Orange SA (ORAN) 2002 Q1 法說會逐字稿

Good day, everyone. Welcome to the Equant first quarter 2002 conference call. This call is recorded. For opening remarks and introductions, turn the call over to the director of investors relations France Miss Isabell Javier.

Good morning, and good afternoon ladies and gentlemen. This is the (inaudible) relations for France. Thank you for joining us today for this conference call for the first quarter of 2002.

We are now highlighting the (inaudible) the news release is available over most of the wire services from the first quarter and (inaudible).

Let me review the agenda for today's call. First, Didier Delepine, President and Chief Executive of Equant will discuss some of the financial highlights of the first quarter and trends in the business.

Then, John Allkins will answer any questions.

I would like to remind you that our speakers' remarks today may con train remarks that constitute projection, beliefs or similar forward-looking statements. You are cautioned that the statements are only predictions, and that actual results would differ materially from the (inaudible) projected in any such forward-looking statements. Additional information containing the factors that would cause actual results to differ materially from the information the speakers give you today is readily available in the filing with the U.S. Securities and Exchange Commission and the French Commission.

All forward-looking statements are based on information available today and (inaudible). Now, I will turn the call to President and chief executive of Equant, Didier Delepine.

Thank you very much. Good and good afternoon, ladies and gentlemen. Thank you for joining us today to review the financial highlights for first quarter. The telecom industry is struggling and in the few past weeks, further signs of weakness with many companies lowering revenue.

Indeed, several of our direct competitors indicated a slow down in enterprise customers. Although not immune from the economic pressure, Equant remains on track with integration plan and our regular orders this quarter allows us to consider improved end of the year.

In that light, I am satisfied the results this quarter. Overall, revenues were 734 million dollars in the first quarter, 4.4% decline from the proforma first quarter of 2001. Network services revenues 393 million dollars, 4.7% increase over the proforma 2001 first quarter.

These were slightly weaker than we hoped attribute to believe a number of reasons. First, corporations scrutinizing the I.T. budgets. Some customers disconnected low-priority routes or not (inaudible) as we might have expected previously. Furthermore, traffic sensitive services are down as general business activity levels are not as high, so we have definitely seen an impact from the economy although affected us less than many of our competitors.

Additionally, with the sudden nature of the global economy, customers moved more cautiously with contracts. In the second half of 2001, we had a high number of contract renewals that brought about new lower prices based on competitive levels. I would adhere the irrational pricing of one telecom services provider added to the environment.

We have, however, achieved a record level of orders for network services in the first quarter, a total of 495 million dollars of orders following the fourth quarter almost as high.

I am particularly pleased that EDS chosen Equant's service as the core network for the Dow Chemical project. However, even with the strong order for this quarter, the revenue run rate in the time to connect new customers means that revenue for 2002 will be less than the level we had targeted at the end of last year. Integration services, revenue weak again in the first quarter, down 20% year over year, but about even with the 2001 fourth quarter. We continue to see the impact from the economy here.

January and February activity levels were weak, although March levels were definitely improved. Still, one month is not necessarily indicating a turn around and still somewhat guarded about when integration services revenue will begin to grow again.

The increase in fulfillment also indicates a better opportunity for us to improve our integration services in flow. We are to this end specializing part of our sales force and reviewing our current sales report positioning to promote revenue growth.

SITA revenues down 4% year over year and increased sequentially. This is, of course, good news considering the current situation with air travel. I should remind you to see price reductions in July which will result in lower second half revenue from the SITA sales channel. We are in a (inaudible) acceleration program that includes simple sales actions to get additional business from existing customer, particularly with boundary services while increasing our level of new business. Nevertheless, looking at 2002, we do not expect that we can eat this revenue cut target we set last October. With a slow economic rebound, we now expect that revenues will be upwards of 3.1 billion dollars for 2002. Looking beyond 2002, while remain very positive, it is clear that from this revenue base, our ambitious target for 2003 and 2004 revenue targets will have to be revised lower. Let's look beyond the revenue line. While we have not (inaudible) we have always maintained and I might add in the face of considerable doubts from investors that we could make a success of our merger with global one. Part of that success story will be our ability to cut costs and deliver synergies we let out at the time we announced the transaction. We are cutting costs.

