash flow is disappointing," a Paris-based trader said.
Chief Executive Patrick Kron told reporters the job cuts would centre on Europe. He did not give a breakdown but said they would particularly hit its German coal-fired plant business and IT jobs in France, where the Socialist government is battling to contain double-digit unemployment.
Like rivals Siemens (SIEGn.DE) and ABB ABBN.VX, Alstom is facing a dearth of large orders, particularly in thermal power, as utilities delay spending in a sluggish global economy.
"During the first six months of 2013/14, the macro-economic conditions have remained challenging with a sluggish economic environment in mature countries and slower growth in some emerging countries," Alstom said in a statement.
NO CAP HIKE
Kron said Alstom could sell a 20 to 30 percent stake in its transport unit. He said different options were on the table, from a sale to industrial or financial partners to listing it on the stock market.
"We have time, and I have no doubt on the interest of industrial and financial partners, and in the feasibility of a stock market listing if that was the option retained," he said.
Kron said cash from such a sale would help Alstom strengthen its balance sheet and give it room for future strategic and limited acquisitions. He said the balance sheet was solid and that a capital hike was not on the agenda.
The group said it expected annual cost savings to rise to 1.5 billion euros by April 2016, with restructuring costs of around 150 to 200 million per year.
Alstom's free cash flow turned positive in the last fiscal year after two years of outflows, and Kron has made cash generation a priority. The group stuck to its full-year targets for cash generation, low single-digit organic sales growth and a stable operating margin.
But the cash outflow was 511 million euros ($689 million) in the six months to September 30, compared with positive free cash flow of 101 million a year ago, while orders were down 22 percent at 9.4 billion.
The book-to-bill ratio, a measure of new orders against actual shipments, was close to 1, while the order backlog totaled 51 billion euros, representing 30 months of sales.
Net debt rose to 3.29 billion euros as at September 30 from 2.87 billion the same period a year ago.
First-half net profit fell 3 percent to 375 million euros on sales of 9.73 billion, the company said. Analysts polled by Thomson Reuters I/B/E/S had on average expected net profit of 352 million on sales of 9.59 billion.
(Editing by James Regan and Elizabeth Piper)