Alstom admits to accounting errors in US transport division

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The Independent Online

The embattled engineering group Alstom admitted yesterday it had unearthed accounting errors at a US unit, rattling fragile investor confidence and adding to a growing list of European companies hit by scandals in the US.

The Paris-based engineer, which makes France's high-speed TGV trains, said it would take a €51m (£35m) charge after it "significantly understated" losses on a contract at its US transport arm.

The charge virtually wipes out operating profit at its core transport business, one of the few profitable parts of the debt-choked company, and weakens investor confidence ahead of a vital shareholder meeting this week, analysts said.

Alstom said the irregularities, which involved hiding costs to swell margins, were detected in one contract. The engineer said it was conducting the internal inquiry after a tip-off about improprieties on a rail car contract at the Hornell, New York wing of its Alstom Transportation unit.

The company said the subsidiary had understated costs in its accounts in the hope it could book them later on other more profitable contracts and had understated overall cost forecasts. It suspended the unit's senior vice-president and the vice-president of finance pending completion of the review and said it would take the charge in its accounts for the year to 31 March 2003.

Ben Uglow, an analyst at Morgan Stanley, said: "In plain vanilla English, this is fraudulent accounting. It is evidence of sloppy internal control rather than systematic malpractice ... but they cannot give the reassurance that this is an isolated case."

The US Securities and Exchange Commission and the Federal Bureau of Investigation are also conducting informal inquiries related to the US unit, Alstom said.

Shares in Alstom, which have skidded some 90 per cent in the past two years, closed down 4.46 per cent at €3.

The company, which posted a record loss last year due to writedowns, is dumping core activities to help slash debt and will this week ask investors to approve its second rights issue in as many years.

Analysts said Alstom gained a reputation for poor financial management after it announced charges of €1.35bn in March for faulty gas turbines - an issue it was already supposed to have dealt with.

Some said the scandal suggested the group, which has nailed several deals in recent months, has been underbidding for contracts because it has been desperate for cash. Aspokesman dismissed the notion that Alstom was underpricing contracts as "fantasy".