Q4 and Full Year 2007 Earnings. February 8, 2008

Transcription

1 Q4 and Full Year 2007 Earnings February 8, 2008

2 Safe Harbor For Forward Looking Statements Except for historical information, all other information in this presentation consists of forwardlooking 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 AlcatelLucent such as (i) expected operating income for the first quarter 2008, (ii) expected improvement in gross margin, and (iii) expected improvement in operating margin in Words such as "expects," "anticipates," "targets," "projects," "intends," "plans," "believes," "estimates," variations of such words and similar expressions are intended to identify such forwardlooking statements which are not statements of historical facts. These forwardlooking 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 forwardlooking 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; exposure to the pricing pressures in the regions in which we sell; the pricing, cost and other risks inherent in longterm 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 execute against and obtain benefits from its threeyear plan to improve gross margin and cut operating expenses, in order to achieve an improved operating margin, and whether these efforts will achieve their expected benefits; the economic situation in general (including exchange rate fluctuations) and uncertainties in AlcatelLucent s customers businesses in particular; customer demand for AlcatelLucent s products and services; control of costs and expenses; international growth; conditions and growth rates in the telecommunications industry; 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 AlcatelLucent's Form 20F for the year ended December 31, 2006, as well as other filings by AlcatelLucent 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, AlcatelLucent disclaims any intention or obligation to update any forwardlooking statements after the distribution of this news release, whether as a result of new information, future events, developments, changes in assumptions or otherwise. 2 Q4 and Full Year 2007 Earnings February 2008 All Rights Reserved AlcatelLucent 2008

3 Introductory Remarks Patricia Russo CEO

4 Q4 07 Snapshot Stronger than expected revenue performance Improved adjusted Operating margin Solid Growth in strategic areas Optical, IP routing, & Wireless Continued progress in targeted growth areas Services & Enterprise Executing on action plan for driving profitable growth Strong Performance Across the Business during the quarter 4 Q4 and Full Year 2007 Earnings February 2008 All Rights Reserved AlcatelLucent 2008

5 2007 Year in Review Key Customer Wins Announced approximately 150 customer wins across the business Strong Performance in strategic areas Bolstered wireline market leadership # 1 in optical networks; 14% YoY revenue growth IP DSLAM market leader with more than 170 customers; shipments up 8% YoY Gained market share in Edge IP /MPLS market; #2 in service provider IP edge routing & carrier Ethernet switching routing #1 in CDMA market; led market with first EVDORev A deployments #2 market position in Services Overall market leader in OSS Repositioned Enterprise business to capture highgrowth opportunities Double digit growth in data and contact centers Strengthened portfolio with Informiam & NetDevices acquisitions 5 Q4 and Full Year 2007 Earnings February 2008 All Rights Reserved AlcatelLucent 2008

6 2007 Year in Review Strengthened product & solution portfolio Growing customer acceptance of WCDMA portfolio; announced 9 new contracts in 2007 Extended footprint with refreshed GSM portfolio; more than 180 global customers Confirmed leadership in WiMAX with 20 contracts and 70 trials Introduced industry s most comprehensive architecture for IP Network Transformation for mobile operators Executed on Synergy Plan Retained most of comparable operating expense savings Achieved more than 50%* of original headcount reduction target of 12,500 A transition year for establishing a foundation for the future (*) Before the impact of managed services and acquisitions of approximately 1400 people 6 Q4 and Full Year 2007 Earnings February 2008 All Rights Reserved AlcatelLucent 2008

7 Fourth Quarter 2007 Results Hubert de Pesquidoux CFO All 2006 and 2007 figures included herein refer to Proforma Adjusted results and Adjusted results, respectively, unless otherwise stated. Adjusted refers to the fact that it excludes the main impacts from Lucent s Purchase Price Allocation (PPA). Proforma refers to the 2006 figures taking into account Lucent's activity from January 1, 2006 as if Lucent was acquired at this date. In reported figures Lucent is consolidated from December 1, Operating Income (loss) herein refers to Income (loss) from operating activities before restructuring, impairment of assets, gain (loss) on disposal of consolidated entities and postretirement benefit plan amendment

8 Q4 Adjusted P&L In Euro Million Q4 07 Q4 06 YoY Q3 07 QoQ Revenues 5,234 4, % 4, % constant rate constant rate Gross Profit 1,694 1, , Gross margin of which significant items 32.4 % (98) 32.7 % 0.3 pt 1.9 pt 34.2 % 1.8 pt 1.9 pt Op. income (loss) 303 (3) Operating margin 5.8% +5.8 pt 1.6% +4.2 pt Net income (loss)* (48) (618) 570 (258) 210 EPS Diluted ( ) (0.02) (0.27) (0.25) (0.11) 0.09 * Net income (loss) Group share 8 Q4 and Full Year 2007 Earnings February 2008 All Rights Reserved AlcatelLucent 2008

