Orange SA (ORAN) 2004 Q4 法說會逐字稿

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

Thank you Arch. Good morning and good afternoon ladies and gentlemen, this is Ashley Rayfield , Director of Equant Investor Relations. Thank you for joining us today for our investor conference call for our 2004 results. We announced results for the full year this morning. The news release is available over most of the wire services and on the Equant web site.

Let me review the agenda for today's call. Yves Guillaumot, our Chief Financial Officer will open the meeting and discuss their full year results. Thereafter, he will hand over to Hervé Kauffmann, who is our Chief Operating Officer, who'll give an update on our 2004 business transformation, and then Charles Dehelly, our CEO will conclude the presentation with our key initiatives and priorities.

Then Charles, Herve and is will be joined by Stefan Rouseu (ph), who will be delighted to entertain your questions. I would like to remind you that our speakers' remarks today may contain remarks that constitute projections, beliefs, or similar forward-looking statements. You are cautioned that these statements are predictions and 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 the speakers will give you today, is readily available in Equant's filings with the U.S. Securities and Exchange Commission and the French Commission of the Bourse. All forward-looking statements are based on information available to Equant as of today, and Equant assumes no obligation to update such statements. Now I'll turn over the call to our Chief Financial Officer, Yves Guillaumot. Yves?

Thank you Ashley. Good afternoon and good morning everybody. Let me switch to page four on industry trends. Industry trends here, what we faced today, is an overcapacity in bad risk and technological disruptions, leading to more challenging competitive conditions for network services providers. On the other hand, from (inaudible) technology changes, also create new opportunities. We may say quick development of DSL access in many countries, leading to additional IP and VPN opportunities, mostly for smaller sites. The availability of IP and VPN networks paving the way for voice over IP and transmission over IP fax grows. Managing securities are certainly critical also for CEOs and CIOs. Increased demand for mobile access for business applications and finally complexity and managing networks leading to more outsourcing opportunities.

Let me now give you perspective on our financials 2004. Revenue -- it's page 6. Revenues are slightly down on a reported basis, -1.2 percent, and on a pro forma basis as well 3.8 percent, with a favorable impact from currencies of $82 million.

The major effects on the revenues are the decline of the network services business, due to continuing strong pricing pressure and a higher levels of disconnection and the expiry of the CITA (ph) minimum revenue commitment at the end of June 2003. However, the good news, our transformation towards a services company had a favorable impact. Our efforts seems to be paying off with a growth of 20.1 percent of total integration services in a constant currency basis.

On the total cost side, the foreign exchange currencies movement impacted seriously our costs, mostly because of the relationship between the pound and the U.S. dollar. On the other hand, we faced an increase of outsourcing and fulfillment costs. All, this (inaudible) allow cost-cutting efforts, including our labeled and external support costs that were down $46 million in constant currency.

As you know, our efforts are paying off on the SG&A lines as our SG&A costs decreased by 17.6 percent in constant currency. Those costs represent now 18.8 percent of the revenue line.

Our EBITA is at $132 million, a significant decrease compared to 2003, once again because of the foreign currencies adverse movements and the network services decline. Our capital expenditure reduced by approximately $50 million.

Finally, cash and cash equivalents stands at $404 million, a decrease of 75 million compared to last year with three major impacts; the EBITA decrease, an increase in working capital, mostly related to significant lacking off payables in 2003, and the sales of our (inaudible) for $110 million.

Let's move now to page 7. As you see on that page, you can see better the impacts of the evolution of our exchange rates on our operating performance. The foreign exchange movement had a significant impact on our costs, most of it relates to the variation of the U.S. dollar versus the British pound. Let's move now to page 8.

Just a short view of trends in revenue, as mentioned earlier. As mentioned earlier, the network services decrease is driven by continuing strong price pressure and a higher levels of disconnections. The scheduled expiry of the CITA minimum revenue commitment impacted also strongly the revenue performance. We want to remind you that the strong fulfillment growth remains a leverage for the integration services business. And finally, our several integration services business increased by 20.1 percent on a pro forma basis.

Let's move now to page 9. As mentioned, the key drivers of the reduced cost profit are the decrease of the network services and the CITA revenues. The reduction of the SG&A expense are partially compensated by the effect. SG&A expense decreased 76 percent in constant currency basis, and now represents only 18.8 percent of revenues. The net loss of $274 million includes a positive impact of $90 million related to the sale of Radiant shareholding.

Let's move now to our cash flow slide. Here you can see the three main drivers. First, where the net operating free cash flow as a consequence of the performance explained previously. In addition, you can see an increase in working capital of $84 million that was due to reduction in significant lacking (ph) off payables observed that the end of 2003. Finally, a onetime cash proceed as a result of Radiant's sales for $110 million. On those perspectives let me give the floor to Herve Kauffmann, our Chief Operating Officer.

Thank you very much Yves. So let's move to page 12 where we will comment our business transformation program, which is on target for 2004.

