Alcatel-Lucent reports Q4 and full-year 2013 results
(M2 PressWIRE Via Acquire Media NewsEdge) - Significant improvement in operating profitability and segment operatingcash flow in Q4 and for 2013 as a whole
- Fixed costs savings of Euro 104 million in Q4, bringing total for 2013 toEuro 363 million
- On track to achieve The Shift Plan 2015 targets, focusing on continuedcost reductions, cash generation and profitable growth
- Binding offer received from China Huaxin, a technology investment company,for the acquisition of Alcatel-Lucent Enterprise, valuing Alcatel-LucentEnterprise at Euro 268 million for 100% on an enterprise value basis.Alcatel-Lucent to retain a 15% minority interest
On Track to Achieve The Shift Plan 2015 Targets
- Repositioned as a specialist of IP and Cloud networking, ultra broadbandfixed and mobile access, with key wins and market share gains
- Key achievements in innovation: 20 IP core contracts, 400G in Optics, 3 SDNfirst commercial wins, virtualization roadmap and 8 proof of concepts in NFV,Qualcomm strategic partnership on small cells, Carrier Aggregation and eMBMS inwireless, 17 vectoring contracts, G.fast
- Fixed costs savings for the year of Euro 363 million, of which Euro 104million in Q4, significantly above the Euro 250-300 million target for the yearas a whole
- Announcement of the sale of LGS in December, and announcement today ofreceipt of binding offer from China Huaxin for the acquisition ofAlcatel-Lucent Enterprise
- Balance sheet strengthened, with 2013 closing on a net cash position ofEuro 149 million, on the back of:
-- Capital increase of Euro 1 billion through a rights issue, and conversionof the remaining stub 2015 OCEANE;
-- Debt reprofiling largely completed with various financing actionsundertaken in second half of the year;
-- Pre-financing or reimbursement of short and mid-term debt maturities.
Paris - Alcatel-Lucent (Euronext Paris and NYSE:ALU) today announced its fourth quarter 2013 results, reporting revenues ofEuro 3,930 million, flat year-on-year at constant exchange rate. Revenues forthe Core Networking and Access segments were up 0.4% year-on-year at constantexchange rates. Sequentially, at constant exchange rates, Group revenuesincreased by 8.8% and by 8.9% for Core Networking and Access segments,reflecting notably a strong performance in IP Platforms, IP Transport andWireless.
From a geographic standpoint, at constant exchange rates, North America grew2% year-on-year, moderating its pace compared to previous quarters, while AsiaPacific moved into positive territory by rising 10% year-over-year, driven bynetwork roll-outs in China. Encouraging trends continued in Western Europewhile Russia returned to growth. The Rest of World area witnessed a decline inthe mid-teens.
For 2013 as a whole, the Group recorded revenue growth of 2.9% at constantexchange rates; revenues for Core Networking and Access segments were up 3.6%during the year. The full-year performance reflects solid trends, supported bydouble-digit growth in IP Routing, progress in WDM and IP Platforms, as well asgood traction in mobile and fixed ultra-broadband access activities, bothdriven by large networks rollouts. This is further evidenced by market sharegains.
Gross margin reached 34.3% of revenues in the last quarter, up nearly 400basis points year on year and 170 basis points sequentially. Year-on-yearimprovement reflects favorable product mix, operational improvements andreduced fixed operations costs. Sequential improvement mainly reflects reducedoperations costs. Full-year gross margin was 32.2%, improving by 220 basispoints over the preceding year.
The Group realized fixed costs savings of Euro 104 million in Q4, bringingtotal fixed costs savings to
Euro 363 million for the year, substantially above the Euro 250-300 million setearlier in the year. The Group was able to reduce its ratio of SG&Aexpenses to revenues by 120 basis points to 12.1% in Q4 and by 160 basis pointsto 14.1% for the year as a whole.
Adjusted operating income reached Euro 307 million in the quarter, or 7.8%of revenues, compared to
Euro 115 million in Q4 2012, or 2.8% of revenues, reflecting a significantimprovement in profitability of both Core Networking and Access segments.Overall, for 2013 as a whole, the Group generated adjusted operating income ofEuro 290 million, an improvement of Euro 553 million compared to 2012.
The Group reported a positive net income (Group share) of Euro 134 millionin Q4, or Euro 0.05 per share. The published net loss for the full year 2013 ofEuro (1,304) million was notably impacted by Euro (548) million of net assetimpairment charges, essentially recorded in the second quarter of 2013.
