Transcript Intro_investor_day_V2.6

Investor Day
Innovation and Growth
N o v e m b e r 1 2 th, 2 0 0 3
Business review
 Michel Combes
 Jean-Yves Gouiffès
 Jean-Paul Cottet
 Olivier Sichel
 Barbara Dalibard
 Wilfried Verstraete
CAUTIONARY STATEMENT
This presentation contains forward-looking statements about France Telecom. Such statements are not
historical facts and include expressions of management’s expectations about new and existing programs,
opportunities, technology and market conditions. Although France Telecom believes its expectations are
based on reasonable assumptions, these forward-looking statements are subject to numerous risks and
uncertainties. These statements should not be regarded as a representation that anticipated events will
occur or that expected objectives will be achieved. Important factors that could cause actual results or
performance to differ materially from the results anticipated in the forward-looking statements include,
among other things, the success of the announced FT 2005 plan, including the “15 + 15 + 15” plan and the
TOP program, France Telecom’s other strategic, financial and operating initiatives, changes in economic,
business and competitive markets, risks and uncertainties attendant upon international operations,
technological trends, exchange rate fluctuations and market regulatory factors. More detailed information
on the potential factors that could affect the financial results of France Telecom is contained in the
Document de référence submitted to the COB on March 21, 2003 and in its Form 20-F filed with the U.S.
Securities and Exchange Commission. The forward-looking statements contained in this document speak
only as of the date of this presentation and France Telecom does not undertake to update any forwardlooking statement to reflect events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
This presentation contains certain measures calculated based on French GAAP information. For a definition
of these measures, please refer to slide 55. In accordance with market authorities’ recommendations,
France Telecom is no longer using the acronym “EBITDA” for Operating income before depreciation, but the
French acronym “REAA”.
Business review: Key operating themes
Revenue growth
TOP
Margins trends
Capex
Cash generation
Finding the right balance between growth and profitability
Revenue growth
What is underpinning FT’s
revenue targets?
5
Revenue growth: FT objective
Pro forma Revenue growth
Objective
2004-5
Key drivers
• Higher end of the +3%* to +5%* range
• Growth in mobile
• Fixed line business initiatives
• Wanadoo & other international
* Pro forma basis
54 revenues growth initiatives (TOP-LINE) of which
14 cross division projects
Revenue growth: Growth initiatives
Number of initiatives by
division, transversal
Transversal
Number of initiatives
by objective
Orange
Reinforce
positions
Control risks
Develop
new services
Others
International
Wanadoo
Fixed (Corporate)
Fixed (Retail)
Leverage
growth levers
A group-wide initiative
Increase
synergies
Revenue growth
Orange
Revenue growth: Orange objectives
2003
Growth inflexion achieved:
•
•
•
•
Objective 2004-5
Key drivers
New management
Focus on existing footprint
Improve client mix
Launch Orange World
• Improve growth above 2003 trend
• Momentum of 2003
• New “ease of use” initiatives and 3G
• Growth management : market based and
segmentation
After a rebuilt momentum in 2003, Orange expected to improve
revenue growth in 2004
Revenue growth:
Orange momentum in 2003
Quarterly net adds (000s)
and growth (%)
90.4%
Quarterly total revenues (€m)
& growth (%)
8.1%
2.5%
25.0%
-50.4%
-6.3%
557
696
1,325
4,255
4,360
4,714
Q1 03
Q2 03
Q3 03
Q1 03
Q2 03
Q3 03
 Orange has built a strong customer base in 2003 with improved mix
 A favourable launchpad for growth going forward
 Rest of the world contributing to 82% of customer net add in 9m 03
Note: reported numbers.
