Alcatel-Lucent reports Q4 and full year 2014 results
Commenting on the results, Michel Combes, CEO of Alcatel-Lucent, said: “Our fourth quarter and full year 2014 results underline the success of our turnaround. Through the execution of The Shift Plan, we have improved our underlying profitability and free cash flow profile while we have solidified the entire organization. Entering 2015, we are in a strong position to capitalize on profitable growth opportunities and will focus on operational excellence and quality of service. The achievements we have made in our product portfolio and operational transformation make us confident we will reach our positive free cash flow target in 2015.”
Highlights of Q4 2014
- Revenues for the Group excluding Managed Services, reflecting the termination or restructuring of loss-making contracts, declined 3% year-on-year. At actual rates, Group revenues excluding Managed Services increased 2% year-on-year.
- Gross margin reached 34.7% of revenues in the quarter, progressing by 130 basis points year-on-year driven by favourable mix. The sequential improvement of 70 basis points was primarily driven by the reduction of fixed operations costs.
- Fixed costs savings amounted to Euro 30 million in Q4 2014, net of Euro 16 million of reinvestments, bringing cumulative net fixed cost savings to Euro 675 million under the Shift Plan. In particular, SG&A expenses decreased by 1% compared to Q4 2013. At constant exchange rates, SG&A expenses declined 6% in Q4 2014 compared to Q4 2013. The ratio of SG&A expenses to revenues was 11.3% in Q4 2014.
- Adjusted operating income totaled Euro 284 million in the quarter, or 7.7% of revenues, compared to Euro 293 million in Q4 2013, or 7.8% of revenues. Profitability of our Core Networking segment improved on a year-over-year basis reaching an adjusted operating margin of 16.0%.
- As reported, the Group showed a net income (Group share) of Euro 271 million in Q4 2014, or Euro 0.08 per share, compared to Euro 134 million in the year-ago period, mainly reflecting lower financial expenses and higher income tax benefits partially offset by higher restructuring expenses.
- Segment operating cash flow was Euro 518 million in Q4 2014, versus Euro 487 million in Q4 2013, reflecting a decrease in operating working capital, notably a reduction in inventories. Free cash flow was Euro 264 million in the quarter, a decline of Euro 97 million year-over-year.
- At December 31, 2014, the Group had net cash position of Euro 326 million, versus a net debt position of Euro (132) million at September 30, 2014.
- In addition to the previously announced intent to offer to retirees of the US Management Pension Plan who are receiving monthly pension benefit payments the opportunity to elect to convert those payments into a single, lump sum payment, the Group announces today that it is now in a position to extend this one-time offer to about 32,000 retirees and former employees and related beneficiaries of the US Inactive Occupational Pension Plan. The offer, which will run concurrently with the previously announced offer, is expected to be formally communicated to eligible individuals later this year. Payments to eligible participants and beneficiaries who elect to participate in both offers would occur in the fourth quarter of 2015 and constitute a complete settlement of our pension liabilities with respect to them. Payments are expected to be made from existing US plan assets and we do not expect to make any contributions to US plan assets in connection with either offer.
- At December 31, 2014, the Group’s overall Pensions and OPEB exposure indicated a deficit of Euro (1,350) million compared to a surplus of Euro 546 million at December 31, 2013. This change primarily reflects an IFRS update to our assumptions based on new mortality rates issued in the US at the end of 2014. From an ERISA standpoint, which determines funding requirements in the US, the US pension funds remain in a sizeable surplus positive and we do not expect to make any additional contributions to these plan assets for the foreseeable future.
Highlights of the full year 2014
- Revenues for the Group, excluding Managed Services, were flat compared to 2013.
- Gross margin reached 33.4% of revenues, improving by 210 basis points compared to 2013, reflecting better profitability in several business lines, favorable mix and the reduction of fixed operations costs.
- Net fixed costs savings amounted to Euro 340 million. In particular, SG&A expenses decreased by 12.9%, leading to a ratio of SG&A expenses to revenues of 12.1%, a decline of 110 basis points year-on-year.
- Adjusted operating income totaled Euro 623 million, or 4.7% of revenues, more than doubling compared to Euro 278 million, or 2.0% of revenues in the year-ago period.
- Segment operating cash flow was Euro 494 million, versus Euro 211 million last year, driving a Euro 237 million improvement in Free cash flow to Euro (420) million in 2014.
- As reported, the Group showed a material reduction in net loss at Euro (118), versus Euro (1,304) million last year, mainly reflecting reduced financial expenses and higher income tax benefits in 2014 as well as an impairment charge that impacted 2013 results.
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