Paris, February 06, 2014
On Track to Achieve The Shift Plan 2015 Targets
Paris, February 6, 2014 - Alcatel-Lucent (Euronext Paris and NYSE: ALU) today announced its fourth quarter 2013 results, reporting revenues of Euro 3,930 million, flat year-on-year at constant exchange rate. Revenues for the Core Networking and Access segments were up 0.4% year-on-year at constant exchange rates. Sequentially, at constant exchange rates, Group revenues increased by 8.8% and by 8.9% for Core Networking and Access segments, reflecting notably a strong performance in IP Platforms, IP Transport and Wireless.
From a geographic standpoint, at constant exchange rates, North America grew 2% year-on-year, moderating its pace compared to previous quarters, while Asia Pacific moved into positive territory by rising 10% year-over-year, driven by network roll-outs in China. Encouraging trends continued in Western Europe while Russia returned to growth. The Rest of World area witnessed a decline in the mid-teens.
For 2013 as a whole, the Group recorded revenue growth of 2.9% at constant exchange rates; revenues for Core Networking and Access segments were up 3.6% during the year. The full-year performance reflects solid trends, supported by double-digit growth in IP Routing, progress in WDM and IP Platforms, as well as good traction in mobile and fixed ultra-broadband access activities, both driven by large networks rollouts. This is further evidenced by market share gains.
Gross margin reached 34.3% of revenues in the last quarter, up nearly 400 basis points year on year and 170 basis points sequentially. Year-on-year improvement reflects favorable product mix, operational improvements and reduced fixed operations costs. Sequential improvement mainly reflects reduced operations costs. Full-year gross margin was 32.2%, improving by 220 basis points over the preceding year.
The Group realized fixed costs savings of Euro 104 million in Q4, bringing total fixed costs savings to
Euro 363 million for the year, substantially above the Euro 250-300 million set earlier in the year. The Group was able to reduce its ratio of SG&A expenses to revenues by 120 basis points to 12.1% in Q4 and by 160 basis points to 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 significant improvement in profitability of both Core Networking and Access segments. Overall, for 2013 as a whole, the Group generated adjusted operating income of Euro 290 million, an improvement of Euro 553 million compared to 2012.
The Group reported a positive net income (Group share) of Euro 134 million in Q4, or Euro 0.05 per share. The published net loss for the full year 2013 of Euro (1,304) million was notably impacted by Euro (548) million of net asset impairment charges, essentially recorded in the second quarter of 2013.
Segment operating cash flow reached Euro 499 million in Q4, versus Euro 368 million in Q4 2012. Free cash flow 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: excluding restructuring charges and interests paid, free cash flow improved by Euro 324 million.
Alcatel-Lucent’s balance sheet was significantly reinforced during the quarter thanks to a successful capital increase of Euro 1 billion, including Euro 957 million through a rights issue, and the conversion of the remaining 2015 OCEANE. In addition, during the second half of 2013, the Group engaged in a series of transactions to reprofile its debt and optimize its capital structure, notably through a pre-financing or reimbursement of upcoming short and mid-term debt maturities, as well as a partial reimbursement and repricing of its Senior Secured credit facility. Going forward for 2014 as a whole the Group anticipates an annual run rate of net cash interest expenses of Euro 265 million, compared to Euro 295 million in 2013.
Shortly before year-end the Group announced it had signed an agreement for the sale of LGS for up to US$ 200 million. Today, the Group is announcing it has received a binding offer from, and is entering exclusive discussions with, China Huaxin, a technology investment company, for the acquisition of Alcatel-Lucent Enterprise. The contemplated transaction values Alcatel-Lucent Enterprise at Euro 268 million on an enterprise value basis (cash-free / debt-free) and at a currently estimated Euro 237 million on an equity value basis, for 100%. Alcatel-Lucent will retain a minority stake of 15%. The proposed transaction will shortly be submitted to the workers councils of Alcatel-Lucent Enterprise for the required information and consultation procedures. A definitive acquisition agreement is expected to be signed during the second quarter of 2014. Closing would be subject to certain conditions, including the approval of certain regulatory authorities, and is targeted to take place in the third quarter of 2014.
At December 31, 2013, the Group’s overall Pensions and OPEB exposure indicated a surplus of Euro 546 million compared to a surplus of Euro 146 million at September 30, 2013 and a deficit of Euro 1,308 million as of December 31, 2012 (in each case before taking into account applicable asset ceilings). Group’s US pension plans, in particular, show a collective surplus of US$ 4.0 billion without taking into account applicable asset ceilings compared to US$ 2.7 billion at December 31, 2012. From a regulatory perspective –which determines funding requirements– the Group’s US pension plans are pre-funded and the Group does not expect having to make any contributions for the foreseeable future. In accordance with applicable law, the Group’s US Represented OPEB obligations for the upcoming year have been fully financed from excess pension assets, and, going forward, the Group believes that it will continue 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 cost reductions, cash generation and profitable growth, and confirms its 2015 targets, namely:
· Revenues for the Core Networking segment of more than Euro 7 billion with an operating margin exceeding 12.5%;
· Segment operating cash flow from its Access and Other segments surpassing Euro 250 million;
· Euro 1 billion of fixed costs savings by the end of 2015; and
· At least Euro 1 billion of asset disposals over the 2013-2015 period.
