Bouygues SA, which offers construction and cellular communications services, develops real estate, produces television programming and movies and manages utilities, announced that it will book a 1.4-billion-Euro (1.9-billion-dollar) writedown on its stake in Alstom SA, which has been suffering from a slowing demand for thermal-power equipment.
The company revealed that it will book the expense during the fourth quarter of the year. The cost is expected to have no effect on cash position or operating performance.
Bouygues currently holds a 29%-stake in Alstom, a manufacturer of trains and power-generation equipment. The company bought an initial holding from the French government 8 years ago and added to its investment in order to capitalize on the growing infrastructure needs and take advantage of synergies with its own construction business and the power-and rail-equipment units of Alstom.
The company also revealed that analysts were encouraged to trim their estimates after the announcement of Alstom for its reduced prospects for cash flow and operating earnings in January. Analysts forecasts are used by Bouygues in order to help the company determine its investments value. Its stake will now be estimated to 3.08 billion Euro.
In January 2014, for the second time in nine months, Patrick Kron, who is the Chief Executive Officer of Alstom, reduced the projection of the company for its operating margin and cash flow. The reason for this cut was considered to be the stagnant economic growth in Europe, as well as the diminishing expansion in emerging markets, which forced utilities to delay new power plants orders. The orders during the first nine months of the year are reported to have decreased by 12% to 15.1 billion Euro.
Mr. Kron was also forced to cut both jobs and other costs. He is also said to be planning to sell as much as 2 billion Euro of assets in 2014 in order to decrease the companys debt. The stock of the company has declined by 21% in 2014.
Bouygues SAs shares were down 0.41% by 11:46 GMT to trade at 30.1150 Euro, marking a market capitalization of 9.6 billion Euro.
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