Orange Sa · EURONEXT:ORA
Orange Sa — France Telecom — Q3 2003 Earnings Presentation
56 slides from Orange Sa's earnings presentation, Oct 29, 2003
Slide 1: Conference Call October 29, 2003: Q3 2003 Revenues and TOP program update
C o n f e r e n c e C a l l O c t o b e r 2 9 , 2 0 0 3 Q3 2003 Revenues, and TOP program update
Slide 2: Cautionary Statement
CAUTIONARY STATEMENT This presentation contains, in particular in the sections Q3 revenue analysis, TOP Q3 results and Conclusion forward-looking statements about France Telecom. Such statements are not historical facts and include expressions about management’s confidence and strategies and managem
Slide 3: Agenda
Introduction Q3 revenue analysis TOP Q3 results Guidance for 2003 and conclusion 3 Agenda
Slide 4: Introduction
4 I n t r o d u c t i o n
Slide 5: Q3 2003: Key highlights
TOP program 2003 targets achieved in 9 months Growth initiatives launched * On a pro forma basis (same perimeter in 2002 and excluding forex, Revenue -2.7% on actual basis) ** See glossary Key highlights Improved profitability guidance for 2003 Revenue up 3.3%* TOP key indicator REAA-Capex** up 43.7
Slide 6: Q3 2003: Positive momentum confirmed
Group’s TOP financial figures Revenues REAA and Margins* Operating Profit and Margins* REAA - CAPEX Euros in millions * Margin over revenues 11,646 11,476 11,376 Q1 03 Q2 03 Q3 03 3,571 3,222 3,101 Q1 03 Q2 03 Q3 03 4,116 4,369 4,674 40,1% 36,2% 38,1% Q1 03 Q2 03 Q3 03 Q3 2003: Positive momentum con
Slide 7: Q3 2003: On track to deliver more than EUR15bn FCF
Mobile growth balances fixed line trends TP group Strong broadband subscribers take up, + 252k broadband subs in Q3, + 138k in September Wanadoo Resilience of market share Fixed telephony in France Key business messages Favourable ARPU trends confirmed, stronger subscriber growth Orange limited decl
Slide 8: Q3 revenue analysis
Q 3 r e v e n u e a n a l y s i s 8
Slide 9: FT group's KPI: Broadband / Data
Overall improvements 33.8 m Access lines 8.9m (+1.8m) 264k internet advertisers 46.9m (+ 3.7m) 11m fixed (+0.4m) 5.4m mobile (+1.4m) 2/3 of “Top 100 Cies” in Business Week’s Subscribers 76.7 % local 62.9 % LD 23.3% of subscribers are broadband FR 49.2%* UK 26.4%** Fixed 90.4% Mobile 33.2% Market sha
Slide 10: Q3 2003 Consolidated Revenues by Segment
11,971 11,276 11,646 Fixed-Line, Voice, Data outside France - 2.5 % Fixed-Line, Voice, Data in France: - 2.4% Wanadoo: + 24.1% Orange: + 9.7% Euros in millions 4,588 4,181 4,401 498 639 515 -268 - 427 Q3 02 actual Forex Perimeter Q3 02 proforma Q3 03 Q3 2003 Contributive Consolidated Revenues by Seg
Slide 11: Forex impact in Q3 2003
Revenue per currency -3.0% on group REVENUE -2.5% on group REAA -1.9% on group Operating Income -1.9% on group REAA - CAPEX 10% strengthening of Euro has an Impact of… Other 5% GBP 13% USD 7% PLN 9% EUR 66% Forex impact in Q3 2003 Circa 4% impact on Q3 revenue, but no major threat on cash generation
Slide 12: Perimeter revenue impact in Q3
TDF: EUR169m Casema: EUR53m FTML: EUR65m Eresmas: EUR19m Excluded from Q3 2003 perimeter Included in Q3 2003 perimeter Perimeter revenue impact in Q3: Total perimeter impact of EUR268m
Slide 13: Q3 2003 Consolidated Contributive Revenues Analysis
Q3 2003 Consolidated Contributive Revenues * Analysis: * Consolidated revenues excluding intra group transactions 13 Orange Fixed Line, Voice & Data Services in France Wanadoo Fixed Line, Voice & Data Services outside France
Slide 14: Orange: Top line growth at the high end of guidance
Orange France: + 6.8%** Orange UK: +5.0%** ROW: + 23.1%** 4,401 4,588 Q3 2003 total contributive * consolidated revenues * Contributive revenues in FT consolidated accounts (Orange statutory revenues: Eur 4714Mn ,+ 10.6% pro forma) ** Pro forma 4,181 Euros in millions - 5 - 215 Q3 02 actual Forex Pe
Slide 15: Orange: Customer growth
subscribers 18.79 19.22 19.23 19.37 13.06 13.31 13.31 13.26 Contract Prepay 19.62 13.37 In millions Orange: Customer growth: +1.3 m in Q303/Q203 compared to +0.7m in Q203/Q103 and + 3.7m in Q303/Q302 Orange France Orange UK
Slide 16: Orange: ARPU trends
