Slide 1: Slide 1
Slide 2: Conference Call, February 4, 2004
February 4, 2004 C o n f e r e n c e C a l l
Slide 3: 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 4: Objectives achieved
objectives 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 Net debt* / REAA ratio < 2.9 < 2.6 *** * See glossary ** Actual growth –1.1% ***Preliminary debt below EUR45bn end 200
Slide 5: Key messages
Key messages Accelerating subscriber growth at Orange in H2 (3.5m) . Annual broadband revenues up 88% in France New services strategy launched (TOP-Line) -EUR 1.5bn Opex* reduction vs 2002 pro forma . Opex* (TOP) Operating income margins 20.7% vs 14.6% in 2002 . . Preliminary net debt below EUR45 bn
Slide 6: Main KPI
main KPI 49.1m Orange subscribers (up 4.7m in 2003) . . Upturn in ARPU* confirmed at Orange Access lines in France 33.9m (-0.6%) . (- . 9.15m Wanadoo subscribers (up 0.6m in 2003) . . 27% of Wanadoo customers are broadband 24.1 m subscribers for TP Group and ROW . * See glossary 117.1 m client base
Slide 7: Group Key figures
Group Key figures Euros in millions Proforma 2002 2003 actual % chg % chg Revenues 46,630 46,121 -1.1 % +3.4% REAA* 14,917 17,303 + 16.0% + 21% REAA margins 32 % 37.5% Operating Income 6,808 9,554 + 40.3% +45.5% Operating Income margins 14.6% 20.7% Capex* Capex* 7,442 5,086 - 31.7%—26.8% Capex / sal
Slide 8: 2004 objectives
objectives Orange revenue growth above 2003 Target of 4.5m* ADSL lines (+50%) in France confirmed . TOP-Line program initiatives to support growth- +3 to +5% pro forma revenue growth TOP program to yield further operating improvements FY 2004 REAA over EUR 18bn FY 2004 capex / sales ratio circa 11%
Slide 9: Group consolidated revenues
GROUP CONSOLIDATED REVENUES
Slide 10: Revenue presentation
Revenue presentation • Consistent with H1 2003 publication * Orange * Equant 6 segments * Wanadoo * TP group * Fixed line, distribution * Other international and networks Stand alone • Same figures as reported by Orange, Wanadoo, Equant & revenues TPgroup for each segment • Allows better reporting c
Slide 11: Revenue recognition policy reflecting new business environment
Revenue recognition policy reflecting new business environment • New incentive schemes fees for handsets distributors on the market netted from sales Where? • Electronic directories up-front revenues spread over contract duration as for internet business • TP group audiotel revenues are netted of co
Slide 12: KPIs
KPIs Market share Broadband / / Subscribers end 03 03 end 2003 Data Non voice is 12.7 % is 12.7 % FR 48.8% FR 48.8% Orange 49.1 m (+ 4.7m) 49.1 m (+ 4. of network of UK 26.2%* UK 26. revenues Fixed Group ADSL 33.9m (-0.6%) 33.9m (-0. 75.8 % local 75.8 % 2003 revenue France Access lines 61.8 % LD 61.