9 FY Adjusted P&L In Euro Million FY 07 FY 06 YoY Revenues 17,792 18, % +2.1 constant rate Gross Profit 5,962 6,842 (880) Gross margin of which significant items 33.5 % (194) 37.5 % 4.0 pt 1.1 pt Operating expenses (5,852) (5,917) 65 Op. income (loss) (815) Operating margin 0.6% 5.1% 4.5 pt Net income (loss) Group share (443) 522 (965) EPS Diluted ( ) (0.20) 0.23 (0.43) 9 Q4 and Full Year 2007 Earnings February 2008 All Rights Reserved AlcatelLucent 2008

10 Adjusted Operating Expenses Evolution R&D, SG&A In Euro Million Q4 07 YoY QoQ FY 07 FY 06 YoY Actuals R&D (646) (2,685) (2,729) SG&A (745) (3,167) (3,188) TOTAL (1,391) (5,852) (5,917) Comparable* R&D (721) 6.2% 7.0% (2,826) (2,978) 5.1% SG&A (780) 7.9% 1.7% (3,227) (3,351) 3.7% TOTAL (1,501) 7.1% 2.3% (6,053) (6,329) 4.4% Op. heads 77,400 (1,600) 77,400 82,700 ** (6,700) +1,400*** * Comparables adjusted for acquisitions (e.g. Nortel, Riverstone), currency, R&D capitalization & nonrecurring ** Restated for perimeter changes of ~700 heads, as compared to reported Op. Headcount on Dec, 31 st 2006 *** Full year headcount reduction of 6,700 before effect of managed services & acquisitions of ~ 1,400 in sourced 10 Q4 and Full Year 2007 Earnings February 2008 All Rights Reserved AlcatelLucent 2008

11 Q4 & FY 07 Breakdown by Business Groups In Euro Million Revenues Q4 07 YoY* QoQ* FY 07 YoY* Carriers Wireline Wireless Convergence 3,734 1,691 1, % 15% 26% (5)% 19% 11% 23% 37% 12,819 6,003 5,287 1,529 (6)% 5% (9)% (27)% Enterprise Services Other & Eliminations Total 435 1, ,234 4% 27% 18% 14% 31% 20% 1,562 3, ,792 5% 8% (2.5)% Adj.Operating income (loss) RoS RoS Carriers Enterprise Services Other & Eliminations Total (*) at current rate % 12.9% 10.5% n.m 5.8% (151) (13) 110 (1.2)% 8.1% 4. 6% n.m 0.6% 11 Q4 and Full Year 2007 Earnings February 2008 All Rights Reserved AlcatelLucent 2008

12 FY 07 Revenues Geographical Breakdown Europe ~33% ~32% North America RoW ~18% ~17% Asia Pacific YoY variation (in local currencies) Asia Pacific RoW Europe North America + 13 % + 5 % + 2 % 5 % 12 Q4 and Full Year 2007 Earnings February 2008 All Rights Reserved AlcatelLucent 2008

13 Q4 & FY 2007 Adjusted P&L (continued) In Euro Million Revenues Operating Profit Q4 07 Q4 06 5, ,421 (3) FY 07 FY 06 17, , Restructuring costs Impairment charges / Litigation & settlement Post retirement benefit plan amendments Gain/(loss) on disposal of consolidated shares (39) (81) (5) (436) (141) (842) (377) 258 (485) (141) 15 Finance costs and other financial income (loss) of which Pension credit & OPEB expense (38) Shares in net income (loss) of equity affiliates Income tax expense Income (loss) from discontinued activities 31 (343) (37) (5) (81) (639) (146) 159 Net income attributable to minority interests (28) 1 (41) (41) Net income (Group share) Diluted EPS (Group share) (48) (0.02) (618) (0.27) (443) (0.20) Q4 and Full Year 2007 Earnings February 2008 All Rights Reserved AlcatelLucent 2008

14 Goodwill impairment charge Methodology (IAS 36) Annual test performed in Q2 every year unless occurrence of triggering events Consists in comparing net asset value of each business and fair value (DCF) Triggering events Market capitalization falling below net asset value of the group Significant contraction in peer valuation Significant change in market/economic environment changing outlook 2.52 Bn impairment charge booked in Q4 07 reported Vast majority coming from goodwill affected to CDMA and IMS divisions Of which, only 81 M affecting adjusted P&L (IMS asset from former Alcatel) 14 Q4 and Full Year 2007 Earnings February 2008 All Rights Reserved AlcatelLucent 2008

15 Progress on restructuring Situation at year end 2007 Charge of 856 M booked in the 2007 reported P&L Balance sheet reserves of 698 m as of December 31 st, 2007 Cash out of 530 M in 2007, net headcount reduction of 6,700 Lowerthanexpected P&L and cash costs going forward Estimated P&L impact over the coming two years: 0.7 Bn / 0.9 Bn Cash impact of the coming two years: 1.1 Bn / 1.3 Bn Total cash cost of plan over the Q406 FY 2009 period: 1.7 Bn / 1.9 Bn 15 Q4 and Full Year 2007 Earnings February 2008 All Rights Reserved AlcatelLucent 2008