Favourable trends already visible at Orange in 2003,
RoW is a growth engine for Orange
Revenue growth: Orange ARPU in 2003
Orange France ARPU (€)
8.7%
270
37
39
40
42
220
222
224
227
229
Q3 02
Q4 02
Q1 03
Q2 03
Q3 03
35
336
Q3 03
375
33
35
38
41
347
344
340
338
Q3 02
Q4 02
Q1 03
Q2 03
33
267
259
377
377
263
255
376
380
Orange UK ARPU (£)
10.9%
13.7%
voice
non voice
Note: ARPU is annual rolling average revenue per user.
Continuous improvement in ARPU
15.6%
Revenue growth: Orange World in 2003
Orange experience
 One icon for access to a wide range of non-voice services
 One simple tariff throughout Europe (Orange World access / forfait
Orange World)
 An opportunity to try new services and a unified orange world
portal
 A choice of phones (including the Orange Signature range)
Benefits for both customers and Orange
 More attractive handsets and services combined with a simple
price and a personalised feature stimulate wider usage
 Gain extra added value customers, and improve customer loyalty
A key initiative already launched to drive non voice service usage
Revenue growth: Orange World
roadmap
Nov 2003
Q1 04
Q2 04
 UK
 Denmark
 Belgium
 France
 Netherlands
 Romania
 Switzerland
 Slovakia
Benefits for both customers and Orange
 Extension of richer and standard offers outside Orange core
markets, to conform brand value and expectations
 Deploy a seamless offer across the European footprint with
limited costs
Advantages of a pan-European offer
Revenue growth: Orange 2004
initiatives
Improve
Customer mix &
segmentation
• Targeted offers, loyalty programs,
tariff refresh and retention program
Improve Yield
• International offers to MNC, holiday
offers, and “last minute” offers
Non voice
• Promote MMS use, launch SMS email alert,
roll-out IM service, launch w-HA micro payment
platform
Revenue growth: Orange 2004
initiatives
New handsets • Increase Signature device penetration
Roaming
• Enable prepaid roaming across footprint,
introduce new services (short-code dialing),
GPRS roaming, leverage “Open Seamless Alliance”
Multiple initiatives stimulating growth in addition
to tranversal projects
Revenue growth: Orange 2004 3G
commercial launch objectives
UK
Commercial trials in
major cities
France
Developing
‘Villes Orange’
trials in Toulouse
and Lille
2003
UK
Commercial Launch in:
Commercial
Launch in ten
major cities, major
rail lines and
airports, with 50%
population
coverage
• Switzerland
France
• Belgium
Commercial launch
in ten major cities
2004
Orange confirms its 3G targets
2005
Revenue growth: Orange view
of 2004-05 data revenue growth
data revenue
2005
10%
2004
2003
15%
20%
data as % revenue
Note: bubble size denotes targeted data ARPU.
25%
30%
Revenue growth: Orange into 2004
Market
assumptions
• Increased competition in the UK with “3” and Tesco
• But no threat on value customers
• No major impact of VOD-SFR joint marketing
Regulation
• F/M price regulation already built in expectations
• Bill&Keep exit in France assumed from july 1st 04
Visibility
On revenue
• Orange has regained control of its growth levers
Orange revenue growth expected to improve in 2004 from 2003
trends
Revenue growth
Fixed line in France
Revenue growth: Fixed line France
objective
Objective 2004
• Reach the inflexion point
Key drivers
• Broadband (retail & corporate)
• New services (retail & corporate)
• New handsets (retail)
Full FT group objective consistent with cautious stance
on fixed in France
Revenue growth: Fixed line France
2003
Number of lines
• Slight decrease over 9 months
Traffic market
share
• Slower decline in local
• Long distance market share around 63%
Broadband
• 1.1m new ADSL lines over 9 months
Data
transmission
services
• 18% growth over 9 months, lower growth from Q3
despite roughly stable market share
* Pro forma growth
Contributive revenue down 2.4%* for the segment over 9 months
Retail markets more resilient than corporate & wholesale
