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| -6.25 | -1.08% | 570.15 | 16:29:49 |
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| 564.20 | 561.95 | 570.45 | 570.15 | 576.40 |
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Posted at 03/4/2009 09:37 by mike_f What has happened here? Divi to be paid out as well?? |
Posted at 20/5/2005 16:22 by maywillow Alcatel CFO: Company To Pay Dividend On 2005 Earnings Friday May 20, 10:00 AM EDT PARIS -(Dow Jones)- Alcatel SA (ALA) intends to resume dividend payment beginning next year on its 2005 earnings, Chief Financial Officer Jean-Pascal Beaufret said Friday. Beaufret was speaking at Alcatel's annual shareholders' meeting in Paris. The French maker of telecommunications equipment isn't paying a dividend on its 2004 earnings even though it returned to profit after two years of heavy losses. The company last paid a dividend in 2002 on its 2001 earnings. -By Brian Lagrotteria, Dow Jones Newswires; +33 1 40 17 17 40; brian.lagrotteria@do |
Posted at 25/4/2005 18:40 by waldron Alcatel Primary Credit Analyst(s): Leandro de Torres Zabala, London (44) 20-7176-3821; leandro_detorreszaba Secondary Credit Analyst(s): Guy Deslondes, Milan (39) 02-72111-213; guy_deslondes@standa Publication date: 25-Apr-05, 11:26:15 EST ISSUER CREDIT RATING Alcatel Corporate Credit Rating BB/Stable/B AFFIRMED RATINGS Alcatel Sr unsecd debt BB CP B Corporate credit rating history: Nov. 10, 2004 BB/B Mar. 10, 2004 BB-/B Oct. 4, 2002 B+/B July 12, 2002 BB+/B Feb. 13, 2002 BBB/A-3 Nov. 13, 2001 BBB/A-2 Aug. 6, 2001 BBB+/A-2 Major Rating Factors Strengths: Solid liquidity, with gross cash and equivalents of 5.1 billion at Dec. 31, 2004, exceeding financial gross debt by 752 million; Recent restructuring initiatives, shaping a leaner and more focused company that is better equipped to adapt to industry changes; A wide range of products and technologies, some with top positions worldwide, making the company an integral supplier for its customers. A diversified customer base, with about 80% of sales to incumbent telecoms operators enjoying good credit quality, and no single customer exposure of more than 10% of sales; About 30% of sales to operations not directly related to carrier spending, in areas such as space solutions, services fees under term contracts, and submarine activities; Large number of operations that produce economies of scale in a highly capital-intensive, technology-driven, and competitive industry. Weaknesses: A dramatically smaller and more aggressive telecoms-equipment industry with strong pricing pressure; Continued weak demand in fixed communications, particularly in the legacy circuit switching and optical businesses and in the U.S. market, triggering further restructuring charges. Modest free cash flow generation reflecting moderate sales growth, restructuring charges, and some build up in operating working-capital levels. Ongoing major changes in the industry's technology direction, such as the convergence of fixed and mobile technologies. Substantial exposure to currency fluctuations, albeit partially hedged by a sizable portion of costs denominated in foreign currency. Rationale The ratings on France-based telecoms equipment supplier Alcatel reflect the company's recently stabilized sales, improved cost break-even point, sound portfolio of products and technologies, generally creditworthy customer base, and net cash position. The ratings remain constrained, however, by a dramatically smaller and more aggressive industry after the record meltdown in sales in 2001-2003; continued weakness in certain fixed communication technologies; reasonable profitability and modest free cash flow generation; and ongoing major technological changes in the industry, as illustrated by the convergence of fixed and mobile telecommunications, the migration of narrowband switching to internet protocol (IP) technologies, and fixed-to-mobile substitution. Alcatel had gross debt of about 4.4 billion at Dec. 31, 2004, of which 3.8 billion in notes. The telecoms equipment market recovered moderately in 2004, underpinned by brisk growth in mobile infrastructure and in space and signaling activities, as well as in broadband access and IP-based communications, albeit with intense price competition and a continuing decline in narrowband voice services. Alcatel achieved several key milestones in 2004, including 5.7% sales growth at comparable structure and constant currency, although sales decreased by 2% unadjusted for disposals of underperforming assets; a significantly lower break-even point; operating margin of 8% (French GAAP); meaningfully improved funds from operations (FFO); modest free cash flow in the last quarter of 2004 for the first time in the year; and strong liquidity. 2005 is set to be a year of consolidation, with low-to-mid single-digit revenue growth (versus restated 2004 sales at a constant euro/dollar exchange rate), supported by growth in mobile communications in emerging markets--although at more moderate levels than in 2004, advances in private communications, and a slow recovery in wireline equipment, probably in the second half of the year. Given Alcatel's prospects for greater cost efficiency, its streamlined operating structure, and tighter operating discipline, the group is on course for its target of 10% operating margin in 2005 (French GAAP), up from 8% in 2004. This said, given Alcatel's still meaningful operating leverage relative to its sales, the company needs to continue implementing its restructuring program and achieve at least low-single-digit sales growth in order to generate meaningful, sustainable free cash flow. Alcatel had a strong financial profile at Dec. 31, 2004, with gross cash and equivalents of 5.1 billion against gross financial debt of 4.4 billion. The result of substantial cash generated primarily by unwinding working capital and asset disposals, this cash pile constitutes an important buffer against any potential, unforeseen negative free cash flow that could result from temporary weakness in trading conditions, restructuring charges, or increases in operating working capital. At Dec. 31, 2004, Alcatel's ratio of lease-adjusted gross financial debt to 2004 EBITDA was 3.2x and its ratio of lease-adjusted funds from operations to gross debt was 9%. Short-term credit factors The 'B' short-term rating on Alcatel reflects the fact that, although benefiting from substantial liquid assets, the company's liquidity remains exposed to prevailing soft market conditions and weak free cash flow generation. Alcatel's liquidity is currently supported by: Cash and marketable securities totaling 5.1 billion at Dec. 31, 2004; Investments in France-based Thales S.A. (A-/Stable/A-2), with an estimated market value of about 574 million; Improved--albeit modest--free cash flow generation of 71 million in the fourth