Orange SA (ORAN) 2008 Q4 法說會逐字稿

Okay, everybody is ready. So, welcome to this afternoon and morning tomorrow, of course. We have decided this year to do at the same time the results and an Investor Day about the future of this Company during the three following days. And so it will be a little bit heavy, but I hope not too much. But I think it will give you all the perspective about this Company, its performance, the way you can understand our future, our policy and how we behave.

I hope that, for those who have attended the presentation of the fiber deployment in Levallois, that you have touched what is really now the fiber, including the policy of some of our competitors, so you can understand what is the dispute about the structure of the fiber optic deployment in this country, but also in many other countries because the discussion remains the same, except that in the major countries everybody has followed our solution. So, let's go now -- of course.

We will start with the results, with the presentation made by me and then Gervais will give you all the numbers. And in the second part of the afternoon we start the Investor Day and, of course, it will continue tomorrow morning. And fortunately, this evening the organizers have organized a dinner, so that we can have a personal exchange during the dinner to exploit a little bit the information that you have got during this afternoon or to discuss about any other matter.

So, as introduction, I will give you a rapid overview of the 2008 highlights and then Gervais will take the floor.

Let's start with our main financial achievement for 2008. You see the green arrows. It means that everything is exactly on line with or better than what you are waiting for. We delivered last year an excellent performance and we have achieved our commitment.

Revenues rose by 2.9% on a comparable basis, at the top range of the market trend, which was expected between 2% and 3% on our footprint. As expected, the second half of the year, at plus 2%, was lower than first half revenue growth, which was at 3.9%, well above the market trend.

Second point, the GOM. Our GOM rate has been fully stabilized, in line with our guidance. This strong performance was driven by a sustained level of revenue growth, of course, but also by continuous cost control efforts, allowing us to absorb negative factors such as regulatory decision, which are always negative.

And there is a very specific phenomenon right now. The previous regulatory decision was to the benefit of the customer and the regulatory decision which we have now are only redistributing the revenues between the different players. But the customer, he don't see anything. The costs are remaining the same, the tariffs remain the same. So, sometimes we can wonder what is the game of the regulator in front of that, including the European one. But I have been asked not to be too long, so I will try to stick to my presentation.

Third, the CapEx rate stands at 12.8% of our sales, in line with our target of around 13% of sales, which means that we have not sacrificed our future. We continue to invest, to allow us to have a good structure for our future.

Fourth, and most importantly, organic cash flow guidance has been totally achieved and even exceeded, with more than EUR8b of cash generated, which is the highest level the Group has ever reached. Thanks to this high cash flow generation, the debt has strongly decreased and is now optimized, with a net debt to GOM ratio at 1.85, one of the lowest ratios in the industry.

And finally, the net result Group share increased in comparable terms by 13.6%, to EUR5.2b.

Operational KPIs. Of course, this financial performance, result of our strong operational performance. We acquired 12m new customers during the year, reaching now 182m customers worldwide, of which 123m are Orange branded, which is very important because brand Orange is really a driving factor for our growth.

Our mobile customer base increased by 11%, with a strong development of mobile broadband customer, multiplied by three since the end of 2006. Mobile broadband is a key growth driver, as Internet usage in mobility is penetrating mass market.

Concerning the ADSL base in Europe, it increased by 9%, reaching 12.7m customers, maintaining our Group number one in that area. The continuous deployment of Livebox allows a sustained development of services around the ADSL offer. 61% of our ADSL customers have a Livebox, against 24% only three years ago. More than 50% of the ADSL base is now using our Voice over IP services. IPTV customers now represent 16% of our ADSL base. Mobility integrated services Internet and Business Everywhere are very successful, with a base multiplied by two in one year, at almost 2m customers.

Some key events. Of course, it's not an exhaustive presentation of the key events, but some are more visible than the other. We have adapted our product and offer positioning, to optimize our operational performance across the footprint, this illustration being the launch of the 3G iPhone in 25 countries. We have also optimized our cost structure by, for example, reshaping our distribution process and implementing network-sharing agreements like we have done in Spain. We have launched new services to capture additional growth, like Orange Foot and Orange cinema/series channels. And we have expanded our operation in new countries, mainly in Africa.

This graph shows the evolution of the revenues and of the growth during last year. And as I mentioned, after two quarters of strong growth, between 3% and 4%, the second half growth was lower, as we have anticipated. It's not a surprise. But still resilient, at plus 2%.

What is important on this curve is that we have a positive difference of 1% to 1.5% between our growth rate and the growth rate of the GDP in our countries, and I think this is a feature which will continue for the future. We have this kind of difference which we consider we can maintain in the future, whatever will be the different events that we will have in front of us.

In fact, to be more precise about the performance in France during the third and the fourth quarter, they have been impacted by several specific elements, which we have already identified and which correspond to approximately 60 basis points. Of course, we have no longer the benefit from the increase of the subscription fee, which was the case the year before. The implementation of the Chatel law for the free waiting time for our clients has, of course, impacted us and we have new wholesale DSL price cut imposed in July. So, all these three elements impacted what has happened on the second part of the year.

What is interesting in this presentation is that most of our activities have contributed to our growth in 2008. In French fixed lines activities, the net offers took off, and more recently the satellite offer development boosted ADSL base and triple-play adoption. This resulted in a strong slowdown in the decrease of our fixed retail lines.