Revenue growth: Fixed line France
challenges in 2004
Markets
• Uncertainty for economic growth
• Declining market for voice
• Strong momentum For ADSL
Regulation
• Subscription resale, broadband wholesale prices
Retail
Market trends
• Fixed line retail market still has untapped potential
for new services and marketing offers
Corporate
Market trends
• A more cyclical market, price decline and adverse
product mix effect
Pro-actively seeking the inflexion point in a challenging context
Revenue growth: Fixed line France
market assumptions
 Fixed voice volume still declining
 Access lines slightly down
 Economic climate to improve in 2004
 IT spending take up to have a favourable
delayed impact
Mixed signals for 2004, comparable to 2003
Revenue growth: Fixed line France regulatory
assumptions
 Liste Rouge* free since August 6,2003
(€ 130 M full year impact)
 Line resale: no decision yet and very small impact
if any in 2004
 Subscription fee increase requested as soon as
possible and assumed early 2004
 FT expects more freedom in highly competitive
urban areas
 Fixed/Mobile price cut
* Unlisted numbers
Neutral for revenue with FT current assumptions
Revenue growth: Fixed line France 2004
broadband initiatives
 Increase penetration in France
 Boost broadband adoption with
new services
• Video-telephony
• TVoDSL and video-on-demand
• Home networks
• Wifi
• Broadband for corporate
Objective of 4.5m ADSL line end of 2004 up circa 50% yoy
Broadband remains the growth engine
Revenue growth: Fixed line France
2004 initiatives
Increase loyalty
• Extend tariff plans, extend range of flat fee offers
Defend
telephony
revenue
• Subscription fee increase, tariff packages,
increase penetration of service options, increase
broadband penetration to protect lines installed
New channel
management
• Develop new distribution channels, increase
market coverage (shop & online)
Revenue growth: Fixed line France 2004
initiatives on handsets
 Improve telephony experience with new handsets
 That parallel mobile handsets look-and-feel, functionality
 That facilitate penetration of new network services
(SMS, address book, reachability, etc.)
 Milestones
 YE 2003 : 50% of devices sold to be DECT / SMS compatible
 2004
: over 90% of devices sold to be SMS compatible
 mid 2004 : launch MMS terminals
 Sales to double in 2004
Develop new services, spur voice usage
Revenue growth: Fixed line France 2004
initiatives
CORDLESS DECT Phones
FUN120€
Even for small budget
Large Array of SMS
compliant Handsets
Premium
& Discovery
COULEUR
SwissVoice 125
ARIA
DOROMATRA
Alcatel Versatis 790
SILLAGE 3000
Alcatel Versatis 1190
SIEMENS
A110
SAGEM D 70V
Security for Seniors
Siemens Gigaset S100
Philips Zenia 300
Siemens Gigaset
E150
INVENTEL
MACARON
Revenue growth: Fixed line France
2004 initiatives
PABX and CPE
From a current market share of 20% (EUR1bn
market size), a refocused organization should
improve FT positions
Intranet for
SME
Adapt large account type intranet offers to SME
Managed
Services &
outsourcing
Reposition offer as part of FT communication
Service business. Strengthen proactive sales
approach. FT expects significant outsourcing deals
Revenue growth
Wanadoo & Other international
Revenue growth: Rest of the group
objective
Objective 2004
Positive growth in line with total group trend
Key drivers
Strong momentum at Wanadoo
Mobile growth at TP
Growth initiatives in France planned to be developed abroad
Revenue growth: Wanadoo 2003
Internet penetration by country
(percentage)
Number of Wanadoo broadband
customers in Europe
(in thousands)
Sweden
Norway
2,071
Denmark
1,613
Netherlands
1,374
Germany
UK
982
Italy
147
43
28
France
1,044
2003E
2002
Spain
0%
10%
20%
30%
40%
50%
60%
157
99
49
184
120
68
1, 240
1,819
235
Netherlands
203
131
91
148
123
Spain
1, 394
1,564
740
70%
Sept.
2002
Dec.
2002
March
2003
Source: Jupiter Research – February 2003
ADSL markets in Europe grow 50 %+ per year
June
2003
Sept.
