Second Quarter 2007 Results. July 31, 2007

Transcription

1 Second Quarter 2007 Results July 31, 2007

2 Safe Harbor For Forward Looking Statements Except for historical information, all other information in this presentation consists of forward-looking statements within the meaning of the US Private Securities Litigation Reform Act of 1995, as amended. These forward looking statements include statements regarding the future financial and operating results of Alcatel-Lucent as well as the benefits and synergies of the completed merger transaction, benefits to Alcatel- Lucent from its improvements in product costs and restructuring efforts, improvements in new technologies, benefits that will result from strategic partnerships, acquisitions and divestitures and other statements about Alcatel-Lucent management's future expectations, beliefs, goals, plans or prospects that are based on current expectations, estimates, forecasts and projections about Alcatel-Lucent, as well as Alcatel- Lucent's future performance and the industries in which Alcatel-Lucent operates, in addition to management's assumptions. Words such as "expects," "anticipates," "targets," "goals," "projects," "intends," "plans," "believes," "seeks," "estimates," variations of such words and similar expressions are intended to identify such forward-looking statements which are not statements of historical facts. These forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to assess. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. These risks and uncertainties are based upon a number of important factors including, among others: our ability to operate effectively in a highly competitive industry with many participants; our ability to keep pace with technological advances and correctly identify and invest in the technologies that become commercially accepted; difficulties and delays in achieving synergies and cost savings; fluctuations in the telecommunications market; the pricing, cost and other risks inherent in long-term sales agreements; exposure to the credit risk of customers; reliance on a limited number of contract manufacturers to supply products we sell; the social, political and economic risks of our global operations; the costs and risks associated with pension and postretirement benefit obligations; the complexity of products sold; changes to existing regulations or technical standards; existing and future litigation; difficulties and costs in protecting intellectual property rights and exposure to infringement claims by others; compliance with environmental, health and safety laws; whether Alcatel-Lucent can continue to obtain product cost improvements and to implement cost cutting and restructuring programs and whether these efforts will achieve their expected benefits, including improvements in net income, among other benefits; the economic situation in general (including exchange rate fluctuations) and uncertainties in Alcatel-Lucent s customers businesses in particular; customer demand for Alcatel-Lucent s products and services; control of costs and expenses; international growth; conditions and growth rates in the telecommunications industry; the expected benefits from the operations transferred to Thales and the benefits arising from the increase in the Company's interest in Thales; and the impact of each of these factors on sales and income. For a more complete list and description of such risks and uncertainties, refer to Alcatel- Lucent's Form 20-F for the year ended December 31, 2006, as well as other filings by Alcatel-Lucent with the US Securities and Exchange Commission. Except as required under the US federal securities laws and the rules and regulations of the US Securities and Exchange Commission, Alcatel-Lucent disclaims any intention or obligation to update any forward-looking statements after the distribution of this news release, whether as a result of new information, future events, developments, changes in assumptions or otherwise. 2 Q Results July 31, 2007

3 Introductory Remarks Patricia Russo - CEO

4 Q2 07 Snapshot Momentum building in the order flow Recent wins leveraging the combined company s strengths Solid sequential revenue growth at 13% (constant exchange rate) Integration plans are progressing Comparable operating expenses are down by 3% * Headcount reduction of 1,900 heads, before impact of managed services contracts & acquisitions (400 heads) Strategically investing for the future Maintain or acquire footprint in key markets GM performance not indicative of business going forward Building sales momentum while executing on integration * 2006 adjusted proforma cost of sales and operating expenses may be subject to further refinement and reclassification 4 Q Results July 31, 2007

5 Examples of Recent Revenue Synergies GSM + CDMA WCDMA + CDMA EVDO Rev A CDMA + Wireless transmission Services + Vertical markets 46 contract wins in Q Q Results July 31, 2007

6 Market Trends vs. Alcatel-Lucent Achievements Accelerated shift to IP video 3 new contracts enabling triple play services Robust growth in terrestrial optics and IP service router Continuing fixed & mobile broadband expansion 9.6 million DSL lines delivered in Q2 07, +20% YoY CDMA EVDO in North America increased YoY Full HSUPA deployed in South Korea 3G in China is yet to be decided Strong deliveries in TD-SCDMA in China Strong demand for network services Services up 11% YoY, 26% seq. We are capitalizing on market trends 6 Q Results July 31, 2007

