Orange SA (ORAN) 2003 Q4 法說會逐字稿

Good day, everyone, and welcome to this Equant revenue conference call. This call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Ashley Rayfield. Please go ahead, sir.

Morning and afternoon, ladies and gentlemen. Thank you for joining us today for our investor conference call [break in tape] 2003 which we announced last evening. The news release is available over most of the wire services, and on the Equant Web site. The agenda for today's call is straight-forward. Daniel Caclin, Equant's President and Chief Executive Officer will make some introductory remarks before handing over to Jacques Kerrest, Equant's Chief Financial Officer, who will briefly comment on the results and then will be happy to take your questions. I would like to remind you that our speakers comments today may contain remarks that constitute projections, beliefs, or similar forward-looking statements. You are cautioned that these statements are only predictions and that actual results could differ materially from the results anticipated or projected in any such forward-looking statements. Additional detailed information concerning the important risk factors that could cause actual results to differ materially from the information that speakers will give you today is readily available in Equant's filings with the Securities and Exchange Commission in the US, and the Commission of the Borse in France. All forward-looking statements are based on information available to Equant as of today, and Equant assumes no obligation to update such statements. I'll now turn the call over to our President and Chief Executive Officer, Daniel Caclin.

Thank you, Ashley. Good morning or good afternoon, ladies and gentlemen. 2003 has been a year of solid achievement for Equant as we have delivered on the guidance that we have given, not just in financial terms, but also on the whole rationale for the merger between Equant and Global One. We said in January 2003, that in a difficult economic climate, revenues would be essentially flat and that we would see a significant improvement in profitability. We delivered. We said there will be an improvement in adjusted operating income, EBIDTA, as we used to call it, we delivered plus 52%. We have kept capital expenditure at a level below 10% revenues by matching our capital investment to the needs of our customer. Finally, we [inaudible] pre-cash flow positive[?]. We delivered on this too.

The success [inaudible] on integration of Equant and Global One has delivered the synergy that we foresaw as long ago as November 2000. Certainly the restructuring on integration was painful, but is now behind us and leaves us well positioned for the future. We have improved our operations on cost structure such that we have strong adjusted operating income on cash flow on top of the existing cash balance on under[?] balance sheet. During 2003, we signed numerous new contracts with multinational customers. Let's look at two examples. Our outsourcing[?] contract with Zurich Financial Services has us providing [not only?] on land management, but also security, remote access, fixed voice, and mobile voice. Our five-year contract with Le Méridien is for supply of an IP VPN solution connecting 60 sites in 17 countries to provide a fully managed Web server room reservation system, and in the future there are plans to provide Le Méridien with converged voice over IP. What's important is that for these contracts we leverage upon our full portfolio of products to build the global integrated and customized solutions our large customers expect. We announced yesterday our 1,000th customer for IP VPN. STMicrolectronics will connect 100 sites worldwide out of which 40 are voice-over-IP enabled.

We announced in January that we would expand in communication services business to satisfy multinational companies' needs for integrated network and IP solutions. What we target is that by leveraging our existing capabilities, we can drive growth in our service business. Our goal is of doubling the proportion of service revenues to 25% of our total revenues in 2006/2007. In order to strengthen our ability to deliver integrated and customized solutions, we are organizing our services expertise around five business practices covering concerting[?], project management, service management, integration services, and managed services. Also, to leverage the 3,000 professionals that we have already at work in the company into these areas. Our focused services business enables us to address a larger part of the communication services market, and further differentiates our offering from the competition. It also importantly reinforces our data-on-IP offering, which continues to be a vital revenue stream for us. Our mission to provide multinational corporations with global integrated and customized communications solutions around the world will translate into the following priorities: a continued focus on the top 5,000 MNCs. As I described earlier, we will organize our delivery into the five business practices. We are also strengthening our outsourcing expertise. We are further announcing our voice on data convergence as well as mobility solutions. And finally, we continue to reduce our cost base, in particular our access on transition costs.

To end this introduction, the environment for corporate business solutions will remain challenging, particularly in the first half of the year, and as a fully global company we are impacted by currency fluctuation. In this context, we will drive our operations towards a small increase in our annual revenue, an increase in our EBITDA and remain operating free[?] cash flow [inaudible]. We have the necessary resources to drive growth in our core business line, and we will invest what's needed to meet our growth aspirations is the services area.

