Alcatel-Lucent reports Q3 2013 results - Strong progress in The Shift Plan implementation; Key numbers for the third quarter 2013
(M2 PressWIRE Via Acquire Media NewsEdge) o Revenues of Euro 3,668million, up 7.0% year-on-year at constant exchange rates
o Adjusted 2 grossprofit of Euro 1,196 million, or 32.6% of revenues, up from 27.8% in Q32012
o Adjusted 2 operating income 1 of Euro 116 million, or 3.2% of revenues, up from-3.5% in Q3 2012
o Free cash-flow of Euro(218)million, up from Euro (366) million in Q3 2012
o Core networking segmentrevenues up 6% year-on-year at constant exchange rates and adjusted operatingincome of 6.1% of revenues compared to 0.2% in Q3 2012
o Access segment operatingcash-flow 4 of Euro 26 million, compared to Euro (64) million in Q32012
Progress in The Shift Plan
o Continuous successfulrepositioning of Alcatel-Lucent in IP Networking and Ultra-Broadband Access
o Strategic partnership withQualcomm in place; good traction with our Cloudband and Nuage solution
o Fixed costs savings ofEuro 84 million in Q3 2013; Euro 259 million year-to-date
o Reprofiling of Euro 1.0billion of 2014 -- 2016 debt maturities since the launch of The Shift Plan
o Decrease of restrictedcash subject to exchange control by USD 200 million
o Disposal of some non-coreassets to refocus our product portfolio
Paris-- Alcatel-Lucent (Euronext Paris and NYSE:ALU) today announced its third quarter 2013 results, reportingyear-on-year revenue increase of 7% at constant exchange rates toEuro 3,668 million, and a gross margin improvement of nearly fivepercentage points, driven mainly by a stronger contribution from IP Routing,Terrestrial optics and Ultra-Broadband Access solutions. Commercial performancewas strong, with new contracts announced in each main region, Europe, theUnited States and Asia, notably in Fixed and Mobile Access.
Alcatel-Lucent achieved Euro 84 million of fixed costs savings in theperiod, bringing year-to-date total fixed costs savings to Euro 259 million,with notably a continuous decrease in SG&A.
Both improvements contributed to a positive adjusted operating income ofEuro 116 million in the quarter. Over the first nine months of the year,adjusted operating income improved by more than Euro 360 million compared tolast year period.
Free cash flow was Euro (218) million, an improvement of Euro 148 millioncompared to the third quarter of 2012, with higher adjusted operating incomepartially offset by a negative change in working capital, reflecting mainly anincrease in inventories ahead of large network roll-outs.
Alcatel-Lucent actively managed its balance sheet in the quarter. Inaddition to continuing to reprofile its debt with the issuance of USD 500million senior notes, Alcatel-Lucent took actions to decrease the cash held inChina subject to exchange control restrictions by approximately USD 200million.
Looking ahead, Alcatel-Lucent expects its business in the fourth quarter ofthe year to be driven by a strong seasonal activity, and to exceed the top endof the Euro 250-300 million in fixed costs savings for the full year announcedby the Shift Plan.
Commenting on the third quarter results, Michel Combes, CEO ofAlcatel-Lucent, said: "We are seeing the first positive signs of our newoperating model in our day-to-day business and are encouraged by thesubstantial progress in the Shift Plan key metrics. Going forward, we remainfully focused on execution to leverage the momentum we are building."
Third quarter revenue was Euro 3,668 million, an increase of 7.0% year-on-year and 3.1% sequentially, atconstant exchange rates. The Core Networking segment grew 6.0%year-on-year, driven by a strong performance from IP Routing, and reflecting animprovement in IP Transport, mainly formed by terrestrial and submarine optics,which stabilized after quarters of revenue decline. In the Access segment, bothWireless and Fixed Networks enjoyed a strong performance, driven by broadbandroll-outs partially offset by declines in legacy technologies. This ispartially offset by the decrease in revenues from Managed Services, in linewith our strategy and reflecting the impact of our restructuring efforts.