7 2 nd Quarter 2007 Results Jean-Pascal Beaufret - CFO - All 2006 and 2007 figures included herein refer to Pro-forma adjusted results and Adjusted results, respectively, unless otherwise stated - Operating Income (loss) herein refers to Income (loss) from operating activities before restructuring, impairment of intangible assets and gain (loss) on disposal of consolidated entities

8 Adjusted P&L In Euro Million Q2 07 Q2 06* YoY Q1 07 QoQ Revenues 4,326 4, % 3,882 constant constant rate Gross Profit 1,447 1,711 (264) 1, Gross margin 33.4 % 38.1 % -4.7 pt 34.4 % -1.0 pt of which significant items pt (130) +3.8 pt Op. income (loss) (19) 252 (271) (244) 225 Operating margin (0.4)% 5.6% -6.0 pt (6.3)% +5.9 pt * 2006 adjusted proforma cost of sales and operating expenses may be subject to further refinement and reclassification 8 Q Results July 31, 2007

9 Adjusted Operating Expenses Evolution - R&D, SG&A In Euro Million Q2 07 Q2 06* YoY Q1 07** QoQ Actuals R&D SG&A TOTAL (679) (787) (1,466) (644) (815) (1,459) (724) (855) (1,579) Comparable*** R&D SG&A TOTAL (702) (813) (1,515) (730) (832) (1,562) -3.8% -2.3% -3.0% (729) (840) (1,569) -3.7 % -3.2 % -3.4 % Op. heads 79,300 80,800 (1,900) 400**** * 2006 adjusted proforma cost of sales and operating expenses maybe subject to further refinement & reclassification ** Reflects a reclassification between R&D and SG&A *** Comparables are adjusted for the Nortel UMTS acquisition, currency, R&D capitalization & one-offs **** Impact of managed services contracts and acquisitions 9 Q Results July 31, 2007

10 Q2 07 Breakdown by Business Groups In Euro Million Revenues Carriers -Wireline - Wireless -Convergence 3,104 1,505 1, Q2 07 yoy (5)% 7% (8)% (27)% qoq at constant rate 11% 18% 4% 6% 3,367 1,460 1, Q2 06 Enterprise Services Other & Eliminations Total ,326 5% 11% 0.5% 3% 26% 13% ,491 Adj.Operating income (loss) RoS RoS Carriers Enterprise Services Other & Eliminations Total (73) (19) (2.4)% 6.1% 3.9% n.m (0.4)% (35) % 7.6% 5.0% n.m 5.6% 10 Q Results July 31, 2007

11 Q2 07 Revenues Geographical Breakdown Europe ~32% ~33% North America RoW ~16% ~18% Asia Pacific yoy variation (in local currencies) Asia Pacific Europe North America RoW + 21 % -3 % -4 % -6 % 11 Q Results July 31, 2007

12 Adjusted P&L (continued) In Euro Million Revenues Operating Income (loss) Restructuring costs Impairment of assets Post retirement benefit plan amendments Finance costs & other financial income (loss) of which Pension credit & OPEB expense Shares in net income (loss) of equity affiliates Tax income (expense) Income (loss) from discontinued activities Net (income) loss to minority interests Net income (loss) - Group share EPS* Diluted ( ) E/ ADS ($) Q2 07 4,326 (19) (176) (298) (236) (22) 9 (336) (0.15) (0.20) Q2 06 4, (10) (66) 28 (23) * EPS is adjusted from main PPA entries taking into account a normative tax impact 12 Q Results July 31, 2007

13 Q2 07 Restructuring Restructuring costs of (176) million in Q2 07, (496) million YTD Half of Q2 07 restructuring provisions cover social costs Accelerating headcount reduction in high-cost countries (99) million of cash utilized in the quarter, (182) million YTD Social costs representing 2/3 rd 30% of our 3-year restructuring charges booked to date 13 Q Results July 31, 2007