ARPU trends Voice Non voice Note: annual rolling ARPU Positive ARPU trends confirmed in France and UK Orange UK in £ Orange: Orange France in euros 8.7% 10.9% 13.7% 15.6%
Slide 17: Orange: Data trends
DATA trends * * Quatery figures: Q3 2003 versus Q3 2002 Non voice = 12.5% of network revenues for Q3 2003, vs 10.5% in Q3 2002 Orange:
Slide 18: Orange: Q3 initiatives
Q3 initiatives Wi-Fi: launch of public wireless local area network business customer trial with Cadbury- Schweppes and Hilton UK Metroline telemetry solution: realtime service control system based on GPRS, reduced excess waiting times by 70% Wifi GPRS offer launched in September Orange Pro offer suc
Slide 19: Orange: Going forward
Going forward New Orange World Portal First step in implementing customer segmentation across Europe Newly developed products and services portfolio to deliver a unified customer experience across markets and devices More than 4,500 sites acquired in UK and France Hundreds of sites now operational F
Slide 20: Orange: Personal, simple, compelling services
Going forward new and relevant personalised services New easy-to-understand tariffs Simple access to services In UK, the programme turned a 5% yoy decline of customers in Orange Shops into a 20% yoy increase Mobile coaches programme launch: in November 2003 for France early 2004 for other countries
Slide 21: Fixed-Line, Voice and Data Services in France: Q3 revenues
Q3 2003 total contributive consolidated revenues Euros in millions 4,606 4,338 4,446 * Pro forma Corporate services: +0.3%* (ow +2.7% for corporate networks) Others: - 7.8%* Subscription fees:+1.1 %* Cable and TV services: - 2.9%* Calling services:- 5.5 %* Other fixed line telephony services :- 4.8
Slide 22: Fixed Line France: Resilience of market share
Calling services trends * Pro forma ** In Q3 price impact other than fixed to mobile is negligeable Total mix & volume impact: +0.7% Market share loss impact: - 3.5% Price** impact (fixed to mobile) -2.7% Calling services down - 5.5 % in Q3* Mix effect: +3.4% Market volume effect: -2.7% 76,7% 77,8%
Slide 23: ADSL Domestic Market
France Telecom Group Revenues * Mass market and SMEs, ** third part ISP and unbundled lines 1.8 1.4 0.8 0.7 0.6 Euros in millions Millions of lines Wanadoo Others** 2.1 ADSL Domestic Market: Target of over 3 m lines end 2003 confirmed FT group ADSL revenue retail contribution* Millions of lines end
Slide 24: Increasing loyalty, better revenue predictability
Subscribers with fixed line telephony packages 4.989 5.571 6.164 6.768 7.395 7.911 8.132 Q1 2002 Q2 2002 Q3 2002 Q4 2002 Q1 2003 Q2 2003 Q3 2003 30.7% 28.8% 26.4% 31.7% Q4 2002 Q1 2003 Q2 2003 Q3 2003 Fixed-Line Voice & Data Services in France: Increasing loyalty, better revenue predictability Numbe
Slide 25: New handsets strategy is unfolding
Q4: launch of a new generation of handsets Express Messaging product to be launched in Q4 (voice SMS) TV on ADSL trial in Lyon Initiative regarding international traffic rate Q3 initiatives and going forward New fixed handsets offer launched : wireless DECT: more than 50% of our number of telephony
Slide 26: From data transmission to enhanced services
Office +: Nomadism transverse project launched Same environment as in the office, wherever and with whatever device for employee on the move Trial with 10 corporate customers Convergent voice VPN (fixed/mobile) Fixed to Mobile offer package for SME’s Q3 initiatives and going forward Hosting : global
Slide 27: Wanadoo: Q3 2003 contributive revenues
Q3 2003 total contributive* consolidated revenues 498 639 Access, portal and e-commerce: +40.4%** Directories: + 4.3%** * Contributive revenues in FT consolidated accounts (Wanadoo statutory revenues: 679 million euros / + 29%) ** Pro forma Euros in millions 515 Wanadoo: Both ARPU and subscribers gr
Slide 28: Wanadoo: More than 2 million broadband customers
customers In millions Broadband Narrowband 3.6 3.9 4.1 4.2 4.4 3.5 4.5 4.6 4.7 4.6 Wanadoo France Wanadoo: More than 2 million broad-band customers as of end Sept. 2003 Wanadoo outside France
Slide 29: Wanadoo: Q3 initiatives and going forward