We have shed another 400 position this quarter bringing the total head count reduction to 424 since July 1st last year. We continue to make reductions to network costs at the same time. We are proceeding with a very systematic plan to integrate the networks and lower cost position. ABA in first quarter showed good improvement from the proceeding quarter. And higher EBITDA delivered and we have improved EBITDA margin as planned. For the rest of plan, we'll keep up the attack on our cost base to achieve and -- synergies. As I said in the press release, (inaudible) target for 2002. We expect EBITDA in excess of $200 million on (inaudible) lower revenue than projected in October 2001. Now, turning briefly to our cash position. In the first quarter, we had capital expend your of 77 million dollars, about the same as orders previous quarter and significantly below what global one and Equant sent in the first quarter of 2001. The increase in the EBITDA combined with (inaudible) has given us an infinite cash balance at the end of March. So some capital management means that we'll not need to seek any additional funding until the second half of 2002. As you know, about a third of capital expenditure is directly related to revenue gross. We have moved decisively to align the expend your with revenues. We have now reduced our 2002 projected cap ex by $100 million which brings the new level down to about $500 million. This is a reduction of more than 40% from the aggregated starting point at the start of merger. So in conclusion, we have trimmed the revenue expectation from 2002, primarily because of the slower rebound in the global economy and continue to focus on operational and capital expenses. Thus, we have maintained our outlook for EBITDA and improve outlook for cash.

If you'll recall the last slide from our presentation at the investor meeting last October, I indicated why Equant is a global leader. A stable shareholder, a market position, a business model, and a strong financial position.

I said that we will execute on the merger and sliver synergy and indicated the economy is the question mark. The remarks are still correct. Equant is strong and a management team taking the actions necessary to weather the industry storm and deliver. Thank you. Now turn back to Isabell for the q and a.

Thank you. Now, we will entertain any questions that you may have. Rachel, would you expand the process to ask questions?

Thank you. This question and answer session will be conducted electronically. If you would like to ask a question, do so by pressing the star key followed by digit 1 on the telephone. We'll proceed in the order you signal and as many questions as time permits. If you have found the question is asked already and wish to remove yourself if the queue, please press the pound sign.

While the operator gets the queue if order, this call will be replayed through May the 3rd. Call in number is 1-719-457-0820. The access code is 384543. You may listen to the replay (inaudible). If you should not receive any mail of the new list, send anyone in the investor relations with contact information or call 16783463754. Or me on 314606953. Operator, we're ready for the first question.

Take the first question from Peter Kennedy, Morgan Stanley.

Good afternoon.

Hi, Peter.

I was wondering if you could give us what your assumption is for the economy on the revised forecast would be my first question. Is there a second half of the year pickup or is it relatively flat going forward? The second question which is just maybe an update on the process of going from the book of business and converting it to revenue, maybe some of the guidelines there.

Okay. Thank you, Peter. On the economy, obviously, if you look at our expectations on the quarter over quarter, we have always said that the first quarter is something we have observed being otherwise a little low, and we waited for January, February to see how March was coming. Obviously, March was the important factor as March in almost all areas shows a definitely a grow and increased revenue, increased order in take and through the value services we have as we have covered into the release.

So, I would say that as we look at the quarter going forward, we definitely see some growth. Obviously, the timing of this growth is key, but as I said originally, March give us good indication that something is moving in that directions, and therefore, I will take something which will be growth, both in the IP and in integration services, as both category have shown single growth for month of March.

I would be careful. One month definitely is not to stabilize our visibility but I think we see those signs and therefore, it seems too much, the global economy will both in the U.S. and in Europe that we have seen indicators up.

With regard to the order book, John is going to cover that question.

Okay. Hi, Peter. Well, as you know, we're not actually quoting now a book of business, an order book opposed to an order input that quarter ends. I think we made it fairly clear in our October and our March release that our visibility on the detail of the order intake had been somewhat affected by our integration process. But as we are putting the order book in shape, we're beginning to understand more of the order intake that we saw in the last six months of 2001 were renewals or technology changes on existing contracts which don't necessarily add to revenue growth.

We're recovering that order visibility now, but it's a little too early to revise the sort of general rules which were something like 40% of our order book would roll out in the following 12 months.

It's likely, in fact, to be higher than that, but we haven't yet finished the detailed review. Basically of the global one order position that we have inherited.

Peter, very necessary for me to give you a little bit more substance in the idea of the IP. But four network services we expect to be around 1.7 billion which will be up 8%. And that's what we see in a year over year for 2002.

Okay. Just a quick follow-up on that. Simplistically, if the book of business under 400 million, and that came on, 25 million per quarter. And as I understand it, some of the weakness in the quarter came from traffic sensitive which would if that wasn't down would be flat. Could you kind of look at the 25 million or whatever and see how much of that was pricing pressure on renewed contracts versus churn coming out of the global one business?

