Slide 1: February 12th, 2004
February 12th, 2004 ,
Slide 2: Cautionary Statement
CAUTIONARY STATEMENT This presentation contains, in particular in the sections 2004 objectives, 2003 consolidated revenues, TOP Program 2003 results, TOP LINE Program and 2004 milestones and Conclusion, forward-looking statements about France Telecom. Such statements are not historical facts and inc
Slide 3: Agenda
AGENDA 2003 highlights: a year into “FT Ambition 2005” Business Segment Analysis Consolidated Results Conclusion
Slide 4: 2003 Highlights: a year into FT Ambition 2005
2003 HIGHLIGHTS A year into « FT Ambition 2005 »
Slide 5: All 2003 targets have been achieved
All 2003 targets have been achieved In EUR bn FY 2003 FY 2003 guidance Revenue growth (pro forma*) + 3 to + 5% + 3.4%** REAA* > 17 bn 17.3 bn Operating income > 9.2 bn 9.5 bn Capex* < 5.5 bn 5.1 bn Free cash flow*** > 4 bn 6.4 bn Net debt* / REAA ratio < 2.9 2.55 * See glossary ** Actual growth –1.1
Slide 6: Main full year 2003 achievements
Main full year 2003 achievements Operating achievements TOP program success: REAA-Capex EUR12.2bn TOP-Line program initiatives to support growth Operating income margin 20.7% vs 14.6% in 2002 FCF* EUR6.4 bn, twice the initial target of over EUR3 bn EUR 3.0 bn asset disposals Net debt EUR 44.2bn redu
Slide 7: Operating achievements: 2003 KPIs
Operating achievements 2003 KPIs Market share Broadband / Subscribers end 03 end 2003 Data Non voice FR 48.8% is 12.7 % Orange 49.1 m (+ 4.7m) UK 25.8%* of network revenues Fixed Group ADSL 33.9m (-0.6%) 75.8 % local 2003 revenue France Access lines 61.8 % LD EUR744m 9.15m (+0.6m) 27% of 54% in ADSL
Slide 8: 2003 Group Key figures (1)
2003 Group Key figures (1) 03/02 Proforma Euros in millions 2002 2003 % chg % chg Revenues 46,630 46,121 - 1.1% + 3.4% REAA 14,917 17,303 + 16.0% + 21.0% REAA margin 31.9% 37.5% . Operating Income 6,808 9,554 + 40.3% + 45.5% Operating Income margin 14.6% 20.7% . Current Income from 2,687 5,365 + 99.
Slide 9: 2003 Group Key figures (2)
2003 Group Key figures (2) Euros in millions 03/02 Proforma 2002 2003 % chg % chg CAPEX* 7,441 5,086 - 31.7% - 26.8% As % of revenues 15.9% 11.0% Free Cash Flow ** (available to retire debt - 1,111 6,372 and excluding disposals) Net Debt 68,019 44,167 - 35.1% *excl. Mobile licenses **: See glossary
Slide 10: Use of cash priorities: no change since investor's day
Use of cash priorities: no change since investor’s day Cash from operations “Excess Cash”: Cash from operations beyond TOP target, disposals Cash Call on Market 1. Debt reduction to hit 2005 target (1.5 to 2 x) 2. Distribution — As early as 2004 3. Organic growth investment 4. Footprint optimization
Slide 11: Distribution policy
Distribution policy Generation of EUR3.2bn of net profit Free Cash-flow exceeding TOP Target Restored balance sheet France Telecom to resume its distribution policy Dividend of EUR0.25 per share submitted to April 9 AGM
Slide 12: Priorities for 2004: Innovation, Growth, Profitability
Priorities for 2004: Innovation, Growth, Profitability Develop broadband value TOP-Line through penetration and new services program Leverage potential from network cooperation TOP Yield full-year impact from existing projects program Launch 25 new projects France Telecom at forefront of industry tr
Slide 13: 2004: a key milestone for FT
2004: a key milestone for FT Ease of use and new services Q2 2004 • TV-over-DSL launched in Paris Q2 2004 • Non-PC video-telephony H1 2004 • Contact lists for fixed and Wanadoo, to be merged H1 2004 • Voice and video on Wanadoo Instant Messaging Q3 2004 • Seamless fixed, mobile voice mails Q4 2004 •