2003
United
Kingdom
France
Revenue growth: Wanadoo 2003
Internet access ranking and estimated ADSL market share
Wanadoo
/ France
Telecom
T-Online
AOL
Tiscali
Free
Telefonica
/ Terra
BT
France
N°1
(64%)
N°4
(7%)
N°2
(8%)
N°4
(6%)
N°3
(13%)
--
--
UK
N°1
(7%)
--
N°2
(11%)
N°7
(4%)
--
--
N°3
(51%)
Spain
N°2
(10%)
N°4
(n/a)
--
N°5
(n/a)
--
N°1
(81%)
--
Netherland
s
N°2
(10%)
--
--
N°2
(6%)
--
--
--
Germany
--
N°1
(73%)
N°3
(9%)
N°4
(2%)
--
--
--
Italy
--
--
--
N°3
(5%)
--
--
--
Source: wanadoo estimate, June 30, 2003
Revenue growth: Wanadoo 2003
France
UK
BB
subscribers
end Q3
1,564,000
123,000
148,000
235,000
Increase in
September
+ 87, 000
+17, 000
+12,000
+ 13, 000
Strenghts
Brand name
Marketing and
technical
innovation (Wi-Fi)
New offers
Wanadoo
eXtense
Wi-Fi PS2
Wanadoo
eXtense
Wi-Fi PC Card
Orange
Multimedia
eXtense Pack
Spain
2.5m narrowband
Clear alternative
customers to be
migrated onto
broadband
to Telefonica
/Terra
34% market
share with 1.5m
customers
“Moneyback
Netherlands
47% of the
customer base
is broadband
Modem & router New Wi-Fi offer
guarantee” ADSL
ADSL offer with Broadened
offer with 1 month
fixed IP address
cable offer
subscription on a
for SMEs
(Wanadoo
trial basis
Time-based ADSL Cable Easy)
2 months free
offer
subscription for
Flat-rate plans for
signup in Dixons
unlimited Internet
stores
access and
phone calls with
Uni2
Revenue growth: Wanadoo 2004
initiatives and objectives
 Wanadoo France
 Boost sales in France
 Increase value for broadband
 + 60% ADSL revenues / At least 50% acquisition share
 Internet services
 Develop paid-for services
 Develop B2B mobile interactive services
 Double paid-for service revenues
 Directories




Maximize the value of the customer base
Enhance White pages with the inclusion of mobile numbers
Develop mobile services
Increase by 5% the total number of advertisers and increase the ARPA
Broadband to support growth in France, Yellow pages not yet mature
Revenue growth: Wanadoo 2004
initiatives and objectives
 Wanadoo UK
 Drive on broadband and diversify / optimize distribution
 Double ADSL revenues / Exceed 10% of the overall customer base
(6% en 2003)
 Wanadoo Spain and Wanadoo Nederlands
 Enhance ADSL positions
 Leverage on our French innovations to boost market share
 Boost ADSL revenues
Leverage broadband growth out of France and maintain
a broadband leadership in Europe
Revenue growth: Wanadoo
Wanadoo going forward
ADSL revenue up 60% in France
Key targets 2004 Double paid for revenue
Increase by 5% total number of advertisers for YP
Double ADSL revenue in the UK
Wanadoo going
forward
Remaining potential to unfold
Leader on a high growth market in Europe that the
Group intend to fully exploit
Wanadoo is one of the FT’s group growth engine
Revenue growth: Equant 2004
initiatives
 In a recovering market, Equant expect to maintain its
leading position
– In spite of indirect sales (outside FT) decreasing
– By developping installed customer base and offering
a complete network services portfolio
– By developping existing and new outsourcing contracts
– By refocusing sales and delivery toward value added services
(consulting, project, service management)
Equant is a core international asset of FT group
Revenue growth: TP 2004 initiatives
• New Pricing Plans
Fixed Line
Penetration
• ADSL
• Customer Care: CRM & « 3000 »
• New offers
Mobile
Penetration
& Market Share
• Focus on Business Market Share
• Convergent Fixed + Mobile approach
• Data Services
• Orange intimacy
• New Offers: IP VPN / IN Numbers / …
Business
Penetration
• New sales organisation
• Large projects
TOP and other
operating theme
What is the profitability trend?