Okay. I think two issues there. One is pricing pressure. When we're renewing contracts, we're still seeing approximately the same level of price pressure as we have historically.

At the end of the three-year contract, we obviously see very big price reductions. Ten to 25%, I think we've talked about how it can vary by region. But, what we've also seen and again, we see people selling into if you like the gap that that price book reduction gives us.

And we don't see much more than a 10% fall in prices on a contract to like basis. So, pricing on renewal is about where we expected it to be. Didier mentioned pricing for new business which was aggressive and not following people down on that curve.

We take business when we think we can make money on it. I think your other question which is basically what's happening to the opening order book as I mentioned before, we have seen a number of new -- of contracts which we've resigned with new technologies, and on those contracts, we don't necessarily see an increase in the order. We don't necessarily see an increase in revenue. We'll sign. Get an order. Some of that order is in fact replacing revenue that we would have been booking anyway in the following year. If we look at roughly what happened, we can see that maybe five, six million of our quarter's drop in revenue was due to activity-based contracts. But that's quite high. Something like 25% of what we would have expected in the quarter. Thank you.

Great. Thank you.

Our next question, please?

Next question from nick Belfast of Lee man brothers.

Yes, hi. Two questions. First of all, on the financial cash position, you have an ability of $300 million from FT on offer. Can you confirm that's a firm offer, and do you have any plans to draw that down just for maximum security given the turbulence in the FT share price?

And secondly, again, I hate to ask another question about the order book. Is there any way you can tell us whether the length of the order book that the average life of the order book increasing? And if so, roughly by how much? Because obviously that could affect the amount of order inflow.

Okay. With regard to the first questions, we do confirm if availability of this $250 million plus, 50 million dollars from our parent shareholder. We do also confirm as said earlier that we continue to investigate to get the best offer.

But this offer is confirmed in spite of anything that you feel this offer is on the table. And obviously, as we have just said in this discussions, we are pushing to the second half of the year our need for cash based on our cash economy.

John, for the second question on the order book?

Okay. If we look, the average life has partly because of the merger of the two companies, actually started to shorten a little as opposed to lengthen. We had a period of years where it went from three, over to four, because signing some seven-year contracts. They still exist, generally, but seeing the average life of our order book is probably now less than three years opposed to over three years.

Just to reemphasize Didier's point, if I may. We don't have plans to draw down. We're not watching FT share price with that in mind, at all. And, as the release says, we're having discussions with other financial institutions simply because there are some better rates. There are some better deals on offer something which is what we do to maximize the return for our shareholders.

Great. Thanks very much.

Next question, please?

Next question from Simon Karrington.

Thanks very much. A few new her call questions. I missed the first two or three minutes of the call. Four numbers after. The first one is the size of the quota bearing sales force. I think last quarter about 600. Second number I'd like is SA&G's percentage of sales in the first quarter.

Third number I'm after is the number of EDS connections. I know you used to report connections. I know it's not as meaningful as it once was but I still find that number helpful.

Last number is tax losses at last year end.

I couldn't catch the last one. You broke up a little.

The tax losses. You available at last year end, whether if they're available to you or taken up to the parent company.

Okay, if I may just to pick on the last question first. All the tax losses that were in our accounts as published are definitely available to us. And will remain so for some years. So there's been no movement of those tax losses at all.

QBS, I think we have approximately the same number of QBS. I think it's gone down a little bit. I don't actually have the number off the top of my head.

577.

577. That's the number for QBS. SA&G, we're not publishing the details set of accounts. I'm afraid you're going to have to go missing there. The only thing I would say that the cost reductions are spread indirect cost and in the SA&G area, and in particular, we've actually seen some reductions in the G&A area in particular.

And in terms of network connections, Didier?

Yeah. I can cover that. We got to the connections with regard to Equant. The connections which are the activity connections that we have increased roughly from December of 2001, to January 2001, roughly around 12% with regard to connections. You have to understand that the total connections are also aversely affected by the pattern seen in SITA when the Equant connection have increased, the SITA connections have decreased and this is something we have always mentioned to you is that, in fact, SITA reducing connections and increasing capacity as you have seen by the way the number for this quarter are a little bit higher than our expectation.

So all in all, we have our total connections roughly flat, and maybe one or 1.5% down. That's coming from a 12%, 10 to 12% increase on the Equant and 8% on the SITA side. That gives you an idea of the balance. Connections with regard to activity, that's the number we have.

