Q2 and H1 2014 Results - alcatel- · PDF fileQ2 2014 RESULTS 1 | Presentation | July 2014 July 31, 2014 Q2 and H1 2014 Results . ... refer to Alcatel-Lucent's Annual Report on Form

All Rights Reserved Alcatel-Lucent 2014

1 | Presentation | July 2014 Q2 2014 RESULTS

July 31, 2014

Q2 and H1 2014 Results



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, such as for example the stated goal to become "positive cash flow by 2015" and the "capital opening" of the submarine business to allow its "expansion and diversification". Words such as “will,” “expects,” “looks to,” “anticipates,” “targets,” “projects,” “intends,” “guidance”, “maintain”, “plans,” “believes,” “estimates,” “aim,” “goal,” “outlook,” “momentum,” “continue,” “reach,” “confident in,” “objective,” “expansion”, “adoption", "on track", "turnaround", 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 guaranties of future performance and involve certain risks, uncertainties and assumptions that are difficult to assess, including broad trends not within our control such as the economic climate in the world, and in particular in those geographical areas where we are most active. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements, in particular with regard to product demand being as expected, of which a continued significant growth in some of our activities (and in particular those to which we have decided to focus our resources), our ability to close on any announced divestitures, in particular the divestment of our Enterprise businesses, as well as obtain the price we estimated by a given date for those remaining activities we want to divest (or other types of transaction where we do not remain the sole capital owner), to improve our level of free cash-flow, or to achieve all the goals of our Shift Plan, including headcount reduction, product mix and site rationalization, to exit unprofitable contracts and markets at a reasonable cost, as well as lead in nascent technologies such as cloud, streamline the organization and broaden the customer base. These risks and uncertainties are also based upon a number of factors including, among others, our ability to realize the full value of our existing and future intellectual property portfolio in a complex technological environment (including defending ourselves in infringement suits and licensing on a profitable basis our patent portfolio), our ability to operate effectively in a highly competitive industry and to correctly identify and invest in the technologies that become commercially accepted, demand for our legacy products and the technologies we pioneer, the timing and volume of network roll-outs and/or product introductions, difficulties and/or delays in our ability to execute on our other strategic plans, our ability to efficiently co-source or outsource certain business processes (in particular with regard to our finance and human resources functions) and more generally control our costs and expenses, the risks inherent in long-term sales agreements, exposure to the credit risk of customers or foreign exchange fluctuations, reliance on a limited number of suppliers for the components we need as well as our ability to efficiently source components when demand increases, the social, political risks we may encounter in any region of our global operations, the costs and risks associated with pension and postretirement benefit obligations, our ability to avoid unexpected contributions to such plans and to convert US pension liabilities into a one-time lump-sum payment in a cost-effective manner, changes to existing regulations or technical standards, existing and future litigation, compliance with environmental, health and safety laws, our ability to procure financing for our operations at an affordable cost, and the impact of each of these factors on our results of operations and cash. For a more complete list and description of such risks and uncertainties, refer to Alcatel-Lucent's Annual Report on Form 20-F for the year ended December 31, 2013, 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 presentation, whether as a result of new information, future events, developments, changes in assumptions or otherwise.



AGENDA

I. Overview of Q2 and H1 2014 Activity - Michel Combes, CEO

II. Detailed Financial Review of Q2 and H1 2014 – Jean Raby, CFO

Core Router Outdoor NodeB Test Lab Small Cells VDSL Submarine Cable Layout Mobile GW 7705 Switch



Continuous data traffic explosion Proliferation of mobile devices

End-user dynamics

Customers’ spending patterns favoring Access in Q2… Strong performance in LTE in the US and China,

fuelled by coverage and capacity projects Continuous traction in broadband fixed networks,

driven by rejuvenation of copper and fiber networks

IP Routing down 7% YoY on a high comparison basis, albeit remaining amongst the best quarters

IP Transport and IP Platforms transitioning from legacy to next-gen, notably in North America

Q2 AND H1 2014 SUMMARY

… while progress in profitability continues…

…and long-term drivers remain intact

Carrier-grade requirements notably in IP routing for webscale, or X-large enterprises

Beyond service providers

Mobile and fixed broadband access construction and densification, driving to networks transformation (backhaul, core)

All-IP transformation enabling investment monetization

Service providers

More than 50% of our €1bn fixed costs savings target achieved

Continuous focus on costs

SG&A to revenues ratio down to 12.1% Adjusted op. income trebling to €136m YoY

Adjusted operating income



Revenues Gross margin Adjusted Operating Profit

KEY HIGHLIGHTS FOR Q2 AND H1 2014 (1/2)