Slide 13: Group Consolidated Revenues by segment
Group Consolidated Revenues by segment + 3.4% pro forma . - 1.1% actual—. Euros in millions Pro forma growth Other International: + 4.0% + 4. TP Group: + 1.5% . Equant:—0.8% - . Fixed-line, -Distribution and Networks :—2.4% :—. Wanadoo: + 26.2% . Orange: + 9.0% . Intra group eliminations Pro Forma g
Slide 14: Orange confirmed as one of the Group's main growth drivers
Orange confirmed as one of the Group’s main growth drivers
Slide 15: Orange: Key messages
Orange: Key messages Strong increase in customer base, approaching 50m Excellent Q4 subscriber growth: 2.2m Q4 2.2m ROW customers up 28% over 2003 up Favourable ARPU* trends UK: + 4.6% year on year (in £) + 4.6% on (in £) France: + 0.5% year on year + 0.5% on Recurring Network Revenues* up 9.8% pro
Slide 16: Orange: Subscriber Growth
Orange: Subscriber Growth Customer base: + 10.8% . Millions of customers [GRAPHIC] ROW Orange UK Orange France Second Half Net Adds fuelling future growth
Slide 17: Orange: Quarterly subscriber growth
Orange: Quarterly subscriber growth Net adds Evolution France & UK (in thousands) thousands) Orange France Orange UK Net adds Market share Second Half Net Adds fuelling future growth
Slide 18: Orange: Quarterly subscriber growth ROW
Orange: Quarterly subscriber growth Net adds Evolution ROW in thousands 70% of Orange’s subscriber growth from ROW in 2003
Slide 19: Orange: Customer mix
Orange: Customer mix Customers end of period in millions Orange France Orange UK Orange ROW Continuous improvement of customer mix
Slide 20: Orange: Usage growth
Orange: Usage growth Annual rolling AUPU* in minutes per month Orange France Orange UK Continuous increase in traffic * See glossary 20
Slide 21: Orange: ARPU trends
Orange: ARPU trends Annual rolling ARPU* Orange France Orange UK in euros in £ Voice Non voice Improved Voice ARPU trends Sustained increase in Non voice ARPU * See glossary 21
Slide 22: Orange: 2003 key initiatives
Orange: 2003 key initiatives • Better customer segmentation Voice • Focus on Yield management • Strong pick-up in MMS usage over Q4 2003: more than Non Voice 4 million MMS in France, as well as in the UK & • Data usage driven by the Learn Campaign in the UK and the Orange Coaches in France Orange Wo
Slide 23: Orange: Segment Revenues
Orange: Segment Revenues + 9.0% pro forma + 9. + 5.0% actual + 5. Euros in millions Pro forma growth ROW: + 20.7% . UK: + 7.4% . France: + 4.3% . High single digit pro forma growth confirmed
Slide 24: Revenue breakdown for ROW
Revenue breakdown for ROW ROW: double digit revenue growth in almost all countries in Euros in millions Pro forma growth Strong potential for Rest of the World
Slide 25: Wanadoo: 27% of customer base is Broadband
Wanadoo: 27% of customer base is Broadband
Slide 26: Wanadoo: Key messages
Wanadoo: Key messages 9.15 million subscribers (up 7%) 9. Nearly 2.5 million are broadband 2.5 4.6 million customers out of France (more than 50%) 4.6 out Increase of ARPU in all countries Access, Portals and e-commerce revenues up 41.3%* e- . Directories revenues up 5.6%* 5. On-line Directories up
Slide 27: Wanadoo: Customer growth
Wanadoo: Customer growth In millions Customers France Customers outside France Broadband Narrowband 27% of customer base is broadband
Slide 28: Wanadoo: ARPU trends
Wanadoo: ARPU* trends In Euros France Spain United Kingdom Continuous growth due to a better product mix * See glossary 28
Slide 29: Wanadoo: 2003 key initiatives
Wanadoo: 2003 key initiatives • A large range of innovative offers: Wi-Fi pack Broadband (30,600 sold at the end of 2003), PlayStation2, Multimedia pack, Hot Spot in a box • UK: ADSL moneyback guarantee, new distribution channels International • NL: ADSL market share doubled to 13.1% • Spain: ADSL W
Slide 30: Wanadoo: Segment Revenues
Wanadoo: 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% - . 2002 Forex Perimeter 2002 Pro forma 2003 2003 revenue targets achieved