Segment operating cash flow reached Euro 499 million in Q4, versus Euro 368million in Q4 2012. Free cash flow 5 was Euro 363 million in Q4;excluding restructuring charges, free cash flow improved by Euro 119 million.For the year as a whole, free cash flow was (636) million: excludingrestructuring charges and interests paid, free cash flow improved by Euro 324million.
Alcatel-Lucent's balance sheet was significantly reinforced during thequarter thanks to a successful capital increase of Euro 1 billion, includingEuro 957 million through a rights issue, and the conversion of the remaining2015 OCEANE. In addition, during the second half of 2013, the Group engaged ina series of transactions to reprofile its debt and optimize its capitalstructure, notably through a pre-financing or reimbursement of upcoming shortand mid-term debt maturities, as well as a partial reimbursement and repricingof its Senior Secured credit facility. Going forward for 2014 as a whole theGroup anticipates an annual run rate of net cash interest expenses of Euro 265million, compared to Euro 295 million in 2013.
Shortly before year-end the Group announced it had signed an agreement forthe sale of LGS for up to US$ 200 million. Today, the Group is announcing ithas received a binding offer from, and is entering exclusive discussions with,China Huaxin, a technology investment company, for the acquisition ofAlcatel-Lucent Enterprise. The contemplated transaction values Alcatel-LucentEnterprise at Euro 268 million on an enterprise value basis (cash-free /debt-free) and at a currently estimated Euro 237 million on an equity valuebasis, for 100%. Alcatel-Lucent will retain a minority stake of 15%. Theproposed transaction will shortly be submitted to the workers councils ofAlcatel-Lucent Enterprise for the required information and consultationprocedures. A definitive acquisition agreement is expected to be signed duringthe second quarter of 2014. Closing would be subject to certain conditions,including the approval of certain regulatory authorities, and is targeted totake place in the third quarter of 2014.
At December 31, 2013, the Group's overall Pensions and OPEB exposureindicated a surplus of Euro 546 million compared to a surplus of Euro 146million at September 30, 2013 and a deficit of Euro 1,308 million as ofDecember 31, 2012 (in each case before taking into account applicable assetceilings). Group's US pension plans, in particular, show a collective surplusof US$ 4.0 billion without taking into account applicable asset ceilingscompared to US$ 2.7 billion at December 31, 2012. From a regulatory perspective--which determines funding requirements-- the Group's US pension plans arepre-funded and the Group does not expect having to make any contributions forthe foreseeable future. In accordance with applicable law, the Group's USRepresented OPEB obligations for the upcoming year have been fully financedfrom excess pension assets, and, going forward, the Group believes that it willcontinue to be able to fund those obligations from excess pension assets.
The Board has recommended not to pay a dividend for fiscal year 2013.
Looking ahead, Alcatel-Lucent will continue to focus on continued costreductions, cash generation and profitable growth, and confirms its 2015targets, namely:
o Revenues for the Core Networkingsegment of more than Euro 7 billion with an operating margin exceeding12.5%;
o Segment operating cash flow from itsAccess and Other segments surpassing Euro 250 million;
o Euro 1 billion of fixed costs savingsby the end of 2015; and
o At least Euro 1 billion of assetdisposals over the 2013-2015 period.
Commenting on the fourth quarter and full year results, Michel Combes, CEOof Alcatel-Lucent, said: "We have demonstrated today that we are well on trackto meet The Shift Plan's objectives. We have repositioned our company as aspecialist in IP and Cloud Networking, as well as in Ultra-Broadband Access,and we are seeing strong commercial traction in these segments. We havestrengthened our balance sheet through the success of financing actions takento reduce and reprofile our debt. Overall, we have made significant progress toimprove competitiveness, both in terms of profitability and innovation. Lookingahead, we are fully focused on implementing, delivering and executing The ShiftPlan by the end of 2015."
