Form 6-K ALCATEL LUCENT For: Feb 11

•

Free cash flow of Euro 660 million in 2015, exceeding the Shift Plan target of being free cash flow positive in 2015

•

Cumulative fixed cost savings over the Shift Plan horizon of Euro 1,031 million, surpassing the objective of Euro 950 million

•

Core Networking revenues totaling Euro 6,780 million with adjusted operating margin of 10.0% in 2015 as a whole, consistent with the revised objectives

•

Access operating cash flow at Euro 627 million for 2015, exceeding the Shift Plan target of Euro 200 million

•

Debt reduction exceeding the Shift Plan target of Euro 2 billion, evidenced by net cash position of Euro 1,409 million compared to a net debt position of Euro (794) million at the end of Q2 2013

•

Share of next-generation technologies growing to 77% of revenues in 2015, from around half of revenues in 2012

•

Gross margin reaching 36.0% in 2015, an improvement of nearly 7 percentage points compared to 2012

•

Adjusted Operating margin reaching 7.2% in 2015, an improvement of 9 percentage points compared to 2012

•

Group revenues, excluding Managed Services and at constant perimeter, increasing 15% year-on-year and 6% at constant exchange rates

•

Strong growth in next-generation technologies revenues, up 36% year-on-year and 26% at constant exchange rates, and now representing 79% of revenues compared to 67% in the year-ago quarter.

•

Record profitability with gross margin expanding 470 bps to 39.4%, reflecting a high level of activity at the end of the year, composed notably of significant software sales.

•

Adjusted operating profit almost doubling year-over-year to Euro 560 million; adjusted operating margin reaching 13.5%, up 580 bps, reflecting the improvement in gross margin and relatively lower operating expenses.

•

Reported Group share of net income amounting Euro 589 million for the quarter, leading to a full year level of Euro 257 million, the first full year profit since 2011. Excluding Nokia transaction related costs, Group share of net income reaching Euro 659 million for the fourth quarter and Euro 361 million for 2015 as a whole.

•

Free cash flow of Euro 1,020 million, the highest level ever recorded in any quarter since the Alcatel-Lucent merger.

Fourth  

 quarter   

2015  

 Fourth   

 quarter   

 2014   

  Change    

y-o-y  

Profit&Loss Statement

Revenues

Gross profit

in % of revenues

Adjusted Operating income

in % of revenues

Net income (loss) (Group share)¹

Reported EPS diluted (in Euro)

Reported E/ADS diluted (in USD)

Cash Flow Statement

Segment Operating cash flow

Free cash flow ¹

Free cash flow before restructuring cash outlays ¹

The Shift Plan KPIs

Core Networking Revenues

Core Networking Adjusted Operating income

in % of revenues

Access operating cash flow

Cumulative Fixed Cost Savings

The Shift Plan was launched in June 2013 with the triple ambition of repositioning the Group from a telecom equipment generalist to a specialist in IP, cloud and ultra-broadband technologies, re-establishing competitiveness and restoring a sound balance sheet. The release of Q4 and Full-Year 2015 results demonstrate the success of this turnaround.

Major KPIs of the Plan fulfilled:

Free Cash Flow: the target of being free cash flow positive in 2015 was largely exceeded with inflows of Euro 660 million for the year as a whole. This compares to an outflow of Euro (668) million in 2012.

Fixed Cost savings: the target of Euro 950 million cumulative fixed costs savings was surpassed with an actual realization of Euro 1,031 million.

Core Networking segment: revenues totaled Euro 6,780 million and adjusted operating margin reached 10.0% in 2015, consistent with the revised objectives. In 2012, Core Networking revenues were Euro 6,180 million and adjusted operating margin was 2.3%.

Access segment: operating cash flow reached Euro 627 million for 2015, largely exceeding the Shift Plan target of Euro 200 million. In 2012, Access segment cash flow was (105) million.