In mobile, we had a strong revenue performance in 2008. We maintained our leadership with the momentum of our MVNOs. The iPhone success and the reshaped data offers helped the data usage to take off.

Orange UK has shown a very strong performance in mobile, ranked as number two, thanks to the success of our new offers and a better mix of the base. So, we have come back to a very good situation in UK.

In Spain, the same. In the fixed business, strong development of new services such as Voice over IP and IPTV, thanks to the adoption of triple-play offers. And in mobile good performance in the slowing market, allowing an increase of our market share, which means that in countries which are impacted by a strong crisis we can be very productive.

Poland. We are progressing in the ADSL, with the take-off of IPTV. And we maintain our leadership in mobile, despite the challenging competitive environment and a difficult, very difficult, regulatory framework. The regulatory lady is really a nightmare. Don't repeat that, but she is. The CEO of Poland is there and he knows, but [he resist].

In the rest of the world, growth remains high in mobile, particularly in countries like Egypt and Romania, despite competition and regulation. Egypt, in particular, has performed very well.

Finally, our 2008 performance is also driven by the exceptional resilience of Enterprise. Where is Barbara? Barbara. There. Which posted an important growth in services and as I know that you follow our competitors, you know how it is difficult to maintain this kind of performance. Barbara is really an outstanding leader.

The result of the top line performance is an increase of our gross operating margin of more than EUR500m. Our margin rate has been stabilized to 36.3% of revenues, as expected, and for the second consecutive year.

This stabilization has been achieved despite some specific elements identified during the first half - communication, once more the Chatel law and the end of the rental fee increase in France and the new business model of iPhone. You'll remember that between 2G and 3G we have gone back to the traditional subsidizing model, which of course is different from the one we had previously with the 2G iPhone. Despite these negative elements, we are able to stabilize GOM rate evolution in Q4, thanks to a strong operational improvement in Spain, the UK and Enterprise.

So, a focus about cash flow. Let's come back to the strong organic cash flow generation, of EUR8b. The 2008 cash flow generated is mainly used to reduce the debt by EUR2.1b and leading to a net debt to GOM ratio of 1.85.

Distribute a dividend of EUR1.40 per share, corresponding to 45.6% of the cash flow. This has been decided by our Board yesterday evening and of course will be proposed to the shareholder meeting in May. As you know, as you'll remember, an interim dividend of EUR0.6 has already been paid. The dividend balance will be EUR0.8 and will be paid on June 30. A new feature which we have introduced, shareholders will have the option to be paid in shares for 50% of the balance. It's an option.

Free shares will be allocated to employees, representing EUR244m. You'll remember we have established this free share plan for the employees under performance condition, which of course has been fulfilled during the last two years. And finally, we are going to open negotiations with employees' representatives for an additional profit sharing.

That's the main parameter of our results presentation. I will now give the floor to Gervais, Gervais Pellissier, our CFO, to give you more details about our results. Gervais, you have the floor.

Thank you, Mr. Chairman. So, good afternoon to everybody. So, I'll start with first the consolidated results and the revenue performance and then I'll come back on our main entities' results, as usual, country by country for the Enterprise division.

As it appears on this slide, this is the usual way for us to summarize the performance in terms of revenues. On top of what has been said already by Didier, just to add one or two things.

On the global revenue, I think not much more comments. However, just to underline the strong performance in mobile as a whole, plus 5.6%, mainly driven by the customer base increase and the data service development, but with a slight slowdown in H2 compared to H1. We had plus 7% growth in H1; we have plus 4.3% growth in H2. And when we look at the global picture, all segments have posted a positive revenue growth with a strong performance, mainly above 5% growth, in France, UK, Poland and the rest of the world.

We have a quasi-stabilization of our revenues in fixed and Internet activities for Group as a whole, with the traditional decline of the fixed line revenues offset by the sustained development of DSL. Positive revenue growth in France, plus 0.2%, in spite of the negative effects that were mentioned a moment ago - no longer a subscription increase, wholesale tariff for DSL reduced and the Chatel law.

And a much better performance in Poland in 2008 in terms of fixed business than what we had in 2007, where we have been able to limit the decline to 3% whereas the pressure was much stronger a year ago, with more than 8% revenue decline. And last but not least, the strong performance of the Enterprise division.

To look at the same picture, looking at the margins. So, what can we say? When we look at the increase of margin we have been able to post, which is EUR400m in total, when I look at the different contributions, rest of the world, so mainly the emerging markets, have contributed strongly, with EUR160m more than a year ago. Unfortunately, and we must analyze that, part of it has been eaten up by the foreign exchange issues, so this is part of the issue. However, there is a strong organic growth for the emerging markets.

The UK has been increasing by EUR130m in terms of contribution to Group profit, France plus EUR57m. And even Spain has contributed to an increase of the profit of the Group as a whole and the Enterprise division also with a much better performance, as you see, in '08 than what we had in '07.

All the things do not add up completely because there are eliminations. Just to remind you that in our model the Enterprise division buys in wholesale a huge part of its network through the France Home division, which explains that when you add all the operating margins you have some difference in the rates. We have a difference in rates and this explains why all the divisions have a lower margin than the Group as a whole. Okay? Because we eliminate the revenues, we add the margins.