14 Integration Progress to Date Business Groups On-going communication on product & technology roadmaps with customers Regions 11 legal entities merged through Q2 07 Further consolidation/integration of operational processes and tools achieved (e.g. consolidation of orders to one platform completed for 25 countries) Corporate Functions Procurement : Completed negotiations with over 250 of our top suppliers that support over 150 products Manufacturing : Completed sale of Belgium factory and closed Canada facility IS / IT On target to close 3 Data Centers in 2007 Completed off shoring activities of certain support functions 67 applications decommissioned to date Real Estate : Increased facility consolidation from 25 to 60 locations 14 Q Results July 31, 2007

15 Operating Working Capital In Euro Million Net inventories* Including inventory step-up June 30, 07 March 31, 07 2, , Net receivables* Payables, progress payments, constr. contracts & currency derivatives O.W.C. as reported O.W.C. adjusted for inventory step up Trailing 4 quarter revenues As % of revenues (12 months) 4,066 (5,511) 1,390 1,382 17, % 3,912 (4,938) 1,476 1,417 17, % * Including amounts related to construction contracts 15 Q Results July 31, 2007

16 Adjusted Cash Flow Statement In Euro Million Net (debt)/cash at beginning of period Operating cash before restructuring, OWC & interests OWC & other OWC variances Interests Taxes Restructuring cash outlays Capital expenditures (incl. R&D cap.) Free Cash Flow Q2 07 (48) 280 (116) (12) (19) (99) (201) (167) Q (104) (114) (19) (83) (177) (476) Dividend payment Cash proceeds from Thales transaction completion Cash from financing, discontinued, M&A and other (365) (80) Net (debt)/cash at end of period 221 (48) 16 Q Results July 31, 2007

17 Balance Sheet Highlights In Euro Million Goodwill Other non-current assets (excl. market. sec & pensions) Operating working capital Net cash Shareholders equity - Group share Minority interests Net Pensions & OPEB Non current liabilities (excl.debt & pensions) Reserves Net liabilities/(assets) held for sale Other current liabilities/(assets) net June 30, 07 10,318 10,438 1, , ,061 2,563 2,632 (53) 751 March 31, 07 10,639 11,237 1,476 (48) 15, ,568 2,747 2,544 (624) 716 As of June 30, 2007, Vendor Financing exposure amounted to 765 M ( 750M in Q1 07), of which 391M drawdown ( 406 M in Q1 07) 17 Q Results July 31, 2007

18 Funded Status of Alcatel-Lucent Pensions & OPEB (IFRS) In Euro Million June 30, 07 March 31, 07 Alcatel-Lucent Fair value of plan assets Benefit obligations Pensions 29,405 (24,197) OPEB Pensions OPEB , (3,737) (25,167) (4,247) 5,208 (3,019) 4,412 (3,459) Funded Status 2, Impact of Pension credit & OPEB expense Estimated 2007 pension & OPEB credit pre-tax impact of over 500 million Pension credit & OPEB expense included in Financial Income 18 Q Results July 31, 2007

19 Concluding Remarks Patricia Russo - CEO

20 Questions & Answers

21 Additional information

22 Purchase Price Allocation Amortization Table for 2007 In Euro Million Q1 07A Q2 07A Q3 07e* Q4 07e* FY 07e* Main impact from CoS (208) (50) (7) (1) (266) Step-up inventory SG&A (84) (74) (81) (81) (320) Amortization of intangible assets: customer relations R&D Impact on Op. (46) (338) (63) (187) (60) (148) (60) (142) (229) (815) Amortization of intangible assets: IP R&D, acquired technology income (loss) * Euro/USD rate of 1.27 Normalized amortization of ~ 100 M per quarter from 2008 to 2011 Will decline in years 2012 to Q Results July 31, 2007

23 Q2 07 Reported and Adjusted Results In Euro Million Q2 07 Adjusted Q2 07 Reported PPA impacts Revenues 4,326 4,326 - Gross profit 1,447 1,397 (50) Inventory step-up effect SG&A Net R&D (787) (679) (861) (742) (74) (63) Customer relations amortization Acquired technology Operating income (loss) (19) (206) (187) Restructuring Impairment of assets Net Income (Group share) (176) (298) (336) (190) (426) (586) (14) (128) (250) Intangibles in the opening b/s post merger Diluted EPS, in (0.15)* (0.26) (0.11) # shares (million) 2,253 2,253 * EPS is adjusted from main PPA entries taking into account a normative tax impact 23 Q Results July 31, 2007

24 24 Q Results July 31, 2007