Alcatel-Lucent reports Q3 2014 results
Paris, October 30, 2014
- Group revenues, excluding Managed Services, down 3.8% year-on-year
- Gross margin expanding by 210 basis points year-over-year to 34.0%
- Fixed costs savings of Euro 73 million in Q3 2014, bringing cumulative fixed cost savings to Euro 645 million, two-thirds of the Shift Plan objective
- Adjusted operating income increasing to Euro 170 million or 5.2% of revenues, with year-to-date adjusted operating income improving Euro 360 million compared to the year-ago period
- IP Routing revenues up 2.2% year-on-year
- Free cash flow of Euro (81) million, an improvement of Euro 146 million compared to Q3 2013
- Free cash flow before restructuring charges crossing the breakeven point
Alcatel-Lucent (Euronext Paris and NYSE: ALU) today announced its third quarter 2014 results, reporting a continuing improvement in profitability reflecting the execution of The Shift Plan. Commenting on the third quarter results, Michel Combes, CEO of Alcatel-Lucent, said: “Since the launch of The Shift Plan, our primary objective is to enable the company to generate free cash flow on a sustainable, recurring basis, starting in 2015. Our third quarter results show that we are increasingly improving our underlying profitability, an important step towards this commitment. In parallel, we have opened the second chapter of The Shift Plan, sharpening our focus on applying innovation to unlock growth in order to address our strategic ambitions within and outside of the telecoms sector.”
Highlights of Q3 2014
- Revenues for the Group excluding Managed Services, reflecting the termination or restructuring of loss-making contracts, declined 3.8% year-on-year.
- Gross margin reached 34.0% of revenues in the quarter, progressing by 210 basis points year-on-year driven by better profitability in several business lines as well as favourable mix. The same factors explain the sequential improvement of 140 basis points.
- Fixed costs savings amounted to Euro 73 million in Q3 2014, bringing cumulative fixed cost savings to Euro 645 million under the Shift Plan. In particular, SG&A expenses decreased by 13.6% compared to Q3 2013. The ratio of SG&A expenses to revenues declined by 90 basis points to 12.3% in Q3 2014 compared to Q3 2013.
- Adjusted operating income totaled Euro 170 million in the quarter, or 5.2% of revenues, compared to Euro 113 million in Q3 2013, or 3.2% of revenues. Profitability of both our Core Networking and Access segments continued to improve with adjusted operating margin expanding by 230 basis points and 100 basis points respectively.
- Segment operating cash flow was Euro (61) million in Q3 2014, versus Euro 38 million in Q3 2013, reflecting an increase in operating working capital. Free cash flow was Euro (81) million in the quarter and improved by Euro 146 million year-over-year.
- As reported, the Group showed a net loss (Group share) of Euro (18) million in Q3 2014, or Euro (0.01) per share or an improvement of Euro 182 million compared to Q3 2013. In addition to operating income improvement, this is mainly explained by lower restructuring costs, a decrease in financial expenses compared to the year-ago quarter and post-retirement benefit plan amendments amounting to Euro 103 million.
- On August 19, 2014 we fully reimbursed the senior secured credit facility for a nominal value of Euro 1.29 billion, subsequently releasing pledges placed on our intellectual property portfolio. We also announced, on October 1, 2014 that we completed the disposal of 85% of our Enterprise business to China Huaxin, following the binding offer received early February 2014, for cash proceeds of €202 million.
Highlights of January – September 2014
- Revenues for the Group excluding Managed Services, increased 1.8% year-on-year.
- Gross margin reached 33.0% of revenues, improving by 250 basis points compared to the year-ago period.
- Fixed costs savings amounted to Euro 310 million. In particular, SG&A expenses decreased by 16.2%, leading to a ratio of SG&A expenses to revenues of 12.4%, a decline of 160 basis points year-on-year.
- Adjusted operating income totaled Euro 339 million, or 3.6% of revenues, compared to a loss Euro (21) million in the year-ago period.
- Segment operating cash flow was Euro (24) million, versus Euro (282) million last year, driving a Euro 334 million improvement in Free cash flow to Euro (684) million year-to-date in 2014.