Slide 31: Fixed Line, Distribution and Networks key 2003 initiatives
Fixed Line, Distribution and Networks key 2003 initiatives to provide growth
Slide 32: Fixed Line, Distribution and Networks: Key messages
Fixed Line, Distribution and Networks: Key messages Consumer Services Over 3 million 3 ADSL lines at the end of December at of EUR744 million ADSL revenues, up 88% 34.9% of customers with packages . of December sales: 75% DECT, 66% SMS compatible Business Services 5% yoy business networks growth mai
Slide 33: Access lines and traffic market share in France
Fixed Line, Distribution and Networks: Access lines and traffic market share in France Number of Lines (in millions) of Market Share* Local LD 96.8% 82.7% 80.9% 77.8% 76.7% 75.8% 64.6% 63.8% 64.3% 63.3% 62.9% 61.8% 2000 2001 2002 2003 Dec 01 June 02 Dec 02 June 03 09/03 Dec 03 Number of lines down 0
Slide 34: Towards better revenue predictability
Fixed Line, Distribution and Networks: Towards better revenue predictability Q4 02 Q1 03 Q2 03 Q3 03 Q4 03 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2002 2002 2002 2003 2003 2003 2003 Over 60% of consumer voice revenue is recurring, including subscription fee and packages
Slide 35: Broadband in France
Fixed Line, Distribution and Networks: Broadband in France ADSL revenue Millions of lines activated of in France* in End of period* of Euros in millions Millions of lines Full Year 2003: EUR 744m up 88% * See glossary for definition 79% ADSL coverage in France end 2003
Slide 36: Consumer services sub-segment
Fixed Line, Distribution and Networks: Consumer services sub-segment Consumer services—Calling services 2003 trends — Market mix (more fixed to mobile) + volume impact + = altogether slightly positive = Impact of fixed to mobile tariff cut is the main negative price effect on revenues (approx –6%),
Slide 37: 2003 key initiatives for consumer services
Fixed Line, Distribution and Networks: 2003 key initiatives for consumer services Increase Maintain Revenues Stimulate Usage New Services Loyalty • New pricing: fixed • •On site • •3 Unlimited 3 • Fixed Line SMS to mobile calling maintenance fees numbers • 24 new handset plans, Prepaid • •Extended N
Slide 38: Business services sub-segment
Fixed Line, Distribution and Networks: Business services sub-segment Business services—Business fixed line telephony — Market mix (more fixed to mobile) + volume impact = altogether stable + = Impact of fixed to mobile tariff cut is the main negative price effect for calling services, but negligible
Slide 39: Business services: Business networks
Fixed Line, Distribution and Networks: Business services sub-segment Business services—Business networks — Data Networks Slower market growth due to reduced investment to from Corporate customers but market share resilient Pressure on prices: impact of competition, cost reduction on programs and tec
Slide 40: 2003 key initiatives for business services
Fixed Line, Distribution and Networks: 2003 key initiatives for business services Increase Develop revenues Stimulate Usage New Services Loyalty ••Increase duration in tariff packages, in fixed-mobile— destination ••More of billing of services ••Voice on fibre for dense urban areas ••Relaunch of PBX
Slide 41: Carrier services sub-segment
Fixed Line, Distribution and Networks: Carrier services sub-segment Carrier services Domestic interconnection: increase in volumes for fixed operators in and special services offset a decrease in traffic a in for mobile operators and price decline for both International Operator Services: decrease i
Slide 42: Fixed Line segment revenues
Fixed Line, Distribution and Networks: segment revenues — 2.4% pro forma—2. — 5.6% actual—5. Euros in millions 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 43: Equant, TP group and Other International Operations
Equant, TP group and Other International Operations
Slide 44: Equant revenues