For the Enterprise division, as I mentioned, we are now above 20%. And this is, if you compare it to the rest of the market, and especially to our main competitors, a very strong achievement, not only because it has improved but now it is far above what most of the others are able to do in this area. Part of the improvement, as usual, is linked with the revenue growth but also with the pressure we have put on our cost structure, to capitalize on the revenue growth to get the profits of the revenue growth.

And when you look at this slide, you'll see that the margin before commercial expense and content, we have changed slightly our classification compared to last year with the increase of our investments in content. And also because of the fact that now the content costs are classified mainly as OpEx, whereas until 2007 they were classified as CapEx. For instance, the soccer rights we had on the mobile was CapEx, was not OpEx.

We have decided to merge the commercial costs and the content costs considering that these are, globally speaking, customers and commercial investments that we had to measure separately and not to continue to follow the content cost as a part of the G&A, which is not exactly the same thing. So, there is a slight difference to what we did in the past.

So, when you look at this slide, you see that our cost structure has globally decreased. We have more than EUR1b in terms of margin at the level of the cost structure as pre-commercial and pre-content, with now 52.6% gross operating margin at this level.

And this is linked with the decrease of our labor costs, minus 2.5% year on year, with a relatively good control, in my view, of the interconnection after two years where we had more difficulties. So we have been able to limit the impact of the interconnect on our P&L, with also a good control of the other IT and network costs, a very slight increase versus the revenue, slight increase which is linked with some outsourcing movements, so the fact that we have been decreasing some of the labor costs for the increase for outsourcing of some network or IT operations, limited but done outside of France. Plus, the new operations we have been starting, as mentioned by Didier Lombard, especially in Africa, where we have the network cost first and then afterwards we get the revenues and the customers.

G&A and other costs are stable. This hides a strong reduction of the G&A but unfortunately an increase of the real estate cost, especially in France where they are linked with the [DSL line] construction and so difficult to decrease, especially for the technical buildings.

And regarding the commercial expense and the content expense, they have increased but this is really to support the business and with a lot more effort on the customer retention, and also the increase of the subsidies to push the mobile broadband with the subsidies on Smartphones, including the iPhone, which is a strong move in '08 compared to what was done until end of '07.

The labor costs have been decreasing and this is really the result of the policy we had announced three years ago, which is to decrease our headcount by, if you remember, 16,000 net decrease in France and 1,000 net decrease outside of France. And you see that we have overachieved this perspective, with a 16,800 net decrease in France and 2,600 net decrease outside of France.

To give now a little more details on the other items in our profit and loss statement. So, the operating income is slightly down compared to '07, with EUR10.3b. The main difference is the fact that we have no proceeds from disposals of assets in '08, as we had in '07. In '07, if you remember, we sold our stake -- our assets in Netherlands, and we also sold our remaining stakes in TDF and Eutelsat, and all this for a net proceed of more than EUR700m.

The other elements we can mention on the P&L is that there is lower depreciation and amortization. It's down 4%. This is because we had one-off depreciations in France and in Spain in '07. We had the extraordinary depreciation of the customer base of Euskaltel in Spain. And we had also extraordinary depreciation of our first HSDPA investment done in France with the wrong supplier that we had to replace.

We have been also obliged to put a little more attention to some impairments of assets, especially for goodwill. And we have decided to decrease the value of our fixed assets in Spain by EUR140m, and at the same time to -- because of the decision to sell or to close down our ecommerce activities in France, we have also written off the value of those assets for another EUR140m.

There is a little more restructuring costs outside of France because, if you remember, we have done a few lay-off plans in UK, Spain and Poland. And in France the increase is mainly linked with the change of discount rate to calculate the remaining obligations for the pre-retirement plan, and it is an increase of around EUR100m, the remaining costs of the pre-retirement plan to be paid to the people who have already left the Company according to the terms of this plan.

The net income, as Didier said, has increased in comparable terms by 14%. Now, the published result is slightly different, as for every year. And what are the main movements which explain those differences?

The first one is the difference in the financial results. Our cost of financing has decreased by EUR130m, coming from EUR2.5b to EUR2.4b -- EUR2.3b, with a cost of debt -- a slight cost of debt increase of 0.2%. We have, however, increased the cost of the guarantee to the Amena minority shareholders, to the Orange Spain minority shareholders, by EUR380m. And we have also some foreign exchange losses, by EUR63m - EUR63m is not so big, I'll come back on that - in '08 compared to EUR4m only in '07.

And we have also an income tax increase, not in real terms, in payments. You will see that. Because we are still using our assets, our tax loss assets, but we have not been creating new tax assets in '08, whereas we had created EUR1.6b tax assets in '07.

When we adjust all this, you see that we can compare the results. And the net result produced by the activity itself is rather near from EUR5.2b, to be compared to EUR5.6b (sic - see presentation) achieved a year ago.

Just in terms of value of assets and for -- to give you a picture on that. On the Iberian place, so Portugal plus Spain, we have decided to decrease the value of our different assets by EUR1.3b. There is the guarantee to the minority shareholders I've been speaking about a moment ago. There is the impairment on the fixed assets in Spain I was just mentioning. There is lower tax assets. We had built strong tax assets in Spain that we have decided also to reduce because the horizon to recover the tax asset is broadening in time, and so we have reduced the tax asset by more than EUR600m. And we have depreciated our stake in Sonaecom linked with the value of Sonaecom also at the end of the year.