* YoY changes, excluding MS and at constant perimeter and exchange rates

In Euro million In Euro million

3,279

6,242

Q2'13 Q2'14 H1'13 H1'14

31.2%

32.6%

29.8%

32.4%

Q2'13 Q2'14 H1'13 H1'14

45

136

(134)

169

Q2'13 Q2'14 H1'13 H1'14

+5.0%*

+4.7%*



Free Cash Flow Segment Op. Cash Flow Fixed Costs Savings

(41)

96

(320)

37

Q2'13 Q2'14 H1'13 H1'14

(247)(205)

(791)

(603)

Q2'13 Q2'14 H1'13 H1'14

€572m

KEY HIGHLIGHTS FOR Q2 AND H1 2014 (2/2)

In Euro million In Euro million

239

96

143

94

YTDQ3'13

Q4'13 Q1'14 Q2'14

Cumulative since 2013

In Euro million



SDN

NFV (Network Function Virtualization) vRAN, vEPC, vIMS

COMMERCIAL TRACTION ACROSS PORTFOLIO

IP Core Routers contracts

1830 customers

Virtualization proof of concepts

and trials

LTE contracts

VDSL2 vectoring customers

Small cells customers

FTTH customers

Nuage contracts

100G shipments

As of Dec. 31, 2013

As of June 30, 2014

20 28

IP Networking

Routing IP edge routers IP core routers Evolved Packet Core Mobile backhaul, mobile gateway

Next-gen Terrestrial Optics 1830 PSS using WDM technology 100G/200G/400G

410+ 480+

10Kth 15Kth

Cloud & Virtualization

(SDN/NFV)

3 8

18 55+

45 55 Wireless Access

4G LTE Overlay Small cells (metro/femto) Carrier Aggegrate and eMBMS

Fixed Access FTTH, NG-PON2 VDSL2 vectoring, G.fast

Ultra-Broadband

65 71

17 22

176 188



KEY H1 2014 CLIENT WINS

Verizon LTE, Optics

AT&T LTE

Sprint LTE

Chorus NZ IP

Telenor (Europe, Asia) LTE, Motive

NTT DoCoMo Japan IP Routing, Nuage

China Mobile LTE

Vodafone LTE metro cells

America Movil Claro Uruguay, Dom. Republic LTE

Saudi Arabia Mobily NFV vRAN

UNE EPM Tel., Colombia 100G

Antel, Uruguay Small cells

China Telecom LTE

Main on-going deployments

H1 key public wins

Orange LTE

Telefonica NFV

Numergy France Nuage SDN

Elisa Finland IP core

TDC Denmark Small cells

Turk Telekom IP core

Etisalat UAE LTE

Bouygues Telecom VoLTE

TIM, Brazil Small cells

APT Taiwan LTE

KPN VDSL2 vectoring

Swisscom Fiber

Outremer Telecom LTE

IP-Only Sweden Fiber

Telkom Akses Indonesia Fiber

AT&T Domain 2.0, Cloud

Verizon Small cells, SDM

Telefonica LTE

China Mobile SDN Nuage (vRAN, vEPC)

Vodafone

Apollo (US-UK) Submarine cable upgrade

Major European SP IP Networking

Non-public

DTAC Thailand 100G

NBN VDSL2 vectoring

Interchange Pacifc Submarine cable

Financial institution SDN

UPMC SDN

US Cable operators IP Routing, Fixed Access

Non-public Non-public

Nextgen Australia Submarine connectivity for Oil&Gas

Extension of customer reach

Major European SP IP transformation; vectoring

Non-public

BOLT US Fixed Access



IP Networking

Cloud &

Virtualization (SDN/NFV)

Ultra-Broadband

Access

ACCELERATING INNOVATION

May

May

Tel-Aviv Cloud site opening

New OSS launch

June

Eblink (Wireless Fronthaul)

June July

New record 10Gps over

copper

May

Virtual Network Platform

as a service demo with NTT & Fujitsu

July

Countertack (security)

July

Cambridge video site opening

February

February

Virtualized Network Functions

suite delivery (vEPC, vIMS, vRAN)

Partnerships & Investments Products and features Bell Labs

Submarine Branching Units Reconfigurable Optical Add-and-Drop Mux

(ROADM)