The Group successfully repositioned itself as a leader in IP, Cloud and Ultra-broadband technologies, as evidenced by the growing share of next-generation technologies which, from around half of revenues in 2012, represented 77% in 2015, growing at a double-digit pace on average over the period. At the same time, the share of R&D spending into next-generation technologies expanded from 67% in 2012 to 87% of total R&D in 2015.

The Group operating model now allows for a cost structure that is aligned with peers and a lower breakeven point, primarily through sales and marketing efficiency, R&D resources allocation, and procurement optimization. Gross margin moved up from 29.1% in 2012 to 36.0% in 2015, gaining nearly 7 percentage points over the period, while adjusted operating margin expanded by 9 percentage points from (1.8%) in 2012 to 7.2% in 2015. This represents an improvement of nearly Euro 1.3 billion in operating income throughout the period.

Substantial decrease of our pension risk exposure in the Group’s US pension plan liabilities notably as a result of the previously announced lump sum offer, which stood at US$ 21.7 billion at the end of 2015 compared to US$ 30.0 billion at the end of 2012, despite the negative impact of new mortality tables over the period.

Lastly, the Group completed its refinancing as soon as 2014. In less than a year, the debt was reprofiled, maturity lengthened and cash interest costs reduced. At the end of 2015, the Group had a net cash position of Euro 1,409 million compared to a net debt position of Euro (794) million at the end of Q2 2013.

Group revenues, excluding Managed Services and at constant perimeter, increased 15% year-on-year, with strong growth in next-generation revenues, which were up 36%. At constant exchange rates, Group revenues increased 6% while next-generation revenues were up 26%. The weight of next-generation revenues continued to progress, representing 79% of revenues compared to 67% in the year-ago quarter.

Gross margin expanded to its highest-level since the Alcatel-Lucent merger, at 39.4%, an increase of 470 bps year-on-year, driven by improved profitability in certain business lines and a high level of activity at the end of the year, composed notably of a high proportion of software sales. On a more normalized basis, gross margin for the quarter would have been lower by a few percentage points though still substantially above the level of Q4 2014.

Adjusted operating income totaled Euro 560 million, or 13.5% of revenues, compared to Euro 284 million in the year-ago quarter, or 7.7% of revenues. The substantial increase in adjusted operating margin reflects the improvement in gross margin and relatively lower operating expenses. Profitability of our Core Networking segment improved slightly compared to the year ago quarter to reach an adjusted operating margin of 16.3% while our Access segment set a new record with an adjusted operating margin of 11.8% compared to 0.3% in the year-ago quarter.

As reported, Group share of net income amounted Euro 589 million or Euro 0.21 per share. Excluding Nokia transaction related costs, Group share of net income was Euro 659 million for the fourth quarter compared to Euro 271 million in the year-ago period. The improvement compared to the year-ago quarter mainly stems from improved adjusted operating income as well as the recognition of the positive impact of the US pension lump-sum offer, as described in our Q3 results report. The successful completion of such lump-sum pension offer to US retirees resulted in an actual increase in US pension surplus of US$ 449 million which was recognized in Q4. This was partially offset by an increase in financial expense of Euro 62 million largely as a result of mark-to-market of certain positions.

Free cash flow excluding transaction related costs was Euro 1,020 million, the highest level ever recorded since the Alcatel-Lucent merger. In addition to stronger profitability, free cash flow performance reflects continued efforts to tightly manage working capital, with a particular focus on reducing inventories and overdues, and the ability to rapidly monetize revenues recorded at the end of the year.

Group revenues, excluding Managed Services and at constant perimeter, increased 10% year-on-year, driven by notable strength in next-generation revenues, which grew 24%. At constant exchange rates, Group revenues were down 2%, while next-generation revenues were up 11%. The weight of next-generation revenues continued to progress, representing 77% of revenues compared to 67% last year.

Gross margin reached 36.0% of revenues, an increase of 260 bps year-on-year.