Most of those operations I've been describing have clearly no impact on the cash flow. And when you look at the cash flow, the cash flow has continued to grow, with a net cash provided by activities which is about EUR350m above what it was a year ago. But since we have a little more expense in terms of license, we have spent EUR200m more in license purchase, especially 3G in Egypt and the Armenia license, we have a little more cash out on those lines.

But the cash flow itself is increased by 2.6%, to reach EUR7.3b for the part remaining to the FT SA shareholders, the France Telecom shareholders, compared to the total consolidated cash flow.

Our CapEx, as it was mentioned by Didier, has remained in line with the guidance, to 12.8%, with a reduction of the mobile part from 35% to 32% of the total CapEx. This is mainly because the 3G rollout is mainly achieved in major countries. We have got the first benefits of network sharing, especially in Spain. And the deployment of 2G is now mainly limited to emerging markets, especially for new operations.

The fixed and Internet CapEx spending is stable at 26%, with some spending on FTTH, EUR130m in '08 and we have spent EUR50m in '07. So, this means EUR180m, to be compared to the EUR270m of expectation we had announced in '06. There is a significant reduction of the fixed CapEx in Poland, following the important spending done in '07. And we have started the rollout of a fixed network and the improvement of the fixed network in Kenya.

The IT and customer service platforms spending is stable, with more weight for the service platform with the development of content offer, triple-play offer, which require more investment in this area. So, the balance between IT, or straight IT, and services platforms has been evolving with more weight for the services platforms.

And the other CapEx have increased only because we have repurchased, if you remember, a few technical buildings in France for EUR160m. We had the opportunity to do it and we have repurchased some of the buildings that we know we will probably keep for more than a decade.

As a consequence of all this, the net debt has been decreasing year over year, from EUR38b to less than EUR36b, with a net debt to GOM ratio from 1.99 to 1.85, and with a cost which has slightly increased, as I already mentioned. Most of the cash flow has been used for the debt redemption but also for the dividend payment, with a EUR3.4b ordinary dividend plus EUR1.6b interim dividend plus EUR1.1b dividend or share buyback in Poland, Belgium and some other countries.

Regarding the debt, to continue on this topic, we commented that at the end of Q3 we have been managing carefully but also on a dynamic basis our debt. And we have continued to protect our liquidity position, with a liquidity position which is now at EUR14.4b, which is EUR0.5b more than what we had at the end of '07. EUR1b more cash, a little less credit lines, but now we have EUR9.1b of confirmed credit lines, with a maturity date of 2012.

In terms of future debt repayments, the situation is also to a certain extent, I would say, better than what it was at the beginning of '08. We had still an installment of about EUR9b to repay in '08. So, our installment for '09 is EUR4.8b, out of which a good part has already been done with the bond issues we have done at the beginning of the year in very conditions, because the average rate is 4.6% for EUR1.3b issue.

The situation of the debt puts us - and you will see that in the presentation on the future - amongst the best, if I'm not saying the best, in terms of debt position comparing to our three main competitors in Europe.

To tell you what do we do about ForEx, because there has been some of you, or some newspapers, who have been writing about the currency exposure of FT. First of all, our currency exposure to a certain extent is a little smaller than what some of our competitors have, for two reasons. One is that we are quite big in Western Europe, with euro currency. And even for the emerging markets, a huge part of our business is done in the Western Sub-Saharan Africa, which is still in the eurozone, through the Francais FR. So, we think that it's rather protected, at least for the next couple of months.

So, when we look at the global exposure, we have the exposure of our UK business, we have the exposure of our Polish business, which are the two main sources of exposure, and we have some exposure for Orange Business Services for the business done outside of Europe. We have tried to manage that as much as we could and you see we have tried to represent on this slide what would have happened if we had no hedging, if we had not tried to cover and to protect either our cash flow or the flows of purchase.

So, we have an impact. The impact on the revenue is EUR650m. This is the foreign exchange impact, out of which a strong impact with sterling and a positive impact from the zloty. This is 2008 figures, not what will happen for 2009, unfortunately for the zloty. At the GOM level, if we had had no protection, we would have lost EUR150m. We have been able to secure EUR100m out of it and to limit the loss to EUR49m. At the level of the cash flow the protection is even better, with just EUR28m loss linked with the currency effect.

Our protection, and we can come back in detail afterwards with my colleagues on this, our main protection is first to the natural hedging, but after that we are trying to protect our assets. And we also raise debt in local currencies, when feasible. This is why, for instance, last year we raised a sterling bond to cover our assets in sterling and not to be obliged to finance our assets in sterling with our equity in euro.

And we also at the end used some derivatives, what we have been improving this year. This is to cover a little more OpEx, especially the purchase of terminals. Especially for the UK and Poland, we are trying to better cover the purchase of handsets and network products, which are generally purchased mainly in euro and for a small part in dollars.

I will go maybe a little more quickly for the performance by business. You can come back on it through questions. Starting with France and the personal business in France, with a mobile revenue increase of 5.2%, and 8% if we are not taking into account the roaming and the termination rate cuts for which we discount the regulatory effect. This is 8% growth.

The customer base has strongly increased, with about 1m net additions of customers in '08, which is the strongest performance for the last three years. Revenue itself has been driven by the increase of the customer base, but on top of that by the non-voice revenue development, plus 24%, with an increasing data usage, partly as regards by Smartphones, especially the iPhone.