Great. And just lastly, John, I know you said the tax losses are still available. I don't think I've seen a report. Can you fill me in on the number if you have it for the tax losses?

No, I don't have it off the top of my head. I'm fairly sure it was in our release.

Okay.

And in fact, I have the release if not the accounts. And the tax losses -- we'll take another question and we'll certainly come back to you before the day is out on that.

Great. Thank you.

Operator, we can take the next question.

Go to Shawn Johnson.

Good afternoon. Please could you give me clarity on where the gross margin is going this year? Seeing your revising down your guidance on -- and basically I see on the network services slowing and as far as I see, the biggest contributor to the gross profit. At the same time, keeping your guidance for EBITDA at 200 million plus. The way I see that on 3.4 million, seeing an EBITDA margin of 9.5% and now saying EBITDA margin of 6.5 towards 7%. So the cost -- is it the cost savings coming through greater and just some of the trends you're seeing in those numbers, the gross margin and SA&G would be helpful.

Thank you, Shawn. John will cover this.

Yeah. We are definitely seeing the costs are reducing even on the network services side at a faster rate than we'd anticipated. So, our direct cost reductions are moving faster than we've anticipated. We see that in a number of areas. The staff reduction of 400 in the first quarter, good proportion of those were in our -- were in our network area.

And, that's slightly ahead of our expectation. Similarly, we continue to see good reductions in unit costs of capacity, unit costs for international circuits in unit costs for access circuits and as we integrate a network, we're seeing even more opportunities to save property costs as we can actually squeeze if you like the network into smaller physical environments. So, basically, we're seeing cost reductions and our gross margin will tend upwards from the fourth quarter of last year. Our SA&G percentage will also go down. Thank you.

Thanks.

Operator, next question, please?

Go next to Phil Campbell.

Good afternoon. Wanted to revisit the order book again and I just wonder if there's seasonal reasons why the order book picked up or whether a genuine increase. Talking about the weaker January and February and strengthened March.

Go ahead, John.

Okay. I think the order book in the quarter was up not a huge amount from the fourth quarter of last year and that's certainly something which we see as seasonal.

We did 495, I think we did about 490 in the fourth quarter of last year, so it was a very small increase which is pretty good because it's not unusual to see a decrease in that order book, and in fact, traditionally, Equant seen a decrease in order intake. Not order book. In the order intake in the first quarter.

We don't actually measure the order intake on a month by month basis. I think we might have confused you slightly talking about the revenue uptick in our integration services business in March. But the order intake that we talk about is for network services, the fourth quarter was slightly lower than the first quarter so the first quarter is an improvement which is very good as we say, I think in the release, that's in fact, a record for us as a company.

Okay.

And we have done some good signature including new business. We have reported, again, signed (inaudible) for 27 million. We continue to build additional business with p and o and b and t and EDS that I mentioned in my introduction.

Great. Thank you.

Operator, ready for next question.

Next question from Peter Meshlon.

Hi, good afternoon. Two questions, please. First, the issue of the timing of the (inaudible). Would you say there's a structural shift toward less costly products which would then mean sales and EBITDA over the medium term should be revised downwards? I mean, is there -- and you say you've seen over the last six months, which would mean clients don't -- that were buying before for the next projections should be changed.

Other question is much more short term. Given what you have been seeing since March, would you say order inflow would -- should continue to grow quarter over quarter. I mean, Q2 over Q1. Should we keep seeing an increase in quarter inflow?

John will take the last question first, on the inflow.

The simple answer is, yes. We obviously had some issues with both measuring and achieving good enough level of order inflow in the third and fourth quarters of last year.

We see that pick up in the first quarter of this year which is quite unusual and we tend to see that continuing to accelerate. We look and are achieving greater productivity from our sales force. And part of the integration process of putting the two sales forces together is obviously to weed out and eliminate some of the nonperforming sales people.

That's a constant fact with us. We would expect an improvement in sales force productivity. We know from the flow of opportunities that the opportunities are certainly coming back.

And we would certainly expect to see a very good improvement in order intake certainly by the fourth quarter. There are large orders out there. There's always you sign 40 or $50 million order in one quarter and sign us in the next.

But the trend certainly is going to be upwards.

To your first question, Peter, for the network services business, we obviously continued to see a focus on our large international cooperation. Strongly on the quality and the quality of the business as discussed with the orders.

Obviously, as you understand, and that's another issue for this quarter, we have deliberately said by John's take back from any type of price pressure that's impacted the marketplace in this last three months.