I will now hand over to Jacques Kerrest, our CFO, to take you through the numbers in more detail.

Thank you, Daniel. Good morning and good afternoon, ladies and gentlemen. As you know, we have had two releases in a week, first a revenue release, and then the results themselves, so I'll take you through the revenues first before moving on to the rest of the results. For 2003, as Daniel indicated, we met our guidance on revenues. We had some help from currency movements, but equally, we had an even more significant effects on our costs so we were net losers overall. I will say more about currencies later. The good news, as we are used to seeing, is that Network Services Direct grew 2003 over 2002 by 8.3%. Excluding the effect of currencies, at constant exchange rates, if you will, the increase was 3%. So there can be no doubt that we experienced real growth in a key part of our portfolio. The driver of that growth remains our award-winning network solution, our IP VPN. Growth in IP VPN revenues 2003 over 2002 was over 50% although we saw some reduction in frame-relay revenues as we migrated customers from frame to the newer technology. We experienced good growth in our direct channels in nearly all regions, particularly in the European area, where growth was 10.7%. As we have seen in the past, North America was weak, mainly as a result of customers moving to low-end, less costly connections without the added value that we bring to a network solution. Our indirect revenues also continued their recent patterns, with reduced billings to Sprint and Deutsche Telekom as the primary reason for the 19.7% decline, year over year. On a constant currency basis, the decline is about 21%. It's worth saying that we continue to work hard at building other indirect channels, and we have had some success there, for example, China Netcom, but in all our indirect channels there is a long time lead between the time we contract with these channels and the time we show some new revenues. As you can see from the revenue release, we have given some additional information on the components part of integration services. The big news is that fulfillment revenues have had a really good year and a particularly good fourth quarter with demand strong in all regions. Higher fulfillment revenues are part of the reason that we saw slightly lower gross margins and gross profit in the second half. The point about fulfillment is that it induces service revenues downstream. On a constant currency basis, fulfillment revenues were up about 21% compared with a nominal of 23.5%.

The revenues from messaging, hosting, and security were actually down by 6% in constant currency terms, but the numbers hide some good news. Excluding the reduced revenues from Transpac, growth from direct customers was some 9%. For other integration services, the trend for weak demand in the US for small enterprise contracted computer maintenance continued with a reduction year over year of about 19 million. The evolution in other services has been explained before. Included in other services is the circuit-switched voice which we had de-emphasized over the past two years as we migrated customers to a voice-over-data solution. As we move further into the outsourcing segment, our experience already is that some customers will require us to provide traditional voice services, in which case we will meet our customer needs, and so you shouldn't be surprised if we see this revenue stream actually rise in the future.

Finally, on revenue a few words about SITA. The contract was signed some two years ago at a time when SITA was looking at the airlines business as a growth business. That contract included a minimum revenue commitment, an arrangement which came to an end at the end of June 2003. As we indicated a year ago, and throughout 2003, there were revenue consequences for us, and those materialized in the second half. The second six months saw revenues of $300m compared to $341m in the first half, a decline of some $40m. That is a lot of revenue that we have to make up before we get back to overall revenue growth. You'll have seen from our outlook statement in the results released that that's what we intend to do as we pursue our refocused strategy of building our services business.

Moving to our costs. We have made significant headway in reducing our cost base, although currency movements mask just how well we have done. In constant currency terms, we have reduced our total costs before depreciation by $323m compared with the $124m that you can see on the face of the profit-and-loss account. The highlights include, in constant currency, a reduction of $188m in access and transmission costs with a reduction of $80m in facilities and maintenance costs. At the direct costs level, there are, of course, some offsets as a result of higher costs to support our increased levels of fulfillment sales as well as other revenue lines, so you won't see all of our cost savings coming through in our gross profit. You'll notice that the gross profit and gross margin were lower in the second half than the first. One of the key reasons is the loss of the SITA minimum revenue commitment, which I've mentioned earlier, which had a direct impact on gross profit and gross margin as well as the higher levels of fulfillment revenues that I also mentioned earlier.