From a geographic standpoint, at constant exchange rates, North Americaposted its second consecutive quarter of nearly 20% year-on-year growth,continuing to be the key driver for the Group. While China was stable in termsof revenues, the rest of the Asia Pacific region declined at a low single digitrate. Encouraging trends continued in Western Europe, growing more than 5%,while Eastern Europe reduced its pace of decline. The recovery in the MiddleEast and Africa accelerated, witnessing growth in the mid-teens, which wasoffset by a slowdown in Central and Latin America, resulting in a -9% rate ofdecline in the Rest of World area.
Gross margin reached 32.6% of revenue for the quarter, compared to27.8% in the year ago quarter and 31.9% in the second quarter2013. The improvement in nearly five percentage points in gross marginyear-on-year reflects higher volumes, a more favorable mix across all mainbusiness lines, and lower fixed operation costs. The sequential increase ingross margin mainly resulted from lower fixed operation costs.
Alcatel-Lucent generated adjusted 2 operating 1 income of Euro 116 million or 3.2% of revenue, compared to (126)million in the corresponding period in 2012. In the third quarter,operating expenses decreased -4.2% year-on-year on a reported basis and -2.9%at constant exchange rates, reflecting the results of our actions to streamlineour cost structure, notably in SG&A, where expenses decreased -5.0%year-on-year, and -6.3% at constant exchange rates. Year to date, operatingexpenses have decreased -4.7% year-on-year on a reported basis and -4.1% atconstant exchange rates, with SG&A expenses decreasing -9.7% year-on-yearon a reported basis and -10.2% at constant exchange rates.
Alcatel-Lucent reported a net loss (group share) of Euro (200) million for the period, or Euro (0.09) per share . This includesrestructuring charges of Euro (117) million and a financial charge of Euro(218) million, which included interest charges of Euro (90) million, anon-recurring net loss of Euro (112) million incurred in connection with therepurchase by the Group of certain of its debt instruments and a charge of Euro(21) million associated with pensions and OPEB. The Group's reported netloss also included Purchase Price Adjustments (entries in relation to theLucent business combination) of Euro (21) million pre-tax or Euro (12) millionafter tax.
At September 30, 2013, the Group had net debt of Euro (1,004) million, versus Euro (794) million at June 30, 2013. This sequentialincrease in net debt of Euro (210) million principally reflects restructuringcash outlays of Euro (114) million, a negative change in operating workingcapital requirement of Euro (65) million, mainly driven by an increase ininventories ahead of large network roll-outs, and interests payments ofEuro (116) million. The level of receivables sold without recourseincreased by Euro 64 million to Euro 1,113 million as of September 30,2013.
At September 30, 2013, our overall Pensions and OPEB exposure indicated asurplus of
Euro 146 million . This mainly results from a decrease of our benefitobligations of Euro 94 million, due to the increase of 4 bps in the discountrates used for pensions and other post-retirement benefit plans, and from anincrease of Euro 385 million of actual return of the plan assets, partiallyoffset by Euro (233) million of interest costs. The net effect of currencymovements was negligible on the funded status this quarter.
Issuance of Senior Notes and repurchase of Asset Sale Facility. InAugust 2013, consistent with the Shift Plan, we issued USD 500 million ofsenior notes, maturing in 2020. The net proceeds of this issuance, whichtotaled approximately USD 487 million, were used to repurchase the 2016 assetsale facility tranche of our Senior Secured Credit Facilities. We alsosuccessfully amended the Senior Secured Credit Facilities, including a changein certain covenants governing the Facilities and a reduction in the interestrates on both the USD 1,750 million and Euro 300 million tranches due in2019.