Q3 initiatives and going forward Launch of an ADSL-WiFi offer in the Netherlands in Oct. 2003 Sale of pack eXtense-PlayStation 2 since 1st October 2003 in France Soft launch of a video conferencing service in Sept. 2003, based on presence and availability Number 1 of all French sites for audience on
Slide 30: Fixed Line, Voice & Data Services outside France
Equant: - 5.4%** Others: - 2.9%** TP Group: - 0.7 %** 2,134 2,081 2,466 * Contributive revenues in FT consolidated accounts (statutory revenues for TP group : Pln 4 563 Mn / -0.5 %, for Equant: $ 711.9 Mn / -2.6%) ** Pro forma Q3 2003 total contributive consolidated revenues * Euros in millions 661
Slide 31: TP: Mobile growth balances fixed stability
Customer base In millions 10,65 10,79 10,88 10,95 11,02 Sept 02 Dec 02 March 03 June 03 Sept 03 4,00 4,48 4,70 5,08 5,35 Sept 02 Dec 02 March 03 June 03 Sept 03 TP: Mobile growth balances fixed stability Fixed Mobile
Slide 32: TP group: Q3 highlights and going forward
Q3 highlights and going forward Fixed line voice revenue erosion offset by new products and offers i.e., ADSL ADSL Campaign New ISDN offer with increased monthly fee and introduction of free minutes New tariff plan for business customers Market share gain despite adverse competitive environment Laun
Slide 33: Equant: Q3 impacted by SITA contract and indirect services
Q3 statutory revenue trends Direct services +8.1% Equant statutory revenues in USD: -2.6%* Indirect services -14.3% Sita and Others -10% * -5.4% in FT account for contributive pro forma revenue Equant: Q3 impacted by SITA contract and indirect services
Slide 34: Equant: competitive position is improved
Revenue Pursue other outsourcing opportunities Focus on solutions and services Implement revised organization Particular emphasis on customer satisfaction Continue downward pressure on costs Access costs Q3 initiatives and going foward ZFS outsourcing contract: largest direct order ever signed New s
Slide 35: TOP Q3 results
Full year targets achieved over 9 months 35 T O P Q 3 r e s u l t s
Slide 36: Q3 TOP: Group's transformation is starting
key messages Optimizing sourcing prices: => Wave two launched 22 commodities => Wave one brings higher benefits Will have reduced supplier portfolio by 60% Over EUR700 m cash impact for full year 2003 Total sourcing impact in Q3 approx Eur 200m Capex: In line with H1 before a stronger Q4 . Around 50
Slide 37: TOP results: Full Year 2003 REAA-CAPEX target achieved
Euros in millions 6,323 9,894 Q1 Q3 Q2 3,100 3,100 3,100 3,223 3,223 3,571 Q1 2003 H1 2003 9 months 2003 TOP results Full Year 2003 REAA - CAPEX initial target achieved REAA-CAPEX improvement quarter on quarter
Slide 38: TOP: REAA-CAPEX improvement
Euros in millions key figures over 9 months EUR 465m excluding one-off non cash items related to Q3 02 * Q1 Q3 Q2 265 370 3,100 1,915 1,673 487 334 365 1,815 1,977 485 578 345 3,571 2,486 2,620 451 9 months 9 months PF Opex gain Capex gain Revenue gain 9 months 03 6,270 6,215 9,894 TOP: REAA-CAPEX i
Slide 39: CAPEX: Q3 key messages
Q3 key messages * On a pro forma basis Fixed line France Capex down 33.5% vs Q3 02 as switching and transmission capacity are currently appropriate Orange lower CAPEX due to delay of 3G industry’s readiness Capex sharing : IT applications convergence launched : Wanadoo billing system to converge wit
Slide 40: CAPEX analysis
CAPEX analysis % of revenues 14% 9.5% 3.9% ow IT 311 249 -63 ow ADSL 25 47 22 ow radio mobile 2G + 3G Equipment 473 327 -146 (*) = excluding mobile licenses Euros in millions Ow other networks 248 146 -102 TOP Program: Q3 02 proforma Q3 03 actual Q3 03/ Q3 02 proforma Total Group CAPEX 1,553 1, 103
Slide 41: CAPEX reductions by segment
CAPEX analysis -241 -15 -144 -59 8 Orange Wanadoo Fixed line V & D services - France Fixed line V & D services - Outside France Others Breakdown of EUR451m CAPEX reductions by segment Q3 03 vs Q3 02 pro forma Strong contribution from Orange and Fixed in France TOP Program:
Slide 42: OPEX: Group transformation in Q3