Adjusted operating income totaled Euro 1,029 million, or 7.2% of revenues, compared to Euro 623 million in 2014, or 4.7% of revenues. Our Core Networking segment reached an adjusted operating margin of 10.0%, a slight decrease compared to 2014 but on substantially higher revenues, while our Access segment adjusted operating margin increased 510 bps year-over-year to 5.7%.

In 2015, the Group’s income tax benefit showed a substantial decrease compared to 2014, reflecting the increase in deferred tax assets in 2014 as a result of the improvement of the profitability of the Group as part of the Shift Plan.

At December 31, 2015, the Group’s overall Pensions and OPEB exposure indicated a deficit of Euro 1,271 million compared to a deficit of Euro 1,350 million as of December 31, 2014 (in each case before taking into account applicable asset ceilings). In addition, there was a substantial decrease in the Group’s US pension plan liabilities as a result of the previously announced lump sum offer, which stood at US$ 21.7 billion at the end of 2015 compared to US$ 29.5 billion at the end of 2014. The US qualified pension plans surplus, as a result of the lump sum offer, has increased by US$ 449 million to reach US$ 2.4 billion, or 11.1% of liabilities, compared to US$ 2.0 billion, or 7.2% of liabilities, immediately prior to the offer.

As reported, the Group showed a net income (Group share) of Euro 257 million in 2015, or Euro 0.09 per share, compared to a net loss of Euro (118) million in the year-ago period.

Breakdown of segment

(In Euro million)

Fourth
  quarter  
2015

Fourth
  quarter  
2014

   Change   
y-o-y
  (actual)  

  Change  
y-o-y
 (constant) 

Third
  quarter  
2015

  Change  
q-o-q
(actual)

  Change  
q-o-q
(constant)

Core Networking

Revenues

IP Routing

IP Transport

IP Platforms

Adjusted Operating income

in % of revenues

Segment Operating Cash-Flow

in % of revenues

Breakdown of segment

(In Euro million)

        2015        

        2014        

Change
    y-o-y (actual)    

Change
    y-o-y (constant)     

Core Networking

Revenues

IP Routing

IP Transport

IP Platforms

Adjusted Operating income

in % of revenues

Segment Operating Cash-Flow

in % of revenues

Traction in our 7950 XRS IP Core router remained solid, with 5 new wins in Q4 2015, bringing the total to date to 55. Notable wins include Telecom Italia, which extends our presence to 50 of the top 50 Service Providers (by Capex), and the Swiss national rail organization SBB, which illustrates the competitive effectiveness associated with a converged IP/Optics portfolio. XRS revenues once again grew at a very strong rate year-over-year while market share continued to expand (7.5% in Q3’15, according to Dell’Oro).

Virtualized routing momentum continues, with 13 new customers for the VSR in Q4 2015, bringing the total to 44 deployments and over 90 trials.

Nuage gained 20 new customers in the fourth quarter, bringing the total to 50 wins, with recent announcements at Telefonica Business Solutions and Centurylink, in addition to recent wins at a number of financial institutions and a leading insurance company.

Within WDM, our 1830 Photonic Service Switch (PSS) platform represented 70% of terrestrial optical product revenues in the quarter, up 15 percentage points year-on-year, and was notably selected by the Ooredoo Group, TTCL and the Swiss national rail organization, SBB.

In Q4 2015, our 100G shipments represented 46% of total WDM line cards shipments, an increase of 14 percentage points year-on-year. Traction for 200G continues, as an increasing amount of line ports shipped in Q4 were 200G capable.

Bell Labs revealed an optical networking technology that could potentially help operators address rapid network data traffic growth, through world’s first demonstration of the MIMO-SDM technique, which has the potential to increase today’s 10 to 20 Terabit-per-second fiber capacities to Petabit-per-second capacity.