Slide 14: Business Segment Analysis
Business Segment Analysis
Slide 15: Key operating figures FY2003 Summary (1)
Key operating figures FY2003 Summary (1) Euros in millions 03/02 03/02 03/02 03/02 Revenues actual pro forma REAA actual pro forma change change change change Orange 17,941 + 5.0% . + 9.0% . 6,578 + 27.8% . + 32.2% . Fixed-line, Distribution, - Networks, Large Customers 21,761 -—5.6% . -—2.4% . 7,59
Slide 16: Key operating figures FY2003 Summary (2)
Key operating figures FY2003 Summary (2) Operating 03/02 03/02 REAA 03/02 03/02 Euros in millions Income actual pro forma minus actual pro forma change change CAPEX change change Orange 4,265 +53.3% . +57.7% . 4,216 +126.1% . +130.1% . Fixed-line, Distribution, - Networks, Large Customers 4,066 +16.
Slide 17: Orange: key operating figures FY2003
key operating figures FY2003 Euros in millions 4.77m new subscribers in 2003 SACs decrease, partly offset by retention cost to migrate from pre-paid to contract – Orange SACs decrease of -14.2% yoy (pro forma) – 28.3% in France – 8.3% in UK – Increase of SRCs: +44.4% – +68.7% in France – +11.7% in U
Slide 18: Orange: REAA & Operating Income analysis
REAA & Operating Income analysis Euros in millions France UK RoW Group shared function * pro forma RoW’s REAA EUR 1.48bn up 72.8%, all three Orange sub-segments are contributing to growth
Slide 19: Orange: operating figures FY2003
Operating figures FY2003 Euros in millions Strong benefit from TOP: – REAA above guidance of 6.3 bn euros, +32% yoy (pro forma) OPEX: – REAA margin up – 37% in 2003 vs 30% in 2002 –contained marketing and communication costs, as well as SACs CAPEX of 2.4 bn euros * pro forma [REAA-CAPEX]: more than
Slide 20: Wanadoo: operating figures FY2003
Operating figures FY2003 Euros in millions 27% of subscriber are broadband Positive REAA for Access subsegment Improved REAA margin – 13.3% in 2003 vs 2.7%* in 2002 OPEX – optimization of network cost & customer care – rationalization in portal division – Paper cost decrease for Directories Lower CA
Slide 21: Fixed Line: Broadband and data
Fixed Line, Distribution Large Customers, Operators and Networks: Broadband and data Millions of lines activated Network data End of period in France* End of period * See glossary for definition 79% ADSL coverage in France end 2003
Slide 22: Fixed Line: key operating figures FY2003
Fixed Line, Distribution, Large Customers, Operators and Networks: key operating figures FY2003 Euros in millions Strong benefits from TOP Program – REAA margin improved by 4 points from 31% to 35% REAA margin • positive contribution from Large Customers and Operators OPEX – headcount reduction*:—7
Slide 23: Fixed Line: OPEX analysis
Fixed Line, Distribution Large Customers, Operators and Networks: OPEX analysis FT Fixed labor cost FT fixed non-labor cost 2002 Pro forma Non labor costs decrease from H1 2003, Labor costs decrease from H2 2003
Slide 24: Equant: key operating figures FY2003
key operating figures FY2003 Euros in millions REAA margin improved by 4 points – 2003 REAA margin: 10% vs 6% in 2002 OPEX reduction – Significant reduction of access and maintenance costs – Improvement of process – significant headcounts reduction CAPEX – around 80% of Capex are related to Network
Slide 25: TP Group: key operating figures FY2003