Regarding the KPIs for the business, all this very strong commercial performance has helped us to recover in terms of market share, with a 46.8% market share at the end of the year, so 0.4% more, but preserving the development of the MVNOs. You'll see that the MVNOs have now a little more share than what they had a year ago. And also with the ARPU being stable, which is a strong success. Decrease of the voice ARPU, but 20% increase of the data ARPU.

Regarding the iPhone, we have sold 537 iPhones until the end of the year, out of which 321 in Q4. And 62% of the people who have bought an iPhone have taken a contract with the iPhone.

Regarding the fixed business in France, this is also a strong performance, to maintain the revenue and to slightly increase it, even if the increase appears small, with Internet and wholesale activities increase, which are still -- which are offsetting the decline of PSTN. We have had a higher Internet growth in '08 than in '07 because we have had a strong increase of the customer base, 1m more DSL customers, 8% increase of the ARPU.

And the increase of the ARPU is linked with the development of the net offer, but also with the value added services, including the contents, including the pay TV we are deploying on our networks. Voice over IP growth, as mentioned by Didier Lombard, has also increased to represent now almost 70% of the French DSL base.

Regarding our pay TV subscription, we have had 180,000 subscribers at the end of the year and 300,000 subscribers at the end of February for our Orange TV clients, pay TV clients, so at the end of February '09.

The profit has slightly decreased because there has been the pressure of some regulatory decision plus the effect of the content investment, which has weight in the second half of the year on the cost structure of the home division.

In terms of KPIs, so the fixed line market has continued to grow in France, with now near 29m copper lines. And our decline of retail lines, so the line we go end to end to the customer, is lower than what it was a year ago. We have lost only 1.2m lines and this is divided by two in terms of line losses compared to a year ago. Our DSL market share is stable compared to what it was also a year ago, at 49.4%.

And the ARPU evolution, as I mentioned, is 8% above. So I mentioned the strong performance of the Orange TV subscriptions. But there is also a strong take-off of VOD consumption, which has been again multiplied by 2.4 in 12 months. And now, 23% of our customers have IPTV, which is near 2m subscribers, which puts France -- ourselves being the number one IPTV subscriber -- provider, sorry, in Europe.

Regarding the UK, as I said, the performance has been strong for the mobile part, with a more than 6% revenue increase, which is linked with the increase of the customer base, 2%, with now a contract mix where pay monthly customers represent now 40% of the base, an increase of the voice usage and a development of the data. This is probably the only country where the voice ARPU has increased with the usage, but also because there was little regulatory pressure than in some other countries. However, this is a very good performance, with 20 minutes more of usage in '08 than what we had in '07.

For sure, there has been a deceleration or a slowdown of the revenue growth in Q4, linked with the market deterioration, with there a decrease of the ARPU in Q4, with roaming revenue down by 8% and the emergence of low ARPU offer. But my colleague Olaf will explain to you tomorrow how we adapt for the next couple of years to the current market environment, and Tom Alexander is also with us to answer to your questions.

What is very good is that the GOM has increased by 12% and the GOM rate has improved by 1 point, whereas maybe some of you were considering that to increase the profit again in the UK was a kind of lost cause. And this is not the case. We have been able to grow the profit again in this country where profits, I must acknowledge, were dramatically low. So I hope we have now reached the back of the swimming pool, in spite of the global economic environment.

And this is due to the strong commercial momentum and to the chase for high value customers, plus all the investments which have been made to redirect the distribution to have more direct distribution, and this is what is reflected on this slide. Maybe one point we can mention is that we are quite unhappy, as you cannot sell the iPhone, but we have been resisting quite well even if it was not the case.

To say a few words on home UK, unfortunately, the global fixed market in the UK is not as big. And by the way, you see that when the incumbent is very weak the rest of the market is also very poor. This is the situation in the UK, with a decrease of the broadband revenue for us because we are concentrating our commercial efforts on where we have invested in terms of unbundling sites, considering that it is now too costly to continue to manage the base in wholesale line rental or bit stream.

And we are focusing on increasing the quality of service, because one of the issues on the UK market is that since global quality of service is poor, pricing is relatively low and the perception of the customer is still to give very low value, or little value, to the broadband access. And this is one of the big stakes we have in front of us and we'll comment tomorrow.

Regarding personal business in Spain, we are quite happy even if the growth is just slightly positive. Why? Because, first of all, this is the best performance compared to the three -- the two other big competitors, I would even say to the three other competitors, because even the smaller -- even if its growth of revenue is bigger, I'm not sure its performance is exactly at the level of its expectations.

The second point is that we have also increased the profitability, recovering also not far from 1 point of gross operating margin in Spain, which is a very good achievement. This has been done also thanks to a better control of the commercial costs and getting also the first savings of the network-sharing agreement we have been now implementing with Vodafone.

Another important point in Spain is that after two years where the Spanish business was unable to grow the non-voice revenue, they have been able to grow the non-voice revenue by 7%. It's still small compared to some other geographies but this is a good take-off after two difficult years.

This is reflected in terms of KPIs. And you see that we have now a strong commercial engine to attract pay monthly customers, with net adds of pay monthly customers which have been regularly good, even in the last quarter of the year. We have seen in the last quarter of the year more than 120,000 pay monthly -- new pay monthly customers, net adds in pay monthly customers, which is rebalancing the customer base with more pay monthly customers, now 57% compared to 54% a year ago.