quarter of 2004, and negative 669 million over the full year; and A securitization program of up to 150 million (of which 80 million was used at Dec. 31, 2004), extendable to 250 million. Alcatel also has an undrawn 1 billion unsecured, syndicated revolving credit facility maturing in June 2009, for general corporate purposes. Ability to draw is conditional on a financial covenant linked to the company's ability to generate sufficient cash to repay its debt. Alcatel was compliant with the covenant at year-end 2004, but the covenant was not running given the group's positive net cash position. The main calls on Alcatel's cash over the medium term will be: Financial debt maturities of about 1 billion in 2005 (of which a significant part is a revolving credit), 598 million in 2006, and 194 million in 2007; Expected restructuring expenses of 662 million--as provisioned at year-end 2004--for layoffs, primarily in France, Germany, and Spain; and Expected moderate increases in operating working capital as inventories and receivables rise in line with anticipated higher revenues. Outlook The stable outlook reflects Standard & Poor's Ratings Services' expectation that telecoms equipment sales will grow moderately during 2005 and that Alcatel will continue to improve its cost structure and maintain a net cash position to withstand any unforeseen temporary weaknesses in demand. To justify a higher rating, Standard & Poor's needs to see meaningful and sustainable revenue growth; a stabilization in the fixed communications business; further headway in Alcatel's restructuring program to bring the group nearer to its targeted 10% operating margin (French GAAP), and progress towards achieving positive and critically sustainable free cash flow. Alcatel currently benefits from a net cash position. Given the cyclicality, competitiveness, excess supply capacity, and rapid technological changes that characterize the global telecoms equipment industry, Standard & Poor's expects the company to maintain solid cash levels, sufficient liquidity to generally cover debt maturities for three years, and modest gross debt leverage. Alcatel has announced that it will not distribute a dividend in 2005. Standard & Poor's expects that the company will only undertake selective small-scale acquisitions in complementary technologies. Business Description With revenues of about 12.3 billion in 2004 and approximately 55,700 employees spread across 130 countries, Alcatel is the fourth-largest supplier of equipment for the telecoms industry. The company has significant market shares in the digital subscriber line (DSL), optical transmission, and wireless infrastructure equipment sectors. Alcatel is also more diversified than its peers in terms of activities. About 75% of the company's revenues stem from the capital expenditures of telecoms operators, with the rest accounted for by call-center systems, telecoms equipment for the corporate sector, railway signaling, and satellite technology. Alcatel derives its sales from: Fixed communications (42% of sales); includes fixed networks, optical networks, fixed solutions and components, and subsystems for fixed networks; Mobile communications (27%); includes mobile networks, mobile solutions, and wireless transmission; and Private communications (32%); includes enterprise solutions, space solutions, transport solutions, integration and services, and railway signaling. The fixed and mobile communications segments primarily address the telecoms carrier market, for which Alcatel acts as a system supplier. The private communications segment serves end-user customers. Alcatel undertook a series of strategic initiatives in 2004 to stem losses in various divisions, including the participation of its mobile handset business in a joint venture with TCL Communications Technologies Holdings Ltd., the contribution of its fiber optics and communication cable businesses to a joint venture with Draka Holdings N.V., and the sale of its power system business. Table 1 Alcatel Sales And EBIT By Business Sales EBIT* EBIT margin (%) (Mil. ) 2003¶ 2004 % of total % of growth 2003¶ 2004 2003¶ 2004 Fixed communications 5,364 5,131 42 (4) 155 429 3 8 Mobile communications 2929 3301 27 13 315 401 11 12 Private communications 3627 3965 32 9 123 235 3 6 Other 16 0 N/A N/A (144) (87) N/A N/A Intragroup sales (330) (132) (1) N/A N/A N/A N/A N/A Total 11,606 12,265 100 6 449 978 4 8 *Not operating-lease adjusted. ¶Restated to reflect the contributions to joint ventures of the group's fiber optics and mobile handset businesses and the sale of its power systems business. N/A--Not applicable. In 2004, Alcatel's main markets were Western Europe (45% of fourth-quarter 2004 sales), encompassing notably France and Germany; other Europe (7%); North America (11%); Asia (14%); and Rest of World (23%). Primary customers are former incumbent telecoms operators, who account for almost 80% of the company's customer base. The remainder comprises alternative carriers, internet service providers (ISPs), businesses, and consumers. Alcatel's customer base is quite diversified, with the 10 largest customers accounting for 24% of sales and no single customer accounting for more than 10% of sales. Various institutional investors publicly own Alcatel. Together, these investors own the majority of the company's shares, but no single investor holds more than 5%. Alcatel's shares are listed in Paris and sold as American depository shares in New York. Business Profile Industry characteristics The communications and data networking hardware equipment industry is estimated to be a $300 billion market. Key in driving sales in this market is capital expenditures by telecoms operators. The latter hinge on demand for fixed and mobile communications--part The industry is highly competitive in terms of pricing, functionality, service quality, the timing of development and introduction of new products, customer service, and vendor financing terms. Increasingly shorter product lives explain why vendors invest 15%-20% of their sales in R&D. At the same time, the strong technological content associated with the transmission of fixed and mobile communication services translates into high barriers to entry. For similar technologies or solutions, price competition can become very aggressive, particularly when orders dry up, as they did in 2001 and 2002. In the current environment, a company with strong financial resources, critical mass, and a streamlined cost structure is better positioned to withstand low prices for an extended period of time. The main weaknesses of the telecommunications equipment industry are: Its dramatically lower sales volume compared with peak levels in 1997-2000 and the ensuing increased aggressiveness, resulting in pricing pressure estimated at 10%-15% per year on average; The structural decline of the (public