16 Operating Working Capital In Euro Million Net inventories* Of which inventory stepup effect Dec 31st, 07 Dec 31st, 06 2,465 2, Net receivables* Payables, progress payments, and product reserves on constr. contracts OWC as reported OWC adjusted for inventory step up Trailing 4 quarter revenues As % of revenues (12 months) 4,601 (5,622) 1,444 1,444 17, % 4,176 (4,789) 1,760 1,497 18, % * Including amounts related to construction contracts 16 Q4 and Full Year 2007 Earnings February 2008 All Rights Reserved AlcatelLucent 2008

17 Cash Flow Statement In Euro Million Q4 07 FY 07 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 (124) (5) (23) (220) (274) (212) (152) (73) (530) (842) (866) Dividend payment Cash proceeds from Thales transaction completion Disposals, Discontinued, Cash from financing & Forex Net (debt)/cash at end of period (366) Q4 and Full Year 2007 Earnings February 2008 All Rights Reserved AlcatelLucent 2008

18 Balance Sheet Highlights In Euro Million Goodwill Other noncurrent 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 Dec 31st, 07 7,328 9,290 1, , ,263 2,566 (35) 862 Dec 31st, 06 10,891 10,642 1, , ,932 2,859 2,366 (521) 760 As of Dec 31st, 2007, Vendor Financing exposure amounted to 561 M ( 722 M in Q3 07; 966 M at YE 06), of which 345 M drawdown ( 353 M in Q3 07; 545 M at YE 06 ) 18 Q4 and Full Year 2007 Earnings February 2008 All Rights Reserved AlcatelLucent 2008

19 Funded Status of AlcatelLucent Pensions & OPEB (IFRS) In Euro Million Fair value of plan assets (In USD Million) Dec 31st, 07 Pensions 27,720 40,807 OPEB Sep 30th, 07 Pensions 28,460 40,353 OPEB Dec 31st, 06 Pensions 29,332 38,630 OPEB 866 1,140 Benefit obligations (In USD Million) (22,029) (32,425) (3,396) (4,999) (23,134) (32,802) (3,513) (4,981) (25,848) (34,041) (4,383) (5,772) 5,691 (2,885) 5,326 (2,890) 3,484 (3,517) Funded Status (In USD Million) 2,806 4,131 2,436 3,453 (33) (43) Asset ceiling (3,736) (3,523) (1,899) Net balance sheet (930) (1,087) (1,932) YE 07 overall pension plan asset portfolio more weighted to fixed income securities 19 Q4 and Full Year 2007 Earnings February 2008 All Rights Reserved AlcatelLucent 2008

20 Concluding Remarks Patricia Russo CEO

21 2008 Market Dynamics Strong broadband subscribers and IP traffic growth driving carrier IP transformation and network capacity upgrades Mobile Network Sharing agreements and heightened economic anxiety could delay carrier investment and impact industry growth Ongoing competitive pressure Weakening US$ impacting market growth measured in Euro terms Our addressable market is expected to be flat to up slightly at constant EUR/USD rate but but down slightly at current rate Current economic dynamics are making market visibility somewhat uncertain 21 Q4 and Full Year 2007 Earnings February 2008 All Rights Reserved AlcatelLucent 2008

22 Questions & Answers

23 Additional information

24 Purchase Price Allocation Amortization for 2007 In Euro Million Q1 07 Q2 07 Q3 07 Q4 07 FY 07 Main impact from CoS (208) (50) 1 4 (253) Stepup inventory SG&A (84) (74) (70) (67) (295) Amortization of intangible assets: customer relations R&D Impact on Op. (46) (338) (63) (187) (75) (144) (85) (148) (269) (817) Amortization of intangible assets: IP R&D, acquired technology income (loss) * Euro/USD rate of 1.47 Normalized amortization of ~ 125* M per quarter from 2008 to 2011 Will decline in years 2012 to Q4 and Full Year 2007 Earnings February 2008 All Rights Reserved AlcatelLucent 2008

25 Q4 07 Reported and Adjusted Results In Euro Million Revenues Q4 07 Adjusted 5,234 Q4 07 Reported 5,234 PPA impacts Gross profit 1,694 1,698 4 Inventory stepup effect (forex impact) SG&A Net R&D (745) (646) (812) (731) (67) (85) Customer relations amortization Acquired technology & IPR&D Operating income (loss) (148) Restructuring Impairment of assets Income Tax Net Income (Group share) (39) (81) (343) (48) (39) (2,522) (285) (2,579) (2,441) 58 (2,531) Merger re. goodwill Diluted EPS, in (0.02)* (1.14) (1.12) # shares (Million) 2,259 2,259 * EPS is adjusted from main PPA entries taking into account a normative tax impact 25 Q4 and Full Year 2007 Earnings February 2008 All Rights Reserved AlcatelLucent 2008

26 Reported & Adjusted 2007 In Euro Million 26 Q4 and Full Year 2007 Earnings February 2008 All Rights Reserved AlcatelLucent 2008

27 27 Q4 and Full Year 2007 Earnings February 2008 All Rights Reserved AlcatelLucent 2008