2014 Thomas Edison Patent Award and GreenTouch

1000x Award for MIMO and 5G energy-optimized technologies

2013

100G/200G rate adaptative

solution

April

Submarine cable upgradability to 7.2 Tbits/s per

fiber pair at 100G

(Apollo trial) July

Q2 2014 - Launch of the Bell Labs Prize ($100k) dedicated to ‘inventing the future’. July 15: 490 applications



HALF WAY THROUGH THE SHIFT PLAN, WIRELESS TURNAROUND IS ON TRACK

+18% +15% +2% +28%

Q3 2013 Q4 2013 Q1 2014 Q2 2014

Revenues YoY changes at constant rate

LTE contracts

Small cells customers

US major operators LTE roll-outs,

expanding from coverage to capacity

Europe Several LTE wins

as new comer

China Massive roll-outs

LATAM, MEA Several wins

A major transition in the industry, opportunity for turnaround Acceleration of LTE roll-out and small cell introduction Legacy 2G & 3G becoming less relevant Technology disruption driving new business model

Focus on TDD and FDD LTE overlay Build on strong footprint in North America, China & France Address selective opportunities Continue to drive small cell adoption

Solid commercial traction driven by LTE and small cells

39 as of June 30, 2013

55 as of June 30, 2014

56 as of June 30, 2013

71 as of June 30, 2014

Wireless profitability improvement

-12% between H1 2013 and H1 2014

Share of LTE & small cells in R&D Partnerships Reduce SG&A costs

60% in H1 2013

73% in H1 2014

in small cells in 2G/3G



Full repayment of secured loan in August, and related release of all pledges on patents and rights

Approximately 32,000 active patents and 15,000 pending applications as of June 30, 2014

Broad portfolio covering key technologies in wireless, optics, SW and user applications, IP and data networking, and access

Appointment of Laura Quatela, co-founder of QL-IP and former senior executive of Kodak, to lead our monetization strategy, and leverage and enforce portfolio Laura to bring her proven IP monetization and litigation track record to

our intellectual property management and leverage skills of QL-IP to drive shareholder value

Reinforce management

Full control of intellectual

property assets destiny regained

Active licensing discussions to continue Intellectual property transactions to include partnerships and sale of

non-core assets Alcatel-Lucent’s significant and ongoing investment in invention and

innovation to compel enforcement of intellectual property rights when appropriate

Holistic approach to patent monetization

UPDATE ON PATENTS MONETIZATION STRATEGY



A NEW STEP IN SUBMARINE CABLE ACTIVITIES

… with a strong grow th and diversification outlook

The world leader in the laying and maintenance of telecom submarine cables…

An industrial project for ASN to reinforce its world leadership

Fully integrated player with over 550,000 km of submarine cables already installed

Over 300,000 km of cables under our Marine Maintenance Agreements

Capacity upgrades from 100G and beyond

ASN capital opening is a logical step forward to seize market opportunities Financing of business

development and diversification Increase visibility, notably for

customers Optimize capital allocation

Explore ASN capital opening through IPO Mix of primary and secondary shares Alcatel-Lucent to retain the majority of the

ownership

Subject to market conditions, capital opening expected in H1 2015

Significant prospects for long haul contracts Development in Oil & Gas:

Fiber optic connection to Oil & Gas offshore platforms Subsea connectivity solutions Looking at potential investment opportunities to

enhance our technology offering and expand ASN’s integrated solutions portfolio in the Oil & Gas domain

Maintenance services



From restoring confidence…

Reposition on IP, Cloud, and Ultra Broadband Access

Rationalize R&D efforts Outsource non core activities

Refocusing New organization structure New operating model Adjust cost structure with a target

of €1bn fixed cost savings over 2013-2015

Restructuring Address balance sheet issues €1bn of asset disposals Normalize capital structure and

reduce interest expense

Refinancing

… to shaping the future

Embrace and lead the Cloud & Virtualization

Build on Nuage and succesfully expand in SDN/NFV

Prefigure and implement future networks (2020)

Innovate Identify and implement well defined

process and best practices (“ALU way”)

Install start-up like culture

Transform Acquire/develop key technologies

additive to our portfolio Broaden customer base

Grow

SHIFT PLAN NOW ENTERING A NEW CHAPTER



SAVE THE DATE – INVESTOR DAY

Murray Hill Basking Ridge

November 11, 2014

Investor Day

November 12-13, 2014

Tech Symposium



AGENDA

I. Overview of Q2 and H1 2014 Activity - Michel Combes, CEO

II. Detailed Financial Review of Q2 and H1 2014 – Jean Raby, CFO

Core Router Outdoor NodeB Test Lab Small Cells VDSL Submarine Cable Layout Mobile GW 7705 Switch