switched telephone network (PSTN) legacy in favor of IP end-to-end technologies; The ability of telecoms operators to dramatically curtail investments if needed (as in 2002 and 2003), without disrupting service; The cyclical effects of economic conditions; and Ongoing major technological changes, such as the threat posed by the convergence of fixed and mobile technologies, the transition to IP technologies, and fixed-to-mobile substitution. In this regard, a lower but more sustainable capital intensity ratio is essential for creating stability in the equipment sales cycle. Competitive position Alcatel is one of the top suppliers of telecoms equipment worldwide, strongly positioned in wireline communications equipment and--more recently--boasting a rapidly expanding presence in wireless equipment. A small number of manufacturers compete aggressively for contracts around the world. Apart from Alcatel, key players in the wireline sector are Fujitsu Ltd., NEC Corp., Cisco Systems Inc., Lucent Technologies Inc., Nortel Networks Corp., and Siemens AG. In wireless infrastructure, the main players are Ericsson (Telefonaktiebolaget L.M.), Lucent, Motorola Inc., Nokia Corp., Siemens, Nortel and Alcatel. These companies enjoy economies of scale, substantial R&D resources, international distribution channels, and longstanding relationships with major telecoms operators. At the same time, Alcatel may be threatened over the long term by the increasing number of strong Asian players, such as China's Huawei Technologies, with an efficient labor-intensive cost structure and an aggressive price strategy in an already very crowded market. Alcatel has a strong position in fixed communications, which accounted for 42% of sales and produced 8% operating margin in 2004. The group is the world leader in the $5.6 billion DSL market, with 38% market share, and is firmly established in the optical transmission segment. Alcatel's fixed communications business is nevertheless under strong pressure, as reflected by the 4% fall in sales in 2004 (10% drop if unadjusted for asset disposals), as a result of carriers' transition to next-generation networks from narrowband switching, excess supply capacity, and fierce pricing competition. Against this backdrop, the DSL segment--one of the fastest growing--has recently experienced lower-than-expected growth and harsh pricing pressure. On a more positive note, the optical transmission market has begun to stabilize after sharp cuts in telecom spending over the past three years due to excess carrier network capacity. In October 2004, Alcatel also won a strategic $1.7 billion, five-year contract from U.S.-based SBC Communications Inc.--a major telecoms service provider--to build SBC's network for the delivery of triple-play services to 18 million households. Although a relatively late entrant to the mobile communications market (27% of group sales and 12% operating margin in 2004), Alcatel has nevertheless benefited from substantial growth (sales up 12% in 2004) in this segment. Alcatel is primarily focused on global systems for mobile, or second-generation (GSM or 2G), and general packet radio service (GPRS or 2.5G) technologies, which it sells in emerging markets, where the group typically benefits from the support of the French--and to a lesser extent the German--export credit agency. Although potentially volatile, emerging markets provide Alcatel with more growth than mature markets and the opportunity to reap the benefits of the industry's current primary growth vector. At this stage, the lack of meaningful revenues derived from universal mobile telecommunications systems (UMTS or 3G) equipment has not proved to be a major problem for Alcatel as customers in emerging markets are still spending heavily on GSM technology. Alcatel has also a strong position in private communications (32% of group sales and 6% operating margin in 2004), where it develops products and applications marketed directly to midsize and large communication-intens Trading environment The telecoms equipment industry stabilized in 2004, after weathering its worst crisis to date in 2001-2003. After phenomenal growth from 1997 to 2000, Alcatel's sales fell year-on-year by about 19% in 2001, 35% in 2002, and 24% in 2003 for two main reasons: severe capital-spending cuts by European telecoms services providers after the auction of 3G licenses drained more than 100 billion in cash from their resources, leading to very high leverage; and excess network capacity build-out, particularly in the U.S. Adverse economic conditions added to the gloomy landscape. The sharp slump in sales in a very short timeframe prompted intense price competition between the main vendors, further exacerbating the decline in prices and sales. In the face of this steep downturn, equipment suppliers substantially reduced their cost structures, concentrating on aggressive restructuring programs between 2002 and 2004, including cutting headcount by more than 50% compared with peak levels. At the same time, equipment suppliers put in place initiatives to release as much cash as possible--primarily through the unwinding of working capital and asset disposals--in order to cover negative cash flow from operating losses and restructuring charges. Alcatel reduced its cost base by more than 50% during this period while significantly lowering its cost break-even point. In addition, the group generated about 6.8 billion in cash from unwinding of working capital in 2001-2003. This cash, together with disposals of various under-performing operating assets and financial stakes, helped Alcatel cover restructuring charges of about 4.9 billion in the same period and contributed to the group's current high cash balances. Fiscal 2004 was a year of progress toward stabilization for the wireline equipment sector and of strong recovery for the wireless equipment market. Wireline equipment sales contracted a moderate 4% in 2004 after a double-digit drop one year earlier. The mobile systems market is estimated to have grown by about 18% in dollar terms during 2004, while Alcatel's mobile communications sales increased by about 13% in the same period. The overall improved trading conditions resulted from the much stronger balance sheets of telecoms operators after considerable debt reduction during 2004, the catch-up effect on previous under-investment by operators currently facing increased competition from cable and alternative network operators (altnets) in the triple-play space, and the expansion of mobile communications technologies in developing countries. Industry outlook Standard & Poor's believes that the global telecoms equipment market will grow at low-to-mid single-digit rates (in dollar terms) during 2005, with low-single-digit sales growth in wireline and strong--albeit lower than in 2004--wireless spending. In wireline, the growth