Commenting on the fourth quarter and full year results, Michel Combes, CEO of Alcatel-Lucent, said: “We have demonstrated today that we are well on track to meet The Shift Plan’s objectives. We have repositioned our company as a specialist in IP and Cloud Networking, as well as in Ultra-Broadband Access, and we are seeing strong commercial traction in these segments. We have strengthened our balance sheet through the success of financing actions taken to reduce and reprofile our debt. Overall, we have made significant progress to improve competitiveness, both in terms of profitability and innovation. Looking ahead, we are fully focused on implementing, delivering and executing The Shift Plan by the end of 2015.”
For Q4 2013, revenues for Core Networking were Euro 1,716 million, a decrease of 7.4% compared to Euro 1,854 million in Q4 2012 and an increase of 14.7% compared to Euro 1,496 million in the third quarter 2013. At constant exchange rate, Core Networking revenues decreased 3.6% year-over-year and increased 15.9% sequentially. The segment posted an adjusted2 operating1 income of Euro 257 million or an operating margin of 15.0% compared to an adjusted2 operating1 income of Euro 195 million or a margin of 10.5% in Q4 2012. The segment posted a segment operating cash flow4 of Euro 316 million compared to a segment operating cash flow4 of Euro 264 million in Q4 2012.
· Revenues for the IP Routing division were Euro 555 million in Q4 2013, down 5.2% from a record Q4 2012, and down 2.6% sequentially, at constant exchange rates. Looking at full year 2013, sales grew 10.3% at constant exchange rates, marking a third year of double-digit growth, as demand for ultra-broadband access technologies, such as LTE, drove opportunities within mobile backhaul deployments. A recent example is our announcement with PEG Bandwidth, where our backhaul solution will support their expansion of services to 4G LTE service providers in less populated areas of the US. In addition to IP edge routers, where we hold a strong N°2 position, we continue to see good momentum in the mobile packet core market, where we improved our market position throughout the year as evidenced by recent wins with both Sprint and China Mobile. We are also expanding our presence in the IP Core router market, registering six new wins in Q4 for a total of 20 wins and more than 20 trials to date. Nuage Networks™, our software defined networking (SDN) solution venture, has been selected by three customers and is involved in more than 20 trials. It was recently chosen by the University of Pittsburgh Medical Center (UPMC) for deployment in the health system’s backup network and, after staging and verification, the rest of its datacenter network infrastructure.
· Revenues for the IP Transport division, which includes terrestrial and submarine optics, reached Euro 618 million in Q4 2013, up 0.3% year-on-year and 14.2% sequentially at constant exchange rates. Over the full year, revenues declined by 8.8% at constant exchange rates with stabilization in the second half as a result of improving mix within IP Transport throughout the year. Highlighting the traction witnessed in WDM, our 1830 Photonic Service Switch (PSS) represented 44% of optical revenues in Q4 2013 up from 31% in Q4 2012. It is now deployed with more than 410 customers, including more than 180 100G customers. It was recently selected by Verizon, by SFR in France and Rostelecom in Russia to upgrade their networks to meet increasing bandwidth demand. Our 100G shipments represented 28% of total WDM line cards shipments in Q4’13, compared to 11% in Q4 2012. Staying at the forefront of 400G optics, we successfully completed the first Australian field trial of 400G data transmission over live network of the service provider Nextgen’s. Recovery in our Submarine business continued with revenues in Q4 recording strong double-digit growth both sequentially and compared to Q4 2012. We signed three new contracts in the quarter including a win to upgrade the EASSy submarine cable system serving Africa, and more recently announced a win with Interchange in the Pacific Islands.
· Revenues for the IP Platforms division declined 5.8% at constant exchange rates to Euro 543 million in Q4 2013, off a high base in Q4 2012. For 2013 as a whole, revenues grew 6.2% at constant exchange rates, with good performance across a number of activities, particularly our IMS and Subscriber Data Management businesses, growing at a combined 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 and during Q4 we surpassed one hundred million subscriber licenses deployed on our IMS platform, totaling today more than 125 million subscriber licenses. Our Motive Customer Experience Solutions business continued to see demand for service management and network analytics, with revenues increasing at a high-single-digit rate in 2013. It was recently deployed at Turkish broadband service provider, TTNET, to actively manage how their network and network-connected devices perform. This was offset by the disposal and streamlining of certain businesses within this division, consistent with our Shift Plan announcement. Industry momentum in network function virtualization continues, with three additional CloudBand and virtualized application proof-of-concepts with Tier 1 service providers in the quarter, bringing our total to eight at the end of 2013.