But, as you hint, we have also seen customers taking some rapid cuts trimming initiatives which impacts sort of subsets of the overall business they do with us. One of them is including moving to some low priority traffic to internet connections. We have seen also a decrease obviously in travel by the corporation which have limited our dial-up business. We do dial-up business with companies that offer some content provider services around the world. That is also decreased.

So, we do not see a shift in the way that the companies are purchasing, but you see them exercising the opportunities of for most remote sites to try to go with lower end type of connectivity. It is, by the way, an environment which is always back and forth because after a while, those companies realize that the security involvement, the lost -- public internet do not fully satisfy their needs.

So, what we are doing is we're going to offer by the end of Q2 service of internet which will be obviously a new service which would allow us to offer to these corporations which have a tendency to suggest that the public internet could be a (inaudible) a service offering which will be a low end of an IPVN but together with the same security.

So, it's not a shift in the buying strategy of the companies, but definitely taking the opportunity of taking lower costs solution where applicable.

You're not afraid of killing your business with low end offer?

No. We're not afraid of killing the business. This, by the way, offer obviously part of a total package that we'll offer, and that will be bundled with other services as we offer it.

The idea of cannibalizing is scrutinized and we are seeing -- it's not usually coming from IPVN. More from the (inaudible) or people in the age 25. So it's small going towards something that will take a little bit from the legacy part, that is to say from 25 move maybe to the lower involvement for some sites and exclusively for some areas for some companies but we believe together, this is not -- we are not afraid of cannibalizing process like you significant jest.

Thank you very much.

Operator, we can take the next question.

Our next question comes from Joanna Edmonds.

Hello. I have three questions, please. Could you comment on how confident you are that you'll renew the majority of contract that is are currently there? Can you give us an indication of when the contracts likely to come due?

Secondly, could you comment on cap ex for the full year? Only spent 15% of the 500 million in the first quarter. Could we expect further savings from the level or do you have plans later on?

Thirdly, commented on the trends of March. Could you give us a comment on what you've seen in April?

Okay. Let's cover the question maybe in order. John, you want to cover the contracts?

Yeah. Basically, we are seeing a good level of contract renewal for the global one contracts. Our visibility, because we're signing through a sales force putting into a -- as a covered order processes, it's somewhat limited as to what's global one and what isn't.

There's a slight increase in our overall churn rate, but it's still far less than -- still less than 5%. So, we think most of the global one contracts on that basis will have renewed by value. Some will obviously churn off if they're very low value contracts will churn off.

And basically, that should all happen certainly within on average 18 months of the transaction. So, we're moving towards being within a year, and then probably by the end of 2002, we will have done that.

In terms of cap ex, I think your next question, basically, yes. We do see we'll have some large elements to spend in the next three quarters. In particular, we need to make some payments. We will make some payments on capacity purchases that we have ordered in 2001.

And that will amount to possibly something like 40 or $50 million in the next two quarters in the next two quarters opposed to $11 million in the first quarter and then a number of integration-related projects where we're putting in new systems for the company. And those will come in towards the back end of the year. That's not to say that we will not be looking always at optimizing our capital expenditure and making it match with our revenue growth. We know that broadly a third of our cap ex was in -- network cap ex in support of revenue and that can obvious fluctuate with the network services revenue.

I would add we've always operated on largely just in time capital model. We'll continue to do that. We're continuing to optimize. Not reading the networks and continues to be the method used. Even significant purchase tends to give us better return today. So, in addition, as John said, one sort of cap ex is related directly to revenue.

I can say something on April but -- a little early to actually judge April but in terms of physical connections on the network in terms of traffic, we continue to see good growth. I think slightly accelerated growth and looking at two of the months, and the order situation is continuing to look very hopeful. We've signed or close to signing some very nice orders in April.

But, I think you have to let us close the books before we can say anymore than that.

I could ask a follow-up question from something earlier? The revenues decline in quarter on quarter, made comment to the percentage came from volume declines and which came from pricing declines. I wonder if you could give that number again.

Okay. What I think we actually said, I don't think we talked about quarter on quarter. What I said was that when we're resigning new contracts, that we see on a three-year to three-year basis, quite large reductions, 10 to 25%, that on resigning on a like for like basis, we see less than a 10% reduction. The month after we resign a contract with the billings on that contract compared to the month before.

I think you broke up a little. I think that was the question you were asking.

That was great, thanks.

Thank you.

Operator, our next question, please.

Our next question from Matthew court yeah.

Yes, good afternoon. I would like to raise three questions if I may. The first question is relating to (inaudible). Can you come back on the nature of agreements and emphasize the reasons why so declined the level of activity.