in high-speed internet, data traffic, and more powerful applications such as interactive television and video on demand will drive an upsurge in demand for bandwidth. In wireless, this growth will be supported by the unrelenting expansion of GSM mobile telephony in emerging markets as the number of mobile subscriptions worldwide is expected to increase from 1.7 billion in 2004 to more than 2.5 billion by 2009. Standard & Poor's has noted, however, a recent increase in carrier consolidation activity, particularly in the U.S. among large operators, , which could translate into material changes in the market shares of suppliers in certain technologies. Financial Policy: Below average Against the severe market downturn in 2000-2003, Alcatel's financial policy has centered on streamlining its cost structure, improving liquidity to offset any liquidity risk, and reducing debt. The group has generated high cash amounts through unwinding working capital and asset disposals. These moves have translated into a solid gross cash position for Alcatel of 5.1 billion at Dec. 31, 2004, equivalent to a net cash position of 752 million. The group's financial debt totals 4.4 billion, with an unchallenging maturity profile (see capital structure and financial flexibility section under Finance Profile below). Alcatel has decided it will not distribute a dividend in 2005. Standard & Poor's expects Alcatel to maintain a solid net cash position at all times, with sufficient liquidity to cover debt maturities for at least three years, and conservative gross debt leverage. Financial Profile: Below Average Accounting All figures in the present report are prepared in accordance with French GAAP. From the first quarter of 2005, however, Alcatel will report financial results according to International Financial Reporting Standards (IFRS). The impact of the transition from French GAAP to IFRS on the group's financial statements does not change Standard & Poor's view that the group has a sound financial profile and that accounting changes do not modify the group's ability to generate free cash flow generation. The most significant differences in the transition to IFRS include retroactive capitalization of development costs and their amortization, the cessation of goodwill amortization, the recognition of the fair value of outstanding employee share options and booking of related costs, the recognition of financial instruments at fair value on the balance sheet, and the establishment of a new definition of cash and cash equivalents. In total, the transition to IFRS has triggered the following main differences: Table 2 Alcatel 2004 Key Financial Figures Under French and IFRS GAAP (Mil. ) French GAAP IFRS GAAP Difference Operating profit 978 1,181 203 Operating margin (%) 8 9.6 1.6 Net income 281 600 319 Shareholder's equity 3,368 4,989 1,621 Operating working capital 612 424 (188) Financial debt 4,359 4,596 237 Net cash 752 671 (81) Profitability and cash flow adequacy Alcatel has downscaled dramatically its cost structure to confront in the plunge in revenues in 2001-2003. The company's sales in absolute terms decreased by about 61% over this period following weak trading and disposals of underperforming operating businesses. The group responded by cutting operating expenses by about 65% (including asset disposals) over the same period, including a reduction in headcount to 55,000 from about 132,000 four years earlier. These measures enabled the group to reduce considerably its break-even point, generate a gross margin of 37% and a net operating margin of 8% (French GAAP) in 2004, and restore positive funds from operations. Table 3 Alcatel Profitability Analysis (Mil. ) 2000 2001 % change 2000-2001 2002 % change 2001-2002 2003 % change 2002-2003 2004 % change 2000-2004 Sales 31,408 25,353 (19) 16,547 (35) 12,513 (24) 12,265 (61) Cost of sales 22,193 19,074 (14) 12,186 (36) 8,415 (31) 7,690 (65) Gross margin (%) 29 25 -- 26 -- 33 -- 37 -- Operating expenses 6,964 6,640 (5) 5,088 (23) 3,766 (26) 3,597 (48) Restructuring costs 143 2,124 -- 1,474 -- 1,314 -- 304 -- Operating margin (%) 7 (1) -- (4) -- 3 -- 8 -- With room for improvement, Alcatel's operating margins are moderate overall. It is difficult to compare the group's profitability directly with that of peers given Alcatel's diversification into a number of vertical markets such as space solutions, services, and submarine activities, which have less software needs and produce lower gross margins. Excluding vertical markets, Alcatel's carrier and enterprise businesses generate gross margins of 41%, which are closer to those of peers. At the same time--despite very significant cost cutting over the last two years--Alcatel's operating leverage is relatively high for its level of sales, leaving room for further cost cutting. Alcatel has set a medium-term target for an operating margin of about 10% (French GAAP). In order to achieve this objective, the group is aiming to trim by 5% its selling, general, and administrative expenses, along with R&D costs, for which it had taken restructuring provisions of 662 million at year-end 2004. On this basis, Standard & Poor's considers that Alcatel is well positioned to deliver its profitability targets and to continue to produce positive FFO. Given Alcatel's operating leverage, anticipated cost efficiencies, market position, and the industry's improved sales environment, the company should be in a position to improve its free cash flow generation during 2005, even amid a stable sales scenario. Capital structure and financial flexibility Alcatel's capital structure was reasonably robust at Dec. 31, 2004, reflecting: Gross cash of about 2.8 billion and marketable securities of 2.3 billion; Good liquidity and moderate capital intensity, with a fairly even breakdown of the group's asset base between cash and equivalents, highly liquid receivables and inventories, and fixed assets; Adequate capitalization, with shareholders' equity accounting for 20% of the balance sheet (25% under IFRS). Gross financial debt of about 4.36 billion at Dec. 31, 2004. At Dec. 31, 2004, Alcatel's debt was composed of 2.7 billion in senior unsecured notes, 1 billion in convertible bonds, 411 million in bank loans, 45 million in capital leases, and 139 million in accrued interests. In addition, Alcatel had contractual obligations including operating leases for 546 million and an excess of pension benefit obligations over the fair value of plan assets of about 1.14 billion at Dec. 31, 2004. In calculating ratios for Alcatel, Standard & Poor's increases the company's debt levels by including the net present value of operating leases (equivalent to 329 million) and post-tax pension funds. At Dec. 31, 2004, Alcatel also had: Purchase obligations of 221 million; Off-balance-sheet commitments related to certain guarantees given to customers for