key operating figures FY2003 Euros in millions REAA margin improved by 3 points – 45% in 2003 vs 42% in 2002 OPEX – cost of sales • 34% of revenues in 2003 vs 36% in 2002 – headcount • -12% headcount end of period CAPEX – sharp reduction in mobile, due to network upgrade done in 2002 * pro forma fig
Slide 26: Other international: key operating figures FY2003
Other international: key operating figures FY2003 Euros in millions REAA improvement partly due to – Uni2 cost rationalisation in Spain Historical data negatively impacted by – FTML (Lebanon) transfer to Lebanese government – Casema disposal – ECMS (Egypt) transfer to Orange Segment – CTE (Salvador)
Slide 27: Quarterly gain of clients portfolio for France Telecom Group
Quarterly gain of clients portfolio for France Telecom Group In thousands * pro forma Acceleration of subscriber base end of 2003
Slide 28: REAA group margin trends
REAA group margin trends Pro forma figures REAA margin REAA margin before commissions, advertising and handsets Underlying cost base improvement maintained in Q4
Slide 29: Consolidated Results analysis
Consolidated Results analysis Back to profitability
Slide 30: From Revenues to Operating Income
From Revenues to Operating Income Euros in millions % 2002 2003 Proforma change % chg Revenues 46,630 46,121 - 1.1%—. + 3.4% . Labor Costs 10,036 9,239 -—7.9% . -—3.8% . as a % of revenues 21.5% . 20.0% . Non Labor costs 21,677 19,579 -—9.7% . - -—5.5% . as a % of revenues 46.5% . 42.5% . REAA 14,91
Slide 31: From Operating Income to Current Income from integrated companies
From Operating Income to Current Income from integrated companies Euros in millions 2002 2003 Operating Income 6,808 9,554 Interest expense, net excl. “TDIRA” - 4,041 - 3,688 Accrued “TDIRA” interest expense - - 277 Foreign exchange gain (loss), net 136 - 25 Discounting of early retirement plan - 21
Slide 32: From Current Income to Net Income
From Current Income from integrated companies to Net Income Euros in millions 2002 2003 Current Income from integrated companies 2,687 5,365 Other non-operating income / (expense), net - 12,849 - 1,119 Income taxes - 2,499 2,591 Employee Profit Sharing - 148 - 127 Net Income / (loss) from Integrated
Slide 33: Non-operating income analysis
Non-operating income analysis Euros in millions FY 2002 H1 2003 FY 2003 Total non-operating income - 12 849 - 370 - 1,119 Of which mainly: MobilCom provision - 7,290 - - NTL provision - 1,641 - - Wind provision - 1,404 270 270 TDIRA restructuring - - - 431 provision for put on TPSA shares - 571 - 25
Slide 34: Income tax analysis
Income tax analysis Euros in millions FY 2002 FY 2003 France Telecom SA tax group - 1,588 1,100 1,100 Of which current tax 14 0 Of which deferred tax - 1,602 1,100 1,100 Orange SA tax group - 531 1,861 Orange UK group - 208 - 293 Wanadoo SA tax group 68 213 213 TP Group - 55 - 144 144 Other subsidia
Slide 35: Equity in net income of affiliates
Equity in net income of affiliates Euros in millions FY 2002 FY 2003 Wind (sold in July 2003) - 305 - 70 BITCO / TA Orange - 80 - 68 TP Group (consolidated as of April 1st 2002) - 6 - Others 24 - 30 Total affiliates - 367 - 168 Almost EUR200m of improvement in 2003
Slide 36: Exceptional goodwill amortization
Exceptional goodwill amortization Euros in millions FY 2002 H1 2003 FY 2003 Freeserve - - 447 - 447 BITCO / TA - - 287 - 287 Mauritius Telecom - - 143 - 143 QDQ Media - - 149 - 245 Equant - 4,375 - - Orange CH - 872 - - Others - 131 - 15 - 15 Total exceptional goodwill amortization -5,378 -1,041 -1,
Slide 37: Financing in 2003: From REAA to Net cash used in operating activities