From a geographic standpoint, North America revenues (excluding LGS) declined by 14.0% year-over-year, mainly reflecting lower revenues in the Access segment and in legacy products in IP Transport. In Europe, the substantial majority of the decrease in revenues is attributable to Managed Services; excluding such impact, revenues decreased 1.8%, with significant strength in IP Routing and IP Transport. Asia Pacific posted a 22.5% year-over-year growth, driven by LTE network roll-outs in China as well as traction in other markets including Japan and Australia. In the rest of World, MEA declined at a low single-digit pace, while CALA showed slight growth.
Core Networking segment revenues were Euro 1,443 million in Q3 2014, down 3.9% compared to Q3 2013. Adjusted operating income reached Euro 123 million, or 8.5% of segment revenues in Q3 2014, an increase of 230 basis points compared to Q3 2013. Excluding one-off items in IP Platforms, the adjusted operating margin would have reached 10.4%. Core networking segment operating cash flow of Euro -38 million in the quarter declined Euro 99 million compared to Q3 2013, reflecting an increase in operating working capital.
IP Routing revenues were Euro 594 million in Q3 2014, increasing 2.2%, with notable growth in Europe, APAC (outside of China) and CALA. We witnessed solid order intake, compared to the year-ago quarter, reflecting encouraging trends in both the Americas and EMEA.
- Our 7950 XRS IP Core router registered 4 new wins in Q3 for a total of 32 wins to date, including recent announcements of US operator Century Link, China Mobile, China Telecom and China Unicom. These come in addition to announcing Oi Brazil and Turk Telekom as customers and the successful deployment of our XRS-40 at DE-CIX.
- Our focus to diversify our customer base was recently evidenced when we were chosen by Denver-based cable company, WOW! Business, to deploy an all-IP network in 19 markets.
- Nuage Networks™ added 4 new wins in the quarter, totaling 12 customers with traction across extra-large enterprises, cloud service providers and service providers. This is evidenced by a recent win with hosting provider OVH, where our Virtualized Services Platform (VSP) will be deployed within and across its datacenters in Europe and in Canada to enable cloud services for their customers.
IP Transport revenues reached Euro 527 million in Q3 2014, a decline of 3.3% year-on-year. Our terrestrial optics increased at a high single-digit rate as our WDM portfolio continued to drive growth in EMEA and APAC. Our submarine business witnessed stronger backlog, but was impacted by delays in certain contract milestones.
- Within WDM, our 1830 Photonic Service Switch (PSS) represented 50% of terrestrial optical product revenues in the quarter, up 12 percentage points year-on-year, and now has over 500 customers.
- Year-to-date, our 100G shipments represented 34% of total WDM line cards shipments compared to 26% in the same period of 2013. Our 100G platform was recently selected by Telefonica Spain, MTN Nigeria and Ucom in Armenia.
- We were the first vendor to deliver a single-carrier 200G optical line card which has already been deployed into 20 service providers’ networks.
- Alcatel-Lucent Submarine Networks signed a binding agreement with Sercel, part of the CGG Group, for the acquisition of Optoplan, a leading provider of 4D permanent reservoir monitoring solutions used in offshore oil and gas production. During the third quarter, the business also started construction on Sea-Me-We 5 linking Singapore and France.
IP Platforms revenues decreased 14.2% year-on-year to Euro 322 million in Q3 2014, as this business continues to be in a transitional phase, reflecting our strategy to rationalize the product portfolio and leverage on growth engines such as IMS for VoLTE and our Motive Customer Experience portfolio. Excluding the impact from portfolio rationalization and discontinued activities, revenues would have declined 3% compared to the year-ago period, instead of the 14% reported decline.
- We recently signed a technical collaboration agreement with Korea’s KT to drive innovation and the adoption of a comprehensive Network Functions Virtualization (NFV)-based infrastructure, including virtualized EPC, CloudBand NFV and Nuage Networks SDN platforms.
- We also formed a strategic partnership with Accenture to jointly provide solutions and services for customer care based on Alcatel-Lucent’s Motive line of products.
- Turkish service provider, Avea, has deployed our Motive ServiceView™ solution to proactively eliminate potential mobile device management problems.
Access segment revenues were Euro 1,807 million in Q3 2014, a 7.5% decrease compared to Q3 2013. In Q3 2014, segment operating income was Euro 62 million, an improvement of Euro 16 million compared to Q3 2013. While Fixed Access continued to be a significant contributor in profitability, the year-over-year change reflected improvements in our Wireless and Managed Services division. Segment operating cash flow was Euro (36) million in the quarter, a decrease of Euro 62 million compared to Q3 2013.