contract execution, including performance bonds and guarantees relating to the maximum intra-day bank overdraft allowed to group subsidiaries under the cash pooling agreement with certain banks, for a total 3.3 billion; Guarantees and contingent commitments of 1.7 billion; and A financial obligation of 200 million relative to a carry-back receivable, in addition to its securitization program (see vendor financing section below). Standard & Poor's does not adjust for Alcatel's commitments and contingent liabilities, given the low probability that they will be realized. Vendor financing At Dec. 31, 2004, net of reserves, Alcatel had provided customer financing of approximately 253 million and had outstanding commitments to provide further direct loans or financial guarantees for approximately 92 million. Standard & Poor's deems this exposure of 345 million (810 million in 2003) as low and manageable for the company. In addition, with the incorporation of the securitized vendor financing (SVF) program on the group's balance sheet (under IFRS GAAP) and the cancellation of the customer-loan program, Alcatel's vendor finance exposure is largely reflected on balance sheet. Table 4 Alcatel Peer Comparison (Mil. ) Alcatel Ericsson (Telefonaktiebolaget L.M.) Lucent Technologies Inc. Motorola Inc. Corporate credit rating BB/Stable/B BBB-/Positive/A-3 B/Positive/B-1 BBB/Positive/A-2 Revenues 12,265 14,444 7,030 24,144 EBITDA 1,459 3,527 1,543 3,011 Funds from operations (FFO)* 409 3,157 1,132 2,413 Capital expenditures 380 268 72 381 Free operating cash flow (669) 2,192 365 1,983 Total debt* 4,688 3,561 5,095 4,559 Cash 5,111 8,379 2,840 8,254 Net debt* (423) (5,762) 2,255 (3,695) Net funded status of post-retirement obligations (1,143) (1,132) (3,744) (1,315) EBITDA margin (%) 12 26 22 12 FFO/total debt (%)* 9 89 22 53 Total debt/EBITDA (x)* 3.2 1.0 3.3 1.5 *Operating-lease adjusted. Table 5 Alcatel Financial Statistics --Year ended Dec. 31-- (Mil. ) 2004 2003 2002 2001 2000 Sales 12,265 12,513 16,547 25,353 31,408 EBITDA* 1,459 2,310 306 922 3,441 Income from operations 978 332 (727) (361) 2,251 Funds from operations (FFO)* 409 (570) (1,801) (550) 2,145 Capital expenditures (380) (253) (490) (1,748) (1,834) Free operating cash flow (669) 191 2,233 (1,203) (3,079) Total debt* 4,688 5,734 6,171 7,751 7,396 Cash 5,111 6,269 6,109 5,013 3,060 Net debt* (423) (535) 62 2,738 4,336 EBITDA/sales (%)* 12 18 2 4 11 Operating income/sales (%) 8 3 (4) (1) 7 FFO/total debt (%)* 9 (10) (29) (7) 29 Total debt/EBITDA (x)* 3.2 2.5 20.2 8.4 2.1 Year-end financial statements are audited, consolidated, and prepared according to French GAAP. *Operating-lease adjusted. Group E-Mail Address CorporateFinanceEuro |
Posted at 03/2/2005 08:57 by waldron (Adds further FY, Q4 earnings details; 2005 targets)PARIS (AFX) - Alcatel SA posted a net profit in 2004 for the first time in three years as the markets for telecom equipment began to improve, and the company forecast a new increase in operating margins this year. Net profit reached 281 mln eur after the 1.944 bln eur loss reported in 2003, on sales that fell to 12.27 bln eur from 12.5 bln. On a pro forma basis that excludes the impact of divested mobile handset, optical fiber and power system businesses, sales rose 5.7 pct. "While carrier markets showed a modest recovery, Alcatel's sales increased by close to 10 pct at a constant euro/dollar exchange rate," said chief executive Serge Tchuruk. "We are confident that Alcatel is on the right track." Operating profits jumped to 978 mln eur from a pro forma 449 mln, for an operating margin of 8 pct. In the fourth quarter, net income reached 40 mln eur against a loss of 524 mln in the same period last year, on sales that rose to 3.8 bln from 3.77 bln. Analysts polled by AFX News had expected fourth quarter sales of 3.7-3.823 bln eur. Alcatel said its aggressive strategy for building and maintaining market positions in developing countries impacted gross margins last year, especially in the fourth quarter, "but we nevertheless reached our goal of a double-digit operating margin in that quarter under adverse currency conditions," Tchuruk said. "We will maintain our strategic direction in 2005, closely monitoring our operations in order to reach our priority target, which is a 10 pct operating margin," he added. Alcatel also said EPS before goodwill should post double-digit percent growth this year, with EPS set to be positive from the first quarter, which is seasonally weak for the group. Sales in both the first quarter and 2005 as a whole are seen rising 3-5 pct, while fixed operating costs should fall by 5 pct this year. "We are quite encouraged by the 50 pct revenue increase in 2004 in fixed/mobile applications, and by major successes in end-to-end solution integrations such as triple-play," Tchuruk said. Costs stemming from Alcatel's restructuring plans, carried out for several years now, will represent just 1 pct of sales in 2005, and will be financed entirely by capital gains. At the end of 2004, Alcatel had a net cash position of 752 mln eur, but the company said it would not pay a dividend on 2004 earnings. By division, fixed communications equipment saw operating earnings of 429 mln eur, up from a proforma 155 mln the previous year, on sales that fell 4.3 pct to 5.13 bln. Mobile communication operating profits rose to 401 mln from 315 mln, on sales that increased nearly 13 pct to 3.3 bln. Operating profits from private communication activities, such as space operations, reached 235 mln after 123 mln the previous year, on sales that rose to 3.965 bln from 3.627 bln. paris@afxnews.com js/jsa/jfr |
Posted at 03/2/2005 08:54 by waldron (adds quotes, comments on market share, possible external growthPARIS (AFX) - Alcatel will not pay a dividend for full-year 2004, but plans to do so in 2005 if possible, chief financial officer Jean-Pascal Beufret said. The board decided against a pay-out this year, in order to be able to accumulate profits and issue a "more significant" dividend at a later date as well as aim at a "more durable" dividend policy. Speaking to journalists in a briefing on the group's full-year results, Beaufret denied Alcatel's fourth-quarter profits were below market consensus, and said sales came in above consensus. Alcatel's net profit in fourth quarter 2004 was 40 mln eur, compared to a range of 163-218 mln given by analysts polled by AFX News and sales were 3.812 bln, compared to expectations of 3.7-3.823 bln. "It is true we have invested," Beaufret said, revealing that the company's fourth quarter operating margin was 34.4 pct compared to 37.3 pct over the full year and 1.6 points lower than the year earlier period. "We have already said the reason for this... commercial investments allowing us to penetrate certain markets, and they have ended up in the margin." Alcatel, which plans a 5 pct