Our SG&A expenses were markedly lower by some 12% than in 2002 as we continued to attack our cost base. As a percentage of revenues, we've reduced SG&A by 260 basis points, and we expect to see further reduction in 2004, but the decline would be much less pronounced. The effects of our cost reduction program are very obvious at the level of opening income before depreciation or an amortization, or EBIDTA, which we have increased by some 52% giving us a margin on revenues of 9.9%. It's worth noting that, but for currency effects, our EBIDTA would have been $70m higher, which would have given us an improvement over 2002 of more than 130%. Turning to our cash position, you can see that we actually generated real cash during the year as we worked hard on both our capital expenditure and also in reducing our working capital requirements. Our capital expenditures were kept in line with our guidance, but at the same time we ensured that we met customer needs and requirements without sacrificing quality and performance in the network. On working capital, we improved our position in 2003 by $105m with the reductions in our receivables more than offsetting the reductions in our payables. In conclusion, and as Daniel said, we met our financial goals in 2003, leaving us well positioned to meet the challenges of 2004. On that note, let me ask Ashley to take us through the Q and A procedures.

Thank you, Jacques. Now we will entertain any questions that you may have. Operator, could you please explain the process for investors to ask questions. Thank you.

Yes sir, thank you. If you would like to ask a question, please do so by pressing the star key followed by the digit 1 on your touchtone telephone. If you are on a speaker phone, please be sure your mute function is turned off to allow your signal to reach our equipment. Once again, please press star 1 on your touchtone telephone to ask a question, and we'll pause for just a moment to give everyone an opportunity to signal for questions.

Thank you. While the operator gets the queue in order, let me remind you that this call will be replayed through Monday 16 February 2004. The call in number for the replay is +1 719 457 0820. The access code is 407 217. If you did not receive an e-mail of the news release, and you want to be included on our distribution list, send anyone at Equant Investor Relations an e-mail with your contact information, or call me in London on 44 20 8321 4581 or Isabelle Gilbert in Paris on 33 1 46 46 99 53. Operator, we're ready for the first question please.

Thank you. We'll take our question from Steve Randall of Bear Sterns. Please go ahead.

Hi, good morning and good afternoon. I have a few quick housekeeping questions. By the way, thanks for the detailed information on currencies. The first question I had was, can you tell us the revenue from IP VPN? Also can you give us the switched voice revenue for 2003? And then lastly, could you talk about the pricing environment for network services, any incremental improvement there? And actually if you could give us the win rate as well for network services which you've mentioned in the past, that would be great.

This is Daniel in Washington. I will answer your last two questions. What we want to give detailed figures on IP VPN and switched voice. In terms of pricing environment, the key trend is that we are still in the range of substantial reductions of contract renewal. We have said in the past that it was in the range of 7% to 8% on an annualized rate. What I can tell you on a short-term basis is that it has slightly improved, that is, the reduction rate is a bit lower. There is, further, an interesting trend which is the average duration of contracts is increasing, which is quite consistent with the move towards integrated solutions like [inaudible]. We are less and less on the side of providing basic connectivity and more and more for providing a solution which will fit into the customer's information system. So, don't, for the sake of your own modernization, you have no reason to change the strength in terms of price reductions, but at least it's not getting worse, it's getting very slightly better. In terms of win-rate, win-rate is difficult to measure. If you want external measurements, you can go to BRC which is a UK firm which gives interesting reviews of competitive trends. We are very well positioned according to this, with win-rates according to BRC in the range of 50% plus. As you know, we don't have a 50% market share worldwide, so it's a measurement which is much more on the deals[?] at the last stages of competition. All in all, this figure we meant consistent as we focus upon the deals upon which have really invested heavily sales[?] resources, our win-ratio tends to be good, which is, here again, consistent with our overall positioning that is competing for integrated solutions. Jacques and team in London for some more details about revenues.

Yes, thank you, Daniel. Steve, we've never really given the IP VPN number. What I said in my remarks was that obviously we had a more than 50% increase from 2002 in IP VPN per se. As you know, and I would only give you another trend, is that obviously when we look at data IP, the IP side is growing much faster than the data side, which is obviously challenged. In terms of the switched voiced, again I don't believe that we have given the number in the past, I would just say and as you know, and as I indicated, it has gone down in 2003 compared to 2002 by about double digits, but roughly the revenue is less than $100m, so that's what I would give you at this time.

