Alcatel-Lucent continues to reap operational benefits from its ‘Shift’ plan, while LTE rollouts in US and China helped strengthen the top line.
The second quarter saw the Franco-US supplier lopping off €94 million from fixed costs. It takes cumulative fixed cost-savings, under the Shift plan, up to €572 million.
The plan, hatched by CEO Michel Combes (pictured) last year, has the target of cutting costs by €1 billion and drumming up €1 billion in asset sales as it focuses on cloud computing, ultra-broadband and IP networking.
Cost-savings helped boost gross profit margin to 32.6 per cent (Q2 2013: 31.2 per cent), while adjusted operating income trebled to €136 million.
Significantly, Alcatel-Lucent’s access business, driven by 4G growth in the US and China – and which accounts for around 60 per cent of group turnover – moved into profitable territory (€11 million). True, this is on an adjusted operating income basis, but it’s still better than the previous quarter loss of €37 million, and much better than the Q2 2013 loss of €75 million.
Operational improvements were not enough to prevent a sizeable net loss of €298 million for the period. Although this was much smaller than the €885 million net loss posted in Q2 2013, shareholders would be mistaken from taking too much comfort. The large splash of red ink on the Q2 2013 accounts was mainly caused by a €552 million impairment charge.
On a like-for-like basis, Alcatel-Lucent said group sales were up 0.7 per cent, to €3.28 billion. If you take out the decline in managed services revenue – the Franco-US supplier is in the process of terminating or restructuring loss-making contracts – then group revenue, year-on-year, would have increased by 5 per cent.
Sales from the Asia-Pacific region were up an eye-catching 25.2 per cent, to €667 million, driven by LTE network rollouts in China. The performance here helped cushion a 10 per cent drop in core IP networking revenues, to €1.37 billion, on a group-wide basis.
Alcatel-Lucent said it would pay back a €1.6 billion loan next month, which was taken out in 2012 and secured against group patents.
“I am proud of the very significant improvement achieved in the second quarter which demonstrates the fourth consecutive quarter of consistent delivery under the Shift plan,” said Combes. “With the upcoming reimbursement of the secured loan and the subsequent recovery of the full ownership of its patents, Alcatel-Lucent recaptures the full control of its destiny and can close the first step of its transformation. The group can now embark on the second chapter of its turnaround story: innovate, transform and grow while keeping intact the commitment of returning to positive free cash flow in 2015.”
To raise more money, Combes said an IPO of its submarine networks division was planned for H1 2015, although Alcatel-Lucent will keep a majority stake.