reduction in fixed costs in 2005, said earlier that market conditions are "likely to remain very competitive". In order to take advantage of further investment opportunities it will "maintain some flexibility in the gross margin, permitting investment in new markets or new technologies as required." This could mean the margin will go "up or down." But the group firmly expects an improvement in the EBIT margin: "We think in 2005 we will go beyond 10 pct after 8 pct in 2004," he said. Restructuring costs are expected to amount to 1 pct of 2005 sales and will be financed entirely by capital gains. Commenting on Alcatel's performance in its principal activities, Beaufret said market share in DSL, where the group is the global number one, rose to 40 pct in 2004 from 37 pct in 2003. He said Alcatel "probably" gained market share in mobile infrastructure in emerging markets, which he called "the future." Alcatel yesterday announced a 133 mln usd contract to upgrade and expand a Thai mobile network. Beaufret "thinks" Alcatel increased its share of the global IP market in 2004. paris@afxnews.com mrg/jfr |
Posted at 06/1/2005 18:32 by grupo guitarlumber China's champions The struggle of the champions Jan 6th 2005 China wants to build world-class companies. Can it succeed? THE floor of the darkened room is strewn with mattresses and scattered shoes. Sleeping bodies stir under duvets. Nearby, others nap at their desks, heads on arms. It is a Friday afternoon at the headquarters of Huawei-one of China's most dynamic and ambitious companies and one of a handful, alongside Haier in white goods, Lenovo in personal computers, TCL in televisions and steelmaker Baosteel, whose names are starting to be heard around the world. The scene is reminiscent of a place on the other side of the globe: Silicon Valley at its most breathless, when programmers on the go "24/7" collapsed with exhaustion at their workstations. Huawei's astonishing campus on the outskirts of the southern city of Shenzhen is straight out of the technology bubble too, with four football fields, swimming pools, apartments for 3,000 families and a fantastical Disney-esque research centre with doric pillars and marbled interior. The hubris at Huawei, which makes telecoms equipment like routers and switches, is also vintage 1990s America. Hu Yong, a vice-president, is proud of being in more than 70 countries, that over 3,000 of the group's 24,000 employees are overseas nationals and that two-fifths of its more than $5 billion revenues in 2004 will be made outside China. "Are we a global player? Fortune magazine says that is when international sales exceed 20% of your total," he says. "So the answer is yes." Huawei is also starting to impress abroad. François Paulus, head of the network division at Neuf Telecom, a French firm that uses Huawei's optical transmission equipment to sell voice, data and video services, says: "When we first saw Huawei we couldn't believe a Chinese company could match an occidental one-we were wrong. Their technology was better and they were 30% cheaper." Nigel Pitcher at Fibernet, a British telecoms firm that uses Huawei's ethernet equipment, calls the company "world class". Huawei is spending millions of dollars building a global brand-its print ads lyrically recount how its engineers toiled in the Algerian Sahara to install mobile-phone base stations "ahead of schedule and under budget". Yet the true extent of Huawei's international reach is hard to gauge. Much of its overseas business is in emerging markets where there is little competition. Though it is pushing into Europe, it lacks the muscle of rivals. In France it has only around 80 support staff compared with Alcatel's thousands. Mr Paulus worries that rivals are catching up with Huawei's technology. And while Huawei has won contracts in the growth area of third-generation mobile networks-the latest is in the Netherlands-many are in minor markets. That Cisco, the industry leader, successfully sued Huawei for intellectual-propert Back home in Shenzhen, Huawei is just as opaque. Its ornate buildings on campus are oddly deserted and Huawei is vague about what they are all for. While it insists that it is a private company owned by its employees, Ren Zhengfei, one of its founders, was an officer in the People's Liberation Army. The company denies, but admits it cannot shake, speculation that it is really controlled by the military. It denies even more hotly rumours that its overseas offices, some run from Chinese consulates, spy for China. William Xu, another vice-president, insists Huawei has no government links. Yet its multi-billion-yuan campus, lavish marketing and relentless expansion overseas are hard to square with it being a private company that made just $300m of profits last year. Nor is it clear why Huawei has not yet gone public (as some rivals have). The contradictions at Huawei are mirrored to some degree by all of the country's emerging multinationals and ultimately reflect those of China itself. The economy is still in transition between dirigisme and free markets. Its political system can harness enormous resources, but ultimately undermines its own objectives in a paranoid desire to retain control. That China intends to create world-class companies is indisputable. Appalled by the speed of western development and, rightly, attributing much of that to the success of western corporations, the central government decided some years ago that 30-50 of its best state firms should be built into "national champions" or "globally competitive" multinationals by 2010. At home, these companies would enjoy tax breaks, cheap land and virtually free funding via the state-owned banks. Abroad, the government would help them to secure contracts or exploration rights. This has prompted fears that the Chinese, like the Japanese in the 1980s, are about to out-compete and to buy up the rest of the world. And undoubtedly a small group of Chinese companies has become bigger, more efficient and internationally acquisitive in the past several years. But this also raises questions about what kind of companies China is fit to build. Arthur Kroeber, managing editor of the China Economic Quarterly, argues that China's "unique combination of first world infrastructure and third world labour costs" and its focus on capacity building rather than technological innovation mean that corporate successes are more likely to be component manufacturers or processors of intermediate goods than global consumer brands such as South Korea's Samsung. Energetic dragons China's best companies bear this out. The most impressive are the resources groups. Three big oil companies, PetroChina, Sinopec and CNOOC, are aggressively buying overseas and building pipelines across central Asia to satisfy China's fuel demands. They are in more than a dozen countries: CNOOC, for example, is