First we put in place a much better segmentation of our customers, which allowed us to dedicate more resources to serve our key customers and prospects, and to increase their satisfaction. Second, we transformed our product portfolio with key improvements. We increased our DSL presence to 55 countries at the end of 2004. On voice, our voice over IP service is now offered in 92 countries. In the second half of '04, we announced a new step in communication infrastructure solutions, with Equant adaptive VPN.

Equant adaptive VPN simplifies a seamless integration of different technologies, one, reducing the cost and complexity of network management for multinationals. With Equant adaptive VPN, Equant is integration diverse wider network options, introducing unmatched access (inaudible) and managing seamlessly the wide area and local area networks integration.

We are still on product transformation and product portfolio transformation. We launched business (inaudible) which is the first integrated range of mobility solutions for business customers, offering a truly one-stop shop for multiple mobile services, ranging from security to billing and access to critical messaging applications.

Business tableware (ph) underpins Equant's expansion strategy, which is focused on exploiting the market opportunities, such as mobility.

Business tableware will strengthen Equant portfolio of global customized and integrated communications services.

Third, we launched several important business improvements initiatives, a re-engineering of our order to bill and supply chain processes and we also launched several initiatives to reduce our Telco and access costs. For example, a review of all of our local deals and a renegotiation with our existing suppliers.

Let's now turn to page 113. We see some bills (ph) signed during 2004. And as you can see most of them include strong services competence. Here's two examples. Exxon Mobil (ph), which is a good illustration of our ability to leverage our high-end IP VPN strength with value added services. Combining Equant's IP VPN and Equant consultancy and project management services, Exxon Mobil can maximize its communication infrastructure and optimize performance of business critical applications such as ACP and Microsoft exchange.

P&O is also a strong example. P&O Nedlloyd depends on Equant IP VPN infrastructure and full range of managed services to run essential services and applications, such as its customized print management system, PeopleSoft, and messaging system.

Let's turn to page 14. In 2004, we significantly improved customer satisfaction and we are delighted that Equant customer satisfaction has been recognized by these prestigious organizations. Our customers, our most important assets for business transformation, and their satisfaction is a key success factor for our strategy.

Our company-wide commitment is to provide a superior service and help them to meet their business goals. I would now like to turn to Charles Dehelly, our CEO.

Yes, thank you Herve. So since the beginning of the year and considering the result of 2004, which have been commented by Yves , we have first of all the company decided to reinforce the management with the change of Chief Executive, with the hiring of the new CFO, Yves Guillaumot . We also immediately decided to refocus the company on some key priorities, the first one being to stop the cash drain, and to do so, to focus on managing our working capital better, in terms of getting better terms from vendors or collecting of reduce of the company.

Secondly, we create a new soft house (ph) function of sourcing (ph) which didn't exist before to consolidate and coordinate all Equant's sourcing (inaudible) negotiation forward. We also decide to create a function, as I mentioned earlier, to generate -- to manage the cash generation program.

As well, we decide to set up some specific plan to reinforce the efficiency of our sales. Second action has been to focus on developing partnership in order to refocus the company on a few initiatives and to leverage partners as we cannot do everything. One of those partners of course being France Telecom.

The third priority is to grow our profitable sales, and to do that, in particular, we set up a new organization which is very incentivize (ph) organization, a duel (ph) organization, with two business divisions fully in charge of our P&L, and fourth channel, three direct channel for -- one for America, one for Europe, Middle East, Africa, and one for Asia specific support channel being as an indirect channel. Those -- the leader of those -- the management of each one of those channels are now reporting directly to me, former Central market and sell function doesn't exist anymore. This will increase the focus of the company, the reactiveness of the company to answer the customer's needs.

So our (inaudible) of the management, setting up a new organization, defining the speed (ph) priority has been the action which has been launched. We also start remobilization of the staff, all the staff of Equant focusing the staff towards the three -- those three priorities.

So now, we are ready to answer your questions.

Thank you Charles. Charles, Herve, Yves and Stefan Rouseu will now be delighted to entertain any questions that you might have. Operator will you please explain the process for analysts and investors to our questions thank you.

Thank you gentlemen. The question and answer session will be conducted electronically. If you would like to ask a question, please do so by pressing the star key followed by the digit one on your touchtone telephone. If you're using a phone with a mute function, please make sure your mute function is turned off to allow your signal to reach our equipment. And once again, please press star one 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.

And once again, please press star one to ask a question.

Operator, if there are no questions, let me bring this call to an end.

It appears we don't have any questions at this time. I'd like to turn the conference back to you.

Thanks very much indeed. Let me just say that if you didn't receive an e-mail of the news release and you want to be included on now distribution list then please send either Isabel Gabere (ph) or myself an e-mail. You can call Isabel on 33-146-469-953 or me on 44 208-321-4581. Thanks very much indeed.

Thank you ladies and gentlemen, that will conclude today's conference. You may now disconnect.

Thank you.