So data ARPU has increased to EUR39 and represents now more than 13% of the overall ARPU. What we must say, and this demonstrates that exclusivity is a necessity but not enough to start with the development of a product, the iPhone is not such an issue in Spain and our performance of those who are selling it in Spain is not so good.

Regarding the home business in Spain, strong revenue, especially after several years of decline. For the first year, now we have more Internet revenue than the decline coming from the traditional voice revenue. We have a slight decrease of the customer base because here we have been facing two things. One, we are concentrating on the unbundling area. This is our own strategy.

But the second part, which is not exactly what we wanted to do, is that we have provisioning issues. We commented that at the end of Q3. Spain is probably the country where the change of supplier takes five or six weeks to be executed for a customer, and a lot of customers are considering this is long and don't go until the end of the process. This is improving. We have gone through big debates with the incumbents and with the regulator, and I hope this will improve in '09.

Maybe another point which is -- does not appear on the slide is that Spain is also a strong country for us in terms of IPTV, where we have now about 100,000 customers, which is not such a small base in terms of IPTV.

Poland, I will not comment it more than what I said. Poland, being a daughter but an autonomous daughter, has its own financial reporting, its own investment day. But the figures are good for mobile and still with, as Didier mentioned, strong pressure on the home part. I suggest we go directly to the rest of the world.

So, in terms of mobile outside of the big countries, the revenue growth is 7%. This is more than 10% in the emerging markets. A sustained customer base increase. We'll come back on that. And a very strong revenue performance for Egypt, Moldova and Senegal, where the revenue growth is double-digit and for two countries more than 20%.

What we have observed is that, maybe more than in the past, even the emerging markets are impacted by regulatory decisions. So, regulation is starting to penetrate the emerging markets. And we see the first impacts of MTR cuts or other type of decision, including -- there is another tactic in the emerging markets. This is the numerous distribution of mobile licenses. So, they don't decrease the MTRs, but they create more and more competition. You have small countries in Africa with five, six, seven mobile licenses.

However, when we look at the whole picture, there has been some worsening conditions in Romania, Dominican Republic in the second half of the year, especially in the last quarter, but still with a very good performance. And the gross operating margin has been growing by 5%.

In terms of operational indicators, as reflected on this slide, the customer base increase is still very impressive, with 23% increase. You see about 3.6m more customers coming from Egypt, 1m more from Senegal, 1.3m more coming from Ivory Coast and 4m from the other countries, to reach now 55m customers. And you see the customer base on the right. For Egypt, the Chairman spoke about 20m customers, but to report I remind you that we count 71% of the customer base, consolidating 71% on a proportional basis of the Egyptian asset.

And last point, the iPhone has been launched in most of those countries and successfully.

Another area that we do not comment so much and we change the -- with the change of segment reporting it should appear better, the home segment outside of the big countries. And there, the revenue is growing 2%. But if you take out Spain and UK, which I have been already speaking about, the increase is 5% with a strong DSL customer base. You see more than 200,000 broadband customers outside of Europe.

And to conclude on the Enterprise business, a good performance in all activities, in spite of already a very strong performance in the last quarter of '07. So we had already a very strong revenue growth, if you remember, in the last quarter of '07. So we have been able to continue that.

Resilience is confirmed for voice and data in the Business Network legacy. That doesn't mean that it will remain forever and we know there are some risks, including with some big customers. However, we have been continuing to keep this at the right level. The new areas like IP-VPN, Business Everywhere, so the advanced business network is growing, IP-VPN 7% a year and the Business Everywhere 20%, with now near 700,000 customers -- or users, sorry, in France.

The service part of our revenues, the network-related services, as we call them, or ICT, has been growing by 11%, so above the market growth. And this has helped to strongly restore the margins, with a gross operating margin now above 20%, which puts us as number one in the sector and probably more than 10 points differentiation with the so-called leader.

Regarding the KPIs. So there has been a strong shift in terms of revenues, with now less than 50% of the revenues coming from the division linked with legacy business, or the traditional revenues, and more than 50% coming from the new areas, as it is reflected here, and with a strong growth in those new revenues.

I will conclude the part, sorry to -- I have been a little long, with just a slide to -- that I will not comment so long, but to announce to you that we will change our segment reporting for '09, to align by applying strictly the IFRS 8, to align the reporting with our management structure. Now, for the last three years, we have been managing the Company mainly through the geographies, as the main lines of management are the geographies.

So we will change the reporting to evolve to that, but keeping for the main geographies a distinction until the GOM and CapEx indicators between the home part and the mobile part. We will also take this opportunity to come back to the EBITDA. So this is the last time we'll speak about the GOM, this specific profit indicator just dedicated to France Telecom. So we'll come back to EBITDA with the 2009 reporting. And Vincent will organize a conference with those who are interested, a conference call with those who are interested, early April, to give you all the details on that and to provide you with the pro forma and historical data you may need to continue to follow us after this change.

Thank you.

Thank you, Gervais. To conclude, I have just two slides. I will give you our main expectation for 2009.