Indonesia's largest offshore oil producer. Shanghai-based Baosteel, China's top steel producer, already sits on the Fortune 500 list of the largest global companies by sales. It will more than double capacity by 2010 to become the world's number three producer. In Brazil it is negotiating the biggest overseas investment ever made by a Chinese company. Like Baosteel, Chalco, China's leading aluminium group, and Yanzhou Coal, the largest listed coal producer, are relatively new companies created to consolidate fragmented domestic industries and then to expand internationally. China Minmetals, the biggest base metals company, has gone further with its recent approach to buy Noranda, a Canadian copper and nickel miner, for a reported $7 billion. And in components Wanxiang, an auto parts group started by a farmer's son as a bicycle repair shop, has $2 billion of annual sales in 40 countries and owns research assets in America. By contrast, China's consumer-brand and technology companies are struggling. The latest to grab the headlines is Lenovo, China's top PC-maker which in December bought IBM's personal computer business, three times its size, for almost $2 billion. Having failed to turn its own marque into a global brand-the reason it changed its name from Legend-it bought an international business, but one that even IBM could not make consistently profitable, to prop up its overseas sales. In China, Lenovo's profits from PCs are rising by just 1% per year and its market share is being squeezed as Dell makes inroads in expensive computers and private-label firms undercut prices on basic machines. Far from being world-class, Lenovo is less efficient than its domestic peers, says Joe Zhang, an analyst at UBS in Hong Kong. Some put its early success down to good government connections-it is majority-owned by the Chinese Academy of Sciences. Another much-heralded company is Qingdao-based Haier. Having built up commanding domestic market shares of 20-70% for most home appliances, the group has offices in more than 100 countries and overseas revenues of over $1 billion. However, most of its international sales are in niche markets, and Haier lacks the cost control, production discipline, market dominance and sales support it needs to compete with foreign rivals outside China. Even at home it has had to resort to price wars to regain market share lost to better foreign products. In cars, Shanghai Automotive Industry Corp (SAIC) aims to be among the world's top six car companies by 2020. In October it trumped a domestic rival to buy Ssangyong Motors, South Korea's fourth largest carmaker, and it is also in talks to rescue MG Rover in Britain. Yet these are defensive acquisitions of technologies and design skills to catch two nimbler rivals, Chery and Geely, which already make own-brand cars at home (Chery plans to launch models in America by 2007). Domestic joint-ventures with General Motors and Volkswagen have constrained SAIC and made it uncompetitive, says Paul Gao of McKinsey. TCL has made a better fist of things. At home it remains the most profitable TV producer. Internationally, buying the TV business of France's Thomson in early 2004 turned it into the world's biggest volume TV maker. "Our goal is to be a Chinese Sony or Samsung," says the chairman, Li Dong Sheng. Despite the boast, at home TCL is depending on Thomson's rear-projection technology to make thinner sets to defend itself against Samsung. And in mature markets it does not intend to use TCL's brand at all, but is trying to revive Thomson's ailing RCA marque. Vincent Yan, managing director of TCL International, admits that, "no Chinese company is ready to build a global brand. You need technology and products. Just spending money on ads without good products doesn't make sense." Reality check Over the past decade, then, China has created some quite large companies. More than a dozen are in the Fortune 500 list, though almost all of those are domestic monopolies or near-monopolies, such as telecom operators or big commodity producers. A handful of others are starting to compete internationally, though mostly in niche markets and on price rather than with technology or brands. But the global footprint of Chinese companies is still rather faint. Their outward foreign direct investment was just $2.9 billion in 2003, compared with the more than $50 billion that flowed into the mainland. China's stock of outward FDI amounts to $33 billion, less than half a percent of accumulated world FDI. These facts have led some long-term observers of the Chinese economy to the conclusion that China's industrial policy since the early 1980s essentially has failed. That might turn out to be premature. But one contrast is revealing: 20 years after the start of its rapid economic development a decade earlier, South Korea had built successful heavy industry groups and was beginning to lay the foundations for the technology and consumer brands people know today. If anything, the gap between Chinese and foreign firms is widening, as the latter merge, reinvest the profits yielded by their scale economies and continually hone their management systems. One only has to think back to China's first crop of potential champions. A decade ago, Zhurong was hailed as the original Huawei. Both Founder and Stone were well ahead of Lenovo in the PC market and Yuchai, a diesel engines maker, and Kunming Machine Tool were seen as the next big technology plays. D'Long, a conglomerate spanning food and financial services, was lauded as a smart operator that bought tired foreign brands for a song and cut costs by taking manufacturing to China-until last year when it collapsed with huge debts. These companies all had access to capital, cheap labour and a big domestic market. George Gilboy, an affiliate researcher at the Massachusetts Institute of Technology and for the past decade a senior manager at a multinational firm in Beijing, says they failed not because of poor products, but because of organisation and business strategy: "The issues that plagued them are still very much present." These issues are grounded in China's political and economic system and they lie in wait to trip up today's aspirants to world-class status. Over here or over there? Whereas policymakers in Japan and South Korea deliberately nurtured strong private companies (albeit often with close political ties), the Chinese government, deeply afraid of a politically independent private sector, implemented reforms that have given state firms privileged access to capital, technology and markets. But in order for the economy to grow faster, the central government has allowed foreign companies into China at a much earlier stage of its development and these now control the bulk of the country's industrial exports, have increasingly strong positions in its domestic markets and retain ownership of