ALSTOM - Delivering on a Global Front 08/03/2005
Author: Anurag Khetan, Industry Analyst, Energy Practice, Frost & Sullivan Over the course of the past year, Frost & Sullivan has keenly researched the after sales services market for power plants in Western Europe, Central and Eastern Europe (CEE) and Asia-Pacific, after having looked at the North American market a couple of years ago. The services markets in these 3 regions, estimated to be worth a combined $5,181.1 million in the year 2004, have little in common. On one extreme is the Western European services market, estimated to be worth $3,268 million in the year 2004. On the other extreme is the CEE market, worth $511.4 million. Somewhere in between lies the Asia-Pacific market (excluding Japan worth $1,391.4 million). The disparity is also conspicuous in the expected growth rates in the region. While the Western European market is expected to grow at a compound annual rate of 4.7 percent over the period 2003 to 2010, the Asia-Pacific market is expected to display a growth rate of 9.2 percent and CEE market by 7 percent.
Divergence in various drivers and restraints explain this disparity. The main driver for the Western European market is expected to be the increasing competition in the electricity market which forces the utilities/independent power producers and industrial power plant owners to be as efficient as possible. The driving force behind the CEE market is the liberalization and privatization of the electricity sector, which will expose the incumbents to competition from electricity imports of surplus from neighbours. The Asian power plants services market is driven by the growing demand for latest gas turbine technology which forces the operators to have Long Term Service Agreements as the in-house expertise is unable to maintain such complex machines and by the increasing share of Independent Power Producers (IPP) which represent a new breed of investors that restrict themselves to asset and risk management and let a third-party do the maintenance and even take care of the operations.
As such, challenges for service providers are numerous and diverse. One of the main challenges in the Asian power plant services market is the high number of parts suppliers with varying quality levels available in the region. The mature market of Western Europe expects the service providers to add more value to the existing services so as to enable the utilities/IPPs and industrial power plants to remain/become as competitive as possible. The CEE power plants services market is restrained by the long tradition of in-house maintenance and uncertainty regarding the restructuring of the electricity markets in the region.
ALSTOM, a leading Original Equipment Manufacturer (OEM) with a global presence in a wide spectrum of power generation equipment including steam turbines, gas turbines, generators, boilers and auxiliaries, has well established service operations in all the three regions and has pursued a strategy that merits its receiving the Frost & Sullivan awards in these markets under different categories. ALSTOM Power Service is the proud recipient of the Frost & Sullivan Growth Strategy Leadership award for the Asian and Western European power plant services market and of the Frost & Sullivan Market Leadership award for the CEE power plant services market.
In its research into the Asian power plant services market, ALSTOM came as one of the top three market share holders in most the countries in the region, which is a significant achievement given that local service providers have a well-entrenched position in the market. This consistent market position is likely to serve as a strong base for ALSTOM to grow its services business in the future. ALSTOM is also working on some country specific alliances and joint ventures like the NTPC-ALSTOM venture it has with NTPC in India and is also looking to expand the role of Long Term Service Agreements (LTSAs) and Turnkey Operation and Maintenance (O&M) contracts.
In the Western European market, ALSTOM's power services sales increased at a rate of 6.6 percent compared to the estimated total market growth rate of 4.3 percent during the period 2002-3. As a result of this strong growth rate, the cash flow to earnings ratio rose above unity, indicating strong liquidity and easy debt-repaying capability. At 10 percent, the growth was most impressive during the financial year 2003-4, again higher than the expected total market growth rate of 4.4 percent. The company also managed to win several orders to supply its next generation gas turbines to many plants in Europe, which shall ensure a steady stream of service revenues in the future.
ALSTOM is also the recipient of Frost & Sullivan Market Leadership award in the CEE power plant services market. With a share of 19.8 percent, ALSTOM has comfortable lead with the nearest competitor having a share of 11.7 percent. In a market that is expected to grow at a compound annual rate of 7 percent over the period 2003-2010, ALSTOM has gained a significant market lead, which shall serve to increase its dominance in the region in the future.
These region-specific efforts are supported by the organization restructuring undertaken by the company. ALSTOM reorganised its power business division effective from April 2003 into three specialised entities-Power Turbo-Systems, Power Environment and Power Services. This is in line with the company's strategy of targeting not only its own turbines and other equipment, leveraging its installed base, but also the equipment of other OEMs, taking advantage of its vast experience in developing, maintaining and operating different types of power plants all around the globe. It is looking to metamorphose into a complete asset management company from just being a service provider. The full-scope operations and maintenance contracts already account for about 12 percent of the total power services revenue of the company. The reorganisation is also in line with its strategy of integrating its global service offerings into a seamless entity in order to provide a uniform--Global Field Service--to the generators who are themselves looking to diversify operations and to move across borders.
These diverse initiatives, undertaken to tackle the diverse circumstances present in each region, are responsible for ALSTOM being recognized by Frost & Sullivan as leader in the power plant services market worldwide.
For further information, please contact: Magdalena Oberland Corporate Communications Frost & Sullivan P: +44 (0) 20 7915 7876 E: magdalena.oberland@frost.com |