Okay, that gives me a good idea, thanks.

Next question, Operator.

And we'll take our next question from Vincent Atol Verfand [?] of ADO.

Hello, good afternoon. I have a question regarding your sales guidance. Am I right in assuming it is based on the average dollar-to-euro exchange rate for last year? Then I have a second question related to your strategy. When you say you'll expand into the network IT solutions business, are we talking about organic growth only, or are you considering some acquisitions in that area? Thank you.

Definitively, the company is targeting growth. We are targeting being very focused upon what we want to sell, and the choices made depend upon what are the customer's expectations, but also, very clearly, upon what we are really good at and really different from the competition. So your suggestion is in the right direction. We are looking for growth. Are we currently considering on the short-term basis any acquisition? No. If I was about to, I wouldn't comment about it either. On the longer term, we will see definitely the France Telecom group as resourcing[?] Equant has some cash. So if we were informed of a really valuable opportunity to reinforce the strategy we are putting in place, then we could do it. So that would be my answer to this question. Nothing is on the way, nothing is about to be announced, but definitely we are targeting growth in a very focused and targeted manner.

According to our sales guidance, as you know the impact of the currency exchange rate is very important on Equant financials, so management's focus is to deliver growth as well in terms of revenue and in terms of profit on average economic conditions, and we will not give you more details. If you give us the exchange rate between the euro and dollar and month over month for this year we could give you more details, but you can't, so we cannot go further on this comment.

Okay, thank you.

And we'll take our next question from Nicola Vorteig Coleson[?] of HSBC.

Hello, Nicola speaking. A couple of questions. As usual, you have the same question every quarter, but where do we stand in terms of competition? Where do you see MCI now as more reasonable than in the past? Do you see price pressure coming from these guys again or not? And in terms of revenue per client, what is the trend? And, I think, maybe you the can give us the increase in the number of clients. Sorry if you already described that, but it was a little bit tricky to hear you at the beginning of the conference call.

Yes, we feel sorry for these voice issues. In terms of competition, definitely the big guys in our space are AT&T Worldwide and ourselves worldwide, and British Telecom in Europe. Do we feel a stronger pressure from MCI back in the business? I have some impression in the middle of Q3, but it has not been conformed since. You know pretty well what are AT&T's and British Telecom's strategies on all issues, and the idea here is quite consistent with what you can derive from this analysis. Definitely in terms of core clients, the revenue is growing and it may be interesting for you to know that we have launched, at the end of 2002, a specific program to bring in new big names and it has been quite successful. It's not my intention to give you detailed figures about it, but we have month over month added each month several very significant customers with the idea that your question suggests, and which is correct, that it's your portfolio of customer at the beginning of the year which brings growth at other periods.

Okay, just another question on the market, sorry again if you already answered that question at the beginning, but how do you see, not only yours, but the whole market growing? Do you think there will be growth on the MDNS[?] market, for example, and how do you measure the potential of all the companies who have been using do-it-yourself solutions?

Very interesting. We either grow from this marketplace, that is MDNS, that is, managed data network services, if my memory serves me right, but the answer we have given at Equant's discretion is to address what the real needs of the customers are, that is, to support their key business processes. Nobody, as a matter of fact, can do anything from pure data network connectivity. Some level of integration is necessary, and when you are a large customer, what can you do? You can either do the integration yourself, the do-it-yourself attitude or policy that you mentioned, or you can sub-contract it to a dedicated integrator, or ask your telecom provider to do it. Definitely, most of our customers are convinced that sub-contracting the integration is the thing to do. Equant's position or standpoint is unique, not because some of my competitors haven't any integration capability, but because I have a fully integrated organization. We worked real hard to make it happen. In the past we had different organizations for integration services on the network, we have only one now, so it makes a real difference for the customer. They can buy one stop what they really need to make their IT run. So, to summarize, this move from us was largely based upon discussions we had at the top-level we had with some of our major customers, so the trend has been dictated by the customers themselves, and we have just put in place a company which fits with this requirement. And this is, as a matter of fact, the answer to the question in terms of growth into the business. Growth from pure MDNS, certainly, will be much more limited than it will be for data network services within the right integration context. Does it really answer your question?

Yes, thank you very much.