For Q4 2013, revenues for Core Networking were Euro 1,716 million, adecrease of 7.4% compared to
Euro 1,854 million in Q4 2012 and an increase of 14.7% compared to Euro 1,496million in the third quarter 2013. At constant exchange rate, Core Networkingrevenues decreased 3.6% year-over-year and increased 15.9% sequentially. Thesegment posted an adjusted 2 operating 1 income of Euro 257million or an operating margin of 15.0% compared to an adjusted 2 operating 1 income of Euro 195 million or a margin of 10.5% in Q42012. The segment posted a segment operating cash flow 4 of Euro 316million compared to a segment operating cash flow 4 of Euro 264million in Q4 2012.
o Revenues for the IP Routing divisionwere Euro 555 million in Q4 2013, down 5.2% from a record Q4 2012, and down2.6% sequentially, at constant exchange rates. Looking at full year 2013, salesgrew 10.3% at constant exchange rates, marking a third year of double-digitgrowth, as demand for ultra-broadband access technologies, such as LTE, droveopportunities within mobile backhaul deployments. A recent example is ourannouncement with PEG Bandwidth, where our backhaul solution will support theirexpansion of services to 4G LTE service providers in less populated areas ofthe US. In addition to IP edge routers, where we hold a strong N2 position, wecontinue to see good momentum in the mobile packet core market, where weimproved our market position throughout the year as evidenced by recent winswith both Sprint and China Mobile. We are also expanding our presence in the IPCore router market, registering six new wins in Q4 for a total of 20 wins andmore than 20 trials to date. Nuage Networks(TM), our software defined networking(SDN) solution venture, has been selected by three customers and is involved inmore than 20 trials. It was recently chosen by the University of PittsburghMedical Center (UPMC) for deployment in the health system's backup network and,after staging and verification, the rest of its datacenter networkinfrastructure.
o Revenues for the IP Transportdivision, which includes terrestrial and submarine optics, reached Euro 618million in Q4 2013, up 0.3% year-on-year and 14.2% sequentially at constantexchange rates. Over the full year, revenues declined by 8.8% at constantexchange rates with stabilization in the second half as a result of improvingmix within IP Transport throughout the year. Highlighting the tractionwitnessed in WDM, our 1830 Photonic Service Switch (PSS) represented 44% ofoptical revenues in Q4 2013 up from 31% in Q4 2012. It is now deployed withmore than 410 customers, including more than 180 100G customers. It wasrecently selected by Verizon, by SFR in France and Rostelecom in Russia toupgrade their networks to meet increasing bandwidth demand. Our 100G shipmentsrepresented 28% of total WDM line cards shipments in Q4'13, compared to 11% inQ4 2012. Staying at the forefront of 400G optics, we successfully completed thefirst Australian field trial of 400G data transmission over live network of theservice provider Nextgen's. Recovery in our Submarine business continued withrevenues in Q4 recording strong double-digit growth both sequentially andcompared to Q4 2012. We signed three new contracts in the quarter including awin to upgrade the EASSy submarine cable system serving Africa, and morerecently announced a win with Interchange in the Pacific Islands.
o Revenues for the IP Platforms divisiondeclined 5.8% at constant exchange rates to Euro 543 million in Q4 2013, off ahigh base in Q4 2012. For 2013 as a whole, revenues grew 6.2% at constantexchange rates, with good performance across a number of activities,particularly our IMS and Subscriber Data Management businesses, growing at acombined 15% rate, driven by the rollout of LTE networks and Voice over LTE(VoLTE) technology. According to recent industry analyst market share reports,we entered Q4 as the market leader in IMS with an above 25% market share andduring Q4 we surpassed one hundred million subscriber licenses deployed on ourIMS platform, totaling today more than 125 million subscriber licenses. OurMotive Customer Experience Solutions business continued to see demand forservice management and network analytics, with revenues increasing at ahigh-single-digit rate in 2013. It was recently deployed at Turkish broadbandservice provider, TTNET, to actively manage how their network andnetwork-connected devices perform. This was offset by the disposal andstreamlining of certain businesses within this division, consistent with ourShift Plan announcement. Industry momentum in network function virtualizationcontinues, with three additional CloudBand and virtualized applicationproof-of-concepts with Tier 1 service providers in the quarter, bringing ourtotal to eight at the end of 2013.
o The improvement in adjusted operatingmargin from Q4 2012 reflects positive contribution from each division withinCore Networking, including strong year-over-year improvements in both IPTransport and IP Platforms as well as strong contribution from IP Routing. Forthe full year 2013, Core Networking improved its adjusted operating income byover Euro 300 million compared to 2012, reflecting year-over-year improvementsacross all businesses.