— 0.8% pro forma—0. — 17.2% actual— . Actual figures Euros in millions Integration Direct Indirect Services, network network Other services services Services, +8.3% +8.3% -19.7%— 19.7% SITA -4.6%— 4.6% Equant statutory revenues in USD:— 0.8% in -0.8% 2002 2002 Pro 2003 forma Total Revenues down 0.8%
Slide 45: TP group customers and revenues
Customers in m Revenues (Euros in millions) Fixed + 1.5% pro forma + 1. + 20.% actual + . Pro forma Mobile Internet & Others: +28.8% . Mobile: + 29.1% + . Fixed-Line:—5.2%— — 5. Strong growth in Mobile and Internet
Slide 46: Other International Operations
Other International Operations + 4.0% pro forma + 4. — 33.2% actual— . Euros in millions Main International activities Rev Rev Uni 2 (Spain) 441 484 Sonatel (Senegal) 262 299 CI TelCom (Ivory Cost) 201 195 Jordan Telecom 183 154 Strong Perimeter Impact
Slide 47: TOP Line Program Update
TOP LINE PROGRAM UPDATE
Slide 48: TopLine growth programme and innovation initiatives
TopLine growth programme and innovation initiatives All 40 Division-led and — 14 Transversal initiatives launched Objectives included in 2004 budgets and incentive schemes Group-level monitoring in place— Management incentivised towards growth target achievements
Slide 49: Key achievements in 2003
Key achievements in 2003 Q2 2003 Q2 Orange contact list in UK Ease of Use of Jun. 2003 . WiFi home router 30,600 WiFi routers sold by Wanadoo YE 03 (3,000 per week since 01-01-04, Pack eXtense-PS2 launched with Sony end October 03) Q4 2003 Q4 Wanadoo visio 5,000 trial users in Sept. 03 commercial la
Slide 50: TOP Program Update
TOP PROGRAM UPDATE
Slide 51: TOP program key messages
TOP program key messages Strong savings on Opex and Capex from sourcing* (over EUR700m) Capex/Sales of 11% allows for growth investmentsCapex/Sales Opex improvements in spite of strong Q4 activity Personnel cost down 6% in H2 vs H2 2002 More potential for TOP going forward REAA-Capex improved by ove
Slide 52: Sourcing program in 2003
Sourcing program in 2003 Acceleration impact throughout 2003: 70% gained in H2 Over 55% of sourcing gain on Capex Wave one supplier portfolio reduced by 60% 2003 2004 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Wave Sourcing Implement. Wave Sourcing Implement. Wave Sourcing Implement. Circa EUR 300m sourcing gain in Q4
Slide 53: TOP Program: 2003 results
TOP Program: 2003 results REAA-CAPEX quarterly— improvement +66.1% (pro forma) . 12,217 Euros in millions 291 501 2,322 Q4 390 451 7,475 7,355 3,571 265 Q3 1,204 1,140 485 2,620 2,486 345 3,223 Q2 487 334 1,977 1,815 3,100 1,915 Q1 1,673 2002 2002 PF Opex gain Capex gain Revenue gain 2003
Slide 54: Capex refocus on growth sectors
Capex refocus on growth sectors FT Group ADSL* capex FT Group 2G+3G capex* capex* Euros in millions Euros in millions Toward 95% coverage in 2005 3G capex is increasing 2002 Pro forma * see glossary Rebound in Mobile networks and ADSL capex in Q4 with Highest quarterly capex in two years
Slide 55: CAPEX analysis
CAPEX analysis CAPEX* by key item 2002 2003 2003/2002 Euros in millions pro forma actual pro forma Total Group CAPEX 6,950 5,086 — 26.8% % of revenues 16% 11% Ow other networks 1,156 657 — 43.2% ow radio mobile 2G + 2,133 1,826 — 14.4% 3G Equipment ow ADSL 186 244 + 30.9% ow IT 1,506 1,168 — 22.5% *
Slide 56: Headcount trends
Headcount trends Headcount pro forma End of period — 7% year on year 257,480 251,544 247,766 234,665 231,982 225,982 223,498 218,523 115,641 110,714 108,383 97,021 96,368 92,373 91,888 88,626 International 19,332 20,017 20,155 19,812 19,622 19,375 19,122 19,083 French Sub. . 122,507 120,813 119,228
Slide 57: FT transformation: 2003 vs 2002 half year comparison
FT transformation : 2003 vs 2002 Half year comparison FT group OPEX excluding FT group personnel cost* cost* Personnel cost Euros in millions Euros in millions 2002 Pro forma 2002 Pro-forma 4,890 10,310 10,391 4,809 4,714 10,021 4,429 9,558 H1 2002 H1 2003 H2 2002 H2 2003 H1 2002 H1 2003 H2 2002 H2
Slide 58: OPEX analysis