And we'll take our next question from [Matthew Courtier] of BNP Paribas. Please go ahead.

Yes, good morning, good afternoon. [Inaudible]. I would ask two small questions. My first question is related to indirect services. Your indirect revenues were significantly down in the fourth quarter. What visibility do you have for 2004 and more [inaudible] for Sprint that billing was significantly down. Can we expect the same magnitude in revenue decline, and can you give us a little of update here about your discussions with the Sprint [inaudible]? The second question is about cost savings in 2004. I was definitely very interested in all the details you have provided in the cost savings in 2003, can you just give us a view for 2004, and in what particular areas do you expect to make cost reductions? Can you give us some flavour here? Thank you.

Jacques will provide some what he explained during his speech.

Yes, thank you for the question. First the issue about Sprint. We still expect our revenue with Sprint to go down in 2004. I think we have indicated this as a trend before, which is consistent with what we did in 2003 compared with 2002. Sprint is both a partner and a customer, and so we continue to be active in engaging with Sprint going forward. In terms of the cost, you have to be careful, and I was trying to be careful in my comments up front, because obviously we were very, very successful in 2003. There were a lot of low-hanging fruits that we have been able to take out of the cost, and maybe it was certainly easier in 2003 than it will be in 2004. We want to be cautious, obviously; that's why we are cautious in our outlook. We are going to continue to look, and we are looking every day, at SG&A costs. The direct costs will be maintained. Also, we have to adjust for the mixed revenue that we will get in 2004 compared to 2003, i.e., the service business, the outsourcing, so I think it's fair to say that although we are looking at every single process that we are using in the company and see how we could more effectively manage and drive the business, it certainly will be easier to drive to reduce our costs on the SG&A side than there will be on the direct costs.

Can I just ask you a very small follow-up question on indirect services? Yes, just related to Deutsche Telekom, do you see this situation easier compared to Sprint? What is the situation here regarding the billings?

Yeah, I think we are more optimistic about DT in 2004 than we are about Sprint, but I don't want to go into more details than this.

Okay, thank you.

Thank you.

And we'll take our next question from Pierre Nachellon[?] of Exxon. Please go ahead.

Good afternoon, Pierre Nachellon, Exxon. Three questions, please. First of all from your last remarks, are you in a position to post an increase of your EBIDTA in the first half of 2004?

Can I just answer that question quickly, then we'll move to the second one? No, we're not going to comment on quarterly or half-year forecasts, really, I'm sorry but...

Well, let's be more qualitative then. I don't understand how you can be both cautious about cost-cutting, about the kind of sales breakdown you will have, and at the same time have a guide on the increase in EBIDTA, because if we have between H1 and H2 such a decrease in your margin, and you don't have a lot of sales increase, and your cost reduction will be will be tougher to do in 2004 than in 2003, how do we come with the not immodest but an increase in EBITDA in 2004?

But I think we also, I believe, try to explain that in H2 2003 the two biggest impacts were the SITA, the end of the SITA MRC[?], which ended on 30 June, which had a significant impact on our margin in the second half, and number two is the increase in fulfilment, which we were very happy to take in the second half of 2002, and fulfilment revenues don't have the same margin as the rest of our business, so that relates to what I just said answering your first question. It's hard to look at quarter and even half-year sometimes, because there are mixed revenues all the time, and that may change the picture. That's why we would rather give you a sense for what we're looking for for the year, rather than just cutting this at 30 June and say 1 July will be much better. We look at this overall and sometimes under the programs, obviously, go from one quarter to the next and sometimes also, although you sign somebody at the end of a quarter, the revenue stops the next quarter. So, it's very difficult to comment and make real accurate projections ending at the quarter's end.

Okay, and my second question please, and be more specific on what you think the trend of SITA revenues will be not only over the quarter but over the future.

Daniel, do you want to make some comments on SITA?

Well, very rapidly, what is currently underway with our partners in SITA is that what are the key trends for all customers who supply airlines, so we're organizing ourselves to provide more than connectivity to the airlines, so it will take some time to be fully implemented, but it's happening either way to help with this part of the business to do better. The big trends in terms of the airline industry, the industry under change, as we slightly recover over the years to come, then we believe with SITA that we can do better in terms at least of short-term trends.

