Financial: Alcatel First half 1998 results: a net income of 15.2 billion FF 1998 operating performance hit by unfavorable conditions

Financial: Alcatel First half 1998 results: a net income of 15.2 billion FF 1998 operating performance hit by unfavorable conditions – Company Financial Information

On September 16, 1998, Serge Tchuruk, Chairman and CEO, of Alcatel presented the first half 1998 results and the outlook for the full year to the Board of Directors.

First half 1998 has been characterized by an excellent valuation of the Alcatel assets sold in the framework of the Group’s refocusing on telecom markets. This results in substantial net earnings for Alcatel as well as a strong increase in its financial strength. Income from operations, which amounted to FF 2.3 billion, increased by 15% compared with the first half 1997.

Concerning the outlook for the full year, orders and sales should increase by approximately 10%. The Telecom segment’s income from operations, while growing over 1997, will be adversely impacted by the sharp investment cuts recently decided by some traditional operators and the deepening of the Southeast Asian and Russian crisis. After reviewing the accounts and the currently available forecasts, Alcatel anticipates that 1998 will not meet expectations in regards to the Group’s operating performance.

Nevertheless, the Group’s medium-term objective for profitability has not changed. To ensure that the momentum towards this objective is fully resumed in 1999, the following actions will be implemented:

o Intensify growth strategy in key telecom markets, particularly in the US, and in Internet related segments.

o Accelerate productivity improvement by adjusting company resources to the contrasted evolution of market segments.

First Half 1998 Group Results(a)

First Half First Half

(in FF billion) 1998 1997 restated

Orders 64.4 62.2

Sales 61.6 60.1

Income from Operations 2.3 2.0

Net Income 15.2 1.5

(a) 1998 first half results reflect the Group’s new structure following the sale of Cegelec to Alstom and Alstom’s subsequent stock market listing in June. As of January 1, 1998, these two businesses are consolidated under the equity method, therefore the sales, orders, and income from operations are not included. 1997 figures have been restated to reflect the above mentioned changes. In addition, as of January 1, the new organization takes into account the transfer to the Telecom segment of telecommunications activities linked to telecommunications and toll and signaling systems, previously in the Engineering and Systems segment (ALCO, Siette, CGA).

Net sales in the first half 1998 increased by 2.5% to FF 61.6 billion compared with FF 60.1 billion for the corresponding period in 1997. On a comparable basis and at constant copper prices, sales increased by 5.3%.

Orders increased 3.5% during the first half to FF 64.4 billion compared with FF 62.2 billion in 1997. On a comparable basis and at constant copper prices, orders increased by 5.8%.

Income from operations increased by 15% to FF 2.3 billion compared with FF 2.0 billion in the first half 1997. Its progression has, however, been limited by the impact of a slowdown in Telecom sales in the second quarter 1998.

Net income amounted to FF 15.2 billion compared with FF 1.5 billion in the first half 1997. This figure takes into account an exceptional pre-tax FF 13.7 billion capital gain resulting from the sale of Cegelec to Alstom and Alstom’s subsequent stock market listing.

The Group has significantly improved its already solid financial structure, with gearing (net debt/shareholders’ equity) decreasing to 3% in the first half 1998 compared with 27% at December 31, 1997, due to the increase in Shareholders’ equity which amounted to FF 65.3 billion compared to FF 44.0 billion at the end of December 1997. This amount does not include the FF 5.3 billion additional equity coming from the conversion of convertible bonds which occurred in July and August.

Segment Analysis

Telecom

First Half First Half

(in FF billion) 1998 1997 restated

Orders 44.1 42.5

Sales 40.9 38.6

Income from Operations 0.8 0.6

Net sales in the first half 1998 increased by 6.5% on a comparable basis and amounted to FF 40.9 billion compared to FF 38.6 billion for the first six months of last year.

Income from operations increased to FF 810 million compared with FF 591 million in the first half 1997.

Growth was sustained in transmission systems, both terrestrial and submarine, as well as in GSM handsets. Alcatel business continued to expand at a rapid pace in the U.S. These contributions compensated the slowdown in switching and access, which now appear to be lasting cuts in the investment programs of some traditional operators.

Cables and Components

First Half First Half

(in FF billion) 1998 1997 restated

Orders 25.2 22.5

Sales 23.7 23.6

Income from Operations 1.3 1.3

Net sales in the first half 1998 increased by 0.4% to FF 23.7 billion. On a comparable basis and at constant copper prices, the increase amounted to 8 %. Income from operations remained stable in the first half 1998 and amounted to FF 1,310 million compared with FF 1,269 million a year ago.

This performance occurred in a difficult environment characterized by high pricing pressure, especially in fiber optic cables, which was compensated by productivity gains and growth in volume.

COPYRIGHT 1998 EDGE Publishing

COPYRIGHT 2000 Gale Group