TOP: what’s next?
TOP in 2004
Group’s reengineering leads to further efficiency
gains and better quality of service
Facts
Key drivers
Sourcing: approx EUR1.5bn full year impact in 2004
for Opex+Capex
Capex sharing (eg: IT & network application
convergence)Continuous improvement in Opex control
(eg:saving trackers, process reengineering and
best practices)
Working capital :Billing process improvement
FT fully focused on TOP execution which remains
the key priority
TOP : 2004 key initiatives
 Key initiatives in 2004:
– Sourcing: launch of Wave 3, full implementation
of Wave2
– Capex:Focus on growth (UMTS, ADSL), sharing
for IT
– Opex: New process for local network units “URR”
in France, rationalize international network
supervision, Continuous optimization of IT operation
and communication spend
– Working capital: mutualize ressources to improve
corporates Clients billing
– New projects to be launched in 2004: revenue
insurance, supply chain,network procurement
TOP is an evolving program
Other operating themes: operating
margins
Operating margins trends 2004-05
Objective 2004-5
Improvement from 2003 and consistent with
approx 40% REAA margin objective in 2005
Key drivers
Impact of sourcing in 04 (approx 1% of REAA margin),
continuous improvement of TOP program,
Headcount reduction over 2003-2005 (approx 0.5%
REAA margin in 04 for total group labor cost decrease)
Other Opex gains compensated by R&D and SAC increase
Toward approx 40% REAA margin in 2005
Other operating themes: Capex
Capex policy for 2004-2005
Objective 04-05
Increase from 2003 level in spite of sourcing
gains (approx 25% of capex reduction in Q3 03)
Key drivers
UMTS capex, broadband and new services
development
Back to approx 11% capex / sales ratio
FT can be fully prepared for growth in spite of contained capex
levels through new efficiencies
Other operating themes: Cash
generation
Cash generation from operations
Objective 2005
confirmed
REAA-Capex / revenue ratio approx 29% in 2005
REAA-Capex rising through revenue growth
Key drivers
Revenue at the high end of +3 and +5% range
2005 REAA margin approx 40%
2005 Capex/Sales approx 11%
The right balance between operating margin and revenue growth.
Objective of Net debt/REAA below 2.5 for 2004
and between 1.5 and 2 for 2005
France Telecom
Investor Day Conclusion
Frank E. Dangeard
46
CAUTIONARY STATEMENT
This presentation contains forward-looking statements about France Telecom. Such statements are not
historical facts and include expressions of management’s expectations about new and existing programs,
opportunities, technology and market conditions. Although France Telecom believes its expectations are
based on reasonable assumptions, these forward-looking statements are subject to numerous risks and
uncertainties. These statements should not be regarded as a representation that anticipated events will
occur or that expected objectives will be achieved. Important factors that could cause actual results or
performance to differ materially from the results anticipated in the forward-looking statements include,
among other things, the success of the announced FT 2005 plan, including the “15 + 15 + 15” plan and the
TOP program, France Telecom’s other strategic, financial and operating initiatives, changes in economic,
business and competitive markets, risks and uncertainties attendant upon international operations,
technological trends, exchange rate fluctuations and market regulatory factors. More detailed information
on the potential factors that could affect the financial results of France Telecom is contained in the
Document de référence submitted to the COB on March 21, 2003 and in its Form 20-F filed with the U.S.