I just would add also remember the MRC ended 30 June. You know, to go against the higher revenue in the first half of 2003, I think Daniel answered a question over a medium-term period of time, and I think that's the right answer, but obviously we're still going to suffer in 2004 compared to 2003.

And lastly, a follow-up question on the environment. If the pricing environment is at least stable or slightly improving, what is the reason for saying that at least in H1 the environment will remain very tough, or challenging, sorry.

I'm sorry, but I am not so sure what your question is aiming at.

Could you be more specific about the way the environment is more challenging than before or is that still challenging like it has been over the last two years, just to have a better understanding on your statement about the environment for corporate business solutions that is expected to remain challenging.

Okay. Your question is not specifically related to the FT pricing alignment.

FT?

No, sorry, I got FT at the beginning of your question.

I'm sorry, no, no, not at all. No, no.

I think it's in general.

In terms of pricing alignment, as I said earlier, possibly not completely clear, the trend is roughly the same but the pressure is slightly less. So, too early to say that there is a complete change in terms of trends, but at least it's not getting worse. It's getting slightly better.

Okay, that's why I was asking why do you say it will remain challenging? Is there something else that you would, in terms of volume, in terms of the number of opportunities or...

No, it remains challenging because the large customers are looking to improve the cost of their operations. Everybody does in the business. What's hopeful for us is that they think more and more in total cost of ownership, which means more opportunity for us, on not only basic cost reductions, or price reductions on what we provide, and it will remain challenging because competition is still active, and most of the large customers have some relationship with local providers, and local providers remain very aggressive to keep customers they believe are part of their own sales territory. So, there is nothing new in this environment. Again, what I am doing is slightly changing the rules of the game and positioning Equant more where the customers are moving than where the customers were or where the competition still is.

Can I just ask you how I should reconcile your current presentation of sales, network revenues, integration services, and the new idea of service businesses? What does that correspond to in your current sales presentation, the thing that is about to double from, I don't know what, to 25% of Equant's revenues in 2006/2007? What does it [inaudible] the current revenues presentation? Is that only the integration services, or is that something different?

It's all the integration services part, plus a part of the network services, plus most of the other services. It encompasses all integration services, part of network services, and a part of other services. We have kept for these services this split we used to have until now for you to keep historic trends. We certainly will consider in the future reporting on the business practices we have put in place.

But them I don't understand how you would double this to 25%, because if I'm taking integration services, plus some part of network services, and other services, I would come to significantly higher than 12.5% of your revenues.

Well, I think we will not do some maths without giving you the figures around this table. It may be interesting for you to know that for some part of the activities, such as consulting, project management, and service management, which represent roughly 800 people in the field, the activity has grown by more than 50 persons last year, and so it could also increase the relevance of your question. You say it should grow more? Well, when you receive the pre-tax figures it will be clearer, but we are not ready for today.

Okay, thank you, and sorry for being so long.

Just to complement what Daniel said, and it's the right question. We obviously are working on how to present this in the future. I think you should expect us towards the end of the year to give the full disclosure, we just want to make sure that we will give the right historical numbers to look at the trends and everything, and that's why we're not ready, as Daniel said today, to give the numbers.

Thank you.

And we'll take our next question from Adam Worthington of Morgan Stanley. Please go ahead.

Hi, Adam Worthington from Morgan Stanley. Just have three questions if I may. The first one on the cost reductions that you've achieved to date in terms of the total network costs, the decline in the facilities cost, and also your personnel expenditure. I was just wondering whether you could give an indication for each item there, of when you expect the full annualized effect to feed through to the bottom line. Secondly, I'm still struggling to understand your revenue guidance and whether this actually means that you only expect revenue growth due to foreign exchange. And then thirdly, just on the Radianz joint venture, obviously the losses are increasing there, I was wondering if you could provide some indication of what you are doing to try and turn around this business.

Okay, Jacques will confirm what we mean through our guidance in a couple of minutes. According to Radianz, we have reported an increased loss for Radianz. Obviously, this is not satisfactory, and we are still working with Radianz management and our partner in Radianz, Reuters, to give to the company on a short-term basis, that's for this year, the right management, the right guidance, the right framework to drive its activities in order to make the figures more in line with our expectations. We are, with Reuters, deeply convinced that this model is workable, and we are putting in energy to help Radianz to execute. So that is what we are doing on a short-term basis.