Q2 AND H1 2014 P&L (1/2)

As adjusted from PPA

In Euro Million Q2'14 Q2'13 YoY H1'14 H1'13 YoY

Revenues (changes at constant FX rate and perimeter)

3 279 3 440 0.7% 6 242 6 503 0.7%

Gross profit 1 068 1 072 -0.4% 2 024 1 937 4.5%

Gross margin 32.6% 31.2% 140 bps 32.4% 29.8% 260 bps

R&D (536) (567) -5.5% (1 078) (1 130) -4.6%

in % of revenues 16.3% 16.5% -20 bps 17.3% 17.4% -10 bps

SG&A (396) (460) -13.9% (777) (941) -17.4%


Total OPEX (932) (1 027) -9.3% (1 855) (2 071) -10.4%


Op. income 136 45 91 169 (134) 303

Operating margin 4.1% 1.3% 280 bps 2.7% -2.1% 480 bps



Q2 AND H1 2014 P&L (2/2)


In Euro Million Q2'14 Q2'13 YoY H1'14 H1'13 YoY

Reported Op. income 122 23 99 142 (179) 321

Restructuring costs (275) (188) -87 (342) (308) -34

Impairment of assets - (552) 552 - (552) 552

Income (loss) from operating activities (156) (678) 522 (215) (945) 730

Financial result (net) (190) (181) -9 (272) (332) 60

o/w Finance costs (76) (109) 33 (154) (207) 53

Income tax benefit (expense) 37 (26) 63 92 26 66

Income (loss) from continuing activities (304) (884) 580 (388) (1,248) 860

Reported Net income (loss), group share (298) (885) 587 (371) (1,238) 867

Reported EPS diluted (in Euro) (0.11) (0.37) Nm (0.13) (0.52) Nm

Reported E/ADS diluted (in USD) (0.15) (0.48) Nm (0.18) (0.67) Nm



Q2 AND H1 2014 REVENUES BY REGION

* in local currencies, excluding MS

47% of revenues

-1.8% YoY change*

46% of revenues

-2.6% YoY change*

H1

Q2

22% of revenues

+1.7% YoY change*

22% of revenues

+6.0% YoY change*

H1

Q2

19% of revenues

+23.9% YoY change*

20% of revenues

+27.9% YoY change*

H1

Q2

12% of revenues

-8.2% YoY change*

12% of revenues

-9.4% YoY change*

H1

Q2

North America Europe Asia-Pacific

China up 68% YoY in Q2

Rest of World



Q2 AND H1 2014 FINANCIALS – CORE NETWORKING


Share of 100G in optical shipments Share of 1830 in optical revenues

In Euro million

Second Quarter

2014

Second Quarter

2013

Change y-o-y

First Quarter

2014

Change q-o-q

H12014

H12013

Change y-o-y

Core Networking

Revenues (changes at constant FX rate) 1 369 1 572 -10.0% 1 352 1.2% 2 721 2 883 -2.3%

IP Routing 561 625 -7.0% 549 1.8% 1 110 1 119 3.3%

IP Transport 484 530 -6.2% 454 6.8% 938 958 0.4%

IP Platforms 324 417 -19.2% 349 -7.2% 673 806 -13.3%

Adjusted Operating income 123 138 -15 m 219 123 96 m

Adjusted Operating margin 9.0% 8.8% 20 bps 8.0% 4.3% 370 bps

Segment Operating Cash-Flow 103 109 -6 m 151 98 53 m

in % of revenues 7.5% 6.9% 60 bps 5.5% 3.4% 210 bps

SG&A/revenues ratio 14.4% 14.3% -28 m 14.1% 16.0% -190 bps

Q2 2014 Q2 2013

43%31%

Q2 2014 Q2 2013

36%27%

H1 2014 H1 2013

43%33%

H1 2014 H1 2013

34%23%



Q2 AND H1 2014 FINANCIALS – ACCESS


In Euro million

Second Quarter

2014

Second Quarter

2013

Change y-o-y

First Quarter

2014

Change q-o-q

H12014

H12013

Change y-o-y

Access

Revenues (changes at constant FX rate) 1 907 1 816 9.5% 1 572 21.5% 3 479 3 513 2.8%

