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Original Source: FD (FAIR DISCLOSURE) WIRE
. Pascal Bantegnie, Alcatel, VP, IR . Serge Tchuruk, Alcatel, Chairman & CEO . Jean-Pascal Beaufret, Alcatel, CFO . Philippe Germond, Alcatel, President & COO
ALA reported a 3Q04 sales increase of 11% at current rates and 14% at constant rates. GM of 37.7% was close to targeted 38%. Net income totaled Euro 84m or Euro 0.06 per share post-goodwill and Euro 0.14 pre-goodwill. ALA is comfortable with guidance for 4Q04 sales up high single digits at constant rates. Q&A Focus: costs, margins, mobile, optics, and Asia Pacific.
A. Key Data From Call 1. GM = 37.7% 2. Operational margin = 8.9%.
3. Fixed communications sales = Euro 1.25b. 4. Mobile communications sales = close to Euro 900m. 5. Private communications sales = Euro 935m. 6. Cash generated in operations = Euro 200m. 7. Capex = Euro 100m. 8. Total debt = Euro 4.7b. 9. Working capital up by Euro 270m.
S1. 3Q04 Operational Results (S.T.) 1. Current Business Model:
1. Market is characterized by very intense competition, particularly in traditional segments. 2. There are big opportunities for re-innovation in services like Triple Play or in terms of cost when there is a breakthrough. 3. ALA is investing in business development, even in difficult circumstances. 4. Tackling new markets in emerging countries like India and Brazil. 5. Entering new technologies, especially wireless in Mobile NGN. 6. ALA intends to stick with GM target set around 38% for FY04 and 38%-plus in subsequent years. 7. Co. is aiming at increasing revenues along with reductions of fixed expenses. 8. ALA expects to achieve targeted operating margins. 2. Highlights: 1. Sales up 11% at current rates and 14% at constant rates. 1. Sales up 3% sequentially; atypical, as 3Q revenues are usually below 2Q. 2. GM close to 38%. 1. Includes 0.5 point one-off item resulting from favorable
resolution of litigation with a competitor. 3. Income from operations = 9%, up from 6% last year. 4. Net cash = Euro 520m, close to flat with end 2Q. 3. Comparisons to Guidance: 1. Co. expected mobile growth would be double digit YoverY; achieved 28% YoverY Mobile growth in 3Q. 2. Co. expected fixed costs to be down to the 1Q04 level; did better than that. 3. Overall co. expected double digit revenue growth at constant rates; was actually substantially better at four points higher. 4. Mobile: 1. Robust growth.
2. Good momentum in emerging markets like Russia, India, Brazil,
Africa, and China. 3. Addressing most dynamic part of the mobile market; estimates it is one-third of global market.
4. Happy with strong demand for ALA applications. 5. Strong traction in converged payments solutions; 37 customers, of which 17 were new in 2004. 6. In video streaming ALA has 30 customers, of which 15 were new in 2004. 7. ALA sees growing proportion of hybrid architectures in both western Europe and developing countries. 8. Number of networks requirement that involve 2G/EDGE/3G in combined way to support advanced services. 5. Wireline:
1. Co. believes there is a strong transformation underway. 2. ALA is moving from legacy equipment to new integrated IP-based
end-to-end solutions. 3. Voice sales are in structural decline.
1. Co. sees NGN Voice can offset this trend and pick up some.
4. Basic broadband systems are now driven by higher penetration
rates and increased data rates. 1. Ramp up in some developing countries like China, Egypt, Turkey, and Vietnam. 5. High-speed Internet model evolving into Triple Play, adding VoIP and Video.
6. 3Q04 sales declined in currency, but flat at constant US
Dollar rates; in line with full year guidance. 6. Private Communications:
1. Good traction in IP Telephony. 2. Co. sees 30% of SMBs and 40% of medium and large enterprises moving to IP and IP Telephony in next five years. 3. More than 30% of ALA shipments are already IP or hybrid-IP lines. 7. Security: 1. Security is becoming a very important market. 2. In consortium with Telecom Austria and Motorola, ALA provided tetra radio network to Austrian Interior Ministry in June. 8. Transport: 1. Substantial investments in transport to modernize communication networks. 2. ALA won contract in Paris to upgrade train and metro lines with single common communications systems. 9. Outsourcing: 1. Movement on the outsourcing front taking place. 2. ALA awarded a multiyear contract in outsourcing by Belgian Mobile operator BASE, with is a 100% subsidiary of KPN Mobile. 3. Much more interest in western Europe; ALA reports it is well positioned. 10. Fixed Communication:
1. Sales = Euro 1.25b, down 3.8% at current rate and flat at
constant currency. 1. This sector is exposed to the dollar; a lot of this business is dollar-denominated. 2. FX impact plays particularly strong role here. 2. Return on sales is close to 9-10%. 3. ALA is one of the few players doing well in terms of profitability. 11. Mobile Communications: 1. Sales up 28% to close to Euro 900m. 2. Good double digit profitability at 11.5%. 3. Growth across all business segments; solutions segment almost doubled. 4. Mobile core gaining momentum, namely with NGN and applications. 12. Private Communications: 1. Sales up double digits in current currency to Euro 935m. 1. Impact of space and transport business; main contributors to growth.
2. Enterprises posted good growth with IP-PBX offering. 3. Genesys posted very solid results, particularly in large US companies. 13. YTD Results By Geography: 1. Western Europe: 42%.
2. North America: 16%. 3. Asia Pacific: 16%. 4. Rest of World: 26%. 5. In US dollars, North America was up 15%; strong 1H04 and weaker 3Q04. 6. Rest of World was up 9% in euro.
7. Western Europe would have been higher accounting for countries
more linked to dollar; in euro is up 5%. 8. Asia Pacific weakest, up only 3% in dollars; flat in euro.
S2. 3Q04 Financial Results (JP.B.) 1. Reporting Items: 1. Results are now reported without handsets division. 1. ALA is restating not only sales and operating profit, but also costs for this new parameter. 2. P&L Line Items: 1. Operational margin = 8.9%, up from 6.2% last year. 2. Financing costs down to Euro 55m from Euro 84m. 1. Represents decrease in vendor financing reserves and
decrease in interest rates and financial costs. 1. Due to early repayment of debt of Euro 827m YTD. 3. Restructuring costs = Euro 50m. 1. Co. expects to post approx. Euro 100m in 4Q04. 4. Other revenue & expenses = positive Euro 47m vs. negative Euro
11m last year. 1. Reflects capital gains from real estate disposal of Euro 54m. 5. Income tax = Euro 40m is net charge of taxes of Euro 24m. 1. Represents 10% of income before goodwill and taxes; at low …