The Group has built its forecast based on the economic outlook available at the end of February. The top priority of the Group is to maintain a high level of cash flow generation, as in 2008, at EUR8b. Secondly, we intend to maintain the level of CapEx between 12% to 13% of revenues. In case of further deterioration of the economic environment, CapEx could be adjusted downwards to ensure cash flow target.

At the operational level, despite the challenging environment, the Group has the capacity to maintain or increase its market shares across the footprint. Group revenues are expected to maintain a higher growth than average GDP across its footprint. And strict cost control and transformation program will enable the Group to limit the GOM rate decline.

Regarding the use of cash, the Board has decided to keep some flexibility to adapt priorities to the market condition evolutions. The debt will continue to be reduced, as well as the net debt to EBITDA ratio, to be kept below 2 to preserve the Group independence and flexibility. We will continue to keep a proactive refinancing strategy, in order to reduce the cost of debt.

The Group intends to maintain a high level of shareholder remuneration in the medium term and to distribute a dividend above or equal to 45% of organic cash flow. We will continue to distribute an interim dividend, like we have done last year, of which the level will be decided depending on the first half results.

So, thank you for your attention. I hope you have been interested. And we are now ready, with the Executive Committee, to answer your questions. Perhaps, if you come in the -- on the floor by your colleagues, I can distribute the questions more easily. Okay. So, first question. Mike. I saw you but (inaudible).

Thank you. I was told to stand up. It's Will Draper, Execution. Just on cash return, you said last year that if net debt to GOM came in below 2 times you would consider an additional shareholder remuneration. And net debt has come in below that level. You have considerable headroom to return more cash, if you choose to. What are you thinking now, in terms of that additional remuneration?

Gervais. I will make another comment after Gervais.

If you remember, even if I think nobody was predicting in February last year what has happened for the last eight to nine months of the year, especially in terms of debt situation for most of the companies, we have been careful enough to say that it should be depending upon the conditions at the time of the decision. And I think nobody in the room will consider that to raise debt today and to be able to raise debt just to distribute an additional remuneration is the best thing to do, when I see - and I think most of you have seen it - how difficult it is to find the right time to raise debt when you have even to raise debt to reimburse it.

So, our view is that additional remuneration is still on the table. You will see that later on, when we speak upon the future. But we think probably that in this current time it is probably not, in our view, the best thing to do if you want to continue to protect the balance sheet of the Company and the liquidity of the Company.

If you read the paper concerning the Orange 2012, we have kept a sentence about that because if the economic -- general economic situation recovers then we can come back to the previous statement. But for the time being, we think really the situation is not really stabilized on that and we have to be cautious about the debt ratio.

You are in competition.

Is this working? Thank you. James Britton from Nomura. I've got two related questions about the margin decline [guidance] that you've given. Could you just give us a sense of which cost categories are increasing to [improve] your margin decline? Is it mainly (technical difficulty), commercial investment, etc.?

And I guess linked to that, can you just give us a little sense of what you are planning for in terms of the additional profit share for employees? Presumably, this falls above or is included in your EBITDA and could be quite a key variance. Thanks.

Once more. For the part of the question we have understood because your mike has been interrupted during a part of your question but --

Regarding the second question, the profit sharing for employees, we have tried to provide for it in the 2008 accounts. So, in terms of P&L impact for the profit sharing that could be distributed in '09, the exceptional profit sharing, the Chairman commented we have been accruing for it in the '08 figures. So, unless my colleague from the Human Resources negotiates a very huge level, which I expect he will not do, we should be able to keep it in the frame of what we have been providing for in the 2008 accounts.

Regarding the cost drivers, we will comment a little that more on the period, because the cost drivers we are mentioning are not only for '09. There is clearly more pressure we'll put on the structure itself, so we'll continue to decrease some of our costs, as we did. There will be less impact of the decrease of the labor costs. We have not planned to decrease the labor costs for the same order of magnitude in the next three years as we did in the past. And there is a negative pressure on the commercial investment, plus the ramp-up of the new businesses with lower margins, which impacts the cost structure. But we'll comment later on, on those drivers.

So, now you get the mike.

It's Nick Lyall from UBS. Could I just ask -- I take the point about the balance sheet, obviously, but on transformational deals, you mentioned no transformational deals in the release. But could you just define that for us, please? For example, would it include in-market consolidation in, say, the UK or Spain?

And then, secondly, on CapEx as well, exactly what are you guiding to for next year? Are you guiding to 13% or if growth gets worse close to 12%? Or are you guiding for somewhere between 12% and 13% and we'll find out later in the year?

On transformation, perhaps --?

For us a transformational deal is a deal which change clearly the picture and the image of the Company as a whole, a deal at the level of one country only, which would not be France, which represents 50% of our business. When you are speaking on a country representing 10% of the revenue, even if you change a lot within this country you don't change the whole picture of the Group. So I don't say we are looking at that.

But in our view an in-country consolidation which would be, by the way, very easy to decide, at least to measure, because in-country consolidations are immediately productive in terms of synergies, if you have the -- if there is a good regulatory framework, because a bit the key issue is what are the regulatory conditions to merge in one country or the other. If it were to happen, in my view, it would be relatively easy to present and to measure in terms of performance and then to decide.

Regarding the investment, the CapEx, we have said it's between 12% and 13% based on our current view of the economic perspectives, and we use the last forecast provided on the GDP and the economic environment in February. So, based on that, we consider we can keep between 12% and 13%. If things were to worsen, then we could go down on this level. But based on today the current economic outlook we have on the countries we are in, we think we can maintain the 12% to 13%.