group’s transformation in Q3 Quick wins, Opex governance definition Reengineering of processes definition and pilots Immediate action on non sales related costs First impact of saving trackers actions: Numerous best practices locally implemented (elearning deployment) New travel management and polic
Slide 43: OPEX analysis
* = net of capitalized costs OPEX analysis Personnel Costs** % of revenues External Purchases Other Charges Total OPEX Euros in millions % of revenues % of revenues 2,376 2,243 2,197 - 46 19.8% 19.9% 18.9% 4,887 4,549 4,373 -176 40.8% 40.3% 37.6% 417 444 402 -43 7,680 7,236 6,972 - 265 64.2% 64.2% 5
Slide 44: External purchases breakdown by key items
*Net of capitalized costs OPEX analysis Euros in millions External Purchases* 4,549 4,373 -176 ow equipment purchase 816 856 40 ow Interim+travels and living 149 98 - 52 ow fees, consulting expenses (excl. IT) 385 245 - 139 ow communication 256 228 - 28 ow IT 183 151 -32 TOP Program: Q3 02 proforma
Slide 45: Operating working capital trends
-404 -383 127 Q103 Q203 Q303 *See glossary 52,3 54,6 55,1 Q103 Q203 Q303 -207 -182 -57 Q103 Q203 Q303 850 620 719 Q103 Q203 Q303 Operating working capital* trends Impact of OPEX and CAPEX reduction on payables, strong improvements on receivables and stocks Receivables (EURm) DSO Stocks (EURm) Payabl
Slide 46: TOP: Next steps
Next steps Focus on growth activities like UMTS and broadband, increase in Q4 Sourcing impact to accelerate Capex sharing (IT applications convergence roadmap) Continuous improvement on other commodities Saving trackers at work (disseminate best practices) Local internal sourcing policy for network
Slide 47: Conclusion
47 C o n c l u s i o n
Slide 48: 2003 guidance
+3 to+5% revenue growth pro forma Over Eur 17bn REAA Over EUR 9.2bn Op Result Capex below EUR 5.5 Over EUR 4bn * FCF in 2003, EUR 1Bn ahead of initial target Debt / REAA Ratio below 3 in 2003 * Excluding disposals and including TDIRA one-off interest payment and Orange cash offer 2003 guidance
Slide 49: Glossary
: consolidated revenues excluding intra-group transactions : figures of the preceding period adjusted to reflect the same scope of consolidation and exchange rates as in the current period : Operating income before depreciation and amortization of tangible and intangible assets and before amortizati
Slide 50: Annexe
50 A n n e x e
Slide 51: Q3 2003 financial figures
Revenues growth REAA growth Operating income growth Capex** 11,276 +3.3% 11,971 -2.7% 4,674 4,039 +15.7% 2,115 2,220 +33.4% +27.1% 2,822 1,553 1,670 -29.0% -33.9% 1,103 4,293 +8.9% 11,646 *EUR438 m of advanced interest payment and EUR 750 m of TDIRA repurchase ** Capex excluding licenses Euros in mi
Slide 52: 9 months 2003 financial figures
Revenues growth REAA growth Operating income growth Capex* 33,278 +3.7% 34,443 +0.2% 13,159 10,842 +21.4% 5,295 5,402 +41.0% +38.2% 7,467 4,627 4,892 -29.4% -33.3% 3,265 11,163 +17.9% 34,498 Euros in millions financial figures * Capex excluding licenses 9m 03 2003 9m 02 Actual 9m 02 Pro forma 9 mont
Slide 53: Reported segments of FT
Toward 6 segments and statutory revenues 4 segments Contributive Revenues for Segments and Sub-segments 4 segments Contributive Revenues for Segments and Sub-segments Statutory Revenues per Segments 6 "new" segments Statutory Revenues per Segments Reported In Q2 Reported In Q3 Reported segments of F
Slide 54: Q3 statutory revenues on segments
Q3 on 4 segments Orange 4,264 4,714 10.6% Wanadoo 536 679 26.7% Fixed Line voice and Data Services in France International Intra Group Eliminations - 1,168 - 1,331 5,391 5,353 -0.7% 2,253 2,231 -1.0% Statutory revenues: Q3 2002 PF Q3 2003 Change in % Total Consolidated Revenues 11,276 11,646 3.3%
Slide 55: Q3 statutory revenues on segments (continued)
Q3 on 6 segments Orange 4,264 4,714 10.6% Wanadoo 536 679 26.7% Fxed Line Distribution, Network and Large Corporate 5,466 5,435 -0.6% Equant 648 633 -2.3% TP Group 1,037 1,031 -0.6% Other International 406 416 2.5% Intra Group Eliminations -1,081 -1,262 Statutory revenues: Q3 2002 PF Q3 2003 Change
Slide 56: 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: October 29, 2003 By: / S / P IERRE H ILAIRE Name: Pierre Hilaire Title: Director of