ASN continues to build its pipeline as evidenced by recent turnkey contract with Amper SA, subsidiary Bluesky Pacific Group, to roll out a new submarine cable system spanning more than 9,700 km across the Pacific, in addition to the recent Phase II roll-out of the African Coast to Europe (ACE) submarine cable system.

Breakdown of segment

(In Euro million)

Fourth

  quarter  

2015

Fourth

  quarter  

2014

   Change   
y-o-y
  (actual)  

  Change  
y-o-y
 (constant) 

Third

  quarter  

2015

  Change   
q-o-q
(actual)

  Change  
q-o-q
(constant)

Access

Revenues

Wireless Access

Fixed Access

Managed services

Licensing

Adjusted Operating income

in % of revenues

Segment Operating Cash-Flow

in % of revenues

Breakdown of segment

(In Euro million)

        2015        

        2014        

Change
    y-o-y (actual)    

Change
    y-o-y (constant)     

Access

Revenues

Wireless Access

Fixed Access

Managed services

Licensing

Adjusted Operating income

in % of revenues

Segment Operating Cash-Flow

in % of revenues

Alcatel-Lucent was chosen by China Telecom to expand 4G LTE across 12 provinces in China in addition to deploying its carrier aggregation capability, allowing LTE radios to combine multiple frequency bands to increase data speeds and lower latency.

Four new small cell customers were added in the quarter, bringing our total to 87, while Alcatel-Lucent’s 9961 Multi-Standard Home Cell was deployed by T-Mobile as part of its 4G LTE CellSpot.

Alcatel-Lucent introduced a radio interface for distributed antenna systems, the DAS-RFM, which allows mobile operators to improve signal performance while reducing power consumption, space and operational costs by as much as 90% when connecting subscribers at large public venues, such as shopping malls, hotels and office blocks.

To accelerate the delivery of commercial virtualized radio access network (vRAN) products, Alcatel-Lucent recently signed collaboration agreements with the industry-leading cloud software and hardware companies, Red Hat, Advantech and 6WIND in order to meet mobile operators’ requirements for performance, scalability and availability.

Alcatel-Lucent was selected as exclusive supplier of ultra-broadband fixed access technology for A1 Telekom Austria, which includes both G.fast and Vplus technologies, in addition to IP routing and optical equipment.

Alcatel-Lucent’s fiber technology helped Swisscom reach its 1 million fiber-to-the-home target in Switzerland in 2015.

Indian cable operator DEN Networks to launch ultra-broadband Internet connectivity to homes and businesses using GPON fixed access, IP routing and aggregation technologies.

A lab trial with Deutsche Telekom was recently completed demonstrating XG-FAST, an extension of G.fast technology, which generated data throughput speeds of more than 10 gigabits-per-second (Gbps) over bonded telephone lines.

Geographic breakdown

of revenues

(In Euro million)

Fourth

    quarter    

2015

Fourth

    quarter    

2014

    Change    
y-o-y

(actual)

Change

y-o-y

    (constant)    

Third

    quarter    

2015

Change

q-o-q

    (actual)    

    Change

    q-o-q

    (constant)

North America

Europe

Asia Pacific

RoW

Total group revenues

Geographic breakdown

of revenues

(In Euro million)

Change

y-o-y

        (constant)        

North America

Europe

Asia Pacific

RoW

Total group revenues

Adjusted Profit & Loss

Statement

(In Euro million except for EPS)

Fourth

quarter

2015

Fourth

quarter

2014

Change

y-o-y

Third

quarter

2015

Change

q-o-q

Revenues

Cost of sales

Gross profit

in % of revenues

SG&A expenses

R&D costs

Adjusted Operating income

in % of revenues

Restructuring costs

Litigations

Gain/(loss) on disposal of consolidated entities & transaction costs

Nokia transaction costs

Impairment of assets

Post-retirement benefit plan amendment

Financial expense

Share in net income of equity affiliates

Income/(loss) tax benefit

Income/(loss) from discontinued activities

Adjusted Net income (loss) (Group share)