Financing in 2003: From REAA to Net cash used in operating activities Euros in millions FY 2002 FY 2003 REAA 14,917 17,303 Interest Expense, net - 4,041 - 3,688 Foreign Exchange gain (loss) - 298 - 735 Income Taxes - 959 - 325 Early Retirement Plan - 601 - 700 TDIRA restructuring costs - - 431 Emplo
Slide 38: Financing in 2003: Free cash flow and net debt
Financing in Euros in millions FY 2002 FY 2003 Net Cash used in operating activities 11,839 11,322 Net cash provided by investing activities - 11,514 - 3,737 ow Capex - 7,943 - 5,102 ow Disposals 1,436 3,046 Change in scope of consolidation, capital - 4,921 14,434 Increase, exchange rates and others
Slide 39: 2003 Net debt and balance sheet highlights
2003 Net debt and balance sheet highlights Euros in millions 2003 2002 Long Term Assets 85,375 92,740 of which goodwill 25,838 27,675 Current Assets 14,458 13,847 of which Cash and cash equivalent 3,350 2,819 of which marketable securities 1,874 45 Shareholders’ equity 12,026 -9,951 Minority interes
Slide 40: Balance Sheet Highlights
Balance Sheet Highlights Euros in millions FY 2003 Consolidated shareholders’ equity at December 31, 2002 - 9,951 FY 2003 net income 3,206 Capital increase 14,840 Sale of treasury shares 3,990 Orange exchange in shares 3,592 Other -37 Currency translation adjustment - 3,614 Consolidated shareholder’
Slide 41: Conclusion
CONCLUSION
Slide 42: 2001-2003: Operations under control
2001-2003: Operations under control Euros in millions REAA Op. Income NET INCOME Margins, in % REAA margin Op. Income margin A big step in asset portfolio streamlining
Slide 43: 2004-2005 objectives
2004-2005 objectives +3 to +5% pro forma revenue growth Over EUR 18bn REAA in 2004 40% REAA margin in 2005 Capex / sales ratio to remain around 11% Net Debt / REAA ratio between 1.5 and 2 in 2005 Right balance between growth and profitability
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Slide 45: Appendix
APPENDIX
Slide 46: Goodwill amortization
Goodwill amortization Euros in millions FY 2002 FY 2003 Orange Group - 1,371 - 1,226 Wanadoo Group - 256 - 241 TP Group - 130 - 132 Equant Group - 511 - 33 Others - 84 - 45 Total goodwill amortization - 2,352 -1,677 Impairment tests support key goodwill
Slide 47: Orange Segment Revenues
Segment Revenues Euros in millions + 9.0% pro forma + 5.0% actual Pro forma growth ROW: + 20.7% . UK: + 7.4% . France: + 4.3% . High single digit pro forma growth confirmed
Slide 48: Wanadoo Segment Revenues
Segment Revenues Euro in millions + 26.2% pro forma + 26.1% actual Pro forma growth Directories: + 5.6% . Access, portals and e-commerce: + 41.3% - . 2003 revenue targets achieved
Slide 49: Fixed Line, Distribution and Networks: segment revenues
Fixed Line, Distribution and Networks: segment revenues Euros in millions - 2.4% pro forma - 5.6% actual Pro forma Other Revenues: -12.8% - . Carriers Services :-0.3% :- . Business Services: -1.4% - . Consumer Services: -3.1% - . * Pro forma revenue 2002 vs 2001: -2.9*%, 2003 vs 2002: -2.4*%
Slide 50: Equant Revenues
Revenues - 0.8% pro forma - 17.2% actual Euros in millions Actual figures Integration Direct Indirect Services, network network Other services services Services, +8.3% -19.7% SITA -4.6% Equant statutory revenues in USD: -0.8% Total revenues down 0.8% pro forma, impacted by indirect channel revenue d
Slide 51: TP Group Revenues
Revenues Euros in millions + 1.5% pro forma + 20.% actual Pro forma Internet & Others: +28.8% . Mobile: + 29.1% . Fixed-Line:—- - 5.2% . Strong growth in Mobile and Internet