Wireless Access revenues were Euro 1,176 million, a decrease of 1.5% year-on-year, as LTE rollouts continued at a more moderate pace in the third quarter, after accelerated investments in the first half of 2014, notably in China and North America.
- LTE overlay wins in the third quarter include Globe Telecom in the Philippines as well as both nTelos and Pioneer Cellular in the US.
- We signed 3 new small cell customers in the quarter, bringing our total to 74 customers. We announced our Enterprise Small Cell device, in collaboration with Qualcomm that will allow operators to extend 3G, 4G LTE and Wi-Fi connectivity and coverage into the office for in-building customers.
- We also recently formed a collaboration with French advertising company, JCDecaux, to combine our small cells with their street furniture to improve connectivity in cities.
Fixed Access revenues were Euro 518 million in Q3 2014, a decrease of 4.6% from Q3 2013 as continuing demand for vectoring and fiber around the world was not enough to offset the pause in specific customer rollouts in the quarter.
- 5 new VDSL2 vectoring customers were announced during the quarter, bringing our total to 27.
- We launched the industry’s first TWDM-PON (Time and Wavelength Division Multiplexed Passive Optical Networks) solution, also known as NG-PON2, that can converge residential, business and mobile traffic onto one network, create new revenue opportunities and meet rising demand for ultra-broadband.
- We also introduced our G.fast solution that allows operators to place fiber access closer to subscribers’ homes, which is now being trailed by 12 customers – including A1 Telekom Austria, BT and Orange.
- We recently entered into a collaboration with and made an investment in semiconductor company, Ikanos Communications, on the development of components for ultra-broadband products.
Managed Services revenues were Euro 97 million, decreasing by close to 50%, reflecting our strategy to terminate or restructure loss-making contracts.
Alcatel-Lucent will host a press and analyst conference at 1 p.m. CET – click here to follow the conference call or audio webcast.
The Board of Directors of Alcatel-Lucent met on October 29, 2014, examined the Group’s unaudited interim condensed consolidated financial statements at September 30, 2014, and authorized their issuance.
The interim condensed consolidated financial statements are unaudited. They are available on our Investors website.
Operating income is the Income from operating activities before restructuring costs, litigations, impairment of assets, gain on disposal of consolidated entities and post-retirement benefit plan amendments.
“Adjusted” refers to the fact that it excludes the main impacts from Lucent’s purchase price allocation.
“Segment operating cash flow” is the adjusted operating income plus operating working capital change at constant exchange rate.
“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.
November 11: Investor Day
November 12-13: Tech Symposium
February 6, 2015: Fourth quarter and Full Year 2014 results
ABOUT ALCATEL-LUCENT (EURONEXT PARIS AND NYSE: ALU)
We are at the forefront of global communications, providing products and innovations in IP and cloud networking, as well as ultra-broadband fixed and wireless access to service providers and their customers, and to enterprises and institutions throughout the world. Underpinning us in driving the industrial transformation from voice telephony to high-speed digital delivery of data, video and information is Bell Labs, an integral part of the Group and one of the world’s foremost technology research institutes, responsible for countless breakthroughs that have shaped the networking and communications industry. Our innovations have resulted in our Group being recognized by Thomson Reuters as a Top 100 Global Innovator, as well as being named by MIT Technology Review as amongst 2012’s Top 50 “World’s Most Innovative Companies”. We have also been recognized for innovation in sustainability, being named Industry Group Leader in the Technology Hardware & Equipment sector in the 2014 Dow Jones Sustainability Indices review, for making global communications more sustainable, affordable and accessible, all in pursuit of the Group’s mission to realize the potential of a connected world.
With revenues of Euro 14.4 billion in 2013, Alcatel-Lucent is listed on the Paris and New York stock exchanges (Euronext and NYSE: ALU). The company is incorporated in France and headquartered in Paris.
For more information, visit Alcatel-Lucent on: http://www.alcatel-lucent.com, read the latest posts on the Alcatel-Lucent blog http://www.alcatel-lucent.com/blog and follow the Company on Twitter: http://twitter.com/Alcatel_Lucent.