Non-controlling interests

Adjusted EPS diluted (in Euro)

Adjusted E/ADS* diluted (in USD)

Number of diluted shares (million)

Adjusted Profit & Loss

Statement

(In Euro million except for EPS)

Revenues

Cost of sales

Gross profit

in % of revenues

SG&A expenses

R&D costs

Adjusted Operating income

in % of revenues

Restructuring costs

Litigations

Gain/(loss) on disposal of consolidated entities & transaction costs

Nokia transaction costs

Impairment of assets

Post-retirement benefit plan amendment

Financial expense

Share in net income of equity affiliates

Income/(loss) tax benefit

Income/(loss) from discontinued activities

Adjusted Net income (loss) (Group share)

Non-controlling interests

Adjusted EPS diluted (in Euro)

Adjusted E/ADS* diluted (in USD)

Number of diluted shares (million)

Cash Flow highlights

(In Euro million)

Fourth

quarter

2015

Fourth

quarter

2014

Adjusted operating income

Change in operating WCR

Segment Operating Cash Flow

Depreciation & Amort and other adjustments

Operating Cash Flow

Interest

Income tax (expense)

Pension funding & retiree benefit cash outlays

Restructuring cash outlays

Capital expenditures (incl. R&D cap.)

Disposal of Intellectual Property

Free Cash Flow

o/w Transaction related costs

Free Cash Flow excluding transaction related costs

Free Cash Flow excl. restructuring cash outlays & transaction costs

Statement of position - Assets

(In Euro million)

Total non-current assets

Goodwill & intangible assets, net

Prepaid pension costs

Other non-current assets

Total current assets

OWC assets

Other current assets

Marketable securities, cash & cash equivalents

Total assets

Statement of position - Liabilities and equity

(In Euro million)

Total equity

Attributable to the equity owners of the parent

Non controlling interests

Total non-current liabilities

Pensions and other post-retirement benefits

Long term debt

Other non-current liabilities

Total current liabilities

Provisions

Short term debt

OWC liabilities

Other current liabilities

Total liabilities and shareholder’s equity

About Alcatel-Lucent (Euronext Paris and NYSE: ALU)

Alcatel-Lucent is the leading IP networking, ultra-broadband access and cloud technology specialist. We are dedicated to making global communications more innovative, sustainable and accessible for people, businesses and governments worldwide. Our mission is to invent and deliver trusted networks to help our customers unleash their value. Every success has its network.

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.

ALCATEL-LUCENT PRESS CONTACTS

SIMON POULTER

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ALCATEL-LUCENT INVESTOR RELATIONS

MARISA BALDO

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FLORENT DEFRETIN

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TOM BEVILACQUA

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 T: + 1 908-582-7998

Q4 2015

2015

 As reported    

Revenues

Cost of sales

Gross Profit

SG&A expenses

R&D costs

Operating income

Restructuring costs

Litigations

Gain/(loss) on disposal of consolidated entities & transaction costs

Impairment of assets

Post-retirement benefit plan amendment

Income from operating activities

Financial expense

Share in net income of equity affiliates

Income/(loss) tax benefit

Income (loss) from continuing operations

Income (loss) from discontinued activities

Net Income (loss)

of which : Equity owners of the parent

Non-controlling interests

Earnings per share : basic

Earnings per share : diluted

In Euro Million

2015    

Core Networking

IP Routing

IP Transport

IP Platforms

Access

Wireless Access

Fixed Access

Managed services

Licensing

Other & Unallocated

Total group revenues

Adj. operating income (loss)

Core Networking

in % of revenues

Access

in % of revenues

Other & Unallocated

Total

in % of revenues

Segment Operating Cash Flow

Core Networking

in % of revenues

Access

in % of revenues

Other & Unallocated

Total

in % of revenues

/s/ Jean Raby