I'm sorry, just in respect of that, are you able to provide a bit more detail on your options there, because really, over the last two years, since I've been covering the company, the management team has said that we are looking to improve this and are in discussions. Can you give us a bit more detail on that?

The model of Radianz is pretty simple. That is, financial information services has to be delivered to the user, so mostly the larger trading floors, and it makes sense to have a dedicated network infrastructure on solutions for doing so. Now, there are in Radianz a lot of operational difficulties to be solved, so that certainly they are underway in terms of finding solutions for that, so for the time being I have little more to add.

Okay.

Jacques [could report?] our guidance for this year.

Yes, as we indicated before 2003, we had obviously benefited from our foreign exchange gain on our revenue since we were more exposed on the USD side. The guidance for 2004 is as reported not as a pro forma. That's what we indicated our guidance was to be slightly positive, or our target is to be slightly positive for 2004.

Certainly, okay, just with respect to that, could you give us details on your FX assumption, so therefore we're able to model on a consistent basis to model the organic growth rate, so we're all working on the same playing field?

I think as Daniel said before, it's very hard to tell. I mean, the only thing that I would say is that, obviously, when we did our budget, the rate was not quite the same as it is today, but, I think, we're managing a global business here, and we don't really go out and tell what exchange rate we expect in the future. I think you asked a question about cost reduction, what was the full annual impact of some of the cost reductions.

That's right.

You can't really measure it on an annual basis again. We also have the impact there of the FX which goes the other way since we have more exposed to the strong currency than we have to the dollar. So, I don't think I can answer. We are continuing to look at costs as I said before, but unfortunately against that is coming the foreign-exchange challenge.

Asking it a slightly different way then, in terms of each area that I listed, can you indicate when you actually started that cost reduction, and ended in, or, on the other hand, are these just ongoing things?

Yeah, they are ongoing. As you know, personal costs, if you look since the merger in June 2001, the company has kept giving the number of employees in the company, and that number has been going down, so it's an ongoing thing. It's the same on the network costs, which we obviously are looking at on a daily basis.

I understand, thank you.

And we'll take our next question from Nicholas Didio of CDC Securities. Please go ahead.

Yes, no more questions thank you.

And we'll take our final question from Steve Randall with a follow-up from Bear Sterns.

Just two quick questions on free cash flow. You managed your working capital very well in 2003. Do you think there is any more room for improvement? Do you expect that to be a positive contributor to free cash in 2004? And then secondly, do you expect your capital requirements to remain about 10% of revenue? Thanks.

Yes. Regarding the free cash flow, and I guess, the working capital, as you know the opening free cash flow is measured as the EBIDTA, or opening income before DNA minus the CAPEX, and I think that Daniel said that we are targeting this to be positive this year. Working capital, we obviously have improved tremendously the receivables last year, but that was offset by a decrease in payables. It's going to be very challenging this year to improve working capital compared to last year. The second question was about...

Capital expenditure.

Oh, capital expenditure. Yes, the answer is around 10% of revenue levels.

Okay, and you also said that about 80% of that was for customer equipment in 2003. Do you expect about the same level in 2004?

A bit more precisely, in the range of 70% plus is directly driven by commercial activity. But it's not only for customers' equipment. There is also some network equipment to be put in place. We are also putting in place quite a lot of systems to manage what we call manage[?] adjusting services, namely the hosting part of our activity. As another example we were more and more providing what we call enterprise network management, that is, it's a customer IP infrastructure monitoring solution. Here again there is some money to be spent when we roll out a new customer or there are some internal systems to be reinforced, but basically our investments are directed by the sales activity.

Okay, so you'd say more of the 70-30 split that you've talked about in the past versus an 80-20 for new customers versus efficiency or back-office systems spending.

It will be worth to give more details, but we have not packaged the answer for today.

Right, okay. Thanks.

At this time I'd like to turn the conference back over to Mr. Rayfield for any additional or closing remarks.

Than you very much. This will conclude the conference call for today. I'd like to thank you all for joining us, and the Investor Relations team will be available after the call to have any additional questions that you might have. Please call either me or Isabelle. And again apologies for the difficulties we had at the beginning of the call. Thank you all very much, Good-bye.