Strategic partnership with Qualcomm . On September 30, 2013, theCompany entered into a strategic partnership agreement with QualcommIncorporated to develop small cells for ultra-broadband wireless access,realizing the collaboration plan announced on July 30, 2013. Under itsinvestment, Qualcomm may purchase Alcatel-Lucent shares for upto USD 20 million per year, in four tranches, over the period 2013 -2016. Each tranche is subject to a minimum lock up period of 6months. On September 30, Qualcomm Incorporated purchased ca. 6 million oftreasury shares (representing approximately 0.25% of the Alcatel Lucent sharecapital), corresponding to a first tranche of USD 20 million.
In the third quarter, the reported net loss (group share) was Euro(200)million or Euro(0.09)per diluted share (USD(0.12) per ADS) including thenegative after tax impact from Purchase Price Allocation entries of Euro (12)million.
In addition to the reported results, Alcatel-Lucent is providing adjustedresults in order to provide meaningful comparable information, which excludethe main non-cash impacts from Purchase Price Allocation (PPA) entries inrelation to the Lucent business combination. The third quarter 2013adjusted 2 net loss (group share) was Euro (188) million or Euro(0.08) per diluted share (USD (0.11) per ADS), which includes restructuringcharges of Euro (117) million, a net financial loss of Euro (218) million, anadjusted tax benefit of Euro 53 million, and non-controlling interest of Euro(6) million.
For the third quarter 2013, revenues for Core Networking were Euro 1,496million, an increase of 0.9% compared to Euro 1,482 million in the year-agoquarter and a decrease of -4.8% compared t
Euro 1,571 million in the second quarter 2013. At constant currency exchangerates, Core Networking revenues increased 6.0% year-over-year and decreased-3.4% sequentially. The segment posted an adjusted 2 operating 1 income of Euro 92 million or an operating margin of 6.1%compared to an adjusted 2 operating 1 income of Euro 3million or a margin of 0.2% in the year-ago period; The segment posted asegment operating cash flow 4 of Euro 61 million compared to asegment operating cash flow 4 of Euro 9 million in the year-agoperiod.
o Revenues for the IPRouting division were Euro 580 million, increasing 7.0% from the year-agoquarter and 14.6% at constant currency, driven by strength in the APAC and EMEAregions, where the latter grew nearly 50% compared to the year-ago quarter.Demand for ultra-broadband access technologies, such as LTE, has continued todrive opportunities within IP routing, where our backhauling solution wasselected to support SK Telecom's LTE-Advanced service. Our Evolved Packet Core(EPC) solution was recently ranked #1 in the EPC segment, with 32% of themarket, according to an industry analyst. Our IP Core router continues to gainfurther traction, with 4 new 7950 XRS wins in the quarter, including Belgiancable broadband provider Telenet, for a total of 14 wins and more than 20trials to date. Nuage Networks(TM), our software defined networking (SDN) solutionventure, continues to work with leading companies in key verticals such ashealthcare, financial services and utilities, as well as web-scale companiesand cloud service providers. We recently announced a high performance gateway,the 7850 Virtualized Services Gateway (VSG), which provides a solution forcompanies with a significant investment in non-virtualized assets.
o Revenues for the IPTransport division, which includes terrestrial and submarine optics, were Euro544 million, decreasing -1.8% from the year-ago quarter, but increasing 1.8% atconstant currency. Within IP Transport, growth in our WDM portfolioaccelerated, witnessing a 10% growth in the quarter at constant rate, led byboth the Americas and APAC regions. Our 1830 Photonic Service Switchrepresented 38% of optical revenues in the third quarter, and is now deployedwith more than 360 customers, including more than 150 100G customers.Highlighting the transition from 10G to 100G/400G, we successfully completed,with Canada's SaskTel, a trial of 400G optical transport on a network designedfor data speeds of 10G. Our 100G shipments now represent 30% of total WDM linecards shipments in Q3'13, compared to 27% in Q2'13. Our Submarine businesswitnessed both sequential and year-over-year growth, as contracts signed inprevious quarters started to generate revenues. In the quarter, we also signed3 new contracts including an upgrade to the Asia America Gateway submarine datalink between Southeast Asia and the US.