Slide 52: Other International Operations: Revenues
Other International Operations: Revenues + 4.0% pro forma - 33.2% actual Euros in millions Main International activities Rev Rev 2002 2003 Uni 2 (Spain) 441 484 Sonatel (Senegal) 262 299 CI TelCom (Ivory Coast) 201 195 Jordan Telecom 183 154 Strong scope of consolidation Impact
Slide 53: 3G licenses
3G licenses Countries controled License cost license (million euros) life UK 99% 6,600 20 France 99% 620 20 Netherlands 99% 436 15 Switzerland 99% 36 15 Belgium 50% 150 20 Denmark 67% 104 20 Slovakia 63% 35 20
Slide 54: Strong growth in REAA (pre SACs & SRCs)
Strong growth in REAA (pre SACs & SRCs) as a % of total revenues Strong margins before SACs and SRCs reflect tight cost control and focused spend in advertising & promotion FY 02 Pro Forma restated at 2003 FX Rates and Egypt FY results proportionately consolidated at 71.25%
Slide 55: Falling acquisition costs balanced by rising costs of retention
Falling acquisition costs balanced by rising costs of retention as a % of total revenues Lower SAC cost of new customer growth offset by higher cost of SRC due to drive to retain high value customers SRCs are reported on a variable cost basis throughout the Group and exclude any allocation of fixed
Slide 56: Strong growth in REAA
Strong growth in REAA Euros in millions REAA increases 32.2% on pro forma 2002 Significant improvement in ROW operations in 2003 FY 02 Pro Forma restated at 2003 FX Rates and Egypt FY results proportionately consolidated at 71.25%
Slide 57: Strong REAA in ROW
Strong REAA in ROW Euros in millions All ROW operating businesses generated positive REAA for the first time Africa / Other includes the following countries Botswana, Cameroon, Ivory Coast, Madagascar, Dominicana and International head office FY 02 Pro Forma restated at 2003 FX Rates and Egypt FY re
Slide 58: REAA margins
REAA margins as a % of total revenues Strong margin growth across all operations
Slide 59: Significant drop in capex
Significant drop in capex Euros in millions Rephasing of capex in 2003 Cumulative capex target for 2003—2005 to remain unchanged at €7-8 bn Capex excluding licence FY 02 Pro Forma restated at 2003 FX Rates and Egypt FY results proportionately consolidated at 71.25%
Slide 60: Capex in ROW
Capex in ROW Euros in millions ROW capex spend decreased by just under half (pro forma 41.5%) due to finalisation of network rollout in Switzerland and The Netherlands and the exit from operations in Sweden (€127m) Africa / Other includes the following countries Botswana, Cameroon, Ivory Coast, Mada
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Slide 62: Glossary (1)
Glossary (1) Contributive Consolidated Revenues: consolidated revenues excluding intra-group transactions Pro forma figures: figures of the preceding period adjusted to reflect the same scope of consolidation and exchange rates as in the current period Market Share of fixed line telephony in France:
Slide 63: Glossary (2)
Glossary (2) REAA: Operating income before depreciation and amortization of tangible and intangible assets and before amortization of actuarial adjustments in the early retirement plan Capex: investments in intangible and tangible assets, excluding GSM and UMTS licenses and investments financed thro
Slide 64: Signature
February 12th, 2004 , SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FRANCE TELECOM Date: February 12, 2004 By: / S / P IERRE H ILAIRE Name: Pierre Hil