Second question is would be more related to SITA. Can you quantify the price reduction given SITA's services on the back edge of services? Second question.

And third question would be relating to the competition. Did you gain significant contract after competition failure or in other words, did you recall net gain of customers from competition as a follow-up on the quarter over quarter new customers addiction.

Okay. I will cover the first question regarding the relationship I understand you want to know between FT and France back. We have enter add you know on the middle of the year when agreement are called umbrella facility and governed the relationship between us and France Telecom in France. Obviously, the agreements that cover what we have as joint business and include planning and monitoring, process between the company and France back. I recall that France back is distributor of the product and services of Equant in France. And, that trance back agreed to minimum revenue guarantees for the company, which were, I think, the number that you must have is pricing to something or a little above 118 million for 2002 and 2003. So, as obviously this is the way that we are France Telecom and France back similarly have those type of contracts, we go and operate through the contracts so maybe you want to clarify your questions, maybe before we go to the second one, Matthew.

Yeah. No. Regarding the reasons why we saw decline in the level of activity and regards perhaps to the kind of services exactly.

Okay, okay. John is going to cover. Making a sign he wants to answer.

Okay. Well, no. Relatively simple, I hope. When the original contracts were signed, the original agreement signed between global one as was and France back, a simple contract saying we'll do product management for all the products that France back sells, and with certain costs assumed by global one in relation to providing the product service management. As they got closer to doing the transaction with Equant, realized the products in the portfolio that weren't international, and as part of the negotiations leading up to the transaction in July, the revenue for those products if you like was excluded from the parameter, the costs involved in supporting the products given back to France back. Although a revenue reduction, we haven't seen a margin impact from that. So, in simple terms, we resized the parameter to be purely the internationally applicable element of France back's products and what we get a fee of royalty fee or whatever you wish to call it on.

Okay. If I then move on to Peter. You wanted to quantify the conceded price reduction. What we're looking at possibly in the second half year for SITA is a reduction compared to the first half of something less than 10%. So, if we look at SITA, we're currently doing 170 to 180 million dollars a quarter. That will probably not be much more than 160 million dollars in the fourth quarter.

So, we're looking at moving around a 10% reduction on SITA revenues second half year compared to first half year.

Your final question, Matthew, I believe, on the pipeline seeing a significant contract. Is

Yeah. The main concern (inaudible) regarding the -- in fact, the net addition of clients as a follow-up of some competition failure like what we're seeing in the industry.

Okay. Go ahead, John.

Okay. I think the simple answer is, as we see people like global crossing or kpn quest fail, there isn't an immediate rush of clients from them. So, for instance, for concert, we probably picked up more concert customers when concert began to go through its disintegration. It's far easier for us to pick up customers where the competition is already sourcing. We have the relationship.

If we or any other provider doesn't have a relationship, there tends to be an amount of stickiness even with an enterprise that's going to break up. If you look at concert, for instance, AT&T and BT work very hard to maintain their relationship with Pacific customers there although we did win a number of customers from breakup but it's not an instantaneous thing and it depends on the relationship you have with the customers of these people.

Thank you very much.

Operator, we'll take three more questions.

Next question from Victoria Pease.

Hi, good afternoon. A couple questions. The first one regarding global one contracts, mentioned the lower value contracts were kind of actively led off the network. Could you quantify how much in terms of revenue run rates the contracts are?

And the second question, if you look at your target of 1.7 billion for network services, that's a growth rate that's more ambitious than the peer groups. I was wondering if that would imply that your cap ex brought down by 100 more if you were not able to achieve that 5% sequential growth rate. Thanks.

Go ahead. Very quickly. We have more questions.

Basically, we can't quantify the amount in revenue, but that I think, Victoria, means so slow we know anecdotally of people churning off the network customers churning off the network. Not a number that is in our analysis of change.

Yes, you're quite right. If for some reason we didn't achieve 1.7 billion of revenue which we obviously believe we would, otherwise we wouldn't put it into our thoughts, then there will be some further reductions in cap ex that will also be reductions in op ex because we're determined and we know we need to achieve the EBITDA margins that we have set ourselves. Thanks.

Thank you.

Operator, next question please.

Next question from Susan muldahill.

Hi. Two very quick questions. The first one goes back to the network services revenue. Can you just give us some confidence that the 500 or the 495 million in the order book at the end of Q1 can help to achieve that 1.7 billion target?

And that, I guess, that confidence could come from the idea that a good part of that 495 million are actually new orders, and not revisions of existing orders.