For Q4 2013, revenues for Access were Euro 1,983 million, flat compared toEuro 1,981 million in Q4 2012 and up 1.6% compared to Euro 1,951 million in thethird quarter 2013. At constant exchange rate, Access revenues increased 4.2%year-over-year and 3.5% sequentially. The segment posted anadjusted 2 operating 1 income of Euro 76 million or anoperating margin of 3.8% compared to an adjusted 2 operating 1 loss of Euro (67) million or a margin of -3.4% in Q42012.The segment posted a segment operating cash flow 4 of Euro223million compared to a segment operating cash flow 4 of Euro 160million in Q4 2012.
o Revenues for the Wireless Accessdivision were Euro 1,240 million, an increase of 15.0% at constant exchangerates from Q4 2012, with LTE revenues more than doubling, driven by largedeployment activities in the US and China. Sequentially, revenues were up 5.8%at constant exchange rates. Over the full-year, the division grew at adouble-digit rate, with LTE enjoying more than 70% growth year-over-year andour overlay strategy showing continued success, as evidenced by recent winswith China Telecom, Setar in Aruba, YooMee in Africa, Lazus in Colombia orOsnova in Russia. This performance was partially offset by continued declinesin 2G and 3G technologies, particularly CDMA which represented less than 15% ofwireless revenues in Q4. We witnessed continued momentum in our small cellbusiness, as evidenced by our recent win with China Mobile for its TD-LTE 4Gnetwork. In the fourth quarter, we also launched a new initiative, the MetroCell Express Site Certification Program, to address the challenges associatedwith site acquisition and backhaul for metro cell deployments.
o Revenues for the Fixed Access divisionwere Euro 542 million in Q4 2013, an increase of 2.4% from Q4 2012 and 1.7%sequentially at constant exchange rates. Our copper and fiber businessescontinued to benefit from network upgrades to ultra-broadband technologiesleading to strong year-over-year double-digit growth rates in the fourthquarter. In 2013, this division grew at a mid-single digit rate confirmingpositive trends in our copper and fiber businesses, notably in the US andEurope, while legacy technologies were in decline. Echoing our productpositioning in fiber, Alcatel-Lucent was recently positioned by industryanalyst, Gartner Inc., in the "Leaders" quadrant in their Magic Quadrant forFiber-to-the-Home (FTTH) equipment. In the quarter, we also signed 11 new fibercontracts, including one with Japanese cable operator Tonami SatelliteCommunications, to provide speeds up to 2.4Gbps to customers with GPONtechnology. We now have 17 VDSL2 vectoring references, including a recent winwith Bezeq in Israel. For the first time in Q4, we shipped more vectoring linesthan non-vectoring VDSL lines.
o Revenues from our Managed Servicesdivision were Euro 186 million. They decreased 30.1% at constant exchange ratecompared to the year ago quarter, reflecting our restructuring efforts in thisbusiness.
o In Q4 2013, we recorded Euro 15million of Licensing revenues and Euro 27 million of Intellectual Propertydisposals.
o In Q4 2013, the segment generated Euro76 million of operating income, an improvement of Euro 143 million compared toQ4 2012. The move back to profitability from the year-ago quarter reflectsstrongly improved contribution from the Wireless and Fixed Access divisions,while Managed Services was close to break-even. For the full year 2013,adjusted operating income improved by Euro 238 million compared to 2012, mainlydriven by Fixed Access and Managed Services.
o Segment operating cash flow of Euro223 million in the quarter improved by Euro 63 million stemming primarily fromincreased profitability. Full-year segment operating cash flow reached Euro(137) million compared to Euro (105) million in 2012, reflecting a very weakfirst quarter and continuous progress thereafter.
For Q4 2013, revenues in the Other segment, essentially formed by LGS andEnterprise, were Euro 232 million, a decrease of 10.1% compared to Euro 258million in Q4 2012 and a 1.8% increase compared to Euro 228 million in Q3 2013.At constant exchange rate, Other segment revenues decreased 8.5% year-over-yearand increased 2.6% sequentially. The segment posted an adjusted 2 operating 1 income of
Euro 12 million or an operating margin of 5.2% compared to anadjusted 2 operating 1 income of Euro 7 million or a marginof 2.7% in Q4 2012.The segment posted a segment operating cash flow 4 of Euro 16 million compared to a segment operating cash flow 4 ofEuro (27) million in Q4 2012.
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/q4-2013
The Board of Directors of Alcatel-Lucent met on February 5, 2014, examinedthe Group's consolidated financial statements at December 31, 2013, andauthorized their issuance.
All reported figures are currently being audited. All adjusted figures areunaudited. Consolidatedfinancial statements available on our website .
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 exchange rate.
2014 Upcoming events
May 9, 2014: First-quarter results
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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