Wireless Access 1 299 1 062 28.1% 999 30.4% 2 298 2 074 15.4%

Fixed Access 521 523 2.9% 460 13.3% 981 986 2.7%

Managed services 77 215 -62.8% 99 -23.2% 176 419 -56.6%

Licensing 10 16 -37.5% 14 -28.6% 24 34 -29.4%

Adjusted Operating income 11 (75) 86 m (26) (207) 181 m

Adjusted Operating margin 0.6% -4.1% 470 bps -0 .7% -5.9% 520 bps

Segment Operating Cash-Flow (9) (114) 105 m (70) (386) 316 m

in % of revenues -0.5% -6.3% 580 bps -2.0% -11.0% 900 bps

Operating expenses -5.1% -7 -7.5%



Q2 2014 – CASH FLOW STATEMENT


In Euro MillionSecond Quarter

2014

Second Quarter

2013

Change y-o-y

H12014

H12013

Change y-o-y

Adjusted operating income / (loss) 136 45 91 m 169 (134) 303 m

Change in operating WCR (40) (86) 46 m (132) (186) 54 m

Segment Operating Cash Flow 96 (41) 137 m 37 (320) 357 m

Depreciation & Amort and other adjustments 42 122 -80 m 84 212 -128 m

Operating Cash Flow 138 81 57 m 121 (108) 229 m

Interest (28) (59) 31 m (117) (160) 43 m

Taxes (22) (21) -1 m (56) (48) -8 m

Pension funding & retiree benefit cash outlays (60) (46) -14 m (102) (74) -28 m

Restructuring cash outlays (115) (112) -3 m (225) (211) -14 m

Capital expenditures (incl. R&D cap.) (126) (90) -36 m (232) (190) -42 mDisposal of Intellectual Property 8 0 8 m 8 0 8 mFree Cash Flow (205) (247) 42 m (603) (791) 188 m



Pledge of: Vast majority of IP rights & patent

portfolio Equity interests held by ALU Parent,

ALU USA & main subsidiaries

INITIAL €2BN SENIOR SECURED LOAN

IN JANUARY 2013

PARTIAL PREPAYMENTS AND YIELD REDUCTION ACTIONS

IN H2 2013

FULL REIMBURSEMENT AND ANTICIPATED PLEDGE CLOSURE IN AUGUST 2014

Partial reimbursements Successive repricings

Reimbursement of secured loan and

release of pledges Significant interest costs savings

CLOSING THE REFINANCING PART OF THE SHIFT PLAN

$1,750m

$500m €300m

$1,733m

$500m €300m

€688m

€460m

$1,724m

LIBOR +625 bps

2016 2019

LIBOR +650 bps LIBOR

+525 bps

2016 2019

LIBOR +475 bps Zero

coupon 1/8%

coupon

2020 2019 2019

LIBOR +350 bps



A RESTRUCTURED BALANCE SHEET

Gross cash €4,933m

< 1 yr (284)m

2-3 yrs €(1,232)m

4-7 yrs €(2,723)m

> 7 yrs €(1,343)m Net debt

€(649)m

As of June 30, 2013

As of June 30, 2014, Pro forma Secured Loan repayment and 2016 Notes Tender Offer

Gross cash €4,700m

2-3 yrs €(195)m

4-7 yrs €(3,351)m

> 7 yrs €(1,216)m

Net debt €(62)m

Undrawn Revolving Credit Facility €504m

Bonds, Notes, Secured Loan nominal values

6.7%

6.3yrs 7.2yrs

4.8% Average Yield

Maturity

Average Yield

Maturity

No maturity < 1 yr

4-5 yrs

6-7 yrs 6-7 yrs

4-5 yrs



CONSISTENCY IN EXECUTION

+€316m -170 bps -€351m

+€749m

Twelve month rolling basis changes (four rolling quarters ending Q2’2014 over four rolling quarters ending Q2’2013)

GROSS MARGIN ADJUSTED OPERATING INCOME

SEGMENT OPERATING CASH FLOW

OPEX DECREASE SG&A TO SALES RATIO FREE CASH FLOW

+370 bps +€621m



€2bn Our own efforts

All maturities until 2017 reimbursed or prefinanced

ON TRACK TO DELIVER THE SHIFT PLAN OBJECTIVES

LGS, Enterprise, Thales Minority stake in ASN Other minor assets

Fixed costs savings

Disposals

€2bn Debt reprofiling

Debt reprofiling

€2bn Debt reduction

Capital increase

OCEANE 2018



www.alcatel-lucent.com

Documents

Q2 and H1 2014 Results - alcatel- · PDF fileQ2 2014 RESULTS 1 | Presentation | July 2014 July 31, 2014 Q2 and H1 2014 Results . ... refer to Alcatel-Lucent's Annual Report on Form