- Significant improvement in operating profitability and segment operating cash flow in Q4 and for 2013 as a whole
- Fixed costs savings of Euro 104 million in Q4, bringing total for 2013 to Euro 363 million
- On track to achieve The Shift Plan 2015 targets, focusing on continued cost 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-Lucent Enterprise at Euro 268 million for 100% on an enterprise value basis. Alcatel-Lucent to retain a 15% minority interest
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 flow5 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.”