· The improvement in adjusted operating margin from Q4 2012 reflects positive contribution from each division within Core Networking, including strong year-over-year improvements in both IP Transport and IP Platforms as well as strong contribution from IP Routing. For the full year 2013, Core Networking improved its adjusted operating income by over Euro 300 million compared to 2012, reflecting year-over-year improvements across all businesses.
For Q4 2013, revenues for Access were Euro 1,983 million, flat compared to Euro 1,981 million in Q4 2012 and up 1.6% compared to Euro 1,951 million in the third quarter 2013. At constant exchange rate, Access revenues increased 4.2% year-over-year and 3.5% sequentially. The segment posted an adjusted2 operating1 income of Euro 76 million or an operating margin of 3.8% compared to an adjusted2 operating1 loss of Euro (67) million or a margin of -3.4% in Q4 2012. The segment posted a segment operating cash flow4 of Euro 223 million compared to a segment operating cash flow4 of Euro 160 million in Q4 2012.
· Revenues for the Wireless Access division were Euro 1,240 million, an increase of 15.0% at constant exchange rates from Q4 2012, with LTE revenues more than doubling, driven by large deployment activities in the US and China. Sequentially, revenues were up 5.8% at constant exchange rates. Over the full-year, the division grew at a double-digit rate, with LTE enjoying more than 70% growth year-over-year and our overlay strategy showing continued success, as evidenced by recent wins with China Telecom, Setar in Aruba, YooMee in Africa, Lazus in Colombia or Osnova in Russia. This performance was partially offset by continued declines in 2G and 3G technologies, particularly CDMA which represented less than 15% of wireless revenues in Q4. We witnessed continued momentum in our small cell business, as evidenced by our recent win with China Mobile for its TD-LTE 4G network. In the fourth quarter, we also launched a new initiative, the Metro Cell Express Site Certification Program, to address the challenges associated with site acquisition and backhaul for metro cell deployments.
· Revenues for the Fixed Access division were 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 businesses continued to benefit from network upgrades to ultra-broadband technologies leading to strong year-over-year double-digit growth rates in the fourth quarter. In 2013, this division grew at a mid-single digit rate confirming positive trends in our copper and fiber businesses, notably in the US and Europe, while legacy technologies were in decline. Echoing our product positioning in fiber, Alcatel-Lucent was recently positioned by industry analyst, Gartner Inc., in the “Leaders” quadrant in their Magic Quadrant for Fiber-to-the-Home (FTTH) equipment. In the quarter, we also signed 11 new fiber contracts, including one with Japanese cable operator Tonami Satellite Communications, to provide speeds up to 2.4Gbps to customers with GPON technology. We now have 17 VDSL2 vectoring references, including a recent win with Bezeq in Israel. For the first time in Q4, we shipped more vectoring lines than non-vectoring VDSL lines.
· Revenues from our Managed Services division were Euro 186 million. They decreased 30.1% at constant exchange rate compared to the year ago quarter, reflecting our restructuring efforts in this business.
· In Q4 2013, we recorded Euro 15 million of Licensing revenues and Euro 27 million of Intellectual Property disposals.
· In Q4 2013, the segment generated Euro 76 million of operating income, an improvement of Euro 143 million compared to Q4 2012. The move back to profitability from the year-ago quarter reflects strongly 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, mainly driven by Fixed Access and Managed Services.
· Segment operating cash flow of Euro 223 million in the quarter improved by Euro 63 million stemming primarily from increased profitability. Full-year segment operating cash flow reached Euro (137) million compared to Euro (105) million in 2012, reflecting a very weak first quarter and continuous progress thereafter.
For Q4 2013, revenues in the Other segment, essentially formed by LGS and Enterprise, were
Euro 232 million, a decrease of 10.1% compared to Euro 258 million 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-year and increased 2.6% sequentially. The segment posted an adjusted2 operating1 income of
Euro 12 million or an operating margin of 5.2% compared to an adjusted2 operating1 income of Euro 7 million or a margin of 2.7% in Q4 2012. The segment posted a segment operating cash flow4 of Euro 16 million compared to a segment operating cash flow4 of Euro (27) million in Q4 2012.
Alcatel-Lucent will host a press and analyst conference at 1 p.m. CET which will 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, examined the Group's consolidated financial statements at December 31, 2013, and authorized their issuance.
All reported figures are currently being audited. All adjusted figures are unaudited. Consolidated financial statements available on our website http://www.alcatel-lucent.com/investors/financial-results/q4-2013
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 and post-retirement benefit plan amendments.
2- “Adjusted” refers to the fact that it excludes the main impacts from Lucent’s purchase price allocation.
3- “Operating cash-flow” is defined as cash-flow after changes in working capital and before interest/tax paid, restructuring cash outlay and pension & OPEB cash outlay.
4- “Segment operating cash flow” is the adjusted2 operating income1 plus operating working capital change at constant exchange rate.