And the second question is just around your integration services business, if you can just tell us what kind of investment you're making in that business and how you're developing that business and how you expect that will begin to contribute revenues in the later quarters of this year.

Okay. Let me take Susan the last question first. The last question is regarding is. Obviously, and I think I have said that with regard to is, direct relation to economy. Fulfillment is one of the drivers to influx some of the contracts which will follow regarding the business of integration services.

You said investment. Let me maybe clarify something for you. We have a said in the introduction. But, we also looking at changes in the process of selling. In January 2001, at the request of our customer base, we have integrated the sales force in such that a single account can drive both business, the network services and the integration services.

If you look at the results which has evolved quarter by quarter INS, we have seen maybe it needs to be reconsidered. I'll give you an example. It's human nature -- it is difficult for someone to sell a $60 million contract and also take care in the back end of the 100,000 or 200,000 or 300,000 which is in the end. So we have seen a little bit of defocusing of the sales force. That's being changed right now as we speak as in major countries analyzed the potential, the potential being in two areas.

One, the existing customers that do not use I.S. that we're looking at introducing to this type of service. And two, global one customers, former global one customers that never had the opportunity of having that type of sales because global one was not offering I.S. So, a change of organization, a focus into the existing customer without integration services and in particular, global one, and obviously, also, looking at relations, collaborations around with potential partners in order to try to expand. That's why we're saying that we see no year over year growth for I.S., something which around half a billion dollars for this year but definitely some actions if you call that investment, this is more organizational and focused than investment but that's what we are doing.

John, for renew?

I think, again, just to recap, we're still looking at getting our order book and order booking system into the right shape. But certainly, if we look at the top 10% or the top 10 or 20 of our wins, which actually give us more than 10% of the 495, we can see that in the first quarter we had four times as many new orders in absolute terms as we did in the fourth quarter.

So, so lots of new orders in number of orders, and if we haven't got them probably by the end of April, May, then they're not going to be effective. So, we think that getting those first quarter orders connected is key to delivering our 1.7 billion target, and that's what we're planning to do.

Thank you very much.

Thank you, Susan.

Operator, next question, please?

Our next question from Christian Pesher.

Hi, guys. Just I was wondering if you can perhaps break out the organic (inaudible) growth and split that between pure connectivity and the broader services and as a quick follow-up, last time we spoke, you were going to see people for Sisco with the maintenance and service contracts. I don't have you have any resolutions after the meeting with Sisco.

I'll cover the first question. The second regarding Sisco. There is no resolution. The meeting with chambers took place last week, and next meeting with Sisco taking place on the first days of June at the Atlanta last communication exhibition there.

So two issues with regard to Sisco. We definitely perfecting our relation. By the way, we need also to understand that Sisco is also showing a little bit of initiatives regarding services themselves.

So, we have to position that relation quite clearly. It is not only with Sisco. I mean, the Sisco involvement is certainly one where we have all of the gold, platinum, silver-type of technician grade and we are looking at making sure we look at working globally with Sisco.

One of the thing we do right now negotiate or discuss is that we have models that tends to be different and John chambers taken also an example that the (inaudible) global model may not exactly fit the in-country model which is the Sisco one and we are looking together how we can expand and the maintenance benefits by both companies with a global model. That is not delivered yet. It will be the 5th of June the next meeting is taking place.

-- Some of your integration services or any of your maintenance business at risk from that relationship?

No. That's what I said. It needs to be clarified and this is obviously an in-country issue for the time being and as you know, Sisco is an organization in-country which is quite specific, and we just want to be able to compete effectively against the in-country person which provider service of Sisco and we have to define rules of engagement.

You are correct by saying we see movement for service on the Sisco side to discuss. You are correct. John?

Okay. We don't actually calculate an average RPO. What I can tell you is if we look at the top ten customers then we certainly saw something like that 13% sequential RPO. If we take out from that the contracts which were new in building in that environment, new network services contracts that we're building, we're still looking at somewhere around the 7%.

So, from a customer basis, we're at that high end. We're looking at getting more revenue per customer. As I think I mentioned earlier, we know we're churning off some of the smaller value customers at the bottom end so probably that's also increasing the RPO slightly but we don't have a number for that on average, I'm afraid.

Broadly, would you say that the connectivity part of RPO is flat and the services part is increasing?

No. I think it really is a question of your meeting customers' needs and sometimes for more connectivity on the pipes or more geographies. Sometimes they have as much connectivity as they want and want us to move into security, into messaging, where it's a process if you like of outsourcing their coms and I.T. infastructure to us.