almost all technology. The result is a corporate landscape of a few big private companies such as Huawei, a mass of lumbering state-owned firms and increasingly powerful foreign multinationals. China's unreformed political system has a second unintended consequence. Like the bosses of South Korea's chaebol before them, Chinese managers respond to regulatory inconsistency and opacity by pursuing short-term returns and excessive diversification rather than by investing in long-term technological development. Most are unwilling to develop "horizontal" networks with customers, suppliers and trade bodies-which in other countries establish technology standards and foster confidence in long-term research. In China, a company's best defence against corruption and the direct political linkages that benefit rivals is often to avoid business collaboration entirely and instead build vertical links up the Communist Party hierarchy and curry favour with local bureaucrats. The power of officials to change policy at a moment's notice (suddenly appointing a successful boss as governor of a province, for example) or implement it in different ways for different firms, combined with the impossibility of achieving economies of scale through mergers because targets enjoy political patronage, together explain why Chinese managers tend to leap from one opportunity to the next, trying to grab a profit before the rules and the competition catch up. A year ago mobile phones were hot-Lenovo, TCL and Haier all invested, with little success, against Motorola and Nokia. Sun Jianmin, a management professor at Beijing's People's University, notes a cultural bias for financial services over "mere" manufacturing. Haier, TCL and even Baosteel all have subsidiaries in banking or insurance. "How can a long-term company emerge in such a short-term environment?" asks Mr Gilboy. Nowhere is this more obvious than in technology. In recent years China has averaged a $12 billion annual trade deficit in electronic goods, components and machinery, according to the Ministry of Commerce. Most of its "high-tech" manufacturing is actually low-value-added assembly. The really smart bits, such as integrated circuits, are imported. The government continues to direct research spending, focusing on risky "big bang" projects (like sending a man into space). Indeed, China's low wages actually provide a disincentive to such investment, since Chinese firms can often boost short-run profits by replacing capital with additional labour. Not surprisingly, therefore, foreign companies control virtually all the intellectual property in China and account for 85% of its technology exports. No wonder that Lenovo lacks Dell's ability to innovate and that Huawei tried to catch up with Cisco by bending the rules. Haier's furious product development-15,100 specifications across 96 categories, including a washing machine that also cleans sweet potatoes-typifies the lack of focus that is evident at many Chinese firms. As J.P. Huang, who runs JPI, a mergers & acquisitions boutique, puts it: "We Chinese like the romance of memorising Confucius. The discipline of the laboratory is not in our blood." New wisdom needed Nor, yet, is modern management thinking. Chinese companies struggle with challenges such as negotiating a cross-border partnership or exiting a loss-making activity, argues Gordon Orr at McKinsey in Shanghai. While multinationals import their most sophisticated business systems to China, improving productivity by 15% a year, Chinese companies still resort to "brute force"-throwing more labour and capital at problems, rather than thinking about new processes. Unless they improve, they do not stand a chance against world-class competitors, either outside their borders and soon not even on their home turf, warns Mr Orr. China has so far failed to build world-class companies. Even the natural monopolies and resources companies are mostly just big rather than particularly efficient. In manufacturing, technology and consumer areas, a few companies are groping towards international competitiveness, but none are there yet. Nor will China necessarily produce a Sony or a Samsung. "People assume it is just a matter of time before China develops world-class brands," says Mr Gilboy. "But Chinese firms may not develop like Japanese or Korean ones did. China may be building a distinct model of capitalism with distinct firms." While American firms broadly excel at breakthrough innovations, and Japanese ones at process and incremental innovations, "China capitalism may simply be best at making things a lot cheaper." If so, China might do well to focus on building no-name component suppliers as Taiwan has, rather than home-grown brands as in Japan and South Korea. For unless China institutes far-reaching political and structural reforms that give Chinese managers the confidence to invest in long-term technological development, it cannot readily build a globally competitive corporate sector. Those sleeping employees at Huawei might just have been working too hard. But perhaps they had little better to do. Workers napping on the job are nothing new at a Chinese company |
Posted at 16/3/2004 12:38 by grupo guitarlumber Europe's largest defense electronics company said net profit totaled 112 million euros ($137.7 million) last year, slightly better than the 111 million euros seen in 2002 and above a consensus forecast for 96 million.Closely watched operating income -- earnings before interest, taxes, amortization and restructuring costs -- rose 17 percent to 698 million euros, above a consensus for 667 million. The rise in operating income was flattered by a 65 million euro fine in the 2002 results stemming from the company's arbitration with Euromissile. But it also reflected a robust performance at the company's defense division, which makes frigates, missile technology and radar systems. The defense unit posted a 19 percent like-for-like rise in operating income to 545 million euros. On the strength of the results, Thales said it would boost its 2003 net dividend by seven percent to 0.75 euros per share. "At the profit level, these figures are better than we were expecting, with the performance of the defense division standing out,'' said Will Mackie, an analyst at Commerzbank in London. He noted that Thales had slashed its debt by over 400 million euros during the year, far more than the market was expecting, but also highlighted a surprise 50 million euro year-on-year increase in restructuring costs. The stock has risen 12 percent this year, buoyed by expectations of big contract wins and diminished fears that major shareholders like the French government and telecoms group Alcatel could sell their stakes on the market. Earning gains seen |
Posted at 03/10/2003 06:56 by waldron Another kind of Trip |
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