Securities and Exchange Commission. The forward-looking statements contained in this document speak
only as of the date of this presentation and France Telecom does not undertake to update any forwardlooking statement to reflect events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
This presentation contains certain measures calculated based on French GAAP information. For a definition
of these measures, please refer to slide 55. In accordance with market authorities’ recommendations,
France Telecom is no longer using the acronym “EBITDA” for Operating income before depreciation, but the
French acronym “REAA”.
Summary of Investor Day
Group priorities
Use of cash
External growth and equity structures
Management drivers
Investor Day Conclusions (1)
1. All previous guidance confirmed
– Revenue growth: top end of 3 to 5% range
– REAA: towards app. 40 % margin in 2005
– Capex ratio: 10 to 12 % of sales
– Leverage: 1.5 to 2 Net Debt / REAA ratio in 2005
2. Revenue growth can be achieved without jeopardizing
deleveraging and capital intensity targets
You have met the ExCom members responsible
for delivering on these commitments
Investor Day Conclusions (2)
3. Guidance underpinned by TOP and TOP-LINE programs
– Numerous product, service and "back-office" roadmap
commitments announced today
4. As in the case of TOP, TOP-LINE requires reengineering
of the FT Group's "business models" in:
– Corporate solutions
– Broadband access and services
– Business integration
5. Partnerships and innovation will play an important role
Top end of 3 to 5% growth range — 1.5 to 2 Net Debt / REAA ratio in 2005
Group priorities
1. Cost rationalization and reengineering (TOP, best-inclass performance)
2. Debt reduction managed to hit 2005 target of 1.5 to 2
ratio of Net debt / REAA
3. "Excess cash" used to improve organic growth
shareholder return, within existing footprint
4. Seize the opportunities of the technology transition
within the TOP-LINE program
Balancing profitability and growth:
France Telecom is NOT a "utility"
Use of cash priorities
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 (in / out)
5.
Subsidiaries' equity structure optimization
(up / down)
6.
Major acquisition
Not envisaged
7.
Share buy-back
Not envisaged
Use of cash — Comments
1. Distributions rather than share buy-backs
2. Organic growth investments — in support of the TOPLINE program
3. Subsidiaries' equity structure optimization — only for
fundamental strategic and financial purposes, e.g.
ORANGE
4. Footprint optimization — see Dec. 5, 2002 criteria
5. No major acquisition contemplated
France Telecom is focused on "cash returns"
Management criteria for decision
1. Deleveraging — the heart of value creation for the
Group
2. The "twin engines" of deleveraging:
– Cost cutting and reenginnering  TOP
– Organic growth  TOP-LINE
3. Criteria for decision regarding use of "excess cash":
– Improved strategic positions
– Cash return on investments
A very strong equity story
France Telecom
Investor Day
Q&A
ExCom Members
55
Glossary
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
REAA: Operating income before depreciation and amortization of tangible and intangible assets and
before amortization of actuarial adjustments in the early retirement plan
Capex: acquisitions of intangible and tangible assets, excluding GSM and UMTS licenses
Opex: operating charges before depreciation and amortization of tangible and intangible assets and
before amortization of actuarial adjustments in the early retirement plan
FCF (Free Cash Flow): net cash provided by operating activities, less net cash used in investing
activities. FCF does not take into account investment of cash in short term marketable securities
Operating working capital: net stocks, operational receivables, prior to securitisation, operational
payables (excl. fixed production)
DSO: Days of Sales Outstanding
ARPU: Mobiles network revenues for the previous twelve months
Mobiles weighted average customer base for the 12 month period
Network revenues include outgoing traffic, incoming traffic, access fees, visitor roaming and value added services. The
mobiles weighted average customer base for the 12 months period is the average of the monthly average customer bases
(calculated as the sum of the opening and closing customer bases for the month divided by two). ARPU is quoted on a
revenue per customer per year basis. Orange France (mainland) does not currently receive revenues from other French
mobile network operators for voice calls from their networks that terminate on Orange France ’s mainland network as in
some other markets, in particular the United Kingdom. As a consequence, French and UK ARPUs are not directly
comparable.