o Revenues for the IPPlatforms division declined -3.6% to Euro 372 million, but increased 1.3% atconstant currency compared to the year-ago quarter. We saw good traction acrossa number of activities within the Platforms division, particularly SubscriberData Management businesses, as the introduction of LTE services continues to bethe basis for growth; as well as continued momentum in our Motive CustomerExperience Solutions. This strength was offset by the de-scoping of certainbusinesses within this division, consistent with our Shift Plan announcement.Momentum within the market is growing behind Network Function Virtualization(NFV) and around our CloudBand offering in particular, which is now engaged inmultiple trials with tier 1 service providers. We also recently announced theCloudband(TM) Ecosystem Program, which opens our Network Function Virtualization(NFV) management platform to service providers, developers and vendors toadvance transformation to carrier cloud and revenue-generating services.
o The improvement in adjusted operatingmargin from the year-ago quarter reflects the positive impact of highervolumes, continued strong contribution from IP Routing as well as improvedcontributions from IP Transport and IP Platforms.
For the third quarter 2013, revenues for Access were Euro 1,951 million, anincrease of 3.7% compared to Euro 1,881 million in the year-ago quarter and a7.4% increase compared to Euro 1,816 million in the second quarter 2013. Atconstant currency exchange rates, Access revenues increased 8.9% year-over-yearand increased 9.1% sequentially.
The segment posted an adjusted 2 operating 1 income ofEuro 46 million or an operating margin of 2.4% compared to anadjusted 2 operating 1 loss of Euro (100) million or amargin of -5.3% in the year-ago period.
The segment posted a segment operating cash flow 4 of Euro 26million compared to a segment operating cash flow 4 of Euro (64)million in the year-ago period.
o Revenues for the Wirelessdivision were Euro 1,196 million, an increase of 12.6% from the year-agoquarter where strong growth in LTE was driven by ongoing investments in the US,in addition to positive trends in both the APAC and EMEA regions. LTE revenuesmore than doubled year-over-year, and our LTE overlay strategy is gatheringmomentum, as evidenced by recent public wins with Telefonica, where we won thelargest share of their 4G LTE network in Spain, China Mobile, where we wereselected as a vendor in their Phase I 4G TD-LTE network and CNT in Ecuador. Wewere also recently selected by Sprint to support its 2.5GHz TD-LTE networkexpansion, which will be the first use of the TDD-LTE technology in NorthAmerica. Trends in 2G/3G technologies continued in the third quarter withrevenues declining at -5% at constant currency exchange rate. Our femtocellsolution was also selected by Telefonica in Germany to be installed inenterprises and outdoor locations in high density areas.
o Revenues for the FixedNetworks division were Euro 541 million, an increase of 0.7% from the year-agoquarter on a reported basis and 5.8% at constant currency exchange rate. Wewitnessed strong growth in copper and fiber based ultra broadband solutions,mainly in North America and EMEA region. Our VDSL2 vectoring products are nowbeing used by 17 customers, including 4 new contracts in the third quarter, inaddition to being involved in more than 55 trials; in addition, we have 14 newFTTH contracts. Expanding on our vectoring solution, we announced a range offixed access micro-nodes, which allow service providers to combine fiber andVDSL2 vectoring to deliver ultra-broadband access. We also recently introduceda new Ethernet Passive Optical Networking (EPON) fiber solution to help cablemulti-system operators (MSOs) address this growing market and meet the dataneeds of businesses. This solution has already been selected by two US cableMSOs, including Bright House Networks.
o Revenues from our ManagedServices division decreased -28.2% compared to the year ago quarter to Euro 186million as restructuring continued. We have successfully addressed all 15contracts we aimed to restructure.
o Revenues for the Licensingdivision were Euro 28 million, an increase of 21.7% compared to the year-agoquarter, driven by our initiative to use a more offensive approach tomonetizing our patent portfolio.
o The increase in adjustedoperating margin from the year-ago quarter reflects strong improvements fromthe Wireless, Fixed Access and Managed Services contributions. Segmentoperating cash flow, while improving from the year-ago quarter, was impacted bya negative change in operating working capital due to inventory builds relatedto large network roll-outs.