I think what is important about this assumption about the real deep deterioration of the economy is that of course we have made some exercises to try to identify what kind of CapEx we can cut. And we have of course a plan B, which don't deteriorate the performance of the Company but reduces a little bit the speed of growth for the future, but it can be done without destroying the operations of the Company.

So we have additional margin available in case of a big disturbance, which for the time being no economists are anticipating. But we have done the exercise because it's much better to have the tool in our toolbox rather than to discover that in the center of a crisis. We anticipate with that. And we believe that with the present anticipation of the crisis in Europe, in our main footprint, with the statement we have made we can deliver the level of cash flow we have committed to.

Yes, thank you. Two questions, if I may. First on the margin in Enterprise, which is top of the range now. Is that sustainable? It always makes me nervous when margins are higher than competitors'.

And secondly, on page 24 you say that the margin in personal France is down by 2 percent points, caused by three factors - iPhone, content and the regulatory price cuts. Could you give a flavor of how much each of these three factors has contributed to that margin decline?

Yes. Your question on that, it is true that there are three things. One is the iPhone, and we commented that the 2G iPhone was with a revenue share model, where there were no impacts on the cost but impact on the revenues. The 3G is coming back to the traditional model of handset subsidies, where there is an upfront subsidy, which by the way on the iPhone is quite high. But there is a relatively long tenure of the customer. The contracts are 24 months and with high ARPU. So the real return is good but with a [limited] impact.

So, for the first phase we have sold about, as we said, about 500,000 or 600,000 iPhones in the second half of the year, with an average subscription rate. Let's consider that you have things in average. This means that you have in average three months' subscription. Even if it is high ARPU in average, maybe between the EUR60 and EUR80 ARPU, even if you multiply it by three, since the average subsidy is between EUR200 and EUR300, you see that you don't compensate in one semester the impact of the iPhone, whereas you will get now more profit from those contracts in the future.

The second point on the soccer rights for the mobile is just a change of accounting rules. We had those rights into CapEx a year ago, but on top of that they have increased. The first series of rights was, if I remember, until mid '08 was about -- between EUR30m and EUR40m a year. The mobile soccer rights have increased, if I remember, above EUR60, so there is also an increase of the rights.

On the Enterprise -- is it okay? Yes. There are two main drivers of profitability. The first point is the quality of service we provide to our customers and operational efficiency. So it means that by focusing on the quality of service we provide and the efficiency of our processes, we lower our cost and we -- of course this is reflected in our margin. So we don't -- we expect to continue our improvement in this area.

The second one is the profitability of each deal we are taking in a very complex environment and especially on the international side. And here we have put in place in the last, let's say, three to four years very strong processes to monitor the risk we take when we sign a deal, and to make sure that when we deploy the project and the deal we make sure we monitor this very carefully. So we will continue to apply this. Okay? So, basically, of course there are some -- there will be some impact of the crisis on, for instance, the negotiation price, but we do expect also some leverage and some opportunities. So, basically, we don't see -- we don't expect strong changes.

We will take the last question. As you know, we have several Q&A periods during this afternoon. So if we want to keep on time, we have to take only one question. So, please.

Thanks very much. Damien Maltarp, Credit Suisse. You've mentioned that you've got some flexibility on the CapEx side. What kind of contingency plans have you got in terms of OpEx? What kind of levers can you pull if the economy really does deteriorate? Can you push SIM only a bit more, pull back on subsidies and marketing?

And the second question. You also mentioned that you incurred some startup losses in 2008 in terms of Africa. Can you just quantify how material those were last year? Thanks.

Surely, about the contingency, perhaps Jean-Philippe or Louis-Pierre?

Concerning contingency plan in terms of OpEx, for sure we are very cautious in the network and IT domain, if I can speak on network and IT, even if I change my position. But -- okay, I still have some memories. And for sure, we are pushing a lot. Let's take a few examples. When we are doing network sharing with some others, it will save both CapEx and OpEx. We are, let's say, stressing the importance of CapEx, but it also means OpEx sharing, first point.

Second point, we are pushing a lot in the design of our equipment a very low level of power consumption. That's also a very important point. And we expect a huge decrease in terms of power consumption per equipment per (inaudible) per bit, in order to make significant savings in term of energy. So this is also an area.

In terms of IT, we still have a lot to do in order to consolidate some new data centers and to move to next generation of data centers. This is what we are doing. And it will mean also less energy consumption for this IT infrastructure. And we still have also -- I will explain it a little bit more with effect tomorrow morning, but in terms of OpEx for IT and network we still have a lot to do.

This question is a kind of bridge between this part of the presentation and the follow-up, because you will see that in the simplicity objective we have the target to prune a lot of our products and to reduce all these numerous offers we make since many, many years because we never destroy any offer in the France Telecom world. So we have now to reduce the focus of our offers, operational offers, to a limited number of offers, which will simplify the -- of course the IT system and of course reduce a lot at the same time the CapEx and the OpEx. So you will see the details in the second part of the afternoon.

So, thank you very much. We are available, of course, to answer some more precise questions in the next part of the discussion. And we have a short break in order to change a little bit the decoration of this, which will remain obviously the same. But thank you very much.