OPEX analysis Group key OPEX* items Euros in millions 2002 2002 2003 2003/2002 actual Pro forma actual Pro forma Personnel Costs** 10,036 9,603 9,239 -364— % of revenues 21.5% . 21.5% . 20.0% . External Purchases* 19,992 18,981 18,012 -969— % of revenues 42.9% . 42.5% . 39.0% . Other Charges 1,685 1
Slide 59: OPEX analysis: external purchases breakdown
OPEX analysis Group external purchases* breakdown by key items 2002 2003 2003/2002 Euros in millions Pro forma actual Pro forma External Purchases* 18,981 18,012 — 969— ow equipment purchases 3,460 3,559 + 99 ow Interim + travel and living 607 366 — 241— ow fees, consulting expenses (excl. IT) . 1,5
Slide 60: Operating working capital trends
Operating working capital trends 2003/2002 evolution DSO* Euros in millions 54,6 55,1 52,3 — 131 4,525 - -1,470 3,247 46,2 2002 Gross Net stocks Payables 2003 receivables from operations Q103 Q203 Q303 Q403 Very strong improvement in Q4, EUR 1.3 Bn improvement over 2003 * See glossary 60
Slide 61: and beyond
and beyond
Slide 62: Key revenue drivers
key revenue drivers Full year impact of strong 2003 increase in customer base Orange confirmed as a growth driver a UMTS launch New services and handsets to spur data usage to Wanadoo Improved competitiveness in broadband in Fixed line Improved access value through innovative offers and services Con
Slide 63: TOP LINE Program milestones
TOP LINE Program milestones Q2 2004 Single Sign On (SSO) for FT group portals Single services development platform launched for 8 Orange subsidiaries, ID and IM for fixed, internet and mobile users, giving access to unified mail and contact list in compliance with Liberty Alliance specifications Eas
Slide 64: TOP: Next steps
TOP: Next steps Sourcing impact to increase in 2004 Group transformation through TOP to continue Capex / sales circa 11% / Further improvement in Group processes Group headcount reduced by more than 6% in 2004 25 new TOP projects to come
Slide 65: Conclusion
CONCLUSION TOP expected to provide further margin improvement Capex policy geared for growth Opex structure is improving. More to come. . . Q4 subscriber gain expected to provide growth in TOP-Line program is now unfolding— Further group transformation in 2004 Full year results on Feb 12th
Slide 66: Conference Call, February 4, 2004
February 4, 2004 C o n f e r e n c e C a l l
Slide 67: Slide 67
Slide 68: Appendix
APPENDIX
Slide 69: Glossary (1)
Glossary (1) 3 Contributive Consolidated Revenues: consolidated revenues excluding intra-group transactions 3 Pro forma figures: figures of the preceding period adjusted to reflect the same scope of consolidation and exchange rates as in the current period 3 Market Share of fixed line telephony in F
Slide 70: Glossary (2)
Glossary (2) 3 REAA: Operating income before depreciation and amortization of tangible and intangible assets and before amortization of actuarial adjustments in the early retirement plan 3 Capex: acquisitions of intangible and tangible assets, excluding GSM and UMTS licenses 3 Opex: operating charge
Slide 71: Forex
Forex Impact: Adverse EUR 2,049 million impact for full year 2003 Revenues by currency Other GBP 5% 13% USD 7% 10% strengthening PLN 9% of Euro has an EUR 66% Impact of… -3.0% on group— 3.0% on REVENUE -2.5% on group— 2.5% on REAA -1.8% on group— 1.8% on Operating Income -1.8% on group— 1.8% on REAA
Slide 72: Revenues Perimeter Impact
Revenues Perimeter Impact Excluded from Included in 2003 perimeter 2003 perimeter TDF: EUR 695m Eresmas: EUR 59m Eresmas: Casema: EUR 186m Casema: FTML: EUR 250m Poland: EUR 1,218m Menatel: EUR 20m Menatel: Salvaldor: EUR 64m Salvaldor: Total Perimeter impact: EUR +28m
Slide 73: Orange: ROW subscribers
Orange: ROW subscribers ROW: 31% of group customer base In millions 3,3 2,6 2,3 2,2 2,1 2,1 2,0 1,7 1,6 1,5 1,3 1,0 1,1 1,0 0,5 0,6 Romania Belgium Slovakia Egypt Africa / Others Netherlands Switzerland Denmark 2002 2003
Slide 74: Signature
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 4, 2004 By: / S / P IERRE H ILAIRE Name: Pierre Hilaire Title: Director of