For the third quarter 2013, revenues for Other were Euro 228 million, adecrease of -3.4% compared to Euro 236 million in the year-ago quarter and a-1.3% increase compared to Euro 231 million in the second quarter 2013. Atconstant currency exchange rates, other revenues decreased -0.8% year-over-yearand decreased
The segment posted an adjusted 2 operating 1 income ofEuro 5 million or an operating margin of 2.2% compared to anadjusted 2 operating 1 loss of Euro (10) million or amargin of -4.2% in the year-ago period.
The segment posted a segment operating cash flow 4 of Euro 1million compared to a segment operating cash flow 4 of Euro (9)million in the year-ago period.
Alcatel-Lucent will host a press and analyst conference at 1 p.m. CET whichwill be available live via conference call or audio webcast. All details on http://www.alcatel-lucent.com/investors/financial-results/q3-2013
The Board of Directors of Alcatel-Lucent met on October 29, 2013, examinedthe Group's condensed consolidated financial statements at September 30, 2013,and authorized their issuance.
These condensed consolidated financial statements are unaudited. They areavailable on our website in our Investorssection .
1- Operating income (loss) is the Income(loss) from operating activities before restructuring costs, litigations,impairment of assets, gain (loss) on disposal of consolidated entities andpost-retirement benefit plan amendments.
2- "Adjusted" refers to the fact that itexcludes the main impacts from Lucent's purchase price allocation.
3- "Operating cash-flow" is defined ascash-flow after changes in working capital and before interest/tax paid, restructuring cash outlay and pension & OPEB cashoutlay.
4- "Segment operating cash flow" is theadjusted 2 operating income 1 plus operating workingcapital change at constant currency rate.
2014 Upcoming events
February 7, 2014: Fourth-quarter and full-year 2013 results Related stories More information about The Shift Plan
ABOUT ALCATEL-LUCENT (EURONEXT PARIS AND NYSE: ALU)
Alcatel-Lucent is at the forefront of global communications, providingproducts and innovations in IP and cloud networking, as well as ultra-broadbandfixed and wireless access to service providers and their customers, enterprisesand institutions throughout the world.
Underpinning Alcatel-Lucent in driving the industrial transformation fromvoice telephony to high-speed digital delivery of data, video and informationis Bell Labs, an integral part of Alcatel-Lucent and one of the world'sforemost technology research institutes, responsible for countlessbreakthroughs that have shaped the networking and communications industry.Alcatel-Lucent innovations have resulted in the company being recognized byThomson Reuters as a Top 100 Global Innovator, as well as being named by MITTechnology Review as amongst 2012's Top 50 "World's Most Innovative Companies".Alcatel-Lucent has also been recognized for innovation in sustainability, beingnamed Industry Group Leader for Technology Hardware & Equipment sector inthe 2013 Dow Jones Sustainability Indices review for making globalcommunications more sustainable, affordable and accessible, all in pursuit ofthe company's mission to realize the potential of a connected world.
With revenues of Euro 14.4 billion in 2012, Alcatel-Lucent is listed on theParis and New York stock exchanges (Euronext and NYSE: ALU). The company isincorporated in France and headquartered in Paris.
For more information, visit Alcatel-Lucent on: http://www.alcatel-lucent.com , read the latest posts on theAlcatel-Lucent blog http://www.alcatel-lucent.com/blog and follow the Companyon Twitter: http://twitter.com/Alcatel_Lucent .
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