I think we couldn't generalize. We know that our traffic continues to grow at 70%, something like that, on an average basis, and as you heard earlier, we're seeing significant connection growth, so it's not certainly just on the integration services side we're selling more. We're seeing a lot more connectivity and network services. Thanks.

Thanks a lot, John.

Our next question, please.

Nahesh nariyan.

Two questions, if I may. You mentioned that you are facing a certain amount of irrational pricing from one competitor this quarter. Do you expect that to change over the next couple of quarters because of what's happening at Worldcom? And secondly, on consolidation, can you see Equant acquiring a competitor to help sort of improve the pricing in the market? One player that comes to mind is (inaudible). They're clearly interested in selling their stake.

Okay. Thank you very much. Let's take the second questions regarding the involvement. Obviously, the involvement today shows so much weakness that people are ready to make some offers which could be 10, 15 cents on the dollars. That's more the case for assets.

And, I repeat that we will maintain a model which is a (inaudible) of our assets needs and therefore we're not going to put and hold any assets that we'll not use. That's the first thing.

Secondly, you mentioned info net. In that case, I think it's clear. The interest at Equant is same. The interest for Equant to get customers. We have a network which as we demonstrated this quarter and always demonstrate and will continue to demonstrate we know the optimize, the reduce the cost and get an efficient use of cash and cap ex. It is an issue of purchasing customers not assets and in info net, I don't think the customer base is for sale without the assets. That may come one day. With regard to the irrational pricing, I would like to add that this is something which we believe cannot be but temporary because maintaining this irrationally will not bring us strength and certainly, economic solid base to any supplier of telecommunications. Now, will it last? And how long will it last? I think that it is difficult to predict. Obviously, the situation with some of the company doing the irrational pricing is changes almost every morning and therefore we have to wait and see.

It does not appear to us as sort of management towards (inaudible) and continuity. It appears as on time and sporadic pricing which I don't believe will last.

Thank you.

Operator, take the last question.

We have a follow-up question from Simon Carrington.

Great. Thank you. Last two questions I'll try anyway. Looking at the cash balance at the end of the first quarter versus the previous quarter. Can you just check my math is right here 90 million dollars been burned and that with (inaudible) 25 and cap ex is 77, that means EBITDA minus cap ex is 50. I'm wondering where the other 40 has gone unless there's a problem with my math.

Second question, in terms of the turn around in revenues, I wanted to work out on what basis your quarter optimistic revenues will return to the growth track for the next few quarters. Especially the context of declining other revenues and SITA revenues, is it purely because of the order book and March and April making you cautiously optimistic or anything else to be thinking about?

Okay.

Okay. First of all, Simon, I think I owe you an apology. I don't think we did put the brought forward losses carried forward in previous release. Therefore, I don't think we'll be able to give them to you separately. They're there and they'll coming out accounts. I'll talk to people about that. In terms of what's happened to the cash, below the line, we have our restructuring and integration costs and that is obviously a cash item of some significance, and in the quarter, we did actually put $26 million more into our working capital. So, our dso's went up a little bit. Payables didn't quite go out to match. But the main item I think you're missing is that there is a -- there is a cash item below EBITDA basically the restructuring and integration expenses.

All right. And the turn around in revenues?

The turn around in revenues, I think, if you look at network services, we have looked at the order book. We have a greater understanding of how the order book is going to roll out. In terms of our integration services, as Didier has said, we have seen a pickup in fulfillment we think will drive organic growth in services. We have refocused the sales force. We reorganized the way we're looking at things. On that basis, we believe we can manage our way to an increase in revenue in integration services, and we'll obviously have to manage the increase in revenue in network services.

Great. Thank you.

That concludes the question and answer session. Before I turn the call back over, I would like to make aware of the Equant's web site address. That is www.Equant.com/ir. There's also a rebroadcast available via the telephone in the U.S. that number is 719-457-0820. And you will need the confirmation code 384543 followed by the pound or hash key.

It will be available from 10:00 a.m. Eastern time today through midnight Friday, may 3rd. I will turn the call over for closing remarks.

That concludes the call for today. Let me remind you that this call will be replayed through May the 3rd. The call-in number is 1-719-457-0820. The access code is 384543. Alternatively, you may listen to the replay through the web site. I would like to thank all of you for joining us today. The investor relations team will be available after the call to answer any additional questions that you may have.

You may call me, Jean. Thank you.

That does con lewd the Equant first quarter 2002 earnings conference call. We thank you for your participation. You may disconnect at this time.